Insight SRC IP Holdings Pty Ltd v The Australian Council for Educational Research Limited (No 2) [2012] FCA 1063

FEDERAL COURT OF AUSTRALIA

Insight SRC IP Holdings Pty Ltd v The Australian Council for Educational Research Limited (No 2) [2012] FCA 1063 Citation: Insight SRC IP Holdings Pty Ltd v The Australian Council for Educational Research Limited (No 2) [2012] FCA 1063

Parties: INSIGHT SRC IP HOLDINGS PTY LTD (ACN 136 861 884) and INSIGHT SRC PTY LTD ACN 080 602 380 v THE AUSTRALIAN COUNCIL FOR EDUCATIONAL RESEARCH LIMITED

File number: VID 410 of 2011

Judge: BESANKO J

Date of judgment: 27 September 2012

Catchwords: PRACTICE AND PROCEDURE – Costs – where notice of offer to compromise served on applicants by respondent pursuant to Part 25 of the Federal Court Rules 2011 prior to trial – where offer rejected by applicants who made counter-offer – where applicants successful in part at trial – whether trial outcome less favourable to applicants than respondent's offer to compromise – whether applicants' rejection of offer imprudent or unreasonable – whether appropriate to award indemnity costs against applicants after the date of the respondent's offer to compromise – whether applicants entitled to indemnity costs due to respondent's conduct of proceeding – setoff of judgment sum against costs orders – Federal Court of Australia Act 1976 (Cth) s 43, Federal Court Rules 2011, Rules 25.14, 40.02. Held: The respondent is to pay the applicants' costs on a party and party basis prior to the date of the notice of offer to compromise; the applicants are to pay the respondent's costs of the proceeding on an indemnity basis after this time. PRACTICE AND PROCEDURE – Final orders to be made – where infringement of copyright by respondent established – whether appropriate to grant injunctive relief – whether declaratory relief sufficient. Held: Declarations as to copyright ownership should be made in favour of the applicants.

Legislation: Federal Court Rules 2011 rr 1.34, 25.14, 40 Copyright Act 1968 (Cth) ss 14, 35, 115, Federal Court of Australia Act (1976) (Cth) s 43

Cases cited: Calderbank v Calderbank [1976] Fam 93, cited Facton Ltd (formerly known as G-Star Raw Denim KFT) v Seo (2011) 91 IPR 135, cited Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd (No 2) (2008) 76 IPR 763, cited Keays v JP Morgan Administrative Services Australia Limited [2012] FCAFC 100, cited Pringle v Gloag (1879) 10 Ch D 676, cited GE Dal Pont, Law of Costs (2nd ed, LexisNexis Butterworths, 2009)

Date of hearing: 24 July 2012

Dates of written submissions: 30 July, 17 August, 22 August 2012 (Applicants) 7 August, 20 August 2012 (Respondent)

Place: Adelaide (via video link with Melbourne)

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 61

Counsel for the Applicants: Mr G McGowan SC with Mr J Slonim

Counsel for the Applicants: Charlesworth Josem Partners Pty Ltd

Counsel for the Respondent: Mr C Golvan SC with Mr C Smith

Solicitor for the Respondent: Lander & Rogers

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 410 of 2011

BETWEEN: INSIGHT SRC IP HOLDINGS PTY LTD (ACN 136 861 884)

First Applicant

INSIGHT SRC PTY LTD ACN 080 602 380

Second Applicant

AND: THE AUSTRALIAN COUNCIL FOR EDUCATIONAL RESEARCH LIMITED

Respondent

JUDGE: BESANKO J DATE OF ORDER: 27 SEPTEMBER 2012 WHERE MADE: ADELAIDE (Via Video Link with Melbourne)

THE COURT DECLARES THAT:

1. Dr Peter Michael Hart was the author and original owner of the copyright work known as the School Organisational Health Questionnaire ("SOHQ") (a copy of which appears as the appendix to an article titled "Development of the School Organisational Health Questionnaire: A measure for assessing teacher morale and school organisational climate" by Peter Hart et al, published in the British Journal of Educational Psychology (2000) Vol 70 at pp 211-228). 2. The first applicant is the owner of the copyright in the SOHQ. 3. The second applicant is the exclusive licensee of the copyright in the SOHQ. THE COURT ORDERS THAT: 1. There be judgment for the applicants against the respondent in the sum of $32,510. 2. The respondent pay the applicants' costs of the proceeding on a party and party basis up to and including 21 December 2011. 3. The applicants pay the respondent's costs of the proceeding on an indemnity basis on and from 22 December 2011. 4. Each party be entitled to setoff against any liability to the other party any liability of the other party to it whether that liability relates to the judgment sum or to orders for the payment of costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 410 of 2011

BETWEEN: INSIGHT SRC IP HOLDINGS PTY LTD (ACN 136 861 884)

First Applicant

INSIGHT SRC PTY LTD ACN 080 602 380

Second Applicant

AND: THE AUSTRALIAN COUNCIL FOR EDUCATIONAL RESEARCH LIMITED

Respondent

JUDGE: BESANKO J DATE: 27 SEPTEMBER 2012 PLACE: ADELAIDE (Via Video Link with Melbourne)

REASONS FOR JUDGMENT 1 I delivered reasons for judgment in this proceeding on 24 July 2012: Insight SRC IP Holdings Pty Limited v The Australian Council for Educational Research Limited [2012] FCA 779. On delivering the reasons for judgment I made the following directions: 1. The applicants are to lodge and serve within 7 days draft minutes of order reflecting the conclusions reached in these reasons; 2. The respondent is to lodge and serve within 14 days submissions indicating which orders, if any, it opposes and the grounds of opposition; and 3. The applicants, if so advised, are to lodge and serve within 21 days submissions in response to the respondent's submissions. 2 On 30 July 2012, the Court received the applicants' proposed minutes of order and a document entitled "Applicants' Notes Regarding Proposed Orders". I will refer to this latter document as the Applicants' Notes. 3 On 7 August 2012, the Court received the "Respondent's Outline of Submissions on the Final Orders". The respondent attached to those submissions certain correspondence which had passed between its solicitors and the applicants' solicitors. One of the documents was a letter from the respondent's solicitors to the applicants' solicitors dated 7 December 2011, together with a Notice of offer to compromise under Part 25 of the Federal Court Rules 2011. I will refer to these submissions and documents as the Respondent's First Submissions. In an email sent to the Court on 9 August 2012, the respondent sought to add a note to its First Submissions. 4 On 17 August 2012, the Court received a document entitled the "Applicants' Reply to the Respondent's Outline of Submissions on Final Orders". Although these submissions were three days late I think it is appropriate to receive them. The applicants' reply submissions also included correspondence which had passed between the parties. I will refer to these submissions as the Applicants' Reply Submissions. 5 There was a dispute between the parties as to whether the respondent should have the opportunity to file submissions in reply to the Applicants' Reply Submissions. The parties were content to put their submissions with respect to that dispute in writing. As the Notice of offer to compromise was first raised in the Respondent's First Submissions, I think it is appropriate to receive further submissions from the respondent. I will receive the respondent's submissions dated 20 August 2012, and refer to them as the Respondent's Second Submissions. The respondent did not object to the applicants' further submissions dated 22 August 2012 and I will refer to these submissions as the Applicants' Further Reply Submissions. 6 These reasons deal with the final orders which should be made in this proceeding, including the appropriate orders as to costs. They should be read with the reasons I delivered on 24 July 2012. Nevertheless, it is appropriate that I note particular aspects of those reasons. 7 First, in paragraph 7 of the reasons, I noted that not all of the questions in the SOHQ were reproduced and provided to ISV. I noted that, nevertheless, it was not suggested by the respondent that that did not amount to infringement of the copyright in the SOHQ. 8 Secondly, in paragraph 8 of the reasons, I noted that a number of issues raised by the respondent in its pleadings were no longer pressed by the end of the trial. I said: First, there is no challenge to the subsistence of copyright in the SOHQ or to the originality of that work. Secondly, there is no dispute that Dr Hart was the first person to reduce the work to a material form, so there is no claim of joint authorship. Thirdly, claims that the University of Melbourne or the National Health and Medical Research Council owned copyright in the SOHQ were not pressed. 9 Thirdly, in paragraph 181 of the reasons, where I set out a calculation of what was said to be the applicants' loss and damage, I noted that document no. 35 did not form a proper basis for an award of damages and that there were errors, uncertainties and assumptions not supported by the evidence in the document (see also paragraph 187). 10 Fourthly, in paragraph 130, I held that the defence to a claim for damages in subs 115(3) of the Copyright Act 1968 (Cth) ("the Act") had not been made out by the respondent. 11 Fifthly, in paragraph 131 I rejected the applicants' claim for general damages and in paragraph 206 I allowed a claim for nominal damages. In paragraph 190, I indicated that had I decided that the applicants were entitled to general damages, I would have awarded $130,000 to the applicants. 12 Sixthly, in paragraph 198, I held that the case was an appropriate one for an award of additional damages under subs 115(4) of the Act and that the breach of copyright was a flagrant breach. In paragraph 201, I indicated that I would award a sum of $32,500 for additional damages. 13 The applicants seek by way of final orders judgment in their favour, declarations of ownership of the SOHQ, injunctions with respect to articles on the internet containing the SOHQ, an order for the payment of damages in the sum of $32,510 within 28 days of the date of the order and an order that the respondent pay them the costs of the proceeding, including reserved costs, on an indemnity basis. 14 The respondent opposes the making of the aforesaid orders. It submits that the applicants should pay their costs on an indemnity basis from 11 am two business days after service of the Notice of offer to compromise. They accept that the applicants are entitled to judgment for $32,510. With respect to the period prior to the date of its offer, the respondent contends that the Court should either order that the parties bear their own costs, or alternatively, that the respondent pay the applicants' costs reduced by a percentage to reflect the applicants' practical lack of success in the proceeding. In addition to these orders, the respondent seeks an order that the amount of the judgment be set off against the liability of the applicants to the respondent with respect to costs, and that each party may set off its costs liability against the other party's liability to pay costs. 15 I will deal in turn with each of the orders sought by the parties.

Declarations 16 In paragraph 202 of my reasons I said that I considered it appropriate to make a declaration as to ownership and that I would hear the parties as to the terms of that order. I adhere to that view. I will make the following declarations: The Court declares: 1. Dr Peter Michael Hart was the author and original owner of the copyright work known as the School Organisational Health Questionnaire ("SOHQ") (a copy of which appears as the appendix to an article titled "Development of the School Organisational Health Questionnaire: A measure for assessing teacher morale and school organisational climate" by Peter Hart et al, published in the British Journal of Educational Psychology (2000) Vol 70 at pp 211-228). 2. The first applicant is the owner of the copyright in the SOHQ. 3. The second applicant is the exclusive licensee of the copyright in the SOHQ.

Injunctions 17 In paragraphs 203 and 204 of my reasons I said that, in view of undertakings given by the respondent, I would not grant injunctions, other than possibly an injunction relating to infringing copies of the SOHQ on the internet. 18 In the Applicants' Notes, they indicated that they sought the following order: The respondent take all steps necessary (and file and serve an affidavit within 28 days of this order verifying such steps have been taken) to immediately and permanently remove from the internet all infringing copies of the SOHQ of which it is aware which it has placed on or uploaded to, the internet, including but not limited to: (a) an article titled "the Measurement of Latent Composite Variables from Multiples Items or Indicators: Applications in Performance Indicator Systems" by K Rowe (2002) Student Learning Processes published at http://research.aser.edu.au/learning processes/12; (b) an article titled "Evidence for the Kinds of Feedback Data that Support both Student and Teacher Learning" by K Rowe (2005) Using Data to Support Learning published at http://research.aser.edu.au/research conference 2005/6 a copy of each of which is contained in Common Book Document No 25 being an annexure to the affidavit of Peter Michael Hart herein sworn 3 October 2012. 19 These two articles were referred to in the Applicants' Further Amended Statement of Claim (paragraph 12). 20 In paragraph 73 of his first affidavit, Dr Hart referred to the discovery by the applicants of these two articles. Other than that, the allegation of infringing copies of the SOHQ on the internet was not the subject of a great deal of attention during the trial. In the Respondent's First Submissions, the respondent referred to correspondence which had passed between the parties in September 2011. On 28 September 2011, the applicants' solicitors had written to the respondent's solicitors concerning the first of the abovementioned articles. On 29 September 2011, the respondent's solicitors wrote to the applicants' solicitors advising them that the respondent had removed the article from its website and that it gave an undertaking in the following terms: It will not further reproduce, publish or communicate to the public the School Organisational Health Questionnaire (including any version of that questionnaire) or a substantial part thereof, or the survey module, without prior authority from either of the applicants. 21 In the Applicants' Reply Submissions, they claimed that articles by Dr Rowe that infringed copyright in the SOHQ could still be found on the internet without difficulty. They accepted that the two articles referred to above were eventually removed from the respondent's websites. However, they claimed that the links and titles remain on the respondent's websites and that meant that interested searchers could find them elsewhere. They reformulated their request for an injunction so that it would require the respondent "to remove the links and mention of those infringing articles from its websites" and further that it be ordered to do so in relation to any other websites over which it has control. In the Respondent's Second Submissions, the respondent made the point that none of the four websites identified by the applicants was one of its website or a website under its power or control. 22 In the Applicants' Further Reply Submissions, they claim that what remains on the respondent's websites are names of the infringing articles and that that fact gives third parties a better means of finding the text of such infringing articles elsewhere. They claim that this should be discouraged by requiring the respondent to remove those article names. They claim that the fact that the SOHQ had been published with the authority of the applicants (for example, in the British Journal Article) was no reason to excuse infringement or arming others with the means to infringe. 23 The applicants have published the SOHQ and the fact that the respondent's websites contain the names of the articles which contained the SOHQ (but not links to the articles) does not of itself constitute a breach of the applicants' copyright. In those circumstances, I will not grant an injunction in relation to the respondent's website.

Damages and Setoff 24 The applicants are entitled to an order for judgment against the respondent in the sum of $32,510. The applicants claim that payment of that sum should be made within 28 days. Subject to its argument concerning setoffs, the respondent did not argue against such a period for payment. 25 The respondent submits that it is entitled to an order for costs in its favour. For reasons I will give, I will make such an order. The respondent submits that it should be entitled to setoff against any liability it has to the applicants any amounts the applicants are liable to pay it. 26 There is no doubt that the Court has the power to order a setoff in relation to a judgment sum and in relation to costs: Pringle v Gloag (1879) 10 Ch D 676; GE Dal Pont, Law of Costs (2nd ed, LexisNexis Butterworths, 2009) pp 216-219. 27 I see no reason not to make an order for a setoff in this case. I will make an order in the following terms: Each party be entitled to setoff against any liability to the other party any liability of the other party to it whether that liability relates to the judgment sum or to orders for the payment of costs.

Costs 28 The applicants claim that they were successful in the proceeding and that they should be awarded their costs. They further claim that their costs should be assessed on an indemnity basis (Federal Court Rules 2011, Rule 40.02(a); Federal Court of Australia Act (1976) (Cth) s 43(2), (3)). They submit that they were put to unnecessary and very significant proofs directed to issues which were abandoned only at trial. They refer to the matters identified in paragraph 8 of my reasons (that is, subsistence and originality, joint authorship and ownership by others). They also refer to the matter referred to in paragraph 7 of my reasons (that is, substantial reproduction). They also refer to the fact that the respondents pleaded and relied upon the existence of documents (Third Further Amended Defence paragraph 4(c)) but were unable to produce them for inspection despite repeated demands, much less prove them. They further refer to the fact that the innocence defence in s 115 of the Act was pressed to the end of the trial despite the fact that it had no prospects of success. Finally, they refer to the fact that the respondent filed only one affidavit in support of the innocence defence, being an affidavit of Mr Phillip Holmes-Smith and that he was not called at the trial of the proceeding. 29 As I have said, the respondent submits that there should be no order for costs before its Notice of offer to compromise and an order for costs in its favour after the Notice. The respondent submits that there is no basis for an award of costs to the applicants on an indemnity basis at any stage of the proceeding. With respect to the period before the Notice, it submits that the applicants achieved such a lack of practical success that there should be no order as to costs, or the applicants' costs should be reduced by a certain percentage. With respect to the period after the Notice, the respondent submits that it should receive its costs on an indemnity basis. In my opinion, the applicants should have their costs before the Notice on a party and party basis, and the respondent should have its costs after the Notice on an indemnity basis. 30 In order to understand the arguments put by the parties and the reasons for my conclusions, it is necessary to refer to aspects of the history of the proceeding. 31 The applicants commenced the proceeding on 17 May 2011 and they filed a Statement of Claim on that day. In their Statement of Claim, the applicants alleged that Dr Hart "authored and created" the SOHQ in 1999. They alleged that it was first published in Australia in or about the year 2000 when it was published in the British Journal Article. 32 On 8 June 2011, the applicants filed and served an Amended Statement of Claim. In that document they maintained their claim that the SOHQ was authored and created by Dr Hart in 1999 and first published in Australia in or about the year 2000. 33 On 27 June 2011, the respondent filed and served a Defence. In its Defence, the respondent alleged that the SOHQ created in or about 1999 was created by Dr Hart and four other persons. It also alleged that the 1999 questionnaire was a derivation from earlier versions of the SOHQ and that it was not an original literary work. If it was, the authors were Dr Hart and the four other persons previously referred to. The respondent also alleged that Dr Hart was an employee of the University of Melbourne in 1999 and that any rights he held were owned by the University of Melbourne pursuant to the operation of s 35(6) of the Act. With respect to infringement, the respondent denied that the online survey module comprised a substantial part, within the meaning of s 14 of the Act, of the 1999 questionnaire. In connection with these pleas, the following may be noted: first, the British Journal Article suggests the authors are Dr Hart and Messrs Wearing, Conn, Carter and Dingle of, or related to, the University of Melbourne. Secondly, the British Journal Article states that three separate studies were undertaken to develop the questionnaire. Thirdly, the British Journal Article states that the SOHQ was subject to copyright and that permission for its use should be obtained from Dr Hart. It seems to me that having regard to these matters and, despite the third point, the defences raised by the respondent are entirely unsurprising. 34 On 9 September 2011, the applicants filed and served a Further Amended Statement of Claim. They now claimed that Dr Hart "developed, authored and created" an original literary work, the SOHQ, between about 1992 and 1999. They maintained the allegation that the SOHQ was first published in Australia in or about the year 2000. 35 On 19 September 2011, the respondent filed and served an Amended Defence. It was in similar terms to its existing Defence, save and except that it raised a further earlier questionnaire. 36 On 3 October 2011, the applicants filed and served Dr Hart's first affidavit. Although they filed and served two further affidavits of Dr Hart, that affidavit turned out to be his principal statement. The affidavit referred to 25 documents. 37 On 27 October 2011, the respondent filed and served a Further Amended Defence. The defence was similar to its earlier defence, save and except that the respondent alleged that the Department of School Education was the owner of copyright pursuant to the operation of s 35(6) of the Act. 38 On 8 November 2011, Dr Hart filed and served a second affidavit and it was in that affidavit that he referred to his calculation of the applicants' loss or damage contained in document no. 35. In that document the applicants calculated their loss and damage at an upper limit of $4,930,113.76 plus "advantages of scale", plus additional damages (suggesting 25 per cent of the restitutionary award) plus ACARA contract lost income plus interest, and $2,830,894.30 plus the other claims as the lower limit. On the evidence presented to me at trial that was clearly an unrealistic claim. As I have said, even if I had considered that general damages should be awarded, I would have awarded $130,000 in addition to nominal damages of $10.00 and additional damages of $32,500. Furthermore, the applicants knew well before 8 November 2011 that the respondent's case was that its total revenue figure for the ISV project was $230,000. This was stated in open Court at a directions hearing on 2 September 2011. 39 On 19 December 2011, the respondent filed and served a Further Amended Defence. That document does not call for any particular comment. 40 On 23 January 2012, the applicants filed and served a third affidavit sworn by Dr Hart. 41 On 6 February 2012, which was the first day of trial, I gave the respondent leave to amend its defence. A Third Amended Defence was filed and served on that day. In addition to s 35(6) of the Act, the respondent alleged that the Department of School Education, or Crown in right of the State of Victoria was the owner of the copyright in the SOHQ by reason of the operation of s 176 of the Act. On the morning of the second day of the trial I was advised that the issues identified in paragraph 8 above were no longer pressed. 42 I do not think that any of the matters raised by the applicants, either alone or collectively, justify an order for costs on an indemnity basis rather than on a party and party basis. 43 As to the pleading matters, I do not think it was unreasonable for the respondent to raise these matters at the outset. Even if it might be said that the respondent should have abandoned them earlier, I am not satisfied that its failure to do so has added to the costs in any way. My assessment is that Dr Hart's evidence had to traverse all the matters which it did in relation to the issues which were "live" at trial. 44 As to the respondent's pleading of documents in paragraph 4(c) of the Third Further Amended Defence (and earlier defences), I cannot see any unreasonable conduct in that respect and, in any event, the matters raised were part of the issues quite properly explored at the trial. 45 As to the respondent's pleading of the innocence defence and the affidavit of Mr Holmes-Smith, it is true that the plea was an ambitious one and that Dr Hart was required to answer Mr Holmes-Smith's affidavit. Nevertheless, there was an overlap between the innocence defence and the claim for additional damages and I do not think that the circumstances surrounding the filing and serving of Mr Holmes-Smith's affidavit are so out of the ordinary as to justify an order for indemnity costs in relation to that issue. Finally, in so far as the applicants rely on my finding that the respondent's breach of copyright was flagrant (at paragraph 198), that finding is and was relevant to the award of additional damages, not the issue of the costs of the proceeding (Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd (No 2) (2008) 76 IPR 763). 46 As I have said, for its part the respondent submitted that there should be no order as to costs in relation to the period before the Notice of offer to compromise or the applicants' costs should be reduced because of the applicants' practical lack of success. The respondent referred to authorities which, it submitted, illustrated that in recent times the Courts are less inclined to award costs to a plaintiff who is awarded no more than nominal damages, and to authorities where the Courts have taken into account, on the question of costs, the fact that the applicant made a large claim but received only a small award. It submits with force that, had the applicants formulated their claim at approximately $30,000 rather than the unrealistic claim they did make, then the case would not have gone to trial. The respondent's submission would have a good deal more force if the only issue at trial was the quantum of damages. The issue of ownership of the copyright of the SOHQ was a complex one and it was an appropriate one to be determined in this Court. Furthermore, it was always open to the respondent to protect itself by making an offer as it eventually did. The applicants should have their costs assessed on a party and party basis prior to the Notice of offer to compromise. 47 On 7 December 2011, the respondent's solicitors sent a letter to the applicants' solicitors. The letter was marked "Without Prejudice, Save as to Costs". The letter was relevantly in the following terms: We enclose, by way of service, an Offer of Compromise that is made pursuant to Part 2.5 of the Federal Court Rules 2011. If, for any reason, your clients consider that the form of injunction that is provided for falls short of the relief that your clients would be entitled to were they to succeed at trial, your clients are invited to articulate that position to us and we will obtain instructions on any such proposed amendment of the form of injunction. While the enclosed offer of compromise is made pursuant to the Federal Court Rules, we are also instructed to put the same offer to your clients as an offer made pursuant to the principles set out in Calderbank v Calderbank (1975) 3 WLR 586. On the basis of those principles, if the offer is not accepted in writing within 14 days, and our client obtains a more favourable outcome at trial, our client will seek an order for payment of its costs on an indemnity basis from the date of this offer. 48 The Notice of offer to compromise is addressed to both applicants and is dated 7 December 2011. It is in the following terms: The respondent offers to compromise this proceeding on the following terms: 1. The Respondent pay to the First Applicant and Second Applicant (collectively) the total sum of $350,000 in respect of the claim; 2. The Respondent pay the First Applicant's and the Second Applicant's costs of the proceeding (to be taxed) on a party and party basis in respect of the claim against the Respondent incurred up to and including the day the offer is accepted; and 3. The Respondent consents to an order for an injunction restraining the Respondent, including by its servants, agents or otherwise, from reproducing, publishing or communicating to the public the School Organisational Health Questionnaire (including any version of that questionnaire), or a substantial part thereof, or the survey module, without the prior authority from either of the First Applicant and the Second Applicant, save to the extent that any such future acts fall within any of the fair dealing provisions of the Copyright Act 1968 (or equivalent future statutory provisions). This offer of compromise is open to be accepted for 14 days after service of this offer of compromise. The amount of the offer specified at sub-paragraph 1 above will be paid within 28 days after acceptance of this offer. This offer is made without prejudice, save as to costs. 49 By letter dated 12 December 2011, the applicants' solicitors acknowledged receipt of the Notice of offer to compromise. 50 On 12 December 2011, the respondent's solicitors wrote to the applicants' solicitors in the following terms, inter alia: Finally, in relation to the issue of damages, our client considers that your clients have not set out in their evidence a proper basis for quantifying any loss of profits that they would contend has occurred, should the Court determine to award any damages in their favour. Specifically, our client considers that the applicants have not set out a proper evidentiary basis for calculating the applicable costs of their business. Should your clients intend to put on any further evidence in that regard, please inform us immediately as to what that intention is and how they intend to achieve that without jeopardising the current trial date. 51 By the date of that letter, Dr Hart's second affidavit, including document no. 35, had been served on the respondent. 52 The applicants' solicitors responded to the offer in the Notice of offer to compromise by letter dated 16 December 2011. They made a counter offer which consisted of an injunction against the respondent and the respondent paying the first and second applicants jointly the sum of $500,000 plus their costs of the proceeding on a party and party basis incurred up to and including the date of acceptance of the offer. 53 On 17 January 2012, the applicants' solicitors again wrote to the respondent's solicitors. At that stage, the applicants considered their chances of success had improved and they made a similar offer to the offer contained in their solicitors' letter dated 16 December 2011, save and except that the amount the respondent was required to pay was $750,000, together with party and party costs incurred up to and including the date of acceptance of the offer. 54 On the Friday before the trial commenced, that is to say 3 February 2012, there was correspondence between counsel for the parties. The applicants offered to settle the matter for an acknowledgment of their copyright, an injunction and the payment of $400,000 together with party and party costs. That offer was refused by the respondent, who indicated that it would give an undertaking previously provided by letter dated 24 June 2011 "(on a without admissions basis)" and agree to the proceeding being dismissed with no order as to costs. The respondent objects to me receiving this correspondence which it submits contains without prejudice settlement negotiations. I do not need to rule on this issue because the correspondence has played no part in my reasons for making the orders I will make. 55 As far as the offer dated 7 December 2012, the respondent relies on Rule 25.14(1) of the Federal Court Rules 2011 or, in the alternative, the principles in Calderbank v Calderbank [1976] Fam 93. 56 Rule 25.14(1) provides as follows: If an offer is made by a respondent and not accepted by an applicant, and the applicant obtains a judgment that is less favourable than the terms of the offer: (a) the applicant is not entitled to costs after 11.00 am on the second business day after the offer was served; and (b) the respondent is entitled to an order that the applicant pay the respondent's costs after that time on an indemnity basis. 57 The application of this Rule may be dispensed with: Federal Court Rules 2011, Rule 1.34. 58 As far as a Calderbank offer is concerned, the mere refusal of the offer does not lead to award of indemnity costs. It must be shown that the rejection of the offer was imprudent or unreasonable: Keays v JP Morgan Administrative Services Australia Limited [2012] FCAFC 100. 59 Rule 25.14(1) operates where the judgment is "less favourable" than the terms of the offer. The respondent's offer of 7 December 2011 consisted of a general injunction (that is, an injunction going beyond mere publication on the internet) and payment of $350,000. The judgment I will give will consist of declarations of ownership and payment of $32,510. It is not necessary for me to consider whether the judgment I will give is "less favourable" than the terms of the offer within Rule 25.14(1), because I am satisfied the refusal of the offer was imprudent or unreasonable within the principles in Calderbank v Calderbank; Facton Ltd (formerly known as G-Star Raw Denim KFT) v Seo (2011) 91 IPR 135. For the purposes of assessing that former issue, I do not think that there is a material difference between declarations of ownership and a general injunction. From the applicants' point of view, both involved, importantly, a recognition by the Court of the applicants' copyright interests. That conclusion is supported by the fact that the applicants' counter-offer involved, not declarations of ownership, but an injunction in very similar terms to that offered by the respondent in its Notice of offer to compromise. 60 As at 7 December 2012 and for 14 days thereafter, the applicants were aware or ought to have been aware of the limitations of their own case. They were aware of the assignments and of the details of their claim for loss or damage. They ought to have accepted the respondent's offer and I cannot see the fact that they had not received the respondent's affidavits (other than that of Mr Holmes-Smith) alters that conclusion. It was imprudent or unreasonable for them not to do so.

Conclusions 61 I will make the following orders: 1. The Court declares that: 1. Dr Peter Michael Hart was the author and original owner of the copyright work known as the School Organisational Health Questionnaire ("SOHQ") (a copy of which appears as the appendix to an article titled "Development of the School Organisational Health Questionnaire: A measure for assessing teacher morale and school organisational climate" by Peter Hart et al, published in the British Journal of Educational Psychology (2000) Vol 70 at pp 211-228). 2. The first applicant is the owner of the copyright in the SOHQ. 3. The second applicant is the exclusive licensee of the copyright in the SOHQ. 2. The Court orders that: 1. There be judgment for the applicants against the respondent in the sum of $32,510. 2. The respondent pay the applicants' costs of the proceeding on a party and party basis up to and including 21 December 2011. 3. The applicants pay the respondent's costs of the proceeding on an indemnity basis on and from 22 December 2011. 4. Each party be entitled to setoff against any liability to the other party any liability of the other party to it whether that liability relates to the judgment sum or to orders for the payment of costs. I certify that the preceding sixty-one (61) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.

Associate: Dated: 27 September 2012