FEDERAL COURT OF AUSTRALIA Gold Coast Marine Aquaculture Pty Ltd v HTC Trading Pty Ltd [2020] FCA 684 File number: VID 1659 of 2018 Judge: ANASTASSIOU J Date of judgment: 20 May 2020 Catchwords: COSTS – application for preliminary discovery substantially successful – whether prospective applicant should receive costs where substantially successful in application – Pfizer Ireland Pharmaceuticals v Samsung Bioepis AU Pty Ltd (No 2) [2019] FCA 657 considered –each parties' costs to be costs in the cause of substantive proceeding if commenced – if no substantive proceeding commenced, respondents awarded 50% of their costs of and incidental to the application Legislation: Biosecurity Act 2015 (Cth) Federal Court of Australia Act 1976 (Cth) Federal Court Rules 2011 (Cth) r 7.23 Cases cited: Dallas Buyers Club LLC v iiNet Limited (No 3) [2015] FCA 422; 327 ALR 695 Gold Coast Marine Aquaculture Pty Ltd v HTC Trading Pty Ltd [2019] FCA 1995 Pfizer Ireland Pharmaceuticals v Samsung Bioepis AU Pty Ltd [2017] FCA 285 Pfizer Ireland Pharmaceuticals v Samsung Bioepis AU Pty Ltd [2017] FCAFC 193; 257 FCR 62 Pfizer Ireland Pharmaceuticals v Samsung Bioepis AU Pty Ltd (No 2) [2019] FCA 657 Dates of hearing: Decided on the papers Registry: Victoria Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 19 Counsel for the Applicant: Mr G. Harris QC appears with Mr T. Warner Solicitor for the Applicant: Mills Oakley Lawyers Counsel for the First Prospective Respondent: Mr D. A. Klempfner Solicitor for the First Prospective Respondent: Colin Biggers & Paisley Counsel for the Fourth Prospective Respondent: Mr N. De Young SC Solicitor for the Fourth Prospective Respondent: King & Wood Mallesons ORDERS VID 1659 of 2018 BETWEEN: GOLD COAST MARINE AQUACULTURE PTY LTD (ACN 082 848 262) Applicant AND: HTC TRADING PTY LTD (ACN 102 463 847) First Prospective Respondent ORIENTAL MERCHANT PTY LTD (ACN 007 368 925) Second Prospective Respondent AQUA STAR PTY LTD (ACN 074 614 538) (and another named in the Schedule) Third Prospective Respondent JUDGE: ANASTASSIOU J DATE OF ORDER: 20 MAY 2020 THE COURT ORDERS THAT: 1. Subject to order 2, the costs of the applicant and of the first and fourth prospective respondents of and incidental to the preliminary discovery application be that party's costs in the cause in any proceeding commenced by the applicant against the prospective respondents concerning claims the subject of the preliminary discovery application. 2. If a proceeding against each of the first and fourth prospective respondents concerning claims the subject of the preliminary discovery application is not commenced by the applicant within three months of the date of this order, or such further period as the Court allows, the prospective respondent against whom no proceeding is commenced shall be entitled to half of its costs of and incidental to the application, to be agreed or in default of agreement to be assessed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT ANASTASSIOU J: 1 On 27 November 2019 I gave judgment substantially granting the applicant, Gold Coast Marine, preliminary discovery under rule 7.23 of the Federal Court Rules 2011 (Cth) from the first and fourth prospective respondents, HTC and the Department: Gold Coast Marine Aquaculture Pty Ltd v HTC Trading Pty Ltd [2019] FCA 1995 (Discovery Reasons). I have adopted the abbreviations defined in the Discovery Reasons in these reasons. On 17 May 2019, prior to the hearing of the application, orders were made by consent with respect to the second and third prospective respondents (Oriental and Aqua Star respectively). The present reasons concern an application by Gold Coast Marine that HTC and the Department pay its costs of the preliminary discovery application and a cross application by HTC and the Department that Gold Coast Marine pay their costs of the application. 2 The background to the application is set out at [3] to [14] of the Discovery Reasons. In short, Gold Coast Marine is a commercial prawn farmer whose stock of prawns, including valuable breeding prawns, was effectively destroyed by a breakout of White Spot Syndrome Virus in December 2016. Gold Coast Marine claims that the outbreak was caused or contributed to by each of the prospective respondents. It alleges that the first to third prospective respondents imported and sold infected prawn products which ultimately infected its ponds. The Department is alleged to have contributed to the outbreak by failing to properly discharge its duties under the Biosecurity Act 2015 (Cth). 3 Gold Coast Marine seeks costs from 17 May 2019 – the date the claim was settled against the other relevant importers, Oriental and Aqua Star. It says that both HTC and the Department, if acting reasonably, would have also consented to giving preliminary discovery by that date having regard to their obligations under ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth) (FCA Act). On this basis it says that HTC and the Department should each pay half of its costs from that date, and that its costs incurred prior to that date should be costs in the cause of any substantive proceeding that may be commenced. 4 HTC and the Department each seek their costs from Gold Coast Marine on the proviso that if Gold Coast Marine issued substantive proceedings by or around May 2020, the costs of all parties be costs in the cause of the substantive proceedings. Applicable Principles 5 Each of the parties referred to the recent review of authorities and applicable principles in Pfizer Ireland Pharmaceuticals v Samsung Bioepis AU Pty Ltd (No 2) [2019] FCA 657 (Pfizer No 2). At [25] of Pfizer No 2 Burley J summarised the relevant principles: (1) The jurisdiction to order preliminary discovery is an extraordinary one since an order for preliminary discovery involves an invasion of the prospective respondent's private affairs in order to determine whether or not a case can properly be brought against the prospective respondent; J & A Vaughan Super Pty Ltd v Becton Property Group Limited [2013] FCA 340 at [17] (Kenny J); C7 Pty Ltd v Foxtel Management Pty Ltd [2001] FCA 1864 at [50] (Gyles J). (2) In considering where the balance lies in ordering costs, the exceptional nature of the jurisdiction is a matter to be taken into consideration and is a matter that may mean that a wholly successful prospective applicant is not entitled to an order for costs; ObjectiVision Pty Ltd v Visionsearch Pty Ltd (No 3) [2015] FCA 304 at [23] (Perry J); Cobankara v Australia and New Zealand Banking Group Ltd [2017] FCA 419 at [20] (Mortimer J). (3) In Cappuccio v Australia & New Zealand Banking Group Ltd [1999] FCA 1188, a case where an application for preliminary discovery was resolved by consent, Burchett J at [3] considered that the appropriateness of the costs order: …depends very much on the consequences of the discovery obtained. If the applicant for preliminary discovery uncovers enough to enable that applicant to bring proceedings which are successful, there may be much to be said for the proposition that the costs of the preliminary discovery should form part of the costs of the action. On the other hand, if the applicant proceeds, brings an action, fails, and is ordered to pay the costs of that action, there seems every reason why, generally speaking, the costs of the preliminary discovery should be included in the costs payable to the respondent. (4) Following this approach, in a number of cases where a prospective applicant has been successful in procuring orders for preliminary discovery, courts have found it appropriate to order that the payment of costs be deferred to see whether the outcome of the production of documents yields the commencement of substantive proceedings (usually within a specified period of time following the preliminary discovery proceedings). When that has occurred, then the award of costs has been left to the decision-maker in the substantive proceedings; Cappuccio at [3] – [5]; SmithKline Beecham plc v Alphapharm Pty Ltd [2001] FCA 271 at [32] (Finkelstein J); E D Oates Pty Ltd v Edgar Edmondson Imports [2012] FCA 356 at [59] (Kenny J); Gearhart United Pty Ltd v Omni Oil Technologies (Asia) SDN BHD (No 2) [2010] FCA 558 at [24] (Besanko J); Procter v Kalivis (No 3) [2010] FCA 1194; Aristocrat Technologies Australia Pty Limited v Ainsworth Game Technology Limited (No 2) [2019] FCA 511 at [10] – [11] (Yates J). (5) In other cases, the view has been expressed that the costs outcome should be determined at the time the outcome of the preliminary discovery application has been determined. It is a discrete issue and should not be deferred to an uncertain time; C7 Pty Ltd at [50]; Steffen v ANZ Banking Group [2009] NSWSC 883 at [31] (McDougall J); ObjectiVision at [17] – [21]. (6) Where an order for costs has not been deferred, some authorities indicate that the costs balance should favour the payment of costs by the prospective applicant. This is because there is no obligation on a prospective respondent to respond to requests for information, and a prospective respondent is entitled to remain passive and consequently put a prospective applicant to proof in preliminary discovery hearings: Glencore International AG v Selwyn Mines Limited [2005] FCA 801; 223 ALR 238 [15] (Lindgren J); C7 Pty Ltd at [50]; Vaughan Super at [18]; Procter at [17]. (7) However, where the prospective respondent takes an adversarial approach to the application, it exposes itself to an order for costs; Steffen at [32] – [33]; ObjectiVision at [23] – [24]; Dallas Buyers Club LLC v iiNet Limited (No 3) [2015] FCA 422; 327 ALR 695 at [3] (Perram J). In these cases, the courts have preferred not to defer the making of costs orders. 6 To this list his Honour added the following (at [26] and [27]): It is true to say, as has been observed in some of the authorities to date, that there has been no uniform approach to the award of costs in relation to preliminary discovery applications. However, an emerging thread is that where a prospective respondent takes an adversarial approach to the application, it may be required to bear some or all of the costs in the event that the prospective applicant is successful. The rationale behind that approach may be explained by the extraordinary nature of the preliminary discovery jurisdiction, which is intended to facilitate the making of sensible decisions concerning the commencement of proceedings, before proceedings have been formulated. Accordingly, whilst an adversarial approach is not prohibited, it is to be discouraged. Preliminary discovery is not a process by which potential parties are to open up new fronts for litigation warfare, but a procedure by which the efficient conduct of litigation is promoted; [Pfizer Ireland Pharmaceuticals v Samsung Bioepis AU Pty Ltd [2017] FCAFC 193; 257 FCR 62] [2], [4] (Allsop CJ), [119] (Perram J). Where a prospective respondent elects to enter the fray and vigorously contest the application, it becomes exposed to the risk that it should bear a costs consequence similar to the position it would be in were it a party to proceedings proper. Where the contest on an application is limited to the prospective applicant being put to proof of the elements of r 7.23, then even a successful prospective applicant may be liable to pay the costs. Conversely, where each point is hard fought, the prospective respondent is exposed to the risk that it will be visited with some or all of the costs in the event they are unsuccessful. In such circumstances, it may be inappropriate to defer a costs order to the outcome of any prospective litigation. 7 The substance of the Pfizer litigation concerned an application by Pfizer for preliminary discovery in order to ascertain whether the respondent, referred to as SBA, had infringed certain patents. Further details of the grounds for the application are not relevant. Burley J at first instance refused the application: Pfizer Ireland Pharmaceuticals v Samsung Bioepis AU Pty Ltd [2017] FCA 285. However, his Honour's decision was overturned on appeal and remitted back to him on the question of costs: Pfizer Ireland Pharmaceuticals v Samsung Bioepis AU Pty Ltd [2017] FCAFC 193; 257 FCR 62 (Pfizer No 1) per Allsop CJ, Perram and Nicholas JJ all writing separately. 8 The original hearing of the preliminary discovery application in Pfizer ran for two days. The application raised matters of significance regarding the application of the preliminary discovery procedure to highly confidential intellectual property rights, and their interface with Australia's international obligations: Pfizer No 1, per Allsop CJ at [4]. Burley J described the litigation as being "hard fought", and the approach of the respondent as doing "more than simply put Pfizer to proof of the elements of r 7.23": Pfizer No 2, at [28]. Despite this, his Honour rejected Pfizer's argument that SBA had not acted in accordance with its obligations under ss 37M and 37N of the FCA Act, noting that "SBA was entitled to challenge the case brought, particularly having regard to its legitimate concerns regarding the confidentiality of the documents … [b]ut in doing so, it became exposed to an adverse order for costs" (at [28]). 9 Burley J also refused to defer the question of costs until it was apparent whether Pfizer commenced substantive proceedings or not (at [30]). His Honour stated that "[w]hilst that approach might be appropriate where no adversarial approach had been taken, it is not suitable here" (at [30]). 10 Ultimately, his Honour granted Pfizer 50% of its costs. His Honour reasoned that SBA's defence to the application was to cause a "mini-trial", and therefore it was exposed to a costs order, but that Pfizer should not be awarded full costs due invoking the "extraordinary jurisdiction of the court to achieve intrusive orders for the production by SBA of its highly confidential documents" (at [30]). Consideration 11 Gold Coast Marine submitted that whereas the other prospective respondents consented to the application and granted access to the documents sought, HTC and the Department took a 'no stone left unturned' approach to their opposition to the application. It submitted that this approach was inappropriate and, in the case of the Department, inconsistent with its obligation to act as a model litigant. 12 Gold Coast Marine further contended that it had suffered prejudice by reason of the approach taken by HTC and the Department, beyond incurring costs in connection with the application. It pointed to the delay in being able to make an informed decision concerning the making of a claim and consequentially the potential of being deprived of statutory interest for the period of delay should it ultimately be successful in any claim it may bring. 13 HTC disputed that it had taken an unduly adversarial approach to the application. Rather, it pointed to several matters as supportive of it having acted appropriately in all the circumstances. HTC submitted that the categories of documents in respect of which discovery was ordered were significantly narrower than those originally sought, and further, that it had provided documents from certain of those categories voluntarily. HTC contended that its opposition to the application was reasonable on the basis that the causal link between its alleged negligence and the loss to Gold Coast Marine was only "properly and coherently articulated in oral submissions". Further, HTC contended that its opposition should be viewed in the context that it is a complete stranger to the applicant, a factor said to further support its entitlement to question the analytical foundation of any potential claim. 14 The Department also disputed that it had taken an overly adversarial approach to application. Rather, it sought to characterise its defence as simply putting Gold Coast Marine to its proof. In support the Department pointed to the fact that it did not lead any evidence of its own (unlike in the Pfizer application), did not put every element of rule 7.23 in issue (unlike Dallas Buyers Club) and did not seek leave to cross-examine Gold Coast Marine's witnesses. The Department further explained its opposition to the application by reference to the confidentiality of the material in its possession, a factor also considered relevant by Burley J in Pfizer No 2. The Department also dismissed the 17 May 2019 date as being arbitrary. Those parties who consented to discovery were importers, and their consent could have been made on a variety of bases and it therefore should not be inferred as an objective assessment of the merits of the application. 15 I do not agree with the contending characterisations of either party concerning the approach taken to the application by its opponent. I do not regard the defence to the application by HTC or the Department as "leaving no stone unturned" as put by Gold Coast Marine. Nor do I accept the characterisation put by HTC and the Department that their opposition was simply putting Gold Coast Marine to its proof. The application was thoroughly and vigorously argued as was the opposition to it. In my view, all parties acted reasonably and made appropriate concessions during the hearing of the application. 16 I am not persuaded that the decision made by other prospective respondents to consent to the application, nor the timing of their consent, has any bearing upon an assessment of the reasonableness of the approach taken by HTC or the Department. I can only speculate as to the reasons why the other prospective respondents chose the course they did. Such speculation is not a proper basis upon which to exercise my discretion as to costs in relation to the present application. 17 Having concluded that the application was reasonably and properly argued by all parties, in my view the costs of each party should be that party's costs in the cause, assuming a proceeding is issued by the applicant against the prospective respondents. 18 In the event that no proceeding is commenced within a reasonable period, each of the prospective respondents should be awarded half of their costs of the application. I allow only half of the costs in these circumstances as the prospective respondents were not successful in opposing the application and should not therefore recover all of their costs. I would allow a further three months for the applicant to commence a proceeding against the prospective respondents to this application, subject to an extension to that period if the applicant can demonstrate good reason to extend the period. 19 If a proceeding is commenced within three months, or such further period as may be determined, the costs of all parties shall be costs in the cause. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Anastassiou. Associate: Dated: 20 May 2020 SCHEDULE OF PARTIES VID 1659 of 2018 Respondents Fourth Prospective Respondent: THE DEPARTMENT OF AGRICULTURE AND WATER RESOURCES