H.A.S. Real Estate Wins The (Branding) War But Loses The (Indemnity Costs) Battle

The Agency Group Australia Ltd v H.A.S. Real Estate Pty Ltd (No 2) [2024] FCAFC 44

02 April 2024

Full Court of the Federal Court Australia

Yates, Markovic and Kennett JJ

In a decision handed down on 2 April 2024 by the Full Federal Court, H.A.S Real Estate (H.A.S) has failed in its application for indemnity costs. The Court’s unanimous judgment by Justices Yates, Markovic and Kennett emphasises the critical importance of ensuring that an offer of compromise aligns with the orders and remedies which a party can receive through the court process. In this case, H.A.S’ offer included “an extraneous payment unconnected to the fate of the litigation”.

The case involved a Federal Court branding dispute between two real estate groups operating in Sydney.  The Agency Group and its subsidiaries (the Agency) brought proceedings against H.A.S alleging that H.A.S had infringed the Agency’s registered trade mark rights and engaged in misleading and deceptive conduct in contravention of s 18 of the Australian Consumer Law.  Justice Jackman (the primary judge) dismissed the Agency’s lawsuit in May 2023.  The Agency appealed to the Full Federal Court and, was dealt a second setback when the Court dismissed the appeal and ordered that the Agency pay H.A.S’ appeal costs.

H.A.S sought an order that its costs of the appeal should be paid on an indemnity basis because the Agency unreasonably failed to accept its offer of compromise. The H.A.S offer that was made during the appeal (the Second H.A.S Offer) largely mirrored an offer made in the primary proceeding (the First H.A.S Offer). Regarding the First H.A.S Offer, the primary judge found it was “unreasonable” for the Agency to reject the offer and ordered it to pay H.A.S’ costs of the primary proceeding on an indemnity basis from the date the offer was rejected.

The Second H.A.S Offer included an additional $10,000 to be paid to H.A.S for the cost of re-branding. The Agency asserted that rejecting the Second H.A.S Offer was not unreasonable, for two reasons:

• it was not unreasonable for the Agency to appeal the primary judge’s decision, given the evaluative nature of legal questions arising where there are issues of deceptive similarity for brands; and
• at the time the offer was made, the only justifiable financial contribution the Agency could have paid to H.A.S as a compromise, was a reasonable proportion of H.A.S’ appeal costs at that time. The total financial contribution sought by H.A.S ($30,000) exceeded its actual appeal costs at the date of the Second H.A.S Offer.

The Court rejected the order for costs to be paid on an indemnity basis.  The Court agreed with the Agency that it was not unreasonable for it to reject the Second H.A.S Offer, because:

• at the time the offer of compromise was made, it could not be said that the appeal had no prospects of success or was “plainly unmeritorious”; and
• H.A.S would not have been able to recover the re-branding costs from the Agency by way of court order.

The Court also noted that the offer of compromise did not purport to affect the costs orders made by the primary judge. Had the appeal been successful, it is likely that the primary judge’s costs orders would have been set aside. However, acceptance of the offer meant that the adverse costs order made below would have remained in place, even though the award of those costs was in dispute in the appeal.

This case illustrates:

• the precision required in crafting offers of compromise to leave open the option of indemnity costs.
• the importance of ensuring that any compromise offer aligns with the orders and remedies which a party can receive through the court process.

In this case, a key factor militating against an indemnity costs order was that the offer included a requirement for the Agency to contribute to the payment of H.A.S’s rebranding costs when H.A.S. “… was never able to recover its costs of re-branding (and, therefore, any contribution to those costs) from the Agency by way of court order in the appeal or in the primary proceeding”.

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