Rakman International Pty Limited v Boss Fire & Safety Pty Ltd

1. The respondents'/cross-claimant's party and party costs of the proceeding be discounted by 20%. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 This matter has been remitted to me by a Full Court to determine a specific question in respect of costs. 2 On 20 September 2022, I made an order that the applicants/cross-respondents pay the respondents'/cross-claimant's costs of the proceeding (including the cross-claim) to date: (a) up to 11.00 am on 30 July 2019 on a party-party basis; and (b) from 11.00 am on 30 July 2019 on an indemnity basis. 3 My reasons for making that order are set out in Rakman International Pty Limited v Boss Fire & Safety Pty Ltd (No 2) [2022] FCA 1113 (PJ). 4 Rakman International Pty Limited (Rakman) and Trafalgar Group Pty Ltd (Trafalgar Group) (together, Trafalgar) sued Boss Fire & Safety Pty Ltd (Boss) and its sole director, Mark Prior, for infringement of Patent No. 2017101778 (the patent), in reliance on s 117(1) of the Patents Act 1990 (Cth) (the Patents Act). The respondents denied infringement. Boss cross-claimed seeking revocation of all the claims. Boss also cross-claimed seeking relief pursuant to s 128(1) of the Patents Act for unjustifiable threats, and for relief based on the Trafalgar Group's contravention of s 18(1) of the Australian Consumer Law (Sch 2 to the Competition and Consumer Act 2010 (Cth)). 5 I found that all the claims of the patent were invalid. Claims 1, 2, 3, and 4 were invalid on the ground that the invention, as claimed in each claim, was not novel. I found that claim 5 was invalid on the ground that the invention, as claimed in that claim, did not involve an innovative step. Had I not found that the invention claimed in claim 3 was not novel, I would have found that the invention claimed in that claim did not involve an innovative step. Other grounds of invalidity advanced by Boss failed. 6 It followed from these findings that Trafalgar's claim of infringement could not succeed. However, had the claims of the patent not been invalid, Trafalgar's case on infringement against Boss, but not against Mr Prior, would have succeeded. 7 I was not satisfied that Boss had established that Trafalgar Group had made unjustifiable threats within the meaning of s 128(1) of the Patents Act. I was satisfied, however, that Trafalgar Group had contravened s 18(1) of the Australian Consumer Law by sending a letter to a number of firms engaged in the building industry which made a number of statements concerning Boss's conduct and the fact that Trafalgar had commenced proceedings against Boss for patent infringement. 8 On the question of costs, Trafalgar proposed that Boss should pay 90% of the costs of the infringement claim. Its reasoning was that it had succeeded on the question of construction of the patent claims and, subject to my adverse findings on claim validity, substantially on the question of infringement. Because it did not succeed in establishing that Mr Prior authorised Boss's alleged infringement, it proposed that there be a discount of 10% on the costs which Boss should otherwise be ordered to pay. 9 Trafalgar proposed that it should be ordered to pay 30% of the costs of Boss's cross-claim on the basis that a discount of 70% was warranted to reflect Boss's lack of success on a large number of issues. Trafalgar estimated that "close to 90%" of the written submissions, and a significant proportion of the written and oral evidence, addressed grounds of revocation raised by Boss which were either abandoned or determined in Trafalgar's favour. 10 Boss proposed that Trafalgar pay its costs of the proceeding on an indemnity basis having regard to a series of offers of compromise it had made, including an offer made on 26 July 2019 to the effect that the claim and cross-claim be discontinued on the basis that Trafalgar pay 80% of Boss's party and party costs up to the date of the offer (Offer 1). 11 Boss relied on r 25.14(2) of the Federal Court Rules 2011 (Cth), which provides: 25.14 Costs where offer not accepted ... (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. ... 12 Despite numerous arguments advanced by Trafalgar, I was satisfied that its failure to accept Offer 1 was unreasonable and that r 25.14(2) was engaged. In reaching that decision, I noted that Trafalgar had raised an argument that, because Offer 1 merely offered the discontinuance of proceedings, it was not unreasonable for it to fail to accept that offer. 13 As to this argument I said (at [PJ 53]): 53 … I do not find this argument persuasive. It is based on the proposition that, having extricated itself from legal proceedings because of Trafalgar's acceptance of Offer 1, Boss would then turn around and commence proceedings against Trafalgar afresh, raising the same claims. I can think of no rational basis for Boss doing so as the party that was originally sued. The argument seems more theoretical than real. What is more, Trafalgar has not adduced any evidence to support the proposition that its failure to respond to Offer 1 was because Boss was only offering discontinuance. 14 At PJ [55] I also said: 55 It is not necessary for me to address in any detail Trafalgar's contentions that, absent the application of r 25.14(2), it should be awarded 90% of its costs of the infringement claim and that Boss should only be awarded 30% of its costs of the cross-claim. I will simply note that, had I been persuaded that r 25.14(2) should be displaced in respect of the patent proceedings, I would not have awarded costs on this basis. In particular, I would not have been persuaded that Trafalgar should necessarily have an order for costs in its favour in respect of the infringement claim and I would not have been persuaded that Boss's costs of the cross-claim should be subject to the very deep discount that Trafalgar seeks. 15 In earlier paragraphs of my reasons, I addressed Trafalgar's submission that Boss had raised issues which it subsequently abandoned or which had failed. At PJ[41] - [42], I said: 41 It is undoubtedly true that, ultimately, a number of the issues pleaded in the cross-claim, insofar as they were directed to claim validity, were abandoned by Boss or failed. In the normal course of events, this circumstance might justify a discount being applied to the costs to which Boss is entitled. But it is equally true that Trafalgar raised a great many factual issues that were directed to establishing that Boss's evidence had been fabricated. The alleged fabrications found a particular focus in the evidence of the Seltor meeting: whether the Pass-It Version 2 was in existence at the time of the Seltor meeting; whether the Firestopit PDS was a genuine document; whether the photographic images of the samples and the Firestopit PDS that were displayed at the Seltor meeting had been falsified. These challenges raised myriad sub-issues. Trafalgar even went so far as to challenge whether the Seltor meeting had taken place. 42 All of these challenges by Trafalgar were fruitless. All added significantly to the complexity of the case - complexity that was not otherwise present in this part of the cross-claim. All added considerably to the volume of evidence that Trafalgar called at the hearing. And all added to the intricate web of factual issues that, ultimately, fell for determination. Had these unsuccessful challenges not been made, much of the factual complexity attending the question of claim validity would have been avoided, and the hearing of the cross-claim considerably shortened. 16 Trafalgar appealed against the costs order. In relation to Offer 1, it raised three substantive submissions. First, it contended that I should have found, as a matter of fact, that it was not unreasonable for it to reject Offer 1. Secondly, it contended that I erred in concluding that Offer 1 was a genuine offer in circumstances where only the discontinuance of proceedings was offered. Thirdly, it contended that I erred in failing to take into account Boss's failure in, or abandonment of, significant parts of its cross-claim. 17 The Full Court accepted the second submission (Rakman International Pty Limited v Boss Fire & Safety Pty Ltd [2023] FCAFC 202), finding (at [165]): 165 ... The offer merely to discontinue the cross claim served to leave the validity of the patent at large, with no contractual obligation on the respondents not to bring fresh proceedings for cancellation. Whilst there was no evidence to say that Boss would resurrect its cross-claim alleging the invalidity of the patent, there was no legal impediment to Boss doing so. Whilst, for the reasons set out by the primary judge at [53], that might not have eventuated, we consider that those advising the appellants were entitled, if not obliged, to take that fact into account and to conclude that an offer merely to discontinue the proceedings may not quell the controversy between the parties. We respectfully consider that the primary judge erred in discounting the difference between the offer to discontinue the claim and the cross-claim and a dismissal of both. 18 As to the third submission, the Full Court noted my observation at PJ[55], and said (at [168] - [169]): 168 In our view, the discount proposed by Trafalgar was manifestly excessive. In saying that, we are mindful of his Honour's observations concerning Trafalgar's case and the many factual issues it raised directed to establishing that Boss' evidence had been fabricated, that the infringement case formed a very small part of the patent proceeding and that much of the factual complexity attending the questions of claim validity would have been avoided and the hearing of the cross-claim considerably shortened, were it not for Trafalgar having raised such issues. 169 Nevertheless, given we have found that FCR 25.14(2) did not apply, it seems to us that it may be appropriate to apply some discount to the costs to be awarded to Trafalgar (sic) in the patent proceeding to take account of costs it incurred in respect of issues which were either abandoned by Boss or not pressed by it. In saying this, we are not to be taken as suggesting that a discount should be necessarily allowed. However, it seems to us given our conclusion in relation to the application of FCR 25.14(2), that the parties should be given an opportunity to make further submissions to the primary judge on that issue. In our opinion, it is an issue best considered by the primary judge who presided at the trial and who is in a far better position than we are to determine what discount (if any) is appropriate. We therefore propose to remit this issue to the primary judge for determination. 19 The Full Court made the following order: ... 2. Order 4 made by the primary judge in Proceeding NSD 1589 of 2018 (the Patent Proceeding) be set aside and, in lieu thereof: (a) the applicants/cross-respondents pay the respondents'/cross-claimant's costs of the Patent Proceeding (including the cross-claim) on a party/party basis subject to any order made pursuant to subpara (b) below; (b) the Patent Proceeding be remitted to the Primary Judge for the purpose of determining whether the costs payable to the respondents/cross-claimant pursuant to subpara (a) above should be reduced on account of matters that were either abandoned or decided against them and, if so, by what proportion. ... 20 Although at [169] the Full Court referred to the parties being given an opportunity to make further submissions on whether a discount should be applied, the remittal order made no provision for that to be done. Notwithstanding that fact, and notwithstanding the fact that the parties had already addressed the question of a discount in the submissions they had made at the time that costs were argued before me, I allowed the parties to file further submissions on this question in deference to the Full Court's observations: Harvard Nominees Pty Ltd v Nicoletti [2022] FCAFC 179 at [96].