PKT Technologies Pty Ltd (formerly known as Fairlight.au Pty Ltd) v Peter Vogel Instruments Pty Ltd

1. The respondent/cross-appellant is to pay 35% of the appellant/first cross-respondent and second cross-respondent's costs of the proceeding (i.e. the appeal and the cross-appeal). Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT: 1 This judgment deals with the costs of the appeal in PKT Technologies Pty Ltd (formerly known as Fairlight.au Pty Ltd) v Peter Vogel Instruments Pty Ltd [2019] FCAFC 216 (the appeal judgment). It also deals with a question of pre-judgment interest. For convenience, the same abbreviations are employed in what follows as were employed in the appeal judgment. 2 To recap, on 13 December 2018, the remittal judge made the following substantive orders (all amounts being exclusive of interest): (1) that Fairlight pay PVI the amount of $330,956 in damages for wrongful repudiation of the Agreement, and $53,000 in damages for copyright infringement; and (2) that PVI pay Fairlight the amount of $9,808 as the profits attributable to PVI's infringement of Fairlight's registered trademark. 3 Fairlight appealed from the whole of that judgment and contended for the following orders: (1) that PVI's claim against Fairlight for wrongful repudiation of the Agreement be dismissed (i.e. that none of the sum of $330,956 be awarded); and (2) that in respect of Fairlight's claim against PVI for trademark infringement, PVI pay Fairlight the sum of $137,485 (i.e. that the amount awarded be increased by approximately $128,000). 4 In its amended notice of appeal, Fairlight also sought an order that PVI pay Fairlight's costs of the remittal proceedings. Those costs were not ordered in the judgment appealed against. As will be seen, the costs of the remittal proceedings and questions of pre-judgment interest were dealt with in a subsequent judgment on 13 December 2018: PKT Technologies Pty Ltd (formerly known as Fairlight.Au Pty Ltd) v Peter Vogel Instruments Pty Ltd (No 2) [2018] FCA 2072. There was no appeal from that judgment. Also, no submissions have been made in the appeal, whether before the appeal judgment or subsequently, in support of varying the costs judgment below. 5 PVI cross-appealed from part of the remittal judgment and contended for the following orders: (1) that in respect of PVI's claim against Fairlight for repudiation of the Agreement, Fairlight pay PVI $981,299 or, alternatively, $9,577,918 (i.e. increases of $650,000 and $9,246,962 respectively); (2) that in respect of Fairlight's claim against PVI for trademark infringement, PVI pay no damages to Fairlight (i.e. a decrease of $9,808); and (3) that KFT be jointly liable with Fairlight for the $53,000 damages for copyright infringement. 6 The results in the appeal and the cross-appeal were as follows: (1) in respect of Fairlight's repudiation of the Agreement, Fairlight's appeal was partially successful and its liability to PVI was reduced by the amount of $17,797.50; (2) Fairlight's appeal was otherwise dismissed; and (3) PVI's cross-appeal was dismissed. 7 Fairlight made submissions in support of the following costs orders on the appeal and the cross-appeal: (1) Fairlight is to pay 80% of PVI's costs of the appeal on a party/party basis as agreed or taxed; (2) PVI is to pay 20% of Fairlight's costs of the appeal on a party/party basis as agreed or taxed; and (3) PVI is to pay Fairlight's costs of the cross-appeal on a party/party basis as agreed or taxed. 8 Fairlight's submissions in support of those orders can be summarised as follows: (1) Fairlight advanced four grounds of appeal, of which one was successful; (2) the time spent on the successful ground, in both the written submissions and at the hearing, equated to about 20% and thus Fairlight and PVI's proportionate success on Fairlight's appeal was approximately 20% and 80% respectively; and (3) Fairlight was entirely successful on each of the grounds advanced by PVI on its cross-appeal and should accordingly have the entirety of the costs of the cross-appeal. 9 Fairlight also submitted that it was relevant to the exercise of the Court's discretion that the success that it achieved was the correction of an error by the remittal judge "which resulted from PVI brazenly claiming amounts to which it was not entitled". That is a reference to PVI having claimed amounts that it spent in developing the App as part of its reliance losses in respect of the repudiation of the Agreement. Fairlight submitted that there was "no excuse for PVI steadfastly seeking to defend this on appeal, in a disingenuous way" and this issue "should never properly have been put in contest by PVI, particularly at a time when Mr Vogel was an officer of the Court". 10 Fairlight stated in its submissions that Fairlight and KFT had common representation and that the work undertaken for each is indistinguishable. For that reason, the submissions on behalf of Fairlight and KFT drew no distinction between their respective costs. Accepting that, references below to the Court's conclusions with regard to Fairlight's costs include KFT's costs. 11 PVI submitted that the proper costs order is that each party bear its own costs on the appeal and the cross-appeal. Its submissions in favour of that outcome can be summarised as follows: (1) Fairlight was only partly successful on the ground of appeal on which it enjoyed success and in only a moderate amount (i.e. reducing approximately $330,000 by nearly $18,000); (2) PVI attempted over a long period of time to resolve the dispute, which attempts Fairlight unreasonably ignored or rebuffed; (3) had Fairlight not filed the appeal, PVI would not have cross-appealed; (4) any attempt to apportion costs in the complicated manner proposed by Fairlight would result in protracted disputes about the allocation of cost items between appeal and cross-appeal; and (5) the extent to which Fairlight was successful, i.e. a reduction in its liability by $17,798, amounting to approximately 3% of the total liability of $511,633, is so modest that any costs in respect of it should be reduced to nil under r 40.08 of the Federal Court Rules 2011 (Cth). 12 It is not apparent where the figure of $511,633 comes from. Presumably, it is the amounts awarded by the remittal judge on 13 October 2018 plus the amount awarded for pre-judgment interest on 13 December 2018 with some deductions for the small award in Fairlight's favour and pre-judgment interest on that amount. 13 In reply, Fairlight submitted that although it had put in issue the whole of the amount for reliance damages (approximately $330,000), the substantive part of that ground of appeal, which took up most of the time and effort spent on that ground, was in relation to PVI having claimed costs to which it was not entitled which is the aspect on which Fairlight was successful. With regard to PVI's submissions on its efforts to resolve the dispute, Fairlight tendered an offer that it had made and other correspondence from PVI. 14 The relevant principles are well-known and are not in dispute. Under s 43 of the Federal Court of Australia Act 1976 (Cth), costs are in the discretion of the Court. The discretion is broad but is to be exercised judicially. The fundamental purpose of the discretion is to compensate the successful party, not to punish the unsuccessful party. In general, a successful party will obtain an order for costs in its favour. However, 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. If the apportionment of costs is appropriate, the object is not mathematical precision but a result that best reflects the interests of justice in the overall circumstances of the case. See EMI Songs Australia Pty Ltd v Larrikin Music Publishing Pty Ltd [2011] FCAFC 92 at [9]. 15 However, the mere fact that a court does not accept all of a successful party's arguments does not make it appropriate to deal with costs on an issue by issue basis: The State of Victoria v Sportsbet Pty Ltd (No 2) [2012] FCAFC 174 at [8]. A court will be reluctant to adopt an approach of apportioning costs between different issues depending on success or failure on those issues where it is likely to be difficult, if not impossible, to allocate items of costs between the different issues. See Marmax Investments Pty Ltd v RPR Maintenance Pty Ltd (No 2) [2015] FCAFC 155 at [16] citing Cretazzo v Lombardi (1975) 13 SASR 4 at 16; and Chevron Australia Holdings Pty Ltd v Commissioner of Taxation (No 5) [2015] FCA 1310 at [15]. 16 The fact that PVI's appeal was by way of cross-appeal rather than appeal and that it thus may be the case (a matter on which no finding can be made on the available evidence) that PVI would not have cross-appealed but for Fairlight's appeal is not relevant to the enquiry. The fact of the matter is that PVI cross-appealed and the cross-appeal took up a very considerable amount of the time and effort in the proceeding. The cross-appeal was also of far greater financial significance (more than $9 million) than any part of the appeal (a maximum of approximately $460,000). 17 In the circumstances, Fairlight should rightly have its costs on the cross-appeal. 18 Insofar as the appeal is concerned, Fairlight's assessment of 20% success and 80% loss is perhaps a little too generous to it. In purely financial terms, it sought by the appeal to improve its position by approximately $460,000 and succeeded to the extent of nearly $18,000, which is only approximately 4%. However, looking at the matter differently, of the four grounds of appeal that it pressed, it was wholly successful on one of them (ground 2). PVI is mistaken in submitting that Fairlight was only partially successful on one of its grounds of appeal. It is true that Fairlight was only partially successful in reducing the amount awarded for reliance damages, but it was wholly successful in contending that the App development costs should be excluded from the additional mitigation costs. That was a separate ground of appeal and took up a fair amount of time and effort in the appeal notwithstanding the modest sum at stake. 19 Rule 40.08 of the Federal Court Rules 2011 (Cth), as relied on by PVI, does not by its terms apply in the present circumstances. 20 This has been long and hard fought litigation. Neither party has given an inch to the other, and each side has criticised the other for its conduct. Even at this last stage in the process, being the determination of the costs of appeal, there are heated allegations and counter allegations. It is apparent that any attempt to carve up the costs in the manner that Fairlight proposes is likely to lead to further disputes and more being spent on what must already have been very expensive litigation. In those circumstances, it is preferable to take a pragmatic approach by making a costs order that will not entail the allocation of costs between the appeal and the cross-appeal, or between different issues in the appeal. 21 PVI's submissions in reliance on the conduct of the parties with regard to possibly resolving the dispute between them, and Fairlight's response thereto, are not relevant in the exercise of the Court's discretion. That is because it would appear that all those efforts were prior to the costs judgment by the remittal judge. To the extent that the parties relied on them, they were presumably taken into account at that stage. Matters moved on from then and neither party has made any submission with regard to attempts to resolve the appeal and/or cross-appeal prior to judgment. 22 With regard to Fairlight's submissions of impropriety or unreasonableness on the part of PVI in maintaining or advancing certain arguments, the matters are by no means clear cut. Insofar as Fairlight again, as it did without success on appeal, characterises a statement in the judgment of the trial judge as being a finding that Mr Vogel had told a "bare-faced lie" in cross-examination, it is not at all clear that that is correct; it is possible that the trial judge was merely recording Fairlight's submission without making a finding on it. See Fairlight.AU Pty Ltd v Peter Vogel Instruments Pty Ltd (No 3) [2015] FCA 1422 at [102] and [105]. In any event, it is difficult to see how such a finding might be relevant to the question of the costs on the appeal. 23 If one took as a starting point that both the appeal and the cross-appeal essentially failed, one would arrive at an order that each party pay its own costs of the proceeding. That is what PVI contends for. However, if one then makes an adjustment, as one must, which takes into account that Fairlight enjoyed some, albeit moderate, success in the appeal, and that the cross-appeal was the dominant part of the proceeding having regard to what was at stake, the conclusion would be that some costs should be awarded to Fairlight. 24 Taking all matters into consideration, a fair and proportionate costs order that best reflects the interests of justice in the overall circumstances of the case is that PVI pay 35% of Fairlight's costs of the proceeding (i.e. the appeal and the cross-appeal). 25 Finally, there is the adjustment which Fairlight seeks in relation to pre-judgment interest. As indicated, the notice of appeal and the amended notice of appeal, and indeed the notice of cross-appeal, only seek to impugn the judgment of 13 October 2018. The judgment of 13 December 2018 was never appealed from. It is that judgment that deals with pre-judgment interest. 26 In the circumstances, there is no basis upon which the Court can revisit the pre-judgment interest awarded in the judgment of 13 December 2018. The appellate jurisdiction of the Court has not been enlivened in respect of that judgment and there is no scope for the operation of the slip rule. 27 In the circumstances, PVI should be ordered to pay 35% of Fairlight's costs of the proceeding (i.e. the appeal and the cross-appeal). I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Besanko, Banks-Smith and Stewart.