FEDERAL COURT OF AUSTRALIA

Elevate Brandpartners Ltd v Hammond (No 4) [2020] FCA 421

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to r 26.12(2)(c) of the Federal Court Rules 2011 (Cth), the applicants have leave to discontinue the proceeding by filing a notice of discontinuance in accordance with Form 48 within seven days;

2.    The applicants are to pay the respondents’ costs of the proceeding as agreed or assessed.

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

REASONS FOR JUDGMENT

STEWART J:

Introduction

1    The earlier history of this proceeding appears from what I have previously said in Elevate Brandpartners Ltd v Hammond [2019] FCA 1103 (Judgment 1), Elevate Brandpartners Ltd v Hammond (No 2) [2019] FCA 1598 (Judgment 2) and Elevate Brandpartners Ltd v Hammond (No 3) [2019] FCA 1788 (Judgment 3). See in particular paragraphs [7]-[14] in Judgment 1 for an overview of the background to this proceeding. I adopt the same shorthand references to the parties as I have previously adopted.

2    What is before me now is an application by the applicants for leave to discontinue the proceeding. Such leave is required by r 26.12(2)(c) of the Federal Court Rules 2011 (Cth) (FCR) because the respondents do not consent to the discontinuance. The respondents do not oppose leave to discontinue being granted, provided that it is on terms favourable to them with regard to costs. In that regard, the respondents seek the following costs orders:

(1)    that Elevate (the first applicant) pay the costs of Dream Bandits (the fourth respondent) on a party and party basis until 27 September 2019 and on an indemnity basis thereafter; and

(2)    that Elevate pay the costs of the remaining respondents, being Linda Hammond and Allen Hammond (the first and second respondents) on a party and party basis until 25 October 2019 and on an indemnity basis thereafter.

3    In written submissions, the respondents had also sought an order that Elevate pay any costs incurred by Quay (the second applicant) or that Elevate indemnify Quay for the payment of those costs. In oral submissions, Mr Newlinds SC (who appeared for the respondents) accepted that it was doubtful that the Court had the power in this proceeding to make such an order and he did not press it.

4    The reason for seeking costs against Elevate and not Quay is that the Hammonds are substantial shareholders of Quay. Thus any of the costs to be borne by Quay would in effect be visited on them in due course in an indirect way by reason of their shareholding. That was also the reason for the respondents having initially sought the order referred to in the preceding paragraph which they no longer press.

5    The applicants, in contrast, seek an order that the respondents pay the applicants’ costs up to 15 November 2019 and that the applicants pay the respondents’ costs thereafter. Mr Dawson SC, who appeared with Ms Cairns for the applicants, explained that an alternative order would be that there be no order as to costs. The attraction of such an order is that the need for, and expense of, competing costs assessments would be obviated. It was suggested that the competing costs assessments would likely come close to cancelling each other out in any event.

6    Mr Dawson explained that the significance of the date of 15 November 2019 is that on that date Linda and Allen Hammond gave final undertakings to the applicants and the Court which obviated the need and justification for the injunctive relief that was sought in the proceeding. It was submitted for the applicants that at that point Linda and Allen Hammond in effect capitulated with the result that the applicants were essentially successful in the proceeding and that the costs should, as in the ordinary course, follow that event.

7    The reason for the applicants accepting that they should be liable for the costs thereafter is that they did not immediately seek to discontinue the proceeding but rather allowed it to continue for a period. In that period the respondents brought a strikeout application in which they sought to remove Dream Bandits as a respondent since no relief was claimed against it, and to strike out certain paragraphs of the amended statement of claim (in respect of which I had given leave as explained in Judgment 3).

8    The parties were in agreement that any costs orders made as conditions of leave being granted to discontinue the proceeding would not affect the costs orders previously made by me. They are:

(1)    in Judgment 2, I ordered that each party is to pay its own costs on the applicants’ interlocutory application for interim injunctions filed on 3 June 2019; and

(2)    in Judgment 3, I ordered that with regard to the costs thrown away by the applicants’ further amended originating application and amended statement of claim filed on 27 September 2019, the applicants are to pay the costs of the proceeding of the third respondent, Zak Hammond, and that the costs of the remaining respondents be costs in the cause.

Background

9    In order to deal with the competing costs contentions, a little background is required.

10    The claims that were originally asserted were summarised by me in Judgment 1 (at [13]) as:

    claims of breaches of the shareholders deed (between the shareholder of Quay) by the Hammonds including by enticing an employee away from Quay to Dream Bandits;

    a claim of tortious interference by Dream Bandits in Quay’s contractual relations with that employee;

    a claim that Ms Hammond is in breach of her director’s duties to Quay;

    a claim that the Hammonds and Dream Bandits have infringed Quay’s trademarks;

    a claim that Ms Hammond has infringed Quay’s copyright; and

    a claim that the Hammonds and Dream Bandits have in the course of trade and commerce engaged in conduct that is misleading or likely to mislead contrary to s 18 of the Australian Consumer Law and made false and misleading representations contrary to ss 29(1)(g) and (h) of the Australian Consumer Law.

11    The relief that was then sought, paraphrased, was:

    a series of injunctions restraining the respondents from poaching employees of Quay, making disparaging comments about the applicants and enticing away any supplier or customer of Quay for a period of two years after Linda and Allen Hammond ceased to be shareholders of Quay;

    compensation pursuant to s 1317H or damages under s 1324(1) of the Corporations Act 2001 (Cth); and

    damages.

12    Following amendments to the originating application for which leave was granted on 30 May 2019, the following additional relief was sought:

    a declaration that each of the Hammonds had breached clauses 20.4 and 20.5 of the shareholders deed;

    an order under s 126 of the Trade Marks Act 1955 (Cth) that the respondents be restrained from using specified registered trade marks owned by Quay;

    an order under s 115 of the Copyright Act 1968 (Cth) that the respondents be restrained from using any photograph or other material in which Quay owns the copyright;

    equitable compensation; and

    as an alternative to damages, an account of profits.

13    Following undertakings being given by Linda and Allen Hammond and Dream Bandits on 27 June 2019 in response to the applicants’ application for interim injunctions (which are dealt with in Judgment 1), the applicants filed a further amended originating application and amended statement of claim pursuant to leave granted on 25 September 2019. The costs thrown away by the amendments were dealt with in Judgment 3. The relevant changes to the relief that was then sought are the following:

    Zak Hammond was removed as a respondent;

    declarations were added to the effect that the breaches of clauses 20.4 and 20.5 of the shareholders deed amount in each case to an “Event of Default” under clause 18 of the shareholders deed;

    no relief was sought against Dream Bandits;

    the relief under the Corporations Act, Trade Marks Act and Copyright Act was deleted;

    the relief for equitable compensation, damages and/or an account of profits was deleted.

14    In summary, the principal relief retained in the proceeding from that time was with regard to alleged breaches of the shareholders agreement and their consequences, and the injunctions.

15    On 15 November 2019, Linda and Allen Hammond filed permanent undertakings on a “no admissions” basis which can be characterised as follows:

(1)    Linda Hammond undertook not to make disparaging comments about the applicants, their officers or employees and not to poach employees of Quay; and

(2)    Allen Hammond undertook not to make disparaging comments about the applicants, their officers or employees.

16    As indicated above, those undertakings obviated the need for, and possibly removed any justification for, the injunctive relief. But significantly, in giving the undertakings the Hammonds did not concede any liability for injunctive relief, or any other wrongdoing.

17    It is also significant that the declaratory relief was unaffected by the undertakings – the declaratory relief looks backwards at past conduct whereas the injunctive relief looks forward at future conduct. The undertakings, naturally, deal only with future conduct.

18    The declaratory relief is based on the same factual allegations as it had always been based on and was unaffected by the undertakings. It is also relief that is very important to the parties. The declarations with regard to breach of the shareholders deed and then the consequences of breach have significant commercial consequences to the parties. They are by no means trifling. Mr Dawson rightly accepted as much.

Consideration

19    As indicated, the principal basis on which the applicants submit that they should have the costs up until the undertakings were given rests on the proposition that the undertakings constitute in effect a capitulation by the Hammonds. That submission suffers from two fundamental flaws.

20    First, it would require an inquiry into the applicants’ entitlement to the injunctive relief – that is, an inquiry into the merits of the case for that relief. However, that is not an inquiry that is relevant or appropriate at this stage of consideration of the conditions for the granting of leave to discontinue – it is not the function of the court to make a prediction as to the outcome of a hypothetical case: Clark v ING Life Ltd [2007] FCA 1960 at [16] per Rares J; Rickus v Motor Trades Assn of Australia Superannuation Fund Pty Ltd [2010] FCAFC 16; 265 ALR 112 at [118] per Jacobson, Siopis and Foster JJ.

21    Second, resolution of the injunctive relief goes only part way to resolving the proceeding. As indicated, a significant part of the proceeding remains on foot. The declaratory relief sought by the applicants should be not treated as insignificant.

22    The result is that the applicants seek to discontinue a proceeding that they commenced and which put the respondents to trouble, effort and expense. For whatever reason, they have now decided that they do not need to or want to continue with the proceeding. They say that the reason for now seeking to discontinue the proceeding is because of the permanent undertakings, but even if true that can only be so in so far as the injunctive relief is concerned.

23    Discontinuance has the result that the Court cannot determine whether or not the applicants’ claims are good, and it cannot dismiss the proceeding and thereby in practical terms extinguish the claims, which is what the respondents would contend for at any final hearing. It also has the result that the applicants can assert the claims again in new or other proceedings: FCR, r 26.14.

24    The price that applicants would usually pay in those circumstances is the costs of the proceeding to be discontinued. That is the general rule which reflects the underlying policy of the rules of court that the discontinuing party should be liable for the other party’s costs unless the Court orders otherwise: FCR, r 26.12(7), FAIRA Aboriginal Corporation v Minister for Aboriginal and Torres Strait Islander Affairs [2002] FCA 9 at [7] per Cooper J; Rickus at [116] overturning Motor Trades Association of Australia Superannuation Fund Pty Ltd v Rickus (No 3) [2008] FCA 1986; 69 ACSR 264 at [98].

25    I see no reason why the general rule, or policy, should not apply in this case.

26    This is not a case for the application of the rule that if “it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings”:  Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; 186 CLR 622 at 625 per McHugh J; Rickus at [118]. The reason for that, as explained, is that the further prosecution of the proceeding has not become futile as a consequence of the Hammond’s undertakings; the declaratory aspect of the proceeding is unaffected by the undertakings.

27    The conclusion that the applicants should pay the respondents’ costs means that it is unnecessary to consider Dream Bandit’s costs on a separate basis.

28    I do not consider there to be a basis for the indemnity costs orders sought by the respondents, and none was identified in oral submissions. In writing, the respondents submitted that the applicants had conducted the litigation unreasonably in the period indicated in relation to the relevant respondents, but I do not consider that to have been established.

29    With regard to the respondents’ submission that it is only Elevate that should be ordered to pay the costs and not Quay, Mr Dawson pointed out that at least one of the claims, being breach of directors’ duties, could only have been made by Quay. It would be an odd result if some other party was liable for the costs of that claim to the exclusion of the only party that could bring the claim. I accept that submission.

30    In my view, any consequences for the Hammonds as shareholders of Quay are commercial matters between them, the other shareholders and Quay. I do not consider them to be material to the exercise of my discretion on costs.

31    To summarise, the applicants should have leave to discontinue the proceeding but they must pay the respondents’ costs of the proceeding.

Associate:

Dated:    1 April 2020