(1988) 165 CLR 30
Benefit Strategies Group Inc v Prider [2005] SASC 194
(2005) 91 SASR 544
Doe v Howard [2015] VSC 75
General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69
(1964) 112 CLR 125
Huntington v Attrill [1893] AC 150
Schnabel v Lui [2002] NSWSC 1184
Source
Original judgment source is linked above.
Catchwords
(1988) 165 CLR 30
Benefit Strategies Group Inc v Prider [2005] SASC 194(2005) 91 SASR 544
Doe v Howard [2015] VSC 75
General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69(1964) 112 CLR 125
Huntington v Attrill [1893] AC 150
Schnabel v Lui [2002] NSWSC 1184
By way of a notice of motion filed on 23 February 2016, Mr Liam Ellis (the first defendant, to whom I shall refer for convenience as "the defendant") has sought leave to file an amended defence in these proceedings. That motion was filed after a hearing of an earlier motion of Surgibit IP Holdings Pty Limited (the plaintiff) on 2 February 2016 culminated in consent orders being made by me. The consent orders were as follows:
1. The defence of the first defendant is struck out.
2. The first defendant must pay the plaintiffs' costs of the motion filed on 1 December 2015.
3. On or before 23 February 2016 the first defendant shall file and serve:
(a) a notice of motion seeking leave to re plead the defence raising a defence that the US judgment is in whole or in part penal in nature; and
(b) such evidence on which he seeks to rely on that application.
4. In the event that the first defendant does not comply with order 3 the plaintiffs have liberty to apply to the registrar for orders giving judgment to the plaintiffs in terms of prayers 1 to 3 of the statement of claim.
5. The motion in order 3 is returnable on 8 March 2016.
6. The proceedings are listed for directions on 8 March 2016.
The motion of the defendant was opposed by the plaintiff, on the basis that the proposed amended defence was insufficiently pleaded, and incapable of success.
Background
To state the background very succinctly, the plaintiff obtained a default judgment against the defendant (and a company associated with him) in the United States District Court for the North Eastern District of Illinois: Surgibit IP Holdings Pty Limited v Orchid Orthopedic Solutions (District Court for the North Eastern District of Illinois (US), Civil Action No. 1:13-cv-8839, 20 June 2014). The underlying cause of action was breach by the defendant and the associated company of a United States patent pertaining to a particular design of a surgical drill bit. The foreign court ordered damages in the sum of $US 1,013,480.28. An application was made by the defendant to re-open that default judgment, but it was rejected: see Surgibit IP Holdings Pty Limited v Orchid Orthopedic Solutions (District Court for the North Eastern District of Illinois (US), Civil Action No. 1:13-cv-8839, 14 October 2015). No appeal was ever prosecuted against that refusal to permit the default judgment to be re-opened, and accordingly the foreign judgment remains extant.
The proceedings of the plaintiff in this Court are not an effort to re-litigate the question of the liability of the defendant. Rather, as can be seen from the statement of claim of 20 March 2015, they are merely proceedings seeking registration of the judgment of a court of United States in a court of New South Wales.
Position of the defendant
On the earlier hearing day, 2 February 2016, it was not disputed by counsel for the defendant that the preconditions for registration of a foreign judgment had been made out by the plaintiff; that none of the vitiating factors with respect to that process could be established by the defendant; and that the question is really one of quantum (see transcript of motion (TM) of 2 February 2016, 18.49-19.1).
On the second hearing date, 30 March 2016, I enquired of counsel for the defendant whether the proposed amended defence denied the enforceability in New South Wales of the entirety of the United States judgment. Counsel accepted that the proposed amended defence placed before me resisted only that part of the judgment that is founded upon "triple damages", on the basis that that portion of the foreign judgment is in fact penal in nature, and therefore unenforceable in New South Wales: see Huntington v Attrill [1893] AC 150; Attorney-General (UK) v Heinemann Publishers Australia Pty Ltd (No 2) [1988] HCA 25; (1988) 165 CLR 30; and, for a recent review of the authorities, Doe v Howard [2015] VSC 75. In oral submissions, counsel submitted that the proposed amended defence should also be read as extending to that part of the foreign judgment that is founded upon the defendant paying the fees of the attorneys of the plaintiff in the foreign proceedings. Again, the proposition is that this court would characterise that costs order as being penal in nature.
In other words, it was accepted that the proposed amended defence provides no defence to those portions of the foreign judgment that are not said to be penal in nature: that is, the amount of $US 205,905.00 for damages based on the number of units sold in the United States contrary to the patent, and recoverable costs of $US 3,610.00 (which appear at [9] and [12] respectively of the judgment of 5 February 2015: Surgibit IP Holdings Pty Limited v Orchid Orthopedic Solutions (District Court for the North Eastern District of Illinois (US), Civil Action No. 1:13-cv-8839, 5 February 2015)).
It follows from those concessions that, whatever decision I may come to about the arguability of the amended defence with regard to the two allegedly penal portions of the foreign judgment, there is no reason why the undisputed portions thereof should not be severed (pursuant to r 13.3 of the Uniform Civil Procedure Rules 2005 (NSW)) and a default judgment entered for, at the least, the sums that are derived from them. Counsel for the defendant explicitly accepted as much in discussion between Bench and Bar table.
Position of the plaintiff
Although the primary position of counsel for the plaintiff was that the motion of the defendant should be rejected (as I have said, on the basis that there is no utility in permitting the amended defence to be filed), his ancillary position was that there should be severance and entry of a partial default judgment.
As for his primary position, counsel for the plaintiff accepted that, although the defendant is the moving party on the motion, de facto it was the plaintiff who "bore the onus" of persuading me that the entirety of the proposed amended defence should be rejected, on the basis that it could not possibly succeed. He therefore did not demur from my initial thought that the principles in General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 have some work to do in determining the fate of the motion.
Turning to the merits of the defence, counsel for the plaintiff accepted that there is authority to suggest that what a New South Wales court would characterise as punitive damages can nevertheless, if ordered by a foreign court, be characterised as penal in nature, and therefore fall foul of the prohibition on enforcement in New South Wales of a foreign judgment of that kind. He referred to the well-known decision of Bergin J (as her Honour then was) in Schnabel v Lui [2002] NSWSC 1184; (2002) 56 NSWLR 119. But he sought to distinguish that case from the circumstances of this case, on the basis that one can see from the foreign judgment here that triple damages were ordered not because of an explicit or implicit contempt of court, but rather because the defendant had wilfully infringed the patent of the plaintiff.
Counsel referred to the decision of the Full Court of the South Australian Supreme Court in Benefit Strategies Group Inc v Prider [2005] SASC 194; (2005) 91 SASR 544, in support of the proposition that a distinction should be drawn between punitive damages imposed due to a failure to comply with court orders (as in Schnabel v Lui) and punitive damages imposed as a consequence of breaching a private civil right (as were imposed, it was submitted, in this case). Counsel accepted that the enunciation of principle in Benefit Strategies Group Inc v Prider is obiter dicta, in that a concession had been made in those proceedings that the punitive damages would not be enforced in South Australia, but submitted nevertheless that it is a compelling decision of an Australian intermediate appellate court about the common law of this nation.
Counsel for the plaintiff (in my respectful opinion, appropriately) accepted that I should determine the motion on the assumption that yet another proposed amended defence will in the future extend not only to assert that the triple damages were penal in nature, but also the order for payment of attorney's fees. But he submitted that there is simply no basis upon which one could infer on the material placed before me that that portion of the foreign judgment is founded upon penal concepts.
The primary position of counsel for the plaintiff may be summarised as being that the proposed amended defence is doomed to failure; that there is no utility in the defendant having leave to file it; that the proceedings have been on foot since 12 December 2013 in the United States and since 20 March 2015 in New South Wales; and that the plaintiff is pressing for nothing more complicated than the registration of a foreign judgment that cannot be resisted. He submitted that the time has come at which I should reject the motion and enter a default judgment for the entirety of the sum claimed in the statement of claim.
Determination
I accept without difficulty that, at the least, the plaintiff should have a default judgment for so much of the foreign judgment that is indisputably registrable and not of a penal nature. I repeat that counsel for the defendant very properly conceded as much. But I am not prepared to go further and enter a default judgment for the entirety of the sum claimed. That is so for the following reasons.
First, I consider that it is reasonably arguable that the triple damages are penal in nature. I say that not only because the judgment in Schnabel v Lui shows that, in unusual circumstances, damages ordered by a United States court to a litigant can nevertheless be characterised as penal in nature: see [176]. I also consider that the law generally about this question (including the legal question of how an Australian court will characterise attributes of the legal system of the United States) is not so pellucid as to engender complete confidence that the defence is "doomed to failure" with regard to the order for triple damages.
Secondly, I also come to that view because [13] of the foreign default judgment of 20 June 2014 is verbatim as follows:
13. Because Mr Ellis and Cingular have demonstrated a lack of respect for the judicial process and this Court, and because of the Court's findings concerning the merits of Plaintiffs' claims, the Court concludes and finds this case to be exceptional pursuant to 35 U.S.C. s 285. Accordingly, Plaintiffs are entitled to enhanced damages by a factor of THREE TIMES [handwritten], as well as recovery of attorney fees. Octane Fitness, LLC v. ICON Health & Fitness, Inc., __ U.S. __, 134 S.Ct.1749 (2014) (reducing the threshold to preponderance of the evidence; see also Crescent Services, Inc. v Michigan Vacuum Trucks, Inc., 714 F.Supp. 2d 425 (W.D. New York). The Court will hold supplemental proceedings to determine the appropriate amount of damages, enhanced damages and attorney fees after permitting Plaintiffs to obtain an accounting of all sales made by Mr Ellis and/or Cingular and/or their licensees in the United States.
[Emphasis added]
In other words, it can be seen that triple damages were originally spoken of in the context of the conduct of the defendant as having been judged to have "demonstrated a lack of respect for the judicial process and this Court". That bolsters the reasonable possibility that this Court could characterise the award of triple damages as having a penal flavour as opposed to a compensatory one.
In short, I am not confident that that part of the proposed amended defence is inutile, and the defendant should have his chance to rely upon it at a substantive hearing.
After some reflection, I have come to the same view about the order for attorney's fees. That is because counsel for the plaintiff placed before me an extract from the United States Code Service Archive Directory of 35 U.S.C. s 285, which is as follows: "The court in exceptional cases may award reasonable attorney fees to the prevailing party". In other words, it seems arguable that, in the United States, "party/party" costs are not awarded to the successful party more or less as a matter of course, as they are here, but rather for punitive reasons.
I have also come to that view because, in the penultimate line of [13] of the judgment of 20 June 2014 that I have extracted above, attorney's fees are ordered to be calculated once an account is taken of the extent to which the defendant had wilfully breached the patent of the plaintiff. In other words, the reference in that earlier judgment to the question of attorney's fees in the general context of "lack of respect for the judicial process", and in the particular context of analysis of the degree of wilful infringement of the patent, leads me to the view that it is reasonably arguable that the foreign order for attorney's fees is penal in nature as well, and therefore unenforceable in New South Wales.
It follows that the defendant should be permitted to file a further defence that pleads that the triple damages and the attorney's fees ordered in the foreign court are penal and therefore unenforceable in New South Wales.
Conclusion and ancillary matters
In short, I propose to enter a default judgment for the severable sums that were conceded by counsel for the defendant to be indisputable. They were constituted in the United States judgment as sums of $US 205,905.00 and $US 3,610.00, giving a total of $US 209,515.00. I would be obliged if the parties could promptly agree on the sum for which default judgment should be entered and draft orders; failing that agreement, there will need to be a further short hearing to resolve any disputes in calculation. For the time being I shall not make an explicit order: I shall simply indicate that I am satisfied that that part of the claim should be severed and the plaintiff should promptly have a default judgment for it.
As for the motion itself, as I have said, I consider that it should be granted and the defendant given leave to file an amended defence. The defendant should be required to file and serve a further iteration of his defence within two weeks of today that reflects the entirety of his claims about remaining portions of the judgment said to be penal in nature.
As well as that, the operative portions of the current proposed amended defence are so concise as to border on the delphic. I would have thought that if there is to be yet a further pleading it should be more fulsome, both with regard to the question of triple damages and the attorney's fees.
Costs
Finally, as to costs of the motion, the plaintiff found success, in that it will have the benefit of a default judgment as soon as the precise calculations can be determined. On the other hand, the defendant found success, in that I have accepted that he should be permitted to litigate a substantial part of the claim. In those circumstances, I consider that each party should pay their own costs.
Orders
I make the following orders:
1. Within one week of today, the parties are to provide me, if possible, with agreed calculations and agreed draft orders reflecting the precise sum in which default judgment should be entered against the defendant in accordance with the severance discussed in this judgment.
2. If such agreement is not forthcoming, counsel are to approach my Associate within one week of today to obtain a court date for a hearing of no more than 30 minutes' duration.
3. Leave is granted to the defendant to file an amended defence.
4. Within two weeks of today, the defendant must file and serve a further amended defence which pleads, in more detail, that the triple damages ordered on 20 June 2014 in the United States District Court for the North Eastern District of Illinois are penal in nature, and which pleads in detail that the attorney's fees ordered on the same date are also penal in nature.
5. Each party must pay its or his own costs of the proceedings before me on 30 March 2016.
[3]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 06 April 2016