Federal Court of Australia

Vehicle Monitoring Systems Pty Limited v SARB Management Group Pty Ltd trading as Database Consultants Australia (No 11) [2024] FCA 456

ORDERS

THE COURT ORDERS THAT:

1.    The orders in paragraphs 16 and 17 made on 21 June 2023 be set aside.

2.    The applicant and Balance REV Ltd are jointly and severally liable for the first respondent’s costs on a party and party basis of the Application prior to 15 March 2021.

3.    The applicant and Balance REV Ltd are jointly and severally liable for the second respondent’s costs on a party and party basis of the Application prior to 19 March 2021.

4.    The cross-claimant is liable for the cross-respondent’s costs on a party and party basis of the Notice of cross-claim prior to 15 March 2021.

5.    The applicant/cross-respondent and Balance REV Ltd are jointly and severally liable for costs of the first respondent/cross-claimant and of the second respondent (City of Melbourne) of the Application and Cross-claim on an indemnity basis from 15 March 2021 in the case of the first respondent/cross-claimant and from 19 March 2021 in the case of the second respondent/City of Melbourne.

6.    Pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth), the respondents’ costs payable pursuant to orders 2 and 3 be paid in a lump sum, the applicant’s costs payable pursuant to order 4 be paid in a lump sum and the first respondent/cross-claimant and the second respondent (City of Melbourne) costs pursuant to order 5 be paid in a lump sum.

7.    On or before 31 May 2024 the respondents’ each file and serve a Costs Summary in accordance with paragraphs 4.10 to 4.12 of the Costs Practice Note (GPN-COSTS) (Practice Note), not exceeding 10 pages in length (omitting formal parts).

8.    On or before 14 June 2024, the applicant (on behalf of itself and Balance REV Ltd) file and serve any Costs Responses in accordance with paragraphs 4.13 and 4.14 of the Practice Note, not exceeding 5 pages in length (omitting formal parts).

9.    On or before 28 June 2024, the respondents each file and serve any submissions in accordance with paragraph 4.15 of the Practice Note, limited to 3 pages.

10.    On or before 12 July 2024, the applicant (on behalf of itself and Balance REV Ltd) file and serve any submissions in accordance with paragraph 4.15 of the Practice Note, limited to 3 pages.

11.    The orders referred to in paragraphs 7-10 apply mutatis mutandis to the costs payable by the first respondent to the applicant.

12.    The quantum of the lump sum for costs, as identified in these orders, be determined on the papers by a Registrar of the Court.

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

REASONS FOR JUDGMENT

BESANKO J:

Introduction

1    These reasons deal with the costs of a claim for the infringement of claims in two patents brought by Vehicle Monitoring Systems Pty Limited (VMS) against SARB Management Group Pty Ltd trading as Database Consultants Australia (SARB) and the City of Melbourne (CoM). SARB brought a cross-claim against VMS claiming that the patents were invalid and the costs associated with that are to be determined. The trial proceeded before me and I delivered reasons on 8 March 2023 (Vehicle Monitoring Systems Pty Limited v SARB Management Group Pty Ltd trading as Database Consultants Australia (No 8) [2023] FCA 182 (VMS (No 8))) and I made orders on 21 June 2023 disposing of the claim and cross-claim (Vehicle Monitoring Systems Pty Limited v SARB Management Group Pty Ltd trading as Database Consultants Australia (No 9) [2023] FCA 632 (VMS (No 9))). There was an appeal by SARB to the Full Court of this Court on limited grounds (SARB Management Group Pty Ltd t/a Database Consultants Australia v Vehicle Monitoring Systems Pty Ltd [2024] FCAFC 6). The appeal was allowed and VMS was ordered to pay SARB’s costs of the appeal. The Full Court made an order that the question of the costs of the proceeding be determined by the trial judge. These reasons deal with that issue.

The Orders made after the Trial

2    The alleged infringing product was a vehicle detection system involving a detection apparatus (DA) and a data collection apparatus (DCA). There were three versions of the vehicle detection system and I will refer to them as PinForce Version 1 (PV1), PinForce Version 2 (PV2) and PinForce Version 3 (PV3). There was a significant difference between PV1 and PV2 on the one hand, and PV3 on the other. In PV1 and PV2, the determination of vehicle overstay was made in the DA, whereas in PV3, the determination of vehicle overstay was made in the DCA.

3    There was evidence before the Court that PV1 was supplied between October 2007 and December 2016 and that between September and December 2016, PV1 was progressively upgraded to PV3. There was evidence before the Court that PV2 was supplied between November 2014 and December 2016 and that between November and December 2016, PV2 was upgraded to PV3. There was evidence before the Court that since December 2016, the version supplied by SARB was PV3.

4    A large number of issues were raised at the trial and they are identified in VMS (No 8) which reasons should be read with these reasons. The breadth of the alleged grounds of invalidity pursued by SARB is significant and should be noted. The grounds of invalidity are set out in my reasons (at [18]) and were as follows:

(1)    In relation to both patents, a failure to describe in the complete specification the best method known to VMS of performing the invention (s 40(2)(a));

(2)    In relation to both patents, a failure by VMS to describe the invention fully (s 40(2)(a));

(3)    In relation to both patents, a claim that VMS was not the inventor, or the sole inventor, of the invention and did not derive title from the inventor under s 15 of the Act and is not entitled to the First Patent or the Second Patent and it is just and equitable that the patents be revoked under s 138(3) of the Act;

(4)    In relation to both patents, and in respect of those claims that do not involve the use of wake-up signals (i.e., claims 1 and 6–10 (to the extent they depend on claim 1) and 30–32 of the First Patent and claims 1–25 and 27–29 of the Second Patent), the claims are not fairly based on the matter described in the specification (s 40(3));

(5)    In relation to both patents, the “invention” lacks an inventive step having regard to common general knowledge as it existed in the patent area before the earliest priority date of the claims (s 18(1)(b)(ii)). In relation to this ground, SARB relies only on common general knowledge and does not rely on any information of the kind identified in s 7(3) of the Act;

(6)    In relation to the First Patent and if, contrary to earlier contentions made by SARB, claims 21–23 and 28–32 encompass a system in which the DCA determines vehicle overstay, then the First Patent, or at least those claims in the First Patent, should be revoked because:

(a)    the Patent or those claims were obtained by false suggestion or misrepresentation (s 138(3)(d)); and

(b)    they lack clarity and therefore do not comply with s 40(3); and

(c)    they lack definition and therefore do not comply with s 40(2)(b).

5    VMS also made a claim for additional damages under s 122 of the Patents Act 1990 (Cth) against both respondents.

6    The trial proceeded over 10 days: 22–26, 29–31 March 2021 and 15–16 April 2021.

7    The two patents in issue were referred to as the 110 Patent and the 924 Patent.

8    I reached the following conclusions at the trial:

(1)    PV1 and PV2 infringed claims 2, 3, 4, 5, 11, 12, 13, 21, 22, 28 and 29 of the 110 Patent and claim 26 of the 924 Patent, and the contention by the first respondent that PV1 did not involve the use of a wake-up signal or provide for data to be transmitted when a DCA is detected is rejected;

(2)    Claim 21 of the 110 Patent includes the system in which vehicle overstay is determined by the DCA.

(3)    The acts of service, maintenance, firm upgrade and/or other assistance do not give rise to liability, assuming as I take to be the case, those acts were performed pursuant to lawfully binding contracts entered into before the beginning of the limitation period because there would be no power to prevent the use and no procuring, inducing or acting in concert in the relevant sense.

(4)    (a) VMS’s claim for additional damages against SARB is justified with respect to infringements after the decision in VMS 2013, but only insofar as the infringements involve PV1 and PV2; and (b) with respect to the applicant’s claim for additional damages against CoM, the claim is dismissed.

(5)    SARB’s cross-claim should be dismissed.

9    The parties brought in minutes of order and I made orders on 21 June 2023. Those orders included declarations of infringement in relation to PV1, PV2 and PV3 against both respondents and in relation to both patents. I do not need to set those orders out. They also included an order that should VMS make an election to claim damages, SARB is liable for additional damages pursuant to s 122(1A) of the Patents Act in respect of infringements identified in the orders. I also made various injunctions which again, it is not necessary to set out. I made orders that the Cross-claim dated 28 February 2020 be dismissed and that the claim against the second respondent for additional damages pursuant to para 7 of the Amended application be dismissed. As to costs, I made the following orders:

16.    The First Respondent pay the Applicant’s costs of the Application and the Cross-Claim.

17.    There be no order for costs as between the Applicant and the Second Respondent.

As there had been an order made that liability be determined before quantum, I then made orders to progress the hearing on quantum.

10    As I have said, the appeal was on limited grounds, one relating to infringement, which in turn, raised an issue of construction, and one relating to invalidity on the ground that the patents had failed to describe the best method known to VMS of performing the invention at the time of the filing of the applications. The challenge to the validity of the patents on that ground was rejected by the Full Court. The grounds of appeal relied upon by SARB in relation to the issue of infringement were that the trial judge had erred in holding that:

(1)    claim 21 of the first patent includes a system in which vehicle overstay is determined by the data collection apparatus (or DCA);

(2)    claims 30, 31 and 32 of the first patent include a method, apparatus or system in which vehicle overstay is determined by the data collection apparatus; …

11    VMS had filed a Notice of contention raising matters relevant to the issue of infringement. SARB’s challenge to the conclusions of the trial judge with respect to the issue of infringement was upheld by the Full Court. As I have said, the proceedings were remitted to me for the purpose of determining whether the costs payable pursuant to the orders in paragraphs 16 and 17 should be varied in light of the decision of the Full Court.

12    The effect of the Full Court’s conclusions in relation to PV3 is to set aside the conclusion that it infringed the first Patent. The finding of infringement in relation to PV1 and PV2 was undisturbed as the appeal did not involve a challenge to the conclusion that those versions of the vehicle detection system infringed the patents. The finding that SARB was liable for additional damages in relation to PV1 and PV2 was undisturbed. The conclusion that the Cross-claim ought to be dismissed was upheld by the Full Court. The result of the Full Court’s decision is that there will need to be a hearing as to quantum relating to the infringement by PV1 and PV2 and the claim for additional damages by VMS against SARB in relation to PV1 and PV2.

The Costs Orders now sought by the Parties to the Proceedings

13    SARB seeks the following orders: (1) that Orders 16 and 17 of the orders made on 21 June 2023 be set aside: (2) that VMS and SARB each bear their own costs of the Application and Cross-claim prior to 15 March 2021; (3) that there be no orders as to costs between VMS and CoM up to 19 March 2021; and (4) that VMS and Balance REV Ltd are jointly and severally liable for SARB’s costs of the Application and the Cross-claim from 15 March 2021 in relation to the first respondent, and from 19 March 2021 in relation to CoM, on an indemnity basis.

14    Balance Legal REV Ltd is a non-party which SARB alleged were funding VMS and had a measure of control over the litigation.

15    SARB also sought further orders relating to the assessment of the costs. They are not relevant for present purposes.

16    The date of 15 March 2021 is significant according to SARB because on that date it wrote to VMS making an offer in accordance with the principles in Calderbank v Calderbank [1975] 3 ALL ER 333 (Calderbank offer). I will return to this offer after I have identified the costs orders sought by the other parties.

17    CoM seeks an order that Order 17 made on 21 June 2023 be varied so that there be no order as to costs between it and VMS in the period up to 19 March 2021 and, from that date, VMS pays CoM’s costs on an indemnity basis. The significance of the date of 19 March 2021 is that it was on that day that CoM served on VMS an offer of settlement in the nature of a Calderbank offer. CoM claims that the terms of the offer were no less favourable to VMS than the outcome resulting from the trial and the appeal and that VMS’s rejection of the offer was unreasonable.

18    VMS takes a very different approach to the question of costs. It seeks the following orders: (1) that SARB pay 90% of VMS’s costs of the Application; and (2) that SARB pay VMS’s costs of the Cross-claim. VMS does not seek to vary the existing order as to costs between it and CoM. The other orders sought by VMS relate to the procedure for the assessment of the costs and those proposed orders are not relevant for present purposes.

The Calderbank Offers made by SARB and CoM respectively

19    SARB’s Calderbank offer involved the following elements: (1) for the purposes of settling the proceedings, SARB accepts the validity of the two patents in suit, and admits liability for infringement with respect to all uses of PV1 and PV2; (2) for the purposes of settling the proceedings, VMS accepts that PV3 does not infringe the two patents in suit; (3) VMS discontinues its claim for additional damages as against SARB; (4) the parties agree a form of orders reflecting the above and setting down a timetable for a hearing on quantum for infringement of PV1 and PV2; (5) SARB pays VMS’s costs of the proceeding up to the date of the offer on a party/party basis to be agreed or taxed in the absence of agreement. For the purposes of the Calderbank offer, SARB is prepared to pay VMS’s costs relating to PV3; and (6) SARB pays VMS’s costs of the hearing on quantum described in (4) on a party/party basis to be agreed or taxed in the absence of agreement.

20    SARB’s Calderbank offer was said to be open for acceptance until 10 am on 18 March 2021.

21    CoM’s Calderbank offer involved the following elements: (1) on the basis of SARB’s admissions with respect to the validity of the two patents in suit and SARB’s admissions of liability for infringement with respect to all uses of PV1 and PV2, CoM will consent to appropriate orders that reflect that position, including any consequential procedural affairs[sic]; (2) VMS’s claims of infringement with respect to PV3 are dismissed; (3) VMS discontinues its claim for additional damages as against CoM, including in respect of PV1 and PV2; (4) there be no order as to costs; and (5) the terms of the offer be confidential, save for the parties agreeing such form of orders as are necessary to give effect to the above.

22    On the face of it, SARB’s Calderbank offer closely reflects the effect of the decisions made by the trial judge and the Full Court, save and except for the fact that the trial judge found that SARB was liable for additional damages in relation to PV1 and PV2.

23    On the face of it, CoM’s Calderbank offer reflects the position following the orders of the trial judge and the Full Court. The trial judge found that the two patents in suit were valid and that there had been infringement with respect to PV1 and PV2. The Full Court found that PV3 did not infringe the two patents in suit. I have already mentioned the difference concerning additional damages.

Costs up to 15 March 2021 in the case of SARB, and 19 March 2021 in the case of CoM

24    SARB and CoM submit that no order as to costs or each party bear their own costs is the appropriate order in relation to these periods. In answer to one point made by VMS to the effect that SARB and CoM’s position with respect to costs in relation to these periods does not take into account the various costs orders made in VMS’s favour, including for costs thrown away, SARB has made it clear that its proposed order does not involve disturbing previous costs orders.

25    The rival contentions can be summarised in the following way. SARB contends that the position prior to its Calderbank offer was that there was a Cross-claim on foot, but that Cross-claim was purely defensive. Had the proceeding been resolved on the basis that the patents were valid and infringed by PV1 and PV2, but not PV3, “each party would have enjoyed an equal, and significant, measure of success”. As I understand it, a similar argument is put by CoM. VMS’s argument on the other hand, is that it should receive 90% of the costs of the Application (reduced by 10% to reflect the success achieved by SARB) and that SARB should pay VMS’s costs of the Cross-claim. As far as the Application is concerned, VMS claims that the issue of whether PV3 infringed the first patent was a narrow and discrete issue which would not have occupied a great deal of time. As against that, VMS established that PV1 and PV2 infringed the patents and that it is entitled to an award of additional damages against SARB. It was wholly successful with respect to the Cross-claim.

26    With respect to the period prior to the Calderbank offers, I consider that SARB and CoM should have their costs of the Application as against VMS and Balance REV Ltd. The true position, in the sense of the position as we now know it to be, is that PV3 did not infringe either patent. That was the dominant feature of the Application. I recognise that VMS succeeded on certain issues that will now proceed to a quantum hearing, but they were not the main issues and, as the authorities show (see [30] below), there is a limit to the extent to which the result on costs in affected by the result on separate issues.

27    That limit does not apply in the case of the costs of the Cross-claim prior to the Calderbank offers. SARB has lost on the issues raised by the Cross-claim from start to finish and should pay VMS’s costs of the Cross-claim up to the date of the Calderbank offer on a party and party basis. I have considered whether an order should also be made against the CoM, bearing in mind the order I will make as to the costs of the Cross-claim after CoM’s Calderbank offer. I consider an order against SARB is sufficient, evidenced by the fact VMS has at no stage sought costs against CoM in relation to the Cross-claim.

Are the Calderbank Offers effective?

28    The relevant principles are not in dispute. VMS said that it largely agreed with the principles set out in SARB’s written submissions on costs at paras 2 to 8. For present purposes, paragraphs 7 and 8 can be excluded because they address the principles relevant to whether the power under s 43 of the Federal Court of Australia Act 1976 (Cth) (FCA Act) extends to making costs orders against non-parties. VMS said that it also largely agreed with CoM’s statement of the relevant principles in paras 2 to 5 of its written submissions as to costs. VMS also relies on the decision in Les Laboratoires Servier v Apotex Pty Ltd [2016] FCAFC 27; (2016) 247 FCR 61 (Servier v Apotex) at [297]–[306] and [329]–[331]; and Idenix Pharmaceuticals LLC v Gilead Sciences Pty Ltd (No 2) [2018] FCAFC 7. I refer to the written submissions referred to in this paragraph.

29    A brief summary of the key principles is as follows.

30    The wide discretion in awarding costs that is given to the Court by s 43 of the FCA Act is well established. However, that does not mean that there are no principles or practices to be applied in exercising that discretion (Servier v Apotex at [296] per Bennett, Besanko and Beach JJ). In Servier v Apotex, the Full Court said the following (at [297]–[298]):

There are two general approaches to the award of costs that have general application and have been the subject of numerous decisions:

(1)    The successful party is generally entitled to its costs. That is, costs usually follow the event.

(4)    It is also the case that a successful party may be awarded less than its costs, or there may be an order apportioning costs, on the basis of success on the issues.

This has been recently reiterated by the High Court (per French CJ, Kiefel, Nettle and Gordon JJ) in Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) (2015) 90 ALJR 270 at [6], where their Honours observed that if the event of success cannot be seen as contestable, having regard to how separate issues have been determined, then:

There are no special circumstances to warrant a departure from the general rule, and good reasons not to encourage applications regarding costs on an issue-by-issue basis, involving apportionments based on degrees of difficulty of issues, time taken to argue them and the like.

(see also Idenix Pharmaceuticals LLC v Gilead Sciences Pty Ltd (No 2) [2018] FCAFC 7 at [3]).

31    There are many cases dealing with the circumstances in which this Court may exercise the power in s 43 of the FCA Act to award costs on an indemnity basis. With respect, in Anchorage Capital Partners Pty Limited v ACPA Pty Ltd (No2) [2018] FCAFC 112 the Full Court provided a helpful summary of relevant principles. The Full Court said (at [5]–[8]):

5    Section 43 of the Federal Court of Australia Act 1976 (Cth) confers a broad discretion on the Court to award costs in proceedings. In Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151, Black CJ at 152 stated the principles applicable to a claim for indemnity costs:

…it is well established that the starting point for any consideration of an application for indemnity costs is that in the ordinary case costs will follow the event and the Court will order the unsuccessful party to pay the costs of the successful party, on a party and party basis, a basis which will fall short of complete indemnity. Nevertheless, the Court has an absolute and unfettered jurisdiction in awarding costs, although the discretion must be exercised judicially. So indemnity costs may properly be awarded where there is some special or unusual feature in the case justifying the Court in exercising the discretion in that way.

6    A well-established circumstance justifying an award of indemnity costs is an imprudent refusal of an offer to compromise (Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 233 per Sheppard J). In such cases, a key question is whether the offeree’s refusal of the offer was “unreasonable” when viewed in light of the circumstances existing at the time the offer was rejected (Black v Lipovac & Ors (1998) 217 ALR 386 at 432 per Miles, Heerey and Madgwick JJ; CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Ltd [2008] FCAFC 173 at [75] per Moore, Finn and Jessup JJ).

7    The circumstances to be taken into account in determining whether rejection of an offer was “unreasonable” cannot be stated exhaustively but may include, for example:

(f)    the stage of the proceeding at which the offer was received;

(g)    the time allowed to the offeree to consider the offer;

(h)    the extent of the compromise offered;

(i)    the offeree’s prospects of success, assessed as at the date of the offer;

(j)    the clarity with which the terms of the offer were expressed; and

(k)    whether the offer foreshadowed an application for an indemnity costs in the event of the offeree rejecting it.

(Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435 at [25] per Warren CJ, Maxwell P and Harper AJA; Beling v Sixty International S.A. (No 2) [2015] FCA 355 at [25] per Mortimer J).

8    An unsuccessful party is not liable to pay indemnity costs merely because it received an offer to settle on terms more favourable than it achieved at trial and rejected that offer (CGU Insurance at [75]; Black at [217]-[218]). As we observed in the Appeal Reasons, albeit in the context of r 25.14(2) of the FCRs, assessment of the “unreasonableness” of an offeree’s refusal of a settlement offer is a broad-ranging inquiry that is not restricted to consideration of the extent or quantum of the compromise offered.

32    SARB’s principal submission in relation to the Calderbank offer made on 15 March 2021 is that the first, second and fourth elements of the offer reflect the final outcome of the proceedings and that had VMS accepted SARB’s offer in March 2021, it would have avoided the lengthy trial, subsequent appeal and all the costs and any costs orders associated therewith. In addition, SARB offered to pay VMS’s costs of the proceedings up to the date of the offer on a party/party basis and to include in that VMS’s costs in relation to PV3 and to pay VMS’s costs of the hearing on quantum on a party/party basis. SARB submits that its liability for additional damages in relation to PV1 and PV2 is unlikely to be greater than the costs of the infringement action in relation to PV3 and that accepting SARB’s offer would have put VMS in a more favourable position overall.

33    CoM submitted that the extent of the compromise contained in its Calderbank offer was significant. It offered to consent to declarations of infringement by PV1 and PV2, the grant of injunctive relief in respect of those versions and orders for any inquiry as to damages or an account of profits. The offer was also made on the basis that VMS discontinue its claim for additional damages against CoM and in fact such an order was made by the trial judge and there was no appeal to the Full Court from that finding. The offer contained a term that VMS’s claims in relation to PV3 would be dismissed. CoM submitted that ultimately, the Full Court held that PV3 did not infringe the patents and that the risk that that would be the result was clearly pointed out to VMS in SARB’s Calderbank offer of 15 March 2021. CoM further submitted that it is not necessary for it to establish that VMS’s construction of claim 21 and related claims was hopeless or untenable. They contend that at the time of the offer, VMS was in a position to make an assessment of the prospects of successfully upholding its case of infringement by PV3 “about which there was no substantive factual dispute”. In the circumstances, VMS’s rejection of the compromise in the Calderbank offer was unreasonable.

34    VMS made the following submissions. First, it contends that it had achieved a better result than the offers in the Calderbank letters. As far as SARB is concerned, VMS succeeded in its claim for additional damages against SARB for infringement of both patents by PV1 and PV2, whereas SARB’s offer had included a term that VMS discontinue this claim. There is no evidence to support SARB’s assertion that its liability for additional damages is unlikely to be greater than the costs of the infringement action in relation to PV3. The Court cannot form a view as to the quantum of additional damages that may be payable by SARB and ought to assume that it may be substantial. VMS made a claim through its solicitors on 21 March 2021 that its losses in respect of PV1 and PV2 may well extend to all or part of PV3 as the fruits of PV1 and PV2.

35    Secondly, VMS contends that SARB’s offer as to the payment of costs in the Calderbank offer does not assist its argument because SARB will achieve a similar result if its submissions as to costs are accepted (that is, 90% of the costs of the Application and the costs of the Cross-claim) and it is not possible at this stage to assess whether VMS will achieve a better or worse outcome.

36    Thirdly, VMS contends that CoM’s Calderbank offer was not capable of being accepted if SARB’s Calderbank offer was rejected. In those circumstances, the two offers must be considered together and VMS achieved a better result when that is done because SARB’s offer required VMS to abandon the claim for additional damages against it.

37    Fourth, VMS contends that it was not unreasonable for it to reject the Calderbank offers in circumstances in which VMS was required to give up its claim for additional damages and the offers did not resolve the dispute and they left key matters open for determination in the future. For example, SARB’s offer involved the parties agreeing to the form of orders reflecting the settlement should the offer be accepted. In addition, the Calderbank offers did not formulate the costs payable to VMS under the terms of the offers and the quantum payable by SARB and CoM for infringement of the first patent and the second patent by PV1 in the case of SARB and CoM, and PV2 in the case of SARB.

38    Fifth, VMS claims it was not in a position to commercially assess the significance of abandoning it claims in relation to PV3. It had been unable to obtain access to an unredacted form of Annexure A to the Verified Product Method Description which set out the volumes and dates of supply of PV1, PV2 and PV3. In addition, the first opportunity VMS had to test SARB’s assertion that PV1, PV2 and PV3 did not infringe the patents was when SARB served an unverified Product Method Description on 4 March 2020.

39    Sixth, VMS contends that the offers did not represent a significant compromise because at the time of the offers, SARB had admitted that PV1 and PV2 infringed both patents and VMS had conceded that PV3 did not infringe the second patent. Furthermore, SARB had abandoned various grounds of invalidity and ultimately, SARB and CoM lost on defences that they had offered to abandon, for example, the authorisation defence.

40    Seventh, VMS contends that at the time of the offers, the scope of SARB’s Cross-claim was unclear and still evolving.

41    Finally, VMS submitted that there was support for the construction of claims 21, 30, 31, and 32 for which it contended and the fact was that there were good prospects of success. They referred to the decision of the trial judge and also submitted that such contention was consistent with the decision in Vehicle Monitoring Systems Pty Ltd v SARB Management Group Pty Ltd [2020] FCA 408; (2020) 150 IPR 216 (at [198]).

42    SARB’s response to a number of these submissions was as follows. With respect to the fourth matter, SARB submits that acceptance of the offer would have finally resolved the dispute as to liability and that was the issue at that time. With respect to the fifth matter, SARB submits that VMS did not need Mr Saxon Hill to be granted access to the confidential material to assess the significance of abandoning its claim in relation to PV3. With respect to the final matter, SARB submits that VMS was represented by experienced solicitors and counsel to whom it would have been apparent that the decision in Vehicle Monitoring Systems Pty Ltd v SARB Management Group Pty Ltd [2020] FCA 408; (2020) 150 IPR 216 (at [198]) was irrelevant because it related to “what was described in the specification, not claim scope”.

43    CoM advanced the following submissions. With respect to the first matter, CoM points to the fact that VMS failed in its application for additional damages as against it.

44    With respect to the third matter, CoM submits that the offer was directed to resolving the trial as to liability in circumstances where that was taking place before the trial as to quantum. The amount of costs and the precise form of the injunctions did not affect the effectiveness of the offer.

45    With respect to the fifth matter, CoM submits that VMS accepts that it was in a position to test whether PV3 infringed the patents from at least a year before the offer was made and the relevant question was not one of commercially assessing the significance. That is irrelevant if the claims concerning PV3 properly construed meant that PV3 did not infringe the patents.

46    With respect to the sixth matter, CoM submits that its Calderbank offer did contain a significant compromise in that it conceded the validity of the patents, liability as to PV1 and PV2 and abandoned costs in relation to additional damages.

47    With respect to the seventh matter, CoM submits that the uncertainty of SARB’s invalidity claim was irrelevant because the issue was one of construction and para (a) of its Calderbank offer involved an admission as to the validity of the two patents.

48    With respect to the final matter, CoM submits that the relevant question is not the prospects or otherwise of VMS succeeding on its claim with respect to PV3, but whether, in all the circumstances, including the terms of the offer, it was unreasonable for VMS to reject the offer.

49    In my opinion, the Calderbank offers are effective.

50    SARB’s Calderbank offer was sent on 15 March 2021. That was seven days before the trial commenced. SARB restated its offer on 19 March 2021 after VMS had rejected SARB’s Calderbank offer of 15 March 2021. VMS suggested that the correct date for SARB’s Calderbank offer is 19 March 2021. I do not agree. There is no material difference between the offers.

51    In SARB’s offer of 15 March 2021, the offer provides that it is open for acceptance until 10 am on 18 March 2021. That is a reasonable period for the offer to remain open having regard to the fact that the offer was made only seven days before the start of the trial. I did not understand VMS to suggest otherwise. By the offer, VMS is given notice that if it does not accept the offer and does not achieve a better result at the trial, then SARB will produce the letter to the Court on the question of costs and seek an order that VMS pay SARB’s costs of the proceeding from the date of the letter on an indemnity basis. The Calderbank offer is expressed to be made without prejudice save as to costs and reference is made to the principles in Calderbank v Calderbank. I am satisfied that the offeree was given proper and adequate notice that the Calderbank offer may be relied upon to seek an order for costs on an indemnity basis. SARB’s Calderbank letter makes it clear that it has admitted that should the claims of the patents in suit survive SARB’s invalidity attack, PV1 and PV2 infringe various claims of VMS’s patents. The letter states that the only live issues in dispute “in this regard” are SARB’s defences relating to the deed of settlement dated 18 June 2014, being its “double recovery” defence and “authorisation” defence. SARB’s Calderbank letter then focuses on whether PV3 infringes claims in the patents. It records that in SARB’s mediation position paper it appears that VMS accepts that PV3 operates in the manner contended for by SARB, that is, vehicle overstay is identified by the handheld unit (i.e, the DCA), not the IGU (in-ground unit) (i.e, the DA). The offer goes on to say the following:

2.6    For the reasons articulated in our client’s mediation position paper and supported by the evidence of our client’s expert witness, Mr Jefferson Harcourt, your client’s construction of claim 21 (and, by extension, claims 22 and 23) is wholly untenable. This strained reconstruction of the plain wording of the claim appears to have been devised only after our client provided detailed information about the workings of the Third Version, and does not withstand scrutiny. We are confident that the Court will construe claims 21 to 23 in accordance with the construction proffered by our client, such that the Third Version does not infringe these claims.

52    I am satisfied that SARB’s Calderbank offer adequately explained SARB’s position and the basis upon which it made the offer.

53    The same may be said of CoM’s Calderbank offer. In the case of this Calderbank offer, it was stated that the offer was open for acceptance until 12 noon on Sunday, 21 March 2021. In view of the fact that the trial was due to commence on 22 March 2021, this was adequate time for VMS to consider the offer. I am satisfied that the offer gave sufficient notice to VMS that if CoM obtained a judgment as favourable or better than the offer, then it would rely on the offer on the question of costs, “including on an indemnity basis”.

54    I am satisfied that both Calderbank offers are expressed in sufficiently clear terms. I reject VMS’s submission that the requirement in SARB’s Calderbank offer that the parties agree a form of orders reflecting the settlement makes the offer uncertain. Equally, I reject VMS’s submission that the failure to quantify the quantum for the infringement of PV1 and PV2 makes the Calderbank offer uncertain. The fact of the matter is that there had been an order separating liability and quantum. The effect of VMS’s submission overlooks that fact. Equally, I reject the argument that the failure to quantify costs renders the offer uncertain. An offer to pay an amount or to take some form of action plus costs to be agreed or taxed in the absence of agreement is sufficiently certain and is, in fact, often the type of offer which is made. I do not know whether it is suggested that CoM’s Calderbank offer was uncertain. If it is, I reject the submission. VMS put a different point in relation to CoM’s Calderbank offer and that was that in terms it could be accepted only if VMS accepted SARB’s Calderbank offer.

55    A passage in the Calderbank offer and after CoM had referred to SARB’s Calderbank offer of 15 March 2021, the following appears:

As is clear from our client’s defence, our client’s position with respect to non-infringement and validity is the same as SARB’s. For the avoidance of doubt, if your client accepted SARB’s offer:

(a)    on the basis of SARB’s admissions about SARB’s products, our client would consent to appropriate orders that reflect that position (including any consequential procedural orders);

(b)    our client would not independently seek to advance arguments based on SARB’s cross-claim; and

(c)    consistently with SARB’s offer, our client would not press its authorisation and double recovery defences.

Later, in the Calderbank offer, and immediately prior to setting out the five elements of the offer, CoM states that its offer is intended to be read together with SARB’s offer of 15 March 2021.

56    As I understand VMS’s argument, it is that CoM’s offer was conditional on VMS accepting SARB’s offer and, in those circumstances, if SARB’s case relying on its Calderbank offer fails, then CoM’s case relying on its Calderbank offer also fails. In response, CoM submits that VMS relies on two matters in support of its argument and its response to those matters is that the first element involves open admissions to which VMS itself refers in its submissions when it says that the offers did not represent a significant compromise and gave as one example the fact that at the time of the offers, SARB had admitted that PV1 and PV2 infringed both patents. Furthermore, the reference to CoM’s Calderbank offer being read together with SARB’s Calderbank offer does not make the former conditional upon the acceptance of the latter. CoM’s submission is that nowhere in the Calderbank offer is it stated that it may only be accepted if SARB’s offer is accepted.

57    It seems to me that the difficulty for CoM is that para (a) of the offer states that it will consent to appropriate orders that reflect the position of SARB’s admissions with respect to the validity of the two patents in suit and SARB’s admissions of liability for infringement with respect to all uses of PV1 and PV2. That suggests to me that SARB’s admissions as to validity and liability for infringement are an element of CoM’s Calderbank offer. In other words, if VMS does not accept SARB’s Calderbank offer, then SARB does not accept the validity of the two patents in suit or admit liability for infringement with respect to all uses of PV1 and PV2. Even if it is right to say that SARB had openly admitted liability for infringement with respect to all uses of PV1 and PV2, there was no open admission from SARB accepting the validity of the two patents in suit. I consider that CoM’s Calderbank offer was contingent on SARB’s offer being accepted.

58    I consider that both offers involved a genuine element of compromise. SARB offered to admit the validity of the two patents in suit and to pay various costs incurred by VMS. CoM offered to concede the validity of the patents and liability for infringement with respect to all uses of PV1 and PV2 and not to seek costs in relation to VMS’s claim for additional damages against CoM, an issue upon which CoM was ultimately successful.

59    I turn now to consider whether the result in the trial was equal to or better than the offer. This is the first question but it has been convenient to deal with VMS’s particular arguments first.

60    The principal matter that VMS put in this respect is that it had achieved a better result in the trial because it has a right to additional damages against SARB with respect to PV1 and PV2, whereas the offer required VMS to discontinue its claim for additional damages against SARB. CoM is not in the same position, although as I have stated, its offer is contingent upon VMS’s acceptance of SARB’s offer. SARB’s response to this submission is that its liability for additional damages in relation to PV1 and PV2 is unlikely to be greater than the costs of the infringement action in relation to PV3 and that, in those circumstances, SARB’s Calderbank offer would have put VMS in a more favourable position overall. In response, VMS submits that there is no evidence to support this assertion and the Court cannot form a view as to the quantum of additional damages that may be payable by SARB and ought to assume it may be substantial. In my opinion, VMS’s assertion that its losses in respect of PV1 and PV2 may well extend to all or part of PV3 as the fruits of PV1 and PV2 is speculative and is not made any stronger by the fact that it was referred to in a letter from VMS’s solicitors to SARB and CoM’s respective solicitors on 21 March 2021. VMS further submits that SARB cannot rely on its offer to pay costs in the Calderbank letter for the reasons indicated previously (at [35]). In my opinion, SARB is correct that VMS’s claim for additional damages is unlikely to exceed SARB’s offer as to costs.

61    It seems to me that the contention that it is not possible to assess whether VMS will achieve a better or worse outcome, particularly in circumstances where there is a claim for additional damages and where, depending on the ultimate resolution of the quantum hearing, VMS itself might apply for a special costs order in relation to the totality of the proceedings, having regard to the lump sum offers it made in 2021, which were rejected, is no more than assertion and had VMS wished to advance this point, it should have articulated it and produced such evidence as it might have had available. For example, there was no development of the submission that VMS might apply for a special costs order or reference in detail to the lump sum offers referred to in the submission. I consider that SARB’s offer (and therefore that of CoM) was equal to or better than the result VMS achieved at trial.

62    I also consider that VMS’s rejection of the offer was unreasonable. In addition to the matters to which I have referred, there are the following considerations: (1) the Calderbank offers were made very close to trial and I cannot accept that VMS would not have had sufficient information to make an informed assessment as to whether PV3 infringed the Patent; (2) that issue was a concise one; and (3) the parties were facing a substantial and costly trial. In conclusion, I consider that the Calderbank letters are effective

63    That conclusion means that the first respondent should have its costs of the Application and Cross-claim on an indemnity basis from 15 March 2021 and the second respondent should have its costs on the Application and Cross-claim on an indemnity basis from 19 March 2021.

64    I recognise that there were issues in the Application upon which the applicant succeeded, but I do not consider that to be of any moment, because had the Calderbank offers been accepted, that would have brought the proceeding to an end as far as liability is concerned. As I have said, I consider that the allegation that PV3 infringed one or both of the Patents was the dominant feature of the Application. These features also apply in the case of the CoM and the same observations apply. I do not think that there is anything in my costs judgment which is inconsistent with this approach (VMS (No 9)). In my view, the whole context has changed as a result of the Full Court’s decision that PV3 does not infringe either patent. Furthermore, I consider that CoM should have such costs as it has incurred on an indemnity basis in relation to the Cross-claim, even though it was not a cross-claimant in the Notice of cross-claim. The fact is that had the Calderbank offers been accepted, the proceeding would have been brought to an end as to liability at the time of or shortly after the Calderbank offers were made.

An Order that VMS’s Litigation Funder be jointly and severally liable for any Costs VMS is liable to pay

65    I was concerned about whether Balance REV Limited (Balance) had been given adequate notice of the claim that it be made jointly and severally liable for costs that VMS is ordered to pay. I am no longer concerned about that matter for four reasons:

(1)    the Full Court of this Court made orders in the appeal to the effect that VMS and Balance REV Limited are jointly and severally liable for SARB’s costs of the appeal and the Notice of contention;

(2)    by email dated 28 March 2024, SARB asked the solicitors for VMS whether they had instructions to accept service of the submissions on behalf of Balance Legal Capital. The solicitors for VMS responded in the following terms:

… Balance Legal Capital LLP (not LLC) is not the entity providing funding to our client in respect of these proceedings. Rather, consistently with the affidavit of Declan Christopher Ryan dated 24 April 2023 at [21] and your letter dated 22 March 2019, it is Balance REV Ltd which is the entity that has provided funding to our client in respect of these proceedings, with Balance Legal Capital LLP being responsible for monitoring the proceeding which Balance REV Ltd has funded.

We confirm that we are instructed to accept service of your client’s submissions on behalf of Balance REV Ltd, but that we do not act for Balance REV Ltd or any other Balance entity in respect of these proceedings.

(3)    the evidence of Mr Declan Christopher Ryan in para 21 of an affidavit affirmed on 24 April 2023 and an affidavit of Mr Andreas Piesiewicz sworn on 11 May 2020​​​​. As this evidence is also relevant to whether there is a sufficient basis for the order, I summarise it below;

(4)    VMS itself made submissions to the effect that Balance should not be liable for any costs awarded against VMS on an indemnity basis.

66    I discussed the circumstances in which an order for costs may be made against a third party in Roberts-Smith v Fairfax Media Publications Pty Limited (No 42) [2023] FCA 750 at [6]–[9] and Roberts-Smith v Fairfax Media Publications Pty Limited (No 43) [2023] FCA 886 at [19]–[22]. I will not repeat what I said in those decisions and the authorities to which I referred, including FPM Constructions Pty Ltd v Council of the City of Blue Mountains (2005) NSWCA 340.

67    SARB submits that the evidence establishes that Balance funds VMS in this proceeding and that key decisions, including the decision whether to fund the litigation, whether to resolve the dispute and on what terms, are made by Balance. The litigation was an investment for Balance. In that respect, it relies on the evidence of Mr Ryan which identifies the fact that VMS has given a security interest to an organisation called Balance REV Limited in August 2018 and he provides the address for service for this organisation which address is an email address and a mailing address in the City of London, London, United Kingdom.

68    Mr Piesiewicz’s affidavit sworn on 11 May 2020 establishes the propositions in the submission made by SARB. Furthermore, VMS has provided a total of $1.4 million in security in respect of SARB’s costs of the proceedings secured by way of a deed of indemnity from VMS’s insurer, AmTrust Europe Ltd, and in relation to CoM, VMS provided $245,000 in security in respect of CoM’s costs of the proceedings. The point that SARB seeks to make from this is that it anticipates that an order for indemnity costs in its favour and in favour of CoM may mean that the security of $1.645 million provided by VMS is inadequate. It submits that having regard to this matter and the matters deposed to by Mr Ryan in paras 24 to 26 of his affidavit affirmed on 24 April 2023, VMS is either insolvent or virtually insolvent. In those paragraphs of his affidavit, Mr Ryan refers to a judgment in Wibowo v Vehicle Monitoring Systems Pty Ltd [2022] FedCFamC2G 23 which provides information concerning the number of employees of VMS and the facts and circumstances in support of the proposition that VMS has been operating at a loss for some period of time.

69    In response, VMS made the following submissions. First, VMS submits that an order for costs should not be made against the third party in circumstances where an order for costs is not made against VMS. Secondly, VMS also submits that the costs have not been quantified. Neither of these matters have substance in the circumstances as I have described them. Thirdly, VMS submits that the Court should not make non-party costs orders merely because funds may be available to satisfy orders from identified non-parties and that care must be taken not to “invade” the principles of limited liability under company law. This submission is correct to a point, but it does not gainsay the fact that the Court has jurisdiction to make an order against a non-party in appropriate circumstances. Fourth, VMS submits that Balance Legal Capital LLP is not VMS’s litigation funder or a source of funds in relation to the proceedings. In this connection, it asserts that Balance REV Limited is the correct entity. In the circumstances as they now appear, that point has evaporated. Finally, VMS submits that there are other criteria to be satisfied which are not applicable here. First, it has achieved a substantial measure of success in the proceeding. Secondly, there can be no suggestion that the conduct of VMS in prosecuting the application and defending the cross-claim was improper in light of its success before the trial judge. Thirdly, there is no evidence that VMS is insolvent or could otherwise be described as a person of straw. SARB’s assertion that VMS is insolvent is based on the fact that it relies on Balance being a source of funds for these proceedings and, according to VMS, speculation from Mr Ryan as to VMS’s marketplace activities. VMS asserts that neither matter was factually correct or establishes insolvency. SARB also ignores that VMS’s entitlement to pecuniary relief by reason of SARB and CoM’s infringement of the patents in relation to PV1 and PV2 and more generally, but for SARB’s infringing conduct, VMS’s financial position would undoubtedly been better than it is today.

70    The answer to these submissions is that the other criteria do not have to be established in every case. For example, the impecuniosity of a party does not have to be established in every case (Dal Pont GE, Law of Costs (5th ed, LexisNexis, 2021) at [22.28]). The fact that the Full Court made such an order is not without significance. Most important is the close connection between Balance and the litigation as referred in Mr Piesiewicz’s affidavit sworn on 11 May 2020.

71    I consider that Balance REV Ltd should be jointly and severally liable for the costs VMS has been ordered to pay.

Conclusions

72    For these reasons the following orders should be made:

(1)    The orders in paragraphs 16 and 17 made on 21 June 2023 be set aside.

(2)    The applicant and Balance REV Ltd are jointly and severally liable for the first respondent’s costs on a party and party basis of the Application prior to 15 March 2021.

(3)    The applicant and Balance REV Ltd are jointly and severally liable for the second respondent’s costs on a party and party basis of the Application prior to 19 March 2021.

(4)    The cross-claimant is liable for the cross-respondent’s costs on a party and party basis of the Notice of cross-claim prior to 15 March 2021.

(5)    The applicant/cross-respondent and Balance REV Ltd are jointly and severally liable for costs of the first respondent/cross-claimant and of the second respondent (City of Melbourne) of the Application and cross-claim on an indemnity basis from 15 March 2021 in the case of the first respondent/cross-claimant and from 19 March 2021 in the case of the second respondent/City of Melbourne.

(6)    Pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth), the respondents’ costs payable pursuant to orders 2 and 3 be paid in a lump sum, the applicant’s costs payable pursuant to order 4 be paid in a lump sum and the first respondent/cross-claimant and the second respondent (City of Melbourne) costs pursuant to order 5 be paid in a lump sum.

(7)    On or before 31 May 2024 the respondents’ each file and serve a Costs Summary in accordance with paragraphs 4.10 to 4.12 of the Costs Practice Note (GPN-COSTS) (Practice Note), not exceeding 10 pages in length (omitting formal parts).

(8)    On or before 14 June 2024, the applicant (on behalf of itself and Balance REV Ltd) file and serve any Costs Responses in accordance with paragraphs 4.13 and 4.14 of the Practice Note, not exceeding 5 pages in length (omitting formal parts).

(9)    On or before 28 June 2024, the respondents each file and serve any submissions in accordance with paragraph 4.15 of the Practice Note, limited to 3 pages.

(10)    On or before 12 July 2024, the applicant (on behalf of itself and Balance REV Ltd) file and serve any submissions in accordance with paragraph 4.15 of the Practice Note, limited to 3 pages.

(11)    The orders referred to in paragraphs 7-10 apply mutatis mutandis to the costs payable by the first respondent to the applicant.

(12)    The quantum of the lump sum for costs, as identified in these orders, be determined on the papers by a Registrar of the Court.

Associate:    

Dated:    3 May 2024