Mars Australia Pty Ltd v Sweet Rewards Pty Ltd (No. 2) [2009] FCA 899 (18 August 2009)

Last Updated: 19 August 2009

FEDERAL COURT OF AUSTRALIA

Mars Australia Pty Ltd v Sweet Rewards Pty Ltd (No. 2) [2009] FCA 899

MARS AUSTRALIA PTY LTD v SWEET REWARDS PTY LTD
NSD 883 of 2007

PERRAM J
18 AUGUST 2009
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 883 of 2007

BETWEEN:	MARS AUSTRALIA PTY LTD Applicant
AND:	SWEET REWARDS PTY LTD Respondent

JUDGE:	PERRAM J
DATE OF ORDER:	18 AUGUST 2009
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The applicant is to pay the respondent’s costs on a party/party basis, except for those costs associated with the orange jar allegations and where the costs are to be paid on an indemnity basis.
2. Sweet Rewards is to pay a third of Mars’ costs of the costs application.
   

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 883 of 2007

BETWEEN:	MARS AUSTRALIA PTY LTD Applicant
AND:	SWEET REWARDS PTY LTD Respondent

JUDGE:	PERRAM J
DATE:	18 AUGUST 2009
PLACE:	SYDNEY

REASONS FOR JUDGMENT

Introductions

1. The Applicant (“Mars”) manufactures the well-known bite-size confectionary known as the Malteser. The Respondent (“Sweet Rewards”) sold and distributed a similar bite-size confectionary known as a Malt Ball. Mars claimed that the Malt Balls packaging was apt to confuse consumers into thinking that Malt Balls were associated with Maltesers or tasted like them. A claim for trademark infringement was also made.
2. On 5 June 2009 I dismissed all of Mars’ claims: Mars Australia Pty Ltd v Sweet Rewards Pty Ltd [2009] FCA 606. At the time I ordered Mars to pay Sweet Rewards’ costs of the proceedings. Sweet Rewards now seeks that that cost order be vacated and in its stead that there be an order that the costs be borne by Mars on an indemnity basis.
3. The claim for that costs order is put on three separate bases.

(a) The first Calderbank letter

4. Mars had failed to accept a Calderbank offer made by Sweet Rewards on 15 May 2008. The terms of that offer were, in effect, that Sweet Rewards would undertake not to sell, import or distribute the red jar product, that the proceedings would be dismissed with no order as to costs and that Mars would pay Sweet Rewards $75,000 on account of its costs. Mars declined this offer, in the event achieving at trial the outcome that its application was wholly dismissed. Sweet Rewards submitted that Mars’ decision to decline the offer was unreasonable and, hence, that all costs thereafter should be on an indemnity basis.

(b) The second Calderbank letter

5. Alternatively, Sweet Rewards submitted that Mars had unreasonably failed to accept another Calderbank letter sent on 1 September 2008. By that letter Sweet Rewards had offered to settle the proceedings on the basis that it would undertake not to sell, market or distribute the red jar product and would not sell, market or distribute malt ball products using a cursive script on packaging which was coloured in any of the 15 precisely identified shades of red. The terms of these arrangements were, so it was proposed, to be confidential, each party would pay its own costs and the proceedings would be dismissed with no order as to costs.

(c) The orange jar issue

6. One part of Mars’ case was that the sale and marketing by Sweet Rewards of its orange jar product constituted passing off. In the principal proceedings I held that the orange jar did not remotely resemble Maltesers’ get-up and described the claim as wholly unmeritorious. Sweet Rewards submitted, on that basis, that there should be an award of indemnity costs to mark the Court’s disapprobation of the bringing of unmeritorious claims.

Principles

7. There was no dispute between the parties about the relevant principles relating to Calderbank offers. Mars, for its part, accepted that it had failed to achieve a result as favourable as that which had been offered to it in both letters. Sweet Rewards, on the other hand, accepted that it needed to demonstrate that Mars’ decision not to accept the offers was unreasonable. Both parties accepted that even if all of those matters were to be established, the power thereby arising was still a discretionary one.
8. So far as the orange jar was concerned, the relevant question was whether the allegation was made in circumstances where Mars should have known that it had no chance of success: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd [1988] FCA 202; (1988) 81 ALR 397 at 401 per Woodward J.
9. It is convenient then to deal with each of these matters.

The first offer of 15 May 2008

10. I have set out above the substantive terms of this offer. A critical element of it was the suggestion that Mars should pay Sweet Rewards $75,000. Mars’ case on the red jar – which I have rejected – was not an unreasonable case. I do not think that it could be said that its failure was a certainty. With hindsight it may be easy to say that it was not a strong case, but I do not think that the pursuit of the red jar case was itself an exercise in tilting at windmills. Thus it follows that any offer to settle the claim relating to it needed to exhibit compromise and a recognition on Sweet Rewards’ part that victory for it was not inevitable. I do not think that the suggestion that Mars should pay Sweet Rewards $75,000 on account of its costs involves the kind of compromise which reasonableness would have bound Mars to accept. In those circumstances, I do not think that the failure by Mars to accept the first letter should lead to an indemnity costs order.

The second offer of 1 September 2008

11. The second offer differed from the first in only two material aspects. First, it included an offer not to distribute, market or sell the malt balls using a cursive script on packaging in 15 defined tones of red; secondly, it no longer sought payment of $75,000 on account of Sweet Rewards’ costs. Significantly, it still offered to cease marketing the red jar product. Sweet Rewards submitted that this offer, in substance, gave Mars everything it sought and offered a little bit more in the form of the offer not to market the Malt Balls in labelling in 15 tones of red with cursive script.
12. Mars submitted that the second offer should not result in an indemnity costs order for a number of reasons. To begin with Mars pointed to the role of Petra Foods Ltd (“Petra”), a significant producer of confectionary listed on the Singapore Stock Exchange, in the litigation. The fact was that Sweet Rewards were no longer making the product and the true opponent, so Mars submitted, was always Petra. That company was to be seen as “the party of substance behind Sweet Rewards in the conduct of this litigation and with the most interest in its outcome”.
13. I take this to be a submission that Sweet Rewards was, in truth, a stalking horse for Petra.
14. I do not think that the evidence went this far. I accepted at the trial that Petra undoubtedly had a commercial interest in the outcome of the litigation. But it was not established, and I did not find, that Sweet Rewards had no role itself or that, in truth, it was a mere cipher. No doubt, both had common solicitors but that is not a sufficient evidentiary matter from which to draw the conclusion that the litigation by Sweet Rewards was not real or, more importantly, that settlement with it should be eschewed in the absence of the true opponent.
15. I do not think in those circumstances that the existence of Petra – or its role as an interested party – provided Mars with a reasonable basis for declining to accept Sweet Rewards’ offer. The truth of that proposition is, I think, borne out by the fact that Mars itself made two offers to settle with Sweet Rewards, neither of which involved Petra.
16. Mars then submitted that the second offer did not contain any element of compromise on Sweet Rewards’ part. This was because it merely offered to cease marketing or selling the red jar product in circumstances where that product was no longer on sale.
17. I do not think that that submission should be accepted. Even though Sweet Rewards was not currently selling the red jar product it had a legal right so to do which by its letter it was offering to forego. That, so it seems to me, involved some element of compromise.
18. Next Mars submitted that the offer not to use the 15 identified tones of red was not reasonable. This was so because the 15 defined tones of red singularly left out very many other tones of red which were closely similar to the reds which were being offered. The gravamen of this complaint was that, in substance, the letter offered nothing because those other reds could continue to be used by Sweet Rewards. Mars also submitted that the offer made no reference to the “floating chocolate balls” which were part of its case. Those floating balls featured prominently on its packaging and it was not, so it was submitted, unreasonable for Mars to reject the offer when the offer left open the possibility of the floating chocolate balls being used in the future.
19. It is easy to understand Mars’ anxiety not just to stop the red jar product but also similar later incarnations of it. The precise framing of appropriate injunctive relief in get up cases is often difficult and one upon which reasonable minds may differ. I do not think that Mars was bound to accept the offer just because it contained an offer not to market the red jar. Once that position is arrived at, I do not think Mars should be criticised for quibbling about the form of the wider restraints. The fact that the tones of red nominated were such that they could easily be by-passed by selecting similar reds and the fact that no mention was made of floating balls provided a reasonable basis for rejecting the offer.
20. It follows that there should not be an order for indemnity costs on the basis of the second letter.

The orange jar issue

21. Sweet Rewards pointed to my finding that the orange jar did not remotely resemble the Maltesers’ packaging and my concomitant description of the claim as wholly unmeritorious. This was sufficient, so it was said, to attract an indemnity costs order. Mars, on the other hand, noted the range and apparent dissimilarity of the products involved in Sterling Winthrop Pty Ltd v R & C Products Pty Ltd [1994] FCA 1000; (1994) ATPR 41-308 to make good the point that it is difficult to be clear, in this area, about what is passing off and what is not.
22. I have re-examined the orange jar. I cannot see how any person could possibly confuse the two. One product is sold in a plastic pack and is red; and the other is in a clear plastic jar with a bright orange label. In Sterling Winthrop there was, at least, a broad similarity in the colour scheme.
23. In Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225 Sheppard J collated (at [232]-[234]) a list of six topics relevant to the question of whether an indemnity costs order should be made. His Honour included as relevant the fact that allegations were made which should not have been made or made in wilful disregard of known facts or clearly established law. In light of my conclusion that the claim was wholly unmeritorious it is difficult to avoid the conclusion that the allegation should not have been made. It is appropriate, therefore, that Mars pay the costs of the orange jar claim on an indemnity basis.
24. This has the consequence that Sweet Rewards has succeeded on the orange jar issue but has substantially lost on the Calderbank questions, which were more significant both by reference to quantum and to time occupied during the hearing. In those circumstances, Sweet Rewards should pay Mars 1/3 of its costs of the costs application.
    

I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.

Associate:

Dated: 18 August 2009

Counsel for the Applicant:	Mr R. J. Webb
Counsel for the Respondent:	Mr B. N. Caine SC
Solicitor for the Applicant:	Baker & McKenzie
Solicitor for the Respondent:	Mallesons Stephen Jaques

Date of Hearing:	24 July 2009
Date of Judgment:	18 August 2009