FEDERAL COURT OF AUSTRALIA

Austral Masonry (NSW) Pty Ltd v Cementech Pty Limited [2014] FCAFC 72

THE COURT ORDERS THAT:

1.    The declaration made by the Supreme Court of New South Wales in proceeding 2013/0225446 on 17 December 2013 be amended to read as follows:

Declare that, on the proper construction of cl 9.2(b) of the Exclusive Intellectual Property Licence Agreement made between Cementech Pty Ltd and Austral Masonry (NSW) Pty Ltd of 11 February 2010, Austral is obliged to pay Cementech one half of the costs and disbursements reasonably incurred by Cementech in the bringing and prosecuting of these proceedings as and when those costs and disbursements are incurred.

2.    The appeal otherwise be dismissed.

3.    The appellant pay the respondents’ costs of the appeal as agreed or taxed.

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

REASONS FOR JUDGMENT

THE COURT:

Background to the appeal

1    This is an appeal from an order made by a judge of the Supreme Court of New South Wales (Cementech Pty Limited v Austral Masonry (NSW) Pty Ltd [2013] NSWSC 1888). The appellant, Austral Masonry (NSW) Pty Ltd (Austral) and the first respondent, Cementech Pty Limited (Cementech) were parties to an Intellectual Property Licence Agreement made on 11 February 2010 (the Licence Agreement) permitting Austral to exploit a patent owned by Cementech. The second respondent, Adbri Masonry Pty Limited (Adbri), is alleged to have infringed the patent in the proceeding. The patent, Australian Patent No 2007219709, is for a “matrix of masonry elements and method of manufacture thereof” (the patent). The primary judge made a declaration, otherwise dismissed the proceeding against Austral, and ordered that the proceeding against Adbri for alleged patent infringement be transferred to this Court.

2    The term of the Licence Agreement was for four years, and could be extended by a number of options which Austral did not exercise. The agreement thus ended on 11 February 2014. Before the term had expired Cementech commenced the proceedings seeking orders against Adbri for infringement of the patent and orders against Austral under the Licence Agreement. The agreement provided a scheme for protection of the Intellectual Property rights, including the patent, licensed by Cementech to Austral. Cementech contended that, pursuant to the scheme in the Licence Agreement, Austral was liable for half of the costs of the proceeding against Adbri. The primary judge agreed and made this declaration:

Declare that, on the proper construction of cl 9.2(b) of the Exclusive Intellectual Property Licence Agreement made between Cementech Pty Ltd and Austral Masonry (NSW) Pty Ltd of 11 February 2010 Austral is obliged to pay Cementech one half of the costs and disbursements incurred by Cementech in the bringing and prosecuting of these proceedings as and when those costs and disbursements are incurred except in so far as the incurring of such costs and disbursements is not reasonably necessary for the bringing and prosecuting of these proceedings.

The issues

3    Four issues must be resolved in the appeal:

(1)    Does cl 9.2(b) of the Licence Agreement apply at all or is the operation of that provision dependent on Austral having issued an Infringement Notice under cl 9.1(b)? This issue was not argued by Austral before the primary judge and thus the question of leave to raise the issue is engaged.

(2)    If cl 9.2(b) does apply, does it survive the expiry of the Licence Agreement?

(3)    Does cl 9.2(b) impose an obligation on Austral to pay costs as they are incurred and is the obligation qualified so that Austral is only liable to pay costs reasonably incurred?

(4)    Did the primary judge’s exercise of discretion miscarry in the making of the declaration in that it deals with a hypothetical circumstance?

Leave to raise a new point (issue 1)?

4    It is not apparent that Austral accepted that it required leave to raise this point. If it required leave, Austral contended that it should be granted in circumstances where Cementech was on notice of the issue, Cementech itself raised the issue before the primary judge, and where Austral was not suggesting that Cementech could be prevented from arguing that Austral had breached cl 9.1(b) of the Licence Agreement, which was the only possible way in which the hearing before the primary judge might have been run differently if the issue had been squarely raised for determination.

5    The fact that the point was referred to in correspondence tendered before the primary judge and in Cementech’s submissions is immaterial. It may be accepted that Cementech asserted that cl 9.2(b) was not conditional on Austral serving an Infringement Notice because that would have the allegedly perverse effect of Austral frustrating Cementech’s capacity to commence proceedings by its own failure to comply with its obligation under cl 9.1(b). The relevant point, for present purposes, is that Austral did not contend to the contrary. Accordingly, the primary judge was not called upon to decide this issue. Leave is required for it be raised in this appeal. To determine whether leave should be granted consideration of the relevant provisions is necessary.

6    As the primary judge identified:

[15] By cl 3.1 of the Licence Agreement, Cementech grants to Austral:

An exclusive licence with the right… to use, copy, adapt, modify, improve, develop, exploit and commercialise the Intellectual Property and to use the Intellectual Property to manufacture, have made, use and supply the Products within the Territory [that is, Australia] for the Term [that is, until 11 February 2014].

[16] “Intellectual Property” is defined to include the Patent.

[17] Clause 9 is the critical clause and, relevantly, is in the following terms:

9. INFRINGEMENT

9.1 Notice of Infringement

If [Austral] becomes aware of:

…

(b) any infringement or threatened infringement of the Intellectual Property rights licensed under this Agreement;

…

[Austral] must immediately give notice of same in writing to [Cementech] (Infringement Notice).

9.2 Infringement Actions

(a) Upon receipt of an Infringement Notice [Cementech] may, at its sole discretion, take all steps reasonably required to protect the Intellectual Property from infringement.

(b) In the event that [Cementech] elects to initiate proceedings for prosecuting or defend any Claims with respect to the Intellectual Property, all expenses incurred by [Cementech] in conducting any such proceedings or defending any Claims will be borne by the parties equally and all amounts received (including in respect of costs) from settlements or adjudications will be dealt with in the manner described in clause 9.2(f).

(c) If required by [Cementech], [Austral] shall, at the expense of [Cementech], lend its name and do all things within its power to promote the success of any proceedings in relation thereto.

(d) If the parties agree, they may jointly institute proceedings against or defend proceedings against any person responsible for an infringement, and must share equally all costs included in such proceedings and all amounts received either through settlements or adjudications (including in respect of costs) will be dealt with in the manner described in clause 9.2(f).

(e) If, within a reasonable time, [Cementech] fails to take steps which [Austral] considers to be reasonable to protect the Intellectual Property from infringement, [Austral] may commence legal proceedings against a third party in respect of the infringement at the expense of [Austral]. If required by [Austral], [Cementech] shall, at the expense of [Austral], lend its name and do all things within its power to promote the success of any proceedings in relation thereto. In the event that [Austral] commences legal proceedings, [Austral] shall indemnify and keep indemnified [Cementech] against all costs incurred in such proceedings and any amounts payable pursuant to any settlement or order of the court. All amounts received (including in respect of costs) from settlements or adjudications will be dealt with in the manner described in clause 9.2(f).

[18] Clause 9.2(f) provides a formula for distribution between Cementech and Austral of the proceeds of any settlements or actions, including the repayment of costs.

7    Clause 9.2(f), described by the primary judge as set out above but which has greater prominence in this appeal than below, is in these terms:

(f)    Upon receipt by the parties of any amounts received (including in respect of costs) from settlements or adjudications of any proceedings commenced in accordance with this clause 9.2 or commenced against one of the parties by a third party in relation to a Claim (the Proceeds), the parties will distribute the Proceeds between themselves as follows:

(i)    firstly, the parties will distribute the Proceeds in repayment to each of the Licensee and the Licensor of the costs incurred by each party on a proportionate basis; and

(ii)    secondly, if any amount of the Proceeds remains after payment of costs, the parties will distribute the remaining amount to each of the Licensee and the Licensor in proportion to the loss suffered by the Licensee and the Licensor in respect of the infringing conduct which was the subject of the Proceeds.

8    Austral submitted that the point is one of construction only. In short, the initiation of proceedings by Cementech as referred to in cl 9.2(b) constitutes a “step” to “protect the Intellectual Property from infringement” within the meaning of cl 9.2(a). Accordingly, cl 9.2(b) applies subject to Cementech having received an Infringement Notice within the meaning of cl 9.2(a). As Cementech did not receive an Infringement Notice, cl 9.2(b) is not engaged. Further, the only fact relevant to the dispute, that Austral did not serve an Infringement Notice on Cementech under the Licence Agreement, is not in dispute.

9    The question is whether “it is expedient in the interests of justice that the question should be argued and decided” by this Court (O’Brien v Komesaroff (1982) 150 CLR 310 at 319). If an issue not raised at first instance is one of law only, involves no factual dispute and cannot prejudice the other party other than in such a way as a costs order might cure, then it might be concluded that it is expedient in the interests of justice that the question should be argued and decided by the appellate court, although it is also the case that a first instance hearing is not to be reduced to a “preliminary skirmish” (Coulton v Holcombe (1986) 162 CLR 1 at 7) given the interest of justice in the finality of litigation (Peacock v Human Rights & Equal Opportunity Commission [2003] FCAFC 50 at [29] cited in Lansen v Minister for Environment and Heritage [2008] FCAFC 189 at [4]). However, if the point is one in respect of which evidence could have been given below which “by any possibility” could have led to the point not succeeding, then it should not be permitted to be raised on appeal for the first time (Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438).

10    Clause 9.1(b) imposed an obligation on Austral to serve an Infringement Notice if Austral became aware of “any infringement or threatened infringement of the Intellectual Property”. Because the issue was not raised for determination before the primary judge, no consideration was given in his reasons to Austral’s alleged state of awareness (despite evidence having been admitted relevant to that issue, but as evidence relevant only to the competing contentions of the parties) or the relationship between cls 9.1(b) and 9.2. This indicates that the issue is not as confined in its scope as Austral would have it. So too does Austral’s acceptance that, if the issue had been raised, Cementech may well have amended its pleadings to ensure that the issue of Austral being in breach of cl 9.1(b) (a disputed issue of fact between Cementech and Austral) had to be determined in order to support Cementech’s argument that Austral could not take advantage of its own breach. Indeed, Austral’s acceptance that Cementech could not be precluded from seeking to run that argument now if Austral succeeds on the new point recognises that it is likely the hearing below would have taken a different course, involving the necessity for the meaning of cl 9.1(b) and the competing evidence about Austral’s awareness to be resolved, had Austral joined issue with Cementech about the relationship between cls 9.1(b) and 9.2(b). For these reasons, Austral should not be permitted to raise the new point for the first time in this appeal. The point lacks merit in any event as explained below.

11    The Licence Agreement is predicated on the existence of rights created by sources other than the agreement itself, in particular the rights created by the Patents Act 1990 (Cth) (the Act). By s 13 of the Act, Cementech, as the patentee, holds the exclusive right to exploit the invention claimed in the patent and to authorise another person to do so. By the Licence Agreement, Cementech so authorised Austral. Cementech, however, retained its rights as patentee under s 120(1) of the Act to bring infringement proceedings. Austral’s right to do so depended on whether Austral constituted an “exclusive licensee” or not, a matter open to debate. In other words, during the term of the Licence Agreement, irrespective of Austral, Cementech was entitled to bring infringement proceedings against a third party alleged to have infringed or threatening infringement of the patent. Nothing in the Licence Agreement could affect the right of Cementech to do so. The Licence Agreement, in this regard at least, is concerned only with the relationship between Cementech and Austral, in particular with the financial arrangements between them in the event of an alleged infringement during the term of the agreement when both have an interest in protecting the invention from exploitation by third parties.

12    Austral’s first argument is unpersuasive for a number of reasons. First, cl 9.2(b) is not expressed to be conditional on receipt of an Infringement Notice. The words “[i]n the event that” in cl 9.2(b) establish a condition but that condition is not expressed to have anything to do with service of an Infringement Notice. The condition concerns the election to initiate proceedings. Such an election might be a response to an Infringement Notice but might also be a decision Cementech otherwise makes. Second, the parties had a common interest in protecting the Intellectual Property during the term. Making the costs sharing regime dependent on Austral’s awareness of an infringement seems unlikely. Third, the legal context is that Cementech could take infringement proceedings in its capacity as patentee irrespective of Austral having served an Infringement Notice. If commenced during the term of the Licence Agreement, it is apparent that the scheme of cl 9 assumes Austral would have an interest in those proceedings. So too could Austral take proceedings during the term of the Licence Agreement provided it is an “exclusive licensee”. Fourth, the scheme of cl 9 as a whole contemplates that it will be Cementech’s responsibility in the first instance to protect the Intellectual Property. By cl 9.2(e), if Cementech fails to do so within a reasonable time, Austral is entitled to do so but must indemnify Cementech for costs. Fifth, Austral’s obligation to serve an Infringement Notice is absolute. It depends only on Austral being aware of an infringement or threatened infringement. Clause 9.1(b) does not vest any discretion in Austral to decide whether it wishes to serve an Infringement Notice if it is aware of the infringement. If cl 9.1(b) did vest discretion in Austral there would be scope to argue that the scheme contemplates Austral deciding whether it had sufficient interest to be responsible for 50% of the costs of any proceedings. The lack of any such discretion in Austral indicates that Austral’s commercial judgment is irrelevant (except under cl 9.2(e)). It is Cementech’s commercial judgment which matters and cl 9.2(b) binds Austral to a payment scheme based on Cementech’s commercial judgment. Awareness of an infringement, whatever the level of knowledge and belief required to satisfy that requirement, has nothing to do with any commercial judgment Austral might make about its level of interest in and likely reward from proceedings. Sixth, it would be odd if Austral could avoid liability under cl 9.2(b) merely by the expedient of deciding not to serve an Infringement Notice under cl 9.1(b). In so doing, Austral would be giving to itself a discretion not given to it under cl 9.1(b). And as Cementech submitted, such a construction leads to other problems the parties are unlikely to have wished to subject themselves to, including the meaning of “aware” and the fine line that might exist between awareness and lack of awareness of an infringement.

13    For these reasons, Austral’s first argument that cl 9.2(b) was not engaged because Austral did not serve an Infringement Notice under cl 9.1(b) should not be accepted.

Does cl 9.2(b) survive expiry of the term (issue 2)?

14    Austral’s second argument, which was heard and rejected by the primary judge at [46] of his reasons, is that Austral’s obligations under cl 9.2(b) expired on the end of the term of the Licence Agreement. At [46] the primary judge said this:

… on the proper construction of cl 9.2(b), once Cementech “elects to initiate proceedings” of the kind referred to in the subclause, Austral’s obligation to bear 50 per cent of the costs of the proceedings is enlivened and that the expiry of the Licence Agreement makes no difference to that obligation. In my opinion, the obligation is in the nature of an accrued right “unconditionally acquired” by Cementech upon the commencement of these proceedings: see McDonald v Dennys Lascelles (1933) 48 CLR 457 at 477 per Dixon J; and Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 at [217] per Hodgson JA (Allsop P and Macfarlan JA concurring at [1] and [389] respectively).

15    According to Austral, the primary judge was wrong in so concluding. Austral said: - (i) there is no provision in the Licence Agreement for any provision to survive the expiry of the term, (ii) Cementech only accrued a right of payment to half the expenses of the proceedings upon those expenses being “incurred”, there being no accrued right to such expenses before Cementech incurred them, and thus McDonald v Dennys Lascelles (1933) 48 CLR 457 and Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 are not analogous, (iii) this is consistent with the primary judge’s acceptance that expenses “not reasonably necessary for the bringing and prosecuting of these proceedings” cannot be recovered by Cementech, a matter which cannot be determined unless and until each claim is made, (iv) this is also consistent with the commercial context of the Licence Agreement in that Austral only has an interest in protecting the Intellectual Property during the term, following expiry of which Austral has no right to exploit the Intellectual Property and thus no interest in it, and (v) cl 9.2(f) is not to the contrary but, rather, supports this construction. Under cl 9.2(f)(i) there is a pro rata distribution of proceeds according to costs incurred by each of Cementech and Austral. Clause 9.2(f)(ii) only permits Austral to recover if it has suffered loss as a result of third party infringement. Austral suffers no loss after the term has ended. Clause 9.2(f) would not be read as relating to loss unconnected to the claims which led to the proceeds of litigation being obtained. Austral also contends that because it is not an exclusive licensee (in that Cementech reserved rights to itself under cl 5.1 of the Licence Agreement to exploit the patent) it could not recover damages for infringement in any event.

16    Austral stressed that it was commercially untenable for the Licence Agreement to be construed as requiring it to fund litigation after the expiry of the term in circumstances where not only did it not have any interest in the Intellectual Property at that time but also would otherwise be entitled to and (given cl 9.3) may well wish to challenge the validity of, for example, the patent. Austral’s right to do so was recognised by cl 8(c) of the Licence Agreement which bound Austral not to challenge the Patent Application during the term. That Austral may well wish to challenge the patent was recognised by cl 9.3 dealing with Alternative Products which, from that clause, was an obvious matter of contention between Austral and Cementech at the time the Licence Agreement was executed. The Licence Agreement failed to deal with any of the exigencies to which litigation was likely to give rise making it highly unlikely that the parties intended that Austral’s obligation to pay would continue after expiry of the term. Given Cementech’s acceptance that the obligation was to pay only costs reasonably incurred, the practical difficulties given the lack of any common commercial interest between the parties after expiry of the term are acute and strongly indicative of the lack of any intention that cl 9.2(b) survive termination of the Licence Agreement (a submission which Austral supported by many examples of the potential difficulties which it is unnecessary to record).

17    Austral also referred to Westralian Farmers Limited v Commonwealth Agricultural Service Engineers Limited (In liq) (1936) 54 CLR 361; [1936] HCA 6 at 379-380 in support of its case. Dixon and Evatt JJ said this:

When a contract comes to an end by reason of the occurrence of an event upon which the parties have by an express provision made it terminate, the question whether an inchoate liability arising thereunder does or does not become enforceable must in the end be governed by the intention of the parties. It is a rule of law that when a simple contract is discharged by the election of one party to treat himself as no longer bound after the other has committed a breach of the contract, rights and obligations which have already arisen from the partial execution of the contract shall remain unaffected (see McDonald v Dennys Lascelles Ltd [(1933) 48 CLR at pp 476, 477]). No doubt it is open to the parties to provide in advance for such an event and by a stipulation to the contrary to produce some other effect. When the parties themselves have provided for the determination of the contract on a given contingency, the consequences flow altogether from their contractual stipulation and are governed by their intention, either actual or imputed. In the present case, however, all the agreement expressly says is that in any of the specified events it shall immediately terminate and be at an end. In applying such a compendious provision to a continuing relationship of the complicated character which the agreement establishes some guidance may be found in the nature of the agreement and of the obligations to which it gives rise. But primarily it remits the inquiry to a general consideration of what is involved in the sudden termination of an executory agreement under which liabilities are accruing from day to day. We are concerned only with a liability to pay a liquidated demand. In general the termination of an executory agreement out of the performance of which pecuniary demands may arise imports that, just as on the one side no further acts of performance can be required, so, on the other side, no liability can be brought into existence if it depends upon a further act of performance. If the title to rights consists of vestitive facts which would result from the further execution of the contract but which have not been brought about before the agreement terminates, the rights cannot arise. But if all the facts have occurred which entitle one party to such a right as a debt, a distinct chose in action which for many purposes is conceived as possessing proprietary characteristics, the fact that the right to payment is future or is contingent upon some event, not involving further performance of the contract, does not prevent it maturing into an immediately enforceable obligation.

18    According to Austral, the general position set out above prevails in the present case; that is, “no liability can be brought into existence if it depends upon a further act of performance”. Clause 9.2(b) requires further acts of performance by Cementech for costs to be incurred and thus no liability can arise in Austral to pay. Otherwise, the same result follows from the lack of any express provision to the effect that cl 9.2(b) survives termination. Further, “the nature of the agreement and of the obligations to which it gives rise” indicates that it could not have been the intention of the parties that Austral continue to be liable to pay the costs of litigation in which it had no continuing interest (referring to the various matters set out above in support of the commercial impracticality of that position). Given the commercial unreality of a continuing obligation, clear words would be required to support any such obligation. However, there are no such clear words.

19    Cementech contended that the primary judge was correct. Cementech’s central proposition was that cl 9.2 constitutes a code relating to litigation commenced during the term. The code is simple but that was the commercial decision the parties agreed at the time. The code recognises that Austral and Cementech had an interest in protecting the Intellectual Property during the term. Clause 9.2(f) reflects the fact that the parties must have known that litigation commenced during the term would not necessarily be completed during the term. It thus provides for sharing in the benefits of the proceeds of litigation commenced during the term. Clause 9.2(f) expressly refers to “commenced” rather than “completed”. It is thus apparent the clause survives the expiry of the Licence Agreement. Given that cl 9.2(f) (the benefits of litigation) survives, it is obvious that cl 9.2(b) must also survive. It is true that depending on the circumstances one party may have a greater, even substantially greater, interest in the litigation than the other party. Extreme examples which may work unfairness do not dictate construction. The simplicity of the code can work unfairness if measured in terms of the commercial interest of each party in particular litigation. The relevant point, however, is that the code applies to all possible cases of litigation commenced during the term. Austral’s submission that it has no continuing interest is also incorrect. It has such an interest by reason of cl 9.2(f). As between themselves, the parties agreed on a distribution of litigation proceeds irrespective of the claims which led to those proceeds being obtained. In the event of dispute, the Licence Agreement provides for dispute resolution including arbitration (cl 13).

20    The primary judge’s construction and Cementech’s submissions in support of it are to be preferred to the construction advanced by Austral. It must have been in the common contemplation of the parties that Cementech might commence proceedings during the term which would continue after the expiry of the term. Clause 9.2(b), if engaged by the commencement of proceedings during the term, survives termination of the Licence Agreement, as does cl 9.2(f). It is apparent from the scheme of cl 9.2, which is a code in respect of litigation commenced during the term as Cementech submitted, that the parties intended the cost burden provision (cl 9.2(b)) and the proceeds benefits provision (cl 9.2(f)) to survive. That intention prevails (Westralian Farmers Limited v Commonwealth Agricultural Service Engineers Limited (In liq) (1936) 54 CLR 361; [1936] HCA 6 at 379-380).

21    Both parties have a continuing interest in the proceedings by reason of cl 9.2(f). The distribution of any balance remaining in proportion to the loss suffered by Cementech and Austral “in respect of the infringing conduct” involves a contractual right which Austral may enforce against Cementech irrespective of its status as licensee or exclusive licensee. Whether or not Austral can sue the alleged infringer for that loss is regulated by the Act and Austral’s status as an exclusive licensee. Whether it has a right to recover for its loss from the proceeds in accordance with cl 9.2(f)(ii) does not depend on that status. The Act does not purport to deem a non-exclusive licensee not to have suffered loss. The Act merely prevents a non-exclusive licensee from suing the alleged infringer. However, a non-exclusive licensee may well suffer loss as a result of an infringement but cannot sue the infringer to recover that loss. The suffering of loss and the capacity to sue an infringer for that loss are two different things. The Licence Agreement establishes a regime where Austral, whether or not an exclusive licensee, is entitled to recover any loss it suffers proportionately with Cementech from any balance of the proceeds of litigation after costs have been accounted for (also proportionately). Further, and contrary to Austral’s submissions, it is not impossible for Austral to continue to suffer loss after the expiry of the term by reason of infringement during the term. Losses may be continuing or consequential. Clause 9.2(f)(ii) does not confine the concept of loss. As a result, Austral’s submission about its lack of any interest in the proceedings after the expiry of the term is not persuasive.

22    The examples of commercial impracticality advanced by Austral apply equally during the term. The parties simply did not provide details about how their relationship in respect of the litigation other than in respect of cost sharing and benefit sharing would be regulated. But that is no reason to rewrite the commercial deal they did. Nor is the fact that, as it turns out, Austral does not wish to fund these particular proceedings.

23    Austral’s reluctance to be bound by cl 9 is understandable. The provision is capable of working to its disadvantage. For example, Austral (as apparently in the present case) may not agree that there has been any infringement and thus may not wish to fund any part of the proceedings. Austral’s interest in the proceedings may be limited depending on the nature of the alleged infringement and the time during the term when the proceedings are commenced (presumably, Austral’s interest might be greater if proceedings are commenced earlier rather than later in the term). Austral may well perceive, accurately, that it will pay 50% of the costs of expensive proceedings which will lead to no or little reward for it if Cementech manages to obtain any proceeds from the litigation. But all of these circumstances might apply equally to Cementech in different circumstances. As Cementech submitted, the potential for an unequal commercial interest in proceedings results from the deal the parties did when they entered into the Licence Agreement.

Error in discretion?

24    Austral contends that, as Cementech “did not press to crystallise the dispute as to the construction of cl 9.2(b) via a claim for payment of a specific sum”, the primary judge’s declaration relates to “unlitigated demands” which are “hypothetical, future matters”. As Austral put it, the “relief granted does not determine the rights of the parties nor necessarily lead to the final determination of those rights”. This, Austral submitted, offends the principles established in Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334; [1999] HCA 9; at [49] as follows:

As the answers given by the Full Court and the declaration it made were not based on facts, found or agreed, they were purely hypothetical. At best, the answers do no more than declare that the law dictates a particular result when certain facts in the material or pleadings are established. What those facts are is not stated, nor can they be identified with any precision. They may be all or some only of the facts. What facts are determinative of the legal issue involved in the question asked is left open. Such a result cannot assist the efficient administration of justice. It does not finally resolve the dispute or quell the controversy. Nor does it constitute a step that will in the course of the proceedings necessarily dictate the result of those proceedings. Since the relevant facts are not identified and the existence of some of them is apparently in dispute, the answers given by the Full Court may be of no use at all to the parties and may even mislead them as to their rights. Courts have traditionally declined to state - let alone answer - preliminary questions when the answers will neither determine the rights of the parties nor necessarily lead to the final determination of their rights. The efficient administration of the business of courts is incompatible with answering hypothetical questions which frequently require considerable time and cause considerable expense to the parties, expense which may eventually be seen to be unnecessarily incurred.

25    Accordingly, Austral submitted, the primary judge’s exercise of the discretion to make the declaration miscarried so as to warrant appellate intervention (House v The King (1936) 55 CLR 499 at 504-505).

26    Austral also contended that the terms of the declaration are internally inconsistent. Austral is bound to pay half of the costs and disbursements “as and when…incurred… except in so far as the incurring of such costs and disbursements is not reasonably necessary for the bringing and prosecuting of these proceedings”. Austral submitted that the exception concerning what is reasonably necessary for the bringing and prosecuting of these proceedings may not be ascertainable at the time the costs and disbursements are incurred and, indeed, may not be ascertainable until the conclusion of the proceedings. The declaration, Austral submitted, is not clear as to whether Austral “would have a right of recourse against [Cementech] to recover money paid in respect of costs and disbursements later found to have not been reasonably necessary”.

27    Cementech accepted that it was entitled to be paid costs which had been reasonably incurred only. Accordingly, it did not object to the declaration being amended to read as follows:

Declare that, on the proper construction of cl 9.2(b) of the Exclusive Intellectual Property Licence Agreement made between Cementech Pty Ltd and Austral Masonry (NSW) Pty Ltd of 11 February 2010 Austral is obliged to pay Cementech one half of the costs and disbursements reasonably incurred by Cementech in the bringing and prosecuting of these proceedings as and when those costs and disbursements are incurred.

28    Austral submitted that this concession effectively established its case that the declaration involved a hypothetical matter. Cementech may never incur any cost reasonably. That fact discloses that the declaration does not relate to any existing controversy.

29    Austral’s arguments should not be accepted. The circumstances are not analogous to those in Bass v Permanent Trustee. The declaration does not relate to hypothetical matters. The fact that there may be future disputes about whether a particular cost is reasonable or not does not make the declaration hypothetical. There was a dispute between Austral and Cementech as to the proper construction of the Licence Agreement. The declaration quells that controversy between the parties. The primary judge was thus correct in concluding that there was utility in the making of the declaration. As the primary judge put it:

[48] First, there is a dispute between the parties as to the proper construction of the subclause and there is utility in having that dispute quelled. Second, the evidence establishes that Cementech has sought from Austral contribution to the cost of these proceedings and that that contribution has not been forthcoming. No doubt one reason for that is because of the disagreement between the parties as to the nature of Austral’s obligation under the subclause. Were Cementech to commence proceedings for the recovery of 50 per cent of the costs incurred to date, and thereafter for 50 per cent of the costs incurred from time to time, the court in which such proceedings were commenced would be called upon to decide the question of construction now before me.

[49] In those circumstances, I do not see that the making of a declaration would be the giving of an advisory opinion about a hypothetical, future matter (cf Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 at [49]; and see the recent discussion by Lindsay J of the making of declarations without consequential orders in Lend Lease (Millers Point) Pty Ltd v Barangaroo Delivery Authority [2013] NSWSC 1848 at [11]–[16]).

30    As Cementech submitted:

…the argument that one can only determine what is reasonably necessary with hindsight is false. What is reasonably necessary is what is reasonably necessary at the time in light of the information available to the parties. The mere fact that with hindsight it may have turned out that an issue did not play a determinative role in the litigation is not a reason why the incurring of those costs was not reasonably necessary at the time in light of the information that was then available to the litigants.

31    It follows that the terms of the declaration are not internally inconsistent. The fact that there may be future disputes between the parties about whether particular costs and disbursements were or were not reasonably necessary for the bringing and prosecuting of these proceedings does not disclose any difficulty with the terms of the declaration as made by the primary judge.

Conclusions

32    For the reasons set out above, the appeal should be dismissed other than to the extent necessary to permit the declaration to be amended as set out above.

Associate:

Dated:    17 June 2014