FEDERAL COURT OF AUSTRALIA Baygol Pty Ltd v Foamex Polystyrene Pty Ltd [2005] FCA 1089 COSTS – application for solicitor and client costs – exercise of discretion to award costs – factors to be taken into account in making a special order as to costs – whether matter disclosed any special or unusual features that would warrant an award of solicitor and client costs – whether claims were bound to fail – alleged Calderbank letter – whether proceedings were commenced for a proper purpose PRACTICE AND PROCEDURE – application to join litigation fund to the proceedings Calderbank v Calderbank [1975] 3 All ER 333 referred to Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 discussed Oshlack v Richmond River Council (1998) 193 CLR 72 applied BAYGOL PTY LTD (ACN 008 055 212) v FOAMEX POLYSTYRENE PTY LTD (ACN 088 759 264) NSD 1530 OF 2003 TAMBERLIN J SYDNEY 16 AUGUST 2005 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1530 OF 2003 BETWEEN: BAYGOL PTY LTD (ACN 008 055 212) APPLICANT/CROSS RESPONDENT AND: FOAMEX POLYSTYRENE PTY LTD (ACN 088 759 264) RESPONDENT/CROSS-CLAIMANT JUDGE: TAMBERLIN J DATE OF ORDER: 16 AUGUST 2005 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The application is refused. 2. The applicant is to pay the costs of the respondent of the appeal and this application for indemnity costs on a party and party basis. 3. The matter is stood over for further directions on 16 August 2005 at 9:30 am. 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 NSD 1530 OF 2003 BETWEEN: BAYGOL PTY LTD (ACN 008 055 212) APPLICANT/ CROSS RESPONDENT AND: FOAMEX POLYSTYRENE PTY LTD (ACN 088 759 264) RESPONDENT/CROSS-CLAIMANT JUDGE: TAMBERLIN J DATE: 16 AUGUST 2005 PLACE: SYDNEY REASONS FOR JUDGMENT 1 In this matter, I delivered judgment on 18 May 2005 in relation to a preliminary question as to the meaning of the term "concrete" where used in a patent claim in relation to the term "concrete spacers". As a consequence of that judgment, I dismissed the application by Baygol Pty Ltd ("Baygol") and ordered Baygol to pay the costs of the respondent, Foamex Polystyrene Pty Limited ("Foamex"). 2 Foamex now makes an application to the Court for an order that its costs be paid on a party and party basis up to 18 February 2005 and thereafter on a solicitor and client basis. In the same Notice of Motion, Foamex also seeks leave to join Australian Litigation Fund Pty Limited as a third party to the proceedings for the purpose of applying for payment of its costs. The basis of the latter application is that, in the event of what is said to be a likely short fall in the security for costs provided by Baygol, Foamex proposes to seek to recover its costs from Australian Litigation Fund Pty Limited. 3 On the hearing on 2 August 2005, I set the matter down for further directions on 16 August 2005 at 9:30 am in relation to the proposed application to join Australian Litigation Fund Pty Limited as a third party. 4 These reasons are concerned solely with the question of whether solicitor and client costs should be granted to Foamex. 5 The application for solicitor and client costs is based on the following considerations: · The claim was bound to fail. The construction point disposing of the claim was obvious and compelling. Foamex had made it clear to Baygol that the ultimate outcome was inevitable. · Foamex was entirely defensive in its conduct of the proceedings and sought repeatedly to resolve it at an early stage on reasonable terms which were better than those ultimately achieved by Baygol. · The claim was brought almost 18 years after the priority date of the patent in circumstances where "concrete spacers" had long been obsolete and the practices in issue had been allowed to continue without complaint. · Baygol brought the claim after enlisting the financial support of a professional litigant, namely, the Australian Litigation Fund Pty Ltd. · In the circumstances, it is said that the inference is that Baygol and its backers conducted a case without any legal merit. 6 A further element relied on by Foamex is the alleged Calderbank offer made on 18 February 2004. It is said that Baygol acted imprudently and wholly unreasonably both in bringing the proceedings and in continuing them after the offer was made. 7 The principal hearing in respect of which the present costs application is made was heard over four days and there was substantial oral and affidavit evidence and detailed written and oral submissions. In my view, it cannot be said that the case was baseless or without any reasonable prospect of success. Although the applicant was unsuccessful in its contentions, substantial issues were raised for consideration and I do not accept that the question of costs should be approached on the basis that the proceedings were unreasonably instituted and did not have prospect of success. 8 The Calderbank offer relied on by Foamex is set out in a letter dated 18 February 2004, written by the solicitors for Foamex prior to the conclusion of the hearing. The letter contends that Baygol must fail in its claim for two reasons. First, the letter says that the only proper construction of the patent specification was that the spacers must be made of concrete and that this was an essential integer of the claim. Second, the letter asserts that Foamex would succeed in its cross claim that there was a lack of novelty arising from the use of the claimed method in a commercial transaction relating to the construction of the foundation. The offer made was in the following terms: "1. Both the claim and cross claim be dismissed. 2. Your client [Baygol] pay our client's [Foamex] party/party costs. 3. Your client [Baygol] grant an irrevocable royalty free worldwide licence for the patented method with the parties to exchange releases upon our client [Foamex] receiving that licence. 9 The offer was specified to be open for two weeks from 18 February 2005. The letter notified Baygol that Foamex intended to rely, if the offer was not accepted, on the principle in Calderbank v Calderbank [1975] 3 All ER 333. 10 On 2 June 2005, after judgment in this matter had been handed down, Foamex wrote to the solicitors for Baygol stating that their view that the claim must fail had been borne out by the decision. The letter stated that the costs incurred by Foamex were $285,146.45 to the date of the decision and it noted that Baygol had deposited $55,000 into the Court designated bank account as security for costs. A search of the records of the Australian Securities and Investments Commission had been made by Foamex shortly before 2 June 2005, as a consequence of which the solicitors for Foamex asserted that the total share capital of Foamex was $2,223.00. Accordingly, the letter registered concern that Foamex would not have sufficient assets to meet the adverse cost order made by the Court. 11 The grounds on which costs are awarded upon an indemnity basis are discussed by Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225. After a comprehensive review of the authorities at 569-570, his Honour distilled a number of guidelines. His Honour referred to the ordinary rule that where a Court orders that costs be paid, it is on a party and party basis, and that the Court ought not make an order for the payment of costs on some basis other than party and party unless there is some special or unusual feature in the case to justify departure from the ordinary rule. The categories of case for which indemnity costs are awarded are not closed. The discretion of the Court is absolute and unfettered although it must be exercised in a judicial manner. One of the relevant matters to take into account is the existence of an offer for settlement. 12 The weight to be given to the existence of an offer to settle prior to the conclusion of the hearing depends on the reasonableness of the failure by the relevant party to accept the offer. A distinction has been drawn in the authorities between a genuine offer of a realistic compromise, and a demand to capitulate in circumstances where the case has some prospect of success. The question posed is whether the offer advanced by the party is designed merely to trigger costs sanctions, in which case it would not be treated as a genuine offer of compromise, or whether it is an offer of a significant benefit, in which case it could be so treated. A refusal to acknowledge any substance in the opposing party's case will usually not be sufficient of itself to warrant the making of a costs award on a solicitor client basis. The existence of a Calderbank offer, and its significance and importance, depends on the terms of the offer considered in the circumstances of each case and it is one factor to weigh and balance when exercising in a judicial manner the unfettered discretion conferred. Some authorities refer to the concept of "delinquency" on the part of the unsuccessful party as a significant consideration. In the present case, having regard to the submissions made and the evidence, I am not persuaded that it can be said that the unsuccessful party, namely, Baygol, could be said to have engaged in any "delinquency" in the sense that expression is used by Gaudron and Gummow JJ in Oshlack v Richmond River Council (1998) 193 CLR 72 at [44]. 13 In this case, there was no application by Foamex to strike out Baygol's case and the preliminary question was heard over a four day period. This omission to attempt to strike out is a relevant circumstance because if it had been the intention to reduce the cost burden on Foamex and the case was considered to be hopeless, then the logical course would have been to make a strike out application. 14 The first and second proposals advanced in the letter of 18 February 2004, namely, that the claim be dismissed and that Baygol pay the costs of Foamex on a party and party basis, amount to no more than a capitulation. 15 There are two additional factors to be considered. The first is that the offer made it clear that the cross-claim based on lack of novelty should also be dismissed. This matter has not been litigated and there was no evidence before me on which I could make any useful prediction as to whether the cross-claim had any prospect of success. Therefore, dismissal of the cross-claim is not assigned any significant weight by me in relation to this question. 16 The second relevant matter is that the offer made on 18 February 2004 was not unconditional. There was a demand in the letter that Baygol grant an irrevocable royalty free worldwide licence for the patented method, with the parties to exchange releases upon Foamex receiving that licence. In the situation where, in my view, Baygol's case was not totally without substance, the requirement that Baygol grant an irrevocable royalty free worldwide licence was a consideration supportive of Baygol's refusal of the offer. 17 As to the individual factors raised by Foamex, apart from the Calderbank letter, I do not consider that, either cumulatively or alone, they warrant the grant of costs on a solicitor and client basis. In particular, I am certainly not satisfied that the claim was bound to fail. The fact that Foamex was defensive does not advance its position in my view. The considerations that the claim was brought 18 years after the priority date and that Baygol had selected the criterion of "concrete" in relation to the spacers do not warrant a departure from the general principle. The fact that the claim was brought with financial support, does not justify a departure from the ordinary rule in this case. There was a case to be ventilated. The final factor relied on is a matter of assertion, namely, that Baygol and its backers conducted a litigation not on the basis of imagined legal merit but on the cynical basis that they could coerce settlement. The evidence, and the way in which the proceedings were conducted and the evidence was adduced, run counter to this suggestion. 18 Accordingly, I refuse the application by Foamex for costs to be awarded on a solicitor and client basis. 19 In relation to the foreshadowed application to join Australian Litigation Fund Pty Ltd, as indicated earlier, I stand the matter over for further directions on 16 August 2005 at 9.00 am. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin. Associate: Dated: 16 August 2005 Counsel for the Applicant: J F Kerr Solicitor for the Applicant: Griffin Vincent Lawyers Counsel for the Respondent: S Minahan Solicitor for the Respondent: Rigby Cooke Lawyers Date of Hearing: 2 August 2005 Date of Judgment: 16 August 2005