Nexgen Sydney Pty Ltd v Barakat

Supreme Court of NSW|2022-05-05|Before: Ward CJ

Solicitors: Madison Marcus Law Firm (Plaintiffs) United ACL (First, Third, Fourth and Fifth Defendants) File Number(s): 2019/370803 Publication restriction: Nil

Judgment

HER HONOUR: On 24 March 2022, I published my principal reasons for judgment in this matter (Nexgen Sydney Pty Ltd v Barakat [2022] NSWSC 312). I found that the plaintiffs had failed to establish an entitlement to the permanent injunctive relief claimed by them (in relation to alleged misuse of the plaintiffs' confidential information) and that any damages for breach of contract referable to the conduct of the first defendant (Ms Barakat) in taking a particular document (the EA-2 Spreadsheet) and the conduct of the third defendant (Mr Youssef) in transferring his emails from this office device at the plaintiffs to his personal device would be nominal only. Accordingly, among other orders, I made orders for nominal damages to be paid by Ms Barakat and Mr Youssef to the plaintiffs.

Plaintiffs

The plaintiffs put forward alternative proposed costs orders (in descending order of priority). Their principal contention is that a Bullock style order should be made (such an order so-called by reference to the orders made in Bullock v London General Omnibus Co [1907] 1 KB 264 at 269, per Collins MR, Cozens-Hardy and Farwell LLJ agreeing at 272, 273 respectively) namely an order requiring the unsuccessful defendant(s) to pay to the plaintiff the costs the plaintiff is ordered to pay to the successful defendant(s). What is sought is an order that Ms Barakat and Mr Youssef (the unsuccessful defendants) should pay the costs both of the plaintiffs and of the Easytel defendants (the fourth and fifth defendants) (i.e., the successful defendants). The first alternative, failing a Bullock order, for which the plaintiffs contend is that there ought be no order as to costs (such that each side pays its own costs). The final alternative put forward by the plaintiffs is that the first and second (as submitted) defendants (Ms Barakat and Mr Mitchell) be ordered to pay the plaintiffs' costs and that the plaintiffs be ordered to pay the costs of the Easytel defendants. Pausing here, this is clearly a typographical error in the submissions and I have assumed that what is sought is for the costs order there proposed to be as against Ms Barakat and Mr Youssef, consistent with the principal order sought (particularly given the plaintiffs' later submission, to which I refer below, that there ought be no costs order against Mr Mitchell).

Defendants

The active defendants (i.e., those other than Mr Mitchell), to whom I will refer collectively as the defendants, contend for a costs order in their favour, accepting the general rule (that costs ought follow the event) arguing, in the case of Ms Barakat and Mr Youssef that, despite the finding of breach of contract, the award of only nominal damages means that the defendants were in essence the winners in the litigation. However, the defendants seek that the costs order in their favour be for part or all of their costs on an indemnity basis.
As did the plaintiffs, the defendants framed their proposed orders in the alternative, in each case seeking that the orders be made on a joint and several basis.
First, that the plaintiffs (jointly and severally) pay the defendant's costs of and in relation to the proceedings including but not limited to the costs occasioned on the plaintiffs' Anton Piller application, on an indemnity basis.
Second, in the alternative, the defendants seek an order, on an indemnity basis, for their costs of: the plaintiffs' amendment of the statement of claim (there already being a costs order in respect of this but not on an indemnity basis); the costs thrown away in connection with the forensic issues concerning the two computer devices from which the Court-appointed expert (Mr Le Roux) wrongly concluded that the operating drives were missing (AF2001 and AF2003); and the costs thrown away of and in connection with the reports of the subsequent forensic experts (Mr Bell and Mr Carson).
Third, in the alternative to the first order and in addition to the second order, an order for the costs in respect of the balance of the proceeding, including but not limited to the costs occasioned on the plaintiffs' Anton Piller application, on an ordinary basis.
Fourth, in the alternative to all of the above orders, the defendants' fallback option is for an order that the plaintiffs (again, jointly and severally) pay the defendants' costs, including but not limited to the costs occasioned on the plaintiffs' Anton Piller application, on an ordinary basis.

Plaintiffs' submissions

The plaintiffs have recounted the procedural history of the matter, the circumstances in which the proceeding was commenced, and the various interlocutory orders sought (see the principal judgment), including that: Ms Barakat conceded that she had taken the plaintiffs' information (from the plaintiffs' CRM) in the form of a spreadsheet but did not "confess" that she had transferred the spreadsheet to the computers of the Easytel defendants; that the defendant had unsuccessfully sought to set aside the Anton Piller order by which the transferred spreadsheet was ultimately found; and that Ms Barakat and Mr Youssef had denied that they used the information contained in the spreadsheet to enhance the prospects of the Easytel defendant's prospective clients. In light of the information that the plaintiffs had obtained from Mr Mitchell (see the principal judgment), the plaintiffs argue that they were left with no alternative than to take the steps that they did (in relation both to the application for the Anton Piller orders and their defence of the subsequent application by the Easytel defendants to discharge those orders).
The plaintiffs say that, although the work of the Court-appointed computer forensic expert (Mr Le Roux) culminated in an unsatisfactory outcome, this does not mean that their application for the Anton Piller orders was groundless.
As to the application by the Easytel defendants to discharge the Anton Piller orders, on about 4 August 2020, and to restrain the plaintiffs' then solicitors from acting in the matter, the plaintiffs say that this was based on serious allegations (as to abuse of process) and that it caused the plaintiffs to retain new solicitors on 7 August 2020 (without admission) at what they say was immense expense (noting that there was ultimately a finding by Williams J that the plaintiffs' former solicitor had not engaged in any conduct which would amount to an abuse of process). Complaint is made that these applications caused enormous disruption during a difficult time at enormous cost (and the plaintiffs emphasise that the applications ultimately failed).
The plaintiffs also survey in their submissions the parties' respective claims and contentions (and the findings that were ultimately made), in the course of which the plaintiffs point out that the defendants had complained that the bringing of the proceedings (in particular the application for an Anton Piller order) was an abuse of process (and an attempt to put the Easytel defendants out of business and remove them as competitors); and that it was ultimately concluded that (even though the plaintiffs engaged in aggressive litigation) their conduct of the litigation was based on their genuine perception that they had been wronged by the defendants' conduct, and a genuine intention to protect their legitimate commercial interests, such that there was no warrant for the proceeding to be dismissed.
In relation to their application for a Bullock order, reference is made by the plaintiffs to Fennell v Supervision & Engineering Services Holdings Pty Ltd (1988) 47 SASR 6 at 7 per King CJ, where an unsuccessful defendant was found to have caused the litigation "by his wrongful act and by disputing liability for it" and it was held that, not only ought the unsuccessful defendant pay all costs reasonably incurred by the plaintiff in connection with the litigation, but also that (as it was reasonable, as between the plaintiff and the unsuccessful defendant, for the plaintiff to sue the successful defendant), the unsuccessful defendant ought also in justice be liable to indemnify the plaintiff against the costs of so doing, including those costs which the plaintiff was ordered to pay to the successful defendant.
It is noted that in Steppke v National Capital Development Commission (1978) 21 ACTR 23, Blackburn CJ listed the following matters as matters to be considered when exercising the discretion whether to make a Bullock order: the reasonableness of the joinder of the defendants; and the conduct of the unsuccessful defendant (namely, whether the unsuccessful defendant's conduct had been such as to make it fair to impose some liability on it for the costs of the successful defendant). It is also noted that the High Court has held that if an unsuccessful defendant has said or done nothing that led the plaintiff to sue the successful defendant, then it is difficult to see why he or she should be required to pay for the plaintiff's error or overcaution (see Gould v Vaggelas (1984) 157 CLR 215; [1984] HCA 68 at 229 per Gibbs CJ (Gould v Vaggelas)).
The plaintiffs say that, in the present case, at the time they commenced the proceeding, they were aware that the individual defendants had commenced employment almost immediately after they had resigned their respective employment with the plaintiffs. They point out that, immediately prior to commencing the proceeding, the plaintiffs wrote to the individual defendants and to Easytel Australia (the fourth defendant, to which the fifth defendant (Easytel Group) is related), raising their concerns as to breach of contractual restraint of trade obligations (by the individual defendants working for Easytel Australia), alleging that the individual defendants were using the plaintiffs' confidential information whilst employed Easytel Australia in breach of their contractual obligations, and demanding that the individual defendants cease and desist in using the plaintiffs' confidential information and provide an undertaking to the that effect.
It is noted that the individual defendants failed to respond to the plaintiffs' demand and that Easytel Australia, by email dated 28 October 2019, said that the allegations were groundless and refused to give the undertaking sought. Complaint is made that none of the defendants disclosed (prior to the commencement of the proceeding and the ordering of the Norwich affidavits) that Ms Barakat had transferred the plaintiffs' data in the spreadsheet and uploaded it to Mr Youssef's computer system; nor that Mr Youssef had taken emails belonging to the plaintiffs.
The plaintiffs further say that the unchallenged evidence was that, when they resolved to commence the proceeding they did so because some of the plaintiffs' remaining employees had been told by prospective or existing clients that they were no longer prepared to do business with the plaintiffs (in effect because of interest that Ms Barakat and the Mr Youssef were employed by the Easytel defendants).
In particular, as to Ms Barakat, the plaintiffs also say that, at the time they resolved to commence the proceeding, they had ascertained that Ms Barakat had converted confidential information from its centralised non-mobile CRM database to the spreadsheet (which ultimately was found on the computer that Ms Barakat used at the Easytel defendants' offices) and that this conduct (alone) justified the commencement of the proceeding against each of the defendants, and justified the application for the Anton Piller order.
It is said that, without the Anton Piller order, there was a high degree of probability that the plaintiffs would be ignorant of the fact that Ms Barakat had uploaded the spreadsheet to her computer at Easytel. The plaintiffs point to the finding that (contrary to Ms Barakat's evidence that she had updated the spreadsheet merely from conducting searches on Google or had purchased the data from lead source suppliers), the spreadsheets on Ms Barakat's computer at the Easytel defendants contained some information which was confidential and which would not be available in the public domain. It is also noted that there was a finding that there was a degree of coincidence of information in the spreadsheet found on Ms Barakat's computer while she was employed by the plaintiffs, with that on the spreadsheet that was subsequently found on her computer while employed by the Easytel defendants.
As to Mr Youssef, the plaintiffs point to the conclusion that, while he did not use the spreadsheet, he did take emails that belonged to the plaintiffs and used them while employed by the Easytel defendants (entities of which he is now a director).
The plaintiffs submit that, in these circumstances, at the time the plaintiffs commenced the proceeding they were left with no option other than to do so against all of the defendants in order to protect their legitimate commercial interests. (In this regard, as I indicated in the principal judgment, I accept that the plaintiffs were seeking to protect their legitimate business interests - whether this was the only option is another matter and one on which it is not useful here to speculate.)
Further, it is submitted that the defendants (other than Mr Mitchell, against whom the plaintiffs say there ought be no order as to costs) have, throughout the proceeding, been represented by the same legal team (including counsel). It is submitted that this is not a case where the Easytel defendants have incurred separate additional legal costs to those of Ms Barakat and Mr Youssef. Pausing here, the fact that the same lawyers were involved would no doubt have led to some cost synergies but there must have been costs referable to certain of the defendants that were separate from those of others - for example, their individual affidavits. Thus, this submission to my mind goes only so far.
The plaintiffs say that the proceeding was conducted almost entirely with a focus on the allegation that the individual defendants had taken the plaintiffs' confidential information for use while employed by the Easytel defendants; and that the causes of action on which the plaintiffs failed did not occupy much time during the hearing (albeit it being accepted that each party did make written submissions in respect of them). The plaintiffs submit that the share of the costs that each of the parties incurred was in consequence of that primary issue, which ultimately led to the plaintiffs' "victory" (namely, that Ms Barakat and Mr Youssef had taken the plaintiffs' confidential information).
As to this last submission, there are of course cases where apportionment of costs as between issues where there is a mixed outcome is appropriate. However, I do not consider this to be one such case. The overall focus of the case was on the taking and use (or potential use) of confidential information; and the result was, for all practical purposes, a Pyrrhic victory for the plaintiffs.

Defendants' submissions

In summary, in support of their application for indemnity costs the defendants say that the plaintiffs' claims against Ms Barakat and Mr Youssef, for all intents and purposes, failed as no damage flowing from the breaches of their respective employment contracts could be established. They say that the breaches were disclosed "at the earliest possible opportunity in the proceeding" on 13 December 2019 in the Norwich affidavits (that submission does not take into account the initial response to the communication of the plaintiffs' concerns - that is, that the breaches could have been disclosed at an earlier opportunity, prior to the institution of the proceeding); nor the fact that the disclosure did not include reference to the spreadsheet later found on Ms Barakat's computer device, being the so-called "SSD Spreadsheet".
Further, in support of the claim for indemnity costs, the defendants rely upon the dismissal of the plaintiffs' claims against the Easytel defendants.
The defendants contend that it should have been readily apparent (had the plaintiffs reasonably and appropriately considered their cause(s) of action), at least prior to the commencement of the hearing, that the plaintiffs were destined to fail in respect of the contentions concerning: Annexure A to the statement of claim; Annexure B to the amended statement of claim; damage; or the permanent restraints that were sought.
The defendants complain that the plaintiffs' conduct of the proceeding has caused the parties to incur costs wholly out of all proportion to the nominal damages awarded against only Ms Barakat and Mr Youssef; and, further, to incur substantial costs by reason of the aggravated conduct of the litigation (see below).
As to the second proposed order sought by the plaintiffs, that there be an order that the defendants should pay their own costs, the defendants say that this would be "unreasonable, unjust and nonsensical" having regard to the factual findings that were made. The defendants contend that such an order would allow the plaintiffs effectively to succeed in a proceeding that they in fact lost (by causing financial damage to the defendants and in circumstances where the defendants say that the plaintiffs were ultimately responsible for aggravating the costs of the proceeding).
I do not propose to summarise in detail the defendants' lengthy submissions in support of the above propositions (much of which included complaints already made during the hearing as to the conduct of the litigation and underlying motivation of the plaintiffs). However, it is relevant to note that the defendants contend that the plaintiffs have been wholly unsuccessful in the proceeding.
In this regard, the defendants say that the interlocutory relief sought (initially under the summons) was dismissed (i.e., the plaintiffs failed to establish an entitlement to the permanent injunctive relief claimed) and the plaintiffs were unsuccessful in respect of the additional causes of action and relief sought by their statement of claim (in that no breach of fiduciary duty was established; the statutory duty claims pursuant to s 182(1) and 183(1) of the Corporations Act 2001 (Cth), were dismissed; the claims for equitable damages and an account of profits failed; it was considered that the restraint of trade provisions in the defendants' employment contracts amounted to a restraint against competition; and the question of accessorial liability on the part of the Easytel defendants (which I considered did not strictly arise for determination) would have failed in any event). The defendants emphasise that, insofar as a breach of contract was found to have occurred on the part of Ms Barakat and Mr Youssef, no loss was established and an order was made for nominal damages in the sum of $1 each.
Thus, the defendants submit that the relevant "event", for the general rule that costs follow the event, should here be regarded as going against a party who recovers only nominal damages (on the basis that, in reality, the successful party lost the litigation and the unsuccessful party won, the defendants here citing Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [70] per McHugh J (Oshlack); and Alltrans Express Ltd v CVA Holdings Ltd [1984] WLR 394 at 397 per Stephenson LJ, Griffiths and Purchas LJJ agreeing (Alltrans)).
In amplification of the above summary, the defendants refer to the following matters in support of their application for costs on an indemnity basis.
First, the defendants say that the disclosures in the Norwich affidavits were made willingly (though it is accepted that they were made pursuant to Court orders); and the defendants say that these disclosures were ultimately the sole basis upon which Ms Barakat and Mr Youssef were said to have breached their contracts of employment. It is submitted that, since 13 December 2019, the plaintiffs failed materially to advance their case (despite substantial costs being incurred by both parties and significant commercial interruption being caused to the business affairs of the Easytel defendants as well as the personal and professional affairs of Ms Barakat and Mr Youssef and the directors of the Easytel defendants). (Pausing here, some such disruption I accept may be inferred but no particular prejudice was here identified. Moreover, I have some doubt that compliance with Court orders should be characterised as "willing" disclosure; rather it was disclosure under compulsion (after a failure to respond at all to the initial communication of the defendants' concerns.)
The second and third matters to which the defendants point relate to the plaintiffs' reliance in the original statement of claim on Annexure A, containing 13 entries which the plaintiffs asserted were clients whom Ms Barakat and Mr Youssef had allegedly sought to procure for the benefit of Easytel Australia using the confidential information of the plaintiffs (claims the defendants say were ultimately abandoned); and the reliance in the amended statement of claim on Annexure B (which followed the provision of discovery in accordance with orders made on 27 July 2020 - in particular, Mr Hanna's discovery affidavit of 10 August 2020). It is noted that Annexure B (a document headed "Easytel Client Exposure List"), listed details of entities alleged to have been procured by Easytel using the alleged confidential information of the plaintiffs (and it is said that this was derived largely from invoices discovered by the defendants in August 2020).
The defendants say that the plaintiffs ultimately failed to demonstrate that the entities in Annexure B were actual clients of the plaintiffs, as opposed to prospects or leads (noting that only four of the 62 entities listed in Annexure B had been customers of the plaintiffs at the time they were signed by Easytel).
The defendants further point to the approximately 40,000 entries in Confidential Exhibit EA-7, noting that it was ultimately conceded that there was no specific sub-list of those which were clients of the plaintiffs; that any number of those entities (leads) could be contained in client contact lists purchased by Easytel; and that, where Mr Ayoub referred to certain parties in his affidavits as prospects, this was because they were not customers of the plaintiffs.
The defendants submit that the "convoluted and aggressive" manner in which the plaintiffs prosecuted the case caused the defendants significant and unnecessary cost (complaining that the overwhelming majority of the entities in Annexure B were "red herrings" and that Confidential Exhibit EA-7 did not have any evidential value).
The gravamen of the defendants' complaint in this regard is that it was open to the plaintiffs (having the benefits of invoices produced upon Mr Hanna's discovery affidavit) to confine their pleadings by comparison with the plaintiffs' records; and that the plaintiffs elected not to do so. It is in this context that the defendants say that it ought to have been readily and reasonably apparent to the plaintiffs (at least upon the drawing of the amended statement of claim), that the plaintiffs were unable readily to substantiate any material damage suffered, or at least that any damage suffered would not be sufficient to justify the continuation of the proceedings. The defendants say that the pleadings should have been limited to four actual clients (Austeck; Metalair; Bars N Racks; and Blooms the Chemist). Further, it is noted that, by then, the restraints had lapsed and that the plaintiffs produced no evidence to substantiate their claims that the defendants had used the plaintiffs' information to obtain these customers. Reference is made to Actrol Parts Pty Ltd v Coppi (No 3) (2015) 49 VR 573; [2015] VSC 758 (Actrol) as an analogous case in this regard.
The defendants go on to contend that the plaintiffs should have withdrawn the proceeding, at least prior to the commencement of the hearing on 7 September 2020, insofar as it was reasonably and readily apparent that there was no real prospect of the plaintiffs succeeding upon a claim for material damages or upon an application for permanent injunctive relief (especially having regard to the global nature of the plaintiffs' claim as prosecuted).
As to these matters, I accept that the manner in which some of the evidence was presented was not helpful (so, for example, the forensic decision which Mr Ayoub explained as to how to "muddle up" client or prospective client information in order not to disclose confidential information to the defendants). Ironically, both sides seem to have acted in a way that increased costs from a reciprocal and fervent desire not to disclose their confidential information to the other. This, for example, seems to have been what led to the issues raised by the plaintiffs in relation to the inspection of the computer devices (characterised by the defendants as stultification) and issues as to access to or inspection of documents produced on discovery; as well as issues in relation to the initial redactions in the copy of the Asset Sale Agreement produced to the Court. For their part, the Easytel defendants complained more than once as to their confidential information being in the possession of the plaintiffs through the Court process.
In essence, the argument that the plaintiffs should have withdrawn the proceeding is tantamount to an argument that there was no reasonable basis for the plaintiffs to prosecute their claims. I do not accept that this is established in circumstances where there was a legitimate basis to believe that there was a breach of contract by the individual defendants (as indeed was ultimately established) by reference to the information received from Mr Mitchell and from various customer reports, not helped by the erroneous findings of the Court-appointed expert in relation to the deletion of the computer operating systems (which understandably would have caused suspicion on the part of the plaintiffs).
Complaint is made by the defendants that such was the "ferocity and vigour" with which the plaintiffs pursued this matter, the defendants "were left with no choice but to engage the plaintiffs in commercially exhaustive proceedings". The defendants point to the relative size of the parties' businesses and contend (as they did more than once at the hearing) that the plaintiffs' "aggressive" manner of litigation (which they say was on an almost global basis) was likely (and at times they suggested intended) significantly to "curtail and potentially extinguish" the defendants' business operations during the course of the proceeding.
In this context, the defendants point to: the regularity of the plaintiffs' interlocutory applications; the extensive restraints imposed on the Easytel defendants' business (that it is said had the causative effect that the defendants were required to remain embroiled in the proceedings without any effective opportunity to pursue an alternative approach); and the volume of evidence required to be produced and reviewed, and to which the defendants were required to respond (including after the commencement of the hearing). The defendants point also in this regard to the "self-imposed" decision of the Easytel defendants to adopt the process whereby Easytel staff would only contact paid sources for fear of causing further issues with the plaintiffs.
I am not satisfied that these matters go further than a complaint that the plaintiffs have had greater economic resources at their disposal, which they have been able to use to enforce their perceived rights. There was, in my opinion, a reasonable basis for the various interlocutory applications (as is evident from the fact that, by and large, they were successful - at least in the context of the Anton Piller orders and application for injunctive relief); and the interlocutory applications were not restricted to ones brought by the plaintiffs. As to the fact that the Easytel defendants sought to minimize their exposure to claims (by putting in practice the procedure which I have described in the principal judgment of instructing staff not to contact leads that were identified as potentially being Nexgen customers and that were not purchased leads), that seems to have been a sensible business decision which no doubt served the Easytel defendants in good stead in terms of reducing the likelihood of being seen to have used any confidential information of the plaintiffs that was found to be in their possession.
Fourth, complaint is made as to the allegations made in respect of the deletion of the computer operating systems to which I have referred above. The defendants point to the filing by the plaintiffs of their notice of motion on 8 September 2020 (following the second day of what had been listed to be a two-day hearing) seeking further interim orders restraining use of the plaintiffs' alleged confidential information as well as restraining the defendants from dealing with their own business. It is noted that this interlocutory application was based on the contention that Easytel had deleted operating systems from its computers (an allegation that was determined to be without evidentiary foundation and ultimately found to be incorrect).
The defendants do not cavil with the finding of fault on the part of the independent computer expert but they say that the manner in which the plaintiffs conducted the proceeding (by which I understand them to be referring to the resistance as to the inspection of the forensic devices) stultified the defendants' efforts to resolve the forensic issues in respect of the two computer devices (AF2001 and AF2003). The defendants contend that the plaintiffs have thus not acted consistently with the overriding purpose to facilitate the just, quick and cheap resolution of the real issues upon the proceeding, both in this regard and generally.
The difficulty I have with the complaints by the defendants about the allegations made by the plaintiffs in relation to the computer operating systems is that these were made as a result of the erroneous forensic report from the Court-appointed single expert (whose conclusion was that the operating system had been removed). There can be no suggestion that the plaintiffs were to blame for that error, which clearly led to a heightening of suspicion and an atmosphere of distrust on the part of the plaintiffs as to the conduct of the defendants. True it is that there was delay in an attempt to resolve those issues (which regrettably delayed and no doubt increased the costs of the proceeding) and that it was ultimately resolved in favour of the defendants, but that does not to my mind point to a conclusion that the plaintiffs should bear the costs of the proceeding on an indemnity basis, nor the costs of the experts in relation to the computer devices on an indemnity basis. The allegation as to the deletion of the computer operating systems (serious as it was) was not frivolous; rather, it was based on the independent computer expert's ultimately self-acknowledged or admitted error.
It is next submitted by the defendants that, despite having the benefit of almost the entirety of Easytel's business records to compare against its own, the plaintiffs: continued to perpetuate a false narrative that the defendants had deleted operating systems (see my comments above); and pursued and continued to pursue claims in respect of the entities listed in Ex EA-7 and Annexure B of the amended statement of claim, which it is said the plaintiffs knew, or ought to have known, were "utterly hopeless".
The defendants point out that the plaintiffs failed in respect of the four customers to which the defendants say the pleadings should have been confined. Further, the defendants say that, even if the plaintiffs had been successful in respect of those four customers, and had been able to substantiate damage (which the defendants maintain is doubtful on the basis that those customers were within their rights to move to another service provider), any damages would still have been grossly disproportionate to the costs the parties have incurred in the proceedings.
I accept that, as it has transpired, the costs of the proceeding will inevitably be grossly disproportionate to the damages that have been ordered. However, I do not accept that the plaintiffs should or would have known this at the outset; nor even that it would necessarily have been appreciated during the course of the hearing (which to some extent seemed to take on a life of its own in relation to the lists of customers or prospective customers). The plaintiffs were in a position where it was reasonable to believe that confidential information had been taken (as was ultimately established) and to suspect that it was or would, but for injunctive restraint, be used by the defendants in the competing Easytel business. I do not accept that the claims could be said to be so hopeless that they could not genuinely have been prosecuted at all (notwithstanding that ultimately they did not sound in substantial damages nor did they give rise to permanent injunctive relief).
Fifth, the defendants say that the plaintiffs' Anton Piller application was, in essence, founded on the allegation that the defendants were in possession of (and using) confidential material belonging to the plaintiffs which had not been disclosed in the Norwich Affidavits; and that, on this basis, there was a real prospect of damage to the plaintiffs' business. The defendants point out that this allegation was not made out; nor have the plaintiffs established any damage. It is said that the only material that was proved to have been in the possession of Ms Barakat and Mr Youssef was the material they "voluntarily" disclosed in the Norwich Affidavits on 13 December 2019 (which was ultimately determined to be inconsequential). Complaint is made that this application complicated, elongated and added substantial cost to the proceeding and is yet another example of the manner in which the plaintiffs conducted the proceeding (such as to warrant costs on an indemnity basis).
The Anton Piller application has already in effect been the subject of challenge when the Easytel defendants sought to discharge the orders that had been made (see the principal judgment) and I do not accept that the reasoning on that application should here be revisited nor do I consider that it can be said that the Anton Piller application was groundless the circumstances in which it was made, notwithstanding the result of the overall litigation.
Sixth, the defendants say that, while the competing submissions as to the Asset Sale Agreement did not ultimately arise for determination, this issue was protracted and costly and that this was primarily due to the plaintiffs' "reticence" in dealing with the issue when it was first raised by the defendants in March 2021. The defendants point to the procedural history as to the amendment to the pleadings arising from the sale of the business the subject of that agreement (the plaintiffs' initial refusal to acknowledge that the sale of the business was of any relevance, and what is said to have been the plaintiffs' subsequent hindrance in relation to the disclosure of the Asset Sale Agreement; the production of a draft further amended statement of claim on 3 June 2021; the attempted filing of that further amended statement of claim (not properly attested) on 23 August 2022; and the defendants' need to file further amended defences).
The defendants say that the filing by the plaintiffs of a notice of motion further to amend their pleading arose directly out of the sale of the plaintiffs' business (and ultimately failed). The defendants maintain that they established that there was a reasonable basis for their concerns in respect of the Asset Sales Agreement, referring to observations made in the principal judgment as to this issue.
The issues raised as to the Asset Sale Agreement arose at the heel of the hunt, so to speak; after judgment had been reserved. My recollection is that at the time I at least tentatively raised the suggestion that the issue of liability could be dealt with first (which, had that been done, would as it transpired, have obviated the need for further cost to be incurred in exploring the issue of standing). However, the defendants, as was their prerogative, wished to challenge the Asset Sale Agreement issues; hence, the adjournment for that purpose. Ultimately, as the defendants here accept, the issue went nowhere (though it would have been of relevance had there been findings as to there being more than nominal damages). That said, I do not accept that the plaintiffs should be liable for indemnity costs because of the circumstances in which the pleading was amended following the sale of the business and I note that the costs thrown away by this have already been the subject of costs orders in the defendants' favour.
Finally, the defendants contend that the matters referred to in [457]-[458] of the principal reasons should be taken into account in an award of costs against the plaintiffs. This is a reference to the following submissions made by the defendants at the hearing: 457 The Easytel defendants also contend that, even if the plaintiffs were "technically successful", the extent of any award of damages would be nominal. It is noted that such nominal damages would obviously be dwarfed by the reported sale price of Nexgen's business (being $50,000,000). 458 The Easytel defendants emphasise that they have consistently asserted that this proceeding was commenced to bully, harass and intimidate Easytel out of business. They contend that, in the absence of detailed disclosure by the plaintiffs, having regard to the value of the Nexgen sale transaction, and the involvement of a publicly listed company, Spirit Technology Solutions Ltd (Spirit Technology), that: the Asset Sale Agreement does not encapsulate the whole transaction, particularly since it does not include any reference to any sale price; and the sale of the Nexgen business has been in motion for some time, and likely well in advance of the conclusion of the proceeding. Insofar as that is the position, the Easytel defendants contend that the plaintiffs have maintained the proceeding in the absence of any, or any material, utility, and in so doing have caused the parties to incur unnecessary costs which far exceed any purported harm claimed by the plaintiffs (which is denied by the Easytel defendants in any event).
The defendants thus say that the plaintiffs conducted a proceeding that was never going to (and ultimately did not) result in any substantial award of damages. The defendants also complain about it being likely that the sale of the plaintiffs' business for the reported sum of $50,000,000 was on foot during the proceeding. Whether or not the defendants' supposition as to the timing of discussions for the proposed sale of the business is correct, insofar as the complaint is as to the timing of the application (after judgment had been reserved) to reopen so as to amend the pleadings to reflect the new entity that had acquired the Nexgen business, I consider that this is met by the costs orders to be made in relation to the proceeding as a whole.
In summary, therefore, the defendants submit that their application for indemnity costs is appropriate in all the circumstances in that the conduct of the proceeding has caused unreasonable delay and expense and the proceeding was maintained for an ulterior purpose. The defendants further submit the awarding of indemnity costs is justified insofar as the plaintiffs maintained proceedings which they should have known had no real prospects of success and certainly no real prospects of material success. Thus, the defendants contend that the plaintiffs' conduct falls short of complying with its duties under the Civil Procedure Act 2005 (NSW) (Civil Procedure Act) and that this should be taken into account in the exercise of the discretion with respect to costs (reference being made in this context to what was said by Black J in In the matter of Indoor Climate Technologies Pty Ltd [2019] NSWSC 356 at [8]). The defendants also refer to the decision of the Victorian Civil and Administrative Tribunal in Demiri v Zalzly (Costs) (Building and Property) [2021] VCAT 1196 where a building owner that had validly terminated the building contract was nevertheless liable for the builder's legal costs on an indemnity basis. There, the owner had been ultimately unsuccessful in substantiating any damages, and it was concluded that the owner's conduct caused the proceeding to be a lot more difficult than it needed to have been.

Determination

The relevant principles in relation to costs are well-known. There is a broad discretion as to costs (see s 98 of the Civil Procedure Act; Oshlack) but it must be exercised judicially and having regard to the overriding statutory purpose mandated by s 56 of the Civil Procedure Act.
The usual order is that costs follow the event (r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW)); unless the Court considers that some other order ought to be made (see Commonwealth of Australia v Gretton [2008] NSWCA 117 at [38] per Beazley JA, as Her Excellency then was (with whom Mason P agreed)). That said, difficulty may arise in determining the relevant "event", particularly if there is a mixed outcome in the proceeding. It has been recognised that, while there is a broad discretion as to costs, a significant factor which informs the exercise of that discretion is who is the successful party (see Mid-City Skin Cancer and Laser Centre v Zahedi-Anarak [2006] NSWSC 1149 at [48] per Campbell J, as his Honour then was (Mid-City)).
It is also important to keep in mind that the function of costs orders is compensatory not punitive (see Latoudis v Casey (1990) 170 CLR 534; [1990] HCA 59 at 543 per Mason CJ).
The issue as to what is the relevant "event" arises acutely in the present case, where the plaintiffs have succeeded in establishing breaches of contract by Ms Barakat and Mr Youssef but have failed entirely in their claims against the Easytel defendants and have recovered only nominal damages.
Historically, nominal damages were seen as serving as the "peg on which to hang costs" (see Beaumont v Greathead (1846) 2 CB 494 at 499). However, the modern position is that where a plaintiff establishes liability for breach of contract but only obtains an order for payment of nominal damages that party "is usually not to be regarded as the successful party in the action" (see Campbell J, as his Honour then was, in Mid-City at [47]-[52]; Rockcote Enterprises Pty Ltd v FS Architects Pty Ltd [2008] NSWCA 39 at [100] per Campbell J, as his Honour then was; Romero v Farstad Shipping (Indian Pacific) Pty Ltd (No 3) [2017] FCAFC 102 at [103] per Allsop CJ, Rares and McKerracher JJ (Romero); Motium Pty Ltd v Arrow Electronics Pty Ltd [2011] WASCA 65 (S) at [8] per the Court (Motium); State of New South Wales v Stevens (2012) 82 NSWLR 106; [2012] NSWCA 415 at [22] per McColl JA, with whom I agreed; and ICM Investments Pty Ltd v San Miguel Corporation (No 3) [2013] VSC 621 at [29] per Vickery J).
The question ultimately is whether a party who is awarded nominal damages is to be regarded as the successful party (see Motium at [8]; Mid-City at [48]); and, unsurprisingly, each case depends on its own facts. A plaintiff who recovers nominal damages has been said not to be a "successful" plaintiff where the primary purpose of the proceedings is to recover substantial damages and not simply to establish or vindicate some legal right (see Mid-City at [49]; Motium at [10]; ICM at [42]; Romero at [103]).
In the present case, the plaintiffs cannot be regarded as having succeeded in the relevant sense. They were seeking permanent injunctive relief and damages, not the vindication of some legal right; and what they obtained was an order for token or nominal damages (this was not "the event at which the plaintiffs were aiming", to adopt the words of Stephenson LJ in Alltrans at 401).
Therefore, on the application of the general rule, the plaintiffs should pay the defendants costs of the proceeding, notwithstanding that liability was established as against Ms Barakat and Mr Youssef; and I certainly see no basis on which it would be appropriate to order the defendants to pay their own costs.
In those circumstances, the claim for a Bullock order would also fall away. However, for completeness, I note that the overriding consideration for the exercise of the discretion to make a Bullock order is whether, as between the contending parties, it is proper or fair to order the unsuccessful party to pay the costs involved (see Johnson's Tyne Foundry Pty Ltd v Maffra Corp (1948) 77 CLR 544; [1948] HCA 46 at 572 per Williams J (Johnson's v Maffra); Permanent Trustee Co Ltd v Keogh [1999] NSWSC 883 at [11] per Davies AJ; and Sved v Council of the Municipality of Woollahra (1998) NSW Conv R 55-842 at 56-605, per Giles J (Sved)).
In determining whether it is fair to make such an order, two issues arise. First, it must have been reasonable for the plaintiff to have brought the proceedings against the successful defendant (see Gould v Vaggelas at 230 per Gibbs CJ; at 260 per Brennan J; Lackersteen v Jones (No 2) (1988) 93 FLR 442; [1988] NTSC 72 at 449 per Asche CJ (Lackersteen v Jones); Stevedoring Industry Finance Committee v Gibson (2000) 20 NSWCCR 417; [2000] NSWCA 179 at [128] per Mason P (Stein JA and Heydon JA, as his Honour then was, agreeing) (Stevedoring Industry v Gibson)). Second, there must be some conduct on the part of the unsuccessful defendant which would make it fair to impose liability on it for the costs of the successful defendant(s) (see Gould v Vaggelas at 230 per Gibbs CJ; at 247 per Wilson J (Murphy J agreeing)).
In Council of the City of Liverpool v Turano (No 2) [2009] NSWCA 176 at [16], Beazley JA (as Her Excellency then was), together with Hodgson and McColl JJA, when considering whether the not dissimilar type of order known as a Sanderson order (so-called after the decision in Sanderson v Blyth Theatre Co [1903] 2 KB 533), requiring an unsuccessful defendant to pay the costs of other successful defendants should be made, referred to the relevant considerations articulated in Stevedoring Industry v Gibson, per Mason P (Stein JA and Heydon JA agreeing) (at [128]), as adopted from those stated by Asche CJ in Lackersteen v Jones , namely: 1. It must be seen to have been reasonable and proper for the plaintiff to have sued the successful defendant. 2. The causes of action against two or more defendants need not be the same but they must be substantially connected or dependent the one on the other. 3. While it is essential to find that the plaintiff has acted reasonably and properly that alone is not sufficient. The court must find something in the conduct of the unsuccessful defendant which makes it a proper exercise of discretion. 4. Finally, in considering whether to make such an order, the court should, in the exercise of its discretion balance overall two considerations of policy: the first, that an unnecessary multiplicity of actions should not be forced on litigants, so that a plaintiff who acts reasonably in joining two or more defendants should not be penalised or lose the fruits of his victory in costs on the basis that he should have either elected or taken separate actions; secondly, that an unsuccessful defendant should not have to pay more than one set of costs merely because he is unsuccessful.
In the present case, I accept that it was reasonable and proper for the plaintiffs to have sued the Easytel defendants, having regard to the information of which the plaintiffs were aware at the time and the response received from the Easytel defendants to the initial letter of demand; and that the causes of action were substantially connected. I do not consider that there is anything in the conduct of the unsuccessful defendants (Ms Barakat and Mr Youssef) that would make it a proper exercise of discretion to make a Bullock order. Their conduct was no more than to breach their respective contracts of employment.
This brings me to the claim by the defendant for part or all of the costs made in their favour to be on the indemnity basis. The well-known authorities in relation to the power to award indemnity costs include Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; [1993] FCA 801 at 233 and Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397 at 401.
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 applicant, properly advised, should have known the applicant had no chance of success; where proceedings have been commenced in wilful disregard of known facts or clearly established law, including refusal of an offer of compromise. 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.
I have addressed above the matters to which the defendants have pointed in support of their claim for indemnity costs. I do not accept that this is a case where, properly advised, the plaintiffs ought to have known when they commenced the proceeding that there was no prospect of success - the plaintiffs were aware of information to suggest that Ms Barakat and Mr Youssef were indeed in possession of confidential information and were working for a competitor and they had information to suggest that clients or prospective clients were being contacted. Moreover, the response received from the respective defendants to the initial expression of concern would hardly have reassured the plaintiffs. The fact that the claims ultimately failed (or, for the claims in breach of contract, sounded only in nominal damages) would not have been a foregone conclusion at the outset of the proceeding.
The circumstances in which the Anton Piller orders were sought (and obtained) have been dealt with in the principal judgment. Relevantly, the application to discharge the orders did not succeed (and that application was pressed in the context of very serious - and ultimately unsubstantiated - allegations as to the suborning of testimony from a witness).
As to the allegations in relation to the deletion of the operating systems from the computers (serious allegations that were not established), the making of those allegations was understandable in circumstances where the Court-appointed computer expert had concluded that that very conduct had occurred. Hence the renewed application for interlocutory relief during the hearing (at a time when there was to be a delay for further forensic examination of the computer devices) was explicable.
The real nub of the defendants' contentions in support of the indemnity costs orders seems to lie in the (oft-repeated) assertion that the litigation was aggressively conducted in a manner which caused disproportionate expense for an ulterior purpose - which amounts to a very serious allegation of abuse of process. I do not accept that this was established (and I dealt in essence with the very same allegation in the principal judgment - and have not changed my view in that regard). I accept that statements reported to have been made by Mr Ayoub (such as that the Easytel defendants would not be in business very long) would have engendered suspicion in the defendants' mind as to the motivation underlying the litigation. However, there was to my mind a genuine belief on the part of Mr Ayoub that a wrong had been committed (which was correct insofar as there was found to be a breach of contract) and I accept that the plaintiffs were seeking to enforce what they believed to be their rights in that regard.
The fact that the litigation ended up being grossly disproportionate in terms of costs (which is to be deplored - and is inconsistent with the overriding statutory mandate for the conduct of litigation in this Court) was in my opinion at least to some extent a function of fault on both sides. The complaint by the defendants that they became embroiled in litigation which they had no option but to defend (or into which they were in some way locked) does not take into account the possibility that other avenues for settlement of the litigation could have been explored; and does not take into account that the Easytel defendants themselves were seeking to invoke the very same kind of confidentiality arguments that were being marshalled against them (and which on both sides added to the cost and delay).
Thus, I have concluded that, unsatisfactory as the whole saga has been, this is not a case in which indemnity costs ought be ordered against the plaintiffs.

Conclusion

For the above reasons, I make the following order: 1. Order the plaintiffs to pay the defendants' costs of the proceeding (other than as already the subject of costs orders) on the ordinary basis.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 05 May 2022

(2000) 20 NSWCCR 417

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