FEDERAL COURT OF AUSTRALIA

Breezway Australia (Holdings) Pty Ltd v Preference Manufacturing Pte Ltd [2011] FCA 764

THE COURT ORDERS THAT:

1.    The First and Second Cross-Respondents’ notice of motion filed 28 April 2011 be dismissed.

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

The application

1    This is an application under O 29 r 2(a) of the Federal Court Rules to have the questions of liability in these proceedings tried separately and before any questions of loss and damage. It raises the interaction between the parties’ views as to how litigation should be conducted and efficient case management

2    These proceedings relate to a patent held by Breezway Australia (Holdings) Pty Ltd (“Breezway Holdings”) in relation to a window louvre system. That patent is a divisional patent: Australian Patent No 2009212763 (“Patent 763”). Its ultimate parent patent is Australian Patent No 2002342406 (“the Parent Patent”), which is held by Breezway Australia Pty Ltd (“Breezway Australia”), a wholly owned subsidiary of Breezway Holdings.

3    Breezway Holdings commenced these proceedings alleging that the three respondents had infringed Patent 763. The first respondent, Preference Manufacturing Pte Ltd, is a Singaporean company which is engaged in the design and/or manufacture of louvre window systems and the components for those systems, including louvre window clips. The second and third respondents are both Australian companies involved in the manufacture and/or sale of louvre window systems, including louvre window clips, based on the designs of the first respondent and, in the case of the third respondent, those of the second respondent. The first and second respondents are related companies. Henceforth, I will refer to the three respondents jointly as “Preference” and, where appropriate, the two Breezway companies as “Breezway”.

the issues sought to be separated

4    The application has been made by Breezway and it is supported by Preference. The precise order sought in the notice of motion is that:

Pursuant to O 29 Rule 2(a) of the Federal Court Rules, the issues of liability of the First, Second and Third Respondents by Original Action (Respondents) to the Applicant by Original Action (Applicant) for the relief claimed by the Applicant and the liability of the Applicant / First Cross-Respondent by Cross-Claim and of the Second Cross-Respondent by Cross-Claim to the Respondents for the relief claimed by the Respondents in their Cross-Claim be determined at trial before any trial to determine the quantum of any damages or claims for an account of profits or interest on either that may be payable to any of the Respondents or the Applicant and Second-Cross Respondent.

(Emphasis added)

5    When pressed to clarify what was meant by the words “the issues of liability” (emphasised above), Mr Bennett, for Breezway, said it meant all issues except those pleaded in paras 22 and 23 of the statement of claim and paras 23 and 28 of the respondents’ cross-claim. To appreciate what those paragraphs involve, it is necessary to briefly outline the nature of the issues that have been raised by the pleadings.

the pleadings

6    Breezway Holdings’ statement of claim is relatively straightforward. It claims that each of the Preference respondents infringed the Patent 763 and seeks injunctions and damages, or an account of profits. Preference’s defence is similarly uncomplicated. In it, Preference simply denies the alleged infringement of Patent 763 on the ground that its window louvre system does not have all the features of the claims made in the application for that Patent. However, this simplicity has been removed by the cross-claim Preference has filed separately from its defence. In that cross-claim, Preference recast the matters in dispute in these proceedings in the following respects:

(a)    It claimed that Patent 763 was invalid on the grounds that:

      (i)    there was no entitlement or ownership in Breezway Holdings;

      (ii)    it lacked novelty;

      (iii)    it did not involve an inventive step; and

     (iv)    it did not relate to a patentable invention.

(b)    It claimed damages and injunctive relief against Breezway Holdings under upon s 128 of the Patents Act 1990 (Cth) (“the Act”) for allegedly making unjustified threats of infringements of Patent 763.

(c)    It joined Breezway Australia as a party to the proceedings.

(d)    It claimed damages against Breezway Australia for misleading and deceptive conduct in contravention of s 18, Sch 2 of the Competition and Consumer Act 2010 (Cth) (“the CC Act”) in that it allegedly made representations to the customers of the second and third respondents about infringements of Patent 763.

7    I return now to the issues the parties wish to have determined separately: see [4]–[5] above. First, paras 22 and 23 of Breezway Holdings’ statement of claim set out Breezway Holdings’ claim for loss and damage, or an account of profits, under s 122 of the Act. Secondly, para 23 of Preference’s cross-claim sets out its claims for loss and damage against Breezway Holdings under s 128 of the Act for allegedly making unjustified threats of infringements of Patent 763. Thirdly, para 28 of Preference’s cross-claim sets out its claims for loss and damage against Breezway Australia under the CC Act.

8    Before considering whether these issues can, or should, be separated and left to be determined later, I will first summarise the contentions of the parties in support of the application and the principles relevant to an application of this kind.

the contentions

9    Mr Bennett, for Breezway, submitted that, if the liability issues were to be determined separately and first, it would be cheaper, faster and easier to resolve the whole dispute between the parties. On the question of expense, Mr Bennett relied upon an affidavit by Mr Philp, a solicitor in his firm, in which Mr Philp estimated the cost savings associated with determining those issues separately would be in the vicinity of $68,000. On the question of speed, he relied upon the same affidavit and the estimates of Mr Philp that, if the issues of liability and damages did not proceed separately, the trial of all issues would be unlikely to be reached until September 2011, at the earliest. Finally, on the prospects of a resolution of the proceedings as a whole, Mr Bennett pointed to Mr Philp’s opinion that, once the liability issues were determined, there was a real possibility of the whole proceedings being resolved.

10    As I have noted above, Preference supports Breezway’s application. Ms Bunney, for Preference, broadly agreed with the costs savings, timing estimates and opinion as to the likelihood of resolving the whole dispute, set out in the affidavit of Mr Philp.

the principles

11    The courts are generally reluctant to allow separate trials of the issues that arise in a proceeding. Thus, the starting point for any consideration as to whether O 29 r 2(a) should be invoked is one of moderate resistance: see Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 at [141]–[142].

12    In Tepko Pty Ltd v Water Board (2001) 206 CLR 1; [2001] HCA 19 at [168], Kirby and Callinan JJ highlighted some of the difficulties involved as follows:

The attractions of trials of issues rather than of cases in their totality, are often more chimerical than real. Common experience demonstrates that savings in time and expense are often illusory…

13    French J echoed these concerns in Olbers Co Ltd v Commonwealth of Australia (No 3) [2003] FCA 651 (“Olbers”) at [31]:

[A]ny prophesied economies are to be balanced against the fragmentation of the trial of the issue. Experience in the courts over many years has demonstrated that fragmentation of proceedings rarely result in any saving of time in the long run and that projections as to costs savings are likely at best to be speculative

14    Most recently, the Full Court provided a general warning against the premature separation of issues at trial in Spirits International B.V. v Federal Treasury Enterprise (FKP) Sojuzplodoimport [2011] FCAFC 69 (“Spirits International”) at [40]:

[I]t is essential that any separation of issues occur only when all of the issues in the litigation are defined with clarity. Unless that is done, it will be difficult to evaluate the full repercussions of such a decision on the proceedings as a whole. Moreover, once a separate issue has been ordered, heard, decided and any appeals finalised, often the ingenuity of lawyers will identify some further permutation that was not covered by the separate issue.

15    However, none of these warnings goes so far as to create a presumption against the operation of O 29 r 2. It is a matter that is entirely within the discretion of the Court, noting that, as with all such discretions, it must be exercised judicially: see Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215 at [7] per Einstein J.

16    The principles governing the operation of O 29 r 2(a) were comprehensively summarised by Branson J in Reading Australia Pty Ltd v Australian Mutual Provident Society [1999] FCA 718 (“Reading”) at [8] as follows (excluding case references):

(a)    the term “question” in O 29 r 1 includes any question or issue of fact or law in a proceeding. The distinction in the rule between an “issue” and a “question” is the distinction between that which, when resolved, will result in an adjudication in favour of one party or the other, being an “issue”, and less decisive matters of dispute being “questions”;

(b)    a question can be the subject of an order for a separate decision under O 29 r 2 even though a decision on such a question will not determine any of the parties’ rights;

(c)    however, the judicial determination of a question under O 29 r 2 must involve a conclusive or final decision based on concrete and established or agreed facts for the purpose of quelling a controversy between the parties;

(d)    where the preliminary question is one of mixed fact and law, it is necessary that the question can be precisely formulated and that all of the facts that are on any fairly arguable view relevant to the determination of the question are ascertainable either as facts assumed to be correct for the purposes of the preliminary determination, or as agreed facts or as facts to be judicially determined;

(e)    care must be taken in utilising the procedure provided for in O 29 r 1 to avoid the determination of issues not “ripe” for separate and preliminary determination. An issue may not be “ripe” for separate and preliminary determination in this sense where it is simply one of two or more alternative ways in which an applicant frames its case and determination of the issue would leave significant other issues unresolved;

(f)    factors which tend to support the making of an order under O 29 r 2 include that the separate determination of the question may –

    (i)    contribute to the saving of time and cost by substantially narrowing the issues for trial, or even lead to disposal of the action; or

    (ii)    contribute to the settlement of the litigation;

(g)    factors which tell against the making of an order under O 29 r 2 include that the separate determination of the question may –

    (i)    give rise to significant contested factual issues both at the time of the hearing of the preliminary question and at the time of trial;

   (ii)    result in significant overlap between the evidence adduced on the hearing of the separate question and at trial – possibly involving the calling of the same witnesses at both stages of the hearing of the proceeding. This factor will be of particular significance if the Court may be required to form a view as to the credibility of witnesses who may give evidence at both stages of the hearing of the proceeding; or

  (iii)    prolong rather than shorten the litigation.

17    See also Olbers at [7]–[8] and Spirit International at [42] per Rares J and [150] per Buchanan J. Ultimately, the question is what is “just and convenient”: see Reading at [9]. In case management terms, that equates to what is the most just, quick, inexpensive and efficient way of proceeding: see s 37M of the Federal Court of Australia Act 1976 (Cth) and Olbers at [8].

Not straightforward patent infringement proceedings

18    If it were only proposed to separate the questions of liability and damages in relation to Breezway’s claims under s 122 of the Act and Preference’s cross-claims under s 128, there is authority that supports that course being taken in patent infringement proceedings similar to this: see, for example, Novartis Crop Protection Australasia Pty Ltd v Orica Australia Pty Ltd [2001] FCA 1013 at [8] per Stone J. The main justification for this approach is: “the fact that an applicant in such a case is not compelled to make an election as between damages and an account of profits at least before the evidence on liability has been received”: see Fleming’s Nurseries Pty Ltd v Hannaford [2008] FCA 591 at [18] per Kenny J. However, it is Preference’s cross-claim under the CC Act identified in [6(d)] above, that I consider places this case in a different category.

THE DAMAGE AND CAUSATION OVERLAP

19    It is well-established that damage is an essential element of a claim under s 82 of the CC Act. In Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 at 525, the High Court of Australia (Mason CJ and Dawson, Gaudron and McHugh JJ) expressed it in this way (excluding case references):

As loss or damage is the gist of the statutory cause of action for which s 82(1) provides, the cause of action does not accrue until actual loss or damage is sustained. The statutory cause of action arises when the plaintiff suffers loss or damage “by” contravening conduct of another person. “By” is a curious word to use. One might have expected “by means of”, “by reason of”, “in consequence of” or “as a result of”. But the word clearly expresses the notion of causation without defining or elucidating it. In this situation, s 82(1) should be understood as taking up the common law practical or common-sense concept of causation recently discussed by this Court in March v Stramere (E & MH) Pty Ltd, except in so far as that concept is modified or supplemented expressly or impliedly by the provisions of the Act. Had Parliament intended to say something else, it would have been natural and easy to have said so.

20    So, to succeed in such a claim, the applicant must establish that its loss or damage was caused by the respondent’s conduct. In turn, this means that the causation issue overlaps both the liability and damages issues. As a consequence, it becomes very difficult to separate them in the way one can with straightforward patent infringement proceedings.

The difficulties of separation

21    This difficulty was amply demonstrated in this case when I challenged both Mr Bennett and Ms Bunney to describe exactly how they proposed the issues of liability and damages raised by Preference’s cross-claim under the CC Act should be separated. Mr Bennett submitted that I should “determine liability under both the unjustified threats and also the deceptive conduct, but the consequences of that determination – that is, the extent of any financial loss which might be claimed – would be dealt with at a later stage in the case”. This submission completely ignores the overlapping causation issue I have mentioned above. For her part, Ms Bunney submitted that:

[T]he cross-claimants would … call evidence that the representations were made and that in reliance on those representations certain things were done or not done in terms of customers of the cross-claimants relied on those representations and elected not to make orders, or place sales. The actual determination as to the damages suffered by my client would be the subject of expert evidence which, in our submission, could be dealt with separately.

22    Later, Ms Bunney said that there would be some overlap in terms of the witnesses and added that:

There will be a witness on liability who may also have to provide evidence in relation to damages in that that witness relied on the representation and took certain steps, or didn’t take certain steps, which resulted in loss.

23    While these submissions do confront the overlapping causation issue, in the process, they underscore the difficulty that arises when one tries to separate the liability and damages issues involved in Preference’s claim under the CC Act. On the one hand, no legal question has been identified which can be clearly isolated and, on the other, it becomes obvious that there is a range of contested factual questions underlying both issues. As to the latter, it also becomes obvious that the witnesses who are to give evidence about the content of Breezway’s alleged misleading and deceptive conduct will also be required to give evidence as to what effect that conduct had on their future dealings with Preference, ie to address the causation issue identified above. It follows that, even if it were somehow possible to separate the issues of liability and damages in Preference’s claim under the CC Act, it would still be necessary for the parties to incur the additional costs of calling those witnesses twice – first on the liability and related causation issues and later on the damages and related causation issues.

24    For these reasons I do not consider it is just or convenient to separate the issues of liability and damages that arise in Preference’s claim under the CC Act. Further, while this course was not proposed by the parties, I would add this. If the liability and damages issues in Preference’s CC Act claim should not be separated, I do not consider the issues in the patent infringement claims should be separated from Preference’s CC Act claims. To do so would leave significant issues in the overall controversy between the parties unresolved.

Efficient case management the overriding consideration

25    Before leaving this matter, I should briefly address the interaction between the parties’ consent to this course and efficient case management. The fact that both parties supported the proposed separation of the issues in this case is obviously a significant factor in favour of that course. It appears to have been decisive in a decision mentioned in submissions: Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1985) 10 FCR 567 at 570–571 per Wilcox J. However, that decision was made some 25 years ago in an era where the parties were allowed much more control over their litigation. In the current era, case management considerations have equal, if not greater force. So, while the views of the parties to the litigation remain important, the overriding consideration is the most just, quick, inexpensive and efficient way to manage the proceedings in all the circumstances. And, on this, the experience of the courts as expressed in the various decisions I have referred to above (at [11]–[17]) will more often than not be a surer guide.

Conclusion

26    For these reasons, I do not consider the most just, quick, inexpensive and efficient course of dealing with these proceedings is to make the separation order sought by Breezway. I therefore order that Breezway’s notice of motion filed 28 April 2011 be dismissed.

Associate:

Dated:    11 July 2011