Sandvik Intellectual Property AB v Quarry Mining & Construction Equipment Pty Ltd

1. The appellants pay 80 per cent of the respondent's costs of the appeal. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT: 1 On 31 August 2017, we published our reasons for judgment in the appeal and made orders that: the appeal be dismissed; and within seven days, each party file an outline of submissions (of no more than three pages) on costs. The parties have filed outlines of submissions. These reasons, which should be read together with the 31 August 2017 reasons, deal with the costs issues. We adopt the abbreviations used in the 31 August 2017 reasons. 2 By way of background, we note the following matters. In the proceeding below, Sandvik alleged that Quarry Mining had infringed claims 1 to 4 of the Patent; Sandvik also made certain ancillary claims. Quarry Mining cross-claimed for revocation of the Patent, in relation to claims 1, 2, 3, 4, 6 and 7, on various grounds. The primary judge held that Sandvik's application should be dismissed and the cross-claim upheld. An order was made on 11 March 2016 that, so far as it related to claims 1, 2, 3, 4, 6 and 7, the Patent be revoked. 3 In relation to the costs of the proceeding at first instance, the parties filed and served written submissions, and the primary judge then determined the issue on the papers: Sandvik Intellectual Property AB v Quarry Mining & Construction Equipment Pty Ltd (No 2) [2016] FCA 613 (the Costs Reasons). As discussed in those reasons, it was contended by Sandvik that Quarry Mining should not recover costs in relation to aspects of its case that were abandoned or unsuccessful at trial. His Honour accepted Sandvik's argument that Quarry Mining should not be entitled to costs (with certain narrow exceptions) in respect of the following aspects of its challenge to the validity of the Patent: manner of manufacture, lack of clarity, lack of fair basis and false suggestion. The manner of manufacture ground was abandoned before trial. His Honour did not consider that Quarry Mining should have its costs in relation to this aspect: Costs Reasons, [7]. The lack of clarity, lack of fair basis and false suggestion grounds were abandoned at the point of final submissions. For various reasons, as explained in the Costs Reasons at [8]-[14], his Honour did not consider that Quarry Mining should have its costs in relation to these grounds. It was also submitted by Sandvik that Quarry Mining ought not have its costs of the whole of its lack of novelty case. The primary judge accepted this submission insofar as it related to the use of drill systems at Angus Place Colliery: see Costs Reasons, [16]-[19]. This aspect of the case had been dealt with in an affidavit of Mr McCloskey, but shortly before trial Quarry Mining had indicated that it did not propose to read that affidavit. In the result, the primary judge made the following costs orders on 1 June 2016: 1. The applicants pay the respondent's costs, except costs incurred in connection with the following allegations: (a) that the invention was not a manner of manufacture; (b) save in respect of Claim 6, that the claims in the Patent were not clear and succinct; (c) save in respect of Claim 7, that the claims in the Patent were not fairly based; (d) save in respect of the introduction of Claim 7 into the Patent, that the amendments to the Patent sought by the applicants in March 2006, and subsequently made, were obtained by fraud, false suggestion or misrepresentation; and (e) that the invention had been anticipated by the use of semi-automatic drilling rigs with Sandvik male/female right-hand rope thread extension drill rods at Angus Place Colliery in New South Wales. 2. The respondent pay the applicants' costs incurred only in connection with the allegations excepted from the operation of the previous order. 4 Sandvik appealed from parts of the 11 March 2016 orders and costs orders of the primary judge. Quarry Mining filed a notice of contention. The grounds set out in the amended notice of appeal and the notice of contention raised four broad issues: failure to describe the best method known to Sandvik; lack of novelty; lack of inventive step; and lack of utility. In relation to those issues, our conclusions in the 31 August 2017 reasons were as follows: (a) In relation to the failure to describe the best known method issue, Sandvik did not establish error by the primary judge. (b) In relation to the lack of novelty issue, save in one respect, Sandvik did not establish error by the primary judge. (The one respect in which error was established concerned the first embodiment in claim 6. This aspect, which did not occupy a significant amount of time at the hearing of the appeal, was dealt with at [130] of the 31 August 2017 reasons.) (c) In relation to the lack of inventive step issue, we upheld Sandvik's grounds of appeal. (d) In relation to the lack of utility issue, we rejected Sandvik's grounds of appeal and rejected the notice of contention. 5 The following matters of present relevance should be noted in relation to the above conclusions. First, it followed from our conclusion on the failure to describe the best known method issue that the appeal was to be dismissed and it was strictly unnecessary to consider the other appeal grounds: see the 31 August 2017 reasons, [128]. Secondly, in relation to the lack of inventive step issue, had it been necessary to determine this issue, we would have set aside the relevant conclusions of the primary judge and remitted the issue for reconsideration: see the 31 August 2017 reasons, [186]. 6 We now turn to the parties' respective positions on costs. Sandvik submits that the Court should make orders that: (a) Sandvik pay 65 per cent of Quarry Mining's costs of the appeal; and (b) the primary judge's costs orders be varied by adding to paragraph 1 a new sub-paragraph (f): "that the invention did not involve an inventive step". 7 On the other hand, Quarry Mining contends that: (a) Sandvik should pay 80 per cent of its costs of the appeal; and (b) no alteration should be made to the costs orders made by the primary judge. 8 In our view, for the reasons that follow, there should be an order that Sandvik pay 80 per cent of Quarry Mining's costs of the appeal and no variation should be made to the costs orders of the primary judge. 9 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]. 10 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. 11 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. 12 In the present case, as both sides recognised in their submissions, the starting point is that Quarry Mining, as the successful party, would ordinarily be entitled to its costs of the appeal. Quarry Mining accepts, however, that some apportionment is appropriate in light of Sandvik's success on the lack of inventive step issue, and proposes that Sandvik be ordered to pay 80 per cent of Quarry Mining's costs of the appeal (in other words, it proposes that the costs that would otherwise be payable be reduced by 20 per cent). We consider this proposed reduction to fairly reflect Sandvik's success in respect of the lack of inventive step issue. We do not consider any greater reduction to be appropriate in circumstances where, in particular, the conclusion in relation to the lack of inventive step issue did not affect the outcome of the appeal. Further, we note for completeness that we do not consider it necessary to make any further adjustment on account of our rejection of the notice of contention. This occupied only a limited amount of time at the hearing of the appeal and, it may be inferred, did not occasion significant costs. 13 As for the contention that the costs orders of the primary judge should be varied (in effect to excise from the general costs order in favour of Quarry Mining the costs relating to the lack of inventive step issue), we do not consider it appropriate to make this variation. Although Sandvik was successful in having the primary judge's conclusion on this issue set aside, we would have remitted the issue for reconsideration. Further, it is not demonstrated that it would have been appropriate to excise the lack of inventive step ground from the general costs order, even if Sandvik had succeeded at trial on this issue. 14 Accordingly, we will order that Sandvik pay 80 per cent of Quarry Mining's costs of the appeal. We do not propose to vary the costs orders made by the primary judge. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Greenwood, Rares and Moshinsky.