Federal Court of Australia

Manolo Blahnik Worldwide Limited v Estro Concept Pty Limited (No 2) [2020] FCA 1821

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to r 7.29(b) of the Federal Court Rules 2011 (Cth), the prospective applicant is to pay the prospective respondent’s reasonable costs and expenses of providing discovery and production in accordance with Order 1 of the Orders made on 29 October 2020.

2.    The prospective respondent is to pay 30% of the prospective applicant’s costs of the application filed on 1 June 2020.

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

REASONS FOR JUDGMENT

MARKOVIC J:

1    On 29 October 2020 I made orders (October Orders) in relation to an application made by the prospective applicant, Manolo Blahnik Worldwide Limited (Manolo Blahnik), under r 7.22 and r 7.23 of the Federal Court Rules 2011 (Cth) (Rules) for the examination of the proper officer of the prospective respondent, Estro Concept Pty Limited (Estro), and for discovery of documents (Application). Manolo Blahnik achieved only partial success on the Application: Estro was required to give discovery to Manolo Blahnik pursuant to r 7.23 of the Rules in respect of only two of the five categories sought by Manolo Blahnik; and no order was made for examination pursuant to r 7.22 of the Rules of the proper officer of Estro.

2    The October Orders also required the parties to file and serve any submissions in relation to the question of the costs of the provision of the discovery which Estro is required to give to Manolo Blahnik pursuant to r 7.23 of the Rules and the costs of the Application. Manolo Blahnik and Estro have each filed their respective submissions. Neither has sought an oral hearing and I am satisfied that the issue of costs can be determined on the papers: see s 20A of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act).

3    There are two costs issues to be determined: the costs of the provision of the preliminary discovery that Estro has been ordered to provide and the costs of the Application. I address each in turn.

Costs of provision of the preliminary discovery

4    Rule 7.29(b) of the Rules provides that a person against whom an order is made under Div 7.3 of Pt 7 of the Rules, which includes r 7.23, may apply to the Court for an order that the prospective applicant pay the person’s costs and expenses.

5    Manolo Blahnik makes no submissions in relation to the issue of whether it should bear the costs of the provision of the preliminary discovery which Estro has been ordered to provide to it. On the other hand, Estro submits that there is no reason why Manolo Blahnik ought not pay its reasonable costs of production which is the ordinary consequence of invoking the jurisdiction of the Court to obtain preliminary discovery for Manolo Blahnik’s sole benefit.

6    Given its silence on the issue, I infer that Manolo Blahnik does not oppose Estro’s application that Manolo Blahnik pay its costs of the provision of the discovery the subject of Order 1 of the October Orders. It is appropriate that an order to that effect be made.

Costs of the application

7    Manolo Blahnik contends that Estro should pay its costs of and incidental to the Application, or at least a significant proportion of those costs such as 75%, while Estro contends that Manolo Blahnik should pay at least 75% of its costs of the Application on an ordinary basis.

Parties’ submissions

8    Manolo Blahnik submits that Estro elected to enter the fray and vigorously contest the Application by serving evidence and making submissions going beyond putting Manolo Blahnik to proof and was unsuccessful in resisting the orders sought for preliminary discovery under r 7.23 of the Rules.

9    It contends that Estro had two prongs to its resistance to the orders it sought for preliminary discovery which were principally directed at attacking the first two of the three requirements that Manolo Blahnik had to establish under r 7.23 of the Rules, namely that Manolo Blahnik had already formed the view that it had sufficient information to commence a proceeding and that the evidence Estro had served was a complete answer to the information Manolo Blahnik sought in order to decide whether to commence a proceeding. In summary, Manolo Blahnik submits that Estro failed to establish either of those matters and that it went beyond putting Manolo Blahnik to proof in that it served evidence which it said was a full answer to the application for discovery, which was not accepted. In those circumstances, Manolo Blahnik submits that Estro should be required to bear all, or the vast majority, of the costs of and incidental to the Application.

10    Estro submits that Manolo Blahnik did not succeed on the majority of its Application, which weighs strongly in its favour when the Court exercises its discretion to award costs. It submits that Manolo Blahnik only obtained an order for discovery of documents in two categories (corresponding with subparagraphs 2(b) and (c) of the Application) and it failed in relation to the balance of the Application including in relation to its application pursuant to r 7.22 of the Rules.

11    Estro submits that Manolo Blahnik persisted with its desire to obtain orders under r 7.22 of the Rules despite having been given the name of Estro’s supplier almost a month before the hearing and persisted with its application to cross-examine Gennaro Autore, a consultant to Estro, which was refused. Estro submits that given Manolo Blahnik failed in relation to the bulk of the Application, having regard to that as the “result”, Estro is more properly to be regarded as the victor. It says that the position it took in relation to the Application also commends an award of costs in its favour. It adopted a confined and directed stance at the hearing, taking only two principal points, for which it was not criticised.

12    Estro submits that in the event that the Court is not persuaded that an order for costs ought to be made in its favour, then an order should be made of the kind made in MMD Design and Consultancy Limited v Camco Engineering Pty Ltd [2019] FCA 1803 (MMD Design) that Manolo Blahnik pays its costs, in whole or at least 75%, should a substantive proceeding not be commenced by Manolo Blahnik within a defined timeframe of the October Orders.

Legal principles

13    Section 43 of the Federal Court Act confers a wide discretion on the Court to award costs which is not to be read down otherwise than by judicial principle conformable with its amplitude: see DSE (Holdings) Pty Limited v InterTAN Inc [2004] FCA 1251 at [14].

14    In Pfizer Ireland Pharmaceuticals v Samsung Bioepis AU Pty Ltd (No 2) [2019] FCA 657 (Pfizer (No 2)) at [25] Burley J summarised the general principles in relation to the costs of preliminary discovery applications:

Unsurprisingly, many single judge decisions consider the award of costs in applications for preliminary discovery. Without overcomplicating the analysis, which ultimately involves the exercise of the discretion conferred by s 43(2) of the FCA Act, the following propositions may be observed in relation to the making of such an award:

(1)    The jurisdiction to order preliminary discovery is an extraordinary one since an order for preliminary discovery involves an invasion of the prospective respondent’s private affairs in order to determine whether or not a case can properly be brought against the prospective respondent; J & A Vaughan Super Pty Ltd v Becton Property Group Limited [2013] FCA 340 at [17] (Kenny J); C7 Pty Ltd v Foxtel Management Pty Ltd [2001] FCA 1864 at [50] (Gyles J).

(2)    In considering where the balance lies in ordering costs, the exceptional nature of the jurisdiction is a matter to be taken into consideration and is a matter that may mean that a wholly successful prospective applicant is not entitled to an order for costs; ObjectiVision Pty Ltd v Visionsearch Pty Ltd (No 3) [2015] FCA 304 at [23] (Perry J); Cobankara v Australia and New Zealand Banking Group Ltd [2017] FCA 419 at [20] (Mortimer J).

(3)    In Cappuccio v Australia & New Zealand Banking Group Ltd [1999] FCA 1188, a case where an application for preliminary discovery was resolved by consent, Burchett J at [3] considered that the appropriateness of the costs order:

…depends very much on the consequences of the discovery obtained. If the applicant for preliminary discovery uncovers enough to enable that applicant to bring proceedings which are successful, there may be much to be said for the proposition that the costs of the preliminary discovery should form part of the costs of the action. On the other hand, if the applicant proceeds, brings an action, fails, and is ordered to pay the costs of that action, there seems every reason why, generally speaking, the costs of the preliminary discovery should be included in the costs payable to the respondent.

(4)    Following this approach, in a number of cases where a prospective applicant has been successful in procuring orders for preliminary discovery, courts have found it appropriate to order that the payment of costs be deferred to see whether the outcome of the production of documents yields the commencement of substantive proceedings (usually within a specified period of time following the preliminary discovery proceedings). When that has occurred, then the award of costs has been left to the decision-maker in the substantive proceedings; Cappuccio at [3] – [5]; SmithKline Beecham plc v Alphapharm Pty Ltd [2001] FCA 271 at [32] (Finkelstein J); E D Oates Pty Ltd v Edgar Edmondson Imports [2012] FCA 356 at [59] (Kenny J); Gearhart United Pty Ltd v Omni Oil Technologies (Asia) SDN BHD (No 2) [2010] FCA 558 at [24] (Besanko J); Procter v Kalivis (No 3) [2010] FCA 1194; Aristocrat Technologies Australia Pty Limited v Ainsworth Game Technology Limited (No 2) [2019] FCA 511 at [10]–[11] (Yates J).

(5)    In other cases, the view has been expressed that the costs outcome should be determined at the time the outcome of the preliminary discovery application has been determined. It is a discrete issue and should not be deferred to an uncertain time; C7 Pty Ltd at [50]; Steffen v ANZ Banking Group [2009] NSWSC 883 at [31] (McDougall J); ObjectiVision at [17] – [21].

(6)    Where an order for costs has not been deferred, some authorities indicate that the costs balance should favour the payment of costs by the prospective applicant. This is because there is no obligation on a prospective respondent to respond to requests for information, and a prospective respondent is entitled to remain passive and consequently put a prospective applicant to proof in preliminary discovery hearings: Glencore International AG v Selwyn Mines Limited [2005] FCA 801; 223 ALR 238 [15] (Lindgren J); C7 Pty Ltd at [50]; Vaughan Super at [18]; Procter at [17].

(7)    However, where the prospective respondent takes an adversarial approach to the application, it exposes itself to an order for costs; Steffen at [32] – [33]; ObjectiVision at [23] – [24]; Dallas Buyers Club LLC v iiNet Limited (No 3) [2015] FCA 422; 327 ALR 695 at [3] (Perram J). In these cases, the courts have preferred not to defer the making of costs orders.

15    As is evident and as Burley J observed in Pfizer (No 2) (at [26]) there has been no uniform approach to the award of costs in preliminary discovery applications. However, an emerging theme is that where a prospective respondent takes an adversarial approach, it may be required to bear some or all of the costs if the prospective applicant is successful. At [27] of Pfizer (No 2) Burley J said:

Where a prospective respondent elects to enter the fray and vigorously contest the application, it becomes exposed to the risk that it should bear a costs consequence similar to the position it would be in were it a party to proceedings proper. Where the contest on an application is limited to the prospective applicant being put to proof of the elements of r 7.23, then even a successful prospective applicant may be liable to pay the costs. Conversely, where each point is hard fought, the prospective respondent is exposed to the risk that it will be visited with some or all of the costs in the event they are unsuccessful. In such circumstances, it may be inappropriate to defer a costs order to the outcome of any prospective litigation.

Consideration

16    As set out above, Manolo Blahnik sought relief under r 7.22 and r 7.23 of the Rules. Ultimately, it was only successful in relation to its application for discovery pursuant to r 7.23 of the Rules and, then, only in relation to two of the five categories in which it sought discovery. That is, it enjoyed only limited success on the Application.

17    Estro says that it would be unfair to characterise its approach to the Application as adversarial or to say that it “elected to enter the fray and vigorously contest” the Application such that its conduct warrants a costs order being made against it. It is difficult to accept the full force of that submission. In my opinion, it cannot be said that Estro did not defend the Application and attempt to thwart it.

18    While Estro attempted to assist by divulging the name of its supplier and the evidence given by Mr Autore on behalf of Estro might be characterised as intending to facilitate Manolo Blahnik’s understanding of the extent of sales of allegedly infringing shoes, Estro otherwise opposed the Application. Contrary to its position taken in the proceeding, the evidence it served did not constitute a complete answer to the information that Manolo Blahnik sought by way of preliminary discovery.

19    Having regard to the position taken by the parties and the outcome of the Application, in my opinion Manolo Blahnik is entitled to payment of its costs. However, given its limited success and its persistence with its application pursuant to r 7.22 of the Rules, notwithstanding that Estro had provided the name of its supplier to it prior to the hearing, it is not entitled to the whole of its costs. In the circumstances of this case, Manolo Blahnik is entitled to 30% of its costs of the Application.

20    I do not intend to make an order of the kind made in MMD Design. I do not consider that it is convenient to defer the question of costs until it is clear whether Manolo Blahnik will commence a proceeding against Estro.

Conclusion

21    I will make an order pursuant to r 7.29(b) of the Rules that Manolo Blahnik pay Estro’s reasonable costs of the provision of discovery pursuant to Order 1 of the October Orders and an order that Estro pay 30% of Manolo Blahnik’s costs of the Application.

Associate:

Dated:    18 December 2020