FEDERAL COURT OF AUSTRALIA Reidy's Lures Pty Ltd v Basser Millyard Pty Ltd [2003] FCA 1242 REIDY'S LURES PTY LTD (ACN 082 216 386) v BASSER MILLYARD PTY LTD (ACN 000 114 983) & SUPERFLEX PTY LTD (ACN 000 114 992) D 8 of 2003 MANSFIELD J 31 OCTOBER 2003 DARWIN IN THE FEDERAL COURT OF AUSTRALIA NORTHERN TERRITORY DISTRICT REGISTRY D 8 OF 2003 BETWEEN: REIDY'S LURES PTY LTD (ACN 082 216 386) APPLICANT AND: BASSER MILLYARD PTY LTD (ACN 000 114 983) FIRST RESPONDENT SUPERFLEX PTY LTD (ACN 000 114 992) SECOND RESPONDENT JUDGE: MANSFIELD J DATE OF ORDER: 31 OCTOBER 2003 WHERE MADE: ADELAIDE THE COURT ORDERS THAT: 1. The respondents, and each of them by themselves, their directors, officers, servants and agents or otherwise howsoever, are hereby restrained from: 1.1 Causing to be manufactured, keep for sale, advertise, supply, distribute or sell the product Smilin' Jack's B52, the subject of the complaint ('the Product'); 1.2 Causing to be manufactured, keep for sale, advertise, supply, distribute or sell lures under the name 'B52' or by reference to any name, word or mark substantially identical or deceptively or misleadingly similar thereto; 1.3 Causing to be manufactured, keep for sale, advertise, supply, distribute, or sell any product produced from the mould from which the Product has been produced or from any mould which is substantially identical or deceptively or misleadingly similar thereto; 1.4 Representing in the course of trade or commerce in connection with the supply or possible supply or in connection with the promotion by any means of the supply or use of any articles of lures or other goods; (i) that any such goods, not of the manufacture of or sold or approved by the applicant, have the sponsorship or approval of the applicant; (ii) That the respondents or any business of the respondents or either of them has the sponsorship or approval of the applicant or is affiliated with the applicant. 2. The respondents, each of them by themselves, their directors, officers, servants and agents or otherwise howsoever, will forward correspondence asking that the Chinese owners of the mould to mill the mould so that the Product cannot be manufactured. 3. The respondents pay to the Applicant the sum of $4,200.00. 4. The respondents, each of them by themselves, their directors, officers, servants and agents or otherwise howsoever, will jointly within 14 days of this order, place one corrective advertisement in both The Fishing World and Australian Fishing Tackle Retailer publications to read as follows: 'Smilin' Jack's B52 lure has been withdrawn from sale. Smilin' Jack's B52 lures were not manufactured or sold or approved by Reidy's Lures nor had the sponsorship or approval of Reidy's Lures. Basser Millyard Pty Limited and Superflex Pty Limited do not have the sponsorship or approval of Reidy's Lures and Reidy's Lures is not affiliated with Basser Millyard and Superflex'. 5. The respondents, each of them by themselves, their directors, officers, servants, agents or otherwise howsoever, will within 14 days of this order cancel or deregister trademark 925971 as owned by the second respondent registered from 4 September, 2002 as 'Smilin' Jack's B52'. 6. The respondents pay the applicant costs of the application. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY D 8 OF 2003 BETWEEN: REIDY'S LURES PTY LTD (ACN 082 216 386) APPLICANT AND: BASSER MILLYARD PTY LTD (ACN 000 114 983) FIRST RESPONDENT SUPERFLEX PTY LTD (ACN 000 114 992) SECOND RESPONDENT JUDGE: MANSFIELD J DATE: 31 OCTOBER 2003 PLACE: ADELAIDE REASONS FOR JUDGMENT 1 This proceeding commenced by application on 17 July 2003. The applicant sought permanent injunctive relief against the respondents to restrain them from importing and offering for sale or selling a fishing lure under the name Smilin' Jack's B52 or importing and offering for sale or selling a fishing lure which was deceptively similar to the fishing lure which the applicant manufactured and sold under the name B52. The applicants also sought damages and other relief. It was alleged that the respondents conduct in putting into the marketplace the Smilin' Jack's B52 fishing lure, involved conduct which was misleading or deceptive in contravention of s 52 of the Trade Practices Act 1974 (Cth). 2 The issue today is confined to the issue of costs. There is some uncontested material which, so far as I can judge from the submissions today, is material upon which I can safely rely. Since 1988 the applicant has conducted business as a manufacturer and distributor and seller of fishing lures under the name Reidy's Lures. One of its products is the B52 lure which represents about 50% of its sales. The B52 lure was designed by a shareholder and director of the applicant. The B52 lure has been marketed Australia wide since March 2001. Although that B52 trademark was registered in the November 2000, that trademark subsequently lapsed. Both Reidy's Lures, the trading name of the applicant, and the B52 fishing lure enjoy a good reputation among fishermen around Australia. 3 The first respondent is a large manufacturer and importer of fishing lures and other fishing tackle items. It sells fishing lures and other fishing tackle items around Australia. The evidence suggests that, on about 26 March 2003, the first respondent released for sale the Smilin' Jack's B52 fishing lure. It is imported from overseas. It promoted that fishing lure throughout Australia. The second respondent, is a wholly owned subsidiary of the first respondent. It registered the trademark in Australia in September 2002 for the Smilin' Jack's B52 fishing lure. 4 It is in that general context that the application came to be instituted. Following the institution of the proceedings on 18 July 2003, they were first mentioned for directions on 24 July 2003 and adjourned to 1 August 2003 on the applicant's request. The directions hearing was then further adjourned. On 18 August 2003 a consent order was made for interlocutory injunctive relief in favour of the applicant. The proceedings overall have now been resolved by consent. 5 I have been handed consent orders containing five orders and dated 30 October 2003. It is apparent from correspondence before me that those consent orders were largely agreed upon a considerably earlier time. The proposed consent orders are as follows: '1. The respondents, and each of them by themselves, their directors, officers, servants and agents or otherwise howsoever, are hereby restrained from: 1.1 Causing to be manufactured, keep for sale, advertise, supply, distribute or sell the product Smilin' Jack's B52, the subject of the complaint ("the Product"); 1.2 Causing to be manufactured, keep for sale, advertise, supply, distribute or sell lures under the name "B52" or by reference to any name, word or mark substantially identical or deceptively or misleadingly similar thereto; 1.3 Causing to be manufactured, keep for sale, advertise, supply, distribute, or sell any product produced from the mould from which the Product has been produced or from any mould which is substantially identical or deceptively or misleadingly similar thereto; 1.4 Representing in the course of trade or commerce in connection with the supply or possible supply or in connection with the promotion by any means of the supply or use of any articles of lures or other goods; (i) That any such goods, not of the manufacture of or sold or approved by the applicant, have the sponsorship or approval of the applicant; (ii) That the respondents or any business of the respondents or either of them has the sponsorship or approval of the applicant or is affiliated with the applicant. 2. The respondents, each of them by themselves, their directors, officers, servants and agents or otherwise howsoever, will forward correspondence asking that the Chinese owners of the mould to mill the mould so that the Product cannot be manufactured. 3. The respondents pay to the Applicant the sum of $4,200.00. 4. The respondents, each of them by themselves, their directors, officers, servants and agents or otherwise howsoever, will jointly within 14 days of this order, place one corrective advertisement in both The Fishing World and Australian Fishing Tackle Retailer publications to read as follows: "Smilin' Jack's B52 lure has been withdrawn from sale. Smilin' Jack's B52 lures were not manufactured or sold or approved by Reidy's Lures nor had the sponsorship or approval of Reidy's Lures. Basser Millyard Pty Limited and Superflex Pty Limited do not have the sponsorship or approval of Reidy's Lures and Reidy's Lures is not affiliated with Basser Millyard and Superflex". 5. That the respondents, each of them by themselves, their directors, officers, servants, agents or otherwise howsoever, will within 14 days of this order cancel or deregister trademark 925971 as owned by the second respondent registered from 4 September, 2002 as "Smilin' Jack's B52".' I will make orders in those terms. 6 In fact, on 29 September 2003 the respondents requested the Chinese owners of the mould of the Smilin' Jack's B52 fishing lure to destroy the mould in accordance with par 2 of what has been agreed between the parties. The damages agreed of $4,200 represent an allowance of $3 for each of the 1400 Smilin' Jack's B52 fishing lures which were sold throughout Australia by the first respondent, or on its behalf. The advertising which is contemplated by paragraph 4 of the proposed orders has been ordered by correspondence from the applicants by their solicitors on 2 October 2003. The application to cancel the trademark for the Smilin' Jack's B52 lure has been made, and the trademark has been cancelled on 23 October 2003. 7 What remains is the argument as to costs which I have heard today. Of course the award of costs is entirely within the discretion of the Court, particularly in circumstances where the matter has been resolved without a hearing. I do not proceed on the basis that, by virtue of the consent orders, I should routinely make an order in favour of the applicant. In circumstances where the Court is asked to make an order for costs where a proceeding has been resolved, Branson J in Rapala v Twin Peaks Leisure [2002] FCA1299 summarised a number of principles which can be discerned from existing authorities. Her Honour said at [14]: 'The principles which govern the present question are not in dispute. They may be summarised as follows: (a) except as provided by any other Act, s 43 of the Federal Court of Australia Act 1976 (Cth) gives the Court a very wide discretion to award costs in a proceeding; (b) the discretion is to be exercised judicially and according to the circumstances of the particular case (Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) 42 FLR 213 at 219; Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225); (c) ordinarily any order is for payment of costs on the party and party basis (Colgate-Palmolive Company v Cussons Pty Limited at 232); (d) where a case terminates before there has been a hearing, the Court should not resolve the issue of costs by engaging in something in the nature of a hypothetical trial (Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201; Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 662 at 624); (e) however, where one party, after litigating for some time, effectively surrenders to the other the Court will commonly exercise its discretion by awarding costs to the successful party; (f) frequently the determining factor will be the reasonableness of the conduct of the parties (One-Tel Ltd v Deputy Commissioner of Taxation [2000] FCA 270; 101 FCR 548 at [5] and the cases there referred to); (g) if it appears that both parties have acted reasonably in commencing and defending the proceeding and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile the usual, but not invariable, rule is that the Court will make no order as to costs (Re Minister for Immigration and Ethnic Affairs: Ex parte Lai Qin at 625; One-Tel Ltd v Deputy Commissioner of Taxation at [5]); and (h) in an appropriate case the Court will consider the conduct of the parties before the commencement of the proceeding; the conduct of one party might have precipitated the litigation (Sunday Times Newspaper Co Ltd v McIntosh (1933) 33 SR (NSW) 371) or, alternatively, a respondent might have offered the applicant a substantially complete remedy before the institution of the proceeding (Reddy v Hughes (1996) 37 IPR 413).' 8 In general, there has been no submission that I should depart from those principles and I will follow them. 9 A critical issue is whether the institution of the proceedings was reasonable and necessary. 10 It is in that context appropriate to look at the pre-litigation exchange of correspondence between the parties. It commenced with a letter from solicitors for the applicant to the first respondent on 20 June 2003. I will not set out its full details. It asserted the claim briefly described above, and requested the first respondent within seven days to withdraw the Smilin' Jack's B52 lures from all sale outlets, and to agree to a permanent injunction or to offer permanent undertakings not to repeat such conduct, to cancel the trademark and to discuss the amount of compensation which should be payable. 11 On 23 June 2003 the first respondent responded to that letter in the following terms: 'We refer to your letter dated 21 June, 2003. We deny that your letter correctly sets out the position, however, we do not wish to traverse all the issues at this time. As our company's director is departing overseas very shortly, we have determined to undertake not to produce or sell any further Smilin' Jacks B52 until after we have given your client fourteen (14) days notice. Following that notice, your client will have the opportunity to commence any proceedings. After the return to Australia of our company's director, in or about late July, 2003 we anticipate replying further.' 12 That response was not regarded by the applicant as satisfactory. It wrote again on 27 June 2003 explaining why it was concerned that its goodwill and reputation continued to be damaged each day by the product of the first respondent remaining available for sale. It referred to the first respondent's advertising, indicating that its products were on sale throughout Australia and to the possibility that there may be thousands of Smilin' Jack's B52 fishing lures for sale throughout Australia. It pointed out that the first respondent had simply offered not to produce or sell any further such lures until after having given 14 days notice of the intention to do so. 13 It was apparent from that letter that the applicant and its solicitors understood from the letter of 23 June 2003 that the first respondent was not proposing to take any action to withdraw from sale its products which had already been put out into the marketplace, but was proposing not to put any further such products out into the marketplace. Even if there was some scope for the first respondent's letter of 23 June 2003 to have been misunderstood, and for it to have it been intended to convey that all its claimed offending products would be withdrawn from sale, that letter made it clear that it was necessary on the part of the first respondent to clarify the position. 14 The first respondent's response by letter of 30 June 2003 did not do so. 15 Accordingly, I am satisfied that as at that date the applicant was entitled to understand that the first respondent was prepared to no longer manufacture or put into the marketplace the Smilin' Jack's B52 lures. But it was not prepared to withdraw from the marketplace such of that product which had already been placed throughout Australia for sale by the first respondent. 16 That position and that understanding was confirmed by a letter from the solicitors for the applicant to the first respondent of 2 July 2003. It repeated the concern that the applicant's reputation was being harmed each day that the product remained in the market, and that the offer of the first respondent did little to correct the situation. It offered a further seven days within which the first respondent might address its concerns before commencing proceedings. On the evidence, there was no further communication prior to the institution of proceedings on 18 July 2003, nearly a month after the first letter before action. 17 In those circumstances, I reject the contention of the respondents that the institution of the proceedings was unnecessary. I accept that the institution of the proceedings, as and when they were instituted by the applicant, was reasonable. 18 The institution of those proceedings did, however, lead promptly to a reassessment of the position. Following their service upon the respondents on 29 July 2003, solicitors for the respondents offered unqualified undertakings to the applicant. And they indicated that they were prepared to give undertakings to the Court in the following terms: '1. Our clients undertake not to import or offer for sale at any time in the future the product Smilin' Jack's B52 the subject of your client's complaint ("the Product"). 2. Our clients undertake not to import or offer for sale any lure called "B52" or containing that name as part of a wider name. 3. Our clients undertake not to import or offer for sale any product produced from the mould from which the Product has been produced. 4. Our clients further undertake to refrain from representing in the course of trade or commerce in connexion with the supply or possible supply or in connexion with the promotion by any means of the supply or use of any articles of lures or other goods:- (i) that any such goods, not of the manufacture or sold or approved by the applicant, have the sponsorship or approval of the applicant; (ii) that the respondents or any business of the respondents or either of them has the sponsorship or approval of the applicant or is affiliated with the applicant.' 19 As then appears from that letter, the first respondent had also, on the same date, that is 29 July 2003, requested its distributors and retailers to withdraw from sale Smilin' Jack's B52 lures and to return them to the first respondent. It pointed out that there had been a relatively small number of Smilin' Jack's B52 lures sold, that there had been no advertising of that product since 21 June 2003, and that the first respondent did not own the mould from which Smilin' Jack's B52 lures were produced. 20 From that date, therefore, in my view, the matters about which the applicant was concerned had been effectively addressed by the respondents. Thereafter, the material before me indicates that there has been communication to refine the terms of the proposed consent order and to its implementation and, in addition, extensive correspondence on the question of costs. There is nothing before me which indicates that, from that date, the applicant has conducted the proceedings in any way which is inconsistent with the fact that the respondents on 29 July 2003, in substance, acknowledged all of the applicant's claims and were prepared to accede to them. Nevertheless, it was clearly necessary for work to be undertaken to refine and implement the terms of the proposed consent order. And I am satisfied that the work which has since been done is consistent simply with the implementation of the proposed consent order, rather than further preparing the matter in any sense to progress the litigation. 21 Accordingly, subject to the contentions which were advanced on behalf of the respondents, it seems to me the proceedings were reasonably initiated and have been reasonably conducted to their present point. 22 Senior counsel for the respondents has submitted that there should be no order for costs notwithstanding that finding. It was also submitted that there should be no order for costs because the institution and prosecution of the proceedings was unnecessary and wasteful of costs. But I have rejected that contention. In particular, senior counsel has referred to the preparedness of the respondents to acquiesce in orders from time to time, to the amount involved (at least as far as the damages agreed upon, reflects the significance of the proceedings to the parties), and to the fact that the proceedings have been resolved by compromise rather than by any hearing. 23 I have taken those matters into account in considering how I should exercise the discretion for costs in this matter. In my view, the issue as to the amount involved in the proceedings is a matter which should be reflected by the application of O 62, r 36A of the Federal Court Rules. On its face, it appears to apply where the judgment is for less than $100,000 on a claim for a money sum for damages. In that event, the costs recoverable, including disbursements, should be reduced by one third of the amount otherwise allowable under O 62 upon taxation. In Australasian Performing Right Association Ltd and Pashalidis [2000] FCA 1815, Moore J determined that O 62 r 36A may apply where a party is awarded judgment for a money sum of less than $100,000, even though other relief was sought. 24 As I understand O 62, r 36A, is intended to reflect the fact that matters which are properly instituted in this Court may, in the perspective or range of matters which might be instituted in this Court, involve relatively lesser amounts, and that the scale of costs applicable to them should, therefore, be relatively lesser. Despite the submissions of counsel for the applicant, I think this is one such matter. Other than that consideration, however, in my view, it is appropriate to make an order for costs in favour of the applicant of the proceedings generally. As I have said, I do not regard the first respondent's attitude, as expressed in late June 2003, as sufficient degree of acquiescence to make the proceedings unnecessary, particularly bearing in mind that the applicant, through its solicitors, indicated the applicant's ongoing concern. I also bear in mind that about almost one month was allowed between the initial letter of 20 June 2003 and the institution of the proceedings. 25 For those reasons, in my view, the appropriate order is that the respondents should pay the applicant costs of the application. I do not make an order under O 62, r 36A(1) otherwise ordering that the taxed costs should be in any sum different from that which O 62 r 36A would otherwise provide. That is, the costs which are recoverable in this proceeding will be reduced by one third of the amount otherwise allowable under O 62 upon taxation for the reasons I have given. 26 I indicate that the costs which I have allowed should include the costs of the argument as to costs before me today. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield. Associate: Dated: 4 November 2003 Counsel for the Applicant: Mr B O'Loughlin Solicitor for the Applicant: Withnall Maley & Co Counsel for the Respondent: Mr P Gray SC Solicitor for the Respondent: Alfred J Morgan & Son Date of Hearing: 31 October 2003 Date of Judgment: 31 October 2003