Federal Court of Australia

Henley Arch Pty Ltd v Henley Constructions Pty Ltd (No 2) [2022] FCA 231

ORDERS

THE COURT ORDERS THAT:

1.    The Respondents pay the Applicant’s costs pursuant to Order 9 of the Court’s orders dated 25 November 2021 in a lump sum and on an indemnity basis from 11am on the second business day after the 26 November 2019 offer was served pursuant to rules 40.02(b) and (c) of the Federal Court Rules 2011 (Cth) (Rules).

2.    If the parties cannot agree, within three weeks from the date that this judgment is delivered on the amount of the lump sum, then that costs dispute be referred to a Registrar of this Court to fix the amount of the referred costs dispute and:

(a)    within five weeks, the Applicant file and serve any costs summary and submissions in accordance with the Costs Practice Note (GPN- COSTS).

(b)    within eight weeks, the Respondents file and serve any costs response and submissions in accordance with the Costs Practice Note (GPN- COSTS).

(c)    pursuant to rule 1.37 of the Rules, the Registrar determine the quantum of costs in any referred costs dispute in such manner as they think fit, including, if thought appropriate, on the papers, and within four weeks of the making of the determination, make orders for the payment of the amounts so determined.

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

REASONS FOR JUDGMENT

ANDERSON J:

Introduction

1    On 5 November 2021, I delivered my decision on liability in Henley Arch Pty Ltd v Henley Constructions Pty Ltd [2021] FCA 1369 (Liability Judgment). In essence, I found that Henley Constructions infringed Henley Arch’s intellectual property rights with respect to a number of its trade marks, and that Henley Constructions also contravened the ss 18 and 29 of the Australian Consumer Law (ACL) by using various marks branded with the name “Henley”, or variations of that name in its building, construction and design business.

2    On 25 November 2021, I ordered that the Respondents pay the Applicant’s costs of and incidental to the hearing of liability on the claim, and the costs of and incidental to the cross-claim, on a basis to be determined both as to whether costs should be awarded on a standard or indemnity basis, and whether its costs are to be assessed as a lump sum or by taxation.

3    On 10 March 2022, I heard the parties’ submissions as to the appropriate method of determining the quantum of those costs.

4    The Applicant submits that its costs should be paid on an indemnity basis and in a lump sum to be determined by the Registrar in default of agreement.

5    The Respondents do not contest that the costs should be assessed on a lump sum basis, but submit that costs should be paid on a party and party basis.

6    As the parties are in agreement as to costs being awarded on a lump sum basis, I will not deal with this particular matter further.

The offers of settlement

September 2017 Calderbank Offer

Henley Arch submissions

7    Henley Arch primarily relies upon a Calderbank offer that was made in a letter from Ashurst on behalf of Henley Arch to HP Legal (the solicitors that were then acting on behalf of Henley Constructions) dated 20 September 2017 (September 2017 Offer).

8    Henley Arch submits that by 20 September 2017, the parties had engaged in extended and detailed correspondence regarding the dispute. Prior to the September 2017 Offer, by letters dated 13 April 2017 and 22 May 2017, Henley Arch had provided an explanation of the strengths of its case and offered to resolve the matter by Henley Constructions agreeing to change its company name and to cease using “Henley” in the promotion of its building and constructions services, with a grace period to inform customers of the name change ahead of it taking effect. That offer was not accepted by the Henley Constructions.

9    Henley Arch submits that the offer was a real compromise of the dispute. Henley Arch submits that the September 2017 Offer, if accepted, would have allowed the Respondent to continue to use the name “HENLEY CONSTRUCTIONS” subject to a geographical limitation, and only in respect of particular building types (those which contain less than 10 apartments).

10    Henley Arch submits that it obtained judgment more favourable in substance than what was offered in the September 2017 Offer. This is so despite, in Henley Arch’s submissions, the September 2017 Offer including a requirement that Henley Constructions cease using telephone number 1300 HENLEY other than in accordance with the regime set out in the offer.

11    The September 2017 Offer, in Henley Arch’s submission, repeats and amplifies earlier explanations made by or on behalf of Henley Arch as to why Henley Constructions would lose an action brought by Henley Arch for trade mark infringement and misleading and deceptive conduct. Henley Arch submits that the searches undertaken by Mrs Sarkis with respect to the various construction company names, including the name “Henley” was a matter that Henley Constructions must have known by the date of the September 2017 Offer and is something that Henley Constructions could not truthfully resist, given the Court’s ultimate findings that such searches were performed and that Henley Constructions did in fact know of Henley Arch prior to commencing use of the “HENLEY CONSTRUCTIONS” mark.

12    Henley Arch submits that, in the circumstances, it was imprudent and unreasonable for Henley Constructions to not have accepted this offer, and the failure to do so justifies the making of an order for costs on an indemnity basis. Henley Arch submits that the fact that the offer was made prior to commencement of the proceeding is not a significant factor given that the parties had thoroughly explored the relevant issues in dispute by way of correspondence over an extended period of time and Henley Constructions should have been aware that the primary plank of their defence (good faith use of own name) could not be supported.

Henley Constructions submissions

13    Henley Constructions submits that the September 2017 Offer was made prior to the issuance of proceedings and it remained open for acceptance for seven days. Henley Constructions submits that the September 2017 Offer contained a number of clauses which sought relief that was not obtained at trial, namely:

(a)    Ceasing use of the telephone number 1300 HENLEY other than in accordance with a regime set out in the offer.

(b)    Undertaking not to register any new trade marks that “contain the word HENLEY” in perpetuity, regardless of their similarity or otherwise to the Applicant’s trade marks.

(c)    Undertaking not to challenge or oppose any use or registration of any mark by the Applicant, or someone it approves, provided that mark merely contains the word “HENLEY”.

14    Henley Constructions accepts the principles with respect to indemnity costs for rejection of offers, but submits that the following three principles are also relevant:

(a)    Firstly, when determining whether an offer is more favourable than what was provided by the judgement it ought to be considered what value the offeree may have reasonably attributed to such other extraneous matters within the offer at the time of its making: Management 3 Group Pty Ltd (in liq) v Lenny’s Commercial Kitchens Pty Ltd (No 3) [2011] FCA 725 per Dodds-Streeton J at [37].

(b)    Secondly, the onus of establishing that an offeree would have been in a better position by accepting an offer instead of proceeding to a judgement lies with the offeror. Hence it is a matter for the Applicant to establish with evidence: See Anchorage Capital Partners Pty Ltd v ACPA Pty Ltd (No 2) [2018] FCAFC 112 per Nicholas, Yates and Beach JJ at [14].

(c)    Thirdly, when it comes to considering the timing of an offer on the question of unreasonableness of rejection it may be relevant to consider if the offer was made prior to evidence being filed. This is relevant to assessing if the offeree’s rejection “was unreasonable at the time the offers were made, looking forward from the time the offers were made and having regard to all the circumstances including the strengths and weaknesses of the case as they were known at that time”: Damagold Pty Ltd v Blindware Pty Ltd (No 2) [2018] FCA 364 per Middleton J at [66] and [67].

15    Henley Constructions submits that its rejection of the September 2017 Offer was not unreasonable for the following reasons:

(a)    It ought not be found that it was unreasonable for the Respondents to attribute weight to the continued use of 1300 HENLEY. No evidence has been submitted by the Henley Arch in support of the claim that this was a “minor” matter in dispute and undisputed facts would indicate otherwise. It was not in dispute that this phone number was in use by the Henley Constructions and this is consistent with evidence filed and relied upon by the Henley Arch at trial. And orders in relation to the phone number were regarded to be of sufficient importance by the Applicant so as to be expressly included in the Originating Application filed on 21 September 2018. If the Respondents were ordered to change the corporate and trading name it is naturally expected, and may be inferred, that their customers, trading partners and other contacts will continue to expect to be able to contact them on this phone number for a period of time. This seven-day offer did not specify the time by which such a change must occur. It must be presumed that immediate compliance would have been required, which would likely have resulted in significant business disruption.

(b)    Evidence had not been filed in the proceeding. This was particularly relevant in relation to the cross-claim. The Court held at trial that HENLEY was to no extent inherently distinctive but had acquired distinctiveness as at its priority date through use: Henley Arch Pty Ltd v Henley Constructions Pty Ltd [2021] FCA 1369 per Anderson J at [810] and [824]. Much of that evidence relied on confidential internal figures and proprietary data that the Respondents could not have been aware of at the time of rejecting this offer. Therefore they were entitled to a fair belief in their defence and cross-claim.

(c)    Seven days was insufficient to consider all aspects of the offer. Given evidence had not been filed, such time would also need to be spent investigating the factual basis behind the Applicant’s claims to the best of the Respondents’ ability.

November 2019 Offer of compromise

Henley Arch submissions

16    On 26 November 2019, Henley Arch made a formal offer of compromise to Henley Constructions (2019 Offer) pursuant to r 25.14(3) of the Rules.

17    Henley Arch submits that by 26 November 2019, the proceeding had been on foot for over 12 months and the parties had both filed substantial evidence in support of their claims.

18    Henley Arch submits that the 2019 Offer represents a real compromise with the judgment being in substance more favourable for Henley Arch. Henley Arch submits that the 2019 Offer gave up any claim to legal costs, had no injunction based on the ACL claim and contained a six-month transition period for the Respondents to stop using the impugned signs as a trade mark in respect of building or construction services. To the extent that the offer required the Respondents not to use 1300 HENLEY as a trade mark, Henley Arch notes that the injunctions finally made will, in practice, restrain the Respondents from using 1300 HENLEY (which has been found to be deceptively similar to HENLEY) as a trade mark in the course of trade in respect of building or construction services.

19    Accordingly, by operation of r 25.14 of the Rules, Henley Arch submits that it is at least entitled to its costs on an indemnity basis from 11am on the second business day, after 2019 Offer were served on the Respondents, namely from 11am on 28 November 2019.

Henley Constructions submissions

20    Henley Constructions submits that the 2019 Offer, inferentially, required it to cease using 1300 HENLEY. Henley Constructions submits that the terms of the offer were clear that Henley Constructions was only required to cease use of 1300 HENLEY as a trade mark, rather than as a telephone number, which was consistent with the reasons for judgment and final orders.

21    Henley Constructions submits that the 2019 Offer does not constitute a real compromise. Henley Constructions submits that it offers no order as to costs, however that is not sufficient by itself to constitute a compromise as there is no entitlement to costs for a matter resolved by consent prior to a hearing on the merits: Gribbles Pathology Pty Ltd v Health Insurance Commission (1997) 80 FCR 284, per Finkelstein J at 287.

22    Henley Constructions submits that the 2019 Offer does not mention account of profits. However, Henley Constructions submits that no entitlement to account of profits has been established and any such entitlement is contested by the Respondents.

23    Henley Constructions submits that they were entitled to place weight on not incurring the costs and business disruption.

24    Finally, Henley Constructions submits that it was entitled to have sufficient confidence in its defence and cross-claim as at 26 November 2019 to reject an offer that, in their submission was nothing more than an invitation to capitulate.

Indemnity costs – legal principles

25    Section 43 of the Federal Court of Australia Act 1976 (Cth) gives the Court a broad discretion to make orders with respect to costs. That discretion must be exercised judicially: Les Laboratoires Servier v Apotex Pty Ltd (2016) 247 FCR 61 at [305]. The ordinary rule is that costs are awarded on a party-party basis: Re Wilcox; Ex Parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151, at 153 per Black CJ, at 158 per Cooper and Merkel JJ. However, that ordinary rule may be displaced in favour of a cost award on an indemnity basis in two relevant circumstances.

26    First, pursuant to r 25.14(3) of the Rules, if an offer to compromise is made under the Rules by the Applicant and not accepted by the 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 on an indemnity basis from 11am on the second business day after the offer was served. Second, an imprudent or unreasonable refusal of an informal offer to settle is a well-established circumstance to justify an award of indemnity costs.

27    In determining whether the rejection of an offer to settle justifies an award of indemnity costs, the first question to consider is whether there was a genuine offer of compromise in the context of the proceeding. A genuine offer can be one limited to foregoing a potential entitlement to recover costs that had already been incurred at the date of the relevant offer.

28    The second question is whether the state of affairs provided for by the judgment is more favourable as a matter of substance to the party seeking to rely on the offer compared with the state of affairs had the offer been accepted: Stead v Fairfax Media Publications Pty Ltd (No 2) [2021] FCA 65 at [26] per Lee J.

29    As to the factors that may be taken into account in determining whether the non-acceptance of the September 2017 Offer was unreasonable, in Anchorage Capital Partners Pty Limited v ACPA Pty Ltd (No 2) [2018] FCAFC 112, the Full Court provided the following non-exhaustive list (at [7]):

(a)    the stage of the proceeding at which the offer was received;

(b)    the time allowed to the offeree to consider the offer;

(c)    the extent of the compromise offered;

(d)    the offeree’s prospects of success, assessed as at the date of the offer;

(e)    the clarity with which the terms of the offer were expressed; and

(f)    whether the offer foreshadowed an application for an indemnity costs order in the event of the offeree rejecting it. A reasoned explanation of the strength (or weaknesses) of the case, while not essential, is relevant to the exercise of the Court’s discretion: Hardingham v RP Data Pty Limited (No 2) [2021] FCAFC 175 at [22].

30    Observations relating to these factors were also made in Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd (2011) 16 ANZ Insurance Cases 61-885; [2011] FCAFC 53 at [145]; Barnes v Forty Two International Pty Limited (No 2) [2015] FCAFC 19 at [19]-[20]; The MTGI Trust at [23]; and Verrocchi v Direct Chemist Outlet Pty Ltd (No 2) [2016] FCAFC 162 at [8].

Consideration

31    I am persuaded that Henley Arch is entitled to have its costs paid on an indemnity basis from 11am on the second business day after the 2019 Offer was served. That is primarily because the applicant obtained a judgment that was more favourable to the applicant than the terms of the 2019 Offer.

32    In the result, nearly all of Henley Arch’s claims against Henley Constructions were made out. Henley Constructions would have fared better if it accepted any of the offers made by Henley Constructions from the commencement of the litigation. However, as noted above, not every failure to accept a settlement offer will constitute an imprudent or unreasonable refusal: Anchorage Capital Partners Pty Ltd v ACPA Pty Ltd (No. 2) [2018] FCAFC 112 at [6]. The factual matrix of the case advanced by Henley Arch was complex and involved a large number of trade marks and contained a multiple grounds and issues which needed to be considered. I do not consider that it was unreasonable or imprudent to reject the September 2017 Offer in circumstances where the entirety of the evidence was not available to the parties, such that a reasonable and fully informed decision could be made: Lack v Lipovac & Ors (1998) 217 ALR 386 at 432 per Miles, Heerey and Madgwick JJ; CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Ltd [2008] FCAFC 173 at [75] per Moore, Finn and Jessup JJ.

33    However, the rules in relation to offers of compromise operate differently to the principles which apply to Calderbank offers. When it comes to an offer of compromise, one must undertake an evaluative assessment required by r 25.14, and must ask: whether the state of affairs provided for by the judgment is more favourable, as a matter of substance, to the offeror, compared with the state of affairs had the offer been accepted: Stead v Fairfax Media Publications Pty Ltd (No 2) [2021] FCA 65 at [26] per Lee J. The practical consequence here, is that if Henley Arch obtained a judgment that was more favourable to it than the 2019 Offer, then I must order that Henley Constructions pay Henley Arch’s costs on an indemnity basis: r 25.14(3).

34    I find that the 2019 Offer of compromise was a genuine offer in the context of the proceeding, and ultimately judgment was more favourable for Henley Arch than the terms of the 2019 Offer. This is so because the offer gave up any claim to legal costs, had no injunction based on the ACL claim and contained a six-month transition period for the Respondents to stop using the impugned signs as a trade mark in respect of building or construction services. This is in contrast to the findings in the Liability Judgment, wherein I found that Henley Constructions infringed Henley Arch’s intellectual property rights with respect to a number of its trade marks, and found that Henley Arch was entitled to injunctions against Henley Constructions due to its contraventions of ss 18 and 29 of the ACL. Further, I ordered that the Respondents pay the Applicant’s costs of and incidental to the hearing of liability on the claim, and the costs of and incidental to the cross-claim. Henley Arch clearly obtained a judgment that was more favourable than the state of affairs in the 2019 Offer. As such indemnity costs should be awarded against the Respondents from 11am on the second business day after the 2019 Offer was served on the Respondents pursuant to r 25.14(3).

Disposition

35    For the reasons set out above, I will order the Respondents to pay the Applicant’s costs on an indemnity basis, and as a lump sum from 11am on the second business day after the 2019 Offer was served on the Respondents.

Associate:

Dated:    17 March 2022