Gorman & Kelly Commercial Real Estate v Peluso

2 The respondents to the appeal, Mr Peluso and Mr Brjozovsky, are former employees of the appellant, Gorman & Kelly ('G&K'). Both the respondents are currently employed by CBRE, a competitor of G&K. CBRE is not a party to these proceedings. However, at the hearing of the appeal on 19 June 2017, CBRE sought leave to appear on the basis that it had an interest in the matter.[2] Mr Duggal, a solicitor who appeared on behalf of CBRE, submitted that the provision for a further expert report would require access to a CBRE laptop and the potential exposure of CBRE's commercially sensitive information to a competitor.[3]

3 Following the dismissal of the appeal, Mr Duggal confirmed with the Court via email on 24 July 2017 that CBRE seeks an order that the appellants pay its costs of the appeal on a standard basis. It should be noted that CBRE did not seek its costs of the hearing before Ierodiaconou AsJ.[4] The appellants informed the Court via email on 26 July 2017 that whilst they do not resist a costs order in favour of the respondents, they do oppose an order requiring the appellants to pay the costs of CBRE given that it is not a party to these proceedings. Both G&K and CBRE subsequently filed written submissions outlining their respective positions.

4 CBRE correctly submits that the Court has a broad discretion under s 24 of the Supreme Court Act 1986 ('the Act') to make a costs order, including a costs order in favour of a non-party.[5] CBRE's written submissions referred the Court to Knight v FP Special Assets Ltd,[6] where the High Court confirmed that the Queensland equivalent of s 24 of the Act is sufficiently broad to permit a costs order being made against a non-party.[7] CBRE's written submissions outline the following factors that weigh in favour of the Court exercising this discretion:

(a) CBRE had a significant interest in the appeal, as the expert report required an examination of its property and would result in the production of a report in relation to CBRE's commercially sensitive information, in circumstances where G&K is a direct competitor of CBRE;

(b) CBRE had a sufficient basis to object to the orders being sought by G&K;

(c) G&K was wholly unsuccessful in the appeal and therefore costs should follow the event;

(d) CBRE was drawn into the proceeding and the subsequent appeal in circumstances where the outcome of the appeal was of critical importance to the running of the proceeding;

(e) CBRE had to prepare for and appear at the hearing. Although it was not required to make any substantive submissions, CBRE was not excused from the hearing and made submissions to the Court;

(f) It is just and reasonable that G&K be required to reimburse CBRE, given that it caused CBRE to incur costs in protecting its interests;

(g) It is otherwise in the interests of justice that CBRE get its costs.[8]

5 G&K opposes a costs order in favour of CBRE on the basis that it is a non-party to the proceedings that voluntarily appeared at the hearing of the appeal.[9] G&K's submissions highlight that CBRE did not point to any case in its submissions where a non-party was awarded its costs.[10] G&K submits that, even if the Court were to treat CBRE as an intervener to the proceedings, this would not necessarily justify a costs order being made in favour of CBRE.[11] G&K refers to Liverpool City Council v Weir,[12] where the High Court held:

... an intervener ... cannot expect as of course that the unsuccessful party to the litigation in which he has intruded should bear the extra burden of his costs, even if his intervention was well intentioned and proved to be of assistance to the court.[13]

Principles - availability of costs for non-parties

6 Whilst the Court has a broad discretion in relation to costs under s 24 of the Act, there are a number of authorities that guide the exercise of this discretion when considering the award of a costs order in favour of a non-party. In Knight, the High Court held that the broad discretion to award costs conferred upon the Supreme Court of Queensland by the Queensland equivalent of s 24 of the Act included the jurisdiction to order costs against a non-party. Knight has been cited with approval by the Victorian Court of Appeal in a number of cases, albeit in the context of a party seeking a costs order against a non-party.[14] In Re Pan Pharmaceuticals Ltd; Selim v McGrath,[15] Barrett J considered a submission that the court has jurisdiction to award costs in favour of a non-party. His Honour held:

These considerations, coupled with the emphasis by members of the High Court in Knight's case on the extraordinary nature of the aspect of the general costs power that involves orders against non-parties, lead me to think that some very special factor outside the ordinary and expected course of events and engendering a justifiable expectation of compensation in the mind of the non-party would have to be found before any relevant aspect of the comprehensive jurisdiction with respect to costs might be regarded as properly and regularly invoked in favour of a non-party as against a party. In other words, such an award, if ever appropriate, will be extraordinary and exceptional.[16]

7 Barrett J refused to grant costs orders in favour of three non-parties. His Honour noted that one reason for refusal was that the non-parties' interests were not distinct from those of the defendant, and did not add any value to the submissions put by the defendant. Of particular relevance to the present case were his Honour's remarks relating to the 'PwC Clients' non-party, who justified their presence in court on the basis that the plaintiffs were seeking the production of confidential documents that had the capacity to prejudice the non-party's interests. His Honour refused to grant the non-party its costs on this basis that the solicitor for the non-party had not actively sought to ensure that the confidential documents were produced, but rather had merely supported the defendant's application in this regard. His Honour noted:

The position of the PwC clients is really no different from that of anyone else who fears that some interest of theirs may be prejudiced by something that a party to legal proceedings seeks to introduce into evidence. Someone in that position may, if they wish, sit through the proceedings to monitor events in the hope (it can be no more) that, if the introduction of some document into evidence by a party will, in the person's estimation, cause some prejudice the person, the court might consent hear to them. An alternative and less speculative course would be for the person to institute, separately and in advance, proceedings seeking some appropriate relief calculated to establish the quality of the relevant document and to vindicate such legal or equitable right as the person might have to prevent or limit its use in the way apprehended.

I must say that, even allowing for the comprehensive nature of the jurisdiction created by s 76 of the Supreme Court Act, I do not regard that section as concerned with a person who has a lawyer attend court in proceedings to which the person is not a party merely for the purpose of being on hand to seek to do whatever it may prove possible to do should the proceedings take a turn the person thinks may be prejudicial to them. The position of such a person is different from that of someone who, although not a party, has been granted leave to be heard or is compelled by subpoena to play a part in relation to the proceedings.[17]

8 In O'Keefe v Hayes Knight GTO Pty Ltd,[18] Nicholson J reviewed the authorities regarding the exercise of the court's discretion to award costs in favour of a non-party and held:

From this examination of authorities I draw the following principles:

1. Section 43 of the Federal Court of Australia Act is cast in sufficiently wide terms to enable the Court to make an order for costs in a proceeding for the benefit of a non-party.
2. For such an order to be made there must be 'costs' and they must be incurred in 'proceedings before the Court'.
3. Even if those requirements are met, the section requires an exercise of discretion in the particular circumstances in which the issue arises and the requirements of reason and justice.
4. The making of an order for payment of costs in favour of a non-party will be exceptional and therefore must be treated 'with considerable caution'.
5. The nature of the relationship between the non-party and the litigation will be relevant.[19]

9 O'Keefe concerned an application to terminate the respondent's appointment as a trustee, and to appoint a new trustee (the non-party) in its place. This order was granted, and the court made an order requiring the former trustee to deliver all trust property to the new trustee ('order 5'). The new trustee incurred costs in seeking the enforcement of this order and sought to recover these costs from the respondent. Nicholson J held, granting the non-party costs:

On the exercise of the discretion it is relevant that the New Trustee was the subject of Order 5. Obligations were created by Order 5 for delivery of property and documents to the New Trustee. The New Trustee's role was recognised by Order 7 including it among the parties given liberty to apply in relation to Order 5 and generally. Consequently, the respondent was on notice that the New Trustee was an entity affected by Order 5 with the liberty referred to.

Additionally, the obligation for delivery was one in which the New Trustee had an interest. Failing delivery, the New Trustee would be unable to execute its duties in its new office. It would be affected by non-performance of the terms of Order 5. It was therefore reasonable and just that it take steps to endeavour to ensure compliance with Order 5.

In these circumstances and in the circumstances of the respondent's non-compliance with Order 5, I consider that it is reasonable and just, and that the weight of the circumstances supports the exercise of the discretion in favour of the New Trustee in respect of its costs.[20]

10 Both Re Pan Pharmaceuticals and O'Keefe were cited with approval by the Western Australian Court of Appeal in Naidoo v Williamson.[21] Steytler P (with whom Pullin JA and Murray AJA agreed) held:

These cases, and others (see, for example, New Cap Reinsurance Corp Ltd v General Cologne Re Australia Ltd (No 2) [2005] NSWSC 276 [20] (Young CJ in eq); Re HIH Casualty & General Insurance Ltd [2006] NSWSC 6; and Van Hemmen on behalf of The Kabi Kabi People No 3 v State of Queensland [2007] FCA 1185 [39]-[42] (Collier J)), seem to me to establish that, in the context of a wide conferral of jurisdiction such as that given by s 37 of the Supreme Court Act, a judge of the Supreme Court has jurisdiction to award costs against a party in favour of a non-party, although that jurisdiction will be exercised only in exceptional cases and with considerable caution.[22]

11 In Naidoo, Williamson had been a non-party until 5 years into the proceeding. However, the Court made a costs order in his favour on the basis that during the time he had been a non-party he had a close personal involvement in the case, including paying the original plaintiff's solicitor's fees personally.

12 Whilst the Court has jurisdiction to award costs in favour of a non-party under s 24 of the Act, the authorities referred to above support the conclusion that the discretion to do so should be exercised with considerable caution and only in exceptional circumstances. I do not accept CBRE's submission that CBRE should get its costs on the basis that costs should follow the event. In a case concerning a non-party, this is not a sufficient basis upon which to make a costs order in the non-party's favour. It is necessary that the non-party point to some exceptional circumstance justifying such an order.

13 I have concluded that there are no exceptional circumstances in the present case that would justify awarding CBRE its costs. If the onus on a non-party seeking a costs order is less stringent than establishing exceptional circumstances and requires the non-party to establish that it is reasonable and just to do so, I would have come to the same conclusion.

14 I accept CBRE's submission that it had an interest in the appeal in protecting its commercially sensitive information. However, I do not accept that this interest constitutes an exceptional circumstance that would warrant a costs order in its favour, or alternatively, that it is reasonable and just to do so. As outlined by Barrett J in Re Pan Pharmaceuticals, the attendance at a hearing to monitor what is being said in case of prejudice to a non-party is not a circumstance that would justify that non-party seeking its costs.

15 CBRE attended the initial hearing before Ierodiaconou AsJ and put submissions to her Honour regarding the potential prejudice to CBRE should a further expert report be authorised. A record of those submissions and the material filed by CBRE was before the Court during the appeal and was sufficient to establish that CBRE had concerns about its confidential and commercially sensitive information being released to a competitor. In the Court's judgment dismissing the appeal, the affidavit of Mr Duggal sworn in preparation for the proceedings before Ierodiaconou AsJ was relied upon in establishing that CBRE held this concern.[23] At the hearing of the appeal Mr Duggal made further brief submissions regarding CBRE's confidentiality concerns. However, I do not consider that these submissions established these concerns in any greater detail than the material already before the Court. I do not consider that CBRE's interest in the matter constitutes a sufficiently 'exceptional' circumstance to justify the award of costs in its favour. Alternatively, I do not consider that an award of costs in favour of CBRE is reasonable and just.

16 I do not accept CBRE's submission that it had to prepare for, and was not excused from, the hearing. As outlined above, I consider that CBRE had already sufficiently established its confidentiality concerns before the hearing of the appeal. Furthermore, at the beginning of the appeal hearing, Mr Bick, who appeared for G&K, objected to Mr Duggal's presence at the hearing on the basis that, in the event G&K was unsuccessful, it did not wish to bear the costs of a non-party that appeared only to rely on the affidavit before Ierodiaconou AsJ and adopt the submissions of the respondent.[24] I then raised with Mr Duggal that if CBRE did not add anything to the mix this would be a matter that would bear on the question of costs.[25] CBRE was therefore on notice that it may not be able to recover its costs of attending the proceeding. It was not required to attend the full hearing but chose to do so. Whilst it clearly did have an interest in the proceedings, I do not consider that this is sufficient to justify the making of a costs order in its favour.

(b) The appellants pay the respondents' costs on a standard basis, to be taxed in default of agreement.

[1] Gorman & Kelly Commercial Real Estate v Peluso [2017] VSC 387.

[2] Transcript of Proceedings, Gorman and Kelly Commercial Real Estate Pty Ltd v Peluso (Supreme Court of Victoria, S CI 2016 00912, McDonald J, 19 June 2017) T2 LL2-10.

[4] Reasons for Decision, annexure to Order of the Honourable Associate Justice Ierodiaconou dated 21 April 2017, [24].

[5] Outline of Submissions of the Non Party on Costs dated 2 August 2017, [15]-[16].

[6] (1992) 174 CLR 178 ('Knight').

[7] Outline of Submissions of the Non Party on Costs dated 2 August 2017, [18].

[9] Plaintiffs' Submissions dated 7 August 2017, [1].

[12] (1984) 53 ALR 77 ('Weir').

[14] See, eg, Wieland v Texxcon Pty Ltd [2017] VSCA 73, [17]; Carter v Caason Investments Pty Ltd (2016) 341 ALR 154, [12], [37].

[15] [2004] NSWSC 129; (2004) 48 ACSR 681 ('Re Pan Pharmaceuticals').

[18] [2005] FCA 1559 ('O'Keefe').

[21] [2008] WASCA 179; (2008) 37 WAR 516 ('Naidoo').

[23] Gorman & Kelly Commercial Real Estate v Peluso [2017] VSC 387, [17].

[24] Transcript of Proceedings, Gorman and Kelly Commercial Real Estate Pty Ltd v Peluso (Supreme Court of Victoria, S CI 2016 00912, McDonald J, 19 June 2017) T2 LL15-26.