FEDERAL COURT OF AUSTRALIA Voxson Pty Ltd v Telstra Corporation Limited (No 8) [2017] FCA 1427 File numbers: NSD 2436 of 2013 NSD 2556 of 2013 Judge: PERRAM J Date of judgment: 1 December 2017 Catchwords: PRACTICE AND PROCEDURE – application for further security for costs – consideration of appropriate quantum Legislation: Legal Profession Uniform Law (NSW) s 174(1) Cases cited: Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 19) [1995] FCA 1778; (1995) 134 ALR 187 Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd [1987] FCA 102; (1987) 16 FCR 497 Norcast S.ár.L v Bradken Limited [2012] FCA 765 Voxson Pty Ltd v Telstra Corporation Ltd [2015] FCA 1490 Voxson Pty Ltd v Telstra Corporation Ltd (No 2) [2015] FCA 1491 Voxson Pty Ltd v Telstra Corporation Ltd (No 3) [2015] FCA 1492 Voxson Pty Ltd v Telstra Corporation Ltd (No 4) [2016] FCA 915 Voxson Pty Ltd v Telstra Corporation Ltd (No 5) [2016] FCA 1097 Voxson Pty Ltd v Telstra Corporation Ltd (No 7) [2017] FCA 267 Date of hearing: 21 November 2017 Registry: New South Wales Division: General Division National Practice Area: Intellectual Property Sub-area: Patents and Associated Statutes Category: Catchwords Number of paragraphs: 28 NSD 2436 of 2013 Counsel for the Applicant: Mr D Shavin QC with Mr C Smith Solicitor for the Applicant: K&L Gates Counsel for the First Respondent: Mr N Murray with Ms C Bembrick Solicitor for the First Respondent: Spruson & Ferguson Lawyers Counsel for the Third and Sixth Respondents: Mr A Lang Solicitor for the Third and Sixth Respondents: Baker & McKenzie Counsel for the Fifth, Seventh, Eighth and Ninth Respondents: Ms C Cochrane with Ms L McGovern Solicitor for the Fifth, Seventh, Eighth and Ninth Respondents: Allens NSD 2556 of 2013 Counsel for the Applicant: Mr D Shavin QC with Mr C Smith Solicitor for the Applicant: K&L Gates Counsel for the First and Sixth Respondents: Mr A Lang Solicitor for the First and Sixth Respondents: Baker & McKenzie Counsel for the Fifth, Seventh, Eighth and Ninth Respondents: Ms C Cochrane with Ms L McGovern Solicitor for the Fifth, Seventh, Eighth and Ninth Respondents: Allens ORDERS NSD 2436 of 2013 BETWEEN: VOXSON PTY LTD (ACN 005 291 458) Applicant AND: TELSTRA CORPORATION LIMITED (ACN 051 775 556) First Respondent OPTUS MOBILE PTY LIMITED (ACN 054 365 696) Third Respondent VODAFONE HUTCHISON AUSTRALIA PTY LIMITED (ACN 096 304 620) (and others named in the Schedule) Fifth Respondent JUDGE: PERRAM J DATE OF ORDER: 1 DECEMBER 2017 THE COURT ORDERS THAT: 1. The parties bring in short minutes of order within three business days. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. ORDERS NSD 2556 of 2013 BETWEEN: VOXSON PTY LTD (ACN 005 291 458) Applicant AND: OPTUS MOBILE PTY LIMITED (ACN 054 365 696) First Respondent VODAFONE HUTCHISON AUSTRALIA PTY LIMITED (ACN 096 304 620) Fifth Respondent OPTUS NETWORKS PTY LIMITED (ACN 008 570 330) (and others named in the Schedule) Sixth Respondent JUDGE: PERRAM J DATE OF ORDER: 1 DECEMBER 2017 THE COURT ORDERS THAT: 1. The parties bring in short minutes of order within three business days. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT PERRAM J: 1. Introduction 1 In proceedings NSD2436 of 2013 and NSD 2556 of 2013, Optus Mobile Pty Ltd and Optus Networks Pty Ltd (together, 'Optus') apply for security for costs in the amount of $2,359,050 (the applications themselves nominated the figure $3,000,000 but the lesser figure was pursued in written and oral submissions). NSD2436 of 2013 is referred to by the parties as 'Vox 1' and NSD 2556 of 2013 is referred to as 'Vox 2'. I too will observe this convention. Vox 1 concerns the Applicant's ('Voxson') allegations of infringement of its Australian standard patent 676242 entitled 'Positioning systems utilizing mobile telephone system for correction signals'. Voxson alleges that the manner in which Optus (together with Vodafone and Telstra) conduct their mobile telephone networks and, in particular, the way in which global positioning data is handled by those networks, infringes its patent. Vox 2 concerns Voxson's allegations of infringement of its Australian standard patent 686591 entitled 'An information transmission system for increasing the effective rate of transfer of information'. Voxson alleges that Optus and Vodafone have each infringed the patent. In both proceedings, it is alleged by the Respondents, inter alia, that the patents are invalid. Because it will be presently relevant, it is useful to record that both proceedings are complex from a technical perspective. 2 Vox 1 is set down for trial commencing on 5 March 2018 and Vox 2 will be tried immediately after it. The Court has set aside six weeks to hear both cases. The current trial schedule proffered by Voxson at a case management hearing on Tuesday 21 November 2017 suggests that the trial may be concluded in five weeks. 3 Voxson does not agree that it should have to provide security in the sum of $2,359,050. However, it does accept that security is warranted. The dispute, therefore, is substantially about the amount. 2. How much security should be provided? 4 There are, in effect, eight issues. The first concerns costs which have already been incurred by Optus in relation to work done up until the close of pleadings. Voxson says that at an earlier time it agreed to provide security in relation to that stage of the proceedings and did indeed provide that security. It submits that Optus should not be allowed to go back and, in effect, top up its security just because the amount may not, in retrospect, have been adequate. 5 I reject this submission. On 2 September 2014, Voxson agreed to put up security for Optus' costs to cover the period to the close of pleadings in the sum of $125,000. This agreement was reflected in a consent order made by Bennett J which, in part, recorded that the security was '…up to and including the close of pleadings or further order' (my emphasis). As events transpired, the pleadings phase of the litigation was hard fought and took a long time to resolve. The first substantive applications were the Respondents' to strike out Voxson's amended statement of claim in Vox 2 together with Voxson's concurrent application further to amend. The second were the Respondents' attempts to strike out portions of the statement of claim in Vox 1 and Voxson's similar attempts to amend it. In both applications, it was Optus which took the principal lead with Telstra and Vodafone adopting supporting roles. The applications were heard over 8 days between 4 February 2015 and 30 September 2015. On 23 December 2015, Bennett J gave judgment in both cases essentially allowing the amendments in Vox 2 but requiring substantial repleading of Vox 1 finding that the way in which it had been pleaded was in certain ways unsatisfactory: see Voxson Pty Ltd v Telstra Corporation Ltd [2015] FCA 1490 ('Voxson (No 1)'); Voxson Pty Ltd v Telstra Corporation Ltd (No 2) [2015] FCA 1491 ('Voxson (No 2)'). 6 In a separate judgment, her Honour ordered Voxson to pay some of the costs involved in Vox 1 on an indemnity basis and forthwith (Voxson Pty Ltd v Telstra Corporation Ltd (No 3) [2015] FCA 1492 ('Voxson (No 3)'). There were then three further rounds of disputation concerning the pleading in Vox 1 which took place before me after the transfer of the matters to my docket. These were respectively resolved on 11 August 2016 (see Voxson Pty Ltd v Telstra Corporation Ltd (No 4) [2016] FCA 915 ('Voxson (No 4)'), 8 September 2016 (see Voxson Pty Ltd v Telstra Corporation Ltd (No 5) [2016] FCA 1097 ('Voxson (No 5)') and 20 March 2017 (see Voxson Pty Ltd v Telstra Corporation Ltd (No 7) [2017] FCA 267 ('Voxson (No 7)'). There were some further amendments by consent made in September this year. All in all, the pleading debates occupied 11 hearing days. Although my experience of them was limited only to the three days consumed in Voxson (No 4), Voxson (No 5) and Voxson (No 7), it was apparent that the subject matter was difficult and the amount of work done on it by all sides substantial. 7 When the parties therefore agreed on 2 September 2014 by consent order that the security should be $125,000 for steps taken to the close of pleadings, they could not have foreseen any of that or what an endurance event the pleading debates would turn out to be. As the quotation in [5] above shows, the form of the Order of 2 September 2014 did not foreclose applications for further security. On 23 May 2016, whilst the parties were regrouping from Voxson (No 1) and Voxson (No 2) and preparing for what would turn out to be Voxson (No 4) and Voxson (No 5), Voxson agreed with Optus that it would put up a further $300,000 in respect of the pleading phase; again, '….up to and including the close of pleadings or further order' (my emphasis). 8 In that circumstance, I do not think that Optus is precluded, as a matter of principle, from applying for further security in relation to the steps it has taken in getting the case to the close of pleadings. The orders left that option open and, indeed, that option has already been used once by consent. I therefore reject Voxson's suggestion that Optus should, as a matter of discretion, not be entitled to apply for security in respect of the costs it has incurred in relation to the pleading phase. 9 The second issue is whether Optus is entitled to include in its past pleading costs an amount of $1,315,000 being the costs apparently flowing from the indemnity costs orders made payable forthwith by Bennett J in Voxson (No 3) in respect of Vox 1. By the time the matter was argued before me it had been agreed that these should not be included. 10 The third issue is whether Optus' entitlement to its pleading costs should be defeated by its delay in bringing the present application. This submission is without substance. The pleading debates only finished on 20 March 2017 with Voxson (No 7) . Beginning shortly before that on 3 February 2017, the parties began a long and dry correspondence on the topic of security for costs. Right from the beginning of these exchanges, Optus was seeking its past pleading costs together with other past costs involved in the completion of its evidence. Security was also being sought in relation to future trial preparation costs and eventual trial costs. I do not think there was any delay at all in that circumstance. Even if one counts the pleading debates as being concluded with Voxson (No 5) in September 2016, I do not think there was any inappropriate delay in waiting between the end of September 2016 and 3 February 2017 to open this next salvo in the context of this case. So far as the rest of 2017 is concerned, a reading of the correspondence shows that the parties have spent most of 2017 writing letters to each other disagreeing on the question of quantum. After a while the correspondence becomes repetitive, but I hesitate to describe it as pointless because it ultimately resulted in an agreement being reached with Telstra and Vodafone. It is true that the pace of the negotiations was, perhaps, a little languid but the parties were engaged in other activities besides arguing about security for costs and I apprehend in the correspondence no unreasonable delay on any party's part. 11 It was on 7 November 2017, after negotiations between Optus and Voxson finally broke down, that the present applications were filed. I see no delay in what Optus has done. The parties were seeking to resolve the issue without bringing an application. This is not, therefore, one of those cases where the party seeking security has overlooked the topic and let time slip. There can have been no doubt in Voxson's mind that it was eventually going to have to pay security either consensually or following the filing of an interlocutory application. The only issue between the parties was that of quantum. It is impossible to conclude that Voxson took subsequent steps in the litigation unaware that security for costs would be eventually required from it. There was neither delay nor prejudice. 12 The fourth issue concerns the slightly broader topic of all of Optus' past costs. The discussion above concerns Optus past costs associated with the pleading phase of the case. But since that was concluded last September, and even before, Optus has been preparing other aspects of its case as well such as the preparation of evidence and process statements. For the reasons I have just given, I accept that in principle Optus is entitled to security for these amounts too and, indeed, this was not disputed by Voxson. Mr Gough, Optus' solicitor, says that the total Optus has spent on all of the past costs (including the pleading costs) is $3,980,000, a figure which is current as at 1 November 2017 as I understood it. Mr Gough excluded from this sum costs incurred by Optus where it had been ordered to pay Voxson's costs and costs incurred by it in relation to third parties. This was the correct course to take since Voxson could have no liability to costs in respect of such matters. 13 Voxson submits that this figure is very high, which is true, and that Mr Gough has not provided sufficient detail. I do not think that the detail matters. Mr Gough was not estimating his future costs; he was simply stating what the costs charged to Optus in the past as solicitor-client costs actually were. I do not think that detail would assist Voxson in challenging Mr Gough's calculation of his own solicitor-client costs. Absent a submission that Mr Gough is not to be trusted in saying what his own bills are – a submission which was not made – a complaint about an absence of detail does not go very far. 14 This is because it is permissible, as Mr Gough has done, to calculate an amount for security for costs by reference to the solicitor-client costs which are expected and then discounting that figure by a variable which reflects the likely impact of taxation: Norcast S.ár.L v Bradken Limited [2012] FCA 765 at [17]-[19] ('Norcast'). There is no reason to think that approach is not applicable to past costs either. Where that approach is taken, it is pointless to debate the reasonableness of the costs actually incurred because that debate is subsumed in the selection of the discount variable which is then applied. In this case, both parties led evidence about this variable. For Optus, a costs consultant (Mr Nicholas) opined that a discount of between 25%-35% was generally being applied by taxing officers of the Federal Court to solicitor-client costs at present. For Voxson, a costs consultant (Ms Harris) expressed the same opinion but also proffered a more granular vision of the process in which different phases of the case had different rates of recovery (i.e. only about 25%-35% of solicitor-client costs were recovered for pleadings but about 90% for discovery). Given that both cost consultants agree on the overall discount, I see no reason to use Ms Harris's more granular approach. 15 There are two complicating factors. The first is that the correspondence between the parties suggests that at various points both have been content to work with a reduction rate of 57%. Given that was formulated in the process of seeking to negotiate a settlement of the security for costs issue, I am not sure that this tells one very much about the actual recovery rate. The second concerns the observations of Gordon J in Norcast that the larger and more expensive a case becomes the higher the relevant discount is likely to be. Her Honour observed at [23]: 'In relation to the second issue, where actual or indemnity costs are adopted as a basis for estimating costs, the discount factor becomes central. Previous decisions which apply various discounts are of little use. The discount must vary to ensure that the estimate of actual or indemnity costs is appropriately reduced to such a level that it bears some relationship to the party-party costs which would be recoverable on taxation. To put it bluntly, the more expensive the lawyers, the larger the discount. The Respondents submit that the appropriate discount is two-thirds. Norcast submits that it is 45% (Norcast further discounts its 45% figure by two-thirds, that issue is dealt with below).' 16 In that case, her Honour arrived at a figure of 50%. I propose to do so as well for the following reasons: on any view, Optus' costs are at the high end. This is not a criticism and it is entitled to run a Rolls-Royce defence if it wishes. However, I do not think that it will be likely to recover on taxation either the 65%-75% implicit in the views of Mr Nicholas and Ms Harris or even the 57% the parties have discussed. I take into account that the process of determining the discount is to an extent driven by the 'feel' of the case (see Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd [1987] FCA 102; (1987) 16 FCR 497 at 515 [156] per French J). My impression of Optus' costs is that they are understandably taking the litigation very seriously and are not sparing the costs. That deluxe approach to the case, however, will be reflected in a significantly decreased rate of recovery on a taxation. 17 Voxson did not submit that I should further reduce whatever figure I eventually arrived at by the so-called rule of two thirds (Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 19) [1995] FCA 1778; (1995) 134 ALR 187 at 197 per Lindgren J). The application of some such further reduction (not necessarily always two-thirds) is said to reflect the vicissitudes of litigation: the possibility of settlement; the merits of the case; the possibility of off-setting future costs orders; the risk that the litigation may be stifled and so on (see Norcast at [28]). Although I have not applied the two thirds principle directly, I have taken into account matters of that kind in arriving at the 50% reduction I propose (other than the risk of stiflement which was not suggested). 18 The fifth issue concerns the quantum of the security to be provided for future costs not yet incurred. As with the accrued costs, Mr Gough took the permissible path of seeking to estimate his future solicitor-client costs and then applying a discount figure. His estimate for future costs through to the end of a six-week trial was $2,000,000. His estimate was based on the following components: completing evidence and security for costs application: $245,000; preparation for hearing: $717,000; and hearing: $1,100,000. 19 It seems likely that the two trials will not run for six weeks and I propose to proceed on the basis that they will most likely run for five weeks (recalling that they are presently set down for six). Doing so, I adjust Mr Gough's $1,100,000 down to $917,000 (being approximately 5/6ths of $1,100,000). 20 Voxson submitted that Mr Gough's evidence was short on detail and long on cost. I agree with this submission but I do not doubt Mr Gough's capacity to estimate what he is likely to charge his client. This is particularly so where Mr Gough is obliged to provide such estimates as a matter of routine in all of his cases (see Legal Profession Uniform Law (NSW) s 174(1)). The gravamen of Voxson's submissions about this will be reflected in the 50% reduction rate I have already determined above. Accordingly, I will proceed on the basis that Optus' future costs will be $1,879,000 (being the sum of $245,000, $717,000 and $917,000). 21 The sixth issue concerns Voxson's submission that it has been prejudiced by the timing of Optus' application. The evidence of this prejudice is thin. The senior associate working on the matter for Voxson, Ms Parker, gave evidence about it at paragraph [13] of her affidavit. It is the lot of a solicitor in the position of Ms Parker to know a great deal about this litigation and in the most extensive, and at times excruciating, detail. The best evidence Ms Parker could give about the asserted prejudice was on information and belief from the in-house counsel for Voxson, Mr Schubauer, who said that the security for costs application had prejudiced the ability of Voxson to absorb a further extension of time in part of the timetabling orders. That timetabling issue was dealt with at the case management hearing last Tuesday, 21 November 2017. It is not said that it cannot be absorbed nor does Ms Parker, who is much more likely to be at the pointy end of that problem than Mr Schubauer, explain what the problem really is. I am disinclined to give this evidence much weight therefore. But even if I did think that the timing of the application had caused some prejudice to Voxson (and I do not), I do not think the evidence establishes that Optus chose to file the application when it did to achieve that outcome. To the contrary, the timing of the application was reasonable. It occurred when the negotiations had run their course. There was no relevant delay; there is no properly substantiated prejudice; there was nothing improper in the timing of the application. 22 The seventh issue concerned the extent to which some of the previous security proffered by Voxson should be accounted for in the current exercise. Optus submitted that the parties had agreed that the initial security provided under the Order of 2 September 2014 (being in the amount of $125,000) should be utilised against the indemnity costs ordered by Bennett J on 23 December 2015 in Voxson (No 3). Accordingly, it should no longer count as security. Optus accepted that the $300,000 proffered under the Order of 23 May 2016 should continue to be accounted for in the security calculation. Optus put this to Voxson in a letter dated 3 February 2017 which was replied to on 15 February 2017 without demur (on this point). I accept Optus' submission. 23 The eighth issue concerned the comparability of the amount sought by Optus with the corresponding amounts which Voxson has agreed upon with Telstra and Vodafone. The arrangement with Vodafone, on the assumption of a four-week trial, is $1,080,000; that with Telstra is $693,000 on the basis of a three-week trial (Telstra is not a respondent in Vox 2). I do not consider these useful comparators. The roles of Telstra and Vodafone have been less in scope than that of Optus and there is no reason to think that Optus' primary role in the litigation is about to diminish. Further, these both involve compromises and I am not sufficiently acquainted with the details of those compromises to assess what impact they have on the usefulness of the settled amounts as comparators. 3. Conclusion on Amounts 24 The result of the above reasoning is as follows: Dr Cr Total Past accrued costs $3,980,000 $3,980,000 Less $1,315,000 recoverable under costs order of 23 December 2015 $1,315,000 $2,665,000 Less 50% reduction $1,332,500 $1,332,500 Estimated future costs $1,879,000 $3,211,500 Less 50% reduction $939,500 $2,272,000 Less security already provided $300,000 $1,972,000 Total security $1,972,000 25 This seems like a very large sum. However, the size is, in many ways, a function of the significant expenditure which attended the pleadings phase. To read Voxson (No 1), Voxson (No 2), Voxson (No 3), Voxson (No 4), Voxson (No 5) and Voxson (No 7) is to see where a lot of this money has gone. 4. Timing 26 It will be seen that the above constitutes a conclusion that $1,032,500 should be paid in respect of past costs (being $1,332,500 less $300,000 already provided) and that $939,500 should be paid in respect of future costs. The $1,032,500 should be paid within 14 days. The $939,500 in respect of future costs is to be paid within a further 14 days after that. The form of consent order made by the Court on 2 September 2014 will provide a suitable template. The matter will be listed for a case management hearing on the days following both deadlines to ascertain whether the security has been provided. If the security is provided beforehand the relevant case management hearing may be vacated. If the security has not been provided consideration will be given at the relevant hearing to whether the proceedings should be stayed. 5. Costs 27 Voxson's final offer on security was $1,146,200. Optus has secured a significantly larger amount. Optus has succeeded on its application by a wide margin and should receive its costs. 6. Orders 28 The parties are to bring in short minutes of order within three business days giving effect to these conclusions. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram. Associate: Dated: 1 December 2017 SCHEDULE OF PARTIES NSD 2436 of 2013 Respondents Sixth Respondent: OPTUS NETWORKS PTY LIMITED (ACN 008 570 330) Seventh Respondent: VODAFONE AUSTRALIA PTY LIMITED (ACN 056 161 043) Eighth Respondent: VODAFONE PTY LIMITED (ACN 062 954 554) Ninth Respondent: VODAFONE NETWORK PTY LIMITED (ACN 081 918 461) NSD 2556 of 2013 Respondents Seventh Respondent: VODAFONE AUSTRALIA PTY LIMITED (ACN 056 161 043) Eighth Respondent: VODAFONE PTY LIMITED (ACN 062 954 554) Ninth Respondent: VODAFONE NETWORK PTY LIMITED (ACN 081 918 461)