FEDERAL COURT OF AUSTRALIA TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 4) [2007] FCA 635 COSTS – solicitor and client costs – whether warranted – Bullock order – Sanderson order – when applicable PRACTICE & PROCEDURE – interest on judgment – rate to be applied – when State penalty interest rate to be applied – period of interest – relevance of delay Penalty Interest Rates Act 1983 (Vic) Besterman v British Motor Cab Co Ltd [1914] 3 KB 181 Bullock v London General Omnibus Company [1907] 1 KB 264 Cirillo v Consolidated Press Property Ltd (No 2) [2007] FCA 179 Clarke v Foodland Stores Pty Ltd [1993] 2 VR 382 ECML Pty Ltd v Essanda Finance Corp Ltd [1999] FCA 978 GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 201 ALR 55 Gould v Vaggelas (1984) 157 CLR 215 Hamod v New South Wales (2002) 188 ALR 659 Harbutt's Plasticine Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447 Johnson's Tyne Foundry Pty Ltd v Maffra Shire Council (1948) 77 CLR 544 Namol Pty Ltd v AW Balderstone Pty Ltd (No 2) (1993) 47 FCR 388 Marsh v Ruby [1975] VR 191 Riches v Westminster Bank Limited [1947] AC 390 Sanderson v Blyth Theatre Company [1903] 2 KB 533 Walker v Citigroup Global Markets Pty Ltd [2005] FCA 1866 TS & B RETAIL SYSTEMS PTY LTD v 3FOLD RESOURCES PTY LTD, PETER VANDERZAAG, FRANCIS D'MELLO and GARY WILLIAM SMITH VID 147 of 2003 FINKELSTEIN J 4 MAY 2007 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VID 147of 2003 BETWEEN: TS & B RETAIL SYSTEMS PTY LTD Applicant AND: 3FOLD RESOURCES PTY LTD, PETER VANDERZAAG, FRANCIS D'MELLO and GARY WILLIAM SMITH Respondents JUDGE: FINKELSTEIN J DATE OF ORDER: 4 MAY 2007 WHERE MADE: MELBOURNE THE COURT DECLARES: 1. That the first respondent has: (a) infringed the applicant's copyright subsisting in the drawings listed by number in Annexure A (the Drawings) and in the five tables of data listed by name in Annexure B (the Data) ; (b) breached the applicant's confidence in the information contained in that part of the five tables of data listed in Annexure B comprising kit numbers, item numbers, sequence numbers, quantities of parts in a unit and references to drawings of Trollope Silverwood & Beck Pty Ltd (the Confidential Data). 1. That the second and third respondents (and each of them) have: (a) authorised and procured the infringement by the first respondent of the applicant's copyright subsisting in the Drawings and the Data; (b) breached the applicant's confidence in the information contained in the Confidential Data. THE COURT ORDERS: 1. Each of the first, second and third respondents be, and it or he is, restrained, whether by it or his servants, agents or otherwise, without the licence of the applicant, from: 2. 1. reproducing or authorising the reproduction in a material form; 2. making, authorising or causing the making of an adaptation or derivation of; 3. publishing or authorising the publication of; the Drawings or the Data. 1. Each of the first, second and third respondents be, and it or he is, restrained, whether by it or his servants, agents or otherwise, without the licence of the applicant, from: 2. 1. communicating; 2. in any way disclosing; 3. causing procuring or suffering the publication, communication or disclosure in any way to any person of any of the information contained in the Confidential Data. 1. Each of the first, second and third respondents deliver up upon oath to the applicant all copies of the Drawings and the Data (whether in hard copy or electronic form) which are in the possession, power, custody or control of the first, second or third respondents or their servants and agents as the case may be. 1. The first, second and third respondents pay to the applicant: a. Damages in the sum of $200,000; b. Interest in the sum of $66,000; c. Additional damages of $50,000. 7. The first, second and third respondents pay the applicant costs of the proceeding, such costs to be taxed in default of agreement. 8. The applicant pay the fourth respondent's costs of the proceeding, such costs to be taxed in default of agreement. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. ANNEXURE A Drawing number SLF-040 STD-200 STD-201 KM5939 KM5926 SD-456 KM5928 KM5927 EPF-044 WMP-053 EPF-034 WMP-050 TRC-162 KM5839 KM5840 STD-180 STD-181 TRC-160 WMP-046 RL-016 SLF-004 KM5574 KM3275 KM3255 SD-238 KM3257 KM3849 KM3763 KM3762 KM3767 KM3765 KM3338 KM3253 MST156 BKT073 BKT060 PG200-104 KM6043 KM6042 KM6041 KM6082 KM918 TRC007 KM5827 KM5822 KM5813 KM5994 KM5999 KM3882 KM3883 KM3884 TRC013 SD448 BKT169 KM5993 KM3873 SD458 SD008 SD028 BKT173 KM3278 KM3262 KM3277 KM3256 SD028 KM6001 WMP047 KM3809 KM3877 STD073 STD074 STD075 STD076 PG200-37 PG200-38 TRC064 KM6081 SD108 BKT076 KM0723 KM3464 SD403 BKT163 BKT063 BKT064 BKT023 SD276 BKT022 BKT172 BKT163 EPF030 EPF005 KM553 HT015 HT022 HT023 HT033 HT028 HT027 HT034 I4394 I20352 KM5844 KM5875 KM5903 KM5904 KM5906 KM5886 KM6005 K5441 KM5886 KM6606 KM4784 KM4785 KM4783 KM2440 KM631 KM2567 RL016 KM6064 KM3128 KM6000 KM1190 J6477 KM5283 KM5284 KM5285 KM4265 PG200-35 PG200-84 TRC161 TRC162 KM990 TRC051 TRC151 J6341 J7938 TRC119 SD226 STD053 SD229 SD277 K2804 J6712 SD357 SD033 KM4973 SLF004 PG200-224 PG200-225 PG200-90 PG1200-91 KM1579 WMP012 KM1580 3-42M227 3-42M231 I28941 I28942 I4397 1-01M152 1-01M160 1-02M117 1-02M118 1-02M119 1-03M181 1-03M401 1-07M710 1-09M245 1-09X211 1-09J212 1-09J213 1-10M795 1-10M819 1-10M820 1-19J022 1-19J033 1-24J048 1-24J049 1-24J050 1-30M744 1-30M753 1-30J531 1-30J536 1-30J538 1-30J539 1-30J542 1-30J543 1-30J691 1-30J692 1-30J696 1-32J025 1-32J026 1-32J027 1-36M397 1-36M398 1-36M172 1-36M173 1-36M174 1-37M190 1-42J030 1-70M289 1-70M295 2-02M110 2-09M043 2-41M904 2-71M012 BKT062 SD054 KM5823 KM3764 RL023 KM5903 KM6028 KM5843 KM1121 KM5830 KM5831 KM5832 KM5833 KM5885 KM5824 KM5814 PV324 KM2266 HT055 Model in HT 055 BKT173A.dxf BKT022A.dxf BKT064.dxf SD276.dxf KM6083 KM6070 SLF004 PG200-88 KM619 ANNEXURE B Five Tables of data stored in electronic form contained on the Applicant's database management system with the following names: 1. tarcustomer 2. tciaddress 3. timitem 4. timitemdescription 5. timkitcomplist IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VID 147 of 2003 BETWEEN: TS & B RETAIL SYSTEMS PTY LTD Applicant AND: 3FOLD RESOURCES PTY LTD, PETER VANDERZAAG, FRANCIS D'MELLO and GARY WILLIAM SMITH Respondents JUDGE: FINKELSTEIN J DATE: 4 MAY 2007 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 The two outstanding issues to be resolved in this action are interest and costs. Each gives rise to some nice points but, in the end, I am clear as to the course that should be taken. 2 As regards interest, TS&B Retail, the successful applicant, seeks interest on damages in the amount of $200,000 for which judgment will be given. A successful plaintiff is entitled to interest on a judgment debt for the period between the date when the cause of action arose and the date as of which judgment is entered unless good cause is shown to the contrary: Federal Court of Australia Act 1976 (Cth), s 51A. The rate of interest is not specified in the section but is left to the judge's discretion. The practice of the Federal Court is to apply the rate applicable in the jurisdiction in which the court is sitting unless that rate is penal or not "commercial": see generally GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 201 ALR 55; ECML Pty Ltd v Essanda Finance Corp Ltd [1999] FCA 978; Namol Pty Ltd v AW Balderstone Pty Ltd (No 2) (1993) 47 FCR 388; Walker v Citigroup Global Markets Pty Ltd [2005] FCA 1866. 3 The cases have left at large what is meant by a "commercial" rate of interest. It could refer to what the plaintiff could earn on the money it has recovered if it had the money to invest or it could mean what it would cost the plaintiff to borrow the money. Another question is whether the rate should be the wholesale or retail rate each of which may be properly described as a "commercial" rate. 4 As a general rule the interest which a successful party is entitled to expect is the rate it would pay to borrow the money in the retail market. The average bank overdraft rate of interest charged to small businesses over the relevant period was close to 9% per annum. I have taken the trouble of checking the figures with the Reserve Bank of Australia's records to save the parties the time and trouble of obtaining what, on any view, is uncontroversial information. 5 The statute dealing with interest on claims in Victoria is the Penalty Interest Rates Act 1983 (Vic). The rate fixed under this Act is determined by reference, first, to what is described as an "appropriate institutional rate of interest". This rate is required to be a rate charged for loans or paid for borrowings by a public or commercial institution and which, in the opinion of the Victorian Treasurer, reflects prevailing commercial rates of interest. The institutional rate of interest may then be adjusted to include a penalty element in order to set the penalty interest rate. The penalty interest rate currently fixed under the Penalty Interest Rates Act is 12% per annum. This is well above a commercial rate of interest and so will not be applied here. 6 The unsuccessful respondents, while not contending that TS&B Retail should not have any interest, say that the period for which interest should run ought be less than the period mentioned in s 51A. The reason they say the period should be reduced is that TS&B Retail failed to bring the action on for trial with due diligence. 7 One policy behind the award of interest is to reimburse the plaintiff for having been kept out of his money by a defendant who has had the use of it himself in the meantime. Riches v Westminster Bank Limited [1947] AC 390, 400; Harbutt's Plasticine Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447, 468. In general, therefore, a defendant will not establish that he has been disadvantaged by any delay because he has had the use of the plaintiff's money longer than he should have been allowed to keep it: Marsh v Ruby [1975] VR 191, 193. But, as the cases show, delay can be relevant and certainly would have been relevant were a penalty rather than "commercial" rate of interest applied: Clarke v Foodland Stores Pty Ltd [1993] 2 VR 382. 8 In my reasons for judgment I explained that the damages awarded to TS&B Retail flowed from breaches of copyright committed between March 2003 and February 2004. While copyright infringement had taken place much earlier and continued much later, this infringement did not result in TS&B Retail suffering any compensable loss. Strictly speaking, the unsuccessful respondents should be charged interest on the damages as they accrued during the period from March 2003 to February 2004. I have not, however, broken down the damages by, say, a month to month calculation. It is, in my view, far simpler to allow interest to run from September 2003. 9 Accordingly I propose to award interest on $200,000 at 9% per annum (based on the average bank overdraft lending rates to small business during the relevant period) for the period 1 September 2003 to the date of judgment, rounded to the nearest thousand dollars. 10 As regards costs, two separate questions arise. The first is whether TS&B Retail should have its costs on a solicitor and client basis. In my reasons for judgment I said this might be appropriate and explained why that might be so. On further reflection I think there is no warrant for an order that costs be awarded on a solicitor and client basis. In particular I do not believe that they are warranted by the manner in which the unsuccessful respondents conducted their case. At one point I was tempted to conclude that TS&B Retail had been put to unnecessary expense because the unsuccessful respondents did not early on admit copying the drawings and confidential data. But Mr Cawthorn makes two good points by way of answer. First, TS&B Retail's claim in its original formulation was so confusing and broad that it did not encourage a sensible admission. Second, the broad claim was coupled with a claim in damages of around $3.5 million and was so unreasonable that the respondents had no real choice but to put TS&B Retail to its proof on every issue. As Mr Cawthorn said the respondents did nothing that was illegitimate in that regard. Moreover, as soon as TS&B Retail narrowed its claim, the admission of copying was made. 11 In these circumstances if I were to award costs on a solicitor and client basis that would only be by way of punishment and that is not permitted: Hamod v New South Wales (2002) 188 ALR 659, 665; Cirillo v Consolidated Press Property Ltd (No 2) [2007] FCA 179. 12 The second question is whether a Bullock or Sanderson order should be made in respect of the costs awarded in favour of Smith. Those orders derive from Sanderson v Blyth Theatre Company [1903] 2 KB 533 and Bullock v London General Omnibus Company [1907] 1 KB 264. The basis for the court's exercise of its discretion to make such an order in favour of a plaintiff is that he should be indemnified for all expenditure reasonably and properly incurred by him in procuring judgment: Besterman v British Motor Cab Co Ltd [1914] 3 KB 181, 186-187; Johnson's Tyne Foundry Pty Ltd v Maffra Shire Council (1948) 77 CLR 544, 572-573. The classic case is where the plaintiff is for reason of lack of knowledge unable to make an informed judgment of the party liable to him. So, for example, if two defendants blame each other for the plaintiff's loss, it is reasonable for the plaintiff to join them both and the unsuccessful defendant will be required to bear the costs of the successful defendant. In Gould v Vaggelas (1984) 157 CLR 215, 230 Gibbs CJ said that the test was whether the suing of the successful defendant was reasonable, namely that the conduct of the unsuccessful defendant has been such as to make it fair to impose some liability on it for the costs of the successful defendant. 13 In my view there is nothing in the conduct of the unsuccessful respondents that makes it fair to shift to them the costs that must be paid to Smith to them. 14 There will be orders substantially in the form of the minutes submitted by the parties, to which will be added the appropriate orders for interest and costs. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein. Associate: Dated: 4 May 2007 Counsel for the Applicant: Mrs S Marks Ms F Forsyth Solicitor for the Applicant: Hicks & Oakley Counsel for the Respondents: Mr P Cawthorn Mr B Fitzpatrick Solicitor for the Respondents: B2B Lawyers Date of Submissions: 13, 15 and 16 March 2007 Date of Judgment: 4 May 2007