Federal Court of Australia Shepparton Partners Collective Operations Pty Ltd v QAD Inc (No 2) [2021] FCAFC 227 Appeal from: QAD Inc v Shepparton Partners Collective Operations Pty Ltd [2021] FCA 615 File number: NSD 701 of 2021 Judgment of: GREENWOOD, JAGOT AND ROFE JJ Date of judgment: 17 December 2021 Catchwords: COSTS – indemnity costs – whether appeal was sufficiently meritless – whether costs unreasonably incurred – costs awarded on lump sum basis Legislation: Federal Court Rules 2011 (Cth) Sch 1, Sch 3 cl 1.1 Cases cited: Shepparton Partners Collective Operations Pty Ltd v QAD Inc [2021] FCAFC 206 Division: General Division Registry: New South Wales National Practice Area: Intellectual Property Sub-area: Copyright and Industrial Designs Number of paragraphs: 13 Date of last submissions: 10 December 2021 Date of hearing: Determined on the papers Counsel for the Appellant: Mr D Weinberger Solicitor for the Appellant: Chedid Storey Legal Counsel for the First, Second and Third Respondents: Mr P Flynn SC with Mr D Larish Solicitor for the First, Second and Third Respondents: King & Wood Mallesons ORDERS NSD 701 of 2021 BETWEEN: SHEPPARTON PARTNERS COLLECTIVE OPERATIONS PTY LTD Appellant AND: QAD INC First Respondent QAD EUROPE (IRELAND) LTD Second Respondent QAD AUSTRALIA PTY LIMITED Third Respondent order made by: GREENWOOD, JAGOT AND ROFE JJ DATE OF ORDER: 17 DEcember 2021 THE COURT ORDERS THAT: 1. The appellant pay the respondents' costs of the appeal on an indemnity basis. 2. The costs in order 1 be payable on a lump sum basis. 3. The lump sum costs be fixed in the sum of $99,473.55, payable within 28 days of these orders. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT THE COURT: 1 We dismissed SPC's appeal in respect of damages for copyright infringement on 19 November 2021: Shepparton Partners Collective Operations Pty Ltd v QAD Inc [2021] FCAFC 206. 2 The remaining issue is costs. 3 Terms defined in our judgment dismissing the appeal have the same meaning in this judgment. 4 QAD, the successful party, seeks an order for indemnity costs in respect of either the appeal in its entirety (on the basis that the appeal was "sufficiently meritless" to justify indemnity costs) or from 17 September 2021 (on the basis of an offer of compromise). QAD also seeks a lump sum costs order in specified amounts, depending on whether the order for costs in its favour is for indemnity costs for the appeal as a whole ($99,473.55), for indemnity costs from 17 September 2021 ($95,790.18), or for costs on the usual basis ($76,595.81). 5 In its written submissions in response SPC contended that an order for costs in the lump sum of $63,147.32 should be made on the basis that: (a) hourly rates charged by the respondents' solicitors are excessive having regard to the Court's scale and general knowledge of rates charged for this type of work, (b) a significant proportion of the costs charged are unreasonable as evidenced by the itemised invoices, and (c) a 10% reduction should be applied to disbursements. 6 SPC ultimately pressed two inter-dependent grounds of appeal only. In the principal judgment we held that it was not open to SPC to put its first ground given its conduct of the hearing below. It followed that SPC's second ground also could not succeed. We also observed that even if SPC could raise its grounds of appeal, they would be rejected. Given the nature of the appeal (against an order for damages) and our conclusion that it was not open to SPC to make the only argument it ultimately sought to press in the appeal, we consider that the appeal justifies the description of being sufficiently meritless to result in an order for indemnity costs generally. It was unreasonable of SPC to put QAD to the expense of defending such a baseless appeal. SPC ought to have appreciated this before it put QAD to any such expense. Properly advised as to its grounds, SPC ought to have recognised that it had no chance of success in the appeal. 7 SPC accepted that there was a proper basis for the making of a lump sum costs order. We agree that such an order should be made in the interests of justice. While SPC accepted also that the purpose of a lump sum costs order was to avoid the unnecessary time and expense which would be consumed by a formal process of taxation of costs, it maintained that where the invoices were available the Court should examine them to ensure that the order for costs is fair, logical and reasonable. 8 It is correct that an indemnity costs order does not entitle a party to costs unreasonably incurred. This is apparent from Sch 1 to the Federal Court Rules 2011 (Cth) which defines "costs on an indemnity basis" to mean "costs as a complete indemnity against the costs incurred by the party in the proceeding, provided that they do not include any amount shown by the party liable to pay them to have been incurred unreasonably in the interests of the party incurring them". However, we do not agree with the approach of SPC to QAD's claim for costs on an indemnity basis. We have considered the evidence as filed in support of and opposing the amount of the lump sum costs order. The evidence does not include the invoices or other material which SPC requested and received from QAD. The inclusion of this material in the affidavit supporting QAD's application for a lump sum costs order would have been inconsistent with the purpose of applying for such an order and the provisions of the Costs Practice Note (GPN-COSTS). Under cl 4.11 of the Costs Practice Note (GPN-COSTS) the costs summary must be "clear, concise and direct and not resemble a bill of costs in taxable form", the intention being to "streamline and expedite the determination or resolution of the quantum of costs question and not to replicate the taxation process". 9 We do not accept that we should undertake any invoice-by-invoice review of the cost as claimed. The substantial part of SPC's objection to the amount claimed on an indemnity basis relates to the hourly rate charged by QAD's lawyers excluding counsel. 10 We accept that the hourly rate for the lawyer on the record for QAD materially exceeds the maximum amount per hour of $650 specified in Sch 3 cl 1.1 of the Federal Court Rules, as does the rate charged by the special counsel involved. However, the majority of the work was performed by lawyers charging substantially less than the maximum of $650 per hour. Once this is considered, we do not accept that the fees for the lawyers excluding counsel are unreasonable. There is no proper basis for the proposed reduction of 30% of the costs actually incurred on account of the fees for lawyers excluding counsel. Nor is it apparent that there should be any discount for counsels' fees or disbursements, given our conclusion that an order for indemnity costs should be made. 11 We also disagree that we should defer the issue of unbilled but incurred and estimated costs in respect of the costs application for later assessment. There is evidence that QAD will incur further costs of $5,300 already incurred and an estimated $8,000 to deal with the outstanding issue of costs. Those costs should be included in the lump sum costs order. Again, we do not see any basis to conclude that any such costs have been or will be unreasonably incurred. 12 We have also considered the overall amount of the costs claimed on the indemnity basis, $99,473.55. This amount does not strike us as unreasonable given the nature of the matter and the issues at stake. We see no unreasonableness in QAD's claim for an indemnity costs order assessed in a lump sum in the amount of $99,473.55. We also see no reason why the amount payable should be paid in two instalments as SPC proposes. Rather, the total amount should be ordered to be paid within 28 days. 13 Orders will be made accordingly. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Greenwood, Jagot and Rofe. Associate: Dated: 17 December 2021