Solutions People (Aust) Pty Limited v Stammers

Proceedings

1. On 15 October 2020, the plaintiffs commenced proceedings on an ex parte basis by way of summons filed in court before the duty judge. The summons was returnable on 20 October 2020.
2. On 20 October 2020, Lindsay J made orders by consent inter alia that the defendant deliver up to the Court any document in his possession, custody or control containing the plaintiffs' confidential information or intellectual property.
3. The defendant delivered up LSM's costing templates and admitted emailing LSM's costing templates for maintenance projects to himself "because [he] thought [he] might use it as a template to price jobs" (Stammers Affidavit at [13]). The defendant has deposed that he was interested in buying the business of Landscape Enterprises in partnership with Mr Simpson, and that discussions with Landscape Enterprises continued until late September/early October 2020 when he decided not to purchase that business (Stammers Affidavit at [11]-[12]). The defendant has admitted emailing numerous other documents belonging to LSM to his private email address (Stammers Affidavit at [13]-[20]).
4. By consent and without admissions, on 24 November 2020 the defendant (Mr Stammers) consented to final orders being made against him in terms of prayers 1 and 2 of the summons, relevantly restraining him from soliciting or performing work for clients of LSM for a period up until 15 June 2021; and permanently restraining him from using LSM's confidential information or intellectual property as defined in his contract of employment.

Legal Principles

1. It is accepted by both parties that, where a matter has not been heard on the merits, ordinarily the appropriate order will be for there to be no order as to costs. For there to be a costs order in favour of one party it is necessary to show that the other party's conduct has been "so unreasonable" as to warrant such an order (applying the principles applicable in Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex Parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 (Ex Parte Lai Qin); and see Freelancer International Pty Ltd v O'Kane [2019] NSWSC 159 at [70]).
2. In Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 (Nichols v NFS Agribusiness), Payne JA (with whom Meagher JA agreed) said (at [30]): 30. If both parties to a proceeding which has been settled without a hearing on the merits have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings.
3. Similarly, Basten JA in the same case said (at [8]-[9]): 8. Secondly, although it is possible to make an order for costs against one party if it can be shown that it has invited the litigation by its unreasonable behaviour, or has unreasonably pursued the litigation, such an order should only be made where that judgment is manifest by reference to known circumstances, not in dispute between the parties. If the question cannot be answered without reviewing large swathes of evidence and resolving, on a tentative basis, disputed questions of fact, the task should not be embarked upon. 9. Thirdly, if contrary to the views set out above, it was appropriate to investigate whether the applicants or the respondent had been unreasonable, either in their conduct prior to the proceedings, or in their conduct of the proceedings, the approach adopted was untenable. Thus, regard was had to the motives of the respondent in commencing proceedings, but no account was taken of the motives of the applicants in capitulating. Further, once it is clear that there is a real dispute as to a significant fact in issue in the proceedings, it is inappropriate to determine that matter, other than in making an interlocutory ruling, by accepting one party's case without permitting the other party an opportunity to challenge the opposing party's witnesses.

Plaintiffs' submissions

1. The plaintiffs contend that the defendant's conduct was so unreasonable before the commencement of the proceedings as to warrant the making of a costs order against him. They say that, while negotiating to purchase the business of a competitor of LSM, the defendant was caught taking confidential information belonging to LSM which he admits would have assisted him in pricing jobs in his proposed new venture. It is said that the defendant could not have been in any doubt about LSM's concerns; and that Harris Freidman's letter afforded him the opportunity to provide appropriate undertakings to LSM and to deliver up any confidential information belonging to the Group that remained in his possession; but the defendant ignored that demand.
2. It is noted that the defendant has not suggested that the demand was unreasonable, that he consented to orders for delivery up of LSM's confidential information, and to final injunctive relief imposing post-employment restraints upon him.
3. The plaintiffs submit that they were justified in commencing these proceedings and that they had no other option available to them to protect their commercial interests. It is said that the defendant could have avoided these proceedings had he complied with the demands made in Harris Freidman's letter; and that in not doing so he behaved unreasonably and caused the plaintiffs to incur significant costs in protecting their legitimate commercial interests. It is submitted that the defendant had no choice but to capitulate to the plaintiffs' demands given the flagrant breaches of his contract of employment.
4. The plaintiffs say that this is not a case where the Court is asked to determine contested issues of fact without a hearing on the merits. It is said that the uncontested facts are that the defendant took LSM's confidential information with a view to purchasing the business of a competitor of LSM, was caught, and chose not to respond to the plaintiffs' demand for the return of that information. It is submitted that the defendant only returned LSM's confidential information and consented to the injunctive relief against him because of the commencement of these proceedings.
5. On that basis, the plaintiffs submit that the defendant ought to pay their costs of the proceedings, or in the alternative, the costs of the proceedings up to 20 October 2020 which are presently reserved.

Defendant's submissions

1. The defendant says that the substantive matter has resolved by consent and without admissions at the earliest possible opportunity; and submits that, save in one respect, there is no basis for departure from the default rule in circumstances where there has been no hearing on the merits (i.e., the defendant resists an order that he pay the plaintiffs' costs).
2. The qualification that the defendant makes is that he relies on correspondence sent by his solicitor on a "without prejudice save as to costs" basis as warranting an order for costs in his favour from 23 October 2020 (see below).
3. As to the "default rule" (referring to Ex parte Lai Qin at 624, per McHugh J; Harkness v Harkness (No 2) [2012] NSWSC 35 at [16], per Hallen AsJ, as his Honour then was; and Nichols v NFS Agribusiness), the defendant says that the exceptions thereto are not operative in the present case for the following reasons.
4. First, that the defendant has not capitulated. It is said that he has agreed to the consent orders for commercial reasons and because he simply has no intention to remain in this industry (landscaping), and thus there was little utility to him in defending the proceedings (referring to the Stammers Affidavit at [21]-[22]). Reliance is placed on the fact that, in without prejudice correspondence, it was noted that, by agreeing to prayers 1 and 2 of the summons, the defendant was not capitulating (see the Annexures to the McEvoy Affidavit).
5. Second, that it cannot be said that the plaintiffs would definitely have "won". It is said that the plaintiffs' case rose no higher than a "concern" or "speculation" that the defendant would misuse its confidential information or contact its clients; that there is no evidence before the Court that any misuse or breach had actually occurred or was imminent; and that the Court has not had the benefit of arguments as to whether the information emailed was truly confidential or as to whether the restraint of trade was reasonable and enforceable.
6. Third, the defendant submits that there was no reason for the plaintiffs to approach the Court for interlocutory relief and says that the plaintiffs displayed a lack of candour in the material relied upon on that occasion - in that it is said that the Inglis Affidavit fails to disclose that on the same day that the forwarding of the alleged confidential information was discovered (15 September 2020) the emails were deleted in the presence of Mr Joel Hall, the plaintiffs' NSW State Manager (Stammers Affidavit at [19]-[20]).
7. The defendant says that the plaintiffs gave him no opportunity to avoid the proceedings. Reference is made to the letter from the plaintiffs to the defendant on 21 September 2020 requesting undertakings (Inglis Affidavit at [16]). It is noted that the plaintiffs did not write again to the defendant after discovering evidence of emails sent by the defendant to himself and to Mr Simpson in May and July 2020 to put the "newly uncovered" material to him, and did not give him a further opportunity to provide undertakings but instead commenced these proceedings.
8. The defendant relies on what was said by Basten JA at [6] in Nichols v NFS Agribusiness to the effect that: "[i]f one party commences litigation without making a pre-litigation demand, and allowing the other party a reasonable opportunity to respond, it cannot expect to recover the costs of obtaining orders which would not in any event have been opposed".
9. The defendant says that it does not advance the objective of the just, quick and cheap resolution of proceedings to depart from the default rule by making an order in the plaintiffs' favour in circumstances where the defendant has acted reasonably and in a manner that saves the Court and the parties the considerable time and expense involved in a contested hearing.
10. As to the without prejudice correspondence annexed to the McEvoy Affidavit, the defendant says that from a very early point (namely, from 20 October 2020 when the summons was first returnable) it was clear that the substantive dispute would be resolved, with the only remaining issue being the question of costs. It is noted that the plaintiffs refused offers made on 19 October and 23 October 2020 to the effect that each party should bear its own costs of the proceedings; and did not accept an offer made on 16 November 2020 that the defendant pay $2,500 towards the plaintiffs' costs.
11. The defendant submits that the plaintiffs' conduct in refusing those offers (and/or the alleged lack of candour in the making of the interlocutory application, and the complaint that the defendant was given no opportunity to avoid the proceedings) renders the plaintiffs' conduct unreasonable. On that basis the defendant seeks a costs order in his favour for some of the costs of the proceedings.
12. Thus, the defendant says that the appropriate orders to be made by the Court as to costs are: that each party bear its own costs of the proceedings up to and including 23 October 2020; and that the plaintiffs pay the defendant's costs on and from 23 October 2020 (or such later date as the Court determines) on an indemnity basis (or such other basis as the Court determines).

Determination

1. This is yet another instance of costs being incurred in a satellite dispute as to costs after the substantive dispute has been resolved, in circumstances where there is no dispute as to the applicable principles.
2. Turning first to the plaintiffs' position, the question for present purposes (as I framed it in Renton v Kelly [2018] NSWSC 1377 at [56]), is as to whether the conduct of the defendant was "so unreasonable", having regard to the evidence before me as to the defendant's conduct, both before and after the commencement of the proceedings, as to warrant the making of a costs order against the defendant. This must be considered in circumstances where the underlying merits of the dispute have not been considered and where it is not appropriate for there to be a de facto hearing as to the merits of the dispute for the purposes of determining costs.
3. In that regard, the submission of the plaintiffs to the effect that the defendant had no choice but to capitulate do not, to my mind, take into account the possibility that the defendant might well have been able to raise an argument against relief of the kind to which he ultimately submitted in relation to the restraint covenants (to the effect that the restraint period was unreasonable, for example); and it is the defendant's evidence that there were other reasons for his decision not to contest the proceedings and to submit to the relief that was sought (such as his proposed career change). That said, on the face of things, a template pricing document would seem likely to be a confidential document and there seems no dispute that the defendant was bound by confidentiality undertakings of the kind he acknowledged. All of that, however, illustrates the wisdom of not entertaining a debate as to the prospects of success of the claim as it was framed when the proceedings were resolved.
4. The force of the plaintiffs' argument lies in the fact that there was no reply to the initial demand for undertakings. Much might be said for the proposition that, as was in effect the situation in Murrumbidgee Irrigation Ltd v M & H Acar Pty Ltd [2019] NSWSC 807, had the defendant only communicated his position to the plaintiffs back at the time that the demand for undertakings was made, then the need for the ex parte interlocutory application (and hence the commencement of these proceedings) would have been avoided, as would the costs of the proceedings. In that regard, there is force to the argument that the defendant's conduct in not responding to the demand was not reasonable; and I do not accept that the commencement of the proceedings without further demand (following the discovery of the communications that suggested the defendant was proposing to be involved in a competing business) was unreasonable in circumstances where the previous demand had seemingly simply been ignored by the defendant. Those circumstances may well have given rise to a reasonable apprehension on the part of the plaintiffs that interlocutory relief was necessary. The fact that it transpired that the documents to which the defendant had had access seemed not to have been (mis)used is not to the point.
5. However, it is difficult for the plaintiffs to contend that maintenance of the interlocutory proceedings was necessary to protect its confidential information once the defendant's willingness to proffer undertakings to that effect had been communicated by the without prejudice letter of 19 October 2020. By that point it is apparent that the only real dispute was as to costs.
6. Weighing those matters, I have concluded that the earlier failure to respond to the demand for undertakings was not so unreasonable as to warrant costs orders against the defendant; and I do not think it can be said that the merits of the claim against him can be said to have been so strong as to permit the conclusion that this was a case of capitulation warranting such an order. Thus, subject to consideration of the arguments raised by the defendant I would conclude that the appropriate order is for the parties to bear their own costs.
7. Turning then to the position of the defendant, his claim for special costs orders rests on the making of the offer for payment of a sum of $2,500 for costs in a letter in which the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333; [1975] 3 WLR 586 (Calderbank) have been invoked. Those principles are well known (and have been enshrined in the Uniform Civil Procedure Rules 2005 (NSW)). The rationale underlying special costs orders in such cases is that which was explained in cases such as Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724, and Commonwealth of Australia v Gretton [2008] NSWCA 117. The public policy objectives include the encouragement of the saving of private costs and the avoidance of the inherent risks, delays and uncertainties of litigation (see also Miwa Pty Ltd v Siantan Properties Pty Ltd (No 2) [2011] NSWCA 344).
8. It is of course necessary that the offer so made be one that encompasses a genuine element of compromise, but I am prepared to assume that is the case with the costs offer here made (given that the plaintiffs appear to have been seeking an amount of around $15,000 as a contribution (namely approximately 75% to their costs) at one stage). Where I have some difficulty is in the proposition that it was unreasonable for the plaintiffs not to accept the offer in circumstances where it was made only in November 2020 (apparently in a telephone conversation on 2 November 2020 and confirmed in a letter of 16 November 2020) after the interlocutory regime was in place and where it would seem the bulk of the costs had already been incurred. Prior to that, the defendant's position was that each party should bear its own costs (and that he had limited capacity to meet a costs order in any event).
9. In the circumstances, I have concluded that it was not unreasonable at that stage that the plaintiffs chose not to accept the Calderbank offer but to press instead for their costs based on the apparent capitulation of the defendant to the relief that had been sought against him. Accordingly, I do not propose to make a special costs order against the plaintiffs as the defendant has submitted.
10. Finally, I must note that accusations of lack of candour in the making of ex parte applications are serious accusations to be levelled against practitioners and it seems to me unfortunate that they were here made. It is not apparent to me that the deletion of emails from the plaintiffs' computer system precluded the possibility that documents might be in existence in hard copy or have been otherwise previously emailed to a separate private email address; and the fact that they may not have been used (let alone misused) at that stage is not to the point. Therefore, it is not apparent to me that the accusation of lack of candour is well-founded, but in any event nothing in these reasons should be taken as suggesting that the accusation had any foundation - I simply am not in a position to test that (and it would be necessary for the plaintiffs to have an opportunity to be heard on that issue before any finding to that effect could be made).

Conclusion

1. For the reasons above, I make the following order: 1. Each party is to bear his or its own costs of the proceedings including the interlocutory application before Lindsay J on 20 October 2020.

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: 07 December 2020