FEDERAL COURT OF AUSTRALIA

Insight SRC IP Holdings Pty Ltd v Australian Council for Educational Research Ltd (No 2) [2013] FCAFC 73

THE COURT ORDERS THAT:

1.    Order 1 made on 27 September 2012 by the primary judge be set aside and in lieu thereof it be ordered that:

1.    The respondent pay the applicants the sum of $162,500 (being $130,000 in general damages and $32,500 in additional damages).

2.    The respondent pay the appellants’ costs:

(a)    of the appeal:

(1)    of considering and answering the respondent’s written submissions in the appeal on an indemnity basis;

(2)    otherwise as between party and party;

(b)    of the cross appeal until 19 April 2013 as between party and party and thereafter on an indemnity basis.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    On 14 June 2013, the Court made orders allowing the appeal, dismissing the cross-appeal and inviting submissions on the outstanding issues of quantifying the damages to which Insight Holdings and Insight are entitled and costs of the appeal and cross-appeal: Insight SRC IP Holdings Pty Ltd v Australian Council for Educational Research Ltd [2013] FCAFC 62 (the liability reasons). We will use the same abbreviations in these reasons as in the liability reasons.

2    In their submissions, the parties agreed that we should enter judgment in the proceedings below for Insight Holdings and Insight in the sum of $130,000 as suggested in [25] and [26] of the liability reasons. They also agreed that, subject to the two following qualifications, ACER should pay on a party/party basis the costs of the appeal and cross-appeal. Those qualifications were: that Insight Holdings and Insight sought that they be awarded costs on an indemnity basis for, first, reading and replying to ACER’s written submissions on the appeal (the appeal costs issue) and, secondly, the cross-appeal incurred after 19 April 2013 (the cross-appeal costs issue). ACER also sought a costs certificate (the costs certificate issue) under s 6(2) of the Federal Proceedings (Costs) Act 1981 (Cth) (the Costs Act) in respect of the appeal.

The appeal costs issue

(a)    The parties submissions

3    On 18 October 2012, the solicitors for Insight Holdings and Insight wrote an open letter to ACER’s solicitors enclosing the notice of appeal and saying that the appeal was confined to a claim for general damages in the amount of $130,000, based on the primary judge’s findings. The letter invited ACER not to oppose the appeal. That invitation was not accepted. Additionally, Insight Holdings and Insight relied on the offer of compromise made by ACER on 21 December 2012 in which it had offered to resolve the appeal and cross-appeal by paying Insight Holdings and Insight $30,000 plus their costs of the appeal and cross-appeal on a party and party basis. Accordingly, Insight Holdings and Insight contended that ACER should pay, on an indemnity basis, their costs of considering and answering ACER’s submissions on the appeal. They submitted that the appeal was confined to the issue of whether the primary judge should have awarded those damages where both sides accepted that his Honour erred in finding that Dr Hart had no claim for damages, as explained in the principal reasons [2013] FCAFC 62 at [16], [22].

4    ACER contended that it had not acted unreasonably in failing to take up the suggestion in the letter of 18 October 2012 of not opposing the appeal. It argued that Insight Holdings and Insight had not articulated any basis to suggest that ACER had acted unreasonably. It also submitted that no case had been put below that Dr Hart personally had suffered any loss and no evidence had been led on that subject.

(b)    Consideration

5    In our opinion, ACER was always aware that the result of the appeal would be likely to be substantial, rather than nominal, damages. That was because of its acknowledgment that the primary judge erred in his finding that led to his assessment of nominal damages. His Honour found that Insight would have suffered a loss of $130,000, had it had a licence from Dr Hart at the time of ACER’s infringement of copyright. Thus, it was always likely that, despite the difficulties in calculating what the relevant damages would be if received in Dr Hart’s hands, the result of the appeal would be that Insight Holdings and Insight would be compensated in an amount equivalent to $130,000 in their hands. Indeed, ACER’s offer of compromise recognised that substantial damages were appropriate, albeit in a smaller sum of $30,000.

6    Insight Holdings and Insight led no evidence of an offer based on the costs of their dealing with ACER’s written submissions on the appeal. However, the letter of 18 October 2012 was a genuine attempt to resolve the litigation. Had ACER accepted it, Insight Holdings and Insight would still have had to conduct the appeal on quantum, but unopposed and in circumstances where they did not seek to recover more than $130,000. Since the costs of opposing the appeal were likely to be substantial and the issue was quantification, the offer of 18 October 2012 was a reasonable compromise. ACER’s determination to oppose the quantification of damages cannot be divorced from its decision to cross-appeal. Each of those disincentives put up by ACER to Insight Holdings and Insight pursuing the appeal was unsuccessful.

7    In his reasons in Uniline Australia Ltd v S Briggs Pty Ltd (No 2) (2009) 82 IPR 56 at 65-66 [38], which were approved by Besanko, Perram and Katzmann JJ in Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53 at [131]-[132], Greenwood J said:

“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.” (emphasis in original)

8    In the case of a Calderbank offer (cf: Calderbank v Calderbank [1976] Fam 93), Moore, Finn and Jessup JJ said in CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Ltd (2008) 15 ANZ Insurance Cases 61-785; [2008] FCAFC 173 at [75]:

“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 386, 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.” (emphasis added)

9    In our opinion, those principles are apposite in a case such as the present where the offer was made in an open, rather than without prejudice, communication. It was unreasonable of ACER to have caused Insight Holdings and Insight to deal with the issues ACER raised in its answering submissions on the appeal. While the issue of quantification had some difficulties, the likelihood was that the appeal would result in substantial damages in the order of Insight’s loss as found by the primary judge.

The cross-appeal costs issue

(a)    ACER’s submissions

10    On 12 April 2013, the solicitors for Insight Holdings and Insight sent ACER’s solicitors a Calderbank letter inviting ACER to withdraw its cross-appeal on the basis that there be no order as to the costs of the cross-appeal. The letter set out detailed arguments as to why the cross-appeal had no real prospect of succeeding.

11    ACER contended that it was reasonable to argue on its cross-appeal that Hart Cultural Lodges had no genuine commercial interest in Dr Hart’s chose in action when he assigned the copyright to it. ACER accepted that “it faced difficulty” in succeeding on its arguments in support of setting aside the primary judge’s finding that Dr Hart owned the copyright but submitted that its prospects were certainly not so poor as to attract the sanction of an indemnity costs order.

(b)    Consideration

12    Neither ground of the cross-appeal appeared to have any substance, as explained in the liability reasons. In our opinion ACER had no real prospect of overturning his Honour’s factual finding that Dr Hart owned the copyright. As we noted in the liability reasons, and as the letter of 12 April 2013 pointed out, for ACER’s argument to have any chance of success the Full Court would have to trawl through the whole of the evidence before the primary judge in circumstances where, first, ACER had not included the whole record of evidence below in the appeal papers and, secondly, the primary judge had the substantial advantage of seeing and hearing the witnesses.

13    In all the circumstances, it was unreasonable for ACER not to have accepted the offer in the letter of 12 April 2013. That would have enabled it to abandon the cross-appeal without any adverse costs consequences. ACER’s own confidence in its cross-appeal’s prospects was also reflected in its offer of compromise of 21 December 2012. ACER should pay the costs of the cross-appeal until 19 April 2013 as between party and party and thereafter on an indemnity basis.

Costs certificate

14    The Court has a discretion to grant ACER, as the respondent, a certificate under s 6(2) of the Costs Act because the appeal succeeded in relation to the amount of damages. The power to grant a certificate is to be found in the general words of ss 6(2) and (3) which provide:

“(2)    Subject to this Act, where a Federal appeal in relation to the amount of damages awarded by a court succeeds, the court that heard the appeal may, on the application of a respondent to the appeal, grant to the respondent a costs certificate in respect of the appeal.

(3)    The certificate that may be granted under subsection (1) or (2) by a court to a respondent to a Federal appeal is a certificate stating that, in the opinion of the court, it would be appropriate for the Attorney-General to authorize a payment under this Act to the respondent in respect of:

(a)    the costs incurred by the respondent in relation to the appeal; and

(b)    any costs incurred by an appellant in relation to the appeal that have been, or are required to be, paid by the respondent to the appellant in pursuance of an order of the court, not being costs to which a costs certificate granted under section 7 relates.”

15    It would not be appropriate to grant ACER a certificate in the circumstances of its unreasonable rejection of the offer of 18 October 2012. ACER has only itself to blame for pursuing its opposition to the appeal. There was no need for it to have incurred costs in the appeal in the manner that it did. That is the more so since it is a not-for-profit company. ACER has urged that last consideration as a ground in favour of the grant of a certificate. However, in all the circumstances its contesting of the appeal, and the additional costs that this conduct created, was as a result of its own tactical calculations that quantification of damages based on the finding (uncontested on the appeal) of infringement was worth less than the amount of $130,000 assessed by the primary judge on the different factual premise as the damages Insight would have suffered if it, rather than Dr Hart, was the owner or assignee of the copyright.

16    There is no presumption in favour of the grant of a certificate under s 6(2): Bullock v The Federated Furnishing Trades Society of Australasia (No 2) (1985) 5 FCR 476 at 477 per Smithers, Sweeney and Woodward JJ. Here ACER took the course of resisting the appeal, in conjunction with pursuing its cross-appeal, where there was a more than obvious risk that the $130,000 damages assessment by the primary judge should be used as the yardstick for assessing Insight Holdings’ and Insight’s damages, given the common ground that his Honour had erred in finding that Dr Hart had no claim to assign: cf Bullock 5 FCR at 478-479; cf Gurnett v The Macquarie Stevedoring Co Pty Ltd [No 2] (1956) 95 CLR 106 at 112-114 per Dixon CJ. There is no good reason to visit on the public purse the consequences of ACER’s deliberate choice to contest the appeal. We are not persuaded that it is appropriate to grant ACER a certificate.

Conclusion

17    For these reasons we will order ACER to pay the costs of Insight Holdings and Insight:

(a)    of the appeal:

(1)    of considering and answering ACER’s submissions in the appeal on an indemnity basis;

(2)    otherwise, as between party and party;

(b)    of the cross-appeal until 19 April 2013 as between party and party and thereafter on an indemnity basis.

Associate:

Dated:    12 July 2013