Costs
57 SAI sought an order for payment of its costs of the proceeding on the basis that costs should follow the event. Mr Johnstone submitted that SAI had incurred costs which were disproportionate to the importance and complexity of the matters in dispute, and this should be reflected in the costs order, pursuant to ss 37M and 37N of the Federal Court of Australia Act.
58 Sections 37M and 37N provide as follows:
37M The overarching purpose of civil practice and procedure provisions
(1) The overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes:
(a) according to law; and
(b) as quickly, inexpensively and efficiently as possible.
(2) Without limiting the generality of subsection (1), the overarching purpose includes the following objectives:
(a) the just determination of all proceedings before the Court;
(b) the efficient use of the judicial and administrative resources available for the purposes of the Court;
(c) the efficient disposal of the Court's overall caseload;
(d) the disposal of all proceedings in a timely manner;
(e) the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute.
(3) The civil practice and procedure provisions must be interpreted and applied, and any power conferred or duty imposed by them (including the power to make Rules of Court) must be exercised or carried out, in the way that best promotes the overarching purpose.
(4) The civil practice and procedure provisions are the following, so far as they apply in relation to civil proceedings:
(a) the Rules of Court made under this Act;
(b) any other provision made by or under this Act or any other Act with respect to the practice and procedure of the Court.
37N Parties to act consistently with the overarching purpose
(1) The parties to a civil proceeding before the Court must conduct the proceeding (including negotiations for settlement of the dispute to which the proceeding relates) in a way that is consistent with the overarching purpose.
(2) A party's lawyer must, in the conduct of a civil proceeding before the Court (including negotiations for settlement) on the party's behalf:
(a) take account of the duty imposed on the party by subsection (1); and
(b) assist the party to comply with the duty.
(3) The Court or a Judge may, for the purpose of enabling a party to comply with the duty imposed by subsection (1), require the party's lawyer to give the party an estimate of:
(a) the likely duration of the proceeding or part of the proceeding; and
(b) the likely amount of costs that the party will have to pay in connection with the proceeding or part of the proceeding, including:
(i) the costs that the lawyer will charge to the party; and
(ii) any other costs that the party will have to pay in the event that the party is unsuccessful in the proceeding or part of the proceeding.
(4) In exercising the discretion to award costs in a civil proceeding, the Court or a Judge must take account of any failure to comply with the duty imposed by subsection (1) or (2).
(5) If the Court or a Judge orders a lawyer to bear costs personally because of a failure to comply with the duty imposed by subsection (2), the lawyer must not recover the costs from his or her client.
(Emphasis added.)
59 Sections 37M and 37N were considered by Katzmann J in Specsavers Pty Ltd v The Optical Superstore Pty Ltd (No 4) [2012] ATPR 42-403; [2012] FCA 652, whose judgment was affirmed on appeal in Specsavers Pty Ltd v The Optical Superstore Pty Ltd (2012) 208 FCR 78. The judgment of Katzmann J concerned costs. There had earlier been a trial on the damages payable under an undertaking as to damages. The result of the trial was that Specsavers was ordered to pay The Optical Superstore damages in the sum of $90,636 including interest. In the costs judgment, Katzmann J concluded that the costs expended in pursuing the damages claim were substantial and greatly exceeded the amount of damages recovered (at [29], [39]) and that The Optical Superstore had failed to comply with the overarching purpose in failing to respond to several overtures to settle the proceeding (at [26]-[28], [39]). Further, the size of the damages awarded in favour of The Optical Superstore was less than the sum of $100,000 referred to in rule 40.08 of the Federal Court Rules 2011 (at [30], [39]). That rule enables a party to apply to the Court for an order that any costs and disbursements payable to another party be reduced by an amount specified by the Court where the applicant has claimed damages and been awarded a sum of less than $100,000; although Specsavers had not invoked the rule, Katzmann J noted that it was open to the Court to exercise the power on its own initiative (rule 1.40). Her Honour concluded that The Optical Superstore should recover costs, but there should be a reduction of 35% to reflect these matters.
60 There was no appeal against the finding that the costs should be reduced on account of those factors, including the failure to comply with the overarching purpose: see Specsavers Pty Ltd v The Optical Superstore Pty Ltd (2012) 208 FCR 78 at [64]. The appeal was in respect of other issues. In the course of the appeal judgment, Foster, Barker and Griffiths JJ noted that, by s 37N(4), in exercising the discretion to award costs in a civil proceeding, the Court must take account of any failure to comply with the duty imposed by subsections (1) or (2). Their Honours stated: "The power, indeed duty, of the Court to regard the failure of a party or its lawyer to comply with the s 37N duties constitutes a powerful mechanism to encourage compliance with those duties" (at [57]).
61 Mr Johnstone submitted that:
(a) SAI substantially obtained what it was seeking in this proceeding within days of commencing it. It nonetheless chose to carry out an extensive and presumably expensive forensic analysis of what was delivered up, then to bring a formal statement of claim, and ultimately to proceed to trial, against a low level sales employee. SAI proceeded despite Mr Johnstone's affidavit evidence, and its own forensic analysis, showing that there was no ongoing risk to its confidential information, and despite having no evidence that it suffered any damage from his wrongdoing.
(b) The Court is not asked to make any finding about the personal motivations of the relevant officers of SAI. They may well have believed that SAI suffered actual damage. They were evidently concerned about Mr Johnstone going to work for the New Employer, no doubt because it was a competitor. The litigation against Mr Johnstone may also have been a matter of principle.
(c) Whatever their subjective motivations, SAI's pursuit of this matter after 11 December 2015, when it recovered its confidential information and received Mr Johnstone's affidavit, was objectively unnecessary. Nothing uncovered by its forensic analysis since then undermined the salient matters referred to in Mr Johnstone's first affidavit. To the contrary, the independent forensic analysis largely corroborated Mr Johnstone.
62 Mr Johnstone's initial submission was that there should be no order as to costs. However, in the course of discussion, counsel for Mr Johnstone accepted that SAI was entitled to its costs for the period up to 11 December 2015, but submitted that there should be no order as to costs with respect to the balance of the proceeding.
63 SAI submitted in response that it was plainly reasonable to engage Mr McKemmish to undertake the second analysis, following delivery up of Mr Johnstone's USB device and computer and the New Employer's computer; the affidavits of Mr van der Leest, Ms Rinehart and Ms Farago-Diener related to the date when Mr Johnstone's employment ceased, which was disputed in the defence (a matter raised by SAI's solicitors in a letter to Mr Johnstone's solicitors following the filing of the defence); and the costs of the hearing were necessary because Mr Johnstone disputed several causes of action until the filing of his outline of submissions.
64 In the course of discussion with senior counsel for SAI during the hearing, I requested information about SAI's actual costs of the proceeding, broken down between (a) the period up to 11 December 2015 and (b) the period since 12 December 2015. Subsequently, SAI filed an affidavit of Michael Williams dated 15 July 2016. This provided a breakdown of the costs incurred by SAI together with an explanation of the work done, and an opinion as to the reasonableness of the costs. In summary, the breakdown of costs was as follows:
(a) $82,952.54, in respect of the period up to 11 December 2015;
(b) $158,106, in respect of the period from 12 December 2015 (other than the costs associated with the second McKemmish report); and
(c) $34,411, in respect of the costs associated with the second McKemmish report. This included the solicitor costs associated with that report.
This produced a total figure of $275,469 as the costs incurred by SAI in connection with the proceeding.
65 In my view, these costs are out of proportion to the importance and complexity of the matters that were in dispute in the proceeding, for the following reasons.
66 I accept that the documents in issue contained confidential information and that the Daily Revenue Report contained highly sensitive confidential information. Thus the proceeding had and has an importance to SAI which is not measurable by the amount of damages sought and obtained. Nevertheless, to a large extent, SAI had secured the most important relief it sought by 11 December 2015. By 7 December 2015, SAI had obtained orders for delivery up of relevant devices, computers and documents, and for an affidavit to be made by Mr Johnstone setting out the relevant details. These things and documents were delivered up on 11 December 2015. By this stage, or shortly afterwards (when the New Employer delivered its computer), SAI had secured the confidential information and had obtained admissions from Mr Johnstone about essentially all the material facts.
67 I accept that it was reasonable to engage Mr McKemmish to carry out his second analysis. Given Mr Johnstone's conduct, it was prudent for SAI to have an independent computer expert examine the USB device and computers delivered up. However, the other costs incurred in the period since 12 December 2015 seem to be out of all proportion to the work involved in that period. The statement of claim was a concise document of eight pages. There was no discovery. There were no interlocutory fights. The affidavits filed since 12 December 2015 were very brief (most were only 2 or 3 pages). Further, in circumstances where SAI had already secured the most important relief it sought, the remaining issues were of limited importance. By his defence, Mr Johnstone conceded liability for breach of the Employment Contract and for infringement of copyright. True it is that he had not conceded all claims made by SAI, but the importance of those additional claims was limited. There was a dispute about whether his employment finished on the day of his resignation or two weeks later. But that dispute was of little importance in the scheme of things; it has produced a declaration and a damages award of only $4,230. The claim for additional damages was for $5,000.
68 In these circumstances, I conclude that SAI did not comply with the obligation in s 37N(1) to conduct the proceeding in a way that was consistent with the overarching purpose, in particular the objective of "the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute" (s 37M(2)(e)). I think this requires some adjustment to the costs order that would otherwise be made. Ordinarily, there would be an order than Mr Johnstone pay SAI's costs of the proceeding (on a party-party basis), on the basis that SAI is the successful party and costs usually follow the event. In relation to the costs up to 11 December 2015, there is now no issue in respect of these costs. Accordingly, I will order Mr Johnstone to pay SAI's party-party costs in respect of that period. In relation to the work associated with Mr McKemmish's second report, I do not think reason has been shown to depart from the ordinary approach to these costs. Accordingly, I will also make an order that Mr Johnstone pay SAI's party-party costs in respect of this work. However, in respect of the other costs of the period since 12 December 2015, I think the matters discussed above justify a significant reduction in the costs that would otherwise be ordered to be paid by Mr Johnstone to SAI. Based on my impression of the importance and complexity of the matters in issue, and the extent and nature of the work carried out, I think it appropriate to reduce SAI's costs by half. Accordingly, I will make an order that Mr Johnstone pay half of SAI's party-party costs from 12 December 2015 (other than the costs associated with the second affidavit of Mr McKemmish).