PERRAM J:
1 On 2 December 2015, the High Court issued a certificate of taxation in favour of Tonita Enterprise Pty Ltd ('Tonita') and Mr Riad Allam ('Mr Allam') against three entities within the Aristocrat group of companies (severally and together 'Aristocrat'). Aristocrat manufactures and distributes gaming machines. The certificate was in the amount of $100,229.05.
2 The certificate related to costs orders made by the High Court against Aristocrat in favour of Tonita and Mr Allam on 2 May 2013. The costs orders were made when five Justices of the Court dismissed Aristocrat's application for special leave to appeal from earlier orders made by the Full Court of this Court: Aristocrat Technologies Australia Pty Ltd v Global Gaming Supplies Pty Ltd [2013] HCA 21; (2013) 297 ALR 406.
3 The High Court's orders marked approximately the mid-point of the litigation between the parties which has been protracted and hard fought. Apart from the hearing before the High Court, there has been a five week trial; two Full Court hearings, including one of eight days' duration; a further remitted hearing before the trial judge; some costs hearings; and a day in front of a single Justice of the High Court. The trial judge described the litigation as resembling trench warfare: Aristocrat Technologies Australia Pty Ltd v Global Gaming Supplies Pty Ltd (No. 2) [2010] FCA 277 at [16].
4 Tonita and Mr Allam were jointly represented throughout the litigation (I leave aside for now the implications of Mr Allam's bankruptcy during certain periods of the litigation). The issues between Aristocrat and Mr Allam, on the one hand, and between Aristocrat and Tonita, on the other, were largely the same, although they were not identical.
5 At the conclusion of the litigation, Aristocrat had various costs orders in its favour against Mr Allam, which a costs consultant has estimated would be worth around $700,729.82 following a taxation. As I understand it, taxation of most of these costs orders was underway, although not complete, when the present applications were heard. Mr Allam and Tonita, on the other hand, had the costs certificate in the High Court in the sum of $100,229.05 against Aristocrat.
6 The solicitors for Mr Allam and Tonita now assert a lien in relation to the $100,229.05 and seek the Court's assistance in enforcing the certificate for their own benefit. Aristocrat resists this. It says that justice requires that it be entitled to set off its liability to Mr Allam under the High Court's costs certificate against Mr Allam's far greater liability to it. And, if it is entitled to do that, then it should defeat the solicitor's lien. For their part, Tonita and Mr Allam stress that the High Court's costs orders were in favour not only of Mr Allam but also Tonita against whom there have never been any other costs orders made.
7 There are potentially three issues which arise:
(i) Is Aristocrat entitled to set off the unliquidated amounts of the costs orders it has against Mr Allam against the liquidated amount of the costs certificate which Mr Allam and Tonita have against Aristocrat?
(ii) If the solicitors are entitled to a lien over the fruits of the High Court's costs certificate, which prevails: the right of Aristocrat to set off or the security entitlements of the solicitors?
(iii) Does the lien in fact arise?
8 The second question has a clear answer. A solicitor's entitlement to be paid out of a judgment in favour of a client, although sometimes referred to as a lien, is in fact just a claim for equitable interference to ensure that the judgment is held as security for the debt owed by the client to the solicitor. The Court's order giving effect to the lien does not create a right but merely reflects a pre-existing equitable entitlement and, subject to the usual defences to and requirements of such equitable entitlements, such claims may be enforced by a direction to the judgment debtor to pay the solicitor together with an injunction to restrain the judgment debtor from paying the client. All of this was explained by Jordan CJ in Ex parte Patience; Makinson v The Minister (1940) 40 SR (NSW) 96 ('Ex parte Patience') at 100, 102-103 which was, in turn, referred to with approval by the Full Court of this Court in Worrell v Power (1993) 46 FCR 214 at 222-224.
9 However, it is equally well-established that if there would otherwise be a set-off between the parties to the litigation, a Court will not deprive a party of that set-off merely because to do so will eliminate the fund onto which a solicitor's lien might otherwise attach. This is a matter of common sense because it is difficult to imagine that the solicitors can end up in a better position than the client could have vis-à-vis the judgment debt. Put another way, the stream cannot rise higher than the source. Common sense is borne out by the explanation by Jordan CJ in Ex parte Patience that the solicitor's equitable right is a security right from which the impossibility of the solicitor's right exceeding the client's own rights may be readily discerned. In any event, the proposition is well-established at first instance in Australia: see Akki Pty Ltd v Martin Hall Pty Ltd (1994) 35 NSWLR 470 at 482-483 per Windeyer J; Cade Pty Ltd v Thomson Simmins (No. 2) [2000] SASC 369 at [16] per Doyle CJ; also in England: see Currie v The Law Society [1977] QB 990 ('Currie') at 999 per May J applying Puddephatt v Leith (No.2) [1916] 2 Ch 168 at 180 per Younger J. I note for completeness that the Personal Property Securities Act 2009 (Cth) does not generally apply to liens which arise by operation of law or, probably more relevantly, charges that arise by operation of the general law: s 8(1)(c).
10 Consequently, the right of the solicitors to claim an entitlement to the money due by Aristocrat to Mr Allam and Tonita under the costs certificate is subject to whatever rights Aristocrat itself has to set off those amounts against the amounts owed (or to become owing) to it under the other costs orders. That being so, the main issue is whether Aristocrat can set off in the way for which it contends. It is only if that set off is not available to it that it becomes necessary to consider whether the solicitors should have their lien.
11 As to the right to set off one costs judgment against another, the following propositions are relevant to this case. First, at least in Australia it now appears to be settled that the jurisdiction being exercised neither arises from statutory nor equitable origins but is instead an exercise of the Court's inherent jurisdiction over its own suitors: see Wentworth v Wentworth (Unreported, Supreme Court of New South Wales, Young J, 12 December 1994) at 3-4 ('Wentworth'); Australian Beverage Distributors v Evans & Tate Premium Wines Pty Ltd [2006] NSWSC 560; (2006) 200 FLR 332 ('Australian Beverage Distributors') at 347; [68]-[70] per White J; Sivritas v Sivritas [2008] VSC 374; (2008) 23 VR 349 at 390 [22] per Kyrou J; Team Dynamik Racing Pty Ltd v Longhurst Racing Pty Ltd [2008] QSC 36 at p 9 per Fryberg J; Lahoud v Lahoud [2012] NSWSC 284 ('Lahoud') at [72]-[79] per Ward J. Australian Beverage Distributors was referred to by the New South Wales Court of Appeal as authority for this proposition without disapproval, although the Court's statement was not critical to the conclusion in the case: State of New South Wales v Hamod [2011] NSWCA 376 at [35]-[37] per Giles JA (Beazley and Whealy JJA agreeing). I proceed on the largely settled basis that the jurisdiction being exercised is inherent.
12 Secondly, the set-off is available even where, as here, what is sought to be set off is an unliquidated costs order (i.e. Aristocrat's as yet untaxed costs against Mr Allam) against a liquidated costs judgment (i.e. Mr Allam's and Tonita's rights under the High Court's costs certificate against Aristocrat): see Lahoud at [82].
13 Thirdly, the power to order a set-off of costs is certainly discretionary whether the jurisdiction is, as it appears to be, inherent or even if, less likely, it is equitable in nature. Regardless of where individual authorities have ended up on the source of the jurisdiction, they speak with one voice for the proposition that a discretion is involved in its exercise: see, for example in the United Kingdom, Currie; Lockley v National Blood Transfusion Service [1992] 1 WLR 492 ('Lockley') at 497 per Scott LJ; Brookes v Harris [1995] 1 WLR 918 at 925 per Ferris J. In Australia, the discretion is to be exercised 'according to what is equitable in the particular circumstances': Miller v Director of Public Prosecutions (No. 2) [2004] NSWCA 249 ('Miller') at [27] per Young CJ in Eq. And, at least where costs are sought to be set off against costs, this is likely to involve the same kinds of considerations as those which apply under the Court's general discretion to award costs. This may be what Scott LJ said in Lockley at 497. Certainly, that is how Ward J read Lockley in Lahoud and I am inclined to agree with her Honour's parsing of this passage. But even if that is not precisely what Scott LJ said (and one must admit a degree of ambiguity in his Lordship's otherwise limpid prose), it is difficult to see why the discretionary inputs into the question of a costs set-off should differ from those which apply to costs generally. Without becoming enmeshed in the theological niceties of the nature of the discretion, there is much to be said, with respect, for the views of Beazley JA in Miller at [13], who said that the discretion is a broad one under which a variety of factors may be taken into account, including 'the public interest, the efficient administration of justice, and the conduct of the parties'.
14 Fourthly, the jurisdiction to set off costs awards extends to costs awarded in different proceedings (as here, where one set of costs orders is in one court and one set is in another): Miller at [23] per Young CJ in Eq referring to his Honour's own judgment in Wentworth. It also permits, in an appropriate case, set-off between different parties. Authority for this proposition is scarcer. Young CJ in Eq thought the proposition to be correct in Miller (at [24]) and Fryberg J exercised just such a jurisdiction in Team Dynamik Racing Pty Ltd v Longhurst Racing Pty Ltd [2008] QSC 36 at pp 9-10. In Flinn v Flinn [1999] 3 VR 712 at 761 the Victorian Court of Appeal achieved a similar outcome. From a theoretical perspective, it seems to me, as indeed it seemed to Fryberg J, that the jurisdiction is similar to the jurisdiction of a court to order costs against a third party. As indicated above, the principles governing the exercise of the discretion to order a set-off are analogous to those governing the costs discretion itself. If so, there is no reason to think that, in an appropriate case, the Court might not order a set-off even though there was no precise identity of the parties. Further, there is no reason to think that the Court could not, for the purposes of achieving a just set-off, notionally apportion a jointly held right.
15 In light of these remarks, it is therefore necessary to assess the circumstances of the parties. The litigation in which the parties have been engaged is complex. Aristocrat sued three sets of parties but I will largely only refer to two for present purposes. The first I will call the Global Gaming parties and the second, consisting of Tonita and Mr Allam, I will call the Tonita parties. Mr Allam is the sole shareholder and director of Tonita.
16 Aristocrat's basic contention was that the Global Gaming parties had entered into a joint venture to counterfeit and sell, principally in South America, second-hand gaming machines assembled in Australia using pirated copies of materials taken from Aristocrat's gaming machines.
17 The Tonita parties, through Mr Allam, were said to have done much of the technical work.
18 For the purpose of these reasons it is only necessary to grasp the copyright issues in the case. There were three other sets of claims made as well. These were claims that the Tonita parties and Global Gaming parties had infringed Aristocrat's trade marks and a novel claim against the Tonita parties that they had converted parts of gaming machines which they had acquired from a scrap merchant. There was also a claim based on misrepresentation. Whilst the conversion claim ultimately turned out to be of little significance in the overall litigation, the trade mark claims were important and ultimately successful. As will be seen, however, these issues do not impact on the present debate.
19 The Aristocrat parties took upon themselves the burden of proving that the Global Gaming parties were distributing counterfeit gaming machines in South America or machines containing counterfeit components. They had come to believe that counterfeiting of their machines was taking place because of material they had obtained from the Tonita parties' premises following the execution of Anton Piller orders which in turn came about because of a tip-off from a former employee. These materials persuaded the Aristocrat parties that Mr Allam had been copying their software and certain kinds of compliance plates. They were not, however, able to demonstrate directly to any significant extent that counterfeit machines were being distributed in South America. Instead, they proceeded indirectly and sought to rely upon 54 transactions involving the export of gaming machines by 'some or all of the respondents' to South America and their sale. These involved some 618 gaming machines. The thrust of this evidence was that the invoices relating to the 54 transactions contained various serial numbers which corresponded to machines which it was said could be shown were still in Australia and hence could not be in South America. This was said to support the conclusion that the machines in question must be counterfeit. Combined with the materials found at Mr Allam's premises what was presented was a circumstantial case.
20 The trial judge at the original trial was impressed by this case and thought it strongly supported by a series of unguarded emails passing between employees of the Global Gaming parties amongst themselves and also with Mr Allam. These were said to show concerted action to export counterfeit machines.
21 During the course of the trial, the trial judge had initially admitted these emails subject to a direction that they could only be used against the party which had originated the email (i.e. an email from the Global Gaming parties to Mr Allam could not be used against Mr Allam). These directions were made pursuant to s 136 of the Evidence Act 1995 (Cth). Later in the trial, the trial judge, over objection, revoked these directions so that they could be used against their recipients. His Honour thereafter utilised the emails as a step along the way to accepting Aristocrat's circumstantial case including its important element of concerted action.
22 In light of that conclusion, the trial judge found the Global Gaming parties had been exporting counterfeit machines to South America. As a person intimately involved in the process of counterfeiting the machines, his Honour also concluded that Mr Allam was liable as a joint tortfeasor with the Global Gaming parties. A significant debate then arose about how many acts of infringement had been proved to have occurred in relation to South America. Here the case was conducted, to continue the spirit of the trial judge's observation about trench warfare, across a no man's land of invoices underpinning the 54 transactions and 618 gaming machines.
23 It is not necessary to revisit the details of that campaign, although it may be said that Aristocrat's incursions into the Respondents' lines were significantly, although not entirely, repulsed. It is not necessary to do so because regardless of the view one takes of it, all of the 54 transactions antedated the date of Tonita's incorporation. Thus, whilst the trial judge ultimately concluded that Mr Allam was jointly liable with the Global Gaming parties in relation to some 11 out of the 54 transactions, which he accepted proved infringement, his Honour concluded that Tonita could not be liable for any of them because it did not exist at the time that the transactions had happened.
24 For present purposes, there are two aspects of the trial judge's conclusions which are to be emphasised: first, a critical part of the trial judge's reasoning depended on the use of the emails; and secondly, the exoneration of Tonita by reason of its non-existence at the relevant times.
25 At the end of the trial, the Aristocrat parties had succeeded, to some extent, in establishing copyright infringement against the Global Gaming parties and Mr Allam as joint tortfeasor. They had failed against Tonita.
26 There was then an appeal to the Full Court by Mr Allam and the Global Gaming parties: Allam v Aristocrat Technologies Australia Pty Ltd [2012] FCAFC 34; (2012) 95 IPR 242. There was also a cross-appeal by Aristocrat, in relation to, inter alia, the exculpation of Tonita. The procedural consequence of this is of some importance to the issues which presently arise. It is that Tonita was not a party to Mr Allam's appeal (because it had won before the trial judge) but was a cross-respondent to Aristocrat's cross-appeal.
27 In the Full Court, Tonita and Mr Allam were jointly represented although the issues for them were different. For Mr Allam, the principal issue was whether the trial judge's conclusions about copyright infringement should have been set aside because of his Honour's allegedly erroneous revocation of the s 136 directions relating to the emails. The direct issue for Tonita was whether it could defend the proposition that it could not be liable as a joint tortfeasor for acts of infringement which occurred prior to its incorporation. If it had failed on that issue, it had a contingent interest in supporting Mr Allam's contentions about the failure of Aristocrat to establish an infringement of copyright (in which, on that hypothesis, they could both then be seen as implicated as joint tortfeasors). It is not clear whether Tonita filed a notion of contention to that effect in Aristocrat's cross-appeal.
28 The Full Court concluded (relevantly) that:
(a) the trial judge had erred in revoking the s 136 directions and that this undid his Honour's reasoning on the circumstantial case;
(b) the case based on the distribution of counterfeit gaming machines in South America therefore failed;
(c) Mr Allam nevertheless had infringed Aristocrat's copyright by reason of the instances of copying unearthed at his premises as a result of the execution of the Anton Piller orders;
(d) the question of what relief should be granted to Aristocrat in relation to that more limited infringement case should be remitted to the trial judge; and
(e) in light of its finding that Mr Allam could not be liable for infringement relating to what occurred in South America, that Aristocrat's attempts to make Tonita liable as a joint tortfeasor for them also failed at the threshold for the same reason. It therefore dismissed the cross-appeal. The Full Court did indicate in passing, however, that had it been necessary it would have accepted the correctness of the trial judge's conclusion that Tonita could not be liable for acts of infringement alleged to have occurred before it was incorporated. This was an important observation.
29 It was in that context that Aristocrat then sought special leave to appeal to the High Court. On that application, Aristocrat joined Tonita as a respondent. This was despite the fact that Tonita had not been a party to Mr Allam's appeal in the Full Court. It may be surmised that the fact that it had been a respondent to Aristocrat's cross-appeal in the Full Court was thought by Aristocrat's advisors to make it sufficiently interested in the outcome to require its joinder.
30 However, that interest was purely formal and lacked any real content. No application for special leave to appeal from the Full Court's dismissal of Aristocrat's cross-appeal was ever filed. Even assuming that the infringement issues could be surmounted on such a cross-appeal (which was certainly possible), special leave was never going to be granted on the correctness of the Full Court's conclusion that Tonita could not be liable for acts of infringement which occurred prior to its incorporation. In any event, the short fact is that Aristocrat did not seek special leave in relation to the cross-appeal. Even if the High Court had allowed the appeal by Aristocrat against Mr Allam on the issue of infringement, Aristocrat could not subsequently have succeeded in having the Full Court set aside its decision to dismiss the cross-appeal. This is because to do so it would have needed to persuade the Full Court to revisit its own earlier conclusion that Tonita could not be liable because it did not exist at the relevant times. Even assuming that the Full Court's orders had not been entered and such an application was open to be considered, it is clear that it could only have failed. There was no basis for the Full Court to have reopened its conclusions about this. The matter had been fully argued and there were no changed circumstances.
31 What follows from this is that after the Full Court's orders dismissing the cross-appeal and Aristocrat's (understandable) decision not to seek special leave from those orders, Tonita had prevailed in the litigation. Its joinder as a respondent in Aristocrat's special leave application was understandable but unnecessary for the reasons just given. Tonita had no exposure in the High Court litigation. The only party actually potentially affected was Mr Allam (and the Global Gaming and Impact Gaming parties).
32 It is true that the solicitors and counsel for Mr Allam also appeared for Tonita in the High Court. It is also true that they charged Tonita and Mr Allam jointly. But that does not alter the fact that only one of their clients - Mr Allam - had any genuine interest in the outcome.
33 The sense that Tonita had no interest in the High Court litigation is borne out, to an extent, by the contents of the bill of costs presented by the solicitors to the High Court for taxation on 22 September 2015. That bill of costs has 530 entries. There were only two entries amongst those 530 which related solely to the position of Tonita. One was item 132 which was in these terms:
132 15.11.12 Short letter to Counsel regarding Aristocrat failure to deal with Tonita in Special Leave submissions $22.20