FEDERAL COURT OF AUSTRALIA G1PC Pty Ltd (Trustee) v Petstock Pty Limited (No 2) [2016] FCA 1056 File number: NSD 1154 of 2015 Judge: PERRY J Date of judgment: 31 August 2016 Catchwords: COSTS – application for costs of and incidental to interlocutory application – where matter was resolved by consent after part heard hearing – order that costs be in the cause. Legislation: Federal Court of Australia Act 1976 (Cth) s 43(2) Cases cited: G1PC Pty Ltd (Trustee) v PetStock Pty Limited [2015] FCA 1466 Minister for Immigration & Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 Ruddock v Vadarlis (No 2) [2001] FCA 1865; (2001) 115 FCR 229 Date of hearing: Determined on the papers Date of last submissions: 22 May 2016 Registry: New South Wales Division: General Division National Practice Area: Intellectual Property Sub-area: Trade Marks Category: Catchwords Number of paragraphs: 37 Counsel for the Applicant: Dr S Bogan Solicitor for the Applicant: Axis Legal Counsel for the Respondents: Mr HPT Bevan Solicitor for the Respondents: Norton Rose Fulbright ORDERS NSD 1154 of 2015 BETWEEN: G1PC PTY LTD AS TRUSTEE FOR THE GOLDEN 1 TRUST (ACN 125 170 309) Applicant AND: PETSTOCK PTY LIMITED (ACN 098 394 588) First Respondent SHANE BRENDAN YOUNG Second Respondent JOHN BEDWELL (and others named in the Schedule) Third Respondent JUDGE: PERRY J DATE OF ORDER: 31 August 2016 THE COURT ORDERS THAT: 1. The costs of and incidental to applicant's interlocutory application dated 27 April 2016 shall be costs in the cause. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT PERRY J: 1. INTRODUCTION 1 In these proceedings, the applicant claims that the 30 respondents have infringed trademarks owned by the applicant, contravened ss 18 and 29 of the Australian Consumer Law, and engaged in passing off by promoting and supplying veterinary services using the names "PetVet", "PetStock" and variations on those names. The applicant owns trademarks with the name "PetVets" for veterinary services and the wholesaling of pet care and veterinary products: G1PC Pty Ltd (Trustee) v PetStock Pty Limited [2015] FCA 1466 at [1]. 2 This is an application for the costs of and incidental to an urgent interlocutory application filed by the applicant and heard as a duty matter on 27 April 2016. By that application, the applicant sought an order that the applicant's solicitor may disclose to the applicant and the Hon Mr Lindgren AM QC certain documents for the purposes of a mediation which was due to be conducted by Mr Lindgren on 29 April 2016. One of the heads of relief sought by the applicant in the proceeding is an account of profits. As a result, the applicant contended that its legal representatives would be unable to advise the applicant as to an appropriate settlement amount in the context of the mediation without being able to discuss with the applicant's director, Mr Glen Kolenc, what amounts had been earned by the first respondent, PetStock Pty Limited (Petstock), in the form of franchise fees. The respondents however contend that the documents or parts of documents in question (the confidential documents) are confidential to the franchise network operated by Petstock and are not disclosed to persons outside that network. The respondents alleged that the confidential documents contain commercially valuable information about Petstock's franchise system which it does not make available to other industry participants and that it would not, in the normal course of its business, provide the confidential documents to the applicant or Mr Kolenc. 3 Ultimately, following a part hearing of the application, the interlocutory application was resolved by consent and orders were made on 28 April 2016 which relevantly provided: BY CONSENT, THE COURT ORDERS THAT: 1. without prejudice to the position of the Applicant or its legal representatives to make such further applications with respect to the confidentiality regime as they may be advised to make, the legal representatives of the Applicant be permitted, for the purposes of the mediation between the parties scheduled for Friday, 29 April 2016 before the Hon Mr K E Lindgren AM QC, to disclose to Mr Glen Kolenc the information in the documents as identified in Annexure A to these orders, and to include that information by way of incorporation into or reference in any position papers prepared for the mediation, on condition that Mr Kolenc may not make or be given copies of the documents, make notes (otherwise than for the purposes of the mediation) of the contents of the documents, or retain copies of any position papers to the extent only that they incorporate or reference that information. 2. the interlocutory application filed 27 April 2016 otherwise be dismissed. 3. the costs of the interlocutory application be reserved. 4. if any party wishes to make an application in respect of the costs of the interlocutory application, that party is to notify the Associate to Perry J on or before Thursday 5 May 2016 with a view to having directions made in respect of any such costs application. .... THE COURT NOTES THAT: 7. the Respondents consented to the provision of the documents in Annexure 1 to the affidavit of Sara Laura Delpopolo affirmed 27 April 2016 to Mr Lindgren by email dated 26 April 2016 at 6.22pm. 4 On 2 May 2016, the applicant advised that it wished to make an application seeking its costs of and associated with the interlocutory application. Each party filed written submissions in support of their respective positions. 5 For the reasons that follow, the costs of and incidental to the interlocutory application should be costs should be in the cause. 2. BACKGROUND 6 On 21 December 2015, the applicant's solicitors provided signed confidentiality undertakings to the respondents' solicitors in connection with documents sought by the applicant pursuant to a notice to produce dated 1 December 2015. 7 On 26 February 2016, Robertson J made orders for the parties to make discovery by 18 March 2016. That deadline was subsequently extended by consent to 24 March 2016. However on that date the respondents' solicitors indicated that they would not be in a position to make discovery until the following week. 8 On 6 April 2016, the respondents' solicitors served affidavits attaching lists of documents filed on behalf of the ninth, tenth, twenty-first and thirtieth respondents in the proceedings. Also attached was an unsigned affidavit attaching the lists of documents for the first, fifth, thirteenth and fifteenth respondents. In the covering letter to those affidavits, the respondents' solicitors stated: As is evident from our clients' affidavits and lists of documents, our clients object to producing documents falling within Part 1A of each of the lists until satisfactory confidentiality undertakings are provided. We enclose a proposed form of undertaking, which reflects the previous undertaking provided by you and Ms Tomasich in relation to the documents produced in response to your client's Notice to Produce. Once we receive an executed undertaking from you, we will also be in a position to provide the confidential documents. 9 On the following day, 7 April 2016, the further affidavits attaching lists of documents of the first, thirteenth, fifteenth and twenty-fifth respondents were served. The covering letter contained the same objection to the provision of certain documents until confidentiality undertakings had been signed. 10 In a letter dated 14 April 2016, the applicant's solicitors wrote to the respondents' solicitors stating relevantly: Your clients' refusal to produce certain documents in answer to your clients' discovery obligations unless confidentiality undertakings are signed has no basis and is contrary to his Honour's orders. Would you please confirm that your client will produce all documents immediately. 11 On 15 April 2016, further lists of documents were served on behalf of the seventh and thirtieth respondents, again noting the objection to the provision of certain documents until confidentiality undertakings had been signed. The parties continued to exchange correspondence regarding disclosure of documents and the confidentiality undertakings. 12 On 21 April 2016, the matter was listed for directions before Robertson J. His Honour made orders that relevantly provided: 2. On or before Friday 22 April 2016, on the Applicant's counsel and solicitors providing appropriate undertakings in relation to confidentiality, the Respondents are to provide to the Applicant's counsel and solicitors the documents claimed to be commercial in confidence. 3. Grant the Applicant liberty to apply in the event that it disputes the claim to confidentiality or the Respondents' claims to legal professional privilege. 13 The effect of the confidentiality undertaking was that the applicant's legal representatives could not disclose the allegedly confidential information or any part of it directly or indirectly to any person, subject to certain exceptions not presently relevant. Relevantly from the applicant's perspective, the undertaking prevented disclosure of the documents to Mr Kolenc and to the mediator. This was important, according to the applicant, because, as earlier explained, it precluded the applicant's legal representatives from discussing with the applicant's director the potential quantum of any order for an account of profits based upon the confidential documents. 14 On 22 April 2016, following a request from the respondents' solicitors for a copy of the draft index to the mediation bundle, the applicant's solicitors replied advising they were not yet in a position to provide the index and further that: …given that the principal documents we will be relying on for the purposes of the mediation are the subject of confidentiality undertakings, which you required us to sign, it is likely we will be seeking urgent orders from the duty judge on (sic) a Wednesday to widen the scope of access to those documents, so that we can advise our client and obtain instructions in relation to them. (emphasis added.) 15 The applicant contends that it was clear from this email that the scope of access sought was solely for the purposes of the mediation even though that is not expressly stated. 16 On 26 April 2016 at 12.06pm, the respondent's solicitors replied to the email in the following terms: Our clients' confidential documents were provided to you in accordance with the timetable ordered by the Court. As you know, the approach ordered by the Court is the same as the arrangement that our clients had proposed in earlier correspondence. The relevant documents would have been available to your firm earlier if your client had agreed to the proposal made by our clients. If there are particular documents (or parts of documents) that you wish to be able to provide to your client then please identify them. Depending on the scope of the access sought, it may well be possible for the parties to reach an agreed position on this issue. 17 On 26 April 2016 at 12.23pm, the applicant's solicitors sent an email to the Court seeking to list an urgent interlocutory application to determine the confidentiality issue. A copy of the proposed interlocutory application was attached. At this stage, the application had not yet been filed but was tentatively scheduled for the afternoon of 27 April 2016. 18 Meanwhile, at 2.41pm on 26 April 2016, the applicant's solicitors wrote to the respondents' solicitors identifying 36 documents for which the applicant sought "wider access" albeit that in that email, the precise scope of access sought was again not identified. The email concluded, "Please advise by 330pm whether your client will consent to the provision of these documents so that we may file the application in time for tomorrow's hearing." 19 At 6.22pm on the same day, the respondents' solicitors replied, consenting to the documents identified in the applicant's email being disclosed to the mediator. The respondents also consented to disclosure on conditions to Mr Kolenc of the information contained in certain of the confidential documents or parts of those documents, namely, that Mr Kolenc would not retain a copy of the documents or make notes of their contents. However, that consent was subject to exceptions, with the respondents' refusing to permit even conditional disclosure to Mr Kolenc to other confidential documents. In some cases, the entire document was excluded from disclosure to Mr Kolenc and in other cases, part only of a document or dollar figures and percentages were excluded. In the letter the respondents also alleged that "the current situation has come about because of the unreasonable approach your client initially adopted in relation to this issue, which was to refuse to accept any limitations whatsoever on the disclosure of the documents." 20 On the morning of 27 April 2016, the applicant's solicitors responded to the email, narrowing the proposed disclosure to Mr Kolenc and requesting that the respondents advise immediately as to whether they consent to all of the proposed disclosures to him as "[t]he court is waiting for us to file our application…". In the email, the applicant's solicitors indicated where they did or did not agree with proposed non-disclosure of all or part of a document, but did not expressly state whether or not the respondents' proposed conditions for disclosure to Mr Kolenc were acceptable. Further emails were then exchanged in which the respondent agreed to an additional document being disclosed, subject to the conditions set out the in email at 6.22pm on the previous day. 21 At 12.27pm on 27 April 2016, the applicant filed the interlocutory application which sought the following interlocutory orders: 1. Pursuant to orders 3 and 7 made by the Hon Justice Robertson on 21 April 2016, an order than the Applicant's solicitor, Axis Legal may disclose to: (a) The Applicant; and (b) The Hon Mr Lindgren, the documents identified in Annexure 1 to the affidavit of Sara Delpopolo sworn 27 April 2016. 2. The Respondents pay the Applicant's costs of and incidental to this application. 22 The matter was part heard on the afternoon of 27 April 2016 as a duty matter. After hearing argument from the applicant and part of the respondents' argument, the matter was adjourned that evening to be reconvened the following morning. However, the subsequent hearing became unnecessary because, on the morning of 28 April 2016, the parties advised that agreement had been reached on the issue of confidentiality. Consent orders were accordingly made in Chambers in the terms set out at [3] above. 3. RELEVANT PRINCIPLES 23 The power to award costs is conferred by s 43(2) of the Federal Court of Australia Act 1976 (Cth) which relevantly provides that "the award of costs is in the discretion of the Court or Judge". While the question of costs is a matter for the Court's discretion, the ordinary rule is that a successful party is entitled to its costs: Ruddock v Vadarlis (No 2) [2001] FCA 1865; (2001) 115 FCR 229 at 234-235 [11] (Black CJ and French J). Such discretion is normally exercised after a hearing and determination on the merits. However, where (as here) a matter has not been determined on its merits, the ordinary rule does not apply. In Minister for Immigration & Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 (ex parte Lai Qin), McHugh J summarised the relevant principles as to the exercise of discretion in awarding costs where there has been no hearing of the merits (at 624-625): In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order. In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. … Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80 per cent of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare. If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases. 24 While these principles were articulated in circumstances where the substantive dispute has been resolved without a trial, they also provide guidance in the present situation where the interlocutory application was resolved by consent without an adjudication upon the merits of the application. 4. CONSIDERATION 25 Essentially, the applicant argues that it should be entitled to costs on the grounds that: (1) the documents were not properly characterised as confidential documents by the respondents because the applicant is not a competitor of the first respondent in any relevant sense given that the applicant is not a franchisor; and (2) the applicant was substantially successful in that the consent orders permitted disclosure to the applicant of the information in all of the documents which the applicant sought to be disclosed during the interlocutory application. 26 The respondents submit that the appropriate order is that the applicant pays their costs of and incidental to the interlocutory application, or alternatively that there be an order for costs in the cause, on the grounds that: (1) the application was not necessary to achieve the purpose sought, namely, that the respondents had already consented to the provision of documents to the mediator, and there were more common-sense means available to the applicant and its legal representatives; and (2) both parties achieved a measure of success in that the applicant obtained access to the documents but only for a very limited purposes and with express restrictions on the scope of disclosure. 27 As to the measure of success, the respondent submit: While the respondents accept that the applicant obtained access to the documents, this was for a very limited purpose and with express restrictions on the scope of disclosure: see order 1. These restrictions were sought by the respondents in correspondence before the interlocutory application was filed. The applicant went to court seeking orders without limit as to purpose and without any restriction. There is no explanation from the applicant why it chose to do this. The types of protections that were proposed by the respondents and embodied in the orders were described by the Court [in arguendo] as "entirely reasonable" (T64.11-13). It was only then that counsel for the applicant indicated that he had "no objection to that kind of limitation being placed on my client's access to the documents" (T64.19-20). 28 The respondent further points to the notation in the orders that the respondents had consented to the provision of documents to the mediator prior to the interlocutory application being filed and so that aspect of the interlocutory application had "no basis". 29 Contrary to the applicant's submissions, it would not be appropriate on an application for costs of an interlocutory application to determine whether or not the parties are competitors. Quite apart from other objections to the Court embarking upon consideration of that question, I do not have sufficient evidence on the basis on which to reach a decision on that issue and it would be inappropriate for me to pre-empt findings which may be relevant to a final determination of the matters. 30 Ultimately, I accept the respondents' alternative contention that the appropriate order is for costs to be costs in the cause. 31 First, I do not accept that the evidence establishes that either party acted unreasonably in their respective positions. It was reasonable for the applicant to seek production of the relevant documents or parts of documents in order to be able to give instructions as to possible quantum during the mediation. Insofar as the applicant sought orders for disclosure to the mediator, that aspect of the application was merely incidental to the application for orders providing for disclosure to the applicant. No doubt, given the respondents' prior consent to the documents being disclosed to the mediator, the matter could have been dealt with by consent orders had an application not been considered necessary with respect to disclosure to Mr Kolenc. 32 Furthermore, it is apparent from a comparison of the email dated 26 April 2016 at 6.22pm from the respondents' solicitors, the email from the applicant's solicitors in response dated 27 April 2016 at 9.53am and the documents listed in Annexure 1 to Ms Delpopolo's affidavit that the intention in bringing the interlocutory application was to seek access by Mr Kolenc to those documents or parts of documents which the respondents were not prepared to consent to on any terms, i.e., where disclosure of the information in the documents to the applicant had been expressly refused by the respondents. 33 On the other hand, contrary to the applicant's submission, it was not apparent that the access sought for Mr Kolenc was in fact confined to those documents or information; nor that the applicant accepted the restrictions proposed by the respondents which ultimately found reflection in the consent orders. For example, in the respondents' 6.22pm email, the respondent consented to disclosure to Mr Kolenc subject to conditions of the following parts of document 4: "entire document except for page 4". In the applicant's solicitor's reply the following day, the response was simply "Doc 4 – entire document except for page 4 – do not agree". In the annexure to Ms Delpopolo's affidavit listing the documents to which the interlocutory application relates, access is sought without any expressed conditions and to "document 4 … Entire Document" and not merely to page 4. 34 It follows that, while the applicant submits that it was apparent that access to the documents by Mr Kolenc was sought only for the purposes of the mediation and the applicant was content to accept that Mr Kolenc had access to the information subject to the conditions proposed by the respondents, that was not clear from the correspondence from the applicant's solicitors; nor from the unrestricted access sought in the interlocutory application itself. In so saying, I do not doubt that the applicant's intention accorded with its submissions. However, the applicant failed effectively to communicate that intention to the respondents. 35 Thirdly, I accept the respondents' submission that ultimately both parties achieved partial "success" in their respective positions by the conclusion of the consent orders, notwithstanding that the "success" which the parties ultimately achieved was not through a judicial consideration of the merits of their argument. In this regard, on the one hand the interlocutory application in its terms sought unrestricted access by the applicant and, on the other hand, the respondent sought to preclude any access to the documents or parts of documents exempted from any disclosure to Mr Kolenc in its 6.22pm email. Nor is this a case where either party was certain to have their respective positions vindicated if the matter had been resolved by a judicial determination. 36 Finally, in the context of a resolution by consent of substantive proceedings, like findings as to the reasonableness of the parties' conduct may found an order that each party bear its own costs in line with the principles summarised by McHugh J in ex parte Lai Qin. However, in the context of the interlocutory application and ongoing litigation, in my opinion the appropriate order is that costs ultimately be costs in the cause. 5. CONCLUSION 37 For the reasons set out above, costs of the interlocutory application made by the applicant on 27 April 2016 for access to documents over which the respondent claimed confidentiality should be costs in the cause. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perry. Associate: Dated: 31 August 2016 SCHEDULE OF PARTIES NSD 1154 of 2015 Respondents Fourth Respondent: JULIE YOUNG Fifth Respondent: DAVID JOHN YOUNG Sixth Respondent: PETSTOCK GEELONG PTY LTD (ACN 103 220 524) Seventh Respondent: PETSTOCK (HOPPERS CROSSING) PTY LTD (ACN 105 361 868) Eighth Respondent: PETSTOCK (ERINA) PTY LTD (ACN 129 430 208) Ninth Respondent: WANDOO GREAT PTY LTD (ACN 149 200 439) Tenth Respondent: RALPH HEDLEY HUDSON Eleventh Respondent: PAMELA MARY MACLEOD Twelfth Respondent: KARINA JEANETTE LAMONT Thirteenth Respondent: PETSTOCK RETAIL PTY LTD (ACN 127 690 466) Fourteenth Respondent: PETSTOCK (SUNSHINE) PTY LTD (ACN 127 690 466) Fifteenth Respondent: PETSTOCK PETVET PTY LTD (ACN 128 415 734) Sixteenth Respondent: PETSTOCK (CRAIGIEBURN) PTY LTD (ACN 166 638 482) Seventeenth Respondent: PETVET CRAGIEBURN PTY LTD (ACN 601 406 946) Eighteenth Respondent: PETVET ALTONA NORTH PTY LTD (ACN 600 301 139) Nineteenth Respondent: PETSTOCK (ALTONA NORTH) PTY LTD (ACN 600 092 171) Twentieth Respondent: PETSTOCK (BRIGHTON) PTY LTD (ACN 127 364 087) Twenty-first Respondent: petVET Brighton Pty Ltd (ACN 168 114 627) Twenty-second Respondent JANELLE E CROUCHER TRADING AS PETSTOCK (MOUNT GAMBIER) AND PETVET MOUNT GAMBIER Twenty-fourth Respondent JAMES M PRIDDLE TRADING AS PETSTOCK (MOUNT GAMBIER) AND PETVET MOUNT GAMBIER Twenty-fifth Respondent: TERESA L PRIDDLE TRADING AS PETSTOCK (MOUNT GAMBIER) AND PETVET MOUNT GAMBIER Twenty-sixth Respondent: VICKI M PRIDDLE TRADING AS PETSTOCK (MOUNT GAMBIER) AND PETVET MOUNT GAMBIER Twenty-seventh Respondent: PETSTOCK (ROUSE HILL) PTY LTD (ACN 603 905 586) Twenty-eighth Respondent: PETVET ROUSE HILL PTY LTD (ACN 603 905 764) Twenty-ninth Respondent: PETSTOCK (WEST GOSFORD) PTY LTD (ACN 604 821 463) Thirtieth Respondent: PETVET (WEST GOSFORD) PTY LTD (ACN 604 821 696)