Colgate-Palmolive Co v Cussons Pty ltd

COLGATE-PALMOLIVE COMPANY and COLGATE-PALMOLIVE PTY. LIMITED v. CUSSONS PTY.
LIMITED; CUSSONS PTY. LIMITED v. COLGATE-PALMOLIVE COMPANY and
COLGATE-PALMOLIVE PTY. LIMITED
No. NG594 of 1989
FED No. 801/93
Number of pages - 21
Costs
(1993) 46 FCR 225

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
SHEPPARD J

CATCHWORDS

Costs - application that respondent's costs of certain issues be paid on indemnity basis - discussion of applicable principles.

Federal Court of Australia Act 1976, ss.5, 23, 43.

Federal Court Rules, Order 62, rr.4, 12, 19 and Second Schedule.

HEARING

SYDNEY, 14 October 1993

#DATE 10:11:1993

Counsel for the Applicant Mr R.J. Ellicott, QC and
on Motion dated 9 July 1993 Mr A.J. Bannon
(the Respondent in the
principal proceedings):

Solicitors for the Applicant Allen Allen and Hemsley
on Motion dated 9 July 1993:

Counsel for the Respondents Mr D.K. Catterns, QC
to the Motion dated 9 July
1993 (the Applicants in the
principal proceedings):

Solicitors for the Respondents Mallesons Stephen Jaques
to the Motion dated 9 July 1993:

ORDER

The Court Orders that:-

The orders made on 11 May 1993 be varied by substituting for para. 5 thereof the following order:-

"5(a) The applicants pay to the respondent on the indemnity basis its costs of the issue relating to the use of unvented jars in testing flowability;

(b) Subject to para. 5(a), the applicants pay to the respondent its costs of the application and cross-claim on the party and party basis."

The applicants pay to the respondent one half of the respondent's costs of its notice of motion of 9 July 1993.

There be liberty to apply.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

(On respondent's application that costs of certain issues be taxed on the indemnity basis)

SHEPPARD J Reasons for judgment in this matter were published on 30 April 1993. Orders were made on 11 May 1993 giving effect to those reasons. The orders included orders that the applicants' application be dismissed and that the patent in suit, Australian letters patent no. 542136, be revoked. The latter order was stayed because of a foreshadowed appeal by the applicants. Paragraph 5 of the orders required the applicants to pay to the respondent its costs of the application and cross-claim. Paragraph 6 reserved liberty to the respondent, within 28 days after the disposal of all appeals from the orders, to apply for an order that the costs which the respondent was entitled to recover from the applicants be assessed or taxed on an indemnity basis insofar as those costs related to the issues of the use of unvented jars in testing flowability and whether the specification described or claimed in whole or in part an invention for a new and novel detergent composition. Paragraph 7 of the orders provided that, in the event that the respondent exercised the liberty to apply reserved in para. 6, the applicants had liberty to seek an order that there be no order as to the costs of certain issues specified in para. 7.

In the event the applicants did not proceed with their appeal. On 23 July 1993 Lockhart J by consent ordered the discharge of the stay of the order revoking the letters patent. Thereafter the respondent exercised the liberty to apply reserved in para. 6 of the orders and the applicants the liberty reserved to them in para. 7 thereof. The principal question to be decided is whether the respondent is entitled to costs on the basis of an indemnity in relation to the two issues mentioned in para. 6 of the orders.
The jurisdiction of the Court to award costs is provided for in s.43 of the Federal Court of Australia Act 1976. Subsection 43(1) provides that the Court or a judge has jurisdiction to award costs in all proceedings before the Court other than proceedings in respect of which any other Act provides that costs shall not be awarded. Detailed provisions in relation to costs are made in Order 62 of the Federal Court Rules. Rule 12 of that Order provides that, except as otherwise ordered, in all proceedings commenced on and after the date the Rules came into operation, solicitors are, subject to the Rules, entitled to charge and be allowed the fees set forth in the Second Schedule in respect of the matters referred to in that Schedule and higher fees shall not be allowed in any case except such as are by Order 62 otherwise provided for. Rule 19 is in the following terms:-

"Costs to be allowed on taxation

19 On every taxation the taxing officer shall allow all such costs charges and expenses as appear to him to have been necessary or proper for the attainment of justice or for maintaining or defending the rights of a party, but, except as against the party who incurred them, costs shall not be allowed which appear to the taxing officer to have been incurred or increased-

(a) through over-caution, negligence or misconduct;

(b) by payment of special fees to counsel or special charges or expenses to witnesses or other persons; or

(c) by other unusual expenses."

Reference may also be made to rule 4(2)(d), but it is questionable whether its provisions bear on the present problem.

The costs for which rules 12 and 19 provide are costs on a party and party basis. They do not contemplate the award of costs on any other basis. It is a matter of notoriety that the indemnity for costs which one party recovers from another pursuant to the common order that one pay the costs of the other does not very often provide the party entitled to the benefit of the order with anything approaching a full indemnity for the costs which have in fact been incurred. That is particularly so in long complex cases such as the one now in question the hearing of which occupied 32 days. In years gone past the divergence between costs incurred and costs actually recovered on a party and party taxation was not so great, but it is clear that that divergence has existed at least until the last century and indeed before.
The divergence arises in relation to litigation in most, if not all, courts. The problem is by no means peculiar to the Federal Court. To a successful party to litigation, the practice must seem extraordinary. The provisions of the Court's Rules (which are not dissimilar from those of other courts) appear to intend a full indemnity, but this is not what is recovered. It is not profitable to explain the reason for the disparity. One would need to make an extensive study of the history of the matter before being satisfied that one understood the reasons why things have developed as they have. For present purposes it is enough to say that the position is as it is because members of the profession, both solicitors and counsel, and also professional witnesses, have refused to accept as a proper or sufficient guide to their costs and fees the provisions of scales of costs and charges provided for in schedules such as the Second Schedule to the Federal Court Rules. Taxing officers have been obliged to tax bills on the basis of the Rules and the Schedule. The fact that the scales themselves provide ranges of fees or charges for various items depending on degrees of difficulty, levels of responsibility and time involved, has not overcome the practical problem which exists.
The fact that the problem does exist has meant that, from time to time, applications are made for orders that costs be paid on some basis other than the party and party basis. These applications are based on the particular circumstances of particular cases. In recent years there has been an unusual number of applications of this kind made, not only to this Court, but to other courts as well. It seems not unlikely that the growing number of these applications has been triggered by a perception that the disparity between costs incurred and costs recovered is widening. It was no doubt this circumstance which led Rogers J (as he then was) in Qantas Airways Limited v. Dillingham Corporation (Supreme Court of New South Wales, 14 May 1987, unreported) to say (at 4) that in the course of the last 20 or 30 years the incomplete indemnity provided by party and party costs has satisfied less and less of the actual costs. He continued:-

"There is now a yawning gap between costs recovered by a successful party from the other party on a party and party taxation of costs and the costs payable by the successful party to its own solicitors."

Later the Judge said (at 8-9):-

"I suggest that, in the current context of litigation, there is a great deal to be said for the proposition that a successful party should always be fully indemnified for costs. How, in justice, can it be justified that a successful party should walk away from court bearing a costs burden which is of measurable (sic) if not crushing impact to any but the most wealthy?"

The views expressed by Rogers J have not been shared by other judges. In Cachia v. Hanes (1991) 23 NSWLR 304, Handley JA said (at 318):-

"Under the existing law represented litigants do not receive anything like a complete indemnity against the costs incurred and time lost in litigation. A legally represented litigant must spend considerable time in the preparation of his or her own case and in instructing solicitors. If such a litigant is successful he or she receives no compensation for loss of time apart from sums properly allowable as witness' expenses. A party is not allowed on taxation 'the costs of attending merely to observe or instruct': see Russo v. Russo (1953) VLR 57 at

67. Nor does a successful represented litigant receive a complete indemnity for the costs paid to his or her solicitors. ........ ........ ........ ........ ........ ........ ... Litigation is already very expensive. The limited indemnity provided to a successful represented litigant for expense incurred and time lost reflects a compromise between the interests of successful and unsuccessful litigants. It is also an important spur to settlement. The rule that a litigant in person can only recover out of pocket expenses also represents a compromise between the interests of successful and unsuccessful litigants. In my opinion if the existing law is to be changed this must be done either by the High Court or by Parliament."

To the same effect is the judgment of Devlin LJ (as he was) in Berry v. British Transport Commission (1962) 1 QB 306. His Lordship said (at 323):-

"If the matter were res integra, I should for myself prefer to see the abandonment of the fiction that taxed costs are the same as costs reasonably incurred and its replacement by a statement of principle that the law for reasons which it considers to be in the public interest requires a litigant to exercise a greater austerity than it exacts in the ordinary way, and which it will not relax unless the litigant can show some additional ground for reimbursement over and above the bare fact that he has been successful."

In these circumstances it seems necessary to endeavour to understand the principles which guide one in dealing with an application for costs to be paid on the indemnity basis. There was no dispute between the parties that this Court had jurisdiction and power to make the orders sought by the applicant. In my view the Court is empowered to make the order by the comprehensive terms of s.43 of its Act and also by reason of its constitution as a superior court of record and a court of law and equity; see subsection 5(2). Reference may also be made to s.23 which provides that the Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds as the Court thinks appropriate.
In the nineteenth century the common law courts took the view that they had no power to award costs otherwise than as between party and party; see Mordue v. Palmer LR (1870) VI Ch App 22 at 32. The Court of Chancery took a different view. In Andrews v. Barnes (1887) 39 Ch D 133, the Court of Appeal in England (Cotton, Fry and Lopes LJJ) said (at 138):-

"An examination of the older General Orders of the Court made, not under any statutory authority, but from the general and inherent authority of the Lord Chancellor, will show that the Court exercised a most wide discretion not only as to the circumstances under which costs were to be awarded, but apparently as to the measure and fullness of the costs. These General Orders will be found to use very varied language expressing different measures of estimation. We have references not only to costs and 'ordinary costs' (Ord.17th November, 1635, Saunders, p.180), but to 'full costs' (Ord.22nd August, 1654, ibid, p.262); 'full costs and charges in travel, attendance, and otherwise' (ibid, p.265); 'good costs' (Ord. 14th January, 1617-8, p.219, 17th November, 1635, 25th June, 1658, p.280); 'utmost costs to be assessed by the Court' (Ord.29th January, 1618-9, p.116); 'uttermost coste and charge to be assessed by the Court' (Ord.April, 1596, p.69); 'double costs' (Ord.17th November, 1635, p.182); 'treble costs and quadruple costs' (Ord.29th January, 1618-9, p.117). It would be useless to attempt to ascertain the precise value of the expressions used, but they are inconsistent with any notion that the Court was confined to one measure of costs."

The Court went on to give further examples from the seventeenth century; see 138-9. Later the Court referred (at 140-141) to Mordue v. Palmer. The Court concluded (at 141) that there was inherent in the Court of Chancery at the time of its abolition a general and discretionary power to award costs as between solicitor and client to a successful party, "as and when the justice of the case might so require."
More recently the various bases upon which the Court now awards costs were summarised by Sir Robert Megarry V-C in EMI Records Limited v. Ian Cameron Wallace Limited (1983) Ch 59. The Vice-Chancellor thought that there were five bases; see at 63-5. These were the party and party basis, the common fund basis, the trustee basis, the solicitor and own client basis and the indemnity basis. With respect, the judgment gives a short but most helpful account of what each basis involves. I do not refer to the detail of what his Lordship said but mention some matters. The first of these is that the common fund basis has apparently replaced the former solicitor and client basis. His Lordship thought that the practical result was that taxation on the common fund basis was little more than a party and party taxation conducted on a more generous scale. He referred to the judgment of Buckley LJ in Giles v. Randell (1915) 1 KB 290 at 295. In relation to the indemnity basis his Lordship said (at 64-5):-

"The R.S.C. (the Rules of the Supreme Court) contain no express mention of any such basis, and there seems to be no clear statement of what such a basis means. Yet for many years the courts have been making such orders, particularly against contemnors, and the taxing masters have been having to do their best to tax costs under such orders. I bear in mind, of course, that the present version of R.S.C., Ord. 62 (apart from subsequent amendments) was brought into force at the beginning of 1960 (see the Rules of the Supreme Court (No. 3) 1959: S.I. 1959 No. 1958 (L.13), and so what was said under the former rules does not necessarily apply today. Yet the practice of making such orders, long a commonplace before 1960, has continued to this day; and often such orders have been more or less equated with orders for costs as between solicitor and own client."

It is to be observed that there was no reference in the relevant rule, rule 28 of Order 62, to costs on an indemnity basis. The Rules did make reference to the party and party basis (rule 28(2)), the common fund basis (rules 28(3) and (4)), the trustee basis (rule 28(5)) and the solicitor and own client basis (rule 29). The Rules of the Supreme Court of New South Wales provide (rule 23 of Part 52) that costs shall be taxed on a party and party basis unless the costs are to be taxed on the indemnity basis pursuant to rule 28A, the common fund basis pursuant to rule 30 or on the trustee basis pursuant to rule 31. Rule 28A provides that, on a taxation on the indemnity basis, all costs shall be allowed except insofar as they are of an unreasonable amount or have been unreasonably incurred and any doubts which the taxing officer may have as to whether the costs were reasonably incurred or were reasonable in amount shall be resolved in favour of the receiving party. That rule is to be contrasted with rule 23(2) which provides that, on a taxation on a party and party basis, there shall be allowed all such costs as were necessary or proper for the attainment of justice or for enforcing or defending the rights of a party whose costs are being taxed. The rule may be compared with rule 19 of Order 62 of the Federal Court Rules. Both on their face arouse an expectation that all costs reasonably incurred will be allowed. But the authorities already referred to, and some others later to be mentioned, establish that this is not so, the reason being that the taxing officers are constrained by the scales of costs provided for in schedules to the relevant rules.
The Rules of the Supreme Court of Victoria provide for the bases of taxation; see Order 63, rule 28, which provides that, subject to the Rules, costs in a proceeding which are to be taxed shall be taxed on a party basis, a solicitor and client basis, or such other basis as the Court may direct. There is no express mention of the indemnity basis. Rule 31 provides that, except as provided by the rules or any order of the Court, costs are to be taxed on a party and party basis.
Notwithstanding the more specific provisions of some rules of Court, I do not consider that the power of this Court to order costs to be taxed on one or other of the bases of taxation other than the party and party basis to be circumscribed in any way. As earlier said, I consider that the provisions of s.43 and the other provisions of the Act referred to confer on the Court a wide power to select an appropriate basis of taxation upon which costs which it orders are to be taxed.
The next matter is to ascertain the circumstances in which the Court, in the proper exercise of its discretion, in adversary litigation, may depart from the normal practice of making an order which has the effect of providing for taxation on the party and party basis. The way in which the task should be approached has been the subject of consideration by judges of this Court and also by those of other courts. In Fountain Selected Meats (Sales) Pty. Limited v. International Produce Merchants Pty. Limited (1988) 81 ALR 397, Woodward J said (at 400-401):-

"As I said in Australian Transport Insurance Pty Ltd. v. Graeme Phillips Road Transport Insurance Pty Ltd (1986) 71 ALR 287 at 288, concerning this court's discretion in the award of costs: 'That discretion is "absolute and unfettered", but must be exercised judicially (Trade Practices Commission v. Nicholas Enterprises (1979) 28 ALR 201 at 207). Courts in both the United Kingdom and Australia have long accepted that solicitor and client costs can properly be awarded in appropriate cases where 'there is some special or unusual feature in the case to justify the court exercising its discretion in that way' (Preston v. Preston (1982) 1 All ER 41 at 58). It is sometimes said that such costs can be awarded where charges of fraud have been made and not sustained; but in all the cases I have considered, there has been some further factor which has influenced the exercise of the court's discretion - for example, the allegations of fraud have been made knowing them to be false, or they have been irrelevant to the issues between the parties: see Andrews v. Barnes (1988) 39 Ch D 133; Forester v. Read (1870) 6 LR Ch App 40; Christie v. Christie (1873) 8 LR Ch App 499; Degman Pty Ltd (in liq) v. Wright (No. 2) (1983) 2 NSWLR 354.

'Another case cited in argument was Australian Guarantee Corp Ltd v. De Jager (1984) VR 483 where (at 502) Tadgell J allowed solicitor and client costs because he found the pursuit of the action to have been 'a high-handed presumption'.' No doubt the expression 'high-handed presumption' was appropriate in the case Tadgell J had to decide, and he needed to go no further; but in order to establish a convenient principle in such cases it is necessary to be a little more prosaic. I believe that it is appropriate to consider awarding 'solicitor and client' or 'indemnity' costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion."

The remarks of Woodward J in Fountain Selected Meats and in the first of the cases cited by him, the Graeme Phillips case, have been the subject of consideration and comment in a number of cases. In Tetijo Holdings Pty Ltd v. Keeprite Australia Pty Ltd (Federal Court of Australia, 3 May 1991, unreported) French J, after referring to the decisions of Woodward J in the Graeme Phillips and Fountain Selected Meats cases, and also to the judgment of Tadgell J in De Jager, said (at 8):-

"Accepting that the categories in which the discretion may be exercised are not closed and that other elements of litigious misconduct may be relevant, I respectfully accept the preceding statement of principle (that enunciated by Woodward J) as to an appropriate guide to the exercise of the discretion."

In Council of the Municipality of Botany v. Secretary, Department of the Arts, Sport, The Environment, Tourism and Territories (1992) 34 FCR 412 Gummow J also referred to what Woodward J had said in Fountain. He continued (at 415), "However, I accept that the discretion conferred by s.43 (of the Federal Court of Australia Act) is not so circumscribed that an order of this character may be made only against an ethically or morally delinquent party."
French J dealt with the matter again in J-Corp Pty Limited v. Australian Builders Labourers Federation Union of Workers - Western Australian Branch, (Federal Court of Australia, 19 February 1993, unreported). He referred (at 5) to Fountain and his earlier decision in Tetijo. In relation to Fountain he said (at 5):-

"Although there is said to be a presumption in such cases that the action was commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law, it is not a necessary condition of the power to award such costs that a collateral purpose or some species of fraud be established. It is sufficient, in my opinion, to enliven the discretion to award such costs that, for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case. The case against the BTA (a reference to one of the respondents) was paper thin. The BTA's name was invoked on a sign associated with the picket and appeared in a newspaper advertisement referred to in the evidence. Two of the union officials involved in the picket had BTA authorisations to inspect premises under the relevant award. But much more than that was necessary to justify proceedings for a contravention of s.45D. In my opinion the order sought by the BTA should be made."

Davies J considered the question in Ragata Developments Pty Limited v. Westpac Banking Corporation (Federal Court of Australia, 5 March 1993, unreported). He referred to Order 62, rule 19 of the Court's Rules and to the scale of costs provided for in the Second Schedule thereto. He continued:-

"... it is not open to an individual Judge to award costs having regard to his own view as to the adequacy of party/party costs so fixed. An award of costs on an indemnity basis may be made only in a special case, where the circumstances justify departure from the ordinary principle. The circumstances must be such as to justify an award indemnifying the successful party in respect of all of the costs incurred, save only as to those costs which are unreasonable in amount. The very nature of the award of costs on an indemnity basis gives a guide to the type of case in which such an award is appropriate. Thus, indemnity costs may be awarded where unsuccessful proceedings have been brought and prosecuted, not for the bona fide purpose of protecting and enforcing a legal right, but to achieve an ulterior or extraneous purpose."

Davies J went on to refer to a number of authorities including Fountain Selected Meats and De Jager and a number decided in other courts, including the Supreme Court of New South Wales. He said (at 5), "The above circumstances all fall within the category of litigation instituted or prolonged to an extent which ought to have been unnecessary. But that is not the only type of case in which indemnity costs may be awarded". His Honour referred to some further authorities and continued (at 6):-

"It is clear that the categories for the award of indemnity costs are not rigid. Each case must be considered on its own particular facts, having regard to the general principle that the usual award of party/party costs to the successful party should be made unless there are special circumstances to justify the making of a different order."

Davies J then considered the particular facts of the case before him and declined to make an order for the payment of costs on the indemnity basis.
There are numerous other authorities to which reference could be made. These include Degman Pty Limited v. Wright (supra) (Holland J) (referred to by Woodward J in Graeme Phillips); Qantas Airways Limited v. Dillingham Corporation (supra), Singleton v. Macquarie Broadcasting Holdings Limited (1991) 24 NSWLR 103, (Rogers CJ Comm D); Blackburn v. The State of NSW (Supreme Court of New South Wales, David Hunt J, 9 August 1991, unreported); Melouhowee Pty Limited v. Steenbohm (Supreme Court of NSW, Waddell CJ in Eq, 6 February 1992, unreported); Sky Channel Pty Limited v. Minister for Transport and Communications (Federal Court of Australia, Einfeld J, 19 February 1993, unreported); Woodger v. Federal Capital Press of Australia Pty Limited (1992) 107 ACTR 1 at 40 (Miles CJ); and AWA Limited v. Daniels (Supreme Court of New South Wales, Rogers CJ Comm D, 27 April 1993, unreported).
It seems to me that the following principles or guidelines can be distilled out of the authorities to which I have referred:-

1. The problem arises in adversary litigation, i.e. litigation as between parties at arm's length. Different considerations apply where parties may be found to be entitled to the payment of their costs out of a fund or assets being administered by or under the control of a trustee, liquidator, receiver or person in a like position, eg. a government agency or statutory authority.

2. The ordinary rule is that, where the Court orders the costs of one party to litigation to be paid by another party, the order is for payment of those costs on the party and party basis. In this Court the provisions of Order 62, rules 12 and 19, and the Second Schedule to the Rules will apply to the taxation. In many cases the result will be that the amount recovered by the successful party under the Order will fall short of (in many cases well short of) a complete indemnity.

3. This has been the settled practice for centuries in England. It is a practice which is entrenched in Australia. Either legislation (perhaps in the form of an amendment to rules of Court) or a decision of an intermediate court of appeal or of the High Court would be required to alter it. No doubt any consideration of whether there should be any change in the practice would require the resolution of the competing considerations mentioned by Devlin LJ in Berry v. British Transport Commission and Handley JA in Cachia v. Hanes on the one hand and by Rogers J in Qantas on the other. The relevant passages from the respective judgments have been earlier referred to.

4. In consequence of the settled practice which exists, the Court ought not usually make an order for the payment of costs on some basis other than the party and party basis. The circumstances of the case must be such as to warrant the Court in departing from the usual course. That has been the view of all judges dealing with applications for payment of costs on the indemnity or some other basis whether here or in England. The tests have been variously put. The Court of Appeal in Andrews v. Barnes (39 Ch D at 141) said the Court had a general and discretionary power to award costs as between solicitor and client "as and when the justice of the case might so require." Woodward J in Fountain Selected Meats appears to have adopted what was said by Brandon LJ (as he was) in Preston v. Preston

((1982) 1 All ER at 58) namely, there should be some special or unusual feature in the case to justify the Court in departing from the ordinary practice. Most judges dealing with the problem have resolved the particular case before them by dealing with the circumstances of that case and finding in it the presence or absence of factors which would be capable, if they existed, of warranting a departure from the usual rule. But as French J said (at 8) in Tetijo, "The categories in which the discretion may be exercised are not closed". Davies J expressed (at 6) similar views in Ragata.

5. Notwithstanding the fact that that is so, it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v. Weekes

(1989) 92 ALR 131 at 152; evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v. Hutchinson (1987) 10 NSWLR 525, Maitland Hospital v. Fisher (No. 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal), Crisp v. Keng (Supreme Court of New South Wales, 27 September 1993, unreported, Court of Appeal) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.

6. It remains to say that the existence of particular facts and circumstances capable of warranting the making of an order for payment of costs, for instance, on the indemnity basis, does not mean that judges are necessarily obliged to exercise their discretion to make such an order. The costs are always in the discretion of the trial judge. Provided that discretion is exercised having regard to the applicable principles and the particular circumstances of the instant case its exercise will not be found to have miscarried unless it appears that the order which has been made involves a manifest error or injustice.

With these principles in mind I turn to deal with the particular circumstances of this case.
The two issues which are referred to in para. 6 of the orders which reserved liberty to the respondent to make this application were shortly described as the issues concerning the use of unvented jars in testing flowability and whether the specification described or claimed in whole or in part an invention for a new and novel detergent composition. In order that the submissions may be dealt with it is necessary to have a general understanding of the way in which the case proceeded and of my findings in relation to various issues in the case. In this regard I refer particularly to what was said in the principal judgment under the headings, "The Way the Case was Opened", "The Course of the Case", "The Adjournment" and "The November Hearings".
In relation to the unvented jar flowability test, counsel for the respondent said that the applicants' case on infringement was based initially on tests using an inverted unvented jar. The respondent's evidence on this issue was that such tests did not establish infringement and that in any event, such a test was inadequate and uncertain for a variety of reasons. Counsel for the respondent contended that there was no justification for pursuing an allegation of infringement based on the unvented jar test. They submitted that the considerable expense to which the respondent was put on that issue should be recompensed on an indemnity basis. A number of matters were relied upon in support of the respondent's case in this respect. They were:-

(a) The first applicant's own internal documents prescribed a factory test which had been in use for many years for measuring flowability which specifically directed that the jar be vented. This matter did not emerge in any of the applicants' infringement affidavits in chief.

(b) Dr. Silvis in his oral evidence indicated that in effect no-one "in their right mind" in the industry would use other than a vented jar.

(c) The affidavit evidence from the respondent's experts, Dr. Williams and Professor Bagster, was to the effect that an unvented jar was not a reliable or sensible test.

(d) Notwithstanding these matters, the applicants persisted until late in the case in relying on the affidavit evidence of Dr. Clark which related to an unvented jar test.

In summary counsel for the respondent submitted that, having regard to the foregoing, the relevant officers of the applicants, particularly the first applicant, always knew that an unvented jar test was not a sensible test and could not produce reliable results. Notwithstanding that knowledge, the applicants persisted in relying on an unvented jar test and putting the respondent "to enormous expense". Counsel for the respondent said that the applicants' conduct in this respect was unjustifiable and unwarranted.
In response to these submissions, counsel for the applicants said the applicants' position was correctly recorded in the principal judgment (at 111) where, in summary, it was said:-

(a) The applicants filed evidence which on its face showed infringement with an unvented jar.

(b) The respondent filed evidence which proved that an unvented jar was an unsatisfactory test.

(c) The applicants fought the case on the basis that this evidence was correct. Dr. Williams and Professor Bagster, and also Dr. Silvis, all gave evidence to the effect that a skilled worker would know not to use an unvented jar and would use a vented jar.

The trouble I have with this submission is that it ignores the way the case developed. Although the summary of what was said on page 111 of the judgment is correct, the position did not develop quite in the way that counsel for the applicants suggests. Dr. Clark's test for Radiant as distinct from low suds Radiant was made with the use of an unvented jar. The affidavit was filed on 28 September 1990. It was not directly replied to, but the whole question of flowability with special reference to the jar test referred to in the specification was dealt with comprehensively by Professor Bagster in an affidavit sworn by him on 25 September 1990 and by Dr. Williams in an affidavit sworn on 30 October 1990. Those affidavits were relied upon by the respondent in support of its case on invalidity. These and other affidavits, some filed on behalf of the applicants and some on behalf of the respondent, squarely raised the issue of flowability and, amongst a great many other things, the usefulness and relevance of the use of an inverted jar (both vented and unvented) to test it.
It was not apparent to me that the unvented jar test and the evidence about it were abandoned by the applicants until some time well on into the case. It is true that the low suds Radiant test was done with the aid of the flow rig; no jar test was relied upon and it was apparent after the cross-examination of the various witnesses that there were great problems about the use of an unvented jar. But my recollection of the way in which the case proceeded was that the evidence about the unvented jar test was still relied upon by the applicants notwithstanding that they began, more or less just before the commencement of the case and during the run of the case, to rely upon other evidence to establish infringement based upon a flowability of the Radiant products which fell within the claims of the letters patent.
I am thus of opinion that statements to be found in the applicants' written submissions to the effect that, at no time, did the applicants file evidence in answer to Dr. Williams and Professor Bagster as to the need for a vent and that the point made by them was accepted is not how I perceived the case to have been conducted. If it had been as straightforward as that, Dr. Clark would not have given evidence about the unvented jar test, her first affidavit would not have been read and she would not have been cross-examined on that matter. The evidence of Dr. Williams and Professor Bagster in respect of it would not have been necessary. I think the trouble is that in a case that occupied a substantial number of days' hearing, especially when that hearing was broken as it was in the way that is described in the principal judgment, there is a tendency to overlook the way in which the case was conducted from time to time by both parties and how the case stood at various times particularly in its preparatory stages when affidavits were being filed and in the early stages of its development before the Court.
For these reasons, I prefer the submissions made on behalf of the respondent in relation to these matters. But before I consider whether the respondent is entitled to an order for the payment of its costs on the indemnity basis in respect of the issue concerning the use of unvented jars in testing flowability, I propose to consider the other issue which involves the applicants' case depending in part on the applicants' patent being a patent for an invention consisting of a new and novel detergent.
In support of their submissions in relation to this question, counsel for the respondent said that the applicants, by their affidavits and arguments, until November 1991, asserted that the validity of the patent could be supported at least in part on the basis that, as at the priority date, the detergent referred to in the patent, being a detergent suitable for being placed in a bottle and poured through the neck of a bottle, was unknown, was inventive and could have been the subject of a patent for the detergent alone without the bottle.

Counsel said that the concession made in November 1991 was made after additional affidavits had been sworn by Mr. Maden and Mr. Reidy in August and September 1991. These affidavits confirmed earlier evidence given by Mr. Blancquart in May 1991 which had been vigorously attacked in cross-examination. The respondent submitted that both Dr. Silvis and Dr. Strasser suggested in their early affidavits that the patent taught something new about how to make a detergent with the requisite properties to enable it to be poured out of a bottle and that prior to that teaching it was not understood how to make such a detergent. This contention was said to have been amplified by Dr. Silvis in his cross-examination in May 1991 in which he asserted that the key to the patent was the teaching of a two stage process and/or a process whereby the surfactant was retained on the inside of a bead; I refer to the excerpts from his evidence which appear at pages 36-39 of the judgment.
In this respect reference needs to be made to a document handed up by counsel for the applicants on 13 May 1991 which purported to be the outline of a further alternative submission of the applicants in support of their case on the validity of the patent. The document said that, at the priority date, laundry detergents having in combination all the relevant properties claimed were not known nor was it obvious to make such detergents. The identification of such a class of laundry detergents thus involved an inventive step. A patent claiming such class of detergents without more would have been a valid patent. The effect of claiming such detergents in bottles narrowed the ambit of the claims of the patent to the relevant class of detergents when contained in bottles; but, in the way the applicants' case was put until November 1991, the product itself, and not merely the fact that it could be stored in and would pour from a bottle, was an integral part of the invention which was said to be claimed in the letters patent.
It is to be observed that the first sentence of the document handed up on 13 May 1991 referred to an allegation that at the priority date laundry detergents having in combination all the relevant properties claimed were not known nor was it obvious to make such detergents. That statement, notwithstanding what followed it, left me with the impression that there was claimed to be something inventive about the detergent composition or the detergent particles in question. That was one of the reasons which prompted me to question Dr. Silvis as I did in May as a result of which he gave the evidence to which I have referred. The position was not in my view alleviated by the filing on 24 May 1991 of a further document dealing with infringement and fair basing. Amongst the statements in that document was a statement that the applicants claimed that the disclosure of the matters disclosed in the body of the specification was sufficient to enable a skilled addressee in the light of common general knowledge to make a product having the properties claimed by using an ionic surfactant or by the agglomeration method.
It follows, in my opinion, that however the case may now be looked upon by the applicants and their legal advisers, the fact is that for a considerable time there was a distinct suggestion made on behalf of the applicants that their case was in part based on there being something inventive in relation to the detergent itself and the way that the particles were constructed or in which they behaved. The position only became clear during the final addresses. The account I have given of the way in which the trial proceeded confirms that this is so.
Counsel for the respondent, in addition to making the submissions to which I have referred, made some general submissions about the applicants' conduct of the case and the reason why the case was conducted either at all or in the way that it was. They contended that the judgment which has been delivered demonstrated that the patent was "hopeless". They posed the question: why did the applicants persist especially bearing in mind that the letters patent terminated in 1992? Counsel said that the answer to the question was that the applicants had persisted as they had in order to confine the respondent and thus deter it from manufacturing the detergent in Australia and elsewhere. They contended that this was a reasonable inference to draw with the consequence, so they submitted, that the case was conducted for reasons other than a genuine belief in the validity of the patent or in the infringement of the patent by the respondent.
In any event, so counsel said, it was clear that the case was unduly prolonged and made more complex by the applicants firstly relying on the unvented jar test and secondly in claiming that, at least in part, the validity of the patent could be supported by establishing that there was an inventiveness in the detergent itself. Added to these matters was the fact that there had been, in counsel's language, a "stream of changes" in the applicants' position. In summary counsel contended that the applicants, if they had been properly advised, as I should infer they were, realised, if not from the outset, then from an early stage that they had no prospect of success on either issue.
Having considered the various matters to which I have referred and reflected on the matter generally, I have reached the conclusion that I should uphold the respondent's submissions insofar as they relate to the determination of the rate of flowability by the unvented jar test but reject them insofar as they relate to the other issue. In my view it is quite clear that the hearing was made more complex and was unnecessarily prolonged by the maintenance of the applicants' case based on the unvented jar test. It is plain that the applicants allowed Dr. Clark to make the test using an unvented jar and did not seek to correct the position until almost the end of the trial. It is true that evidence was led which enabled them to make an alternate case based largely on the use of material in the respondent's possession. In the end that was their only case. In my opinion, the reason why the applicants maintained their position in relation to the unvented jar was because it was the test described in the patent. If they departed from it, they ran a substantial risk that they would not establish infringement or that they would have, in relation to validity, a distinct problem about fair basing. The unvented jar test pervaded the case from beginning to end. It occasioned, not only additional hearing time, but also a substantial amount of work in the preparatory stages of the case.
In relation to whether or not there was an invention by reason of the detergent itself being novel and not obvious, although I have said what I have, I have not felt able to take the same view of the applicants' conduct in relation to that issue as I have in relation to the unvented jar test. I do not think it was unreasonable for the applicants to maintain, at least for a time, a case based on there being something inventive about the detergent itself. Indeed I think Dr. Silvis genuinely believed that it was inventive and, in support of his position, there was the beads patent which is described in the principal judgment. Although restricted in the way that it was, it was the subject of the grant of letters patent in this and other countries.
I do not think that in this respect the case which the applicants maintained was any different from countless other cases which are maintained by parties to litigation in which reliance is placed on a number of alternative ways of putting the case. As the case proceeds, so circumstances change and sometimes, as in this case, it is better tactics to give away a particular alternative than to maintain it. To my mind that is what the applicants did here. I appreciate that it is not what they say they did; but to my observation, looking at the matter as objectively as I can, that is what happened. I do not regard their conduct in this respect as misconduct of the kind which is required before the Court ought to consider making an order for payment of costs on the indemnity basis. I think the tactics were fair. No doubt they caused substantial expense to the respondent; but that expense is what the respondent is entitled to recover under an ordinary order for costs which, although it has the problems about it to which I have referred earlier in this judgment, is the law's way of dealing with a matter such as this. Many may think it unsatisfactory but, unless there is some feature of the case which attracts a more generous basis upon which costs are to be allowed, the usual course of a party and party taxation must be followed.
In reaching my conclusion, I have taken into account the general matters relied upon by the respondent. I think that what they overlook is the fact that the first applicant was the registered proprietor and the second applicant the licensee in respect of letters patent which had been granted by the first applicant in Australia. It is difficult in those circumstances to suggest that proceedings brought for the infringement of such letters patent and opposition to an application for the revocation of such a patent have been undertaken for ulterior motives, in particular the confinement or restriction of the respondent in selling a product which the applicants had some ground for thinking was an infringement of their letters patent. It is for this reason that I am not prepared to draw the inferences which would need to be drawn if the considerations relied upon by counsel for the respondent were to be allowed to come into play.
Two further matters remain to be mentioned. The first of these concerns a submission by counsel for the applicants that the respondent have no order as to the costs of the issues referred to in para. 7 of the orders. These were the issues concerning the process of the manufacture of the respondent's products and whether the patent in suit was obtained on a false suggestion or representation. There was also a question as to the costs of the proof by the applicants of the matters set out in a notice to admit facts dated 11 February 1991. I have considered the parties' submissions in relation to these matters.
I do not regard the conduct of the respondent in relation to the notice to admit facts as unreasonable. In the result I did not need to deal with the question of false suggestion or representation. But the issue was fairly raised and, in a case as complex as this one containing as it did a myriad of questions and issues to be determined, it would seem to me to have been quite reasonable for the respondent to rely on this matter. I do not think that it should be deprived of its costs in relation to the question, particularly because the matter was never the subject of decision. It seems to me to be part of the cut and thrust of a long case and that the costs incurred in relation to it (which I would not have thought comparatively speaking would be substantial - it was not suggested that they were) should be picked up in the general order for costs to the benefit of which the respondent is plainly entitled.
So far as the respondent's process of manufacture is concerned, this was a matter which was raised from time to time. The respondent feared that eventually the applicants' case would be put in a way which would disadvantage the respondent if it did not lead evidence of its process of manufacture. In fairness to the applicants, their counsel always refuted the suggestion and denied that the respondent's process of manufacture was in question. Nevertheless, I think that the caution displayed by counsel for the respondent was not unjustified and I do not feel disposed to make any special order about the issue or question of the respondent's manufacturing process. I think that this is especially so in a case in which the applicants' ground, whatever the applicants through their counsel may now say, underwent a number of changes.
That leaves the costs of the notice of motion dated 4 June 1992 filed on behalf of the respondent and first heard on 11 June 1992. The motion sought the lifting of orders restricting access to certain of the exhibits and portions of the transcript in order to enable the Commissioner of Patents to have access to those documents. The exhibits were documents in the possession or control of the applicants. The request for confidentiality of both the exhibits and the transcript was made on behalf of the applicants. It was not opposed by the respondent. In June 1992, however, the respondent wished to use the documents for the purposes of objecting to the grant to the first applicant of letters patent covering the same area as the patent in suit, which was granted pursuant to a divisional application (see s.52A of the Patents Act 1952). The documents could not be used if they remained confidential and there was a contest between the parties as to how this problem should be overcome.
The Commissioner of Patents was served with the notice of motion. He appeared principally for the purpose of explaining to the Court that, unless the documents could be made public, he was unable to make use of them. Subsequently, on 17 June 1992, the parties announced that the Court would no longer be troubled by the problem. By consent the motion was stood over to the date on which judgment in the proceedings was delivered. Costs of the notion of motion were reserved. In my opinion the Commissioner's appearance by counsel was reasonable. He sought an order for his costs. On 14 October 1993 I dismissed the notice of motion by consent and ordered that the Commissioner's costs be paid by the respondent. The respondent seeks an order that the applicants reimburse it for those costs, it having submitted that the Commissioner's costs of the motion be paid by the applicants, an order which I refused to make.
I decline to make an order that the applicants pay the Commissioner's costs of the motion which the respondent has been ordered to pay. The respondent wanted the Commissioner to have access to the documents, not for the purposes of these proceedings, but for the purposes of proceedings pending before the Commissioner. The only connection any matters raised by the respondent's notice of motion had with this matter was that the documents in question had, without objection, been made the subject of a restricted access order by the Court and were in its custody or control. The notice of motion thus had no direct connection with these proceedings.
If the Commissioner has power to deal with costs in relation to the application which is still pending before him, then it would be open to him to award the costs of the production of the documents and the argument about the confidentiality to the respondent if he thought fit. I express no view whether he should or should not do this, but it may be thought that it would be fair if, in any award of costs which the Commissioner makes in the respondent's favour (and I appreciate that he may make none), the costs incurred in relation to the notice of motion and ordered to be paid by the respondent should be included in that award.
In summary then I vary the orders made by me on 11 May 1993 by ordering the applicants to pay to the respondent on the indemnity basis its costs of the issue concerning the use of unvented jars in testing flowability. Otherwise the orders made in paras. 1,2,3,4 and 5 of the orders made on 11 May 1993 will stand. The costs which the applicants are bound to pay to the respondent pursuant to para. 5 of those orders will include the costs of the issues and matters referred to in para. 7 of the orders. The applicants are to pay one half of the respondent's costs of the notice of motion now dealt with, that is, the respondent's notice of motion dated 9 July 1993. I have reserved liberty to apply in case some problem should emerge during the taxation of the respondent's costs. The liberty may be exercised if any clarification of the operation of the Court's order is required.

[1993] FCA 801

10 NOVEMBER 1993