FEDERAL COURT OF AUSTRALIA

Redbubble Ltd v Hells Angels Motorcycle Corporation (Australia) Pty Limited (Costs) [2024] FCA 505

ORDERS

THE COURT ORDERS THAT:

1.    Save for Order 2 of the orders of Jagot J dated 16 March 2022, the appellant pay 75% of the first respondent’s costs of proceeding QUD403/2020 on the standard basis up to 11.00 am on 29 March 2022 and the first respondent pay the appellant’s costs of proceeding QUD403/2020 on an indemnity basis after 11.00 am on 29 March 2022, to be agreed or failing agreement, to be taxed.

2.    The appellant pay the first respondent’s costs of the appeal from the orders of Jagot J dated 16 March 2022, to be agreed or failing agreement, to be taxed.

3.    The first respondent pay 70% of the appellant’s costs of the appeal from the orders of Greenwood J dated 19 July 2022 (including as amended by Logan J on 4 August 2022) to be agreed or failing agreement, to be taxed.

4.    The first respondent pay the appellant’s costs of the cross-appeal to be agreed or failing agreement, to be taxed.

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

REASONS FOR JUDGMENT

DOWNES J:

Synopsis

1    On 23 February 2024, the Full Court (Perram, Nicholas, Burley, Rofe and Downes JJ) published reasons for judgment: Redbubble Ltd v Hells Angels Motorcycle Corporation (Australia) Pty Limited [2024] FCAFC 15 (judgment or J). These reasons should be read together with the judgment. I adopt the same definitions as in the judgment.

2    The judgment was given in two appeals brought by Redbubble, being an appeal from orders made by Jagot J dated 16 March 2022 and the second appeal being from orders made by Greenwood J dated 19 July 2022 (including as amended by Logan J on 4 August 2022). There was also a cross-appeal brought by Hells Angels Australia.

3    On 5 March 2024, the appeal from the orders of Jagot J was dismissed.

4    Also on 5 March 2024, the appeal from the orders of Greenwood J was allowed, and the declarations and orders made by his Honour were set aside. In their place and in summary, the Full Court ordered:

(1)    in lieu of the damages of $8,250 awarded by Greenwood J, nominal damages of $100;

(2)    in lieu of additional damages of $70,000, no additional damages; and

(3)    in lieu of the injunctions ordered by Greenwood J, a different form of injunctive relief.

5    The Full Court also ordered that the cross-appeal be dismissed. At J [238] (Perram and Downes JJ, with whom Nicholas, Burley and Rofe JJ agreed at J [242]), it is stated (inter alia) that Hells Angels Australia’s cross-appeal seeking the award of indemnity costs both before Greenwood J and Jagot J on the basis of an offer of compromise should be dismissed since the offer was more favourable to it than the result achieved.

6    By the Order of 5 March 2024, all other questions of costs were referred to me exercising appellate jurisdiction of the Full Court: see also J [239]. These reasons address those questions.

7    Each side filed extensive submissions and affidavit material on the question of costs. As this is a costs judgment, and the principles which apply are well established and not in dispute, it is appropriate to provide short form reasons.

8    In these reasons, reference will also be made to an earlier proceeding before Greenwood J which is discussed at J [148] (which I will describe as the 2019 proceeding), and which resulted in the 2019 judgment: J [4]. It is convenient to describe the proceeding below (being QUD403/2020) from which the appeal and cross-appeal was brought as the primary proceeding.

9    For the following reasons, I will order that:

(1)    save for Order 2 of the orders of Jagot J on 16 March 2022, Redbubble pay 75% of Hells Angels Australia’s costs of the primary proceeding on the standard basis up to 11.00 am on 29 March 2022 and Hells Angels Australia pay Redbubble’s costs of the primary proceedings on an indemnity basis after 11.00 am on 29 March 2022, to be agreed or failing agreement, to be taxed;

(2)    Redbubble pay Hells Angels Australia’s costs of the appeal from the orders of Jagot J in the primary proceeding, to be agreed or failing agreement, to be taxed;

(3)    Hells Angels Australia pay 70% of Redbubble’s costs of the appeal from the orders of Greenwood J in the primary proceeding (including as amended by Logan J on 4 August 2022), and 100% of Redbubble’s costs of the cross-appeal, to be agreed or failing agreement, to be taxed.

10    Taking into account the complexity of these costs orders, it is not appropriate to award costs in a lump sum. However, the costs of the appeal and cross-appeal shall include Redbubble’s costs of and incidental to the argument about the appropriate costs orders to be made.

Orders sought by the parties

11    Redbubble seeks an order in the following terms:

(1)    That Hells Angels Australia pay 90% of Redbubble’s costs of the appeal and cross-appeal on an indemnity basis.

(2)    Other than Redbubble’s costs of and incidental to the hearing in the primary proceeding on 15 February 2022, pursuant to rule 25.14 of the Federal Court Rules 2011 (Cth), Hells Angels Australia pay Redbubble’s costs of and incidental to the primary proceeding:

(a)    before 11.00 am on 10 March 2021 on the ordinary basis; and

(b)    after 11.00 am on 10 March 2021 on an indemnity basis.

(3)    All extant costs orders in the primary proceeding, the appeal and cross-appeal be vacated, save for Order 2 of the orders of Jagot J on 16 March 2022 in the primary proceeding.

(4)    Costs be awarded in a lump sum pursuant to rule 40.02(b) of the Federal Court Rules.

12    In support of these orders, Redbubble relies on two affidavits of its solicitor, Mr Joel Barrett affirmed 20 March 2024 and 17 April 2024. It filed submissions on 20 March 2024 (15 pages) and 17 April 2024 (9 pages).

13    By contrast, Hells Angels Australia seeks an order that Redbubble pay:

(1)    90% of Hells Angels Australia’s costs of and incidental to the primary proceeding and the appeal on a party and party basis.

(2)    100% of Hells Angels Australia’s costs of and incidental to the primary proceeding on the separate question of the settlement agreement before Jagot J on an indemnity basis.

14    Hells Angels Australia relies on the affidavit of its solicitor, Mr Peter Bolam sworn 3 April 2024. It filed submissions on 3 April 2024 (25 pages).

Costs of the primary proceeding

15    By the Order dated 5 March 2024, the Full Court set aside the order of Greenwood J that Redbubble pay the costs of Hells Angels Australia of the primary proceeding. Contrary to the order sought by Redbubble, it is therefore not necessary for an order to be made setting aside that costs order. Further, the other costs orders which are sought to be set aside were not identified and nor was it explained why they should be set aside. For these reasons, the third order sought by Redbubble will not be made.

16    As to the second order sought by Hells Angels Australia, the issue relating to the costs of the separate question before Jagot J was the subject of the Full Court decision, and the order dismissing the cross-appeal (as noted above), with the consequence that this question has not been referred to me to decide. In any event, it has been determined.

17    I turn then to the balance of the orders sought by the parties.

18    Hells Angels Australia succeeded in establishing infringement of its intellectual property rights in the primary proceeding, which infringement entitled it to obtain relief (albeit that the form of the relief which was granted was reduced significantly on appeal). For this reason and as costs should follow the event, Redbubble should pay the costs of Hells Angels Australia of the primary proceeding, subject to below.

19    Before commencing the primary proceeding, Hells Angels Australia did not notify Redbubble of any potentially infringing image uploaded by third parties onto Redbubble’s website and it commenced the primary proceeding without any prior notice to Redbubble. In its genuine steps statement, Hells Angels Australia stated (inter alia) that Redbubble’s “unwillingness to change its business model” meant that “there was no common ground on which to base any meaningful discussions towards resolution” of the claims made in the primary proceeding (which initially concerned Examples 1–7). The business model is described at J [4].

20    However, that Redbubble’s business model had not changed is only part of the story. This fact must be viewed in the context of the findings at J [141], [145]–[147], [167]–[168], the positive steps taken by Redbubble to avoid or minimise the impact of third party sellers uploading infringing artwork to its website, the fact that Redbubble proactively moderated infringing artwork or moderated that artwork upon being notified (see J [149]) and the fact that Redbubble provided information to Hells Angels Australia, through its solicitors, and otherwise sought to be helpful. The impression given by the genuine steps statement is that Redbubble was an uncooperative and flagrant infringer that had refused to engage with Hells Angels Australia. However, this conclusion is contrary to the findings of the Full Court: see J [146]–[148], [242].

21    Further, as found by the Full Court, “Hells Angels could have co-operated much more with Redbubble than it has. For example, it had located Examples 1 to 7 on the website well in advance of the commencement of the second proceeding without notifying Redbubble of this fact and thereby deprived Redbubble of the opportunity to take them down. In the case of Example 1, this was a period of nearly 8 months”: J [145], [242].

22    It follows that Hells Angels Australia was not justified in commencing the primary proceeding without any notice to Redbubble, especially having regard to Redbubble’s proactive moderation activities and its demonstrated willingness to moderate the artworks that Hells Angels Australia brought to its attention. When exercising a discretion to award costs in a civil proceeding, the Court may take account of whether a person who was required to file a genuine steps statement took genuine steps to resolve the dispute: s 12(1)(b) of the Civil Dispute Resolution Act 2011 (Cth). In this case, there were no such genuine steps and I take that matter into account. However, contrary to Redbubble’s submissions, this does not warrant a conclusion that it should have its costs of the primary proceeding, as this would be excessive. Rather, it supports the imposition of a discount to any costs awarded to Hells Angels Australia in relation to the primary proceeding.

23    Redbubble also contends that, by the same conduct, Hells Angels Australia failed to comply with s 37N(1) of the Federal Court of Australia Act 1976 (Cth). However, even if that is the case, any such failure relates to the same conduct and so does not add anything to my analysis or conclusions concerning s 12(1)(b) of the Civil Dispute Resolution Act.

24    Redbubble also relies upon r 40.08(a) of the Federal Court Rules to submit that it is entitled to its costs of the primary proceeding on the basis that, despite claiming additional damages of $1 million at trial, Hells Angels Australia was only awarded $78,250 in damages by Greenwood J and nominal damages of $100 by the Full Court. Rule 40.08(a) of the Federal Court Rules provides that a party (apart from an irrelevant exception) may apply to the court for an order that any costs and disbursements payable to another party in the proceeding be reduced by an amount to be specified by the court if the applicant has claimed a money sum or damages and has been awarded a sum of less than $100,000. Having regard to the outcome of the appeal, r 40.08 provides further support for a conclusion that any costs award in favour of Hells Angels Australia in relation to the primary proceeding should be reduced. However, as Hells Angels Australia obtained injunctive relief from the Full Court in addition to a damages award of less than $100,000, it does not follow that Redbubble should obtain its costs of the primary proceeding.

25    Redbubble seeks its costs on an indemnity basis by reference to, and following, each of four offers dated 8 March 2021, 15 March 2021, 12 April 2021 and 25 March 2022. None of these offers was accepted. There were also later offers to settle but, for reasons which will become apparent, it is not necessary to consider these offers.

26    Contrary to the submissions of Redbubble, the offer to compromise of 8 March 2021 does not, when taken into account with Redbubble’s other conduct, amount to “special or unusual features” which justify an order for indemnity costs. That is because Hells Angels Australia obtained better protection of its intellectual property rights through the form of injunction granted by the Federal Court than was offered by Redbubble at this time.

27    Rule 25.14(1) of the Federal Court Rules provides that, if an offer is made by a respondent (being Redbubble) and not accepted by an applicant (being Hells Angels Australia), and the applicant obtains a judgment that is less favourable than the terms of the offer, the applicant is not entitled to any costs after 11.00 am on the second business day after the offer was served and the respondent is entitled to an order that the applicant pay the respondent’s costs after that time on an indemnity basis.

28    Contrary to the submissions of Hells Angels Australia:

(1)    it is not to the point that, by these offers, Redbubble failed to offer undertakings to not infringe the trade marks. By the judgment, the Full Court accepted that Redbubble, for practical purposes, could not offer such undertakings, which is why we refused injunctive relief in those terms: see, in particular, J [223], [251];

(2)    the fact that none of the offers contained admissions of infringement of the trade marks does not mean that what was offered was not more favourable than the outcome. Rule 25.14(1) is focussed upon the judgment, and a comparison between the orders made pursuant to that judgment and the terms of the offer. Rule 25.14 does not require a respondent to state in the offer that it admits any particular allegation which is made by the applicant in the proceeding upon which the applicant relies to seek the relief.

29    Having reviewed the terms of each of the offers made by Redbubble, the first offer in relation to which it can be said that the judgment obtained on appeal is less favourable is the offer dated 25 March 2022 in which Redbubble offered to settle the primary proceeding by paying a total of $20,000.00 to Hells Angels Australia in full and final settlement of all claims made by Hells Angels Australia, together with a form of undertaking which was broader than the injunction in Order 5 of the orders of Greenwood J dated 30 May 2019 in the 2019 proceeding (being an injunction of a general nature). It was subject to a seven-day buffer period which allowed Redbubble to remove any offending image before being in breach of the injunction, and the injunction was also conditional upon Hells Angels Australia and Hells Angels US notifying Redbubble upon becoming aware of the offending image. That form of undertaking has strong parallels to the form of injunction ultimately ordered by the Full Court on 5 March 2024.

30    Taking these matters into account, the fair result is that Hells Angels Australia is paid 75% of its costs in the primary proceeding on the standard basis up to 11.00 am on 29 March 2022, which is the second business day after the offer dated 25 March 2022 was served. A discount of 25% is imposed because of the failure by Hells Angels Australia to take reasonable steps to resolve the dispute prior to commencing proceedings in the circumstances described above, and to take account of the operation of r 40.08 of the Federal Court Rules.

31    Applying r 25.14(1) of the Federal Court Rules, Hells Angels Australia is not entitled to any costs of the primary proceeding after 11.00 am on 29 March 2022 and Redbubble is entitled to be paid its costs of the primary proceeding on an indemnity basis after 11.00 am on 29 March 2022.

32    The costs orders relating to the primary proceeding do not disturb the costs order made by Jagot J for the reasons already explained above.

Costs of the appeal from the orders of Jagot J

33    On 8 March 2022, Jagot J made orders determining the separate question of whether Hells Angels Australia’s claims in relation to Examples 1 to 7 were subject to the release in the settlement agreement: J [30]. As noted above, the appeal against those orders was dismissed by the Full Court.

34    Contrary to the submissions of Redbubble and for the purposes of costs, I regard the appeal from the orders of Jagot J as a separate event to the appeal from the orders of Greenwood J. That is because the appeal from the orders of Jagot J concerned clearly discrete issues for determination.

35    The general rule that costs follow the event should be applied, such that Redbubble pays Hells Angels Australia’s costs of and incidental to the appeal from Jagot J’s orders on the standard basis.

Costs of the appeal from the orders of Greenwood J

36    The parties are significantly apart on the appropriate costs order to be made in the appeal from the orders of Greenwood J. Redbubble seeks an order that Hells Angels Australia pay 90% of its costs of the appeal and cross-appeal on an indemnity basis. By contrast, Hells Angels Australia submits that it is entitled to 90% of its costs of the appeal. Each side claims to be the victor in the appeal from the orders of Greenwood J.

37    For the following reasons, the fair result is that Hells Angels Australia pays Redbubble’s costs of the appeal:

(1)    the appeal from the orders of Greenwood J was allowed;

(2)    the declarations and orders of Greenwood J were set aside and replaced with orders 4 to 8 of the Full Court’s 5 March 2024 orders;

(3)    the damages award was reduced from $78,250 to nominal damages of $100;

(4)    the form of injunction was recast, being in a form which was in similar terms to that offered by Redbubble during the hearing of the appeal and which form was resisted by Hells Angels Australia;

(5)    the Full Court did not award aggravated damages or grant a declaration;

(6)    had Redbubble’s offer of 25 March 2022 been accepted, the costs of the appeal would have been avoided.

38    However, for the following reasons, there should be a discount of 30% to the costs payable to Redbubble:

(1)    Redbubble abandoned the first ground of appeal on the first day of the appeal before the Full Court: J [46]. This was a significant ground of appeal, and no explanation was offered as to why it was abandoned. Some allowance should be made for Hells Angels Australia’s costs thrown away;

(2)    the submission advanced by Redbubble before the Full Court in relation to the de minimis principle was different to the position Redbubble advanced at trial: J [93]. This submission related to two grounds of appeal and was also not insignificant;

(3)    the grounds of appeal raised by Redbubble were extensive and Redbubble did not succeed on all of them.

39    Redbubble relies upon its offers to compromise in the primary proceeding to submit that it should be awarded indemnity costs in the appeal. However, an offer to compromise made in the primary proceeding does not apply to the appeal such that there is no presumption in favour of indemnity costs on the appeal: see Austin Nichols & Company Inc and Another v Lodestar Anstalt (No 2) (2012) 202 FCR 506; [2012] FCAFC 72 at [32] (Jacobson, Yates and Katzmann JJ); see also IMF (Australia) Ltd v Meadow Springs Fairway Resort Ltd (In Liquidation) (No 2) [2009] FCAFC 69 at [34]–[39] (North, Emmett and Rares JJ).

40    As the Full Court observed in Austin Nichols at [30]–[32] in relation to an offer to compromise made under the former Federal Court Rules:

The trigger under the rule for the presumption in favour of indemnity costs is that the party who made the offer obtains judgment on “the claim to which the offer relates not less favourable than the terms of the offer” (emphasis added). The judgment on the claim to which the appellants’ offer relates is the judgment made on the claim in the proceeding below. It does not include the appeal. As the Full Court acknowledged in IMF, however, that does not mean that the offer made during the proceeding below is not relevant to the exercise of the Court’s discretion in relation to the costs of the appeal. It just means that the presumption in favour of indemnity costs is not engaged.

The judgment of the Full Court in IMF is in line with the approach taken by the NSW Court of Appeal, where a failure to renew the offer or to make one in the appeal proceeding is regarded as sufficient to deprive the party seeking the special order of the benefit of the presumption. See, for example, Baresic v Slingshot Holdings Pty Ltd (No 2) [2005] NSWCA 160 at [18]-[22]; Monie v Commonwealth (No 2) [2008] NSWCA 15 per Beazley JA at [4], Mason P agreeing at [1]. And, as the Full Court said in IMF, it is the better view. In an appeal the respondent has the benefit of a judgment in its favour. The starting point is therefore different from the position at first instance.

Thus, for the reasons given by the Full Court in IMF, the offer of compromise does not apply to the appeal. There is, then, no presumption in favour of indemnity costs on the appeal. In this case, the mere fact that the offer was made below is insufficient to persuade us to depart from the usual order or, indeed, to vary our judgment in this respect.

(Original emphasis removed; emphasis added.)

41    That reasoning is apposite to an offer to compromise which is made under the current Rules.

42    Further, the existence of the offers to compromise in the primary proceeding is insufficient to cause me to order indemnity costs of the appeal, especially having regard to the matters identified above which support the imposition of a discount on Redbubble’s costs.

43    Finally, costs should follow the event in relation to the cross-appeal.

44    For these reasons, it is appropriate to make an order that Hells Angels Australia pay 70% of Redbubble’s costs of the appeal from the orders of Greenwood J, and 100% of its costs of the cross-appeal, on the standard basis to be agreed, or failing agreement, to be taxed.

Associate:

Dated:    17 May 2024