consideration
37 In my view, the respondents should have their costs of the proceedings up to 17 September 2004. I think that is the latest date by which their explanation for the coincidence in the 32 fragrance recipes discussed in the Perrin reports should reasonably have been given, either by correspondence or by discovery. Up to that time, the preliminary discovery process was ongoing. Ultimately, as I have concluded and as the applicant through Mr Lever acknowledged, the proffering of the explanation ultimately given and the discovery of the documents revealing matching of 27 fragrance recipes and sourcing five fragrance recipes from interstate led to the applicant deciding not to pursue the proceedings. That process of disclosure and discovery in the particular circumstances of this matter could reasonably have extended to about 17 September 2004. Had that disclosure and discovery been then given, and the applicant then decided not to proceed (as I have found would have been the case), I see no reason why the respondents should not to that point have had their costs of the preliminary discovery proceedings. The understandable initial suspicions of the applicant, fortified by the terms of the Perrin reports, would have been allayed or at least would not have been strong enough to take the matter further. I have allowed in that period time for the applicant to have considered such material from the respondents and to have made its decision covering the future conduct of the proceedings.
38 However, thereafter, the position in my view is quite different. In White v Overland [2001] FCA 1333, Allsop J said:
'However, by way of general principle I would simply like to make perfectly plain my view that in the efficient and proper conduct of civil litigation, even civil litigation hard fought between parties, it should always be recognised that in the propounding of issues for trial the parties should take steps to ensure that all relevant parties to the dispute are cognisant of what the issues are. Any practice of quietly leaving footprints in correspondence or directions hearings to be uncovered some time later in an attempt to reveal that a matter was always in issue should be discouraged firmly. Even if something has been said, where it is evident, or indeed suspected, that the other side is proceeding on the basis of a misconception or has not appreciated something, as a general rule, efficiency, common sense and an appreciation of the costs and resources (both public and private) likely to be wasted by confusion in litigation will mandate that a party through his or her representative ensure that the other is not proceeding on a misconception or that the other does appreciate something that has been said.
…
Representatives do not owe duties to the other side's clients. They owe duties to their own client. But no one's interests are advanced by litigation proceeding on assumptions which are seen or suspected to be false.
…
In the long run, the only consequence of keeping issues hidden or not clearly identifying them is to disrupt the business of the court leading to the waste of valuable public resources and to lead to the incurring of unnecessary costs by the parties, costs which ultimately have to be borne by someone.'
39 Heydon JA cited that passage with approval in Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346 at [28]. Mason P and Young CJ in Eq agreed with the reasons for judgment of Heydon JA. Young CJ in Eq at [44] pointed out that it is incumbent on the plaintiff solicitors to seek to confine a respondent by forcing a respondent to state the grounds of opposition to the claim, if necessary, by writing to the respondent solicitors in good time. That the applicant solicitors did in this matter.
40 In my judgment this is a matter in which at the latest by 17 September 2004 the respondents should have indicated to the applicant why they said that the fragrance recipes of the applicant had not been copied. I think it was quite plain by that date, following the Perrin reports that the material procured through the execution of the order of 17 October 2003 led to an inference that 32 fragrance recipes of the applicant had been copied by the respondents. The respondents, according to their evidence, knew they had not copied that material. That is because (as their evidence subsequently disclosed) they had matched 27 of those recipes at the request of former clients of the applicant, and had procured five of those recipes from an independent source. They did not say so. They must have known their response. It would have been easy to provide that response.
41 Instead, the respondents chose to allow the applicants to seek an order for discovery in terms which avoided them disclosing all the GCMS data, and then chose to verify that list of documents again upon the basis that the order itself as requested by the applicant was confined in its meaning. It may be the reference to GCMS traces in that order flowed from the remarks attributed to the third respondent in the letter of 3 April 2004. That strategic choice by the respondents resulted in unnecessary costs being incurred in the period from 17 September 2004 to the present. Those costs, in my judgment, could have been avoided by the respondents laying their cards on the table at an appropriately early time in the proceeding. One seeks for an explanation as to why that was not done. The explanation is that it was not asked for in terms. I do not accept that. Exculpatory information was asked for. The response was not given. I do not think it was an appropriate response to say that no response could be given until the precise nature of the allegations or suspicions was presented. It was quite clear what the applicant suspected to have occurred, based upon the Perrin reports 2004. It may be that the respondents took the view that, because of the order executed on 20 October 2003 without notice to them, they need not have co-operated at all. It may be that they had in mind that the early disclosure of that explanation may have exposed their material to the opportunity to the applicant to investigate it in a more timely manner than ultimately was available to the applicant and so may have been exposed as erroneous. Those matters are purely speculative. They are not reasons for my ruling. What is plain, in my judgment, is that the respondents declined the opportunity to present their explanation for what appeared to be copying of 32 of the applicant's fragrance recipes in a timely manner despite the applicant through its solicitors having requested that explanation. I do not think that the terms of the discovery order sought then, and the terms of the limited discovery given then were other than disingenuous. The respondents must have known at all times precisely what material they had available to them and should have disclosed it at least informally. In my judgment they are largely responsible for the expenses which were incurred by the parties from 17 September 2004 to the present date.
42 Counsel for the respondents contended that the applicant was the author of its own ignorance. It had sought in the discovery order of 1 June 2004 GCMS trace reports only, and not peak reports, although they ought to have known that the process of matching would produce both sorts of documentation, or both sorts of data held on the hard drive of a computer. If the applicant did not realise that, it is (they submit) as a consequence of the lack of expertise of Mr Lever or alternatively the failure to seek appropriate expert advice. They also point out that the applicant did not approach any of its former customers to determine whether they had requested the second respondent to undertake matching processes to match its fragrances, or to secure an appropriately qualified expert to analyse the GCMS material which had been discovered.
43 I have not overlooked those contentions. There is some merit in them and they must be given weight in the exercise of my discretion. I have also taken into account in favour of the respondents the fact that the respondents may have been influenced by the lack of trust which the order of 17 October 2003 reflected. That might justify caution on their part as to how they should respond, but not in my view indefinitely. I have however come to the view that the respondents should pay the costs of the proceedings for the period after 17 September 2004. I have taken into account, in addition to the matters referred to, the costs involved in the conduct of these proceedings relative to the loss which the applicant alleged. The applicant's claimed loss was not a large amount in absolute terms, although it may have been significant to it. Equally significant, no doubt, was the desire to prevent the suspected misuse of its confidential information. The relative financial considerations of the costs to the parties of the proceedings against the potential damages involved was a matter which I raised with the parties from time to time. Cost is an inhibitant to the assertion of legal rights in proceedings. That is a fact of life. Sometimes it is an inhibitant to the defence of legal rights. The applicant was prepared to incur that cost to assert its legal rights, but was anxious to ensure its rights were as it suspected them to be. The respondents had the knowledge that its suspicions were ill-founded. They permitted the applicant to proceed nevertheless without revealing that knowledge, despite the request that they do so. In my judgment, in the circumstances, the respondents should pay the applicant's costs of the proceedings from 17 September 2004 to 1 February 2005.
44 In respect of the period from 1 February 2005 to 7 March 2005, I agree with the contention of the applicant that there should be no order as to costs. I have found that disclosure of the respondents' explanation earlier than 10 November 2004 and discovery of all its documents indicating matching of 27 fragrance recipes and the procuring of five fragrance recipes from a third party earlier than 1 February 2005 would have avoided those costs. This period was one when the applicant was, close to the proposed hearing, obliged to undertake further inquiries and further consideration of those matters in a hurried manner. In awarding the respondents' costs to 17 September 2004, I have in fact allowed them costs for a period whilst the applicant would otherwise have undertaken those inquiries. That is because, in my view, the respondents' explanation for the coincidence on the 32 fragrance recipes revealed in the Perrin reports should have been forthcoming not long after those reports and by 30 June 2004. To award the respondents costs for the period from 1 February 2004 would, in effect, give them costs for a period of work by the applicant which I have already allowed for in their favour by awarding them costs to 17 September 2004. The period from 30 June 2004 to 17 September 2004 allows for such work. The applicant did not seek costs for that period, as its costs then incurred would have been incurred by it in the period after disclosure of the respondents' explanation at some time in any event. If the timing of the disclosure meant that the work of either the applicant or the respondents was somewhat greater after 1 February 2005 than would have been the case with earlier disclosure, there is insufficient material to show how much extra work was involved. I do not think therefore that that consideration would lead to any different result.
45 There is one matter which I note to indicate I have not overlooked it. I have not taken it into account for the reason given below.
46 The first respondent asserted in correspondence to the applicant that following the cessation of his employment he delivered up to the applicant all documents containing confidential information, including its fragrance recipes. That is not correct. By affidavit sworn on 1 February 2005, he deposes to having retained in his possession a copy of the applicant's recipes (because that was a record he was required to maintain during his employment as a security or back-up copy) and to having destroyed his copy of those recipes in about April 2003. The applicant, I accept, was aware that the first respondent maintained that duplicate set of its fragrance recipes generally, and I infer including the 32 recipes the subject of the principal proceedings. However, it did not thereafter specifically raise with the applicant what he had done with those records. Had it been a matter of specific moment to the applicant, other than as providing the source or potential source of the suspected copying of its fragrance recipes, it could have raised that matter further. I think this consideration does not weigh in the scales simply because, of itself, it did not play a part in the applicant's decision-making processes at material times. The inconsistency between the correspondence and the affidavit only emerged at a very late stage.
47 The position of the fourth respondent is different. By order of 26 October 2004 the fourth respondent was added as a party to the proceedings. He had previously also been employed by the applicant. By affidavit of 9 November 2004 he responded to the allegations made against him that he too had participated in the improper copying and use of the applicant's confidential fragrance recipes. His affidavit denied that he divulged or otherwise discussed with the first or second respondents any confidential information. So far as I can determine, there is no other information pertaining directly to his position. In his case, therefore, allegations were made against him and were expressly denied. He was not otherwise directly engaged in the process of discovery up to 22 October 2004, nor in the communications up to that date. The proceeding against him is now not to be continued. I see no reason why he should not have his costs of the proceeding. The costs which he recovers should be limited to those costs incurred by him specifically, and not costs which would have been incurred by the other respondents as part of their general conduct of the proceeding. I am not satisfied that the respondents otherwise incurred costs solely because of the fourth respondent being joined as a respondent to the proceedings. Nor should the applicant have costs of any actions taken in relation to the fourth respondent.
48 Finally, although the respondents sought indemnity costs against the applicant, I do not see that there are any circumstances which would warrant the exercise of my discretion to make such an order in their favour in respect of the costs I propose to order that they recover.
49 The respondents contended that the Court should not permit the applicant to discontinue the proceedings because, to do so, would cause injustice to them. Apart from the issue of costs, they expressed concern about the following matters:
(1) That the discontinuance of the proceedings would not result in a final judgment so that the applicant could, at a later time, renew its application against them;
(2) The undertaking as to damages which had been given by the applicant when securing interlocutory orders on 17 October 2003 and on 4, 10 and 12 November 2004 may be unenforceable once the proceedings were discontinued; and
(3) In support of the undertaking as to damages, a bank guarantee had been provided as required by the Court and the discontinuance of the proceedings (as distinct from its dismissal) would mean the security offered by that guarantee would no longer be available.
50 As to the first, if I were to give leave to discontinue the proceedings I would do so specifically upon the condition that the applicant should not commence further proceedings against the respondents in respect of the facts pleaded in the statement of claim in this action without the leave of the Court. Counsel for the applicant indicated that the applicant would submit to such an order. As to the second, it has been decided that the discontinuance of a proceeding does not result in an undertaking as to damages given in support of an interlocutory order made in that proceeding no longer being enforceable; see Newcomen v Coulson (1878) 7 Ch D 764.
51 I do not propose to give the applicant leave to discontinue the proceedings. As O 22 r 1 (2)(d) indicates, discontinuance in the present circumstances is permissive. It is not a right. The short reason for my view is that I am not persuaded that the order for costs which I think the justice of the case requires can then be made. In particular, I am not persuaded that there can be an order giving leave to an applicant to discontinue a proceeding but imposing as a term of the discontinuance that a respondent pay the costs, or some of the costs of the proceeding. I described the proposition to that effect as surprising. Counsel for the applicant could point to no case where it has been done. Logic suggests that it cannot. The payment of costs is a condition of the leave. Such an order takes the fulfilment of the condition out of the hands of the applicant. If a respondent does not pay the costs, then the condition for the grant of leave to discontinue is not fulfilled and at least in theory the proceeding cannot be discontinued.
52 Counsel for the applicant indicated that the applicant would prefer the proceedings to be dismissed if the result were that it would recover some costs, rather than to be given leave to discontinue the proceedings on the basis that there be no order for costs. In addition, it was not suggested that dismissal involved any real detriment to the applicant. Dismissal may involve some form of estoppel, but the reality is that the applicant is very unlikely to have wanted to revive the proceedings, and the grounds upon which it might have been given leave to do so would probably enable it to avoid any estoppel argument from the respondents. Dismissal means that the potential injustices identified by the respondents are avoided, although I doubt that they were really injustices as appropriate orders could avoid them.
53 Accordingly, I propose to order that the proceedings are dismissed. The interlocutory injunctions made on 10 and 12 November 2004 are discharged. I will give the parties leave to apply to seek any further orders as necessary, including for any lump sum order as to costs.