HiTech Group Australia Ltd v Riachi

Mr Riachi's submissions as to costs

Mr Riachi points out that, by its summons filed on 2 September 2021, HiTech sought, inter alia, both: interlocutory relief (pursuant to prayer 5(a)), that until further order he be restrained from accepting any employment or working as an employee or contractor for Secure Agility or any of its related entities until 13 August 2022; and final relief (pursuant to prayer 9(a)), that he be restrained until 13 August 2022 (or such other date as the Court saw fit) from accepting any employment or working as an employee or contractor for Secure Agility or any of its related entities. It is noted that HiTech also sought an order for damages or equitable compensation. Mr Riachi says that in relation to each of those prayers for relief, HiTech has been unsuccessful. (Pausing here, only the claim for interlocutory relief has in fact been determined. The success or otherwise on the claims for final relief has not been tested. Therefore, I consider it more accurate to say that HiTech was unsuccessful on its interlocutory application and has now abandoned its claims for final relief.)
Mr Riachi says that, from the outset of the dispute, the primary claims that were made concerned whether HiTech was entitled to rely on cl 5.1(b) of the employment agreement to prevent Mr Riachi from taking up and then continuing employment with Secure Agility (and if so, if there was an entitlement to damages); and, he emphasises that, as already noted, HiTech was unsuccessful in obtaining the interlocutory relief sought pursuant to prayer 5(a) of the summons.
Mr Riachi contends that, in circumstances where HiTech no longer presses its claims for final relief, the appropriate outcome (consistent with the operation of r 42.19 of the UCPR) is that, upon the discontinuance of the proceedings, HiTech be ordered to pay his costs of the proceedings.
Mr Riachi submits that, in the determination of the issue of costs in circumstances where a plaintiff seeks to discontinue proceedings, one commences with a predisposition that the party seeking discontinuance ought to be characterised as an unsuccessful party, and that unless there is some sound positive ground or good reason for departing from the ordinary course, the discontinuing party should pay the costs of the proceedings (citing Timothy John Olsen and Louise Sarah Olsen (as executors of the Estate of the late Valerie Marshall Olsen) v Second East Auction Holdings Pty Ltd t/as Sotheby's Australia [2014] NSWSC 1840 at [16]). He notes (and this is not disputed by HiTech) that it is for HiTech to persuade the Court to depart from the consequences of it discontinuing the proceedings (referring to Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 at [54]) and says (which I accept) that, ordinarily, the Court is not to embark upon an exercise of trying an hypothetical action in order to determine the question of costs (citing Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 (Nichols v NFS Agribusiness)). Mr Riachi points out that these principles were applied in TOMRA Collection Pty Ltd v Minto [2021] NSWSC 1323 (TOMRA) and that the same result as there applied should occur in the present case.
In reply to the submissions by HiTech, Mr Riachi maintains that it is incorrect to assert (as HiTech has done) either that HiTech has achieved practical success in the proceedings or that Mr Riachi has acted unreasonably. In that regard, Mr Riachi makes the following submissions.
First, Mr Riachi says that the plaintiff's submissions mischaracterise a key matter in dispute, being the application of cl 5.1(b) of the employment agreement. Mr Riachi says that the undertakings he has given do not make any concession in respect of cl 5.1(b) of the employment agreement (which Mr Riachi maintains is an invalid restraint). (Pausing here, I accept that the undertakings were given on a without admission basis and do not make any concession as to the validity of the restraint clause as a whole or cl 5.1(b) in particular. Nevertheless, as a practical matter, the expanded undertakings did, to my mind, afford HiTech a protection not otherwise available to it up to that point and, as events transpired, effectively disposed of the need to determine the validity of the restraint clause.)
Second, Mr Riachi cavils with the proposition that HiTech has achieved any real measure of success in the proceedings. Mr Riachi emphasises that HiTech has not obtained the critical substantive relief it sought, in that he remains employed by Secure Agility and has been unimpeded, in this proceeding, from carrying out his day-to-day job for Secure Agility. (I accept that insofar as the complaint was as to Mr Riachi's employment with Secure Agility at all, HiTech did not obtain such comfort. However, as the process of negotiating the undertakings revealed, HiTech ultimately was prepared to accept a measure of restraint that did not preclude Mr Riachi's employment altogether by Secure Agility.)
Third, Mr Riachi points out (and I accept as self-evidently the case) that the validity of cl 5.1(b) has not been determined. It is said that, whether the plaintiff would have obtained a three-month injunction if not for the undertakings proffered is not determinative of the final relief sought; and that, to the extent that an interlocutory order would have been made, it was contingent on final determination of the matters in dispute. (I agree that the determination of the validity of cl 5.1(b) remains unresolved - but this simply reinforces the recognition by both parties, based on Re Minister for Immigration and Ethnic Affairs (Cth); Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 (Lai Qin), as to the undesirability of embarking on an hypothetical trial in the guise of a costs application.)
Fourth, Mr Riachi says that HiTech's conduct is inconsistent with the submission now advanced. It is noted that the undertakings proffered by Mr Riachi were accepted by the Court on 9 September 2021 and became effective as of that date (and Mr Riachi says that a similar undertaking of an interim nature was also proffered on 3 September 2021) but that at no stage between 9 September 2021 and 21 September 2021 did HiTech seek to discontinue its claim. Mr Riachi says that what occurred was that, on the morning of the interlocutory hearing, HiTech reformulated the interlocutory relief it sought. Further, it is said that, during the course of the interlocutory hearing, HiTech expressly maintained its position that it would pursue the relief set out in prayer 9(a) of the summons at final hearing. (While I accept that HiTech pursued its claim for interlocutory relief notwithstanding the 9 September 2021 undertakings, and did not abandon its claim for substantive relief at that stage, this does not seem to me to address the position before those expanded undertakings were proffered.)
Fifth, Mr Riachi complains that HiTech's submissions do not address the fact that it was communicated to HiTech that: Mr Riachi's role did not present any real risk of harm to HiTech's legitimate interests; Mr Riachi would abide by his confidentiality obligations to HiTech; and Mr Riachi was willing to provide reasonable undertakings to HiTech, so long as those undertakings did not impede his ability to carry out his role with Secure Agility. (As to this submission, I consider that there was scope for concern on HiTech's part as to the actual role that Mr Riachi would be called upon to perform at Secure Agility, there being inconsistent information as to that issue; and the stated willingness of Mr Riachi to provide "reasonable undertakings" must be placed in the context of the whole of the communications between the parties to that point.)
Sixth, it is said that HiTech's submissions recast the dealings and correspondence between the parties, both prior to the commencement and during the course of the proceedings. By way of example, Mr Riachi says that HiTech cannot rely on the correspondence of 16 August 2021 (annexed to Mr Shad's affidavit of 18 October 2021) requiring confirmation that Mr Riachi would abide by his confidentiality obligations and seeking, inter alia, an undertaking that he not commence employment with Secure Agility for 12 months, when the undertaking it sought would have prevented Mr Riachi from carrying on his employment with Secure Agility.
Further, it is said that HiTech cannot reasonably rely on the offer it advanced on 23 August 2021, in circumstances where: it was communicated that, to be binding, it needed to be accepted by both Secure Agility (not a party to the proceeding) and Mr Riachi (it being noted by Mr Riachi that Secure Agility expressly rejected the offer); the undertakings sought were vague (i.e., that Mr Riachi could not undertake any tasks that placed him in direct or indirect competition with HiTech); the undertakings (unduly it is said) sought to restrict the ability of Mr Riachi to work in his new role for Secure Agility (going beyond the scope of the undertakings that Mr Riachi was prepared to give); and where those components of the offer which Mr Riachi considered were not unduly restrictive were incorporated into the undertakings proffered both on 3 September 2021 and again on 9 September 2021. (In essence Mr Riachi's complaint as to how restrictive were the undertakings sought and proffered in the negotiations really turns on the perspective from which they are viewed and the legitimate commercial interests each side sought to protect. It is not appropriate here to delve into those issues.)
Mr Riachi says that the correspondence sent by HiTech on 3 September 2021 is also of limited assistance in circumstances where: the offer contained in that correspondence was only open for acceptance for approximately 2 hours (in circumstances where it is said that there was an urgent need first to agree interim orders as required by Kunc J and to prepare for an interlocutory hearing that was at risk of being heard in 2 business days); it is said that the undertakings sought would have had the effect of unduly restricting the ability of Mr Riachi to work in his new role for Secure Agility and went beyond the scope of the undertaking proffered by Mr Riachi; undertakings were subsequently advanced by Mr Riachi in close proximity to this offer, first on 3 September 2021 and then subsequently on 9 September 2021; and where the offer contained in that correspondence was contingent on Mr Riachi paying HiTech's costs. (As I understand it, no reliance is directly placed on the non-acceptance of this offer in the present costs application; but if it were I would have placed little weight on it for the reasons put forward by Mr Riachi.)
Mr Riachi says that the request for a settlement conference prior to the commencement of the proceeding needs to be considered in the context that the legal representatives for the parties had already been in correspondence and that an impasse had been reached (which Mr Riachi ascribes to the circumstance that HiTech was insisting on undertakings that unduly restricted the manner in which he could carry out his employment for Secure Agility). It is submitted that, having regard to the relief sought in the summons, it is highly unlikely that this impasse would have been resolved by the parties in any event (as is said to be self-evident from the interlocutory hearing). (I do not accept that it should be assumed that a settlement conference at an early stage - and indeed before the commencement of proceedings - would have been unsuccessful. Indeed, it might well be that some of the suspicion on both sides toward the other's position might have been allayed had the suggestion of a settlement conference been adopted.)
Further, it is said that HiTech had already been put on notice of the matters identified by Mr Riachi in relation to the matters referred to at [15] of Mr Riachi's costs submissions; and Mr Riachi says that he did not want to participate in a meeting with the director of the plaintiff, Mr Hazouri, having regard to the tone of the communication he had received previously. (I revert to this submission in due course.)
Mr Riachi contends that where HiTech commenced proceedings seeking particular relief on a final and interim basis, HiTech has not obtained the critical relief sought, and HiTech now seeks to abandon its claim, the usual order as to costs should follow.

Determination

It is well recognised that the Court has a broad discretion as to costs (s 98 of the Civil Procedure Act 2005 (NSW) (Civil Procedure Act); see Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 (Oshlack)), but that the discretion must be exercised judicially (see Oshlack at [22] per Gaudron and Gummow JJ). In exercising the discretion, regard should also be had to the requirement imposed by s 56 of the Civil Procedure Act 2005 (NSW) to give effect to the overriding purpose of the facilitation of the just, quick and cheap resolution of the real issues in dispute in the proceedings.
The general rule is that costs follow the event (see r 42.1 of the UCPR). However, where there has been no hearing on the merits, ordinarily in the proper exercise of the Court's discretion there will be no order as to costs (see Lai Qin at 624-625 per McHugh J).
Relevantly, r 42.19(2) of the UCPR provides that where proceedings are discontinued, the party discontinuing the proceedings pays the costs of the other party in the absence of that party's consent to the discontinuance, unless the Court otherwise orders. As is here accepted by both parties, the onus lies on the party seeking an order otherwise than as provided (HiTech) to persuade the Court that some other order as to costs should be made.
In the present case it is acknowledged that there has been no hearing on the merits of the substantive dispute. There was, however, a hearing as to the application for interlocutory relief, which was approached on the basis set out by McLelland J, as his Honour then was, in Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 (Kolback) (at 535-536) (namely that, where the determination of the interlocutory application will in a practical sense irrevocably or finally determine the matter in issue one must evaluate the strength of the plaintiff's case for final relief in the context of the interlocutory application; see also Romeg Holdings Pty Ltd v Kelly [2010] WASC 404).
Moreover, in Lai Qin, McHugh J stated that, although the court cannot try a hypothetical action, there may be some cases in which the court is able to conclude that one of the parties has acted "so unreasonably" that the other party should obtain a costs order; or where the court feels confident that, although both parties have acted reasonably, one party was almost certain to have succeeded had the matter been fully tried (at 624-625). Further, there are cases where one party has effectively capitulated to the successful party (cf the position where there has been "some supervening event" - see the distinction drawn in One.Tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548; [2000] FCA 270 at [6] per Burchett J), such that an order for costs even though there has not been a hearing on the merits may be appropriate.
As noted above, Mr Riachi here points to the decision in TOMRA as an analogous situation in which there was found to be no good reason to depart from the provision as to costs under r 42.19. All cases, of course, turn on their particular facts (see, for example, the differing results in Freelancer International Pty Ltd v Matthew O'Kane [2019] NSWSC 159 and Murrumbidgee Irrigation Ltd v M & H Acar Pty Ltd [2019] NSWSC 807.
In TOMRA, the defendant had submitted that it was not a case where he had effectively forced the plaintiff to resort to the Court to resolve the dispute; rather the defendant said that it was a case where he, through his solicitors, had proactively engaged with the plaintiff (through its solicitors) to try and reach a resolution of the dispute, whilst acknowledging and seeking to balance each parties' rights and obligations. It was submitted that the plaintiff did not achieve anything of substance (in addition to what it had already achieved by the undertakings provided prior to the interlocutory hearing) by commencing the proceedings. Here, it is difficult to argue that HiTech was not in a practical sense forced at least to commence the proceedings if it wished to obtain the relief it ultimately did by way of the undertakings.
Matters to be taken into account when exercising the costs discretion in the context of a discontinuance of proceedings can include whether the plaintiff has in any sense abandoned its claims (see Bitannia at [71]); or whether supervening events have overtaken the position at the commencement of the proceedings rendering further prosecution of them otiose (see In the matter of HCafe Chatswood Pty Ltd [2018] NSWSC 362 at [8]). Also relevant is the conduct of the parties in relation to the conduct of the litigation (whether the plaintiff acted reasonably in commencing them and the defendant acted reasonably in defending them, for example), as well as the question whether the result achieved (albeit by consent) is one that would not have been able to be achieved without the commencement of the litigation (issues of the kind that I considered in Acar). Those are the kinds of factors that both parties have here addressed in their competing submissions.
As noted above, I accept that it is inappropriate to embark upon an exercise of trying an hypothetical action in order to determine the question of costs (see Lai Qin; and Nichols v NFS Agribusiness). Relevantly, in Nichols v NFS Agribusiness, Payne JA confirmed (at [30]) that: 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.
In TOMRA, I accepted that it was not unreasonable for the plaintiff to harbour the concerns that led it to the commencement of the proceedings in the first place but noted that at least some of the complaint made as to the terms of the initial undertakings that the defendant had proffered seemed not to have been raised in correspondence at the time; and hence that the defendant did not have the opportunity of addressing such a complaint before the commencement of proceedings. Here, I similarly consider that it was not unreasonable for HiTech to have concerns as to breach of the restraint clause but it cannot be said that Mr Riachi did not have the opportunity of addressing those concerns before the commencement of proceedings.
Also, in TOMRA, although I did not suggest that it was unreasonable to pursue the application for interlocutory relief beyond the point at which undertakings were proffered, I considered that the fact that the undertakings were not accepted but were ultimately found to have adequately protected the position of the plaintiff on an interlocutory basis lent support to the conclusion that the plaintiff was unlikely to be satisfied with something much less than holding the defendant out of employment with the alleged competitor until the restraint period ended. Here, similarly, there is force to the submission that HiTech at an early stage might not have been satisfied with anything less than Mr Riachi not continuing in employment with Secure Agility; however, the amendment to the interlocutory relief sought at the hearing of the interlocutory injunction application indicates that HiTech was not immoveable on that aspect of the matter. As noted, by the time of the interlocutory hearing HiTech was seeking a substantially narrowed injunction. There is no reason to think that this might not have been able to be explored in settlement discussions at an earlier stage.
In TOMRA, I considered that the fact that the defendant was willing to proffer undertakings in the first place (and to modify those undertakings in order to address the plaintiff's concerns) meant that it could not be said that the litigation was necessary in order to obtain something that could not otherwise have been obtained without the commencement of proceedings. I concluded that there was no good reason to depart from the default position as to costs on a discontinuance of proceedings in TOMRA.
In the present case, I consider that it cannot be said that it was unreasonable for HiTech to commence the proceedings attempting to protect its legitimate commercial interests by seeking to restrain a perceived breach of Mr Riachi's employment agreement. To my mind, the finding that there was a serious question to be tried disposes of any such suggestion.
Up until 9 September 2021, when the more extensive undertakings were provided, I consider that that remained the case. There was a reasonable basis for the concern by HiTech that its position was not adequately protected by the more limited undertakings that had been proffered to that date and as to the inadequacy of a remedy of damages at some later point. Further, I consider that, up to that time, it is reasonable to conclude that, without the commencement and continuation of the proceedings, HiTech would not have obtained the practical relief that it ultimately obtained by the provision of the expanded 9 September 2021 undertakings.
After that time, however, HiTech continued to press for interlocutory relief and it was unsuccessful in that regard. I concluded that the undertakings that had then been provided were adequate to protect its interests. In those circumstances, having chosen to press for the relief it did (and which I determined on 21 September 2021) it did so at the risk of costs.
Therefore, from 9 September 2021, I see no reason to depart from the usual order that the plaintiff bear the defendant's costs of the discontinuance. However, on the basis that commencement of the proceedings and the obtaining of undertakings pending the hearing of the interlocutory application afforded the plaintiff relief that it is reasonable to conclude would otherwise not have been available to it; and on the basis that the 9 September 2021 undertakings were in effect a capitulation (without any concession as to validity of the restraint clause) to the plaintiff's complaint as to the perceived breach of the restraint clause, I consider that there is an appropriate reason to make an order (other than the usual order following discontinuance) for the period up to 9 September 2021. I consider the facts to be distinguishable in this regard from the (admittedly not dissimilar) position in TOMRA.
In that regard, I do not place weight on the fact that Mr Riachi did not accede to the request for alternative dispute resolution (although I would point out that the fact that he might not have wished to engage with HiTech's director having regard to the tenor of earlier communications is not to the point in circumstances where there was a contractual provision for alternative dispute resolution). However, I do note that there was effectively an impasse which might reasonably have been overcome at an earlier stage without the need for proceedings had there been more accommodation of HiTech's concerns. Moreover, the position here is that HiTech was prepared from at least 28 September 2021 to have the proceedings dismissed on the basis of no order as to costs. Effectively, the costs incurred since then have been an insistence by Mr Riachi to have his costs, in circumstances where there was a serious question to be tried as to breach by him of a restraint clause he entered into when he signed his employment agreement with HiTech and when it might be said that he went into this new employment with his eyes "wide open" as to the risk that he was in breach of his employment agreement with HiTech.
On the assumption that costs of commencement of the proceedings and up to 9 September 2021 are likely to be in similar compass to the costs of the (short) hearing of the interlocutory injunction application itself, and with a view to the just, quick and cheap resolution of the real issues in dispute, I consider that the most appropriate order is that each party bear its or his own costs of the proceedings.

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