Vector Corrosion Technologies Limited v E-Chem Technologies Ltd

Case [2022] FCA 519

FEDERAL COURT OF AUSTRALIA

Vector Corrosion Technologies Limited v E-Chem Technologies Ltd [2022] FCA 519  

File numbers: QUD 649 of 2018
QUD 117 of 2019  
Judgment of: JAGOT J
Date of judgment: 9 May 2022
Catchwords: COSTS — application for indemnity costs in two related proceedings — where case which proceeded to final judgment was weak but arguable — where applicant unreasonably rejected settlement offer in discontinued proceedings — costs ordered on indemnity basis from date of settlement offers in discontinued proceeding
Legislation:

Federal Court of Australia Act 1976 (Cth) s 43

Federal Court Rules 2011 (Cth) rr 25.01, 25.14(2)
Cases cited:

Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd (No 5) [2021] FCA 246; (2021) 151 ACSR 26

Industrial Galvanizers Corporation Pty Ltd v Safe Direction Pty Ltd (No 2) [2018] FCA 1612

Palmer v Premiair Aviation Maintenance Pty Ltd [2022] FCA 185
Division: General Division
Registry: Queensland
National Practice Area: Intellectual Property
Sub-area: Patents and associated Statutes
Number of paragraphs: 68
Date of last submissions: 14 April 2022
Date of hearing: Determined on the papers
Counsel for the Applicant/Cross-Respondent: Craig Smith
Solicitor for the Applicant/Cross-Respondent: Bennett & Philp Solicitors
Counsel for the Respondents/Cross-Claimants: Julian Cooke and Angela McDonald
Solicitor for the Respondents/Cross-Claimants: Maddocks Lawyers

ORDERS

QUD 649 of 2018
BETWEEN:

VECTOR CORROSION TECHNOLOGIES LIMITED

Applicant

AND:

DUOGUARD AUSTRALIA PTY LTD

First Respondent

CONCRETE PRESERVATION TECHNOLOGIES LTD

Second Respondent

MR NIGEL DAVISON (and others named in the Schedule)

Third Respondent
AND BETWEEN:

DUOGUARD AUSTRALIA PTY LTD

Cross-Claimant

CONCRETE PRESERVATION TECHNOLOGIES LTD

Second Cross-Claimant

AND:

VECTOR CORROSION TECHNOLOGIES LTD

Cross-Respondent

ORDER MADE BY:

JAGOT J

DATE OF ORDER:

9 MAY 2022

THE COURT ORDERS THAT:

1.Order 3 of the orders made on 19 May 2021 be vacated.

2.The applicant/cross-respondent pay the first to fifth respondents’/cross-claimants’ costs of the proceeding and the cross-claim:

(a)on a party-party basis up to and including 25 June 2019; and

(b)on an indemnity basis on and from 26 June 2019.

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

ORDERS

QUD 117 of 2019
BETWEEN:

VECTOR CORROSION TECHNOLOGIES LIMITED

Applicant
AND:

E-CHEM TECHNOLOGIES LTD

First Respondent

NIGEL DAVISON

Second Respondent

ADRIAN CHARLES ROBERTS (and others named in the Schedule)

Third Respondent

ORDER MADE BY:

JAGOT J

DATE OF ORDER:

9 MAY 2022

THE COURT ORDERS THAT:

1.The respondents’ costs of the proceeding in order 2 of the orders made on 9 March 2022 (order 2) exclude the respondents’ costs of seeking to vary order 2 to claim indemnity costs.

2.The respondents pay the applicant’s costs of seeking to vary order 2, as agreed or taxed.

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


REASONS FOR JUDGMENT

JAGOT J:

1.                 Background

  1. In Vector Corrosion Technologies Limited v E-Chem Technologies Ltd [2022] FCA 188 (the principal judgment or PJ) I made orders including an order dismissing Vector’s amended originating application in proceeding QUD 117/2019.

  2. These reasons…

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AGLC
Vector Corrosion Technologies Limited v E-Chem Technologies Ltd [2022] FCA 519
Case
[2022] FCA 519
Decision Date

CaseChat Overview and Summary

In the case of Vector Corrosion Technologies Limited v E-Chem Technologies Ltd, the respondents, E-Chem Technologies Ltd and related entities, sought indemnity costs from Vector Corrosion Technologies Limited in two related proceedings. The first proceeding, QUD117/2019, involved claims for sole or joint entitlement to the E-Chem patent. The second proceeding, QUD649/2018, involved allegations of patent infringement and a cross-claim for revocation of the asserted claims of Vector’s Australian high voltage anode patent. The Federal Court dismissed Vector’s claims in both proceedings and ordered costs against Vector. The respondents sought indemnity costs for both proceedings, arguing that Vector’s claims were weak and that the delay in bringing the proceedings increased the costs incurred by the respondents.

The legal issues before the court were whether the respondents were entitled to indemnity costs for the entitlement proceeding and whether they were entitled to indemnity costs for the infringement proceeding. Indemnity costs are awarded when a party’s conduct in bringing or persisting in a case is unreasonable, such as bringing a case that should have been known to be hopeless, causing unnecessary costs, or prolonging a hearing. The court had to consider whether Vector’s conduct in bringing and pursuing the proceedings was unreasonable.

The court found that the respondents’ claim for indemnity costs of the entitlement proceeding should be rejected. The court was not persuaded that Vector commenced and prosecuted the proceedings for the ulterior purpose of causing the respondents’ business to fold under the substantial costs of the litigation. The court also found that the mere fact of Vector’s unreasonable delay in commencing the proceedings did not support an inference that Vector knew or reasonably ought to have known its claims were hopeless. However, the court found that the respondents’ claim for indemnity costs of the infringement proceeding should be accepted. The court accepted that the offers of compromise and the Calderbank offer made in the infringement proceeding were reasonable and that Vector’s rejection of these offers was unreasonable.

The court ordered that the respondents’ costs of the proceeding in order 2 of the orders made on 9 March 2022 (order 2) exclude the respondents’ costs of seeking to vary order 2 to claim indemnity costs. The respondents were ordered to pay the applicant’s costs of seeking to vary order 2, as agreed or taxed.

Orders

Orders of the court

1. The respondents’ costs of the proceeding in order 2 of the orders made on 9 March 2022 (order 2) exclude the respondents’ costs of seeking to vary order 2 to claim indemnity costs.

2. The respondents pay the applicant’s costs of seeking to vary order 2, as agreed or taxed.

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

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

In Vector Corrosion Technologies Limited v E-Chem Technologies Ltd [2022] FCA 188 (the principal judgment or PJ) I made orders including an order dismissing Vector’s amended originating application in proceeding QUD 117/2019. These reasons for judgment are to be read with the principal judgment. Terms defined in the principal judgment have the same meaning in these reasons for judgment. By its amended originating application in proceeding QUD117/2019, Vector had claimed sole or joint entitlement to the E-Chem patent. In the principal judgment I dismissed Vector’s claims and made an order for costs against Vector, subject to a regime permitting the parties to apply to vary the costs order. The respondents now seek indemnity costs of the QUD117/2019 proceeding, referred to as the entitlement proceeding. In the principal judgment at [345] I referred to Vector also having commenced proceeding QUD649/2018 alleging that the respondents and related companies had infringed Vector’s Australian high voltage anode patent and the respondents and E-Chem’s related company, Duoguard Australia Pty Ltd, having cross-claimed for revocation of the asserted claims of Vector’s Australian high voltage anode patent. Proceeding QUD649/2018 was resolved by consent orders made on 19 May 2021 dismissing Vector’s infringement claims, revoking the asserted claims of Vector’s Australian high voltage anode patent, and otherwise dismissing Duoguard’s cross-claim. As permitted by order 4 of the orders made on 19 May 2021, the respondents now seek indemnity costs of proceeding QUD649/2018, referred to as the infringement proceeding. I have concluded that:(1)the respondents’ claim for indemnity costs of the entitlement proceeding should be rejected; and(2)the respondents’ claim for indemnity costs of the infringement proceeding should be accepted having regard to an offer of compromise and a Calderbank offer made in that proceeding.2. Respondents’ submissions According to the respondents, Vector instituted and prosecuted both sets of proceedings in an attempt to cause the respondents’ business to fold under the substantial costs of the litigation. They said that this inference should be drawn from Mr Whitmore’s threat in January 2011 that if the respondents did not pay Vector a licence fee to use E-Chem’s technology, the respondents risked incurring “the high costs of litigation in faraway places like Australia”, as was noted at PJ [343]. They said that this inference is also supported by the following circumstances. In the principal judgment at [385] I found that Vector had engaged in extreme and unreasonable delay in bringing its entitlement claims in order to maximise its commercial advantage against the respondents. The same conclusions would apply to the infringement proceeding. The respondents say that it should be inferred from the delay that Vector knew its claim in the entitlement proceeding was weak. The delay also increased the costs of the proceedings due to the extended period of relevance and the need for the respondents to refresh their memories by reference to documentary material dating back 18 years. The delay may be inferred to have contributed to the loss of documents such as the advice received by Fosroc on lack of entitlement to the E-Chem patent, a fact which I noted at PJ [315].

Ratio Decidendi

Legal Principle Established

Vector submitted that its rejection of the offers from the respondents in the infringement proceeding was not unreasonable at that time as:(1)the offers were served on 24 June 2019 after each party had served its first round of evidence, but before they had prepared and filed their evidence in answer;(2)the offers were made on a “walk away” basis which remains relevant to the assessment of the reasonableness of Vector’s rejection of them;(3)the de minimis current point that was addressed above in relation to infringement and referred to in the Calderbank offer was far from hopeless and, at that time, the respondents had not filed their evidence in this regard;(4)the respondents’ invalidity arguments were not bound to succeed and, at the time of the offers, Vector was not bound to have reached that conclusion acting reasonably; and(5)the fact that one party accurately predicts an adverse outcome of a proceeding and notifies that position does not of itself make the pursuit of that unsuccessful claim unreasonable.4. Consideration The relevant principles were not in dispute between the parties. The Court has a broad power to award costs in proceedings, including indemnity costs, under s 43 of the Federal Court of Australia Act 1976 (Cth). While the purpose of an indemnity costs order remains compensatory, the basis for such an order is a conclusion that the unreasonable conduct of a party (be it bringing or persisting in a case the party should have known was hopeless, causing unnecessary costs to be incurred, prolonging a hearing, bringing or persisting in a case for an ulterior motive, or otherwise) should result in full compensation to the other party for the costs incurred. A detailed explanation of the principles to be applied may be found in Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd (No 5) [2021] FCA 246; (2021) 151 ACSR 26 at [6]–[12]. The reasoning in Palmer v Premiair Aviation Maintenance Pty Ltd [2022] FCA 185 does not establish any new or different principle. In that case, the lawyer’s explanation for the discontinuance of the proceeding supported an inference that the applicant should have known the proceeding was doomed. I am not persuaded that I should infer that Vector commenced and prosecuted the proceedings for the ulterior purpose of causing the respondents’ business to fold under the substantial costs of the litigation. In particular:(1)Mr Whitmore’s threat in January 2011 that if the respondents did not pay Vector a licence fee the respondents risked incurring the “the high costs of litigation in faraway places like Australia” does not support the inference the respondents propose. Drawing attention to potential litigation costs is a legitimate negotiating tactic. The relevant issue is not Mr Whitmore’s negotiating tactics but whether it might be inferred that he knew or reasonably ought to have known Vector’s claims were hopeless; and(2)I am unable to infer from the mere fact of Vector’s unreasonable delay in commencing the proceedings that Vector knew its claims were weak. Nor am I able to infer that the delay after 2011 significantly increased the cost of the proceedings given that the most important time period was 2003–2006.