[2018] NSWCA 84
Oshlack v Richmond River Council (1998) 193 CLR 72
[1998] HCA 11
Re Minister for Immigration and Ethnic Affairs
Ex parte Lai Qin (1997) 186 CLR 622
Source
Original judgment source is linked above.
Catchwords
[1990] HCA 59
Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681[2018] NSWCA 84
Oshlack v Richmond River Council (1998) 193 CLR 72[1998] HCA 11
Re Minister for Immigration and Ethnic AffairsEx parte Lai Qin (1997) 186 CLR 622
Judgment (2 paragraphs)
[1]
JUDGMENT - ex tempore (revised)
This is an application for leave to discontinue proceedings. There is no opposition to the discontinuance. The dispute between the parties relates to the costs of the proceedings and the costs of a notice of motion that was filed by the plaintiff on 18 August 2022 which sought orders for disclosure of documents.
The plaintiff seeks leave to discontinue with orders that the defendant pay its costs of the disclosure motion and its costs of the proceedings or, alternatively, that there be no order as to costs of the proceedings, save for the costs in relation to the motion. In support of its application, the plaintiff relies on an affidavit of its solicitor, Mr Terence Paul Sperber, sworn 11 November 2022, the exhibit to that affidavit and the plaintiff's written submissions dated 10 March 2023.
The defendant seeks an order that his costs, including in relation to the disclosure motion, be paid on an indemnity basis from 28 June 2022. He relies on an affidavit from his solicitor, Mr Joseph Gregory Murphy, sworn 12 December 2022, and written submissions dated 10 March 2023.
The parties' written submissions were supplemented by oral submissions at the hearing.
The background to the proceedings are set out in the affidavits and the submissions.
In summary, the plaintiff operates a smash repair business for luxury vehicles, and is approved to perform repairs to Aston Martin and Jaguar cars. As part of that business, the plaintiff has been provided with information relating to repair methods and procedures for Aston Martin and Jaguar vehicles (Repair Methods).
The defendant worked for the plaintiff from about January 2011 to about January 2016, and again from late 2018 or early 2019 to about April 2019. There is a dispute as to whether the defendant was an employee for the entirety of those periods or was an employee for part and was otherwise working for the plaintiff as a contractor. There is evidence of two employment agreements signed by the defendant, one of 15 December 2010 and one of 10 January 2011 (Employment Agreements), which both contain restrictions on the use of the plaintiff's confidential information.
From 1 April 2019 until recently, the defendant was employed by Prestige Auto Body Shop Pty Ltd (Prestige), a competitor of the plaintiff located in Artarmon. According to Mr Sperber's affidavit, Prestige is not an authorised Aston Martin or Jaguar repairer, unlike the plaintiff.
The plaintiff commenced these proceedings by statement of claim filed on 13 May 2022, seeking orders restraining the defendant from disclosing, using or attempting to disclose, any information obtained by him while working for the plaintiff as an employee or contractor relating to the Repair Methods and for the delivery up of all documents of that nature.
The statement of claim asserts that the Repair Methods are the confidential information of the plaintiff and the defendant has breached his obligations of confidence outlined in the terms of the Employment Agreements by disclosing confidential information to persons who were not authorised to receive that information and by retaining, and failing to return, the Repair Methods to the plaintiff.
The allegations of breach outlined in the statement of claim are based on the defendant's prior employment with the plaintiff and two emails sent by the defendant to a third party on 21 September 2020 and 9 November 2020, that attached copies of, or extracts from, the Repair Methods (Emails), and which are referred to in the pleading.
The statement of claim also refers to pre-litigation correspondence from the plaintiff to the defendant in which the plaintiff demanded the defendant cease using the Repair Methods and provide information regarding what Repair Methods the defendant had in his possession and how he obtained them since ceasing work with the plaintiff.
In his defence filed 22 June 2022, the defendant admits to sending the Emails but denies that he breached any obligations of confidence under the Employment Agreements. The defendant also pleads that the two Employment Agreements ceased to apply to the defendant from in or around 10 January 2011 and January 2016 respectively.
On 28 June 2022, the defendant's solicitor sent an email to the plaintiff's solicitor inviting the plaintiff to discontinue the proceedings and pay costs having regard to the matters set out in the defence failing which the defendant reserved his right to rely on the communication for indemnity costs.
On 29 July 2022, the plaintiff's solicitor called the defendant's solicitor to request the provision of documents and information relating to the Repair Methods, subject to giving a confidentiality undertaking similar to that which the defendant would obtain with discovery. The correspondence in evidence indicates that the defendant was concerned about providing documents with confidentiality undertakings of any sort as he believed such undertakings did not provide the degree of protection that formal disclosure provides.
Subsequently, it was agreed by the parties that the defendant would provide limited disclosure of two categories of documents under a formal disclosure regime. The plaintiff filed its disclosure motion and orders were made by consent after an appearance before the Registrar by the plaintiff's solicitor.
Pursuant to the disclosure orders, the first defendant provided an affidavit in which he disclosed that he had Repair Methods in his possession and they were provided to him by his current employer. Following receipt of that information, the plaintiff sought to discontinue the proceedings against the defendant and the issue arose as to whether costs should be paid by the defendant or the plaintiff, in respect of both the proceedings and the plaintiff's disclosure motion.
The legal principles applicable to this application were not in dispute.
The Court has a broad discretion to determine by whom, to whom, to what extent and on what basis costs should be awarded: Civil Procedure Act 2005 (NSW) (CPA), s 98(1). That discretion, while unfettered, must be exercised judicially and consistently with the overriding mandate provided for in ss 56 to 60 of the CPA and should also have regard to the principle that the award of costs is compensatory in nature, not punitive: see Latoudis v Casey (1990) 170 CLR 534; [1990] HCA 59 and Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11, at [44].
In circumstances where a party seeks to discontinue proceedings, the starting point is r 42.19 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), which provides that, unless the Court orders otherwise, the plaintiff must pay such of the defendant's costs as has been incurred by the defendant in relation to each claim in respect of which the proceedings have been discontinued.
The authorities make clear that r 42.19 does not give rise to a presumption that costs will be ordered against the plaintiff as the discontinuing party. Rather, it provides a default position in relation to costs that is subject to the discretion of the Court, with the onus on the plaintiff to establish that there is some sound position or good reason for departing from the ordinary course whereby the plaintiff would be required to pay the costs of the proceedings: Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 (Bitannia), at [53]-[54]; see also Walton v Commonwealth Bank of Australia [2020] NSWCA 191, at [26]- [27].
A consequence of discontinuing proceedings is that it precludes the Court from being able to decide certain questions relevant to the issue of who should pay costs, being matters that could only be determined on a proper evidentiary basis if the matter proceeded to a final hearing. The rules that permit parties to discontinue and deal with the associated costs apply in a range of situations. Those situations include a voluntary decision not to proceed with a claim, which may involve a realisation of the improvidence of the proceedings, and the occurrence of some intervening event which destroys the utility of the proceedings being maintained: Bitannia, at [56]; see also Galea v Camilleri [2019] NSWSC 167. The authorities also make clear that where a party discontinues, the Court should not try a hypothetical action between the parties to determine who would have had success for the purposes of determining who should pay costs: Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622, at 624-5; [1997] HCA 6; Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84, at [25]-[30] (Payne JA, Meagher JA agreeing).
The plaintiff's submissions refer to the decision of Ibrahim v PERI Australia Pty Ltd [2013] NSWCA 328 where, at [16]-[19], Beazley P highlighted that cases involving discontinuance must be considered having regard to the different facts and that matters to take into account where proceedings have not been heard to determination include: whether a party acted reasonably in commencing the proceedings; whether a party has been successful in obtaining interlocutory relief; whether the party sued had acted reasonably; whether the responding party had acted reasonably in defending the proceedings; whether the proceedings terminated after interlocutory relief had been granted; and further, whether the primary judge was satisfied that the party seeking to terminate the proceedings prior to a full hearing had almost a certain chance of success.
In this case, there is no interlocutory relief granted and this Court is not in a position to definitively say that the plaintiff would (or would not) have had a certain chance of success.
That said, and while the plaintiff's submissions suggest otherwise, an objective reading of the evidence disclosed on this application indicates to me that the plaintiff is discontinuing on a voluntary basis, not as a consequence of some intervening event, but likely because it recognised the difficulties with its claims and the futility in pursuing the proceedings against the defendant.
The plaintiff seeks for the court to order other than in accordance with r 42.19 UCPR essentially for two reasons. First, it submits that it acted reasonably and not prematurely in commencing the proceedings as it had written evidence in the form of the Emails that the defendant had in his possession the Repair Methods after his employment with the plaintiff and the plaintiff had made numerous reasonable and appropriate requests for information from the defendant regarding the Repair Methods, which he did not fully answer.
Second, the plaintiff contends that the defendant acted unreasonably by failing to respond in a timely manner to the plaintiff's pre-litigation requests. It submits that the defendant should have known that it was inevitable that at some point in the proceedings the defendant would need to confront the enquiry as to whether he still had the Repair Methods in his possession and, if so, from where he obtained them, and says that no satisfactory explanation has been offered as to why that information was not provided by the defendant until after the proceedings were commenced and the disclosure motion filed.
Having considered those matters and the defendant's contentions in response, I am not persuaded by the plaintiff's submissions and have concluded that the Court should not order the defendant to bear the costs of the proceedings where they have been discontinued against him.
I do not accept that the defendant acted unreasonably in failing to respond to all of the plaintiff's enquiries in the pre-litigation stage.
It is apparent from the correspondence that the plaintiff sought information based on its suspicion that the defendant had taken the Repair Methods while working for the plaintiff and without its authority, and continued to use them as part of his employment at Prestige. Relevantly, in the initial letter of demand, the defendant was asked to cease using any estimates or Repair Methods taken from the plaintiff, to return them and to delete any electronic copies. The defendant's response, which was promptly provided two days later, clearly stated that he had never taken estimates, images or Repair Methods from the plaintiff and that he did not have any electronic copy or hard copy in his possession to delete. In response to a subsequent letter, the defendant also sought to address what he understood to be the basis of the allegations made by the plaintiff, namely that it related to an incident in mid-2018 relating to an NRMA Insurance claim, in the context where the plaintiff had not referred to the Emails in any of its demands.
I accept that there were further requests made by the plaintiff that were not fully responded to by the defendant. However, those requests were open-ended in the sense that they sought information as to the source of the Repair Methods in the defendant's possession rather than linking the requests to the plaintiff's claim that the Repair Methods documents were taken and retained in breach of obligations owed to the plaintiff.
It is unnecessary to go through all of the pre-litigation correspondence, but one matter stands out, which is as follows: at no time prior to commencing the proceedings did the plaintiff disclose to the defendant the contents of the Emails on which the plaintiff's suspicions were based. The plaintiff may have sought information about the Repair Methods that went unanswered or in a form that was unsatisfactory to the plaintiff, but those responses need to be considered in the context where the plaintiff did not disclose information that was central to its demands. If the plaintiff considers it reasonable to expect that the defendant should have provided more fulsome responses to its inquiries, it is also reasonable to expect that the plaintiff should have set out the basis of its concerns by reference to the Emails themselves, rather than waiting to disclose them in the statement of claim after the proceedings were commenced.
Further, the key issues raised in the pre-litigation communications and these proceedings were not whether the defendant had access to the Repair Methods or how he came to have them in his possession, but whether the Repair Methods was confidential information to the plaintiff and, if so, whether the defendant obtained them during the course of his employment with the plaintiff, retained them after he ceased his employment and subsequently used them in breach of confidentiality obligations owed to the plaintiff. It was on those issues that the defendant provided responses, maintaining throughout, and consistent with his defence, that he did not take or have in his possession any Repair Methods from the plaintiff and also contesting the allegation that the Repair Methods was the plaintiff's confidential information in any event.
In those circumstances, I consider there is force to the defendant's submission that the plaintiff commenced these proceedings based on an inference that the defendant had taken the Repair Methods from the plaintiff and perhaps, prematurely. In my view, the plaintiff took a risk when it commenced proceedings, including the risk of costs, having regard to the information available to it at the time, which included repeated denials from the defendant that he had taken the Repair Methods from the plaintiff.
It follows that I do not consider that the defendant acted unreasonably such as to warrant an order in relation to the proceedings, other than in accordance with r 42.19 UCPR.
As to the costs of the disclosure motion, I accept the plaintiff's contention that its solicitor took appropriate steps in an attempt to resolve and avoid an interlocutory dispute in relation to discovery. But I do not consider that the defendant can be criticised for seeking disclosure by compulsion in order to obtain the benefit of the protections of the implied undertaking: Hearne v Street [2008] HCA 36. In my view, the defendant acted reasonably by consenting to the disclosure motion, noting that his consent minimised costs and a party in this Court must show exceptional circumstances in order to obtain disclosure before evidence is filed: Practice Note SC Eq 11. In those circumstances, I consider that the costs of the disclosure motion should be dealt with as part of the proceedings, rather than subject to a separate order.
The remaining issue relates to the defendant's application for indemnity costs.
The defendant relies on the email to which I have already referred. I am not persuaded that this email is sufficient to warrant an order for indemnity costs from 28 June 2022, given the plaintiff was not yet aware of the information the defendant subsequently disclosed, which was likely material to the plaintiff's assessment of the outcome of its claim. In my view, this Court could not conclude that the plaintiff knew its case was doomed to fail at the time the offer was made. Nor do I consider that the plaintiff conducted itself in a sufficiently unreasonable way to warrant indemnity costs, notwithstanding the prospect of seeking such an order was raised in correspondence during the course of the litigation.
For these reasons, I make the following order:
1. Pursuant to r 12.1 of the Uniform Civil Procedure Rules 2005 (NSW), grant leave to the plaintiff to discontinue the proceedings against the defendant on terms that the plaintiff pay the defendant's costs of the proceedings as agreed or assessed, which will include the costs of the plaintiff's notice of motion filed on 18 August 2022.
[2]
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Decision last updated: 24 March 2023