FEDERAL COURT OF AUSTRALIA The Dempsey Group Pty Ltd v Spotlight Pty Ltd (No 3) [2019] FCA 519 File number: VID 41 of 2017 Judge: DAVIES J Date of judgment: 17 April 2019 Catchwords: COSTS – exercise of costs discretion under s 43 of the Federal Court of Australia Act 1976 (Cth) – where applicant only partially successful at trial – where applicant's key witness lacked credibility – where respondent's pre-trial offers of settlement were for value greater than damages awarded – where damages substantially less than sought – partial reduction in costs appropriate – whether costs should be reduced substantially pursuant to r 40.08 of the Federal Court Rules 2011 (Cth) – choice of court was appropriate Legislation: Federal Court of Australia Act 1976 (Cth) Federal Court Rules 2011 (Cth) Cases cited: Commissioner of Taxation v AusNet Transmission Group Pty Ltd (No 2) [2015] FCAFC 124 Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52; [2007] HCA 56 Hughes v Western Australian Cricket Association (Inc) [1986] FCA 511 Magenta Nominees Pty Ltd v Richard Ellis (Western Australia) Pty Ltd [1994] FCA 302 Shord v Commissioner of Taxation (No 2) [2018] FCAFC 27 Umoona Tjutagku Health Service Aboriginal Corporation v Walsh [2019] FCAFC 32 Wu v Li [2015] FCAFC 109 Date of hearing: 11 April 2019 Registry: Victoria Division: General Division National Practice Area: Intellectual Property Sub-area: Copyright and Industrial Designs Category: Catchwords Number of paragraphs: 8 Counsel for the Applicant: Ms S Ryan Solicitor for the Applicant: DLA Piper Counsel for the Respondent: Mr L Merrick Solicitor for the Respondent: Cornwall Stodart ORDERS VID 41 of 2017 BETWEEN: THE DEMPSEY GROUP PTY LTD (ACN 004 722 936) Applicant AND: SPOTLIGHT PTY LTD (ACN 005 180 861) Respondent JUDGE: DAVIES J DATE OF ORDER: 17 April 2019 THE COURT ORDERS THAT: 1. The respondent pay 65% of the applicant's costs of the proceeding save for the costs of the applicant's interlocutory application dated 19 March 2018, such costs to be taxed in default of agreement. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT DAVIES J: 1 On 18 December 2018 I delivered judgment in this proceeding and subsequently granted declaratory relief and made orders that the respondent pay compensatory damages to the applicant in the sum of $35,112.76 for loss of profits and $10,000 for loss of reputation. The parties have been unable to agree on the appropriate costs order and, as directed by the Court, the matter came back for hearing on the question of costs. 2 The applicant seeks an order that, as the successful party, its costs of the proceeding should be paid by the respondent on a party-party basis (save for the costs of the applicant's interlocutory application dated 19 March 2018 which is the subject of a separate order). The respondent, on the other hand, seeks an order that the applicant pay 50% of the respondent's costs, with such costs to be assessed on an indemnity basis from 16 April 2018 pursuant to r 25.14(1) of the Federal Court Rules 2011 (Cth) ("Rules"). 3 In support, the respondent argued that the applicant did not have substantial success in the proceeding because although infringement was found, the applicant was only awarded a modest amount by way of damages, and far less than the damages award it had sought. The costs order sought by the respondent was said to give recognition to its success in defending the damages claims. It was further submitted that the applicant's conduct in pursuing the claims on which it was unsuccessful justified the costs order that the respondent seeks. It was submitted that the reasons for the failure should have been apparent to the applicant prior to the trial. Reference was made to the finding of the Court that Mr Chen's evidence, on which the applicant relied for its ss 37 and 38 infringement claims and additional damages claim, lacked credibility and was implausible. It was submitted that the difficulties with Mr Chen's evidence were easily exposed by reference to contemporaneous documents readily available to the applicant and the applicant ought to have appreciated "the precarious nature of Mr Chen's evidence" long before trial. It was also submitted that one of the key reasons for the applicant's substantial lack of success on its compensatory damages claim was the "poor evidence" relied on by the applicant and an analysis of that evidence prior to trial would have identified the difficulties that the applicant would face. It was submitted that the applicant's pursuit of "such an unrealistic case" was not consistent with the efficient and cost effective conduct of litigation and the Court should not countenance the pursuit of claims in that manner. It was also submitted that the unreasonableness of the applicant's behaviour in pursuing those claims left the respondent in a position where it had no alternative but to defend the claims made against it. The respondent also submitted that it was relevant to take into account that the respondent had made an offer to settle the case before trial for an amount that was double the damages actually awarded. Finally it was submitted that if costs are to be awarded to the applicant those costs should be substantially reduced in accordance with r 40.08 of the Rules, on the basis that the damages awarded were not substantial and the case ought more properly have been brought in the Federal Circuit Court. Rule 40.08 provides: 40.08 Reduction in costs otherwise payable A party other than in a proceeding under the Admiralty Act 1988 may apply to the Court for an order that any costs and disbursements payable to another party in the proceeding be reduced by an amount to be specified by the Court if: (a) the applicant has claimed a money sum or damages and has been awarded a sum of less than $100,000; or (b) the proceeding (including a cross-claim) could more suitably have been brought in another court or tribunal. 4 Under s 43 of the Federal Court of Australia Act 1976 (Cth) the Court has an unfettered discretion to award costs, subject to the requirement that the discretion be exercised judicially: Hughes v Western Australian Cricket Association (Inc) [1986] FCA 511 (Toohey J). Without limiting that discretion, by s 43(3)(e) the Court may award costs in favour of, or against a party, whether or not the party is successful in the proceeding. Generally the discretion is exercised in favour of the successful party: Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52; [2007] HCA 56 at [25] (Gleeson CJ, Gummow, Hayne and Crennan JJ) but it is well accepted that in exercising the discretion to award costs the Court may have regard to the issues in respect of which each of the parties has been successful and apportion costs that way: Shord v Commissioner of Taxation (No 2) [2018] FCAFC 27 at [18] (Siopis and White JJ). Where there are several issues and the successful party has failed on some issues, it may be appropriate to deprive the successful party of their costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant amount of time at trial: Wu v Li [2015] FCAFC 109 at [56] (Foster, Davies and Rangiah JJ). Further, the Court may properly depart from the usual rule as to costs when the successful party obtains relief which the unsuccessful party had already offered in settlement of the dispute: Jenkins v Hope [1896] 1 Ch 278 at 280; Commissioner of Taxation v AusNet Transmission Group Pty Ltd (No 2) [2015] FCAFC 124 at [12] (Kenny, Edmonds and Greenwood JJ). In each case the Court must determine whether it is in fact appropriate to depart from the usual order as to costs even in a case that may appear, broadly speaking, to fall within such a class of case. 5 I am not persuaded that this case is the kind of case where a successful party should be deprived entirely of its costs and be ordered to pay, instead, part of the respondent's costs. First I do not accept the premise that the applicant effectively failed in its case. The case was more than just about securing a substantial award of damages. Infringement, which had been denied, was established and the applicant successfully obtained declaratory relief, which had been opposed by the respondent. Furthermore, whilst the damages award was not significant, it was not a nominal amount. It was less than the amount offered by the respondent before trial but, I was informed, that offer included costs so that the actual amount of damages payable will exceed the offer made. I also do not accept the submission that the applicant pursued claims that did not have any realistic prospect of success. True it is that the applicant did not succeed on those claims but both claims at the time had some evidentiary foundation and a proper basis for making them at the time and, for the purposes of determining the appropriate costs order, the strength or otherwise of those claims at the time made does not fall to be judged with the benefit of hindsight after a fully contested trial of the proceeding. Accordingly, I do not accept the respondent's submission that it should have part of its costs. 6 However, there should be a reduction in the costs order in favour of the applicant, reflecting the applicant's lack of success on the ss 37 and 38 infringement claims and additional damages claim, and in obtaining compensatory damages of the magnitude sought. The appropriate reduction is not a matter of a precise arithmetical apportionment of the costs as between the winner and loser of discrete issues but, taking into account the issues on which the applicant did not succeed, and the amount of evidence and time taken at trial directed to those issues, it seems to me that it is appropriate that the applicant have 65% of its costs paid by the respondent. 7 Finally I do not think that the damages award justifies the exercise of discretion pursuant to r 40.08 to reduce the costs. Rule 40.08 was recently considered by the Full Court in Umoona Tjutagku Health Service Aboriginal Corporation v Walsh [2019] FCAFC 32. At [57], the Full Court observed that: … rule 40.08 enlivens a discretion in the Court (Kassem v Commissioner of Taxation (No 2) [2012] FCA 293 at [21] (Nicholas J)) and does not establish a prima facie rule that a specified reduction should be made where the damages are less than $100,000. In this regard, it may be contrasted with its predecessor, O 62 r 36A(1) of the Federal Court Rules 1979 (Cth). Order 62 r 36A(1) and (2) provided for a one-third reduction in costs where damages were less than $100,000 unless the Court or a Judge otherwise ordered or where the Court considered the claim could more suitably have been brought in another court. Nonetheless, Perram and Besanko JJ observed in Loyola v Cryeng Pty Ltd (No 2) [2012] FCAFC 98 that: … Plainly, the purpose of the two costs rules is to penalise parties who, through oversight or incompetence, bring and continue proceedings in an inappropriate Court in the judicial hierarchy. The qualifying factor for the operation of the rules is the decision to bring and maintain a case in a particular Court. In the present case, there would be no questioning the appropriateness of these proceedings being brought in this Court had the applicant succeeded in obtaining the award of damages which it sought. In that case, it was also regarded as relevant to whether the discretion should be exercised that the issues at trial were factually complex and involving serious allegations against a corporation providing publicly funded services where credibility was very much in issue and the trial spanned some ten days. A similar observation may be made about this case which involved the serious allegation of infringement and a claim for additional damages for the alleged flagrancy of the infringement. The Full Court also observed at [59] that a policy underlying r 40.08 is to dissuade the bringing of proceedings in the Federal Court that may more appropriately be brought elsewhere: Magenta Nominees Pty Ltd v Richard Ellis (Western Australia) Pty Ltd [1994] FCA 302 at [10] (Carr J). The Full Court noted that the particular expertise of a court in the subject matter of a dispute may be one reason why it might be said that it is appropriate for a matter to be instituted elsewhere. Given the nature, complexity and seriousness of the claims made, and the amount which had been sought by way of damages, I do not think that it can be said that it was more appropriate to bring these proceedings in the Federal Circuit Court. 8 Accordingly there will be an order that the respondent pay 65% of the applicant's costs. I certify that the preceding eight (8) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies. Associate: Dated: 17 April 2019