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[2023] FCA 1627
Federal Court of Australia
2023-12-19
Feutrill J
Original judgment source is linked above.
Introduction 1 The applicant (Austin Engineering) filed an originating process on 18 April 2023, amended on 10 May 2023, by which it seeks interlocutory orders and final relief for alleged breaches of confidence and infringements of copyright on the part of the first respondent (Ms Podulova) and the second to seventh respondents (Schlam respondents). 2 On 20 April 2023 the Court made interlocutory orders after an ex-parte hearing including an interlocutory injunction restraining Ms Podulova from altering, destroying, erasing, parting with or otherwise making unavailable for use in the proceedings or copying or moving certain digital information (that I will refer to as the Austin Engineering information) and requiring her to produce that information to the Court. Orders were also made limiting access to the Austin Engineering information produced to the Court to Mr Rodney McKemmish (the applicant's independent computer expert), the applicant's external legal representatives and the respondents' external legal representatives, pursuant to a confidentiality regime agreed between the parties. 3 On 1 May 2023 there was an inter-partes hearing. The Court made further interlocutory orders, by consent, by which Ms Podulova was required to file and serve an affidavit disclosing, in substance, the whereabouts and what has become of the Austin Engineering information and certain information potentially relevant to the alleged misuse of the Austin Engineering information. The Court also made further interlocutory orders after a contested hearing requiring the Schlam respondents to file and serve an affidavit by which they were to disclose information potentially relevant to the alleged misuse of the Austin Engineering information: Austin Engineering Pty Ltd v Podulova [2023] FCA 419. 4 On 25 May 2023, after the Schlam respondents had complied with the orders of 1 May 2023, the Court made further orders requiring them to produce a computer to the Court and to provide certain information to permit Mr McKemmish to access the information on that computer as well as certain other digitally stored information. Orders were also made for a process by which, subject to certain steps, Mr McKemmish could disclose certain information potentially relevant to the alleged misuse of the Austin Engineering information derived from digital information of the Schlam respondents to the applicant's external legal representatives. Separately, on 26 May 2023, orders were made, broadly, to permit Mr McKemmish to access certain information Ms Podulova had provided in compliance with Court orders and for potentially relevant information to be disclosed to the legal representatives of Austin Engineering and the Schlam respondents. 5 On 8 August 2023 Austin Engineering filed an interlocutory application by which it sought a variation to the orders of 25 May 2023 that would permit Austin Engineering's external legal representatives to disclose documents listed in an exhibit to the confidential affidavit of Clancy Calder Bennett affirmed 8 August 2023 and filed in support of the application. The application was also supported by confidential affidavits of Nikki Marie Argiriadis affirmed 8 August 2023 and Mr McKemmish sworn 8 August 2023. Case management orders were made on 9 August 2023 and varied on 16 August 2023 for the filing and service of affidavits and submissions, that such materials were confidential and listing the application for hearing on 4 September 2023. Thereafter, the Schlam respondents filed an affidavit of Benjamin James Baker affirmed 14 August 2023 and an affidavit of Jessica May Edmeades affirmed 15 August 2023 in opposition to the application. 6 On 4 September 2023 the Court made orders, by consent as between Austin Engineering and the Schlam respondents, that included the following: 1. Order 2 made on 25 May 2023 (the Order) and the Confidentiality Undertakings signed by the Applicant's external legal representatives referred to in paragraph 2(b) of the Order be varied such that the document identified in paragraph 4 of Confidential Annexure CB-15 to the affidavit of Clancy Calder Bennett affirmed on 8 August 2023, and any information contained in that document, may be disclosed to Ms Kirsten Cadle (General Counsel of the Applicant) and Mr David Singleton (CEO and Managing Director of the Applicant), subject to Ms Cadle and Mr Singleton each providing to the Second to Seventh Respondents a signed confidentiality undertaking in the form annexed to the orders made on 25 May 2023 (as amended pursuant to this Order). 2. Order 5 made on 9 August 2023 (as varied by Order 1 made on 16 August 2023) be varied such that paragraphs [1]-[6] and [28]-[34] of the affidavit of Benjamin James Baker affirmed on 14 August 2023, and paragraphs [16]-[21] of Confidential Annexure RM-8 to the affidavit of Rodney McKemmish sworn on 8 August 2023, may be disclosed to Ms Cadle and Mr Singleton, subject to Ms Cadle and Mr Singleton each providing to the Second to Seventh Respondents a signed confidentiality undertaking in the form annexed to the orders made on 25 May 2023 (as amended pursuant to this order). 3. The Applicant's Interlocutory Application dated 8 August 2023 (Interlocutory Application) otherwise be dismissed. 7 Orders were also made for the question of the costs of the application to be determined on the papers and for the exchange of written submissions. Those orders were varied on 13 September 2023. Austin Engineering and the Schlam respondents have filed written submissions on the question of costs. 8 Austin Engineering submits that the costs of the application should be costs in the cause. It submits that in the usual course the Court will not make an order for costs in circumstances where, as here, there has not been a determination on the merits. Further, none of the typical exceptions to that principle apply. Neither party had a substantial victory or loss and neither party acted unreasonably. 9 The Schlam respondents submit that they should have the costs of the application on the ground that the application was without merit and could have been resolved by conferral. Further, Austin Engineering acted unreasonably in making the application and it effectively surrendered or capitulated because, so the Schlam respondents submit, after Austin Engineering agreed that all submissions and affidavits filed with respect to the application would be confidential, the Schlam respondents filed and served the Baker affidavit. The Schlam respondents submit that had the assurance of confidentiality been provided earlier the information in the Baker affidavit would have been provided earlier and the application almost certainly would not have been necessary. The Schlam respondents submit that they were the 'clear winner' once the information in the Baker affidavit was disclosed.
Applicable principles 10 I respectfully agree with and adopt the following statement of the principles to be applied in circumstances in which, as here, an application has been resolved without a determination of the merits set out by Halley J in FCA US LLC v Mahindra Automotive Australia Pty Ltd [2021] FCA 1091: 31 The Court has an unfettered discretion to order costs pursuant to s 43 of the Federal Court of Australia Act 1976 (Cth) and no rule or principle should be applied mechanically in the determination of where costs should lie in any particular case: Howards Storage World Pty Ltd v Haviv Holdings Pty Ltd (2010) 182 FCR 84; [2010] FCAFC 5 at [17] (Gray J with whom Lindgren J agreed). 32 In the usual course, the Court will not make an order for costs in circumstances where there has been no hearing on the merits: Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 at 624-625 (McHugh J). However, there are exceptions to this general principle. 33 First, the Court may make an order for costs in favour of a party notwithstanding that there has been no hearing on the merits in circumstances where one party has had a substantial victory and the other a substantial loss, or there has been a marked difference in the reasonableness of the actions taken by the parties: Edwards Madigan Torzillo Briggs Pty Ltd v Gloria Stack [2003] NSWCA 302 at [5] (Davies AJA with whom Mason P and Meagher JA agreed). 34 As Heerey J explained in Oxford Funding Pty Ltd v Oxford Asia Pacific Investments Pty Ltd (No 2) [2006] FCA 1542 at [5]: While any question of costs always remains a matter of discretion, the approach in the cases is usually that the Court will not try a hypothetical action to decide which party would have won. Rather, the Court will assess the conduct of the parties including, in appropriate cases, the conduct prior to the commencement of proceedings, to see whether that conduct was "reasonable". This rather suggests that an order will only be made where the party seeking costs has acted reasonably and the other party has not. Where both parties have acted reasonably, or unreasonably, the costs should lie where they fall. "Unreasonableness" in this context could include rejecting a reasonable offer or invitation to engage in discussions which hold out reasonable prospects of a compromise. 35 Second, where the Court is satisfied that one party has effectively surrendered or capitulated it may also make a costs order in favour of the other party notwithstanding that there has been no determination of the merits of the proceedings. The following principles emerge from the authorities with respect to surrender or capitulation: (a) either an applicant or respondent might be found to have effectively surrendered or capitulated; (b) it is necessary to have regard to the conduct of the parties not to determine whether a party has acted in a manner that can objectively be characterised as unreasonable, but rather to determine whether by their respective conduct one party has, in substance, capitulated or surrendered to the other party: see generally Chapman v Luminis Pty Ltd [2003] FCAFC 162 (Chapman) at [5]-[8] (Beaumont, Sundberg and Hely JJ); Zhao v Suzhou Haishun Investment Management Co Ltd [2020] VSCA 34 at [19]-[20] (Tate, McLeish and Hargrave JJA); cf Diamond Ace Super Fund Pty Ltd v Rodapa Development Pty Ltd [2020] FCA 1582 (Diamond Ace) at [65]-[68] (Griffiths J); (c) it is necessary to distinguish between cases in which a party seeking to discontinue proceedings can be said to have effectively surrendered or capitulated and cases in which a supervening event renders the proceedings futile or moot: Diamond Ace at [59] (Griffiths J) citing Travaglini v Raccuia [2012] FCA 620 at [13] (McKerracher J); and Chapman at [7], citing ONE.TEL Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548; [2000] FCA 270 (ONE.TEL) at [6] (Burchett J); (d) an assessment of the degree to which the outcome achieves the relief sought is a threshold issue of significant weight in determining whether a party has effectively surrendered or capitulated. A party does not have to achieve complete success in order to establish that the other party effectively surrendered or capitulated. It is enough to demonstrate that the outcome secured sufficiently achieves the party's purpose in bringing the proceedings: Diamond Ace at [67]; Balanggarra Aboriginal Corporation v State of Western Australia [2018] FCA 1538 (Balanggarra) at [50] (Barker J); Stephens v Sena, in the matter of Vtara Solar Pty Ltd [2020] FCA 1179 at [30] (Stewart J); (e) generally it is not the function of the Court to make a prediction as to the outcome of a hypothetical case in assessing the degree of success or failure achieved by a party in proceedings in which there has been no determination of the merits: Elevate Brandpartners Ltd v Hammond (No 4) [2020] FCA 421 (Elevate Brandpartners (No 4)) at [20] (Stewart J); Clark v ING Life Limited [2007] FCA 1960 at [16] (Rares J); Rickus v Motor Trades Association of Australia Superannuation Fund Pty Limited (2010) 265 ALR 112; [2010] FCAFC 16 at [118]-[119] (Jacobson, Siopis and Foster JJ); Mineralogy Pty Ltd v National Native Title Tribunal [1998] FCA 1700 at 6 (Lee, Tamberlin and R D Nicholson JJ); and (f) in some cases it is relevant to have regard to the likelihood of success, but only insofar as it is possible to identify a likely "clear winner": ONE.TEL at [7]; and Balanggarra at [71]-[73]. 11 While Mahindra Automotive concerned the resolution of substantive proceedings, the principles are equally applicable to the resolution of interlocutory applications: e.g., Sivwright v St Ives Group Pty Ltd [2022] FCA 136 at [8] (Jackson J); G1PC Pty Ltd (Trustee) v Pestock Pty Limited (No 2) [2016] FCA 1056 at [23], [24], [31]-[36] (Perry J). 12 When considering the parties' conduct and questions of reasonableness, surrender and capitulation, it is important to keep in mind that negotiations between the parties are usually subject to without prejudice privilege. Further, in the context of interlocutory applications, conferral and resolution of interlocutory disputes without the necessity for an application to be made or after an application has been made is to be encouraged as it is broadly consistent with the overarching purpose of the civil practice and procedure provisions set out in s 37M and the obligations of parties and their lawyers set out in s 37N of the Federal Court of Australia Act 1976 (Cth). Therefore, the Court should exercise a degree of caution before making a positive costs order on an application that is resolved (by agreement) without a determination of the merits lest the risk of an adverse costs order undermine the overarching purpose by creating a disincentive for parties to resolve interlocutory disputes (or the proceedings) without a determination of the merits. 13 In general, the costs associated with the resolution of interlocutory disputes that do not result in filing of an interlocutory application or determination at a case management hearing are costs that form part of the costs of the proceedings awarded to the party which is ultimately successful. There may be a significant amount of correspondence and conferral that takes place before the dispute is resolved. It may result in the parties avoiding the costs of an otherwise 'unreasonable' application or it may result in a party 'capitulating' or 'surrendering' on a position that had been adopted earlier in the dispute. In many cases there may be little difference in the costs associated with an interlocutory dispute that is resolved without a formal application as opposed to a dispute resolved after a formal interlocutory application has been made. Therefore, in the context of an interlocutory dispute and ongoing litigation, an order that the costs of a resolved interlocutory application be costs in the cause may be more appropriate than no order as to costs or a positive costs order in favour of one or more of the parties: e.g., G1PC at [36].
Consideration 14 By letter dated 26 July 2023 Austin Engineering's solicitors (HWL Ebsworth) requested explanations about how a certain document came into the Schlam respondents' possession and what was done with it, a copy of a certain document and comment on various matters raised in the letter concerning the contents of other documents potentially relevant to alleged misuse of the Austin Engineering information. There followed a series of email communications between the Schlam respondents' solicitors (Gilbert + Tobin) and HWL Ebsworth. In the correspondence Gilbert + Tobin sought assurances that confidentiality undertakings HWL Ebsworth had given would apply to the Schlam respondents' response to the 26 July 2023 letter. HWL Ebsworth confirmed the confidentiality undertaking would apply to the information contained in the documents referred to in the 26 July 2023 letter. Gilbert + Tobin clarified that it requested confirmation that the undertaking would apply to the response to the letter. HWL Ebsworth was unwilling to give such an undertaking without understanding the nature of the information that would be in the response as the basis for the assertion that it was confidential. Therefore, Gilbert + Tobin did not provide a response on behalf of the Schlam respondents to the letter because HWL Ebsworth was not willing to provide the requested undertaking. I do not consider that the position HWL Ebsworth, and through them, Austin Engineering, adopted to an undertaking concerning a response to the 26 July 2023 letter was unreasonable. 15 HWL Ebsworth had a number of concerns about the documents identified in the 26 July 2023 letter. On 8 August 2023 it made the interlocutory application. In effect, a variation to the orders of 25 May 2023 was sought so that HWL Ebsworth could disclose the documents identified in the 26 July 2023 letter to limited representatives of Austin Engineering for the purposes of obtaining instructions about the concerns. 16 After the application was made and the Court made an order that all submissions and affidavits filed in relation to the application would be confidential until further order, the Schlam respondents filed the Baker affidavit. No doubt the contents of that affidavit was a catalyst for the parties to reach agreement on the terms of the orders made on 4 September 2023. However, not every statement made in the Baker affidavit could be regarded as confidential. Further, part of the consent orders permit disclosure of parts of the Baker affidavit to Austin Engineering's nominated representatives. Moreover, the explanations concerning the documents referred to in the affidavit are untested and, it appears, have been accepted on face value. 17 I do not accept the Schlam respondents' submission to the effect that Austin Engineering acted unreasonably or that it effectively surrendered or capitulated. Nor do I accept that the application was without merit. However, I do accept that it could have been resolved by way of conferral as, in the end, it was so resolved. Nonetheless, given the evident stalemate concerning the confidentiality undertaking, it seems inevitable that some degree of Court intervention would have been necessary to break that stalemate so as to allow the parties to confer and resolve the dispute. 18 In my view, each of Austin Engineering and the Schlam respondents acted reasonably in its (their) approach to the request for information in and response to the 26 July 2023 letter. That includes Austin Engineering filing the application, the parties' consent to the orders that included confidentiality of submissions and affidavits, the Baker affidavit and the response to the information contained in that affidavit. Given the sensitive and confidential nature of the information in question, the parties approach is consistent with s 37M and s 37N of the Federal Court Act and is to be encouraged and commended. In these circumstances, the party that is ultimately successful should have the costs of the application.
Conclusion 19 There will be an order that the costs of the applicant's interlocutory application filed on 8 August 2023 be costs in the cause. There will also be an order that the applicant and second to seventh respondents be provided with a copy of these reasons for the purpose of applying for any further or other orders prior to the publication of these reasons in relation to the question of confidentiality. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Feutrill.
SCHEDULE OF PARTIES WAD 83 of 2023 Respondents Fourth Respondent: SCHLAM HIRE PTY LTD (ACN 605 114 467) Fifth Respondent: PAYLOAD INDUSTRIES PTY LTD (ACN 611 121 610) Sixth Respondent: THE PILBARA CLEAN MACHINES PTY LTD (ACN 118 342 895) Seventh Respondent: RLS ENGINEERING PTY LTD (ACN 125 143 517)
Austin Engineering Ltd
Podulova
[2020] VSCA 34
(2010) 182 FCR 84
(1997) 186 CLR 622
(2000) 101 FCR 548
(2010) 265 ALR 112