BLH Engineering and Construction Pty Ltd v Pro 3 Products Pty Ltd

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 294 of 2012

BETWEEN: BLH ENGINEERING AND CONSTRUCTION PTY LTD ACN 133 867 875

JUDGE: JESSUP J DATE: 15 SEPTEMBER 2015 PLACE: MELBOURNE

REASONS FOR JUDGMENT 1 On 14 August 2015, I delivered judgment in this proceeding, at which time I made provision for the parties to be heard on the question of costs: BLH Engineering and Construction Pty Ltd v Pro 3 Products Pty Ltd [2015] FCA 833. The parties have now addressed the court on that question, and the reasons which follow deal with it. 2 In their Originating Application filed on 5 April 2012, the applicants alleged that the respondent's various communications amounted to threats actionable under s 128 of the Patents Act 1990 (Cth) ("the Act") and under ss 18 and 29(1)(m) of the Australian Consumer Law ("the ACL"). They sought declarations, injunctions and damages in respect of each cause of action; and corrective statements pursuant to s 246(2)(d) of the ACL. Finally, they sought the revocation of the respondent's patent, Australian Innovation Patent No. 2011100489 ("the Patent"). The grounds of the applicants' challenge to the validity of the Patent were that the invention was not novel in the light of 15 prior art citations, that the invention did not involve an innovative step, that the invention was not a manner of manufacture and that the respondent was not entitled to the invention. 3 In the judgment delivered on 14 August 2015, the applicants secured declarations and injunctions under s 128 of the Act. Their claims under the ACL, and their claims for damages in both respects, were dismissed. So too were their claims for the revocation of the Patent. Upon the failure of the applicants' challenge to the validity of the Patent, the respondent secured a certificate under s 19 of the Act in relation to Claim 1. 4 By cross-claim filed on 13 June 2012, the respondent alleged that the applicants had made representations about their "Stop Drop Barricading System" which were in contravention of s 18, and of paras (b) and (m) of s 29(1), of the ACL, and claimed declarations, injunctions and damages. The cross-claim was withdrawn on 20 April 2015, conformably with the respondent's acceptance of the applicants' offer of compromise, to which I shall refer to further below. 5 The applicants accept that costs orders previously made in this proceeding should not be disturbed. They also accept that they should not get their costs, and that the respondent should get its costs, of their entitlement case under the Act. Otherwise, the applicants seek their costs of the proceeding as a whole, including reserved costs. Further, they contend that those costs should be taxed on an indemnity basis because the respondent did not execute the undertakings proffered by the applicants in their solicitors' letter of 9 February 2012 to which I referred in para 95 of my reasons of 14 August 2015. Alternatively, they contend that, to the extent that their costs were incurred after 11 am on 27 March 2015, they should be taxed on an indemnity basis conformably with r 25.14(3) of the Federal Court Rules 2011 (Cth) ("the Rules"). That contention was based on the offer of compromise already referred to. It was made by the applicants under cover of a letter from their solicitors dated 25 March 2015. 6 The respondent also accepts that costs orders previously made in this proceeding should not be disturbed. Subject to that, the respondent submits that it should be ordered to pay 25% of the applicants' costs of the proceeding as a whole, and that the applicants should be ordered to pay 75% of its costs of the proceeding as a whole. 7 I propose to commence by considering the terms of costs orders that would be made in the absence of any special factors, such as the letter of 9 February 2012 or the offer of compromise. 8 It was the respondent's allegations of infringement, made in the correspondence referred to in my reasons of 14 August 2015, that caused the applicants to commence this litigation. They have achieved at least important elements of their broad objective: they secured an injunction in relation to the respondent's threats and, along the way, they secured a judicial determination that the BLH clip did not infringe the Patent. At a high level, the applicants have succeeded in the case and, subject to their concession as to the costs of their settlement case and to the matters referred to below, they should have their costs. 9 I would not award the applicants the costs incurred in the prosecution of their damages case. I was assured by counsel for the applicants that costs in this category were unlikely to be substantial; and I can, with respect, understand why that would be so. The damages case was little better than desultory, and I can see no good reason to require the respondent to pay for it. 10 In relation to the applicants' case under the ACL, the respondent was wholly successful. It was said on behalf of the applicants that this was very much a second, and subsidiary, string to the bow deployed by them in response to the respondent's correspondence and statements about the relationship between the BLH clip and the Patent. But it was a string nonetheless, and the deployment of it was a matter of the applicants' choice. I would not award them the costs incurred solely in the prosecution of their claims under the ACL, and I would award the respondent its costs incurred solely in its defence to those claims. 11 The applicants' revocation case did not amount to a direct attack on the wrongdoing in which they perceived the respondent to be engaged. Under s 129A(3) of the Act, it was a course legitimately open to the applicants to bring the validity of the Patent into play, but it was not a necessary part of the remediation of the situation in which they found themselves. They might have, and, as events have turned out, they have, succeeded in the case without having the Patent revoked. It was their own choice to attack the respondent on two quite separate fronts. That challenge was made in the proceeding as commenced, and was not merely a response to the respondent's allegation of infringement. For those reasons, I would require the applicants to pay the respondent's costs of their revocation case; and they would not, of course, get any of their own costs in that category. 12 It will be clear that the broad disposition of the costs issues which I would find appropriate in the absence of the special factors to which I have referred would conform neither to the applicants' contention that the respondent should pay all of their costs (save with respect to the entitlement point) nor to the respondent's contention that the applicants should pay 75% of its costs. And, absent a much greater degree of consensus than the parties have been able to achieve to date, the court is in no position to make its own high-level assessment of where the merits of these contested issues lie. 13 I now return to the bases upon which the applicants seek the making of special costs orders in their favour. It was submitted on their behalves that their letter of 9 February 2012 was made in accordance with the principles in Calderbank v Calderbank [1976] Fam 93, and that, since the respondent rejected the proposal in it, the costs to which they have become entitled should be taxed on an indemnity basis. That submission cannot be accepted. This was not a Calderbank offer at all. It was a letter before action, in which the applicants demanded that the respondent cease the conduct that was alleged to be contrary to s 128 of the Act, and provide certain undertakings. Because the respondent did not comply with those demands, the applicants were obliged to sue, and they succeeded in part. Subject to the qualifications set out earlier in these reasons, the applicants' conventional entitlement to a costs order would follow from that success. But the mere fact that the respondent did not comply with a letter before action does not work to convert that presumptive entitlement into an entitlement to an order which covered the whole of the applicants' costs, even those incurred in prosecuting claims upon which they failed, and to have the taxation of their costs proceed on an indemnity basis. 14 The offer of compromise was in two parts, one of which related to the applicants' claim and the other of which related to the cross-claim. The latter part was accepted, and nothing further needs to be said about it now. The former part contained a proposal that the applicants discontinue the proceeding, that each party bear its own costs and that there be no order as to costs. 15 Under r 25.14(3), it is necessary to compare the position which the applicants would have occupied if their offer had been accepted with the position that they now occupy as a result of judgment in the proceeding. In relation to their cause of action under s 128 of the Act, had the offer been accepted the applicants would have achieved no curial outcome in relation to the threats made by the respondent. Under the judgment, the applicants have secured a declaration and an injunction, but not damages. In the result, in this area the applicants occupy a more favourable position than they would have had their offer been accepted. 16 In relation to their challenge to the validity of the Patent, had the offer been accepted the validity of the Patent would have gone unchallenged. Under the judgment, the respondent has seen off the applicants' challenge to validity, and has secured a certificate under s 19 of the Act. The applicants' position in this area is not more favourable than that which they would have occupied had the offer been accepted. I understand the respondent to propose that the applicants' position is actually less favourable in relevant respects because it secured a certificate under s 19, but, while the granting of that certificate might have provisionally improved the respondent's position, it did not, it seems to me, worsen the applicants' position. That is to say, compared with the position which they would have occupied had the offer been accepted, the position occupied by the applicants in an environment in which the respondent held such a certificate is no different: either way, the Patent was presumptively valid. 17 In relation to the respondent's infringement allegations, had the offer been accepted, those allegations would have remained at large, in the sense that they could have been revived if, on some later occasion, the respondent found it in its interests to do so. Under the judgment, the question whether the BLH clip, in conjunction with a pin of any configuration, infringes the Patent has now been judicially resolved in favour of the applicants. An issue estoppel, at least, arises in this part of the case. The position which the applicants occupy in this respect, therefore, is more favourable than that which they would have occupied had their offer been accepted. 18 On balance, the position which the applicants occupy under the judgment is more favourable with respect to the substantive causes of action on which they sued, including the respondent's substantive defences, than would have been the position occupied by them had their offer been accepted. It is next necessary to consider, however, the matter of costs. On 22 November 2013, the court made a costs order upon an Interlocutory Application filed by the respondent on 29 October 2013. The terms of that application are now irrelevant, but the terms of the orders made in disposition of it included a requirement that the applicants pay the respondent's costs of, and incidental to, the application. Implicit in the applicants' offer of compromise of 25 March 2015 was the proposal that the respondent abandon its entitlement to those costs. On behalf of the respondent, it was submitted that, until it is known what those costs were (ie on a party and party basis), it cannot be affirmed that the judgment of 14 August 2015 has left the applicants in a more favourable position than that which they would have occupied had their offer of compromise been accepted. 19 There is logic in the position for which the respondent contends. But the analysis must be taken further. Also implicit in the offer of compromise was the proposal that both parties abandon any entitlement to costs, to the extent incurred before the offer, that they would presumptively have upon the making of final orders in the proceeding. Thus the applicants would have abandoned any claim to their costs incurred in relation to their s 128 case, and the respondent would have abandoned any claim to its costs incurred in relation to the applicants' ACL claims and to their revocation case. Regrettably, there is no way of knowing, in advance of the preparations of the parties' bills of costs, whether the applicants' position under the judgment, including so much thereof as would otherwise relate to costs, is more favourable than the position which they would have occupied had their offer of compromise been accepted. 20 The course I propose to adopt, therefore, is to make conventional costs orders, that is, orders as to costs that would be appropriate without taking any consideration of the applicants' offer of compromise. I shall require the taxing officer, in the course of his or her assessment of the parties' costs generally, to identify also the costs which were incurred on or before 8 April 2015, being the last day for acceptance of the offer. And I shall modify a number of provisions in Div 40.2 of the Rules, and make a number of other orders to which the conventional orders will be subject, to provide the applicants with an opportunity to rely on their offer of compromise, should they be so minded. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jessup.