Fina Research SA v Halliburton Energy Services Inc

REASONS FOR JUDGMENT 1 This judgment deals with two further interlocutory issues which have arisen in a proceeding under the Patents Act 1990 (Cth) ("the Act"). The proceeding is an appeal under s 60 against the dismissal of an opposition to the grant of a patent. The opponent was Fina Research SA, which is the applicant in this appeal. The original respondents and patent applicants were Baroid Drilling Fluids Inc and Henkel Kommanditgesellschaft auf Aktien which assigned their interests in the patent application to Cognis Deutschland GmbH and Halliburton Energy Services, Inc. Those four companies together with Cognis Deutschland GmbH & Co KG (which is said to be the assignee of the interests of Cognis Deutschland GmbH in the patent application) are all respondents to this proceeding. The contentious patent concerns drilling mud. The interlocutory issues are first, whether Fina Research SA should be required to provide security for costs and secondly, whether that company should be given leave to administer certain interrogatories. 2 The notice of appeal was filed on 26 May 2000. The question of whether the applicant should provide security for costs arose in correspondence between the parties in July 2002. The motion seeking security was filed in Court on 13 August 2002. Fina Research SA is incorporated in Belgium and is based in Feluy, Belgium where its offices are located. It is a wholly owned subsidiary of TotalFinaElf which is incorporated in France. TotalFinaElf is listed on the stock exchanges in Paris, Brussels and London. Fina Research SA employs more than 400 people and had a turnover last year in excess of 60 million euros. A patent attorney employed by Fina Research SA has sworn an affidavit saying that he has worked for the company for 12 years, and it is an ethical company which carries on business in accordance with a strict Code of Conduct. He says Fina Research SA fully intends to comply with any final order for costs that may be made against it. He disputes that Fina Research SA has ever indicated it is either unwilling or unable to comply with any costs order. There is no evidence that Fina Research SA has any assets in Australia. 3 Two matters are suggested by the evidence. The first is that Fina Research SA has changed its name to Atofina Research SA. On another view of the evidence raised by the respondents, Atofina Research SA may be a different company. The second is that Fina Research SA has divested itself of its intellectual property to a third party since this proceeding was commenced. Thus, it is said by the respondents, Fina Research SA no longer has an interest in this proceeding. For reasons which will be apparent shortly, it is unnecessary to express a view about these matters. 4 Evidence has been given by a Belgian lawyer, which was not contested, concerning the enforcement of an Australian judgment in Belgium. Article 570 of the Judicial Code of Belgium enables the enforcement of a judgment of a foreign Court, subject to several qualifications or reservations. It is not suggested by the respondents that any costs order would be caught by these qualifications or reservations nor is it apparent to me that they would be. The procedure for enforcement entails an original sealed copy of the judgment being sent to Belgium, the commencement of enforcement proceedings in the Belgian Tribunal of First Instance, a hearing before that Tribunal to determine whether Article 570 is satisfied and verification of the Australian judgment as a judgment of the Tribunal. The lawyer expresses the opinion that he "would not expect the party in favour of whom the costs order was made to encounter any real difficulty in having the judgment verified and enforced in Belgium". He estimated the costs of verifying and enforcing an Australian judgment as six thousand euros. He said in a later affidavit that the costs might vary depending on the "defence prepared by any opposing party". In an affidavit sworn by a solicitor acting for the respondents, it is said that the costs that would be incurred (in Australia) in instructing a Belgian lawyer to act would be in the vicinity of ten to twelve thousand dollars. 5 Each of the respondents is an overseas corporation and none are registered in Australia as a foreign corporation. When Henkel Kommanditgesellschaft auf Aktien and Baroid Drilling Fluids Inc were removed as respondents (they have since been rejoined as respondents), an agreement was reached concerning any liability they may have had regarding costs. Those costs would be met by Cognis Deutschland GmbH and Halliburton Energy Services, Inc. 6 An estimate has been given of the costs that might be incurred by the respondents in this proceeding which would exceed half a million dollars and, on a party and party basis, would be one half to two-thirds of this sum, amounting to between approximately $275,000 and $365,000. The costs incurred until July 2002 were $345,000, with a further $200,000 (approximately) estimated to be incurred by the conclusion of the hearing. It may be that the costs might exceed those amounts having regard to interlocutory hearings that have occurred since the estimate was given. There is also evidence concerning the costs of obtaining a bank guarantee in Australia for the amount of $200,000. One bank indicated there would be an initial set-up cost of $450 and a management fee of 2% per annum, while another indicated there would simply be a management fee at the same rate. If the banker was not the company's banker, some arrangements would have to be made with the company's bank to ensure that the funds were available to satisfy the guarantee. 7 Section 56 of the Federal Court of Australia Act 1976 (Cth) confers power on the Court to order security for costs. It provides: "(1) The Court or a Judge may order an applicant in a proceeding in the Court or an appellant in an appeal to the Court to give security for the payment of costs that may be awarded against him or her. (2) The security shall be of such amount, and given at such time and in such manner and form, as the Court or Judge directs. (3) The Court or a Judge may reduce or increase the amount of security ordered to be given and may vary the time at which, or manner or form in which, the security is to be given. (4) If security, or further security, is not given in accordance with an order under this section, the Court or a Judge may order that the proceeding or appeal be dismissed. (5) This section does not affect the operation of any provision made by or under any other Act or by the Rules of Court for or in relation to the furnishing of security." 8 Provision is also made by the Federal Court Rules for security for costs. Order 28 r 3 provides: "(1) Where, in any proceeding, it appears to the Court on the application of a respondent: (a) that an applicant is ordinarily resident outside Australia; (b) that the applicant is suing, not for his own benefit, but for the benefit of some other person and there is reason to believe that the applicant will be unable to pay the costs of the respondent if ordered to do so; … the Court may order that applicant to give such security as the Court thinks fit for the costs of the respondent of and incidental to the proceeding." … 9 Order 28 r 5 provides proceedings may be stayed pending the provision of security, or dismissed if security is not provided within a specified time. 10 Section 56 confers a broad discretionary power on the Court to order security for costs though the power must be exercised judicially: Norbis v Norbis (1986) 161 CLR 513 and Oshlack v Richmond River Council (1998) 193 CLR 72. The provisions in the Rules dealing with the same subject matter do not fetter that power: see Bell Wholesale Co Ltd v Gates Export Corporation (No 2) (1984) 2 FCR 1 at 3, Energy Drilling Inc v Petroz NL (1989) ATPR40-954 at 50,419-50,420, Cameron's Unit Services Pty Ltd v Kevin Whelpton & Associates Pty Ltd (1986) 13 FCR 46 at 52-53 and Barton v Minister for Foreign Affairs (1984) 2 FCR 463 at 467. For my part, I doubt that the provisions in the Rules qualify the manner in which a Judge might exercise the discretionary power, save to the extent that they identify what may prove to be the relevant considerations in a particular case: see Melville v Craig Nowlan & Associates Pty Ltd (2002) 54 NSWLR 82. If so, the Rules may be no more than an unnecessary gloss on principles that have developed as a result of earlier judicial consideration of how the discretionary power might be exercised. 11 Nonetheless, in the present case, the fact that the applicant is a corporation incorporated outside Australia and without assets in Australia, a matter reflected, in part, in O 28 r 3(1)(a), is a relevant consideration: see Barton v Minister for Foreign Affairs (supra), P S Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321 (a weighty consideration), Merribee Pastoral Industries Pty Ltd v Australia and New Zealand Banking Group Ltd (1998) 155 ALR 1 at [26], Kent Heating Ltd v Cook-on Gas Products Pty Ltd (1984) 59 ALR 277, Associated Euro-Atlantic Shipping Corporation v Maritime Union of Australia (Branson J, 22 August 1997, unreported), Nivaran Herbal Private Ltd v Keenmind Pty Ltd [2002] FCA 680 and Silveira v Australian Institute of Management [2001] FCA 1358. So too is the delay on the part of the respondents in making the application for security: see Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 and the cases referred to therein. 12 The matters raised in the submissions of the respondents as relevant considerations supporting an order for security covering the entire estimated costs appeared to be that: Fina Research SA is incorporated in Belgium; it has no assets in Australia; it may not now have an interest in the proceedings; the cost and inconvenience of enforcing any costs order of an Australian Court in Belgium; and the uncertainties associated with enforcement by those means. The matters raised in the submissions of Fina Research SA as relevant considerations opposing any order for security appeared to be that: this proceeding has a public interest element: see Cameron's Unit Services Pty Ltd v Kevin Whelpton & Associates (Australia) Pty Ltd (supra); the respondents have delayed in bringing this application; Fina Research SA is a large well resourced company; it operates ethically; it has indicated it will comply with any order for costs; it is in the same position qua the respondents (they are foreign corporations with no assets in Australia) if the respondents are ordered to pay costs; and enforcement of the order in Belgium is straightforward and inexpensive. As a secondary position, Fina Research SA submitted that if it was required to provide some security it should only relate to the costs of enforcing a costs order in Belgium or that any security should only relate to costs incurred after 2 July 2002 being the date on which the respondents first raised the question of security. 13 Each of these considerations weighs in the mix, though I would not wish to be taken to be expressing a view that Fina Research SA no longer has an interest in the patent application. It is a matter that it is not necessary to address now and it is probably inappropriate to do so on the very limited evidence adduced in this interlocutory application. In addition I have reservations about whether the fact that the respondents are also foreign corporations with no assets in Australia is a relevant consideration. Section 56 is directed to ordering an applicant to provide security for costs. It raises for consideration the circumstances of the applicant and not the respondent unless the latter has impacted on the former (perhaps, broadly speaking, illustrated by cases where the conduct of the respondent has brought about the impecuniousity of the applicant). There is no express power to order a respondent to provide security for costs, and it may be doubted that such a power would be implied having regard to the limited scope of s 56. The circumstances of the respondents and the question of whether Fina Research SA might be able to recover its costs from the respondents if it is successful is either irrelevant or of little weight. 14 In my opinion, Fina Research SA, having commenced legal proceedings in an Australian Court and necessarily involving the respondents in those proceedings, should be required to provide security if, to do so, will not be a significant financial burden to it. I do not find that Fina Research SA would not satisfy any order as to costs or that it would not act ethically. However it is conceivable that in the competitive commercial environment in which both Fina Research SA and the respondents operate, a decision might later be taken (if and when Fina Research SA was ordered to pay costs) that the costs will be paid but only when it, as a Belgian company, was obliged by law operating on it that can effectively be enforced, to pay the costs. That is, obliged by Belgian law to pay the costs. While views may differ as to whether such an approach was ethical or not, it would not, in my opinion, be an untenable position to say it was an ethical one and may be viewed as such by Fina Research SA. That is, Fina Research SA will do no more nor less than is required of it by laws it is obliged to comply with that are capable of being enforced, namely Belgian law. If so, then the respondents will be required to take the additional step of enforcing any order of this Court in Belgium. While the evidence indicates it would be feasible for this to be done, it does not warrant a conclusion that there is absolute certainty about the process putting aside the delay and additional costs associated with pursuing it. 15 As indicated earlier, delay on the respondents' part in seeking security is a relevant consideration having regard to the authorities. The delay is relied upon by Fina Research SA though its particular relevance in this matter was not explained. In my opinion, one should address whether there is a rational connection between the delay and the effect of any order for security. In a case such as the present it would be a factor militating against ordering security, in my opinion, for one of two reasons. One would be that Fina Research SA was unable to provide the security and the proceedings were then stayed or dismissed with the result that it would have effectively thrown away significant costs by preparing the matter for trial to that point. However Fina Research SA does not suggest it is unable to provide the security. Indeed its evidence is to the effect that it is a large and well resourced company. 16 The other reason would be that Fina Research SA would have decided to abandon or not pursue the application if confronted with a successful application for security at an early stage. It might have been prepared to prosecute the application in the belief that it would have the opportunity to reach a compromise (involving costs) with the respondents if it lost and was ordered to pay costs. If security is ordered now, the applicant would have been denied the opportunity of making a decision not to prosecute the application at an early stage. No submission was made by Fina Research SA that it may not have prosecuted the application had security been ordered at an early stage. However one could understand the reluctance of an applicant to make such a submission even if considerations such as those just discussed did figure in its thinking when it commenced a proceeding. Nonetheless, such a submission would, in this case, be contrary to the position being taken by Fina Research SA. That is, it is prepared and able to pay any order for costs which may be made against it. I am satisfied the fact that the respondents have delayed in bringing this application does not tip the balance against security being ordered at all. 17 However it is conceivable that decisions may have been made by Fina Research SA and those advising them in this litigation about the way the litigation would be conducted in a context where no security had been ordered. It is conceivable some decisions may not have been made had security been sought and ordered earlier. It is also conceivable that Fina Research SA would not wish to reveal that decisions of this character had been made. Those decisions may have resulted in the respondents taking steps in the proceedings (and incurring costs for which security is now sought) which may not have been taken had Fina Research SA conducted the case differently. However again I am not sure any of this matters given the position of Fina Research SA, namely that it will meet any order for costs and is in a position to do so. 18 Nonetheless to guard against the possibility of prejudice or unfairness to Fina Research SA because of these last mentioned matters, any order for security will relate only to part of the costs incurred by the respondents before 2 July 2002. As noted earlier, the estimated costs to date amount to approximately $345,000. One half to two-thirds could be expected to be recovered as party and party costs resulting in a potential costs liability for Fina Research SA of approximately $170,000 to $215,000 for the respondents' costs incurred before 2 July 2002. While there is no science to the process, it would be appropriate to discount those costs, for the purposes of providing security having regard to the matters just discussed, to $100,000. As to the respondents' costs after 2 July 2002 they are, on a party and party basis, estimated to be approximately $130,000. On this approach, security would be necessary for the respondents' costs in the sum of $230,000. 19 The trial is due to take place in February 2003. It can presently be assumed that judgment will be given within two or three months. If Fina Research SA is ordered to pay the respondents' costs and taxation is necessary, its costs liability would be likely to be settled within 12 months from now. Having regard to the evidence, security in the sum of $230,000 could be provided by bank guarantee, operating for that period, at a cost to Fina Research SA of what is likely to be less than $10,000. I accept that it is a cost it would otherwise not have to incur. However, having regard to the magnitude of the costs likely to already have been incurred by Fina Research SA, it is not a significant amount. 20 Counsel for Fina Research SA submitted that if security was to be ordered, it should only be for the costs of enforcing any costs order in Belgium. It is an approach that has been followed on earlier occasions: see Barton v the Minister for Foreign Affairs (supra), and discussed in MindShare Communications Ltd v Orleans Investments Pty Ltd [2000] FCA 521. However I see no reason, in the present circumstances, to adopt this approach given that security for the costs generally, at least to the sum of $230,000, will not be a significant burden on Fina Research SA. 21 For these reasons I propose to order that Fina Research SA provide security by way of bank guarantee on or before 1 December 2002, or such other means as might be agreed to by the parties or determined by the Registrar, for costs in the sum of $230,000. 22 I turn now to consider the contentious interrogatories, namely the first, eighth and ninth interrogatories. There is agreement about the other interrogatories. The contentious ones are expressed in these terms: