Breakout Barrier Release Systems Pty ltd v Breakout Barrier Release Systems Australasia Ltd

Supreme Court of NSW|2013-12-12|Before: Rein J, Mr P

EX TEMPORE Judgment 1REIN J: In this matter I handed down my reasons for judgment on 3 December 2013 (see Breakout Barrier Release Systems Pty ltd v Breakout Barrier Release Systems Australasia [2013] NSWSC 1815) and gave the parties an opportunity to file written submissions on an outstanding issue in relation to the calculation of damages and several issues relating to costs. In relation to the calculation of damages, I indicated in the judgment that I was inclined to think that the first defendant should pay 5% on Breakout Locks sold before the termination of the PLA and 100% after the date of termination. At $80 per lock, a figure of $880 is arrived at. I encouraged the parties to agree on an expeditious means of determining whether the number of locks sold was, in fact, 32 in total. The plaintiff, through its submissions, has indicated it is willing to accept the $880 without further investigation. 2Mr McVay claims that there should be an enquiry into how much of the lock sale price represented the cost of manufacture. In my view, the amount involved is too trivial for any further enquiry. I shall proceed on the basis that the locks should have been handed over on termination due to the first defendant's breach. I accept, however, that if the defendants had handed over the locks and they were then sold by the plaintiff, some portion of the sale would be attributable to the manufacturing done by the defendant. No evidence was led by the defendant as to the cost and I propose to allow 50% of the cost, that is to award the plaintiff 50% of the ten sales made after the date of termination and that is an amount, as I understand it, of $400 to which would be added to the $88 for the 5% of locks sold before termination, which leads to a figure of $488. 3The defendants have raised in submissions a further matter not within the province of the matters on which submissions were permitted relating to the question of assignment of the Sanctum Locks, and the fact that the first and second embodiments of the Sanctum Lock did not involve a breach of the PLA by the first defendant. The defendants assert they should not be required to assign the whole Sanctum Lock application and that Mr Watmough should be ordered to do what he said he would, namely to delete the third embodiment form the Sanctum Application. 4I have noted in the judgment handed down on 3 December 2013 that Mr Watmough said he would amended the Application but that he had not done so by the time of the resumed hearing 5I agree that the first defendant has not been shown to have breached the PLA by production of the Sanctum Lock but the defendants' submission fails to take into account the fact that I have found that Mr Watmough breached his fiduciary duty. In relation to this, there is a further aspect which is that the defendants assert that Mr Watmough can only be required to account for profit or benefit gained and if the plaintiff takes over the Sanctum Lock application, it would have to pay the costs of the application and development costs. The defendant submits that by seeking an assignment in equity for a breach of fiduciary duty, the plaintiff must do equity by paying for the costs of developing the lock and making the application and say that an account will need to be ordered. This is the first time in the proceedings that such a suggestion has been made. It was not raised at the hearing as an issue. There were no submissions at the hearing on the point, notwithstanding the detailed nature of the written and oral submissions received on behalf of the defendant at the conclusion of the hearing, and nor was there any evidence, for example, about the costs of the Sanctum Application 6The determination which I made was made on the basis that no such issue had been raised in the proceedings and I will not permit the defendant to raise this point at this late stage. Mr McVay told me this morning that he relies on rule 46.2 of the Uniform Civil Procedure Rules 2005 (NSW). That was a rule that was not mentioned in the submissions at the hearing nor even in his latest written submissions. Rule 46.2 sets out the course of action for the Court if a party claims an account or makes a claim for an account. That does not seem pertinent to this aspect of the matter in any event there being no application for account made or sought previously by the defendants.

The Plaintiff's Calderbank Offer 7I turn now to the issue of costs. The plaintiff seek an order that the defendants pay the plaintiff's costs up to 17 March 2011 on the ordinary basis. That is not resisted save for the letter of offer relied on by the defendants. The plaintiff seeks an order that the defendants pay the plaintiff's costs on indemnity basis by reason of what is known as a Calderbank letter of offer made on 17 March 2011 by the plaintiff to the defendants and not accepted by the defendants. The letter which is attached to the plaintiff's submissions and is Exhibit A on this application, sought the assignment of the defendants' patent applications around the world for locks lodged subsequent to the entry into the PLA including the Sanctum application. By the letter the plaintiff offered to meet the costs of prosecuting such applications and to give the first defendant a licence requiring the payment by it to the first defendant of a 5% royalty with the first defendant to have the obligation to commercialise the products. The letter contained the following paragraph: 5. That a New Licence Agreement be entered into to clearly reflect the overall understanding between the parties in respect of the terms of their agreement and obligations, including as to commercialisation, meetings and recording of activities. As is clear from paragraph 3 of this offer our client does not seek any increase in percentage of revenue as was offered in your last offer. It merely seeks for the various patent applications to be effectively brought within the ownership of the entity that owns the current patents, the subject of licence, and for your client to continued to be licensed in respect of all of them. It then said: 6. That the proceedings be otherwise dismissed upon entry into of the new licence agreement with no order as to costs (effectively: That each party meet its and their own costs). 8The defendants contend that the offer was not an offer to settle all of the claims that were the subject of proceedings. I do not understand that submission. The offer was for the proceedings to be dismissed. 9Secondly, the offer contained an invitation, the defendants say, to enter into a new agreement on terms to be agreed which, if accepted, could not be enforced. I think the plaintiff, by the letter is proposing that all new patent applications made by the defendants be incorporated into the PLA - it is a detailed offer and goes beyond merely an offer to negotiate. There was no evidence tendered of any response to the letter of offer seeking clarification. In the circumstances of this case the offer was an eminently reasonable offer which it was unreasonable for the defendants to refuse: see SMEC Testing Services Pty Limited v Campbelltown City Council [2000] NSWCA 323 per Giles JA, affirmed in Jones v Bradley (No 2) [2003] NSWCA 258. 10I should note that I have considered one issue in relation to the offer which is whether, by including a requirement that all patent applications were to be transferred, that this has rendered the offer as one more advantageous to the plaintiff than which it has achieved by the result in the case because the offer might include applications beyond the Sanctum Application (referred to in the letter as the Watmough patent application). On the evidence before me at the hearing the only patent application made by either of the defendants was the Sanctum Application. In that context the plaintiff has achieved a better result than its offer because it does not have to include the Sanctum Lock in the PLA or any form of it, it obtained an order for transfer of the Breakout Locks and the Sanctum Lock application, a judgment for $488 and is entitled to costs at least up to 17 March and is therefore entitled to its costs on an indemnity basis from that date, subject to the argument concerning the defendants' offer, with which I shall now deal.

The Defendant's Calderbank Offer 11The defendants' offer is one made by letter of 24 February 2011 in which the defendants offered to settle the case on the basis that the royalty fee be increased from 5% to 7% for Breakout Products but specifically excluding the Sanctum Locks. The plaintiff has, by the proceedings, obtained transfer of the Sanctum Locks as well as the Breakout Locks and I am not satisfied that it was unreasonable for the plaintiff not to accept this offer or that the defendant has done better by the outcome of this case compared to the offer contained in the letter sent on behalf of the defendants.

Aborted Motion by the Defendants 12I turn now to the second costs issue in respect of which the plaintiff seeks an order. The plaintiff seeks an order that the costs thrown away by reason of the aborted motion where the defendants sought a declaration that the matter had been settled: see [30] of my reasons for judgment. In my view the plaintiff is entitled, as part of its costs, to any costs attributable to the aborted motion. I do not think, as the defendants' submissions contend, that there is any doubling up but of course the plaintiff cannot receive the same amount twice in any costs assessment.

The Instalment Application Cost 13The third costs order sought relates to the costs of resisting the defendants' motion filed on 31 July 2013 whereby the defendants sought to pay the $40K of costs, awarded against them by reason of their abandoned assertion that the matter had been settled, in instalments. 14The plaintiffs have annexed, as part of their submissions, the very detailed submissions that they made on 19 August 2013 in relation to costs and the defendants have responded to the claim for these costs on two bases. The first is the defendants submit that I had no jurisdiction to hear the application for payment by instalments. Secondly, the defendants rely on the fact that the matter was settled on 18 August 2013. Dealing with the second point first it is true that my suggestion of how the application for payment by instalments should be dealt with (by permitting the release of $40,000 of the security back to the plaintiffs that was provided by the plaintiff following the application of the defendants for security) was the way in which the application was resolved. However, as was made clear at the time, the plaintiff contended that it should have the costs of what it said was a hopeless application. Normally where matters are resolved by consent, the Court does not investigate the merits of the respective arguments for the purposes of determining costs. However, in this case the basis upon which the orders for release of the security were made was that "by consent orders costs of this motion be reserved generally and to be determined on the merits of the motion". Therefore the determination of the instalment application in the manner agreed is not a reason to not now deal with the question of the merits of the motion and the issue of costs. 15As I have noted the only other argument advanced against the submission of the plaintiffs that the application was misconceived and doomed to fail was the point of jurisdiction. At the time of the application I indicated to Mr McVay that I regarded myself, as the trial judge, as having jurisdiction and that in any event a judge of this Court had power to hear whatever a Registrar was empowered to hear. I remain of that view. Accordingly, it is appropriate that the plaintiff get the costs of the instalment motion.

General Discretion to Disallow Costs 16Mr McVay's submitted that the Court had a general discretion not to allow all of the costs of a hearing to be awarded to the plaintiff where the plaintiff has not succeeded on every point. I accept the Court does have a discretion in that regard. However, there is authority for the general approach that even where a party fails on some issues but is successful in the proceedings generally, that party should have all of the costs of the proceedings. That rule can be varied where some good reason is put forward but it has been said that the Court should be slow to deprive a successful plaintiff of costs on specific issues: see for example Cretazzo v Lombardi (1975) 13 SASR 4. Nothing has been put forward in this case that persuades me that the fact that the plaintiff failed in establishing two of the three embodiments of the Sanctum Lock were not a breach of the agreement should lead it to be deprived of its costs in the case. It has been successful in establishing against both defendants that the third embodiment, which was part of the Sanctum Lock application, breached the PLA and in establishing that the Breakout locks were locks covered by the PLA and it has been successful in proving breach of fiduciary duty by the second defendant. Accordingly, I do not see a reason to deprive the plaintiff of any of its costs, which as I indicated, should be assessed from 17 March 2011 on an indemnity basis.

Release of Security 17The plaintiff is also seeking an order for the release of the remainder of the security paid by it into Court in an amount of $30K and it having succeeded against the defendants that order should be made.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 19 December 2013

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