Conoco Speciality Products Inc. v Merpro Montassa Ltd
[1990] FCA 720
•04 DECEMBER 1990
Re: CONOCO SPECIALTY PRODUCTS INC. and ANOTHER
And: MERPRO MONTASSA LIMITED and ANOTHER
No. V G332 of 1989
FED No. 720
COURT
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Northrop J.(1)
HEARING
MELBOURNE
#DATE 4:12:1990
JUDGE1
The applicants are moving the Court pursuant to notice dated 30 November 1990 for leave to discontinue this proceeding in respect of each and every claim for relief made in the application dated 3 November 1989. To understand the present motion it is necessary to recall that on 27 November the Court refused to adjourn the directions hearing in this matter for a substantial period to allow an appeal pending in the Court of Sessions in Scotland to be heard and determined before this application proceeded further. That application for the adjournment was refused and reasons were given for so refusing that application and those reasons should be read as background material to the present motion.
In summary form the facts which are relevant to the present motion are that one of the applicants commenced proceedings in the Court of Sessions in Scotland for infringement of a number of patents including two patents which are the subject of the present application in this Court. The Scottish proceedings were against Merpro Montassa Limited and it counter-claimed alleging that the two patents were invalid. After those proceedings in Scotland had been commenced the present proceedings were commenced in Australia between the applicants and the respondents, there being common parties on each side, in relation to two patents which were the subject of the proceedings in Scotland. The Australian matter has reached a stage where the pleadings have been completed and the matter is almost ready for trial but there has been no determination on the merits of any fact or law in relation to the issues raised between the parties. In due course judgment was given in the Scottish proceeding in which the Court found that the two patents were valid but that there was no infringement by Merpro Montassa Limited. The applicant, Conoco Specialty Products Incorporated, has appealed from that judgment and the respondent, Merpro Montassa Limited, has cross-appealed in relation to the validity of the patents. Although the proceedings in Scotland will not be binding upon the parties in the proceedings in Australia the outcome of the appeal will have a very marked effect on the proceedings in Australia. It was in those circumstances that the applicants sought initially the adjournment of the directions hearing, or rather, the deferment of the hearing of this application until after the results of the appeals in Scotland. In view of the refusal to grant that adjournment this motion has been taken out.
The motion is brought pursuant to O.22 of the Federal Court Rules and in particular r.2(1)(d). Rule 2(1) is set out:-
"2(1) Subject to sub-rule (2) a party making a claim
for relief may discontinue a proceeding so far as concerns the whole or any part of any claim for relief made by him-
(a) at any time before the directions hearing appointed in the application - without the leave of the Court or the consent of any other party;
(b) where after the directions hearing the proceeding continues on pleadings but the pleadings are not closed - without the leave of the Court or the consent of any other party;
(c) where judgment has not been entered - with the consent of all the parties; and
(e) at any time - with the leave of the Court."
It is conceded, quite correctly, that in this case the relevant provision is r.2(1)(d). Rule 5 provides the method by which discontinuance is made, namely by the filing of a notice stating the extent of the discontinuance and where a notice of discontinuance is filed in circumstances where leave of the Court is not required, O.62 r.26 enables the other party to have the costs of the action taxed and paid by the person discontinuing. Rule 7 provides as follows:-
"7. A discontinuance under this Order as to any cause of action shall not, subject to the terms of any leave to discontinue, be a defence to a proceeding for the same, or substantially the same, cause of action."
The effect of these rules is that where an applicant discontinues an action either without leave of the Court in appropriate circumstances or with leave, in the absence of any terms imposed by the Court, the party discontinuing can bring another action based on the same facts subsequently to that discontinuance. And this essentially is the difference between a discontinuance and a dismissal of an action even in the absence of any evidence or any hearing on the merits. On a dismissal, as I understand it, the principle of res judicata would arise and the applicant, on a dismissal of an action, would not be able to bring an action against the same party on the same facts and the same issues as were pleaded in the proceedings which were dismissed. That really is at the heart of the problems giving rise to the present motion.
The principles to be applied in motions of this kind have been enunciated and are fairly clear. There is no dispute about them. The problem arises in the application of those principles to the facts of this case. The principles were discussed at some length by a Full Court of this Court comprising Sweeeney, Lockhart and Sheppard JJ. in SCI Operations Pty Limited v Trade Practices Commission (1984) 53 ALR 283 and to a large extent were based upon an opinion expressed by Graham J. in Covell Matthews and Partners v. French Wools Limited (1979) 1 WLR 876.
Before referring to those principles, attention is drawn to the fact that the rules which give the power to the Court to grant leave to discontinue are unfettered. Neither the Federal Court Act nor the Federal Court Rules specify any matters which must be taken into account in determining whether to grant leave or not. In these circumstances it is often unwise for the Court to impose fetters on an otherwise unfettered discretion. At the same time the discretion must be exercised judicially, according to law and on the facts found, and it is of assistance to litigants, practitioners and the Court if a certain consistency is applied. It is in this context that reference is now made to what was said in these two authorities mentioned.
In Covell Matthews and Partners Graham J. at p 879, after referring to some earlier authorities and in relation to a case where leave was being sought to discontinue, said:-
"The principles to be culled from these cases are, in my judgment, that the Court will, normally, at any rate, allow a plaintiff to discontinue if he wants to, provided no injustice will be caused to the defendant. It is not desirable that a plaintiff should be compelled to litigate against his will. The Court should therefore grant leave, if it can, without injustice to the defendant, but in doing so should be careful to see that the defendant is not deprived of some advantage which he has already gained in the litigation and should be ready to grant him adequate protection to ensure that any advantage he has gained is preserved."
It appears that the protection referred to there takes the form of giving leave subject to terms. The power to do that is accepted and is referred to, with approval, by the Full Court in the SCI Operations case and was in fact done in another case which will be referred to shortly.
In the SCI Operations case the question was referred to by Sweeney J. at p 311. In that case the trial Judge had granted leave to discontinue, had referred to what was said by Graham J. in the English case and had made some observations as to what was meant by that passage. In the SCI Operations case the facts were, as far as relevant, similar to the present in that case the hearing had not commenced and the merits of the application had not been determined and therefore there was no question of a hearing on the merits having taken place in any sense. Nevertheless, the leave to discontinue was opposed quite strenuously and, in fact, was taken on appeal to a Full Court. At p 311 Sweeney J. set out the passage from the judgment in Cavill Matthews and then what was said by Woodward J at the trial namely:-
"I would respectfully adopt Graham J.'s formulation of principles so far as it goes, but it leaves open the question as to what should be done in a case where leave cannot be granted without some injustice to the respondent, or in which it may not be possible or appropriate to ensure that every advantage which the respondent may have gained in the course of litigation is preserved.
In my view, the matter must remain one for the exercise of the court's discretion in each case, even if the interests of the respondent cannot be fully protected. I do not believe that Graham J. was suggesting that, unless the respondent's rights can be completely protected, an application for discontinuance must be refused. If he was implying that, then I must respectfully decline to follow his Honour to that extent."
Sweeney J. then said:-
"In my opinion, his Honour made no error in dealing with the question of the principles relating to the exercise of his discretion in the present case. The observations of Graham J. are not to be treated as fettering that discretion, which are not subject to any legislative fetter."
Similar views were expressed by Lockhart J. at p 331, and I merely refer to the fact that Lockhart J. also approved what was said by Woodward J. At p 354 Sheppard J. also approved, although his Honour there adopted a slightly different approach in that at that reference he said:-
"If a party seeks to discontinue proceedings, a court should, in my opinion, lean towards giving him leave unless to do so will cause manifest injustice to his opponent. That is a matter with which I shall next deal. But the starting point for the discussion of it is the court's greater ability to do justice to both parties if the central question is upon what terms leave to discontinue should be granted. It is for that reason that I think that the real question which arises for consideration in this appeal is upon what terms the Commission should be permitted to discontinue the proceedings, not whether leave to discontinue should have been granted at all."
His Honour deals with the matter in more detail, commencing at p 355 and going through to p 357.
In the SCI Operations the Full Court allowed the discontinuance without imposing any conditions even though one of the factors taken into account was the fact that the Trade Practices Commission, which wanted to discontinue the proceedings, would have been forced to expend public moneys if the proceeding had proceeded further.
I propose, in this case, to adopt the principle that leave should be granted unless in so doing an injustice would be occasioned to the opposing party. If an injustice is going to be imposed by leave to discontinue, the Court should consider whether to grant the leave subject to terms but if those terms are not sufficient to enable the injustice to be overcome, then leave should be refused.
Accordingly, it is necessary to turn to a more detailed consideration of the facts. Counsel for the applicant has contended that there should be unconditional leave to discontinue. He made the very strong point that it is undesirable to compel an applicant to persist in litigation against its will; it would amount to unnecessary expenditures, particularly in the context where there is a world-wide interest in litigation in relation to patents of an equivalent kind in Scotland and here. There is great force in this submission particularly when the result of the appeal in the Scottish case could affect the position in Australia. There is nothing to suggest that the institution of these proceedings and the present motion for leave to discontinue are not made bona fide and there has been no suggestion by any person that these are not bona fide proceedings or that this is not a bona fide application for leave to discontinue.
The applicants have indicated that they would consent to an order that the costs of the respondents to date be taxed and paid by the applicants to the respondents. I shall deal with the question of costs of this motion later. That concession is of importance, because where leave is obtained there is not an automatic entitlement to the costs of the action as there is when a party discontinues by the filing of a notice without leave. It was also argued that the cross-claim would remain and the respondents could continue with their claim for relief based upon the validity or otherwise of the patents in Australia and that there is in reality no good reason why leave should not be granted.
Counsel referred to a number of other matters, one of which I shall deal with in more detail later in relation to a suggestion that the applicants had engaged in misleading conduct under s.52 of the Trade Practices Act in relation to persons whom the respondents has supplied, or is proposing to supply, the particular articles the subject of the patent here. Reference was also made to the suggestion that it was the respondents who, by letter dated 3 September 1990, and by another letter dated 2 October 1990, had suggested that the applicant should discontinue so that the respondent could immediately get its costs of the action to date. I do not place any weight on that at all. It seems to me really that this was purely an exercise taking place during a series of correspondence between the solicitors, in which there was assertions and counter assertions being made as tactics and that here all that interested the solicitors for the respondents was the question of getting their costs to date. The suggestion was not in any form an offer to the applicant that the applicant should discontinue and in such a case the respondent would consent to the discontinuance.
Likewise, reference was made to the question of what application, if any, s.121 of the Patents Act had in regard to any action that the applicant might take in relation to customers of the respondents in relation to the articles. Finally, reference was made to s.120 of the Patents Act, but, having regard to the fact that under that section an applicant would normally be required to pay the costs, the applicant being the person seeking a declaration that what he is doing is not an infringement of the patents, it seems to me to be a section which should not have any bearing at all on the present application.
The main submission by counsel on behalf of the respondent was not that their leave to discontinue should be refused, but that any leave should be subject to two conditions, namely, and I quote:-
"1. That the applicants should not begin proceedings
hereafter alleging infringement of either of the patents in suit by reason of the sale or use of hydrocyclones of the types alleged to infringe the two patents; and
2. That the applicants should not issue threats to
begin proceedings of that kind against the respondents or its customers."
The effect of those conditions or terms would be similar to, as far as 1. is concerned, to a dismissal of the action itself, while the second is similar to an order under s.121 of the Patents Act. Counsel did not dispute the general principles to be applied in determining the motion, but relied upon a judgment in a patent matter in Chamberlain and Hookham Limited v. The Mayor of Huddlesfield (1901) V 18 RPC 454, a judgment of Kekewich J. In that case the plaintiffs had commenced an action for infringement of a patent and sought leave to discontinue. The defendant was the end user of the article in question, namely, meters and not the person who had supplied those meters. The defendants contended that leave should be granted only on terms as to payment of costs, which are not relevant for present purposes, and upon a term that the plaintiff should not bring any action against any person whomsoever in respect of the same alleged infringement. The Court refused to impose the wider term, but did consider that matter and did impose a more limited term. In relation to this term, which was described as the third point, counsel for the defendant, Mr Terrell said at pp 455-6:-
"As to the third point, the makers of the meter are the Westinghouse company who have to indemnify their customers. ... In effect, the applicants are submitting to a non-suit."
At pages 457 and 458, Kekewich J. considered this third point and for reasons then expressed he granted leave to discontinue subject to terms including a term that the plaintiffs undertake not to bring any other action against the defendants in respect of any infringement alleged in the pleadings in the action.
The reasoning by which his Lordship came to that conclusion are set out but I will not include them in these reasons but the way it was put was in substance that it would be unfair for the plaintiff to have leave to discontinue and then at a later stage to commence action again against that same defendant arising from the same alleged infringement. This was in circumstances like the present, where an appeal was pending in a related matter affecting the same patent. His Lordship said, in relation to the submission by Mr Terrell:-
"If he limited it to not bringing any other action against the present Defendants I should have no hesitation in granting it. I do not think a Plaintiff has any right to come here and say, "I do not wish to incur the costs of trial - I would rather get rid of the action at once - and yet I desire at some future time to raise the same question against the same parties." I do not think that would be fair, and what Mr Terrell has said about the rule as to non-suit seems to me to be directly applicable. If, therefore, that was the term asked to be imposed I should have no difficulty in imposing it - that there should be no other action brought against the Defendants in respect of the infringement alleged in the pleadings."
His Lordship then disposed of the submission that the term should apply to all possible infringements against other persons in the future and referred to the fact here the reason for the seeking of leave to discontinue was the existence of an appeal from another case in which the trial Judge had found that there had been no infringement and his Lordship made it quite clear that of itself that was not a sufficient reason on the facts of that case to grant the leave. Eventually he gave leave, subject to the particular term plus other terms but gave a time for the plaintiff to consider what to do. That was based upon the view of the facts taken by his Lordship.
In the present case counsel for the respondent has contended that there are special features in this case which support the view that this Court should adopt a similar view to that of Kekewich J. and grant leave to discontinue subject to the terms mentioned. He referred to the fact that in patent cases there is a public interest concept and that persons who want to use the articles in question should not be in a position of having hanging over their head the possibility of infringement actions and he referred to correspondence which had passed between the parties, including correspondence between the applicants and BHP Petroleum Pty. Ltd. in which there was set out views as to the existence of patent rights, the possibility of infringement of those patent rights, the fact that the applicants defended their rights vigorously and diligently, both in relation to infringement and in protecting the validity of their patents and, in effect, giving a warning of their attitude in these matters, but at the same time making it clear, or attempting to make it clear, that they were not acting in circumstances which would give rise to a claim under s.121 of the Patents Act. Reference was made to correspondence which it was alleged could found the basis of a claim for a breach of s.52 of the Trade Practices Act but which on further examination appears to be related to a separate patent, distinct from the two patents in suit in these proceedings.
Counsel contended that having regard to these matters and the need that there be certainty as far as possible in this area, that the applicant having commenced these proceedings should be required to prosecute the proceedings diligently and energetically rather than adopting a method of attempting to intimidate prospective purchasers from purchasing the articles from the respondent.
On my assessment of the correspondence, the applicant has done no more than state his current position and I see no basis for saying that, even assuming what was said amounts to a breach of s.52 of the Trade Practices Act that of itself should be taken into account to support the imposition of terms as suggested. It appears that the BHP Petroleum Pty. Ltd. is proceeding with its purchases from the Merpro Montassa Ltd, or its Australian company, and that in these circumstances that type of correspondence is not sufficient to justify the imposing of the term suggested.
In my opinion, having regard to the whole of the facts of this case, it seems that there would be no injustice caused to the applicant in granting leave to discontinue without imposing any terms of that leave being granted, except in relation to one matter, that is the existence of the cross-claim.
During the course of submissions it was stated that if leave was granted the respondents would not wish to pursue their cross-claim based on the validity of the patents and at the end of submissions an oral motion was made that if leave to discontinue the application was granted the respondents would seek leave to discontinue the cross-claim. Having regard to the wording of O.22, r.2, leave to discontinue a cross-claim is necessary.
In my opinion, this is a case where there should be leave to discontinue the application for the reasons I outlined when summarising the submissions made on behalf of the applicant, but excluding those which I said do not carry weight, but at the same time it is quite clear that the cross-claim is largely dependent upon the existence of the application itself and the question of the validity of the patents is not only a defence but also the subject of a claim for revocation of the patents. Involved in the cross-claim itself there could well be a question of the proper construction of the claims in the patents and it would be most undesirable for those to be determined in the absence of a claim for infringement. It is also clear in my opinion that the cross-claim has been brought only because of the existence of the application.
Counsel for the applicants did not dispute the fact that leave should be granted to discontinue the cross-claim but did argue that the applicant should not be required to pay the costs of the respondent of the cross-claim. Counsel contended that the respondents had brought the cross-claim. They were not compelled to do so. On discontinuance they should pay the costs of the applicant incurred on the cross-claim or at the very least there should be no order as to those costs. It seems to me, however, that this whole issue between the parties has been caused by the fact that the applicants are seeking to discontinue and have succeeded in getting leave to discontinue thereby leaving the cross-claim in limbo, as it were, and that the real reason why the respondents seek to discontinue the cross-claim is because of the absence of the application itself. In these circumstances it seems only fair that the applicants should pay the respondent's costs of the cross-claim as well.
In the result, leave will be granted to discontinue the application, leave will be granted to the respondents to discontinue the cross-claim and that the applicants will be ordered to pay the respondents costs of the application and the cross-claim to date. As far as the motion is concerned the applicants are seeking the indulgence of the Court for leave to discontinue. Even though they have succeeded in an opposed matter this is a case where the indulgence having been sought and granted the applicants should pay the costs of the motion. Accordingly, the costs of the action will include the costs of this motion. Orders made accordingly.
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