FEDERAL COURT OF AUSTRALIA

Zoo Sport (Europe) Ltd v Zoo International Pte Ltd (No 2) [2020] FCA 755

ORDERS

THE COURT ORDERS THAT:

1.    The applicants pay the respondents’ costs of the proceedings on a party and party basis up to 29 March 2019 and on an indemnity basis after that date, fixed in the total of $180,473.

2.    The District Registrar pay the amount of $50,000 paid into Court by Mr David Peyton on 20 August 2018, together with any interest earned upon that amount, to the respondents’ solicitors in partial satisfaction of the costs ordered to be paid under Order 1.

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

REASONS FOR JUDGMENT

RANGIAH J:

1    On 3 July 2018, the applicants commenced proceedings seeking declarations, injunctions, damages and other relief against the respondents. The proceedings involved a dispute about the ownership and use of certain trademarks.

2    On 1 October 2019, I dismissed the proceedings for want of prosecution: Zoo Sport (Europe) Ltd v Zoo International Pte Ltd [2019] FCA 1660. The applicants did not appear at that hearing.

3    The respondents now seek orders that:

(a)    the applicants pay the respondents’ costs on an indemnity basis, fixed in the amount of $253,228; and

(b)    an amount of $50,000 paid into Court by the applicants and interest earned upon that amount be paid to the respondents in partial satisfaction of their costs.

4    I ordered that the parties file and serve affidavits and submissions concerning these issues and that the issues be dealt with on the papers. The respondents have filed affidavits and submissions, but the applicants have not.

Background

5    On 27 July 2018, upon the applicants’ application, I ordered that the respondents be restrained from, inter alia, using the disputed trademarks until trial or further order. The interlocutory injunctions were made upon an undertaking as to damages given by Mr David Peyton, a director of the applicant companies, and his further undertaking to pay $50,000 into Court as security for any such damages. That amount was paid into Court on 20 August 2018.

6    On 6 March 2019, I ordered, by consent, that the applicants provide security for the respondents’ costs by payment of $100,000 into Court by 29 March 2019, and that the proceeding be stayed pending payment of that amount. The applicants did not comply with that order. On 24 July 2019, as the applicants’ lawyers had filed a Notice of Ceasing to Act, I ordered that the applicants file and serve a Notice of Address for Service by 8 August 2019. The applicants did not comply with that order.

7    I dismissed the proceeding for want of prosecution on the basis that the order for security for costs and other orders had not been complied with and the applicants had demonstrated an inability or unwillingness to cooperate with the Court and the other parties in having the matter ready to proceed to trial within an acceptable period.

Costs

8    Under s 43(2) of the Federal Court of Australia Act 1976 (Cth) the Court has a discretionary power to award costs. Costs may be awarded on a party and party basis or on an indemnity basis: see also r 40.02 of the Federal Court Rules 2011 (Cth) (the Rules).

9    There is no doubt that the applicants should be ordered to pay the respondents’ costs of the proceeding on a party and party basis. The more difficult issue is whether costs should be awarded on an indemnity basis.

10    In TSG Franchise Management Pty Ltd v Cigarette & Gift Warehouse (Franchising) Pty Ltd (No 3) [2016] FCA 828, Davies J described the circumstances in which indemnity costs may be ordered at [7]:

It is well-settled law that indemnity costs should not be ordered unless there is some special or unusual feature of the case that justifies departure from the ordinary practice: Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225; [1993] FCA 801 at 230–234 (FCR); Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151; [1996] FCA 1942 at 152–153 (Black CJ) and 156–158 (Cooper and Merkel JJ) (FCR). In Hamod v New South Wales (2002) 188 ALR 659; [2002] FCA 424 at 665 (ALR) (per Gray J, Carr and Goldberg JJ agreeing), the Full Court explained the principle for an award of indemnity costs in the following terms:

Indemnity costs are not designed to punish a party for persisting with a case that turns out to fail. They are not awarded as a means of deterring litigants from putting forward arguments that might be attended by uncertainty. Rather, they serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the Court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs.

The cases illustrate the appropriateness of awarding costs on an indemnity basis where there has been particular misconduct that caused a loss of time to the Court and to other parties, where proceedings were commenced or continued in wilful disregard of known facts or clearly established law, where allegations were made which ought never to have been made, or where the proceeding was unduly prolonged by groundless contentions…

11    The respondents submit that the proceedings should be regarded as an abuse of process in circumstances where no meaningful steps were taken by the applicants subsequent to the ordering of the interlocutory injunction on 27 July 2018. They submit that the applicants took the benefit of an injunction, which remained in place for over a year, but failed to subsequently take steps to progress the proceedings.

12    I agree with the respondents’ submission that the applicants, having obtained the benefit of an interlocutory injunction, approached the matter in a dilatory way and made no meaningful efforts to progress the proceedings to trial. They consented to the order for security for costs, but failed to comply with it. They failed to file a Notice of Address for Service. They failed to comply with orders for the provision of material in relation to the application for dismissal for want of prosecution.

13    I am not satisfied that it was unreasonable for the applicants to commence the proceedings. However, I consider that their conduct of the proceeding became unreasonable and caused the respondents to unnecessarily incur costs. It is appropriate to order that the applicants pay costs on an indemnity basis from 29 March 2019, the date when they failed to comply with the order for security for costs that they had consented to.

14    I note that the respondents also seek indemnity costs on the basis of the applicants’ failure to accept an offer made on 17 April 2019 that, inter-alia, the respondents transfer the trademarks in dispute to the applicants for the amount of $75,000. The respondents rely upon the principles in Calderbank v Calderbank [1975] 3 All ER 333. However, in the absence of evidence as to the value of the trademarks, I am not satisfied the applicants’ rejection of the offer was unreasonable. I would not order indemnity costs based upon the failure to accept the offer.

Lump-sum costs order

15    Rule 40.02(b) of the Rules provides that a party entitled to costs may apply to the Court for an order that costs be awarded in a lump sum, instead of, or in addition to, any taxed costs.

16    The purpose of the rule was described by the Full Court in LFDB v SM (No 2) [2017] FCAFC 207 at [14]:

…The purpose of this rule is to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation…

17    In Paciocco v Australia and New Zealand Banking Group Ltd (No 2) (2017) 253 FCR 403, the Full Court of this Court said:

19    Whilst the Costs Practice Note now suggests that most cases should have a lump sum costs order approach applied unless there is some characteristic that would make it unsuitable, a lump sum costs order is not mandated in all instances. In all cases it is a matter for the Court to exercise the discretion given to the Court by the Federal Court Act and the Rules as appropriate.

20    There is no particular characteristic that a case must possess for it to be suitable for the making of a lump sum costs order. Particular circumstances that may make a lump sum order especially appropriate include where in a large and complex commercial matter it would save the time, trouble, expense and aggravation of a taxation; where a taxation would require the parties to consume additional time and incur additional expenditure prolonging already protracted litigation; and generally to avoid an ongoing, counter-productive dispute as to costs, in the interests of achieving finality.

(Citation omitted.)

18    In Seven Network Limited v News Limited [2007] FCA 2059, Sackville J set out principles relevant to the making of a lump sum costs order under the former rules:

25    The authorities establish a number of principles applicable to a claim for a gross sum costs order to be made pursuant to FCR, 0 62 r 4(2)(c):

(i)    The purpose of the subrule is to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation.

(ii)    An order that costs be assessed as a gross sum does not envisage that any process similar to that involved in taxation should take place. On the contrary, the Court applies a much broader brush than would be used on a taxation of costs pursuant to O 62.

(iii)    The Court should be confident that the approach taken to the estimate of costs is logical, fair and reasonable. The Court should be astute to avoid both overestimating the recoverable costs and underestimating the appropriate amount, for example by applying an arbitrary discount to the amounts claimed.

(iv)    Although the power to assess a gross sum for costs involves the exercise of a discretion, it is necessary to bear in mind fundamental principles applicable to an assessment of costs on a party and party basis. These include the principles contained in O 62 r 19 (embodying the ‘necessary or proper’ test) and those stated in Stanley v Phillips (1966) 115 CLR 470, at 478, per Barwick CJ (on a party and party taxation the emphasis is upon obtaining adequate representation to enable justice to be done, not upon the propriety of steps taken to ensure maximum success in the cause).

(v)    Although the methodology permitted by O 62 r 4(2)(c) initially involves a broader approach than on a normal taxation, the provisions of O 62 and Schedule 2 provide assistance in fixing an appropriate gross sum.

(Most citations omitted.)

19    In Clipsal Australia Pty Ltd v Clipso Electrical Pty Ltd (No 4) [2017] FCA 436 at [11]–[12], Perram J had regard to the prospect that the respondent in that case would take no part in any process of taxation and that the costs of taxation would themselves be irrecoverable.

20    In this case, the applicants had over six months in which to pay the security amount of $100,000, but failed to pay any part of it. They are registered overseas and there is no evidence that they have assets within the jurisdiction. They put on no affidavit material or submissions to resist the dismissal application brought by the respondents or the present application. They remain legally unrepresented.

21    The respondents will be put to further delay and costs if costs are to be subject to the taxation process in circumstances where the applicants seem unlikely to participate in that process. There is a serious question about the applicants’ capacity to pay the costs ordered against them. These circumstances justify the making of a lump sum costs order.

22    The respondents have incurred costs and disbursements amounting to $198,038 (excluding GST). Of that amount, costs of $142,185 were incurred up to 29 March 2019. I will order that the applicants pay the respondents’ party and party costs up to that date. Justin Marschke, a principal of the firm of solicitors acting for the respondents, deposes that, in his experience, costs assessed on a party and party basis usually amount to 65% of the actual costs. On that basis, I will award $94,420 for costs up to 29 March 2019.

23    I have indicated that I will order costs on an indemnity basis from 29 March 2019. The costs incurred after that date were $50,831. I will allow that amount.

24    Mr Marschke deposes that generally disbursements and junior counsel’s fees will be allowed in full upon taxation on a party and party basis. On that basis, I will allow $5,022 (excluding GST) for disbursements and $32,200 (excluding GST) for counsel’s fees.

25    Accordingly I will order that the applicants pay the respondents’ costs of the proceeding fixed in a lump sum of $180,473 (excluding GST).

Money paid into Court

26    On 20 August 2018, Mr Peyton paid $50,000 into Court. That amount has been paid into the Litigants’ Fund pursuant to r 2.42(1) of the Rules.

27    Rule 2.43 of the Rules provides, relevantly:

(1)    Money paid into Court under rule 2.42 may be paid out or applied only in accordance with an order of the Court.

(2)    However, the District Registrar may pay out of the Litigants’ Fund money that has been paid in as security for the costs of a taxation of a bill of costs.

Note 1:    An order under this rule will state:

(a)    the details of the payment to be made; and

(b)    any other action to be taken by a Registrar in relation to the money.

Note 2:    As soon as practicable after money is paid out of the Litigants' Fund, the relevant District Registrar will give a notice to each party.

28    The making of an order pursuant to r 2.43(1) is discretionary. In Bou-Simon v Attorney-General (Cth) (2003) 133 FCR 230, Tamberlin J, applying the former rule, considered the nature of the discretion:

[21]    The Attorney-General submits that the language and context of O 63, r 4 of the FCR suggest that the Court or a judge have a very limited discretion when considering whether to make an order for payment out where the conditions precedent are met. It is said that the language of this rule suggests that its purpose is “proper accountability” for the money in the Litigants' Fund, rather than the existence of a general discretion.

[22]    I do not accept that the discretion under O 63 is to be read as limited in this vague and unspecified way. There are no specific factors which are mandated to be taken into account. Nor are any matters expressly excluded from consideration in the terms of O 63, r 4. The Court's discretion is a wide one and it is entitled to take into account any circumstances relevant to the exercise of its discretion in a proper and judicial manner. There is no specification as to the basis on which the Court is to exercise the discretion, apart from a requirement that the Order must state particulars of payment out, the manner in which the money is to be dealt with, and any action to be taken by the Registry.

29    There is no relevant distinction between r 2.43 and the former rule. As was the case under the former rule, the Court’s discretion under r 2.43 is a wide one.

30    The payment into Court was to secure Mr Peyton’s undertaking as to damages when the applicants obtained the interlocutory injunction. The respondents seek payment of that amount for a different purpose, namely partial satisfaction of its costs. There is, however, a link between the security provided and costs incurred by the respondents. The interlocutory injunction would not have been granted but for the provision of the security. Having secured the benefit of the injunction by providing the security, the applicants were content to proceed in a dilatory manner, eventually resulting in the proceeding being dismissed for want of prosecution. The applicants unreasonably caused the respondents to incur unnecessary costs by their conduct, but, in view of their failure to provide security for costs, it seems highly doubtful that they will be in a position to pay those costs. In my opinion, there is a sufficiently strong connection between the injunction, the money paid into Court, the way the proceeding was subsequently conducted and the costs incurred by the respondents to warrant an order that the money be paid to the respondents in partial satisfaction of their costs.

31    I will order that the amount presently held in Court in relation to the proceedings be paid to the respondents in partial satisfaction of their costs.

Associate:    

Dated:    4 June 2020

SCHEDULE OF PARTIES