Federal Court of Australia

Microsoft Corporation v CPL Notting Hill Pty Ltd [2023] FCA 144

ORDERS

Upon the Appellants 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 determination of the Appellants’ appeal or otherwise being directed to do so:

THE COURT ORDERS THAT:

1.    Execution on the costs in each of the following certificates of taxation is stayed pending the determination of the Appellants’ appeal (or further order of the Court): -

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

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

2.    The Appellants are released from compliance with their undertaking to the Court given on 29 September 2020 in Proceeding NSD 1736 of 2018.

3.    The Respondents pay the Appellants’ costs of and incidental to the interlocutory application filed by the Appellants on 19 December 2022.

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

REASONS FOR JUDGMENT

BURLEY J:

1.    INTRODUCTION

1    The appellants, Microsoft Corporation, Microsoft Pty Ltd and Microsoft Regional Sales Corporation (collectively, Microsoft), by interlocutory application filed on 19 December 2022, seek a stay of execution of certain certificates of taxation pending the determination of an appeal from a decision of a judge of the Federal Circuit and Family Court (Division 2) given in Microsoft Corporation v CPL Notting Hill Pty Ltd (No 7) [2022] FedCFamC2G 590 (Judge Baird) (the decision).

2    Microsoft is the owner of the copyright in Microsoft computer programs known as “Windows 7 Professional” and “Windows 7 Home Premium” (the software). The first respondent, CPL Notting Hill builds and sells, amongst other things, new computers pre-installed with Microsoft Windows operating systems, including the software. The second respondent, Wei Li, is the sole director of CPL Notting Hill. The third respondent, CPL Distribution purchases computer hardware and software from third parties and sells it to CPL Notting Hill. The fourth respondent, Jin Wang, is the sole director of CPL Distribution (collectively, CPL parties).

3    Microsoft relies on two affidavits of Alvin Ng, Solicitor of 19 December 2022 and 8 February 2023. The CPL parties rely on an affidavit sworn by Ms Li.

2.    BACKGROUND

4    The background of the matter is lengthy but can be summarised briefly as follows, based on the contents of two decisions made in this court, being CPL Notting Hill Pty Ltd v Microsoft Corporation (No 2) [2019] FCA 223 (O’Callaghan J) (CPL 1) and CPL Notting Hill Pty Ltd v Microsoft Corporation [2020] FCA 1399 (O’Callaghan J) (CPL 2).

5    In May 2016, Microsoft brought a proceeding in the Federal Circuit Court, as it was then known, making various allegations against the CPL parties concerning the reproduction of the software on new computers sold by CPL Notting Hill. It brought claims for infringement of copyright, misleading and deceptive conduct and infringement of registered trade marks. The claims against Ms Li and Mr Wang were based on allegations that they were the sole directors of each of the corporate respondents and were involved in their day-to-day management.

6    On 29 August 2018, on the third day of trial and immediately upon completion of oral closing submissions by counsel, Judge Street delivered ex tempore reasons and made orders that the respondents pay damages of over $2.5 million plus interest and granted declaratory relief.

7    Shortly thereafter, the respondents appealed and applied for a stay of the primary judge’s orders pending the hearing. As recited in CPL 2 at [20], one reason for the seeking the stay was that the CPL parties could not pay the damages awarded. This conclusion was based on affidavits given by Ms Li and Mr Wang, each dated 19 September 2019, in which each deposed to their financial circumstances and the financial circumstances of CPL Notting Hill and CPL Distribution respectively. An interim stay was granted on 26 September 2018.

8    On 4 October 2018, the court ordered by consent that the stay be extended until the determination of the appeal upon the CPL parties giving a number of undertakings, including that Mr Wang pay $1,208,418.54 into the trust account of Microsoft’s solicitors, which he did.

9    The appeal was heard by O’Callaghan J on 4 and 5 February 2019. On the second day of the appeal, Mr Richard Cobden SC, senior counsel for Microsoft, conceded that it was appropriate that the appeal be allowed. As described by his Honour, the concession was properly made, as there were “myriad reasons why the appeal was bound to be allowed and the matter remitted to be reheard by another judge”: CPL 1 at [4]. The Court ordered Microsoft to pay the costs of the appeal. It is those costs as taxed that give rise to the present application.

10    The retrial was conducted before a different judge of the Federal Circuit Court in the period from 19–23 August 2019 and on 16 December 2019.

11    On 7 August 2020, CPL’s costs of the appeal were taxed by a judicial registrar at $211,040.79 (CPL certificate of taxation). The CPL parties demanded payment.

12    On 25 August 2020, Microsoft filed an interlocutory application seeking a stay, pursuant to r 41.03 of the Federal Court Rules 2011 (Cth), of the CPL certificate of taxation and also a stay of a certificate of taxation that it had obtained in respect of a costs order in its favour in the amount of $20,700 (Microsoft certificate of taxation).

13    On 29 September 2020, the decision in CPL 2 was made. The Court granted a stay of each certificate of taxation. In relation to the CPL certificate of taxation, the order made was that, upon Microsoft undertaking to pay the costs included in that certificate, and interest accrued thereon, within 28 days of the stay being lifted or otherwise being directed to do so, the two 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”.

14    Judgment in SYG 1205 of 2016 was delivered on 30 September 2022.

15    On 6 December 2022, the primary judge made final orders, including two declarations of infringement of copyright in respect of conduct of CPL Notting Hill and CPL Distribution and ordered damages in the amount of just over $6,000. The primary judge ordered that Microsoft pay all of the costs of Ms Li and Mr Wang on a party/party basis until 20 August 2018 and on an indemnity basis after that date, and ordered that Microsoft pay 80% of the costs of the first and third respondents on a party/party basis until 20 August 2018 and thereafter all of their costs on an indemnity basis.

16    The Orders of 6 December 2022 also included a notation that, by the making of the declarations and orders, the stay effected by the Order of the Federal Court on 29 September 2020 was dissolved.

3.    THE STAY APPLICATION

17    On 19 December 2022, Microsoft filed a Notice of Appeal from the decision.

18    Also on 19 December 2022, Microsoft filed the present interlocutory application seeking:

(1)    A further stay of execution of the CPL and the Microsoft certificates of taxation; and

(2)    A release from compliance with the Microsoft undertaking;

pending determination of the appeal.

19    On 23 December 2022, the Court made consent orders granting an interim stay pending the filing by the parties of evidence and submissions and oral argument on 22 February 2023.

3.1    The submissions

20    Microsoft submits that the undertaking that it gave on 29 September 2020 to pay the costs included in the CPL certificate of taxation was not unconditional, but included the words “or otherwise being directed to do so”, which contemplated the possibility of the terms of payment being varied by the Court. It submits that the considerations that apply to the present application are, in principle, identical to those that applied when CPL 2 was decided. The application at that time was to stay the execution of costs awarded to the CPL parties as a result of their successful appeal against the decision in the first trial. Microsoft relies on [4] and [29] of the reasons in CPL 2. It submits that the picture has not altered in the present application. It submits that the court can safely infer that if Microsoft were to be successful in the current appeal, then the corporate respondents would go into liquidation and that the personal respondents would go into bankruptcy.

21    Furthermore, Microsoft submits that the evidence in the current application shows that the principal owner of CPL, Mr Wang, divested shares in companies of which he was a sole shareholder. Microsoft proffers a repeat of the undertaking to pay the CPL certificate of taxation and interest within 28 days of the stay being lifted or otherwise being directed to do so. It submits that the balance of convenience lies in favour of the stay, because if the costs are paid to the CPL parties there is a very serious risk that they will not be recoverable, but if they are not, then there can be no serious question that Microsoft is good for the money.

22    The CPL parties submit that there is no evidence from Microsoft in the present application as to the amount of damages it would likely receive if its appeal succeeds such as to warrant any inference that CPL would be unable to pay any judgment that may be obtained. They submit that the burden rests with Microsoft to satisfy the Court that it should be released from its unconditional undertaking given to the Court. Had Microsoft intended, at the time that it gave the undertaking, to preserve its capacity to vary its terms in the event that it was dissatisfied with the result in the second trial, it ought to have foreshadowed that to O’Callaghan J. Finally, it submits that whilst the global financial standing of Microsoft is not in dispute, it is a foreign corporation. Microsoft has adduced no evidence of Microsoft Australia Pty Ltd’s financial position. If the Court does grant a stay, the CPL parties contend that it should be on terms that Microsoft pays the costs outstanding into Court or into a trust account of CPL’s lawyers as a condition of that stay.

3.2    Consideration

23    The parties agree that the principles set out by the Court in CPL 2 in granting the stay are also applicable in the present circumstances.

24    The Court there referred to Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685, which concerned stays pending appeal. 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    Having regard to these principles I am of the view that the stay sought should be granted.

26    I agree that the conditions in the present application are not materially different to those that led the Court to grant the stay in CPL 2.

27    In the present application, the case advanced by Microsoft is that the appeal may result in a reversal of the decision of the primary judge with the consequence that significant damages and costs may be awarded in favour of Microsoft. If that occurs, it will not be able to recover, because the CPL parties lack the means to pay. This was the position attaining in CPL 2.

28    In the present case, the first affidavit of Mr Ng attaches the affidavits of Ms Li and Mr Wang of September 2019. It was their contents which led O’Callaghan J to observe in CPL 2 at [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.

29    His Honour also observed at [29]:

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    Despite having the opportunity to do so, the CPL parties have not adduced any evidence of an improvement of the financial circumstances and I infer that they have not improved. While Microsoft submits that Mr Wang has divested himself of assets, and that may be the case, it is not possible from the evidence available to make any findings in that respect. It is sufficient to conclude that there is no evidence to suggest that the financial position of the CPL parties has materially changed.

31    It is not appropriate in the present case to make any findings as to the likely strength of the appeal. The decision was delivered in September 2022, some three years after the substantive hearing. The judgment is of 782 paragraphs and runs to over 200 pages in length. The Notice of Appeal includes what appear to be 43 separate grounds and runs to some 25 pages in length. Whilst Microsoft contended that the merits of the appeal are strong, and CPL parties that the merits are weak, it is apparent that this is a substantial appeal challenging almost the entirety of the decision below.

32    The CPL parties contend that Microsoft has not adduced evidence that the amount awarded in favour of Microsoft in the event that it succeeds in its appeal will exceed the amount in the CPL certificate of taxation. It is true that there is no mathematical certainty of this position. However, the parties agree that the appeal will take at least two and possibly three days. If the appeal is allowed in whole, then costs orders of the rehearing and the initial hearing before Street J may be reversed. In that event, leaving aside any award of damages, there is a high probability – if not a certainty – that the costs in favour of Microsoft will significantly exceed the costs assessed in the CPL certificate of taxation, which concerned only the costs of the first appeal.

33    The consequence is that there is a material danger that if a stay is not granted and the appeal is successful, money paid by Microsoft on the basis of the CPL certificate of taxation would be irrecoverable. This favours maintaining the status quo.

34    I do not consider that in the present case there is a discretionary impediment to the grant of the stay because of the fact that Microsoft seeks a variation of the terms upon which it gave its undertaking to the Court. The undertaking given was as follows:

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:

35    Microsoft moved quickly to reinstate the stay and has properly sought a variation of the terms of its undertaking. There is no question that the Court has power to adjust the terms of a previous stay, contingent on the circumstances prevailing. The circumstances warrant such a variation.

36    CPL submitted that because Microsoft Corporation is a foreign entity, money should be paid into a trust account or into court as a condition of the grant of the stay. It submits that Microsoft has not adduced evidence of assets in Australia. However, as senior counsel for CPL, Mr Truong, accepts, Microsoft is a behemoth global corporation. There cannot be a serious dispute that it is not in a position to meet its undertaking. Microsoft has a significant presence in Australia. The point now made by Mr Truong was apparently not made before O’Callaghan J, who accepted the financial standing of Microsoft to pay. I take the same position and do not require funds to be paid into court.

4.    DISPOSITION

37    Microsoft has, by its counsel, repeated the undertaking to the court to pay the costs included in the CPL certificate of taxation within 28 days of determination of the appeal. Accordingly, for the reasons given above, I will grant the stay orders as sought.

38    The Respondents must pay the costs of the interlocutory application.

Associate:

Dated:    28 February 2023

SCHEDULE OF PARTIES