indemnity costs
2 The basis upon which the respondents sought indemnity costs subsequent to 30 September 2004 was that, on 29 September 2004, they participated in the making of an offer of compromise which was not accepted by the applicant. At the time, there were six respondents in the proceeding, the present respondents and Wesfarmers Ltd, J Blackwood & Son Ltd, Bunnings Ltd and Motion Industries Pty Ltd. It was alleged by the applicant that those companies had authorised Ucorp Pty Ltd ("Ucorp") (at the time, the second respondent) to infringe the applicant's copyright by entering into agreements or understandings with Ucorp to permit hyperlinks to appear on their respective websites to the "Chemwatch" website.
3 The offer of compromise of 29 September 2004 was made on behalf of all the then respondents. They offered to pay the applicant $10,000, plus costs, in settlement of the applicant's claims. The present respondents say that, having been completely successful in the proceeding, they achieved a more favourable outcome than was proposed in the offer of compromise, and should have their costs on an indemnity basis.
4 Although the offer of compromise was made pursuant to O 23 of the Federal Court Rules, at the relevant time there was no provision which corresponded to the present subr (6) of r 11. The Federal Court Rulesprovided for a presumptive entitlement to indemnity costs where a respondent's offer of compromise had been rejected, and the applicant ultimately achieved an award less favourable to it than contained in the offer, but said nothing about a situation in which judgment was given for the respondent. This apparently anomalous situation arose in Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (2002) 190 ALR 121, and it arises again in the present case. In the result, the respondents cannot rely upon the terms of O 23 r 11 in support of their application for indemnity costs.
5 Thus the respondents rely upon the broad discretion which the court has in the matter of costs, and the principles which inform the exercise of that discretion in circumstances in which an applicant has rejected an offer of compromise, and subsequently fails to improve upon the offer. In such a circumstance, the position which obtains is that referred to by the Full Court in CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 at [75]:
From the tenor of claims which have come before the court in recent years, there appears to be a view abroad that the failure of a party who has rejected a Calderbank offer ultimately to achieve a better outcome than provided for in the offer leads to a presumptive entitlement to indemnity costs with respect to the period subsequent to the offer. Such a view would be mistaken. Where a moving party (including a cross-claimant) offers to settle for a sum which is less than he or she eventually achieves at trial, there is a presumptive entitlement to indemnity costs under O 23 r 11(4) of the Federal Court Rules. However, where recourse is not had to the O 23, but reliance is placed upon the court's general discretion, it is necessary for the party seeking indemnity costs to demonstrate that the other party's refusal of the Calderbank offer was unreasonable: Black v Lipovac (1998) 217 ALR 386, 432; Maniotis v JH Lever & Co Pty Ltd (No 2) [2006] FCAFC 28. It is not sufficient that the offer was a reasonable one: Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121, 128 [35]; Dais Studio Pty Ltd v Bullet Creative Pty Ltd [2008] FCA 42, [11]. In considering this question in a particular case, the matter of unreasonableness will be judged by reference to the circumstances facing the offeree at the time of the offer. While the eventual outcome in the case may go part of the way in this regard, there is no presumption that ultimate success in the proceeding for the offeror necessarily renders the offeree's rejection unreasonable.
The question in the present case, then, is whether the applicant acted unreasonably in rejecting the then respondents' offer of compromise made on 29 September 2004.
6 In pressing for an affirmative answer to be given to this question, the respondents encountered two substantial difficulties. The first was that the single basis upon which the applicant ultimately failed in relation to MSDSs as such authored by its own staff was that I accepted the respondents' case that their reproduction of such works was done pursuant to a licence implied by law of the kind referred to in Acohs Pty Ltd v RA Bashford Consulting Pty Ltd (1997) 144 ALR 528. At the time when the respondents' offer of compromise was made, their Defence did not raise this point. It is true that proof of unlicensed reproduction was part of the applicant's case, but the applicant was entitled to assume, and I infer that it did so, that, had the respondents intended to take the point, they would have made it a matter of specific pleading (as ultimately they did) pursuant to O 11 r 10 of the Federal Court Rules. Absent the implied licence point, it could not be said that the applicant acted unreasonably in regarding $10,000 as insufficient compensation for the respondents' reproduction of its house‑authored MSDSs.
7 The other difficulty is that the offer of compromise invited the applicant to settle its claims not only against the present respondents, but against all the then existing respondents, for the global sum of $10,000. The claims which the applicant then had against the other respondents ranged well beyond the copyright aspects that were the subject of contention at trial. During the lengthy period that the proceeding stood in the list of the court, the applicant secured a settlement with those other respondents which, in some respects at least, could not be regarded as less favourable, from its point of view, than the proposal held out by the offer. However that outcome may be, there was in any event insufficient material before the court, on the respondents' present application, to justify the conclusion that the applicant was acting unreasonably in declining to accept the sum of $10,000 plus costs in settlement not only of its claims against the now respondents, but also of its claims against those other respondents. Ultimately, so much was accepted by counsel for the respondents.
8 I conclude, therefore, that the applicant's failure to accept the offer of compromise made in September 2004 was not such as should give rise to an entitlement to indemnity costs on the part of the now respondents.
9 The basis upon which the respondents sought indemnity costs from the filing of the Fourth Further Amended Statement of Claim in January 2007, or at least from the filing of the Fifth Further Amended Statement of Claim in December 2007, was that the applicant's case was advanced in wilful disregard of known facts and established law, and should therefore be taken to imply an ulterior motive. Alternatively, it was submitted that the way the applicant conducted its case justified an award of indemnity costs, particularly with respect to claims which were persisted with to the eleventh hour, and then abandoned at trial.
10 In the first way of putting their claim, the respondents relied upon the following well-known passage from the judgment of Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397, 401:
I believe that it is appropriate to consider awarding "solicitor and client" or "indemnity" costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion.
The respondents invoked also what was said by Branson J in Yates Property Corporation Pty Ltd v Boland (No 2) (1997) 147 ALR 685, 693:
The fact that the applicant persisted with the proceeding without apparent regard to significant deficiencies in the evidence available to be called to establish its case is sufficient, in my view, to enliven the discretion of the court to make orders for costs on a basis other than a party and party basis.
11 Yates Property was one of a number of cases mentioned by the Full Court in what is the most recent statement as to the approach which should be taken when indemnity costs are sought upon the ground that an applicant's case is conspicuously weak, Seven Network Ltd v News Limited(2009) 262 ALR 160, 393 [1102]:
Usually costs are ordered on a party and party basis but if there is "some special or unusual feature in the case to justify the court exercising its discretion" costs may be ordered on some other basis: Preston v Preston [1982] 1 All ER 41 at 58. There must, however, be some justification to depart from the ordinary rule. The discretion to depart from an order for party and party costs will not be exercised unless there is some special or unusual feature or the justice of the case so requires: Re Wilcox; Ex parte Venture Industries Pty Ltd (1996) 72 FCR 151; 141 ALR 727. The categories of case in which it might be appropriate to do so are not closed: Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; 118 ALR 248 (Colgate-Palmolive). An applicant who should have known that his or her proceeding was foredoomed to failure could be obliged to pay costs on an indemnity basis: Smolle v Australia and New Zealand Banking Group Ltd (No 2) [2007] FCA 1967. A clearly hopeless proceeding may mean that the unsuccessful applicant should be subjected to an order for indemnity costs. An applicant who persists in prosecuting a proceeding without regard to the evidentiary difficulties in the case may be called upon to pay costs on some basis other than the usual basis: Yates Property Corporation Pty Ltd v Boland (No 2) (1997) 147 ALR 685. Specific examples of cases which might attract the exercise of the discretion to award indemnity costs were given by Sheppard J in Colgate-Palmolive at FCR 233; ALR 256-7.
12 I am not prepared to hold that the applicant commenced or continued the proceeding in wilful disregard of known facts and established law. The Fourth Further Amended Statement of Claim was signed by senior counsel experienced in the relevant branch of the law, and there was no previous authority which dealt with technological and commercial facts of the particular kind presented by the applicant's operations. As pointed out on behalf of the applicant, there is a general sense in which the wholesale reproduction of works authored by someone else might be viewed as calling for legal redress of some kind. As it happened, I upheld the applicant's case that the MSDSs authored by its staff were original works in which it owned the copyright. The applicant ultimately failed on this aspect of its case because of Bashford, but to reach that point I was required to apply the law as declared by Merkel J to somewhat different facts, and even, on one way of viewing it, to cross a gap in the development of the law.
13 In support of their submission that the proceeding was being prosecuted by the applicant for an ulterior motive, the respondents drew my attention to two letters, which had come to their attention, from the applicant to certain users of substances to which MSDSs related. The first was addressed "Dear Infosafe Customer", headed "Re: Letter to Clients" and dated 2 December 2004. It referred to this proceeding, and to the undertaking given by the respondents on 3 September 2004 (to the terms of which I refer below in another context). The writer of the letter advised the addressee "that you must not provide Infosafe MSDS to any person other than users of the substance…." It is true that this edict overreached both the terms of the regulations and the undertaking given by the respondents, but on no view does it provide support for the proposition that the proceeding as a whole was being prosecuted for an ulterior purpose. I should add that the undertaking itself was set out in the letter, such that the addressee could consider for himself or herself the extent of the restraints to which the respondents had consented.
14 The other letter was dated 23 June 2006, and was to Victoria University, then a recent convert from the applicant's system to the respondents' system. The general nature of the concern expressed by the writer was that the University might make available to Ucorp large numbers of Infosafe MSDSs to which it had access. The writer referred to this proceeding, and to the undertaking of September 2004, which remained extant at that time. The University was warned that, by accessing, downloading or copying Infosafe MSDSs, it may be acting in infringement of the applicant's copyright, or aiding and abetting Ucorp to do so. Certain undertakings were sought, failing the tender of which the applicant reserved its right to commence proceedings against the University. In my view, although it implied a perspective on the prospects of the applicant's claims which can now be seen to have been optimistic, this is very much the kind of letter that any party, taking the view that the conduct of another may be actionable in the context of existing proceedings in which interlocutory restraints had been imposed, might well send to that other. The letter did not reflect adversely on the applicant's motives for commencing or continuing the present case.
15 Thus I am not satisfied that the applicant's purpose in commencing and continuing this proceeding was a collateral one, or that I should award indemnity costs in favour of the respondents on that ground.
16 As noted above, the respondents next contended that indemnity costs should be awarded where the applicant had made and/or persisted with particular claims that were doomed to fail. The claims which the respondents put in that category were, first, claims that were made and never withdrawn, but not persisted with at trial, and secondly, claims that were rejected in my judgment of 10 June 2010.
17 Of the claims that were not persisted with, a first group - contravention of ss 52 and 53 of the Trade Practices Act 1974 (Cth), passing off and infringement of trade mark - was, according to the applicant, the subject of no material in its evidence in chief, filed more than a year before the trial. Accordingly, it should have been obvious to the respondents that these claims were not being pressed. The applicant pointed to the absence of any relevant material in the respondents' own evidence in chief as demonstration of the fact that it was so obvious. A second group of claims was apparently persisted with to trial, but then not pursued. These claims were the copyright claim with respect to PDF source code, the claim for copyright in the layout, presentation and appearance of an MSDS as such, and the damages claims save those which related to Blackwoods and Victoria University.
18 Situations of this kind always present the difficulty that the court is being asked to hold that claims are hopelessly weak when those claims themselves, and the evidence which might have been led to support them, were never the subject of examination. There is also a certain tension between having recourse to the absence of evidence in support of a claim as a basis to infer that the claim itself never had any prospects and recognising that that very circumstance may, and usually will, reflect a prudent slimming-down, as it were, of the party's case, such that only the claims which do have prospects are given attention at trial. The latter,of course, should never be discouraged. It would be most unfortunate if the impression were created that a party might drop its obviously weak claims only at the risk of suffering an indemnity costs order. In these respects, see Ragata Developments Pty Ltd v Westpac Banking Corporation (1993) 217 ALR 175, 178-179 and Peet Ltd v Richmond [2009] VSC 585 at [97]-[100].
19 The applicant's allegations made in reliance on ss 52 and 53 of the Trade Practices Act, as set out in its Fifth Further Amended Statement of Claim (the amendments shown being those made since the fourth), were as follows:
18. Further, the HTML and PDF files appearing on the said Chemwatch websites and in 'The Collection' copied from the Infosafe System include indicators such as copyright notices, use of "Infosafe" names and Infosafe MSDS numbers which would be recognised by relevant consumers as belonging to or indicating a trade source being or an association with, ACOHS, contrary to the fact.
….
21. Further or alternatively, by the said conduct of the respondents in creating websites containing the said reproductions which contain indicators of source recognised to be referable to ACOHS such as "Infosafe" and Infosafe number, the layout presentation and appearance of ACOHS' templates (contained in Annexure B to the Particulars of Copyright Ownership) and by using hyperlinks under or by reference to the name "MSDS On-Line" which is known to be associated with ACOHS, they have represented to the public, contrary to the fact, that the said websites, hyperlinks and database are those of ACOHS or associated with or authorised by, ACOHS.
22. Such conduct of the respondents referred to in paragraphs 15-18A and 21 above has been conduct in trade or commerce.
23. As a result, the said conduct referred to in paragraphs 15-18A and 21 above is in breach of the provisions of s. 52 Trade Practices Act 1974 (Cth).
24. Further or alternatively the said conduct referred to in paragraphs 15-18A and 21 above is in breach of s. 53(c), (d), (eb) or one or more of them.
25. Further, Bialkower is and was a person who has aided, abetted, counseled or procured such conduct referred to in paragraphs 23 and 24 above in contravention of the Trade Practices Act and is thereby personally liable under the provisions of s. 75B Trade Practices Act 1974 (Cth).
These allegations were denied by the respondents, without elaboration.
20 The applicant's MSDSs copied by Ucorp and included in the Collection were so included, and subsequently provided to Ucorp's customers, with the words "Infosafe No" still appearing on them. That was, of course, a reference to the applicant and to the applicant's system. In the absence of any submissions on the subject from the respondents, I would not be prepared to hold that it should have been apparent to the applicant and its advisers in January and December 2007 that a case which proposed that the inclusion of these words on an MSDS made available to a customer indicated a connection with the applicant would be an obviously hopeless one. Although there may be very good reasons, known to the parties, why such a case would have been unlikely to succeed, on the face of it there seems to be at least a colourable sense in which the allegations, if made good, would have had the potential to yield a positive result under ss 52 and 53.
21 The applicant's case in passing off was, as often happens, advanced in tandem with its case under ss 52 and 53. It was alleged that the same conduct amounted to passing off "of the said websites and their contents as and for those of ACOHS or as things associated with or authorised by, ACOHS". I would reach the same conclusion here as I have above with respect to the Trade Practices Act allegations.
22 It was alleged by the applicant that "Infosafe" was its registered trade mark. The respondents admitted that allegation. The applicant next alleged that the respondents had infringed that mark, by distributing, licensing and supplying MSDSs under or by reference to the word "Infosafe", and had distributed brochures containing MSDSs which bore that word. It was said that the use of the word in these ways was use as a trade mark. In their Defence to those allegations, the respondents denied that they had distributed brochures which contained the word "Infosafe", and said that any use by them of that word was not use as a trade mark, or was done with the implied consent of the applicant.
23 On the present application, the respondents relied upon the passage from Yates Property which I have set out at para 10 above, and upon the judgment of Hollingworth J in Peet. In each of these cases - in which indemnity costs were awarded - however, the moving party had prosecuted its presumptively weak claims to an advanced stage. In Yates Property, Branson J held that the applicant had "persisted with the proceeding without apparent regard to significant deficiencies in the evidence", and in Peet, the plaintiff had maintained a number of causes of action, on which substantial preparation had apparently been required, to the first day of the trial, when they were abandoned. With respect to the trade mark claim in the present case, the applicant's conduct stands in contrast to that with which their Honours were concerned in Yates Property and in Peet. Although no formal abandonment of the claim was announced, it would have been apparent to the respondents from the filing of the applicant's evidence in chief, more than a year prior to the date upon which the trial ultimately commenced, that no evidence would be led in support of the trade mark claim. I am not persuaded that the circumstances warrant the making of an indemnity costs order in favour of the respondents.
24 Turning to the applicant's claims that were persisted with to trial, but not then prosecuted, I commence with the claim to copyright in PDF source code. That the source code of a PDF file was an original work in which the applicant owned copyright was an allegation made by the applicant at least to the stage of final submissions. It appeared to me that the applicant may not be persisting with a copyright claim in relation to PDF source code, and I sought clarification from its senior counsel. He responded:
Well, it is claimed, I think, in that part of the claim for copyright that talks about source code. It's the source code of HTML and PDF files. The difference probably matters more because, for the most part, it seems, the reproductions have been by converting HTML or other original material to PDF.
That is to say, PDF files were ultimately an aspect of the applicant's case not because it owned the copyright in the source code for them, but because they represented the form into which, it was alleged, HTML files had been converted by Ucorp.
25 The respondents' case, relevantly to the present point, was that the source code for PDF files was an electronic artefact generated by third‑party proprietary software ("Crystal Reports") as a means of displaying a particular MSDS on the user's screen. That case was made good on the evidence. Indeed, it was no part of the applicant's evidentiary case to establish that that source code was written - either directly or by machine - by any of its employees. It was also established on the evidence that PDF source code is not human‑readable; although, it seems that an appropriately trained technician would be able to understand the purpose of particular elements of it. That is, of course, neither here nor there in the present context: the critical fact is that the relevant allegation in the applicant's pleading was always the only place where it was suggested that PDF source code was a copyright work of which the applicant's employees were the authors.
26 The existence of copyright in the PDF source code was a matter about which, in the nature of things, the applicant itself was best‑placed to make a viable and realistic allegation. It related to facts within the applicant's own systems and technologies. The respondents were, in my view, obliged to take the allegation seriously. They were required to meet it both in their evidence and in their preparations generally. It was apparent to me that considerable effort had been put into the preparation of the cross‑examination of the applicant's witnesses on the question of PDF source code, and into understanding the dimensions of the question generally. It was a technically challenging question for a party's legal advisers. However, on the hearing of the present application, no attempt was made on behalf of the applicant to demonstrate that its employees wrote PDF source code. This is, I am bound to conclude, an allegation that ought never to have been made. It was quite unrealistic, and should have been so perceived by the applicant from the outset.
27 In the circumstances, I propose to order that the respondents' costs of resisting the allegation that PDF source code was an original work in which the applicant owned the copyright, and the allegation that any such copyright had been infringed, be taxed on an indemnity basis.
28 Turning to the claim that the layout, presentation and appearance of an MSDS should be regarded, as such, as an original copyright work, on the hearing of the present application, counsel for the applicant emphasised that this claim had never been abandoned: it was only clarified. With respect, I consider that to be a somewhat tendentious characterisation to give to the events to which I described in my interlocutory judgment on 18 September 2009: see Acohs Pty Ltd v Ucorp Pty Ltd (No 2) (2009) 82 IPR 493. On the other hand, I do accept that there is a sense in which the amendment which the applicant was then given leave to make might be regarded as having a purpose of correcting a technical deficiency in the applicant's pleading, rather than as making a fundamental change to the basis of its copyright claims. Indeed, the case which the applicant ultimately ran - that the layout, presentation and appearance of an otherwise unoriginal MSDS should be regarded as providing the originality necessary to found a claim for copyright - was one which the respondents were manifestly prepared to meet. Thus, while I would accept that the form of this claim introduced in January 2007 was, strictly speaking, misconceived, even then, the claim involved a layer of substance which was, to the end, at the centre of the applicant's copyright case. In my view, it would be inappropriate to treat the making of that claim as the occasion for an award of indemnity costs.
29 The proposition that the absence of any evidence of loss or damage in the applicant's case save with respect to Blackwoods and Victoria University should tell in favour of an award against it of indemnity costs is, in my view, untenable. As things turned out, the point of considering the damages which the applicant suffered was never reached. The respondents did not make clear what costs of theirs ought to be taxed on an indemnity basis on this ground, in which circumstances I am disposed to infer that events probably took a conventional course, namely, that the respondents incurred costs only to the extent that specific items of damage were particularised, or proved in evidence, by the applicant. If the applicant's case was otherwise one which might legitimately have been brought, its failure to establish loss or damage save across a narrow front would on no view be regarded as a sufficient justification for an award of indemnity costs against it. I reject this aspect of the respondents' present claim.
30 The respondents' case for indemnity costs was based also on two aspects of the applicant's case at trial which were unsuccessful, namely, the allegation that MSDSs which were merely transcribed were original copyright works and the allegation (implicit in the 2007 pleadings) that there could be joint authorship by collaboration between computer programmers and authors/transcribers. According to the respondents, these were contrived allegations which could never have prevailed.
31 The applicant's case with respect to transcribed MSDSs cannot be considered in isolation from its case with respect to the layout, presentation and appearance of MSDSs. The applicant never claimed originality in the content of transcribed MSDSs. Rather, it said that the MSDSs in question were original because of their layout, presentation and appearance. As indicated in my reasons of 10 June 2010, there was some authority to support the view that a work whose contents as such were wholly derived from other sources might yet be an original one by reason of how those contents were arranged, organised etc. This provided a foothold for the applicant to propose that the attributes which it described as "layout, presentation and appearance" might provide the necessary originality to found a claim of copyright in relation to transcribed MSDSs. In the light of the reasons which I ultimately gave, it might be concluded that this was a creative claim, the acceptance of which would have required the court to move somewhat beyond the established frontiers. However, by no means could the claim be described as a hopeless one, or as one which could not responsibly have been made. As articulated at trial, the claim had a certain coherence, and perhaps a scintilla of support from at least one of the decided cases. The rejection of it does not, in my view, provide a basis for an award of indemnity costs.
32 The respondents' submissions as to the applicant's collaboration case amounted to little more, in effect, than to emphasise the obviousness of the findings which I expressed in para 59 of my reasons of 10 June 2010. This is not a conventional approach to a claim for indemnity costs. The collaboration case was decided against the applicant after what I hope was a careful analysis of the facts apropos the creation of the applicant's MSDSs. Although the conclusion I reached was ultimately an unequivocal one, on no view was this a case which ought to have been perceived from the outset as doomed to fail. The applicant's operations are, in a sense, sui generis, and it was, in my view, legitimate for its advisers to have expressed their claim to originality in the way that they did.
33 For the above reasons, save with respect to PDF source code, I reject the respondents' claim for their costs to be taxed on an indemnity basis.