Digga Australia Pty Ltd v Norm Engineering Pty Ltd (No 2) [2008] FCAFC 76 (14 May 2008)

Last Updated: 15 May 2008

FEDERAL COURT OF AUSTRALIA

Digga Australia Pty Ltd v Norm Engineering Pty Ltd (No 2) [2008] FCAFC 76

PRACTICE AND PROCEDURE – offer of compromise made by respondent under O 23 of Federal Court Rules (Cth) – applicant suing for infringement of copyright in its drawings for 4 in 1 bucket – offer of undertaking to Court not to manufacture and sell 4 in 1 buckets to applicant’s design, and of payment of $5,000 – value of undertaking proffered – result obtained by applicant following respondent’s appeal less favourable to applicant than terms of offer.
Held: applicant ordered to pay respondent’s costs on indemnity basis.


Federal Court Rules (Cth) O 23 r 11(5)























DIGGA AUSTRALIA PTY LTD (ACN 010 443 875) v
NORM ENGINEERING PTY LTD (ACN 010 799 943)

QUD 175/2007

LINDGREN, BENNETT AND LOGAN JJ
14 MAY 2008
BRISBANE

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	QUD 175/2007

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	DIGGA AUSTRALIA PTY LTD (ACN 010 443 875) Appellant
AND:	NORM ENGINEERING PTY LTD (NO 2) (ACN 010 799 943) Respondent

JUDGES:	LINDGREN, BENNETT AND LOGAN JJ
DATE OF ORDER:	14 MAY 2008
WHERE MADE:	BRISBANE

THE COURT ORDERS THAT:

1. The appeal be allowed in part.

2. Paragraph (b) of the declarations made on 25 May 2007 be set aside and in lieu thereof the Court declares that the appellant infringed the respondent’s copyright subsisting in the respondent’s drawings for a pivot mechanism (Applicant’s Drawing No. BC41-D015) ("the Pivot Arms Drawing") by making a two-dimensional reproduction of the Pivot Arms Drawing in the period from 2 December 2003 to 17 June 2004.

3. Paragraphs 1, 2, 3(b) and 4 of the Orders made on 25 May 2007 be set aside and in lieu thereof the Court orders that the appellant pay the respondent $100.00 damages on or before 22 June 2008 to the respondent pursuant to s 115(2) of the Copyright Act 1968 (Cth) for infringement of the respondent’s copyright in the Pivot Arms Drawing (as identified in the declaration in para 2 above) between 2 December 2003 and 17 June 2004.

4. Paragraphs 1, 6 and 7 of the Orders made on 26 June 2007 be set aside and in lieu thereof the Court orders that:

(a) The appellant pay the respondent’s costs of the proceeding incurred before 11 am on 2 December 2005, save for those costs which have been the subject of earlier orders, taxed on a party and party basis; and

(b) The respondent pay the appellant’s costs of the proceeding incurred after 11 am on 2 December 2005, taxed on an indemnity basis.

5. The respondent pay the appellant’s costs of the appeal, taxed on an indemnity basis.

6. The respondent refund to the appellant all monies paid to the respondent by the appellant on account of damages pursuant to paras 3(b) and 4 of the Orders made on 25 May 2007 and interest pursuant to para 7 of the Orders of 26 June 2007.

7. The respondent pay to the appellant interest calculated at the rate of 10% per annum on the monies to be refunded pursuant to para 6 of these Orders from the date of the receipt of those monies by the respondent to the date of the refund of those monies to the appellant.

8. Upon payment by the respondent of the appellant’s costs pursuant to para 4 of these Orders, the monies which were paid to the Trust Account of Le Mass Solicitors pursuant to the Order made on 13 October 2005, together with any interest thereon, be paid to the trust account of the solicitors for the respondent to be held by them on behalf of the respondent.

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	QUD 175/2007

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	DIGGA AUSTRALIA PTY LTD (ACN 010 443 875) Appellant
AND:	NORM ENGINEERING PTY LTD (NO 2) (ACN 010 799 943) Respondent

JUDGES:	LINDGREN, BENNETT AND LOGAN JJ
DATE:	14 MAY 2008
PLACE:	BRISBANE

REASONS FOR JUDGMENT (No 2)

THE COURT:

INTRODUCTION

1 On 12 March 2008 reasons for judgment were delivered and published on the substantive issues in the appeal: see Digga Australia Pty Ltd v Norm Engineering Pty Ltd [2008] FCAFC 33. The Court ordered that the parties attempt to agree on the form of the orders to be made (including orders as to costs) to give effect to the reasons for judgment. They have agreed on the form of those orders except in relation to costs (the agreed orders are orders 1 and 2 of those that we will now make). These reasons relate to the issue of costs.

2 Since 12 March 2008, the parties have provided detailed written submissions on costs and certain brief evidence as to the making of an offer by Digga and its rejection by Norm (we will use the abbreviations that were used in the earlier reasons).

3 Two features complicate the issue of costs. First, the parties had mixed success. Second, Digga made an offer of compromise to Norm under O 23 of the Federal Court Rules (Cth) (the Rules).

4 In these reasons on the issue of costs, we incorporate, and take as read, the reasons for judgment of 12 March 2008.

CONSIDERATON

5 On 1 December 2005, Digga made its offer of compromise under O 23. It offered to pay Norm $5,000 and to undertake to the Court not to manufacture and sell or offer for sale any 4 in 1 buckets to the design depicted in Norm’s drawings referred to in its pleading (as it then stood), subject to one qualification: to the extent that Digga may have had some 4 in 1 buckets already manufactured but not yet sold which might be said to infringe Norm’s copyright, Norm was to permit those buckets to be sold.

6 Digga emphasises, and we agree, that the undertaking proffered was more favourable to Norm than the success that Norm has had (taking into account the result on the appeal and the orders that we will make), being:

• declarations of infringement of Norm’s copyright in drawings for four components by the making of two-dimensional reproductions by Digga in relation to the period from 2 December 2003 to 17 June 2004; and

• an award of nominal damages of $400.

The undertaking proffered by Digga, on the other hand, was permanent and related to the bucket as a whole. Norm has not suggested that the exception in favour of any 4 in 1 buckets already manufactured by Digga but not yet sold should reduce the value of the proffered undertaking. In the light of the ultimate result, Digga’s offer was a generous one.

7 Norm states that as at the time of receiving Digga’s offer, Norm had already incurred legal costs exceeding $76,328. Let it be assumed that a party and party recovery would be one-half to two-thirds of this sum. On that assumption, it would appear that Digga’s offer of $5,000 was far less than Norm’s potentially recoverable legal costs. But as appears below, the monetary position was not so straightforward.

8 Down to 1 December 2005, the following interlocutory events had occurred in the proceeding:

• On 18 August 2005, Norm filed the application and statement of claim.

• On 8 September 2005, the Court made directions and the costs of the directions hearing were reserved. It does not appear that these reserved costs were the subject of any later determination, save to the extent that they may be included in the orders referred to in [9] and [10] below;

• On 21 September 2005 Norm filed a notice of motion seeking an order for permission to enter and remain on Digga’s premises for the purpose of inspecting a 4 in 1 bucket, which was heard and determined ex parte on 23 September 2005. The costs of the motion were reserved at that time, but were later made Norm’s costs in the cause.

• On 23 September 2005, Norm filed a notice of motion seeking an interlocutory injunction against Digga. At the hearing on 6 October 2005, the motion was dismissed with costs reserved, but Norm was later ordered to pay Digga’s costs of the motion. Also on that date, directions were made for the filing of an amended statement of claim and for discovery, and costs were reserved. It does not appear that these reserved costs were the subject of any later determination, save to the extent that they may have been included in the orders referred to in [9] and [10] below.

• On 13 October 2005, Digga successfully sought security for costs. The costs of the application were made Digga’s costs in the cause.

• On 3 November 2005, further orders for discovery were made with costs reserved. It does not appear that these reserved costs were the subject of any later determination, save to the extent that they may have been included in the orders referred to in [9] and [10] below.

9 At the time of Digga’s offer of compromise, Norm’s case was that Digga had infringed Norm’s copyright in 19 drawings. However, on 8 March 2006, Norm substantially amended its pleading by abandoning the allegation of infringement of 17 of the 19 drawings and adding allegations of infringement of a further five drawings (the two remaining original drawings plus the five additional ones are the seven drawings referred to in the earlier reasons at [20]). On that date, Greenwood J ordered Norm to pay Digga’s costs occasioned by the amendments to Norm’s pleading. Later, on 26 June 2007 (after the trial), Greenwood J ordered Norm to pay Digga’s costs of and incidental to Norm’s allegation of direct or indirect infringement of the 17 drawings that Norm had abandoned.

10 Also on 8 March 2006, Greenwood J ordered that the trial dates be vacated, and that the costs of and incidental to the vacating of the trial dates be reserved. Norm was later ordered to pay Digga’s costs in respect of the vacation of the trial fixture.

11 The orders for costs referred to in the preceding paragraphs show that Norm was never going to recover anything approaching the whole of its party and party portion (say one-half to two-thirds) of $76,328 in respect of the period down to 1 December 2005.

12 It is necessary now to say something more about the nature of Norm’s claims and its success at trial. Of the two remaining original drawings on which Norm proceeded to trial (see [9] above), it succeeded in respect of only one, the Front Bucket Assembly drawing (BC41-A004). The primary judge found that Digga had infringed Norm’s copyright in this drawing between 2 December 2003 and 17 June 2004, and awarded nominal damages of $100.00. Norm did not, however, obtain an injunction restraining Digga from reproducing that drawing in either two-dimensional or three-dimensional form. The finding of infringement was not disturbed by this Court on the appeal.

13 It follows that the success that Norm had in respect of its claim as it was formulated as at 1 December 2005 was meagre in the extreme - $100.

14 In respect of the five additional drawings that were included as from 8 March 2006, the primary judge found:

• No infringement in respect of two of them, the Side Cutter Bar (BC41-D013) and the Floor Side Plate (BC41-D014F);

• That between 2 December 2003 and 17 June 2004, Digga had infringed copyright in the drawings for the Outside Mounting Bracket (BC41–D018) and the Inside Mounting Bracket (BC41–D016) by making a two-dimensional reproduction of those drawings, awarding nominal damages of $100 for each. (This finding of infringement was not disturbed on appeal);

• That since 2 December 2003, Digga had infringed Norm’s copyright in the drawing for the Pivot Arms (BC41-D015). The primary judge awarded damages of $80,673.00 and restrained Digga from reproducing that drawing either in two-dimensional or three-dimensional form. (Importantly, on appeal, we have found that Digga infringed Norm’s copyright in respect of the drawing for the Pivot Arms only by making two-dimensional reproductions of it in the period from 2 December to 17 June 2004).

In sum, taking into account the result on the appeal, Norm succeeded on only one of the original 19 drawings and three of the additional five drawings, in each case in respect only of two-dimensional reproduction in the closed period from 2 December 2003 to 17 June 2004. Norm obtained $300 nominal damages in respect of the findings of infringement that were not disturbed on appeal, and we will order that Norm have a further $100 nominal damages in respect of the drawing for the Pivot Arms (in place of the damages awarded by Greenwood J totalling $80,673.00 in respect of that drawing). Norm will therefore obtain a total of only $400 in damages.

15 Order 23 r 11(5) of the Rules provides that if an offer is made by a respondent and not accepted by the applicant, and the applicant obtains judgment not more favourable than the terms of the offer, then unless the Court otherwise orders, the applicant is entitled to an order that the respondent pay the applicant’s costs incurred up to 11 am on the day after the day when the offer was made taxed on a party and party basis, and the respondent is entitled to an order that the applicant pay its costs incurred after that time, taxed on an indemnity basis. Digga submits that the Court should not otherwise order.

16 For its part, Norm submits, first, that the judgment it obtained was more favourable than Digga’s offer, and, second, that even if this is not so, the Court should otherwise order.

17 Norm submits that the judgment it obtained was more favourable than the terms of Digga’s offer because Norm:

(a) has succeeded in establishing the appellant infringed its copyright subsisting in the drawings for the outside mounting bracket, the inside mounting bracket and the pivot arm mechanism by making a two-dimensional reproduction of the drawings in the period from 2 December 2003 to 17 June 2004. Although the damages awarded were low, it is likely that the respondent’s costs would have far exceeded the $5000 amount in the offer. In this sense the judgment must be more favourable than the terms of the offer.

(b) obtained a finding that the appellant made conscious use of its 4-in-1 buckets and did so for the purpose of consciously copying the most successful Norm 4-in-1 bucket in the market, which the appellant was seeking to meet. In contrast, the offer was made without any admission of any allegations. It is not enough to say that the offer was for $5,000 and that the damages for infringement of copyright were low, and therefore the terms of the offer were more favourable then the judgment. This approach would ignore the complex nature of claims and interests in copyright matters. [footnote references omitted]

We note that, in relation to para (a), Norm overlooks the fact that it also succeeded in establishing that Digga committed a two-dimensional infringement of Norm’s copyright subsisting in the drawing for the Front Bucket Assembly (see [12] above). We will deal with Norm’s two submissions separately.

18 In relation to the first, we repeat that at the time of the making of the offer of compromise, Norm was suing in respect of 19 drawings. Only one of these 19 drawings was the subject of a finding of infringement, and only for the closed period 3 December 2003 to 17 June 2004. Nominal damages of $100 were awarded in respect of that drawing. There were various orders for costs made by Greenwood J against Norm in favour of Digga in relation to interlocutory steps. In relation to the costs that were reserved by Greenwood J and not the subject of further order, it is convenient to regard them as being left to be borne by the respective parties. It is difficult to place figures on the various costs orders. It may be that the balance of Norm’s party and party costs down to 1 December 2005 was more or less than $5,000. We are not persuaded that the amount of those costs would exceed $5,000, but even if it would, it would not do so by a great amount and the excess would surely be dwarfed by the value to Norm of Digga’s proffered undertaking.

19 Norm’s second submission in support of its contention that the judgment ultimately obtained is more favourable than the terms of Digga’s offer requires the Court to place a value on the primary judge’s finding that Digga made conscious use of Norms 4 in 1 bucket. In substance, Norm’s submission seems to be that the Court should take into account against Digga the finding of conscious copying coupled with the fact that its offer of compromise was made without admission of any of the allegations made by Norm against it.

20 There are two answers to this submission. First, we do not think that the terms of O 23 r 11(5) can be circumvented in this way. The reference in the rule to "judgment" directs attention to "a judgment, decree or order ...": see s 46 of the Acts Interpretation Act 1901 (Cth); s 13 of the Legislative Instruments Act 2003 (Cth); s 4 ("judgment") of the Federal Court of Australia Act 1976 (Cth). We do not think that the comparison between the judgment obtained and the terms of the offer to which O 23 r 11(5) refers embraces a reference to findings made in the reasons for judgment.

21 Second, it transpires that in the circumstances of the case Digga was allowed, by reason of s 77A of the Copyright Act 1968 (Cth) (Copyright Act), to make conscious use of Norm’s 4 in 1 bucket for the purpose of copying the most successful 4 in 1 bucket in the market. Norm still seems to have difficulty in recognising this fact.

22 In our opinion, the judgment obtained by Norm has proved to be less favourable to it than the terms of Digga’s offer.

23 This leaves the question whether the Court should, in the exercise of its discretion, make an order having the effect of displacing the operation of O 23 r 11(5). In this respect, we do not think that the discretionary factors referred to by Norm in its submissions should prevail. Those factors are as follows:

• The primary judge’s finding that Digga made conscious use of Norm’s 4 in 1 bucket and that Digga did so for the purpose of consciously copying the most successful 4 in 1 bucket in the market;

• The issues were complex;

• The parties had mixed success;

• The offer of $5,000 was not a genuine and realistic offer;

• The offer made no allowance for costs incurred;

• The offer was never renewed;

• The offer was made before discovery had been completed and before the issues had been identified through the amended pleadings;

• It could not be said that Norm’s conduct was plainly unreasonable in view of the difficult questions of construction of the Copyright Act that were involved;

• Digga’s defence to the further amended statement of claim was filed on 27 April 2006, some time after the making of its offer of compromise on 1 December 2005. At 1 December 2005, Norm was not aware of the nature of Digga’s case. In these circumstances, Digga’s offer should have been accompanied by an explanation which put to Norm with sufficient particularity the reason why Norm must fail in the proceeding.

We have carefully considered all of these matters but are not persuaded by them.

24 As a result of whatever course of reasoning on the part of Digga and those advising it, Digga made an offer that has proved to be far more favourable to Norm than the judgment that Norm has obtained. As a result of whatever course of reasoning, Norm and those advising it rejected the offer, apparently out of hand. It is conceivable that both parties failed to take into account the effect of Div 8 of Pt III of the Copyright Act.

25 There is no suggestion that Norm ever made a counter offer, which it should surely have considered doing after it abandoned its claim based on 17 of the 19 drawings initially in issue. Nor is there any suggestion that Norm responded to Digga’s offer by seeking any explanation or justification of the offer or otherwise inviting an exchange directed to exploring settlement.

26 We readily agree with Norm that the case raised complex issues, but we think that this alone does not serve to render inapplicable the aim underlying O 23 r 11(5). It seems that Norm at no stage was prepared to contemplate a careful consideration of its legal position or any form of discourse with Digga.

CONCLUSION

27 For these reasons, there will be orders for costs of the kind sought by Digga.

I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.

Associate:

Dated: 14 May 2008

Counsel for the Appellant:	Mr J McKenna SC and Mr T Bradley
Solicitor for the Appellant:	Hopgood Ganim Lawyers
Counsel for the Appellant:	Mr D Campbell SC and Mr M Johnston
Solicitor for the Respondent:	McInnes Wilson Lawyers
Date of Hearing:	5, 6 November 2007
Date of last written submission on costs:	7 May 2008
Date of Judgment:	14 May 2008