FEDERAL COURT OF AUSTRALIA Checked-Out Pty Limited v Eagle Eye Inspections Pty Limited [2004] FCA 1759 CHECKED-OUT PTY LIMITED v EAGLE EYE INSPECTIONS PTY LIMITED & ORS N169 OF 1999 EMMETT J 2 SEPTEMBER 2004 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N169 OF 1999 BETWEEN: CHECKED-OUT PTY LIMITED (ACN 071 965 798) APPLICANT AND: EAGLE EYE INSPECTIONS PTY LIMITED (ACN 084 722 234) FIRST RESPONDENT JOSEPH WILLIAMS SECOND RESPONDENT WAYNE THOMAS COOK THIRD RESPONDENT TIMOTHY BOLLINS FOURTH RESPONDENT DEBORAH JEAN WILLIAMS FIFTH RESPONDENT PETER ADAMS trading as PETER ADAMS, SOLICITORS & ATTORNEYS SIXTH RESPONDENT KATARINA MUC trading as G H HEALEY & CO BLACKTOWN and BRUCE McCANN trading as B E McCANN & CO SOLICITORS SEVENTH RESPONDENT MARK KELADA trading as MARK KELADA SOLICITORS EIGHTH RESPONDENT MICHAEL QUINN trading as QUINNS SOLICITORS NINTH RESPONDENT MICHAEL JOHN NOYCE and GREGORY LAURENCE MARTIN trading as NOYCE LAWYERS TENTH RESPONDENT HENRY GRECH trading as GRECH PARTNERS SOLICITORS ELEVENTH RESPONDENT GREGORY PETER GUY trading as GUY & ASSOCIATES SOLICITORS TWELFTH RESPONDENT JUDGE: EMMETT J DATE OF ORDER: 2 SEPTEMBER 2004 WHERE MADE: SYDNEY THE COURT: 1. ORDERS that the notices of motion of the second to fifth respondents and of the sixth to eleventh respondents, both filed on 23 August 2004, be dismissed insofar as they relate to second and third named respondents of the motion, Ms Patricia Lane and Mr Paul Solomon. 2. ORDERS that the applicants on the motions (being the second to fifth respondents and the sixth to eleventh respondents) pay Ms Lane's and Mr Solomon's costs of the motions. 3. GRANTS LEAVE to the second and third named respondents to the motions to have a bill of costs taxed and paid forthwith. 4. DIRECTS the applicant to file and serve no later than 16 September 2004 a draft of any proposed amended statement of claim. 5. STANDS OVER the motions and lists the matter generally for directions on 24 September 2004 at 9.30 am. 6. DIRECTS that the solicitors for the sixth to eleventh respondent file on or before 5 pm on 6 September 2004 an affidavit explaining why those respondents' costs of the mediation of 24 September 2003 have not been paid. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 169 OF 1999 BETWEEN: CHECKED-OUT PTY LIMITED (ACN 071 965 798) APPLICANT AND: EAGLE EYE INSPECTIONS PTY LIMITED (ACN 084 722 234) FIRST RESPONDENT JOSEPH WILLIAMS SECOND RESPONDENT WAYNE THOMAS COOK THIRD RESPONDENT TIMOTHY BOLLINS FOURTH RESPONDENT DEBORAH JEAN WILLIAMS FIFTH RESPONDENT PETER ADAMS trading as PETER ADAMS, SOLICITORS & ATTORNEYS SIXTH RESPONDENT KATARINA MUC trading as G H HEALEY & CO BLACKTOWN and BRUCE McCANN trading as B E McCANN & CO SOLICITORS SEVENTH RESPONDENT MARK KELADA trading as MARK KELADA SOLICITORS EIGHTH RESPONDENT MICHAEL QUINN trading as QUINNS SOLICITORS NINTH RESPONDENT MICHAEL JOHN NOYCE and GREGORY LAURENCE MARTIN trading as NOYCE LAWYERS TENTH RESPONDENT HENRY GRECH trading as GRECH PARTNERS SOLICITORS ELEVENTH RESPONDENT GREGORY PETER GUY trading as GUY & ASSOCIATES SOLICITORS TWELFTH RESPONDENT JUDGE: EMMETT J DATE: 2 SEPTEMBER 2004 PLACE: SYDNEY REASONS FOR JUDGMENT 1 This proceeding has had a most unfortunate history, as I have, from time to time, indicated in the past. The matter was fixed for hearing on a final basis for two weeks commencing 19 July 2004. At that stage, the applicant was represented by Ms Patricia Lane of counsel instructed by Mr Paul Solomon. The proceeding in its current form alleges infringement of copyright by the respondents. The acts of infringement vary from respondent to respondent. After the hearing commenced, questions arose as to the precise identification of the material in respect to which copyright was claimed by the applicant. Specifically, copyright was claimed in, among other material, a computer program, and a list of codes. 2 At a directions hearing in April 2003, after some discussion in Court, the applicant finally particularised with precision the material in respect of which copyright was claimed and, in particular, the computer program and list of codes. In the course of the hearing that began on 19 July 2004 it became apparent that the particulars that had been furnished in April 2003, and on the basis of which the preparation for trial had been completed, were inaccurate. Questions arose concerning amendment of the applicant's particulars. Considerable time that had been set aside for the hearing was expended in relation to those particulars. The particulars should clearly have been clarified prior to the commencement of the hearing. That loss of time must be laid at the door of the applicant. 3 On 6 August 2004 I directed that the parties file any further motions in relation to any procedural matters relating to the further conduct of proceedings, to be returnable for hearing today. I directed that the motions, and any evidence in support, be filed and served no later than 20 August 2004. Those directions were given after the whole of the 10 days set aside for the hearing had elapsed with only a small part of the evidence that the parties wished to lead having been adduced at that stage. 4 Purportedly pursuant to the directions that I gave, the second to fifth respondents, the sixth to eleventh respondents and the twelfth respondent filed motions returnable before me today. With the exception of the twelfth respondent, those motions included prayers requiring Ms Lane and Mr Solomon to bear costs thrown away in the course of the hearing that commenced on 19 July 2004. I have not yet made any order as to the costs of that hearing, although it is fair to say that the parties have expected that there would be some order for costs to be made against the applicant in any event. The question that now arises, however, is the extent to which those appearing for the applicant are responsible for those costs, or at least share in the responsibility. 5 The motion brought by the second to fifth respondents seeks first an order that the applicant pay the costs arising out of the hearing commencing on 19 July 2004 and adjourned part heard on 30 July 2004. It also seeks an order, either pursuant to s 43 of the Federal Court of Australia Act 1976 (Cth) and O 62 r 9 of the Federal Court Rules, or pursuant to Section 198M of the Legal Profession Act 1987 (NSW), that Ms Lane and Mr Solomon pay directly to the second to fifth respondents or repay to the applicant those costs that the applicant has been ordered to pay to those respondents being, in effect, the costs sought in the first order. 6 The motion filed on behalf of the sixth to eleventh respondents asks for an order that the costs thrown away by the sixth to eleventh respondents arising from the hearing on 19 to 30 July 2004, be paid by the applicant. It also asks for an order, pursuant to s 43 and O 62 r 9, that Ms Lane and Mr Solomon pay and indemnify the sixth to eleventh respondents for the costs thrown away by them. 7 Order 62 rule 9(1) provides, relevantly, that if costs are incurred improperly or without reasonable cause, or are wasted by undue delay or by any other misconduct or default, and it appears to the Court that a legal practitioner is responsible, the Court may, after giving the legal practitioner reasonable opportunity to be heard, make orders that include a direction that the legal practitioner repay, to the client costs that the client has been ordered to pay, or direct the legal practitioner to indemnify any other party, other than the client, against costs payable by the party indemnified. 8 The motions themselves do not identify the circumstances that are said to justify such orders against the two practitioners. In the course of argument, counsel for the second to fifth and sixth to eleventh respondents identified generally the complaint that is made against Ms Lane and Mr Solomon. In essence, the complaint is that, on 2 July 2004, at a directions hearing, the Court was informed that the matter was ready to proceed, with the hearing fixed for 19 July 2004. However, it is said that Ms Lane and Mr Solomon ought to have made adequate inquiries of the applicant as to the precise material in respect of which copyright was claimed, and an inference should be drawn, having regard to the subsequent conduct of the proceeding, that no adequate inquiries were made prior to 2 July 2004, when that assurance was given. 9 Secondly, it is said that, between that time and the commencement of the proceeding, inquiries ought to have been made of the applicant by Ms Lane and Mr Solomon with a view to ascertaining precisely what material was said to be the subject of the claim for copyright, and an inference should be drawn that no such proper inquiries were made. Again, it is said that the inference should be drawn from the subsequent conduct of the proceeding. Some reliance is placed on the fact that, on 30 July 2004, I directed the applicant to explain why it was not until after the hearing was well under way that questions arose as to the precise identification of the material that was the subject of the claim for copyright. There has been no response to date to that direction. Reliance is also placed on the fact that at no stage did Ms Lane or Mr Solomon say to the Court that there had been a recent change in their instructions as to the identity of the material that was the subject of the claim for copyright. 10 The only evidence filed in support of the motions was evidence concerning the costs that have been incurred by the respondents in the defence of this proceeding. There is no doubt that substantial costs have been thrown away over a period of many years as a result of the difficulties experienced by the applicant in formulating and particularising its case. Ultimately those costs will likely be borne by the applicant. 11 However, there was nothing in the affidavits that were filed in support of the motions directed specifically to Ms Lane or to Mr Solomon. In the course of explaining the basis upon which the case was to be put against them, counsel for the second to fifth respondents referred to a number of parts of the transcript of the proceeding during the period 19 to 30 July 2004. That material, of course, should be available to the legal practitioner appearing for Ms Lane and Mr Solomon. Those practitioners have had no involvement in the proceeding prior to their retainer on behalf of Ms Lane and Mr Solomon. 12 Accordingly, if the matter were to proceed, it would be necessary for the second to eleventh respondents to identify with precision, the material in the transcript upon which they intend to rely in support of the inferences that they seek to have drawn. It would also be necessary for, Ms Lane and Mr Solomon to decide whether or not to file evidence in response. That, of itself, creates difficulties because of the legal professional privilege that would attach to communications between them and the applicant in relation to the conduct of the proceeding. 13 For the claims against Ms Lane and Mr Solomon to proceed with any expedition, that question would have to be resolved in the near future. On the other hand the proceeding is part-heard. At present the applicant has foreshadowed that it wishes to amend once again. I have not yet dealt with any application for leave to amend and it may be that no further leave will be given. I express no view about that one way or the other at this stage. However, as the proceeding is part-heard, it would be most unfortunate if the subsequent hearing of the proceeding was prejudiced in some way by the need to waive legal professional privilege in relation to a purely adjectival claim in relation to Ms Lane and Mr Solomon. 14 In addition, there is the difficulty that the second to eleventh respondents cannot, at this stage, identify with any precision, precisely what costs they seek against Ms Lane and Mr Solomon. It is no criticism of them that they cannot identify those costs at this stage because, by reason of the part-heard nature of the proceeding, it is impossible yet to know what costs have been thrown away, and that will depend upon what, if any, amendments are made to the current pleadings. 15 I have been informed by counsel for the second to fifth respondents that it was understood by those instructing him that my direction of 6 August 2004 was intended to cover a claim in the nature of the motion filed by the second to fifth respondents. In fact, that was not my intention. However, I will accept that it was thought in good faith that any such application should have been brought at this stage. 16 In so far as reliance is to be placed on s 198M of the Legal Profession Act, attention was drawn to s 198M(3). Section 198M(1) provides that if it appears to a court that a solicitor or barrister has provided legal services to a party without reasonable prospects of success, the court may make an order directing the solicitor or barrister to indemnify any party against the whole or any part of the costs payable by the party indemnified. However, under s 198M(3), an application for an order under s 198M cannot be made until after a final determination has been made, by a costs assessor, of the costs payable as a result of an order made by the court in which the proceedings on the claim concerned were taken. No order has yet been made and it will be some time, I expect, before any final order is made, and certainly some time before any final determination has been made by a costs assessor. 17 I consider that, in all of the circumstances, it would be highly undesirable for any investigation or examination to be made of the responsibility of Ms Lane and Mr Solomon prior to the final determination of this proceeding. The principal reason is that, until that occurs, it is not possible to determine with any certainty just what costs have been thrown away. There is also the risk that the hearing of motions at this stage may prejudice the fair conduct of the proceedings so far as the applicant is concerned. That is to say the waiver of legal professional privilege may be necessary in order to enable Ms lane and Mr Solomon to have a fair opportunity of resisting the claims against them. 18 In the circumstances, I consider that I should dismiss the motions as against Ms Lane and Mr Solomon, and that the applicants on the motion should pay their costs of today. 19 Ms Lane and Mr Solomon asked for a special order concerning their costs of the motions. They say that the application was improperly brought and should not have been brought at this stage. I have determined that the applications were premature. However, I do not consider that it was improper to bring the applications at this stage. It may well be, and I express no view one way or the other about this, that ultimately some relief in the nature sought might be obtained. I do not consider that circumstances have been demonstrated that would justify a special order for costs. 20 So far as the practitioners are concerned, this is their only involvement in the proceeding as parties and there is no reason why there should be any delay in obtaining any costs to which they are entitled. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate: Dated: 1 February 2005 For the Applicant: (with leave) Ms A. Wilczak Counsel for the Second to Fifth Respondents: Mr J.S. Drummond Solicitor for the Second to Fifth Respondents: Bateman Battersby Counsel for the Sixth to Eleventh Respondents: Mr A. Fernon Solicitor for the Sixth to Eleventh Respondents: Noyce Legal Counsel for the Twelfth Respondent: Mr B. Morris Solicitor for the Twelfth Respondent: R E Barros & Co Counsel for Ms P Lane ML Williams SC, NR Murray Solicitor for Ms P Lane McCabe Terrill Lawyers Solicitor for Mr P Solomon Mr Shields, Acutii Legal Date of Hearing: 2 September 2004 Date of Judgment: 2 September 2004