FEDERAL COURT OF AUSTRALIA

Novartis Crop Protection Australasia Pty Limited v Orica Australia Pty Limited

[2001] FCA 1013

PRACTICE AND PROCEDURE – separation of issues relating to liability and damages or account of profits

Federal Court Rules O 29 r 2

Reading Australia Pty Ltd v Australian Mutual Provident Society [1999] FCA 718  distinguished

Clarkel Holdings Pty Ltd (in liq) v Kelly [1999] FCA 1266  referred to

Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215  distinguished

Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130  referred to

NOVARTIS CROP PROTECTION AUSTRALASIA PTY LIMITED v ORICA AUSTRALIA PTY LIMITED & ANOR

N 977 OF 2000

JUDGE:                                  STONE J

DATE OF ORDER:              18 MAY 2001

DATE OF REASONS:          16 AUGUST 2001

PLACE:                                  SYDNEY

THE COURT ORDERS THAT:

1.                  the issue of quantum of damages or account of profits be heard separately and subsequent to the hearing on the issue of liability; and

2.                  costs of the motion be costs in the cause.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     This proceeding concerns the applicant’s claim, inter alia, that the first respondent’s Australian Patent No 606719 (“Patent”) is invalid, the respondents’ cross-claim for infringement of that patent.  Orders sought include damages (on the application and cross-claim) and an account of profits (on the cross-claim).  By notice of motion filed on 1 March 2001, the applicant moved the Court for an order under O 29 r 2 of the Federal Court Rules that the question of quantum of damages or account of profits be heard separately and subsequent to the hearing on the issues of liability in this proceeding.  The first and second respondents opposed the motion.  On 18 May 2001, I dismissed the motion and indicated that I would give reasons for my decision at a later date. These are my reasons for dismissal of the motion.

2                     The legal principles relevant to the exercise of the Court’s discretion under O 29 r 2 have been summarised by Branson J in Reading Australia Pty Ltd v Australian Mutual Provident Society [1999] FCA 718 at [6]-[9].  Her Honour’s summary was approved by Sackville J in Clarkel Holdings Pty Ltd (in liq) v Kelly [1999] FCA 1266. Einstein J expressed similar views in Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215 at [7].  It is not necessary to repeat Branson J’s summary here. It should, however, be noted that her Honour concluded her summary with the following comment:

“Ultimately the issue for the Court to determine when consideration is being given to the making of an order under O 29 r 2 is whether it is ‘just and convenient’ for the order to be made...  There are classes of proceedings in which it is commonly recognised that it is just and convenient for an order under O 29 r 2 to be made.  One such class is proceedings concerning intellectual property rights where an applicant cannot be compelled to make an election as between damages and an account of profits at least until all the evidence has been received so that, if an order has not been made separating the determination of the issues of liability and relief, the parties will have to call evidence to deal with both damages and an account of profits…”

3                     Ms Goddard submitted that the application in this case is premature and drew my attention to paragraph 17 of the affidavit of Phillip Nathan Argy sworn on 5 April 2001 where Mr Argy makes the following statement:

“I am instructed that if the Court ordered discovery on quantum to occur before a hearing on liability, the Respondents intend to elect between damages and account of profits shortly after discovery.  This would allow the parties to narrow the quantum issue yet still allow all relevant matters to be dealt with at one final hearing.  If the Respondents do not so elect, I am instructed that they will consent to the separation of the quantum and liability issues.”

4                     Mr Burley, counsel for the applicant, points out that this would still involve the parties in discovery on the dual issues of liability and quantum and that much of the benefit of separation would be lost were it to be postponed to that point in time. Mr Burley pointed to the fact that the loss and damage pleaded under the cross-claim is classified under four different headings: lost sales, lost profits, reduction in the value of the Patent and licences thereof and damage to goodwill and reputation of each of the cross-claimants.  In his submission, this indicated that there would need to be a very broad inquiry as to damage which should be separated from the question of liability.

5                     One issue on which both parties appear to agree is that the technology involved in the Patent is not complicated and that extensive expert evidence would not be required to explain the issues involved.  Ms Goddard relies on this to support the respondents’ opposition to the notice of motion.  It seems to me, however, that it is equally arguable that the same fact supports the applicant’s contention that issues of liability and quantum should be separated.

6                     I am conscious of the comments of Giles CJ in Comm Div in Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 at 141-142:

“In the ordinary course all issues in proceedings should be decided at the one time, but separate decision of a question may be appropriate where, for example, the decision of the question is critical to the outcome of the proceedings and (at least if decided in one way) will bring the proceedings to an end.  In particular circumstances the separate decision of a question may be appropriate even if it will not bring the proceedings to an end, such as where there is a strong prospect that the parties will agree upon the result when the core of their dispute is decided or where the decision will obviate unnecessary and expensive hearing of other questions, but such occasions must be carefully controlled lest fragmentation of the proceedings (particularly when the exercise of rights of appeal is borne in mind) brings delay, expense and hardship greater than that which the making of an order was intended to avoid.”

7                     In particular circumstances the separate decision of a question may be appropriate even if it will not bring the proceedings to an end. Examples are where there is a strong prospect that, once the core of their dispute is decided, the parties will settle the remaining issues or where the decision will obviate an unnecessary and expensive hearing of other questions. Such situations must, however, be carefully controlled lest fragmentation of the proceedings should bring delay, expense and hardship,  which the making of the order was intended to avoid.

8                     The applicant’s position in these proceedings is that the allegations of infringement of the Patent are unjustifiable either because the applicant’s processes do not infringe the patent or because the patent is not valid and should be revoked.  A decision in favour of the applicant on either of these two grounds would be a complete defence to the cross-claim of the first and second respondents.  In that case there would be no necessity to determine issues of quantum of damages suffered by the cross-claimants or account of profits and there would be substantial costs savings for all parties.  Unlike the matters which concerned Einstein J in Idoport Pty Ltd v National Australia Bank Ltd (above) and Branson J in Reading Australia Pty Ltd v Australian Mutual Provident Society (above), the issues of liability and damages or account of profits can be separated in this case.  While there may be some limited overlap between the two issues, it would not, in my view, outweigh the benefits of separating the issues.

9                     Ms Goddard is clearly correct in her assertion that it can never be assumed that a liability hearing will dispose of all issues.  Nevertheless, in my opinion, this is a case where separation would be appropriate. In my opinion, the order sought will save both time and costs by substantially narrowing the issues to be determined at trial.  Whether or not a determination on liability in favour of the respondents would lead to settlement, I cannot say.  However I do not see that there would be any significant disadvantage to the respondents if this course is pursued.  In the exercise of my discretion, I decided to make the orders sought, namely:

1.      that the issue of quantum of damages or account of profits be heard separately and subsequent to the hearing on the issues of liability; and

2.      that the costs of the motion be costs in the cause.

Associate:

Dated:  16 August 2001