FEDERAL COURT OF AUSTRALIA

Brooke & Mackenzie Pty Ltd v El-Gra Engineering Pty Ltd [2015] FCA 1495

THE COURT ORDERS THAT:

1.    The Applicants have leave to discontinue the Originating Application filed on 24 December 2014.

2.    The First Applicant be granted leave to surrender the Australian Innovation Patent No 2010101083 (‘Patent’).

3.    The cross-claim filed on 16 March 2015 be dismissed upon the surrender of the Patent pursuant to s 137 of the Patents Act 1990 (Cth).

4.    The subpoena addressed to Mr Jamie Kochaniewicz dated 29 June 2015 be discharged.

5.    The Applicants to pay the Respondents’ costs of and incidental to this proceeding (other than in respect of the interlocutory application filed on 24 July 2015), such costs to be taxed, if not agreed, on a party/party basis.

6.    In addition to the order for costs made in favour of the Respondents on 10 August 2015, the Applicants pay 90 percent of the Respondents’ costs of and in connection with the interlocutory application filed on 24 July 2015 and the application for indemnity costs brought by the Respondents, such costs to be taxed, if not agreed, on a party/party basis.

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

REASONS FOR JUDGMENT

INTRODUCTION

1    This is an infringement proceeding brought by Brooke & Mackenzie Pty Ltd and Munro Engineers Pty Ltd (together, the ‘Applicants’) in relation to Australian Innovation Patent No 2010101083 of the invention titled “Post Driver” (‘Patent’). A post driver is a mechanised device designed to drive posts for farm fencing into the ground.

2    El-Gra Engineering Pty Ltd (‘El-Gra’) has brought a cross-claim against Brooke & Mackenzie Pty Ltd (‘Brooke & Mackenzie’) for invalidity of the Patent.

3    The Applicants alleged that El-Gra and Elton Robinson (together, the ‘Respondents’) infringed the Patent by making, using, offering for sale or otherwise disposing of, keeping for the purpose of selling or otherwise disposing of, and authorising others to do each of these acts in respect of post drivers manufactured by El-Gra (‘Series 89 Post Driver’).

4    The Applicants now seek leave to discontinue their claim for infringement of the Patent, and have taken steps to surrender the Patent rendering the cross-claim for invalidity nugatory.

5    The Applicants also seek by interlocutory application a modified See v Scott-Paine (1932) 50 RPC 56 (‘See v Scott-Paine’) order whereby:

(a)    the Applicants pay the Respondents’ costs up to the date El-Gra served its particulars of invalidity on 16 March 2015; and

(b)    the Respondents pay the Applicants’ costs since that date.

6    The Respondents relied on two offers of compromise made in the proceeding and seek indemnity costs based upon the terms and operation of those offers of compromise.

7    At the outset, I should make one general observation. The applications for costs of the parties involve an examination of their actions (and that of their legal representatives) in the conduct of the proceeding. Undoubtedly, the legal representatives and the parties have an ongoing responsibility to consider the prospects of success in the bringing, defending and continuation of proceedings.

8    Further, the conduct of litigation is a dynamic process, to be monitored at all times, although much will depend upon the various enquiries undertaken and collection of evidence each party undertakes.

9    A court, in considering the actions of a party (and its legal representatives) should take into account the practical realities of the situation confronting that party (and its legal representatives). Undoubtedly, inappropriate claims and defences should not be made or pursued, and reasonable enquiries should be made by the parties and their legal representatives in the conduct of all litigation. Nevertheless, a court should be careful not to apply, with the benefit of hindsight, a standard of enquiry which in all the circumstances is unreasonable. Most of us can think of instances where we later consider matters which should have been enquired about earlier in the course of litigation, but the trigger for that enquiry did not occur until a later event. Everything will depend on the circumstances as to whether the failure to enquire at any particular time was unreasonable.

RELEVANT PRINCIPLES

Costs generally

10    As I have indicated, the Applicants seek a modified See v Scott-Paine order. The nature and applicability of See v Scott-Paine orders were discussed in the case of Wimmera Industrial Minerals Pty Ltd v RGC Mineral Sands Ltd (1999) 46 IPR 173 (‘Wimmera’), where Sundberg J observed:

5    In Wimmera I described the nature and purpose of Earth Closet and See v Scott-Paine orders. In the earlier proceeding RGC accepted that a See v Scott-Paine order should be made, and the only question for decision was the “switchover” date. In the present case there is no such concession, and the question is whether such an order should be made. There is also a disagreement about the “switchover” date if an order is to be made. The following propositions can be extracted from the authorities dealing with the making of the orders:

(a)    A See v Scott-Paine order is made when a defendant who is challenging the validity of a patent is permitted to amend its pleadings to include, for example, prior art which was not contained in its original particulars of objections. The order gives the patentee the right to elect, within a specified period, to proceed with or discontinue the action. If the patentee discontinues, it must pay the defendant’s costs up to the “switchover” date (usually the date of delivery of the original particulars of invalidity), and the defendant must pay the patentee’s costs after that date. If the patentee proceeds with the action, the defendant must pay the costs of the application to amend, and in other respects the matter proceeds in the usual way: see Baird v Moule’s Patent Earth Closet Co reported in Edison Telephone Co v India Rubber Co (1881) 17 Ch D 137 and See v Scott-Paine (1932) 50 RPC 56.

(b)    The purpose of the order is to impose on a party attacking the validity of a patent the obligation to take reasonable steps to ensure that the full attack is put before the patentee at the earliest time. The imposition of that obligation is said to be justified by the “notorious expense and legal complexity” of patent actions: see Williamson v Moldline Ltd [1986] RPC 556 at 563, 565.

(c)    When a defendant seeks to introduce by amendment objections of obviousness or want of novelty, an important consideration is whether, by making reasonably diligent inquiries, the defendant could have discovered the availability of such defences when the original pleading was served. The defendant will not be found to have failed the diligence test where a search of prior art would have involved doing things out of the ordinary, or when prior use comes to the defendant’s attention “by chance in circumstances where it could not be properly suggested that he should have found it at an earlier date”: La Baigue Magiglo v Multiglow Fires [1994] RPC 295 at 298. The onus of proving that the new material could not have been found with reasonable diligence lies on the defendant: see Moldline at 564 and Josiah Wedgwood & Sons Ltd v Stained Glass Systems Ltd (HC(Ch), 16 October 1996, unreported).

(d)    Apart from the reasonable diligence inquiry, other relevant factors are the timetable of the proceedings, how late the amendment is, the extent to which the defendant has explained any lateness, and to what extent the patentee has been taken by surprise by the reliance on the new prior art: see Re GEC Alsthom Ltd’s Patent [1996] FSR 415 at 421.

(e)    Whatever the position might once have been, the order is not made as of course or “almost invariably” when a defendant seeks to raise objections to validity which are not contained in its original particulars. The matter is entirely within the discretion of the court, and depends on the facts of the particular case: see GEC at 421 and Wimmera at AIPC 37,224.

(f)    In exercising its discretion the court should be aware that the order is capable of working an injustice to a defendant, by enabling a patentee with what it knows to be a weak patent to discontinue largely at the defendant’s cost. The Court should bear in mind the possibility that the patent would have been held invalid even on the unamended particulars: see GEC at 421 and Wimmera at AIPC 37,224.

11    It is apparent that the rationale for the imposition of a See v Scott-Paine order is said to be that if the relevant piece of prior art had been identified and pleaded initially, it may have led to the patentee surrendering its patent earlier and consequently saving costs.

12    The Patents Court in the United Kingdom recently considered the history of See v Scott-Paine orders, and concluded that there was no reason why the consideration of the incidence of costs in patent cases should depart from the usual rule that a discontinuing claimant is liable to pay the defendant’s costs: see Fresenius Kabi Deutschland GmbH & Ors v Carefusion 303, Inc [2012] 1 All ER 794 at [14] per Lord Neuberger of Abbotsbury MR, Aikens and Lewison LJJ.

13    As alluded to by Sundberg J in Wimmera, it has been recognised that the imposition of a See v Scott-Paine order may result in harsh and unfair outcomes. The owner of a weak patent will have had the commercial advantage of holding the patent and putting a competitor through the considerable disruption and expense of patent litigation. A See v Scott-Paine order could potentially unfairly add to these commercial benefits. Where a See v Scott-Paine order is granted, a cross-claimant may well be required to fund a significant part of the patentee’s litigation in relation to an invalid patent.

14    There is always a danger in setting out ‘rules’ concerning the incidence of costs, when such is entirely within the discretion of the Court and depends on so many different facts and circumstances. This is not to say that the factors relevant to the concepts underlying a See v Scott-Paine order could not be relevant in any particular case to the proper general considerations to be taken into account by the Court in awarding costs.

15    However, in the Federal Court, any judicial consideration of the incidence of costs is to be undertaken in accordance with any relevant specific legislation, the Federal Court of Australia Act 1976 (Cth) (‘Federal Court Act’), the Federal Court Rules 2011 (Cth) (‘Rules’) and well established principles. Relevantly to this proceeding, no special principle or rule is prescribed by any other legislation, such as the Patents Act 1990 (Cth).

16    The Court’s primary discretionary power to grant costs is found under s 43(2) of the Federal Court Act. The underlying purpose of a costs order is to indemnify or compensate a successful party, and is based upon notions of fairness in the adversarial system.

17    Rule 26.12(7) of the Rules sets out the general position in respect of costs on a discontinuance:

Unless the terms of a consent or an order of the Court provide otherwise, a party who files a notice of discontinuance under subrule (2) is liable to pay the costs of each other party to the proceeding in relation to the claim, or part of the claim, that is discontinued.

18    In Travaglini v Raccuia [2012] FCA 620, McKerracher J observed (in my view correctly) at [36]:

… there is now under the Rules a prime facie entitlement on the part of the party not discontinuing to costs. It can of course be disturbed. Even in respect of the former O 62 r 26(1) of the pre-2011 Rules that approach was not unknown: see for example Ahmed v Minister for Immigration & Multicultural Affairs [2000] FCA 1436 in which Emmett J held that where the discontinuing applicant failed to satisfy the Court that another order should be made, the respondent was to be awarded its costs. I would adopt that approach to the present situation. In addition, Lehane J held in Bell v Macquarie Bank Ltd [2000] FCA 1521 where the applicant discontinued albeit without leave that the applicant was prima facie liable to pay the other party’s costs because of the operation of O 22 r 3 and O 62 r 26 of the pre-2011 Rules saying that (at [5]):

the ordinary result of the applicants' discontinuance would be that they would be required to pay the respondents' costs of the proceeding. The question is whether the applicants have established that, in the particular circumstances of this case, there is any particular matter which should, as a matter of discretion, displace that ordinary consequence.

19    A similar approach was taken by Barker J in Croft v Evertop Investments Pty Ltd [2014] FCA 1098 at [144]. I do not consider that the decision of Katzmann J in Lo v Australian Community Pharmacy Authority [2013] FCA 639 is to be taken as contrary to this approach. Whilst her Honour may have written in different terms, in essence her Honour concluded at [60]:

This rule, which in substance is the same as r 42.19 of the Uniform Civil Procedure Rules 2005 (NSW), establishes a default or prima facie position (Armstrong v Australian Community Pharmacy Authority [2012] FCA 577 per Rares J at [9]). It does not create a presumption that costs will be awarded against the discontinuing party, but it puts an onus on it to make an application to the Court where, absent an agreement to the contrary, it does not propose to pay the costs of the other parties (Foukkare v Angreb Pty Ltd [2006] NSWCA 335 at [65]). And the Court will require “some sound positive ground or good reason for departing from the ordinary course”: Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [54], Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 at [54].

(Emphasis added)

20    Also relevant are the provisions introduced into the Federal Court Act by the Access to Justice (Civil Litigation Reforms) Amendment Act 2009 (Cth). Section 37M provides:

37M The overarching purpose of civil practice and procedure provisions

(1)    The overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes:

(a)    according to law; and

(b)    as quickly, inexpensively and efficiently as possible.

(2)    Without limiting the generality of subsection (1), the overarching purpose includes the following objectives:

(a)    the just determination of all proceedings before the Court;

(b)    the efficient use of the judicial and administrative resources available for the purposes of the Court;

(c)    the efficient disposal of the Court’s overall caseload;

(d)    the disposal of all proceedings in a timely manner;

(e)    the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute.

(3)    The civil practice and procedure provisions must be interpreted and applied, and any power conferred or duty imposed by them (including the power to make Rules of Court) must be exercised or carried out, in the way that best promotes the overarching purpose.

(4)    The civil practice and procedure provisions are the following, so far as they apply in relation to civil proceedings:

(a)    the Rules of Court made under this Act;

(b)    any other provision made by or under this Act or any other Act with respect to the practice and procedure of the Court.

21    Section 37N provides:

37N Parties to act consistently with the overarching purpose

(1)    The parties to a civil proceeding before the Court must conduct the proceeding (including negotiations for settlement of the dispute to which the proceeding relates) in a way that is consistent with the overarching purpose.

(2)    A party’s lawyer must, in the conduct of a civil proceeding before the Court (including negotiations for settlement) on the party’s behalf:

(a)    take account of the duty imposed on the party by subsection (1); and

(b)    assist the party to comply with the duty.

(3)    The Court or a Judge may, for the purpose of enabling a party to comply with the duty imposed by subsection (1), require the party’s lawyer to give the party an estimate of:

(a)    the likely duration of the proceeding or part of the proceeding; and

(b)    the likely amount of costs that the party will have to pay in connection with the proceeding or part of the proceeding, including:

(i)    the costs that the lawyer will charge to the party; and

(ii)    any other costs that the party will have to pay in the event that the party is unsuccessful in the proceeding or part of the proceeding.

(4)    In exercising the discretion to award costs in a civil proceeding, the Court or a Judge must take account of any failure to comply with the duty imposed by subsection (1) or (2).

(5)    If the Court or a Judge orders a lawyer to bear costs personally because of a failure to comply with the duty imposed by subsection (2), the lawyer must not recover the costs from his or her client.

22    The Court will need to consider the “overarching purpose” in exercising the discretion in awarding costs. It is important to note that the Court must take into account any failure to comply with the duties set out in s 37N of the Federal Court Act in exercising its costs discretion. This may include taking into account the failure of a respondent to make reasonably diligent enquiries in the course of conducting litigation, and to raise a particular defence or provide relevant discovery with some promptitude. This may also include a failure to properly respond to the other side’s offers of compromise.

23    However, relevantly to these applications for costs, the Court is not to conduct a mini trial to assess the various grounds of invalidity advanced, although the Court can bear in mind the possibility that the Patent would have been found to be invalid on the cross-claim on the original particulars of invalidity: see GEC Alsthom Limited’s Patent [1996] FSR 415 at 421 per Laddie J and Wimmera at [5(f)], both cited with approval in A’Van Campers Pty Ltd v Camoflag Pty Ltd (2003) 57 IPR 494 at [7] per Merkel J. Nevertheless, it is generally accepted that where there is no trial on the merits, it is inappropriate, in determining the incidence of costs, to seek to make a prediction as to the outcome of the proceeding: see eg Mineralogy Pty Limited v National Native Title Tribunal [1998] FCA 1700 at [11] per Lee, Tamberlin and Nicholson JJ.

Indemnity costs

24    Two provisions of the Federal Court Rules are relevant to the consideration of indemnity costs in the present case. First, r 25.14 provides:

25.14 Costs where offer not accepted

(1)    In an offer is made by a respondent and not accepted by an applicant, and the applicant obtains a judgment that is less favourable than the terms of the offer:

(a)    the applicant is not entitled to any costs after 11.00 am on the second business day after the offer was served; and

(b)    the respondent is entitled to an order that the applicant pay the respondent’s costs after that time on an indemnity basis.

(2)    If an offer is made by a respondent and an applicant unreasonably fails to accept the offer and the applicant’s proceeding is dismissed, the respondent is entitled to an order that the applicant pay the respondent’s costs:

(a)    before 11.00 am on the second business day after the offer was served – on a party and party basis; and

(b)    after the time mentioned in paragraph (a) – on an indemnity basis.

(3)    If an offer is made by an applicant and not accepted by a respondent, and the applicant obtains a judgment that is more favourable than the terms of the offer, the applicant is entitled to an order that the respondent pay the applicant’s costs:

(a)    before 11.00 am on the second business day after the offer was served – on a party and party basis; and

(b)    after the time mentioned in paragraph (a) – on an indemnity basis.

25    Second, r 1.35 provides:

1.35 Orders inconsistent with Rules

The Court may make an order that is inconsistent with these Rules and in that event the order will prevail.

26    Otherwise, the general principles of awarding indemnity costs have been set out in many cases, which ordinarily involve some blameworthiness in the conduct of a party in the course of the litigation.

27    Justice Harper in Ugly Tribe Co Pty Ltd v Sikola & Ors [2001] VSC 189 at [7] said as follows, recognising that the circumstances where an indemnity costs order will be appropriate are not closed:

In seeking costs on an indemnity basis, the first defendant is asking the Court to depart from its usual course: Spencer v Dowling. Special circumstances must be present to justify such a departure: Australian Electoral Commission v Towney (No 2). These include:

(i)    The making of an allegation, known to be false, that the opposite party is guilty of fraud: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397.

(ii)    The making of an irrelevant allegation of fraud: Thors v Weekes (1989) 92 ALR 131.

(iii)    Conduct which causes loss of time to the Court and to other parties: Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (unreported, Federal Court, French J, 3 May 1991).

(iv)    The commencement or continuation of proceedings for an ulterior motive: Ragata Developments Pty Ltd v Westpac Banking Corp (unreported, Federal Court, Davies J, 5 March 1993).

(v)    Conduct which amounts to a contempt of court: EMI Records Ltd v Ian Cameron Wallace Ltd [1983] Ch 59.

(vi)    The commencement or continuation of proceedings in wilful disregard of known facts or clearly established law: J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA) Branch (No 2) (1993) 46 IR 301.

(vii)    The failure until after the commencement of the trial, and without explanation, to discover documents the timely discovery of which would have considerably shortened, and very possibly avoided, the trial: National Australia Bank v Petit-Breuilh (No 2) (unreported, [1990] VSC 395, 18 October 1999).

28    Justice Harper’s decision has been applied in this Court: see Sacco t/as Globeline Automotive Service v FV Bilotto Nominees Pty Ltd [2011] FCA 1287 at [9] per Dodds-Streeton J and Ryan v Primesafe (2015) 323 ALR 107 per Mortimer J.

29    In Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233-234, Sheppard J stated the following as a non-exhaustive summary of the kinds of conduct justifying an order for indemnity costs:

I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weekes (1989) 92 ALR 131 at 152; evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo); the 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 (supra)); 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); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal); Crisp v Keng (unreported, Court of Appeal, NSW, Kirby P, Priestley JA, Cripps JA, No 40744/1992, 27 September 1993) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records (supra)). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.

EVIDENCE

Applicants

30    The following affidavits were filed in support of the Applicants’ interlocutory application:

    Two affidavits of Marianne Dunham, lawyer of FAL Lawyers for the Applicants, made on 24 July 2015 and 4 August 2015;

    Affidavit of Rodney Brooke, engineer and Director of Brooke & Mackenzie, affirmed on 14 August 2015 (‘Brooke Affidavit’); and

    Affidavit of Warren McLean, General Manager of Munro Engineering Pty Ltd, affirmed on 14 August 2015 (‘McLean Affidavit’).

Respondents

31    The Respondents in resisting the making of the costs orders sought by the Applicants and in seeking indemnity costs relied upon the following affidavits:

    Three affidavits of Graeme Robert Robinson, Chief Design Engineer and General Manager of El-Gra, affirmed on 29 June 2015, 31 July 2015 and 27 August 2015;

    Affidavit of Michael James Mason, Managing Director of Mike Mason Fencing Pty Ltd (a fencing and road barrier contractor), sworn on 1 July 2015 (‘Mason Affidavit’);

    Affidavit of John Nazzareno D’Angelo, founder and Research and Development Manager of J.N. & R. Engineering Pty Ltd, sworn on 2 July 2015; and

    Two affidavits of Timothy David Mahood, Principal of Griffith Hack Lawyers, lawyers for the Respondents, both sworn on 31 July 2015.

32    No cross-examination of any deponent took place, although there were objections taken to certain parts of the affidavits of both parties to which I will come later in these reasons.

CONSIDERATION

Costs generally

33    Prior to the proceeding commencing on 22 December 2014, the parties were engaged in correspondence regarding the allegations of infringement and invalidity of the Patent.

34    In particular, the Respondents asserted that the claims of the Patent were anticipated by El-Gra’s own post driver which had been displayed at the Warragul Field Day in 2009. That assertion was rejected by the Applicants as there was some dispute about the sufficiency of the evidence being provided by the Respondents in demonstrating this fact.

35    The proceeding then commenced on 22 December 2014. At the first directions hearing on 5 February 2015, the Respondents sought and obtained leave until 16 March 2015 to file the cross-claim for invalidity. Other orders made on 5 February 2015 required mediation and the filing of evidence, and the matter was set down for trial on 10 August 2015. The Respondents did not seek to commence preparation of their evidence before the mediation.

36    I accept that the course now taken by the Applicants in seeking to discontinue the proceeding was adopted in light of the Mason Affidavit filed by the Respondents and the amended particulars of invalidity. The evidence of Mr Mason and the amended particulars are to the effect that Mr Mason had made and publicly operated a prior art post driver before the priority date of the Patent (‘Initial MM Post Driver’). The Initial MM Post Driver plainly anticipated both claims of the Patent.

37    Until the Mason Affidavit, the Applicants were unaware of the Initial MM Post Driver (or any other relevant post driver of Mr Mason). The Applicants contended that, had the Respondents acted with appropriate diligence, especially in light of the position taken by the Applicants in relation to the other prior art asserted by the Respondents, the Respondents should have given notice of the Initial MM Post Driver at the time El-Gra served its original particulars of invalidity on 16 March 2015.

38    Mr Graeme Robinson sought to explain why he did not obtain evidence from Mr Mason earlier about the Initial MM Post Driver, by suggesting that he was only aware of the latest range of Mike Mason Fencing Pty Ltd’s hydraulic percussion post drivers (‘Recent MM Post Driver’). It was submitted by the Applicants that the delay in seeking to obtain evidence of the information contained in the Mason Affidavit was not properly explained given that:

(a)    the dispute arose in September 2014;

(b)    it was apparent even before the proceeding commenced that the Applicants did not accept the assertions that the Respondents had evidence of prior art machines that anticipated the claims of the Patent; and

(c)    the Respondents were given until 16 March 2015 to file their cross-claim (with the proceeding commencing just before Christmas the previous year).

39    It can be accepted that the Applicants were entirely unaware that Mr Mason’s post drivers existed before the priority date, or existed at all.

40    The proceeding had not been instituted for very long before the amendment to the particulars of invalidity was made, although it was made late in the proceeding itself. It was submitted by the Applicants that if the Respondents had acted diligently Mr Mason’s prior art post drivers would have been disclosed at least by 16 March 2015, and the Applicants would have sought to discontinue their claim and surrender the patent far earlier than they did.

41    In terms of the jurisprudence set down in See v Scott-Paine, it was submitted that the appropriate “switchover date” is the date upon which the particulars of invalidity were first provided to the Applicants, being 16 March 2015.

42    I accept the evidence presented by the parties in the affidavits relied upon. As I have indicated, there was no cross-examination, and no basis not to accept the evidence of the parties as to their knowledge and state of mind at the relevant times. The evidence presented involves no inherent inconsistences or improbabilities. The evidence is relevant as showing the views taken by the relevant parties when considering the evidence and material they had before them at relevant times in preparing for trial. It may be the views adopted were wrong, but that does not lead to the conclusion that they were not honestly and reasonably held views.

43    In relation to the evidence before me, I accept the following matters:

(a)    El-Gra commenced the preparation of its evidence on the cross-claim after the termination of the mediation to keep the costs of the proceeding to a minimum until it was clear that the dispute would not be resolved at mediation. This was a reasonable approach;

(b)    The preparation of the evidence of Mr Graeme Robinson was the major focus of the work done by Griffith Hack Lawyers (‘GHL’) following mediation. In parallel to the preparation of Mr Robinson’s evidence, other work was being done with another witness, however GHL had some legitimate concern about putting that particular witness before the Court;

(c)    It was in this context that on or about 22 or 23 June 2015, Mr Robinson suggested Mr Mason as a potential expert witness. Mr Mason was a fencing contractor who conducted his own fencing business in South Australia. There can be no criticism of the Respondents in not approaching Mr Mason initially, as another expert was available to give evidence. In fact, Mr Mason would not necessarily be the targeted person from which to ascertain prior art information;

(d)    Fortuitously, it was in a teleconference with GHL on 28 June 2015 that Mr Mason described the Initial MM Post Driver to GHL. In particular, Mr Mason described how he had created the Initial MM Post Driver by modifying an old “free fall” post driver to operate as a hydraulic percussion post driver. This was the first time that GHL had heard of this machine;

(e)    GHL passed on the details of the Initial MM Post Driver to Mr Graeme Robinson on 29 June 2015. Mr Robinson was not aware of the Initial MM Post Driver prior to that discussion. He then instructed GHL to obtain the Mason Affidavit and introduce the Initial MM Post Driver into the proceeding.

44    In addition to those matters, I make the following observations and findings:

(a)    The primary focus of the original particulars of invalidity was El-Gra’s dealings with the Series 89 Post Drivers, the articles the subject of the Applicants’ patent infringement claims. Whether or not it was so, I accept that the Respondents considered there to be a strong novelty attack on the Patent on the basis of the Series 89 Post Drivers;

(b)    The Initial MM Post Driver, as I have already indicated, was created by Mr Mason modifying a “free fall” post driver to operate as a hydraulic percussion post driver. Mr Robinson had no reason to suspect that this had occurred, as his business was based in New South Wales, and Mr Mason’s business was based in South Australia. Therefore, there was no obvious way for the Respondents to search for the Initial MM Post Driver. The only means of discovering it was a phone call to Mr Mason, which eventually occurred. In the circumstances, I do not think the Respondents acted unreasonably in not bringing the matter forward earlier;

(c)    As I have indicated, it was reasonable for the Respondents to wait until the mediation to do further work in relation to preparing for the trial, in particular, in finding further evidence and approaching Mr Mason;

(d)    When the Respondents became aware of the Initial MM Post Driver, they introduced it into the proceeding, which would not have disrupted the preparation for the trial.

45    The Respondents acted reasonably, and should not be subject to an order as to costs upon the discontinuance of the proceeding by the Applicants. The normal principle that the discontinuing party should pay the costs should be applied. There is no circumstance that would displace or disturb the prima facie entitlement of the Respondents to costs upon the discontinuance of the proceeding.

Indemnity costs

46    The parties focussed on the Federal Court Rules in making submissions as to indemnity costs.

47    The Respondents relied upon two offers of compromise, made on the same terms on 29 May 2015 and 3 July 2015. Neither offer was accepted. The relevant terms of the offers were as follows:

To the Applicants / Cross-respondent

The Respondents / Cross-claimant offer to compromise this proceeding.

The offer is as follows:

1.    the proceedings, including the Application dated 24 December 2014, and the Notice of Cross-claim dated 16 March 2015, be dismissed; and

2.    the Applicants / Cross-respondent pay 75% of the Respondents / Cross-claimant’s taxed costs.

This offer is inclusive of costs.

This offer of compromise is open to be accepted for 14 days after service of this offer of compromise.

The amount of the offer will be paid within 28 days after acceptance of this offer, or within 10 days of an assessment of the Respondent’s taxed costs, whichever is later.

This offer is made without prejudice.

48    It was submitted that if the Court awards the Respondents their costs of the proceeding, the terms of both offers would have been more favourable to the Applicants because they would have maintained the Patent and would have only incurred 75 percent of the Respondents’ taxed costs.

49    It was submitted that the Applicants’ decision not to accept the offers was unreasonable because:

(a)    prior to the expiry of the first offer, the Respondents had provided the Applicants with detailed particulars of its defence and cross-claim, together with invoices and a purchase order for pre-priority date Series 89 Post Drivers, and made available one of the prior existing devices for inspection; and

(b)    at the time they received the second offer, in addition to the matters identified above, the Respondents had provided the Applicants with all of the evidence in chief on invalidity on the cross-claim.

50    There was some debate before me in relation to the offers of compromise and the operation of r 25.14. That debate concerned whether the Respondents should be treated as applicants or respondents, and whether it was relevant to enquire whether the Applicants unreasonably failed to accept the offers. For the purpose of r 25.14, I would treat the offers of compromise as being made by a respondent and not by an applicant: see the definitions of ‘applicant’ and ‘respondent’ in Schedule 1 (Dictionary) of the Rules. It would seem that neither sub-rr (1) or (2) of r 25.14 would apply because no ‘judgment’ (in the context that term is used in this rule) had been obtained by the Applicants, and the proceeding has not been dismissed, but rather will be discontinued upon application to do so by the Applicants.

51    Ultimately, however, I do not need to enter into this debate. The Court may make an order inconsistent with r 25.14: see r 1.35 of the Rules. Both offers of compromise (as is clear on their terms) were made to resolve the whole dispute between the parties (both on infringement and on the cross-claim), and should be seen in that context. The most appropriate way to deal with the offers of compromise is to consider whether the Applicants did unreasonably fail to accept the offers, and exercise the general discretion in this context.

52    On 29 May 2015 (at the time of the original offer of compromise), the Initial MM Post Driver was not raised by the Respondents. The Applicants considered (and I accept) that they had a case (perhaps compelling) on invalidity. I have accepted the evidence led by the Applicants in this regard. It is not for me to assess the ultimate outcome on this issue. I do not consider that the Applicants unreasonably failed to accept the offers as to warrant an indemnity cost order, based upon the information they possessed at the relevant time.

53    By the time of the second offer on 3 July 2015, the Initial MM Post Driver had been introduced as part of the particulars of invalidity. However, once this occurred, the Applicants made it clear they were going to discontinue. The Applicants were effectively giving up the infringement proceedings and surrendering the Patent. The only issue was the issue of costs of the discontinuance.

54    Both parties introduced a substantial amount of evidence on the issue of costs. As I indicate later, this evidence was relevant and admissible to show the attitude of the parties. I do not consider that the argument put forward by the Applicants on this issue was unreasonable, or that in pursuing this application for costs the Applicants acted unreasonably.

55    Therefore, I am not satisfied costs should be awarded on an indemnity basis in favour of the Respondents. I do not think that there is any level of blameworthiness of the type described in the authorities, whereby the norms by which litigation is usually conducted have not been attained, or the Court’s expectations of the way litigation is to be conducted have not been satisfied.

56    The proceedings in this Court were conducted over a relatively short period of time and there was a discontinuance after matters were brought to the attention of the Applicants giving rise to that discontinuance. I think both parties acted with reasonable care and not in an unreasonable way, in discontinuing the proceeding and in dealing with the offers of compromise.

SECOND RESPONDENT

57    I mention one other matter as to costs, although it is not necessary in light of the above conclusions as to costs. Elton Robinson (‘Second Respondent’) contended that he should, in any event, not pay any costs. The Applicants sued the Second Respondent for infringement of the Patent. The particulars relied upon assert that the Second Respondent “negotiated for El-Gra to supply the El-Gra post drivers directly and via distributors and retailers.” The allegation was denied. No attempt was made to put on evidence in chief on infringement to prove the allegations against the Second Respondent. The Second Respondent was not a party to the cross-claim. However, it is not for the Court to determine whether there was no case against the Second Respondent. A case against the Second Respondent could have been mounted during the course of the trial (for example, in cross-examination). I would not treat the Second Respondent as in any different category to the other Respondent.

OBJECTIONS TO EVIDENCE

58    A number of objections were made to the evidence relied upon by both parties in these applications for costs. Some of the objections I dealt with at the hearing on 10 August 2015. As a result of my rulings made on that occasion the Applicants sought to adjourn the proceedings for the purpose of relying upon further evidence, which occurred resulting in the hearing continuing on 4 September 2015.

59    As to the Respondents’ objections made to the Brooke Affidavit and the McLean Affidavit, I do not uphold those objections on the basis that the relevant evidence objected to goes to the state of mind of the deponents regarding various matters. To the extent to which the evidence is hearsay, it is admissible on an interlocutory application: see s 75 of the Evidence Act 1995 (Cth).

60    As to the Applicants’ objections, I do not uphold them on the basis that the evidence objected to is relevant to the reasonableness of the Respondents’ conduct in the proceedings, irrespective of whether or not the statements made are accepted as being true and impeach the validity of the Patent. I am not conducting a mini trial in relation to the validity of the Patent. However, the evidence is relevant to the conduct of the litigation and the state of mind of the various parties preparing for trial and acting in accordance with the normal conduct expected by the Court of a litigant: see Taleb v GM Holden Ltd (2011) 286 ALR 309 at [49] per Finn and Bennett JJ and Seven Network Ltd v Commissioner of Taxation (No 2) (2015) 324 ALR 137 at [17] per Bennett J.

CONCLUSION

61    Most of the argument on this cost contest related to the application by the Applicants, which has been unsuccessful. The Respondents’ indemnity costs application only took up a minor proportion of the overall contest. The Respondents have been unsuccessful on this aspect but the evidence and argument on this aspect was in the main part and parcel of the overall contest. It is appropriate that the interlocutory application of the Applicants and the Respondents’ claim for indemnity costs be treated as effectively one contest and should be taxed accordingly. I will deduct 10 percent of the Respondents’ entitlement to costs (treating all cost applications brought by the parties as one contest) to take account of the Respondents’ failure on the indemnity costs application.

62    Based upon the above conclusions and the submissions of the parties, I will order that:

(1)    The Applicants have leave to discontinue the Originating Application filed on 24 December 2014.

(2)    The First Applicant be granted leave to surrender the Australian Innovation Patent No 2010101083.

(3)    The cross-claim filed on 16 March 2015 be dismissed upon the surrender of the Patent pursuant to s 137 of the Patents Act 1990 (Cth).

(4)    The subpoena addressed to Mr Jamie Kochaniewicz dated 29 June 2015 be discharged.

(5)    The Applicants to pay the Respondents’ costs of and incidental to this proceeding (other than in respect of the interlocutory application filed on 24 July 2015), such costs to be taxed, if not agreed, on a party/party basis.

(6)    In addition to the order for costs made in favour of the Respondents on 10 August 2015, the Applicants pay 90 percent of the Respondents’ costs of and in connection with the interlocutory application filed on 24 July 2015 and the application for indemnity costs brought by the Respondents, such costs to be taxed, if not agreed, on a party/party basis.

Associate:

Dated:    23 December 2015