Allied Pumps Pty Ltd v LAA Industries Pty Ltd

1. On 24 November 2023, I published my reasons for judgment in this proceeding: Allied Pumps Pty Ltd v LAA Industries Pty Ltd [2023] FCA 1457 (J). I will use the same abbreviations as used in those reasons.
2. By Orders made on 8 December 2023, I upheld Allied Pumps' claim against LAA, finding the Patent to be invalid, and dismissing the cross-claim brought by LAA and UON against Allied Pumps.
3. Allied Pumps seeks its costs of the claim and cross-claim, other than those costs which Allied Pumps has already been ordered to pay. As to orders which have been made in the proceeding for reserved costs, Allied Pumps submits that UON should be liable to pay those costs pursuant to rule 40.03 of the Federal Court Rules 2011 (Cth).
4. UON seeks an order in these terms:

The Respondent/Cross-Claimants pay 65% of the Applicant's costs in the proceedings (including with respect to the cross-claim) as agreed or taxed, on a party party basis.

1. For the following reasons, I am not persuaded that the costs order sought by UON is the appropriate one. In my view, the just and appropriate outcome is that costs should follow the event in relation to the claim and cross-claim, and there should be no discount.

1. The Court's power to award costs under section 43 of the Federal Court of Australia Act 1976 (Cth) is broad and unfettered and is to be exercised judicially and in accordance with well-established principles. The fundamental purpose of the discretion is to compensate the successful party, not to punish the unsuccessful party, and to further that goal, a successful party will typically obtain an order for costs in its favour: EMI Songs Australia Pty Limited v Larrikin Music Publishing Pty Ltd [2011] FCAFC 92 at [9] (Emmett, Jagot and Nicholas JJ).
2. In PKT Technologies Pty Ltd (formerly known as Fairlight.au Pty Ltd) v Peter Vogel Instruments Pty Ltd (No 2) [2020] FCAFC 46 at [14] and [15] (Besanko, Banks-Smith and Stewart JJ), the Full Court considered the circumstances in which costs should be dealt with on an issue by issue basis, stating that:

...a successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party's costs of them. If the apportionment of costs is appropriate, the object is not mathematical precision but a result that best reflects the interests of justice in the overall circumstances of the case.

However, the mere fact that a court does not accept all of a successful party's arguments does not make it appropriate to deal with costs on an issue by issue basis. A court will be reluctant to adopt an approach of apportioning costs between different issues depending on success or failure on those issues where it is likely to be difficult, if not impossible, to allocate items of costs between the different issues.

(Citations omitted, emphasis added.)

1. In Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) (2015) 327 ALR 192; [2015] HCA 53 (French CJ, Kiefel, Nettle and Gordon JJ), the High Court considered the appropriate costs order following an appeal and expressed an inclination against awarding costs on an issue by issue basis. In that case, one party succeeded in the appeal on one issue but was unsuccessful on all other issues. The Court stated at [6] that:

...the preferable approach in this case is the one usually taken, that costs should follow the outcome of the appeal. This is not a case where it may be said that the event of success is contestable, by reference to how separate issues have been determined. There are no special circumstances to warrant a departure from the general rule, and good reasons not to encourage applications regarding costs on an issue-by-issue basis, involving apportionments based on degrees of difficulty of issues, time taken to argue them and the like.

(Citations omitted.)

1. Courts also tend to be disinclined to apportion costs having regard to a party's failure on a particular issue where it was not unreasonable for the party to advance the contention: see Gray v Richards (No 2) (2014) 315 ALR 1; [2014] HCA 47 at [3] (French CJ, Hayne, Bell, Gageler and Keane JJ). In Bradken Resources Pty Ltd v Lynx Engineering Consultants Pty Ltd (No 2) [2012] FCA 1478, Justice McKerracher observed at [5]:

In large scale commercial litigation, having regard to the complexity of issues involved, it is almost inevitable that the successful party may not win every argument. Notwithstanding this, providing those points on which it fails have not been frivolous and providing they have not unduly wasted the time and costs of the Court and the parties, there is no reason that there should not be a full recovery of at least party and party costs.

1. Ultimately, the Court is to make "a broad evaluative judgment of what justice requires": Gray at [2]. The object is a "result that best reflects the interests of justice in the overall circumstances of the case": EMI at [9]; PKT at [14].

1. UON seeks a "single global costs" order addressing the claim and cross-claim.
2. While such orders have been made by other judges of this Court in patent cases, claims for patent infringement and invalidity are typically treated as separate events upon which the ordinary rule applies. Departure from this position can be justified where there is a common substratum of fact, or the issues are wrapped up with one another or could not be readily disentangled: GlaxoSmithKline Consumer Healthcare Investments (Ireland) (No 2) Limited v Generic Partners Pty Limited (No 2) [2018] FCAFC 100 at [8] (Middleton, Nicholas and Burley JJ).
3. In this case, the claim brought by Allied Pumps against LAA (only) and the cross-claim brought by LAA and UON against Allied Pumps raised distinct issues such that a global costs order is not justified, especially as the parties to the claim differ from the parties to the cross-claim.

1. As to the claim, Allied Pumps was successful on all issues, except the following four matters: (a) whether the combination allegation anticipated the claims; (b) whether the CA Manual anticipated the claims; (c) whether the CA Manual in combination with two acts anticipated the claims; and (d) whether the Patent lacked an innovative step.
2. For the following reasons, I am not persuaded that, because Allied Pumps failed on these issues, it is appropriate to deal with costs on an issue by issue basis.
3. First, Allied Pumps enjoyed resounding success on both the claim and cross-claim.
4. Second, none of the issues on which it failed were unreasonable for Allied Pumps to advance.
5. Third, as to the combination allegation, this was based on evidence adduced in connection with other grounds and it raised limited additional issues of fact. The commissioning act alone was found to anticipate and the evidence concerning the alleged discussion occupied minimal time at the hearing. Further, the evidence concerning the alleged discussion led to my finding that a UON representative had made an equivalent representation to Mr Pilson and that the training provided by Mr Reid anticipated the Patent: J [292].
6. Fourth, as to the allegations relating to the CA Manual alone, and in combination with certain acts, the witnesses giving evidence on the factual matters were expert witnesses already otherwise involved in the proceeding (Mr Baarslag and Mr Vukadin). While I accept that the evidence and submissions concerning these allegations increased preparation time and occupied time at trial, this is not determinative. UON also complain that the precise combination of documents and acts relied upon was not clarified by Allied Pumps until it was required to do so by the Court on the first day of trial. However, this complaint could have been raised by UON at an earlier time, such as at a case management hearing, but it was not.
7. Finally, Allied Pumps' innovative step case ultimately gave rise to succinct legal arguments which followed directly from the common body of evidence and arguments already advanced on novelty. As identified in my reasons, Allied Pumps' substantive written closing submissions on this issue were confined to 7 paragraphs. Similarly, UON's substantive written closing submissions on this issue occupied 11 paragraphs.

1. In relation to prior art relied upon by Allied Pumps as part of its novelty case, UON submitted that Allied Pumps did not press parts of its claim on the eve of, or during, the trial:

(1) Allied Pumps indicated that it did not press reliance on WO 2005/062458, titled "Variable frequency power system and method of use", which was published on or around 7 July 2005 (Pettigrew) in its opening submissions dated 20 February 2023;

(2) Allied Pumps indicated that it did not press Boot alone (i.e. it only pressed Boot in combination with Elizondo) in closing submissions.

1. Pettigrew was a prior art document that occupied only a small fraction of the affidavit evidence and was one which the relevant experts agreed (in the Electrical/Dewatering JER dated 8 February 2023) did not disclose a submersible pump for the purposes of dewatering or a borehole water level sensor; and that it did not specifically disclose "monitoring borehole water level using a sensor". Allied Pumps therefore behaved appropriately in withdrawing Pettigrew from consideration in the case.
2. As for Boot, this document was still required to be considered in combination with Elizondo, and once UON accepted that Boot and Elizondo was a valid combination (which did not occur until oral opening submissions), there was no necessity for Boot alone to be pressed by Allied Pumps.
3. UON also complains that Allied Pumps advanced too many prior art documents, relying upon the observations of Burley J in TCT Group Pty Ltd v Polaris IP Pty Ltd (No 2) [2023] FCA 284 at [29] about the prior art documents which were before his Honour in that case.
4. As for the prior art documents relied upon by Allied Pumps in this case, UON asserts that the issues in dispute with respect to each of the documents were substantially the same; and that Allied Pumps could have, or ought to have, relied on only one or two documents.
5. I disagree. The disclosures in each of the prior art documents were materially different, as demonstrated by my consideration of the issues which arose in relation to each of them at J [404]-[538]. In particular, Komatsu was directed to an electrical generator for firefighting equipment; the CA Manual was not directed to any particular application; and Elizondo/Boot and Torrey referred to water, as well as oil and gas applications, but in different ways. Further, the CA Manual, Elizondo/Boot and Torrey also described the inclusion and use of an inlet pressure sensor to control an electrical generator, but again in different ways. Allied Pumps was entitled to rely on those different documentary disclosures and it was not unreasonable for it to do so, particularly when UON's defence principally concerned a purported distinction between oil/gas and water, and the location of an inlet pressure sensor.

1. UON submits that Allied Pumps originally pleaded an expansive case on Roy Hill with broad combinations of acts requiring multiple requests for further and better particulars and that it only narrowed its reliance on novelty-destroying acts at Roy Hill on the second day of trial at my direction, following a complaint by UON.
2. Again, such a complaint could have been made by UON to the Court at an earlier time, such as at a case management hearing, but it was not.
3. In any event, following the complaint made at trial, Allied Pumps narrowed this part of its case to five acts and one combination. Acts not relied upon by Allied included the act of "supply" and the "launch". According to the affidavit evidence of Ms Sanders, UON's solicitor, this resulted in three affidavits not being read at trial and wasted discovery.
4. However, as submitted by Allied Pumps, the acts of the "supply" and "launch" were not discrete issues. In the case of the supply of the Roy Hill Systems, that was part of the factual matrix relating to the acts which are identified in J [202], which remained part of the case advanced by Allied Pumps and in relation to which Allied Pumps enjoyed significant success. In the case of the "launch", documents which were discovered in relation to that issue were deployed by Allied Pumps for the purposes of establishing the features of the Roy Hill Systems, which resulted in the findings made about the systems in J [236]. As for the two affidavits relating to the launch which were not read, these were short and were not the subject of evidence in response by UON.

1. UON next submits that the case advanced by Allied Pumps in reliance on the Roy Hill Systems was complex and occupied "so much of the trial" but "didn't add anything". It was submitted that:

Given that claims 1 to 4 were found to be invalid in light of each of Torrey, Komatsu and Boot with [sic] combination with Elizondo, therefore, Roy Hill ... was wholly otiose or duplicative. It was a very expansive case conducted at trial...

1. Such a submission lacks merit in circumstances where UON's own public acts concerning the Roy Hill Systems were found to have anticipated the claims: J [288], [297] and [330]. Unlike the case concerning the documentary prior art, this case did not depend upon issues of construction of the claims of the Patent. It was therefore perfectly proper for Allied Pumps to advance this case in relation to which it enjoyed significant success.
2. UON fought every aspect of the Roy Hill case, and put Allied Pumps to proof, even though its position that the Roy Hill Systems could not control on level was contradicted by contemporaneous documents and it chose not to call witnesses who could have given evidence about this issue: see J [217]-[221], [223], [226], [227], [231], [232], [237]-[246], [248].
3. Indeed, UON's own conduct concerning the Roy Hill Systems increased the costs incurred by both sides. That conduct is set out in detail at paragraphs 8 to 48 of the affidavit of Mr Cooper, Allied Pumps' solicitor, sworn on 19 February 2024. For example, UON:

(1) resisted proposals made by Allied Pumps in May and June 2022 for the parties to provide position statements on invalidity, including in relation to the Roy Hill Systems;

(2) served a Notice of Dispute in July 2022 in response to a Notice to Admit served by Allied Pumps;

(3) failed to make proper discovery of documents relevant to the Roy Hill Systems, resulting in the need for multiple rounds of discovery. This included failing to discover a critical internal email which is extracted at J [257].

1. Further, UON persisted with the reasonable trial defence, notwithstanding that this case contradicted its own case on novelty. While this case was arguable, it was a very weak one especially in circumstances where UON maintained the position during closing submissions that the Roy Hill Systems could not control by level. By advancing the reasonable trial case, UON's conduct added to the costs incurred by both sides including by adding to the length of the trial and to the complexity of the issues to be addressed in the case.
2. For these reasons, UON's submissions concerning the Roy Hill Systems are not accepted.

1. Allied Pumps contends that UON should be liable to pay the costs which have been reserved in ten identified interlocutory orders (which is the usual result).
2. Costs orders were also made in UON's favour, being those dated 4 February 2022 (order 5), 6 May 2022 (order 2) and 7 February 2023 (order 2). Allied Pumps does not resist the payment of those costs to UON.
3. UON submits that it is "content for all of the interlocutory costs to be subsumed into the global costs order, subject to the proposed discount". UON refers to the following reserved costs orders which it submits "reinforce" why a discount is appropriate:

(1) the 28 July 2022 Orders which vacated the original hearing dates for the trial. UON submits that this followed Allied Pumps' decision to file late evidence from Mr Vukadin and other conduct of Allied Pumps. However, having reviewed the evidence of Mr Cooper about the events surrounding the vacation of the initial trial dates (as contained in paragraphs 51 to 56 of his affidavit sworn 19 February 2024), I do not accept this characterisation of the circumstances leading to the vacation of the trial dates. This is especially when one has regard to the statements of Jagot J at the hearing on 28 July 2022 which are extracted in that affidavit;

(2) the 16 December 2021 and 4 February 2022 Orders which UON submits arose from Allied Pumps' request to vary discovery orders related to infringement (despite Allied Pumps having apparently already undertaken work to produce the discovery it subsequently proposed not to provide). However, costs associated with the 16 December 2021 application were not significant and on 3 February 2022, UON consented to most of the orders sought by Allied Pumps; and

(3) the 6 May 2022 Orders which relate to Allied Pumps' amendments to its pleadings including deletion of matters upon which UON had already provided discovery. However, according to the affidavit of Ms Sanders affirmed on 21 February 2024, the 6 May 2022 Orders included an order that Allied Pumps pay UON's costs thrown away by reason of the amendments to the statement of claim.

1. Even if it could be said that one or more of these reserved costs orders should be excluded from any costs order made in favour of Allied Pumps (which is not the order sought by UON), I am not persuaded that the circumstances surrounding these identified reserved costs orders have the result that an issues-based costs order is appropriate. This is the kind of granular issue by issue analysis which the High Court indicated should not be encouraged: Firebird at [6].
2. Further, I am not persuaded that the costs orders made in favour of UON justify any discount being applied. Rather, it is appropriate that the orders be maintained and dealt with separately.

1. Taking these matters into consideration, a fair costs order that best reflects the interests of justice in the overall circumstances of the case is that:

(1) LAA pay Allied Pumps' costs of the claim to be agreed or failing agreement, to be taxed.

(2) LAA and UON pay Allied Pumps' costs of the cross-claim to be agreed or failing agreement, to be taxed.

I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Downes.