FEDERAL COURT OF AUSTRALIA

Kismet International Pty Ltd v Guano Fertilizer Sales Pty Ltd (No 2) [2013] FCA 705

THE COURT ORDERS THAT:

1.    The Respondents pay the Applicants’ costs of and incidental to the Applicants’ claim (except for the Abandoned Claims (as defined)) on a party/party basis pursuant to the Federal Court scale for the period from the commencement of the proceeding until 13 June 2012, and thereafter the Applicants pay the Respondents’ costs of and incidental to defending those claims on an indemnity basis.

2.    The Cross-Respondent, Kismet International Pty Ltd, pay the costs of the Cross-Claimant, Grain Haul Pty Ltd, of an incidental to the cross-claim on a party/party basis pursuant to the Federal Court scale for the period from commencement of the cross-claim until 13 June 2012, and thereafter on an indemnity basis.

3.    The Applicants pay the Respondents’ costs of an incidental to defending the Abandoned Claims on a party/party basis pursuant to the Federal Court scale for the period from the commencement of those claims until 13 June 2012, and thereafter on an indemnity basis.

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

REASONS FOR JUDGMENT

1    I earlier handed down the substantive judgment in this matter: Kismet International Pty Ltd v Guano Fertilizer Sales Pty Ltd [2013] FCA 375. On 27 May 2013 I made orders in relation to all matters other than costs of the proceeding. This judgment relates to those costs.

procedural history

2    As I noted at [6] in the substantive judgment, it is unnecessary for present purposes to differentiate between the two applicants, which include the cross-respondent Kismet International Pty Ltd (“Kismet”). Similarly, it is unnecessary for present purposes to differentiate between the four respondents, which include the cross-claimant Grain Haul Pty Ltd (“Grain Haul”). In this judgment I will usually refer to them as the applicants or the respondents respectively.

3    The proceeding was commenced by the applicants on 24 August 2011 by way of a Fast Track Statement (“FTS”). The FTS made the following claims for damages:

(a)    the Lost Sales claim, which alleged that the applicants lost sales of Guano Gold by reason of the respondents’ false and misleading representations, misleading or deceptive conduct and passing off, through his wrongful use of the applicants’ Guano Gold trademarks;

(b)    the Reputational Damage claim, which alleged a diminution in the value of the applicants’ goodwill and reputation in the Guano Gold trademarks by the respondents’ use of the trademarks.

The applicants also sought injunctive relief to restrain the respondents’ use of the trademarks.

4    On 5 October 2011 the respondents filed a Fast Track Response (“FTR”). The FTR alleged that the respondents defended the proceedings on the basis that the applicants did not own any rights in the Guano Gold trademarks, and instead they were owned by PT Madura, the Indonesian supplier who supplied guano to both the applicants and the respondents. The respondents alleged that PT Madura authorised their use of the trademarks and that they had not committed the alleged misleading conduct and passing off. This intention was confirmed by the respondents’ initial witness list filed on 6 October 2011.

5    The respondents also filed a Fast Track Cross-Claim on 5 October 2011. The cross-claim was made by Grain Haul against Kismet, seeking payment of $19,301.99 due to Grain Haul for unpaid fees for its warehousing of Guano Gold for Kismet (“the Warehousing Fees cross-claim”).

6    In its Fast Track Response to Cross-Claim on 25 October 2011, Kismet admitted liability for the Warehousing Fees cross-claim, subject to a set-off for monies allegedly due for various disputes arising out of the warehousing agreement between Grain Haul and Kismet. In an Amended Fast Track Statement (“AFTS”) filed on 25 October 2011, the applicants made the following claims which they sought to set-off, namely:

(a)    the Lost Guano claim, which related to a breach by Grain Haul of its duty as a bailee for reward in failing to account to Kismet for Guano Gold warehoused with it (paragraphs 47 to 66 of the AFTS);

(b)    the Lost Bulka Bag claim, which related to the loss by Grain Haul of one 1000 kg bulka bag of Guano Gold (paragraphs 67 to 73 of the AFTS);

(c)    the Steel Strut Damage claim, which related to damage caused by Grain Haul’s alleged failure to remove the plywood and steel strut seal from the Guano Gold warehoused (paragraphs 74 to 80 of the AFTS); and

(d)    the Defective Bulka Bags claim, which related to damage caused by Grain Haul using its own defective bulka bags for Guano Gold; (paragraphs 81 to 84 of the AFTS).

The Amended Originating Application specified claims for damages of $21,481.11 for breach of Grain Haul’s duties as a bailee for reward or in negligence, and in the alternative damages of $17,056.92 for detention or conversion. The various claims to be set-off had a claimed quantum in a similar range to the admitted Warehousing Fees cross-claim.

7    The respondents filed an Amended Fast Track Response (“AFTR”) on 22 November 2011 in which they significantly altered their defence. In the AFTR the respondents admitted that by offering for sale and selling fertiliser by reference to the Guano Gold trademarks they made false and misleading representations, and engaged in misleading or deceptive conduct and passing off. They admitted that the applicants were entitled to an account of profits or damages for guano sales they made by reference to the Guano Gold trademarks. The claims to be determined were then:

(a)    an assessment of any damages under the Lost Sales claim and the Reputational Damage claim that the applicants were entitled to be awarded for the admitted misleading conduct and passing off;

(b)    the application for injunctions to restrain the respondents’ use of the Guano Gold trademarks;

(c)    the new claims in the AFTS to be set-off against the admitted Warehousing Fees cross-claim, namely the Lost Guano claim, the Lost Bulka Bag claim, the Steel Strut Damage claim and the Defective Bulka Bags claim.

8    Prior to the filing of the AFTS, at a Scheduling Conference on 19 October 2011, Gordon J ordered that the matter be fixed for hearing on 16 April 2012. Her Honour ordered the applicants to file their evidence in chief, by way of affidavits of witnesses, by 15 February 2012. The respondents were ordered to file their evidence in chief in response to the applicants’ claim, by way of affidavits, by 15 March 2012.

9    A Court ordered mediation took place on 20 December 2011. The mediation was conducted before either side had put on witness affidavits detailing the evidence upon which they proposed to rely in relation to either the quantum of the admitted claims of misleading conduct and passing off, or the liability and quantum of the new claims.

10    Following the mediation, on 22 December 2011 the respondents served an Offer of Compromise (“the Respondents’ Offer of Compromise”) in accordance with the Federal Court Rules 2011 (“the Rules”). The offer included the following elements:

(a)    the respondents pay the applicants the sum of $35,000 for the applicants’ claims under the Lost Sales and Reputational Damage claims, plus party/party costs;

(b)    the applicants pay the respondents the sum of $15,000 in respect of the Warehousing Fees cross-claim, plus party/party costs;

(c)    the respondents undertake to the applicants to refrain from:

(i)    using the names “Guano Gold” and “Kwik Start” in relation to fertiliser;

(ii)    representing that the guano fertiliser sold by the respondents is completely free of lead and mercury; and

(iii)    representing that the guano fertiliser sold by the respondents is the subject of a Biological Farmers’ Association registration unless such registration is obtained by the respondents in relation to the fertiliser sold; and

(d)    both the claim and the cross-claim be dismissed.

11    On the same day the applicants served upon the respondents an Offer of Compromise in accordance with the Rules (“the Applicants’ First Offer of Compromise”). This offer included the following elements:

(a)    the respondents pay the applicants the sum of $79,721 plus party/party costs and interest;

(b)    the respondents consent to an order permanently restraining the use of either Guano Gold Kwik Start or Guano Gold or any other name which is misleadingly or deceptively similar unless the product is the applicants’ guano; and

(c)    both the claim and the cross-claim be dismissed.

12    In summary, the respondents offered:

(a)    to pay $35,000 in damages plus costs for the admitted misleading conduct and passing off; and

(b)    to discount their admitted Warehousing Fees cross-claim from $19,301 to $15,000 plus costs.

Viewed globally, in their offer of compromise the respondents offered to pay the applicants a total of $20,000 plus costs and if accepted the claim and cross-claim would have been finalised. Viewed globally, the Applicants’ First Offer of Compromise provided that if the respondents paid $79,721 plus costs and interest the claim and cross-claim would be at an end. Neither offer was accepted and the proceedings continued on foot.

13    The applicants then filed all witness affidavits upon which they proposed to rely in chief within about two weeks of the due date. They did not oppose a commensurate extension of time for the respondents’ witness affidavits.

14    From 26 March 2012 through to 3 April 2012 the respondents filed a number of sworn and draft witness affidavits upon which they proposed to rely in chief. Aside from the fourth respondent, James Alfred McMahon, none of the affidavits were by persons set out in the respondents’ initial witness list. Importantly, they served affidavits by an agronomist, Robert Watson, and seven named customers (as defined in the substantive judgment). The thrust of this evidence – which related to more than 70% of customers who purchased guano from the respondents – was that none of their purchases should be seen to have resulted in any way from the respondents’ wrongful use of the Guano Gold trademarks.

15    On 3 April 2012 the applicants applied to adjourn the pending trial on the basis that, apart from Mr McMahon, none of the proposed witnesses were included on the respondents’ initial witness list and that they had no notice of the identity of any of them. They argued that they were being asked to meet a new and different case to that previously outlined, and sought a new trial date to enable them to analyse the respondents’ evidence and prepare evidence in response.

16    I allowed the application. On 24 April 2012 I extended the time for the delivery of further affidavits in reply by the parties to 25 May 2012. The proceeding was refixed for hearing on 10 December 2012.

17    On 13 June 2012, after all further witness affidavits had been filed, the applicants served another offer of compromise (“the Applicants’ Second Offer of Compromise”). This offer included the following elements:

(a)    the respondents pay the applicants $51,725 in the claim plus party/party costs on all claims except the Steel Strut Damage claim and the Defective Bulka Bags Claim, on which two claims the applicants pay the respondents’ party/party costs;

(b)    the applicants pay the respondents $17,000 inclusive of costs in respect of the Warehousing Fees cross-claim;

(c)    both the claim and the cross-claim be dismissed; and

(d)    injunctions be granted against the respondents (in similar terms to those proposed in the Applicants’ First Offer).

Viewed globally, the Applicants’ Second Offer of Compromise provided that if the respondents paid $34,725 plus costs on most of the applicants’ claims, the claim and cross-claim would be finalised. The respondents did not accept (or even respond to) this offer and made no further written offer of compromise.

18    A second Court ordered mediation took place on 13 September 2012. By this time there can be no question that both sides must have understood the evidence arrayed against them. There is no evidence as to any offers or counter offers made in this confidential process, but the proceedings did not settle.

19    The proceeding was heard on 12, 13 and 14 December 2012 and detailed written closing submissions were then filed. In opening submissions and during the trial the applicants abandoned a number of the claims previously made, namely:

(a)    the Steel Strut Damage claim;

(b)    the Defective Bulka Bags claim;

(c)    the Lost Bulka Bag claim; and

(d)    the claim for exemplary damages;

(collectively “the Abandoned Claims”).

The applicants also conceded that the weight of the “header boards” that accompanied the container loads of guano must be deducted from the weight of the guano claimed in the Lost Guano claim.

20    In the substantive judgment I found that the purchases of guano by the seven named customers made up about 71% of Mr McMahon’s relevant guano sales. In fact counsel for the applicants eventually conceded that the significant majority of these sales did not result from the respondents’ wrongful use of the Guano Gold trademarks. As I noted at [93] of the substantive judgment this concession did not go far enough. In my view the applicants did not establish that any of the respondents’ guano sales to the seven named customers, or to any other customer, resulted from the respondents wrongful use of the trademarks. I also found that the applicants failed to establish the profit margin applicable to any lost sales that they may have been able to prove.

21    In an unfortunate result for the applicants, I declined to award them any damages under the Lost Sales claim and I made an award of $5,000 only under the Reputational Damage claim. These amounts were substantially less than the amounts they sought.

22    Of the new claims in the AFTS the applicants abandoned all except the Lost Guano claim. In regard to that claim I held at [171] of the substantive judgment that the respondents had failed to account for ten tonnes of Guano Gold. This unaccounted for guano had a value of only $1,950 (which was to be set off against the admitted Warehousing Fees cross-claim of $19,301). Viewed globally, the effect of the judgment is that rather than receiving an award of damages as they sought, the applicants were ordered to pay $12,351.99 to the respondents.

23    I found that the respondents had ceased use of the Guano Gold trademarks in early August 2011, having not used them for about 20 months by the date of that judgment. Notwithstanding the applicants’ complaint about shortcomings in the undertakings proffered, upon 21 November 2011, I considered that the respondents gave effective undertakings to refrain from the relevant conduct in the future. I found that there was no suggestion of failure to honour the undertakings given and no evidence of any threat to recommence the infringing conduct. I refused to grant the injunctions sought.

24    The respondents seek various orders as to costs, including that the applicants not be allowed their costs in bringing their claim once liability for the misleading conduct and passing off was admitted in August 2011, and that the respondents be allowed indemnity costs from the date their offer of compromise became effective (“the indemnity costs application”). The applicants seek various contrary orders, including that except for the Abandoned Claims they get their costs on a party-party basis for their claim (although on a reduced scale) notwithstanding the Respondents’ Offer of Compromise and the apparently less favourable result they obtained in the case.

Relevant Legal Principles

25    It is uncontroversial that the Court has a general discretion to award costs: s 43 of the Federal Court of Australia Act 1975 (Cth). The discretion is unfettered, save that it must be exercised judicially, and not arbitrarily or capriciously: Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 (“Ruddock”) at [10] per Black CJ and French J; Specsavers Pty Ltd v Optical Superstore Pty Ltd (2012) 208 FCR 78 (“Specsavers”) at [19] per Foster, Barker and Griffiths JJ. Of course, ordinarily costs follow the event and a successful litigant should recover their costs unless special circumstances justify a different order. Any exercise of the discretion must be for a reason connected with the case: Ruddock at [9], [11].

26    Rule 25.14 of the Federal Court Rules 2011 (“the Rules”) sets out the costs consequences where an offer to compromise is served and not accepted. In the present case r 25.14(1) in respect of the applicants’ claim, and r 25.14(3) in respect of the Warehousing Fees cross-claim by Grain Haul are relevant. These rules provide as follows:

(1)    If an offer is made by a respondent and not accepted by an applicant, and the applicant obtains a judgment that is less favourable than the terms of the offer:

(a)     the applicant is not entitled to any costs after 11.00 am on the second business day after the offer was served; and

(b)     the respondent is entitled to an order that the applicant pay the respondent’s costs after that time on an indemnity basis.

…

(3)     If an offer is made by an applicant and not accepted by a respondent, and the applicant obtains a judgment that is more favourable than the terms of the offer, the applicant is entitled to an order that the respondent pay the applicant’s 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.

27    The respondents seek indemnity costs from 11 am on 28 December 2011, apparently on the basis that this is the second business day after service of their Offer of Compromise. In my view the respondents are wrong in proposing 28 December 2011 as the date upon which the offer became effective. Rule 1.61(5), which relates to “Calculation of time”, provides:

If the time fixed includes a day in the period starting on 24 December in a year and ending on 14 January in the next year, the day is not to be counted.

The offer was served on Thursday, 22 December 2011. Friday, 23 December 2011 was the first business day following that, and by operation of r 1.61(5) the second business day therefore did not occur until Monday, 16 January 2012. I will consider the respondents’ application for indemnity costs by reference to that date.

Consideration

Costs incurred in the applicants’ claim prior to the Respondents’ Offer of Compromise becoming effective

28    Leaving aside the Abandoned Claims, the respondents concede that they must meet the applicants’ costs on the Federal Court scale in establishing liability for the misleading conduct and passing off (at least up to the date of the admission of liability on 21 November 2011). They argue against paying the applicants costs thereafter on several bases, including that they performed substantial wasted work in quantifying the respondents’ profits relevant to the applicants’ claim. They also argue that they spent a large amount of wasted time and cost both in preparation for and during trial in relation to the evidence of the seven named customers, yet the applicants ultimately conceded that most of the sales to these customers did not result from the respondents’ use of the trademarks.

29    I largely reject the respondents’ submissions in this regard. Except insofar as the Abandoned Claims are concerned, I do not accept that it is appropriate in this case to break down the applicants’ claims into their liability and quantum components and refuse to allow the applicants’ costs after liability was admitted, or by regard to the fact that the applicants were only able to make out a small amount of their damages claim. In my view the applicants are entitled to the party/party costs of the proceedings they brought until the date the Respondents’ Offer of Compromise became effective on 16 January 2012 (and in fact until 13 June 2012 for reasons I set out later). They made a claim of false and misleading representations, misleading or deceptive conduct and passing off, and also claimed that the respondents had failed to account for some of the Guano Gold they warehoused. They were partially successful in those claims, obtaining awards of $5,000 under the Reputational Damage claim, and $1,950 under the Lost Guano claim. These are more than merely nominal amounts and the awards were made in the face of the respondents’ denials that the applicants were entitled to any damages.

30    The next issue is the scale under which the applicants’ costs are to be assessed. Notwithstanding that the respondents do not seek it and that they would be the beneficiary of any order for costs on the Federal Court scale, the respondents argue that the amount of costs payable by them should be reduced by one third pursuant to r 40.08 of the Rules.

31    Rule 40.08 provides as follows:

A party other than in a proceeding under the Admiralty Act 1988 may apply to the Court for an order that any costs and disbursements payable to another party in the proceeding be reduced by an amount to be specified by the Court if:

(a)    the applicant has claimed a money sum or damages and has been awarded a sum of less than $100 000; or

(b)     the proceeding (including a cross-claim) could more suitably have been brought in another court or tribunal.

32    In my view, this rule is intended to allow an unsuccessful party to apply for a reduction in the costs payable by it to the successful party, where the successful party should have brought the proceeding in another forum. It does not appear intended to relate to the unusual circumstances in which a successful party – in this case the applicants – seeks to reduce the costs payable to it. Of course, it is open to the Court to apply r 40.08 on its own initiative (Specsavers [30]) and resolution of this issue does not necessarily turn on which party makes the application. It is however unnecessary for me to finally determine whether r 40.08 allows the applicants to seek the costs reduction that they have. Even if the rule enables the applicants to do so I decline to make such an order.

33    I refuse to make such an order, first, because the respondents who would have the benefit of the order for a reduction in costs do not seek it. Secondly, prior to the respondents finalising their evidence between late March and early May 2012, I accept the applicants’ submission that at that stage they did not understand (and could not have understood) the possible low quantum of damages that may be awarded for the admitted wrongful use of the trademarks. That is, they could not have known that they had brought proceedings in the wrong forum. Thirdly, a policy rationale for r 40.08 is to dissuade the bringing of proceedings in the Federal Court that may more appropriately be brought elsewhere: Magenta Nominees Pty Ltd v Richard Ellis (Western Australia) Pty Ltd [1994] FCA 302 per Carr J. There is considerable expertise and experience in the case management and determination of intellectual property disputes in this Court and I will not lightly conclude that the case would have been more appropriately heard elsewhere. While it may be said that the case should have been transferred to the Federal Circuit Court once the respondents’ evidence was filed, by then the case was fixed for hearing and had already been adjourned once.

34    In these circumstances I will order that the respondents pay the applicants’ costs of and incidental to the applicants’ claim (except for the Abandoned Claims) on a party/party basis pursuant to the Federal Court scale, for the period from the commencement of the proceeding until 13 June 2012. Thereafter, for the reasons I set out in dealing with the indemnity costs application (including my reasons for selecting 13 June 2012 as the relevant date) the applicants are to pay the respondents costs of defending these claims, and must do so on an indemnity basis.

Costs incurred in the Cross-Claim prior to the Respondents’ Compromise becoming effective

35    The Warehousing Fees cross-claim brought by Grain Haul was properly brought, and ultimately successful. It was though admitted by Kismet from an early date, subject to the claimed set-offs, and the costs associated with proving it are likely to be insignificant.

36    While the Lost Guano claim is claimed as a set-off against the cross-claim, I have treated the costs incurred in bringing that claim as included in the costs of the applicants’ claim. Even so, little turns on whether they are treated as costs in the claim or in the cross-claim.

37    No reduction to the respondents’ costs under r 40.08 is appropriate. The respondents did not choose the forum in which the applicants commenced the proceeding and were entitled to incur costs on the Federal Court scale in bringing the cross-claim.

38    I will order that the cross-respondent pay the cross-claimant’s costs of and incidental to the cross-claim on a party/party basis pursuant to the Federal Court scale for the period from commencement of the cross-claim until 13 June 2012. Thereafter, for the reasons I set out in dealing with the indemnity costs application, the cross-respondent is to pay the cross-claimant's costs on an indemnity basis.

Costs incurred in the claim and in the cross-claim after the Respondents’ Offer of Compromise became effective

39    The respondents make their indemnity costs application on the usual basis, namely that their offer of compromise was not accepted by the applicants, and the applicants then obtained a judgment less favourable than the offer. They rely on r 25.14(1) in relation to the applicants’ claim and r 25.14(3) in relation to the cross-claim. While the respondents seek that they be allowed indemnity costs (and that the applicant not be allowed their costs) from 28 December 2011, in my view the conditions of r 25.14 could not be satisfied until 11 am on 16 January 2012. I will treat the indemnity costs application as being made from that date.

40    I am satisfied that the Respondents’ Offer of Compromise meets the conditions of r 25.14(1). The respondents offered to compromise the applicants’ claim for $35,000 plus party/party costs in relation to the claims of false and misleading representations, misleading or deceptive conduct and passing off. In relation to these claims the applicants obtained a judgment for only $5,000 under the Reputational Damage claim, and nothing under the Lost Sales claim.

41    In relation to the costs of the cross-claim, the applicants/cross-respondent contend that it is not clear that the respondents/cross-claimant achieved an outcome more favourable so as to enliven r 25.14(3). They contend that the offer on the cross-claim was made as part of the respondents’ overall offer of compromise, and was not capable of independent acceptance. They argue it was not therefore a proper offer of compromise for the purpose of the rule.

42    I do not accept the applicants/cross-respondent’s contentions in this regard. To treat r 25.14 as operating in this way is artificial and unrealistic in cases involving a claim and cross-claim within the one proceeding. While it is correct that the applicants could not independently accept the Respondents’ Offer of Compromise in relation to the cross-claim, without also accepting the offer in the applicants’ claim, in my view this does not lead to the conclusion that the respondents’ are not entitled to the benefit of their offer of compromise. The offer was straightforward in its terms, and available for acceptance on a global basis.

43    In short, the effect of the applicants’ contention is that I should treat the Respondents’ Offer of Compromise as of no value to the respondents because it was made globally for both claim and cross-claim. I do not agree. The respondents had offered to pay $20,000 globally to settle the claim and cross-claim. The applicants rejected this and instead ended up being ordered to pay $12,351.99. I note also that the applicants’ offers of compromise were made on the same joint basis.

44    Further, in my view it is unnecessary for the respondents to rely on r 25.14(3). Rule 25.14(1) may be read as applying to the offers made in both the claim and the cross-claim, as there are not two separate proceedings.

45    Finally, I do not accept that the applicants’ failure to accept the Respondents’ Offer of Compromise was because of any inability to independently accept the cross-claim offer. I infer from the quantum of the applicants’ offers of compromise that they did not accept the respondents’ offer because they considered the value of their claim to be higher than the respondents’ offer.

46    However, an entitlement to orders that:

(a)    the applicants are not entitled to their costs after the offer of compromise became effective despite having some success in the claim; and

(b)    the respondents are entitled to an order for indemnity costs;

from the date the offer of compromise became effective does not automatically follow satisfaction of the conditions of r 25.14.

47    In Specsavers at [21] the Full Court accepted that where the conditions triggering the operation of the rule arise, notwithstanding its terminology, r 25.14(1) operates to create a rebuttable presumption in favour of, rather than an entitlement to such costs orders: see also Richardson v Oracle Corporation Australia Pty Ltd (No 2) [2013] FCA 359 per Buchanan J; Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2011] FCAFC 141 per Gilmour, Jagot and Nicholas JJ. In Specsavers at [21]the Full Court explained that where the conditions triggering the rule are made out, the onus of why an order for indemnity costs ought not be made rests on the party resisting the order: see also Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40 at [10] per Tamberlin, Finn and Sundberg JJ. The onus therefore falls on the applicants.

48    The applicants oppose the application for indemnity costs. They note that the purpose of r 25.14 is to encourage parties to properly consider settlement offers and to not act imprudently or unreasonably in rejecting such offers. The main thrust of the applicants’ contention is that the Respondents’ Offer of Compromise, being made as it was on 22 December 2011, was made at a time when it was unreasonable to expect that they were in a position to properly consider it. They argue that at the time of the offer, the evidence on which the respondents ultimately prevailed had not been served, and indeed the witnesses whose evidence was significant to the substantive judgement had not even been identified to the applicants. They submit that at the relevant time the quantum of the Lost Sales claim and the Reputational Damage claim was very much up in the air, and it was not unreasonable or imprudent of them to reject the offer.

49    They also point to the fact that the respondents had, only the month before, withdrawn their assertion that the principal of PT Madura would give evidence in support of their defence that the applicants did not even own the Guano Gold trademarks. In this circumstance they say they were entitled to treat with caution any suggestion that the respondents’ customers would give evidence that their purchases of guano from the respondents did not result from the respondents’ wrongful use of the Guano Gold trademarks.

50    The applicants then argue that once the evidence of Mr Watson and the seven named customers was served between late March and early May 2012, the Respondents’ Offer of Compromise was no longer capable of acceptance. Thereafter, they argue that neither it or any other offer of compromise was advanced by the respondents, and they complain that the respondents did not even respond to the Applicants’ Second Offer of Compromise. They also argue that what happened to the “lost” guano claimed in the Lost Guano claim was entirely within Grain Haul’s knowledge. On these and other grounds they submit that the Court should exercise its discretion not to grant the indemnity costs application, instead contending for various different costs orders.

51    As against this, the evidence does not indicate that the applicants ever had any interest in accepting the Respondents’ Offer of Compromise. Although the applicants were formally unable to accept that offer when important evidence was later served, there is no indication that they ever had any interest in doing so. In fact the evidence points the other way. As I have said, I infer from the quantum of the applicants’ two offers of compromise that they valued their claims at higher figures.

52    By mid March to early May 2012 the applicants had been served with a table (although with some inaccuracies) which set out the date, quantity and nature of each of the respondents’ sales of guano, as well as the identity of each of the respondents’ customers. By then the applicants had also been served with witness affidavits from seven named customers (who made more than 70% of the respondents’ guano sales) stating that their purchases did not result from the respondents’ use of the Guano Gold trademarks. The applicants also had the opportunity to investigate whether other customers would give contrary evidence. They could not obtain such evidence. In a pre-trial case management conference on 8 October 2012 the applicants made it clear that they approached the trial on the basis that they would be able to reduce the effect of the respondents’ evidence through cross examination. I infer that the applicants made their assessment of the value of their claim on the same basis.

53    In fact, had the applicants wanted to settle the case for a figure near the respondents’ offer (and thereby avoid the risk of indemnity costs for the trial) they could have served an offer of compromise for an amount slightly less than the Respondents’ Offer of Compromise. Other courses were also available to the applicants to avoid the position they are now in.

54    By 13 June 2012 the applicants had given further consideration to the value of their claim, and made the Applicants’ Second Offer of Compromise. Notwithstanding the evidence arrayed against them by that time, they only reduced their offer to $51,725 for the claims relating to the admitted contraventions and passing off. They offered $17,000 inclusive of costs on the cross-claim. Viewed globally, they offered to accept $34,725 to finalise the claim and the cross-claim.

55    The upshot of the applicants’ contentions is that they seek an order for their costs in bringing the claims other than the Abandoned Claims (although on a reduced scale) in the circumstances that the respondents formally offered to pay them $20,000 plus costs for the claim and cross-claim, even though by refusing the offer and running the case they instead suffered a judgment which required them to pay the respondents $12,351.99. The unfairness of this is plain.

56    Taking all the circumstances into account, the applicants have not established that I should exercise my discretion to deny the respondents the benefit of their offer of compromise. On balance I am satisfied that the applicants approach in failing to accept the Respondents’ Offer of Compromise was imprudent and unreasonable.

57    However, there is some merit in the applicants’ contention that they could not properly consider the Respondents’ Offer of Compromise in the period prior to it becoming effective on 16 January 2012. At that time the respondents’ evidence had not been served, and the respondents witness list gave no clue that they were in a position to present evidence from the significant majority of their customers that their purchases did not result from the respondents’ admitted wrongful use of the trademark. I accept that the quantum of the applicants’ claims was up in the air at the time that the Respondents’ Offer of Compromise was open for acceptance.

58    However, the uncertainty on which the applicants rely to resist an order for indemnity costs did not subsist and by 13 June 2012, at least, they should have understood the difficulties they faced in the case. Taking everything into account it is appropriate that the applicants receive their costs until 13 June 2012, but thereafter the respondents should have the benefit of their offer of compromise.

59    I will exercise my general discretion as to costs, and also under r 25.14, to order that the applicants/cross-respondent’s pay the respondents/cross-claimant’s costs on the claim and the cross-claim on an indemnity basis for the period after 13 June 2012. As I have already said, prior to 13 June 2012 the applicants are entitled to their party/party costs on the claim (except the Abandoned Claims) and the cross-claimant is entitled to its party/party costs on the cross-claim.

The Abandoned Claims

60    It is common ground between the parties that the applicants are not entitled to recover any costs for the Abandoned Claims. It is clear that the applicants should pay the respondents’ costs of an incidental to those claims.

61    While the applicants submit that the respondents’ costs for the Abandoned Claims are likely to be insignificant, that is a question for another day. Without evidence, a taxable bill of costs, or my reviewing the respondents’ file I cannot reach a view as to the amount of legal work that was necessarily performed by the respondents in meeting the Abandoned Claims.

62    In my view no reduction to the respondents’ costs under r 40.08 is appropriate. The respondents did not choose the forum in which the proceeding was commenced and were entitled to incur costs on the Federal Court scale in defending the Abandoned Claims.

63    For the same reasons as set out in relation to the indemnity costs application, I consider that the respondents are entitled to indemnity costs in relation to the Abandoned Claims after 13 June 2012. Their offer of compromise encompassed the Abandoned Claims and they achieved a more favourable result in the case than they had offered to accept.

64    I order that the applicants pay the respondents’ costs of and incidental to the Abandoned Claims on a party/party basis pursuant to the Federal Court scale for the period from the commencement of those claims until 13 June 2012, and thereafter on an indemnity basis.

Associate:

Dated:    19 July 2013