FEDERAL COURT OF AUSTRALIA

ObjectiVision Pty Limited v Visionsearch Pty Limited (No 3) [2015] FCA 304

THE COURT ORDERS THAT:

1.    The prospective applicant is to pay the prospective first and second respondents’ reasonable costs and expenses of giving discovery and production in compliance with the orders made on 27 October 2014.

2.    The first prospective respondent is to pay thirty five percent (35%) of the prospective applicant’s costs of the application for preliminary discovery as agreed or assessed.

3.    The second prospective respondent is to pay fifteen percent (15%) of the prospective applicant’s costs in the application for preliminary discovery as agreed or assessed.

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

REASONS FOR JUDGMENT

1.    ISSUES

1    In ObjectiVision Pty Ltd v Visionsearch Pty Ltd [2014] FCA 1087 (ObjectiVision (No. 1)), I allowed in part the application for preliminary discovery by the prospective applicant, ObjectiVision Pty Limited (ObjectiVision), under r 7.23 of Federal Court Rules 2011 (Cth) (FCR) against the prospective respondents, Visionsearch Pty Limited (Visionsearch) and the University of Sydney (the University). Orders were made subsequently giving effect to those reasons and upon clarification of the position adopted by the University on one of the categories of documents, as explained in my reasons in ObjectiVision Pty Ltd v Visionsearch Pty Ltd (No 2) [2014] FCA 1146 (ObjectiVision (No. 2)).

2    The parties were also afforded an opportunity to make written submissions following judgment on the question of costs. Each party has adopted a different position on the issue.

3    ObjectiVision proposes orders that the University and Visionsearch should jointly pay 80% of its costs on the application for preliminary discovery. This would allow a discount of 20% for its failure to succeed on the application for preliminary discovery against the University with respect to its alleged claim for breach of the Licensing Agreement between ObjectiVision and the University. ObjectiVision also seeks an order that the costs of giving preliminary discovery be costs in the cause should proceedings in copyright infringement or breach of confidence be instituted within 14 weeks of inspection. ObjectiVision, however, accepts liability for reasonable costs and expenses in giving preliminary discovery by a prospective respondent if proceedings are not commenced against that prospective respondent.

4    Both Visionsearch and the University seek their costs associated with the giving of preliminary discovery and production.

5    As to the costs on the application for preliminary discovery:

(1)    Visionsearch:

(a)    seeks an order that ObjectiVision pay its costs; or

(b)    in the alternative, seeks orders that costs be costs in the cause should a substantive action be commenced or, if not commenced within a reasonable time, that ObjectiVision pay its costs; and

(2)    the University:

(a)    seeks its costs in so far as they relate to the claims of preliminary discovery for breach of contract, to be assessed at 30% of the University’s total costs of the application; and

(b)    that its remaining costs (Other Costs) be costs in the cause if proceedings are commenced or, if not commenced with six weeks of inspection, that ObjectiVision pay its costs.

6    For the reasons set out below, I consider that Visionsearch and the University are entitled to their costs associated with the giving of preliminary discovery and production as agreed or assessed. However, in all of the circumstances, including that the orders were contested and that ObjectiVision was largely successful but only on categories amended on the second day of the hearing, I consider that ObjectiVision should receive a total of 50% of its costs as agreed or assessed. Those costs should be apportioned between the two prospective respondents reflecting the different manner in which they ran their respective cases and ObjectiVision’s failure on a distinct ground against the University. In the result, I would hold VisionSearch liable for 35% of ObjectiVision’s costs and the University liable for 15% of those costs.

2.    BACKGROUND

7    As I explained at [3] in ObjectiVision (No. 1), the documents sought by ObjectiVision fell into two primary categories: current and historical versions of computer source code; and software development documentation, including documents that it contends are often or usually associated with the development of software and are the products of software development process, based upon the evidence of its expert witness, Mr Sizer. These documents were said to be directly relevant to the question of whether ObjectiVision should decide to commence proceedings:

(1)    against Visionsearch and the University for relief for copyright infringement subsisting in its OPERA software and misuse of confidential information embodied in the OPERA software; and

(2)    against the University for relief for breach of the Licensing Agreement between the University and ObjectiVision.

8    ObjectiVision submitted that access to these documents would provide the necessary information on the basis of which it could assess whether or not to commence proceedings against Visionsearch and/or the University.

9    Both Visionsearch and the University denied any breach of copyright, misuse of confidential information, or other breach. They resisted the application for preliminary discovery on the grounds that none of the prerequisites to the discretion in r 7.23(1) were made out. Visionsearch and the University also submitted, in the alternative, that the categories of documents sought were too broad. To some extent, this appears to have been accepted with ObjectiVision reducing the categories for preliminary discovery and submitting amended categories on the second day of the hearing which addressed to some extent the concerns of the prospective respondents.

10    In the event, I held that orders should be made for pre-action discovery with respect to certain of the categories of documents sought on the ground that they were relevant to the question of whether ObjectiVision should decide to commence proceedings against Visionsearch and the University for relief for copyright infringement and misuse of confidential information. In reaching that view, I did not accept the University’s submission that ObjectiVision had not demonstrated a reasonable belief that it owned copyright (ObjectiVision (No. 1) at [50]). Nor were submissions by VisionSearch and the University that ObjectiVision’s belief that its copyright may have been infringed was unreasonable upheld (ObjectiVision (No. 1) at [64]). In addition, the prospective respondents did not succeed on the arguments put by either or both that:

(a)    reasonable inquiries had not been undertaken (ObjectiVision (No. 1) at [72]-[81]);

(b)    ObjectiVision had failed to identify the information that was lacking (ObjectiVision (No. 1) at [82]-[83]);

(c)    ObjectiVision had failed to establish that it had insufficient information to decide whether or not to start proceedings (ObjectiVision (No. 1) at [84]-[92]); and

(d)    preliminary discovery should be refused on the grounds of delay (ObjectiVision (No. 1) at [134]).

11    However, I did not consider that ObjectiVision had established that it had any doubt about the question of whether it should institute proceedings for relief for an alleged breach of the Licensing Agreement between the University and ObjectiVision, and did not make orders for preliminary discovery on this ground.

3.    CONSIDERATION

3.1    General Principles

12    The Court has a wide discretion under s 43(2) of the Federal Court of Australia Act 1976 (Cth) in making orders for costs. That discretion is to be exercised judicially: Hughes v Western Australian Cricket Association (Inc) [1986] FCA 382; [1986] ATPR 40-748 (HugesHughes) at 48,136. This power is supplemented by FCR, r 7.29, in Division 7.3 concerning preliminary discovery, which relevantly provides that:

A person against whom an order is sought or made under this Division may apply to the Court for an order that:

…

(a)    the prospective applicant pay the person’s costs and expenses.

13    It has been doubted that there is as yet a “conventional approach” as to the manner in which the discretion as to costs and expenses is to be exercised in preliminary discovery applications: Apache Northwest Pty Ltd v Newcrest Mining Ltd [2009] FCAFC 39; (2009) 182 FCR 124 (Apache) at 146-147 [90]-[91] (Flick J (in dissent but on issues not presently relevant)); J & A Vaughan Super Pty Ltd v Becton Property Group Limited [2013] FCA 340 (Vaughan Super) at [16] (Kenny J). Any order for costs must necessarily be dictated by the facts and circumstances of the proceeding: Apache at 146 [89]; Vaughan Super at [16]. The decided cases are therefore illustrative only of the manner in which the discretion has been exercised in the circumstances of the particular case and provide guidance in that sense.

3.2    Support for the parties’ respective approaches in the authorities

14    Support can be found for each of the approaches to costs urged by the parties.

15    The contingent orders sought by the University with respect to its Other Costs and by Visionsearch in the alternative to an award of its costs, find some support in Cappuccio v Australia or New Zealand Banking Group Ltd [1999] FCA 1188 although that was a case where the application for preliminary discovery was resolved by consent. In that case, Burchett J at [3] considered that the appropriateness of the costs order:

…depends very much on the consequences of the discovery obtained. If the applicant for preliminary discovery uncovers enough to enable that applicant to bring proceedings which are successful, there may be much to be said for the proposition that the costs of the preliminary discovery should form part of the costs of the action. On the other hand, if the applicant proceeds, brings an action, fails, and is ordered to pay the costs of that action, there seems every reason why, generally speaking, the costs of the preliminary discovery should be included in the costs payable to the respondent.

16    In the circumstances, his Honour considered that, if substantive proceedings are commenced, the costs of the preliminary discovery application should be at the discretion of the tribunal hearing the substantive application. That approach has also been adopted in a number of other authorities, including: SmithKline Beecham plc v Alphapharm Pty Ltd [2001] FCA 271 at [32] (Finkelstein J); and E D Oates Pty Ltd v Edgar Edmondson Imports [2012] FCA 356 at [59] (Kenny J) where the application for preliminary discovery was opposed and evidence was led both in support of and against the application.

17    However, doubts have been expressed about the contingent approach to costs orders adopted in these cases. Thus, in C7 Pty Ltd v Foxtel Management Pty Ltd [2001] FCA 1864 (C7), where C7 succeeded in large measure in its application for preliminary discovery, Gyles J at [50] held that:

It needs to be borne in mind that this is an extraordinary jurisdiction. It provides for compulsory access to the private affairs of members of the community in order that somebody else can determine if they have a case against that party and the threshold set by O 15A r 6(a) [the precursor to FCR, r 7.23] is not very high. There is much to be said for the view that a respondent in these circumstances is entitled to put the applicant to proof except in a clear case. Some judges have been disposed to make orders which, to a greater or lesser extent, leave costs to be determined after the result of preliminary discovery and inspection is known, and even to depend upon, to some extent, the fate of the litigation which ensues. I am not persuaded of the merit of that approach. An application pursuant to O 15A is a discrete application and may never lead anywhere. There is no reason why a party which is out of pocket because of costs should await some indefinite future event.

18    Gyles J concluded at [51] that, having regard to these considerations and to the fact that the relief which the applicant will obtain is effectively that offered before the hearing, the proper order was that the applicant pay 50% of the costs of the respondents. His Honour also noted that in the event that proceedings were instituted and the applicant were to succeed, it may be arguable that the applicant should be compensated for the burden of this costs order (and perhaps its own costs) although that would be a matter for the trial judge.

19    The position adopted by Gyles J lends some support to Visionsearch’s submission that it should receive its costs of the application for discovery notwithstanding that it was largely unsuccessful in resisting the preliminary discovery application. Similarly, in Riley in his capacity as Trustee of the Ker Trust v Jubilee Gold Mines NL [2000] WASC 114, where the orders for preliminary discovery were also opposed, Master Sanderson held at [18] that the plaintiff should bear the costs of the application on the basis that the plaintiff:

…is seeking an indulgence from the Court. The defendant should not be obliged to consent to a discovery order which amounts to a serious invasion of its rights without the sanction of the Court.

20    Kenny J reached the same view in Vaughan Super in circumstances where it was only after a hearing that the prospective respondent consented to the orders, and her Honour found that it had not acted unreasonably in not giving discovery otherwise than pursuant to a court order (at [18]).

21    Similar doubts as to the desirability of making contingent costs orders were expressed by McDougall J in Steffen v ANZ Banking Group [2009] NSWSC 883 (Steffen) at [31] with respect to the principles applicable to an application for preliminary discovery under the Uniform Civil Procedure Rules 2005 (NSW). McDougall J considered that generally it is better to deal with costs on an application for preliminary discovery by making an order with immediate rather than contingent operation (at [33]). However, his Honour took a different view as to where the burden of costs should lie on a contested application for preliminary discovery, considering at [32] that: “where an application for preliminary discovery is contested in an adversarial fashion, then the ordinary consequences of that decision should follow unless some good reason is shown why they should not.” (following Simpson J in Airways Corp of New Zealand v The Present Partners of Pricewaterhouse Coopers Legal [2002] NSWSC 521 (Airways Corp of NZ)).

22    Besanko J in Proctor v Kalivis (No. 3) [2010] FCA 1194 (Proctor) adopted a similar approach to that in Steffen, stating at [17] that:

First, the jurisdiction to make an order for preliminary discovery is an extraordinary jurisdiction. There is a sense in which a respondent is entitled to remain passive until the applicant makes out a case for preliminary discovery: Glencore International AG v Selwyn Miners Limited (2005) 223 ALR 238 at 241 [15] per Lindgren J. Secondly, if the respondent does not take an adversarial approach to the application for preliminary discovery and in fact provides discovery then it may be appropriate to make the type of order sought by the respondents in this case [namely, a contingent costs order]. Thirdly, if the respondent does take an adversarial approach then it may be appropriate to order that it pay the costs caused by that adversarial approach: Re Steffen; Western Bulk Carriers (Australia) Pty Ltd v Cosco Bulk Carrier Co Ltd [2002] FCA 1520.

23    I consider that there is considerable force in the approach adopted in Proctor and Steffen in contested cases such as the present. I also consider that the exceptional nature of the jurisdiction remains a matter to be taken into account in determining costs and may lead to a closer scrutiny than might otherwise be the case of the extent to which a successful prospective applicant should receive its costs: cf Hughes at 48,136 (Toohey J).

3.3    What orders should be made as to the costs of the application for preliminary discovery?

3.3.1    Should ObjectiVision receive any part of its costs?

24    I consider that in all of the circumstances of this case, it is appropriate to award ObjectiVision a proportion of its costs on the application for preliminary discovery. In this regard, I accept the reasonableness of the prospective respondents requiring ObjectiVision to prove its case and testing that case in a robust fashion. This is particularly so given that ObjectiVision sought highly sensitive and confidential information affecting relationships with the University, Duke University and Biogen, as VisionSearch emphasised. Nonetheless, the proceedings were adversarial and ObjectiVision was largely successful. Nor was this a case where either prospective respondent was a person who “has no involvement in what is intended or anticipated to be the substantive proceedings, and is, often enough, caught up in a skirmish between two other parties”: Airways Corp of NZ at [9] (Simpson J).

3.3.2    What proportion of its costs should ObjectiVision be awarded?

25    However, bearing in mind also the nature of these proceedings, I do not consider that ObjectiVision should be entitled to more than 50% of its costs.

26    First, even though there is a sense in which the prospective respondents may have remained passive until a case for preliminary discovery was made out (as Besanko J observed in Proctor), that does not mean that they should have consented to the orders sought. It would have remained necessary for ObjectiVision to persuade the court that the orders were appropriately made. Furthermore it would always have been necessary for orders to be made protecting the confidentiality of the material sought to be discovered. In this regard, I upheld submissions that orders should be made protecting the confidentiality of the highly sensitive material in respect of which disclosure was sought and that those orders should provide for the appointment of an independent expert and not the applicant’s expert, Mr Sizer: ObjectiVision (No. 1) at [7] and [137]-[142].

27    Secondly, it was only on the second day of the hearing that ObjectiVision sought leave to amend the categories of preliminary discovery by expanding the seventh and seventeenth categories of discovery (relating to the prospective respondent’s applications for regulatory approval) from three items to four items, and reducing the fourth and thirteenth categories (relating to design documents typically produced) from seventeen to seven items. Moreover, even on the reduced categories ObjectiVision was only partially successful in its application for preliminary discovery, with preliminary discovery being ordered in 11 categories of documents and refused in 3 categories against Visionsearch and 5 categories against the University.

28    Thirdly, while the University’s contention that ObjectiVision did not reasonably believe that it owned copyright was not successful, I do not accept the submission by ObjectiVision that the University sought to put the ultimate merits of ObjectiVision’s claim to own the copyright in issue. I accepted that there may well be deficiencies in the evidence of ownership on which ObjectiVision relied, and the University was entitled, in my view, to test the reasonableness of ObjectiVision’s belief that it owned copyright and to do so notwithstanding its earlier concession (ObjectiVision (No. 1) at [56]).

29    In the fourth place, ObjectiVision submitted that a 20% discount in total costs payable to it would appropriately reflect its failure to succeed on the application for preliminary discovery insofar as it related to the Licensing Agreement between ObjectiVision and the University. In the context of its claim for costs, the University contended that an award of 30% of its costs would reflect the proportion of work undertaken on its behalf referable to that issue. The latter does not assist, however, in determining the appropriate discount in ObjectiVision’s costs as it was put forward for a different purpose. However, ObjectiVision disputed any suggestion that the deduction in its costs (or any award of costs to the University) should take account of its position at the directions hearing on 27 October 2014 on the ground that that hearing was not in the nature of an adversarial contest but was to clarify an aspect of the Court’s reasons and formally make the relevant discovery order: ObjectiVision (no. 2). I consider that that is a fair characterisation of that hearing, notwithstanding that there is some force in the University’s submission that, once the University clarified its position, it was evident from the logic of the judgment in ObjectiVision (No. 1), especially at [98] and [99] that the University should not be required to give discovery to the extent that the categories of preliminary discovery sought related to an alleged breach of contract. In the circumstances, I would accept that a discount of 20% in costs payable to ObjectiVision is appropriate, even though other considerations lead me to the view that that is not the only factor which should be taken into account in reducing the amount of costs payable to ObjectiVision.

30    These considerations also need to be balanced against a number of countervailing considerations.

31    First, I do not consider that there can be any criticism of ObjectiVision in refusing Visionsearch’s offer of a code comparison by letter dated 8 November 2013: see also ObjectiVision (No. 1) at [77]-[78]. The terms proposed for a code comparison by an independent expert were onerous, as I found at [77] in ObjectiVision (No. 1). They included that the expert would make binding findings about whether or not there been an infringement, the results could not be relied upon in any later litigation, and any right to seek preliminary discovery against Visionsearch must be waived. ObjectiVision did not act unreasonably in refusing that offer.

32    Secondly, and as a related point, this is not a case like C7 where the applicant achieved little more than had been offered by the respondents before the application. The categories of preliminary discovery allowed went significantly beyond the provision of code and, while the need for an expert to examine the materials discovered was accepted, the orders for preliminary discovery were not accompanied by the onerous obligations that accompanied the offer made by Visionsearch prior to ObjectiVision’s application.

33    Thirdly, with respect, Visionsearch’s case went beyond the proper boundaries for an application of this nature for the reasons which I gave in ObjectiVision (No. 1) at [40]. To some extent, however, as Visionsearch’s submissions imply, this may have been attributable to the nature of the evidence led for the prospective applicants. For example, Dr Cheng, the CEO of ObjectiVision, was called to give evidence about ObjectiVision’s belief as to its entitlement to relief (ObjectiVision (No. 1) at [42]). However, his affidavit evidence was not always expressed in a manner which made it clear that he was expressing only his beliefs. As a consequence, some of that evidence was received subject to an order under s 136 of the Evidence Act 1992 (Cth) limiting its use to a statement of his belief. The important point for present purposes is that to some extent the way in which Visionsearch ran its case may have been responsive to the way in which ObjectiVision’s evidence was framed.

34    To conclude, in this context, “[m]athematical precision is illusory and the exercise of the discretion will often depend upon matters of impression and evaluation.” Dodds Family Investments Pty Ltd (formerly Solar Tint Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272 (the Court); see also e.g. Adidas AG v Pacific Brand Footwear Propriety Ltd (No. 4) [2013] FCA 1335; (2013) 308 ALR 143 especially at [21] 147 (Robertson J). Bearing this in mind and weighing up all of the considerations, I consider that it would be appropriate to award ObjectiVision 50% of its costs of the application for preliminary discovery.

3.3.3    Should liability for costs be apportioned between the two prospective respondents?

35    There are two further matters which need to be taken into account in determining the respective liabilities of the prospective respondents for costs as their positions differed in two relevant respects.

36    First, the 20% discount in costs conceded by ObjectiVision which I have allowed at [29] was referable to arguments raised between the University and ObjectiVision. As such, without permitting the University to receive the benefit of that discount twice, some adjustment is required as between the University and Visionsearch.

37    Secondly, I accept that the orders as to costs should reflect the different manner in which the University and Visionsearch sought to resist the application for preliminary discovery. Thus, in contrast to Visionsearch, the University led no substantive evidence in relation to the alleged actions for infringement of copyright and misuse of confidential information. It relied on the affidavit of Michael Milne in relation to the breach of contract claim to clarify its activities with Biogen. It also relied upon a bundle of correspondence on the copyright infringement and misuse of confidential information claims completing the evidence as to pre-action communications between the parties, being evidence relevant to the question of whether ObjectiVision had sufficient information already available to it to commence proceedings and had made reasonable inquiries: see FCR, r 7.23(1)(b).

38    In those circumstances, bearing in mind again that ultimately these are matters of impression and evaluation, I would hold the University liable for 15% of ObjectiVision’s costs and Visionsearch liable for 35% of those costs.

3.4    Costs of complying with the preliminary discovery order

39    Finally, the University and Visionsearch submitted that a distinction is to be drawn between the costs incurred on application for preliminary discovery and the costs of complying with such an order. I agree with that submission and consider that it is appropriate that the prospective applicant meet the costs incurred by the prospective respondents in providing discovery and inspection. It cannot be said that the incurring of these costs have in any relevant sense been caused by the adversarial approach adopted by the prospective respondents to the application for preliminary discovery: see e.g. Proctor at [17]; see also Alstom Power Limited v Eraring Energy [2004] FCA 706; [2004] ATPR 42-009 (Alstom Power) and Airways Corp of NZ at [12]. I do not consider that it is fair that the prospective respondents should have to await the possible outcome of proceedings (if any) instituted by the applicant for the costs incurred in complying with the order for preliminary discovery, given the extraordinary and intrusive nature of these orders and given that the costs of compliance may be significant. I also note, as Selway J observed in Alstom Power at [17], that if proceedings are instituted then it may be that those costs are ultimately treated as costs in those proceedings although that would be a matter in the discretion of the trial judge.

Associate:

Dated:    1 April 2015