Stack v Brisbane City Council

[1996] FCA 1114

CATCHWORDS

SECURITY FOR COSTS - application for security to be provided by corporate applicant for respondents’ costs of defending patent infringement proceedings brought by it and an individual applicant - discretionary considerations - complete overlap of issues to be determined as between both applicants and the respondents and no security sought as against the individual applicant - delay in applying - no security ordered.

COSTS - whether leave to tax costs orders necessary where applicant relies on O 62 r 7(1)(a) and (c) the Federal Court Rules - leave necessary because costs orders made in an “interlocutory proceeding” within O 62 r 3(3) - leave to tax refused.

Corporations Law - s 1335
Federal Court Rules - O 4 r 9, O 19 r 1, O 62 r 3, O 62 r 7

Cases Considered

Allstate Life Insurance Co v Australia & New Zealand Banking Group Ltd (Full Federal Court, 17 August 1995)
Bertram v Beaurepaire Tyre Service Pty Ltd (1986) 4 NSWLR 685
Drangold Pty Ltd v Woody Enterprises Pty Ltd (Drummond J, unreported, 13 December 1991)
Elliott & Ors v National Crime Authority & Ors (Foster J, unreported, 18 March 1994)
Re Farmitalia Carlo Erba S.r.l v Delta West Pty Limited (Heerey J, unreported, 4 March 1994)
Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621
R v Smith; Ex parte Mole Engineering Pty Ltd (1981) 147 CLR 340
SPX Corporation v Environmental Products Amalgamated Pty Limited (Northrop J, unreported, 3 August 1992)
Thunderdome Racetiming and Scoring Pty Ltd v Dorian Industries Pty Ltd (1992) 36 FCR 297

GEORGE STACK & ANOR v BRISBANE CITY COUNCIL & ORS
QG 28 OF 1994

DRUMMOND J
BRISBANE
12 DECEMBER 1996

FEDERAL COURT OF AUSTRALIA  No. QG 28 of 1994
QUEENSLAND DISTRICT REGISTRY     
GENERAL DIVISION  

BETWEEN:GEORGE STACK

First Applicant

AND:G S TECHNOLOGY PTY LTD

Second Applicant

AND:BRISBANE CITY COUNCIL

First Respondent

AND:DAVIES SHEPHARD PTY LTD

Second Respondent

AND:DAVIES SHEPHARD (QUEENSLAND) PTY LTD

Third Respondent

MINUTES OF ORDERS

CORAM:  Drummond J
DATE OF ORDER:  12 December 1996
WHERE MADE:  Brisbane

THE COURT ORDERS THAT:

1. The second and third respondents’ motion is dismissed.

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

FEDERAL COURT OF AUSTRALIA  No. QG 28 of 1994
QUEENSLAND DISTRICT REGISTRY     
GENERAL DIVISION  

BETWEEN:GEORGE STACK

First Applicant

AND:G S TECHNOLOGY PTY LTD

Second Applicant

AND:BRISBANE CITY COUNCIL

First Respondent

AND:DAVIES SHEPHARD PTY LTD

Second Respondent

AND:DAVIES SHEPHARD (QUEENSLAND) PTY LTD

Third Respondent

CORAM:       Drummond J
DATE:            12 December 1996
PLACE:         Brisbane

REASONS FOR JUDGMENT

By notice of motion, the second and third respondents seek an order that the second applicant give security in the sum of $174,242 “for the costs of the second and third respondents of and incidental to this proceeding”.  They also seek orders designed to entitle them to enforce payment of the costs the subject of orders in this action made by Cooper J on 4 August 1995 and myself on 2 July 1996; the first respondent, in whose favour similar costs orders were then made, supports this part of the motion brought by the second and third respondents.

The amount claimed by way of security is limited to an estimate of the second and third respondents’ costs of defending the proceedings incurred and to be incurred between 5 November last, when the notice of motion was filed, and the commencement of the trial. The claim for security was limited to a claim brought under s 1335 the Corporations Law for security to be provided by the second applicant.  Reference was made to Beach Petroleum NL v Johnson (1992) 7 ACSR 203 at 204-205 and to Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621 at 624, as well as to other cases.

Mr Pascarl, solicitor for the second and third respondents, exhibits the second applicant’s financial statements for the year ended 30 June 1993, the most recent available, and its annual returns to the Australian Securities Commission for each of the 1991 to 1995 years.  They show operating profits before income tax of $3,527 in the 1992 year and $50,471 in the 1993 year, with losses of $93, $214,863 and $84,891 in the 1991, 1994 and 1995 years.  Current liabilities substantially exceed current assets at the end of each of the 1992 to 1995 years; non-current tangible assets have fallen from $189,439 at the end of the 1993 year to $5,494, two years later.  The second applicant describes its only substantial non-current asset as its “intellectual property relating to plastic water meters”.  This includes the petty patent the subject of the applicants’ claims; this patent has expired and the Commissioner of Patents has refused to extend its term, although the second applicant is challenging this refusal in other proceedings in this Court.  These intellectual property rights are brought to account at the directors’ own valuation of
$352,950.  The notes to the 1993 accounts state:  “The normal trading activities of [the second applicant] depend to a significant extent on one major customer, with whom there is no long term contract.”  I am satisfied that this is a reference to the first respondent, the Brisbane City Council.  The Council, in fact, is asserting in these proceedings a right to use the water meter device which the applicants say was the subject of the petty patent free of any obligation to pay either of the applicants anything.  The first applicant, who is a director of the second applicant, has sworn an affidavit, but his evidence throws no doubt on the inability of the second applicant to meet the second and third respondents’ costs of defending the proceedings, if the defence succeeds.

I am satisfied that there is reason to believe that the second applicant will be unable to pay the costs of the second and third respondents if successful in their defence.  The discretion to order security is therefore enlivened.

The next question is whether the discretion conferred on the Court by s 1335 should be exercised in favour of those respondents. It is necessary to say something about the chronology of the proceedings and what has happened to date in the course of the litigation.

The proceedings were commenced on 17 March 1994.  The first applicant then claimed as proprietor of petty patent No 645740 in respect of an invention entitled “water meter assemblies”, while the second applicant claimed as beneficial owner of the patent under an assignment dated 7 September 1990.  The
petty patent was for an initial term of 12 months commencing on 20 January 1994.  The applicants claimed an injunction and other relief in respect of the alleged infringement of the petty patent constituted by the purchase by the first respondent from the third respondent of a large number of water meter assemblies, said to incorporate the patented invention, pursuant to a contract of 8 February 1994, which the second respondent had manufactured.

On 31 March 1994, a date was fixed by the Court for the hearing of the applicants’ claim for an interlocutory injunction. That application came before the Court on 12 April 1994, when Cooper J ordered, firstly, that issues of liability in the proceedings be finally determined prior to and separately from the issue of quantum and, secondly, that the Court determine, as preliminary questions, certain questions concerning the respondents’ entitlement to rely on s 163 the Patents Act 1990 (Cth) in answer to the infringement claims then made by the applicants.  Cooper J also then gave the applicants leave to file and deliver an amended application and statement of claim if they wished, within seven days of the answers to these preliminary questions.  The preliminary questions were heard on 19 April 1994 and, on 4 August 1995, Cooper J answered the questions in favour of the respondents.  See Stack v Brisbane City Council (1995) 131 ALR 333. The effect of the answers was to destroy the applicants’ case against the respondents as originally pleaded. But, in apparent anticipation that this might be the outcome of the determination of the preliminary questions and under the leave to amend granted on 12 April 1994, the applicants delivered an amended statement of claim on 14 August 1995 claiming
a declaration against the first respondent pursuant to s 169 the Patents Act and an order fixing the remuneration payable by the first respondent pursuant to s 165 the Patents Act in respect of its exploitation of the potential invention. The applicants also claimed injunctive and other relief against the second and third respondents in respect of their alleged infringement of the invention the subject of the petty patent “otherwise than by an authorisation pursuant to s 163 of the Patents Act 1990”, viz, by the sale by the third respondent to members of the public and others of water meter assemblies made by the second respondent.

On 21 August 1995, the second and third respondents filed a notice of motion seeking orders that this amended statement of claim be struck out and that the costs of the interlocutory injunction application be awarded to them.  On 24 August 1995, Cooper J directed the respondents to deliver any request for particulars of the amended statement of claim by 31 August and that the respondents produce for inspection by the applicants by the same date certain of their records relating to dealings in the water meter assemblies and that the first respondent do produce for examination by the applicants certain sample water meters supplied to it by the third respondent.  Particulars were requested on 30 August 1995 and supplied on 13 September 1995.  Subsequent to 24 August 1995, both applicants commissioned and obtained an expert report, which has provided evidence supporting their infringement claims.

The second and third respondents’ notice of motion filed in August 1995 came on for hearing before me on 14 December 1995.  Those respondents did
not abandon the claim in their motion for an order striking out the entire proceedings, but asked that the hearing of that claim be adjourned sine die, a course not opposed by the applicants; they then sought only an order dismissing the proceedings brought by the second applicant and an order for their costs of the applicants’ application for interlocutory injunctive relief.  The first respondent also sought a similar costs order.  The narrower order seeking dismissal of the proceedings brought by the second applicant was based on the proposition that only the first applicant as patentee had standing to sue on the petty patent.  In a judgment delivered on 2 July 1996, I held that, while the first applicant as registered patentee alone had standing to sue on the patent, he could sue for his own benefit for relief only up to the date of the equitable assignment of the patent, while thereafter he would hold anything recovered in the action on trust for the second applicant as equitable owner; there being evidence that, during the course of the proceedings, the second applicant had actually become registered patentee consequent upon the assignment, I held that, from the date of that registration, the second applicant would have standing to sue.  I refused the respondents’ application to dismiss the second applicant from the proceedings and directed that it file and serve proof of its having become registered as patentee by 31 July 1996 and that both applicants file and serve a further amended statement of claim identifying with precision their respective legal titles to the patent and the relief each claimed by the same date.  I also ordered that the applicants pay to the respondents their costs of and incidental to the applicants’ abandoned claim for interlocutory relief.  See Stack v Brisbane City Council (1996) 139 ALR 174.

In the meantime, an application for an extension of the term of the petty patent, due to expire on 20 January 1995, had been brought by the present applicants before the Commissioner of Patents.  In a decision given on 5 January 1996, the Commissioner rejected contentions by the present second respondent that the petty patent was invalid for want of novelty and for other reasons, but, in view of concern as to whether the present first applicant was entitled to the patent, gave him three weeks from 5 January 1995 to file further evidence in support of that entitlement.  In proceedings issued on 25 January 1996 out of the Victorian Registry, (VG 39 of 1996), the present second respondent sought an order reversing this decision of the Commissioner, together with orders revoking the petty patent.  On 27 February 1996 the Commissioner ruled that the present first applicant was not an eligible person and so was not entitled to the petty patent; the Commissioner refused to extend the term of the patent.  In proceedings issued out of the Queensland Registry on 1 March 1996, (QG 29 of 1996), the present second applicant sought an order reversing this decision; the present second respondent is a party to these proceedings.  Prior to that, the present second applicant, in reliance on a deed of assignment said to be dated 25 August 1995, had sought registration as proprietor of petty patent 662284, a patent based on patent application 85236 of 1991, as was petty patent 645740, which is the subject of this action; on 28 February 1996, the Commissioner refused this application in reliance on his decision not to extend the related petty patent 645740 on the basis of his finding that the assignor, the present first applicant, was not entitled to the grant of that petty patent.  On 14 February 1996, the present applicants commenced proceedings out of the Queensland Registry, (QG 21 of 1996), seeking relief against the State of
Queensland under ss 165 and 169 the Patents Act in respect of petty patent 662284 similar to that already claimed in their amended statement of claim filed 14 August 1995 in respect of petty patent 645740 and a declaration, as against the Commissioner of Patents, that the present second applicant was entitled to be registered as owner of petty patent 662284 pursuant to the deed of assignment of 25 August 1995.  This application for a declaration came before Kiefel J on 23 April 1996 and, on 23 August, her Honour held that the Commissioner was not entitled, in deciding whether to register the second applicant as owner of the patent pursuant to the assignment, to have regard to the lack of entitlement of the first applicant to the patent; neither, so her Honour held, was the Commissioner entitled to have regard to the decision made to refuse to extend the patent, which expired on 20 January 1995.  See Stack v The State of Queensland (1996) AIPC 91-273.

Following my decision of 2 July 1996, the applicants, on 31 July 1996, filed a further amended statement of claim in identical terms to the amended pleading filed on 14 August 1995, save that it alleged that the second applicant was the registered patentee “as from 23 October 1995”.  As appears from paragraph 12 of this pleading and from the particulars of that paragraph delivered on 13 September 1995, the applicants allege that the second and third respondents have infringed petty patent 645740 by engaging in certain activities not involving the first respondent, both up to 23 October 1995, when the first applicant was the patentee, and subsequent to that date, when the second applicant became registered as
patentee.  It appears that the assignment by the first applicant of the patent to the second applicant took effect on 7 September 1990, ie, well prior to commencement of the action.  It follows from my reasons for judgment that, while only the first applicant can sue in respect of infringements occurring prior to 23 October 1995, he is suing for the benefit of the second applicant and will hold any damages flowing from the second and third respondents’ conduct up to that date and any moneys recovered under an account of profits earned by those respondents up to that date on trust for the second applicant.  The second applicant is suing for its own benefit in respect of infringing conduct of the respondents occurring after that date.

On 22 August 1996, the second and third respondents filed a defence alleging the invalidity of this patent and a cross-claim seeking a declaration of invalidity and an order revoking the patent. Extensive particulars of objection to the validity of the patent were filed at the same time. The respondents defend the entire infringement action, in so far as it is brought by the first applicant in respect of their conduct prior to 23 October 1995 and in so far as it is brought by the second applicant in respect of their conduct after that date, on precisely the same grounds: they defend by alleging that the patent is invalid, firstly, because the first applicant was not entitled to be granted it, he not being an “eligible person” within s 15 the Patents Act; secondly, the invention the subject of the patent is not a patentable invention because it is not novel and because it is obvious and, thirdly, the complete specification of the petty patent does not comply with the requirements of s 40(2) and (3) the Patents Act in a number of respects; finally, it is alleged that the
invention is not a patentable invention in that it is not a manner of manufacture within the meaning of s 6 of the Statute of Monopolies.  The second and third respondents also cross-claim for declarations of invalidity and revocation of the patent on exactly the same particulars of objection upon which they rely in defending the infringement proceedings on the ground of invalidity of a patent.  But that is of no relevance for present purposes since the respondents’ allegation of invalidity is, in substance as well as in form, a defence to the applicants’ claim; their counter-claim is limited to relief which will inevitably follow if the respondents succeed on the issue of invalidity, an issue which will have to be resolved in determining whether the respondents’ defence to the applicants’ claim is made out.  See Re Farmitalia Carlo Erba S.r.l v Delta West Pty Limited (Heerey J, unreported, 4 March 1994); SPX Corporation v Environmental Products Amalgamated Pty Limited (Northrop J, unreported, 3 August 1992).

On 8 October 1996, the applicants filed their defence to the second and third respondents’ cross-claim.  It is a lengthy document which deals, in detail, with the objections to the validity of the patent filed by the second and third respondents on 22 August 1996.

As I have mentioned, Cooper J, on 12 April 1994, made an order directing that issues of liability be tried before any other issues.  On 6 December 1996, orders were made by consent that this action be heard concurrently with VG 39 of 1996, QG 21 of 1996 and QG 29 of 1996 (and other actions) and that “validity issues be tried and finally determined before the issue of infringement”.

This is therefore a case in which exactly the same issues, limited to the validity of the petty patent, will be litigated as between the first applicant and the second and third respondents in the first part of the trial, as will be litigated in that phase of the proceedings, as between the second applicant and those same respondents.  That is, even if the security sought from the second applicant is ordered and even if the action by the second applicant against the respondents were ultimately to be stayed because that security was not provided, the second and third respondents, who have not claimed security against the first applicant, will have to litigate precisely the same issues of validity that have arisen between themselves and the second applicant, even if the second applicant ceases, for practical purposes, to be involved in the litigation.

In the circumstances of this case, that is, in my opinion, a decisive consideration against ordering the second applicant to provide security at this stage of the proceedings.  On the material before me, I consider that the litigation should proceed, at least to the stage currently planned, which will involve a determination as to the validity of the patent, as between both applicants and the second and third respondents, without the second applicant being required to provide security for those respondents’ costs of defending the proceedings.  In saying this, I am expressing no opinion on whether the respondents might be justified in seeking security for their costs of subsequent proceedings in this action, should the decision as to the validity of the patent not lead to a resolution of the entire action.

Drangold Pty Ltd v Woody Enterprises Pty Ltd (unreported, 13
December 1991) concerned an application by a respondent, based on s 1335 the Corporations Law and s 56 the Federal Court of Australia Act 1976 (Cth), for the provision by a corporate applicant of security for the respondent’s costs of defending the proceedings brought by it and an individual applicant.  There, as here, the respondent sought security only from the corporate applicant.  I said:

“The principles to be applied in deciding whether to grant such relief are well established.  Relief, whether it is regarded as provided for by The Corporations Law or by The Federal Court of Australia Act, is discretionary.

It follows that the discretion is not to be fettered by mechanical rules, such as a rule contended for by the respondent which would deny security where an insolvent company sues with a natural person, but only where they are suing in the same interest.

Where the circumstances are such that security would be ordered against the company if suing alone, the critical consideration is the degree of overlap as to both issues and evidence between the respective applicant’s claims.  If there is very limited overlap, so that the respondent will incur substantial costs in meeting the company’s claims which it will have no entitlement to recover from the natural person should his action against that respondent also fail, then, in the absence of other relevant considerations, a proper exercise of discretion would generally require security to be provided by the company:  cf John Bishop (Caterers) Ltd & Anor v National Union Bank Ltd & Ors [1973] 1 All ER 707. Where, however, there is a very substantial degree of overlap between the two claims, then because the respondent has a natural person as applicant to whom he can look for payment of substantially the whole of the costs he is likely to incur if he successfully defends both sets of claims, a proper exercise of the discretion would generally result in no order for security being made against the company. Cf Harpur v Ariadne, supra, at 532.”

In Interwest Ltd v Tricontinental Corporation Ltd, Ormiston J founded his decision to order impecunious corporate plaintiffs to provide only limited security for the respondents’ costs on the ground that the applicants’ proceedings were, in
large but not complete part, defensive.  However, in deciding to order security in an amount equal to less than 5% of the security sought, his Honour also took into account that there was extensive (but not complete) overlap between the claims of the corporate plaintiffs and those of certain individual plaintiffs, saying, at 625:

“¼ one cannot merely rely on the fact, as was suggested on behalf of the plaintiffs, that there are also plaintiffs joined who happen to be individuals who might be able to pay any costs ordered in favour of the defendants.  That would lead to artificial joinder of individuals and would not give effect to the purpose of the section.  In a complex and difficult case, such as the present, where there is an absence of evidence as to the individuals’ capacity to pay costs, and indeed where there is evidence before the court suggesting a strong likelihood that they could not pay, I shall take those factors into account in exercising my discretion in respect of the corporate plaintiffs’ claims, while making due allowance for the consideration that I ought not to give any indirect benefit to the defendants in respect of their defence to the individual plaintiffs’ claims, for those cannot be the subject of any order or stay.”

I do not think that Ormiston J is here suggesting anything in the nature of a rule to be applied in all cases: as his Honour observed, at 623, the discretion conferred by s 1335 “is of the widest kind” and, as I commented in Drangold, that discretion is not to be fettered by mechanical rules.  Nor do I think that Ormiston J’s comments are in any way inconsistent with what I said in Drangold.

Here, there is a complete overlap between the issues which will have to be determined, as between both applicants and both respondents, in the first phase of the litigation that is to proceed to judgment.  The individual applicant is an essential party:  the respondents’ attempt to have the second applicant dismissed from the action established that.  It could not be suggested that the individual
applicant was only joined, in effect, as a subterfuge to provide a foundation for meeting any claim for security that might be made on an impecunious corporate applicant who was the only applicant truly interested in the action.  No attempt has been made to claim security from the individual applicant.  In contrast to the approach the respondents took to the second applicant, no attempt has been made to suggest at any stage of the proceedings that the individual applicant might be unable to pay the respondents’ costs of their defence, if it succeeds.  I do not therefore regard the second applicant as under any obligation to demonstrate that the individual applicant might be capable of meeting the second and third respondents’ costs of successfully defending the proceedings.

There is a further consideration which favours the denial of security.  Delay by a respondent in seeking security for costs is a factor to be taken into account in the exercise of the discretion.  The proceedings were commenced on 17 March 1994.  Five days later, the second and third respondents, by their solicitors’ letter, set out detailed reasons for thinking that the second applicant would be unable to pay their costs of a successful defence and put the second applicant on notice that, in the absence of satisfactory proof of its capacity to meet those costs, application would be made for security.  This issue was pressed for a time by the respondents and thereafter resurrected from time to time.  However, the application for security was only filed well over two and a half years later, on 5 November last.  It was filed after the second applicant had been embroiled in extensive interlocutory litigation with those respondents and related litigation instigated by one of those respondents; the pleadings are on the point of closing, although discovery and preparation of witness statements remain to be carried out.  The second and third
respondents have only moved for security after the second applicant has been allowed to incur what must be very significant expense in bringing the action to its present stage.  In this regard, I note that the second and third respondents, in “ISP-15”, have quantified their party and party costs (including disbursements) of the proceedings that resulted in the orders of 4 August 1995 and 2 July 1996 at $96,320.  Their solicitor and client costs of just these two proceedings must greatly exceed $100,000.  Even if the applicants have run a more economical case to date than the respondents, the second applicant is likely to have incurred very substantial costs in getting the action to its present stage.

In the absence of a satisfactory justification for delay in seeking security, it tells against a late application that a corporate applicant shown to be unable to meet the respondents’ costs of successfully defending the proceedings, has been allowed by the applicant for security to progress its action a substantial way towards being ready for trial and to incur substantial costs in doing that, an expense which will be rendered futile if security which the corporate applicant cannot provide is only ordered at a late stage.

The second and third respondents contend that, once the Court, in a sense, took the conduct of the proceedings out of the parties’ hands and directed that questions relating to the respondents’ s 163 defence be tried as a preliminary issue, there was good reason why they did not incur the expense of making their
foreshadowed application for security, given their prospects of succeeding on this defence (as they did), and given that such success would be a complete answer to the applicants’ claims against them, as then pleaded. There is substance in this explanation for their delay up until the judgment was given on 4 August 1995 on the s 163 defence. But, in assessing the cogency of this explanation for delay up until then, it must not be overlooked that the applicants, at an early stage, appear to have indicated their intention to pursue the second and third respondents, even if the decision on the preliminary questions destroyed the case they initially sought to make out against those respondents, an indication reflected in the liberty to amend their statement of claim given by Cooper J on 12 April 1994, when he set the preliminary questions down for later determination. Given that the respondents knew this, it was, I think, incumbent on them to move swiftly if they wished to seek security once those answers were given.

I do not accept that there is any justification for those respondents delaying after August 1995, for well over a year, before bringing their application for security.  They got the amended statement of claim raising a new case of infringement against them on 14 August 1995.  They chose, a week later, to issue a notice of motion seeking an order striking out that amended proceeding; thereafter, they did not bring that application before the Court for determination, only a narrower one seeking an order dismissing the second applicant from the proceedings.  They failed to achieve that.  There is no satisfactory explanation why, when they filed their motion on 21 August 1995 seeking an order striking out the amended pleading and
orders with respect to their costs of the applicants’ abandoned claim for interlocutory relief, they did not include an application for an order for security, a right to which they had long asserted they were entitled.  The respondents’ solicitor says that the decision to apply to strike out the amended statement of claim made it unnecessary to proceed with the security application because, if it succeeded, it would be unnecessary for the respondents to seek such relief.  It is, in my opinion, no answer, in the context of this litigation, for the second and third respondents to say that they were justified in delaying the bringing of the security application in the expectation that, if successful in having the second applicant dismissed from the proceedings, it would be unnecessary to bring it.  They had done most of the work of gathering the material on which they now rely in seeking security well before they filed their motion.  From that information and from the second applicant’s responses to their earlier demands for security, they could be confident that the second applicant was unlikely to be able to show that it could meet their costs of defending the action.  Costs to both applicants would in all probability have been significantly reduced if the striking out, costs and security claims had been brought before the Court by the motion filed on 21 August 1995.  If a litigant chooses to bring a series of applications for interlocutory relief, that may be exposed as an abuse of the process of the court, designed not to progress in efficient fashion the preparation of the case for hearing, but rather to grind down the opponent with expensive interlocutory litigation.  It would, however, be premature, I think, to so stigmatise the way the second and third respondents have conducted the interlocutory litigation to date.

In any event, judgment on the respondents’ motion was given on 2 July 1996.  A further four months passed before the application for security was filed, during which period the second and third respondents filed a defence and cross-claim to the applicants’ further amended pleading.  With this defence and cross-claim, extensive particulars of invalidity were provided.  By letter dated 30 August 1996, Mr Pascarl reiterated his demands of early August that the applicants deliver their statement in response to the second and third respondents’ statement of grounds of opposition so that those respondents could get on with preparing the case for hearing.  The second applicant was urged by the respondents to get on with preparation of the case and must have incurred not insubstantial further expense in doing that:  on 8 October 1996, the applicants filed their defence to this cross-claim, which incorporated their detailed response to the respondents’ particulars of invalidity.  The respondents’ solicitor seeks to explain the delay subsequent to 2 July 1996 by saying that he repeatedly sought confirmation from the applicants’ solicitors that the costs orders of Cooper J on 4 August 1995 and myself of 2 July 1996 would be paid “so that the application for security for costs could initially be confined to an estimate of legal costs arising from the date of filing the further amended statement of claim through until the commencement of the trial of the action”.  His letters said to state this position do not bear out what he says.  They do not link the question of paying the costs the subject of the orders of 4 August 1995 and 2 July 1996 with any security application, although, in the solicitor’s letter of 27 September 1996, the solicitor does raise again the question of making application for security for costs against the second applicant separately from dealing with the question of payment
of the costs of the two interlocutory orders, a course repeated in his letter of 11 October 1996.

I regard the delay on the part of the second and third respondents in bringing the application for security, not satisfactorily explained since 4 August 1995, while allowing the second applicant to incur substantial costs in the intervening period in preparing the matter for trial, as reinforcing my conclusion that this is not a case in which an impecunious corporate applicant should be ordered to provide security, at least for the second and third respondents’ costs of the proceedings up to and including a determination on the issues of validity of the patent.

As to the second part of the notice of motion, on 4 August 1995, Cooper J ordered that the applicants pay the respondents’ costs of and incidental to the preliminary questions to be taxed if not agreed.  On 2 July 1996, on application by all three respondents, I ordered that the applicants pay to the respondents their costs of and incidental to the applicants’ abandoned claim for interlocutory relief.

Senior counsel for the second and third respondents developed an elaborate argument involving the following propositions.  Firstly, that those respondents were entitled, pursuant to O 62 r 7(1)(a) or (c), to proceed to tax both sets of costs without any further order; secondly, they were entitled to tax those costs without any further order because the costs orders themselves were final orders, in both of which cases declarations to that effect were desirable, and, thirdly and in the alternative, if leave to tax the costs in question is required by O 62 r 3(3), such leave should be granted.  I was referred to numerous authorities.  Counsel for the first respondent, in whose favour similar costs orders were made, adopted these submissions and also sought leave for that respondent to tax those costs.

Interlocutory injunctive relief was claimed in the originating application filed 17 March 1994 and, in the amended application filed 21 March 1994, that claim was repeated. The applicants were notified that it would be heard on 12 April 1994. The claim came before the Court on that day. The orders then made, which included directions for the determination of the s 163 questions as preliminary issues, show that the claim for interlocutory relief was effectively abandoned, something confirmed by the applicants’ amended application, filed 14 August 1995, which did not contain any claim for interlocutory injunctive relief.

As to the respondents’ reliance on O 62 r 7(1)(a) and (c), it is explained  in Bertram v Beaurepaire Tyre Service Pty Ltd (1986) 4 NSWLR 685 that rules in terms similar to O 62 r 3(1) and (2) deal only with the power of the Court to make costs orders; an order that the costs of an interlocutory proceeding are to be paid, without qualification as to when they are to be paid, is an exercise of those powers; in the absence of a rule such as r 3(3), r 7(1)(a) would authorise the taxation of those costs without any further order. Order 62 r 3(3) was only introduced after it was recognised that provisions such as r 3(1) and (2), read with provisions such as r 7(1)(a), placed no impediment in the way of a party who has obtained an interlocutory costs order from proceeding, without any further order, to tax those costs immediately. The clear purpose of r 3(3) is to prevent r 7(1)(a) operating in
relation to costs of interlocutory proceedings, unless the Court specifically orders that the beneficiary of the costs order is to be at liberty to tax the costs immediately.  There is, I think, discernible in O 62 r 3(3) and r 7(1)(c) a policy of discouraging the making of interlocutory applications.  The general rule contained in r 3(3) is that a party who obtains a costs order in an interlocutory proceeding is not entitled to tax those costs, without special leave, until the conclusion of the action.  The fact that there is no automatic entitlement to immediate recovery of the costs of a successful interlocutory application can act as a brake upon the making of such applications.  The general rule, however, is relaxed by O 62 r 7(1)(c) in favour of a respondent to a motion for interlocutory relief who defeats the motion:  the party who ill-advisedly brought the failed motion is bound to pay the costs forthwith upon their being taxed, without any special order permitting that.  That, too, can act as a brake upon unrestrained interlocutory litigation.

I think it clear that, under the costs orders made in the respondents’ favour on 4 August 1995 and on 2 July 1996, which do not contain any liberty to tax those costs immediately, r 3(3) operates to prohibit taxation until the entire action is concluded, unless those costs orders can be regarded as made in a final, as opposed to an “interlocutory proceeding” within the meaning of that term in r 3(3).  Only in that event will r 7(1)(a) authorise the taxation of those costs without any order directing taxation being necessary.

As is apparent from O 19 r 1(1), a motion can be made only where the Court’s intervention in an interlocutory way is sought in a proceeding which has
already been commenced.  A claim for interlocutory relief included in the originating application is expressly authorised by O 4 r 9(1).  It cannot therefore be regarded as having been made by motion pursuant to O 19 r 1(1).  So the respondents cannot rely on r 7(1)(c) to justify a taxation without any order directing taxation.

As to the respondents’ argument that they are entitled to proceed immediately to taxation of the two orders in question because they are final orders, the respondents, in my opinion, have to show that the proceedings culminating in each of those orders were not “interlocutory proceedings” within the meaning of that expression in O 62 r 3(3):  otherwise the bar contained in that sub-rule expressly applies to the costs orders in question.  Even if it is assumed that each of these orders finally disposed of a discrete issue in the litigation, that does not, I think, mean that the proceedings culminating in those orders were not themselves interlocutory.  I accept the respondents’ submissions that decisions on whether judgments or orders are final or interlocutory, for the purposes of determining whether an appeal lies as of right or only by leave under various statutory provisions governing appeals, are of no assistance in the present context.  Nor do I think decisions on special statutory provisions, such as R v Smith; Ex parte Mole Engineering Pty Ltd (1981) 147 CLR 340 on which the respondents relied, are of any assistance either.

In my opinion, the meaning of the expression “interlocutory proceeding” in O 62 r 3(3) can be gathered from an understanding of the object of the rule.  The sub-rule was introduced following the defect in the existing rules
exposed in cases such as Bertram v Beaurepaire Tyre Service, to which I have referred.  The purpose of the sub-rule is to prevent the taxation and thus the enforcement of the costs orders made during the pendency of an action, until the entire action is finally concluded, subject to the Court, in its discretion, permitting that to be done.  It follows, in my opinion, that “an interlocutory proceeding”, for the purposes of r 3(3), is any proceeding in the course of an action other than that in which the entire action is concluded by a judgment or order that authoritatively determines those rights and obligations of the parties that are the subject matter of the dispute that gave rise to the litigation.  It does not, in my opinion, matter that an order made in a proceeding occurring during the pendency of the action can be seen to finally resolve one of a number of discrete issues or causes of action:  such a proceeding will, for the purposes of O 62 r 3(3) still be “an interlocutory proceeding” and the bar against taxation of the costs of that proceeding will apply, unless the Court otherwise orders.

I therefore reject the respondents’ submission that the costs orders in question are final and that they were made in final, as opposed to interlocutory proceedings in the action.

The respondents’ protection from any injustice that may flow from this interpretation of the costs rules lies, I think, in the discretion conferred on the Court by O 62 r 3(3) to permit taxation of costs orders made during the pendency of the action and prior to the final conclusion of the action.  It is to the respondents’ final submission that I now turn.

In Allstate Life Insurance Co v Australia & New Zealand Banking Group Ltd (Full Federal Court, 17 August 1995), the successful respondent to an interlocutory appeal against an order striking out a cause of action in the applicant’s statement of claim was given liberty under O 62 r 3(3) to tax immediately the costs it was awarded of that interlocutory proceeding.  The striking out application dealt with a point of substance and, as a consequence of the primary judge’s order, affirmed on appeal, one particular cause of action ceased to be an issue in the case.  In granting leave to tax the costs order, the Full Court took into account that the interlocutory application dealt with a discrete question and resulted in the excision from the case of an entire cause of action; the Court observed that the litigation was complex and that final judgment would not be given for some time and observed that it would be wrong if the successful parties were not to enjoy the fruits of their interlocutory order for costs for such a long time.  In Elliott & Ors v National Crime Authority & Ors (unreported, 18 March 1994) Foster J considered that the fact that certain interlocutory proceedings in which he made costs orders involved discrete issues that were fully litigated and determined by the interlocutory orders justified the granting of liberty to tax those orders immediately.  All such matters are relevant to how the discretion to grant leave to tax an interlocutory costs order should be exercised in a particular case, although they do not, of course, constitute an exhaustive list of those considerations.  The critical question is always whether the demands of justice require a departure from the general rule in the particular case:  see Thunderdome Racetiming and Scoring Pty Ltd v Dorian Industries Pty Ltd (1992) 36 FCR 297.

Cooper J’s determination of the preliminary issues did resolve, for practical purposes, a discrete issue in the action as between the applicants and the second and third respondents. However, I do not think it is correct to regard the determination of the preliminary questions, as between the applicants and the first respondent, as resolving, for practical purposes, a discrete issue. Rather did that determination resolve some only of a number of related issues: determination of the preliminary questions resulted in a foreshadowed amendment to the applicants’ case by means of which the applicants are seeking to pursue their rights against the first respondent under s 165 the Patents Act.  All three respondents will be kept out of those costs for some time yet, if they have to wait until the entire action is concluded.  But this consideration must have been obvious to the respondents on 4 August 1995 when they got the costs orders in question, yet they did not then seek leave to tax them.  None of the respondents explain the delay that has occurred between the making of the order for costs on 4 August 1995 and 5 November 1996, when applications were first made for leave to tax those costs.  In my opinion, the time when an interlocutory costs order is made is, as a general rule, the proper time for application to be made for liberty to tax those costs immediately:  if leave to tax is only sought by separate application, with attendant costs to all parties, and there is no satisfactory explanation for why that course is followed, those are factors which tell against the grant of the liberty now sought.  Nor is there any suggestion that any respondent will suffer prejudice by being kept out of the moneys to which they are entitled under the costs orders.  When, as here, one of the applicants is impecunious and unlikely to be able to pay the substantial costs involved, that it has
been permitted to progress the action between the making of the costs order and the making of the application for leave to tax is likely to create prejudice for it and that too tells against the grant of leave to tax the costs which that applicant has been ordered to pay.  For these reasons I decline to grant any respondent leave to tax the costs the applicants were ordered to pay on 4 August 1995.

For similar reasons, I also refuse to grant leave to the respondents to tax now the costs I ordered the applicants to pay to them on 2 July 1996.

The second and third respondents’ motion is dismissed.  Those respondents will have to pay the applicants’ costs of the motion and the first respondent, who adopted the other respondents’ argument on the costs aspect of the motion and who unsuccessfully sought leave to tax its costs, will have to pay one half of the applicants’ costs of this motion, unless they show good cause why different costs orders should be made by filing and serving concise written submissions by 20 December 1996.  In that event, the applicants will have liberty to file and serve concise and relevant submissions in reply.

I certify that this and the preceding 25
pages are a true copy of the reasons
for judgment of the Honourable
Justice Drummond.

Associate:

Date:  12 December 1996

Counsel for the second and third

respondents (applicants on the

motion):Mr J F Lyons Q C

Solicitors for the second and

third respondents:  Minter Ellison

Counsel for the first respondent:                Mr M Hinson

Solicitors for the first respondent:              Brisbane City Council

Solicitor for the applicants:  Andrew P Abaza

Date of hearing:  3 December 1996