Federal Court of Australia

The Agency Group Australia Limited v H.A.S. Real Estate Pty Ltd (No 2) [2023] FCA 652

ORDERS

THE COURT ORDERS THAT:

1.    The applicants pay the first respondent’s costs of the proceeding on a party and party basis up to 11.00 am on 4 April 2023 and on an indemnity basis thereafter.

2.    The applicants pay the second and third respondents’ costs on an indemnity basis.

3.    The applicants pay the respondents’ costs referred to in orders 1 and 2 in a total lump sum amount of $272,072.41 within 14 days.

4.    Pursuant to ss 37AF(1)(b)(i) and 37AG(1)(a) of the Federal Court of Australia Act 1976 (Cth) access to and disclosure (by publication or otherwise) of Exhibit GAR-2 and Exhibit GAR-3 to the affidavit of Giuseppe Russo dated 2 June 2023 be restricted to the external legal representatives of the applicants in this proceeding who have provided a confidentiality undertaking in accordance with the form agreed between the parties on 21 April 2023 until further order.

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

REASONS FOR JUDGMENT

JACKMAN J

1    At the conclusion of my judgment in The Agency Group Australia Ltd v H.A.S. Real Estate Pty Ltd [2023] FCA 482, I set a timetable for written submissions and evidence on the question of costs. By consent, that timetable was extended, such that the written submissions in reply were filed and served on 9 June 2023.

2    The first, second and third respondents seek a lump sum costs order, which is not resisted by the applicant. However, there is a contest as to whether costs should be awarded on an indemnity basis, or whether they should be awarded on a party and party basis. The respondents submit that the lump sum costs order should be in the amount of $272,072.41, reflecting costs on an indemnity basis for the second and third respondents, being the directors of H.A.S Real Estate, and in relation to the first respondent, on a party and party basis until 11 am on 4 April 2023 and on an indemnity basis from 11am on 4 April 2023. The respondents also propound alternative orders by way of fall-back positions. The applicants submit that they should be liable to pay the respondents’ costs of the proceedings in a lump sum amount of $155,664.27, which reflects the applicants’ calculation of costs on a party and party basis.

3    There are two grounds on which the respondents seek indemnity costs. The first ground is the unreasonable failure of the applicants to accept an offer made on 31 March 2023. This is a well-established circumstance justifying an award of indemnity costs: Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 801; (1993) 46 FCR 225 at 233 (Sheppard J); Anchorage Capital Partners Pty Ltd v ACPA Pty Ltd (No 2) [2018] FCAFC 112 at [6] (Nicholas, Yates and Beach JJ). The question whether the offeree’s refusal of the offer was unreasonable is to be assessed in the light of the circumstances existing at the time the offer was rejected: Anchorage at [7]; Black v Lipovac [1998] FCA 699; (1998) 217 ALR 386 at 432; CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Ltd [2008] FCAFC 173 at [75]. The principle is reflected in the Federal Court Rules 2011 (Cth) (the Rules), under which r 25.14(2) provides if an offer to compromise a proceeding is made by a respondent and an applicant unreasonably fails to accept the offer and the applicant’s proceeding is dismissed, the respondent is entitled to an order that the applicant pay the respondent’s costs: (a) before 11.00 am on the second business day after the offer was served – on a party and party basis; and (b) after the time mentioned in paragraph (a) – on an indemnity basis.

4    The respondents’ offer of 31 March 2023 was in the following terms:

The offer is:

a)    Within 21 days from the acceptance of this offer, the Respondents will cause the First Respondent to change its name to “The North Agents” and will cease using the name “The North Agency”; and

b)    The parties submit to the Court, within 28 days of acceptance of this offer, consent orders:

a.    The proceeding be dismissed; and

b.    There be no order as to costs.

This offer is inclusive of costs.

This offer of compromise is open to be accepted for 14 days after service of this offer of compromise.

5    The offer represented a genuine compromise on the part of the respondents, whereby they would give up the right to use the name “The North Agency” and the right to recover their costs. The offer was accompanied by a letter of 31 March 2023 setting out various weaknesses in the applicants’ case. The offer was made pursuant to r 25.01 of the Rules and, in the alternative, in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333. The offer was rejected on 3 April 2023.

6    The applicants submit that their rejection of the offer was not unreasonable, submitting that they had already spent a substantial amount of money on the litigation, the respondents’ offer was not directly referrable to the terms of the injunction sought by the applicants, the respondents’ evidence served on the same day did not confront the applicants with any particular weakness in their case, the Court may have considered that the respondents’ trade mark was likely to be confused with the Registered Marks, the respondents’ evidence did not bolster the defence of “descriptive use in good faith” under s 122(1)(b) of the Trade Marks Act 1995 (Cth), and there was uncertainty in the law by reason of the contradictory reasoning in Self Care IP Holdings Pty Ltd v Allergan Australia Pty Ltd [2023] HCA 8 to which I referred in my judgment at [56]-[60]. In my view, it was unreasonable for the applicants to reject the offer. On the basis of the material available to the applicants by 31 March 2023, the applicants ought to have appreciated that their case on trade mark infringement was weak, and their case on passing off and misleading conduct was very weak. The fact that the applicants succeeded on some subsidiary issues did not affect the outcome of the litigation, or relevantly qualify the success of the respondents: The State of Victoria v Sportsbet Pty Ltd (No 2) [2012] FCAFC 174 at [8] (Emmett, Kenny and Middleton JJ). The subsidiary issues on which the applicant enjoyed success were just that, subsidiary. The lack of clarity in the High Court’s reasoning in Self Care does not assist the applicants on the question of costs. If I had been prepared to adopt the reasoning of the High Court in Self Care at [70] and [71], that would have been an additional reason why the applicants’ case would have failed.

7    The second basis on which indemnity costs are sought concerns the position of the second and third respondents, the directors of H.A.S. Real Estate. Another well-established category of case in which an award of indemnity costs may be justified is where a party makes allegations, or persists in making allegations, which ought never to have been made, or which ought not to have been persisted in: Colgate-Palmolive Co v Cussons Pty Ltd at 233. It is appropriate to consider awarding indemnity costs “whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success” and “in such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law”: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 364; (1988) 81 ALR 397 at 401 (Woodward J), cited with approval in Melbourne City Investments Pty Ltd v Treasury Wine Estates Ltd (No 2) [2017] FCAFC 116 at [5] (Jagot, Yates and Murphy J).

8    The applicants sued Mr Aldren and Mr Sila as being directly liable, and also on the basis of being joint tortfeasors, in trade mark infringement and passing off, and for accessorial liability for misleading conduct. At no stage of the proceeding did the applicants disclose a basis for their case against Mr Aldren and Mr Sila. That was despite concerns having been expressly raised by counsel for the respondents in their written and oral openings. No submission was made by counsel for the applicants in their closing address as to how it could be said that Mr Aldren and Mr Sila were liable. As I have said at paragraphs [12] and [108] of my judgment, I specifically raised this matter with counsel for the applicants at the end of his closing oral address, whereupon, after a short adjournment of about 5 minutes, the applicants abandoned their claim against Mr Sila and Mr Aldren. In relation to costs, I said at [108] of my judgment that there was a real question as to whether there was a legitimate forensic purpose for joining those gentlemen.

9    Nothing in the applicants’ submissions or evidence in relation to costs suggests any such legitimate forensic purpose. I infer that there was never a legitimate forensic purpose for having joined Mr Aldren and Mr Sila, and none is apparent to me. I infer that the reason for joining them was to put pressure on them to coerce them into capitulation on behalf of H.A.S. Real Estate through fear of potential consequences for them personally, whether by way of pecuniary remedies or costs. It was the conduct of a corporate bully and an abuse of the process of the Court.

10    Accordingly, in my view it is appropriate to award costs on an indemnity basis to the second and third respondents in relation to the entirety of the proceedings, and in relation to the first respondent from 11 am on 4 April 2023 pursuant to r 25.14(2). There remains an issue concerning the quantification of those costs.

11    The applicants rely upon the affidavit of an experienced solicitor in the field of costs assessment, Ms Morson, in relation to the appropriate calculation of costs. To the extent that it is relevant to the calculation of indemnity costs, Ms Morson applies adjustments to the claim by the respondents on the grounds of inefficient delegation of work, generally excessive costs, over-reliance on both senior and junior counsel, and photocopying disbursements. Similar criticisms are made of the calculation of party and party costs, with greater discounts being applicable in relation to party and party costs. Ms Morson qualifies her opinions by reference to the lack of information and documents available to her, and her consequent inability to comment on the costs for the work that was actually undertaken. Ms Morson’s comments reflect what she has experienced in other cases. I note that Talbot Sayer’s, the solicitors for the respondents, timesheets and tax invoices were available for inspection by Ms Morson and the applicants’ solicitors, but no request was made by them to inspect that material.

12    The quantification of costs by the respondents is set out in an affidavit by Mr Russo, a special counsel at Talbot Sayer. Mr Russo now has day to day conduct of the matter, although Ms Kennedy, a principal at Talbot Sayer, was previously responsible for the conduct of the matter before she commenced maternity leave on 23 May 2023. Both Mr Russo and Ms Kennedy (who has given information to Mr Russo which Mr Russo believes to be true) have appropriate experience to give evidence concerning the appropriate quantification of costs. They have the distinct advantage over Ms Morson of familiarity with the work actually undertaken by the legal representatives for the respondents, as well as access to all documents and information in relation to that work.

13    In my view, while much of what Ms Morson says may well be appropriate in other cases, I am not persuaded that I should adopt any of the discounts to the respondents’ calculation which Ms Morson propounds. I note that the expression “costs on an indemnity basis” is defined in Sch 1 of the Rules as meaning “costs as a complete indemnity against the costs incurred by the party in the proceeding, provided that they do not include any amount shown by the party liable to pay them to have been incurred unreasonably in the interests of the party incurring them”. Mr Russo concludes that all of the work carried out by Talbot Sayer and counsel in the conduct of the litigation was fairly and reasonably incurred. He has excluded any claim where a narration in invoices issued by Talbot Sayer includes work that does not appear to relate directly to the conduct of the litigation. Some criticism was made by Ms Morson of a claim for $180 per hour for a law clerk, rather than the scale under Item 1.3 of Sch 3 to the Rules of $120 per hour. That work appears to have been done in the absence of a qualified solicitor between Ms Kennedy and the law clerk, and would have had the effect of reducing the amount of fees incurred by the respondents compared to the position which would have obtained if a qualified solicitor had done that work, given that Item 1.2 of Sch 3 allows $260 per hour for a law graduate. I infer from Mr Russo’s affidavit that the law clerk had the ability to conduct that work, and accordingly I regard it as an efficient way for the respondents to have proceeded.

14    A particular criticism is made by the applicants of the evidence of Mr Russo that Mr Aldren’s and Mr Sila’s costs on an indemnity basis prior to 11 am on 4 April 2023 were approximately 25% of the total costs for that period. That is both his estimate and also what he has been informed by Ms Kennedy and believes to be the appropriate proportion. Mr Russo refers to evidence having been prepared to address the claims against Mr Aldren and Mr Sila. In addition, specific consideration and advice were given in respect of the claims made against Mr Aldren and Mr Sila personally. While the proportion may have been different in other cases concerning different lawyers and clients, I accept the estimate given by Mr Russo and Ms Kennedy as to the proportion of time attributable to the personal position of Mr Aldren and Mr Sila. The applicants clearly intended that Mr Aldren and Mr Sila would take seriously the threat made to them personally, and can hardly complain that they achieved that objective to the extent that substantial time and energy were devoted to defending the two directors personally and advising them on their personal position.

15    Accordingly, I regard the appropriate quantification to be the figure put forward by Mr Russo of $272,072.41.

Associate:

Dated:    15 June 2023