Plaintiff v Firstnamed Defendant

In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action.[4]

An appropriate case may be where a party has acted unreasonably in commencing or defending the proceedings, as the case may be, or where the Court is able to make an assessment that one party almost certainly would have succeeded had the proceeding been determined, without engaging in a hypothetical trial.[5] That view may be supportable where the settlement terms essentially constitute a capitulation by one party to the other party. However, as the discretion is unfettered, the circumstances in which a Court may order costs against a party in a compromised action are not fixed. Cases provide some guidance on the circumstances which may constitute a basis for the exercise of discretion, but the overriding consideration in each case will be whether there is some circumstance that justifies a costs order in order to do justice between the parties.

3 This proceeding was commenced by the plaintiff ("SIGA") on 9 February 2010. In summary, it was alleged by SIGA that:

(a) Saeco Australia Pty Ltd ("Saeco Australia") (now subject to a deed of company arrangement) created various classes of confidential information in conducting its business. That information was sold to SIGA in April 2007 and was thereafter substantially added to and altered;

(b) As at July 2007, SIGA possessed and had relevant rights of ownership and possession over some computer tapes containing that confidential information ("backup tapes");

(c) Those backup tapes were stolen and, in circumstances unknown to SIGA, were delivered to one or both of the defendants ("the Ubertini parties");

(e) Despite demand, the Ubertini parties would not return the backup tapes;

(f) Moreover the Ubertini parties asserted rights of use of the backup tapes and of the confidential information contained on the backup tapes.

SIGA sought injunctions to prevent the Ubertini parties from using its backup tapes and the confidential information contained on those backup tapes for any purpose, a declaration that the information was confidential to SIGA, and an order that the Ubertini parties deliver the backup tapes to SIGA, as well as any other documents containing the confidential information. SIGA's claim for the delivery up of the backup tapes was based on claims in detinue and conversion.

4 The Ubertini parties, in their defence, did not deny that they possessed the backup tapes, that they had not returned the backup tapes, and that they intended to use the information contained on the backup tapes. The Ubertini parties, amongst other things, alleged a right to discover the backup tapes and use the information in the backup tapes in oppression proceedings brought by the Ubertini parties against Saeco International Group SPA Societa A Socio Unico ("SIG"), the parent company of Saeco Australia and (until December 2010) SIGA.[6] The oppressive conduct is alleged to include the sale of Saeco Australia's business to SIGA, which SIGA has thereafter conducted.

5 The solicitors for SIG in the oppression proceeding ("AAR") (who are the solicitors for SIGA in this proceeding) became aware that the Ubertini parties were in possession of the backup tapes on receipt of an affidavit of Georgio Massimo Ubertini ("Ubertini") filed in the oppression proceeding on 3 April 2009. The purpose of the affidavit was to explain his reason for non compliance with discovery orders. In that affidavit he deposed:

[25] The cause of the delay in [his then solicitors] making discovery was exacerbated by me being provided with a copy back up tape for the Original Saeco Australia computer system up to about July 2007. I do not know who provided the tape to me as it was left on my doorstep. These tapes are copies of the original back tapes of Original Saeco Australia, containing all financial and accounting records including email communications to and from Original Saeco Australia from about 2002 to July 2007.

[26] There were documents on the back up tapes which were not only relevant to discovery but related to events after I was terminated from Original Saeco Australia by the Administrators on or about 17 February 2007.

[27] I wished to discover all the documents on the backup tapes.

[28] I printed many of them out and took them to [Ubertini's then solicitor] who informed me, in his opinion, the documents included privileged communications in relation to parties connected with the First Defendant and that it was inappropriate for him to discover the documents or to review them.

[29] I did not understand or accept this because I felt and still feel the documents are highly relevant to the oppression proceedings.

[30] I am informed by Mr Foster of Foster Nicholson Legal that an appropriate protocol to adopt in these situations is for me to make discovery of the disk in the form "as it is" and to provide the backup tapes containing ... email accounts in the subfolders ... named "legal" to an independent barrister, who thereafter could not otherwise be briefed or retained on behalf of any of the parties in this matter, to review the potentially privileged documents in the tapes in order to identify whether there are any documents to which legal professional privilege would apply in respect of the First Defendant and also to advise whether the privilege in any of those documents (contained in the legal folder) had been waived.

[31] That report and the privileged documents would be provided by the independently selected barrister with the intent that -

(a) any documents identified as privilege where privilege has not being [sic] waived would be identified as privileged; and

(b) any documents in respect to which privilege applied that might have been waived would be disclosed to each of the parties including my solicitors for them to determine by appropriate application to the Court whether or not privilege had been waived.[7]

6 On 14 April 2009, AAR wrote on behalf of SIG and SIGA to Ubertini's solicitors ("FNL") referring to paragraph 25 of Ubertini's affidavit. The letter advised FNL that pursuant to the Deed of Company Arrangement dated 24 April 2007 with respect to Saeco Australia, the ownership of all business records of Saeco Australia, including the backup tapes, were transferred to SIGA on 1 May 2007 and that the backup tapes have been the property of SIGA since that time. FNL was further advised that in July 2007 SIGA's IT system incurred a security breach by which backup tapes were stolen from it and that at no time did SIGA provide the backup tapes to Ubertini or otherwise consent to Ubertini possessing its property. The letter concluded:

Therefore, your client's retention and threatened use of the Backup Tapes, which remain the property of SIGA, are wrongful. SIGA demands that you deliver up to our offices by close of business on Wednesday 15 April 2009, the Backup Tapes (including, for the avoidance of doubt, any copies thereof).

7 In an affidavit of documents made in May 2009 and filed in the oppression proceeding, Ubertini made discovery of the backup tapes (without identifying the particular documents on the backup tapes). On 30 November 2009, AAR wrote again to FNL maintaining the position outlined in the letter of 14 April 2009 and contending also that the possession of the backup tapes by any 'independent' barrister would also be wrongful. A further demand for the return of the backup tapes (including any copies) by 4 December 2009 was made. The letter advised that:

Should the tapes not be returned in this timeframe, we are instructed by SIGA to issue proceedings for their return without further delay.

However, if necessary for the purposes of this litigation, SIGA is prepared to produce all relevant and non-privileged documents from the backup tapes to your clients, on condition that:

1. 1. The documents are used only for the purpose of this proceeding;
2. 2. The documents are not to be disclosed to any third party other than your clients' legal representatives and any other professional advisors engaged for your clients in this proceeding; and
3. 3. Your clients SIGA's costs of completing this exercise.

8 FNL responded by letter dated 1 December 2009 in which the solicitors wrote that for the purposes of the oppression proceeding:

... we are willing to not access the backup tapes if your client is willing to produce all relevant and non-privileged documents from the backup tapes on condition that:

1. 1. The documents are used only for the purpose of this proceeding;
2. 2. The documents are not to be disclosed to any third party other than our client's legal representatives and any other professional advisors engaged for our client in this proceeding; and
3. 3. The costs of such exercise is borne by the party undertaking the exercise, as costs of discovery.

Similarly, we would be willing to access the backup tapes through independent counsel with the above protocol in mind, with our client bearing the costs of completing the exercise.

9 The backup tapes were not returned, and on 9 February 2010 SIGA instituted this proceeding. The matter was listed for a two day trial to commence 20 July 2011 (after an earlier trial date was vacated).

10 In his first affidavit in this proceeding, sworn on 20 July 2011, Ubertini deposed that he had extracted certain documents from the backup tapes which he believed were highly relevant to his claims in the oppression proceeding. In order to extract those documents, he uploaded each tape onto the hard drive of his work computer and viewed the information from that computer. He deposed that he also proposed to download to new tapes an image copy of the backup tapes and "will be in a position to deliver to [FNL] the backup tapes [he] received in July 2007".[8]

11 Nine of the twelve backup tapes were returned to AAR on 19 July 2011, the day before the trial was due to commence. The other three backup tapes were returned the following day, on the first day of the hearing.

12 The hearing commenced but towards the end of the day the parties agreed to compromise the proceeding by orders that:

(a) the Ubertini parties would deliver to the Court all copies of documents extracted and printed from the twelve backup tapes and all computer backup tapes copied from any of the twelve backup tapes; and

(b) the Ubertini parties forthwith delete all computer files copied from any of the backup tapes.

13 The orders actually made slightly modified the form of the consent orders handed up. For matters of practicality the Court ordered that the backup tapes be delivered to the custody and control of AAR, instead of the Court, pending the hearing and determination of the oppression proceeding.

14 Against that background, Mr Solomon, senior counsel for SIGA argued that an award of costs in its favour on a party/party basis was justified because SIGA at all times acted reasonably, the Ubertini parties acted unreasonably and the consent orders effectively were a surrender by the Ubertini parties. Mr Wyles, senior counsel for the Ubertini parties, maintained that no order for costs was the appropriate order as the claim against the Ubertini parties was also to prevent the use of the information contained on the backup tapes, which was no longer being pursued by SIGA. Furthermore, that it was SIGA's change of position that gave rise to the compromise of the proceedings. The change of position referred to was a change from requiring delivery up of the backup tapes to SIGA to delivery up of the backup tapes to the Court (later substituted at the Court's request to AAR).

15 It was not suggested that SIGA acted other than reasonably in commencing these proceedings. I am satisfied that it did act reasonably. Moreover, SIGA, in effect, has achieved the outcome that it set out to achieve by commencing these proceedings. The proceeding was commenced after two demands for the return of the backup tapes, which were not met. It is significant that in November 2009 AAR indicated the preparedness on the part of SIGA to produce all relevant and non-privileged documents from the backup tapes to the Ubertini parties for the purposes of the oppression proceeding. It is significant also that whilst the indication was expressed to be made "on condition", the conditions set out (arguably save as to costs) were orthodox conditions that would be imposed by operation of law, if the documents had been furnished by SIGA by way of discovery or subpoena in that proceeding. The qualification about costs is that SIGA, at that point in time, was a wholly owned subsidiary of the SIG party in the oppression proceeding so that, arguably, SIG would have been required to make discovery of those documents in the normal course, and bear the costs initially. That position altered in that some time in December 2010 when SIGA ceased to be a wholly owned subsidiary of SIG as the result of a restructure. It is significant also that the response of FNL by letter of 1 December 2009 did not volunteer the return of the backup tapes, instead indicating that "we are willing to not access the backup tapes" if SIGA produced relevant and non-privileged documents from those backup tapes to the Ubertini parties. Then shortly prior to the trial commencing, the Ubertini parties did return most of the backup tapes, but only after uploading the backup tapes onto Ubertini's computer, copying the backup tapes and printing copies of particular documents.

16 The consent orders made not only secured the outcome intended by the two demands made prior to the institution of the proceeding, but also secured the outcome that the copies of the backup tapes and documents made also be returned, albeit into the possession of AAR rather than to the plaintiff itself. The voluntary return of the backup tapes by the Ubertini parties at the last moment prior to trial would have rendered the originating claim in this proceeding futile but for the conduct on the part of Ubertini just before trial in accessing those backup tapes, uploading the information and making copies of the documents before returning the backup tapes. The consent orders secured the result that SIGA would get all of its property back, which is the result that it had sought to achieve without the institution of Court proceedings. SIGA has been successful in its claim for the return of its property.

17 Mr Wyles SC put a different complexion on the consent orders. He submitted that it was SIGA's change of position which resulted in the consent orders. The change of position was said to be the agreement that the copy tapes and documents be delivered to the Court, rather than to the plaintiff. I was referred to evidence that indicated that SIGA keeps its records for a certain period and then destroys them. However, there was no evidence before the Court that the Ubertini parties' refusal to hand back the backup tapes was directed at any concern that they would be destroyed. On the contrary, the evidence was that if the backup tapes were returned to SIGA, SIGA would produce the documents from those backup tapes that may be relevant to the oppression proceeding and which were not privileged.

18 Mr Wyles SC also pointed to the fact that the compromise included that SIGA did not pursue its claim for protection of confidential information. It was argued that there should accordingly either be no order as to costs or the Court should exercise its power under r 63.04 of the Supreme Court (General Civil Procedure) Rules 2005 to make an order for costs in favour of SIGA in relation to the backup tapes claim and an order for costs in favour of the Ubertini parties on the confidential information claim, not pursued by SIGA. In my opinion, an order under r 63.04 would not be appropriate, having regard to the pleadings. Such an order can be appropriate in cases where there are distinct questions or issues raised on the pleading. But the claims in this proceeding, albeit different causes of action directed to different relief, are not wholly distinct and separable claims. Moreover, I could not conclude on the available material that SIGA acted unreasonably in making its claim for protection of confidential information.

19 In the circumstances, I am of the opinion that this is an appropriate occasion on which to make an order for costs of the proceeding in favour of SIGA, albeit that the proceeding has been compromised. SIGA has been effectively successful in the final result and in my view it would be unjust and unfair if SIGA was denied its costs.[9] Accordingly I order that the defendants are to pay the plaintiff's costs of the proceeding on a party / party basis, such costs to be taxed in default of agreement.

[1] Australian Securities Commission v Aust-Home Investments Ltd [1993] FCA 585; (1993) 44 FCR 194, 201 (Hill J).

1. [2] Ibid, One.Tel Limited & Ors v Commissioner of Taxation [2000] FCA 270; (2000) 101 FCR 548, 552 (Burchett J).

[3] Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622, 624 (McHugh J)

[6] S CI 2006 9429 Giorgio Massimo Ubertini & Ors v Saeco International Group SPA Societa a Socio Unico & Ors

[7] Paragraphs 25-30 Affidavit of GM Ubertini sworn 3 April 2009.

[8] First Affidavit of Giorgio Massimo Ubertini (sworn 20 July 2011), [12].

[9] Garwolin Nominees Pty Ltd v Statewide Building Society [1984] VicRp 38; (1984) VR 469, 472 (Kaye J); ACI Operations Pty Ltd v Berry Ltd (No 2) [2005] VSC 55.