FEDERAL COURT OF AUSTRALIA

Roadshow Films Pty Ltd v iiNet Limited (No. 4) [2010] FCA 645

THE COURT ORDERS THAT:

1.                  The Applicants pay the costs of the Respondent of and incidental to the proceedings including costs thrown away as a result of the abandonment by the Applicants of their primary infringement claim against the Respondent.

2.                  The Applicants and Respondent each bear their own costs of this Application for Costs.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

1                     The Court delivered its decision in these proceedings on 4 February 2010: see Roadshow Films Pty Ltd v iiNet Limited (No. 3) [2010] FCA 24; (2010) 263 ALR 215 (‘the Court’s decision’). The orders made by the Court were:

1.             The Amended Application be dismissed.

2.             Subject to Order 3 and 4, the Applicants pay the costs of the Respondent, including costs thrown away as a result of the Applicants’ abandoning the primary infringement claim against the Respondent.

3.             Any party or person applying for an order for costs different to that provided by Order 2 is to notify the Court within 14 days in which event Order 2 will be vacated and in lieu costs will be reserved.

4.             If any application for costs is made as provided in Order 3 the parties and/or persons are to consult and prepare consent directions for the filing of submissions and, if required, for a hearing on costs.

2                     On 17 February 2010, namely within the 14 day period, notification was given by the applicants that they sought orders different to that provided in Order 2. On 18 February 2010 the applicants filed a Notice of Motion seeking the following orders:

1.             That order 2 of the order made on 4 February 2010 be vacated.

2.             That the costs payable by the applicants to the respondent consequent on the reasons for judgment of Cowdroy J dated 4 February 2010 be reduced in such a proportion as the Court considers fit having regard to the issues on which the respondent was unsuccessful at trial.

3.             Such further order or orders as the Court sees fit.

3                     On 25 February 2010 when the motion first came before the Court, the applicants indicated that they would be seeking an order that the Court award the respondent, iiNet Limited (‘iiNet’), a maximum of 60% of the costs it had incurred, assessed on a party/party basis.

4                     Simultaneously iiNet gave notification that it would be seeking an order that the costs of the primary copyright infringement claim, which had been made by the applicants and abandoned before the hearing, be paid by the applicants on an indemnity basis and otherwise that the applicants be ordered to pay iiNet’s costs on a party/party basis in respect of the proceedings.

5                     The Court will address the applicants’ claims for apportionment of costs and then consider iiNet’s claim for indemnity costs.

APPORTIONMENT

6                     The Court’s decision found that iiNet had not authorised any breach of the applicants’ copyright. Accordingly it was unnecessary for iiNet to rely upon two potential defences, namely a defence it raised under the provisions of the Telecommunications Act 1997 (Cth) (‘the Telco Act’) and a defence under s 112E of the Copyright Act 1968 (Cth) (‘the Copyright Act’). The Court nevertheless considered it appropriate to make findings in respect of those defences. The applicants’ claim for costs relates to the Court’s findings in respect of those defences and in respect of the Court’s construction of the phrase ‘make available online’ as contained in the definition of “communicate” in s 10 of the Copyright Act.

7                     The applicants submit that they should not be required to pay iiNet’s costs in respect of issues decided adversely to iiNet. The applicants rely upon various decisions of this Court in which costs have been apportioned depending upon the success or failure of separate issues. The applicants have referred the Court to the decision in Universal Music Australia Pty Ltd v Cooper [2005] FCA 1878 in which the primary judge awarded the successful parties 80% of their costs although the applicants had been entirely successful in achieving the relief they sought. The allowance was made consequent upon the fact that the applicants had raised certain issues upon which they did not succeed.

8                     The applicants further submit that the Court should take a global approach to the award of costs and referred to Dias Aluminium Products Pty Ltd v Ullrich Aluminium Pty Ltd (No 2) (2005) 225 ALR 569 in which Crennan J at [7]-[9] undertook a broad assessment of the costs of a claim and cross-claims in order to reflect the success of an applicant in some of the claims whilst recognising the respondent’s proportion of success in its defence and cross-claim. A similar approach was adopted in Aristocrat Technologies Australia Pty Ltd (ACN 001 660 715) v Global Gaming Supplies Pty Ltd (ACN 008 548 589) (No 2) [2010] FCA 277 at [18].

Issues in respect of which the Applicants seek allowance

9                     Applying the above principles the applicants submit that they should not be required to bear the costs of discrete issues in respect of which iiNet could not have been successful. Those issues are considered hereunder.

The Telco Act defence

10                  IiNet claimed that certain provisions of the Telco Act prohibited it from disclosing information received by it in the course of its business as a carriage service provider and also prevented it from taking action to terminate the account of subscribers who were allegedly infringing the applicants’ copyright by downloading films, television programs and other material (‘the Telco Act defence’).

11                  The applicants submit that considerable prominence was given to the defence in both oral and written submissions and that the Telco Act defence raised a discrete issue which was described by iiNet as a ‘complete answer’ to the applicants’ claim. The applicants submit that they were obliged to address such defence in their opening written submissions, reply opening submissions, opening oral address, closing written submissions and closing oral address.

12                  IiNet submits that the applicants did not satisfy the Court that all aspects of such defence would have been found in their favour and that many evidentiary issues that arose during the consideration of the Telco Act defence were also considered under the authorisation claim. Accordingly, iiNet submits that an apportionment of costs is not warranted.

Section 112E defence

13                  From the outset iiNet raised a defence under s 112E of the Copyright Act. IiNet submitted that in the event that the applicants established that iiNet authorised breaches of the applicants’ copyright, such defence would operate as ‘a complete answer to the applicants’ claims against iiNet’.

14                  The applicants submit that such defence was the subject of iiNet’s opening written submissions, opening oral submissions and a separate chapter in its closing written submissions. In reply, iiNet submits that it was entirely appropriate for it to raise such a defence. Further, iiNet submits that such defence took up a ‘minuscule’ amount of time and argument.

15                  The Court found that had it been necessary for reliance to be placed upon such defence, s 112E would not have operated to protect iiNet from a finding of authorisation.

Electronic transmission and infringement by iiNet users

16                  The applicants submit that the arguments in respect of the electronic transmission issue required complex technical evidence and consideration of principles decided in both Universal Music Australia Pty Limited v Sharman License Holdings Ltd and Others (2005) 65 IPR 289 and Universal Music Australia Pty Ltd and Others v Cooper and Others [2005] 150 FCR 1.

17                  The applicants further submit that the submissions of iiNet in respect of the ‘make available online’ issuewere unsuccessful and significant work was required to answer such defence. Accordingly the applicants claim that they were successful on this issue.

18                  IiNet submits that it was entitled to defend itself by relying upon defences which were clearly arguable and further that the issues in respect of which the Court ruled against it were not clearly separable. IiNet acknowledges that the Court did not wholly accept its submissions, but submits that the Court did not accept the applicants’ submission that a vast number of infringements had occurred. Accordingly, iiNet submits that the applicants cannot claim to have had a distinct ‘victory’ and that no separate costs order should be made on this issue.

19                  As a general observation, iiNet refers to the manner in which the applicants conducted these proceedings as a further reason to oppose apportionment in the applicants’ favour. IiNet submits that the applicants did not willingly provide information when requested and that the applicants unduly prolonged the hearing by unnecessary cross-examination of Mr Malone, which extended over three days and occupied 276 pages of transcript, and of Mr Dalby when both were clearly credible witnesses. IiNet submits that some 39 pages of submissions were dedicated to unnecessary attacks on the credit of Mr Malone and Mr Dalby and that 19.5 pages of submissions were devoted by iiNet to refuting the attacks on the credit-worthiness of both witnesses.

20                  For the above reasons, iiNet submits that there is no basis for any apportionment as claimed by the applicants.

Findings: Apportionment

Consideration

21                  Section 43 of the Federal Court of Australia Act 1976 (Cth) (‘the Court Act’) invests jurisdiction in the Court or a Judge to award costs in all proceedings before it (except where there is a statutory prohibition) (see s 43(1)). Section 43(2) of the Act provides that the award of costs lies in the discretion of the Court or Judge.

22                  Crennan J in Dias Aluminium Products said at [2]:

Section 43(2) of the Federal Court of Australia Act 1976 (Cth) confers an unfettered discretion on the Court to make orders as to costs: see also O 62 r 15 of the Federal Court Rules 1979 (Cth). The usual order as to costs is that a successful party will have its costs paid on a party and party basis by the unsuccessful party: Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 232-34; 118 ALR 248 at 256-7 per Sheppard J.

23                  The broad power to award costs is unfettered except that such power must be exercised judicially. The High Court of Australia considered a similar broad power to award costs in Oshlack v Richmond River Council (1998) 193 CLR 72. At [65] McHugh J observed:

Although the statutory discretion is broadly stated, it is not unqualified. It clearly cannot be exercised capriciously. Importantly, the discretion must be exercised judicially in accordance with established principle and factors directly connected with the litigation. In this manner, the law has gradually developed principles to guide the proper exercise of the discretion and, in some cases, to highlight extraneous considerations which, if taken into account, will cause the exercise of the discretion to miscarry. [Footnotes omitted]

24                  One of the principles guiding the exercise of the Court’s discretion attaches to the result of the litigation. As McHugh J observed in Oshlack at [66], a successful litigant is generally entitled to an award of costs. For similar examples of such principle see Ruddock and Others v Vardarlis and Others (No 2) (2001) 115 FCR 229 at [9] and Howards Storage World Pty Ltd v Haviv Holdings Pty Ltd [2010] FCAFC 5 at [58]-[61]. However the exercise of a court’s statutory discretion cannot be fettered by general principles: see Norbis v Norbis (1986) 161 CLR 513 at 537 per Brennan J.

25                  As was observed by McHugh J in Latoudis v Casey (1990) 170 CLR 534 at 567, the function of an award of costs is to compensate the successful party. No element of punishment of the unsuccessful party is contemplated. As his Honour said at 567:

The rationale of the order is that it is just and reasonable that the party who has caused the other party to incur the costs of litigation should reimburse that party for the liability incurred.

26                  Often a successful party may be unsuccessful in respect of certain issues raised in the course of the proceedings. In Hughes v Western Australian Cricket Association (Inc) and Others (1986) 8 ATPR 40-748 Toohey J considered a claim for costs in a proceeding where the successful applicant had failed on more issues than he had succeeded. At 48,136 Toohey J stated the applicable principles as follows:

1.    Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order. Ritter v. Godfrey (1920) 2 K.B. 47.

2.    Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed. Forster v. Farquhar (1893) 1 Q.B. 564.

3.    A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party’s costs of them. In this sense, “issue” does not mean a precise issue in the technical pleading sense but any disputed question of fact or of law. Cretazzo v. Lombardi (1975) 13 S.A.S.R. 4 at p. 12.

27                  Toohey J then addressed the issue of apportionment and referred to the observations of Jacobs J in Cretazzo v Lombardi(1975) 13 S.A.S.R. 4 at 16 wherein Jacobs J, considering the provisions of s 40 of the Supreme Court Act 1935 (S.A.) which for present purposes is the same as s 43 of the Act, expressed ‘…a note of cautious disapproval’ of applications to apportion costs according to whether one party or the other succeeded on various issues of fact or law. Jacobs J continued at 16:

But trials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law. The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case.

28                  Some authorities suggest that where multiple issues arise, the Court should not generally attempt to differentiate between those in which a party was successful and those in which it failed: see Waters v PC Henderson (Australia) Pty Ltd (1994) 254 ALR 328 at 330-331; Elite Protective Personnel Pty Ltd & Another v Salmon (No 2) [2007] NSWCA 373 at [6]-[7].

29                  In Doric Products Pty Ltd v Lockwood Security Products Pty Ltd (2002) 54 IPR 495 Hely J at [10] observed that the ‘…courts have cautioned against too ready a resort to apportionment according to issue based outcomes’. In that casehis Honour nevertheless made a 25% allowance for costs where the applicant had failed on certain issues. This proportion was later varied: see Lockwood Security Products Pty Ltd v Doric Products Pty Ltd (No 2) [2007] FCAFC 172.

30                  Various other authorities have also held that apportionment of costs between parties should be ordered. However the authorities suggest that apportionment should only be made if a reason exists justifying a departure from the usual rule that successful party be awarded costs. Bray CJ in Cretazzo at 11 observed as follows:

I think the guiding principle still stands as it left the House of Lords in the famous case of Donald Campbell & Co. v Pollak, that the general discretion is absolute and unfettered, except that it must be exercised judicially, not arbitrarily or capriciously, and that it cannot be exercised on grounds unconnected with the litigation. [Footnotes omitted].

31                  His Honour then continued at 12:

It follows, therefore, that there is now jurisdiction to order a successful party, even a wholly successful party and whether plaintiff or defendant, to pay his opponent’s costs in part or in whole. Of course, it by no means follows that it would be a judicial exercise of the discretion to do so and it may well be that in many cases it would not, since there must be some reason for departing from the settled practice whereby the successful party receives his costs from his opponent; see Donald Campbell & Co. v. Pollak, per Viscount Cave L.C. at p. 812. [Footnotes omitted]

32                  In H Lundbeck A/S v Alphapharm Pty Ltd (No 2) [2009] FCAFC 118 the Full Court (Emmett, Bennett and Middleton JJ), considering the question of costs in respect of appeals and cross appeals, said at [8]:

It is not uncommon for the Court to apportion costs between parties, depending on their success on different issues: see, eg, Gibbett v Forwood Products Pty Ltd (No 2) [2001] FCA 434 at [17], [18]; Doric Products Pty Ltd v Lockwood Security Products Pty Ltd (2002) 54 IPR 495; Lockwood Security Products Pty Ltd v Doric Products Pty Ltd (No 2) [2007] FCAFC 172; JMVB Enterprises Pty Ltd v Camoflag Pty Ltd (No 2) [2007] FCAFC 6 and Arrow Pharmaceuticals Ltd v Merck & Co Inc [2005] FCA 188.

33                  In Dodds Family Investments Pty Ltd (formerly Solar Tint Pty Ltd) and Another v Lane Industries Pty Ltd and Others (1993) 26 IPR 261, the Full Court (Gummow, French and Hill JJ) at 271 referred to the decision of Fisher J in Trade Practices Commission v Nicholas Enterprises Pty Ltd and Others (No 3) (1979) 42 FLR 213 in which Fisher J at 220 observed that the discretion to apportion costs was one to be exercised only in the most exceptional circumstances. The Full Court then said at 271-272:

Nevertheless he accepted that where a considerable part of the trial is taken up in determining issues upon which a party fails, it is a proper exercise of the discretion to reduce the costs allowed to that party. Generally speaking, and notwithstanding the considerations referred to by Toohey J and the other authorities mentioned above, the demands of the community for greater economy and efficiency in the conduct of litigation may properly be reflected in a qualification of the presumption that a successful party is entitled to all its costs.

34                  The Full Court in Dodds also referred at 272 to the observations of Wilcox J in Commissioner of Australian Federal Police v Razzi and Others (No 2) (1991) 101 ALR 425 in which Wilcox J, having referred to the importance of the general principle enunciated by Toohey J in Hughes (see [26] above), said at 430:

But I do not think that courts should be reluctant to recognise the existence of exceptional cases. In these days of extensive court delays and high legal costs the courts should use all proper means to encourage parties to consider carefully what matters they will put in issue in their litigation. If parties come to realise that they will not necessarily recover the whole of their costs, even though they have unsuccessfully raised a discrete issue, they are likely better to consider whether the raising of that issue is a justifiable course to take.

35                  Consistent with the above quotation, Jacobson J in Aristocrat Technologies Australia said at [15] that ‘… a party who seeks to run every issue in a case that could be conducted more economically takes the risk that it will have to bear the wasted costs but the same applies to an unsuccessful respondent’.

36                  Jacobson J’s observations are consistent with those of the Full Court (Emmett, Stone and Bennett JJ) in JMVB Enterprises Pty Ltd (Formerly A ’Van Campers Pty Ltd) v Camoflag Pty Ltd (No 2) [2007] FCAFC 6 at [7] in which the Full Court again confirmed that where the parties have mixed success, it is ‘… an appropriate exercise of the Court’s discretion to take account of the respective success or failure of the parties in relation to various issues’.

37                  The above decisions did not make reference to the question whether apportionment should be made only in cases of ‘exceptional circumstances’ as referred to by Fisher J in Trade Practices Commission v Nicholas Enterprises at 220,nor whether ‘exceptional circumstances’ should be readily recognised as was suggested by Wilcox in Razzi at 430. The current trend appears to favour apportionment in appropriate cases without such cases necessarily being classified as ‘exceptional’.

The Telco Act defence

38                  The Telco Act defence was included in paragraph 63(o) of iiNet’s Defence filed on 5 February 2009 and again in paragraph 63(o) of iiNet’s Amended Defence filed on 15 May 2009. The defence was particularised on 11 August 2009.

39                  The Telco Act defence is addressed in [511]-[555] of the Court’s decision. The applicants correctly submit that the raising of such defence required the parties to prepare extensive submissions on this discrete issue and in consequence it was necessary for both parties to devote extensive time and consideration to such issue.

40                  The Court found that the Telco Act would not have operated to prevent disclosure of the information claimed by iiNet to be protected. However, in doing so the Court did not reject every element of the defence relied upon by iiNet. For example, the Court held that disclosure or use by iiNet of information which falls under s 276(1) of the Telco Act was prohibited unless excepted by that Act. The Court concluded that the exceptions provided by ss 280 and 290 would have operated to prevent iiNet disclosing the information. However, the provisions of ss 279 and 289 would not have prevented iiNet from using the information it obtained as a carrier under s 276 of the Telco Act. Accordingly this defence would have failed but only because two of the four exceptions to the prohibition contained in s 276 would not have been satisfied.

41                  The Telco Act defence had never been raised previously in any litigation so far as the Court is aware. Had iiNet been found liable to the applicants, such defence could have potentially provided an answer to the applicants’ claims. Taking these matters into account, the Court considers that the defence was properly raised.

42                  It was not necessary for iiNet to rely on the defence in view of the Court’s findings regarding the issue of authorisation. Further, the issues relating to the defence were not found wholly in favour of the applicants. Accordingly, the Court considers that apportionment is not warranted in the circumstances and that the cost associated with such defence should comprise part of the costs of the proceedings.

Section 112E defence

43                  As with the Telco Act defence, this defence was not one in respect of which iiNet was required to rely, because of the finding that iiNet had not authorised copyright infringement. Such defence (considered at [557]-[634] of the Court’s decision) could not be said, as was submitted by iiNet, to have occupied ‘a minuscule amount of time in argument and written submissions’. As recorded in the Court’s decision at [556], the subject was one which involved extensive submissions.

44                  Had iiNet been held liable in respect of the applicants’ claim of copyright breaches, the s 112E defence might have provided a complete answer to the applicants’ claims. In these circumstances it could not be said that the raising of the defence was unjustified. The Court also takes into consideration the fact that the proceedings instituted by the applicants were novel. No similar proceedings had ever been instituted, either in Australia or overseas. The potential claim for damages could have amounted to many millions of dollars. The applicants could also have reasonably anticipated such defence being raised in response to their claim, since this defence was inextricably interwoven with the issue of authorisation.

45                  The unique nature of the claim made against iiNet and the potential for significant damages should such a claim have been successful justified the raising of the s 112E defence. Accordingly, the Court concludes that no apportionment of costs relating to this defence should be made.

Electronic transmission and infringement by iiNet users

46                  This question raised three separate issues, namely whether electronic transmission of the whole or substantial part of the applicants’ films and programs had occurred; whether the infringement could only be engaged in by the person receiving the file and not the sender; and whether the communication was ‘to the public’. The applicants claimed that there had been a vast number of infringements of copyright and that infringement occurred every time a connection and reconnection occurred in the course of the electronic transmission. Such issue also raised the question of the proper construction of the legislative phrase ‘make available online’.

47                  The issue of electronic transmission was essential to the applicants’ claim not only to determine the statutory meaning of ‘electronic transmission’ but also to determine the statutory meaning of ‘make available online’.

48                  Prior to the hearing the applicants had made material available which showed that their AFACT investigators had downloaded 100% of a film. IiNet readily conceded that a computer at an identified IP address was sharing 100 per cent of such film and that a user of that computer was making the whole or a substantial part of that film available online to the public within the meaning of the Copyright Act. The Court accepts that iiNet’s concession was a genuine attempt to minimise the costs of this issue. The Court did not accept iiNet’s claims made in respect of ‘electronic transmission’, but nor did it wholly accept the applicants’ contentions relating to the interpretation of such term.

49                  To resolve the central issue before the Court, namely the issue of authorisation, it was necessary for the Court to determine the characterisation of ‘electronic transmission’. In reaching its conclusions, the Court was required to consider the competing claims of both parties and the voluminous evidence produced by both parties. The applicants have demonstrated only partial success in respect of issues which were not ultimately relevant to the Court’s determination. In these circumstances the Court considers that the determination of the ‘make available online’ issue does not warrant an apportionment of costs.

Summary

50                  IiNet was entitled to raise any reasonable defences to the applicants’ allegations. It would have been most imprudent for iiNet, as a respondent, not to have raised all available defences when each was potentially a valid defence to a substantial claim. The need to conduct litigation economically does not have the consequence that a defendant should be dissuaded from raising defences upon which might reasonably succeed. Different considerations may apply where a successful applicant fails on certain issues: see for example Doric. These proceedings represent an example of one in which costs should follow the substantive result. For the above reasons the Court concludes that no apportionment is warranted.

IINET’S CLAIM FOR INDEMNITY COSTS RELATING TO PRIMARY COPYING CLAIM

51                  IiNet seeks indemnity costs in respect of the applicants’ primary infringement claim which had been raised during the interlocutory stage of the proceedings and which was abandoned shortly before the commencement of the hearing. This claim arose in convoluted circumstances as detailed below.

52                  The Application filed by the applicants on 20 November 2008 sought damages for conversion or detention under s 116(1A) of the Copyright Act. However the applicants’ Statement of Claim (‘SoC’) filed on the same day made no allegation that iiNet had been engaged in primary infringement by copying the applicants’ films nor that iiNet had converted any of the applicants’ films.

53                  On 15 December 2008 iiNet sought clarification of paragraph 22 of the Application in the following terms:

Paragraph 22 of the Application seeks damages for conversion or detention (as provided in section 116(1A) of the Copyright Act 1968 (the “Act’). The statement of claim does not plead an action in conversion or detention. Please identify this prayer for relief.

54                  No particulars were forthcoming. On 5 February 2009 iiNet filed its Defence, paragraph 57(h) of which asserted that iiNet had provided ‘listed carriage services’ by providing inter alia, ‘connections for copyright material or the intermediate and transient storage of copyright material in the course of transmission, routing or provision of connections within the meaning of s 116C of the Act’.

55                  On 19 February 2009 the applicants filed their Amended Statement of Claim (‘ASoC’). Paragraphs 67A to 67F thereof alleged primary infringement by iiNet of the applicants’ copyright in their films. A claim for damages for conversion or detention was made under 116(1A)(a) of the Copyright Act.

56                  On 23 February 2009 iiNet filed a Notice of Motion seeking, inter alia, to strike out the conversion claim contained in paragraph 22 of the Application and paragraphs 67A and 67F of the ASoC alleging that inadequate particulars had been supplied. Further correspondence seeking further and better particulars was sent from iiNet to the applicants on 25 February 2009 and 13 March 2009. On 19 March 2009 the applicants provided the first particularisation of the conversion and of the primary infringement claim.

57                   IiNet’s motion was heard on 25 March 2009 and judgment was delivered on 15 April 2009 (see Roadshow Films Pty Ltd v iiNet Limited [2009] FCA 332). In summary the Court found that the primary infringement claim was sufficiently pleaded but that the conversion claim required amendment. By letter dated 27 April 2009 the applicants advised iiNet that the conversion claim had been abandoned, but stated that the primary infringement claim would remain.

58                  On 28 April 2009 iiNet requested the applicants to amend their Application and ASoC to reflect the discontinuance of the conversion claim and warned that the continuing maintenance of the primary infringement claim would impact upon the length of the hearing.

59                  At the directions hearing held on 8 May 2009, the applicants filed an Amended Application and Further Amended Statement of Claim (‘FASoC’) reflecting the discontinuance of the conversion claim but maintaining the primary infringement claim. IiNet drew the attention of the Court to the increased technical evidence that would be required and the possible impact on the length of the hearing due to the inclusion of the primary infringement claim. The Court made orders, inter alia, for supplementary discovery and granted leave to iiNet to file a notice of motion seeking further particulars of the primary infringement claim.

60                  On 14 May 2009 iiNet’s solicitors sought further and better particulars of the primary infringement claim. A follow-up letter was sent to the applicants on 27 May 2009.

61                  As at 2 June 2009 the particulars requested by iiNet had not been provided. Accordingly on 2 June 2009 iiNet filed a Notice of Motion seeking such particulars. On the same day, the applicants filed a Notice of Motion seeking orders to strike out portions of iiNet’s Amended Defence and seeking discovery in aid of their primary infringement claim.

62                  The motions were heard on 9 and 15 June and 19 August 2009. At the hearing on 19 August 2009 iiNet indicated that it would not press its motion for particulars of the primary infringement claim because it had obtained expert evidence from its United States expert, Dr Caloyannides, who had visited Australia.

63                   In respect of the applicants’ claim for discovery, the applicants nominated approximately 50 categories of documents relating to a wide range of issues. The Court was required to determine whether such documents could conceivably be relevant, with little guidance as to the precise reason for their relevance. The Court made its rulings in a summary procedure, affording the parties the opportunity to review its findings. In respect of certain issues the parties did seek different rulings on the Court’s summary determination and the Court varied its findings after further submissions were made.

64                  On 22 September 2009 the applicants served their opening outline. It was observed by the Court that no statements had been made that were directed to the primary infringement claim. On the inquiry of the Court seeking clarification, the applicants informed the Court that they would not press such claim. No notification of this decision had previously been communicated to iiNet.

Submissions on Indemnity Costs Claim

65                  IiNet submits that the applicants’ claim that iiNet had engaged in primary breaches of copyright was untenable; that the applicants’ conduct in raising such claim was entirely unreasonable from its inception; and that particulars of such claim were sought by iiNet repeatedly but none were provided.

66                  IiNet submits that it was necessary for it to consider and prepare an answer to the claim including seeking particulars, seeking discovery, preparing and filing applications to the Court, retaining an expert from the United States, Dr Caloyannides, to prepare a report on this issue, consulting with officers of iiNet and otherwise preparing for that claim. In view of the failure to proceed with the claim six days before the hearing and the lack of an adequate explanation for the abandonment of the claim, iiNet submits that it is entitled to indemnity costs.

67                  The applicants maintain that this is not a case which would justify such an order. The applicants refer to various authorities including Preston v Preston (1982) 1 All ER 41 at 58 in which Brandon LJ held that there had to exist some ‘special or unusual feature’ to justify a court departing from the usual rule. See also Ragata Developments Pty Limited v Westpac Banking Corporation and Stanley Thompson Valuers Pty Limited [1993] FCA 72.

68                  The applicants submit that they included the primary infringement claim after iiNet filed its Defence, paragraph 57(h) of which implied that iiNet had engaged in the acts included in the primary infringement claim. The applicants further submit that iiNet refused to agree to discovery of categories of documents relating to the primary infringement claim. The applicants also submit that their expert witness, Mr Nigel Carson, was only able to undertake a limited inspection of iiNet’s computer equipment and as a result he was precluded from giving any evidence in connection with the primary infringement claim.

69                  As to the reliance upon Dr Caloyannides’ report, the applicants submit that such report was never read and accordingly cannot form any part of the costs to which iiNet would be entitled, unless the entirety of the report could be said to address the primary copying claim. The applicants submit that iiNet have indicated that this is not the case.

70                  The applicants referred to the importance of their ‘specific discovery requests’ made in respect of their primary copying claim in relation to the nature, type and configuration of iiNet’s network and equipment and the transitory copying of files travelling over that network. The applicants submit that they were prevented from advancing such claim because iiNet refused to agree to discover the relevant categories of documents and that the Court declined to order access to such material.

71                  On this issue the applicants submitted that:

The Court then made rulings on the parties’ proposed discovery categories. In doing so the Court did not permit the applicants any discovery under the categories relevant to the primary infringement claim. The applicants were, therefore, denied access to material vital to the establishment of the primary infringement claim. Thereafter the applicants did not file any affidavit evidence in chief in support of the claim.

72                  For the above reasons, the applicants submit that the claim for indemnity costs should be dismissed.

Finding: Indemnity Costs claim

73                  The submission that the applicants were somehow frustrated from pursuing their primary infringement claim by the Court’s rulings is impossible to reconcile with the events referred to above. Such submission overlooks the fact that the Court invited the applicants to seek review of any of its summary rulings in respect the categories of documents. The transcript of the interlocutory hearing held 15 June 2009 does not suggest that the applicants considered that they were prevented from pursuing the primary infringement claim, nor prejudiced as a result of the Court’s rulings, and no submission was made to this effect.

74                  The Court will now address the principles guiding the exercise of the Court’s discretion when an application is made for indemnity costs.

75                  In AWA Ltd v Daniels trading as Deloitte Haskins and Sells (Unreported, 50271 of 1991 NSWSC Comm D, Delivered 8 October 1992), Rogers CJ Comm D (NSWSC) said :

Circumstances in which indemnity costs, or solicitor and client costs, have been ordered may broadly be summarized as follows:

1. Misconduct, or inappropriate conduct, by a party in the course of the litigation. This could include deliberately delaying the proceedings by putting a knowingly false defence, or bringing proceedings for an ulterior motive (cf Degman v Wright (No 2) [1983] 2 NSWLR 354; Packer v Meagher [1984] 3 NSWLR 486);

2. Litigation which had such a remote prospect of success that the action should not have been brought or continued. In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd and Others (1988) 81 ALR 397, Woodward J said at 401:

“I believe that it is appropriate to consider awarding “solicitor and client” or “indemnity” costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion."

76                  In Colgate-Palmolive Company and Another v Cussons Pty Limited (1993) 46 FCR 225 Sheppard J at 232-233 referred to circumstances in which a special costs order might be warranted and included the following at 233:

[T]he fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata);

77                  See also Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602 where Goldberg J at [41] applied such principle. See also Davies J in Ragata Developments in which his Honour said at [8]:

The very nature of the award of costs on an indemnity basis gives a guide to the type of case in which such an award is appropriate. Thus, indemnity costs may be awarded where unsuccessful proceedings have been brought and prosecuted, not for the bona fide purpose of protecting and enforcing a legal right, but to achieve an ulterior or extraneous purpose. See Simpson v. Malherbe (1865) 4 Giff. 707; Packer v. Meagher (1984) 3 NSWLR 486, Daniell's Chancery Practice, 8th Ed. 1086-7; Fountain Selected Meats (Sales) Pty Limited v. International Produce Merchants Pty Limited at 401. In the last mentioned case, Woodward J. at 401 also mentioned the circumstance where an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success, as where, for example, there was wilful disregard of the known facts or the clearly established law. See also Australian Guarantee Corporation Limited v. De Jager [2001] VSCA 247; (1984) 4 VR 483 and Blackburn v. State of New South Wales (Hunt J., 9 August 1991, unreported) which is referred to in Hurstville Municipal Council v. Connor (1991) 24 NSWLR 724 at 733.

78                  The categories for the award of indemnity costs are not rigid. Each case must be considered on its own particular facts, having regard to the general principle that the usual award of party/party costs to the successful party should be made unless there are special circumstances to justify the making of a different order.

79                  The Court infers that the claim of primary infringement was made in view of paragraph 57(h) of iiNet’s Defence, which included a reference to the intermediate and transient storage of copyright material. Such pleading might have provided the basis for a primary infringement claim.

80                  Taking into account the contents of paragraph 57(h) of iiNet’s defence, it could not be said that, at the time the primary infringement claim was raised, the applicants knew that it had no chance of success. IiNet’s Defence filed 5 February 2009 raised the possibility that primary infringement had occurred by reason of transient storage of the applicants’ films. Further, by rejecting iiNet’s application that the primary infringement claim be struck out, the Court gave implicit recognition that such a claim could succeed, subject to issues of proof.

81                  In these circumstances the Court finds that the pleading of the primary infringement claim did not constitute misconduct, nor inappropriate conduct. Further no costs were wasted on this issue at the hearing because the claim was abandoned prior to the hearing.

82                  Accordingly, the Court finds that the applicants’ conduct falls short of meriting an award of indemnity costs against them and the Court rejects iiNet’s claim for indemnity costs. However, there is no reason why iiNet should not be entitled to its costs on the usual basis in respect of its defence and investigation of the primary infringement claim.

Conclusion

83                  It follows that the claim by the applicants for apportionment of costs and the claim by iiNet for indemnity costs are both dismissed. 

Associate:

Dated:         25 June 2010

SCHEDULE 1 – THE APPLICANTS

UNIVERSAL CITY STUDIOS LLLP
Second Applicant

PARAMOUNT PICTURES CORPORATION
Third Applicant

WARNER BROS. ENTERTAINMENT INC.
Fourth Applicant

DISNEY ENTERPRISES, INC.
Fifth Applicant

COLUMBIA PICTURES INDUSTRIES, INC
Sixth Applicant

TWENTIETH CENTURY FOX FILM CORPORATION
Seventh Applicant

PARAMOUNT HOME ENTERTAINMENT (AUSTRALASIA) PTY LTD
Eighth Applicant

BUENA VISTA HOME ENTERTAINMENT, INC.
Ninth Applicant

TWENTIETH CENTURY FOX FILM CORPORATION (AUSTRALIA) PTY LIMITED
Tenth Applicant

UNIVERSAL PICTURES (AUSTRALIA) PTY LTD
Eleventh Applicant

VILLAGE ROADSHOW FILMS (BVI) LTD
Twelfth Applicant

UNIVERSAL PICTURES INTERNATIONAL B.V
Thirteenth Applicant

UNIVERSAL CITY STUDIOS PRODUCTIONS LLLP
Fourteenth Applicant

RINGERIKE GMBH & CO KG
Fifteenth Applicant

INTERNATIONALE FILMPRODUKTION BLACKBIRD VIERTE GMBH & CO KG
Sixteenth Applicant

MDBF ZWEITE FILMGESELLSCHAFT MBH & CO KG
Seventeenth Applicant

INTERNATIONALE FILMPRODUCKTION RICHTER GMBH & CO KG
Eighteenth Applicant

NBC STUDIOS, INC
Nineteenth Applicant

DREAMWORKS FILMS L.L.C
Twentieth Applicant

WARNER BROS INTERNATIONAL TELEVISION DISTRIBUTION INC
Twenty-First Applicant

TWENTIETH CENTURY FOX HOME ENTERTAINMENT INTERNATIONAL CORPORATION
Twenty-Second Applicant

WARNER HOME VIDEO PTY LTD
Twenty-Third Applicant

PATALEX III PRODUCTIONS LIMITED
Twenty-Fourth Applicant

LONELY FILM PRODUCTIONS GMBH & CO KG
Twenty-Fifth Applicant

SONY PICTURES ANIMATION INC
Twenty-Sixth Applicant

UNIVERSAL STUDIOS INTERNATIONAL B.V.
Twenty-Seventh Applicant

SONY PICTURES HOME ENTERTAINMENT PTY LTD
Twenty-Eighth Applicant

GH ONE LLC
Twenty-Ninth Applicant

GH THREE LLC
Thirtieth Applicant

BEVERLY BLVD LLC
Thirty-First Applicant

WARNER BROS ENTERTAINMENT AUSTRALIA PTY LTD
Thirty-Second Applicant

TWENTIETH CENTURY FOX HOME ENTERTAINMENT LLC
Thirty-Third Applicant

SEVEN NETWORK (OPERATIONS) LTD
Thirty-Fourth Applicant