FEDERAL COURT OF AUSTRALIA

Kismet International Pty Ltd v Guano Fertilizer Sales Pty Ltd (No 3) [2014] FCA 1142

THE COURT ORDERS THAT:

1.    The costs to be paid by the Applicants/Cross-Respondent to the Respondents/Cross-Claimant pursuant to the orders made on 19 July 2013 be set off against the costs to be paid by the Respondents to the Applicants pursuant to those orders.

2.    The Applicants must pursue taxation of their bill of costs with all speed.

3.    Upon completion of the taxation of the Applicants’ bill of costs the Taxing Officer is directed to issue a Certificate of Taxation for the balance of the costs payable to the parties to whom the balance is payable. The Taxing Officer shall not otherwise issue a Certificate of Taxation in respect of the bills of costs filed pursuant to the orders made on 19 July 2013.

4.    Liberty to apply.

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

REASONS FOR JUDGMENT

1    This matter is before the Court on the interlocutory application of the applicants’ seeking orders that:

(a)    the costs to be paid by the applicants/cross-respondent to the respondents/cross-claimant pursuant to my orders on 19 July 2013 be set off against the costs to be paid by the respondents to the applicants pursuant to the same orders; and

(b)    that the Taxing Officer be directed to issue a Certificate of Taxation for the balance of costs payable (which I take to mean the difference between the costs orders which the competing parties have the benefit of) pursuant to Order 1 of my orders of 19 July 2013, and otherwise not issue any other Certificate of Taxation in respect of the Bills of Costs filed.

By consent the matter is to be determined on the papers.

2    I handed down the substantive judgment in this matter on 29 April 2013 (Kismet International Pty Ltd v Guano Fertilizer Sales Pty Ltd [2013] FCA 375) and made orders in relation to all matters other than costs on 27 May 2013. I delivered my judgment on costs on 19 July 2013 (Kismet International Pty Ltd v Guano Fertilizer Sales Pty Ltd (No 2) [2013] FCA 705) (“the costs judgment”). I will treat the application before me as an application to vary my earlier costs orders, which have not yet been entered.

3    For the purposes of the application it is unnecessary to differentiate between the two applicants, which include the cross-respondent Kismet International Pty Ltd, as both are controlled by their sole director, John Jashar. Nor is it necessary to differentiate between the first, second and third respondents, which include the cross-claimant Grain Haul Pty Ltd, as all are controlled by the fourth respondent, John McMahon. For convenience I will usually identify the applicants/cross-respondent as “the applicants” and the respondents/cross-claimant as “the respondents”.

4    The substantive proceeding involved:

(a)    the applicants’ claims of false and misleading representations, misleading and deceptive conduct, and passing off by the respondents’ marketing and sale of organic fertiliser under or by reference to the applicants’ Guano Gold trade marks (“the misleading conduct claims”). This was the central claim in the proceeding. Although not doing so initially, the respondents admitted liability for these claims and the Court was required to assess damages for two claims, described in the substantive judgment as the Lost Sales claim and the Reputational Damages claim;

(b)    the respondents’ cross-claim seeking payment of unpaid fees for warehousing the applicants’ guano (“the Warehousing Fees cross-claim”); and

(c)    the applicants’ response to the cross-claim in which they made claims described in the substantive judgment as the Lost Guano claim, the Lost Bulk Bag claim, the Steel Strut Damage claim and the Defective Bulk Bags claim.

5    The respondents enjoyed substantial success in the proceeding as:

(a)    in an unfortunate result for the applicants, I declined to award them any damages under the Lost Sales claim and I only made a modest award of $5,000 under the Reputational Damages claim;

(b)    in the Warehousing Fees cross-claim there was no contest that the applicants owed $19,301 in such fees. The applicants merely sought to set off their own claims; and

(c)    the applicants’ claims in response to the cross-claim were largely unsuccessful. In opening submissions or during the trial they abandoned the Lost Bulk Bag claim, the Steel Strut Damage claim, the Defective Bulk Bags claim and a claim for exemplary damages (“the Abandoned Claims”). They were successful in the Lost Guano claim only to the extent of $1,950.

6    In the costs judgment I ordered:

(a)    the respondents to pay the applicants’ costs (except for the Abandoned Claims) on a party/party basis on the Federal Court scale from commencement until 13 June 2012, and thereafter the applicants to pay the respondents’ costs of defending those claims on an indemnity basis;

(b)    the applicants/cross-respondent to pay the respondents/cross-claimant’s costs of the cross-claim on a party/party basis on the Federal Court scale from commencement until 13 June 2012, and thereafter on an indemnity basis; and

(c)    the applicants to pay the respondents’ costs of defending the Abandoned Claims on a party/party basis on the Federal Court scale until 13 June 2012, and thereafter on an indemnity basis.

7    I made indemnity costs orders because the respondents had made an effective offer of compromise and the respondents were prima facie entitled to indemnity costs. I awarded indemnity costs from a date later than when the offer of compromise become effective because, in effect, the applicants could not have understood the difficulties that they faced in the proceeding until about 13 June 2012. It was then that they should have closely considered (and taken) the offer of compromise.

8    Following the costs orders there was some delay while the parties sought to agree the costs, but the parties could not reach agreement.

9    The respondents then prepared and filed two bills of costs. On 16 September 2014 Registrar Hetyey issued estimates of the respondents’ bills of costs in a total of $131,865. The time for objection to these estimates has expired and the respondents are set on pursuing recovery of this amount. If Certificates of Taxation are issued the costs will become immediately payable and interest will accrue at the rate of 8.5%.

10    The applicants initially moved slowly in the preparation of their bill of costs, but in response to the respondents’ bills they then moved with some alacrity to follow suit. They prepared and filed a bill of costs and on 10 October 2014 Registrar Hetyey estimated the applicants’ costs in a total of $127,633.

11    When I was made aware of the second costs estimate, which showed a difference between the parties’ cost entitlements of only $4,232 I thought it unlikely that there would be an ongoing dispute between the parties. I requested them to confer in an effort to resolve the interlocutory application, but they have been unable to reach agreement. Unfortunately it has become necessary to deliver judgment on the small issue of whether one costs order should be set off against the other.

Consideration

12    The applicants’ application is supported by affidavits from:

(a)    Mr Jashar sworn 7 October 2014; and

(b)    the applicants’ solicitor, Penelope Glenn, sworn 6 October 2014.

The respondents did not put on any material but their stance is apparent from correspondence annexed to Ms Glenn’s affidavit.

13    The respondents’ solicitor, Tony Watson, argues that the respondents:

(a)    were dragged unwillingly into the litigation by the applicants at great cost to them; and

(b)    successfully resisted substantially all of the claims made by the applicants, and succeeded in their cross-claim.

He argues that it would be inappropriate to set off the costs amounts awarded to the applicants and the respondents as the claim and the cross-claim are not the same and specific orders to the benefit of specific parties have been made. He notes that the costs orders were made almost one year previously, and that the respondents should not now have to wait for the applicants to go through the taxation process.

14    The respondents’ stance is understandable in all the circumstances. They did not bring the proceedings, they expended significant monies in defending them, and they were largely successful. They are substantially out of pocket and should receive their costs as soon as possible. Because the respondents were substantially successful in the proceeding one would ordinarily expect that their costs entitlements would significantly exceed the applicants’ costs entitlements, but that is not how the costs orders appear to be panning out.

15    However, there is little in the respondents’ point that the claim and cross-claim are different. The costs orders were all made in the same proceeding and were made in respect of different facets of the dispute between the parties. There is no justification for any limitation on setting off costs in one aspect of the claims against costs for other aspects.

16    In my view the application must be acceded to in the interests of justice. I have made the orders essentially in the terms sought by the applicants.

17    I do so because, although the applicants initially delayed preparing their bill of costs, they have now done so, and an estimate has been issued. The estimates of the costs entitlements of the parties are close in quantum. Provided the taxation process is conducted with speed I can see no proper basis for not ordering a set off of the two costs amounts.

18    Mr Jashar deposes to significant financial difficulties arising out of the costs incurred in the proceeding, the loss of substantial assets and ongoing legal fees due to the breakup of his marriage and business difficulties associated with his guano business caused by contaminated and damaged guano and drought which has significantly reduced his sales. He attaches confidential financial statements which support his claim of financial difficulties.

19    He states that if Certificates of Taxation are served on him requiring the payment of respondents’ costs of $131,865, without the applicants receiving the legal costs that they are entitled to receive from the respondents, the applicants will be unable to pay. He states that he would have no option but to put the applicants into liquidation which would mean the end of his business and his livelihood.

20    In my view the applicants should not face a risk of liquidation if required to meet the respondents’ costs when it seems likely that some short period later the respondents will be required to pay a similar amount to the applicants. Of course, the respondents’ objection to the estimate of the applicants’ bill of costs may mean that the applicants’ costs entitlement is reduced, but even if the applicants’ bill of costs is reduced on taxation so that the difference becomes, for example $20-$30,000, my approach would be the same.

21    The requirement that the taxation of the applicants’ bill of costs occur speedily is central to my decision. I make my orders on the basis that the applicants must pursue taxation of their bill of costs with all speed. I have granted liberty to apply. If the applicants do not pursue taxation with speed the respondents may return to Court for variation of these orders so that a Certificate of Taxation for the costs payable to the respondents is issued forthwith and the amounts become immediately payable.

22    Neither party sought an order for costs of this application, and I do not make any costs order.

Associate:

Dated:    24 October 2014