MMD Design and Consultancy Limited v Camco Engineering Pty Ltd

Number of paragraphs: 53

Date of last submission/s: 8 September 2023

Date of hearing: Determined on the papers

Counsel for the Applicants/Cross-Respondents: Mr B N Caine KC with Ms C Cunliffe

Solicitor for the Applicants/Cross-Respondents: Wrays

Counsel for the Respondent/Cross-Claimant: Mr A J Ryan SC with Mr A D B Fox SC

Solicitor for the Respondent/Cross-Claimant: Griffith Hack

BETWEEN: MMD DESIGN AND CONSULTANCY LIMITED First Applicant

MMD AUSTRALIA PTY LTD ACN 002 446 845 Second Applicant

AND: CAMCO ENGINEERING PTY LTD ACN 067 041 641 Respondent

AND BETWEEN: CAMCO ENGINEERING PTY LTD ACN 067 041 641 Cross-Claimant

AND: MMD DESIGN AND CONSULTANCY LIMITED (and others named in the Schedule) First Cross-Respondent

order made by: ROFE J DATE OF ORDER: 16 November 2023

THE COURT ORDERS THAT:

1. The applicants pay to the respondent in a lump sum pursuant to r 40.02(b) and (c) of the Federal Court Rules 2011 (Cth) 75% of the respondent's costs incurred in this proceeding, including in respect of the cross-claim and the application for preliminary discovery, Proceeding No. VID 563 of 2019.
2. If the parties cannot agree, within four weeks from the date of these orders, on the amount of the lump sum ordered pursuant to order 1, then that costs dispute be referred to a Registrar of this Court to fix the amount of the referred costs in dispute and: a. Within six weeks from the date of these orders, the respondent file and serve any costs summary and submissions in accordance with the Costs Practice Note (GPN- COSTS). b. Within nine weeks from the date of these orders, the applicants file and serve any costs response and submissions in accordance with the Costs Practice Note (GPN- COSTS). c. Pursuant to r 1.37 of the Rules, the Registrar determine the quantum of costs in any referred costs dispute in such manner as they think fit, including, if thought appropriate, on the papers, and within four weeks of the making of the determination, make orders for the payment of the amounts so determined.
3. Orders 1 and 2 be stayed until the determination of the appeal. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

1. INTRODUCTION 1 On 21 July 2023, I published my reasons for judgment in this proceeding: MMD Design and Consultancy Limited v Camco Engineering Pty Ltd [2023] FCA 827 (July Reasons). The parties were given an opportunity to make submissions on costs. Both parties availed themselves of the opportunity and filed submissions and proposed costs orders. These reasons deal with the costs issue and should be read together with the July Reasons. I adopt the abbreviations used in my July Reasons. 2 I found that MMD's claims for infringement of the Patent did not succeed, nor did its ACL claims or claim for additional damages. I also found that Camco's cross-claim for invalidity did not succeed, nor did its repair defence to the claims of infringement. 3 The successful respondent, Camco, seeks a single global costs order (in respect of the costs of the claim and cross-claim) in its favour, with a percentage discount applied to account for issues on which it was not successful. Camco seeks an order that its costs be paid on an indemnity basis as from 22 July 2022 following what it submits was MMD's unreasonable rejection of its Calderbank offer made on the seventh day of the trial. Camco also seeks its costs of MMD's preliminary discovery application determined by O'Bryan J on 7 November 2019: MMD Design and Consultancy Limited v Camco Engineering Pty Ltd [2019] FCA 1803 (the Preliminary application). 4 Camco seeks costs orders be made in the following terms:
   1. The Applicants pay the Respondent's costs incurred in the preliminary discovery proceeding no. VID563/2019.
   2. The Applicants pay: a. up to 11am on 1 August 2022, 80% of the Respondent's costs incurred in this proceeding (including in respect of the Cross-Claim); and b. from 11am on 1 August 2022, the Respondent's costs incurred in this proceeding (including in respect of the Cross-Claim) on an indemnity basis. 5 MMD seeks that costs in the proceeding be awarded to the parties on an issue-by-issue basis, with a percentage discount applied to certain issues to account for Camco's conduct in the proceeding, and with MMD receiving its costs in respect of the Preliminary application. 6 MMD seeks costs orders be made in the following terms:
   3. The Applicants pay the Respondent's costs incurred in this proceeding with respect to issues concerning: (a) construction and infringement, subject to a 35% discount; and (b) the Australian Consumer Law claim, additional damages and exclusive licence.
   4. The Respondent pay the Applicants' costs incurred in this proceeding respect to: (a) issues concerning repair and validity; (b) the Applicant's interlocutory application dated 26 June 2020; (c) the Applicant's interlocutory application dated 27 October 2020; (d) the Respondent's interlocutory application dated 3 November 2020; (e) the Applicant's interlocutory application dated 29 November 2021; and (f) the Applicant's interlocutory application dated 13 June 2022. 7 Having considered the competing arguments and the discretion conferred upon me by s 43 of the Federal Court of Australia Act 1976 (Cth), I will make the following orders:
   5. The applicants pay to the respondent in a lump sum pursuant to r 40.02(b) and (c) of the Federal Court Rules 2011 (Cth) 75% of the Respondent's costs incurred in this proceeding, including in respect of the cross-claim and the application for preliminary discovery, Proceeding No. VID 563 of 2019.
   6. If the parties cannot agree, within four weeks from the date of these orders, on the amount of the lump sum ordered pursuant to order 1, then that costs dispute be referred to a Registrar of this Court to fix the amount of the referred costs in dispute and: a. Within six weeks from the date of these orders, the respondent file and serve any costs summary and submissions in accordance with the Costs Practice Note (GPN- COSTS). b. Within nine weeks from the date of these orders, the applicants file and serve any costs response and submissions in accordance with the Costs Practice Note (GPN- COSTS). c. Pursuant to r 1.37 of the Rules, the Registrar determine the quantum of costs in any referred costs dispute in such manner as they think fit, including, if thought appropriate, on the papers, and within four weeks of the making of the determination, make orders for the payment of the amounts so determined.
   7. Orders 1 and 2 be stayed until the determination of the appeal.

1.1 Global costs order or issue by issue - submissions 8 Camco relies on the observation of McHugh J in Oshlack v Richmond River Council (1998) 193 CLR 72 at [66] that the outcome of the case is "[by] far the most important factor which courts have viewed as guiding the exercise of the costs discretion", to contend that costs should be addressed having regard to the outcome of the case as a whole. Camco submits that, as the successful party in the litigation, costs should be awarded in its favour and concedes a discount of 20% to account for matters in which it was not successful. 9 Camco acknowledges that in patent cases the Court has in the past treated the claim for patent infringement and the cross-claim for invalidity as separate events and made separate orders with respect to the costs of the claim and cross-claim: see, eg, GlaxoSmithKline Consumer Healthcare Investments (Ireland) (No 2) Ltd v Generic Partners Pty Ltd (No 2) [2018] FCAFC 100 at [8] (per Middleton, Nicholas and Burley JJ); Damorgold Pty Ltd v Blindware Pty Ltd (No 2) [2018] FCA 364 at [56]-[61] (per Middleton J). Camco proposes that in the present case it is more efficient, and better serves the interests of justice (having regard to Camco's overall success in the litigation), that a single global costs order be made which addresses both the claim and the cross-claim. Such an approach was applied in Davies v Lazer Safe Pty Ltd (No 2) [2018] FCA 971 (per McKerracher J); Dometic Australia Pty Ltd v Houghton Leisure Products Pty Ltd (No 2) [2019] FCA 57 (per White J) (see in particular at [36]-[45]); Quaker Chemical (Australasia) Pty Ltd v Fuchs Lubricants (Australasia) Pty Ltd (No 3) [2020] FCA 515 (per Robertson J); and recently in TCT Group Pty Ltd v Polaris IP Pty Ltd (No 2) [2023] FCA 284 (per Burley J). 10 Camco highlighted the centrality of MMD's ore fines argument to the factual and oral evidence. Camco also noted that it had incurred additional unnecessary costs in responding to a substantial affidavit of Mr Mark Botes (405 pages), whose expert evidence (on infringement) was not ultimately relied upon. Camco prepared and filed responsive evidence from its expert Mr William Hunter, which was not required to be read given that MMD decided not to call Mr Botes. MMD indicated to Camco that it would not be relying on Mr Botes' evidence about a week after the Hunter evidence was served. 11 Camco submits that its cross-claim did not form a significant component of the trial. The trial was heavily devoted to questions concerning infringement. The invalidity issues were confined at trial only to two pieces of prior art for novelty and obviousness (which were reduced from the five originally pressed). Obviousness did not form part of the joint session evidence and minor arguments as to manner of manufacture, fair basis and clarity were raised solely due to MMD's construction of the claims. 12 In a table appended to its submissions, Camco estimated that the percentage of the evidence, transcript and judgment allocated to the issues on which it succeeded were: 77%, 83% and 71%, respectively. 13 As to reserved costs of the proceeding, Camco submits that it would simply occasion unnecessary complexity in the resolution of the question of costs for separate orders to be made for each interlocutory application. In any event, Camco submits that the mixed success of the interlocutory applications is accounted for in the proposed 20% discount to its costs. 14 In the interest of justice and efficiency, Camco does not press for a separate costs order for the cross-claim. Camco seeks for the global costs orders to encompass both the main proceeding as well as the subsequent cross claim, conceding that a discount to its costs of 20% is appropriate. 15 MMD concedes Camco should be awarded the bulk of its costs with respect to construction, infringement, the ACL claim and entitlement. However, in relation to construction and infringement, MMD contends that it is appropriate that a 35% discount should be applied to Camco's costs when awarding costs for the issues of construction and infringement, by reason of the following: (a) MMD was successful with respect to the construction of the majority of the integers in issue between the parties. (b) MMD incurred significant costs trying to accurately identify the design of each of Camco's tooth constructions. These unnecessary costs were incurred as a result of: (i) significant inconsistencies and omissions in Camco's drawings and 3D models (including the presence of weld); and (ii) Camco's failure to inform MMD of these omissions, despite MMD's request for such clarification. (c) MMD sought admissions from Camco concerning the existence of welds and transmission of force within its tooth constructions. Camco did not admit the presence of weld between the rear covers of the First Yandi Constructions and Solomon Constructions. Camco also made no admissions regarding the transmission of force throughout each of the Camco Constructions. MMD maintains that it established each of these facts at trial and refers to the following paragraphs of the July Reasons to support this contention: [314] Mr de Vos acknowledged that in the configuration depicted above, the force is transmitted via the welds and the forces down the side cover were going to be much greater than the forces into the rear face of the horn. Mr de Vos also acknowledged that the transfer of forces between the rear cover and the rear face of the support body would be much more effective if the two faces were flush, than if there was a gap of the kind depicted above. … [334] When questioned as to the configuration depicted in diagram 3, Mr de Vos acknowledged that, in terms of force, the forces down the side cover were going to be much greater than the forces into the rear face of the horn. Mr de Vos said the forces would, after exiting the weld between the rear cover and the side cover, take a 90-degree turn through the weld between the side cover and the rear face of the horn. As Camco submitted, no experiments were conducted by MMD which might have established the extent to which forces are efficiently transferred through to the support body, in accordance with Mr de Vos' construction. … [359] MMD relies on its transmission of forces argument to contend that each of the rear covers is seated in face to face contact with the rear face of the support body. In the case of the rear projection of the intermediate cover, forces can be transmitted directly as the rear projection touches the rear face of the support body, as well as indirectly via the welds. For the other rear covers the forces are transmitted indirectly through the welds. … [379] I do not consider that the front/rear faces of the intermediate cover are in face to face contact with the front/rear faces of the support body. There is no aperture in the front face of the intermediate cover as this is filled prior to installation. To the extent that there is any spill over penetration of the weld on to the front, side and rear faces, that is a minimal amount which does not result in the majority of the faces being in physical contact. Nor do I consider that the chamfers constitute more than a minimal part of the front or rear faces of the support body. 16 As to (c) above, MMD submits that ordinarily it would be entitled to its costs with respect to these matters. However, it notes that, for convenience, MMD is content for this aspect of its costs to be dealt with by way of a reduction in Camco's recoverable costs. 17 In response to MMD's submission that Camco's depictions of the tooth construction led them to undertake additional and unnecessary work and incur unnecessary costs, Camco argues it should not be penalised for the presence of welds not being included in the discovery drawings. Camco maintains that the presence of these welds was not redacted, or concealed, but rather never included in the drawings. 18 In addressing the Notice to Admit, Camco submits that it was critical of the form adopted by MMD and responded to this notice in a sensible and pragmatic manner, pointing out the ambiguities it said were present, and suggesting a series of facts that it was prepared to admit. Camco further adds that no relevant fact findings are established in [314] and [334] of the July Reasons. Indeed, these paragraphs reflect the findings and analysis of Mr de Vos. In addition, Camco states that [379] of the July Reasons comprises of findings favourable to Camco. I accept this assertion. 19 MMD also submits that it should be awarded its reserved costs in respect of the interlocutory applications on which it submits it was successful. Camco submits that the results of the interlocutory applications were mixed and that they should be included as costs of the proceeding as part of the single global costs order, subject also to the 20% discount.

1.2 Relevant principles 20 It is well established that s 43 of the Act confers a wide discretion to award costs in all proceedings before the Court which is unfettered except by the principle that it be exercised judicially. 21 The Full Court in Idenix Pharmaceuticals LLC v Gilead Sciences Pty Ltd (No 2) [2018] FCAFC 7 (per Nicholas, Beach and Burley JJ) made the following observation at [3] about the breadth of the discretion conferred by s 43: The power of the Court in relation to costs is well established. Section 43 of the Federal Court of Australia Act 1976 (Cth) gives the Court a wide discretion in awarding costs. The exercise of the Court's discretion is not without principles or practices; it must be exercised judicially (Les Laboratoires Servier v Apotex Pty Ltd (2016) 247 FCR 61 at [305] per Bennett, Besanko and Beach JJ). The ordinary rule is that costs follow the event, although a successful party may be awarded less than its costs, or costs may be apportioned, based upon success on the issues (Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) (2015) 327 ALR 192; [2015] HCA 53 at [6] per French CJ, Kiefel, Nettle and Gordon JJ; Les Laboratoires Servier at [297] to [298] and [303]). 22 The Full Court in Sandvik Intellectual Property AB v Quarry Mining & Construction Equipment Pty Ltd (No 2) (2017) FCAFC 158 at [9]-[11] (per Greenwood, Rares and Moshinsky JJ) summarised the principles of costs as follows: Section 43(3)(e) of the Federal Court of Australia Act 1976 (Cth) provides that an award of costs may be made in favour of, or against, a party whether or not that party is successful in the proceeding. The approach usually taken is that costs follow the outcome of an appeal: see Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) (2015) 327 ALR 192 at [6] per French CJ, Kiefel, Nettle and Gordon JJ; see also Les Laboratoires Servier v Apotex Pty Ltd (2016) 247 FCR 61 at [303]; Oshlack v Richmond River Council (1998) 193 CLR 72 at [66]-[68]. In Queensland North Australia Pty Ltd v Takeovers Panel (No 2) (2015) 236 FCR 370, Dowsett, Middleton and Gilmour JJ, after referring to Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 and State of Victoria v Sportsbet Pty Ltd (No 2) [2012] FCAFC 174, said at [11] that these decisions treat the success or failure of the relevant party as being the starting point in consideration of the question of costs, but contemplate at least three distinct categories of situation in which a successful party might be deprived of costs, or even ordered to pay the costs of the other side. These were identified as follows: One such category is where the applicant has been only partially successful in that it has not obtained all of the relief sought. The second category is where a party has succeeded in obtaining the relief sought, but has not succeeded on all bases (factual or legal) upon which it sought such relief. Of course, it is possible that a particular outcome will fall into both categories. A third category involves consideration of the successful party's conduct of the case. After referring to the decision of Finkelstein and Gordon JJ in Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107, Dowsett, Middleton and Gilmour JJ in Queensland North Australia then said at [18]: [Section 43 of the Federal Court of Australia Act] does not mention costs following the event. In Ruddock, Bowen Investments and Sportsbet, the Court proceeded on the basis that ordinarily, the successful party may reasonably expect to receive its costs, whether that outcome be described as costs following the "event" or otherwise. The question of costs is within the Court's discretion. As we have said, relevant factors include the extent of a party's success, the extent of its success or failure on individual issues and its conduct of the proceedings. 23 The Court should attempt to avoid, so far as possible, creating a situation in which the quantification of costs will be complex, protracted and, by itself, costly; Hockey v Fairfax Media Publications Pty Ltd (No 2) (2015) 237 FCR 127 at [120] (per White J). The taxation process following the award of costs takes place before Registrars of the Court. Convoluted costs orders are likely to detract from the efficiency of taxing and further prolong proceedings remaining within the Court system, thereby also increasing the costs of the process.

1.3 Consideration 24 Camco was overall successful in defending the infringement proceeding brought by MMD, including the ACL claim and the claim for additional damages. However, Camco was unsuccessful in its challenge to the validity of the Patent and its repair defence. 25 MMD's ore fines argument, which was abandoned by MMD in the second week of the trial, was a very significant pillar of its infringement case. Much lay and expert evidence was directed to the ore fines issue. MMD also abandoned its allegation of infringement in respect of the Second Yandi Construction at the same time that it abandoned the ore fines argument. 26 Camco incurred costs in preparing responsive expert evidence to the expert evidence of Mr Botes which was not relied upon by MMD at trial. Camco abandoned three pieces of prior art at the start of the expert joint session. 27 Additionally, there is the question of the costs of the various interlocutory applications in the proceeding. There is dispute between the parties as to their successes on the interlocutory applications and where the costs of those applications should lie. 28 I consider that it is appropriate in this case that there be a global costs order to cover the costs of the claim and cross-claim. I consider that a 25% discount to Camco's costs is appropriate to take into account the circumstances of this case.

2. COSTS OF THE PRELIMINARY APPLICATION 29 In the Preliminary application, O'Bryan J dealt with costs in the following manner at [65]: With respect to the costs of the application, I propose to make an order in the same form as that made by Finkelstein J in SmithKline Beecham at [32]. If MMD commences an action for patent infringement against Camco within a period of six months from the date of the order for discovery, the costs of the application for preliminary discovery will be at the discretion of the Court in that proceeding. If no such action is brought within that period, then MMD should pay the costs of Camco on this application. 30 MMD commenced proceedings within the six-month time limit set by O'Bryan J, thus the special circumstance contemplated by his Honour did not eventuate. 31 MMD maintains that it was successful in the Preliminary application as Camco had unsuccessfully resisted this application, including Camco proceeding on the false premise that it already disclosed to MMD the designs of all of the Camco Constructions. In these circumstances, MMD submits that it should be awarded the costs of the Preliminary application. 32 Camco submits that, as it was the victor in the litigation with none of the Camco Constructions held to infringe, it should be entitled to a separate order incurred for costs of the Preliminary application. Alternatively, Camco proposes for its costs to be included in the global costs order along with its costs of the cross-claim. 33 As the overall successful party in this matter and having regard to the efficiency of a single global costs order, I consider that the costs of the preliminary proceeding should form part of Camco's costs of the proceeding and be included within the global costs order.

3. OFFER TO COMPROMISE 34 Specifically, having regard to an offer to compromise made by Camco on 28 July 2022 under r 25.01 of the Rules, Camco seeks orders that MMD pay its costs of, and incidental to, the appeal on an indemnity basis from 11 am on 1 August 2022 pursuant to r 25.14(2) of the Rules. In the alternative, Camco seeks an order that its costs be paid on an indemnity basis from 1 August 2022, consistent with the principles in Calderbank v Calderbank [1975] 3 All ER 333. 35 On the morning of the seventh day of the trial (28 July 2022), MMD informed the Court that it was no longer pressing its ore fines argument, or the infringement case against Camco's Second Yandi Construction. 36 Later that day, Camco sent a letter suggesting that MMD agree to the proceeding being dismissed with no order as to costs. Camco offered that in return it would not take further action to challenge the validity of the 510 Patent during its term. Camco observed in the letter that following the abandonment of the Second Yandi Construction infringement case, it was at liberty to continue to conduct repairs to MMD's mineral sizers using the Second Yandi Construction. The Camco letter stated that the offer was made on the basis of the principles in Calderbank and foreshadowed that it may be relied upon by Camco in seeking an order for indemnity costs. Camco's offer was expressed to be open until 5 pm the following day. It was not accepted.

3.1 Relevant provisions and principles 37 Rule 25.14 of the Rules provides: 25.14 Costs where offer not accepted (1) If an offer is made by a respondent and not accepted by an applicant, and the applicant obtains a judgment that is less favourable than the terms of the offer: (a) the applicant is not entitled to any costs after 11.00 am on the second business day after the offer was served; and (b) the respondent is entitled to an order that the applicant pay the respondent's costs after that time on an indemnity basis. (2) If an offer is made by a respondent and an applicant unreasonably fails to accept the offer and the applicant's proceeding is dismissed, the respondent is entitled to an order that the applicant pay the respondent's costs: (a) before 11.00 am on the second business day after the offer was served - on a party and party basis; and (b) after the time mentioned in paragraph (a) - on an indemnity basis. 38 In Wills v Chief Executive Officer of the Australian Skills Quality Authority (Costs) [2022] FCAFC 43 (per Logan, Griffiths and Perry JJ), the Full Court at [22]observed that the purpose of Pt 25 of the Rules is to provide "a mechanism for the settlement of disputes by delivery of offers of compromise, and … cost consequences for the parties not accepting relevant offers within specified time periods": see also Australian Competition and Consumer Commission v Black on White [2002] FCA 1605 at [6] (per Spender J). Part 25, however, is not a code: University of Western Australia v Gray (No 21) (2008) 249 ALR 360 at [31] (per French J (as his Honour then was)). A party may rely upon a Calderbank offer notwithstanding that the party has not complied with the procedure set out in Pt 25: Fyna Foods Australia Pty Ltd v Cobannah Holdings Pty Ltd (No 2) [2004] FCA 1212 at [6] (per Kenny J). 39 In common with r 25.01 of the Rules, the common law principles concerning Calderbank offers are designed to encourage parties to give careful consideration to reasonable offers to compromise and to encourage such offers to compromise to be made. In this regard, the proposition that a Calderbank offer gives rise to a presumption that the party who rejected the offer should pay the offeror's costs on an indemnity basis if the offeree receives a less favourable result has been rejected: Wills at [22] (per Logan, Griffiths and Perry JJ) citing Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435 at [18]-[20] (per Warren CJ, Maxwell P and Harper AJA); and Brymount Pty Ltd t/as Watson Toyota v Cummins (No 2) [2005] NSWCA 69 at [12]-[13] (per Beazley JA); Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1 at [7] (per Sundberg, Emmett and Conti JJ). Rather, the ultimate question is whether the failure to accept the offer in all of the circumstances warrants departure from the ordinary rules as to costs: Hazeldene's at [20] (per Warren CJ, Maxwell P and Harper AJA); Brymount at [13] (per Beazley JA). 40 The Camco offer essentially provided that the parties "walk away" from the litigation bearing their own costs with the additional benefit to MMD of Camco warranting not to challenge the validity of the 510 Patent in the future. The key issue is whether MMD's refusal of the offer was so "unreasonable" when viewed in light of all the circumstances existing at the time that the offer was made as to warrant departure from the ordinary rules as to costs. 41 The principles applicable for determining whether an offer was "unreasonable" were explained by the Full Court in Anchorage Capital Partners Pty Ltd v ACPA Pty Ltd (No 2) [2018] FCAFC 112 at [6]-[8] (per Nicholas, Yates and Beach JJ). At [7], the Full Court observed: The circumstances to be taken into account in determining whether rejection of an offer was "unreasonable" cannot be stated exhaustively but may include, for example: (a) the stage of the proceeding at which the offer was received; (b) the time allowed to the offeree to consider the offer; (c) the extent of the compromise offered; (d) the offeree's prospects of success, assessed as at the date of the offer; (e) the clarity with which the terms of the offer were expressed; and (f) whether the offer foreshadowed an application for an indemnity costs in the event of the offeree rejecting it. 42 As the Full Court discussed in Anchorage at [8], assessment of the "unreasonableness" of an offeree's refusal of a settlement offer is a broad-ranging inquiry that is not restricted to consideration of the extent or quantum of the compromise: and Hespe JJ): Rule 25.14 does not expressly or implicitly turn on whether a rejection of an offer was "reasonable". Rather, it turns on the question whether the judgment "is more favourable than the terms of the offer". Where the judgment "is more favourable than the terms of the offer" the applicant "is entitled" to indemnity costs in accordance with the terms of r 25.14(3). 43 Justice Bromberg stated in Alexander v Australian Community Pharmacy Authority (No 3) [2010] FCA 506 at [22] that "[b]orderline offers of compromise ought not be given the same potency as generous offers which are far more likely to encourage settlement". The Calderbank offer should offer an element of genuine compromise that could encourage parties to settle. 44 His Honour went on to further elaborate at [32]: As Kenny J said in Nutrientwater at [31], the extent of the compromise involved is a relevant consideration in determining whether the rejection of the compromise offer was unreasonable. The modest extent of the compromise offered was a factor which lead to the rejection of the application for indemnity costs in Nutrientwater; Inform Design and Construction Pty Ltd v Boutique Homes Melbourne Pty Ltd (No 2) [2008] FCA 965 at [29]; and in Truenergy at [14]. To give weight to the extent of the compromise offered is in keeping with the underlying policy of encouraging settlement. Borderline offers of compromise ought not be given the same potency as generous offers which are far more likely to encourage settlement.

3.2 The parties' contentions 45 Camco contends that MMD's persistence with the infringement case, and rejection of Camco's offer, was unreasonable in the circumstances having regard to the following considerations: (a) the ore fines argument was a significant pillar of MMD's infringement case and that MMD's decision to abandon the ore fines argument was no doubt a consequence of the oral testimony of MMD's own witness, Mr Balmer. Camco submits that Mr Balmer's evidence made it plain that the ore fines argument could not succeed. (b) At the time it abandoned the ore fines argument, MMD must have realised, or ought to have realised, that its prospects of successfully establishing infringement in respect of the remaining Camco Constructions were fatally weakened. 46 MMD contends that it was not unreasonable to reject the Offer which sought to have MMD withdraw its case against each of the other five Camco Constructions. MMD asserts that its ore fines argument, which was abandoned in the second week of trial, had no bearing on the primary infringement arguments for the remaining five Camco Constructions.

3.3 Consideration 47 Camco's offer was made on the seventh day trial, after completion of the lay evidence and two days into the four-day expert witness joint session, following MMD's decision not to press its ore fines argument or claim for infringement in respect of the Second Yandi Construction. 48 The offer proposed that each party essentially "walk away" and bear its own costs. Camco offered not to challenge the validity of the Patent during its term. The offer also foreshadowed an application for indemnity costs in the event it was refused and Camco was successful. 49 Given that the offer was made during the trial, after the abandonment of a substantial issue and the claim of infringement in respect of the Second Yandi Construction, I do not consider that the duration of the offer remaining open for acceptance was unreasonable. 50 I do not consider that Camco has established that MMD acted unreasonably in rejecting the offer when viewed in light of the circumstances existing at the time the offer was rejected. I assume that MMD was cognisant of the overarching obligation imposed by s 37M of the Act when it chose to abandon the ore fines argument and the claim for infringement in respect of the Second Yandi Construction. Having recognised the defects in those aspects of its infringement case, MMD chose to abandon them, thereby saving the Court and the parties the time and expense of pressing on with aspects of its infringement case on which it considered it was unlikely to succeed. In doing so, MMD chose to narrow the focus of the trial to those parts of its infringement case that it still considered it could win. 51 Having made the forensic choice to narrow its case to those parts on which it considered it could succeed, I do not consider it appropriate that MMD be punished for proceeding with the remainder of its infringement case on which it was ultimately unsuccessful. It was not unreasonable for MMD to reject the offer in circumstances where it had that day narrowed its case by abandoning those infringement issues on which it considered that it would not be successful. 52 Therefore, I do not consider it appropriate for indemnity costs to be ordered against MMD in this instance.

4. CONCLUSION 53 For these reasons, I will make costs orders as set out in [7] above. I certify that the preceding fifty-three (53) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Rofe.