Federal Court of Australia

CPL Notting Hill Pty Ltd v Microsoft Corporation [2020] FCA 1399

ORDERS

OTHER MATTERS:

Upon the respondents undertaking to pay the costs included in the certificate of taxation issued in this proceeding on 7 August 2020, totalling $211,040.79, and interest accrued thereon, within 28 days of the stay referred to below being lifted or otherwise being directed to do so:

THE COURT ORDERS THAT:

1.    Execution on the costs included in each of the following certificates of taxation be stayed pending the determination of all claims and questions of costs in Federal Circuit Court of Australia proceeding SYG 1205 of 2016:

(a)    the certificate of taxation dated 7 August 2020 in the sum of $211,040.79 in favour of the appellants (issued in proceeding NSD 1736 of 2018); and

(b)    the certificate of taxation dated 14 August 2020 in the sum of $20,700 in favour of the respondents (issued in proceeding NSD 1438 of 2017).

2.    The appellants pay the respondents’ costs of the interlocutory application dated 25 August 2020.

3.    The appellants’ interlocutory application dated 18 August 2020 be dismissed.

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

REASONS FOR JUDGMENT

O’CALLAGHAN J:

Background

1    In CPL Notting Hill Pty Ltd v Microsoft Corporation (No 2) [2019] FCA 223, the court ordered a retrial, and that the respondents (Microsoft) pay the costs of the appeal. There is now a further question: whether the costs order made in favour of the appellants (the CPL parties) should be stayed pending the result of that retrial.

2    The factual background to this proceeding is set out in CPL Notting Hill Pty Ltd v Microsoft Corporation (No 2) [2019] FCA 223. For present purposes, it is sufficient to note a few matters of procedural history.

3    The first trial took place in the Federal Circuit Court in August 2018. Microsoft prevailed, and was awarded damages totalling more than $2.5 million.

4    Shortly thereafter, the CPL parties appealed, and applied for a stay of the primary judge’s orders pending the hearing. One reason for seeking the stay was that the CPL parties could not pay the damages awarded. The second appellant deposed that the first appellant (a company of which she was the sole director) would likely become insolvent unless there were a stay, and that, even if she sold her home, she would not be able to pay the amount awarded against her personally. The fourth appellant similarly deposed that the third appellant (a company of which he was the sole director) would likely become insolvent.

5    On 26 September 2018, the court granted a stay of the primary judge’s orders until 5 October 2018 or further order.

6    On 4 October 2018, the court ordered by consent that the stay be extended until the determination of the appeal. That order was made upon the CPL parties giving a number of undertakings. In particular, the fourth appellant undertook to pay $1,208,418.54 into the trust account of Microsoft’s solicitors, which he promptly did.

7    The appeal was heard on 4 and 5 February 2019. On the afternoon of the second day, senior counsel for Microsoft conceded that it was appropriate for the appeal to be allowed. The court made the following orders:

1.    The appeal be allowed.

2.    The orders made by the primary judge on 29 August 2018 be set aside.

3.    The matter be remitted to the Federal Circuit Court of Australia for re-hearing by a judge other than the primary judge.

4.    Subject to any order of any Court that hears any retrial, the costs of the first trial be costs in the second trial.

5.    The respondents pay the appellants’ costs of the appeal, including the costs reserved on 26 September 2018.

8    Following the determination of the appeal, the $1,208,418.54 that the fourth appellant had paid into trust was returned to him.

9    A retrial took place in the Federal Circuit Court in August and December 2019. Microsoft again claimed damages, in an amount exceeding $2.4 million. Judgment is currently reserved.

10    Meanwhile, the costs of the appeal were taxed. On 7 August 2020, a Judicial Registrar issued a certificate of taxation fixing the CPL parties’ costs of the appeal and of the taxation at $211,040.79. There was then some correspondence between the parties. The CPL parties demanded payment of their costs, and Microsoft declined to pay on the basis that it would shortly be seeking a stay.

11    On 18 August 2020, the CPL parties made an ex parte interlocutory application in this court, seeking the following orders:

1.    Pursuant to Rule 41.1 of the Federal Court Rules 2011 the Appellants seek directions for the enforcement of the Certificate of Taxation issued by Judicial Registrar Ng on 7 August 2020 against the Respondents in the total sum of $211,040.79.

2.    The Respondents pay the Appellants’ costs of and incidental to this Application.

3.    Such further other orders/directions as the Court deems fit.

12    On 25 August 2020, I assume coincidentally, Microsoft made an interlocutory application of its own, seeking the following orders:

1.    Pursuant to rule 41.03 of the Federal Court Rules 2011 (Cth) each of the following Certificates of Taxation is stayed pending the determination of all claims and questions of costs in Federal Circuit Court of Australia Proceedings SYG 1205 of 2016:

(a)    Certificate of Taxation dated 7 August 2020 in the sum of $211,040.79 in favour of the Appellants (in Proceedings NSD 1736 of 2018).

(b)    Certificate of Taxation dated 14 August 2020 in the sum of $20,700 in favour of the Respondents (in Proceedings NSD 1438 of 2017).

2.    The Appellants pay the Respondents’ costs of and incidental to this interlocutory application.

3.    Such further or other orders as the Court deems fit.

13    Microsoft’s proposed orders refer to an additional certificate of taxation, which was issued in its favour on 14 August in another proceeding between the parties. The 14 August certificate’s only relevance is that Microsoft concedes that it should not benefit from it while there is a stay of the certificate in this proceeding.

14    On 28 August 2020, the CPL parties were directed to serve their application on Microsoft. Once that had been done, both applications were accepted for filing, and the parties were invited to make written submissions about them.

The parties’ submissions

15    Microsoft’s case for a stay can be put briefly. It submits that the retrial may result in an award of damages in its favour that vastly exceeds the costs it owes to the CPL parties. If that occurs, it will not be able to recover, because the CPL parties, on their own evidence, lack the means to pay.

16    In support of the stay application, Microsoft proffers an undertaking to pay the costs that it owes, with interest, within 28 days of the stay being lifted or otherwise being directed to do so. It says that this is sufficient security, given that it is an organisation of substantial means.

17    The CPL parties make four submissions against the granting of a stay.

18    The CPL parties submit that the appeal and the retrial are separate proceedings, and that whatever the result of the retrial, the costs order made in this appeal will not be disturbed. They say that in those circumstances, and given the effect of the COVID-19 pandemic on their cash-flow, they ought to have the benefit of the costs order immediately. In reply, Microsoft submits that the proceedings are in fact connected, since they arise from a common factual matrix between identical parties.

19    The CPL parties submit that the amount of damages claimed by Microsoft in the retrial is irrelevant, because judgment is reserved and complex factual and legal issues remain to be resolved. In reply, Microsoft submits that it is sufficient for it to show that it has made claims which, if successful, will go unsatisfied.

20    The CPL parties submit that enforcement of the existing costs order will not stultify any orders made in the retrial proceeding. They submit that they have the means to meet any orders that might be made against them, pointing to the $1,208,418.54 payment into trust made prior to the appeal (see [6] above). They say further, and in any event, that enforcement issues commonly arise in proceedings of this type, and the possibility that such issues might arise here cannot justify depriving them of the costs order. In reply, Microsoft submits that concerns about enforcement are an orthodox basis for a stay, and that such concerns clearly arise in this case, where the CPL parties have given evidence of their own impecuniosity. It says that the CPL parties’ more recent evidence that they “do have substantial assets, although such assets may not be in liquid form” does nothing to assuage those concerns.

21    The CPL parties submit that Microsoft could have applied for a stay at any time after the relevant costs order was made on 5 February 2019, but delayed unacceptably until 25 August 2020. Microsoft submits that it was appropriate to first let the taxation run its course, and that it acted as soon as the taxation was finalised without judgment having been delivered in the retrial proceeding.

22    Finally, the CPL parties say that if the court were minded to grant a stay, the stay should at least be conditional on Microsoft paying the costs into court or providing security.

Principles and consideration

23    Rule 41.03 of the Federal Court Rules 2011 (Cth) provides that “[a] party bound by a judgment or order may apply to the Court for an order that the judgment or order be stayed”. Rule 41.11 provides that “[a] party may apply to the Court for a stay of execution of a judgment or order”.

24    The parties agreed that the principles set out in Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 in the context of stays pending appeal are applicable to this case. In that case, Kirby P, Hope and McHugh JJA held as follows (at 694-695; see also Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65 at 66 (Burchett, Heerey and Whitlam JJ)):

In our opinion it is not necessary for the grant of a stay that special or exceptional circumstances should be made out. It is sufficient that the applicant for the stay demonstrates a reason or an appropriate case to warrant the exercise of discretion in his favour.

There are other principles to be kept in mind. The onus is upon the applicant to demonstrate a proper basis for a stay that will be fair to all parties. The mere filing of an appeal will not, of itself, provide a reason or demonstrate an appropriate case, nor will it discharge the onus which the applicant bears. The Court has a discretion whether or not to grant the stay and, if so, as to the terms that would be fair. In the exercise of its discretion, the Court will weigh considerations such as the balance of convenience and the competing rights of the parties before it. Where there is a risk that if a stay is granted, the assets of the applicant will be disposed of, the Court may, in the exercise of its discretion, refuse to grant a stay. Sometimes as a condition of the grant of a stay, where funds are available, a court will impose on the applicant the payment of the whole, or part, to the judgment creditor. Even where no order is made for the payment of part of a verdict, it is not at all unusual for the Court, in the exercise of its discretion, to grant a stay on terms that the appellant give to the judgment creditor security in terms defined by the Court as appropriate to the fair adjustment of the rights of the parties.

…

Two further principles can be mentioned. The first is that where there is a risk that the appeal will prove abortive if the appellant succeeds and a stay is not granted, courts will normally exercise their discretion in favour of granting a stay. Thus, where it is apparent that unless a stay is granted an appeal will be rendered nugatory, this will be a substantial factor in favour of the grant of a stay. Secondly, although courts approaching applications for a stay will not generally speculate about the appellant's prospects of success, given that argument concerning the substance of the appeal is typically and necessarily attenuated, this does not prevent them considering the specific terms of a stay that will be appropriate fairly to adjust the interest of the parties, from making some preliminary assessment about whether the appellant has an arguable case.

(Citations omitted.)

25    In later written submissions, the CPL parties also referred briefly to Rawson v Samuel (1841) Cr & Ph 161; 41 ER 451; Hill v Ziymack (1908) 7 CLR 352; Wagner v Laubscher Bros & Co [1970] 2 QB 313; and Joskovitz v Bonnick [1964] VR 654. However, as Herring CJ observed in Joskovitz v Bonnick (at 656), the broad discretion to order a stay is not to be constrained by cases decided on different facts. It is for this reason that these authorities are of little assistance here.

26    In my view, a stay is appropriate in this case to preserve the status quo until the retrial proceeding is determined.

27    As I have said, prior to the hearing of the appeal, the CPL parties gave evidence that they could not pay the damages awarded against them by the primary judge. That evidence included affidavits from the second and fourth appellants, and financial statements of the first and third appellants.

28    Since then, the second appellant has relevantly deposed as follows:

[T]he Appellants do have substantial assets, although such assets may not be in liquid form. Furthermore, as described above, on 5 October 2018, the [the $1,208,418.54 payment referred to at [6] above] was made. Following the Appeal Judgment, this sum was returned to [the fourth appellant].

The First Appellant has been in business for over 12 years and is one of Victoria’s largest retailers of computer hardware and software and continues to trade. Some of the Appellants’ employees have been employed from the beginning. Further, the appellants continue to employ workers including many Australian born university students and graduates even with the difficulties of the COVID pandemic.

I verily believe the Appellants will be able to satisfy any order made against them in the present Federal Circuit Court proceedings.

The sum of $211,040.079 being the taxed amount of the appeal costs orders is important to the appellant companies’ cashflow and will promote business growth. That is particularly important during the difficulties of the COVID pandemic.

29    That is the whole of the evidence said to establish a reversal of the CPL parties’ fortunes. There is a general assertion that the CPL parties have the capacity meet any adverse judgment, but this is qualified by a statement that their assets “may not be in liquid form”. Reliance is placed upon the $1,208,418.54 paid into trust prior to the appeal as a demonstration of financial capacity, but there no evidence about what became of that money once it was returned to the fourth appellant. Further, no updated financial statements have been provided. This evidence is not sufficient to prove that the CPL parties’ circumstances have changed such that the court could be satisfied that they could now meet any order made against them in the retrial proceeding.

30    It would be a perverse result if Microsoft were to prevail in the first trial, pay the costs of the appeal, prevail again in the retrial, and then find that it is unable to recover damages, particularly where the necessity for a retrial was outside the control of the parties.

31    I have some sympathy for the submission that the stay application could have been made earlier. But given Microsoft’s substantial means, and the undertaking proffered as to prompt payment with interest, I am satisfied that the CPL parties’ position will be adequately protected until the retrial proceeding is determined.

Disposition

32    I will therefore grant Microsoft’s application, and stay execution on the costs described in the certificates of taxation: see Dahler v Australian Capital Territory [2016] FCA 257 at [55] (Katzmann J); cf r 40.35(2) of the Federal Court Rules 2011 (Cth).

33    In that event, the application for directions on enforcement is unnecessary to determine. It will accordingly be dismissed.

Costs

34    Microsoft presses for its costs of the stay application. I see no reason why the costs of that application, which was successful, and which the CPL parties resisted, should not follow the event.

35    Microsoft also submits that the CPL parties should pay its costs of the directions application, which it says “has at all times been unnecessary”. The CPL parties submit that the directions application was reasonably made, as they did not know if or when Microsoft might apply for a stay, and believed that a stay would be refused in any event.

36    Neither party has succeeded on the directions application; it has simply fallen by the wayside. Microsoft did not receive it until after it had made its supervening stay application, and dedicated a mere four sentences to responding to it in its submissions. In the circumstances, I do not propose to make any order as to the costs of the directions application.

Associate:    

Dated:    29 September 2020

SCHEDULE OF PARTIES