Show Me the Money!

Australian Mud Company Pty Ltd v Globaltech Corporation Pty Ltd (No 7) [2024] FCA 445  and Vald Pty Ltd v KangaTech Pty Ltd (Costs) [2024] FCA 693 (fedcourt.gov.au)

Australian Mud:

The Federal Court has continued its run of decisions on contested costs orders.  The cost of litigating patent disputes in the Federal Court is high.  To maximise the costs recovered, parties are issuing Notices of Offer (pursuant to the Federal Court Rules) and Calderbank letters.  These are designed to put the other party at risk of an indemnity costs order should they reject the offer and the first party ultimately receive a more favourable judgment.  Indemnity costs orders enable a successful party to claw back up to 100% of their legal costs, whereas a party/party costs order typically only provides a successful party with around 60% of their actual legal costs.  So, significant sums of money can be at stake as a result of an effective or ineffective Notice of Offer or Caldberank letter.

Here, we discuss the outcome of the contested costs orders in the long-running litigation between:

1. Australian Mud Company Pty Ltd (Australian Mud) and Reflex Instruments Asia Pacific Pty Ltd (Reflex) against Globaltech Corporation Pty Ltd and Globaltech Pty Ltd (together, Globaltech) regarding a type of core sample orientation tool for use in mapping cores drilled in mining operations; and
2. Vald Pty Ltd and KangTech Pty Ltd regarding an apparatus for use in assessing the strength of a knee flexor muscle of a person.

Australian Mud and Reflex v Globaltech

Australian Mud and Reflex sought an order for the two Globaltech companies to pay their costs on a party/party basis from 26 March 2019 to 22 February 2023, and then on an indemnity basis from 22 February 2023 onwards.  Australian Mud and Reflex submitted that an indemnity costs order from this date onwards was appropriate as they had achieved a more favourable outcome than that set out in their Notice of Offer which Globaltech had rejected.  So, the issue for the Judge was whether Australian Mud and Reflex had in fact achieved a more favourable outcome from the litigation.

In the Notice of Offer, Australian Mud and Reflex offered a full and final resolution of their monetary claim if the two Globaltech companies paid them $7,100,000.  Rejecting the Notice of Offer, the two Globaltech companies were ultimately ordered to jointly pay an amount lower than $7,100,000 (the Joint Amount), with one of the Globaltech companies separately ordered to pay another sum of money (Separate Amount).  The Joint and Separate Amounts totalled more than $7,100,000.

Globaltech argued that the offer was made jointly to both Globaltech companies, and so, the relevant amount was the amount both companies were ordered to pay. On that approach, it was clear that the outcome was not more favourable than the terms of the offer.

The Judge disagreed with Globaltech, holding that there should be an order that Globaltech pay indemnity costs as claimed by Australian Mud and Reflex. In the Judge’s opinion:

1. the Globaltech companies were closely related parties; one was the operating company and the other had no assets or employees; and
2. those in the Globaltech Group who considered the offer would not have placed any weight on the difference between the two companies. Instead, they would have considered the offer from the point of view of the amount of the offer.

Vald v KangaTech

The starting position on costs was that the Judge considered that Vald should be the beneficiary of a costs order in its favour.  The Judge had held in an earlier decision that the Vald patent was valid and infringed by the original but not the modified KangaTech products.  See here for our report on the Judge’s earlier decision on liability.  KangaTech, however, argued that it should receive an indemnity costs order following a Notice of Offer and Calderbank Letter (the Offers).

The Judge disagreed, finding that an indemnity costs order was not appropriate because:

1. The Offers did not include any agreement by KangaTech to submit to an inquiry as to whether additional damages ought to be awarded, and if so, in what amount. Vald had ultimately obtained such an order in the proceedings.
2. The Offers did not include an undertaking in the same terms as the general injunctive relief, or an offer to consent to any declarations. Vald had sought this relief in its Amended Originating Application and was ultimately awarded this relief in the proceedings.

So, in the Judge’s opinion, Vald did not obtain a judgment that was less favourable than the terms of the Offers.  Her Honour also did not consider that Vald had acted unreasonably in continuing its claim, particularly given that the central issue of the interpretation (construction) to be given to the Vald Patent remained unresolved and as KangaTech had made only limited admissions as to infringement at the time of the Offers.

Conclusion

The outcomes of these contested costs orders underscore the significant financial implications of effective Notices of Offer and Calderbank letters in patent litigation.  In Australian Mud and Reflex v. Globaltech, the Judge ruled in favour of indemnity costs for Australian Mud and Reflex, emphasising the joint nature of the offer and the relationship between the Globaltech companies.  Conversely, in Vald v. KangaTech, the Judge denied indemnity costs to KangaTech due to the inadequacies in their offers, highlighting the importance of comprehensive and inclusive settlement proposals.  These cases illustrate the critical role of strategic cost management in high-stakes legal disputes.

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