FEDERAL COURT OF AUSTRALIA

King Par LLC v Brosnan Golf Pty Ltd [2013] FCA 640

THE COURT ORDERS THAT:

1.    Pursuant to rr 8.21 and 16.53 of the Federal Court Rules 2011 (Cth) (the Rules), and subject to paragraph 2, the Applicant have leave to amend the Originating Application (the OA) and the Amended Statement of Claim (the ASC) substantially in the form of the Amended Originating Application (the AOA) and the Further Amended Statement of Claim (the FASC) marked KAS-11 and annexed to the Affidavit of Kellie Anne Louise Stonier sworn 18 June 2013.

2.    The various paragraphs of the OA and the ASC which were deleted by the Applicant on the filing of the AOA and the FASC be dismissed and the Applicant pay the Respondent’s costs, thrown away by reason of the filing of the AOA and the FASC.

3.    Pursuant to s 56 of the Federal Court of Australia Act 1976 (Cth) and/or r 19.01 of the Rules, the Applicant provide security for the Respondents’ costs in defending this proceeding up to and including trial in an amount of $80,000 and in such form as may be agreed between the parties or, failing such agreement, in a form acceptable to the Registrar of the Court.

4.    The proceeding be stayed until such security has been provided or until further order.

5.    Liberty to apply.

6.    Costs reserved.

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

REASONS FOR JUDGMENT

introduction

1    The respondent, Brosnan Golf Pty Ltd (Brosnan), is the owner of registered Trade Mark number 1402087 for “ORLIMAR” registered in classes 25 and 26 with a priority date of 24 December 2010 (the Registered Mark). Since 2010, Brosnan has marketed and sold a range of golf equipment in Australia under the ORLIMAR brand. Those facts are not in dispute.

2    The applicant, King Par LLC (King Par), is a company incorporated in Michigan in the United States of America. It commenced these proceedings on 14 February 2013 seeking cancellation of the Registered Mark and a permanent injunction against Brosnan plus other relief for allegedly misleading or deceptive conduct and passing off arising from Brosnan’s use of the Registered Mark. Brosnan filed a defence and requested that King Par provide security for its costs in the sum of $125,000. King Par initially refused to do so. Then, on 18 June 2013, King Par took two steps:

1.    it sought leave to amend its Originating Application and to file a Further Amended Statement of Claim (FASC) which abandoned substantial parts of its pleaded case; and

2.    in response to Brosnan’s request for security, it offered security of USD7,500 (being King Par’s estimate of the costs of registering a costs order in Michigan). King Par also offered undertakings that it would not:

(a)    seek security for costs in the Michigan courts against Brosnan in the event that Brosnan applied to register any order for costs in its favour in Michigan; or

(b)    seek a stay in the Michigan courts in the event an appeal is filed by King Par but will post the full amount of any costs order with the Court, should an appeal be filed.

Brosnan rejected the security offered and now seeks an order for security of costs pursuant to s 56 of the Federal Court of Australia Act 1976 (Cth) (the Act).

3    In relation to King Par’s application for leave to file a FASC and an amended Originating Application (AOA), Brosnan submitted that King Par should be granted leave on two conditions, namely:

1.    the misleading or deceptive conduct and passing off claims (the Abandoned Claims) be dismissed so that Brosnan is not exposed to King Par seeking to re-agitate these claims at a later date either in these or other proceedings; and

2.    Brosnan should have its costs thrown away, on an indemnity basis, by reason of the filing of the FASC.

4    King Par opposed the conditions sought by Brosnan. It submitted that an order dismissing the Abandoned Claims was not appropriate in the circumstances, having regard to the filed material and considerations of public policy. King Par did not argue that Brosnan was not entitled to its costs thrown away, but opposed the basis on which costs would be assessed. King Par contended that the costs order should not be on an indemnity basis but on a party and party basis.

5    For the reasons that follow, I would grant King Par leave to file the FASC. That leave will be subject to the Abandoned Claims being dismissed and Brosnan having its costs thrown away, on a party and party basis, by reason of the filing of the AOA and the FASC. Then, upon the undertakings it proffered on 18 June 2013, King Par should provide security for Brosnan’s costs in defending this proceeding up to and including trial in an amount of $80,000. The security should be in such form as may be agreed between the parties or, failing such agreement, in a form acceptable to the Registrar of the Court.

amendment of claim

6    King Par will be granted leave to file the AOA and the FASC. That grant of leave will be subject to conditions. As foreshadowed at [4] above, King Par opposed both conditions sought by Brosnan. These reasons shall first consider the dismissal of the Abandoned Claims, before turning to the basis upon which Brosnan should have its costs thrown away.

Dismissal of the Abandoned Claims

7    King Par submitted that an order dismissing the Abandoned Claims, without any consideration of the merits, is not appropriate. It submitted that to protect Brosnan from any future claim of that nature does not constitute grounds for making such an order and would be unfairly prejudicial to King Par. In support of its position, King Par submitted that:

1.    it has merely sought leave to amend its application under r 16.53 of the Federal Court Rules 2011 (Cth) (the Rules). King Par has not discontinued the Abandoned Claims under r 26.12 nor is there an application for summary judgment on these claims under r 26.01; and

2.    the filed material shows that there has been substantial use of the ORLIMAR mark in Australia before the priority date of the Registered Mark, thus supporting an arguable case on the Abandoned Claims.

8    King Par further submitted that parties should not be discouraged from making amendments, particularly early in the proceedings, to streamline and narrow their case and, in so doing, facilitate the just resolution of disputes “as quickly, inexpensively and efficiently as possible” in accordance with ss 37M and 37N of the Act. I do not disagree with that sentiment. Litigants should be encouraged to streamline and narrow their case expeditiously to avoid the unnecessary delay and expense associated with anything other than the real issues in dispute. However, such consideration does not militate against the dismissal of the Abandoned Claims in this case.

9    The fact that King Par has not discontinued the Abandoned Claims is irrelevant, as is the lack of an application from Brosnan for summary judgment. Further, King Par points to the material it has filed going to its substantial prior use of the ORLIMAR mark as supporting an arguable case on the Abandoned Claims. King Par has made an informed decision that it is not in its best interests to run the Abandoned Claims in this proceeding. That is a decision for King Par which has both legal and commercial consequences. That decision has been made in the knowledge that, given King Par’s application for cancellation of the Registered Mark and the Abandoned Claims arise, to a certain extent, out of a common substratum of fact (ie, King Par’s prior use of the ORLIMAR mark in Australia), the most efficient course would be for those issues to be heard and determined together. King Par should not be allowed to reserve its position in respect of the Abandoned Claims now, with the prospect of re-agitating those issues in subsequent proceedings. This would result in unnecessary additional expense for the parties and inefficient use of the Court’s resources. Further, I note that if King Par were to seek the institution of fresh proceedings, re-agitating the Abandoned Claims, it will likely face the potential barrier of an abuse of process objection and possibly “Anshun estoppel”: see Aon Risk Services Aust Ltd v ANU (2009) 239 CLR 175 at [32]-[34] and [86]-[87].

10    Accordingly, upon the filing of the AOA and the FASC, the Abandoned Claims are to be dismissed.

Costs Thrown Away

11    Brosnan submitted that costs should be awarded on an indemnity basis by reference to the matters referred in the Genuine Steps Statement filed by Brosnan on 8 March 2013 (the RGSS). The RGSS stated that despite requests made by Brosnan’s solicitors for King Par to provide information about the extent and scope of use of the ORLIMAR mark in Australia, that information was not provided.

12    Brosnan referred to ss 11 and 12 of the Civil Dispute Resolution Act 2011 (Cth) (the CDRA), which empower the Court, in exercising the discretion to award costs, to take account of whether a party took genuine steps to resolve the dispute. Section 4 of that Act deals with what constitutes genuine steps and includes, as an example, “providing relevant information and documents to the other person to enable the other person to understand the issues involved and how the dispute may be resolved”: see s 4(1)(c).

13    Brosnan submitted that the information about the extent and scope of use of the ORLIMAR mark in Australia was critical to King Par’s claims to the valuable reputation and goodwill of the ORLIMAR marks upon which the Abandoned Claims were based. Brosnan further submitted that it had been put to the expense of addressing those claims which were now abandoned. Brosnan submitted that King Par should have provided the information requested before commencing the proceedings rather than including the claims and then abandoning them in response to Brosnan’s application for security for costs.

14    King Par refuted Brosnan’s assertion that it did not provide Brosnan with the information requested. King Par pointed to letters dated 21 September and 2 October 2012 from its solicitors to the solicitors for Brosnan which referred to King Par’s use of “the ORLIMAR mark in Australia in relation to the sale of a variety of golf equipment, including golf clubs, golf club head covers and golf bags … since it acquired the ORLIMAR trade mark rights [in 2003]” and asserted that “[King Par’s] Australian distributors have been, and continue to sell, ORLIMAR products directly to the Australian market”.

15    The letter of 2 October 2012 indicated that King Par did not propose to disclose further detail at that point in time. This was because King Par considered most of the information requested by Brosnan to be commercially sensitive and was reluctant to disclose such information to a competitor. King Par submitted that it was not obliged by the CDRA to provide its evidence supporting a claim, prior to issuing proceedings. King Par also submitted that:

[i]t should be noted that [King Par] did not completely rule out providing that information, and the respondent did not respond by proffering appropriate confidentiality undertakings to facilitate access to the information.

(Original emphasis.)

Whether or not information about the extent and use of the ORLIMAR mark in Australia by King Par remained commercially sensitive in October 2012 may be put to one side. I should also note that, in the circumstances, it was at least equally open to King Par to offer the information subject to undertakings of confidentiality acceptable to it.

16    King Par referred to the principle that there must be some special or unusual feature to justify departure from the ordinary order awarding costs as between party and party. That principle is well-established: see, for example, Colgate Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225. The authorities establish that the purpose of an indemnity costs order is to “recognise the maintenance of proceedings which are variously described as misconceived, hopeless and having no proper grounds for being pursued”: see JMK Management Ltd v Range Resources Ltd [2012] FCA 961 at [15]. Typical examples of circumstances justifying an award of costs on an indemnity basis include “irrelevant or wholly unmeritorious allegations of fraud, frivolous or vexatious claims, wilful time-wasting, abuse of process, and contempt of court”: Australia Competition and Consumer Commission v Hercules Iron Pty Ltd [2008] FCA 1182 at [29]. See also Re Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401; and Colgate Palmolive at 223. King Par submitted that, in this case, there is no such special or unusual feature.

17    Having regard to the CDRA, I recognise that the requirement that the parties file a genuine steps statement is designed to ensure that the parties talk before they come to the Court: see JMK Management at [14]. This is to prevent wastage of time and money, as has been occasioned here in respect of the Abandoned Claims. However, the parties’ genuine steps (or lack thereof) is only one of the factors the Court has regard to in considering whether or not to exercise its discretion. Consistent with the authorities referred to above, an exercise of the discretion to award costs on an indemnity basis requires a special or unusual feature which warrants an award of greater compensation. While the categories in which indemnity costs may be awarded are not closed, the conduct of King Par in this case does not feature the same quality of mismanagement or malfeasance which would suggest the maintenance of proceedings which were misconceived, hopeless or having no proper grounds for being pursued. I accept that the evidence before the Court does not suggest that the Abandoned Claims are ones which King Par, properly advised, should have known that it had no chance of success.

18    In the circumstances, I do not accept that the circumstances warrant the award of costs on an indemnity basis. King Par should pay Brosnan’s costs thrown away on a party and party basis by reason of the filing of the AOA and the FASC.

security for costs

19    The applicable principles are well established and not in dispute. If an applicant is ordinarily resident outside Australia, that is a relevant fact (and weighty circumstance) which the Court may take into account in the exercise of its discretion on a security for costs application: r 19.02(b) of the Rules and PS Chellaram & Co Pty Ltd v China Ocean Shipping Co (1991) 102 ALR 321 at 323. Where (as here) the applicant is a foreign resident, the issue for the Court on the application by a respondent for security for its costs is whether a respondent would be subject to any “unacceptable disadvantage”: Maxim’s Caterers Ltd v Magnona Pty Ltd (No 1) [2010] FCA 450 at [6].

20    King Par submitted that ordinarily, “where one has an application for security for costs based on the fact that the applicant is outside [the relevant jurisdiction], the security for costs that ought to be ordered is the additional costs of realising the costs order in a foreign country as opposed to Australia”: Dense Medium Separation Powders Pty Ltd v Gondwana Chemicals Pty Ltd [2011] NSWCA 84 at [32]. Of course, the application of that “ordinary rule” depends on the foreign resident applicant having available assets in its place of residence and the ease and convenience of enforcement procedures in that place: see, by way of example, Maxim’s Caterers and Dense Medium Separation Powders Pty Ltd v Gondwana Chemicals Pty Ltd [2011] NSWCA 84 at [32].

21    Accordingly, in the present application there are two issues. First, whether King Par has substantial assets in Michigan and, then, if so, whether the order for security should be limited to a reasonable estimate of the costs of enforcement of that order in that jurisdiction. Of course, if the answer to the first question is no, the next question is whether security should be ordered and if so, the amount.

Substantial Assets?

22    King Par is a Michigan company with no assets in Australia. Does it have substantial assets in Michigan?

23    King Par’s Chief Financial Officer, a Mr Coffell, provided a sworn affidavit (the Coffell Affidavit) which relevantly stated:

Applicant’s business activities

…

3.    The applicant is a well-established manufacturer and distributor of golf products worldwide, including the United States, Europe, Canada, Japan and Australia. The applicant has been operating its business since as early as 1976.

4.    The applicant operates a retail store, called the King Par Superstore, at 5140 Flushing Road, Flushing, Michigan 48433, United States and operates a golf academy in Michigan.

5.    The applicant employs more than sixty (60) employees at its international sales offices in Flushing, Michigan.

6.    The applicant owns the following domain names from which it operates online retail websites:

(a)    Kingparsuperstore.com;

(b)    Orlimar.com;

(c)    Orlimar.net

(d)    Orlimarstore.com

7.    The applicant has approximately 500 licensed distributors in the United States and approximately 20 licensed distributors outside the United States.

8.    As at 2013, the King Par Superstore was ranked the 7th largest golf speciality store in the mid-west of the United States

9.    From 2006 to 2008 and 2010 to 2012, the King Par Superstore was named one of ‘America’s Top 100 Golf Stores’ by Golf World.

10.    Annexed and marked RC-1 to this affidavit is a true copy of a company search for King Par.

11.    King Par owns 21 acres of property with approximately 100,000 square feet. The value of this property net of the mortgage outstanding is approximately US$600,000.

12.    In its last fiscal year, the applicant had worldwide sales in excess of US$32,000,000.

13.    The applicant’s total assets in the State of Michigan exceed US$17,000,000.

14.    As at April 30th, 2013, the applicant had accounts receivable to the value of US$6.0M, and inventory to the value of US$10.2M. The applicant receives approximately US$150,000 in cash on a daily basis from sales of its inventory and collection of receivables. The applicant has a line of credit with access to borrowing availability between US$250,000 to US$500,000 at any given time.

(Emphasis added.)

24    Brosnan criticised the form and content of the Coffell Affidavit and objected to various parts of the affidavit including the passages in italics. Those criticisms and objections included that:

1.    no up to date balance sheet or other relevant source accounting information has been produced to the Court to provide a basis for assessing King Par’s financial capacity to pay Brosnan’s costs if judgment were adverse to King Par (in whole or in part) and, in particular, to assess the statement at [13] of the Coffell Affidavit;

2.    the only source material provided (the company search) (see [10] of the Coffell Affidavit) showed, contrary to [3] of the Coffell Affidavit, that King Par was incorporated in 2009, not 2006; and

3.    there was nothing to suggest that Mr Coffell was a qualified land valuer and, in the absence of any demonstrated valuation expertise, he had failed to provide any foundation or basis for the assertions in [11] of the Coffell Affidavit.

25    At first blush, the Coffell Affidavit appears to cover the field – it refers to King Par’s activities, its cash flow and its asset position. But, as Brosnan submitted, the statements were general and not supported by the most basic of financial information – a balance sheet or the most recent profit and loss statement. Those documents would have provided two important facts that were absent from the Coffell Affidavit – the liabilities of King Par and, no less importantly, its profitability. Cash flow is an important indicator of a company’s financial position but, in the absence of evidence as to liabilities and profitability, it is difficult to ascertain its significance. Brosnan did not seek to cross-examine Mr Coffell. Instead, Brosnan sought to rely on King Par’s failure to adduce sufficient material in support of its submission that King Par had failed to satisfy the Court that it had substantial assets in Michigan.

26    I am not satisfied that King Par has, on the balance of probabilities, demonstrated that it has substantial assets in Michigan. Mr Coffell states that its total assets in Michigan exceed USD17 million but he does not identify the nature of those assets or the extent to which they are unencumbered. There is no suggestion that the provision of security would frustrate the litigation: see Australia China Business Bureau v MCP Australia Pty Ltd [2004] FCA 1207 at [9]. In the circumstances, King Par should provide security for Brosnan’s costs of the litigation up to and including the trial of the proceeding.

Quantum

27    King Par and Brosnan were unable to agree on the quantum of any security.

28    For the reasons at [25]-[26] above, the issue of quantum is approached on the basis that King Par does not have substantial assets in Michigan. Brosnan seeks security of $125,000. The basis on which that sum was calculated was explained in an affidavit sworn by Brosnan’s solicitor, Mr Bennett, on 12 April 2013. Mr Bennett did not prepare a skeleton bill of costs. Instead, based on his experience and, in particular, that his firm has acted in a number of trade mark cases in this Court which have proceeded to trial, he concluded that a trial would likely occupy four days. On that basis, Mr Bennett expected that, if Brosnan was successful, an order for party and party costs against King Par would be not less than $125,000.

29    King Par’s solicitor, Ms Stonier took a different view. Given the substantial reduction in the case as a result of the filing of the FASC, she estimated the trial would likely occupy only one day and that Brosnan’s party and party costs (based on 60% of Brosnan’s actual costs) would be in the vicinity of $63,000 (being 60% of the midpoint of Ms Stonier’s estimate of $95,000 to $115,000).

30    The issues pleaded have narrowed. However, on the basis of the material currently before the Court, I expect that a trial of the remaining issues will take two days. Pursuant to s 56 of the Act and/or r 19.01 of the Rules, I will order King Par to provide security for Brosnan’s costs in defending this proceeding up to and including trial in an amount of $80,000 and in such form as may be agreed between the parties or, failing such agreement, in a form acceptable to the Registrar of the Court. The $80,000 takes into account the estimate of costs provided by King Par on the basis of a one day hearing (rounded up to $65,000) and provides for additional security of $15,000 for the second day. The proceeding will be stayed until such security has been provided or until further order.

Associate:

Dated:    27 June 2013