Pilkin v Sony Australia Limited

Consideration 23 Under s 56 of the Federal Court of Australia Act 1976 (Cth), the Court has power to order security for costs and to vary any such order from time to time. The Court may also have inherent power to do so, as discussed by Kenny and Edelman JJ in Commissioner of Taxation v Vasiliades (2016) 344 ALR 558 at 578 [70]-[71]. As their Honours said: The discretion conferred by s 56 is a broad one, subject only to the limitation that it must be exercised judicially. 24 The discretion is not fettered by any a priori rules and does not fall to be applied in a mechanical way by encrusted procedures (see 344 ALR at 584 [90]). Importantly, their Honours pointed out, a significant consideration relevant to the exercise of the Court's discretion in such a case is that the person against whom security for costs is sought is not ordinarily resident in the jurisdiction and has no assets here. Kenny and Edelman JJ said (344 ALR at 579-580 [74]-[75]): it was common ground that [Mr Vasiliades] was an Australian non-resident without apparent assets in Australia. The significance of this consideration was emphasised in PS Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321; 5 ACSR 633 …(in which the respondents applied for an order that the appellant provide security for the costs of its appeal). In reasons for judgment awarding security, McHugh J stated (at ALR 323; ACSR 635): To make or refuse to make an order for security for costs involves the exercise of a discretionary judgment. That means that the court exercising the discretion must weigh all the circumstances of the case. The weight to be given to any circumstance depends not only upon its own intrinsic persuasiveness but upon the impact of other circumstances which have to be weighed. A circumstance which may have very great weight when only two or three circumstances have to be weighed may be of minor significance when many circumstances have to be weighed. However, for over 200 years the fact that a party, bringing proceedings, is resident out of the jurisdiction and has no assets within the jurisdiction has been seen as a circumstance of great weight in determining whether an order for security for costs should be made. Indeed, for many years the practice has been to order such a party to provide security for costs unless that party can point to other circumstances which overcome the weight of the circumstance that that person is resident out of and has no assets within the jurisdiction. The fact that a party, bringing proceedings, is resident out of the jurisdiction and has no assets within the jurisdiction is clearly a significant circumstance militating in favour of an applicant for security for costs. As the above passage highlights, however, there is no rule that security for costs will be awarded as of course where an applicant is resident out of the jurisdiction and has no assets within the jurisdiction. A case may disclose countervailing circumstances that properly justify refusing an application. (emphasis added) 25 Mr Baigent gave evidence that he arranged searches to ascertain whether Mr Pilkin and Mr Miroshnichenko had assets in Australia. The searches did not identify any assets here apart from the patent itself. Mr Pilkin does not appear to dispute that position. 26 There is no evidence that the Russian Federation would recognise or enforce, through its judicial system, any order for costs that this Court may make. The Russian Federation is not listed in the schedule to the Foreign Judgments Regulations 1992 as a foreign country to which Australia accords statutory enforcement of its judgments under s 5(1) of the Foreign Judgments Act 1991 (Cth) on the basis of "substantial reciprocity" of that country's treatment of judgments of Australian superior courts. 27 There is no evidence from Mr Pilkin about how enforcement of an order for costs in this proceeding would occur in the Russian Federation or of any difficulty or facility with which such enforcement could occur there, were he ordered by this Court to pay costs and had not provided security within this jurisdiction to meet any such liability for costs. In that circumstance, I am not satisfied it would be appropriate to limit any order for security so as only to require an amount sufficient to enforce any costs orders in the Russian Federation. That is because there is no material before me to establish that any order of this Court would be enforceable, or readily enforceable, in that country. 28 While I am satisfied that Mr Pilkin has an arguable case that the patent has been infringed, I am also mindful that the source patent has been found invalid in Russia and that in other jurisdictions the applicants, including Mr Pilkin, have not been able to pay for the cost of administrative or legal proceedings in which they sought either to have the patent registered, recognised in a register of patents or enforced. 29 At the moment it is not possible to form any evaluation of the strength of Sony Australia's potential defence in its foreshadowed cross-claim for invalidity because that has not yet been prepared or filed. However, there is significant evidence, in my view, that there is a real prospect that such a defence or cross-claim will be made out by reason of what has occurred in the Rospatent proceedings to which Mr Pilkin referred, although he claims that that result has been brought about by substantial irregularities in the process. There is no evidence, other than his assertion, of such irregularities. There is substantial reason to consider that, by reason of Rospatent's finding that the patent lacks an inventive step, a similar consequence may obtain here. However, at this stage there is no evidence of invalidity of the patent in this jurisdiction and the only evidence that it may be is Mr Pilkin's own evidence of the result in his home country. 30 In that situation I think it is appropriate to proceed only to assess a sum appropriate to award as security to enable Sony Australia to investigate and prepare their defence and cross-claim. That will leave, for another occasion, any consideration, with further evidence of what, if any, additional security should be ordered, once a defence and cross-claim have been filed and served and Mr Pilkin has had a chance to consider and respond to any such pleadings. 31 The claimed invention, being the combination comprising the seven integers in the sole claim in the patent, will need to be examined in the way Mr Baigent has indicated for the purposes of investigating the potential defences in support of any claims of invalidity. That is likely to be an expensive process. I am satisfied by Mr Baigent's evidence that it may well cost in the order of $100,000. 32 In all of the circumstances, however, one or more Sony companies may already have done some considerable work internationally, including the work necessary to procure the result in Rospatent. It follows that I should make some allowance for that work having been done in arriving at an overall sum that is just to award in the circumstances. 33 I am also mindful that, in substance, the cross-claim that Sony Australia wishes to investigate bringing is substantially defensive to the infringement action. In Baygol Pty Ltd v Huntsman Chemical Co Australia Pty Ltd t/a RMAX [2004] FCA 1248 at [27]-[28], Tamberlin J summarised the principles as follows: In my view, the distinction that Baygol seeks to draw lacks cogency precisely because the cross-claim for revocation in the present case is in nature, substance, and effect a defence to the infringement action. If the cross-claim succeeds and the patent is revoked then the claim for infringement does not succeed. It goes to the heart of Baygol's claim that there is a valid patent that has been infringed. There could not be a more effective defence. In Farmitalia [Carlo Erba Srl v Delta West Pty Ltd (1994) 28 IPR 336], Heerey J looked to the "substance" of the application for revocation and at [339], under the heading "Is Farmitalia's Proceeding Essentially Defensive?" answered in the affirmative: "… the Court will always look at the substance of the dispute. There may be circumstances where a party who is formally applicant on the record is in reality not the instigator of the litigation. The proceeding may be essentially defensive; it may, for example, be in substance a defence against 'self-help' measures taken by the respondent …" (Emphasis added) At [341] his Honour continued: "Secondly, Delta West's case on invalidity is in any event a matter of defence. The counter-claim for revocation is really no more then the procedural consequence which will follow if Delta-West is successful in defending Farmitalia's claim by showing that the patent in suit is invalid. Delta-West's assertion of invalidity is, in substance as well as in form, a defence to the claim. … Invalidity is a defence to an essential part of Farmitalia's claim, pleaded as such in its statement of claim." (Emphasis added) 34 In the end, the question of whether to award security for costs against a person resident out of the jurisdiction and the amount of such security essentially involves the Court engaging in an instinctive synthesis of the various relevant factors in the exercise of its discretion. I have had regard to Mr Baigent's quantification of the costs that are likely to be incurred at litigation were an order for security to be made. In all of the circumstances, I consider that I should make some discount to the $50,000 sought. That is because some of the material is likely to have already been considered and collated by Sony companies elsewhere in the world including, in particular, in the Rospatent proceeding.

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