Who would have thought –High Court’s cost decision prevails

After 6 years of proceedings at the Federal Court of Australia, on 20 May 2025, the Honourable Justice O’Bryan delivered his judgment on the costs dispute between Swancom Pty Ltd and the Jazz Corner Hotel Pty Ltd & Ors (Jazz Corner Hotel parties) putting a full stop to what began as an allegation of trademark infringement against our clients.

Brand Partners represented the Jazz Corner Hotel parties at first instance and at appeal successfully defending its trademark for the famous Jazz Corner across Flagstaff Gardens: Bird’s Basement, the Jazz Corner Café and the Jazz Corner Hotel.

In this proceeding, Justice O’Bryan ordered Swancom to pay the Jazz Corner Hotel parties’ costs of the primary claim, and the Jazz Corner Hotel to pay Swancom’s costs of the cross-claim. Notably, both costs were awarded in lump sums pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth).

Justice O’Bryan affirmed the High Court of Australia’s decision in Smith v Madden (1946) 73 CLR 129 regarding the principles governing the assessment of lump sum costs and their application in allocating the costs with respects to claims and cross-claims.

What is a lump sum costs order?

Ordinarily, rule 40.02(b) of the Federal Court Rules 2011 (Cth) states that a party entitled to costs may apply to the Court for an order that costs be awarded in a lump sum instead of as taxed costs.

The rationale behind lump sum costs orders is to “avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation” (see Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119, [120]).

Instead of undertaking an onerous process of assessing each cost item in the solicitors’ detailed reports, the Court assesses the costs with “a much broader brush than that applied on taxation” (Nine Films and Television Pty Ltd v Ninox Television Ltd [2006] FCA 1046, [8]) bearing in mind that the nature of such assessments is “one of estimation” and “not of arithmetic calculation  or precision” and eventually arriving at a figure that is “neither over-compensatory nor prejudicial to the successful party” (Ginos Engineers Pty Ltd v Autodesk Australia Pty Ltd [2008] FCA 1051, [24]).

It is worth noting that costs orders made with the lump sum approach must still be “logical, fair and reasonable” (Nine Films and Television Pty Ltd v Ninox Television Ltd [2006] FCA 1046, [8]).

Allocation of costs with respect to the claim & cross-claim according to Smith v Madden principle

While lump sum costs order may seem straightforward, it often causes confusion when applied in conjunction with allocation of costs between the claim and cross-claim in the same proceeding.

As a starting point, Justice O’Bryan accepted Brand Partner’s submission that the principles in Smith v Madden is a binding decision of the High Court and applies in the current circumstance.

In Smith v Madden, the Honourable Justice Dixon identified four categories of costs: costs solely attributable to the claim; costs solely attributable to the cross-claim; mixed costs where it is possible to divide a single item of costs in two parts; and common costs being costs that serve as much the purpose of the claim as the cross-claim.

“The party receiving the costs of the claim should recover the general costs and whatever was reasonably incurred in bringing and maintain or defending the action, considered as if there had been no counterclaim, and that the party receiving the costs of the counterclaim should recover the further or increased costs reasonably incurred in bringing and maintaining or defending the counterclaim.”

However, during the proceedings, the Registrar who undertook the costs assessment decided that Smith v Madden “was not influential in resolving the division of costs issue” (See Swancom Pty Ltd v The Jazz Corner Hotel Pty Ltd (No 5) [2025] FCA 505).  The Registrar allocated costs between claim and cross-claim without considering the common costs in both claims.

Brand Partners then sought a review of the costs order on the basis that the Registrar erred in departing from the Smith v Madden principle. The Court then appointed a Referee to assess the costs, and the case came back before Justice O’Bryan.

In application of High Court’s principle, Justice O’Bryan rejected the Registrar’s conclusion. His Honour ruled that the fact that costs were to be assessed on a lump sum basis did not alter the applicability of Smith v Madden.

His Honour accepted the Jazz Corner Hotel parties’ position that Swancom’s high-level apportionment of costs “does not provide a clear explanation of the basis of the estimate”.  For example, it was questionable whether it is appropriate that the costs of the mediation be allocated on a 50/50 basis, given that mediation costs would have been incurred in any event with respect to the primary claim initiated by Swancom.

His Honour accepted Brand Partner’s submission that the Referee’s report appropriately adopted Smith v Madden principles and should be adopted by the Court in full, that is, “common costs”, being costs incurred for the purposes of both the claim and the cross-claim, are not apportioned between the claim and cross-claim but allowed in full in respect of the claim to be borne by Swancom.

A lesson for all practitioners

While fair and reasonable costs orders are critical to determine the parties’ entitlements to costs and should be treated in accordance with appropriate principles, practitioners and parties must always keep in mind the overarching objective in respect of the costs assessment under section 37M of Federal Court of Australia Act 1976, that is, to facilitate the just resolution of disputes “as quickly, inexpensively and efficiently as possible”.

On a strategic level, practitioners should carefully consider file management and costs allocation before filing cross-claims on behalf of their defendant clients.

You can read the costs judgment here: Swancom Pty Ltd v The Jazz Corner Hotel Pty Ltd (No 5) [2025] FCA 505 (20 May 2025)