On 7 May 2020, I gave judgment on the plaintiff's interlocutory application seeking to restrain the defendants from using the plaintiff's confidential information and to restrain the first defendant from soliciting and dealing with the plaintiff's clients, employees and sub-contractors: Hotwork Australia Pty Ltd v Tomkins [2020] NSWSC 494. These reasons deal with the costs of that application and assume familiarity with the judgment.
In the judgment, I indicated an initial view that the costs of the plaintiff's application should be costs in the cause, but deferred entry of that order pending hearing submissions from the parties as to any alternative costs order: Hotwork Australia Pty Ltd v Tomkins [2020] NSWSC 494 at [124].
The defendants seek an order that the plaintiff pays their costs of and incidental to the application. The parties are content for me to determine the issue of costs on the papers and have provided written submissions dated 15 May 2020. They do not rely on any additional evidence.
Before dealing with the submissions of the parties, it is appropriate to summarise the nature of the plaintiff's application and the outcome.
The plaintiff's claims for interlocutory relief and orders relating to the use of its confidential information were, in large part, resolved between the parties. Prior to the hearing, the defendants had proffered an undertaking to the Court not to use or disclose the plaintiff's confidential information, which dealt with two of the plaintiff's claims for the interlocutory relief.
In aid of its claims regarding the use of its confidential information, the plaintiff also sought delivery up and disclosure orders. Those orders were the subject of debate at the hearing. The defendants contended the orders were unnecessary in light of the first defendant's evidence identifying who had obtained access to allegedly confidential documents and the existence of additional information of the plaintiff on an old laptop which the first defendant undertook not to use and disclose pending the outcome of the proceedings.
While accepting that delivery up and disclosure orders nature may be appropriate based on the evidence in this case, the Court noted that the orders did not specify, with any precision, the information which was alleged to be confidential and to be subject to the regime provided for by the orders sought. Ultimately, the issue did not need to be finally determined as the parties reached agreement on the terms of delivery up and disclosure orders which were made by consent.
The other aspect of the application was the plaintiff's claim seeking to restrain the first defendant from soliciting and dealing with the plaintiff's clients, employees and sub-contractors. While finding that there was a serious question to be tried in respect of the claim, I declined to grant an injunction primarily for discretionary and balance of convenience reasons: Hotwork Australia Pty Ltd v Tomkins [2020] NSWSC 494 at [119]-[124].
The defendants submit that the plaintiff should pay its costs of the interlocutory application because, in essence, the plaintiff was entirely unsuccessful in obtaining interlocutory relief on what was the principle issue in dispute at the hearing, namely, the enforcement of the restraint of trade on an interim basis.
They also submit that the delay in agreement on the form of orders and undertakings relating to the confidentiality claims is attributable to the plaintiff as it failed to respond to a letter from the defendants' solicitor seeking the identification of what was requested or demanded prior to taking action and framed the delivery up and disclosure orders too broadly.
As an independent factor and, they submit, relevant to the Court's discretion on the question of costs, is the plaintiff's approach to the proceedings which, the defendants contend, was not consistent with the requirements of ss 56 to 59 of the Civil Procedure Act 2005 (NSW) and led to increased costs. They point to the lengthy and voluminous exhibit to one of the plaintiff's affidavits and assert that the plaintiff failed to particularise the information it alleged was confidential in support its application.
In response, the plaintiff submits that an order for costs to be in the cause represents an appropriate exercise of judicial discretion which preserves the position of all the parties, pending what is likely to be an expedited hearing. This is said to be because substantial restraints and obligations relating to the plaintiff's confidential information claims were agreed to by the defendants on the day of the hearing. The plaintiff also submits that it is appropriate in the context where the Court's refusal to grant relief restraining the first defendant from competing with the plaintiff's business was based on a determination that the balance of convenience was not served by making the order, despite being persuaded that there was a serious question to be tried.
Neither party referred the Court to any authorities in support of the position advanced.
Having considered the submissions made, I have come to the conclusion that the appropriate order to be made in this case is that the plaintiff should pay the defendants' costs of the interlocutory application.
The general rule is that costs follow the event, unless it appears to the Court that some other order ought to be made as to the whole or part of the costs: Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.1. The "default" position in respect of costs of interlocutory applications is that they are to be paid and otherwise dealt in the same way that general costs of the proceedings, unless the Court otherwise orders: UCPR, r 42.7.
The determination of the issue of costs involves the exercise of a discretionary power. While unfettered, that power must be exercised judicially having regard to established principle: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [134].
The guiding principles which are applicable to the determination of costs in respect of an interlocutory injunction application establish that ordinarily, where an interlocutory injunction has been granted and a defendant did not concede that relief, the costs of the application would be costs in the cause or the successful plaintiff's cause, rather than being paid by the defendant on an ordinary basis: His Eminence Metropolitan Petar, Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand v The Macedonian Orthodox Community Church St Petka Incorporated (No 2) [2007] NSWCA 142 at [23], [26]-[27]; Baller Industries Pty Ltd v Mero Mero Leasing Pty Ltd [2019] NSWSC 1067 at [18]; Devereaux Holdings Pty Ltd v Pelsart Resources NL (No 2) (Supreme Court (NSW), 24 July 1985, unrep).
Although costs are in the discretion of the Court, the usual approach on interlocutory applications for an injunction is that an unsuccessful plaintiff should pay costs. However, where a plaintiff has shown an arguable case and a serious question to be tried but an injunction is declined on the balance of convenience, it may be appropriate that costs be costs in the cause: Westpoint Finance Pty Limited v Chocolate Factory Apartments Limited [2002] NSWCA 287 at [66] and [68]; Ausino International Pty Limited v Apex Sports Pty Limited [2006] NSWSC 1119 at [56]; Singtel Optus Pty Ltd v Vodafone Pty Ltd (No 2) [2011] FCA 260.
As the plaintiff's submit, the primary reasons for declining interlocutory relief restraining the first defendant from soliciting and dealing with the plaintiff's clients and sub-contractors were for discretionary and balance of convenience reasons. However, one of those reasons was the plaintiff's delay in bringing its claim for interlocutory relief, a factor which was wholly within its control and something which it might have expected to be raised against it and found by the Court to be significant.
In concluding that there was a serious question to be tried, I also found that there were legitimate issues to be debated at the final hearing in relation to the employment status of the first defendant as it was not clear from the material before the Court whether he was an employee of the plaintiff or an employee of a related entity: Hotwork Australia Pty Ltd v Tomkins [2020] NSWSC 494 at [62] and [121]. Accordingly, I do not consider that it could be said that the plaintiff established a very strong prima facie case for interlocutory relief.
Also material to the Court's refusal to grant relief on discretionary grounds was an undertaking proffered by the defendants to keep separate account of any revenues and expenses relating to the plaintiff's clients and an agreement to proceed to an urgent final hearing. That undertaking was available to be accepted by the plaintiff, although I accept it was only made that morning.
It is also relevant that the first defendant had also indicated his willingness to proffer an undertaking in terms of the injunction sought in relation to the solicitation of employees prior to the hearing and identified certain matters regarding two sub-contractors which, he submitted and the plaintiff accepted at the hearing, meant that they were not covered by the injunctions sought.
As to the claims in respect of the use of confidential information, as noted above, they were, in effect, resolved in favour of the plaintiff. That said, they were resolved because of undertakings proffered by the defendants prior to the hearing and an agreement reached with the defendants after the Court had indicated an unwillingness to make orders in the terms sought by the plaintiff. There is, therefore, force to the defendants' submission that the confidential information issues could have been resolved prior to the hearing.
Overall, and having regard to the focus of debate at the hearing, it seems to me that the interlocutory hearing was one which could be considered to have been lost by the plaintiff. In those circumstances, I do not consider it fair or reflect the justice of the situation if the plaintiff was to recover its costs of that hearing if it succeeds at the final hearing. To my mind, the defendants should not be at risk and dependent on the final outcome of the proceedings in respect of their costs.
In light of all these matters, in my view, the appropriate order in this case is for the plaintiff to pay the defendants' costs of the interlocutory application, rather than the costs be regarded and determined as part of the substantive proceedings which are yet to be heard.
No application was made by the defendants for their costs to be paid forthwith. I note, however, that the terms of Practice Note SC 3 at [57] would, as usual for cases in this list, apply to this cost order.
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Decision last updated: 01 June 2020