Federal Court of Australia

The Advanced Technology Group Pty Ltd v Foxtel Cable Television Pty Ltd [2025] FCA 408

ORDERS

THE COURT ORDERS THAT:

1.    The applicant provide security for the first and second respondents’ costs of the preparation of evidence in the amount of AUD$150,000 by the provision of an irrevocable bank guarantee issued by an Australian bank in favour of the first and second respondents, or by payment into Court, by 4:00 pm on 29 May 2025.

2.    The applicant provide security for the first and second respondents’ costs of the preparation for hearing and the hearing of these proceedings in the amount of AUD$110,000 by the provision of an irrevocable bank guarantee issued by an Australian bank in favour of the first and second respondents, or by payment into Court, by 4:00 pm on the date which is 30 days prior to the first date for which the matter is listed for final hearing.

3.    If security is not provided in accordance with Order 1 and 2, the proceedings against the respondents be stayed until such security is provided.

4.    The applicant pay 75% of the costs of the first and second respondents of the interlocutory application for a second tranche of security for costs.

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

REASONS FOR JUDGMENT

MOORE J:

Background

1    This application involves a dispute about security for costs in a narrow compass.

2    Since 6 January 2016, the applicant in these proceedings, The Advanced Technology Group Pty Limited (ATG) has been the owner of Australian Innovation Patent 2013101518 titled ‘Remote Content Download’ (the Patent), which expired on 16 June 2018. ATG alleges that the respondents, Foxtel Cable Television Pty Limited and Foxtel Management Pty Limited (together, Foxtel) have infringed the Patent. ATG says that its claim for infringement is worth $12 million. As the Patent has expired, its only remaining value to ATG comes from this substantial claim against Foxtel. Foxtel in turn has cross-claimed, alleging that the Patent is invalid.

3    On 24 October 2023, Foxtel filed an application for security for costs pursuant to Rule 19.01 of the Federal Court Rules 2011 (Cth) and s 56 of the Federal Court of Australia Act 1976 (Cth), or alternatively s 1335 of the Corporations Act 2001 (Cth). This application was heard by Registrar Ellis on 21 December 2023. Registrar Ellis gave judgment that day in favour of Foxtel and concluded that security should be provided. In doing so, she rejected an argument that no security should be awarded because it would stultify ATG’s claim. However, rather than ordering security in respect of the full costs of the litigation, Registrar Ellis held that security should be provided in tranches. Registrar Ellis:

(a)    ordered that ATG was to provide the sum of $96,667.20 by way of security for a first tranche of Foxtel’s costs of the proceeding representing costs up to the conclusion of discovery and inspection of documents, by way of payment into Court within 21 days;

(b)    observed that the parties should come back to her at a later date when they were able to provide more informed assessments of amounts that would be incurred for future work; and

(c)    ordered that Foxtel have liberty to apply for orders regarding further tranches of security, should it be necessary, prior to the preparation of evidence.

4    ATG paid the first tranche of security on time. On 6 December 2024, Foxtel exercised its liberty under the December 2023 orders to apply for a second tranche of security for costs in circumstances where the discovery and inspection of documents in this proceeding had concluded.

5    At that point, there arose what might be described as a dispute as to the nature of the dispute, in that ATG contended in effect that this was a new application for security which had to be determined afresh, whereas Foxtel took the position that Registrar Ellis had already determined that security was payable, and the issue was therefore limited to the appropriate quantum of further security. It appears that this debate may have arisen in part because the parties did not have access to the transcript of the oral judgment given on 21 December 2023, but only to the orders and whatever notes they had taken on the day. Primarily as a result of this debate, the security for costs application ended up before me.

6    At the hearing before me, Mr P. Argy, solicitor, appeared for ATG. Ms J. Ambikapathy of counsel appeared for Foxtel. The debate was ultimately a narrow one, because Mr Argy conceded that the current application was concerned with the quantum of security that should be ordered, rather than the question of whether security should be provided at all. That was the effect of Registrar Ellis’ earlier decision. ATG accepts that it should be regarded as impecunious for the purposes of the application. Mr Argy nevertheless contended that:

(a)    an order for ATG to provide any further security would stultify the proceedings, and this should be taken into account in assessing quantum, and (as I understood his submission) this consideration should reduce the appropriate quantum to zero; and

(b)    the costs estimates provided by Foxtel were excessive in any event.

7    Ms Ambikapathy quite properly conceded that, having regard to the breadth of my discretion to award security, a risk of stultification could be taken into account not just in relation to whether to award security but also in assessing the appropriate quantum. However, Ms Ambikapathy disputed that this could reduce the quantum to zero in the present case, on the grounds that this would undo the decision already made by Registrar Ellis that further security be provided, in circumstances where ATG had not sought to review that decision and had not sought to bring itself within the category of cases where an interlocutory decision can be revisited because of a change of circumstances. I agree with Ms Ambikapathy in that regard. However, this still leaves a range of possible outcomes.

Stultification and the position of ATG and Mr O’Brien

8    The mere existence of impecuniosity in a corporate plaintiff is not itself sufficient evidence of the risk of stultification. Otherwise, considerations of impecuniosity would be circular. The party alleging stultification bears the burden of establishing that the proceedings will not continue if security is ordered, including by reference to other potential sources of funding.

9    One potential source of funding is those who may benefit from the litigation. In Bell Wholesale Co. Pty Ltd v Gates Export Corporation (1984) 2 FCR 1 (Bell) at 4, the Full Court observed:

In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and prove the necessary facts.

10    Likewise, in Pioneer Park Pty Ltd (in liq) v Australia and New Zealand Banking Group Ltd (2007) 65 ACSR 383; [2007] NSWCA 344 at [51], Tobias, McColl and Basten JJA observed that the plaintiff’s mere impecuniosity will not establish stultification, but rather stultification requires proof, approving of an observation in Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542 at 545 that “[i]t may be that there is someone else who will satisfy the order on the plaintiff’s behalf”.

11    In General Trade Industries Pty Ltd (in liquidation) v AGL Energy Limited (No 2) [2023] FCA 556 (General Trade), Derrington J undertook a careful review of the authorities that have considered the extent to which the principles derived from Bell should be qualified by a consideration of whether those who benefit from the litigation could reasonably be expected to fund it. These matters have a more limited role in the present case, where Mr O’Brien, the focus of the relevant enquiry, is the sole shareholder and director of ATG and is the guiding mind of ATG for the purposes of the conduct of the litigation. His Honour synthesised those authorities in the following way (at [73]):

For the sake of clarity, the position that emerges from this survey of the authorities can be summarised in the following series of propositions:

(a)    Where a corporate applicant is impecunious and it is alleged that an order for security for costs against it will stultify the litigation, it is necessary to consider the position of those who stand behind that applicant and those who will benefit from the litigation if it is successful.

(b)    The overarching question is whether it is reasonable to expect those persons or entities who stand behind the applicant and those who will benefit from the litigation to provide security.

(c)    In answering that overarching question of reasonableness, it will be relevant first to consider the means of the persons or entities concerned. That factor demands foremost attention because, if the persons or entities are demonstrably without means, then there may be no need to go further in order to demonstrate unreasonableness.

(d)    Where that initial factor does not lead clearly to the conclusion that it would be unreasonable to expect those persons or entities to provide security, it will be relevant to consider the reasonableness of any expression of unwillingness on their part to do so. Approaching the matter from the perspective of the applicant, it might also be asked whether it is “commercially impracticable” for it to gain any advantage from such means as may exist in others.

(e)    The determination as to whether or not the relevant persons’ or entities’ unwillingness is reasonable may be informed by the extent of the benefit that they stand to receive in the litigation, and the extent to which they “stand behind” the applicant, or the litigation more broadly, by funding it or otherwise exercising a degree of influence or control over its course. The former matter may be of particular significance, as a fundamental principle guiding the overall inquiry is that “those who stand to share the benefits of litigation cannot shirk its burdens”. For this reason, it is conceivable that, in certain circumstances, even arm’s length unsecured trade creditors who ostensibly do not “stand behind” the applicant, but do stand to benefit from the litigation, will reasonably be expected to provide security. On the other hand, if the persons or entities in question stand to receive only a very slight benefit that is wholly disproportionate to the security that they would be asked to provide, then that may assist the applicant in demonstrating that it would be commercially impracticable to have those external parties put up security for costs and/or that their unwillingness to do so is reasonable.

(f)    Not relevant at any level of the inquiry is the “mere” unwillingness of the persons or entities to provide security for costs, in the sense of their straightforward disinclination, unsupported by any further reasons.

12    A second potential source of funding is the solicitor for ATG, Mr Argy. The evidence, as clarified at the hearing, reveals that Mr Argy has been acting on a “no win no fee” basis, has been funding all disbursements including barristers’ fees, and has even funded the first tranche of security. Foxtel had submitted that I would be slow to find that the proceedings would be stultified as a result of the provision of security in circumstances where the identical argument was made before the first tranche of security (i.e. that an order for the provision of any security would stultify the proceedings) and it could be observed that the proceedings were not in fact stultified. It appears that at the time of making this submission, Foxtel was not aware of the source of the funds for the first tranche of security – i.e. that they came from Mr Argy.

13    In General Trade at [84] – [141], Derrington J considered the somewhat different approaches taken in the authorities to whether a solicitor who is conducting the case on a “no win no fee” basis (including possibly with an uplift), and meeting disbursements, can be said to be a person who may benefit from the litigation such that their financial resources are to be considered in the context of whether a proceedings will be stultified by an order for security. He observed some differences between the approach taken in the Supreme Court of New South Wales, on the one hand, and in the Federal Court of Australia and Supreme Court of Victoria on the other. Derrington J noted that he was obliged to follow the approach of the Full Court of the Federal Court in Madgwick v Kelly (2013) 212 FCR 1 at [47] that “[t]he expected or contingent receipt of proper professional fees… is not a basis for requiring an officer of the court to contribute to a fund for the costs of the other side of the litigation.”

14    That observation might not necessarily be determinative in a case where a solicitor has already provided some security. Nevertheless, I do not propose to consider that question further in the present case. Foxtel did not explicitly rely upon Mr Argy as a source of potential funding, and I would not wish to rely upon the potential availability of funding from the solicitor acting for the plaintiff/applicant unless that matter had been fully argued. For one thing, it raises important policy questions.

15    A third potential source of funding is litigation funding. In General Trade at [167], Derrington J made the following observation:

…As a general proposition, where it is alleged in commercial litigation that an order for security for costs against an impecunious applicant will stifle the proceeding, it will be incumbent on that applicant, as a step ancillary to its proving that it is unreasonable to expect those who stand behind it and will benefit from the litigation to provide security, to adduce cogent evidence explaining what attempts it has made, or others have made on its behalf, to obtain litigation funding from a commercial provider.

16    I would also observe that in a particular case it might possibly be necessary for the terms of proposed funding to be disclosed. For example, if a plaintiff has approached three funders with entirely uncommercial terms, it might not be correct to say that a proceeding will be stultified because the plaintiff is unable to obtain funds to put up security.

Circumstances in the present case

17    ATG is not without assets. The ATG balance sheet as of 30 June 2023 shows that ATG has various intangible assets, being:

(a)    trade marks valued at $475,520.00;

(b)    software valued at $650,000; and

(c)    the claim and Patent itself, valued at $12m,

amounting to $13,150,000 in total. In relation to the Patent, the $12 million figure is ATG’s estimate (said by ATG in evidence on this application to be “conservative”) of the value of its claim against Foxtel in these proceedings. That leave $1,150,000 in other intangible assets.

18    These assets are licensed on an exclusive and irrevocable basis to TV TV Australia Pty Ltd (TV TV) trading as Ice TV. TV TV uses the registered marks and software to deliver its business, which involves providing Ice TV subscribers with the ability to record live television when they are not at home through their set top box.

19    Mr Colin O’Brien is the sole shareholder and director of ATG. Mr O’Brien is also the sole director and secretary of TV TV, and owns 99 out of the 100 issued shares. Mr O’Brien’s wife owns the single remaining share.

20    ATG’s evidence is that Mr O’Brien receives a pension and has no material assets. There is medical evidence of Mr O’Brien’s poor health which precludes him from working full time. In 2023, Mr O’Brien received $44,500.00 in gross income from TV TV. In financial year 2021 and 2022, TV TV made a profit of $47,925 on income of $453,752, and in the 2022 financial year made a modest profit of $15,627 on income of $361,520. In the 2023 financial year there was a modest loss of $5,062.

21    ATG has provided evidence that “the value of the applicant’s IP portfolio remains unchanged from its value in the June 2023 balance sheet”, and that none of the intangible assets have been sold or any new licences over the IP granted.

22    In Mr Argy’s third affidavit dated 3 March 2025, he gives the following evidence:

Mr O’Brien informs me that he is unable to put the Applicant in funds to conduct these proceedings or to put forward security for the Respondents’ costs as sought by them or at all. As a consequence, should the Court order any additional security, the Applicant will be unable to continue the proceedings unless it can secure litigation funding, which it has not been able to do to date.

23    Mr Argy’s deposes that four different litigation lending providers were approached with respect to the proceedings but were not willing to provide funding to ATG. There is no evidence as to the basis or terms on which any discussions occurred with litigation funders nor when they were approached (i.e., whether discovery had concluded at the time of approaching all of the litigation funders). The timing of when the litigation funders were approached is somewhat relevant in circumstances where Mr Argy has given evidence regarding the good prospects of ATG’s case and deposed that after personally reviewing the discovery documents produced by Foxtel, he is satisfied that integers in claims 1 to 5 of the Patent have been infringed by Foxtel.

24    It is worth noting that the amount of security sought by Foxtel – $350,000 – is less than 3% of the $13.15 million in assets recorded by ATG. The evidence does not establish in any cogent way that assets valued by ATG at $13.15 million are unable to be used to raise a small fraction of that sum to fund the provision of security.

25    Notwithstanding the evidence that, should the Court order any additional security, ATG would be unable to continue the proceedings, there are some further matters to consider.

26    First, the same evidence was given before the first tranche of security was ordered, and security was in fact provided. That simply underscores that generalised assertions of that sort are not decisive, and attention needs to be given to the possible avenues of providing security.

27    Secondly, the focus of the evidence and submissions is on the ability of ATG to fund the proceedings. However, when considering whether a proceeding will be stultified, that is not the only question. The evidence of Mr Argy is that the trademarks and software are “not readily saleable” by ATG because they are encumbered by the licence to TV TV. However, Mr O’Brien is in a position to control TV TV. The evidence does not explore whether the business operated by TV TV could be sold, or whether any finance can be raised against that business, or against the combined business and assets of ATG and TV TV, including the $13,150,000 of intangible assets on the balance sheet of ATG.

28    Rather, ATG adopts a different position. Mr Argy gives evidence that:

Mr O’Brien has further informed me that the Applicant has no intention of selling any of its IP Portfolio and intends to file and prosecute proceedings against anyone found to have infringed any of the intellectual property rights comprised in the IP Portfolio.

29    When Mr Argy was asked in the course of argument why Mr O’Brien could not realise the business of TV TV and use the proceeds to provide security, Mr Argy responded as follows:

… it’s the only business. If your Honour looks at his age, and his infirmity, and his medical condition, that’s essentially superannuation. And so what your Honour’s actually saying, put – is, sell your only remaining asset.

30    Whilst I am sympathetic to the position of Mr O’Brien and the financial strain that these proceedings over some years have no doubt placed on him, that particular exchange is revealing. It suggests an approach whereby Mr O’Brien, the sole shareholder of ATG and the person who will benefit from his claim against Foxtel valued by him (apparently conservatively) at $12 million, should be permitted to maintain all his other assets intact to fund his retirement (including other assets valued by ATG at $1.15 million), and utilise the lack of immediately available and liquid assets to resist the provision of any security on the grounds that it would stultify the proceeding. Further, it is not correct that TV TV is Mr O’Brien’s only remaining asset. ATG, of which Mr O’Brien is the sole shareholder, is no doubt continuing its claim against Foxtel because it considers that it has some value, and indeed records that value at $12 million in its balance sheet.

31    Put another way, the failure to give proper evidence about whether Mr O’Brien can realise other assets (or raise finance against those assets) means that there is an insufficient basis for the Court to conclude that the proceedings will be stultified.

32    When all the matters considered above are taken together, I consider that it has not been established that the provision of further security would stultify the proceedings. There is, nevertheless, at least a possibility that it might. I accept that the pathway to providing security may not be easy for ATG and Mr O’Brien. I take those matters into account when considering the appropriate quantum of security, and I propose to discount somewhat the security that Foxtel otherwise seeks in light of these considerations.

Quantum of security

33    Foxtel has provided evidence of its estimated future costs in the conduct of the litigation broken down by category and lawyer type. Those costs amount to professional fees of $396,020 and disbursements (primarily barristers fees) of $355,455, totalling $751,475. Foxtel then discounts those costs to represent party/party costs, by assuming 70% recovery of professional fees (i.e. $277,214) and 90% recovery of disbursements (i.e. $319,909.50), being a total of $597,123.50.

34    Foxtel then applies a further material discount to produce the figure for security which it seeks, being a total of $350,000 (i.e. approximately 59% of estimated recoverable costs), divided into $200,000 for the preparation of three rounds of evidence, and $150,000 for the preparation for hearing and hearing. Foxtel has given evidence, which I accept, that this claim for security is unlikely to cover its full costs.

35    Having considered the estimates, it appears to me that Foxtel’s costs estimates are entirely realistic, and if anything conservative, for a patent case involving both infringement issues and invalidity issues with a 7 day trial, in circumstances where Foxtel is facing a claim estimated by ATG to be at least $12,000,000.

36    The further discounting down to $350,000 produces a claim for security which is entirely reasonable.

37    ATG characterises Foxtel’s estimates are excessive and disproportionate when considering the relative complexity of the case and criticises Foxtel for running a Rolls-Royce defence. I disagree. Foxtel is entitled to take proper steps to robustly defend the claim against it. I accept Mr Kortian’s evidence that his firm conducts proceedings efficiently when compared to other top-tier or specialistic intellectual property law firms. Certainly, the costs estimates appear to be sensible and proportionate, and even on the conservative side.

38    ATG also submits that Foxtel’s estimates are outdated, saying that since the application for a second tranche of security was filed, the scope of the proceeding, and consequently the scope of evidence, has been substantially narrowed.

39    The narrowing of issues in dispute involves ATG only pressing the Foxtel Box IQ3 as the computing system and method which infringes the Patent, meaning that any other Foxtel boxes are no longer in dispute. Foxtel also relies upon s 120(4) of the Patents Act 1990 (Cth) to contend that the relevant period of infringement is from 23 June 2017 to 16 June 2018, rather than the 11 December 2013 to 16 June 2018 period pleaded in the statement of claim. The latter affects mostly quantum. Foxtel observes that it has a prior use defence, and the relevant date is the priority date of the Patent, being 16 June 2009, so it will need evidence of historical use. The invalidity case remains unaffected.

40    Foxtel accepts that the reduction of scope will reduce the scope of evidence of infringement, but estimates that this will reduce evidence preparation by around 20%. Foxtel has revised its costs estimates on this basis and the costs identified above reflect the revised estimates. I accept that the narrowing will not have a large impact on legal costs, and accept that the revised estimates are reasonable. I also note that Foxtel’s claim for security involves a further significant discount.

41    In its written submissions, ATG argued that calculation of security for costs should not involve any opportunity to recuperate costs inadequately covered by the security provision previously ordered. I accept this as a matter of principle, although I do not find Mr Kortian’s calculation of the second tranche costs to involve any attempt to recoup any costs which were not covered by the first tranche.

42    ATG submits that due to the sheer size of Foxtel, the estimated costs are likely to be a relatively insignificant amount when compared to the size of the company group. Mr Argy’s third affidavit dated 3 March 2025 sets out some relevant financial information relating to Foxtel. The size of the respondents is a relevant but not dispositive factor. I take it into account in further discounting the claim for security.

43    In all the circumstances, I propose to discount the amount of security to account for the existence of at least some risk of stultification (including if I make the amount larger), and the relative financial positions of the parties. Specifically, I have decided that whilst it is appropriate to make an order for a second tranche of security for costs, this amount should be reduced from the quantum sought by Foxtel so as to be:

(a)    $150,000 for the preparation of three rounds of evidence; and

(b)    $110,000 for the preparation for hearing and the hearing.

amounting to a total of $260,000 in security for costs to be provided by ATG.

44    Having regard to the broad-brush nature of the exercise of the Court’s discretion, I am satisfied that this quantum is appropriate.

45    The amounts identified above should be secured by payment into court or by an appropriate bank guarantee.

Costs

46    Foxtel has largely been successful in its application. Further, the hearing of the application has been prolonged (and required two hearings) because of the misapprehension of ATG as to the substance of the previous judgment of Registrar Ellis. On the other hand, ATG has achieved a modest reduction in the amount of security sought by Foxtel, and so has had some modest success. Weighing these matters, I consider that the appropriate result is that ATG pay 75% of Foxtel’s costs of the interlocutory application.

Associate:

Dated:    29 April 2025

SCHEDULE OF PARTIES