FEDERAL COURT OF AUSTRALIA

Phone Directories Company Australia Pty Ltd v Telstra Corporation Limited (No 3) [2015] FCA 924

THE COURT ORDERS THAT:

1.    The interlocutory application dated 13 May 2015 be dismissed.

2.    The Respondent pays the Applicant’s costs of the application on a solicitor-own client basis, with the costs to taxed if not agreed, and paid forthwith.

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

REASONS FOR JUDGMENT

introduction

1    The parties, Phone Directories Company Australia Pty Ltd (“PDCA”) and Telstra Corporation Limited (“Telstra”) are in fierce competition around Australia in print, online and mobile application directory markets. In this and other proceedings they have been locked in protracted intellectual property disputes for years.

2    The substantive proceeding concerned Telstra’s application to register the word “yellow” as a trade mark in respect of designated classes of goods and services, including directories. In 2011 PDCA appealed a decision of the Registrar of Trade Marks to allow registration of that mark. It was successful in the appeal and I ordered costs against Telstra: see Phone Directories Company Australia Pty Ltd v Telstra Corporation Limited [2014] FCA 373. Telstra filed an application for leave to appeal and an appeal (if leave is granted).

3    Telstra has failed or refused to pay PDCA its costs in the substantive proceeding pending the result in the leave to appeal, doing so on various grounds. In an interlocutory application Telstra now seeks an order that the sum of the costs order be placed into the Federal Court Litigants’ Fund pending determination of the appeal, and in the alternative it seeks a stay of the costs order made against it.

4    In my view the application reflects the longstanding history of bitter disputation between Telstra and PDCA, both before the Court and in the market. There is little merit in Telstra’s application and I refuse the orders sought.

BACKGROUND

5    I handed down judgment in the substantive proceeding on 11 April 2014 and made orders giving effect to that judgment on 30 April 2014. The orders were based on draft orders proposed by the parties to give effect to the substantive judgment. The orders included orders requiring Telstra to pay the applicant’s costs of the proceeding, including all reserved costs, as well as costs of the opposition proceeding before the Registrar of Trade Marks (“the Costs Order”). The form of the Costs Order was by consent.

6    On 8 May 2014 Telstra filed an application for leave to appeal and an appeal (if leave was granted). The appeal was delayed at the parties request and was listed for hearing before the Full Court in May 2015. It has been heard and judgment is reserved.

7    On 13 March 2015 PDCA’s solicitors served a certificate of taxation on Telstra’s solicitors and requested payment of the amount stated, being $406,627.88 (“the certificate sum”). There is no dispute between the parties as to the quantum of costs to be paid.

8    The parties then exchanged extensive correspondence in March and April 2015 in relation to payment of the certificate sum. In summary:

(a)    Telstra said that it should not be required to pay the certificate sum until the appeal was heard and determined including because it was concerned about its ability to recover the certificate sum from PDCA in the event that its appeal is successful;

(b)    Telstra invited PDCA to provide information as to Telstra’s ability to recover the certificate sum from PDCA if its appeal is successful; and

(c)    in the event that Telstra was unsuccessful in its appeal, Telstra assured PDCA that it would pay the certificate sum plus interest to PDCA within seven days of disposition of the appeal.

9    PDCA refused to provide the information sought by Telstra and demanded payment of the certificate sum. Telstra then offered to pay the certificate sum into the Federal Court of Australia Litigant’s Fund pending determination of the appeal, with interest to accrue to PDCA if Telstra’s appeal is unsuccessful. PDCA did not accept this proposal and said that it would apply to strike out or stay Telstra’s appeal if Telstra did not either pay the certificate sum or apply to stay the Costs Order.

10    Then, on 17 April 2015, PDCA’s solicitors proposed that a related company of PDCA, Local Directories Pty Ltd (“Local Directories”), guarantee to meet PDCA’s cost obligations if Telstra is successful in the appeal. Pursuant to this proposal PDCA was to provide copies of Local Directories’ balance sheet and profit and loss statement for the financial year ended 30 June 2014, doing so on a confidential basis. Telstra’s solicitors asked that PDCA provide the terms of the guarantee proposed by Local Directories and the form of the confidentiality undertakings which were sought.

11    PDCA then had a change of heart. It was no longer prepared to provide Local Directories’ balance sheet and profit and loss statement. Instead PDCA’s solicitors advised Telstra on 23 April 2015 that:

(a)    Local Directories’ turnover for the financial year ended 30 June 2014 was just over $57 million;

(b)    there had been no material change in Local Directories’ turnover since 30 June 2014; and

(c)    because PDCA and Local Directories were trade rivals of Telstra they were not prepared to provide any further information concerning their financial position or affairs.

Negotiations between the parties broke down and Local Directories’ proposal to offer a guarantee was effectively withdrawn.

12    By way of interlocutory application filed 13 May 2015, Telstra sought interlocutory orders that Telstra pay the certificate sum into an interest bearing account of the Federal Court of Australia Litigants’ Fund, and in the alternative sought that the Costs Order be stayed pending the determination of the application for leave to appeal and appeal (should leave be granted).

13    Telstra relies on the affidavit of its solicitor, Christopher John Fox, sworn 11 May 2015. PDCA relies on the affidavit of the Chief Executive Officer of Local Directories, Cameron Canning Mackellar, and the affidavit of its solicitor, Anthony Brooke Watson, both sworn 15 May 2015.

14    The history of protracted intellectual property disputes between the parties is relevant in my view. In another proceeding between the parties commenced in 2007, Telstra made a claim of copyright infringement against PDCA in which, first, Telstra asserted copyright in the entries in its Yellow Pages and White Pages directories. Telstra was unsuccessful in that case and costs were ordered against it: see Telstra Corporation Limited v Phone Directories Company Pty Ltd (2010) 264 ALR 617; Telstra Corporation Limited v Phone Directories Company Pty Ltd (2010) 194 FCR 142.

15    Second, that proceeding concerned Telstra’s claim of misleading or deceptive conduct and passing off by PDCA (and related entities and persons including Local Directories) in their use of the colour yellow in their print, online and mobile application. In 2014 Telstra was unsuccessful in that claim and I ordered costs against it. Third, the proceeding concerned a cross-claim by PDCA alleging misleading or deceptive conduct by Telstra in relation to Telstra’s publication of comparative claims about the levels of consumer use of PDCA’s directories. Fourth, the proceeding concerned a cross-claim by PDCA alleging that Telstra made unjustifiable threats of copyright infringement.

16    In 2014 PDCA was successful in each claim and cross-claim except for the claim of unjustifiable threats. I ordered costs against Telstra in each claim and cross-claim except the unjustifiable threats cross-claim: see Telstra Corporation Limited v Phone Directories Company Pty Ltd (2014) 316 ALR 590; Telstra Corporation Limited v Phone Directories Company Pty Ltd (No 3) [2014] FCA 949.

JURISDICTION

17    It is uncontroversial that the Court has the power to order a stay of an order pending hearing and determination of an appeal: see r. 36.08 of the Federal Court Rules 2011 (Cth) (“the Rules”). There is no limitation on the broad discretion to grant a stay and it is sufficient that the applicant demonstrate a reason or an appropriate case to warrant a favourable exercise of the Court’s discretion: see Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65 at 66 (Burchett, Heerey and Whitlam JJ). In exercising its discretion, the Court will consider the balance of convenience and the competing rights of the parties as well as whether either party will be prejudiced by the stay: The Marconi’s Wireless Telegraph Company Limited v The Commonwealth (No 3) (1913) 16 CLR 384 at 386 (Barton ACJ); Philip Morris (Australia) Ltd v Nixon [1999] FCA 1281 at [17] (Sackville, Hely and Gyles JJ).

Consideration

18    In broad summary Telstra contended that a stay of the costs order should be granted because:

(a)    the hearing of its application for leave to appeal and any appeal (should leave be granted) was imminent and their detailed submissions in relation to the appeal indicated that their case is bona fide or arguable;

(b)    there is a real prospect that Telstra will be unable to recover the certificate sum from PDCA should Telstra be successful on appeal because PDCA’s sole function was to hold trade marks and it only has paid up capital of $100;

(c)    there will be no prejudice to PDCA if the proposed orders are made as:

(i)    PDCA has the benefit of interest pursuant to r 40.32(3) of the Rules for any period during which the costs certified in the certificate of taxation remain unpaid after service of the certificate;

(ii)    there is no suggestion by PDCA that Telstra will not pay the certificate sum if its appeal is unsuccessful. Telstra has confirmed that should its appeal be unsuccessful and the costs order remain in force it will pay the certificate sum together with interest within 7 days of disposition of the appeal;

(iii)    the orders sought provide that Telstra is to pay the certificate sum into an interest bearing account of the Court within 7 days. If PDCA succeeds on appeal interest will have accrued to it.

Telstra argues that there can be no real issue as to whether PDCA will be paid the certificate sum if Telstra is unsuccessful in the appeal. It also says that PDCA will not be deprived of compensation as a result of its inability to access the certificate sum in the meantime.

19    As I have said, since submissions were filed the appeal has been heard and judgment is reserved. It is inappropriate for me to offer any view as to whether Telstra’s appeal is arguable and I proceed on the assumption that it is. I do not, however, accept Telstra’s contention that there is any real prospect that it will be unable to recover the certificate sum from PDCA should the Costs Order be overturned on appeal. Other discretionary factors point to the same result.

20    I start with Mr Mackellar’s evidence which I accept. He deposed that:

(a)    PDCA is a company in the Local Directories Group of companies which group carries on the business of producing and distributing printed and electronic directories and related goods and services;

(b)    PDCA is the owner of the Australian trade marks used in relation to the business of the Local Directories Group;

(c)    Local Directories is a company in the Local Directories Group which has, since 2008, produced and distributed the print and electronic directories and provided the related goods and services from which the group derives advertising revenue.

It is clear from Mr Mackellar’s evidence and from the evidence in the two proceedings before me that PDCA and Local Directories are closely related corporations.

21    First, I note that PDCA and Local Directories have been engaged in extensive litigation with Telstra since 2007. I accept Mr Mackellar’s evidence that Local Directories has paid in excess of $6 million in legal fees and disbursements in relation to the litigation. In itself this shows that Local Directories has substantial resources and it has been prepared to advance those resources to support PDCA.

22    Second, I accept Mr Mackellar’s evidence that Local Directories had a turnover of approximately $57 million in the financial year ended 30 June 2014, and that there has been no material change in the turnover of its business. There can be no real question that a business with such a substantial turnover has the financial capacity to pay the certificate sum if Telstra is successful in its appeal.

23    Third, while PDCA’s sole function is to hold trade marks and it only has paid up capital of $100, the trade marks it holds are valuable assets. They are valuable to PDCA because they are used by Local Directories in its generation of revenue of about $57 million per annum. They are likely to have a value well beyond both the certificate sum and the costs of the proceeding overall, and they could be sold for a significant sum.

24    In my view the proposition that PDCA’s trade marks may be of insufficient value to satisfy its costs obligations if Telstra is successful in its appeal does not withstand examination. I find it difficult to accept that a company with Telstra’s will, experience and resources would genuinely consider itself at a real risk of being unable to recover $406,627 from a company which owns such valuable trade marks.

25    Fourth, it is quite unlikely that Local Directories would allow PDCA to fail through a refusal to pay Telstra’s costs. Allowing that to occur would interfere with Local Directories’ ability to continue to generate substantial revenue through its use of the trade marks. Local Directories’ interest in the continuing operation of PDCA can be seen in its offer to guarantee payment of PDCA’s cost obligations if Telstra is successful in its appeal.

26    It is true that Local Directories has effectively withdrawn the offer of a guarantee, but I infer that it did so because Telstra overreached in its claim for confidential information about PDCA’s and the Local Directories’ financial situation. In my view PDCA or Local Directories were not obligated to hand over such information to their bitter trade rivals.

27    Fifth, the procedural background points away from the grant of a stay. I note that:

(a)    Telstra consented to the form of the Costs Order so as to reflect the substantive judgment.

(b)    Mr Watson’s evidence, which I accept, was that over the course of more than 12 months PDCA paid about $35,000 in order to have the quantum of costs assessed by a Registrar of the Court.

(c)    Under rr 40.32, 39.02 and 41.04 of the Rules, Telstra was required to pay the certificate sum within 14 days of being served with the certificate of taxation but it failed to do so.

In my view, if Telstra considered there was a proper basis for its concern regarding PDCA’s capacity to repay the certificate sum if Telstra was successful in its appeal, it should have sought a stay of the Costs Order in April 2014 or shortly after the order was made. Doing so would have meant that PDCA would not have spent about $35,000 on having its costs assessed.

28    Sixth, the fact that the litigation has been protracted is another reason why PDCA should have its costs now rather than awaiting the result in the appeal: see Lockwood Security Products Pty Ltd v Doric Products Pty Ltd (No 2) [2007] FCAFC 172 (Heerey, Sundberg and Bennett JJ). It is not clear to me when the present dispute actually started but I note that Telstra applied to register the word “yellow” as a trade mark in 2003, PDCA opposed registration and after a hearing the Registrar of Trade Marks approved the registration in May 2011. PDCA appealed to the Court in 2011 and I handed down judgment in its favour in April 2014. It is also relevant that, since 2007 the Local Directories has spent $6 million in legal proceedings opposed to Telstra in which it has been largely successful. Given the prolonged nature of the dispute and PDCA’s huge expenditure on legal costs there should be no further delay in its receipt of its costs.

29    Telstra has not demonstrated an appropriate basis for the exercise of the Court’s discretion to grant a stay of the Costs Order. Having been successful in the prolonged litigation PDCA should be paid its costs pursuant to that order. In my view it has already had to wait too long. I refuse the orders sought.

30    PDCA sought its costs of the application on a solicitor-own client basis to be taxed and paid forthwith. I consider a solicitor-own client costs order is appropriate in all the circumstances. In large part this is because I consider the application for a stay had more to do with Telstra putting further financial pressure on PDCA and laying a blow in the parties’ ongoing fight rather than Telstra having a real concern that it would be unable to recover $406,627 from PDCA if it is successful in its appeal. Telstra should not have made the application.

Associate:

Dated:    25 August 2015