Justice Perram in the Federal Court of Australia has handed down the latest judgment, Aristocrat Technologies Australia Pty Ltd v Allam [2017] FCA 812, in the perennial dispute between Aristocrat and various entities accused of supplying counterfeit Aristocrat pokies machines.

With the main issues in the case finally settled predominantly in Aristocrat's favour following years of litigation, appeals, cross-appeals, remittals, and special leave applications, Justice Perram was left to decide whether Aristrocrat was entitled to set-off the various orders under which Mr Allam owed Aristrocrat approximately $700,000 against the costs order under which Aristocrat owed Mr Allam and Tonita, a company of which Mr Allam was the sole shareholder and director, approximately $100,000.

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His Honour ordered that Aristrocrat be allowed to set-off the costs orders against Mr Allam and restrained Mr Allam and Tonita from enforcing their costs order.

A Blow-by-Blow in the Trenches – earlier decisions regarding dealings in counterfeit pokies machines

The dispute, which was described by the primary judge as resembling trench warfare, involved Aristocrat accusing various entities (defined as the Global Gaming parties by the judge), including Mr Allam and Tonita, of supplying counterfeit Aristrocrat pokies machines for export to South America.

At trial, the primary judge found that the Global Gaming parties had infringed Aristocrat's rights by exporting the machines, but that Tonita was not liable for any infringement as it had not existed as a company at the time the relevant transactions occurred.

The Global Gaming parties appealed against the finding concerning dealing in counterfeit machines, and Aristocrat cross-appealed in relation to the finding concerning Tonita. In its appeal decision, the Full Court overturned the finding that the Global Gaming parties had distributed counterfeit gaming machines, but nevertheless found that Mr Allam had infringed Aristocrat's copyright by copying its software. As a result of the finding concerning dealing in counterfeit machines Tonita was clearly not liable as a joint tortfeasor, but the Court also indicated that it would have upheld the trial judge's finding that Tonita was not liable because it was not incorporated at the time.

Aristocrat's application for special leave to appeal to the High Court was refused. Because Aristocrat had not sought to appeal the Full Court's findings in relation to the cross-appeal, and had only joined Tonita as a respondent as a matter of formality, Tonita had no exposure to the High Court litigation; the Full Court had indicated that Tonita would not be liable even if Aristocrat established that the Global Gaming parties had dealt in counterfeit machines.

The Costs of War – costs orders in Mr Allam and Aristocrat’s favour

The High Court issued a certificate of taxation in relation to the special leave application in favour of Tonita and Mr Allam against Aristrocrat in the amount of $100,229.05. As a result of the principal proceedings however, Aristocrat already had various costs orders in its favour against Mr Allam (but not Tonita), estimated to be worth around $700,729.82.

Mr Allam then obtained, somewhat ambitiously, an ex parte issue of a writ for levy of property against Aristrocrat to enforce the High Court costs certificate. This writ was set aside, leading Mr Allam to file an application for a fresh writ, while Aristrocrat sought to set-off the costs orders and restrain Tonita and Mr Allam from taking further action to enforce their costs certificate.

Rules of Engagement when applying to set-off costs orders

His Honour outlined the principles regarding setting-off costs orders:

  1. The jurisdiction being exercised arises neither from statutory nor equitable origins but is instead an exercise of the Court's inherent jurisdiction over its own suitors;
  2. The set-off is available even where what is sought to be set-off is an unliquidated costs order against a liquidated costs judgment;
  3. In considering whether to exercise its discretion to set-off costs orders, a Court will have regard to the same kinds of considerations as those which apply under the Court's general discretion to award costs, including the public interest, the efficient administration of justice, and the conduct of the parties; and
  4. The jurisdiction to set-off costs awards extends to costs awarded in different proceedings and also permits, in an appropriate case, set-off between different parties.

The Spoils of Victory – Aristocrat entitled to set-off costs certificate despite lien

In light of the factual background and the principles above, Justice Perram ordered that Aristocrat be allowed to set-off the costs orders against Mr Allam, but not Tonita, as Aristrocrat had no costs orders in its favour against Tonita. It was therefore necessary to apportion the costs certificate issued jointly to Mr Allam and Tonita in order to determine how much off a set-off should be permitted in the case of Mr Allam.

His Honour found that, while the costs certificate was issued jointly, the amount was in fact owed wholly to Mr Allam. This was because Tonita had no interest in the special leave application to the High Court and because the bill of costs of Tonita and Mr Allam's solicitors in regard to the special leave application revealed only two de minimis entries for work done independently for Tonita. Therefore Aristrocrat was permitted to set-off the entirety of the High Court costs certificate against Mr Allam.

This also resolved the issue of the levy, with His Honour ordering that Mr Allam and Tonita be restrained from enforcing the costs certificate, due to their "lack of judgment" in seeking the writ in the circumstances where it was predictable that Aristrocrat would be permitted to set-off the costs order.

At the outset of his considerations, Justice Perram quickly disposed of the argument that the lien of Mr Allam's and Tonita's solicitors over the fruits of the High Courts costs certificate prevailed over Aristocrat's right to set-off, holding that a Court will not deprive a party of a set-off merely because to do so will eliminate the fund onto which a solicitor's lien might otherwise attach.

Key Lessons

  1. This may well be the final incursion in what has been a long and protracted battle.
  2. The judgment demonstrates that, even when a party is not wholly successful in litigation, they will in ordinary cases, bearing in mind the above principles, be permitted to set-off their costs orders against any lesser costs orders they owe as a result of the litigation, minimising any exposure to potentially invasive methods of enforcing a costs order, such as the levy sought by Mr Allam.
  3. An entitlement of one party to set-off the costs awarded to another party will not be upset by a solicitor's lien attaching to its client's costs order.