Deeson Heavy Haulage Pty Ltd v Cox & Ors

[1] In this matter I gave judgment on 8 September 2009 following a trial that took some three weeks. The trial commenced on 14 July 2008 and concluded on 27 March 2009. I gave judgment for the plaintiff against the first, second and fourth defendants in the sum of $12,120 together with interest. I gave judgment for the first defendant on his counterclaim against the plaintiff in the amount claimed of $4,760 together with interest. I reserved the question of costs to enable the parties to make written submissions which they have now done.

[2] The plaintiff seeks an order that its costs of the claim be paid including reserved costs (which relate to an interlocutory application made by the plaintiff for a search order and injunctive relief) and including costs associated with amending its statement of claim which amendments it says were made to reflect the contents of two reports from a Mr Hains, a computer expert, and following disclosure made by a third party, BIS Industrial and disclosure made by the defendants. It seeks that its costs be paid on the standard basis.

[3] The defendants contend that the appropriate order as to costs is as follows:

(a) The plaintiff pay the defendants' costs of and incidental to the hearing in the Supreme Court of Rockhampton on 17 April 2008 to be assessed on the indemnity basis;

(b) That there be no order as to costs of the plaintiff's application filed by leave on 9 April 2008 nor any order as to the expenses incurred in the execution of the search order (in the form of an Anton Piller order) made on 9 April 2009 save and except as provided in (a) above;

(c) That the first, second and fourth defendants pay the plaintiff's costs of the proceedings (excluding reserved costs) up to and including 23 June 2008 such costs to be assessed on the standard basis and in accordance with the scale applicable to a claim in the Magistrates Court;

(d) That the plaintiff pay the defendants' costs of the proceedings from 24 June 2008 onwards to be assessed on the indemnity basis;

(e) That the principal of the plaintiff company, Cameron Strathdee, pay the defendants their costs of proceedings in accordance with these orders but limited to an amount not exceeding $200,000, in accordance with an undertaking given by him to the court recorded in an order of 4 March 2009;

(f) That the defendants be entitled to offset any costs payable by them to the plaintiff against the amount of any costs payable by the plaintiff to the defendants.

[4] In order to understand the defendants' submission it is necessary to consider several discrete matters namely:

(a) whether the plaintiff misled the court in bringing an application filed on 9 April 2008 for interlocutory injunctions and a search order and, if so, the effect of that on any entitlement to the costs of that application and the further hearing of the application which took place on 17 April 2008 both of which sets of costs have been reserved;

(b) the effect of the formal offer of settlement made by the defendants on 23 June 2008;

(c) the extent to which the defendants were successful on the issues arising in the proceedings compared with the limited success of the plaintiff;

(d) the overall conduct of the plaintiff in bringing claims in respect of which it is submitted "it could not possibly succeed" and the plaintiff's conduct generally in the proceedings.

[5] It is necessary to set out a brief history of the matter. The matter first came before me on 9 April 2008 by way of an application by the plaintiff on an ex parte basis for a search order and for various injunctions against each of the defendants. The matter was heard at 5.30pm for about an hour and then came back before me again on an ex parte basis at 9.40am on the next day.

[6] The injunctions in each case sought that the defendant be restrained "from soliciting quotes or orders or accepting quotes or orders from or otherwise dealing with any customer of the plaintiff" and that the defendant "be restrained from disclosing, divulging or making use of any confidential information acquired ... during the course of ... employment by the plaintiffs [sic] or from any person who acquired such information in the course of ... employment relating to the plaintiff's customer list and/or the plaintiff's rates schedule."

[7] On the first occasion I made the search order which order was, subject to necessary amendment, in accordance with the pro forma search order annexed to Practice Direction 2 of 2007. On the second occasion I granted injunctions relating to the use of confidential information in terms of the second form set out above.

[8] The matter came back before me on 17 April and on this occasion the defendants appeared and were represented. Various orders were made. Essentially the defendants were required to keep accurate records relating to their business and the plaintiff was given the opportunity of inspecting those records as kept. The matter was certified for a speedy trial.

[9] As a result of the search order documents were found in the possession of the defendants which were the property of the plaintiff. They included a diary kept by the first defendant and a note book kept by the second defendant. As well there was found on the defendants' computer certain electronic information in which the plaintiff claimed an interest. That included its "permit folder" and its "machinery specs folder" and a copy of an electronic spread sheet used by the plaintiff called a "Jobs Board".

[10] The defendants complain that the court was misled by the information supplied by the plaintiff in its affidavit material and that had the true position been known I would not have made the orders that were eventually made.

[11] A party bringing an ex parte application before the court is required to act with the utmost good faith. It will fail in that obligation unless that party supplies the place of the absent party to the extent of bringing forward all material facts which the absent party would have presumably brought forward in his or her defence to that application: Thomas A Eddison Ltd v Bullock [1912] HCA 72; (1913) 15 CLR 679. See also Bell Group MV (in liq) v Aspinall (1998) 19 WAR 561 at 570; Marron v City of Nedlands [2009] WASC 242.

[12] The misleading evidence that the defendants refer to is the claim then made by the plaintiff that there existed employment contracts between the plaintiff and the first, second and third defendants which contained restraints of trade clauses. The defendants contend that the existence of these contracts containing such terms were "significant factors in the granting of the order".

[13] I recorded my reasons for making the orders of 9 April and they include the following:

"Mr Strathdee [the principal of the plaintiff company] alleges that as part of the orchestrated plan, documents were removed from the plaintiff's files, which included contracts of employment that he asserts would have been signed by the defendants at the time of their commencement of employment.

He has checked the plaintiff's files and the file of each employee contains the individual employment agreement, that it was the practice of the plaintiff to have the employee sign, but no such agreements remain on the files of the first, second and third defendants.

As I have said, the first and second defendants were at the very highest level of the plaintiff company and it would seem surprising if they had not signed contracts of employment as Mr Strathdee alleges.

There were provisions in the standard form contract that it exhibited to Mr Strathdee's affidavit, which included reference to conflict of interest in clause 32, confidential information at clause 33, a claim to intellectual property in clause 34, and a restraint of trade clause in clause 35. If Mr Strathdee's allegations are accepted, then the first, second and third defendants have breached the provisions of the contract that he says was in place."

[14] When the defendants finally appeared before me on 17 April they contended that no such contracts were ever signed by them. The plaintiff eventually abandoned its allegations that any such contracts ever existed. Its case proceeded on the footing that the law imposed on the defendants certain fiduciary and implied contractual duties which the plaintiff contended had been breached.

[15] There are two further matters adverted to in those reasons relevant to this consideration of the plaintiff's discharge of its obligation of complete candour. They were each plainly material to the decision made. I refer firstly to the complaint made by Mr Strathdee in his affidavit filed at that time which I described in the following terms:

"The affidavit of Mr Strathdee, if it is accepted, would establish that acts of fraud have been committed against the plaintiff company in the running of it over the months prior to the departure of the defendants from their employment by the plaintiff.

The allegations that are made include allegations of the forgery of signatures and the obtaining of monies on the plaintiff's account to which the defendants were not entitled."

"Mr Strathdee alleges that as part of the orchestrated plan, documents were removed from the plaintiff's files, which included contracts of employment that he asserts would have been signed by the defendants at the time of their commencement of employment."

"In the circumstances, it seems to me that the plaintiff's concern is that documents which might well incriminate the defendants, in the sense that it may prove their breach of contact and their breach of the provisions of the employment contract to which I have referred, might well be destroyed or hidden.

The fraudulent acts that Mr Strathdee speaks of in his affidavit which he alleges have taken place over a period of months and indeed which go so far as to assert the taking of the plaintiff's money by the first defendant, if accepted, would certainly give rise to a legitimate concern that the defendants would not be inclined to preserve information that might be contrary to their interests."

[18] Mr Srathdee did not persist with the allegations of the fraudulent acts that he spoke of in his affidavit when the matter came on for trial. The evidence showed that he made a complaint to the police at an early stage but, for reasons unexplained, there had been no action taken on his complaint. In a trial involving allegations of breaches of fiduciary duties arising from the employment relationship I would have expected these allegations to be pursued if the evidence justified them being made.

[19] The second area of concern in relation to the material placed before the court on 9 April is Mr Strathdee's account of the resignations of the first and second defendants from their employment with the plaintiff. Mr Strathdee failed to reveal that certain events occurred over the weekend prior to the cessation of the employment of each defendant. The evidence at trial demonstrated that Mr Strathdee had informed third parties at a hotel that the first and second defendants were stealing from the plaintiff, that he proposed to report their conduct to the police and that by the Monday morning he would be conducting the business himself, the defendants having had the day to day running of the business to that time. The defendants learnt of the allegations made against them from one of those third parties. The first defendant confronted Mr Strathdee over the matter at Mr Strathdee's home at 4am on the Monday morning. At that time, according to the findings that I have made, Mr Cox, the first defendant made it plain that his employment would come to an end later that week.

[20] As well Mr Strathdee failed to advise the court that the second defendant, Mr Watson, had given notice of his intended resignation one month prior to the cessation of his employment.

[21] In perusing Mr Strathdee's affidavit filed in support of his application on 9 April it is plain that the inference that he expected to be drawn was that he was in negotiation with the defendants for the sale of his business to them, that they wished to buy it at an undervalue not being prepared to offer anything for goodwill and that when he was not prepared to do that they broke off negotiations and left his employment within a matter of days, setting up in competition and taking from him valuable documentation which enabled them to get a head start with his customers. He failed to say anything about his own involvement in the events of the week-end and which put a very different connotation on the timing of the departures of the two men.

[22] There is no doubt in my mind that the existence of the claimed contracts of employment, allegedly containing the terms to which I have referred, the apparent removal of those contracts from the plaintiff's files, the claim that the employees had been guilty of fraudulent acts which included the taking of monies, the coincidence of the timing of the departure of the two men so shortly after breaking off negotiations, all combined to lead me to the view that there was strong reason to believe that the defendants were likely to destroy any incriminating documents and that an urgent search order ought to be made.

[23] As appears in my findings the contents of the machinery specs folder was largely in the public domain and a claim with respect to its contents was not pursued in final submissions. The permits folder, diary and notebook, whilst taken and whilst the property of the plaintiff, were not used by the defendants and did not seem to me to be of great significance. The defendants contended, and I accepted, that the diary and notebook were taken inadvertently and remained in the box in which they had been removed.

[24] Of course the plaintiff was not in a position to know necessarily what had been taken, what use was made of what had been taken, and perhaps the significance of what had been taken, at the time it brought its application.

[25] In response to the defendants' submissions the plaintiff contends that had the correct facts been put forward, namely that there was no employment contract but that fiduciary duties were owed, and that there were missing documents of which the plaintiff was aware (i.e. the diary and notebook) then the orders would in any event have been made. Hence it is contended that the errors made by the plaintiff are immaterial.

[26] It seems to me that where there has been not only material nondisclosure by the applicant, as has occurred here, but where there has been a positive misleading of the court, again as occurred here, then the onus on the applicant to demonstrate that the orders obtained would have been obtained had there been accurate disclosure is a high one. That is reinforced by the public policy considerations inherent in the rule which requires complete candour when one comes before a court on an ex parte application.

[27] Because of the adverse view that I took of the character of the defendants, based on the incomplete and inaccurate information provided by Mr Strathdee, they were never given the opportunity of volunteering what information or documents they had in their possession and in respect of which the plaintiff might have a legitimate interest.

[28] Given that a true summary of the facts would be that the defendants had every right to resign when they did, that they had every right to be upset at the conduct of Mr Srathdee in not only concluding that they had acted dishonestly without first confronting them with the allegations but as well broadcasting those serious allegations of impropriety to third parties in a public place, that therefore an adverse view of their characters was not necessarily justified, and that the nature of at least some of the information that they have alleged to have taken was not of the significance that Mr Strathdee was contending for, then I can only say that I am in doubt as to what response I would have made to the application but it is far from clear to me that I would have made the orders that were sought.

[29] In summary the plaintiff can argue that there was a good point to the application for the search order - it did transpire that the defendants had some of its documents and the plaintiff could not necessarily know what had been taken. Balanced against that, however, is that the plaintiff was guilty of misconduct in the relevant sense[1] and I am not persuaded that any orders would have been made had I known all the facts.

[30] I conclude that I should accept the defendants' submission that there should be no order as to costs in relation to the hearing of 9 April 2008.

[31] I reject the defendant's submission that the plaintiff ought to pay the defendants' costs of the hearing held on 17 April 2008. It seems to me that balancing out that documents were taken by the defendants and that the plaintiff was ignorant of its position hence the potential need for some orders to be made, against the misconduct that I have spoken of, the fairest result is that there be no order as to costs.

[32] On 23 June 2008 the defendants made an offer of settlement in compliance with Part 5 of Chapter 9 of the Uniform Civil Procedure Rules 1999 ("UCPR"). The offer was served by facsimile on that date and was in the following terms:

1. That the defendants will pay to the plaintiff the sum of $20,000 in full and final satisfaction of the plaintiff's claim.
2. That the first defendant will discontinue his counterclaim against the plaintiff.

3. Each party will pay their own costs with respect to:-

1. The defendants will pay the plaintiff's costs (excluding costs referred to in paragraph 3 and costs of the application filed 18 June 2008) on a standard basis on the applicable Magistrates Court scale.
2. The parties will enter into an appropriate Deed of Settlement and Release to include mutual releases and discharges from all claims arising in these proceedings and any claim howsoever arising from the plaintiff's employment of the first, second and third defendants and any conduct of any party since termination of the employment relationship and including any claim the defendants may have against the plaintiff or Mr Strathdee for defamation of the defendants.

[33] The offer, in monetary terms, was more favourable to the plaintiff than the judgment obtained. As the defendants submit, disregarding interest and the counterclaim, the offer was worth $24,760 compared to the judgment of $12,120.

[34] Prima facie the defendants have a strong case that the plaintiff should pay their costs. That would follow from an application of rr 360 and 361 UCPR. In relation to the first defendant's counterclaim r 360 provides that, in the circumstances here, "the court must order the defendant [ie the plaintiff here] to pay the plaintiff's [ie the defendant here] costs calculated on the indemnity basis unless the defendant shows another order for costs is appropriate in the circumstances". In relation to the defendants' defence of the plaintiff's claim r 361 provides that in these circumstances the defendant is required to pay the plaintiff's costs calculated on the standard basis up to and including the day of service of the offer and thereafter order the plaintiff to pay the defendants' costs calculated on the standard basis "unless a party shows another order for costs is appropriate in the circumstances". Again the rule provides that the court "must" make those orders.

[35] The plaintiff contends that it was not reasonable for it to accept the offer to settle for the following reasons:

(a) The mode of service of the offer was invalid because no effort was made to comply with the requirements of r 122 UCPR;

(b) The offer made by the defendants was all inclusive and was well short of the legal costs and disbursements incurred by the plaintiff up to the date that it was made;

(c) At the time the offer was made the defendants had not candidly admitted what they had taken from the plaintiff and why and what use they had made of what they had taken nor offered to return any of what they had taken;

(d) The offer was expressed to be open for 14 days from 23 June 2008 and was conditional upon the plaintiff within that period signing a deed which the plaintiff had not seen and the terms of which had not been proposed. It is submitted that the terms of the deed might have taken days or weeks to negotiate and the terms might never have been agreed even after weeks of negotiation;

(e) The offer required the plaintiff to waive rights both known and unknown and unconnected with the proceedings;

(f) The deed contemplated by the defendants would have entitled the defendants to solicit other "formed and maturing contracts belonging to the plaintiff in the same way the defendants pursued the NQX job and this could not have been in the plaintiff's best interests (judgment pages 29-33)."

[36] The reference to r 122 UCPR is to the special requirements for service by facsimile. The defendants' response to the submission is that there is no evidence that the offer was served only by fax, although it is accepted that a facsimile copy was sent, and that it is plain that the offer was in fact received by the plaintiff's solicitors as they responded by letter of the following day.

[37] Rule 122 requires that a cover page accompany a facsimile and that it contain certain information. There is no evidence in this case of whether there was a cover page to the facsimile letter, what the cover page contained and whether the letter of 23 June containing the offer was served by any other means. The purpose behind r 122 seems to be that the provision of the information set out there would assist the court in determining disputes relating to service and would assist the parties in appreciating whether all documents intended to be transmitted had been in fact transmitted and that they were provided by way of service. In this case none of those matters are relevant - there is no suggestion that the solicitors for the plaintiff could not understand that they were being served with an offer, there is no dispute about the fact of the transmission and what was transmitted and in no sense have the plaintiff's rights in any way been affected by the mode of service. As the defendants' solicitors submit there is simply no evidence on which it could be held that there was any failure to serve appropriately and what evidence there is makes it plain that the offer was received and understood.

[38] The assertion that the offer made by the defendants was all inclusive is simply wrong.

[39] The third submission made by the plaintiff suffers from a lack of particularity. It is not made plain what it is that the defendants ought to have admitted that they had taken nor what it is that they had failed to offer to return to the plaintiff. One thing is clear and that is that the action was not about the plaintiff recovering items that had been taken. Rather the plaintiff was seeking to recover substantial damages. That is made plain by the plaintiff's own offer made on 27 June 2008 which is attached to the plaintiff's solicitor's submission. The only order that the plaintiff sought was that the defendants pay to the plaintiff the sum of $300,000 plus costs to be assessed. That is consistent with the view I have as to the significance of the material taken.

[40] The remaining three submissions concern the defendants' requirement that the plaintiff enter into an "appropriate Deed of Settlement and Release to include mutual releases and discharge from all claims arising in these proceedings and any claim howsoever arising from the plaintiff's employment of the first, second and third defendants and any conduct of any party since termination of the employment relationship and including any claim the defendants may have against the plaintiff or Mr Srathdee for defamation of the defendants."

[41] This aspect of the matter has caused me some considerable concern. The provisions of rr 360 and 361 only came into play where the judgment obtained by the plaintiff is "not more favourable to the plaintiff than the offer to settle" (r 361) or where the judgment in favour of the defendant on its counterclaim was "no less favourable than the offer to settle" (r 360). The argument that the plaintiff advances is that at the time of the offer it could not be known to the plaintiff whether the offer was more or less favourable than the likely eventual judgment because the terms of the proposed deed were unknown and potentially required the waiver of rights that fell outside the issues raised by the proceedings.

[42] The defendants' submission in reply makes the following points:

(a) It is common place for insurers to make their offers conditional on a plaintiff entering into a Deed of Release and Discharge and it has never been held that such requirement affects the validity of the offer;

(b) It is unsurprising that the defendants would wish to ensure that there would be no further litigation, given the conduct of the proceedings to that time;

(c) There is no evidence or suggestion that the plaintiff in fact had other rights that could have been compromised by the deed;

(d) The principle for which Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589 stands would prevent the plaintiff in any event from bringing any further claims that might have been precluded by the release proposed.

[43] In my view the first two points are irrelevant to the issue to be determined here.

[44] Nor is it plain that the deed proposed would have been limited to issues or rights that would have been caught by the principle for which Port of Melbourne Authority v Anshun Pty Ltd stands. It needs to be borne in mind that in Anshun the proceedings which the plaintiff sought to bring would, if they succeeded, result in a judgment which conflicted with an earlier judgment between the parties. That was clearly a relevant matter to the court's decision to prevent the action continuing. Gibbs CJ, Mason and Aickin JJ identified the relevant principle in the following terms:

"In this situation we would prefer to say that there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff's, and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding. In this respect, we need to recall that there are a variety of circumstances, some referred to in the earlier cases, why a party may justifiably refrain from litigating an issue in one proceeding it wished to litigate the issue in other proceedings e.g. expense, importance of the particular issue, motives extraneous to the actual litigation, to mention but a few.

It has generally been accepted that a party will be estopped from bringing an action which, if it succeeds, will result in a judgment which conflicts with an earlier judgment."[2]

[45] That the deed proposed went beyond the issues raised by the pleadings is plain on the face of the terms of the offer. The reference to the possible claim that the defendants had or may have had against the plaintiff or Mr Strathdee for defamation strongly suggests that the terms that the defendants had in mind would have extended well beyond any 'Anshun estoppel.'

[46] There is some force in the defendants' submission as to the lack of evidence of the plaintiff having any other right that it in fact was being asked to compromise. The plaintiff's response to this is that as at the date of the offer (23 June 2008) it was still gathering information. This is evidenced, the plaintiff's contends, by the disclosure of documents by BIS Industrial on 14 July 2008 which included emails suggesting that the first defendant was seeking to become a supplier of BIS whilst still in employment with the plaintiff. It points out too that only by the amended defence filed 7 July 2008 did the defendants admit that they had taken traffic plans and "machinery specs" belonging to the plaintiff.

[47] One relevant matter in deciding whether an offer has been imprudently or unreasonably rejected is the relative strength or weakness of the case that ought to have been apparent to the party when the offer was made: Brymont Pty Ltd v Cummins (No 2) [2005] NSWCA 69 at [14] per Beazley JA: Lawes v Nominal Defendant [2007] QSC 103 per Byrne J. Those cases were concerned with a Calderbank type offer but nonetheless the principle seems to me to apply in a more general sense. The plaintiff effectively contends that it hoped that its case would get stronger by reason of the information that might be exposed in the BIS material when it was eventually received. I am doubtful of the proposition that a party should avoid the consequences of its decisions on the basis of a hope that its case will get better. As matters turned out the BIS documents did not assist the plaintiff in achieving any significant damages.

[48] However in order to take advantage of the effect of the provisions in the rules it is first necessary that the party making the offer demonstrate that the offer falls within those rules. Thus the onus is on the defendant to demonstrate that the judgment is "not more favourable to the plaintiff than the offer to settle" or that the judgment it obtained on its counterclaim was "no less favourable than the offer to settle".

[49] Given that terms of the proposed deed were not spelled out, and that there are arguments available to the plaintiff to demonstrate that potentially the deed proposed, as at the relevant date, was more onerous than any judgment could have been, I am not persuaded that the offer made satisfies the precondition necessary to attract the benefit of the rules.

[50] The defendants submit that they were, in effect, the successful party to the litigation. They submit that the issues litigated can be confined to ten discrete categories, the categories largely following the subheadings that I have used through the course of my reasons for judgment, and that they succeeded on eight of those and as well succeeded on several other disputed questions. The defendants point out that the plaintiff's own written submissions highlight the severability of the issues - the approach adopted was to provide me with a separate written submission in relation to each of the various claims made. The defendants submit that the "plaintiff enjoyed success in only two of the many issues litigated - and its success was nominal".

[51] In my view the defendants' submission is accurate. Indeed even in relation to the two matters on which the plaintiff had success (the BIS work and NQX job) the defendants had substantial success in relation to the facts that were litigated. My findings effectively were that in spite of that success the defendants were in breach of the duties that they owed to the plaintiff.

[52] The defendants submit that the effect of this level of success on the issues litigated should be brought into account in the following way:

(a) For the period to 23 June 2008 these matters justify an approach which would limit the plaintiff's costs into the Magistrates Court scale; and

(b) With respect to the period after 23 June 2008 these matters provided evidence of the unreasonable conduct of the plaintiff in pursuing its claims and demonstrating that it is appropriate for the plaintiff to pay the defendants' costs on the indemnity basis.

[53] It is apparent that the submission made by the defendants assumes success in relation to their contention that their offer to settle should result in an order in their favour in relation to costs on the standard basis. Whilst I am against the defendants on that submission it does not necessarily follow that the defendants' arguments cannot succeed at all.

[54] I take the relevant principles to be as follows. Firstly the defendant's right to recover costs is governed by the provisions of the UCPR. In particular the usual rule is that the costs of a proceeding should follow the event unless the court orders otherwise: r 681 UCPR. Nonetheless the rule makes plain that there is a general discretion in the court. Whilst the discretion is often described as "absolute and unfettered" or the like it is apparent that the obligation to act judicially requires that close regard be had to the many decisions from appellate courts as to the proper exercise of the discretion.[3]

[55] I may make an order for costs in relation to a particular question or in relation to a particular part of a proceeding and for those purposes I can declare what percentage of the cost of the proceeding is attributable to the question or part of the proceeding to which the order relates: r 684 UCPR. Where the relief obtained by a plaintiff in a proceeding in the Supreme Court is a judgment that, when the proceedings began, could have been given in the Magistrates' Court then the costs that the plaintiff recovers must be assessed as if the proceeding had been started in the Magistrates' Court, unless I order otherwise: r 697 UCPR.

[56] Generally speaking a "successful" litigant is entitled to an order of costs and to deprive a successful party of their costs or to require such a party to pay some or all of the costs of the other side is an exceptional measure: Smeaton Hanscomb v Sassoon I Setty, Son & Co (No 2) [1953] 1WLR 1481 at 1484 cited with approval by McHugh J in Oshlack v Richmond River Council [1988] HCA 11; 193 CLR 72 at [66].

[57] Reasons of fairness and policy lie behind that usual approach. Costs are not awarded to punish an unsuccessful party but to indemnify the successful party. The relevant point is that if the litigation had not been defended by the unsuccessful party then the successful party would not have incurred the expense which it did.[4]

[58] A successful plaintiff generally would only be deprived of their costs or made to pay the costs of the other side if they had been guilty of some sort of misconduct. McHugh J pointed out in Oshlack that:

"'Misconduct' in this context means misconduct relating to the litigation, or the circumstance leading up to the litigation. Thus, the court may properly depart from the usual order as to costs when the successful party by its lax conduct effectively invites the litigation; unnecessarily protracts the proceedings; succeeds on a point not argued before a lower court; prosecutes the matter solely for the purpose of increasing the costs recoverable; or obtains relief which the unsuccessful party had already offered in settlement of the dispute

The court may award costs in favour of a defendant where the plaintiff has obtained only nominal damages. However this practice can be justified on the basis that, in reality, the successful party lost the litigation and the unsuccessful party won."[5]

[59] For that last proposition McHugh J cited Alltrans Express Ltd v CPA Holdings Ltd [1984] 1 WLR 394 where the Plaintiff succeeded to a judgment of £2 after a trial taking some fifteen days. The court held that effectively the Defendants were the successful party and were entitled to their costs. That case is not on all fours with this as there the only issue to be litigated was whether the plaintiff's damages were restricted to nominal damages, breach of contract being admitted from the outset.

[60] The mere fact that a Plaintiff fails on particular issues does not mean that the Plaintiff should be deprived of some of its costs. Generally there needs to be something more such as that the issue or part in question is definable or severable and occupied a significant part of the trial.[6]

[61] In my view there are three relevant matters to the exercise of the discretion here:

(a) The defendants were the successful parties in the litigation in terms of the eventual orders made as the net benefit to the plaintiff was minimal;

(b) The plaintiff was guilty of relevant misconduct; and

(c) The defendants succeeded on a significant majority of the issues litigated which issues were severable and took up significant time.

These matters either individually or together are sufficient to justify departure from the usual rule. I will explain my reasons for so finding a little further.

[62] The net effect of the judgment is that the plaintiff will succeed, before consideration of interest and costs, to an amount of $7,360.00. There was no evidence or argument advanced to counter the first defendant's counter claim. No sensible person would commence litigation in the Supreme Court, especially involving the expectation of several weeks of hearing time, over such a small sum of money.

[63] The "misconduct" of the Plaintiff was in several forms. In the course of the reasons for judgment I pointed out that the plaintiff had made serious allegations of breaches by the defendants of the duties of good faith owed which allegations the plaintiff ought to have known should not have been made. There were allegations made of the plaintiff having suffered loss as a result of the defendants' alleged conduct where the defendants were able to show, simply by calling the relevant customers of the plaintiff, or from the plaintiff's own documents, that the work had been performed by the Plaintiff or that the work had not been performed at all, by anybody, and so no loss had been suffered. I observed in my reasons that the proceedings "bordered on the vexatious".

[64] Further there is considerable merit in the Defendant's submission that Mr Strathdee's evidence took the time it did, over a week of the trial, because of his willingness to persist with unfounded allegations and his lack of knowledge of his own business.

[65] Thirdly on this question of misconduct, there is the conduct that I have referred to at paragraphs [265] to [277] of the reasons for judgment namely the use made by Mr Strathdee of information that he obtained in the course of the proceedings as a result of disclosure by the defendants of information confidential to the defendants in accordance with the orders that I made on 17 April 2008 that I have already referred to. I found that Mr Strathdee "deliberately set out to undermine the commercial reputation of the Defendants".[7]

[66] The final consideration is the defendants' success on many of the issues litigated. It extended beyond the eight discrete areas identified by the defendants and included success in relation to the significant attack made on the credit of the first and second defendants, particularly the first defendant. The defendants contend that 80% of the time at trial was taken up with evidence in relation to those matters in which it was successful (adopting, I think, the approach that they succeeded in 8 of 10 issues) and I think that is conservative.

[67] Given all these considerations it seems to me that in order to do justice between the parties it is appropriate that the plaintiff be largely deprived of its costs and be ordered to pay the defendant's costs.

[68] Despite my findings I am not persuaded that the plaintiff should be deprived of all of its costs. In the plaintiff's favour it can be said that given that it did succeed to an amount of damages then up to a point in time it was entitled to pursue its rights to determine what they might be. It can fairly be said that for a period it was in the dark as to those rights and as to the true value of those rights.

[69] I note that the defendants have submitted that they be ordered to pay the costs incurred by the plaintiff up to the date of their offer on the appropriate Magistrate Courts' scale. That submission was predicated on the success of the arguments relating to the formal offer. Nonetheless the submission acknowledges that the bringing of the proceedings at all cannot be criticised.

[70] Given that the defendant made an accurate assessment of the monetary value of the plaintiff's rights on 23 June I cannot see why the plaintiff could not have done the same then or shortly after. The defendants' amended their defence on 7 July and made some concessions then about the taking of certain information. At the latest, by that point, it seems to me the plaintiff was or should have been, with proper preparation, in a position to accurately judge its likely prospects. To that point in time it should have its costs but limited to those two issues on which it succeeded.

[71] There are two relevant aspects. Because of the plaintiff's approach the preparation for trial on both sides was far more elaborate than it needed to be. Secondly the trial took far longer than it should have.

[72] In my view if the case had been restricted to relevant issues on which the plaintiff has proved successful that would have taken no more than 3 days assuming proper preparation. Rather than require an elaborate analysis of the case by a costs assessor I will assess that costs be allowed at 20% of the work undertaken in preparation for trial and limit the plaintiff's entitlement to three days of trial. The defendants should be protected otherwise.

[73] I have considered whether I can give any effect to the defendants' offer. The point in the defendant's favour is that the defendants made a realistic assessment of the monetary benefit that the plaintiff was likely to achieve in the litigation. On my findings the plaintiff's approach was entirely unrealistic. Because of the plaintiff's attitude, that is that thep expected to succeed to a judgment in a substantial amount, there was no further exploration of the terms of the deed proposed, nor any attempt to negotiate the no doubt difficult issue of costs. My assessment of course means that the offer was not as generous on costs as I have determined it needed to be to be efficacious under the rules.

[74] The prospects of resolving the terms of the Deed hardly seem insurmountable. The only right which the plaintiff has so far identified arising out of the employment relationship which the plaintiff may have been required to give up by the terms of the Deed appears to be the complaint that the plaintiff makes about the alleged defrauding of the company by the first and second defendants. As I have mentioned a complaint was made to the police but that has not yet been proceeded with and those complaints formed no part of the proceedings. The defendants reject the charge that there was any impropriety in their conduct. Mr Strathdee indicated in the course of the trial that the amount of money involved was fairly small. I had the impression from his evidence that the amount involved was in the order of a few thousand dollars and well below the difference between the value of the offer and the value of the judgment eventually obtained.

[75] Despite the strong argument that the defendants can mount that they formed a realistic view as to the worth of the litigation, and informed the plaintiff of that view, and the plaintiff held an entirely unrealistic view of its worth and rejected out of hand the defendants' realistic assessment which, in all probability, stymied any further prospects of settlement, I cannot see how that factor can be weighed in the scales beyond what I have said.

[76] The defendants press for the costs to be assessed in accordance with the scale applicable to a claim in the Magistrates' Court. Given that the entitlement I envisage arises from the need for the plaintiff to adequately assess its case, given the potential complexities of the litigation, and given the late amendment of the defence, it seems to me that it was proper to persist with the proceedings in the Supreme Court to that stage.

[77] The defendants seek that their costs be paid on the indemnity basis. Such an order was described by Kirby J in Oshlack as "extremely rare."[8] The submission assumed the efficacy of the formal offer. In the circumstances as I have found them it is not appropriate to make such an order.

The Effect of the Settlement with the Third Defendant

[78] There is one final matter. The plaintiff submits that any order in favour of the defendants be reduced by 25% by reason of the settlement entered into between the plaintiff and the third defendant. I have some difficulty understanding the basis for the submission. The settlement between those parties included an arrangement as to costs (each side to bear their own). The costs that the first, second and fourth defendants can claim against the plaintiff cannot include any amount related exclusively to the third defendant's conduct of her defence. They are simply irrelevant to the issues here.

[79] I have received no submissions concerning the final two matters contended for by the defendants and assume that there is no good reason not to adopt them.

[80] I have not heard the parties on the wording of the orders that would best reflect these reasons. I will give the parties liberty to apply within 7 days if they wish to make any submission about the adequacy of the orders I propose.

[81] Unless submissions are received on or before 4 pm on 10 November the orders will be as follows:

(a) That there be no order as to costs of the plaintiff's application filed by leave on 9 April 2008 nor any order as to the expenses incurred in the execution of the search order made on 9 April 2008;

(b) That there be no order as to costs of the hearing in the Supreme Court of Rockhampton on 17 April 2008;

(c) That the first, second and fourth defendants ("the defendants") pay the plaintiff's costs of the proceedings (excluding reserved costs) assessed on the standard basis:

(i) limited to 20% of the costs of preparation for trial; and

(ii) up to and including the third day of the trial;

(d) That the plaintiff pay the defendants' costs of the proceedings assessed on the standard basis:

(i) limited to 80% of the costs of preparation for trial; and

(ii) from and including the fourth day of the trial onwards;

(e) That the director of the plaintiff company, Cameron Strathdee, pay the defendants their costs of proceedings in accordance with these orders but limited to an amount not exceeding $200,000, in accordance with an undertaking given by him to the court recorded in an order of 4 March 2009;

(f) That the defendants be entitled to offset any costs payable by them to the plaintiff against the amount of any costs payable by the plaintiff to the defendants.

(g) The parties have liberty to apply within 7 days.

[1] Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72 at [69] per McHugh J and see the discussion below

[2] See paragraphs 37 and 38 of their Honours' judgment.

[3] Oshlack (ibid) per Kirby J at [134]

[5] Oshlack at [69]-[70] - authorities omitted

[6] BHP Coal Pty Ltd & Ors v O & K Orenstein & Koppel A G & Ors (No 2) [2009] QSC 64; AGL Sales (Queensland) Pty Ltd v Dawson Sales Pty Ltd [2009] QCA 262; Interchase Corporation Ltd (in Liq) the Grosvenor Hill (Qld) Pty Ltd (3) [2003] 1 Qd R 26 at [84] per McPherson JA.

[7] At [271] of the reasons for judgment.

[8] [1998] HCA 11; 193 CLR 72 at p 127