FEDERAL COURT OF AUSTRALIA Qualify Me Pty Ltd v Get Qualified Australia Pty Ltd (No 3) [2016] FCA 460 File number: NSD 756 of 2015 Judge: MARKOVIC J Date of judgment: 5 May 2016 Catchwords: COSTS – whether indemnity costs ought to be payable where the amendment of pleadings go beyond that for which leave granted by the Court – whether costs should be payable forthwith Legislation: Federal Court of Australia Act 1976 (Cth) s 43 Federal Court Rules 2011 r 40.02(a) Cases cited: Cirillo v Consolidated Press Property Ltd (formerly known as Citicorp Australia Limited) (No 2) [2007] FCA 179 GAIN Capital UK Limited v Citigroup Inc (No 2) [2016] FCA 243 Qualify Me Pty Ltd v Get Qualified Australia Pty Ltd [2016] FCA 192 Qualify Me Pty Ltd v Get Qualified Australia Pty Ltd (No 2) [2016] FCA 309 Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (A Firm) [2016] FCAFC 2 Date of hearing: Heard on the papers Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Category: Catchwords Number of paragraphs: 24 Counsel for the Applicant: Mr B Le Plastrier Solicitor for the Applicant: Birchall Legal Counsel for the Respondents: Mr J O'Sullivan Solicitor for the Respondents: & Legal ORDERS NSD 756 of 2015 BETWEEN: QUALIFY ME PTY LTD ACN 165 025 874 Applicant AND: GET QUALIFIED AUSTRALIA PTY LTD ACN 144 813 543 First Respondent ADAM WADI Second Respondent JUDGE: MARKOVIC J DATE OF ORDER: 5 MAY 2016 THE COURT ORDERS THAT: 1. The applicant to pay the respondents' costs thrown away by reason of the amendments made by the second further amended statement of claim, beyond the amendments made to paragraphs 3A to 17 of the further amended statement of claim, as agreed or taxed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT MARKOVIC J: BACKGROUND 1 On 4 March 2016 I made orders and gave judgement in relation to the respondents' interlocutory application filed on 9 November 2015 seeking orders that the applicant's further amended statement of claim (FASOC) and originating application be struck out or, in the alternative, summarily dismissed (the Interlocutory Application): Qualify Me Pty Ltd v Get Qualified Australia Pty Ltd [2016] FCA 192 (Qualify Me (No 1)). Relevantly, I made orders striking out paragraphs 3A to 17 of the FASOC and granting the applicant leave to replead those paragraphs of the FASOC and to file a second further amended statement of claim by 25 March 2016. 2 On 31 March 2016 I gave judgment and made orders in relation to the parties' respective claims for costs of the Interlocutory Application: Qualify Me Pty Ltd v Get Qualified Australia Pty Ltd (No 2) [2016] FCA 309 (Qualify Me (No 2)). Relevantly, I ordered the applicant to pay the respondents' costs thrown away by reason of the leave granted to the applicant on 4 March 2016 to replead paragraphs 3A to 17 of the FASOC and to file a second further amended statement of claim. 3 The applicant filed a second further amended statement of claim on 30 March 2016 (SFASOC). 4 The matter came before me for directions on 31 March 2016. At that time, counsel for the respondents submitted that the SFASOC not only repleaded paragraphs 3A to 17, within the terms of the leave granted by the Court on 4 March 2016, but substantially amended most of the balance of the pleading and that his clients would consent to the filing of the SFASOC in that form on the basis that the applicants pay the costs thrown away of the filing of the SFASOC in what was described as its "enlarged form" on an indemnity basis and forthwith. 5 The applicant will agree to paying the costs thrown away by reason of the filing of the SFASOC in its "enlarged form" but on the usual basis as assessed or agreed. 6 On 31 March 2016 I made an order by consent between the parties allowing the filing of the SFASOC in the form in which it had been filed on 30 March 2016. The issue between the parties is whether the costs thrown away by reason of the filing of the SFASOC, for the amendments made beyond the leave to amend granted on 4 March 2016, ought be paid on an indemnity basis and forthwith or on the usual party and party basis. 7 On 31 March 2016 I made an order that the parties file and serve submissions on the issue of the basis upon which costs thrown away by reason of the filing of the SFASOC, beyond the costs the subject of the orders made on 31 March 2016, should be paid by the applicant. The parties have filed submissions and consent to the matter being determined on the papers. RELEVANT LEGAL PRINCIPLES 8 The Court's jurisdiction to award costs is found in s 43 Federal Court of Australia Act 1976 (Cth) (the FCA Act). It is accepted that the Court has a very wide discretion to order costs. 9 Part 40 of the Federal Court Rules 2011 (the Rules) relates to costs. Rule 40.01 provides that if an order is made that a party pay costs or be paid costs, without any further description of the costs, the costs are to be costs as between party and party. Rule 40.02(a) of the Rules provides that a party who is entitled to costs may apply to the Court for an order that costs awarded in its favour be paid other than as between party and party. Note 1 to r 40.02 provides that the Court may order that costs be paid on an indemnity basis. 10 Indemnity costs are intended to compensate a party fully for costs incurred, which party and party costs could not be expected to do, where the Court forms the view that it was unreasonable for the party in whose favour the order is made to be subjected to a costs expenditure: see Cirillo v Consolidated Press Property Ltd (formerly known as Citicorp Australia Limited) (No 2) [2007] FCA 179 at [4]. There must usually be some special circumstance or unusual feature, such as the bringing of a hopeless case, to support the making of an order for costs on an indemnity basis: see GAIN Capital UK Limited v Citigroup Inc (No 2) [2016] FCA 243 at [37]. 11 In support of their submissions as to why an order for indemnity costs should be made, the respondents rely on the decision of a Full Court of this Court in Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (A Firm) [2016] FCAFC 2 (Tamaya). The Full Court considered an appeal from a decision refusing leave to grant leave to amend pleadings. The Court upheld the primary judge's decision to refuse to grant leave to amend the pleading six weeks before the hearing. The Full Court observed, at [153] to [160], that the onus is on the amending party to satisfy the Court, by evidence, that there is an adequate explanation for why an amendment should be allowed where the relevant facts were known earlier but were not pleaded and, at [208] to [215], that if the amendment were allowed it would protract the litigation and expose the respondents to ongoing strain. In circumstances where there was an inadequate explanation as to why the amendment had not been made earlier, it should not be allowed. CONSIDERATION 12 It is not in issue that the SFASOC includes amendments that go beyond the leave granted by the Court on 4 March 2016. However, the parties' characterisation of those amendments differs. The leave that was granted to amend the FASOC was limited to paragraphs 3A to 17. An analysis prepared by the respondents indicates that: (1) new paragraphs 15 to 45 replace former paragraphs 3A to 17 of the FASOC; (2) the allegations in relation to trade mark infringement in the former paragraphs 37 and 38 of the FASOC have been deleted, paragraphs 39 to 44 of the FASOC have been partly amended and new paragraphs 55, 57 and 59 to 65 have been inserted in the SFASOC; (3) a new cause of action for trade mark infringement is alleged against the second respondent at paragraphs 57 and 63 of the SFASOC; (4) new allegations in relation to alleged misleading or deceptive conduct have been inserted in paragraphs 66 to 81 of the SFASOC; and (5) new allegations in relation to alleged continuing conduct have been raised in paragraphs 82 to 83 of the SFASOC. 13 The applicant submits that, while the totality of amendments to the SFASOC appear extensive on an "arithmetical" formulation, the vast majority of those amendments are the repleading of the paragraphs struck out by the orders made on 4 March 2016 and in respect of which leave was given to replead. That may be so but, in my opinion, it is apparent that new claims are raised. The applicant says that given the Court's comments in Qualify Me (No 1), that it should have provided more particulars in its pleadings and that it was the applicant's "last chance" to plead its case, it was entirely appropriate for it to fulsomely plead its case in the SFASOC as it has done. However, that submission ignores the fact that the leave that was granted was limited to a repleading of paragraphs 3A to 17 of the FASOC. 14 To the extent that the applicant wished to further replead its case, a matter which was apparent at the hearing of the Interlocutory Application, that remained an issue for determination at another time. A draft further amended pleading was not provided prior to the hearing of the Interlocutory Application. Discussion about further amendments to the pleading arose during the course of the hearing of the Interlocutory Application including: (1) at one point in the course of submissions, senior counsel appearing for the applicant noted that the applicant had not in the FASOC "pleaded the uses of the words 'Qualify Me' as a trade mark" appearing in the websites. He indicated that the applicant foreshadowed that it would like leave to amend to include those as part of misleading or deceptive conduct and that that was not an application that was being made in the course of the argument resisting the Interlocutory Application but one that would be made separately when the applicant had a pleading to advance. Senior counsel appearing for the applicant also said that: To be quite open about our position in investigating this material for the purpose of the s 31A application, it became apparent that these additional causes of action were there, and that they would be properly included within the same proceeding. (2) at the conclusion of the hearing of the Interlocutory Application there was a further exchange with senior counsel appearing on behalf of the applicant where he said: …We have foreshadowed the separate amendment, and your Honour's summary of that was, with respect, correct. It's desirable there would be only one amendment, and the outcome of this application, of course, is something which will determine whether there needs to be amendment and whether there's – in any event, let alone the additional matters that we foreshadowed. So we would submit that it's prudent. We can certainly undertake – and I think I can undertake on behalf of my client to move expeditiously to make any amendments consequent on the outcome of this application or our separation application, and that that would address those matters. …. 15 That second exchange at the hearing of the Interlocutory Application perhaps underpins the applicant's contention that it was more efficient to deal with all amendments at once. That is, any that arise as a result of the outcome of the Interlocutory Application and those further amendments that the applicant seemed to have in contemplation. 16 The applicant also submits that the additional causes of action are based on the matters that were repleaded with leave in Qualify Me (No 1) and, as such, the costs thrown away by reason of the amendments should be very limited. The applicant contends that the additional costs the respondents may now incur will be minimal because the costs of pleading to the additional matters would have been incurred early in the proceedings, had those causes of action been pleaded earlier. Further, the applicant contends that the additional causes of action do not depart from those pleaded from the outset: misleading or deceptive conduct, misleading representations and trade mark infringement. While that may be so, the fact is that there are now additional causes of action to which the respondents must plead. 17 The respondents say that they are entitled to costs on an indemnity basis because of the delay in filing the SFASOC in the form in which it has now been filed. They point to the fact that, assuming adherence to the current timetable, pleadings will be closed on 10 June 2016 after the respondents have filed an amended defence and the applicant has filed a reply. That is 20 days short of a year from the date the applicant commenced proceedings. They submit that the cause of this delay is solely attributable to the applicant's conduct. The applicant, on the other hand, says its own conduct has not been dilatory and that it is the respondents who have failed to comply with certain orders of the Court. 18 The history of the proceedings up to the filing of the FASOC is set out in Qualify Me (No 1) at [63] to [77] and is incorporated by reference here. In short there was exchange of correspondence about the claim, requests for and provision of particulars and three versions of the claim filed, up to and including the FASOC, by the applicant from commencement of the proceedings on 30 June 2015 until the filing of the FASOC on 29 September 2015. Whether one or other party was dilatory in complying with orders is not, in my opinion, to the point. The conclusion that falls from this and the point which the respondents seek to make is that it has taken some nine months for the applicant to get its pleading to the current stage and now it has included in the SFASOC amendments for which leave was not granted and which will cause it to have to undertake further work beyond that contemplated at the time the order for payment of costs thrown away by reason of the amendments was made on 31 March 2016. 19 Further, the respondents submit that it is the combination of delay coupled with the fact that the applicant has offered no explanation or excuse for it and in relation to which, in contrast to the position in Tamaya, there is no ambiguity as to what the applicant knew and when, that justifies an order for indemnity costs. The respondents point out that the evidence is that the applicant knew all of the facts it now pleads and could have pleaded since 30 June 2015, when the proceedings were commenced, as it received Ms Robson's report in September 2014. 20 It has taken almost a year for the pleadings to crystalise in this matter and, indeed, the applicant was aware of the relevant facts, based upon which the SFASOC has now been pleaded, well before the commencement of proceedings in June 2015. However, I do not think that delay, even coupled with the lack of explanation for it, is sufficient to constitute a special circumstance or unusual feature justifying the making of an order for costs on an indemnity basis. Nor is the fact of the strain on the parties, either of itself or in combination with the delay, a matter which justifies the making of such an order. 21 In my opinion what has transpired in this matter is different to the situation that presented itself to the Court in Tamaya. The amendments included in the SFASOC, to the extent they are beyond the leave granted on 4 March 2016, were not made at a time when a hearing of the matter was imminent and the matter had proceeded and the parties had undertaken extensive preparation on the basis of a differently formulated statement of claim. These amendments have been made at a time well prior to that in the timeline of the conduct of the proceedings and prior to the close of pleadings. True it is that, in a temporal sense, it has taken some nine months to get to the stage of the filing of the SFASOC in the form in which it has now been filed which, understandably, from the respondents' perspective is unacceptable. However, the proceedings have not advanced to a stage where the parties have expended significant time and resources, in the sense of the preparation of evidence and other steps preparatory to hearing, on pursuing and responding to a claim in one form only to find themselves presented with a claim in a completely different form. 22 The respondents have submitted that the costs thrown away to date and in the future will be substantial. What constitutes the costs thrown away and whether they will be significant is a matter to be determined at a later stage. 23 The respondents also submit that any costs order made as a result of the filing of the SFASOC in its current form should be made payable forthwith. I addressed such an application in Qualify Me (No 2) at [14]. For the reasons set out therein I do not propose to make an order of that nature. 24 While the circumstances of this case are unusual and unfortunate I do not think they justify, in the sense of there being a special or unusual feature, a costs order on an indemnity basis for the costs thrown away by reason of the additional amendments. I will order the applicant to pay the respondents' costs thrown away by reason of the amendments made by the SFASOC, beyond the amendments made to paragraphs 3A to 17 of the FASOC, as agreed or taxed. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic. Associate: Dated: 5 May 2016