FEDERAL COURT OF AUSTRALIA

Cementech Pty Ltd v Boral Masonry Ltd

[2014] FCA 794

Citation: Cementech Pty Ltd v Boral Masonry Ltd [2014] FCA 794

Parties: CEMENTECH PTY LTD (ACN 117 967 192) v BORAL MASONRY LIMITED (ACN 009 223 718)CEMENTECH PTY LTD (ACN 117 967 192) v ADBRI MASONRY PTY LTD (ACN 000 687 521)

File numbers:NSD 132 of 2014

Judge: RARES J

Date of judgment: 28 May 2014

Legislation: Corporations Act 2001 (Cth)Federal Court of Australia Act 1976 (Cth)Patents Act 1990 (Cth)

Cases cited: Cementech Pty Limited v Austral Masonry (NSW) Pty Limited [2013] NSWSC 1888 referred toProbiotec Ltd v University of Melbourne (2008) 166 FCR 30 appliedRusso v Resource Developments International Pty Ltd [2003] NSWSC 239 referred to

Date of hearing: 28 May 2014

Place: Sydney

Division: GENERAL DIVISION

Category: No catchwords

Number of paragraphs: 44

Counsel for the Applicant: Mr A D B Fox

Solicitor for the Applicant: Hall Partners

Counsel for the Respondent (Boral): Mr C Dimitriadis

Solicitor for the Respondent

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(Boral): DLA Piper Australia

Counsel for the Respondent (Adbri): Ms C L Cochrane

Solicitor for the Respondent (Adbri): Minter Ellison

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION NSD 132 of 2014 BETWEEN: CEMENTECH PTY LTD (ACN 117 967 192)

Applicant

AND: BORAL MASONRY LIMITED (ACN 000 223 718)Respondent

JUDGE: RARES J

DATE OF ORDER: 28 MAY 2014

WHERE MADE: SYDNEY

THE COURT ORDERS THAT:

1. The applicant provide security for costs of the respondent in the following tranches:

(a) in the amount of $90,000, by payment into a bank account of the Court or the

provision of a bank guarantee, for costs incurred up to the close of pleadings;

(b) in the amount of $170,000, by payment into a bank account of the Court or the

provision of a bank guarantee, for costs incurred up to the close of filing of

evidence.

2. The proceedings be stayed until such time as the applicant has complied with

order 1(a).

3. Upon the close of pleadings, the proceedings be stayed again until such time as the

applicant has complied with order 1(b).

4. The parties have liberty to apply to the court to revisit the amount fixed in order 1(b)

on the basis that, having regard to the respondent’s defence, cross-claim and

particulars of invalidity, when filed, the amount is considered to do injustice to either

party.

5. The applicant pay 60% of the respondent’s costs of the interlocutory application filed

on 9 April 2014.

6. The respondent has liberty to apply for further amounts by way of security.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

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IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION NSD 260 of 2014 BETWEEN: CEMENTECH PTY LTD (ACN 117 967 192)

Applicant

AND: ADBRI MASONRY LIMITED (ACN 009 223 718)Respondent

JUDGE: RARES J

DATE OF ORDER: 28 MAY 2014

WHERE MADE: SYDNEY

THE COURT ORDERS THAT:

1. The applicant provide security for costs of the Respondent in the following tranches:

(a) in the amount of $120,000, by payment into a bank account of the Court or the

provision of a bank guarantee, for costs incurred up to the close of pleadings;

(b) in the amount of $220,000, by payment into a bank account of the Court or the

provision of a bank guarantee, for costs incurred up to the close of filing of

evidence.

2. The proceedings be stayed until such time as the applicant has complied with

order 1(a).

3. Upon the close of pleadings, the proceedings be stayed again until such time as the

applicant has complied with order 1(b).

4. The parties have liberty to apply to the court to revisit the amount fixed in order 1(b)

on the basis that, having regard to the respondent’s defence, cross-claim and

particulars of invalidity, when filed, the amount is considered to do injustice to either

party.

5. The applicant pay 60% of the respondent’s costs of the notice of motion filed in the

Supreme Court of New South Wales on 10 October 2013.

6. The respondent has liberty to apply for further amounts by way of security.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

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IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION NSD 132 OF 2014

BETWEEN:

CEMENTECH PTY LTD (ACN 117 967 192)AND:

BORAL MASONRY LIMITED (ACN 000 223 718)

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION NSD 132 OF 2014

BETWEEN:

CEMENTECH PTY LTD (ACN 117 967 192)AND:

BORAL MASONRY LIMITED (ACN 000 223 718)

JUDGE: RARES J

DATE: 28 MAY 2014

PLACE: SYDNEY

REASONS FOR JUDGMENT

1 These are two applications for security for costs by the respondent in each of two separate

proceedings based on the same patent. In the first proceedings, now intituled Cementech Pty

Limited v Adbri Masonry Pty Ltd after the removal of Austral Masonry (NSW) Pty Ltd as a

party, commenced in the Supreme Court of New South Wales on 2 August 2013, Cementech

seeks findings that Adbri infringed its patent for a matrix for masonry elements and a method

of manufacture thereof in respect of a masonry production commonly known as Besser type

blocks. In the second proceedings, commenced in this Court on 10 February 2014,

Cementech sued Boral Masonry Limited for infringement of the same patent during the

period between 2008 and early 2013.

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How the issues arise

2 The patent was filed on 1 March 2007, but was only granted on 29 November 2012. In the

meantime, it appears to have been amended in a substantial way in a number of respects.

Adbri and Boral say that those amendments give rise to issues that will involve different

priority dates and questions of whether Cementech’s earlier attempts to use a product or a

method that reflects a subsequent amendment to the patent might amount to a prior use

affecting its validity.

3 It is common ground that, for the purposes of s 1335 of the Corporations Act 2001 (Cth),

Cementech does not presently appear to have sufficient assets to suggest that it will be able to

meet any order that it pay the costs of Adbri and Boral or either of them were it to fail in

either or both of its proceedings.

4 The critical issues in the argument before me are, first, whether an order that Cementech

provide security will stultify the proceedings by reason of its impecuniosity and, secondly, if I

were not minded to so find, what amounts of security ought be ordered in each proceeding

and on what basis.

Should the Boral proceedings be stayed?

5 Prior to the commencement of the hearing today, Cementech and Boral had proposed short

minutes of order in which it was noted that Cementech would institute proceedings against

Austral for infringement of the patent in suit. Indeed, those proceedings were commenced in

this Court on Monday, 26 May 2014. Cementech and Boral proposed to agree that their

proceedings should be stayed pending the final determination of the Austral proceedings and

any appeal, on conditions that:

1. if the Austral proceedings were either permanently stayed, dismissed or

discontinued, or a final determination were made that had the effect of

invalidating claims 1, 2, 3 and 18 of the patent, Cementech would consent to

an order that its proceedings against Boral be dismissed and that it pay Boral’s

costs.

2. Cementech would not contend against Boral that any finding of fact or law

made in the Austral proceedings was binding in the Boral proceedings or in

any proceeding in relation to the patent.

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3. if the Court in the Austral proceedings issued a certificate of validity in

relation to the patent pursuant to s 19 of the Patents Act 1990 (Cth),

Cementech would not rely on s 19(2) against Boral and would consent to a

direction under s 19(3) that s 19(2) not apply in relation to any award of costs

against Boral, in those proceedings or any other proceeding in relation to the

patent.

6 In s 19(2), the Parliament has expressed a prima facie public policy that, where a court has

determined, as reflected in a certificate of validity in other proceedings, that the validity of a

claim was questioned, then a person who subsequently challenges that same claim

unsuccessfully will ordinarily be obliged to pay the patentee’s full costs of the proceedings as

between solicitor and client in respect of that claim. There is obvious commonsense in that

public policy.

7 I refuse to grant a stay on the conditions that Cementech and Boral proposed, having regard

to the requirements of Part VB of the Federal Court of Australia Act 1976 (Cth) and, in

particular, to the achievement of the overarching purpose. In my opinion, a stay on those

conditions would not facilitate the just resolution of the present dispute according to law as

quickly, inexpensively, and efficiently as possible. It would subject the Court to multiple

proceedings on the same patent in which Boral would have been free to argue that a

considered decision of the Court on the validity of claims was not to have the prima facie

effect that the Parliament intended in s 19(2). The conditions would defeat the express policy

of the Parliament, and commonsense, that if Boral’s subsequent challenge to that claim were

unsuccessful, it should pay the whole of Cementech’s solicitor-client costs in respect of its

unsuccessful challenge.

8 The efficient disposal of the Court’s overall caseload would be significantly impeded by the

parties’ suggestion that Boral should be completely free of the Parliamentary public policy

expressed in s 19(2) that it be at risk for re-litigating an issue that had already been

determined. And, it would cause other litigants to be displaced in their ability to have access

to the Court by reason of those further proceedings clogging the Court’s lists. It is not

appropriate for parties to agree on terms that do not have proper regard to the public policy in

s 19(2) and the overarching purpose. I am of opinion that the conditions proposed are not

appropriate ones on which to order a stay.

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Background - Adbri’s claim for security

9 The Adbri proceedings were conducted initially in the Supreme Court. Originally they had

been commenced solely against Austral. On 2 August 2013, about a week after their

commencement, Cementech joined Adbri. Adbri had received a letter of demand on 28 June

2013 with the then-proposed version of Cementech’s pleading of infringement against it. The

evidence of Adbri’s solicitor, Wayne McMaster, indicated that Adbri commenced work in

preparing its defence and cross-claim from 28 June 2013, although the proceedings had not

yet been instituted against it.

10 Adbri foreshadowed that it would seek security for costs and, on 10 October 2013, it filed a

notice of motion in the Supreme Court for security. It sought a total of $500,000 by way of

security. This was based on the evidence of Mr McMaster. He estimated that the total cost,

in a solicitor-client assessment, of preparing a defence and cross-claim impugning the

validity of the patent would be $279,100. He estimated that, in addition, there would

subsequently be further costs for reviewing and preparing evidence totalling $417,900, and

that the costs for the general conduct of the matter up to the time at which the infringement of

validity evidence was complete would amount to another $204,975, totalling $901,975. From

that acorn, Adbri developed its claim for the figure of $500,000 as the amount it sought by

way of security. (All the amounts claimed by both Adbri and Boral exclude goods and

services tax.)

11 Mr McMaster said, in his affidavit of 28 November 2013, that the actual costs incurred by

Adbri between 28 June 2013, being the date of receipt of Cementech’s letter of demand, and

26 November 2013, were approximately $235,000. Those included the costs attributed to

work of a senior associate who had billed $136,404, which, according to the scale of fees, is

equivalent to approximately 250 hours of work. Mr McMaster said that he considered that

those costs had been reasonably and properly incurred by Adbri from the commencement of

the dispute, having regard to the vague and imprecise nature of Cementech’s allegations of

infringement, the significant cross-claim, number of grounds of invalidity investigated by

Adbri, and the number of interlocutory disputes and associated voluminous correspondence

necessitated as a result of the involvement of Adbri.

12 Mr McMaster’s reference to voluminous correspondence was borne out by the large number

of letters and emails passing between the solicitors that formed part of his affidavit evidence.

However, that correspondence seemed to have done little to advance the proceedings to any

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satisfactory degree. Why such material is put into evidence on such applications is a

mystery. It does not advance the ability of the Court to determine a real issue in dispute. It

adds unnecessarily to the bulk of the material given to the Court for its consideration. Nor

does such correspondence generally articulate or identify what is really necessary for the

Court to decide. Such repeated exchanges of correspondence is a practice that is

unfortunately too common and rarely achieves anything. It is a practice antithetic to

achieving the overarching purpose in Pt VB of the Federal Court of Australia Act.

13 The Court only needs to be given material that will assist to determine the dispute. Judges

should not be expected to read volumes of letters passing between solicitors that are no more

than acrimonious or other debating positions, or other material in which they seek to sort out

differences at great length and, no doubt, great cost to their clients, which do nothing to

elucidate the real issues for the Court to decide.

14 Adbri’s costs, as estimated by Mr McMaster, were reviewed by a costs assessment expert,

Deborah Vine-Hall, in her affidavit of 29 November 2013. She opined that it was reasonable

to predict that Adbri’s likely costs at the conclusion of evidence stage could be at least the

amount of about $900,000 estimated by Mr McMaster. She was, of course, considering the

assessment exercise in light of the provisions of the New South Wales costs legislation,

before the proceedings were transferred to this Court.

Background – Boral’s claim for security

15 Boral filed its interlocutory application on 9 April 2014, and sought $420,000 by way of

security. The issues in the two proceedings as to infringement are slightly different, in that

the Boral proceedings involve a closed period between 2008 and 2013. Boral sold the

relevant business in 2012 and then ceased to be responsible for any alleged infringing

conduct. Its solicitor, Simone Mitchell, estimated that the costs of preparing a defence and

cross-claim, and dealing with the pleadings on a solicitor-client basis, would be $160,780,

those of preparing evidence would be $271,200, and that the general costs of the conduct of

the matter up to the completion of the evidence would be a further $53,840, totalling, together

with costs incurred to date, application fees and disbursements, $561,254.

The common background

16 In the Supreme Court proceedings, Cementech originally claimed a declaration that its

exclusive licence agreement with Austral included a provision that required Austral to join

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with it as plaintiff in infringement proceedings, and to be liable for half of the costs and

disbursements of any enforcement action.

17 On 17 December 2013, Stevenson J made a declaration that, on the proper construction of the

licence agreement between Cementech and Austral, the latter was obliged to pay Cementech

one half of the costs and disbursements incurred by Cementech in the bringing and

prosecuting of the proceedings in which Adbri had by then become a party, as and when

those costs and disbursements were incurred by Cementech except insofar as the incurring of

those costs and disbursements was not reasonably necessary for the bringing and prosecuting

of those proceedings: Cementech Pty Limited v Austral Masonry (NSW) Pty Limited [2013]

NSWSC 1888 at [50]. His Honour also ordered that the balance of the proceedings be

transferred to this Court.

18 As a result of his Honour’s decision, there was no further role for Austral to play in the

proceedings, and I removed it as a party when the matter first came before me. An appeal

from his Honour’s decision has been heard by the Full Court and judgment is reserved.

19 Cementech is a company conducted by members of the Rafidi family. Its patriarch, Iyad

Rafidi appears to be its controlling mind. His sons, Jesse and Joel, who are directors of

Cementech, have offered undertakings that, in their final evolution today, were to the effect

that, upon the determination of the proceedings, in the event that Cementech were ordered to

pay the relevant respondent’s costs incurred in them, in any amount as may be ordered by the

Court or taxed, each individual would personally pay such costs for or on behalf of

Cementech to the extent that that company was unable to pay such costs, to the extent that he

had sufficient assets and financial resources to do so. The latter qualification was not present

in the original form of the undertaking proffered at the commencement of the hearing today.

20 I will refer, for simplicity, to Iyad Rafidi as Mr Rafidi in these reasons. He gave affidavit

evidence and was cross-examined. He said that his two sons were directors of Cementech

and that it had developed the technology the subject of the patent. He said that Austral had

ceased production from its Port Kembla operation in February 2013, and that some of its

licence fees due to Cementech remained unpaid because of a dispute between Austral and

Cementech that is now the subject of the proceedings commenced two days ago.

21 Mr Rafidi is a man who has had a great deal of business involvement in a range of

enterprises, some of which do not appear to have been as successful as he would have hoped.

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It appears that, in some earlier proceedings, his evidence on certain matters was regarded by

other judges as less than reliable, a matter that he readily admitted. Those circumstances

included his having admitted to being party to relying on a document that he knew to have

been fabricated in proceedings in the Supreme Court of New South Wales before Young CJ

in Eq in 2002: Russo v Resource Developments International Pty Ltd [2003] NSWSC 239.

Mr Rafidi accepted today that what he had done was wrong on that occasion.

22 Mr Rafidi said that, in the past, he had been assisted by business associates and colleagues

when he had experienced times of need and that he had been able to call on them when he

needed funding, but that this was a matter of their own generosity and not of any legal or

other obligation. He said that the people who were standing behind the present litigations

involving the patent were himself and his two sons and that they collectively did not have any

significant assets. He said the people who stood to benefit from the litigation were himself,

his two sons and members of his family and that they had, so he asserted, no capacity to meet

an order for security for costs. He said that his wife owned the family home, but that it was

fully mortgaged to the National Australia Bank.

23 In a subsequent affidavit, Mr Rafidi said that he understood that Adbri believed that its costs

in defending the proceedings would exceed $1 million and that Cementech was “a $2

company having no capacity to meet such an order for costs, were it recoverable. I do not

have money or finances sufficient to meet such an order or application”. He said that he did

not have financial resources, separate to those of Cementech, sufficient to meet further or

additional orders for security for costs and that the property in which he and his sons lived

was at Sylvania Waters and was fully mortgaged.

24 Mr Rafidi accepted that a property at Rhodes or Canada Bay was held in his name. But, he

said that he held it as trustee, a fact that he had not previously disclosed. He revealed this

information in his affidavit of 25 May 2014 following Ms Mitchell’s identification of his

being the registered proprietor of that property in one of her affidavits. In that affidavit,

Mr Rafidi also responded to other evidence given by Ms Mitchell. Australian Securities and

Investments Commission (ASIC) searches showed that he, his sons and brother were officers

of, or associated with, a large number of companies, most of which were, effectively,

inactive. Mr Rafidi asserted that none of this large number of companies held sufficient

funds or resources to meet orders for security of costs and that, substantively, the most that

could be said to be available from those companies was an amount of about $265,000. Most

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of that sum is related to the asset that Cementech claimed was represented by Austral’s

liability for unpaid licence fees of $220,000.

25 Mr Rafidi also referred, in his affidavit of 25 May 2014, to the position of Alphalite Pty

Limited which he said had been incorporated pursuant to advice of accountants, Grant

Thornton. It had a paid-up capital of $13,001,415. He said that Alphalite does not trade and

has never traded. He said that the arrangement for which Grant Thornton had advised Brick

& Block Company Pty Limited, his former umbrella corporate vehicle, to incorporate

Alphalite was never proceeded with. On the other hand, he asserted that Alphalite’s paid-up

capital of about $13 million did not amount to that company having “tangible assets of this

magnitude to which we could look to provide security for costs”. But Mr Rafidi gave no

explanation as to what that paid-up capital represented or what the asset and liability position

of the company was. Nor, signally, did Mr Rafidi provide any financial accounts for any of

the corporations with which he had been associated as evidence of what their actual financial

positions were. He gave evidence that he is currently involved in other litigation against

Bankwest over previous business dealings. He gave no explanation as to the sources of funds

for that litigation or for the three sets of proceedings that he has caused Cementech to

institute in respect of the patent in suit.

26 Mr Rafidi and his son, Jesse, are also associated with a company, Ad-Tek Pty Ltd. On its

website, that company claims that it is a construction chemical specialist organisation.

Mr Rafidi provided little information about the financial position of that company.

27 Earlier, in the Supreme Court proceedings, on 30 July 2013 Mr Rafidi had said in an affidavit

that “Cementech is a solvent company and has capacity to meet such orders as may be made

against it in this litigation”, albeit that that was at a time just before Adbri had been joined as

a party.

28 During the course of submissions made to Stevenson J on the application with which he dealt

in the judgment to which I have referred, senior counsel then acting for Cementech referred

to evidence Mr Rafidi had given in which he doubted that he would be able to get money

from his bank that would be sufficient to satisfy the claims for security in the order of the

amount that was then being sought by Adbri. Mr Rafidi did not give any evidence, and

Cementech did not lead any other evidence, of any efforts to obtain funds from any financial

institution to support its pursuit of the various infringement proceedings that it has brought.

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29 Cementech’s solicitor, Trevor Hall, swore an affidavit in the Supreme Court on 15 November

2013 in which he said that Cementech had spent about $22,500 in preparing its pleadings and

doing experimentation in respect of Adbri’s products that it claimed were infringing. He

argued that, having regard to Mr McMaster’s evidence, an amount about $32,500 should be

ordered for security in favour of Adbri.

30 Cementech also relied on the affidavit of Timothy Rybak, who was a specialist legal costs

consultant. Mr Rybak said that his evidence was prepared urgently. He contested a number

of views of Ms Vine-Hall. He expressed the view that the total amount that would be

recoverable on a standard party/party costs order for Adbri’s costs and disbursements up to

the time of the close of evidence was between $90,000 and $110,000. Mr Rybak’s report

bears the hallmarks of having been prepared urgently and, where it conflicts with Ms Vine-

Hall’s views, I prefer hers as being more reasoned.

Cementech’s submissions

31 Cementech argued that there should be no order for security for costs because, based on Mr

Rafidi's evidence, such an order would stultify its ability to conduct either of the proceedings.

It argued that there was a public interest in its being able to litigate the validity of, and to

enforce, the claims in its patent. It contended that, because each of Adbri and Boral were

significant, large companies associated with well-resourced public companies, and

Cementech was a small, family-held company, no particular predisposition to ordering

security to protect the interests of the two respondents should be assumed. It argued that the

cross-claims challenging the validity of the patent should not be the subject of any grant of

security because such cross-claims were not inherently defensive by nature. It submitted that

the context, nature and extent of the matters that any such cross-claim would raise in either of

the proceedings was not known. It argued that, as was evident from Mr McMaster's affidavit

of 9 October 2013, a great deal of work had been done by Adbri from the day of the letter of

demand, of 28 June 2013, to advance both invalidity and a defence of non-infringement

which, by 28 November 2013, totalled about $235,000. Cementech noted that neither

respondent’s evidence had sought to distinguish between the costs of its substantive defence

against the infringement of the patent’s claims and the other aspects of its defence and cross-

claim that asserted that the patent was invalid. Cementech argued that it was evident that, by

reason of the work already done, Adbri was very close to being able to file and serve its

defence, as indeed it had offered to do, within 28 days, in a letter of 31 March 2014.

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Alternatively, if security were ordered, Cementech argued that it should not include an

allowance for that part of the defences consisting of the positive cross-claims that the patent

was invalid, and any security should not be in the quantums asserted.

Consideration

32 I accept that Mr Rafidi's business career has demonstrated that one thing he does not wish to

do is to go bankrupt, and that his proffer of a guarantee is likely to have some substantive

value. His sons’ offers of guarantees are not backed by assets.

33 I am not satisfied by the evidence of Cementech that it is without resource or assets to

marshal to be able to provide security. Mr Rafidi's evidence in chief did not include what he

subsequently offered in the course of cross-examination, namely, that he would provide a

detailed explanation of his assets and liabilities and those of the companies in which he was

interested or involved. The absence of that material and the fact that there is no explanation

as to how Cementech is funding the three patent infringement cases and its proceedings

involving Bankwest, together with the late revelations of the real property interest that

Mr Rafidi says, and I am prepared to accept, he held simply as a bare trustee, leave me

unsatisfied that I am in a position to find that these two litigations would not be able to

proceed if security for costs were ordered.

34 There is just too much that has not been explained or revealed, and has been left hanging, in

the material put forward by Cementech to enable me to be satisfied that it lacks resources, as

it claims. It may well be that what Mr Rafidi has said is completely accurate, but Cementech,

bearing the evidentiary onus on this point, has failed, in my opinion, to discharge it. It is of

concern that I have been left unaware of the nature and extent of the asset that is represented

in the books of Alphalite as its $13 million paid-up capital. Whether that is an intangible

asset, such as intellectual property rights or goodwill in respect of a business, or a tangible

asset or a mix of both classes of assets has been left unexplained in the evidence. Had it

wished to do so, Cementech could have explained what that apparently significant asset

represented.

35 Accordingly, I am satisfied that it is appropriate to make an order for the payment of security

for costs by or on behalf of Cementech.

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What quantum of security should be ordered

36 That leaves the making of an assessment as to the appropriate amounts that should be ordered

for security and the staging of their payment. In that respect, Adbri and Boral have the onus.

As I have mentioned, neither has sought to identify any distinction between the costs that

would be attributable to the defence of the infringement claims and their positive cross-claim.

In Probiotec Ltd v University of Melbourne (2008) 166 FCR 30 at 46-47 [62]-[64], I

discussed, with the agreement of Finn and Besanko JJ, the relevance of defences and cross-

claims and the relationship between claims made in patent litigation, saying:

“A factor which may be relevant in the exercise of a discretionary judgment in making an order for costs is the responsibility of the party against whom the order is sought for the costs incurred by the successful party. Evaluating that responsibility may require an examination of not only the nature and degree of the involvement of each of the parties, but of the essential claims themselves. Where the validity of a patent is in issue in litigation, the ways in which the issue arose, was contested and may impact on the various parties, ordinarily, will be significant factors in the formation of the discretionary judgment to order costs under provisions such as s 43(2) of the Act.

Under s 121 of the Patents Act, a defendant to infringement proceedings is entitled to apply by way of counterclaim for revocation of the patent. Likewise, it is a defence to an infringement proceeding to deny validity of the patent: Baygol Pty Ltd v Huntsman Chemical Company Australia Pty Ltd (t/as RMAX) [2004] FCA 1248 at [31] per Tamberlin J. In Baygol [2004] FCA 1248 at [31]-[34], Tamberlin J examined the legislative history of the relationship between a cross-claim and a defence in proceedings for infringement and revocation of a patent. He concluded that revocation proceedings could be instituted as a defence to an infringement action. But, he pointed out that in each case it was a question of ascertaining the substance and effect of the revocation suit so as to determine whether in truth it was defensive in character, because if successful, the infringement action would be defeated. Such a characterisation had importance on the question of the provision of security for costs in that case and others, such as Farmitalia Carlo Erba SrL v Delta West Pty Ltd (1994) 28 IPR 336 at 339-341 per Heerey J.

In Farmitalia  28 IPR at 339 Heerey J recognised that the formality of pleadings or the position of parties in litigation may not be determinative of the substance of their position and role in litigation. A person who initiates proceedings may sometimes be, in effect, the true defendant, although the form of the proceedings might not suggest that to be so. So in Willey v Synan (1935) 54 CLR 175 a collector of customs relied on his statutory power to issue a notice to the plaintiff requiring him to commence an action for the recovery of seized silver coins if he were to forestall a statutory condemnation of them. Once the action was commenced, the collector of customs sought security for costs against the foreign plaintiff. The Court concluded that in effect, the collector was the real actor and the initiator of the proceedings, because the notice was a step taken by him to obtain a condemnation of the goods: Willey  54 CLR at 179-180 per Latham CJ, 185-186 per Dixon J, with whom Rich J agreed. Dixon J said (Willey 54 CLR at 186):

‘I do not think we should be influenced by the consideration that in all probability the plaintiff would have brought an action even if the Collector

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had not proceeded under sec. 207. In fact he did so proceed and thus made it necessary for the plaintiff to sue or allow the forfeiture to take place.’”

37 The task for me, on the inadequate material led by Adbri and Boral, is to ascertain the

substance and effect of the cross-claim for revocation that each foreshadowed, so as to

determine whether it will be completely defensive in character. Each of them asserted that, if

security is ordered and the proceedings are stayed because Cementech is unable to provide

the security, it will not proceed with its cross-claim. However, that is obviously a matter of

common sense, given that the only person who can enforce the validity of the patent is the

person whose proceedings would then be stayed. That argument has a circularity about it that

is unattractive in the present circumstances.

38 The way in which counsel argued that the cross-claims will have a defensive aspect suggests

that there is some substance, at least in part, in that argument. One of the issues will be the

relevant priority date or dates that ought to be determined and what impact the prior uses may

have had on the validity of the patent at that time or those times, having regard to any

substantive change or changes in the nature of the specification in the patent and its claims as

amendments were progressively made. It is impossible to undertake the present task with any

precision because of the lack of any cross-claim before me, or any substantive evidence by

those who could best inform me as to its precise content.

39 Doing the best I can, I am of opinion that about 60% of the costs of the defence, including the

cross-claim, would be attributable to the truly defensive task and that 40% of the costs

estimated would be attributable to the, in effect, positive case of invalidity that would not

involve a duplication or crossing over of work.

40 While I appreciate that the two different estimates, for Adbri and Boral, deal with two

different cases, I am mindful that Adbri’s estimate of its costs is very much greater than that

of Boral and that Adbri’s costs include, on the evidence, a significant component in respect of

the period between 28 June 2013 and when it brought its application for security on

10 October 2013 that had been foreshadowed earlier. I have had regard to the evidence and,

making an appropriate discount for what will be necessary in pleading those aspects of the

defence and cross-claim that will truly not be defensive, I consider that I should order

security in favour of Adbri in respect of further costs up to the costs up to the close of

pleadings of $120,000 and $220,000 in respect of further costs up to the close of the

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evidence, and that I should award $90,000 in respect of Boral’s costs of its defence and

$170,000 in respect of its further costs up to the close of its evidence.

41 I will also order that the parties may revisit the amounts fixed for the preparation of evidence,

having regard to the nature of the defences and cross-claims, including any issues concerning

alleged invalidity, when those are filed, lest the estimate that I have made does injustice to

any of the parties, including Cementech.

42 Each of Adbri and Boral asked for an order that if the amount of security were not paid

within 28 days or some other fixed time, the proceedings should be dismissed rather than

merely stayed or for liberty to apply to seek to have the proceedings dismissed. They

contended that they would be in some way prejudiced by the proceedings being stayed but

not dismissed while Cementech pursued its claim against Austral.

43 I am of opinion that it would not be appropriate to make any such order at this time. If, and

when, any relevant prejudice were demonstrated, were the proceedings to be stayed, either

Adbri or Boral can make such application based on the circumstances then obtaining as it

sees fit.

44 Each of Adbri and Boral also sought an order for the costs of the interlocutory application.

While they have had some success, it has not been an entire victory. I will order that

Cementech pay 60% of the respondent’s costs in each application.

I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.

Associate:

Dated: 1 August 2014