Jackson Power Real Estate Pty Ltd v Jones (No 2)

Category: Costs

Parties: Jackson Power Real Estate Pty Ltd (Plaintiff)
Laetitia Jones (Defendant)

Representation: Counsel:
S Foda (Plaintiff)
J Pokoney (Defendant)
Solicitors:
Peter Mitchell Lawyers (Plaintiff)
Ryan Lawyers (Defendant)

File Number(s): 2022/00161678

Publication restriction: Nil

JUDGMENT

1. This judgment deals with the issue of costs arising out of my decision in Jackson Power Real Estate Pty Ltd v Jones [2024] NSWSC 1665 (Judgment). In the Judgment I granted an injunction restraining the defendant from using certain confidential information of the plaintiff, including information relating to the plaintiff’s rent roll (order 1), and ordered the defendant to deliver up any copies of the confidential information in her possession to the plaintiff (order 2(a)), to destroy any electronic copies of it (order 2(b)) and to file an affidavit setting out any persons with whom the information might have been disclosed and steps taken by her to comply with order 2(b) (order 3).

2. The parties have filed submissions and rely on settlement offers passing between Mr Tony Ryan, solicitor for the defendant, and Mr Peter Mitchell, solicitor for the plaintiff between January and August 2024.

Offers between the parties

3. In an email sent by Mr Ryan to Mr Mitchell on 25 January 2024, the defendant offered to settle the proceedings on terms that the existing injunction against the defendant set out in the Judgment at [2] would continue until 31 May 2024 and then be extinguished, and additionally: the plaintiff’s statement of claim was otherwise dismissed; the defendant would not take any action to recover employee entitlements owing to her and would not make any claim under the Fair Work Act 2009 (Cth); the parties would release each other from making future claims against each other relating to the defendant’s employment by the plaintiff; and that no order would be made as to costs with the intention that the parties would each bear their own costs. Mr Ryan noted that if this offer were accepted, the plaintiff would have had the benefit of an almost two year restraint for a person who was employed by the plaintiff for only four months. Mr Ryan indicated that it was his client’s position that the restraints of trade which the plaintiff sought to enforce would not be enforceable. The email was expressed to be ‘without prejudice’, but did not refer to the principles in Calderbank v Calderbank [1975] 3 All ER 333 or that it was intended to be relied upon in connection with costs if not accepted.

4. Mr Mitchell replied on 2 February 2024 by email rejecting the offer, and reiterated that the plaintiff regarded the restraints incorporated into the undertakings of 11 May 2022 (set out in the Judgment at [34]) to be for the legitimate protection of the interests of the plaintiff and would be enforceable by the court.

5. Mr Ryan replied later the same day seeking clarification on whether it was the terms of the restraint that the defendant objected to or the time period for which the restraints would apply, and asked whether Mr Mitchell was instructed to offer a counter-proposal.

6. On 13 February 2024, Mr Mitchell replied to Mr Ryan’s email of 2 February 2024 concerning the scope of the restraints and his earlier offer. He indicated that it was his client’s position that the restraints applicable to the defendant were unlimited in time as they related to the plaintiff’s confidential information. Mr Mitchell stated that if the defendant wanted to settle the matter, the plaintiff insisted on the undertakings of 11 May 2022 being signed and the defendant paying the plaintiff’s costs, and that there may be some room for discussion concerning damages caused to the plaintiff’s business.

7. On 20 February 2024, Mr Ryan sent a letter to Mr Mitchell setting out a settlement offer (February Offer) which was expressed to be ‘without prejudice, except as to costs’ but did not refer to the principles in Calderbank or that it was intended to be relied upon in connection with costs if not accepted. After setting out reasons why the plaintiff’s action was likely to fail, a settlement offer was made on the following terms:

Notwithstanding the strength of our client’s position, we are instructed to make the following offer to your client:

1. Our client will agree to the existing restraints, excluding Adelaide McLuckie, without a time limit or physical area restriction to those restraints.

2. Each party to pay their own costs.

3. Our client will not pursue your client for the employee entitlements owing to her.

8. Mr Mitchell responded by letter dated 28 February 2024 rejecting the offer, reiterating the plaintiff’s position that it was entitled to the relief sought in the statement of claim and stating that ‘my client will serve evidence in due course as to the damage that it has suffered’.

9. On 15 August 2024, Mr Mitchell sent to Mr Ryan an offer of compromise under r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). Although the plaintiff does not rely on it, I note that its terms were:

10. Final orders would be made against the defendant in substantially the same terms as the interlocutory injunction set out in the Judgment at [2];

11. The plaintiff to pay the defendant an amount of $3,500 in full and final satisfaction of the defendant’s employee entitlements;

12. Contribution by the defendant to the plaintiff of an amount of $25,000 in full and final satisfaction of the plaintiff’s claim for damages.

Plaintiff’s submissions

10. The plaintiff seeks an order that the defendant pay its costs of the proceedings because it had ‘overall success’ in these proceedings having obtained final injunctive relief and further incidental orders, which costs should be on the indemnity basis as agreed or assessed due to the defendant’s unreasonable conduct.

11. The plaintiff makes four submissions in support of its claim for indemnity costs:

12. The defendant was aware of her contractual obligations under the employment agreement and the plaintiff’s concerns about the importance of protecting the confidential information. If she had acted consistently with her obligations, these proceedings would not have been necessary.

13. The defendant did not comply with the plaintiff’s requests on 5 May 2022 to return any confidential information in her possession and delete copies of it. On 15 May 2023, over 12 months after the undertakings were sought and the proceedings were commenced, the defendant stated in her affidavit that she had disposed of the hard drive containing the plaintiff’s confidential information. However, there was no explanation as to why the defendant had failed and refused to provide any information to the plaintiff regarding the hard drive prior to this time or to simply provide the hard drive to the plaintiff for its inspection. Had she delivered up the hard drive for inspection, then the proceedings might not have been necessary.

14. The defendant did not give undertakings sought by the plaintiff in relation to the use of its confidential information, nor respond to the request for undertakings made on 11 May 2022 at all. If those undertakings had been given, these proceedings would not have been necessary (referring to the Judgment at [81]).

15. The defendant consented to interim injunctive relief restraining her use of the confidential information on 9 June 2022. If she had consented to injunctions being made on a final basis, then the substantive proceedings would not have been necessary.

16. Accordingly, the plaintiff submits that the defendant’s unreasonable conduct, which gave rise to the proceedings and a correlative unnecessary incurrence of costs, justifies an indemnity costs order (relying on the authorities referred to at [23]-[24] below).

17. Regarding the abandoned claims for an account of profits or damages, the plaintiff submits that the costs, if any, associated with these claims were minimal and that neither party relied upon any evidence in relation to these issues.

Defendant’s submissions

14. The defendant contends that, having regard to the manner in which the plaintiff has conducted this litigation and the offers made by the defendant to resolve it, the court should order the plaintiff to pay the defendant’s costs or, if the court is not minded to make that order, make no order as to costs.

15. First, the defendant submits that the plaintiff did not have overall success in the proceedings. Despite the plaintiff seeking injunctions in expansive form, orders for delivery-up, damages, an account of profits, an order for inquiry into damages, interest and costs – at trial the plaintiff ultimately only received a limited form of injunction and ancillary orders. The injunction that was awarded was a court formulated award in circumstances where the court had already rejected the two forms of injunction that the plaintiff sought, and the other orders the plaintiff had sought: Judgment at [85]. The Judgment noted that the plaintiff was ‘not entitled’ to the first form of injunction it sought (at [83]), declined to make the second form of injunction on the basis that it was ‘too broad’ (at [84]), declined to make a delivery-up order on the basis that the content of the equitable duty is not ‘property’ and declined to make the order for disclosure in the form claimed (following on from the rejection of the injunctive relief sought) (Judgment at [86]).

16. Further, the plaintiff maintained its claim for damages throughout the trial and only in its closing submissions in reply did it capitulate on the damages claim. The defendant submits that the plaintiff’s maintenance of all these claims caused the issues of the trial to be expanded, when it ultimately failed to obtain the balance of the relief sought.

17. Addressing the plaintiff’s submission (3) above, with respect to whether the defendant ought to have consented to the interim injunctions on a final basis, thereby avoiding the substantive hearing, the defendant makes two submissions. First, the defendant in fact made several offers to extend the existing interim injunctions: see [3] and [7] above. Second, throughout the negotiations, the plaintiff maintained its claim for damages against the defendant (despite later abandoning the whole of that claim). For example, in its letter of 13 February 2024, the plaintiff’s solicitor indicated that the plaintiff required signed undertakings, payment of costs and foreshadowed room for discussion concerning damages. Similarly, on 15 August 2024, the plaintiff served an offer of compromise in which it sought ‘contribution’ of $25,000 toward its claim for damages. It was therefore apparent that, until it abandoned its claim at hearing, the plaintiff’s negotiating position required not simply undertakings or a final injunction, but also payment of damages and costs. The plaintiff’s submission that any offer of the former (without the latter) would have ‘avoided the substantive hearing’ should not be accepted.

18. Therefore, the defendant submits that since the plaintiff did not receive the relief that it sought when it commenced the proceedings, together with the defendant’s offers to resolve the matter with the one form of relief ultimately granted, the appropriate exercise of the court’s discretion is to order that the plaintiff pay the defendant’s costs of the proceedings (or some portion of them), as agreed or assessed, or alternatively, make no order as to costs.

Relevant principles

19. The Court has a discretion to determine by whom, to whom and to what extent costs are to be paid, although in the exercise of this discretion, the usual order is that costs will follow the event unless it appears to the Court that some other order should be made: Civil Procedure Act 2005 (NSW) (CPA), s 98(1); UCPR, r 42.1. An order for costs is compensatory not punitive, being for the purpose of indemnifying the successful party for the expense of the litigation, and the usual order ‘embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour’: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [67] (McHugh J). The ‘event’ may be characterised in more than one way, but generally refers to the result of the claim or counter claim, as the case may be, and may be understood as referring to the practical result of a particular claim: Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219 at [15].

20. One situation where there may be a departure from the usual order is where there are multiple issues in the proceedings and there has been a mixed outcome, and it is seen to be appropriate to apportion costs as between those issues. In Ryde Developments Pty Ltd v The Property Investors Alliance Pty Ltd (No 2) [2018] NSWCA 40 at [7], Beazley P, Payne JA and Barrett AJA adopted the following summary of the relevant principles for the determination of costs on an issue by issue basis stated in Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38] (per Beazley, Ipp and Basten JJA):

Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed: Waters v P C Henderson (Aust) Pty Ltd (Court of Appeal, 6 July 1994, unreported).

In relation to trials it has been said that it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument: SabahYazgi v Permanent Custodians Ltd (No 2) [2007] NSWCA 306 at [24]. A similar approach is adopted on appeal.

If the appellant loses on a separate issue argued on the appeal which has increased the time taken in hearing the appeal, then a special order for costs may be appropriate which deprives the appellant of the costs of that issue: Sydney City Council v Geftlick (No 2) [2006] NSWCA 374 at [27].

Whether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the court, which powers should be liberally construed: New South Wales v Stanley [2007] NSWCA 330 at [18] per Hislop J (with whom Beazley and Tobias JJA agreed).

A separable issue can relate to “any disputed question of fact or law” before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [34].

Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends upon matters of impression and evaluation: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296, citing Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272.

21. Further to the observation in the last paragraph, it is accepted that where it is appropriate to entertain the process of apportioning costs as between different issues in the proceedings, in general such an exercise will be carried out on a relatively broad brush basis, and largely as a matter of impression and evaluation by the court: Avopiling Pty Ltd v Bosevski*;* Avopiling Pty Ltd v Workers Compensation Nominal Insurer (2018) 98 NSWLR 171; [2018] NSWCA 146 at [172].

22. While the court has a discretion under s 98 of the CPA to order costs to be paid on an indemnity basis rather than the ordinary basis, the award of indemnity costs requires the presence of some special or unusual feature in the conduct of the litigation on the part of the party against whom indemnity costs are sought. In Cappello v Homebuilding Pty Ltd [2023] NSWCA 109, Mitchelmore JA (with whom Simpson AJA and Meagher JA agreed) summarised the principles as follows:

[46] The Court has a discretion to award costs on an ordinary or indemnity basis. Usually costs will follow the event, unless the Court considers that some other order ought to be made: Civil Procedure Act 2005 (NSW), s 98; Uniform Civil Procedure Rules 2005 (NSW), r 42.1; Collier v Country Women’s Association of New South Wales [2018] NSWCA 36 at [116] (Collier).

[47] For an order of indemnity costs to be made, the conduct of the party against whom such costs are sought must usually exhibit some special or unusual feature: Collier at [117]. The focus is on the way the litigation was conducted: Mead v Watson [2005] NSWCA 133 at [8]–[9]. For example, the discretion may be enlivened where a party persists in what should have been seen to be a hopeless case, such as where the case was unduly prolonged by groundless contentions: Ferella at [36]; Liverpool City Council v Estephan (Executor and Administrator of the Estate of the late Jocelyn Estephan ) [2009] NSWCA 161 at [93] (Liverpool City Council). It has also been said that indemnity costs may be awarded where the unsuccessful party’s conduct was unreasonable or delinquent: Amirbeaggi v Matrix Group Co Pty Ltd [2021] NSWCA 21 at [18].

[48] The categories of circumstances in which the discretion may be exercised are not closed: Liverpool City Council at [93]. Ultimately, the question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on the ordinary basis: Liverpool City Council at [93].

23. In Bale v Kimberley Developments Pty Ltd (No 2) [2022] NSWSC 1009, Ward CJ in Eq said at [44]-[45]:

[44] The well-known authorities in relation to the power to award indemnity costs include Colgate (to which the defendants have referred) and Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397; [1988] FCA 202 (Fountain Selected Meats) per Woodward J at 401. However, what is required for such a special costs order (leaving aside cases where the special costs procedure for offers of compromise is validly invoked or the Calderbank principles (see Calderbank v Calderbank [1975] 3 All ER 333) apply) is that the conduct of the case by the party against whom costs are sought is plainly unreasonable or amounts to “relevant delinquency” by the party as a litigant (see Fountain at 401; Sydney City Council v Geftlick [2006] NSWCA 280 at [90] per Tobias JA, Mason P and Hodgson JA agreeing; Dunstan v Rickwood (No 2) (2007) 38 Fam LR 491; [2007] NSWCA 266 at [44] per McColl JA, Beazley JA, as Her Excellency then was, and Ipp JA agreeing; Leichhardt Municipal Council v Green [2004] NSWCA 341 (Leichhardt v Green) at [57] per Santow JA, Bryson JA and Stein AJA agreeing; Oshlack at [44] per Gaudron and Gummow JJ).

[45] In that context, “relevant delinquency” does not mean moral delinquency or some ethical shortcoming but delinquency bearing a relevant relation to the conduct of the case (see, for example, White Constructions ACT Pty Ltd (in liq) v White [2004] NSWSC 303 at [11] per McDougall J). Circumstances in which indemnity costs may be awarded include: where a party has made allegations that ought never to have been made; where an action has been commenced or continued where the plaintiff, properly advised, should have known the applicant had no chance of success; and where proceedings have been commenced in wilful disregard of known facts or clearly established law. An award of indemnity costs serves the purpose of compensating a party fully for costs incurred when the Court takes the view that it was unreasonable for the party against whom the order was made to have subjected the innocent party to the expenditure of the case.

24. See also the observations of Black J in Re Indoor Climate Technologies Pty Ltd [2019] NSWSC 356 at [8], where his Honour noted that whether there is relevant delinquency or unreasonableness on the part of the unsuccessful party ‘is to be determined by reference to the conduct of the proceedings, not the conduct that is the subject of the substantive dispute’.

25. Underlying both the general rule that costs follow the event, and the qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the Court considers to be the responsibility of each party for the incurring of costs: Chandrasekaran v Western Sydney Local Health District (T/A Westmead Hospital) (No 2) [2024] NSWCA 21 at [12]; Commonwealth Bank of Australia v Gretton [2008] NSWCA 117 at [121] per Hodgson JA (Mason P agreeing at [1] and Beazley JA agreeing at [91]).

Consideration

26. While I accept the plaintiff’s submission that it has had some success in the proceedings, I do not accept that the plaintiff has had ‘overall success’ in the proceedings or that it is appropriate for the plaintiff to recover indemnity costs from the defendant. Bearing in mind that the focus is on the defendant’s conduct of the proceedings, I do not regard her conduct in defending the proceedings as unreasonable. The defence of the proceedings was not unreasonable because the plaintiff claimed throughout that it had an entitlement to injunctive relief to which it was not entitled (see Judgment at [83]-[84]) and damages (which it quantified at not less than $25,000 in its offer of compromise made in August 2024), and continued to maintain this entitlement to damages until final closing submissions in reply at the hearing.

27. It is necessary in exercising the discretion as to costs to recognise that the plaintiff has had only partial success in the proceedings. In particular, the plaintiff did not achieve the full extent of the final injunctive relief it sought and ultimately (at the last moment) dropped its claim for damages. I do not accept the plaintiff’s submission that the costs attributable to these aspects of the claim are minor. First, the hearing would most likely have been significantly shorter if the plaintiff had recognised at an early stage that it was not entitled to an injunction to restrain the defendant from competing with the plaintiff after termination of her employment (Judgment at [37]-[38] and [83]). That injunction sought by the plaintiff raised different questions to the injunction and ancillary relief relating to use of the plaintiff’s confidential information. Second, significant portions of the defendant’s evidence and that of a number of witnesses called by her were relevant to the damages claim (in so far as it met the allegation that she had misused the plaintiff’s confidential information for her own financial gain) and would not have been necessary had there been no damages claim.

28. I have had regard to the two settlement offers sent by the defendant upon which it relied. The first sent on 25 January 2024 is not relevant to costs as it was a without prejudice communication, with no reservation permitting its use in relation to costs.

29. The February Offer is potentially relevant. It was not a ‘Calderbank offer’, which is an offer of settlement expressed to be without prejudice save as to costs and, by its terms or the surrounding circumstances, indicates that the offer is proposed to be relied upon on the question of costs: Love v Roads Corp [2011] VSCA 434 at [183]; Whitney v Dream Developments Pty Ltd [2013] NSWCA 188 at [42]-[43]. The February Offer did not state that the defendant proposed to rely upon it on the question of costs. Nevertheless, the unreasonable rejection of an offer of settlement which is not an offer under r 20.26 of the UCPR or a Calderbank offer, may still be relevant to the exercise of the discretion under r 42.1 to make some order other than the usual order, on the basis that the court may take into account the conduct of the parties, including attempts at settlement, in exercising that discretion: Ziliotto v Hakim [2013] NSWCA 359 at [131]-[134] per Tobias AJA (Macfarlan JA agreeing).

30. In my view, it was not unreasonable for the plaintiff to reject the February Offer. The reasonableness of the response to the offer must be assessed at the time it was made and not with the benefit of hindsight: Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [11]. At the time the February Offer was made the plaintiff was proposing to file further evidence as to its damages. In circumstances where the defendant had not provided the undertakings of 11 May 2022 sought by the plaintiff in relation to the use of its confidential information set out in the Judgment at [34], it was not unreasonable for the plaintiff to consider in February 2024 that it would be able to adduce evidence supporting its claim for damages (and ultimately it did seek to rely on an affidavit of Mr Stewart Power addressing damages). At the stage the proceedings had reached, it was not unreasonable for the plaintiff to consider that it would recover damages so that it would achieve a better outcome than the February Offer.

31. It is also relevant to the question of costs that the defendant did not give the undertakings of 11 May 2022 sought by the plaintiff, as it is apparent from the correspondence between the parties’ solicitors that her failure to do so was a factor in the plaintiff’s decision not to settle the proceedings.

32. Each party has had mixed success on issues which are separable so that an apportionment of costs is appropriate. In my view, the issues on which each succeeded and lost were roughly equal in their significance, having regard to the nature of the evidence relevant to each and the relief sought. Bearing in mind that the question of apportionment is to be undertaken on a relatively broadbrush basis and that mathematical precision is illusory, in my view, the appropriate and just way to reflect the plaintiff’s partial success, and the responsibility of each of the parties for the incurring of costs, is to order that each party is to bear their own costs (without disturbing any costs orders made previously).

Order

33. Accordingly the order of the Court will be that each party is to bear their own costs.

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