JR Consulting & Drafting Pty Ltd & Anor v Cummings & Ors

Supreme Court of NSW|2014-12-10|Before: Black J

fendant/Second Cross-Claimant) FrameCAD IP Ltd (Third Defendant/First Cross-Claimant) Steel Framing Systems International Pty Ltd (Third Cross-Defendant) Gianni Pacione (otherwise known as John Pacione) (Fourth Cross-Defendant) FrameCAD Ltd (Fifth Cross-Defendant) Representation: Counsel: G Sirtes SC/T Catanzariti (Plaintiffs/First to Fourth Cross-Defendants) S J Goddard SC/S L Ross (Defendants/Cross-Claimants)

Solicitors: Simone Legal (Plaintiffs/First to Fourth Cross-Defendants) Sparke Helmore (Defendants/Cross-Claimants) File Number(s): 2012/282948

Judgment

In June 2014, I heard proceedings brought by JR Consulting & Drafting Pty Ltd ("JRC") and Hayes Steel Framing Systems Pty Ltd ("HSFS") against Mr Robert Cummings and others. The proceedings related to the ownership and control of software known as Quik Series Software ("QSS") which is used in the design and manufacture of items used in the construction of residential and commercial buildings. The Plaintiffs and a third entity, Steel Framing Systems International Pty Ltd ("SFSI"), are companies associated with Mr John Pacione. Tanmari Pty Ltd ("Tanmari") (a company associated with Mr Cummings) and FrameCAD IP Ltd ("FIPL") (which took an assignment of Tanmari's and Mr Cummings' rights in QSS in November 2011) in turn brought a cross-claim against JRC, HSFS, SFSI and Mr Pacione. The hearing in June 2014 was directed only to the question of liability and not the question of quantum.

Whether the Court should defer the question of costs until after the quantification of any damages

A preliminary question arose as to whether the Court should, at this point, exercise its discretion to make an order as to costs in respect of the hearing as to liability, or defer an order as to costs until after the quantification of loss is determined, whether by an accounting of profits or an order for compensation, and whether in a further hearing before the Court or before a referee.
Mr Sirtes, who appears with Ms Catanzariti for the Plaintiffs, accepted in the course of oral submissions that the Court had power to make an order for costs at this point and the question was whether a discretion to do so should be exercised (T29). Ms Goddard, who appeared with Ms Ross for the Defendants, referred to two authorities dealing with the question whether costs should be determined following the determination of a separate issue and the Plaintiffs did not refer to authority dealing with that question. I should, however, refer to the case law, in more detail than the parties had done, since it seems to me to inform the exercise of the Court's discretion.
The question of the Court's power to order costs, after the liability stage of a split trial, was considered by Finkelstein J in Baulderstone Hornibook Pty Ltd v Qantas Airways Ltd (No 3) [2003] FCA 325 (to which the Defendants referred) in the context of a trial where a respondent had had partial success in a determination of a separate issue, but the determination of an outstanding claim would determine who would be the true successful party, and in which the respondent sought an apportionment of costs. His Honour observed (at [5]) that: "…in a case where there has been a split trial of disputed questions of fact or law and it is possible at each stage of the case to identify the successful party, the ordinary rule which is applied after a final hearing should also be applied to the split trial. That is, there is no justification for implying to the discretionary power to award costs a limitation to the effect that costs should only be ordered once the outcome of the whole action is known."
Having identified that principle, his Honour declined to order costs after the initial hearing, on the basis that the outcome of determination of the remaining cause of action might affect the extent to which the respondent was entitled to recover its costs, or that the applicant might recover a greater sum under the remaining cause of action than it would have recovered if it succeeded in the claims already litigated.
The Defendants also refer to Handberg v Chacmol Holdings Pty Ltd (No 2) [2005] FCA 680 where Heerey J observed (at [9]) that where a trial of separate questions determined substantive rights and obligations of the parties, and those matters would not be the subject of further litigation, costs should follow the event in respect of the separate questions and (at [24]) that the successful party should not be required to wait, possibly for a substantial time, for an outcome that could not affect the rights established by its success on the separate question. I recognise that that decision was directed to the position where the result of the separate question was distinct from, and would not be affected by, the determination of the subsequent stages of the proceedings.
A similar issue has been considered in subsequent cases, to which the parties largely did not refer in submissions. In Floruit Holdings Pty Ltd v Sebastian - Builders and Developers Pty Ltd [2009] NSWCA 411, Bergin CJ in Eq (then sitting in the Court of Appeal) (with whom Allsop P and Young JA agreed) held that a party was entitled to its costs of a separate question, which was a discrete issue, although it ultimately had not succeeded in the principal proceedings by reason of the failure to prove causation. In Australian Equity Investors, an Arizona Limited Partnership v Colliers International (NSW) Pty Ltd (No 4) [2011] FCA 442, in a case which involved a split hearing as to liability and quantum, the Court found that a party had engaged in a contravention of s 53A of the Trade Practices Act 1974 (Cth) by making a representation that was misleading or deceptive, and the other party opposed an order for costs on the basis that the Court had yet to determine issues of causation, loss and damage, contributory negligence and apportionment of liability. Cowdroy J made an order for costs in favour of the successful party in the hearing as to liability, on the basis that the issue was a discrete issue, referring to the decision in Floruit Holdings Pty Ltd v Sebastien - Builders and Developers Pty Ltd above in that regard.
In Ajkay v Hickey & Co Pty Ltd [2011] NSWSC 822, Pembroke J in turn expressed the view (at [21]) that: "as a matter of policy, my view is that unless there are compelling reasons to the contrary, orders for the costs of a separate question should be made at the time of the separate hearing and should not await the conclusion of the proceedings." His Honour referred to the to the general rule that "costs follow the event" and referred to Ball J's decision in Loiero (aka Lero) v Adel Sportswear Pty Ltd (No 2) [2010] NSWSC 1208 as authority that the determination of a separate question is an "event".
In Alstom Ltd v Yokogawa Australia Pty Ltd (No 9) [2012] SASC 163, Bleby J considered the position of costs in respect of a judgment which finally determined the question of liability, where the assessment of damages and claims for a variation to a contract been deferred. His Honour held that order for costs of the liability hearing should be made, where the party had been "almost entirely successful" in a multitude of claims and counterclaims, and it was almost inconceivable that a hearing as to the quantification of other losses could impact upon its entitlement to costs of the liability hearing. In Andrews v Australia and New Zealand Banking Group Ltd [2012] FCA 59, Gordon J in turn referred the observations of Finkelstein J in Baulderstone Hornibrook above at [5] and held that an order for costs should be made where a split trial had not finally disposed of a component part of the litigation, but had finally disposed of the claims that certain fees were penalties. (An appeal against her Honour's decision succeeded in respect of the underlying issue, but that did not affect her Honour's approach to costs). In Foster's Australia Ltd v Cash's Australia Pty Ltd [2013] FCA 730, Kenny J in turn referred to the decision of Finkelstein J in Balderstone Hornibrook above and the decision of Gordon J in Andrews v Australia and New Zealand Banking Group Ltd above and to the fact that the Court may order the costs of an interlocutory application be taxed and paid forthwith where the interests of justice require a departure from the general practice that the costs of interlocutory applications be taxed and paid at the conclusion of a hearing, in holding that it would be contrary to the interests of justice to deprive a party that had been wholly successful in a separate issue of the opportunity to have its costs taxed without delay.
It seems to me that several principles emerge from these decisions. The first is that the general principles as to costs are capable of applying to the determination of a separate issue, including the separate issue of liability, prior to a determination of quantum. The second is that the interests of justice may require that a party that has been wholly or substantially successful be permitted its costs of a separate hearing, rather than be delayed in receiving costs in respect of that hearing. I also recognise that several of the cases to which I have referred involve a position where a single party had been wholly successful in respect of the relevant issue and, in Baulderstone Hornibrook above, where that was not the case, Finkelstein J did not make an order for costs after the hearing of the initial issue. That focuses attention on a matter addressed by the parties in submissions, namely, the extent of their respective success in aspects of the proceedings.
In their written submissions in respect of the initial hearing as to orders and costs, on 22 October 2014, the Plaintiffs contended that determination of the costs of the liability stage of the proceedings was premature and that the determination of costs should be deferred until after the damages hearing. They submitted that it was difficult to assess the Defendants' relative success without an appreciation of the scale of the damages, which they submitted may be relatively small given the Defendants' current modest licensee fees. In further written submissions as to the deferral of costs made prior to the hearing on 10 December 2014, the Plaintiffs again submitted the Defendants' "success" cannot be determined without an appreciation of the scale of damages or account of profits ultimately ordered by the Court, and submitted that the Defendants' costs may significantly exceed the damages. The Plaintiffs submitted that there are several reasons why damages or an account of profits may be nominal, or at least not substantial.
I accept that the Court, at this point, does not know the quantum of damages that will ultimately be awarded at a final hearing as to damages. However, it does not seem to me that there is any real likelihood that the damages recoverable by the Defendants in the Cross-Claim will be nominal, particularly where they have the benefit of an order for additional damages in respect of copyright infringement.
The Defendants replied, in submissions in October 2014, to the proposition that the costs argument was premature by contending that they had been substantially successful in the proceedings and referring to the observations in paragraph [402] of my principal judgement, which I noted above.
The Plaintiffs also submit that it is difficult to assess the Defendants' "relative success" without an appreciation of the scale of the Defendants' damages or account of profits, and repeat the submission that the Plaintiffs were successful on the "key claim" that the 2004 Agreement was not properly determined. The Plaintiffs also went further to submit that their other claims were "largely subsidiary to this claim". I do not accept that submission, so far as it is intended to suggest that the Plaintiffs' claims to establish the rights to QSS of entities that were licensing third parties (particularly SFSI) under the 2002 Agreement (in reliance on which such licences were being granted) were "subsidiary" to a claim to establish the rights of HSFS, which had substantially ceased business at the relevant time and which was not then granting new licenses, under the 2004 Agreement, which was not at that time relied on by the Plaintiffs as the source of any right to license third parties. That submission seems to me, with respect, to turn the significance of these matters in the proceedings on its head.
The Plaintiffs point to the complexity that arises so far as the Defendants seek a costs order for all of the issues and all of the costs against all parties, as opposed to costs on particular issues against particular parties. I accept that it will be necessary to have regard to the claims for costs against particular parties, and I do so below. However, that does not seem to be a reason to defer the determination of costs where that complexity will not be reduced by the passage of time. The Plaintiffs also submit that it is difficult to assess which of them is responsible for particular costs without a determination of the extent of damages or account of profits in relation to each particular claim. It does not seem to me that the quantum of damages or any account of profits is necessary to an assessment of these matters given the significance of vindication of the Defendants' rights and injunctive relief in the outcome of the proceedings, and where nominal damages is not a real prospect in the proceedings.
There are, as the authorities to which I have referred above indicate, two factors that seem to me to support not deferring the question of costs of the liability stage of the proceedings. The first is that there is no reason, as a matter of policy, to do so when the Court is now informed of the relevant issues, unless additional information is likely to emerge from the quantification stage that would inform the exercise of the Court's discretion as to costs in respect of the liability stage. The Plaintiffs placed considerable emphasis on that possibility, and I address it below in respect of the costs claims against particular parties. I do not consider that the information that is likely to emerge from the quantification stage has any real prospect of impacting on the exercise of the costs discretion at the liability stage. The second is that, unless an order for costs is made now, the Defendants may be delayed in receipt of costs for a considerable period, since the quantification stage, whether undertaken by the Court or a referee, is likely to take some considerable time and realistically may well not be completed until the second half of 2015 or later. This is a matter to which the Courts have given weight in addressing the analogous question whether orders for payment of costs in respect of interlocutory applications should be made payable forthwith, as Kenny J noted in Foster's Australia Ltd v Cash's Australia Pty Ltd above.
For these reasons, I do not consider that I should accept the Plaintiffs' submission that the question of costs of the liability stage of the proceedings should be deferred until after the determination of the quantification stage of the proceedings.

The principles applicable to cases involving multiple parties and issues

Section 98 of the Civil Procedure Act 2005 (NSW) relevantly provides that: "Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court; and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis." Rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") in turn provides that, where the Court makes an order as to costs, the Court is to order that costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs.
It is, of course, well-established that costs are awarded to compensate the successful party for the expense of being put to the necessity of litigation; a wholly successful party should ordinarily receive its costs unless good reason is shown to the contrary; and the discretion to order costs must be exercised judicially and not against the successful party except for some reason connected with the proceedings: Oschlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at 97-98 per McHugh J, at 119-123 per Kirby J; Ruddock v Vardalis (No 2) [2001] FCA 1865; (2001) 115 FCR 229 at 234. In Howard's Storage World Pty Ltd v Haviv Holdings Pty Ltd [2010] FCAFC 5; (2010) 182 FCR 84, Gray J observed (at [17]) that: "The overriding principle that costs are in the discretion of the court can also be expressed in terms of the negative proposition that no rule or principle should be applied mechanically in the determination of the question where costs should lie in any particular case. Attention must always be paid to the particular circumstances of the individual case. The aim is to do substantial justice in relation to costs, based on the outcomes of the various issues in the proceeding, as between the entities that are parties to that proceeding."
I now address several well-established principles and well-known cases as to the approach adopted to costs in cases involving multiple parties and issues below, although the parties largely did not consider it necessary to refer to those principles or cases.
In Cretazzo v Lombardi (1975) 13 SASR 4 at 16, in a passage later approved in Hughes v Western Australian Cricket Assn (Inc) (1986) 8 ATPR 40-748 and Short v Crawley (No 40) [2008] NSWSC 1302, Jacobs J in turn referred with "cautious disapproval" to applications to apportion costs by reference to the success or failure of one or other party on particular issues of fact or law that arose in the course of a trial and observed that: "… trials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law. The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case. There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of the issues, and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues."
In Short v Crawley (No 40) above, White J also referred (at [33]), again after reference to authority, that the entitlement to costs, even of a plaintiff which enjoyed substantial success was potentially: "modified having regard to the various issues on which the Plaintiffs were wholly or partially unsuccessful, the extent to which those issues were dominant or severable, their overall significance to the outcome, the time they occupied during the hearing, and so far as can be discerned, in preparation."
In Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38], the Court of Appeal noted that, where there are multiple issues in a case, the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. However, the Court also pointed to several circumstances in which a different approach might be justified, and noted (at [38]) that: "Whether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the court, which powers should be liberally construed."
In Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd [2008] NSWSC 1423 at [29]-[31], approved by McDougall J in The Owners - Strata Plan 61162 v Lipman [2014] NSWSC 622 at [241], Hammerschlag J referred to the general rule and to cases where its application may be displaced, as follows: "The general rule that costs follow the event and that a successful litigant receives his costs in the absence of special circumstances justifying some other order is of very long standing: see eg Ritter v Godfrey [1920] 2 KB 47. The general rule can, in the discretion of the Court, be displaced in appropriate cases. Relevant authorities have been recently and conveniently collected by White J in Short v Crawley (No 40) [2008] NSWSC 1302 at [25]-[32]. Examples of instances where the general rule may be displaced include the following: a a costs order in favour of a successful party can be modified to reflect its failure on particular issues even if the successful party did not act unreasonably in raising those issues: Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (Supreme Court of New South Wales, Hodgson CJ in Eq, 3 June 1998, unreported, BC9802305 at 10-11); b if a party unreasonably pursues or persists with points which have no merit, such conduct will constitute a consideration relevant to the ordering of costs even in circumstances where that party is generally successful: Oshlack v Richmond River Council (1998) 193 CLR 72 at 122; c conduct in relation to the matter may be discreditable to an extent warranting a party being deprived of costs: Jamal v Secretary, Department of Health (1988) 14 NSWLR 252 at 271; d where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed: Hughes v Western Australian Cricket Assn (Inc) (1986) 8 ATPR 40-748 at 48,136; e where the proceedings involve multiple issues departure from the general rule may be warranted particularly where the losing party has succeeded on issues which occupied significant time. Nevertheless the application of the general rule may involve hardship where a party succeeds on some issues but fails on others particularly where the losing party succeeds on some issues. However unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed: Ritchie's Uniform Civil Procedure NSW at [42.1.15]; Waters v PC Henderson (Australia) Pty Ltd (New South Wales Court of Appeal, 6 July 1994, unreported, BC9404952 at 5); Short v Crawley (No 40) at [27]-[28]; f a successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party's costs of them: Hughes v Western Australian Cricket Assn (Inc) at 48,136."
The relevant principles were summarised by the Court of Appeal of the Supreme Court of Victoria in Chen v Chan [2009] VSCA 233 at [10] as follows (omitting footnotes): "1. The general rule is that costs should follow the event. Absent disqualifying conduct, the successful party should recover its costs even where it has not succeeded on all heads of claim. … 3. Where there is a multiplicity of issues and mixed success has been enjoyed by the parties, a court may take a pragmatic approach in framing the order for costs, taking into consideration the success (or lack of success) of the parties on an issues basis. Generally, if such an order is made, it is reflected in the successful party being awarded a proportion of its costs but not the full amount. 4. A court may, when fixing costs in a claim where there has been mixed success, take into account complications which it considers will arise in the taxation of costs, as part of its consideration of the overall interests of justice. 5. Where a court determines to make an order apportioning costs, then it does so primarily as "a matter of impression and evaluation," rather than with arithmetical precision, having considered the importance of the matters upon which the parties have been successful or unsuccessful, the time occupied and the ambit of the submissions made, as well as any other relevant matter. 6. Where a number of parties have had the same representation, there is a "rule of thumb" as to the apportionment of costs, namely that, where some of those parties have been successful and others have not, each successful party is only entitled to his or her proportion of the costs incurred on behalf of all, plus the costs, if any, incurred exclusively on his or her behalf. The primary issue for determination in such a case is that of fairness as between the parties, having regard to the manner in which the trial, or appeal, has been conducted."
The authorities indicate that the Court may deprive a successful party of the costs relating to an issue on which it lost when that issue is clearly dominant or separable: Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15 at [64]; Doppstadt Australia Pty Ltd v Lovick & Son Development Pty Ltd (No 2) [2014] NSWCA 219 at [17]. Where there has been a mixed outcome in proceedings, and costs should be apportioned as between different issues, the Court will generally take a relatively broad brush approach, largely as a matter of impression and evaluation: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 3) (1998) 30 ACSR 20 at 22.
I reviewed the principles applicable to a mixed result in Re Metal Storm (subject to deed of company arrangement) [2014] NSWSC 1170 at [47], as follows: "Costs are awarded to compensate the successful party for the expense of being put to the necessity of litigation; a wholly successful defendant should ordinarily receive its costs unless good reason is shown to the contrary; and the discretion to order costs must be exercised judicially and not against the successful party except for some reason connected with the proceedings: Milne v Attorney-General (Tasmania) [1956] HCA 48; (1956) 95 CLR 460 at 477; Oschlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at 97-98 per McHugh J, at 119-123 per Kirby J; Ruddock v Vardalis (No 2) [2001] FCA 1865; (2001) 115 FCR 229 at 234. In Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38], the Court of Appeal noted that, where there are multiple issues in a case, the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. However, the Court also pointed to several circumstances in which a different approach might be justified, and noted (at [38]) that: "Whether an order contrary to the general rule of costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the Court, which powers should be liberally construed." Similarly, in Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd [2008] NSWSC 1423 at [28]-[31], in a passage recently approved by McDougall J in The Owners - Strata Plan 61162 v Lipman [2014] NSWSC 622 at [241], Hammerschlag J referred to the general rule and to cases where its application may be displaced. In particular, the Court may deprive a successful party of the costs relating to an issue on which it lost when that issue is clearly dominant or separable: Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15 at [64]; Doppstadt Australia Pty Ltd v Lovick & Son Development Pty Ltd (No 2) [2014] NSWCA 219 at [17]. Where there has been a mixed outcome in proceedings, and costs should be apportioned as between different issues, the Court will generally take a relatively broad brush approach, largely as a matter of impression and evaluation: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 3) (1998) 30 ACSR 20 at 22."

The parties' wider arguments

I will first deal with several of the wider arguments raised by the parties before turning to matters relevant to the specific claims brought by the Defendants against JRC, HSFI, SFSI and Mr Pacione.
The Defendants' primary position is that the Plaintiffs and Cross-Defendants should be ordered to pay their costs, in their entirety, as assessed or as agreed. However, they submit that, if the Court considers that an apportionment of costs is appropriate, then it will need to have regard to several matters to which they refer in respect of that apportionment. The Defendants submit, as I noted above, that they have succeeded in significant aspects of the Cross-Claim, including establishing copyright in three identified versions of QSS across the relevant period, which supported injunctive relief restraining the reproduction or use of all or a substantial part of any of those versions. The Defendants point out that they also established that SFSI is liable for copyright infringement and that HSFS and Mr Pacione had authorised that infringement and that they were entitled to additional damages under the Copyright Act 1968 (Cth) in respect of the infringement. The Defendants acknowledge authority, to which I have referred above, that a successful party who has failed on certain issues may be deprived of the costs of those issues but also ordered to pay the other parties' costs of those issues but also point to authority that the Court should be reluctant to undertake an inquiry as to who was successful as to particular issues to determine whether there should be an apportionment of costs against a successful party, although this will depend upon the extent to which particular issues were separate and distinct.
The Defendants submit, correctly, that the Plaintiffs failed in respect of several of their claims in the Amended Statement of Claim, including claims in respect of the 2002 Agreement (as referred to in my primary judgment) and an implied licence, under the Australian Consumer Law, and for interference with contractual relations, conspiracy and groundless threats of copyright infringement. They submit that the Plaintiffs also failed in respect of significant aspects of their claims in respect of the 2004 Agreement, although recognising that the Plaintiffs succeeded in establishing that the termination of that agreement was not effective. The Defendants submit, also correctly, that they were successful with respect to issues as to the termination of the 2002 Agreement; infringement of copyright, contraventions of the Australian Consumer Law and breach of confidence, although accepting that they were not successful in respect of their claims of termination of the 2004 Agreement, certain alleged breaches of that agreement and trade mark infringement. They also make further submissions as to the extent of the trial taken up in determining the unsuccessful claim brought by the Plaintiffs as to conspiracy, and contend that two issues had been raised late by the Plaintiffs and that the Plaintiffs had not pressed their estoppel claim. The Plaintiffs in turn respond, also correctly, that the Defendants were not successful on some parts of claims as to which they were successful in the result. That raises the question, addressed in the authorities to which I have referred above, whether it is appropriate to address the question of costs by analysis of the results at that level of detail.
In their submissions in reply made in October 2014, the Plaintiffs respond that the Defendants "may have succeeded in significant respects in the cross claim", but contend that is not the same as substantially succeeding in the cross claim. I do not think it is necessary to seek to distinguish those two concepts in this case, because it seems to me that, as will emerge below, the Defendants did substantially succeed in their cross-claims against each of JRC and SFSI, and in their narrower cross-claim against Mr Pacione.
The Plaintiffs also contend that they would be entitled to their costs on the claims which were they were successful, and their costs of successfully resisting some of the Defendants' claims. The Plaintiffs contend that there were separate and distinct claims and issues and the Court should "conduct an inquiry into each party's success on each particular issue". They contend that the Defendants were not successful on some aspects of their claims in respect of the 2002 Agreement; that the Defendants succeeded in respect of copyright infringement only so far as they established copyright in three identified versions of QSS across the relevant period until November 2011; that the Defendants did not establish copyright in user documentation or that JRC authorised SFSI's infringement of copyright (although, I interpolate, I held that HSFS and Mr Pacione had done so); and that the Defendants were successful in some aspects of their misleading or deceptive conduct claim.
Mr Sirtes also handed up, in oral submissions, a schedule which sought to indicate which of JRC, HSFS, SFSI and Mr Pacione were party to the particular claims and the outcomes of those claims and a copy of the Plaintiffs' statement of issues prepared for the hearing marked up to similar effect. I do not accept that this approach is appropriate in this case. It seemed to me to be a clear example of the approach rejected by the authorities (to which the Plaintiffs had not referred) that indicate that the Court should generally not substitute an analysis by individual issue or subissue for an overall assessment, guided by common sense, of the overall outcome of the proceedings.
The Plaintiffs submit the Court may consider the proportionality of the costs of the proceedings to the damages, and submit that the Defendants' costs may substantially exceed their damages, and that this was a reason to defer a determination of costs and, presumably depending on the outcome as to damages, not award them in favour of the Defendants. The Plaintiffs refer to estimates of the Defendants' costs given in an earlier security for costs hearing, although that evidence was not read in this application. Even without evidence, I can readily infer that the costs of a hearing over 7 days in June 2014, with both parties represented by senior and junior counsel, are likely to be substantial. However, as I noted above, the Defendants ultimately obtained injunctive relief in respect of a systematic infringement of copyright in three versions of QSS by SFSI, and it seems to me that is sufficient to displace any argument that their costs of the proceedings were unwarranted. It does not seem to me that the Defendants were required to submit to continued infringement of their rights by SFSI, under penalty of being deprived of an order for costs, either because the costs of enforcing their rights would be substantial, or because the damages they recovered (in addition to injunctive relief) may be less than or even significantly less than the costs they incurred in vindicating their rights.
The Plaintiffs also pointed to the fact that there were different parties involved in distinct issues, and some of the Plaintiffs and Cross-Defendants were not involved in some issues or successfully resisted some of the Defendants' and Cross-Claimants' claims. The Plaintiffs also pointed to the extent to which JRC was successful in resisting particular aspects of the claims, that it was not party to the 2004 Agreement, made submissions as to the matters in which JRC was successful and noted that HSFS successfully defended the claim the 2004 Agreement had been terminated and was not involved in claims in relation to the 2002 Agreement and had been successful in defending aspects of the cross-claims. The Plaintiffs also took issue with the Defendants' contention that matters had been raised later and with the suggestion that a substantial part of the trial was taken up determining the issue of the tort of conspiracy. I do not consider it necessary to determine these matters in order to reach a determination as to the question of costs generally.
The Defendants submit that, if the Court is minded to apportion costs or discount the costs awarded to the Defendants, that discount should be in the order of 5% - 10%. I do not consider that I can take so broad an approach, as distinct from considering the position in respect of costs ordered against particular defendants. Conversely, in oral submissions, Mr Sirtes submitted that, if the question of costs was not deferred, the proper order was that each party should pay their own costs or, alternatively, that the Plaintiffs should pay 30% of the Defendants' costs, and the 20% of those cost should be paid by JRC, that HSFS should pay 5% and that SFSI should pay 75% of those costs, with Mr Pacione not bearing any part of those costs. I do not consider that an order that each party pay their own costs, or that the Plaintiffs pay 30% of the Defendants' costs, would properly reflect the outcome of the proceedings. I will address the position in respect of particular parties below.
Applying the principles derived from the case law to which I have referred above, it seems to me that the event in the proceedings is that the Defendants and Cross-Claimants have been substantially successful, although they have not succeeded on all issues. The general rule that costs follow the event would have the result that the Plaintiffs should pay the Defendants' costs of the proceedings. However, a costs order in favour of the Defendants can be modified where they have not succeeded on all issues, although they did not act unreasonably in raising those issues. That course is here supported by the complexity of the outcome of the proceedings, the different results in respect of different issues as against different parties, and the fact that at least some time was taken up by issues on which the Defendants failed and which are clearly separable. Although an order could be made that the Defendants bear costs of particular issues on which the Plaintiffs succeeded, no party supported the making of costs orders on an issue by issue basis and that possibility can be reflected in an overall assessment of the percentage of the Defendants' costs to be paid by the Plaintiffs. The Court may take a pragmatic and broad brush approach to these issues, as a matter of impression and evaluation.
For completeness, I note that the Defendants also submitted that this was not a case where UCPR r 42.34 would apply, even if less than $500,000 in damages was recovered in the Cross-Claim, because the proceedings were commenced in this Court by the Plaintiffs, and also because the applicants had been successful in obtaining injunctive relief: Australasian Performing Rights Association Ltd v Metro on George Pty Ltd [2004] FCA 1371; (2004) 64 IPR 57 at [11]; Nokia Corporation v Liu [2009] FCAFC 138; (2009) 179 FCR 422 at [58]. I accept that this is not a case where UCPR r 42.34 has any application for both those reasons.

Costs in respect of JRC and HSFS

JRC and HSFS were both Plaintiffs and Cross-Defendants in the proceedings.
There were several issues in the case as to the status of the 2002 Agreement formed between JRC and Mr Cummings and I found, at paragraph 99 of my principal judgment, that the non-exclusive licence to JRC to use QSS arising under the 2002 Agreement had come to an end, by abandonment, at least by the entry into the 2004 Agreement.
Mr Sirtes submitted that the Defendants should not obtain a costs advantage from my finding that the 2002 Agreement had been abandoned, where (the Plaintiffs submitted) that matter was not raised by the Defendants' pleading. Mr Sirtes accepted in oral submissions that the Defendants had contended that the 2002 Agreement had been terminated, but submitted that the pleading of termination and abandonment were "very different" (T26). The Plaintiffs' submission as to this matter at least involved the proposition that "abandonment" (presumably as distinct from termination) was not specifically pleaded by the Defendants, but may have gone further (albeit in a somewhat muted way) to suggest that JRC was unsuccessful in respect of the 2002 Agreement on a basis that had not been in issue in the proceedings. I will address both arguments, on the basis that the former was put and the latter may have been put.
It seems to me that the submission that "abandonment" (as distinct from termination) was not pleaded does not, without more, provide any basis to deprive the Defendants of costs in respect of this issue. First, the distinction seems to me to be one more of form than of substance, since the reference to "abandonment" in my principal judgment is simply to a manner of termination of a contract, where both parties cease to act upon it, or repeatedly acknowledge that it had ceased to have effect. As I will note below, the Defendants had specifically pleaded the termination of the 2002 Agreement in their Cross-Claim, and the Plaintiffs had specifically recognised that termination of that agreement was in issue in their formulation of the issues in the proceedings. Second, even if there were a substantive distinction, the fact that abandonment (as distinct from termination) was not pleaded does not seem to me to be of particular significance where, as I will note below, the parties conducted the trial on the basis that the matter was in issue.
To the extent that the Plaintiffs advance a wider submission that abandonment (or termination by disuse, by ceasing to act upon the 2002 Agreement or by repeatedly acknowledging that it had ceased to have effect) was not in issue in the proceedings, then I cannot accept it. That issue was addressed in my judgment under issue 9, as formulated by the Plaintiffs (rather than the Defendants), namely, whether "any other event that brings the non-exclusive license [under the 2002 Agreement] to an end". That question, as posed by the Plaintiffs, was answered in my principal judgment with the answer that there was such other event, namely, that the 2002 Agreement was abandoned at least by the time of entry into the 2004 Agreement, by the parties' ceasing to act upon the 2002 Agreement and repeatedly acknowledging that their rights now arose wholly from later agreements. I there noted, and did not accept, the Plaintiffs' submission that that matter was not pleaded (and, implicitly, was not in issue), referred to the fact that the matter had been addressed in submissions and quoted that part of the Plaintiffs' written submissions (Plaintiffs closing written submissions paragraphs 9.19 - 9.20) that addressed it. The Defendants' written outline of opening submissions had in turn identified the question whether the 2002 Agreement was terminated or "wholly superseded" by subsequent agreements, including an Exclusivity Agreement and the 2004 Agreement (as described in my judgment) (Defendants' Outline of Opening Submissions [50] -[52]). In opening oral submissions, the Defendants had submitted that the 2002 Agreement "came to an end" on the entrance into the Exclusivity Agreement (T35). In closing written submissions, the Defendants in turn submitted that the 2002 Agreement was "superseded/replaced" by the Exclusivity Agreement or the 2004 Agreement (Defendants' Outline of Closing Submissions paragraphs 12, 50-51 and 56) and, in closing oral submissions, the Defendants submitted that the Exclusivity Agreement or the 2004 Agreement "revoked" the 2002 Agreements (T402).
The Plaintiffs also point out that JRC was liable for breach of confidence, but not for authorising a breach of copyright or misleading or deceptive conduct. Orders were made restraining JRC from using a licence key generator (as defined in the Cross-Claim) and requiring it to account as to parties to whom it had provided that licence key for QSS.
HSFS was successful in obtaining a declaration that Tanmari's purported termination of the 2004 Agreement, by letter dated 24 January 2012 from its solicitors to HSFS's solicitors, was not effective. In paragraphs 7 and 8 of the relief sought in the Amended Statement of Claim, the Plaintiffs (and, relevantly, HSFS) sought declarations that: "7. … [HSFS] has the right to use and sub-license the use of the QSS Application in [HSFS's] steel framing manufacturing system pursuant to the [2004 Agreement]. 8. …the purported termination of the [2004 Agreement] on 24 January 2012 was invalid and that the [2004 Agreement] remains on foot." I noted in my judgment as to orders (at [7]) that: "Those issues were in turn addressed at some length in paragraphs 145-193 of my principal judgment, although their practical significance had been reduced by evidence that emerged in the course of the proceedings that HSFS, which was the party to the 2004 Agreement and had the benefit of any rights under it, had substantially ceased its business and had ceased granting new licences well before the commencement of the proceedings, and that SFSI, which was then granting new licences, did not rely on the 2004 Agreement or any rights held by HSFS in order to do so."
In their written submissions in respect of the initial hearing as to orders and costs on 22 October 2014, the Plaintiffs submitted that HSFS was successful on its " key claim" that the 2004 Agreement was not properly terminated. As I noted above, the characterisation of that claim as a "key claim" seems to me to require significant qualification, where that agreement was one of two agreements in issue in the proceedings and, as the evidence emerged, HSFS, which was party to the 2004 Agreement, was not substantially trading at the relevant time and was not relying on that agreement to license third parties, which SFSI was doing in reliance on the 2002 Agreement.
The Plaintiffs submit that HSFS has had success in avoiding termination of the 2004 Agreement, and they contend that HSFS has substantive claims to damages available as a result of breaches of the 2004 Agreement by Mr Cummings or FIPL. I observed, in my principal judgment, that the Plaintiffs may face some challenges in establishing substantive damages, where, as I noted above, the evidence is that HSFS was neither conducting any substantial business or licensing relevant rights to third parties during the relevant period. I recognise, however, that the outcome of that claim will not be known until HSFS has had the opportunity to lead the evidence which it seeks to lead to make good its claim for damages. Importantly, although HSFS succeeded in establishing that the termination of the 2004 Agreement was ineffective, it was held liable for authorising the infringement of copyright by SFSI, and will be liable with SFSI in respect of that infringement.
It seems to me that it would be artificial, and not reflect the substantive result of the proceedings, to seek to distinguish the position as to costs in respect of JRC and HSFS, where JRC and HSFS together sought to establish a right to use QSS, which SFSI was in fact using under rights conferred by JRC which did not have power to grant them, and HSFS was not then using those rights which it ultimately established it had. The Plaintiffs were substantially unsuccessful, and the Cross-Claimants were substantially successful against them, other than in respect of the termination of the 2004 Agreement, which was of limited practical significance at a time that HSFS was not then conducting its former business which it had largely surrendered to SFSI. It seems to me that, so as to reflect the substantive result of the proceedings but make a fair, albeit broad, allowance for the fact that HSFS succeeded on some issues, including the issue of termination of the 2004 Agreement, JRC and HSFS should be required to pay 75% of the costs of and incidental to the hearing as to liability before me, as agreed or as assessed.

Costs in respect of SFSI

The Plaintiffs point out, and I accept, that the Defendants proved that copyright subsisted in versions 11.176, 11.406 and 11.604 of QSS (Judgment [317]) and FIPL did not prove that it owed copyright in any version of QSS after November 2011 (Judgment [321]). The Court has made orders permanently restraining SFSI, without express written licence from FIPL, from reproducing, communicating to the public or authorising the reproduction or communication of the whole or a substantial part of specified versions of QSS. Those orders reflect the finding at paragraph 341 of my principal judgment that SFSI's infringement of the copyright had been established. SFSI was also restrained from representing in trade or commerce that it was permitted to license QSS to third parties and from using a licence key generator (as defined in the Cross-Claim) . I also held that the Defendants are entitled to both compensatory damages and additional damages in respect of copyright infringement against SFSI.
In the present case, as in Alstom Ltd v Yokogawa Australia Pty Ltd (No 9) above, it seems to me that it can nonetheless fairly be said that the Defendants have been "almost entirely successful" in their Cross-Claim against SFSI. The Defendants should, strictly, have their costs of the Cross-Claim against SFSI. However, it seems to me that, in practical terms, given the significant overlap of issues as between the primary claim and the Cross-Claim, and the substantial costs which would be incurred by the parties in seeking to attribute individual attendances as between the primary claim and the Cross-Claim, an equitable result will be achieved by treating SFSI as jointly and severally liable with JRC and HSFS for 75% of the costs of and incidental to the hearing as to liability before me, as agreed or as assessed.

Costs in respect of Mr Pacione

The Defendants had a degree of success against Mr Pacione. The Plaintiffs acknowledge that Mr Pacione was held liable for authorising a breach of copyright and misleading or deceptive conduct but not for breach of confidence. The Defendants succeeded in obtaining relief against Mr Pacione that he be restrained, in his personal capacity, from authorising reproduction or communication of the whole or a substantial part of the specified versions of QSS. On the other hand, the Plaintiffs point out that Mr Pacione was not involved in the Cross-Claim so far as it raised the position as to the 2004 Agreement; and that no claim was brought against him for breach of confidence and that he successfully resisted the Defendants' claim for authorisation of trademark infringement.
The question of costs in respect of Mr Pacione seems to me to involve questions of greater difficulty than in respect of JRC, HSFS and SFI, because Mr Pacione was not a plaintiff and was involved only in some aspects of the Cross-Claim in his personal capacity, although he also had a wider involvement as an officer of JRC, HSFS and SFI and to the extent of his economic interest in those entities. Both parties also adopt somewhat extreme positions in respect of this question, with the Plaintiffs contending that Mr Pacione should not be the subject of any order as to costs (I interpolate, notwithstanding that the Cross-Claimants succeeded in several significant aspects of their claims against him) and the Defendants contending that Mr Pacione should be jointly and severally liable for the entire costs of the proceedings (I interpolate, notwithstanding that he was not party to the Plaintiffs' claim and was unsuccessful only in aspects of the Cross-Claim). The positions adopted by the parties, and the absence of analysis of intermediate positions by them, leaves the Court in a position that it must do the best it can in respect of this issue, with limited assistance from Counsel.
I should say something further as to the parties' positions in this regard. The Plaintiffs' initial submissions as to costs, in respect of Mr Pacione specifically, were confined to identifying the scope of the case against him, to which I have referred above (Plaintiffs' submissions on costs [12]). In oral submissions, the Plaintiffs/Cross-Defendants submitted that any order against them as to costs should be allocated 20% to JRC, 5% to HSFS and 75% to SFSI, with the result that no order as to costs would be made against Mr Pacione, and relied on the schedule of the outcome of the proceedings to which I referred in paragraph 36 above (10.12.2014, T24). The Plaintiffs then submitted that an order for costs making Mr Pacione jointly and severally liable would "perpetrate a considerable unfairness" where he was only held liable for authorising SFSI's copyright infringement, successfully resisted other claims and was not otherwise involved in the Cross-Claims (T24). I accept the force of the submission that there would potentially be an unfairness in making Mr Pacione liable for the entire costs of the proceedings, or the Cross-Claim, where he was involved in only part of them, and the Cross-Claimants succeeded in only a subset of that part. It does not follow, however, that Mr Pacione should not bear any liability as to costs in that situation and, as I noted above, the Plaintiffs made no further submissions as to how any such liability should be quantified. The Defendants in turn identified the possibility of apportionment of costs (T31) but did not specifically address the position of Mr Pacione. Mr Sirtes, in reply, returned to the submission that Mr Pacione "played a very small part in relation to the copyright aspect of the Cross-Claim", while acknowledging the legal significance of the breach of copyright (T33). The Defendants maintained their position that the Plaintiffs/Cross-Defendants, including Mr Pacione, should be ordered to pay the costs of the Defendants/Cross-Claimants (Defendants/Cross-Claimants' Submissions on Final Orders and Costs [88]).
It seems to me that the extent of the Defendants' success against Mr Pacione is not sufficient to warrant an order that he pay the entirety of the costs of the Cross-Claim, still less the costs of the proceedings generally. On the other hand, the finding of liability in authorising a breach of copyright was a significant one, in respect of an issue that occupied a substantial amount of time and attention in the proceedings and was of considerable practical importance to the parties. It seems to me that, applying a broad brush approach, Mr Pacione should be jointly and severally liable with JRC and HSFS for 15% of the costs of and incidental to the hearing as to liability before me, as agreed or as assessed, reflecting the fact that the Defendants have had a significant degree of success against him. I accept that figure is to a large extent a matter of impression, which cannot achieve mathematical certainty. It reflects, however, my broad impression of the time spent in respect of this issue, and its significance in the hearing, doing the best that I can given the manner in which this issue was approached in the parties' submissions.

Orders and costs

The parties should bring in agreed short minutes of order to give effect to this judgment, including as to costs, within 14 days, or, if they are unable to reach agreement, their respective draft short minutes of order and short submissions as to the differences between them.

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: 28 January 2015

Trade Practices Act 1974(Cth)s 53A

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