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Indemnity Costs - No Prospects of Success

1. The O'Connor parties submit that Mr Groves should have known, even before these proceedings were commenced, that they had no chance of success. The O'Connor parties contend that this must have been known to Mr Groves at an early stage and that the position did not change, so this is an appropriate case for Mr Groves to pay the O'Connor parties' costs on the indemnity basis.
2. The applicable legal principles are clear. Where an action has been commenced or continued in circumstances where the moving party, properly advised, should have known that it had no chance of success, indemnity costs may be awarded: Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Limited (No.2) [2009] NSWCA 12 ("Gordian") at [4] and Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchant Pty Ltd (1988) 81 ALR 397 ("Fountain") at 401. Where an action has been commenced or continued in those circumstances the action is presumed to have been commenced or continued for some ulterior motive or because of some wilful disregard of the known facts or the clearly established law: Fountain at 401.
3. The O'Connor parties contend that Mr Groves' factual case at trial came down to the alleged failure to supply "Records" in accordance with the March 2013 Deed. The O'Connor parties say this was a factual issue that Mr Groves should have thoroughly checked before bringing the motion. And they submit that if he had made a thorough check before bringing the motion then, properly advised, he would have known he had no prospects of success. The O'Connor parties further submit that it was not until the third day of the trial, on 6 August 2014, that Mr Groves or his advisers turned their mind to the contents of the records and databases that had been supplied under the Deed to have their contents verified, even though these were essential to Mr Groves proving his case.
4. But it was not until the Exchange Directions were made during the course of the trial, providing for the exchange of further information between the parties (see the principal judgment at [9], [10] and [11]) that Mr Groves focused on the actual contents of the records supplied 1 May 2013 pursuant to the Deed, even though strict proof of these records was essential to Mr Groves' success in the proceedings.
5. The inspections that took place following the Court's Exchange Directions resulted in Mr Groves accepting that many of the documents that his motion initially alleged had not been given to him by the O'Connor parties, had actually been provided: principal judgment at [11]. The O'Connor parties say that if Mr Groves had properly attended to the preparation of his case he would have appreciated, well before the motion was filed, that he did not know whether he had received the records or not and that there was therefore a real likelihood that the proceedings would fail. The O'Connor parties say this is evident from the number of pleaded issues that the plaintiff abandoned after the Exchange Directions. The Court remarked in the principal judgment on the possibility that costs issues in relation to the abandoned claims may have to be separately assessed: principal judgment at [11].
6. The O'Connor parties point to matters they say show that Mr Groves did not properly investigate the facts underlying his own case. They say that, if properly investigated, it would have been obvious to Mr Groves there was no failure by the O'Connor parties to supply records in accordance with their obligations under the Deed. In support of this contention the O'Connor parties point to the following, mainly affidavit, evidence of Mr Groves, which showed: (1) that Mr O'Connor had stated in emails as early as 6 May that the relevant records and information had been supplied to him on the hard drive; (2) that Mr Groves had himself deposed that Mr O'Connor had assisted him by attending at Mr Groves' office and accessing the data on the portable hard drive through the "SoftAssist" software; (3) that Mr Groves had engaged his own IT specialist by the end of May 2013; (4) that Mr Groves had obtained through his wife, Mrs Sonia Groves, a licence for the SoftAssist program that allowed read only access to certain files on the hard drive; (5) that Mr O'Connor had said to Mrs Sonia Groves by email on 4 June 2013 that a "read only licence may be available for SoftAssist" and had asked her "did anyone make contact regarding that?"; (6) that counsel for Mr Groves had conceded at the beginning of the hearing that the plaintiff did have access to the hard drive; (7) that Mr O'Connor had only become aware of Mr Groves' database accessibility problems after Mr Groves served an affidavit in November 2013; (8) that the evidence of IT specialist Mr Kris Cranfield showed how inexpensively the Access 2010 and 2013 programs could have been purchased and used; and (9) that, as the Court found in the principal judgment (at [154]), responsibility fell to Mr Groves to solve these issues as the O'Connor parties had complied with the Deed's definition of supplying "machine readable" records.
7. Mr D'Arville's argument for Mr Groves against an award of indemnity costs on the first basis is persuasive. He submits that the proceedings first involved an overarching question of contractual interpretation about whether Mr Groves could not only accept some of the Select Clients and use their information and goodwill but at the same time also claim that other records and information had not been provided and take advantage of the summary judgment provisions of the Deed. The second issue in the case was that, even if Mr Groves was successful on his contractual interpretation argument, whether or not certain records had been delivered to Mr Groves in machine readable form still had to be made out. On each of these points Mr D'Arville submits that Mr Groves' case was either arguable or was properly maintainable on the evidence in the form that it was presented to the Court.
8. The Court needs no persuasion that Mr Groves' position on the contractual interpretation issue was arguable. Although Mr D'Arville's submissions on behalf of Mr Groves were unsuccessful, they were both reasonable and maintainable from the complex provisions of the Deed. There is no basis in my view to order indemnity costs on the interpretation issue. But the interpretation issue suffused much of the argument on the other issues and became a recurring theme in submissions during the hearing.
9. I also accept Mr D'Arville's submission that important parts of Mr Groves' case about missing records depended upon issues of credit and other issues that developed in the course of the hearing. The high value claims related to the Workflow Files and the emails and will be dealt with first.
10. One of the factual issues was whether the O'Connor parties had provided certain emails that had passed through Mr and Mrs O'Connor's email inboxes to Mr Groves: principal judgment at [68]. There was a contest in oral evidence about whether Mr Groves had agreed with Mr O'Connor that he (Mr Groves) was not expecting to receive every email that had gone through Mr or Mrs O'Connor's inboxes with respect to Selected Clients. The Court accepted Mr O'Connor's version of these conversations, in what was one of the central factual contests in the proceedings. In my view, it could not be predicted which way that contest would go before both parties were heard in the witness box during the proceedings. The Court has not found that this claim for non-delivered emails was otherwise not maintainable.
11. The Workflow files, was another of the substantial issues in the proceedings. The Court was required to assess the expert evidence of Mr Kris Cranfield as to the market availability of Microsoft 2010 and 2013, the detail of which only emerged under questioning during the hearing. Whilst it is theoretically possible to argue that this material was discoverable by Mr Groves before he commenced the proceedings, this evidence was not laid out in detail by any party before the hearing commenced. It was only as a result of the Exchange Directions that the issues narrowed and crystalised and the real differences between the parties, such as this one, became far more obvious.
12. Moving to the lower value claims, similar problems for the O'Connor parties' contentions arise with respect to the statutory records and financial statements. It is true that after the Exchange Directions Mr Groves' claim for missing statutory records was abandoned and the issues were only maintained with respect to some missing financial statements. But Mr D'Arville sufficiently demonstrated in the course of submissions, without the Court having to detail it further in these reasons, that Mr Groves was not unreasonable in bringing a case in which he gave a list of records he expected to receive and said upon review of those records he believed he had not received them, and indicated what he thought was missing. Mr D'Arville submits with some force that Mr O'Connor did not clearly explain before hearing that the reason some of the tax returns were missing was that the O'Connor parties had never produced them in the first place. The O'Connor parties may have had a much stronger case for indemnity costs, if they had initiated well before the hearing by a motion a crystalisation of the issues such as occurred during the Exchange Directions. If in those circumstances Mr Groves had still refused to abandon his claim, then an indemnity costs order may have been appropriate.
13. There is a tendency in the O'Connor parties' submissions to look at their case on indemnity costs as though the result of the Exchange Directions and the consequent abandonment of claims should have been obvious to everyone before the hearing started. In my view the O'Connor parties bear some responsibility for not promoting something like the Exchange Directions earlier than three days into the hearing. The O'Connor parties cannot blame Mr Groves for not pursuing the objective verification of data records, which the O'Connor parties themselves did not require, even though the onus was not theirs. What the Exchange Directions did was to deny Mr Groves the opportunity of pursuing the case based upon his oral testimony: those directions eliminated a trial of oaths on competing versions and required the parties to look at the underlying materials. That then led to the abandonment of some of Mr Groves' claims.
14. The principles of Fountain and Gordian are not engaged here. The O'Connor parties have not made out their contention that Mr Groves should have known that these proceedings had no chance of success.