FEDERAL COURT OF AUSTRALIA

Liberty Financial Pty Ltd v Scott [2003] FCA 226

PRACTICE AND PROCEDURE – Federal Court Rules – application for order that question of liability be determined separately from question of damages – application made under O 29 r 2 – factors to be considered in exercise of Court’s discretion –

Federal Court Rules, O 29 r 2

Liberty Financial Pty Ltd (ACN 077 248 983) v Scott [2002] FCA 345 at [3]–[13] referred to

Rhone–Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1985) 10 FCR 567 referred to

Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 at 141-2 followed

Reading Australia Pty Ltd v Australian Mutual Provident Society [1999] FCA 718 at [8]–[9] referred to

Energy Australia v Australian Energy Limited [2001] FCA 1049 at [7] referred to

Novartis Crop Protection Australasia Pty Ltd v Orica Australia Pty Ltd [2001] FCA 1013 referred to

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

Digi International Inc. v Stallion Technologies Pty Ltd [2001] QSC 442 referred to

Tepko Pty Ltd v Water Board (2001) 206 CLR 1 at 55 followed

Australian National Industries Ltd v Spedley Securities Ltd (in liq) (1992) 26 NSWLR 441 referred to

LIBERTY FINANCIAL PTY LTD (ACN 077 248 983) AND SHERMAN MA v TREVOR WILLIAM SCOTT AND BLUESTONE GROUP PTY LIMITED T/A BLUESTONE MORTGAGES (ACN 091 201 357)

V1256 of 2001

WEINBERG J

21 MARCH 2003

MELBOURNE

THE COURT ORDERS THAT:

1.                  The notice of motion filed on behalf of the applicants on 28 February 2003 be dismissed.

2.                  The parties, on or before 28 March 2003, file and serve brief written submissions regarding the question of costs.

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

REASONS FOR JUDGMENT

Introduction

1                     This case has already had something of a tortuous history.  Its background was summarised in some detail in an earlier interlocutory judgment arising out of an attempt on the part of the respondents to set aside an Anton Piller order which I granted in December 2001: Liberty Financial Pty Ltd (ACN 077 248 983) v Scott [2002] FCA 345 at [3]–[13].  I do not propose to repeat anything that I said in that judgment.  It is sufficient, for present purposes, to incorporate those paragraphs in this judgment. 

2                     By notice of motion filed on 3 February 2003, the applicants seek an order that the issues of liability and quantum be tried separately.  Somewhat unnecessarily, they also seek an order that liability be dealt with prior to quantum.

3                     The application is brought pursuant to O 29 r 2 of the Federal Court Rules which relevantly provides:

“The Court may make orders for –

(a)              the decision of any question separately from any other question, whether before, at or after any trial or further trial in the proceedings …

The evidence in support of the application

4                     The applicants’ motion was supported by an affidavit of Benjamin Lee Souter Fitzmaurice sworn on 28 February 2003.  Mr Fitzmaurice is a solicitor employed by Jerrard & Stuk Lawyers, who act for the applicants.  In that affidavit, he deposed that:

·                    the first respondent had infringed the first applicant’s copyright;

·                    the first respondent had caused to be transmitted or reproduced as e-mail documents in his personal computer system, and e-mail service provider’s computer system, infringing copies of the first applicant’s copyright material;

·                    the applicants and the first respondent had entered into a Confidentiality Agreement on 15 May 1997, the terms of which included an undertaking that the first respondent would not, in his capacity as user and/or agent, disclose confidential information of the first applicant;

·                    the applicants and the first respondent had entered into an Employment Agreement on 2 December 1997, the terms of which included an undertaking that the first respondent would keep the confidential information of the first applicant confidential;

·                    from about July 2000, the first respondent commenced employment with the second respondent as its National Sales Manager;

·                    the second respondent was in direct competition in the marketplace with the first applicant;

·                    the first respondent had, in the course of his employment with the second respondent, used and was continuing to use, confidential information of the first applicant in breach of his obligations under the Confidentiality and Employment Agreements;

·                    the second respondent had wrongfully procured and induced the first respondent to breach the terms of the Confidentiality and Employment Agreements; and

·                    the first respondent, in the course of his employment by the second respondent, had used confidential information of the first applicant to develop the second respondent’s business.

5                     Mr Fitzmaurice went on to observe that the first and second respondents had each filed defences in this proceeding denying liability in respect of the claims made by the applicants.  He asserted that there were two separate and distinct issues in the proceeding, liability and quantum.  He claimed that there was a “clear line of demarcation” between these issues.  If the applicants could not establish receipt, use and transference of the confidential and copyright material by the first respondent, and subsequently receipt and use by or on behalf of the second respondent, it would be unnecessary to determine the quantum of damages.

6                     Mr Fitzmaurice estimated that it would take two to three weeks to conduct a trial limited to the issue of liability.  He estimated that it would take about two weeks to deal separately with the issue of quantum, though that period could be shorter.  Much would depend upon the findings made by the Court in relation to liability.  On one view those findings could require that an extensive analysis be undertaken of the whole of the second respondent’s business practices and financial records in order to establish, or quantify, the extent of damage caused to the first applicant by whatever misuse of confidential information had occurred.  In those circumstances, according to Mr Fitzmaurice, the second respondent would be required to discover all of its financial and business records, a major undertaking.

7                     Mr Fitzmaurice went on to note that the relief sought by the applicants included a finding by the Court that there was a constructive trust over the second respondent’s business.  He claimed that this relief might be justified if the Court found that the second respondent had benefited significantly by the misuse of confidential information, and that it was just, in all the circumstances, to grant such relief.  He observed that the nature and extent of the discovery required to be provided by each party would vary, depending upon the Court’s conclusion as to the extent of misuse of confidential information, and any breaches of copyright. 

8                     Finally, Mr Fitzmaurice acknowledged, as is obviously the case, that there would necessarily be some “overlap” of witnesses if liability and quantum were separated.  However, he expressed the opinion that there would still be a significant saving of costs, and court time, if an order for separation were made. 

9                     The respondents did not adduce any evidence in opposition to the notice of motion.  However, they strongly opposed the order sought. 

The applicants’ submissions

10                  The applicants submitted that the Court had power, in an appropriate case, to order that the issue of liability be determined separately from the issue of quantum.  It was noted that such an order might more readily be made where the parties agreed to such a course:  Rhone–Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1985) 10 FCR 567.  This, of course, was not the case here.

11                  The applicants accepted that, in the ordinary course, all issues of fact and law should be determined at the one time:  Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 at 141-2.  They also accepted that, at least as a general proposition, a party seeking a departure from that general approach had to point to some benefit which might be gained from such a course.  Order 29 r 2 conferred a discretion upon the Court.  It was submitted that, in general, the manner in which that discretion was to be exercised was set out correctly in Reading Australia Pty Ltd v Australian Mutual Provident Society [1999] FCA 718 at [8]–[9] per Branson J.  The fundamental question was whether it was “just and convenient” for the order to be made. 

12                  The applicants relied upon her Honour’s summary of the factors for and against the making of such orders.  An order for separation might be justified if it contributed to the saving of time and cost by substantially narrowing the issues for trial.  It might also be justified if it were seen as capable of contributing to the settlement of the litigation.  However, an order for separation would not be justified if it gave rise to significant contested factual issues which might have to be determined twice.  Self evidently such an order would not be justified if it resulted in a significant “overlap” between the evidence adduced at each stage of the trial, or if it prolonged, rather than shortened, the litigation.

13                  The applicants sought to rely, in particular, upon a passage from her Honour’s judgment which they claimed supported the proposition that there was a special rule applicable to intellectual property cases.  Her Honour stated at [9]:

“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 (Arnold v Attorney-General for the State of Victoria).  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 can not be compelled to make an election as between damages and an account of profits at least until all of 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 …” (emphasis added)

14                  The applicants accepted that where there are claims of misleading and deceptive conduct under the Trade Practices Act 1974 (Cth), and relief is sought under ss 82 and 87, it is generally considered that it is not possible to separate liability and damage completely.  This tends against the making of an order under O 29 r 2:  Reading (supra) at [12], and Energy Australia v Australian Energy Limited [2001] FCA 1049 at [7].  However, they submitted that different principles applied in proceedings concerning intellectual property rights.  That was particularly the case where an account of profits might be sought. 

15                  In support of that submission, the applicants relied upon the judgment of Stone J in Novartis Crop Protection Australasia Pty Ltd v Orica Australia Pty Ltd [2001] FCA 1013.  There her Honour made orders that the issue of quantum of damages, or account of profits, be heard separately and subsequent to the hearing on the issue of liability.  The case concerned a claim by the applicants that a patent owned by the first respondent was invalid, and a cross-claim by the respondents for infringement of that patent.  Her Honour referred extensively to the judgment of Branson J in Reading,and also to the judgment of Einstein J in the celebrated case of Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215.  She distinguished those judgments, noting at [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.”

16                  Her Honour continued at [8] and [9]:

“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 BankLtd (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.

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.”

17                  Finally, the applicants referred to the judgment of Ambrose J in Digi International Inc. v Stallion Technologies Pty Ltd [2001] QSC 442 where, in an action for infringement of patent, an order was made separating the issues of liability and quantum at trial.  His Honour said at [40]:

“Counsel for Digi was unable to refer to a single infringement case where an order had not been made for the separate trial of issues of liability and quantum.  I was referred only to the judgment of Branson J to which I have referred, in a case in which relief was sought only for breach of the obligation under the Trade Practices Act.”

18                  Further, his Honour stated at [43]:

“At the end of the day I have come to the conclusion that I should make the order that is normally made in cases of this kind, even if not “invariably” made as suggested by counsel for the defendant.”

19                  The applicants submitted that the principle which emerged from Reading, Idoport, Novartis and Digi was that, in an intellectual property case, at least where an account of profits was sought, the “normal”, if not “invariable”, rule was that there would be a separation of liability and quantum. 

20                  The applicants further submitted that if an order for separation were made in this case, there would be a substantial reduction in the time required for preparation, and the size of the discovery to be undertaken.  There would also be a significant saving in court time, bearing in mind that the issue of quantum would not need to be addressed at this stage. 

21                  The applicants contended that if they failed on the question of liability, and that finding were upheld on appeal, a great deal of time and cost would have been saved by the decision to separate the issue of quantum.  Discovery would be a much simpler exercise, and the need to retain experts to give opinion evidence on matters of quantum would be obviated.

22                  The applicants also expressed concerns about the risk that their commercially sensitive information might be misused by their competitor if they were required to discover such information at this stage.  At least by implication, they did not accept that the normal safeguards available to parties required to make disclosure of such material were sufficient in this case.  They submitted that they should not be required to discover documents of this character until the question of liability had first been determined in their favour. 

The respondents’ submissions

23                  The respondents submitted that there was no special rule regarding separation of liability and quantum applicable to intellectual property cases in which an account of profits was sought.  They accepted that it was not unusual in patent cases for orders to be made separating liability and quantum.  They did not challenge the approach taken in any of the four cases upon which the applicant relied.  Rather, they submitted that patent cases involving claims for accounts of profits were sui generis. 

24                  The respondents submitted that patent cases generally involved issues of liability which were wholly discrete from questions of damages.  Liability in most such cases was dependant upon the acceptance, or rejection of, scientific evidence.  The issues raised seldom traversed questions relevant to quantum.  The present case, however, was said to involve broader questions of fact and law.  It was characterised as being not dissimilar to claims brought under the Trade Practices Act.  It was submitted, that there would inevitably be a significant degree of overlap between evidence going to liability, and evidence going to quantum, in a case involving allegations of misuse of confidential information of this type. 

25                  The respondents referred to the observations of Kirby and Callinan JJ in Tepko Pty Ltd v Water Board (2001) 206 CLR 1 at 55 where their Honours cautioned against too readily ordering separation:

“The appeal should be allowed.  However, we should not leave this case without making four comments.  Both Mason P and Fitzgerald JA were critical of the course of limiting the issues to be tried that the primary judge adopted.  In Perre v Apand Pty Ltd attention was drawn to the difficulties that can be caused when that course is adopted.  In the light of the experience in this case, what was there said should be restated with emphasis.  The attractions of trials of issues rather than of cases in their totality, are often more chimerical that real.  Common experience demonstrates that savings in time and expense are often illusory, particularly when the parties have, as here, had the necessity of making full preparation and the factual matters relevant to one issue are relevant to other, and they all overlap. 

The second and related comment is this.  A party whose whole case is knocked out on a trial of a preliminary or single issue, may suspect, however unjustifiably, that an abbreviated course was adopted and a decision reached in the court’s, rather than the parties’, interests.

Thirdly, there is an additional potential for further appeals to which the course of the trial on separate issues may give rise.  Indeed, that could occur here were this appear to be allowed and a retrial has in which the remaining issues of causation and damages were decided.  Single-issue trials should, in our opinion, only be embarked upon when their utility, economy, and fairness to the parties are beyond question.

…”

26                  Tepko was not an intellectual property case.  It was nothing more than an ordinary negligence case.  Moreover, their Honours were in dissent, though not, it was submitted, on this point.  Nonetheless, the respondents argued that these comments were of general application, and correctly indicated the caution with which the Court should approach an application of the type presently under consideration.

27                  The respondents also relied upon the judgements of Giles CJ in Comm Div in Tallglen  (supra) at 141–2, and Einstein J in Idoport (supra) at [6]–[8].  They submitted that these judgments correctly set out the principles which governed the exercise of the Court’s discretion in determining whether to order a separation of issues.

28                  The respondents submitted that there were sound reasons for refusing to make such an order in this case.  They submitted that the law clearly required that the Court, in the exercise of its discretion, begin with the proposition that it is ordinarily appropriate that all issues in a proceeding be disposed of at the one time.  They submitted that it was for the party who wished to have a question separately determined to demonstrate that it was desirable for that to occur.  Finally, they submitted that in the present case that onus had not been discharged. 

29                  The respondents noted that if an order for separation were made, and the applicants succeeded on liability, there would then have to be a further lengthy discovery process before any trial on quantum could take place.  Moreover, the case would have to be largely prepared again, at vast cost to the parties.  The time required for such preparation would be substantial, possibly in the order of months.  

30                  The respondents submitted that a further consequence of an order for separation following the applicants’ success on liability would be that a number of witnesses who had already given evidence would have to give evidence again.  That would be highly undesirable, in a case such as the present, where the key witnesses were likely to be subjected to serious and sustained attacks upon their credit, and it would be oppressive to expect them to undergo such an ordeal more than once. 

31                  In addition, it was submitted that the Court would be put in a difficult situation if witnesses had to be called twice.  Findings of credit would have to be made when dealing with the issue of liability.  It might be difficult, in those circumstances, for the Court to have to hear from the same witnesses again on the question of quantum.  

32                  The respondents submitted that, to the extent that the likelihood of separating liability from quantum might assist in achieving a settlement, regard should be had to the intensity with which every issue in this case had thus far been fought. 

33                  The respondents contended that, unlike the considerations applicable in patent cases, there were likely to be intertwined issues of fact and law when dealing with both liability and quantum in this case.  Accordingly, there would be little saving of time, and considerable duplication, if an order for separation were made. 

Conclusion

34                  In my opinion, the application for an order separating liability and quantum should be rejected.  I am not persuaded that an order of that nature would do anything to facilitate the just, quick and cheap resolution of the real issues in this proceeding. 

35                  I start with the general proposition, established in Tallglen (supra),that it is ordinarily appropriate that all issues in a proceeding be disposed of at the one time.  I next accept the principle enunciated in Idoport (supra) that it is incumbent upon the applicant to show why there should be a departure from that course.  I have regard to the general observations of Kirby and Callinan JJ in Tepko,and in particular, to their Honours’ admonition that single issue trials should only be embarked upon “when their utility, economy, and fairness to the parties are beyond question”. 

36                  If the issues of liability and quantum were separated, and the applicants succeeded on liability, no time would be saved by that separation.  Indeed, the converse is true.  There would have been significant and unnecessary delay before the question of quantum could be addressed.  In addition, substantial unnecessary costs would have been incurred. 

37                  I am also concerned that an order for separation might create difficulty for the Court in the event that seriously adverse findings were made regarding the credibility of one or more key witnesses during the liability phase of the trial.  I refer, in that regard, to Australian National Industries Ltd v Spedley Securities Ltd (in liq) (1992) 26 NSWLR 441. 

38                  If, on the other hand, the applicants were to fail on the question of liability, there is every chance that they would appeal against my judgment.  If that appeal succeeded, the order for separation would prove to have been unnecessary, and to have caused significant additional costs to be incurred.  It would only be if that appeal were dismissed that an order for separation made at this stage would produce any saving of time, or cost.  There are, of course, other permutations.  However, virtually all of them would mean that the order for separation would have unnecessarily fragmented the proceeding, resulting in significant delay and substantially increased costs. 

39                  Balancing the competing factors, the present case seems to me not to be suitable for an order of the type sought.  It is plainly distinguishable from the type of case in which such orders have typically been made.  I refer, in particular, to patent cases, and perhaps some trademark cases as well. 

40                  I reject the applicants’ submission that intellectual property cases, as a class, should be treated differently from other commercial cases.  Patent cases have their own peculiar features.  In my opinion, no principle of general application can be drawn from the practice which individual judges have followed in those cases.  

41                  It is clear that the power to order the separate determination of liability and quantum  involves the exercise of a broad discretion.  That discretion must be exercised judicially, but is not otherwise fettered.  Each case must be considered on its own merits.  I consider that in the present case, the balance tilts significantly in favour of applying the general principle that, all things being equal, all issues between the parties should be disposed of at the one time. 

42                  At the very least, the applicants have failed to place before me cogent evidence to suggest a departure from that practice.  I note, in particular, that even accepting the somewhat vague estimates of time proffered by Mr Fitzmaurice, there would be a relatively small saving of court time if liability were separated from quantum, and the trial proceeded on liability only at the first stage.  I accept, of course, that time spent in court may not reflect the time involved in preparing a matter for trial, but even so, I am not persuaded that there would be very much to be gained, in the interests of the parties, by ordering a separation. 

43                  In all the circumstances, it seems to me that the notice of motion should be dismissed.  Ordinarily there would be an order that the applicants pay the respondents’ costs, of and incidental to, that motion.  However, as the cases demonstrate, that is not an invariable outcome.  I therefore propose to give the parties an opportunity to file brief written submissions regarding the question of costs.  

Associate:

Dated:              21 March 2003