Case: PAC Mining Pty Ltd v Esco Corporation (No 2) [2009] FCAFC 52
Outcome: applied
the time the offer of 11 July 2008 was made, all questions of liability in the proceeding had been fixed for final hearing in late October 2008. Although Bitech had not put a positive evidentiary case in answer to Garth Living's Cross-Claim, it had by 11 July 2008 undoubtedly expended some costs in seeking to defeat that Cross-Claim. In its Calderbank offer, Garth Living did not offer to pay Bitech's costs of its Cross-Claim. It should have done so. Nor did Garth Living offer to consent to the issue of a s 19 Certificate of Validity in respect of the Patent (as to which see PAC Mining Pty Ltd v Esco Corporation (No 2) [2009] FCAFC 52 at [11] and at [16]). In those circumstances, I consider that the offer which was made by Garth Living fell well short of what was required in July 2008 to found a claim for indemnity costs. Further, by 11 July 2008, much of the expert evidence relied upon at the trial had been filed and served. There was a dispute between the parties' experts as to whether reflected light contributed at all to the flame effect observable on the viewing screen and, if so, to what extent and in what way. There was also a contest as to the true construction of the Patent. These issues were not so obviously weighted in favour of the respondent parties that Bitech should be held to have acted unreasonably in rejecting an offer which, in effect, required it to capitulate. The additional matters to which I have referred in [18] above reinforce my view that, in the circumstances of this case, it would be inappropriate to make an order for indemnity costs in favour of Garth Living. Bitech seeks its costs of the Cross-Claim brought by Garth Living against it. There was some overlap between the infringement proceeding and the Cross-Claim but not such a significant overlap as to justify a special costs order in respect of that Cross-Claim. As Bitech correctly submitted, the Cross-Claim raised substantial issues as to the validity of the Patent including lack of novelty and obviousness. A good deal of time, effort and expense was devoted to these issues both before and during the hearing. The following remarks made by the Full Court in PAC Mining Pty Ltd [2009] FCAFC 52 at [11] are apt: In the present case, the appellants might well have defended (and, as things have turned out, successfully defended) the respondents' case on infringement without putting obviousness or novelty in issue. By putting those things in issue, the appellants introduced into the litigation a range of substantial questions which were ultimately decided against them. Although we accept that an issues-based apportionment of costs is not always appropriate, particularly in a case in which conventional alternatives are agitated, the appellants' obviousness and novelty points in the present case were not merely alternative ways of arriving at the conclusion that they had not infringed the patents in suit. They were that, of course, but they were a good deal more: they challenged the basic validity of the patents. As a result of successfully fending off that challenge, the respondents succeeded in obtaining certificates as to validity which have themselves survived the appellants' appeal. In these respects we make no distinction between the appellants' challenge to validity as expressed in their Defence, and their corresponding challenge in the Cross-claim. From the viewpoint of awarding costs, the reality is that, once that challenge was made in both respects, there was a single case, as it were, on obviousness and novelty which the respondents had to meet. In the present case, I do not think that the issue of fair basis was so significant as to require separate treatment. There will therefore be an order for costs in favour of Bitech in respect of Garth Living's Cross-Claim. Cohen seeks an order for indemnity costs. It contends that Bitech unreasonably rejected a settlement offer made by its lawyers (Bradley Allen) to DLA Phillips Fox on 4 August 2008. That offer was in the following terms, omitting formal parts: WITHOUT PREJUDICE SAVE AS TO COSTS Dear Sirs Cohen Nominees Pty Ltd &amp; Garth Living Pty Ltd ats Bitech Engineering Pty Ltd Federal Court No. NSD 1681 of 2006 Our client is willing to settle the above proceedings on the basis that the proceedings be discontinued with no order as to costs. This offer is put on a Calderbank basis which would be used on the question of costs if not accepted and a judgment is ultimately handed down which is on less favourable terms to your client than this offer. If the offer is not accepted within 21 days we will ask for orders that your client not be entitled to be paid costs, other than the costs of considering the offer, incurred after the receipt of the letter and that our client's costs after that time be paid by your clients and further that this be on an indemnity basis. Bitech ignored this offer. Cohen ceased all involvement with the MS-5 heater (the only model with which it had a connection) in February 2007. It behaved sensibly in meeting the infringement case against it. It made appropriate admissions.