Southern Cross Industrial Group Pty Ltd v Mickala Mining Maintenance Pty Ltd (Costs)

This judgment is a costs decision following two related Federal Court patent proceedings. Southern Cross Industrial Group Pty Ltd had sued for patent infringement. The respondents, including Mickala Mining Maintenance Pty Ltd in one proceeding and Mickala Lighting Towers Pty Ltd in the other, defended the claims and also brought invalidity cross-claims.

The liability phase had already finished. Justice Downes published the liability reasons on 11 November 2025, and by orders dated 19 November 2025 Southern Cross’s claims in each proceeding were dismissed. The court recorded that there was no dispute about the usual starting point on costs: Southern Cross, having lost, should pay the respondents’ costs of the claims and cross-claims.

What remained was a narrower but very important commercial fight. The respondents said Southern Cross should pay indemnity costs for part of the case because it had unreasonably failed to accept settlement offers. They also asked the court to release security for costs that Southern Cross had provided by bank guarantees before the formal taxation process was complete.

That makes this a useful case for business owners because it shows how litigation conduct can materially change the financial outcome of a patent dispute. The court was not deciding the patent merits again. It was deciding whether Southern Cross’s decisions about settlement and the practical handling of the case justified a more severe costs order and early release of secured funds.

The judgment identifies two issues. First, should any part of the respondents’ costs be paid on an indemnity basis rather than the standard basis? Secondly, should security for costs already lodged with the court be released to the successful respondents before taxation?

On the first issue, the respondents relied on three settlement offers made at different stages of the litigation. The court had to work out which costs rule applied and then decide whether Southern Cross had acted unreasonably in not accepting any of those offers. The judgment makes clear that not every rejected offer automatically triggers indemnity costs. The court still asks whether the rejection was unreasonable in the circumstances existing at the time.

On the second issue, the court had to balance the respondents’ success and likely costs recovery against the fact that taxation had not yet occurred. Security for costs can be a major practical issue for SMEs because it ties up cash or banking capacity during the case. If the successful party can obtain release of that security before final assessment, the commercial pressure on the losing party increases immediately.

The respondents argued that their offers engaged rule 25.14 of the Federal Court Rules 2011. The court first clarified which parts of that rule could and could not apply. This matters because the costs consequences depend on the procedural position of the parties and the result of the case.

The court said rule 25.14(3) could not apply. That rule is confined to circumstances where an offer is made by an applicant and rejected by a respondent. Although the respondents were also cross-claimants, a cross-claimant is not an applicant for that purpose. The judge referred to earlier authorities confirming that point.

The court also said rule 25.14(1) did not apply. That provision operates where a respondent makes an offer, the applicant rejects it, and the applicant later obtains a judgment less favourable than the offer. Here, Southern Cross did not obtain a judgment at all. Its claims were dismissed.

That left rule 25.14(2) as the operative provision, because it applies where an applicant’s claim is dismissed. The practical significance is straightforward. Once Southern Cross’s claims were dismissed, the court then had to consider whether the respondents’ offers should have been accepted and whether indemnity costs should follow from the unreasonable rejection of any of them.

For business readers, the lesson is that the costs effect of an offer depends on the exact procedural posture of the case. It is not enough to know that an offer was made. You need to know who made it, in what capacity, what the pleadings looked like at the time, and what result was ultimately reached.

The first offer was made on 31 October 2019 in proceeding QUD 470 of 2019. It was a notice of offer to compromise in accordance with Form 45. Southern Cross argued that no defence or cross-claim had been filed by that date, but the court rejected that factual point. The judge said both the defence and cross-claim had already been filed, and Southern Cross filed its reply to the defence and defence to the cross-claim the next day.

Even so, the 2019 offer did not justify indemnity costs. The reason was important. At that stage, the statement of cross-claim did not cite the Exsto Towers as novelty-destroying prior art. The judge said it was the Exsto Towers alone that were ultimately found in the liability judgment to have anticipated claims 1 and 4. Because that decisive prior art case had not yet been properly put, it was not unreasonable for Southern Cross to reject the 2019 offer.

The second offer was made on 9 August 2022 in proceeding QUD 447 of 2021, again by notice of offer to compromise. The offer proposed that a previous costs order in favour of each party be set aside, that the proceeding otherwise be dismissed, and that there be no order as to costs. The court again refused to treat rejection of that offer as unreasonable. Although the Exsto Towers were later cited in the statement of cross-claim, that pleading was only filed on 15 August 2022, six days after the offer. The offer itself also did not refer to any cross-claim. So, again, the decisive prior art case was not yet properly before Southern Cross when it had to decide whether to accept.

The third offer was different. On 28 February 2023, the respondents and cross-claimants made an offer in both proceedings under rule 25.01(1). The proposal was that both proceedings be dismissed and that Southern Cross pay the respondents’ costs in a fixed amount of $300,000, being $150,000 for each proceeding. By then, the respondents had already incurred nearly $700,000 in legal costs. The court described the offer as a significant compromise on their part.

By that stage, and having regard to the pleadings as they then were, the court held that Southern Cross unreasonably failed to accept the 2023 offer. The judgment notes that in its costs submissions Southern Cross did not contend otherwise. That finding was the turning point. It justified a split costs order, with standard basis costs up to 11am on the second business day after 28 February 2023 and indemnity basis costs thereafter.

The second issue was security for costs. The respondents said their costs in the proceedings exceeded $1.9 million. Southern Cross had provided security totalling $785,000 by way of three bank guarantees, two for $200,000 and one for $385,000.

The respondents wanted all three guarantees released to them before taxation. The court did not go that far. Justice Downes said it was not appropriate to order release of all three guarantees at that stage. But the court also considered the practical reality of the case. Looking at the solicitor-client costs already incurred and the indemnity costs order for the period after February 2023, the judge considered it highly likely, if not certain, that the costs payable to the respondents would exceed $400,000.

That was enough to justify partial release. The court ordered release of the two $200,000 guarantees to the respondents. The third guarantee, for $385,000, was to continue to be held by the court pending the outcome of the taxation process.

For businesses, this part of the judgment is a reminder that security for costs can have immediate cashflow consequences after judgment. If your business has provided security, do not assume it will remain untouched until every costs issue is finally assessed. A successful opponent may seek early release, and the court may grant it where the likely recoverable costs comfortably exceed the secured amount in question.

This case is best read as a lesson in litigation discipline rather than a broad statement about patent merits. The court’s reasoning turned on timing, pleadings and commercial reasonableness. Southern Cross was not criticised for standing by its case at every stage. The court accepted that earlier offers could reasonably be rejected because the prior art case that ultimately mattered had not yet been properly pleaded. But once that changed, the business risk changed too.

That is the practical point for owners, directors and in-house decision-makers. A settlement offer should be reviewed against the current state of the case, not the state of the case six months earlier. In a technical dispute, a pleading amendment, a clearer invalidity case, or a major increase in legal spend can transform the commercial logic of continuing. If you keep litigating after the risk picture has materially worsened, the court may later decide that you should have accepted a compromise and order indemnity costs for the later period.

The judgment also shows the value of documenting decision points. If an offer is rejected, the business should be able to explain why that was reasonable at the time. That explanation should refer to the pleadings, evidence, likely costs and commercial objectives then in play. A disciplined record will not guarantee success, but it will help management make better decisions and understand the downside if the case is lost.

Finally, treat security for costs as part of the overall litigation budget. It affects liquidity, banking arrangements and leverage. In a hard-fought IP dispute, the amount tied up in security can become significant, and some of it may be released to the successful party before final taxation.

This page is based on the Federal Court of Australia judgment Southern Cross Industrial Group Pty Ltd v Mickala Mining Maintenance Pty Ltd (Costs) [2025] FCA 1465, delivered by Downes J on 25 November 2025.

The judgment expressly refers to the separate liability decision, Southern Cross Industrial Group Pty Ltd v Mickala Mining Maintenance Pty Ltd (Liability Trial) [2025] FCA 1363, for the broader background and the substantive patent outcome. Because this page is focused on the costs judgment, readers should be careful not to treat it as a full account of the patent technology or the complete invalidity reasoning.