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[2012] NSWSC 865
Supreme Court of NSW
2012-06-29
Ball J
Original judgment source is linked above.
Introduction 1The defendant, Mr Gaha, was formerly an employee and director of the plaintiff, Transfield Services. On 7 January 2011, he resigned from his position and indicated that he intended to take up a position with a competitor. He was placed on gardening leave until 6 April 2011, but remained an employee during that time. 2Following Mr Gaha's resignation, Transfield Services discovered evidence that suggested that Mr Gaha had copied onto various electronic devices, including his home computer, extensive information regarding the business of Transfield Services. Transfield Services then commenced these proceedings ex parte on 1 April 2011 seeking various orders preventing the use or dissemination of that information and also seeking interlocutory orders preserving all electronic devices for the purpose of a forensic examination. 3The court granted ex parte orders in the terms sought by Transfield Services. Those orders were varied by consent on 14 April 2011. On 20 April 2011, again by consent, a number of the orders made on 1 April 2011 were extended until further order either in their original or in a varied form and further orders were made for the examination of various electronic devices belonging to Mr Gaha. Following examination of those devices by an expert, directions were made on 1 September 2011 for the proceedings to continue on pleadings. Transfield Services filed a statement of claim on 7 November 2011. In the meantime, there was without prejudice correspondence between the parties in an attempt to settle the proceedings. Ultimately, the proceedings were settled on the basis of consent orders. Paragraph 8 of the consent orders provided: Any party which seeks to make an application in relation to the costs of the proceedings is to file such application along with any supporting evidence within 21 days of the date of these orders. 4Both Transfield Services and Mr Gaha have filed motions in accordance with paragraph 8 of the consent orders. By its motion filed on 3 April 2012, Transfield Services seeks its costs on an indemnity basis or alternatively on the ordinary basis. It submits that it was substantially successful in the proceedings and should have its costs for that reason. By his motion filed on 4 April 2012, Mr Gaha seeks his costs on the basis that it was unreasonable for Transfield Services to commence and to pursue the proceedings. Mr Gaha's primary position is that he should be entitled to all his costs on the basis that the proceedings should never have been commenced. Mr Gaha makes various alternative submissions that it was unreasonable of Transfield Services to persist with the proceedings beyond certain specified times. 5It is those competing claims that is the subject of this judgment.
Factual background 6It is necessary to begin by saying something more about the background to the proceedings. 7As I have said, Mr Gaha resigned and was placed on gardening leave on 7 January 2011. From that point in time he had no access to Transfield Services' computer system. 8On 21 February 2011, Mr Gaha returned his company laptop. 9On 10 March 2011, Mr Gaha returned an AVEVA USB device which contained information belonging to Transfield Services and Transfield Services asked Mr Gaha to sign an acknowledgement that he had returned all company property. On 18 March 2011, Mr Gaha signed and returned to Transfield Services that acknowledgement. 10Transfield Services arranged for a computing expert to examine the AVEVA USB device. That examination revealed that the files on the device were copied to it on 9 March 2011 and were copied from a device other than Mr Gaha's company laptop (which had been returned on 21 February 2011). 11Following discovery of those matters, Transfield Services commenced these proceedings by summons seeking the following relief:
Relevant legal principles 27The general rule in relation to costs is that costs follow the event unless it appears to the court that some other order should be made: Uniform Civil Procedure Rules 2005, r 42.1. Where proceedings are finalised without a hearing on the merits, there is no event to "enliven" the operation of UCPR r 42.1: Fire Containment Pty Ltd v Robins (No 2) [2011] NSWSC 547 at [11] per Gzell J. Nor is it appropriate for the court to embark on an inquiry of what the outcome would have been. Consequently, where proceedings are settled and no order for costs has been agreed, it is generally appropriate that each party bear their own costs: Re Minister for Immigration and Ethnic Affairs (Cth); Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 at 624-5 per McHugh J. There are, however, two exceptions to that general principle. One is where one of the parties has acted so unreasonably that the other party should obtain the costs of the action. The other is where the court is confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried: Lai Qin at 624-5. One instance where the court may be satisfied that that is the position is where the consent orders agreed by the parties amount, in effect, to capitulation by one of the parties. 28In addition to these principles, it may be appropriate in accordance with the principles established in Calderbank v Calderbank [1975] 3 All ER 333 to make a special costs order in relation to costs incurred after one party has made an offer of compromise and the other party has ultimately done no better than that offer. However, it is doubtful whether those principles add anything in the context of this case. The relevant question in this case is whether Transfield Services acted unreasonably in pursuing its case having regard to the position taken by Mr Gaha. That question turns on whether it was unreasonable to pursue the case in circumstances where Mr Gaha at an early stage had made offers to settle it. The answer to that question depends on a comparison of the offers that were made, and the reasons those offers were rejected, with the settlement that was ultimately agreed.
Was Transfield Services almost certain to succeed in the proceedings?
29In my opinion, on the evidence available, it was. The evidence from Transfield Services' computer expert was that Mr Gaha had copied to his home computer and other storage devices confidential information belonging to Transfield Services. Transfield Services was entitled to an order that that information be returned to it - which was the effect of the consent orders. In obtaining the consent orders, Transfield Services was successful in obtaining the relief that it sought. The starting point, then, is that Mr Gaha should pay Transfield Services' costs, although in my opinion there is no basis for concluding that those cost should be paid on an indemnity basis. The question is whether some other costs order should be made because Transfield Services pursued the case notwithstanding the offers made by Mr Gaha.
Did Transfield Services act unreasonably in pursuing its claim for relief?
30Mr Gaha put his case that Transfield Services acted unreasonably on various alternative bases. 31First, he submitted that it was unreasonable for Transfield Services to commence these proceedings at all without notice and that if notice had been given Mr Gaha would have agreed to the orders ultimately sought in the summons, making the proceedings unnecessary. I do not accept that submission. Transfield Services had evidence which suggested that Mr Gaha had kept copies of information belonging to it without its agreement. I do not think it was unreasonable in those circumstances for Transfield Services to commence the proceedings without notice. 32Second, Mr Gaha submitted that it was unreasonable for Transfield Services to pursue its case after 14 April 2011, when Minter Ellison responded to the offer from Whittens made on 12 April 2011. In that offer, Whittens indicated that Mr Gaha was prepared to give undertakings in terms of the orders sought in paragraphs 1 to 4 of the summons and to make his computer and other electronic devices available for inspection, provided Transfield Services bore the costs of inspection. Mr Moorhouse, who appeared for Mr Gaha, submitted that, if Transfield Services had accepted that offer, it would have obtained all the orders it sought in the summons, and it was therefore unreasonable for Transfield Services to continue with the proceedings. 33I do not accept that submission. It is true that, if the offer had been accepted, Transfield Services would have obtained in substance all the final relief that it sought in the summons. I accept that normally it would be unreasonable for a plaintiff to continue proceedings once an offer in those terms had been made. However, in this case it is important to bear in mind that the proceedings were commenced on an urgent basis when Transfield Services did not know and had no means of ascertaining all the relevant facts. It was for that reason it also sought an interlocutory order giving it access to Mr Gaha's home computer and other storage devices. It was reasonable to anticipate that Transfield Services may have needed to amend the relief that it sought once it had obtained further information. If the only final orders Transfield Services sought were the orders identified in the summons then, once Mr Gaha agreed to those orders, there was no utility in the order for access. Neither party, however, proceeded on that basis. Transfield Services wanted access to determine whether it should seek other final relief, and Mr Gaha accepted (properly, in my view) that it was appropriate for Transfield Services to adopt that course, admittedly on the basis that Transfield Services should bear the costs of the expert. The important point, however, was that Mr Gaha did not assert that an order for access was not appropriate because he was prepared to agree to all of the final relief that Transfield Services had and, for the reasons I have given, I do not think that it was open to Mr Gaha to make that assertion at that stage. In those circumstances, it was not unreasonable for Transfield Services to continue the proceedings. 34Third, Mr Gaha submitted that it was unreasonable for Transfield to pursue the proceedings after the court made the orders on 20 April 2011. I do not accept that submission. The orders made by the court included detailed interlocutory orders relating to the inspection of Mr Gaha's computer and other electronic storage devices. Those orders were interlocutory orders which could not remain in effect following final resolution of the proceedings. For the reasons I have given, it was reasonable for Transfield Services to keep the proceedings on foot to obtain the benefits of those orders. The fact that the investigations ultimately did not reveal the existence of any further copies of confidential information does not make the investigations themselves unreasonable. 35Fourth, Mr Gaha submitted that it was unreasonable for Transfield Services to continue the proceedings following the offer made by Whittens on 26 September 2011. At the time that offer was made, Transfield Services had conducted its investigations and had not discovered any use of confidential information or any further copies of confidential information belonging to it. The offer was an offer to continue the existing orders and undertakings, which corresponded to the final relief in the summons. Mr Gaha also agreed to the destruction of the relevant data on all storage devices and agreed to swear an affidavit confirming that he had not breached Transfield Services' confidence. He proposed that each party bear his or its own costs of the proceedings or alternatively that the court determine the question of costs. Mr Cheshire, who appeared for Transfield Services, submitted that it was reasonable for Transfield Services to refuse to accept that offer because Minter Ellison in its letter dated 8 September 2011 had proposed more detailed orders in place of the orders made on 20 April 2011. By Whittens letter dated 26 September 2011, Mr Gaha rejected that offer, although ultimately Mr Gaha agreed to those more detailed orders. 36I do not accept Mr Cheshire's submission. The offer made in Whittens letter dated 26 September 2011 gave Transfield Services all the orders it sought in its summons and more. By that stage, the expert had completed his investigations. No further breaches of confidence were revealed by that investigation. Whittens' proposal to deal with the disputed issue of costs was a reasonable one. The final orders agreed between the parties were more detailed than those sought in Minter Ellison's letter dated 8 September 2011 and those that were ultimately agreed. However, I do not think it could be said that the orders were significantly different in substance. As I have said, the offer made by Whittens reflected what was sought in the summons. In my opinion, it was unreasonable for Transfield Services to pursue the proceedings from that time. 37Mr Gaha seeks his costs on an indemnity basis from 26 September 2011. However, in the circumstances of this case, I do not think that it is appropriate to award costs on that basis. Mr Gaha ultimately agreed to the form of orders sought by Transfield Services in Minter Ellison's letter dated 8 September 2011; and I do not think Transfield Services' conduct was so unreasonable to justify an order for indemnity costs.
Orders 38It follows that the defendant should pay the plaintiff's costs up to and including 26 September 2011. With one qualification, the plaintiff should pay the defendant's costs from 27 September 2011. 39The qualification is that each party has been partially successful in relation to the question of costs. In those circumstances, there should be no order for costs in relation to the motion filed by Transfield Services on 3 April 2012 and the motion filed by Mr Gaha on 4 April 2012.
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: 03 August 2012
Transfield Services (Australia) Pty Limited
James Gaha