FEDERAL COURT OF AUSTRALIA Pacific Publications Pty Limited v Next Publishing Pty Limited [2005] FCA 971 COSTS – indemnity costs – solicitor and client costs – exercise of discretion to award costs – factors to be taken into account in making a special order as to costs – whether history of matter disclosed special or unusual features so as to warrant an award of indemnity or solicitor and client costs – whether applicant failed to recognise that its application would inevitably fail – whether applicant's refusal of offer of compromise was unreasonable or imprudent – whether proceedings were commenced for an improper purpose – whether conduct of proceedings was inappropriate Federal Court of Australia Act 1976 (Cth) s 43 Federal Court Rules O 62 Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151 referred to Ruddock v Vardalis (2001) 115 FCR 229 referred to InterTAN Inc v DSE (Holdings) Pty Limited [2005] FCAFC 54 referred to Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 applied John S Hayes and Associates Pty Ltd v Kimberley-Clarke Australia Pty Ltd (1994) 52 FCR 201 referred to Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 applied NMFM Property Pty Ltd v Citibank (2001) 109 FCR 77 applied MGICA (1992) Ltd v Kenny and Good Pty Ltd (No. 2) (1996) 70 FCR 236 applied Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353 referred to Hobartville Stud v Union Insurance Co Ltd (1991) 25 NSWLR 358 referred to Williams v Commonwealth Bank of Australia [1995] FCA 992 referred to J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers - Western Australia Branch (No 2) (1993) 46 IR 301 applied PACIFIC PUBLICATIONS PTY LIMITED (ACN 097 410 986) v NEXT PUBLISHING PTY LIMITED (ACN 002 647 645) NSD 1569 OF 2004 TAMBERLIN J SYDNEY 14 JULY 2005 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1569 OF 2004 BETWEEN: PACIFIC PUBLICATIONS PTY LIMITED (ACN 097 410 896) APPLICANT AND: NEXT PUBLISHING PTY LIMITED (ACN 002 647 645) RESPONDENT JUDGE: TAMBERLIN J DATE OF ORDER: 14 JULY 2005 WHERE MADE: SYDNEY THE COURT ORDERS THAT: The applicant is to pay the costs of the respondent on a party and party basis. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1569 OF 2004 BETWEEN: PACIFIC PUBLICATIONS PTY LIMITED (ACN 097 410 896) APPLICANT AND: NEXT PUBLISHING PTY LIMITED (ACN 002 647 645) RESPONDENT JUDGE: TAMBERLIN J DATE: 14 JULY 2005 PLACE: SYDNEY REASONS FOR JUDGMENT 1 On 18 May 2005, I published my Reasons for Judgment in this matter and ordered that the application be dismissed with costs. 2 The respondent, Next Publishing Pty Limited ("Next"), seeks an order that the applicant, Pacific Publications Pty Limited ("Pacific"), pay its costs on an indemnity basis or, alternatively, on a solicitor and client basis. 3 Section 43(2) of the Federal Court of Australia Act 1976 (Cth) provides a general discretionary power in the Court to make orders for costs. The discretion of the Court to award costs is absolute and unfettered, however, the discretion must be exercised judicially: Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151 at 152 per Black CJ. 4 The general rule in civil litigation is that costs follow the event and that the costs of the successful party should be taxed on a party and party basis: Ruddock v Vardalis (2001) 115 FCR 229 at 235 per Black CJ and French J. In InterTAN Inc v DSE (Holdings) Pty Limited [2005] FCAFC 54 at [1], the Court stated that: "This rule is so well entrenched that some (but not all) courts have suggested that nothing short of a change in the relevant statute or rules of court would permit a departure from the rule …" 5 An order for costs on a basis other than party and party should only be made where there is some special or unusual feature in the case to justify the Court departing from the ordinary practice or the justice of the particular case so requires: Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233-234 per Sheppard J (Colgate). In Colgate, Sheppard J went on to enumerate some of the categories of circumstances in which an order for indemnity costs may be warranted. However, as Hill J points out in John S Hayes and Associates Pty Ltd v Kimberley-Clarke Australia Pty Ltd (1994) 52 FCR 201 at 203 (Hayes), the categories of circumstances which warrant the exercise of the discretion to make special costs orders are not closed and it is necessary to consider the particular facts and circumstances of each case in order to detemine whether an exercise of discretion is warranted. 6 In this case, there are four bases for Next's submission that a special order for costs is warranted. First, it is submitted that a letter of 20 September 2004 from Next's solicitors to Pacific's solicitors demonstrates that Pacific failed to recognise that the application would inevitably fail. Secondly, it is said that the applicant unreasonably failed to accept Next's open offer dated 27 October 2004 to make a number of changes to "Girl Power" magazine. Thirdly, Pacific's motivation in bringing proceedings against Next, to prevent Next from being involved in the "tween girl" magazine market, was improper and justifies a special costs order. Finally, the manner in which Pacific conducted the proceedings is said to be so inappropriate that a special costs order is warranted. Next submits that, taken cumulatively or individually, these factors should entitle it to a special costs order. 7 The four grounds alleged by Next are considered below. There is no substance in any of them. THE LETTER OF 20 SEPTEMBER 2004 8 In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401 (Fountain), Woodward J said that: "I believe that it is appropriate to consider awarding "solicitor and client" or "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. 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. Such cases are, fortunately, rare." (Emphasis added) 9 In NMFM Property Pty Ltd v Citibank (2001) 109 FCR 77 at 98, this statement was applied by Lindgren J, who added: "No doubt where a party puts with sufficient particularity to the opposing party the reasons why the latter must fail, yet the latter does not recognise the inevitable, this will be a factor pointing to an award of indemnity costs … The requirements of "sufficient particularity" and "inevitability of failure" are important." 10 Next says that this test is satisfied by the letter of 20 September 2004 because this letter particularises the reasons why Pacific's application would not succeed and gives the conclusion that flows from these reasons. The letter of 20 September 2004 asserted that the "Girl Power" masthead differed in a number of significant respects from the "Total Girl" masthead and that although the two magazines shared a number of common features, such as the colour of the text, the size of the magazine and the use of hearts, stars, spots and bubbles, these features were used by other publishers in the tween magazine market and were not distinctive of "Total Girl" magazine. The letter also stated that the contents of the magazines were irrelevant as the magazines were sold in sealed plastic wrappers and therefore could not be flicked through by potential purchasers. 11 I am not satisfied that this letter outlined with sufficient particularity the reasons why it was inevitable that Pacific's application must fail. The letter was sent almost six weeks prior to the filing of the Application in the proceedings on 29 October 2004 and did not address a number of issues ultimately argued at the hearing. In particular, the letter did not address whether the expression "girl power" had a generic meaning or Pacific's concerns that Next had intentionally copied "Total Girl" magazine or, at the very least, "sailed close to the wind" by launching "Girl Power" magazine within a few months of the release by Pacific of the "Girl Power Issue" of "Total Girl". The letter also failed to detail with sufficient particularity the features that were shared by "Girl Power" and "Total Girl" or the basis on which it contended that these features were common to the industry. Finally, the argument advanced in the letter that the contents of the magazines were irrelevant was not advanced at trial and was not accepted by me in my Reasons for Judgment. Clearly, the substantive content has an important bearing on the impression, or position and appeal, of the magazines, especially to repeat readers. THE OFFER OF 27 OCTOBER 2004 12 On 27 October 2004, the solicitors for Next sent an open letter of offer to the solicitors for Pacific. This offer stated that in return for Pacific withdrawing any proceedings commenced in connection with the dispute, Next would make a number of changes to all editions of "Girl Power" published after 18 October 2004 and to any advertising, promotional or associated publications. These changes related to the use of particular fonts in the "Girl Power" masthead, symbols such as stars, hearts, rainbows, flowers and clouds, rounded corners on the boxes in the Contents pages and corkboard backgrounds. This offer was made by Next after a number of "without prejudice" meetings with Pacific. 13 On 28 October 2004, the solicitors for Pacific wrote to the solicitors for Next rejecting the open offer in the letter of 27 October 2004 on the basis that the offer failed to address the use of the "Girl Power" name and the proposed changes to the masthead were so minimal that it was difficult to discern any perceptible difference between the proposed replacement masthead and the masthead used for the earlier editions of "Girl Power". Further, the changes to the use of symbols in "Girl Power" magazine were said to be insufficient. 14 The making of an offer for settlement and its rejection, without more, does not justify a special order for costs: Hayes at 206 per Hill J. To justify such an order, Next bears the onus of establishing that the non-acceptance of the offer was "imprudent" or "plainly unreasonable": Colgate at 233 per Sheppard J; MGICA (1992) Ltd v Kenny and Good Pty Ltd (No. 2) (1996) 70 FCR 236 at 240 per Lindgren J. It is also necessary to take into account whether, in the totality of the circumstances, the offer by the plaintiff represented any real element of compromise or whether it was a formally stated demand for payment designed simply to trigger the entitlement to payment of costs on an indemnity basis: Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353 at 355 per Rogers CJ; Hobartville Stud v Union Insurance Co Ltd (1991) 25 NSWLR 358 at 367-368 per Giles J; Williams v Commonwealth Bank of Australia [1995] FCA 992 per Tamberlin J (Williams). In Williams,I said: "The principle underlying the award of indemnity costs in circumstances such as the present is that the Court should be astute to ensure, so far as it can, that litigation be brought to finality as quickly as possible with the consequential reduction in costs, time, and no doubt in many cases, anxiety. This purpose is furthered by requiring parties to focus on the inevitable wastage which will otherwise result if a result is obtained which is not substantially more favourable than that which could have been reasonably negotiated at an earlier point in time. The making of a realistic offer of compromise at an early stage in litigation is a practice to be encouraged in the public interest." 15 Having regard to the absence from the offer of a discussion of a number of issues that were ultimately argued in the proceedings, namely, the withdrawal of the name "Girl Power" and the substantive concern of Pacific that the overall get-up and look and feel of "Total Girl" magazine was being imitated by Next, I am not persuaded that Pacific's rejection of Next's offer was so imprudent or plainly unreasonable as to entitle Next to indemnity costs rather than party and party costs. PACIFIC'S MOTIVATION IN BRINGING THE PROCEEDINGS 16 An award of indemnity costs may be justified in circumstances where the proceedings were commenced or continued for some ulterior motive or collateral purpose: Fountain at 401 per Woodward J;J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers - Western Australia Branch (No 2) (1993) 46 IR 301 at 303 per French J; Colgate at 233 per Sheppard J. 17 It is alleged on behalf of Next that Pacific's motivation in bringing the proceedings was improper and therefore justifies a special costs order. In their written submissions, Next states that Pacific's intention was to "own" the tween girl magazine market, and thereby exclude Next from this market, and that the evidence indicates that "Girl Power" was one of the names under consideration by Pacific for a new publication for tween girls. This sweeping allegation as to intention has not been made out. There is no further explanation or authority provided by Next as to why this alleged motivation would justify a special order for costs. Provided that there is a reasonable basis for bringing the proceeding, the subjective motivation of the applicant is not usually an important consideration. The role of the Court in commercial litigation of this type is to determine the rights and obligations of the parties and not to act as a moral arbitrator. In any event, as pointed out by Pacific in their written submissions, this submission appears to conflict with [8] of Next's written submissions where Next concedes that it makes no criticism of Pacific's use of the Court proceedings to achieve a commercial objective. 18 Accordingly, I find that Pacific did not have an improper or ulterior motive or intention in bringing the proceedings that would justify a special costs order in this matter. PACIFIC'S CONDUCT OF THE PROCEEDINGS 19 Next submits that the disparity in financial resources between Next and Pacific is a relevant matter for the Court to take into account in determining whether a special order for costs should be made in this case. In my opinion, this disparity in financial resources is insufficient, of itself, to justify a special order for costs. A special order for costs may, however, be appropriate in circumstances where a party has exploited such a disparity in financial resources between the parties by, for example, a deliberate policy of obstruction and delay. In this case, the Court is concerned with a dispute between two substantial publishers. There is no basis for any suggestion of exploitation of superior economic power. 20 It was suggested on behalf of Next that it had been detrimentally affected by the urgent basis on which the case was dealt with by the Court. However, as pointed out by Pacific in their written submissions, Next consented to the conduct of the proceedings on an expedited basis in order to achieve early certainty as to its position and the timetables for the filing of evidence were made by consent. 21 Next then refers to a number of other elements of the conduct of the proceedings by Pacific that it submits justify a special order for costs, including the filing of additional affidavit evidence by Pacific, the need for Next to purchase a copy of a Roy Morgan research paper referred to in one of Sheffield's affidavits and the fact that Lindstrom evidence was found to be inadmissible. In my opinion, none of these elements entitle Next to a special order as to costs. 22 In my view, the case for Pacific was prepared with professional thoroughness and in such a way as to provide maximum assistance to the Court. In particular, I found the use of the CD chronology with photographs of the covers of the publications relied on to be extremely useful. 23 Accordingly, for these reasons, I find that the respondent's application for a special order as to costs lacks merit and should be rejected. 24 I order that the applicant pay the costs of the respondent on a party and party basis. 25 Before leaving this matter, I should add that the practice of seeking special orders as to costs where there is no substantial basis in the judgment or the surrounding circumstances to justify such an order is one that should be strongly discouraged. This approach unnecessarily prolongs the litigation process and leads to wasteful delay and expense for the Court and the parties. The present application for indemnity costs is such a case. I certify that the preceding twenty five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin. Associate: Dated: 14 July 2005 F M Douglas QC, S C G Burley and M G Small Counsel for the Applicant: Solicitor for the Applicant: Mallesons Stephen Jacques Counsel for the Respondent: D M Yates SC and J Richards Solicitor for the Respondent: Arnold Bloch Leibler Date of Last Written Submissions Received: 14 June 2005 Date of Judgment: 14 July 2005