Austress Freyssinet Pty Limited v Michael Joseph & 2 ors

CATCHWORDS : COSTS - where substantive proceedings compromised - where evidence permits conclusion that one party had extremely strong prima facie case and was almost certain to have succeeded

CASES CITED : Austress Freyssinet Pty Ltd v Joseph [2006] NSWSC 77 Minister for Immigration and Ethnic Affairs & Anor; ex parte Lai Qin (1997) 186 CLR 622

Austress Freyssinet Pty Limited (first plaintiff) PARTIES : Michael Joseph (first defendant) Kevin Walsh (second defendant) Unistress Pty Ltd (third defendant)

COUNSEL : G L Turner (plaintiff) L A Macinnes (solicitor) (first defendant)

Mallesons Stephen Jaques (plaintiff) SOLICITORS : Dibbs Abbott Stillman (first defendant) Aitken McLachlan Thorpe (second defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EXPEDITION LIST

1260/06 Austress Freyssinet Pty Limited v Michael Joseph & 2 ors JUDGMENT (ex tempore) 1 HIS HONOUR: The plaintiff Austress Freyssinet Pty Limited seeks an order that the first defendant Michael Joseph pay its costs. 2 The substantive proceedings were concluded by orders made by consent by the Registrar on 9 February 2007, the effect of which was to restrain Mr Joseph, a former senior employee of Austress, from breaching confidences of Austress, using Austress' copyright material and soliciting away other employees of Austress. 3 The proceedings were instituted by summons filed on 1 February 2006, upon which date Windeyer J was approached on a motion of the same date, ex parte for an Anton Piller order, which his Honour granted. Initially, that order was unable to be executed, because Mr Joseph made an application for its operation to be stayed, and for it to be set aside. That application was heard by Campbell J who, on 6 February 2006, refused it in substance, although making a minor variation to provide that employees of Austress not be present at the time of its execution. 4 In the course of Campbell J's judgment on 6 February 2006 [Austress Freyssinet Pty Ltd v Joseph [2006] NSWSC 77] his Honour said: 90 In the light of the evidence that there was before his Honour, it seems to me that it was well open to his Honour to take the view that there was an extremely strong prima facie case that confidential information was being misused during the period Mr Joseph was still employed by the plaintiff. If an employee with knowledge of the methods by which an entity such as the plaintiff prepares its tenders and its margins goes into opposition, it seems to me that the damage, potential or actual, from misuse of this information is shown to be very serious to the plaintiff.

91 When there is evidence of the office of Mr Joseph being cleaned out, when only five tender files and the manual were returned, and when there is evidence of the usual state of the office, that provides a basis for believing that he has in his possession confidential hard copy information. Further, when electronic documents relating to the plaintiff's business were sent by Mr Joseph to himself at his email address on his hotmail account, that provides a basis for belief that he would still have access to those electronic documents.

92 There is, it seems to me, a sufficient basis in the evidence that the harm caused to the defendants and their business affairs by the grant of an Anton Piller order will not be excessive or out of proportion to the legitimate object of the order. 5 Those observations followed a close analysis of the evidence that was then before the Court, and culminated in (1) the conclusion that it had been open, on that evidence, for Windeyer J to find there was an extremely strong prima facie case that Mr Joseph was using Austress' confidential information whilst still employed by Austress and (2) the refusal, in substance, of the application to set aside the Anton Piller order. 6 Since that time, further evidence was obtained as a result of execution of the Anton Piller order, which is summarised in the affidavit of Edward James Cross, sworn 20 February 2006, and which further fortifies Austress' case. Subsequently, further applications were made by Austress to extend the scope of the interlocutory relief granted by Windeyer J, and further interlocutory orders were made as a result, apparently by consent, on 1 March 2006. 7 No evidence, so far as I can tell, has ever been adduced to answer that material. It had certainly not been before Campbell J and none has been put before or mentioned to me. 8 The approach to the exercise of the court's discretion to make costs order where proceedings are compromised except as to costs was explained in Minister for Immigration and Ethnic Affairs & Anor; ex parte Lai Qin (1997) 186 CLR 622, by McHugh J, who said, (at [624]-[625]): In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs [ Latoudis v Casey (1990) 170 CLR 534]. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order [ Latoudis at 543, 566-560]. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.

In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties [ Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201]. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action [ Australian Securities Commission v Aust-Home Investments Ltd ]. … Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in The South East Queensland Electricity Board v Australian Telecommunications Commission [Unreported; Federal Court of Australia, 10 February 1989] where his Honour ordered the respondent to pay 80 per cent of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare.

If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases. 9 That passage establishes that where litigation is compromised it will often, but not invariably, be appropriate for the Court to refrain from deciding how the costs of the litigation should be borne, and leave them to be borne by each party. As his Honour said, where there has been no hearing on merits, a court is necessarily deprived of a crucial fact to determine whether or not or how to make a costs order. But as his Honour also said, in an appropriate case a court will make an order for costs, even where there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. In some such cases, the court may be able to conclude that one of the parties has acted so unreasonably that the other should receive costs, and in some cases a judge may feel confident that although both parties have acted reasonably, one was almost certain to have succeeded if the matter had be fully tried. 10 The first important consideration in the present case is that Austress has obtained, albeit ultimately by consent, a very substantial part of the relief which it sought at the outset. I bear in mind Mr MacInnes' submission that Austress did not succeed in obtaining a compensatory order of the type which had be sought in the summons; however, any utility in an inquiry as to damages was rendered largely superfluous by Austress' success in obtaining injunctive relief before significant damage could be inflicted on its business. 11 Also of great significance is the conclusion that Austress had an extremely strong prima facie case, as Campbell J found in his Honour's 6 February 2006 judgment, in which opinion, on the material before me, I respectively join. That makes the case one in which the Court is able to feel confident that one party - namely, Austress - was almost certain to have succeeded if the matter had been tried. 12 Mr MacInnes referred to a Calderbank offer made on behalf of Mr Joseph on 28 February 2006. However, there is force in Mr Turner's response that it was made in respect of a motion which had been filed a fortnight previously, on the eve of the hearing of that motion, so that it practically avoided none of the costs which by that stage the plaintiff had been put to in connection with that motion. The offer was made after the Anton Piller order had been executed and does not bear on the costs of obtaining or executing that order. 13 I should record that, in the circumstances and given the evidence that Austress already had, and the reasonable suspicions which it entertained as referred to in Campbell J's judgment (and in particular the passages from that judgment which I have cited above), an application for an Anton Piller order was an entirely reasonable step for Austress to take in the protection of its rights. 14 Although Mr Joseph had a slight measure of success on the application to set aside the Anton Piller order, insofar as the provision for Austress to have a nominated representative present was revoked, I do not think that bears overall on what costs order should be made. The original orders pronounced by Windeyer J provided, in the notice attached to it, that Mr Joseph was entitled to request that nobody be present who could gain commercially from anything that he might read or see on the premises from the time of execution. The supervising solicitor was instructed on behalf of Austress that Austress would consent to not having its own employee in attendance. When the matter was raised before Campbell J, Austress immediately indicated there would be no objection to that variation. It did not form any substantial part of the hearing which took place before Campbell J on 3 and 6 February. 15 In my view, this is a case in which the plaintiff has had to come to Court to obtain relief to which it was entitled, in the face of threatened and actual breaches of confidence by a senior employee which had the potential to occasion it serious damage. I am unable to see why the circumstance that Mr Joseph recognised the inevitable by consenting to the injunctive relief sought a year after the proceedings were initiated, after contesting the interlocutory relief initially, should deprive Austress of the costs to which it would have been entitled had the same relief been obtained over opposition. 16 Mr MacInnes, in his able and helpful submissions, also argued that in view of the circumstance that costs were not being pressed against the second and third defendants, some guidance should be given to the taxing officer so as to limit the costs recoverable against the first defendant. 17 Mr Joseph was a director of the third defendant which, as I understand the case, was said to be the recipient of the confidential information which Mr Joseph was alleged to have misused. 18 I accept that, insofar as costs have been increased by the inclusion of the second and third defendants, Mr Joseph should not be made responsible for those additional costs, and I do not understand Mr Turner to contend to the contrary. But insofar as costs would have been incurred in any event against Mr Joseph, I do not see why they should be reduced simply because of the circumstance that other defendants were joined. 19 Finally, so far as the application for costs of today is concerned, ultimately it seems to me that the application is part of the plaintiff recovering overall justice in these proceedings, it having had to bring this application so as to avoid being seriously out of pocket for legal costs occasioned by the misconduct of its former employee. In those circumstances, it seems to me that the costs of the proceedings payable by Mr Joseph should include the costs of today's application. 20 My order is that the first defendant pay the plaintiff's cost of the proceedings, save insofar as those costs have been increased by the joinder of the second and third defendants. **********

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