FEDERAL COURT OF AUSTRALIA Anchorage Capital Partners Pty Limited v ACPA Pty Limited (No 4) [2016] FCA 218 File number: NSD 149 of 2014 Judge: PERRAM J Date of judgment: 9 March 2016 Catchwords: COSTS – costs on an indemnity basis – offers to settle Legislation: Federal Court Rules 2011 (Cth) r 25.14(2) Cases cited: Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2011] FCAFC 141 Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 Date of hearing: Heard on the papers Date of last submissions: 8 February 2016 Registry: New South Wales Division: General Division Category: Catchwords Number of paragraphs: 16 Counsel for the Applicant/Cross-Respondent: Mr MJ Darke SC Solicitor for the Applicant/Cross-Respondent: Corrs Chambers Westgarth Counsel for the Respondents/Cross-Claimants: Mr AJL Bannon SC, Mr C Dimitriadis SC and Mr R Clark Solicitor for the Respondents/Cross-Claimants: Herbert Smith Freehills ORDERS NSD 149 of 2014 BETWEEN: ANCHORAGE CAPITAL PARTNERS PTY LIMITED Applicant AND: ACPA PTY LIMITED First Respondent ANCHORAGE CAPITAL GROUP LLC Second Respondent AND BETWEEN: ACPA PTY LIMITED (and another named in the Schedule) First Cross-Claimant AND: ANCHORAGE CAPITAL PARTNERS PTY LIMITED Cross-Respondent JUDGE: PERRAM J DATE OF ORDER: 9 MARCH 2016 THE COURT ORDERS THAT: 1. The applicant is to pay the respondents' costs on the cross-claim of defending the estoppel case on an indemnity basis. 2. The applicant is to pay the respondents' costs on both the application and the cross-claim on a party-party basis before 11am on 20 June 2014 other than the costs referred to in order 1. 3. The applicant is to pay the respondents' costs thereafter on an indemnity basis. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT Perram J: 1 In Anchorage Capital Partners Pty Limited v ACPA Pty Ltd [2015] FCA 882 I determined that the respondents had not infringed the applicant's trade marks and dismissed its application. On the respondents' cross-claim for expungement, I concluded that the respondents' allegation that the applicant was not the owner of the trade marks was made good and determined that the Court's power to order the removal of the marks from the register had been enlivened. At the suggestion of the parties, I invited further submissions on how the discretion thus arising should be exercised. In Anchorage Capital Partners Pty Limited v ACPA Pty Limited (No 3) [2015] FCA 1436, I concluded that that discretion should be exercised in the respondents' favour and ordered the removal of certain trade marks from the register. 2 There remains then the question of costs. There is no issue that having lost both cases the applicant should pay the respondents' costs; the only issue relates to whether the costs should be on an indemnity or party-party basis. The respondents submit that the applicant should be required to pay their costs: (a) of the whole of both proceedings (i.e., the main proceeding and the cross-claim) on an indemnity basis because the applicant's conduct of the proceedings had been unreasonable, wasteful and dishonest; or (b) on an indemnity basis from 20 June 2014 because of a Calderbank letter dated 18 June 2014 or an offer of compromise made under r 25.14(2) of the Federal Court Rules 2011 (Cth) on 18 June 2014; or (c) on an indemnity basis from 7 August 2014 because of an offer of compromise made under r 25.14(2) on 5 August 2014; or (d) on an indemnity basis from 7 November 2014 because of an offer of compromise made under r 25.14(2) on 5 November 2014; or (e) of responding to the estoppel case on an indemnity basis since that case was advanced in a knowingly false fashion. 3 In summary, I do not accept that the applicant should pay the costs of the whole of the proceedings on an indemnity basis but I do accept that it should do so in relation to the estoppel case. Insofar as the offers of compromise are concerned, the applicant should pay the respondents' costs on an indemnity basis after 11am on 20 June 2014. 4 The issues in the proceedings were: (a) whether the respondents had infringed the applicant's trade marks; (b) whether, if they had, they had defences available to them under ss 122(1)(a)(i) or (1)(b)(i) of the Trade Marks Act 1995 (Cth); (c) whether the respondents had engaged in passing off and misleading and deceptive conduct; (d) whether the respondents were estopped from seeking to remove the applicant's trade marks from the register; (e) whether the applicant was the owner of the trade marks; and (f) whether the trade marks should be removed from the register. 5 All of these were resolved against the interests of the applicant so that its loss of the proceedings was complete, save that I did not conclude that the power to remove the mark ANCHORAGE CAPITAL PARTNERS was enlivened. In relation to (d), I concluded that officers of the applicant had given knowingly false evidence. Insofar as that matter is concerned, it is difficult to see that an award of indemnity costs can be avoided. The case advanced by the applicant involved an attempt to have the Court conclude something which senior executives of the applicant knew was not the case: see Anchorage Capital Partners Pty Limited v ACPA Pty Ltd [2015] FCA 882 at [24]-[27]. This was sought to be achieved by the giving of evidence which was false and by the instruction of attorneys to pursue a case before the Court which must have been known not to be correct. This is a canonical example of conduct in litigation warranting an indemnity costs order: Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225. Neither the respondents nor the Court should have been put to the trouble of having to deal with the issue. 6 I do not accept, however, that an indemnity costs order is warranted for the balance of the proceedings. It is true that the applicant lost on all issues except the removal of one mark, and its defeat was, in that sense, comprehensive. But I do not think that its arguments in relation to the rest of the case were unreasonable or mendacious. Whilst it is certainly the case that I would characterise the applicant's proceeding as disproportionate to the circumstances giving rise to it, that is not to reflect negatively on its legal soundness. Although the applicant lost its case, it did not lose because its proceeding was a disproportionate response to a minor problem; it lost because its case was no good. Accordingly, I do not think, at least in the present matter, that the lack of proportionality should impact on the kind of costs order involved. 7 Turning then to the various offers to compromise, the first of these was dated 18 June 2014 and was a Calderbank letter. The offer was in these terms: '… At present, ACPA and Anchorage Capital would be satisfied to revert back to the status quo prior to your client's commencement of the proceedings. In view of this, on a "without prejudice save as to costs" and on a subject to contract basis, ACPA and Anchorage Capital are prepared to consider an agreement for future use under which: • Your client discontinues their claim; • ACPA discontinues their counter-claim; • Your client refrain from alleging trade mark infringement in respect of the Current Registrations or misleading or deceptive conduct against our client or Anchorage Capital; • ACPA, Anchorage Capital, and your client continue to use the terms "Anchorage", "Anchorage Capital" and "Anchorage Capital Group" within Australia consistent with the use made prior to the commencement of the proceedings, and the parties use their best endeavours to resolve any future mis-reporting or mis-description of their relationship; • ACPA refrain from seeking revocation of the Current Registrations; • The Applications brought by Anchorage Capital are withdrawn; and • Your client would pay the costs incurred by ACPA to date in responding to the current proceeding, being approximately $400,000 (including GST) (which represents approximately 70% of ACPA's actual costs to date). The above offer of agreed terms for future use is likely to be the only basis upon which your client is able to continue to use the Current Registrations in light of the prior use and reputation of associated entities of ACPA and the Applications. …' 8 I do not think that it was unreasonable for the applicant not to accept this offer. The fourth bullet point left much which could be debated in the future and one could reasonably take the view that there was not much point in agreeing to settle on such an uncertain basis. 9 The second offer was an offer to compromise under r 25.01(1). It was also dated 18 June 2014. It was in these terms: 'The First and Second Respondents/the Cross-claimant (the Respondents/Cross-claimant) offer to compromise this proceeding. The offer is that: 1. the Applicant's/Cross-respondent's claim be discontinued; 2. the Respondents'/Cross-claimant's cross-claim be discontinued; and 3. the Applicant/Cross-respondent pay the Respondents/Cross-claimant $285,000 (including GST) (being approximately 50% of the Respondents'/Cross-claimant's actual costs) in respect of the Respondents'/Cross-claimant's costs within 28 days of the date of acceptance of this offer. This offer is inclusive of costs. The offer of compromise is open to be accepted for 14 days after service of this offer of compromise.' 10 The legal question which arises is whether the applicant 'unreasonably fail[ed] to accept the offer' within the meaning of r 25.14(2). If it did, the respondents will be entitled to indemnity costs from the second business day after the offer was served, in this case, 20 June 2014. Rule 25.14(2) provides: Costs where offer not accepted … (2) If an offer 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. … 11 The applicant submits that it was not unreasonable for it to reject this offer because it involved no genuine compromise and effectively required its complete capitulation. The purpose of rules such as r 25.14, it is true, is to promote the settlement of proceedings by the making of offers of settlement involving genuine compromise: Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2011] FCAFC 141 at [19]. Consequently, if the offer did not involve any genuine compromise on the part of the respondents, the rule will not be enlivened. 12 In relation to the applicant's own claim, looked at in isolation, the applicant's submission is apparently correct. The best the respondents could achieve in relation to it was likely that it be dismissed with costs. I do not think that the amount of costs it would eventually have received would have been much in excess of $285,000. Thus the only element of compromise it involved was the discontinuance of the proceeding rather than its dismissal. 13 However, the offer was not made in isolation. The respondents also offered to discontinue their cross-claim. That cross-claim was valuable to the respondents. By offering to let it go the respondents were permitting the applicant to continue to maintain the registration of the trade marks. Of course, what was involved was a discontinuance so it remained possible that the matter might be revisited in the future. Nevertheless, it was the abandonment of something valuable. 14 In those circumstances, the offer appears to me to have involved an element of genuine compromise, perhaps not an enormous compromise but not de minimis either. Further, it was an offer which bore, in my view, a reasonable relationship to the strength of the applicant's position. By the time it was made the applicant was confronted by weaknesses on several fronts. To begin with, the respondents had by 18 June 2014 advanced a prior use allegation. The applicant's own lawyers had warned it that this might well happen even before the applicant had applied to register the trade marks in 2011. It knew from before it sought registration that there was, therefore, a real problem about the respondents' prior use of the marks. It certainly knew that by 18 June 2014 when it was facing these allegations in formal court proceedings. Likewise, the misleading and deceptive conduct case was, with respect, obviously unviable. Some, perhaps not very great, reflection would have shown that neither firm was trying to exploit the reputation of the other and, further, that the idea that the relevant consumers in the market might be confused was very difficult to sustain having regard to who they were. In other words, the proceeding involved very serious risks for the applicant. 15 I accept, therefore, that the respondents' offer did involve genuine compromise which reflected the strength of their case and, hence, that the applicant unreasonably failed to accept it. In those circumstances, r 25.14 is enlivened. It is not necessary therefore to consider the remaining offers. 16 I make the following orders: 1. The applicant is to pay the respondents' costs on the cross-claim of defending the estoppel case on an indemnity basis. 2. The applicant is to pay the respondents' costs on both the application and the cross-claim on a party-party basis before 11am on 20 June 2014 other than the costs referred to in order 1. 3. The applicant is to pay the respondents' costs thereafter on an indemnity basis. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram. Associate: Dated: 9 March 2016 SCHEDULE OF PARTIES NSD 149 of 2015 Cross-Claimants Second Cross-Claimant: ANCHORAGE CAPITAL GROUP LLC