Furnish & Finish Pty Ltd v Hollands

Plaintiff's submissions

1. The orders now sought by Furnish to bring a conclusion to these proceedings are as follows: 1. The defendants are to pay the plaintiff's costs of and incidental to the hearings on 17 and 19 June 2020 as agreed or assessed. 2. The parties are to bear their own costs associated with the Notice to Produce, including the second defendant's notice of motion filed on 12 July 2020 to set aside the Notice to Produce. 3. The proceeding be dismissed. 4. The plaintiff is to pay the defendants' costs of the proceedings as agreed or assessed, subject to orders 1 and 2 above.
2. Furnish submits that it is appropriate that the defendants pay the costs of and incidental to the hearings on 17 and 19 June 2020 for the following reasons.
3. Furnish says that the issue of the Restraints was a discrete, identifiable aspect of the proceedings. It is noted that the summons sought: procedural interlocutory orders; substantive interlocutory orders (interlocutory injunctions in the form of the Restraints); and final relief. Furnish says that the making of the procedural interlocutory orders on 17 June 2020 resolved the first aspect of the summons, including the listing of the matter on 19 June 2020 for urgent hearing of the application for injunctive relief. It is noted that orders giving effect to the Restraints were made on 19 June 2020, on a without admissions basis.
4. Furnish submits that it is appropriate that the defendants pay its costs of the above steps because the defendants' conduct was causative of unnecessary delay and expense (and consequently was unreasonable), thus enlivening the basis for ordering payment of costs even though the issues before the Court were not resolved on the merits (citing Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 (Lai Qin) at 624-625, per McHugh J; [1997] HCA 6).
5. In particular, Furnish emphasises that there was no response by the defendants to the letter of 2 June 2020, alerting the defendants to the issue of the Restraints and foreshadowing a claim for injunctive relief. It is said that Furnish had no choice but to commence the proceedings on 17 June 2020, after learning that the defendants had ignored its correspondence and were continuing potentially competitive business activities. It is said that, following service of the summons and the Notice to Produce on 17 June 2020, the defendants did not indicate a possibility of resolving the Restraints without a hearing, and Furnish incurred costs preparing for what was expected to be a contested hearing. Furnish says that the first occasion that the defendants expressed any willingness to resolve the Restraints by compromise was only after the 19 June 2020 hearing had commenced, noting that orders were then made by consent, substantially mirroring Orders 9 and 10 of the summons (i.e., the Restraints).
6. Furnish says that Court resources and party costs could have been spared if the defendants had responsibly engaged with it in early June 2020 or at any time before the 19 June 2020 hearing in relation to the Restraints issue.
7. As to the costs regarding the Notice to Produce, Furnish submits that the appropriate order is for each party to bear its own costs associated with the Notice to Produce, including Cordony's notice of motion filed on 12 July 2020 to set aside the Notice to Produce.
8. Furnish seeks that order on the basis that Cordony: did not initially comply with the Notice to Produce by the time directed; did not raise any issues as to the scope of the Notice to Produce at the 19 June 2020 hearing, where the solicitor for the defendants indicated that Cordony would be in a position to produce the documents listed in the Notice to Produce by close of business on 19 June 2020; and then failed to appear at hearings relating to the Notice to Produce on 23 and 29 June 2020.
9. Furnish otherwise accepts that the proceeding should be dismissed and that it should pay the defendants' costs, subject to the specific orders as to costs sought above.

Defendants' submissions as to costs

1. The defendants say that r 42.19(2) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) here applies, characterising the conduct of Furnish as a decision "out of the blue" not to press for final relief after having commenced this application on an ex parte basis. Rule 42.19(2) provides that: (2) Unless the court orders otherwise or the notice referred to in rule 12.1(2) otherwise provides, the plaintiff must pay such of the defendant's costs as, at the date on which the notice of discontinuance was filed, had been incurred by the defendant in relation to each claim in respect of which the proceedings have been discontinued.
2. The defendants say that Furnish should be granted leave to discontinue but that Furnish should be ordered to pay the defendants' costs. The defendants say that Furnish has not shown some positive ground or good reason for departing from the ordinary course, noting that there is no evidence deposing to the reason why Furnish seeks now to discontinue the proceeding.
3. Furnish did not exercise its liberty to file reply submissions.

Relevant Principles

1. The relevant principles applicable to the current application were not in dispute. The award of costs is a matter within the discretion of the Court, whether there is a discontinuance or dismissal of proceedings or, indeed, where there has been a hearing on the merits. That discretion is recognised as a broad one, but it must be exercised judicially and consistently with the overriding mandate provided for under the Civil Procedure Act 2005 (NSW) (Civil Procedure Act) in respect of the conduct of litigation in this Court (see ss 56-59 of the Civil Procedure Act).
2. On dismissal of the proceedings, the usual order is for the plaintiff to pay the defendant's costs of the proceedings, subject to other specific orders as to costs of particular steps in the proceedings (r 42.20 of the UCPR). Similarly, on discontinuance of the proceedings, again subject to an order otherwise, the plaintiff must pay the costs of the defendant up to the discontinuance (s 42.19 of the UCPR).
3. Both r 42.19 (which operates where there is a discontinuance) and r 42.20 (which operates where proceedings are dismissed) therefore expressly contemplate that the Court, in the exercise of its discretion, may make an order otherwise than as provided under those rules.
4. In Chen v Fang [2019] NSWSC 960, when considering r 42.19(2), Darke J said (at [53]-[54]): 53. The effect of this rule is to create a default position concerning costs for discontinued proceedings. However, the rule does not create a presumption; it remains for the discontinuing party to show "some positive ground or good reason for departing from the ordinary course" of awarding costs pursuant to that rule (see Ralph Lauren 57 Pty Limited v Byron Shire Council [2014] NSWCA 107; (2014) 199 LGERA 424 at [21]; Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 at [54]; Fordyce v Fordham (2006) 67 NSWLR 497; [2006] NSWCA 274 at [84]). 54. In some circumstances, a positive ground or good reason may include a supervening event that removes or modifies the subject matter of the dispute (Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302 at [5], citing One.Tel Ltd v Commissioner of Taxation (2000) 101 FCR 548 at 552-3; see also Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [50]-[51]). …
5. One matter for consideration in the exercise of the discretion is the reason the proceedings were discontinued (see Ritchie's Uniform Civil Procedure NSW at [42.19.5]).
6. Where there has been a hearing on the merits, the usual rule is that costs follow the event. What constitutes the "event" may vary from case to case but it is generally understood as referring to the practical result of a particular claim. Interlocutory costs may be dealt with similarly to general costs of the proceedings. Interlocutory costs may be ordered to be payable forthwith or before conclusion of the proceedings where: the costs order is relevant to a discrete, separately identifiable aspect of the proceedings; and where there is demonstrated some unreasonable conduct (see Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 60 NSWLR 425; [2004] NSWSC 381).
7. It is abundantly clear on the authorities that where there has been no hearing of the merits of the case (and that is here the case both at the interlocutory stage - where the Restraints were made by consent and without admissions - and ex hypothesis at the final stage which has not yet been, and will now not ever be, reached), it is not appropriate to embark on a hearing of the merits in order to determine the question of costs on the discontinuance or dismissal of the proceedings (see Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [4], per Bryson JA; Renton v Kelly [2018] NSWSC 1377 at [36]; Fordyce v Fordham (2006) 67 NSWLR 497; [2006] NSWCA 274 at [79], per McColl JA; and, more recently, Freelancer International Pty Ltd v Matthew O'Kane [2019] NSWSC 159 (Freelancer International v O'Kane) at [61]).
8. The difficulty in the present case is that there has been no hearing on the merits of any of the issues in the proceedings; and satellite litigation in relation to costs is clearly to be avoided. It is well recognised that, in those circumstances, ordinarily for there to be a costs order in favour of one party, it is necessary to show that the other party's conduct has been so unreasonable as to warrant such an order (applying the principles applicable in Lai Qin). As I indicated in Freelancer International v O'Kane, it is difficult to see why the same kind of considerations would not be relevant when deciding whether to depart from the "starting position" in rr 42.19 and 42.20 of the UCPR.
9. In Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84, Payne JA said (at [30]) that: 30. If both parties to a proceeding which has been settled without a hearing on the merits 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.
10. In the same case, Basten JA said (at [8]-[9]) that: 8. Secondly, although it is possible to make an order for costs against one party if it can be shown that it has invited the litigation by its unreasonable behaviour, or has unreasonably pursued the litigation, such an order should only be made where that judgment is manifest by reference to known circumstances, not in dispute between the parties. If the question cannot be answered without reviewing large swathes of evidence and resolving, on a tentative basis, disputed questions of fact, the task should not be embarked upon. 9. Thirdly, if contrary to the views set out above, it was appropriate to investigate whether the applicants or the respondent had been unreasonable, either in their conduct prior to the proceedings, or in their conduct of the proceedings, the approach adopted was untenable. Thus, regard was had to the motives of the respondent in commencing proceedings, but no account was taken of the motives of the applicants in capitulating. Further, once it is clear that there is a real dispute as to a significant fact in issue in the proceedings, it is inappropriate to determine that matter, other than in making an interlocutory ruling, by accepting one party's case without permitting the other party an opportunity to challenge the opposing party's witnesses.
11. In the present case, the competing positions as to whether the proceedings should be dismissed or discontinued appear to be of no particular moment. In either case, the real issue as between the parties is as to who should bear the costs of the proceedings either in whole (as the defendants contend) or in part (as Furnish contends).
12. In my opinion there should be no order as to costs, with the intent that each party should bear its own costs of the proceedings, including the motion to set aside the Notice to Produce. True it is that interlocutory orders were obtained on an ex parte basis on 17 June 2020 for short service and then an interlocutory restraint regime was put in place by consent and without admissions on 19 June 2020 (and it may not have been necessary for such an application to have been made had there been an earlier response to the initial correspondence from the defendants' solicitors). However, it is impossible (without engaging in satellite litigation of the kind that is to be discouraged) to ascertain where the underlying merits of the dispute as to the non-compete provisions might have been found to lie.
13. I am not persuaded that the defendants' conduct in what might be said to be a dilatory response to the initial demands was so unreasonable as to warrant the making of a costs order against them in relation to the 17 and 19 June 2020 hearings in accordance with the principles in Lai Qin. Nor, however, am I persuaded that Furnish should pay the costs of the proceedings as a whole, despite not having proffered a reason for not proceeding with the claim for final relief. There may have been any number of reasons for such a decision. The apparent expiry of the restraint period might be one of them. It is not worthwhile here to speculate thereon. The failure of the defendants to respond at an earlier stage to the defendants' concerns does seem to me a good reason for departing from the position that would otherwise have pertained on the discontinuance or dismissal of the proceedings; particularly since the intention to seek injunctive relief had been foreshadowed. There was little else the plaintiff could have done at that stage to protect its claimed rights.
14. In my opinion, the appropriate outcome on costs is for the costs to lie where they fall. I will so order.

Order

1. For the above reasons, I order as follows: 1. The proceedings be dismissed with no order as to costs.

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