Case: Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1
Outcome: referred to
Subsequently, Redberry filed additional costs submission, with leave, to address the fact that, as the Court noted, O 23 r 11(6) did not commence operation until 2 August 2008. In these submissions, Redberry submitted that, if the Court were bound to follow Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1 , in order for an award of indemnity costs to be made, the test was whether it was imprudent or unreasonable to reject the offer of 21 August 2007. 17 In relation to the costs of the cross-claim, Redberry submitted that it was to be treated as an "applicant" for the purposes of O 23 of the Rules: see O 5 r 11 and O 23 r 1 (where an "applicant" is defined to include a "cross-claimant" and a "respondent" is defined to include a "cross-respondent"). Accordingly, in reliance on O 23 r 11(4) of the Rules, Redberry submitted that it was entitled to: 1. its party/party costs on the cross-claim up to 21 August 2007; and 2. its costs on the cross-claim from 22 August 2007 onwards on an indemnity basis. 21 As at August 2007, the only provision in connection with costs following an applicant's rejection of a respondent's offer of compromise was O 23 r 11(5), which deals with the position "[i]f ... an offer is made by a respondent and not accepted by the applicant; and ... the applicant obtains judgment on the claim to which the offer relates not more favourable than the terms of the offer". If applicable, this provision also creates a presumptive entitlement in the respondent to indemnity costs. The provision cannot apply to Redberry's offer of compromise, however, because the applicant not only rejected the respondent's offer but was wholly unsuccessful in the claim. In this circumstance, O 23 r 11(5) of the Rules has no application: see Coshott v Learoyd [1999] FCA 276 at [37] per Wilcox J; Dukemaster [2003] FCAFC 1 at [6] per Sundberg and Emmett JJ; and Seven Network Ltd v News Ltd (2007) 244 ALR 374 at [32] per Sackville J. 23 The authorities recognise that the making of an offer outside O 23 by a respondent, which is rejected by an applicant who turns out to be wholly unsuccessful, is a matter to be taken into account in determining the nature of the costs order to be made. In such a case, a respondent claiming indemnity costs must show that the rejection of the offer of compromise was imprudent or unreasonable: see Dukemaster [2003] FCAFC 1 at [7] ; University of Western Australia v Gray (No 21) [2008] FCA 1056 at [36] per French J; and Seven Network 244 ALR 374 at [39] and [51]. Where a cross-claimant makes an offer, which is rejected by a cross-respondent, and the cross-claimant ultimately fails, the position is quite different since there is little, if any, basis for saying that the rejection of the offer of compromise was imprudent and unreasonable. 24 The question is, therefore, whether or not it can be said that the applicants acted imprudently or unreasonably in rejecting Redberry's offer of compromise in relation to the applicants' claim. Plainly enough, even in the present circumstances, the mere refusal of an offer of compromise is not sufficient to satisfy this test: see John S Hayes &amp; Associates Pty Ltd v Kimberly-Clark Australia Pty Ltd (1994) 52 FCR 201 at 206 per Hill J and Dukemaster [2003] FCAFC 1 at [7] . Although the refusal of the offer is a factor to take into account, it is not determinative on the question of indemnity costs. As Sackville J said in Seven Network 244 ALR 374 at [65], "the court is required to consider whether the rejection of the offer of compromise was unreasonable by considering, among any other relevant circumstances, the strengths and weaknesses of the applicants' case, looking at the claim prospectively at the time the offer was made" (emphasis original). 25 The following factors support the conclusion that the applicants' rejection was not imprudent or unreasonable. 1. The Designs Act introduced a comparatively new statutory framework and, as at August 2007, there were few decisions under the Act concerning the issues arising in this case. The authorities, therefore, provided limited guidance as to the likely outcome. 2. The applicants' claim was tenable. It was not unreasonable. There were what I referred to as "clear similarities between the Review Design and the design embodied in the Redberry garment"; and there was also the direction in s 19(1) of the Designs Act to be considered. Of course, the directions in ss 19(2)(a) , (c) and (d), 19 (3) and (4) had to be borne in mind and standard of the informed user applied. The application of this standard depended, however, on the evidence adduced at trial, including the evidence of Ms Mudie. Her affidavit had not been filed and served let alone read at the time Redberry made its offer. The prior art, which was significant in this case, was also not fully explored until the trial. As at August 2007, the prior art relied on by Redberry was apparently limited to between 9 to 12 items: see the particulars under [7] to the Amended Defence and Cross Claim filed on 17 August 2007. Many more items formed part of the prior art relied on at trial. Further, had the applicants been successful, they might ordinarily have expected damages or an account of profits, at their election. Had they been successful, they might reasonably have expected to recover rather more than the amount Redberry offered. I doubt that the difficulties the applicants faced at trial in connection with their claims for general damages and additional damages would have been apparent to them at the time of the rejection of the offer of compromise. In one sense, these difficulties were the product of a relatively new legislative regime as applied to the fashion industry, most of which became manifest at trial. 3. As I acknowledged in my earlier reasons for judgment, had the applicants' claim for infringement been made out, a question would have arisen as to whether Redberry could successfully invoke s 75(2)(b) of the Designs Act . Consideration of this issue led to consideration of evidence adduced by Redberry, including the evidence of Mr Liu. It may be recalled that, although I ultimately accepted his evidence as essentially truthful, it is correct to say, as the applicants did, that there were some unexplained deficiencies in his account. His evidence was not available to the applicants at the time of the offer and hence it is not open to the applicants to rely on these deficiencies in explaining their rejection of the offer. I accept, however, that, even at time of offer, the applicants might reasonably have perceived that there were aspects of Redberry's case that tended against accepting Redberry's account of things and that it would have been difficult for them then to have predicted how these matters might turn out at the trial. 4. I accept that neither the applicants nor Redberry raised the issue as to the effect of commissioning manufacture outside of Australia. 5. Further, neither the offer of compromise nor the letter accompanying it contained a statement of reasons as to why Redberry believed that the application would fail: see Dukemaster [2003] FCAFC 1 at [8] . As Sundberg and Emmett JJ there said: Whatever the position may be with an offer made under Order 23, a Calderbank offer, or any offer of compromise outside the regime in Order 23, is unlikely to serve its purpose of attracting an indemnity award of costs if the rejecting applicant fails to recover more than what is ordered, unless the offer is a reasonable one and contains a statement of the reasons the offeror maintains that the application will fail. 26 I do not consider that there are countervailing matters that outweigh these considerations. Accordingly, viewed as at 31 August 2007, it was not imprudent and unreasonable for the applicants to reject Redberry's offer of compromise so far as the applicants' claim was concerned. 27 It may follow from this discussion that the rejection of Redberry's earlier settlement offer also provides no basis for an award of indemnity costs. Further, as at 1 June 2007, when this earlier offer was made, the applicants knew comparatively little about Redberry's case. The applicants had Redberry's defence but, as they noted in their letter rejecting the offer, as at 8 June 2007, they did not have the respondent's verified list of documents or copies of documents showing that only 133 of the allegedly infringing garments had been imported. The letter containing the offer did not contain any statement of reasons as to why Redberry believed that the application would fail.