Federal Court of Australia

Girchow Enterprises Pty Ltd v Ultimate Franchising Group Pty Ltd (Costs) [2022] FCA 776

ORDERS

THE COURT ORDERS THAT:

1.    The applicants pay the respondents’ costs of and incidental to the case management hearing on 3 March 2022.

2.    The application for costs made by the respondents at the case management hearing on 3 March 2022 be otherwise dismissed.

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

REASONS FOR JUDGMENT

THAWLEY J:

1    At the conclusion of a case management hearing on 3 March 2022, the respondents (UFC) sought the following orders:

(1)    the applicants (the Franchisees) pay UFC’s costs in relation to the case management hearing held on 3 March 2022 on an indemnity basis;

(2)    the requirements of rule 40.13 of the Federal Court Rules 2011 (Cth) be dispensed with such that the costs may be taxed immediately in the absence of agreement; and

(3)    the costs be payable forthwith.

2    The Franchisees accepted that they should pay UFC’s costs of the case management hearing on 3 March 2022 but opposed an order for assessment on an indemnity basis or that the costs be payable forthwith. The Court made orders for the costs of the case management hearing to be determined on the papers.

BACKGROUND

3    On 13 December 2021, the Court made orders which included:

6.     That from the Transition Date and thereafter until further order of the Court, the Cross-respondents are restrained from utilising the mobile phone software application known as “UFC GYM AU” and operated by the entity known as “Mindbody” for the purpose of:

a.     registering, or recognising the registration of, any person as a Member of a UFC Gym operated by any of the applicants;

b.     allowing access by any Member to the premises of a UFC Gym operated by any of the applicants;

c.     allowing or recognising any booking by any Member for any class or group activity conducted on the premises of a UFC Gym operated by any of the applicants; or

d.     publishing, or causing to be published, any information concerning any class or group activity conducted on the premises of a UFC Gym operated by any of the applicants.

7.     That by the Transition Date the Cross-respondents are to send by email to each Member for whom they have an email address or mobile phone number (for those Members for whom they do not have an email address) the following:

a.     a message which reads “As a member of UFC Gym, you should only use the UFC Gym app available for download at https://www.ufcgym.com.au/”; and

b. a hyperlink to the website of the first respondent (ufcgym.com.au) associated with the words “https://www.ufcgym.com.au/”.

4    The Court made orders by consent on 10 February 2022, extending the Transition Date to 10 February 2022.

5    The parties exchanged a series of emails and letters in relation to what UFC considered to be the Franchisees’ non-compliance with orders 6 and 7. This included the following.

6    On 7 January 2022, Mr Sean O’Donnell, the solicitor for UFC, sent an email to Mr Akash Lodhia, the solicitor for the Franchisees, setting out his concerns that the Franchisees had not taken steps to comply with the orders dated 13 December 2021 and requested that the Franchisees take immediate steps to comply with the orders.

7    On 9 February 2022, Mr O’Donnell sent a further email to Mr Lodhia requesting the Franchisees provide evidence of compliance with the orders dated 13 December 2021.

8    On 21 February 2022, Mr O’Donnell sent a letter to Mr Lodhia in relation to the Franchisees’ alleged non-compliance with the orders. The letter stated:

We refer to our email dated 9 February 2022 (Email) and to the Orders made by the Court on 13 December 2021.

In respect of our Email, you have failed to respond or provide us (or our client) with evidence that your clients have complied with order 7 of the Orders.

In addition and of critical concern is that your clients are still using the UFC Gym AU app.

The app continues to be available and downloadable from sites like the ‘App Store’ and ‘Google Play’. Furthermore, once downloaded the app shows live data about classes being operated by your clients. This is a flagrant breach of order 6 of the Orders.

Please respond by 3pm today as to why this matter should not be urgently relisted before His Honour to deal with your clients conduct and flagrant breach of the Orders.

9    Mr Lodhia responded on 21 February 2022 by stating:

We refer to your attached letter and advise that our client has complied with the migration as previously advised.

Frankly, we are uncertain as to what evidence you require. However, your clients no doubt are well aware that such migration has been well and truly completed.

As for the additional information you are seeking, we intend to confer with our clients later this evening and will thereafter respond.

10    Mr O’Donnell responded on 21 February 2022 by stating:

With respect, we have now asked you on 2 occasions to provide evidence that your client has complied with order 7 of the Orders. You again have not responded but have sought to instead comment about the migration of member data. Surely it is not difficult to explain how your client has complied with order 7 and provide an example(s) of the emails and/or texts which have been sent out to members. We again request that you respond properly to our request so that our client can have some comfort that the orders of the Court have been satisfied.

With respect to the unauthorised UFC Gym AU app, we are not seeking 'additional information'. We have pointed out that your clients appear to be in flagrant breach of the Court orders. On 1 December 2021, you expressly said "They are also taking steps to disable the app" so why the unauthorised app remains available for download and still contains 'live' information is of great concern to our client. Below is a screenshot taken from the unauthorised app today at 2.44pm.

[screenshot not reproduced]

We will be taking steps to relist the matter absent a proper response from you.

11    On 23 February 2022, Mr Lodhia sent a letter to Mr O’Donnell stating that the Franchisees denied using the Mindbody app and attached emails sent to members of the Franchisees in apparent compliance with the orders of 13 December 2021. The letter included:

Our clients deny any continuing use of the Mindbody app. Our very clear instructions from our clients, which we have re-confirmed following receipt of your email, is that they ceased using the app by the Transition Date. Our clients do not know how any classes can still be seen on the app - they should not be. In any event, no bookings are being taken on the app and the UFC official app is being used exclusively for all gym purposes.

As for the sending of emails, we have re-confirmed with our clients that emails were sent by the Transition Date. Copies of example emails sent by each of the Franchisees are attached.

Your allegation that our clients are defying the orders of the Court are denied …

12    On 25 February 2022, Mr O’Donnell sent an email to Mr Lodhia stating:

We intend to have this matter re-listed concerning compliance with orders 6 and 7 of the Orders. An affidavit from myself attaching the recent correspondence is currently being prepared.

Your recent letter does not assist whether compliance has occurred, nor when it occurred in respect of order 7. Furthermore the ‘example’ emails provided are not in accordance with order 7 and in our client view misrepresent the true position relating to your clients app.

It is also clear, despite what is said in your letter, that 'live' information about classes was appearing on the UFG Gym AU well beyond the Transition Date. This data can only come from your clients. Your clients app still remains visible and downloadable from the App Store and Google Play.

13    On 3 March 2022, approximately 30 minutes before the commencement of the case management hearing, the Franchisees provided to UFC affidavits of Mr Karim Girgis affirmed 3 March 2022, Mr Richard Kim affirmed 2 March 2022 and Mr Laziz Mirdjonov affirmed 2 March 2022, being directors of the first, fifth and eighth applicants respectively. These affidavits addressed the steps taken by the first, fifth and eighth applicants to comply with orders 6 and 7 made on 13 December 2021.

14    Mr Mirdjonov stated that he was surprised to see the screenshot in Mr O’Donnell’s email and that he did not believe any classes would still be showing on the app. He stated: “Using the Mindbody control panel I had disabled data to be displayed”. He stated:

3     After 10 February 2022, to the best of my knowledge:

(a)     there were no active memberships on the Mindbody app;

(b)     the Mindbody app could not be used to make class bookings;

(c)     the Mindbody app could not be used to barcode access or QR codes;

(d)     there were no functions remaining on the app that any members could use.

4     I confirm to the Court that, to my knowledge, the Mindbody app is not being used by the eighth applicant (or any other applicant):

(a)     to register or recognising the registration of any UFC memberships;

(b)     to allow access by any members to any UFC gym facilities;

(c)     to allow bookings or recognising bookings for classes or group activities on the premises of UFC gym facilities;

(d)     to publish information concerning classes or group activities on the premises of UFC gym facilities.

15    Mr Mirdjonov stated that the eighth applicant had sent emails in an attempt to comply with order 7 made on 13 December 2021. He stated that he had not received legal advice before sending these emails. He stated that he had later sought legal advice and, having received that advice, caused new emails to be sent on 1 March 2022.

16    Mr Kim’s affidavit included:

2     I refer to the screenshot with gym classes. On 10 February 2022 from the start I had cancelled all of the classes for Blacktown on Mindbody. I did not believe it was possible that any classes might still be able to be seen on Mindbody. After seeing the screenshot which had been forwarded by our solicitors about 21 February 2022, l checked the Mindbody app and no classes were showing for Blacktown.

3     My understanding was that after the Transition Date there were no active memberships so that no classes could be booked using the Mindbody app, and that because there were no active memberships on the Mindbody database that the app could not be used to access any UFC Gym facilities or to register members.

4     As to the app still being available on the app store, to my knowledge each of the three franchisees have ceased the subscription with Mindbody and requested that the app be disabled. The removal of the app from being able to be seen is a matter in the control of Mindbody, Apple and Android. My belief is that the disabling of app functions and removal of active memberships would comply with paragraph 6 of the orders.

5     As to paragraph 6 of the orders, I confirm to the Court that, to my knowledge, the Mindbody app is not being used by the fifth applicant (or any other applicant):

(a)     to register or recognising the registration of any UFC memberships;

(b)     to allow access by any members to any UFC gym facilities;

(c)     to allow bookings or recognising bookings for classes or group activities on the premises of UFC gym facilities;

(d)    to publish information concerning classes or group activities on the premises of UFC gym facilities.

17    Mr Kim confirmed that, after receiving legal advice, further emails had been sent to members of the fifth applicant’s franchise on 1 March 2022 in order to comply with order 7 made on 13 December 2021.

18    Mr Girgis gave evidence relevant to the first applicant which was, in substance, to similar effect as that given by Mr Kim with respect to the fifth applicant.

CONSIDERATION

Indemnity costs

19    As to the asserted basis for an order for indemnity costs, UFC relied on:

(1)    the Franchisees’ alleged non-compliance with orders 6 and 7; and

(2)    the Franchisees’ delay in providing evidence to UFC of its compliance with orders 6 and 7, and the Franchisees alleged wrongful assertion of compliance with order 7.

20    In Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs v Mukiza [2022] FCAFC 105 at 4, the Full Court observed:

The Court’s power to make an award of costs is discretionary: see s 43 of the Federal Court of Australia Act 1976 (Cth) (FCA Act). The power must be exercised judicially, not arbitrarily or capriciously or on grounds unconnected with the litigation, having regard to relevant principle and the justice of the case in all the circumstances: Summers v Repatriation Commission (No 2) [2015] FCAFC 64 at [14] (Kenny, Murphy and Beach JJ). Section 37N(4) requires the Court to take into account any failure to comply with the duties in s 37N(1) or (2) of the FCA Act, being duties derived from the requirement to act consistently with the overarching purpose described in s 37M(1) …

21    Without limiting the discretion in s 43(2) of the FCA Act: s 43(3)(a) provides a discretion to award costs at any stage of proceedings; and s 43(3)(g) provides a discretion to award costs on an indemnity or other basis. Costs are typically awarded on a party and party basis. A costs order which is silent as to the description of the costs is an order for party and party costs: r 40.01 of the Federal Court Rules 2011 (Cth). There must be some reason to depart from the usual position that an order for costs is made on a party and party basis. As was stated by the Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 801; 46 FCR 225 at 233 – 234:

In consequence of the settled practice which exists, the Court ought not usually make an order for the payment of costs on some basis other than the party and party basis. The circumstances of the case must be such as to warrant the Court in departing from the usual course. … Most judges dealing with the problem have resolved the particular case before them by dealing with the circumstances of that case and finding in it the presence or absence of factors which would be capable, if they existed, of warranting a departure from the usual rule. But as French J said (at p 8) in Tetijo, “The categories in which the discretion may be exercised are not closed”. Davies J expressed (at p 6) similar views in Ragata (supra).

Notwithstanding the fact that that is so, it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weekes (1989) 92 ALR 131 at 152 ; evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp (supra)); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal); Crisp v Keng (unreported, Court of Appeal, NSW, Kirby P, Priestley JA, Cripps JA, No 40744/1992, 27 September 1993) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records (supra)). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.

22    As to the first matter identified at [19] above, namely asserted non-compliance with orders 6 and 7 made on 13 December 2021:

(a)    the Franchisees deny that there was non-compliance with order 6. The evidence of the applicant directors was that they took steps to comply with order 6. It is not entirely clear how some limited gym class information relevant to the eighth applicant remained available on the Mindbody app as at 21 February 2022. I am not satisfied that it occurred as a result of any deliberate non-compliance.

(b)    the applicant directors confirmed that they attempted to comply with order 7 by sending emails to the members of each of the franchises. After the respondents challenged the adequacy of these emails, and after receiving legal advice, new emails were sent to members on 1 March 2022. This was after the case management hearing had been set. The respondents were only made aware of these emails shortly before the case management hearing when they were provided with the affidavits relied upon by the applicants.

23    The actions of the Franchisees, while unsatisfactory in certain respects, were not so unreasonable as to warrant an order for indemnity costs; nor do they represent a sufficiently “special or unusual feature” in all of the circumstances: see Melbourne City Investments v Treasury Wine Estates Limited (No 2) [2017] FCAFC 116 at [5]. The evidence of the applicant directors was that genuine efforts were made to comply with the orders. In most respects, there was substantial compliance.

24    As to the second matter identified at [19] above, the Franchisees contend that they stated their position in their letter dated 23 February 2022 and that they were under no obligation to provide evidence of compliance with Court orders to UFC. The Franchisees only provided evidence of emails sent to members in compliance with order 7 approximately 30 minutes before the case management hearing on 3 March 2022. The Franchisees’ delay in providing evidence to UFC of its compliance with the orders meant that UFC was unable to seek instructions as to whether to agree to vacate the case management hearing on 3 March 2022.

25    A timely response by the applicants would likely have avoided the case management hearing. Having regard to ss 37M and 37N of the FCA Act, a timely response was preferable. Nevertheless, I do not accept that assessing costs on a party and party basis will be insufficient to compensate UFC for the costs of the case management hearing or that it is otherwise appropriate to order costs on a different basis.

26    I am not satisfied that the circumstances warrant the making of a costs order on other than a party and party basis.

Costs payable forthwith

27    I am also not satisfied that is appropriate to exercise the discretion to dispense with rule 40.13 of the Rules to order that costs be taxed immediately or be “payable forthwith”. In Watson v Kriticos (Costs Payable Forthwith) [2022] FCA 4 at [6] – [7], Perram J set out the principles governing the exercise of the discretion:

[6]    The principles governing the exercise of the discretion are similarly well-established. As a general proposition, the discretion should be exercised in favour of a party who establishes that the demands of justice require a departure from the ordinary rule embodied in r 40.13: FKP v Spirits at [7] ; Thunderdome Racetiming and Scoring Pty Ltd v Dorian Industries Pty Ltd (1992) 36 FCR 297 at 312 per Olney J. Always to be borne in mind, however, are the twin policy considerations underpinning r 40.13: first, that it is generally undesirable that the parties should be exposed to multiple taxation processes during the life of one proceeding; and second and relatedly, that during the balance of the litigation, costs orders may be made in the opposite direction which will normally be capable of being set-off against earlier costs orders.

[7]    The exercise of the discretion may be justified in a number of circumstances, including where (FKP v Spirits at [9]):

(a)    the final determination of the proceeding is far away: Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 13) [1995] FCA 1459 at [5] ;

(b)    a party has been required to incur significant costs over and above those which it would have incurred had the opposing party acted in handling the proceeding with competence and diligence: Life Airbag Company of Australia Pty Ltd v Life Airbag Company (New Zealand) Ltd [1998] FCA 545 ;

(c)    following a successful amendment application, a case is essentially a new proceeding: McKellar v Container Terminal Management Services Ltd [1999] FCA 1639 at [19] and [40] ;

(d)    a discrete issue has been resolved: Australian Flight Test Services v Minister for Industry, Science and Technology [1996] FCA 1425 at [7]; or

(e)    there is some reason to think that interlocutory disputation is draining the ability of one side to conduct the litigation: Clipsal Australia Pty Ltd v Clipso Electrical Pty Ltd [2016] FCA 37 at [12] .

28    UFC contends it has been put to considerable cost seeking information from the Franchisees that should have been readily given. UFC also contends that the final hearing is still some way off and that compliance with the orders represents a discrete issue.

29    In context, the costs incurred by UFC in preparing several letters and emails, a short affidavit annexing that correspondence, and attending the case management hearing, are unlikely to be significant. If the parties co-operate, the matter should be able to be heard relatively quickly.

30    I do not regard the issues as so discrete as to warrant engaging the parties in a taxation of costs now. It is generally undesirable to subject parties to multiple taxations of costs during the course of proceedings. The circumstances of this case do not require a departure from the usual position that costs be determined at the end of proceedings.

CONCLUSION

31    For these reasons, the applicants are to pay the costs of the respondents in relation to the case management hearing of 3 March 2022 assessed on a party and party basis, and the application for costs should otherwise be dismissed.

Associate:

Dated:    4 July 2022

SCHEDULE OF PARTIES