FEDERAL COURT OF AUSTRALIA

RLA Polymers Pty Ltd v Nexus Adhesives Pty Ltd [2011] FCA 606

THE COURT ORDERS THAT:

1.    Paragraph 1 of the Order of the Court of 29 April 2011 be varied by inserting after the expression “Nexus 820” the words in parenthesis “(which includes any Nexus product having the same formulation as “Nexus 820” whether or not sold under that name)”.

2.    The respondents pay the applicant interest on the amount found to be due on the taking of an account of profits directed by paragraph 1 of the Order of the Court of 29 April 2011.

3.    The interest provided for by paragraph 2 of this Order be calculated by the Registrar taking the said account, such interest to accrue from 14 March 2008 until the completion of the taking of the said account.

4.    The interest stipulated in paragraph 3 of this Order be calculated by the Registrar taking the said account and be in accordance with s 51A of the Federal Court of Australia Act 1976 (Cth) and at the rate applied from time to time by the Supreme Court of Victoria.

5.    The respondents pay 75% of the applicant’s costs of the application, including any reserved costs, such costs in default of agreement to be taxed as between party and party.

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    On 29 April 2011, I made orders in this matter allowing the application in part and thereby awarding the applicant as damages the amount found upon the taking of an account by a Registrar of the Court of any profits made by the first respondent from sales of Nexus 820 adhesive between specific dates. I also ordered that the application stand over to a date to be fixed for the making of further orders as to costs, interest and any other matter. I then published extensive reasons [RLA Polymers Pty Ltd v Nexus Adhesives Pty Ltd [2011] FCA 423] (“the earlier reasons”) for those orders and these reasons should be read in conjunction with the earlier reasons.

2    The applicant has now sought an order for, among other things, its costs of the application and interest. Those forms of relief are sought to be expressed in two alternative ways; first that the respondents pay the applicant’s costs of the application on a party and party basis and that costs ordered or agreed as part of earlier interlocutory orders be set off against each other and the balance be added to or set off against the costs of the substantive application and that the respondents pay interest on the amount of damages found upon the taking of an account; alternatively, that the respondents pay 80% of the applicant’s costs to be taxed as between party and party together with interest on the amount of damages found upon the taking of an account.

3    The respondents made a number of submissions relating to the continued conduct of these proceedings and the application as to costs. Primarily, it was submitted that it was premature for the Court to hear submissions as to final orders, particularly costs and interest, for a number of reasons which I have elaborated below.

Respondents’ submissions

4    In essence, the respondents say that, as an account of profits has yet to be taken, it is not possible at this stage to ascertain the quantum of damages which will ultimately be payable to the applicants. Until that amount is known, it was submitted, the Court ought not hear argument on, or proceed to determine, the question of costs.

5    Another reason advanced for waiting until after the taking of an account was the possible impact on the order for costs of two separate Calderbank [Calderbank v Calderbank  [1975] 3 All ER 333] offers to settle the proceeding. The first was a “walk away” offer made on 31 July 2009, that the application be dismissed and each side bear its own costs, save for costs which the applicant was ordered on 14 May 2009 to pay to the respondents. The second offer on 2 September 2010 was to pay the applicant the profits earned by the first respondent on sales of both Nexus 820 and Nexus 840 for the first six months during which those products were on the market, and for each side to bear its own costs. The respondents contend that the orders for costs sought by the applicant could only be made if the damages awarded to the applicant after the taking of the account were greater than the amount offered by the respondents’ Calderbank offer of 2 September 2010. In support of that contention it was asserted, as previously advised to the applicant, that sales of Nexus 820 in its first six months were unlikely to be significant. Accordingly, the respondents urged that it is appropriate to wait until after the taking of accounts to see whether their hypotheses are proved.

6    In reliance on Mr Clewlow’s affidavit sworn 19 May 2011, the respondents submit that it is likely that damages will be less than $30,000. However, a precise figure is, as yet, unknown. In their written submissions, and in argument before me, the respondents said that once the precise quantum of damages has been determined, the respondents may wish to advance several arguments in relation to costs. In particular, they seek to preserve the argument that “the Court ought not depart from the usual rule [as set out in Order 62 Rule 36A] in circumstances where the Applicant has obtained a judgment for less that $100,000” and that, “any costs payable to the Applicant ought be payable on the relevant Magistrates Court of Victoria scale, whereas any costs payable in favour of the Respondents ought be ordered in accordance with the usual practice for proceedings in the Federal Court.” A further argument was foreshadowed that the respondents should be entitled to their costs for the following reasons;

•    The applicant ought have accepted one of the offers made by the Respondents in the course of the proceedings by way of Calderbank letter.

•    The resources the Applicant expended on these proceedings were out of all proportion to the matters truly in issue.

•    The manner in which the Applicant conducted these proceedings caused costs to be unreasonably or negligently incurred, such that the Applicant’s costs ought be disallowed and the Applicant ought pay the Respondents’ costs [in accordance with Order 62 Rule 36]. In making this argument, the Respondents will rely in part on the quantum of the damages recovered.

•    Given the damages likely to be recovered, the proceeding ought have been brought in the Magistrates Court of Victoria and not in the Federal Court of Victoria.

7    The respondents provided only an indication of the submissions they claim may be advanced at a future date. It was submitted that they are presently unable to mount their full argument as to costs, which is likely to require the adducing of evidence. The Court should therefore defer consideration of the question of costs.

8    In relation to the Calderbank letters referred to at [5] of these reasons, the respondents submitted that, once the account of profits has been taken and damages have been quantified, both offers of compromise will be relevant to any order for costs. According to the respondents, the costs implications of the Calderbank offers at the time they were made will also be relevant. In reference to the affidavit sworn 19 May 2011 by Mr Galatas, solicitor for the respondents, the respondents submitted that they are;

entitled to substantial costs thrown away by reason of the Applicant’s amendment of its statement of claim, whereas any costs to which the Applicant was then entitled were minimal. Mr Galatas believes that the costs orders in the Respondents’ favour as at 31 July 2009 were substantially greater than costs ordered to that time in favour of the Applicant. [Footnotes omitted]

9    It was further submitted by the respondents that;

… in order to properly consider the effect of the Calderbank letters, it may be necessary to:

a.    Have a forensic accountant calculate the profits earned during the period covered by the offer [this is presently being done];

b.    Compare the amount found to the amount ordered as damages by his Honour;

c.    Have a costs consultant provide an opinion as to the then-outstanding costs orders;

d.    Have a costs consultant provide an opinion as to the costs of the proceeding generally at the time of the Calderbank letters; and

e.    Obtain evidence from the costs consultant.

10    In accordance with the submissions outlined at [4]-[9] of these reasons, the respondents contended in conclusion that, “[u]nless the Court forms the view that the quantum of damages is not a factor which it ought to take into account in the exercise of its discretion, then it ought not make any costs order until the account has been taken”, otherwise the respondents would suffer significant prejudice.

11    Further, Dr Wilson SC, who had appeared for the respondents at the trial has been unavailable to provide detailed advice regarding costs and interest, or appear on the hearing on 25 May 2011. The respondents therefore consider that they may be unfairly prejudiced if the Court were to make orders as to costs and interest without the respondents having the benefit of being advised and represented by their Senior Counsel of choice who appeared for them throughout the trial.

12    Accordingly, the respondents submitted, the Court should not make orders as to costs and interest now but should adjourn the proceedings to a later date to be fixed. This would allow for the taking of an account of profits, and thus the quantification of damages, and it would also provide the respondents with greater time to gather any potential evidence and prepare and present informed submissions assisted by their Counsel of choice.

Consideration

Costs

13    I am not unmindful of the desirability of allowing the respondents time to explore the matters to which they have referred and have their submissions on costs put by Senior Counsel who appeared for them at the trial. However, in light of my impending retirement, that is not possible if those submissions are to be made to me as the trial Judge. On balance, I consider that the interests of justice weigh strongly in favour of the Court’s discretion as to costs being exercised at first instance by the docket judge. That is particularly so when regard is had to the length and complexity of the trial and the tortuous interlocutory history of the matter which commenced on 6 December 2007 and occupied more than two and a half years before Dr Wilson SC was retained on behalf of the respondents.

14    In respect of the costs of the application (other than those which have been the subject of earlier orders in favour of the applicant or the respondents), I have come to the clear view that the applicant’s costs should partly follow the event and be paid as to 75% by the respondents. I shall explain briefly my reasons for that view.

15    This was not a case in which minute examination of whether a party has succeeded or failed on a particular issue was necessary in order to determine the outcome as to costs; see ICI Chemicals & Polymers Ltd v Lubrizol Corporation Inc (1999) 47 IPR 110, at [17]. As a matter of broad impression, RLA has succeeded on the central issue of whether the Confidential Information was, in fact, a trade secret. That issue was vigorously contested by the respondents from the inception of the proceedings until judgment, but, ultimately, without success.

16    RLA’s success on the central issue was translated into a victory in respect of Nexus 820 which was apparently more profitable and sold in much greater volumes than Nexus 840 on which the respondents succeeded. The time occupied at trial in the contest about the two adhesives, as far as it was divisible at all, was broadly in the proportions of 75 to 25.

17    I do not consider that O 62 r 36A of the Rules of this Court should be given any application in the circumstances of this case, even if the damages ultimately recovered by RLA are in the region of $30,000 or less, plus interest. Having regard to the complexity of the factual and legal issues involved, this was a case appropriate to be litigated only in this Court or the Supreme Court.

18    In the result, the expert evidence adduced on each side was not regarded as decisive or even helpful in resolving the central issue of whether the formulations of Nexus 820 and Nexus 840 reflected the use of the applicant’s Confidential Information. However, much of the attention given to that evidence resulted from the respondents’ persistence in relying on the successive witness statements of Mr Turner and, to a lesser extent, those of Mr Dimis and Mr Martens, a lot of which was self-obviously inadmissible and accordingly excluded.

19    I do not consider that the applicant’s rejection of either of the Calderbank offers was unreasonable when assessed at the time when each offer was made. That is because, by the time of the offer, the costs expended by the applicant must have been of a magnitude which was critical to any decision to continue to prosecute the proceedings or to compromise them. Acceptance of a “walk away” offer would have implicitly acknowledged that the applicant was likely to recover nothing or an amount less than the sum of $30,000 plus interest which it now seems to be almost common ground that the applicant will recover as a result of the orders of 29 April 2011. I do not regard the applicant’s rejection of the second Calderbank offer of 2 September 2010 as unreasonable. That is because the offer was not accompanied by sufficient information to enable the applicant to make a reasonably accurate estimate of the profits earned on sales of Nexus 820 and Nexus 840 in the first six months during which those products were on the market. In the second place, the later offer was made within three days of the date fixed for commencement of the trial. That circumstance would have made the costs expended by the applicant to that date an even more powerful disincentive to compromise than the costs accrued to 31 July 2009 which are discussed at [18] above.

Other orders

(a)    Declarations

20    Although Counsel for the applicant pressed for it, I do not consider that there is any utility in making a declaration that the respondents have misused the Confidential Information which constituted a trade secret. The orders which I have made on 29 April 2011 that the amount found on the taking of an account be paid as damages to the applicant was intended to compensate for the “springboard” advantage derived by the respondents as analysed at [70]-[75] and [152] of the earlier reasons. That compensation will effectively be completed by the order which I propose to make as to interest.

(b)    Delivery up and destruction of copies of documents containing the Confidential Information

21    As indicated at [20] above, the award of damages and interest reflects the “price” which the Court has exacted from the respondents for misuse of the Confidential Information. It would therefore be superfluous to order the delivery up or destruction on oath of documents in which part of that Confidential Information has been recorded.

(c)    Interest

22    I have already indicated earlier in these reasons that the applicant should recover interest pursuant to s 51A of the Federal Court of Australia Act on the amount awarded as damages. That interest should be calculated as accruing from the date when the respondents commenced to derive profits from the sale of Nexus 820 as a result of the “springboard” advantage derived from their misuse of part of the Confidential Information. I do not regard it as appropriate to award interest on interest or compound interest. Such an award is not authorised by s 51A of the Federal Court of Australia Act; see sub-s (2)(a) thereof. Nor do I consider that a profit has been made by the respondents on the “profit” which I have imputed to the misuse of the Confidential Information. The common law principle adumbrated in LED Builders Pty Ltd v Eagle Homes (1999) 44 IPR 24 has, thus, not been attracted.

(d)    Clarification of the scope of the reference to “Nexus 840” in the orders of 29 April 2011.

23    I agree with Counsel for the applicant that the paragraph 1 of the Order of 29 April 2011 does not reflect the fact that adhesives made to the formulation of Nexus 820 have been sold under names or brands other than Nexus 820 and perhaps as an unbranded product. I shall order that paragraph 1 of the order of 29 April 2011 be amended accordingly.

Conclusion

24    For the reasons explained above, I shall order that paragraph 1 of the Order of 29 April 2011 be varied in the manner described at [23] of these reasons. I shall also order that the respondent pay interest in accordance with s 51A of the Federal Court of Australia Act on the amount found to be due on the taking of the account. Such interest shall accrue from 14 March 2008 until the completion of the taking of the account and shall be calculated by the Registrar taking the account at the rate applied from time to time by the Supreme Court. I shall also order that the respondents pay 75% of the applicant’s costs of the application to be taxed as between party and party. That order as to costs will comprehend the costs of the hearing on 25 May 2011.

Associate:

Dated:    2 June 2011