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[2020] FCA 1835
Federal Court of Australia
2020-12-22
Kenny J
Original judgment source is linked above.
Division: General Division
Registry: Victoria
National Practice Area: Intellectual Property
Sub-area: Patents and associated Statutes
Date of last submission/s: 30 October 2020
Counsel for the Applicant/ Cross-Respondent: Ms S K Gatford
Solicitor for the Applicant/Cross-Respondent: Comlaw Barristers and Solicitors
Counsel for the Respondents/ Cross-Claimants: Mr C H Smith
Solicitor for the Respondents/Cross-Claimants: Rankin & Co
BETWEEN: AXENT HOLDINGS PTY LTD (ACN 096 387 370) T/A AXENT GLOBAL Applicant
AND: COMPUSIGN AUSTRALIA PTY LTD (ACN 070 157 925) First Respondent
HI-LUX TECHNICAL SERVICES PTY LTD (ACN 006 654 691) Second Respondent
COMPUSIGN SYSTEMS PTY LTD (ACN 161 950 205) Third Respondent
AND BETWEEN: COMPUSIGN AUSTRALIA PTY LTD (ACN 070 157 925) (and another named in the Schedule) First Cross-Claimant
AND: AXENT HOLDINGS PTY LTD (ACN 096 387 370) T/A AXENT GLOBAL Cross-Respondent
order made by: KENNY J DATE OF ORDER: 22 December 2020
NOTING that the applicant/cross-respondent by its legal representatives undertakes to the Court during the period of any stay for which Order 2 below provides: (a) to prosecute any appeal expeditiously; (b) forthwith to serve on the Commissioner of Patents a copy of these orders pursuant to s 140 of the Patents Act 1990 (Cth) with a request that Order 1 below be registered in accordance with s 187 of the Patents Act 1990 (Cth); and (c) not to commence any proceeding (apart from any appeal) or to make any threat to do so in respect of any alleged infringement of any one or more of the claims the subject of the patent in Order 1 below. THE COURT ORDERS THAT:
INTRODUCTION 1 On 25 September 2020, the Court published reasons for judgment in this matter: see Axent Holdings Pty Ltd t/a Axent Global v Compusign Australia Pty Ltd [2020] FCA 1373. At the same time, the Court made the following orders: 1. On or before 4:30 pm on 9 October 2020 the respondents/cross-claimants file and serve: (a) a proposed minute of orders giving effect to these reasons for judgment; and (b) written submissions on costs (not exceeding 7 pages). 2. On or before 4:30 pm on 23 October 2020 the applicant/cross-respondent file and serve written submissions (not exceeding 10 pages) in response to: (a) the proposed minute of orders of the respondents/cross-claimants; and (b) their written submissions on costs. 3. On or before 4:30 pm on 30 October 2020 the respondents/cross-claimants file and serve any submissions in reply to the written submissions of the applicant/cross-respondent (not exceeding 3 pages). 4. Unless determined otherwise, issues relating to the form of final orders or costs be determined on the papers, without oral hearing. 2 The parties provided proposed minutes of orders and filed written submissions on costs. Furthermore, the respondents/cross-claimants filed an affidavit on 9 October 2020 sworn by their solicitor, Mr Rob Roy Rankin. The applicant/cross-respondent filed an unsworn affidavit prepared by its solicitor, Mr Charles Leonidas, on 22 October 2020. Mr Leonidas said that the affidavit could not be sworn due to "existing social isolation measures in place to prevent the spread of COVID-19". He later filed an affidavit in substantially the same terms, with identical annexures, which was sworn on 17 December 2020. 3 On 26 October 2020, the applicant/cross-respondent provided the Court with an amended version of its proposed final orders. On 30 October 2020, the respondents/cross-claimants provided the Court with their amended version of their proposed final orders. These amended versions provided for a stay of an order for revocation of the Patent for 28 days and, if an appeal were filed, until the final determination of the appeal, or its earlier withdrawal or discontinuance, or further order. These reasons focus on the amended versions of the parties' proposed minutes of orders. 4 As will be seen, the September 2020 orders provided that issues relating to the form of final orders or costs be determined on the papers, unless determined to the contrary. The parties have not sought to be heard orally and, bearing in mind the nature of the parties' written submissions, it seems to me that there is no need for an oral hearing for the proper determination of the issues discussed below.
Submissions of respondents/cross-claimants 5 The respondents/cross-claimants sought an order for the revocation of the Patent in suit but accepted that, upon the applicant/cross-respondent providing certain undertakings (including to prosecute any appeal expeditiously), any such revocation order should be stayed on the basis already noted. The respondents/cross-claimants also sought an order dismissing the infringement claims against them, and an order that the applicant/cross-respondent pay their costs of the claim and the cross claim, to be assessed on an indemnity basis from 15 February 2017 in respect of the second respondent/cross-claimant (Hi-Lux) and as a lump-sum, for the most part in accordance with the procedure for which the Court's Costs Practice Note (GPN-COSTS) provides.
Costs should follow the event 6 Referring to various authorities, including Firebird Global Master Fund II v Republic of Nauru (No 2) [2015] HCA 53; 327 ALR 192; 90 ALJR 270, Clarence City Council v Commonwealth of Australia (No 2) [2020] FCAFC 147, and Les Laboratoires Servier v Apotex Pty Ltd [2016] FCAFC 27; 247 FCR 61, the respondents/cross-claimants submitted that there was no good reason in this case to depart from the ordinary rule that costs should follow the event. They were successful in the proceeding, since the applicant/cross-respondent failed to obtain the relief it sought against them; it did not make out its infringement case; and the Patent in suit was held to be invalid by the Court and liable to be revoked. They further submitted that: The applicant ought not to have brought the proceeding, and exposed the respondents to costs. Additionally, the applicant delayed for years in bringing the proceedings, which inevitably made proving the state of the common general knowledge, and the existence of prior art, more difficult and hence more expensive. 7 The respondents/cross-claimants submitted that the issues on which they were unsuccessful were not "so substantial as to justify a departure from the ordinary rule, so as to disentitle the respondents from any part of the costs that they incurred in defending the unjustified infringement proceeding". In this context, the respondents addressed each of the issues on which they were unsuccessful. They made submissions to the effect that the time and resources expended, and consequent costs incurred, were minimal. They submitted that, bearing this in mind, there should be no reduction in their award of costs. 8 The respondents submitted: as to the lack of clarity ground - the claims had to be construed as part of the assessment of infringement, so no additional time was involved with this ground; as to the lack of entitlement ground - this was a "short point" for which the respondents relied on the evidence put forward by the applicant to address its own s 24 case, and its written submissions comprised only two pages; as to the best method ground - this issue arose during the trial itself, was based on evidence filed by an applicant witness (Mr Fontaine) just two business days' before the trial began, and involved only brief cross-examination and short written submissions; as to the lack of novelty ground - the evidence which went to this issue involved only "limited court time" and also went to other issues, including s 24 and inventive step; as to the Crown-user defence - Hi-Lux's argument here turned on a "discrete legal issue"; the argument on this issue "did not occupy substantial trial time", was the subject of only one page of their closing written submissions, and the relevant evidence was "confined in its scope"; and as to the prior use defence - this was also a "discrete issue", comprising only two pages of their closing written submissions. 9 The respondents/cross-claimants submitted that this case was similar to DSI Australia (Holdings) Pty Ltd v Garford Pty Ltd [2013] FCA 268, where Yates J concluded at [7]-[8] that the issues on which the applicants in that case failed were of a "confined nature" and involved "minimal time at the hearing", and did not justify any reduction in the award of costs. 10 In their reply submissions, the respondents/cross-claimants submitted that there was no authority for the approach to apportionment contended for by the applicant/cross-respondent - that principal regard should be had to the number of paragraphs of the judgment considering each issue (see [14] below). In this connection, the respondents/cross-claimants submitted that "it is the parties' costs that are being addressed, not the Court's costs".
Indemnity costs should be ordered in respect of Hi-Lux 11 The respondents/cross-claimants submitted that it would be reasonable for the Court to make an order that the applicant/cross-respondent pay Hi-Lux's costs on an indemnity basis from 15 February 2017, being the date on which Hi-Lux sent the applicant/cross-respondent a letter offering to resolve the proceeding. The respondents/cross-claimants relied on this letter, a letter in response, and a further letter from their solicitor, all of which were annexed to Mr Rankin's 9 October 2020 affidavit see [2] above.
Costs should be assessed on a lump sum basis 12 The respondents/cross-claimants submitted that it would be consistent with the GPN-COSTS and the considerations in s 37M of the Federal Court of Australia Act 1976 (FCA Act) for costs to be assessed on a lump sum basis since this would be cheaper and take less time than a full taxation. They relied on Mr Rankin's 9 October 2020 affidavit in support of this submission.
Costs order should be reduced to reflect the parties' degree of success 13 Referring to Tenser v Quigley [2016] FCAFC 178, Sealed Air Australia Pty Limited v Aus-Lid Enterprises Pty Ltd [2020] FCA 388, Firebird Global and Servier, the applicant/cross-respondent submitted that the Court's discretion as to costs must be exercised in accordance with a number of principles including that any order "should reflect the degree of success obtained". Citing BlueScope Steel Limited v Dongkuk Steel Mill Co., Ltd (No 3) [2020] FCA 113 at [18], Idenix Pharmaceuticals LLC v Gilead Sciences Pty Ltd (No 2) [2018] FCAFC 7 at [3], GlaxoSmithKline Consumer Healthcare Investments (Ireland) (No 2) v Generic Partners Pty Limited (No 2) [2018] FCAFC 100 at [5]-[7], Sandvik Intellectual Property AB v Quarry Mining & Construction Equipment Pty Ltd (No 2) [2017] FCAFC 158 at [10]-[12], Servier at [301]-[302] and GM Global Technology Operations LLC v S.S.S. Auto Parts Pty Ltd (No 2) (Costs) [2019] FCA 1813 at [8]-[10], the applicant/cross-respondent submitted that the Court's practice in patent cases more recently has been to apportion costs based on an issues-based analysis of the parties' success and failure. This kind of analysis, so it submitted, generally resulted in issues-based reduced costs orders, which may take the form of either separate reduced costs orders on the claims and cross-claims, or a single overall reduced costs order, with the second of these options being more appropriate where a party was wholly unsuccessful in the result. The applicant/cross-respondent referred in this latter connection to Commonwealth of Australia v Sanofi (formerly Sanofi-Aventis) (No 6) [2020] FCA 1001 and Mylan Health Pty Ltd (formerly BGP Products Pty Ltd) v Sun Pharma ANZ Pty Ltd (formerly Ranbaxy Australia Pty Ltd) (No 2) [2019] FCA 883 at [9]-[11]. 14 In terms of how to arrive best at a suitable apportionment, the applicant/cross-respondent submitted that the "fairest and most appropriate methodology" would be to reduce the costs orders made against it to reflect the Court's reasons, rather than by reference to a quantitative analysis of the content of the written submissions and evidence, citing BlueScope at [19]-[25] and Mylan Health at [8]. The applicant/cross-respondent submitted that this approach would reflect the relative importance of the issues and avoid the disputes likely to arise from an attempt to analyse the time taken by particular issues. 15 In this connection, the applicant/cross-respondent annexed to its submissions a table analysing the reasons on each issue, which included the number of paragraphs referable to each issue. According to this table, it was successful on issues that accounted for 47% of the Court's discussion of the infringement case, 44% of the Court's discussion of the cross-claim, and 30% overall. On this basis, it submitted that the "most appropriate and fair" result would be for an order to be made either that it pay 50% of the successful parties' costs of the claim, and 50% of their costs of the cross-claim or 70% of their costs overall. It submitted that the 70% option would have the "practical advantage" of not requiring claim and cross-claim costs to be separately identified and itemised in a taxation, and would avoid unintentional double counting or costs overlap that might otherwise occur.
Indemnity costs should not be ordered in respect of Hi-Lux 16 The applicant/cross-respondent submitted that it was not unreasonable for it to have rejected Hi-Lux's Calderbank offer. In this circumstance, referring to various authorities including Anchorage Capital Partners Pty Limited v ACPA Pty Ltd (No 2) [2018] FCAFC 112 at [7] and Umoona Tjutagku Health Service Aboriginal Corporation v Walsh [2019] FCAFC 32; 268 FCR 401 at [48], it submitted that it should not be liable to pay indemnity costs in respect of Hi-Lux. 17 First, the applicant/cross-respondent submitted that the offer was received at an early stage in the proceeding and at a time where there was "substantial uncertainty" as to the details of the material facts supporting the defences and cross-claims. It drew attention to the fact that at the time the offer was received, "[n]o discovery had been provided and no evidence had been filed". It submitted that it did not have sufficient time to consider the documents referred to in the respondents' particulars of invalidity before the offer expired, referring to Mr Leonidas's affidavit, which is referred to further below. 18 Secondly, the applicant/cross-respondent submitted that the letter and the offer were "unclear", drawing attention to the matters about which it sought clarification in its 17 February 2017 response letter: see [45] below. Thirdly, it submitted that, although the offer was stated as being open for 14 days, "its terms were materially unclear until at least 24 February 2017". It submitted that this left it with a "wholly insufficient" amount of time to consider the offer properly. Fourthly, it submitted that the offer was "unreasonable", as it required it to agree not to take action against numerous third parties, including VicRoads. 19 Finally, the applicant/cross-respondent submitted that, at the time the offer was made, it was "not unreasonable" for it to consider that it still had reasonable prospects of success, despite the arguments made in the letter. In this connection, it submitted that the focus of the letter was on the 2001 VicRoads Specification, which it was "confident" at the time had not been published, and that this issue remained hotly contested throughout the proceeding. Further, it submitted that the essentially factual nature of the question of obviousness made it "extremely difficult" for it to assess its prospects of success at the time it received the Calderbank letter, given the evidence had not yet been filed.
Bill of costs should be ordered 20 The applicant/cross-respondent submitted that the Court should not make a lump-sum costs order unless satisfied that the delay, expense and inconvenience of taxing costs in the normal manner would be "unduly protracted" or "unduly expensive", and that the financial capacity of the party liable to pay costs was such that the additional cost of taxation would impose a significant burden on the party in whose favour costs were to be ordered, without real prospects of those costs being recovered. As there was no evidence going to these matters, the applicant/cross-respondent submitted that there was no reason to depart from taxing costs in the normal manner. Further, it submitted that a lump sum costs assessment by a Registrar would carry with it a "real and wholly unnecessary risk of unfairness" to it.
Court's discretion to award costs 21 Under s 43(2) of the FCA Act, the disposition of costs is in the discretion of the Court, although this discretion must be exercised judicially having regard to the relevant principles and the justice of the case in all the circumstances: see Ruddock v Vadarlis (No 2) [2001] FCA 1865; 115 FCR 229 at [9]-[11]. In the present case, it is important to bear in mind that "[t]he award of costs to a successful party is principally by way of perceived restorative justice", and is not by way of punishing the unsuccessful party: see Ruddock v Vadarlis (No 2) at [12]. An award of costs is essentially compensatory "in the sense that they are awarded to indemnify the successful party against the expense to which he or she has been put by reason of the legal proceedings": see Latoudis v Casey (1990) 170 CLR 534 at 543 (Mason CJ). 22 In the ordinary course, costs will follow the event. This means that, ordinarily, a successful party is entitled, by way of compensation, to an award of costs in the absence of special circumstances justifying some other order: see, for example, Ruddock v Vadarlis (No 2) at [11] and Firebird Global at [6]. In this case, the respondents were successful in defeating the applicant's infringement claim. As cross-claimants, the same parties also succeeded in their cross-claim, by establishing the invalidity of the Patent in suit. So far as the respondents/cross-claimants were concerned, these two successful outcomes were separate events to which the general rule as to costs would ordinarily apply: see GlaxoSmithKline at [8]. 23 The general rule as to costs is not inflexible, however and, in the exercise of the discretion, will not always be applied. A successful party who has failed on some issues may be deprived of the costs of the issues on which the party failed or ordered to pay the costs of them to the other party: see, for example, Ruddock v Vadarlis (No 2) at [11]. An issue in this context generally means any disputed question of law or fact. The question here is whether the Court should reduce the award of costs in favour of the respondents/cross-claimants to reflect the fact that, although successful overall, they were unsuccessful on a number of issues that arose in the course of the proceeding on the infringement claim and on the cross-claim. 24 Before proceeding further, it may be accepted that the determination of costs applications on an issue by issue basis is ordinarily not desirable, having regard to the difficulty in apportioning costs and the additional time and resources that determining an apportionment may entail: compare Firebird Global at [6]. The discretion as to costs must, however, be decided according to the justice of the particular case, which inevitably requires the Court to give attention to the relevant circumstances. 25 In some patent cases, there may be no real call for a costs apportionment. Thus, in DSI Australia Yates J declined to apportion costs on an issue by issue basis, since the applicants, who were the ultimately successful parties, failed on issues that "occupied minimal time at the hearing and rested largely in arguments that were of a confined nature": see DSI Australia at [7]. His Honour concluded (at [8]-[9]) that: …When sued for infringement (in response to the allegation of unjustifiable threats), the DSI parties were entitled to raise, by way of defence, all reasonably arguable grounds on which the asserted claims were invalid. This is not a case where the raising of the unsuccessful grounds had the consequence that, in a real sense, the proceeding could have been conducted more economically if those grounds had not been raised. In my view, the just and appropriate outcome in the present case is that costs should follow the event. Accordingly, [it] should pay the DSI parties' costs 26 In other patent cases, particularly where the parties have raised numerous and diverse issues, the case for costs apportionment may be strong, as shown in such cases as BlueScope at [18] and Mylan Health at [7]-[15]: compare, in different intellectual property contexts, GM Global at [11], [28] and Sanofi at [22]-[23]; and the approach of the Full Court, on appeal, in Servier at [301]-[302] and in Sandvik at [10]-[11]. Indeed, Axent relied particularly on Beach J's observation in BlueScope at [18] that "given the plethora of issues that are usually raised in patent litigation, costs apportionment reflecting each party's relative success and failure on the issues litigated should be the norm rather than the exception". 27 Whether costs apportionment should be the norm in some kinds of patent cases may, however, be left until another day. It may be accepted that, generally speaking, whether there should be a costs apportionment depends on a variety of factors, including the complexity of the case as presented, the number and diversity of issues raised, the time and effort taken up by the failed issues, the extent to which evidence and argument concerning them overlapped with those on which the respondents/cross-claimants succeeded and the reasonableness of the pursuit of the failed issues: compare Sealed Air at [88] and the authorities there mentioned. Notwithstanding the submissions of the applicant/cross-respondent to the contrary, for the reasons outlined below, there does not appear to me to be a basis for apportioning the costs with respect to the cross-claim. 28 Although the respondents/cross-claimants failed on a number of issues raised in their cross-claim, as they submitted, the additional time and resources expended on these issues by the parties were minimal, as the following discussion shows. In this regard, the position was not dissimilar to that before Yates J in DSI Australia: see at [7]-[8]. 29 The respondents/cross-claimants failed on the issues raised by their grounds of lack of clarity, lack of entitlement, lack of novelty, and failure to disclose the best method. As to lack of clarity, I accept that, as the parties effectively agreed, lack of clarity was also relevant to construction issues. Largely for this reason, the lack of clarity issue did not involve the parties expending any appreciable additional time or resources in support of their respective positions. The applicant/cross-respondent submitted that it succeeded "as the patent being for a product, not a method" and so, 50% of the success should be attributed to it. As, however, the applicant/cross-respondent acknowledged, the construction ultimately adopted by the Court did not involve it accepting its submissions on construction. Rather, the Court held (at [276]) that its "capabilities" construction was "overly broad, and not supported by the specification". No case for apportionment is made out here. 30 The issue of lack of entitlement due to joint inventorship was raised shortly before trial. With respect to it, reliance was placed principally on Mr Bean's evidence (a principal witnesses for the applicant/cross-respondent). His evidence was also relevant to other issues, however, including the successful invalidity claims raised by the respondents/cross-claimants, in particular, the lack of inventive step and novelty grounds. This issue did not therefore involve any additional evidence. It also received limited attention in the parties' closing submissions (roughly 2%, including argument about whether the joint inventorship argument could be raised at all). Indeed, this is in fact reflected in the proportion of the paragraphs in the reasons for judgment specifically devoted to this issue, calculated by reference to the paragraphs dedicated to consideration. 31 With respect to the lack of novelty ground, the respondents/cross-claimants were successful with respect to anticipated claims 1, 9, 10, 14, 15, 16, 17, 20 and 27. These included the independent claims. For the reasons already explained in Axent at [661], they were unsuccessful with respect to claims 2-4, 5, 6, 7, 8, 11, 12, 13, 18, 19, 21-26, and 28. I accept that this latter matter represented little or no additional expenditure in terms of the parties' time or resources. 32 Further, whether there was a failure to disclose best method did not involve additional evidence. The ground was based on the evidence of Mr Fontaine and, as already noted, his evidence in this respect was also relevant to the successful invalidity claims and other issues in the proceeding. The issue was discussed in roughly just under 5% of the closing oral submissions, and about 2% of the closing written submissions. As it happens, this is consistent with the proportion of the paragraphs in the reasons for judgment specifically devoted to this issue, calculated by reference to the paragraphs dedicated to consideration. 33 I accept the submissions of the respondents/cross-claimants to the effect that, taken separately, the issues about lack of clarity, entitlement and best method did not involve the parties expending appreciable additional time and resources. The position does not change materially when these issues are taken together. 34 The rough-and-ready figures set out above are not intended to be more than indicative, in a general way, of the parties' expenditure of time and resources on the relevant issues. It is clear, however, that they do not support the applicant/cross-respondent in its analysis. Rather, these rough and ready figures indicate, as I have already said, that the additional time and resources expended on the relevant issues by the parties were insufficient to justify an issues-based costs apportionment with respect to the cross-claim, having regard to the validity case as a whole. 35 With respect to the infringement claim, I note first that Hi-Lux failed in its defence of Crown use. The defence of Crown use involved some very limited additional evidence and was the subject of roughly 4% of closing written submissions and 3% of closing oral submissions. In my view, these considerations indicate that the parties did not expend any appreciable time or resources on this issue. The expenditure was, as the respondents/cross-claimants submitted, to be regarded as minimal. 36 The proportion of the paragraphs in the reasons for judgment (about 15%) specifically devoted to the Crown use issue, calculated by reference to the paragraphs dedicated to consideration (see Axent at [398]-[483]), is greater than these figures might indicate, because, for the reasons stated in Axent at [471], [473] and [482], the parties' submissions and evidence on the issue were inadequate. It was necessary for the Court to explain and identify its concerns in this regard. It was also necessary for the Court to determine whether each of VicRoads, the South Australian Department of Planning, Transport and Infrastructure, and the City of Greater Geelong was an authority of a State for the purposes of s 163 of the Patents Act 1990 (Cth), which required detailed consideration of the relevant law and the statutory schemes within which each body operated: see Axent from [404] onwards. It is convenient to note at this point that the applicant/cross-respondent did not submit that the pursuit of this defence, the defence of prior use or indeed any of the invalidity grounds discussed above was unreasonable in the circumstances of the case. 37 The situation with respect to the defence of prior use was relevantly different, for the following reasons. Both the respondents/cross-claimants failed in their defence of prior use. This defence involved material additional evidence, including additional cross-examination. The defence case relied on the evidence of Mr He, Mr Riquelme and Mr Sozio. Relevantly, this included Mr Sozio's evidence with respect to certain drawings undertaken by Mr Trebilcock of Futura Controls: see Axent at [553]. It also included some reliance on various annexures to Mr He's affidavits. Mr He was, moreover, recalled for further cross-examination in respect of his prior use evidence: see Axent at [243]. It is also worth bearing in mind that there were a number of objections to admissibility respecting the annexures to Mr He's affidavits and Mr Trebilcock's drawings: see Axent at [785], [801]. Matters relating to admissibility occupied a considerable amount of court time, and I consider this relevant because these issues would not have arisen but for the prior use defence. About 5% of closing oral submissions were devoted to prior use, which was also the subject of written submissions. In addition, about 7% of the parties' closing written submissions were dedicated to the admissibility of Mr Trebilcock's drawings and various annexures to Mr He's affidavits. (I have, however, borne in mind that some of these annexures related to issues other than prior use.) 38 The proportion of the paragraphs in the reasons for judgment specifically devoted to the prior use issue, calculated by reference to the paragraphs dedicated to consideration, is approximately 6%, which is broadly consistent with the amount of court time taken up with the issue. In all the relevant circumstances, it seems to me appropriate to reduce the costs payable by the applicant in respect of the infringement claim by 5%.
Hi-Lux's Calderbank offer and indemnity costs 39 As already stated, the respondents/cross-claimants have succeeded in defending themselves against the infringement claim and in establishing invalidity by their cross-claim. For the reasons already stated, I would award costs in their favour, subject to the 5% reduction in respect of costs on the infringement claim. These costs would ordinarily be paid on the party and party basis. 40 The respondents/cross-claimants claimed, however, that Hi-Lux was entitled to an award of costs on an indemnity basis from 15 February 2017, being the date on which Hi-Lux, by its solicitors, sent a letter to Mr Leonidas, of Comlaw Barristers & Solicitors, for the applicant/cross-respondent. 41 A letter dated 15 February 2017 and headed "Without Prejudice Save as to Costs" was sent shortly after the applicant/cross-respondent had been served with the Hi-Lux's defence and cross-claim. The letter stated that: Of particular significance is the fact that the Patent seeks to assert a statutory monopoly in respect of a design of a variable speed limit sign that was described by VicRoads in a specification that it provided to various suppliers in September 2001, before the earliest priority date of the Patent. That specification is referenced in our client's particulars of invalidity, and a copy is enclosed. You will note the extensive similarities between the two documents. It is clear that the 'invention' as claimed is not novel over that disclosure, and is certainly not inventive. Variable speed limit signs have been in use since significantly prior to September 2001, and the idea of having some, but not all, of the annulus rings flash when the sign is displaying a speed other than the usual speed was plainly disclosed as a requirement in the VicRoads specification. … Indeed, this feature was included in the VSL product that our client supplied to VicRoads as early as February 2000, which was subsequently publicly installed in Yarra Junction, Victoria. In the face of such clearly anticipatory prior art, which is relevant for both lack of novelty, as well as lack of inventive step (s 7(3)) Patents Act 1990), it should be clear to your client that its prospects of successfully establishing infringement of a valid claim are remote. The letter went on to refer to an alleged "secret use" and clarity issues detailed in its particulars of invalidity. 42 The letter explained that: While our client is confident of its prospects for successfully defending this proceeding, it recognises that [it] is unlikely to recover all of its out-of-pocket costs, and it wishes to avoid unnecessary distraction of its management resources. For these reasons, and in order to seek to maximise its costs recovery should the following offer not be accepted, our client is making the offer below at this early stage, before our respective clients incur further cost and expense, and risk becoming entrenched in their respective positions. 43 The letter stated that, "notwithstanding that it has already incurred substantial costs in responding to your client's claim", Hi-Lux was prepared to resolve the proceeding on the following basis: 1 Axent will promptly discontinue the proceeding as a whole as against Hi-Lux, pursuant to rule 26.12. 2 Hi-Lux will not seek payment of any of its costs of the proceeding that would otherwise be payable pursuant to rule 26.12(7). 3 Contingent upon Accent's compliance with paragraph 1, Hi-Lux will discontinue its cross-claim pursuant to rule 26.12, with no payment of costs by either party. 4 Axent releases Hi-Lux, and Hi-Lux's customers, in respect of all claims for infringement of the Patent. 5 Axent undertakes to Hi-Lux that it will not: a) commence proceedings; or b) threaten (directly or indirectly) to commence proceedings; against Hi-Lux, or against any of Hi-Lux's customers, for infringement of the Patent. 6 The parties will keep the terms confidential. 44 The letter added that: This offer is open to be accepted in writing for 14 days from the date of service of this letter. This offer is made pursuant to the principles in Calderbank v Calderbank [1976] Fam. 93. If the offer is not accepted in writing within 14 days, and your client obtains an outcome at trial less favourable than that offered herein, our client will seek an order for payment of its costs on an indemnity basis from the date of this offer. 45 By letter dated 17 February 2017, Mr Leonidas responded, disputing various contentions including that the invention as claimed was not novel, or otherwise inventive. He added that: We take your comments that the variable speed limit signs have been used significantly prior to September 2001 to be referable to the fibre optic speed signs you point to in your client's Particulars of Invalidity … Please correct us if we are wrong. These optical signs used fibre optics and flashed as a whole, as opposed to LED signs having the ability to part flash. … You then refer to the VSL Product which your client supplied to Vic Roads as early as February 2000 and then publicly installed in Yarra Junction, Victoria. Would you please tell us exactly where in Yarra Junction they were installed? … … Should your client have any documentation concerning the VSL Product to which it refers in its Particulars of Invalidity … please provide us with the same so we may properly consider your client's without prejudice offer. Should your client have kept any of the specifications in relation to this VSL Product, please let us have the same. Our client is unable to properly consider your client's offer without the same. It is unreasonable to assert a factual position and expect our client to accept an offer if it is not able to consider the same. … For the reasons above, your client's offer is not capable of proper consideration. Further, without prejudice to the above, your client's offer is not reasonable or proper, and in that circumstance, not capable of acceptance. It is not capable of acceptance in that your client is seeking to resolve this matter on the basis that our client not sue other third parties who are not parties to this proceeding, namely customers of your client. We do not see, in that circumstance, that the offer if accepted, is a proper one in the circumstances, having regard to the fact that our client ought be precluded from being in proceedings against other parties, or other persons other than your client. 46 Also between 16 and 24 February 2017, Mr Leonidas, for the applicant/cross-respondent, sent emails requesting the provision of various documents, including those mentioned in Hi-Lux's Particulars of Invalidity. A Notice to Produce was also served on Hi-Lux. It appears that, although numerous documents were provided by 24 February 2017 and before the offer expired, other documents and information continued to be sought after this date. 47 Hi-Lux, by its solicitors, sent a response dated 24 February 2017 to Mr Leonidas in which it was said that: As to the issue of acceptability of the offer, for the avoidance of any possible doubt, the reference to our client's customers in paragraphs 4 and 5 of its offer relates only to their exploitation (purchase, sale and use etc) of our client's VSL products, and not more generally. Any drafting issues can be resolved on that basis. We have sought our client's instructions in relation to the Yarra Junction signs manufactured by our client which are referred to in our client's Particulars of Invalidity. Those signs: 1. were located on Warburton Highway, near Yarra Junction Primary School; 2. were fibre optic signs; 3. were capable (and required by VicRoads) to flash in part; and 4. are no longer installed at that location. Notwithstanding that your client is therefore not presently in a position to inspect the Yarra Junction signs, our client's position is that the balance of the grounds relied upon in its particulars of invalidity (together with the defences in our client's defence) demonstrates that it is not reasonable for your client to maintain its proceeding against our client. 48 Whether the making of a Calderbank offer justifies the award of costs on an indemnity basis from the date of rejection of the offer is governed by well-established principles: see, for example, Kiefel v State of Victoria [2014] FCA 411 at [37]-[40]; Carey v Freehills [2013] FCA 1258 at [15]-[16]; and Umoona at [48]. As the Full Court said in Anchorage at [6]-[7]: A well-established circumstance justifying an award of indemnity costs is an imprudent refusal of an offer to compromise (Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 233 per Sheppard J). In such cases, a key question is whether the offeree's refusal of the offer was "unreasonable" when viewed in light of the circumstances existing at the time the offer was rejected (Black v Lipovac & Ors (1998) 217 ALR 386 at 432 per Miles, Heerey and Madgwick JJ; CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Ltd [2008] FCAFC 173 at [75] per Moore, Finn and Jessup JJ). The circumstances to be taken into account in determining whether rejection of an offer was "unreasonable" cannot be stated exhaustively but may include, for example: (a) the stage of the proceeding at which the offer was received; (b) the time allowed to the offeree to consider the offer; (c) the extent of the compromise offered; (d) the offeree's prospects of success, assessed as at the date of the offer; (e) the clarity with which the terms of the offer were expressed; and (f) whether the offer foreshadowed an application for an indemnity costs in the event of the offeree rejecting it. (Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435 at [25] per Warren CJ, Maxwell P and Harper AJA; Beling v Sixty International S.A. (No 2) [2015] FCA 355 at [25] per Mortimer J). 49 Plainly enough, whether a failure to accept an offer should be assessed as unreasonable depends on the circumstances existing at the time the offer was rejected. In Bitech Engineering v Garth Living Pty Ltd [2013] FCA 881, for example, Foster J held (at [34]) that the party receiving the offer was in a good position to assess its merits against their likelihood of success as the offer was made a few weeks before the hearing at a time by which the party making the offer had filed and served all its evidence. 50 The fact that the applicant/cross-respondent ultimately failed to make out its case does not of itself mean that it acted unreasonably in rejecting the offer. In this case, in contrast to Bitech, the offer contained in the 15 February 2017 letter was made at an early stage in the proceeding, when, as the applicant/cross-respondent submitted, it had limited information to assess the strength of Hi-Lux's defence and cross-claim, including the nature of the evidence that could or would support the material facts on which they depended. It should be borne in mind that the applicant's originating application, statement of claim and statement of genuine steps had only been filed the previous December and that, in the ordinary course, legal practitioners would have taken a vacation of some kind in the summer of January 2017. When Hi-Lux made its Calderbank offer to the applicant/cross-respondent on 15 February 2017, which was the day after Hi-Lux had filed its defence, cross-claim and particulars of invalidity on 14 February 2017, the applicant/cross-respondent would not yet have had any time, practically speaking, to assess Hi-Lux's position. The offer provided only 14 days in which to do so. It is in this context that its solicitor informed Hi-Lux, in his letter of 17 February 2017, that the offer was not capable of acceptance because, in substance, the applicant/cross-respondent knew too little at that point about the material facts that Hi-Lux said supported its defence and cross-claim. I am not persuaded that this was an unreasonable position to take then or when the offer expired. 51 The emails annexed to Mr Leonidas' affidavit evidence communications between Mr Leonidas, for the applicant/cross-respondent, and Hi-Lux's solicitors, according to which, as at the date the applicant/cross-respondent received the offer, it did not have available to it all the documents referred to in Hi-Lux's particulars of invalidity. Even if these documents were available to it by the time the offer expired, it is more probable than not that it still would not have had sufficient time to assess their significance for Hi-Lux's defence and cross-claim and, relevantly, its own position. Moreover, the applicant/cross-respondent would not have had a real chance to consider the other matters to which it referred in its 15 February 2017 letter. It should also be borne in mind that, at the time the offer expired, the parties had not even commenced filing their affidavit evidence. This did not begin until September 2017 and continued for many months thereafter. In these circumstances, I accept that, at the time Hi-Lux's offer expired, the applicant/cross-respondent was not in a position realistically to assess its prospects of success. In these circumstances, I am not persuaded that it was unreasonable for the applicant/cross-respondent to decline Hi-Lux's offer of compromise at the relevant time, and I would not make an order for indemnity costs in Hi-Lux's favour. It is unnecessary to discuss the other matters to which the applicant/cross-respondent referred in this connection.
Lump sum costs 52 As we have seen, the respondents/cross-claimants sought, and the applicant/cross-claimant opposed, the making of a lump-sum costs order. 53 Paragraph [4.1] of the Court's GPN-COSTS states that: The Court's preference, wherever it is practicable and appropriate to do so, is for the making of a lump-sum order. See further Paciocco v Australia and New Zealand Banking Group Limited (No 2) [2017] FCAFC 146; 253 FCR 403 at [16]. 54 Bearing in mind that the Court's GPN-COSTS states that the Court's preference is for the making of a lump-sum costs order, the Full Court also stated in Paciocco at [19] that in "most cases" a lump sum costs order approach should be applied unless there is some characteristic of the case that would make it unsuitable. Of course, it remains for the Court to determine in the exercise of its discretion whether a lump sum costs order should be made, having regard to the particular case. 55 Certain characteristics of a case may, however, make a lump sum costs order particularly suitable. In this respect, the Full Court in Paciocco said at [20]: There is no particular characteristic that a case must possess for it to be suitable for the making of a lump sum costs order. Particular circumstances that may make a lump sum order especially appropriate include where in a large and complex commercial matter it would save the time, trouble, expense and aggravation of a taxation; where a taxation would require the parties to consume additional time and incur additional expenditure prolonging already protracted litigation; and generally to avoid an ongoing, counter-productive dispute as to costs, in the interests of achieving finality. See also Accor Australia & New Zealand Hospitality Pty Ltd v Liv Pty Ltd (No 3) [2018] FCAFC 231 at [10] and the authorities there mentioned. 56 As will have been seen, the parties, who are engaged in essentially the same line of business, have been involved in protracted proceedings. Prior to the substantive hearing, there were numerous interlocutory disputes, most of which concerned applications for discovery and other evidentiary issues. Some of these continued to be agitated in closing submissions. The volume of evidence was also significant: there were nearly 50 affidavits filed in the proceeding, and about 34 affidavits admitted into evidence at the hearing: see Axent at [34], [36] and [132]. In some cases, as will be seen, witnesses also augmented their evidence orally in examination in chief and, of course, the evidence of most witnesses was the subject of cross-examination. Although the hearing was not overly long, there were numerous issues raised for determination by the parties, most of which were not straightforward. 57 It seems to me that a lump-sum costs order is, in this case, consistent with considerations mentioned in s 37M of the FCA Act, as submitted by the respondents/cross-claimants. In forming this opinion, I have had regard to the fact that, in his 9 October 2020 affidavit, Mr Rankin deposed that Ms Debra Paver, a lawyer experienced in preparing lump-sum costs orders, had informed him that the costs of preparing a lump-sum costs assessment would be 20-30% of the costs required for preparation of a bill of costs for a standard taxation, and would take a "number of weeks" to complete, rather than "three to four months" for a standard taxation of costs. In its submissions, the applicant/cross-respondent disputed the accuracy and/or significance of these matters. It seems to me, however, these are the kind of concerns to which GPN-COSTS is directed, as reflected in the Full Court's reasons in Paciocco, and that, in the circumstances of this case, it is desirable to avoid the longer time and greater expense that Mr Rankin's evidence indicates would be involved in a standard taxation. 58 Furthermore, the applicant/cross-respondent has not satisfied me that a lump sum costs order would carry with it any real risk of unfairness. In this regard, the observations of the Full Court in Paciocco at [18] are relevant. The Full Court there said: We emphasise that in making a lump sum award of costs, the Court in undertaking the task of assessing costs is not precluded from undertaking a close inquiry of costs relating to a particular issue or category of costs, should the Court consider it appropriate to do so: see e.g. Hudson v Sigalla (No 2) [2017] FCA 339 at [30] …. The Court is able to adopt its own procedures in inquiring into costs, is able to be flexible in how it conducts that inquiry, including by the obtaining of suitable assistance whether by referee's report or other reporting, and is able to acquire the level of detail needed to make a determination that is fair, logical and reasonable. 59 For the above reasons, it seems to me that this is an appropriate case for a lump sum costs order, with the determination of the lump sum to be referred to a Registrar pursuant to s 35A(1)(h) of the FCA Act: see also Federal Court Rules 2011 (Cth), r 3.01(b) and item 221 of Schedule 2. Further, as explained below, I would make such an order substantially in the form proposed by the respondents/cross-claimants. 60 If I were to make a lump sum order, then the applicant/cross-respondent sought more generous page limits than those for which GPN-COSTS ordinarily provides, subject to leave. The respondents/cross-claimants responded by proposing more generous page limits than they had initially proposed. There does not seem to me at this point an adequate reason to increase the page limits beyond those that the respondents/cross-claimants have suggested. This appears to me to strike a reasonable balance between the standard page limits set out in GPN-COSTS and those sought by the applicant/cross-respondent. 61 The applicant/cross-respondent also sought orders requiring the respondents/cross-claimants to make available for inspection the source material verifying the claimed costs and disbursements, and permitting service of a Notice to Produce requiring the production of documents relevant to the determination of the lump sum costs order. In my opinion, there is no justification for making these orders at this stage. This is because GPN-COSTS addresses material in support at paragraphs 4.10-4.12. Paragraphs 4.11 and 4.12 relevantly provide: …The intention of the lump-sum costs procedure is to streamline and expedite the determination of the resolution of the quantum of costs in question and not to replicate the taxation process. …The Costs Applicant is not required to exhibit to the Costs Summary the source material verifying the costs and disbursements claimed. However, such material must be available at the costs hearing. 62 I am not persuaded that it is appropriate to depart from this position, bearing in mind that paragraphs 4.5 and 4.16 also contemplate a costs hearing and that appropriate orders be made, preferably by agreement, for the timetable for the hearing and related matters, such as those raised by the applicant/cross-respondent here. 63 Further, in the interests of saving costs and providing clarity, I would make the orders as contemplated by the respondents/cross-claimants, which more clearly contemplate that the quantum of the lump sum be determined by a Registrar. Bearing in mind that it is open to the parties to agree upon the quantum at any time, the form of order suggested in paragraph 3.8 of the notes accompanying the proposed orders of the applicant/cross-respondent would seem to be unnecessarily cumbersome.
DISPOSITION 64 All parties agree that previous costs orders remain in place. Provisions were included in the orders proposed by the respondents/cross-claimants that would assist in determining their costs liabilities to the applicant/cross-respondent. I have included these provisions in the orders I would make, this being consistent with GPN-COSTS. 65 As already indicated, the respondents/cross-claimants have also agreed to a stay order as to the revocation of the Patent upon the basis of the undertaking foreshadowed by the applicant/cross-respondent in its draft proposed final orders. 66 I have not made an order in the form of order 15 of the orders proposed by the respondents/cross-claimants. Such an order is, it seems to me, unnecessary, bearing in mind that it remains open to the parties to apply to me or another judge of the Court should this prove necessary or appropriate. 67 I would make orders in accordance with these reasons. I certify that the preceding sixty-seven (67) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Kenny.
SCHEDULE OF PARTIES VID 1408 of 2016 Cross-Claimants Second Cross-Claimant: HI-LUX TECHNICAL SERVICES PTY LTD (ACN 006 654 691)
Axent Holdings Pty Ltd t/a Axent Global
Compusign Australia Pty Ltd
(1990) 170 CLR 534
(1993) 46 FCR 225
(1998) 217 ALR 386
(2005) 13 VR 435