Conclusions
32 It seems to me that the offer to compromise made by Uniline on 20 March 2008 is properly characterised as a genuine offer. It involved the proposition that Uniline would give up its claim to a declaration (subject to discretionary factors) that each letter constituted an unjustified threat of patent infringement proceedings. It offered to give up a claim to an injunction (similarly subject to discretionary factors) restraining SBriggs from making further threats, howsoever, of patent infringement proceedings. Those claims to remedial intervention by the Court were, at the time of the offers, important claims to relief in addressing in the context of Uniline's business, threats made by SBriggs that it would commence infringement proceedings if Uniline did not give undertakings that it would give up selling and offering for sale its spring clutch device.
33 The offer invited SBriggs as a necessary corollary of the proposition that the threats were unjustified, to give up the cross‑claim for relief based upon contended infringement.
34 The offer further invited SBriggs to absorb its own costs incurred to the date of the offer and offered not to press SBriggs for costs recovery of Uniline's costs in dealing with the unjustified threats of infringement proceedings and in responding to the claim that it had infringed claim 13 of the patent.
35 It is true that Uniline sought to reserve the right to bring further proceedings but that reservation, it seems to me, was in relation to any fresh cause of action that might arise should further unjustified threats be made or further proceedings be commenced in which it might be said by SBriggs that Uniline infringed claim 13 of the patent by selling or offering for sale its Uniline spring clutch.
36 The offer put by Uniline was not simply one in which SBriggs was invited to capitulate and pay Uniline's costs to the date of capitulation. That was, in effect, the nature of the offer put in Sydney Markets Limited v Sydney Flower Market Pty Limited [2002] FCA 283.
37 It is also true that the offer contained within it a proposal by Uniline to discontinue its amended further cross‑claim for relief arising out of the contended invalidity of the patent. That element of the proposal involved an offer to discontinue an unmeritorious claim. However, the conduct of the case makes it plain that Uniline advanced an arguable question in relation to that matter. In any event, the offer overall provided SBriggs with an opportunity to foreclose the litigation, avoid further costs being incurred and avoid the payment of costs incurred to the date of the offer, to Uniline.
38 In the modern world of commercial litigation and various subsets of that litigation such as intellectual property litigation, costs are a very real and quantifiable concern. It would be extremely odd to think otherwise. Costs are incurred in a recoverable inter‑parties sense from the moment the proceedings issue and they continue to be incurred at every point along the continuum of the litigation. Litigants who are required to pay these costs in order to assert or resist a claim, regard them as a very real and present expense, if not a real and present danger. Very often these costs are a significant business expense. They invariably require a commitment of significant resources and separate budget allocations. An offer to compromise which is framed in terms of a party's willingness to abandon the recovery of costs so incurred along that continuum through the preparation and analysis of statements, disclosure, analysis of documents and the preparation and review of expert reports, is undoubtedly considered by the litigant as an offer that involves giving up something meaningful, real and measurable. This is particularly so after the completion of case managed preparatory steps at various phases of the litigation which may have the effect of front‑end loading significant costs in order to save trial costs. In many cases although not in all cases, the notion that a party is giving up nothing by inviting another party to discontinue a claim on the footing that the offeror will not make any claim for payment of its costs incurred to the date of the offer, is a fundamentally abstracted notion from the practical perspective of the engaged litigant confronting the management of the proceeding and the appropriation of expenditure to conduct it. An offer, on the other hand, that invites discontinuance of a claim on the payment of the offeror's costs to date offers not very much at all other than the stemming of future costs which in a particular case may nevertheless be very real.
39 In this case however the offer did more than that. It delivered SBriggs of the opportunity to foreclose all of the claims and cross‑claims in the proceeding at no additional cost to it beyond its own costs notwithstanding the costs to which it had put Uniline. That proposal presented for SBriggs the opportunity of ending all claims without any declarations as to the making by SBriggs of unjustified threats of infringement proceedings or an injunction to restrain the making of future threats. It abandoned all of Uniline's costs incurred to the date of the offer.
40 Having regard to those matters, the proposal was a genuine one.
41 I do not accept that the claims made by SBriggs were doomed to failure or such that SBriggs should have known, if properly advised, that it had no chance of establishing infringement. Mr Hunter contended that even if claim 13 of the patent was construed, contrary to his views and that of the legal advisers to SBriggs, so as to require the presence of a single unitary spring as an integer of that claim, the inclusion of a plurality of springs would enable the spring clutch of the patent to function in precisely the same way and thus a single unitary reverse wound spring might be regarded as an inessential integer. The question in issue was, whether persons with practical knowledge and experience in the subject matter addressed by the invention would understand that strict compliance with a particular descriptive word or phrase appearing in a claim was intended by the patentee to be an essential requirement of the invention so that any variation would fall outside the monopoly claimed even if it could have no material effect upon the working of the invention.
42 Those questions raised the issue of the functionality of the spring clutch the subject of the patent and the functionality of the Uniline spring clutch. Those issues were addressed by extensive expert evidence by those skilled in the relevant art, namely the discipline of mechanical engineering, in the explanation of the way in which a mechanical device translates rotational forces from one shaft to another by the particular mechanisms in issue.
43 Although the approach to the construction of the claims of the patent and in particular claim 13 having regard to the construction principles identified at [42] to [47] of the principal judgment was rejected by the Court, I am satisfied that it was not unreasonable for SBriggs having regard to its representation by experienced intellectual property lawyers and the expert advice from Mr Hunter available to it on the various questions in issue, to frame claims of infringement and advance the various contentions it made during the course of the proceeding. Although those claims were shown to be unmeritorious, I do not accept that the formulation of the claims and supporting contentions were so manifestly misplaced that SBriggs, if properly advised, ought to have realised that those claims had no prospect of success.
44 Uniline contends that because SBriggs ought to have known that it had no chance of establishing infringement, the costs incurred by Uniline in being put to protecting its position by bringing the threats proceeding and resisting the cross‑claim for infringement ought to be the subject of an order for costs on an indemnity basis. Since I do not accept that SBriggs had no chance of establishing infringement, I do not accept that the discretion should be exercised so as to order costs on an indemnity basis, in the general exercise of the discretion.
45 However, Uniline contends that Order 23, rule 11(4) brings about a different result. It contends that once the rule is enlivened Uniline has a presumptive entitlement to indemnity costs from the date of its offer unless there is sufficient reason for the Court to "otherwise order", in terms of the rule, and moreover even if SBriggs believed it had at least an arguable case and thus acted reasonably in relying on that view in rejecting the offer, that would not provide a sufficient reason to displace the prima facie entitlement to indemnity costs from the date of the offer.
46 An offeree ought only to be relieved of the consequences of the rule in support of an order "otherwise" if the offeree can demonstrate compelling and exceptional circumstances to support a different form of order: Wills & Anor v Bigmac Pty Ltd (Heerey J, Federal Court of Australia, 9 December 1994, unreported, BC9400210; VG59 of 1992). That position was adopted in Smith v 600 Machinery Australia Pty Ltd (Mansfield J, Federal Court of Australia, 19 November 1996, BC9605672; SG3201 of 1995; cf Hillier v Sheather (1995) 36 NSWLR 414. In Houatchanthara v Bednarczyk (New South Wales Court of Appeal, BC9604998), Clarke JA, Handley JA and Santow AJA agreeing, observed:
The rule lays down the general principle that should be applied, and the order provided for in that rule should only be departed from for proper reasons which, in general, only arise in an exceptional case. It is clear that if the rule operates, the plaintiff will be significantly disadvantaged, but that disadvantage flows naturally from the risks of litigation. The idea behind the rule is to encourage settlement or compromise of proceedings, and more specifically, to encourage litigants to give serious consideration to the settlement of proceedings. Where an offer is made by a defendant to a plaintiff, the latter is put on notice that unless he or she accepts that offer, there is a significant risk that the order provided for by the rule may follow. In declining to accept the offer, the plaintiff undertakes the risk and the consequences that flow naturally from that risk.
47 As to the question of reasonableness, Gleeson CJ in New South Wales Insurance Ministerial Corporation v Reeve (New South Wales Court of Appeal (1993) 42 NSWLR 100 at 102 said this:
It is impossible exhaustively to state the circumstances in which a discretion to contrary effect (that is to otherwise order) might be exercised, and it would be imprudent to attempt any such exhaustive statement. However, I do not read Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 720 as authority for the proposition that a discretion should be exercised against making an order for indemnity costs in any case in which it was reasonable for the defendant to take the view that it had a good chance of successfully defending the action. The prima facie consequence, which will apply in the ordinary case, is that in the circumstances postulated by the rule an order for indemnity costs will be made.
48 Similarly, in Morgan v Johnson (1998) 44 NSWLR 578, Mason P, Sheller and Powell JJA agreeing observed at 582:
Lying behind the rule is the common knowledge that "litigation is inescapably chancy": Maitland Hospital(at 725). For this reason, the ordinary provision is expected to apply in the ordinary case … The mere fact that it was reasonable for the litigant to take the view that he or she did in rejecting the offer is not enough to displace the rule. …
49 In Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2) (2005) 212 ALR 281, Hely J also considered at [16], [17] and [18] the principles guiding the exercise of the discretion in the context of an offer of compromise. In that case, it was common ground between the parties that the offer of compromise was not made in accordance with Order 23. However, the parties accepted that the Court nevertheless had a discretion to make a special order for costs having regard to the defendant's non‑acceptance of the offer in the light of Calderbank principles. Hely J considered those principles and their relationship with Order 23. Hely J concluded, consistent with authority, that:
The mere fact that it was reasonable for the litigant to take the view that he or she did in rejecting the offer is not enough to displace the rule.
50 The relationship between the exercise of the discretion either generally or in the context of a Calderbank offer and the exercise of discretion conditioned by Order 23, rule 11(4) was explained by the Full Court in CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 by the Court, Moore, Finn and Jessup JJ at [75] in these terms:
From the tenor of claims which have come before the court in recent years, there appears to be a view abroad that the failure of a party who has rejected a Calderbank offer ultimately to achieve a better outcome than provided for in the offer leads to a presumptive entitlement to indemnity costs with respect to the period subsequent to the offer. Such a view would be mistaken. Where a moving party (including a cross‑claimant) offers to settle for a sum which is less than he or she eventually achieves at trial, there is a presumptive entitlement to indemnity costs under O 23 r 11(4) of the Federal Court Rules. However, where recourse is not had to the O 23, but reliance is placed upon the court's general discretion, it is necessary for the party seeking indemnity costs to demonstrate that the other party's refusal of the Calderbank offer was unreasonable: Black v Lipovac (1998) 217 ALR 368, 432; Maniotis v JH Lever & Co Pty Ltd (No 2) [2006] FCAFC 28. It is not sufficient that the offer was a reasonable one: Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121, 128 [35]; Dais Studio Pty Ltd v Bullet Creative Pty Ltd [2008] FCA 42, [11]. In considering this question in a particular case, the matter of unreasonableness will be judged by reference to the circumstances facing the offeree at the time of the offer. While the eventual outcome in the case may go part of the way in this regard, there is no presumption that ultimate success in the proceeding for the offeror necessarily renders the offeree's rejection unreasonable.
51 It therefore seems to me to follow that the rejection of Uniline's offer by SBriggs occurred in circumstances where SBriggs has failed to demonstrate compelling and exceptional circumstances to relieve SBriggs from the natural consequences of Order 23, rule 11(4). It follows that SBriggs ought to be ordered to pay the costs of Uniline's claim arising out of the unjustified threats of patent infringement made by SBriggs and the unjustified threats of registered design infringement on a party and party basis up to 20 March 2008 and thereafter on an indemnity basis.
52 Uniline asserts an entitlement to indemnity costs in respect of the cross‑claims by SBriggs for infringement generally and specifically in reliance upon Order 23, rule 11(6) from the date of its offer. For the reasons indicated earlier I do not accept Uniline's proposition that SBriggs's cross‑claim was doomed to fail from the outset, and thus the discretion ought not to be exercised generally to order indemnity costs in respect of the cross‑claim. As to Order 23, rule 11(6), it is clear that the rule commenced operation on 2 August 2008 and did not form part of the legislative machinery (Federal Court of Australia Act 1976 (Cth), s 59(4); Legislative Instruments Act 2003 (Cth), s 12(2)) in relation to costs under the Federal Court Rules at the time Uniline made its offer. Therefore, SBriggs could not have been conscious of any presumptive entitlement that might arise in Uniline as an offeror respondent to SBriggs's cross‑claim upon rejection of the offer. The rule simply cannot apply to the offer: Review 2 Pty Ltd v Redberry Enterprise Pty Ltd (No. 2) [2008] FCA 1805. Accordingly, in considering for the purposes of s 43 of the Federal Court of Australia Act, the appropriate order to be made in the disposition of costs, no presumptive entitlement to indemnity costs arises in respect of Uniline's costs incurred in answering the cross‑claim for infringement. However, the offer to compromise ought to be taken into account because it provided SBriggs with an opportunity to foreclose the litigation without any obligation to pay any costs to Uniline. In exercising the broad discretion conferred by s 43, it seems to me appropriate to take the offer to compromise into account and frame an order which does justice between the parties and serves the public interest in encouraging the settlement of disputes and thus the avoidance of costs. Accordingly, the appropriate order is that Uniline is entitled to its costs of and incidental to the cross‑claim on a party and party basis with those costs uplifted by 12%.
53 As to the cross‑claim for revocation, Uniline sought to agitate invalidity of the patent as an answer to the infringement claim on the assumption that its position on the construction of infringement questions was unsuccessful. It is true that in the general sense a cross‑claim asserting invalidity goes to title and thus provides a defensive answer to an infringement proceeding. However, plainly enough grounds of invalidity might be raised which broaden the scope of the controversy and go beyond the substratum of fact, issue and law raised by the threats claim and a corresponding infringement claim. Although it may have been prudent and reasonable for Uniline to introduce a cross‑claim for invalidity within the controversy, its failure on those additional matters ought to be the subject of an order for costs in favour of the successful party. Moreover, there seems to be a degree of inconsistency in Uniline's position that SBriggs's cross‑claim for infringement was so manifestly misconceived that failure was obvious, on the one hand, and a need to bring a cross‑claim, in those circumstances, asserting invalidity.
54 That principle needs to be considered in the context of the scope of the issues raised by the cross‑claim to determine whether any of the grounds of challenge to validity simply reflects legal consequences arising out of analyses made necessary by the threats claim and corresponding cross‑claim for infringement. The ground of challenge that relied upon a contended failure to fairly base each claim on matter disclosed in the specification was reliant upon a construction question based on a consideration of the specification and the claims. It seems to me that once a body of costs was incurred in connection with the threats claim and corresponding infringement claim which necessarily involved a detailed analysis of the language of the specification and the claims, there are no new matters raised by the cross‑claim for invalidity on that ground beyond an analysis of the specification of the patent. The grounds of lack of novelty and obviousness plainly raised additional matters. The claim based on a lack of clarity is in the same category as the fair basis contention. The ground based on inutility is in the same category. The claims based upon false suggestion raise additional matters. It seems to me that SBriggs ought to have the benefit of an order that Uniline pay SBriggs's costs of and incidental to the issues of novelty, obviousness and false suggestion on a party and party basis.
55 The parties have made submissions in relation to the implications of PAC Mining Pty Ltd v Esco Corporation (No 2) [2009] FCAFC 52. I have considered those submissions. The proposed orders in the disposition of costs in this matter are entirely consistent with the observations of their Honours in PAC Mining.
56 Accordingly, orders will be made in the above terms.
I certify that the preceding fifty-six (56) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.