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[2024] FCA 1052
Federal Court of Australia
2024-09-11
Nicholas J
Original judgment source is linked above.
NICHOLAS J: 1 Before me is an application for a lump sum costs order, which the respondents submit ought to be awarded on an indemnity basis from 15 July 2023. It is necessary to briefly state the history of the proceeding as it relates to whether costs ought to be awarded on an indemnity basis.
History of the Proceeding 2 The applicant commenced his proceeding on 5 April 2023, at which time he had legal representation. In his statement of claim, he asserted that the respondents had infringed Australian Patent No. 2006202191 ("the '191 Patent"), of which he is the inventor and registered proprietor, through the supply of energy drink cans ("Monster Cans"). The '191 Patent is entitled "Laser-etched pull tab container opening devices and methods of making the same". The '191 Patent expired some years prior to the commencement of this proceeding. 3 The applicant also filed a Position Statement on Infringement on 5 April 2023. That statement set out a claim chart identifying and explaining the presence of various integers of claims to the '191 Patent allegedly present in the Monster Cans. 4 In their defence filed 3 July 2023, the respondents denied infringement of the '191 Patent on the basis of the absence of particular integers of claims of the '191 Patent from the Monster Cans. The respondents also asserted that each of the pleaded claims 1 to 4, 10 to 13 (inclusive) and 22 of the '191 Patent were invalid. 5 On 27 July 2023, I handed down judgment and made orders granting the respondents security for costs up to the close of pleadings in the amount of $50,000: Stasiuk v Monster Energy Au Pty Ltd [2023] FCA 856. On 8 August 2023, I made substantive timetabling orders including orders providing for the filing of the applicant's affidavit evidence in chief on infringement. That evidence was due on 8 November 2023. On 13 November 2023, I made orders extending the date for the applicant to file his evidence in chief on infringement to 25 January 2024. An email from the applicant's solicitors, at the time, indicated that the respondents did not oppose this extension. 6 I also made orders, on 8 August 2023, for Monster to file a product and process description ("PPD") in accordance with paras 6.14 and 6.15 of the Intellectual Property Practice Note (IP-1). A PPD was filed on 18 September 2023. 7 On 1 September 2023, the applicant's solicitor filed a Notice of Ceasing to Act, and on 5 September 2023, the applicant filed a Notice of Acting - Change of Lawyer, appointing a new solicitor. On 18 December 2023, that new solicitor also filed a Notice of Ceasing to Act. On 19 December 2023, I ordered the applicant to file a Notice of Address for Service in accordance with r 4.05(2) of the Federal Court Rules 2011 (Cth) ("the Rules"). The applicant filed a Notice of Address for Service on 3 January 2023, listing his own address, in the Cayman Islands, with a notation that this address was "temporary, pending engagement of counsel". By doing so, the applicant had filed a Notice of Address for Service which did not comply by r 11.01(1) of the Rules, which provides that an address for service for a party must include the address of a place within Australia. 8 On 5 February 2024, I ordered the applicant to file and serve a Notice of Address for Service in accordance with r 11.01(1) within 7 days. On that date, I also made an order granting the respondents further security for costs up to the close of evidence in the amount of $350,000. On that date, the applicant still had not filed and served his evidence in chief on infringement. 9 Although the applicant informed the Court, at the case management hearing on 5 February 2024, that he was "in the midst of changing legal counsel", a Notice of Address for Service with an Australian address was never filed. 10 On 14 February 2024, the respondents filed an interlocutory application seeking the following orders: 1. The proceeding be dismissed pursuant to s 23 of the Federal Court of Australia Act 1976 (Cth), and/or in the exercise of the Court's implied power to control its own process and procedure, and/or pursuant to rules 5.23 or 26.01 of the Federal Court Rules 2011 (Cth). 2. The Applicant pay the Respondents' costs of the proceeding fixed in such sum as the Court considers appropriate. 3. The money paid into Court by the Applicant be released to the Respondents in partial payment of the Respondents' costs, by payment into the trust account of the Respondents' solicitors. 4. Such further or other orders as the Court considers appropriate. 11 A hearing in respect of that application was held on 11 March. At that time, the applicant had not provided the further security for costs. I handed down judgment on the same day, and made self-executing orders pursuant to r 5.21 of the Rules, which required the applicant to provide the further amount of security for costs, and file and serve a Notice of Address for Service and his affidavit evidence in chief on infringement, within 14 days: Stasiuk v Monster Energy Au Pty Ltd (No 2) [2024] FCA 237. The applicant did not comply with those orders, with the consequence that the proceeding was dismissed on 25 March 2024. I did not make an order, at that time, dealing with the respondents' costs of the proceeding, save for an order that the applicant pay the respondents' costs of the interlocutory application. 12 The respondents now submit that they should be awarded costs a lump sum basis. The applicant has received a copy of the respondents' written submissions in support of that application. He was notified that the application would be dealt with on the papers and responded to an email sent on 23 April 2024 to the parties containing that information. It is not suggested that the respondents are not entitled to their costs of the proceeding. The only questions that remain are whether the respondents are entitled to an award of those costs in a lump sum, and on an indemnity basis. 13 In their written submissions, the respondents refer to two offers of settlement. The first of these was a Calderbank offer made on 13 July 2023. That offer was put forward on a "walk away" basis, whereby the applicant would discontinue the proceedings and be barred from commencing future infringement proceedings in respect of the '191 Patent, and each party would bear its own costs. In their letter to the applicant, the respondents explained that the applicant was likely to incur unrecoverable costs which would exceed the maximum quantum of damages he would be entitled to, which was said to be "a little over US$76,000". 14 That figure was calculated with reference to an exclusive licence agreement ("the Licence Agreement") the applicant entered into with a third party, a copy of which was provided to the respondents. The Licence Agreement granted that third party a licence under US Patent No. 6,105,806, entitled "Laser Etched Pull Tab Container Opening Device and Methods of Making the Same", the applicant's pending patent application in Canada (Application No. 2,301,655) and a PCT application (WO 01/68460) designating Canada, Mexico and the United States. I was told by counsel for the applicant at an earlier case management hearing that the Licence Agreement related to a patent in the same family as the '191 Patent. The Licence Agreement was the only licence agreement provided to the respondents by the applicant. 15 In their letter containing the Calderbank offer, the respondents explained that they considered the Licence Agreement was on terms which were highly favourable to the applicant for the purposes of damages calculations in this proceeding in any case. The calculation applied the royalty rate to the total number of Monster Cans sold in Australia during the relevant period, even though the respondents contended that many of those cans did not incorporate the allegedly infringing feature. 16 The respondents asserted that the only rational damages calculation was on the basis of a reasonable royalty, in circumstances where an account of profits would be inappropriate because those profits were attributable to the respondents' significant brand reputation and supply of energy drinks within the cans, rather than the component of the can itself to which the '191 Patent allegedly related. 17 The applicant rejected the Calderbank offer the next day and advanced a counteroffer for an amount of USD$20,000,000, stating that the respondents' reliance on the Licence Agreement was misplaced because it was entered into in 2005 and negotiated at the "infancy" of the patent. The applicant also asserted that "a licence fee negotiated between a willing licensor and a licensee who does not take it upon themselves to infringe the patent" would be significantly different to that negotiated between a patentee and a "flagrant infringer", and that the applicant would be entitled to either a significant award of damages or an account of profits. 18 The respondents made a further offer on 28 November 2023, by way of a Notice of Offer to Compromise pursuant to r 25.01 of the Rules. That offer was for a sum of US$220,000 to be paid to the applicant, and for the respondents to pay the applicant's costs. This offer was again calculated on the basis of a reasonable royalty, but with a royalty rate 1.5 times that of the Licence Agreement. The sum of US$220,000 also included an additional amount of US$100,000, to account for additional damages. That offer was not accepted. 19 The respondents submit that they are entitled to indemnity costs from 15 July 2023 on the basis of the Calderbank offer, or, alternatively, 1 December 2023 on the basis of the offer of compromise. The respondents submit that it may be inferred that the applicant no longer considered the costs and uncertainty of pursuing the case to be justified. The respondents also separately submit that they are entitled to indemnity costs from 8 November 2023, being the date that the applicant failed to comply with an order to file his affidavit evidence in chief. 20 With respect to the Calderbank offer, the respondents submit that the offer to "walk away" constituted a "genuine offer of compromise" to resolve the dispute, because the offer would entail the respondents forgoing $136,976.34 of their accrued costs, which was more than they considered the applicant's potential damages to be. With respect to the offer to compromise, the respondents submit that it was unreasonable for the applicant to have failed to accept the offer. 21 The respondents also submit that costs should be awarded in a lump sum, on account of the applicant's failure to comply with orders for the payment of further security for costs, his location, his lack of legal representation and failure to resist the application for dismissal. The respondents say that they will be put to further delay and costs if costs are subject to a taxation process, because the applicant is unlikely to participate in that process.
From 15 July 2023 22 The principles in relation to whether a Court will award indemnity costs on the basis of a party's failure to accept a Calderbank offer are well established. A Calderbank offer may be relevant to a Court's exercise of discretion in making an indemnity costs order, provided that it is a genuine offer of compromise and it was unreasonable for the offeree not to accept it in light of the existing circumstances at the time: Veda Advantage Ltd v Malouf Group Enterprises Pty Ltd (No 2) (2016) 118 IPR 156 at [31] per Katzmann J citing Black v Lipovac (by his next friend Lipovac) (1998) 217 ALR 386 at [217]-[218] per Miles, Heerey and Madgwick JJ. 23 In Anchorage Capital Partners Pty Ltd v ACPA Pty Ltd (No 2) [2018] FCAFC 112 ("Anchorage"), the Full Court (Nicholas, Yates and Beach JJ) set out (at [7]) a non-exhaustive list of matters relevant to whether it is unreasonable for an offeree to reject an offer, including: 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. 24 The respondents submit that the Calderbank offer made on 13 July 2023 was a genuine offer of compromise. In their written submissions, the respondents refer to the judgment of Robb J in Wassell v Ken Carr Bobcat & Tipper Hire Pty Ltd (No 2) [2021] NSWSC 1616 at [15], where his Honour found that an offer by a defendant to forego an amount of costs in the order of $60,000 could act as a genuine offer of compromise where the plaintiff's claim was for "little more than $185,000". However, his Honour then went on to state that, "where the Calderbank offer is a 'walk away' offer, it is difficult to separate a consideration of the strength of the defendant's case from the issue of whether a real compromise was offered", and to consider the application for indemnity costs first from the perspective of whether it was unreasonable for the plaintiff to have rejected the offer. 25 I am not persuaded that the Calderbank offer was a genuine offer of compromise, or that it was unreasonable for the applicant to have failed to accept the offer. As at 13 July 2023, I had not yet made orders providing for the filing of the applicant's evidence in chief. At such an early stage of the proceeding, it was not, in my view, unreasonable for the applicant to reject an offer to discontinue the proceeding with each party bearing its own costs. While there was no evidence available in support of the applicant's claim, there was also no evidence filed which would suggest his prospects of success were so low that an offer to walk away would amount to a genuine compromise. The respondents' PPD was not filed until 18 September 2023.
From 1 December 2023 26 Rule 25.14(2) of the Rules provides: 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. The question that arises under this rule is whether the applicant unreasonably failed to accept the offer of compromise. 27 For the purposes of determining whether a party has unreasonably failed to accept an offer to compromise made under r 25.01 of the Rules, it is appropriate to have regard again to the non-exhaustive list of matters set out by the Full Court in Anchorage at [7]. 28 While no evidence had been served by either party by 28 November 2023, the respondents had served the PPD. The applicant may very well have had a firmer idea about the prospects of his case, having had the benefit of the PPD and also having attended mediation, which occurred on 20 July 2023. With respect to damages, the applicant still had not provided the respondent with any agreements which could be used to calculate a reasonable royalty, other than the Licence Agreement. 29 It is apparent that the offer of compromise includes a genuine compromise on the part of the respondents. The multiplier applied to the royalty rate in the Licence Agreement, the inclusion of a sum of money for additional damages, and the agreement to pay the applicant's costs as agreed or taxed are indicative of that genuine compromise. As I have stated above, no other licence agreement was provided to the respondents by the applicant. In the circumstances, with only the Licence Agreement to refer to as a basis for a reasonable royalty calculation, the offer of compromise represented a genuine attempt by the respondents to resolve the proceedings. The offer was also open for an appropriate time (14 days), clearly expressed, and demonstrates an intention to rely r 25.14(2) of the Rules for indemnity costs. 30 As at 28 November 2023, the applicant had had the PPD for over 2 months. From this I would infer that by the time the offer of compromise was made, the applicant no longer considered the costs and uncertainty of pursuing the case to be justified. In the circumstances, I am satisfied that it was unreasonable of the applicant not to have accepted the offer of compromise. 31 Accordingly, the applicant should pay the respondents' costs before 11am on 1 December 2024 on a party and party basis, and after that time and date on an indemnity basis.
From 8 November 2023 32 The respondents submit that because of the applicant's failure to comply with the orders of the Court, they have incurred significant and unnecessary costs. In particular, they refer to the applicant's failure to file his evidence in chief on 8 November 2023 and submit that it is appropriate for the applicant to pay indemnity costs from that date in light of that failure. However, as noted above, the date by which the applicant was required to file and serve his affidavit evidence in chief on infringement was extended to 25 January 2024. The respondents did not oppose that extension. 33 Given the respondents did not oppose the extension to the date by which the applicant was to file his affidavit evidence in chief on infringement, I see no basis for an award of indemnity costs for the period between 8 November 2023 and 11am on 1 December 2023.
Should costs be awarded in a lump sum? 34 It is the Court's preference, wherever it is practicable and appropriate to do so, for a lump sum costs order to be made: Costs Practice Note ("GPN-COSTS") at subpara 4.1. Having regard to the applicant's place of residence, his failure to pay the amount of further security for costs and his failure to appoint lawyers to act for him after 18 December 2023, I am satisfied that this is an appropriate case in which to make a lump sum costs order.
Quantification of the lump sum 35 The principles in relation to the Court's approach to the quantification of a lump sum were set out by Jackson J in Frigger v Trenfield (No 12) [2022] FCA 900 at [11]: In a lump sum assessment, the court applies a broader brush than would be undertaken on taxation by reference to individual items of costs: Sandalwood Properties Ltd (Subject to a Deed of Company Arrangement) v Huntley Management Ltd (No 2) [2019] FCA 647 at [10] (Colvin J). The task is one of estimation or assessment and not of arithmetic: Bayley & Associates Pty Ltd v DBR Australia Pty Ltd [2014] FCA 346 at [17(e)] (Foster J). It is not a detailed examination of the kind that would be appropriate to taxation, as that would defeat the purpose of a lump sum costs order of avoiding the expense, delay and aggravation involved in a formal taxation of costs and associated litigation: Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 120 (von Doussa J); Bitek Pty Ltd v IConnect Pty Ltd [2012] FCA 506 at [14], [23] (Kenny J). 36 The respondents' solicitor has filed an affidavit, affirmed on 8 March 2024, which serves as a costs summary consistent with subparas 4.10 to 4.12 of GPN-COSTS. That affidavit sets out the costs incurred and estimated to be incurred after 8 March 2024 by the respondents in this proceeding. 37 According to that affidavit: (1) The total costs incurred by the respondents from the commencement of the proceeding to 30 November 2023 are $503,201.61; (2) The total costs incurred by the respondents from 1 December 2023 to the date of the affidavit, being 8 March 2024, are $149,375.96; (3) The respondent's solicitor estimates that 65% of the respondents' total out-of-pocket costs paid to their solicitors, 90% of the respondents' total out-of-pocket costs paid to counsel, and 100% of the respondents' costs paid in respect of disbursements would be recoverable on a party and party basis, if costs were to be taxed. (4) The future costs which were estimated by the respondents' solicitor to be incurred after 8 March 2024 were $95,000. This amount includes costs of $30,000 which it was estimated would be incurred in relation to the dismissal of the proceeding and lump sum costs procedure, and $65,000 in relation to the enforcement of the lump sum costs order in the Cayman Islands. 38 There is no proper basis for awarding costs to the respondents which they may incur in enforcing the lump sum costs order in the Cayman Islands. Section 43(1) of the Federal Court of Australia Act 1976 (Cth) provides that the Court or a Judge "has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which this or any other Act provides that costs must not be awarded" (emphasis added). That power is expressed in terms of proceedings before this Court. Whether the respondents are entitled to the costs of enforcing any costs order made in this proceeding in the Cayman Islands is a matter for the court to which they will apply for such enforcement. 39 After discounts are applied, fees payable in respect of the period prior to 1 December 2023 are reduced to $343,572.02. Combined with fees payable on an indemnity basis from 1 December 2023, but not including any costs of the enforcement of the lump sum costs order, the total amount of the respondents' costs payable by the applicant is $522,947.98. 40 I am satisfied that the discounts applied by the respondents to arrive at the party and party costs are appropriate. I have also given consideration to the question of whether there should be a further discount applied to the respondents' costs, to take account of the fact that such costs have been assessed on a lump sum basis: see Coshott v Burke (No 2) [2018] FCAFC 81 and the authorities cited at [21] therein. I propose to reduce the total amount of the award to $520,000 to take account of a potentially excessive estimate of costs to be incurred in relation to the dismissal of the proceeding and lump sum costs procedure. I do not think any further discount is warranted in this case. 41 Order accordingly. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Nicholas.
Stasiuk
Monster Energy Au Pty Ltd
(1998) 217 ALR 386
(2016) 118 IPR 156
(1995) 57 FCR 119