FEDERAL COURT OF AUSTRALIA

Insight Radiology Pty Ltd v Insight Clinical Imaging Pty Ltd (No. 2) [2016] FCA 1572

ORDERS

THE COURT ORDERS THAT:

1.    The Applicant pay the Respondent’s costs of the proceedings on the following bases:

(a)    before 11.00 am on 30 May 2015 – on the party and party basis; and

(b)    from 11.00 am on 30 May 2015 – on the indemnity basis.

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

ORDERS

THE COURT ORDERS THAT:

1.    The Respondents pay the Applicant’s costs of the proceedings on the following bases:

(a)    before 11.00 am on 30 May 2015 – on the party and party basis; and

(b)    from 11.00 am on 30 May 2015 – on the indemnity basis.

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

REASONS FOR JUDGMENT

DAVIES J:

1    On 23 November 2016, judgment was delivered on liability in both matters. The parties are now in dispute over whether Insight Clinical Imaging Pty Ltd (“Insight Clinical Imaging”) should have its costs of each proceeding paid on an indemnity basis by reason of offers of compromise that it made.

2    Rule 25.14 of the Federal Court Rules 2011 (Cth) (“the Rules”) provides as follows:

Costs where offer not accepted

(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.

(2)    If an offer is made by a respondent and an applicant unreasonably fails to accept the offer and the applicant's proceeding is dismissed, the respondent is entitled to an order that the applicant pay the respondent'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.

(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.

Note 1    Costs on an indemnity basis is defined in the Dictionary.

Note 2    The Court may make an order inconsistent with these rules --see rule 1.35.

3    In proceeding VID 714 of 2014, the offer of compromise made by Insight Clinical Imaging was in the following terms:

1.    The Applicant/Cross-respondent discontinue Proceedings No VID714 of 2014 (the Proceedings) and the Respondents/Cross-claimant discontinue the cross claim in the Proceedings.

2.    Within 14 days of acceptance of this Notice of Offer to Compromise the Respondents/Cross-claimant withdraw Australian Trade Mark Application Nos. 1563117 and 1463912.

3.    Within 3 months from the date of acceptance of this Notice of Offer to Compromise the Respondents/Cross-claimant cease all use of INSIGHT RADIOLOGY, any other mark including the word INSIGHT in respect of radiology services or any similar services.

4.    Within 3 months from the date of acceptance of this Notice of Offer to Compromise the Respondents/Cross-claimant take all steps necessary to cancel all business and domain names including the word INSIGHT.

5.    Within 3 months from the date of acceptance of this Notice of Offer to Compromise the Respondents/Cross-claimant take all steps necessary to change the company name of Insight Radiology Pty Ltd to any name not including the word INSIGHT.

6.    For the period commencing from the date of acceptance of this Notice of Offer to Compromise and continuing for a period of 12 months the Applicant/Cross-respondent not use the mark INSIGHT CLINICAL IMAGING within a ten (10) kilometre radius of the Respondents’/Cross-claimant’s premises at Narellan, Leeton, Devonport and Griffith.

7.    The Respondents/Cross-claimant pay to the Applicant/Cross-respondent, an amount equal to 85% of the Applicant’s/Cross-respondent’s taxed costs up to the date of this Notice of Offer to Compromise.

8.    The Applicant/Cross-respondent otherwise releases and discharges the Respondents/Cross-claimant from all claims, actions, suits, demands, causes of action, costs and expenses which the Applicant/Cross-respondent might have against the Respondents/Cross-claimant in relation to the issues raised, directly or indirectly, in or by the Proceeding.

9.    The Respondents/Cross-claimant otherwise release and discharge the Applicant/Cross-respondent from all claims, actions, suits, demands, causes of action, costs and expenses which the Respondents/Cross-claimant may have against the Applicant/Cross-respondent in relation to the issues raised, directly or indirectly, in or by the Proceeding.

This offer is inclusive of costs…

4    The offer of compromise was made on 26 May 2015 and was open to be accepted for 14 days after service (i.e., 9 June 2015).

5    In proceeding VID 575 of 2014, the offer of compromise made by Insight Clinical Imaging was in the following terms:

1.    The Applicant discontinue Proceedings No VID 575 of 2014.

2.    The Applicant pay to the Respondent an amount equal to 85% of the Respondent’s taxed costs up to the date of this Notice of Offer to Compromise.

3.    The Applicant pay to the Respondent within 28 days of the date of acceptance of this offer, the Applicant’s scale costs of the Opposition to Australian Trade Mark Application No 1463912.

This offer is inclusive of costs…

6    This offer of compromise was also made on 26 May 2015 and open to be accepted for 14 days after service (i.e., 9 June 2015).

7    Neither offer was accepted.

8    In VID 714 of 2014, Insight Clinical Imaging was the applicant and the company formerly known as Insight Radiology Pty Ltd (now Pham Global Proprietary Limited) (“Insight Radiology”) and Mr Pham were the respondents. Accordingly, r 25.14(3) of the Rules is engaged. The rule creates a rebuttable presumption in favour of indemnity costs, if the applicant achieves a judgment more favourable than the offer of compromise: Lodestar Anstalt v Campari America LLC (No 2) [2016] FCAFC 118 (“Lodestar Anstalt v Campari America LLC (No 2)”) at [23] (Allsop CJ, Greenwood, Besanko, Nicholas and Katzmann JJ). The onus is on the respondents to justify why the Court should not apply r 25.14(3) but instead order costs on a party/party basis: Kassem v Commissioner of Taxation (No 2) [2012] FCA 293 at [9]–[11]; Metz Holdings Pty Ltd v Simmac Pty Ltd (No 3) [2011] FCA 1450 at [24]. As the authorities show, there must be a proper reason to dispense with the operation of r 25.14(3) and generally this is only the case if there are compelling and exceptional reasons for departing from the rule: Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40 at [10].

9    In VID 714 of 2014, Insight Clinical Imaging made claims of infringement, misleading and deceptive conduct and passing off against Insight Radiology, and Mr Pham as a joint tortfeasor. It succeeded on each of these claims and it was submitted for Insight Clinical Imaging that as Insight Clinical Imaging had obtained a judgment that is more favourable than the terms of the offer, Insight Clinical Imaging is accordingly entitled to an order that Insight Radiology and Mr Pham pay its costs on an indemnity basis from 11.00 am on 30 May 2015.

10    The respondents dispute that the judgment that Insight Clinical Imaging obtained against them was more favourable than the terms of the offer. In the alternative if that contention is not accepted, it was submitted that the Court should exercise its discretion not to award indemnity costs. It was argued that:

(a)    paragraphs 3, 4 and 5 extended beyond the relief awarded in this proceeding;

(b)    paragraph 6 was not a genuine offer as there was no evidence that Insight Clinical Imaging had any intention at the time of using the mark INSIGHT CLINICAL IMAGING within a 10 kilometre radius of Narellan, Leeton, Devonport and Griffith within 12 months of the offer being made; and

(c)    the discount on costs in paragraph 7 was insubstantial.

11    I do not consider that there is any substance to the contention that the judgment obtained was less favourable than the terms of the offer. It is true that the terms of the offer extend beyond the relief granted, but in practical effect, the terms of the offer would not have required Insight Radiology to do more than what is required by the orders made against it in the proceedings.

12    I also do not accept the contention that paragraph 6 was not a genuine offer as there was some evidence at the time from Joseph Gauci, the managing director of Insight Clinical Imaging that Insight Clinical Imaging was then considering extending its business interstate either through establishing practices or buying existing practices and thus the offer constituted some compromise in that regard. In any event, the reasonableness of the refusal of the offer is not relevant for the purposes of r 25.14(3): Lodestar Anstalt v Campari America LLC (No 2) at [23].

13    As to paragraph 7, the evidence shows that Insight Clinical Imaging’s costs as at 26 May 2015, if taxed on a party/party basis, would have been between $51,740.80 and $56,073.50 and the 15% discount therefore amounted to somewhere between $7,761.13 and $8,411.03. The claim that this discount was insubstantial is not a persuasive reason for the Court dispensing with the operation of r 25.14(3), given that the applicant succeeded on all its claims against the respondents and it has not been shown that the judgment obtained was less favourable. The respondents have not shown an acceptable reason as to why the Court should otherwise order that costs be paid on a party/party basis in the exercise of the Court’s discretion.

14    VID 575 of 2014 was an appeal by Insight Radiology against a decision of the Registrar of Trade Marks refusing to register Insight Radiology’s composite mark. As the appeal was dismissed and Insight Clinical Imaging was the respondent to that appeal, r 25.14(2) applies. Insight Clinical Imaging submitted that Insight Radiology unreasonably failed to accept its offer. Insight Radiology argued that the offer did not involve a substantial element of compromise and that it was not unreasonable at the time for it to reject the offer and to continue with the proceeding to test Insight Clinical Imaging’s claim about its reputation in its mark. I disagree with both these propositions on behalf of Insight Radiology.

15    First, whilst it is true that the offer did not involve a compromise in terms of the disposition of the appeal, it did involve a compromise of the costs as there is evidence that had the offer been accepted, the estimated costs savings would have been between $10,902.22 and $12,077.22.

16    Secondly, the offer was only made after Insight Clinical Imaging had filed its notice of contention raising the additional grounds of opposition, and evidence in support of those additional grounds. That evidence provided a reasonable basis upon which to make an informed decision about the prospects of the appeal succeeding in light of the case put against it by Insight Clinical Imaging.

17    I accordingly consider that the offer did involve a genuine element of compromise and, as the offer was made at a time when Insight Radiology had the benefit of a deal of the evidence that Insight Clinical Imaging intended to adduce in support of the notice of contention, I think it can be said Insight Radiology acted unreasonably in rejecting this offer.

18    In the circumstances, it is unnecessary to deal with an alternative argument put by counsel for Insight Clinical Imaging to the effect that the offer of compromise in VID 575 of 2014 should be considered under r 25.14(3), not r 25.14(2) by reason that Insight Clinical Imaging, although the respondent to that proceeding, stood in those proceedings as if it was the applicant.

19    There will be an order in each proceeding:

(a)    In VID 575 of 2014: Insight Radiology pay Insight Clinical Imaging’s costs on a party/party basis before 11.00 am on 30 May 2015 and thereafter on an indemnity basis; and

(b)    In VID 714 of 2014: Insight Radiology and Alan Kha Pham pay Insight Clinical Imaging’s costs on a party/party basis before 11.00 am on 30 May 2015 and thereafter on an indemnity basis.

Associate:

Dated:    22 December 2016