FEDERAL COURT OF AUSTRALIA

Tamawood Limited v Habitare Developments Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed (No 5) [2013] FCA 1382

THE COURT ORDERS THAT:

1.    The application be dismissed as against the third and fourth respondents.

2.    The applicant pay the third and fourth respondents’ costs:

(a)    exclusively attributable to the claim against those respondents for accessorial liability, assessed on a party and party basis;

(b)    only to the extent that the third and fourth respondents have incurred a liability to pay their legal advisors for legal services and the liability has not already been discharged by any one or more of the first, sixth, seventh and eighth respondents.

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

REASONS FOR JUDGMENT

1    On 7 May 2013 I made findings in relation to liability in these proceedings and ordered the parties to produce signed minutes of orders giving effect to those findings. This has been a somewhat staggered process due to some dispute between the parties concerning proper orders to be made by the Court.

2    In this judgment I consider the position, and make orders, concerning the applicant and the third and fourth respondents (Mr Peter O’Mara and Mr David Johnson).

3    In Tamawood Limited v Habitare Developments Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) (No 3) (2013) 101 IPR 225; [2013] FCA 410 I found that the applicant had not substantiated its case against Mr O’Mara and Mr Johnson. During the course of the recent hearing where proper orders in respect of this aspect of the litigation were addressed by Counsel for the applicant and these respondents, it became clear that:

1.    there was no dispute that the application be dismissed as against the third and fourth respondents.

2.    the applicant accepted that it should bear the costs of the third and fourth respondent of a hearing before the Registrar on 20 November 2013, to be paid by the applicant on a party and party basis.

3.    as a general proposition, the applicant should pay costs of the third and fourth respondents in relation to the proceedings.

4.    there was no dispute that the applicant pay the costs of the third and fourth respondents only to the extent that those respondents had incurred a liability to pay their legal advisors for legal services and the liability had not already been discharged by any one or more of the first, sixth, seventh and eighth respondents; and

5.    the applicant did not press for an order that an order it had originally sought for costs against the third respondent be stayed.

4    The only dispute between the parties is in relation to point 3 and costs for which the applicant ought be liable. The dispute may be summarised as follows:

    The third and fourth respondents seek an order that the applicant pay their costs of the proceedings to be assessed on the indemnity basis.

    On the other hand, the applicant seeks an order that it be liable for the costs of the third and fourth respondents, exclusively attributable to the claim against those respondents for accessorial liability, assessed on a party and party basis.

CONSIDERATION

5    The Court has broad jurisdiction to award costs under s 43 of the Federal Court of Australia Act 1976 (Cth). It is also clear that, in the absence of circumstances warranting a different outcome, costs ordinarily follow the event: Hughes v Western Australian Cricket Association (Inc) (1986) 8 ATPR 40-748, De Rose v State of South Australia (No 2) [2005] FCAFC 137, Oshlack v Richmond River Council (1998) 193 CLR 72.

Whether tailoring of costs order is appropriate

6    The first question for consideration is whether the nature of these proceedings warrants a departure from that general approach to costs. In particular, it is clear that the applicant seeks an order tailored to circumstances where:

    the applicant was put to proof by all of the so-called Habitare respondents (namely the first, third, fourth, sixth, seventh and eighth respondents); and

    those respondents fought all issues raised in the litigation; and

    those respondents were all represented by the same solicitors and Counsel.

Submissions of the applicant

7    The applicant has made detailed and helpful submissions in support of this contention. Materially, they may be summarised as follows:

    All of the Habitare respondents had the same legal representation.

    Where there has been joint or common legal representation for a number of respondents, some of whom have been successful and some of whom have not, a plaintiff is not ordinarily required to meet all the party and party costs of the successful defendant.

    The applicant achieved a very substantial measure of success against the Habitare corporate respondents, including relief referable to infringement of copyright by those respondents in the Torrington, Conondale, Dunkeld, Hazen, Armstrong and Arcadia drawings, authorisation of the fifth respondent in respect of construction of relevant dwellings and engagement in a common design. Factually and legally, this comprised a large proportion of the case that also needed to be made against Mr O’Mara and Mr Johnson.

    The only real issue on which the applicant did not succeed as against the Habitare corporate respondents was the claim pursuant to the Trade Practices Act 1974 (Cth) (“Trade Practices Act”).

    This success warrants the Court depriving the jointly represented Habitare respondents of the costs occasioned by those issues on which the applicant succeeded. Any other order would unjustly punish the applicant and constitute a windfall to the third and fourth respondents, which windfall would arise because costs which were necessarily incurred by the applicant in successfully prosecuting its case against the Habitare corporate respondents would end up payable to Mr O’Mara and Mr Johnson.

8    For these propositions the applicant relies on a number of authorities, in particular Tivo Inc v Vivo International Corporation Pty Ltd (No 2) [2012] FCA 336, Peterson v Merck Sharpe & Dohme (Australia) Pty Ltd (No 5) (2010) 87 IPR 234; [2010] FCA 605 and Currabubula & Paola Holdings Pty Ltd v State Bank of New South Wales [2000] NSWSC 232.

9    In Tivo Inc v Vivo International Corporation Pty Ltd (No 2) Dodds-Streeton J made costs orders referable to earlier findings wherein her Honour had ordered (inter alia) rectification of the register of Trade Marks, but had also dismissed a claim of accessorial liability for trade mark infringement against the second respondent in those proceedings, Mr Grassia. Further, it is apparent that the applicant had made an offer of compromise which had been rejected by the respondents prior to trial. The respondents submitted that the applicant pay the costs of Mr Grassia of and incidental to the proceeding to be assessed on a party and party basis. In rejecting this submission her Honour held as follows:

19.    The sole claim against, and basis for joinder of, Mr Grassia was his alleged accessorial liability for Vivo’s infringement of the TiVo trade mark. That claim was not established. TiVo nevertheless submitted that it should not be ordered to pay Mr Grassia’s costs in circumstances where the respondents did not point to any material costs of or arising from a significant portion of the trial or any evidence directed solely to the claim of accessorial liability. TiVo contended that Mr Grassia’s conduct was necessarily relevant to determining Vivo’s conduct (irrespective of TiVo’s claim that his role was materially separate), so apportionment of costs was not justified.

20.    As TiVo correctly submitted, although the question of Mr Grassia’s accessorial liability was dealt with comprehensively in the reasons for judgment, it was not dealt with in oral submissions and comprised only three and five paragraphs respectively of the parties’ very extensive written submissions. The respondents did not contend that any evidence at trial was led solely in relation to the claim of accessorial liability and Vivo and Mr Grassia were jointly represented.

21.    Thus, there was nothing to indicate that the joinder of Mr Grassia and the claim of accessorial liability had occasioned any costs additional to those Vivo would have incurred in any event.

22.    I was nevertheless persuaded that, as the respondents submitted, Mr Grassia, as a respondent who had successfully defended the sole claim against him, was entitled to an order that TiVo pay any costs attributable solely to that claim of accessorial liability, although the likelihood of any such costs was not at this stage established.

23.    As it was not contended that Vivo incurred any, or any material, additional costs by reason of Mr Grassia’s joinder, a more complicated order, such as that made in Peterson v Merck Sharpe & Dohme (Australia) Pty Ltd (ACN 000 173 508) and Another (No 5) (2010) 87 IPR 234, in otherwise comparable circumstances, was unnecessary.

10    In Peterson (No 5) the applicant submitted that he should not have to pay any part of the costs of the first respondent (which had been successful in the proceedings) because the first respondent had been jointly represented with the second respondent and it was a fair inference that, generally speaking, only one set of costs was incurred. At [53] Jessup J said:

There is, however, a respect in which I consider that the joint representation of the respondents is relevant to the obligation which would otherwise fall upon the applicant to pay the costs of Merck. Since the applicant has succeeded against MSDA, and will, subject to the qualifications to which I have referred above, get his costs, it would be wrong to require him to pay the costs of Merck which would in any event have been incurred by MSDA in the prosecution of its unsuccessful defence to his claims. I shall, therefore, exclude from the costs payable by the applicant those incurred by Merck jointly with MSDA which did not relate only to Merck’s defence to the applicant’s claims.

11    In Currabubula & Paola Holdings Pty Ltd v State Bank of New South Wales Einstein J made the following observations:

90.    … [T]he general principle of an award of costs is that costs are awarded to compensate the successful party for the expense of being put to the necessity of litigation… Accordingly, in the ordinary case, costs will follow the event…The position becomes somewhat complicated, however, where there are multiple plaintiffs or defendants who are variously successful and unsuccessful… Another device that has been developed is the principle of taxation which is called the “rule of thumb”. The formulation of the rule of thumb as applied by the costs assessor and challenged by the plaintiff is stated in the letter from Mallesons of the 30 September 1999 to the costs assessor as follows:

[w]here a solicitor acts for two or more parties in the same proceedings, each successful party is only entitled to his proportion of the costs incurred on behalf of all, plus the costs, if any, incurred exclusively on his behalf

(Emphasis added.)

12    Later his Honour continued:

94.    Although there is a dearth of Australian authority on the point, there are decisions which recognise the application of the rule. The ‘rule of thumb’ was applied by Fisher J of the Federal Court in Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 28 ALR 201 where two respondents, one successful and one unsuccessful, were represented by the same solicitors and counsel. Fisher J considered that the application of the rule of thumb in this situation achieved a just result. This was obviously correct, as counsel for the defendants submitted that the costs of the successful defendant be deducted from the cost liability of the unsuccessful defendant. The rule was discussed by Young J in Longreach Oil Ltd v Southern Cross Resources (unreported, Supreme Court of New South Wales, 9 March 1988) where two of seven successful defendants attempted to enforce a costs order in favour of all seven, the other five successful defendants reaching a settlement with the plaintiff. Young J considered this case was probably an appropriate one for the application of the rule of thumb and that each defendant was entitled to one-seventh of the costs, but in the event declined to make any order.

95.    These decisions reveal that the concern of the rule of thumb is to achieve substantial justice in the awarding of costs as between a partially successful plaintiff and variously successful and unsuccessful defendants. The rule operates upon the premise that defendants are proportionately responsible for and liable for the joint costs involved in mounting the defence. Thus, a successful defendant cannot claim from the plaintiff more than a proportionate share of the joint costs of the action in addition to any costs separately referable to that defendant. Conversely, the partially successful plaintiff is prevented from looking to each of the unsuccessful defendants for more than an equal proportionate share of the costs not solely referable to the plaintiff’s case against one or other of the defendants individually, in addition to the costs which are so referable. In this way, the rule of thumb prevents both the unjust enrichment of the partially successful plaintiff or successful defendant and the casting of an unfair burden on the unsuccessful defendants. Where the premise is falsified or the rule does not achieve its intended effect, it finds no application.

13    The applicant submits that the form of orders to reflect the common representation and the principles discussed in the authorities is that the applicant should be required only to pay the third and fourth respondents’ share of common costs, and those costs (if any) incurred exclusively on behalf of those respondents.

Submissions of the respondents

14    The respondents submit that as a general proposition costs follow the event, and in this case the relevant “events” for the purposes of the exercise of the Court’s discretion were:

    whether or not Mr O’Mara and Mr Johnson were liable for authorisation of infringement;

    whether or not Mr O’Mara and Mr Johnson were liable as joint tortfeasors; and

    whether or not Mr O’Mara and Mr Johnson were knowingly concerned in alleged breaches of the Trade Practices Act.

15    The respondents submit, in summary:

    The applicant failed in respect of each of those three matters.

    While there may be occasions when it is appropriate to apportion costs, the Courts exercise their power in this fashion with a degree of hesitancy and in unusual cases.

    For the most part the trial was characterised by serious contests of fact on the evidence.

    The issues which dominated trial time as between the applicant and these respondents concerned licence to copy, whether copying had occurred, and whether they had authorised that copying. The first two matters were genuinely in dispute, but the third issue was captiously pursued by the applicant which advanced no evidence of its own to establish accessorial liability.

    Departure from the usual rule concerning costs will generally require some evidence of unreasonableness on the part of the successful party, which was not the case here.

    The trial was devoted to seriously arguable contests of fact.

    Given that Mr O’Mara and Mr Johnson were persons of means compared with the Habitare corporate respondents, fundamentally the applicant’s case against the Habitare respondents was always about pursuit of Mr O’Mara and Mr Johnson.

Findings

16    In my view an order apportioning costs is appropriate in this case. I so find because:

    I am not persuaded by the respondents’ submission that departure from the ordinary rule that costs follow the event generally requires some evidence of unreasonableness on the part of the successful party.

    The principles explained in Tivo Inc v Vivo International Corporation Pty Ltd (No 2), Peterson (No 5) and Currabubula & Paola Holdings Pty Ltd v State Bank of New South Wales do not suggest that a successful accessorial party is deprived of costs to which they are otherwise entitled. Rather, these authorities demonstrate that the key question for the Court is whether, in applying the “rule of thumb” adverted to in those authorities, a just result will be obtained by the apportionment of the costs.

    The third and fourth respondents were successful in respect of the applicant’s claims against them. They should not be out of pocket in respect of claims against them which, as I found in my earlier judgment, had no merit. However this position must be balanced against the facts that:

o    the claims against and evidence in respect of Mr O’Mara and Mr Johnson occupied but a small part of the proceedings;

o    the applicant was substantially successful against the Habitare corporate respondents; and

o    potential injustice could result if an award of costs had the effect of requiring the applicant to – in essence – pay the costs of those corporate respondents.

    In my view an order apportioning costs does not reflect adversely in any manner on the conduct of the case by the parties or their legal representatives. Again, it is an issue of justice between the parties.

    I am not satisfied that the applicant’s “real” case was against Mr O’Mara and Mr Johnson as distinct from the Habitare corporate respondents. Certainly it is not in dispute that, at the time the litigation commenced, the Habitare corporate respondents appeared solvent having recently completed a substantial building project.

17    It follows that an order tailoring the costs award in the manner submitted by the applicant is an appropriate order in these circumstances.

Should costs be awarded on an indemnity basis?

18    The third and fourth respondents submit that their costs should be paid by the applicant on an indemnity basis because, in summary:

    The applicant unreasonably canvassed factual issues against these respondents.

    There was a lack of any direct evidence against Mr O’Mara and Mr Johnson, coupled with comparatively vague allegations in the pleadings. Accordingly the authorisation case against these respondents was one which the applicant, properly advised, should have known had no chance of success.

    The applicant’s case against Mr O’Mara and Mr Johnson in terms of common design plainly attempted to characterise their roles as being intentionally involved in breaches, which is a basis for prosecution under s 132AD of the Copyright Act 1968 (Cth).

    There was no real explanation of the case based on the Trade Practices Act in the pleadings. This claim also had no basis.

19    In my view, however, an order for costs on an indemnity basis is not justified on the facts of this case.

20    As was explained by the Full Court in De Alwis v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCAFC 77:

6.    The purpose of an order for costs is to indemnify or compensate the person in whose favour it is made, not to punish the person against whom it is made: see Latoudis v Casey (1990) 170 CLR 534; Ohn v Waltob (1995) 36 NSWLR 77 at 79 per Gleeson CJ. The usual rule is that costs should be on a party-party basis, but that the Court has a wide and unfettered discretion to award costs on an indemnity basis in appropriate cases in particular circumstances: see Colgate-Palmolive v Cussons (1993) 46 FCR 225 at 231-234.

7.    In deciding whether to award indemnity costs each exercise of discretion depends on the particular facts. Indemnity costs can be awarded where it appears that a proceeding is commenced or continued in circumstances where the applicant properly advised should have known there was no chance of success ...

21    Circumstances warranting the Court in departing from the usual course of ordering costs on a party to party basis include:

    making allegations of fraud knowing them to be false;

    making irrelevant allegations of fraud;

    evidence of particular misconduct that causes loss of time to the Court and to other parties;

    the fact that proceedings were commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law;

    the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions;

    an imprudent refusal of an offer to compromise;

    where the bringing of an application is “high-handed”;

    where an application has “no chance of success” or is “hopeless”;

    where an application is “unnecessary”;

    where an application is brought and prosecuted “not for the bona fide purpose of protecting and enforcing a legal right, but to achieve an ulterior or extraneous purpose”;

    where there has been “some relevant delinquency on the part of the unsuccessful party”;

    where the justice of the case warrants such an order; and

    where there are some special or unusual features in a case so as to justify the Court exercising its discretion in this way.

22    In this case I am satisfied that none of these criteria are satisfied by the facts before me. In particular, I note the following:

    There was evidence before the Court that both Mr O’Mara and Mr Johnson held senior positions in the Habitare companies, and more importantly that they knew of some relevant facts in respect of the events leading to the litigation between the parties. To that extent I am not satisfied that the common design case or the Trade Practices Act case against these respondents was hopeless or untenable.

    I am not satisfied that the authorisation case against Mr O’Mara and Mr Johnson was hopeless or untenable, such as to warrant an award of indemnity costs. As the authorities demonstrate it is not necessary to prove knowledge or reckless indifference to a state of affairs in relation to allegations of authorisation (for example, Universal Music Australia Pty Ltd v Sharman License Holdings Ltd (2005) 220 ALR 1; [2005] FCA 1242).

    I am not satisfied that the allegations against Mr O’Mara and Mr Johnson could properly be categorised as allegations of fraud or criminal activity.

    The case was not unnecessarily prolonged because of the claims against Mr O’Mara and Mr Johnson. Indeed, little Court time was spent on allegations against them.

    I am not satisfied that there was an “ulterior motive” for the claims against Mr O’Mara and Mr Johnson, including (as claimed by these respondents) that the applicant’s case was fundamentally against them rather than the Habitare corporate respondents.

    That some of the evidence upon which the applicant relied against these respondents was adduced during cross-examination does not, of itself, lead to the conclusion that there was any delinquency on the part of the applicant, or that, in fact, the applicant had no real case against these respondents.

CONCLUSION

23    In the circumstances I consider it appropriate to make a costs order in the terms sought by the applicant.

Associate:

Dated:    17 December 2013