FEDERAL COURT OF AUSTRALIA

UGL Services Pty Ltd v F1 Solutions Pty Ltd [2012] FCA 245

THE COURT ORDERS THAT:

1.    The interlocutory application filed on 29 November 2011 be dismissed.

2.    The respondent F1 Solutions Pty Ltd is to pay the applicant UGL Services Pty Ltd the costs of and in connection with the interlocutory application filed on 29 November 2011 fixed in the sum of $20,000.00, such costs to be payable forthwith.

3.    The directions hearing on 13 April 2012 be vacated.

4.    The proceedings be listed for directions on 17 April 2012 at 9.30 a.m.

5.    There be liberty to restore on 3 days’ notice.

THE COURT DIRECTS:

6.    The parties to attend a mediation before Registrar Lackenby in Canberra within the next 4 weeks, subject to the Registrar’s availability.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1        This is an interlocutory application filed on 29 November 2011 which seeks, in paragraph 1, that paragraphs 8(g), 8(h), 8(i) and 8(j) of the statement of claim be struck out as likely to cause prejudice and delay in the proceeding, and in paragraph 2, pursuant to r 26.01 of the Federal Court Rules 2011 (Cth), that summary judgment be entered against the cross-respondent in respect of the cross-claim. I will deal with each of the applications for relief in the order set out in the interlocutory application.

THE STRIKE-OUT APPLICATION

2        The first part of the interlocutory application relates to the pleadings in the amended statement of claim filed by the applicant, UGL Services Pty Ltd (UGL). That statement of claim supports an originating application in which UGL seeks declarations in relation to ownership of certain intellectual property rights and injunctions relating to alleged infringement of what is said to be UGL’s copyright by the respondent, F1 Solutions Pty Ltd (F1). UGL also seeks delivery up of the intellectual property, as well as damages at common law and pursuant to s 115 Copyright Act 1968 (Cth), and otherwise all such accounts and inquiries as may be necessary, as well as interest and costs.

3        In para 3 of the amended statement of claim, UGL pleads the existence of an agreement between UGL and F1 in which F1 agreed to provide consulting and software development services to, amongst other things, build a software system for UGL for commercial exploitation by UGL. Paragraph 4 of the amended statement of claim pleads certain express terms of the agreement. Paragraph 5 pleads certain implied terms. Paragraph 8 alleges breaches of both express and implied terms as pleaded in paras 4 and/or 5. Subclauses (a) through to (f) plead breaches of various provisions of the alleged agreement, and subclauses (g) through to (j), which are in dispute in the present interlocutory application, allege other breaches of the alleged agreement.

4        The basis upon which the strike-out application is made is that the particulars of breach contained in subparagraphs 8(g) through to 8(j) repeat the particulars of subparagraphs (a), (b), (c), (d) and (e), with a proviso that “further particulars may be provided following discovery and prior to hearing”. This fact supports F1’s case that UGL, in paragraphs 8(g) through to 8(j), is relying on identical conduct to the conduct pleaded at paragraphs 8(a) through to 8(d) to found its allegation of breach of other obligations under the alleged written agreement. According to F1, these allegations in paragraphs 8(g) to 8(j) are “superfluous and irrelevant”, because if UGL succeeds in showing that there was a written agreement and that F1 breached the obligations as alleged at paragraphs 8(a) to 8(d), then UGL will be entitled to the relief sought. According to F1, UGL gains no additional rights or remedies by proving that the identical conduct happened to constitute breaches of other clauses of the written agreement.

5        The strike-out application is made in circumstances where, according to F1 – and for this purpose I accept this part of the submission – additional expert evidence will be required in relation to matters such as usual industry practices in order for UGL to make good its allegations in paragraphs 8(g) through to 8(j). F1 points to the fact that s 37M of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act) provides that the overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes as quickly, inexpensively and efficiently as possible. F1 submits that in circumstances where superfluous allegations are made requiring additional expert evidence, which would significantly extend the length of the trial but for no additional benefit to UGL, the superfluous paragraphs should be struck out pursuant to the power to do so otherwise specified in s 37P(6)(b) Federal Court Act.

6        The difficulty I have with this aspect of F1’s application is that the matters specified in paragraphs 8(g) to 8(j) of the amended statement of claim, as F1’s own submissions appear to acknowledge, relate to alleged breaches of provisions of the written agreement, separate and distinct from the breaches in paragraphs 8(a) to 8(d). It is true that those breaches are particularised by reference to the same matters set out in the particulars to paragraphs 8(a) through to 8(d) but, in substance, what is being done in paragraphs 8(g) through to 8(j) is that UGL is alleging that, by reason of the same factual circumstances as earlier identified, F1 has acted in breach of other contractual obligations than those specified in the earlier paragraphs.

7        At this stage, on a summary judgment application, it is impossible to know whether UGL will succeed on the whole or any part of its claim. Contrary to F1’s assumption and submission, it is not at all apparent to me that UGL would necessarily succeed in obtaining all of the relief that it has sought if it made good any one or more of the claims in paragraphs 8(a) through to 8(d), and failed on each of the claims in 8(g) through to 8(j). Moreover, sitting here today on a summary judgment application, I cannot possibly know whether UGL will fail or succeed on any of the allegations in paragraphs 8(a) through to 8(d). It seems to me that it is entirely possible that it may fail on one or more, or indeed all, of those allegations, but nevertheless succeed on one or more of all of the allegations in paragraphs 8(g) through to 8(j), and it is possible that success or failure on any one or more of those allegations may well found the whole or part of the relief.

8        In substance we have here a series of additional claims which may well in terms of their evidentiary foundation overlap with earlier claims – but that cannot possibly be a sound reason to exercise on the basis of the overarching purpose of civil practice and procedure provisions in s 37M a discretionary power to strike out part of a claim. It must be remembered that the overarching purpose is to facilitate the just resolution of disputes according to law, and as quickly, inexpensively and efficiently as possible. It seems to me to be apparent on the face of the pleading that it would not be just to preclude UGL from making the allegations in paragraphs 8(g) through to 8(j) of the amended statement of claim, irrespective of the fact that this might well require additional expert evidence, and thereby increase the length of the hearing.

9        Nothing suggests that the claims are frivolously made or vexatious. Indeed, it is not even suggested that they are frivolous and vexatious. All that is said is that they are superfluous, because if UGL wins on some other part of its case, it will necessarily obtain all of the relief it seeks. This may well be so, but it does not undermine the fact I have already noted that, sitting here today, I cannot know what will happen to those parts of UGL’s claim, and it would be unjust to deprive UGL of the prospect of obtaining the relief that it seeks, or any part of the relief it seeks, on the other part of its amended statement of claim. Accordingly, it follows that the first paragraph of the interlocutory application must be dismissed.

THE APPLICATION FOR SUMMARY JUDGMENT

10        I move then to the second part of the interlocutory application, by which summary judgment is sought by F1 in relation to its own cross-claim. The statement of cross-claim was filed on 11 October 2011. In the cross-claim, F1 alleges that it provided software development service to UGL at an agreed hourly rate, and that it rendered certain invoices to UGL for services so provided. In addition, the cross-claim states that UGL paid F1 in full for certain of the invoices but, despite demand, has failed and refused to pay any part of the sums claimed in other invoices. In para 7 of the statement of cross-claim, it is alleged that F1 performed the services and incurred the disbursements set out in certain invoices, and in para 8, that in the premises UGL is liable in debt to F1 in the sum of some $209,000. In para 9 and thereafter there is an alternative claim for unjust enrichment. However, the basis of the summary judgment application, as far as I can ascertain, is the pleadings in paras 1 through to 8 in particular, culminating in the allegation that UGL is liable in debt to F1 in the sum nominated.

11        F1 seeks summary judgment in its favour in relation to the cross-claim. There is a defence by UGL to the cross-claim. In its defence UGL admits that F1 provided software development services, but otherwise pleads the existence of an agreement from 3 February 2011 onwards (being the same agreement referred to in the amended statement of claim) and pleads that the work that F1 carried out on and from this date was carried out pursuant to the agreement. The provisions of the agreement thereby regulate the rights and obligations of the parties including as to payment and otherwise. UGL admits that it has not paid certain invoices but in its defence pleads a series of other factual matters, including UGL’s allegation that it stopped paying the invoices after F1 made it known to UGL that F1 did not intend to perform the software development services in accordance with the agreement, particularly as to the assignment, licences and delivery of source code, which UGL alleges F1 was required to deliver up to it. This culminates in a pleading in para 6(f) of UGL’s defence that:

…in the premises it is reasonable for UGL to require F1 to substantiate all invoices…to determine any amount actually due before making any further payments or demanding any refund of money already paid.

12        Consequently, UGL also does not admit that F1 performed the services or incurred the disbursement set out in the specified invoices, and expressly denies that UGL is liable in debt to F1 in the sum nominated.

13        In support of this application F1 relied on an affidavit of Gus Boman of 20 January 2012 and UGL relied on affidavits of Probir Dutt of 24 February 2012, and Mark Bain of 22 February 2012. Mr Probir’s affidavit annexes the agreement upon which UGL relies and in particular it refers to the definitions in that agreement of Contract Material, and obligations otherwise specified in that agreement for the assignment of the contract material by F1 to UGL. In Mr Bain’s affidavit there is also evidence of certain emails by which UGL refused payment of certain invoices and F1 notified UGL that it was “suspending all discussions relating to IP and copyright matters until [UGL] pays all the outstanding invoices”. There is also in evidence a letter from UGL’s solicitors of 26 August 2011 which in terms disputes certain invoices and alleges that: - (i) pursuant to clause 12.4 of the agreement, UGL is entitled to set off the amounts owed by F1 against any amount which may be due under clause 12, (ii) F1 is aware that it is in breach of the agreement and damages are accruing, and (iii) UGL will set off any amounts properly due, if any, against the damages due to UGL by F1.

14        I refer to this evidentiary material because it establishes that there is what was described by counsel for UGL as a hotly-contested dispute about the agreement, not only its terms but its legal consequences. The fact that there is such a hotly-contested dispute it seems to me is also plain from the submissions which F1 has filed. In those submissions F1 assumes in favour of UGL that UGL will succeed in establishing that the agreement was a written agreement binding between the parties. F1 submitted, however, that the real question is whether the agreement affords any defence to F1’s claim for debt for monies outstanding under that agreement. According to F1, UGL claims that it is not obliged to pay F1 until F1 has completely performed all of its obligations under the agreement, including delivery up of the disputed intellectual property and materials. F1 submits that to succeed in that defence UGL must establish that the written agreement constitutes an entire contract so that F1’s right to be paid was conditional upon F1 fulfilling all of its obligations.

15        The difficulty with this submission is that while ultimately it may be right, it plainly raises a triable issue. UGL for its part does not accept that the relevant question is whether the contract is what might be labelled an entire contract or not. UGL agreed that the contract on its face clearly does not provide for the payment of a lump sum at the completion of all of the work. Nevertheless, UGL maintains that on a proper construction of the contract it has no obligation to pay the invoices in circumstances where F1 has denied that UGL is entitled to the assignment of the disputed intellectual property and delivery of the defined contract material. On UGL’s case F1 was not entitled to insist on any payment for software development services under the contract while it refused to provide the contract material to UGL. UGL also submits that the facts referred to in its affidavits establish that it has reasonable prospects of establishing that it was a term of the agreement pursuant to which the services were provided that the contract material produced by F1 would be delivered and the intellectual property in that contract material assigned to UGL.

16        It is obvious from the competing submissions of the parties that this case involves disputed questions of law as to the proper construction of the contract and questions of fact in terms of the circumstances in which the work was carried out. In Spencer v Commonwealth (2010) 241 CLR 118; [2010] HCA 28 (Spencer) at [23] to [26] in particular, French CJ and Gummow J set out principles applicable to summary judgment having regard to the terms of s 31A Federal Court Act. Although I note that the interlocutory application in this case does not expressly invoke the powers in s 31A, those powers are available and it is appropriate to consider the interlocutory application in the context of those powers.

17        In Spencer it was observed (at [24]) that summary judgment applications are “always attended with caution”. The power is not to be exercised unless it is clear that there is no real question to be tried. If it appears that there is a real question to be tried then summary judgment is an inappropriate mechanism by which to dispose of the proceedings. It has been said also that there needs to be what has been described as “a high degree of certainty about the ultimate outcome if it were allowed to go to trial in the ordinary way”: see Batistatos v Roads and Traffic Authority (NSW) (2006) 226 CLR 256; [2006] HCA 27 at [46].

18        What is required in the present circumstances is a real as distinct from a fanciful prospect of UGL successfully defending the cross-claim. As per Spencer (at [25]), this requires “a practical judgment…as to whether the [respondent to the summary judgment application] has more than a “fanciful” prospect of success”. At [25] their Honours continued:

That may be a judgment of law or of fact or of mixed law and fact. Where there are factual issues capable of being disputed and in dispute, summary dismissal should not be awarded to the respondent simply because the court has formed the view that the applicant is unlikely to succeed on the factual issue.

19        It seems to me to be apparent from both the written and oral submissions of F1 that while F1 is firmly convinced of the rightness of its legal characterisation of the contract and view of the facts, there is nevertheless an arguable defence to the cross-claim based on UGL’s legal characterisation of the contract and of the facts. In short, the legal and factual basis for F1’s alleged rights under the cross-claim are, as submitted before me, not only genuinely in dispute but in hot contest.

20        It cannot be said on any view that UGL’s defences to the cross-claim are fanciful. There is plainly a triable issue in relation to the cross-claim and it follows in accordance with the ordinary course that any exercise of the powers of summary judgment in F1’s favour at this stage would be inappropriate and unjust. The matter must be allowed to go to trial in the ordinary course.

21        For these reasons, I order that the interlocutory application filed on 28 November 2011 be dismissed.

THE APPLICATION FOR COSTS

22        UGL seeks its costs on a lump sum basis to be (excluding disbursements) payable forthwith. I have been provided with a schedule in which details of the total costs incurred by UGL in respect of the interlocutory application is set out in the sum of some $52,000. UGL submits that it is prepared to accept a substantial discount and that an order should be made in its favour in circumstances where: - (i) it has a good claim to indemnity costs, (ii) it would certainly obtain an order for party to party costs, and (iii) the principal rules set out and summarised by Katzmann J in Power Infrastructure Pty Ltd v Downer EDI Engineering Power Pty Ltd (No 2) [2010] FCA 1347 (Power Infrastructure) are engaged.

23        In Power Infrastructure Katzmann J said (at [7]) that “[t]he general rule in an interlocutory proceeding is that a party is not entitled to have a bill of costs taxed until the conclusion of the principal proceeding.” Her Honour noted that the court has a discretion otherwise to order, as set out in Order 62 r 3 of the Federal Court Rules. Generally the usual approach that costs are not resolved until the end of a proceeding, as disclosed in Rafferty v Time 2000 West Pty Ltd (No 3) (2009) 257 ALR 503; [2009] FCA 727 (Rafferty), serves the general interests of justice because it avoids multiple taxations and an apparent unfairness where a party who is initially successful is ultimately unsuccessful or vice versa, and it prevents interlocutory proceedings being used as a weapon to exhaust the financial resources of one of the parties. However, in Rafferty Besanko J also said that “the court may order that costs be paid forthwith, and the cases suggest that [this] power may be exercised in circumstances in which there is an element of unreasonableness in the conduct of the unsuccessful party, and it is likely that there will be a long delay between the interlocutory proceeding and the conclusion of the principal proceeding” (at [21]).

24        At [13] of Power Infrastructure Katzmann J referred to cases which have expressed different views about when an order should be made that costs in an interlocutory proceeding be payable and taxable forthwith. Taking a strict approach, it is said that the power is exercised “only in very special circumstances”, while a more lenient approach suggests that the power might be “possibly under utilised, particularly in lengthy and complex cases where substantial costs have been thrown away as a result of ill considered pleadings being drawn”. In Brasington v Overton Investments Pty Ltd [2001] FCA 571 Emmett J observed the general principle in [13] and then continued (at [14]):

However, the rule clearly contemplates that, in some circumstances, the principle should be varied. Where costs have been incurred by one party by reason of an interlocutory application that is incompetent or misconceived, such that on proper analysis, it should never have been brought, it appears to me to be an appropriate circumstance in which to vary the ordinary rule. Where a final decision is some way off in a proceeding, either because it is lengthy and complex, or for some other reason, that is a factor that should be taken into account. Any costs incurred by reason of an ill considered pleading may also give rise to an exception to the principle.

25        In the present case F1 says that there is nothing in the circumstances which takes this interlocutory application outside the usual swings and roundabouts of interlocutory applications. It says that the interlocutory application, although unsuccessful, has better exposed the debate between the parties and that in the ordinary course, while there would be the usual order as to costs, the costs would be taxable only at the conclusion of the proceedings overall.

26        It seems to me, however, that this is a case where F1 has caused the substantial incurring of costs on the part of UGL in defending a summary judgment application which, with respect, I cannot characterise as anything other than misconceived when tested against the principles applicable to summary judgment applications. It does seem to me that in the face of the pleadings of UGL, let alone the evidence which it subsequently filed, F1 could not succeed on its application for summary judgment for a not insubstantial sum of money in circumstances where the liability to pay that sum is in dispute by reason of somewhat complicated contractual and other dealings between the parties. This is my reason for characterising the application for summary judgment by F1 as misconceived. It also seems to me that F1’s attempt to have certain of UGL’s pleadings in the primary claim struck out was also misconceived. Those pleadings were proper on their face and it could not be said on proper analysis that they are in any way superfluous. In these circumstances, I am of the view that I should depart from the ordinary principle, and in doing so, that I should make a lump sum costs order.

27        I do not think it is necessary for me to resolve the question of indemnity or party-party costs, although I can say that, given my views about the lack of cogency of the application for summary judgment, this is a case in which it is possible that the discretion to order costs on an indemnity basis against F1 might well have been exercised. Be that as it may, the reason I do not have to determine this is that UGL has properly accepted that there will need to be a substantial discount from its total costs, particularly taking into account the fact that the affidavit evidence is not wasted. The affidavit evidence will be relevant to the proceedings overall, and accordingly I agree that a substantial discount is required.

28        However, costs in relation to the appearance today and preparation of submissions have been unnecessarily incurred because, having regard to the principles upon which powers to strike out parts of claims and to award summary judgment are exercised, this is a case in which, as I have said, the application was misconceived. Given that I can only do the best I can in relation to the costs, I do think a conservative approach should be taken so that any doubt that I have is resolved in F1’s favour, and not UGL’s favour, on costs.

29        It would seem to me to be clear that all of the costs of today plus some additional costs have been wholly wasted. It is indicated to me in the applicant’s costs document that both senior and junior counsel were preparing for this matter, including review of affidavits but also drafting submissions, for some three days.

30        Accordingly, I am prepared to make and do make a lump sum costs order in the sum of $20,000, which resolves all of my doubts in favour of F1 and in my view represents a substantial discount from the amount for which F1 would ultimately likely be liable if costs were taxed.

Associate:

Dated:    16 March 2012