Xero Linear Lighting Systems NSW Pty Ltd v Benson

Procedural history

1. To demonstrate that neither party acted unreasonably throughout the course of the litigation and that it is not possible to determine if there has been a capitulation by a party without traversing the merits, an overview of the factual and procedural history is required.
2. Mr Benson is a former employee of Xero, which is the NSW arm of the Xero Lighting Group. Mr Benson's role at Xero was to be the Project Manager for Xero's work in the Sydney Metro project. During the course of Mr Benson's employment, Xero operated a Google Drive Folder as their document repository system. After Mr Benson resigned from Xero on 3 September 2018 it is alleged that Mr Jan Edwin Sargeant (who had taken over Mr Benson's role) found that certain files relating to the project had been deleted. Mr Benson denied deleting the files but Xero claims that a search of the Google Drive data indicated that 'administrator' permissions were afforded to Mr Benson's personal email address, and this enabled him to access the documents. A dispute subsequently arose as to whether Mr Benson had any of the documents on his personal drive and whether those documents were indeed confidential.
3. These proceedings were commenced by Xero on an ex parte basis by summons filed before Hallen J as Equity Duty Judge on 6 August 2020. Mr Benson was the first defendant. The second defendant was Austube Schreder Pty Ltd, a competitor company by which Xero alleged Mr Benson was employed after he had left Xero. His Honour made orders for short service of the summons, which sought, among other orders: 1. Interlocutory orders that Mr Benson be restrained from using, accessing, disclosing and reproducing any confidential information, intellectual property or documents and other written materials concerning Xero. 2. Interlocutory orders that Mr Benson deliver up to Xero all documents, files or written materials which were accessed from Xero's Google Drive during and/or after his employment with Xero and which contained information about Xero's business or customers. 3. Interlocutory orders that Mr Benson deliver up to court all personal computers and other electronic devices for inspection by Xero's forensic analyst. 4. Various final orders, including: 1. That Mr Benson be permanently restrained from using, disclosing, reproducing any confidential information and intellectual property belonging to Xero; 2. A declaration that Mr Benson contravened s 183 of the Corporations Act 2001 (Cth) (CA) by improperly using information he obtained as an employee of Xero, and to gain advantage for himself and/or Xero's competitor or to cause detriment to Xero. 3. A penalty against Mr Benson pursuant to CA s 1317E of the Corporations Act for contravention of CA s 183. 4. Leave for Xero to seek appropriate orders upon the giving of judgment for the disposal of any evidence which comprises Confidential Information and/or Intellectual Property belonging to Xero. 5. Damages, interest and costs.
4. On 13 August 2020, Williams J made an order that the summons was deemed served on Mr Benson on 7 August 2020 and listed the matter for directions on 14 August 2020 to prepare for a hearing of certain paragraphs of the summons.
5. On 14 August 2020, a directions hearing took place before Robb J where his Honour made consent orders on a without admissions basis: 1. Restraining Mr Benson from using, accessing, disclosing or reproducing Xero's confidential information and intellectual property until further order of the Court; 2. Ordering Mr Benson to deliver up certain documents, files and written materials to Xero; 3. Ordering Mr Benson to file and serve an affidavit identifying certain matters as to Xero's confidential information and intellectual property. This affidavit was to include whether he had used, accessed or disclosed to any party Xero's confidential information, if he had transferred this information to any storage device or party and the names of the individuals or corporations to whom he had disclosed those matters.
6. Subsequently, a dispute arose as to whether Mr Benson had provided adequate disclosure in his affidavit of the matters listed in [15(c)] above. On 3 September 2020, Registrar Walton made timetabling orders requiring Xero to serve evidence in support of the interlocutory orders it sought for the delivery up of documents and devices and for its expert to inspect the devices and documents to determine to what confidential information Mr Benson had access. Orders were also made for Mr Benson to file and serve evidence in reply. Those orders note that there was a dispute between the parties as to whether Mr Benson had provided adequate disclosure in accordance with Robb J's 14 August 2020 orders, but the parties were attempting to resolve any outstanding interlocutory issues between themselves.
7. On 24 September 2020, Registrar Walton made orders timetabling the serving of the parties' expert evidence. These orders were amended by consent on 28 October 2020.
8. On 9 December 2020, Xero filed a notice of discontinuance against Austube.
9. On 15 December 2020, Ward CJ in Eq (as her Honour then was) listed those paragraphs of the summons concerning the delivery up of devices and inspection of that material by Xero's expert before Rees J for a one day hearing on 1 April 2021.
10. Following that hearing on 1 April 2021, Rees J made orders requiring the parties' legal representatives to confer and provide a proposed short minute to give effect to those paragraphs of the summons. Mr Benson was ordered to pay Xero's costs in respect of those paragraphs (Rees J Costs Order).
11. On 14 April 2021, Rees J made these orders: 1. Upon Counsel for Xero giving the usual undertaking as to damages, order that, by 12pm on 19 April 2021, Mr Benson deliver up to Court for collection by Nigel Carson of Korda Mentha, Level 5 Chifley Tower, 2 Chifley Square, Sydney NSW 2000 (Xero's Expert): a. all computers (whether desktop hard-drive and/or laptop) and other electronic devices, mobile phones, hard drives, external hard drives, USBs and other electronic storage devices in his possession, custody or control for inspection by Xero's Expert (Produced Electronic Devices). b. a list to be encrypted or in some form protected that comprises details of all addresses, accounts, login details, passwords and access credentials, in respect of each and every (Access Details): (i) device delivered up; (ii) email account held, controlled or otherwise accessible by Mr Benson; (iii) electronic storage account (such as a "cloud" account or any like facility) held, controlled or otherwise accessible by Mr Benson, for inspection by Xero's Expert. 2. Upon Counsel for Xero giving the usual undertaking as to damages, order that access be granted to Xero's Expert to inspect any documents, computers, mobile phones and/or devices produced by Mr Benson in answer to order 1 above, for the purpose of that expert preparing a report for Xero as to Mr Benson's use, disclosure of, or access to Confidential Information, Intellectual Property or information of Xero. 3. The parties are to comply with the Electronic Devices Regime comprising Annexure A to these orders, noting that Mr Benson's new employers, Austube Schreder Pty Ltd and Schreder Australia Pty Ltd, also claim to be entitled to commercially sensitive and confidential information data and documents located on the Produced Electronic Devices including OneDrive for Business, the Outlook account mailbox, calendar or associated files: a. for the email addresses pbenson@austube-schreder.com, pbenson@austube.com.au and pbenson@schreder.com, and b.Autodesk AutoCAD software files. …..
12. The Electronic Devices Regime referred to in those orders was further amended by orders made on 14 May 2021.
13. On 24 August 2021, Registrar Walton made orders extending the time for Xero to serve its expert report in accordance with cl 15 of the annexure to the orders made on 14 April 2021. Further extensions of time for Xero to serve its expert report were granted by Registrar Walton on 28 September 2021 and 26 October 2021.
14. The matter was then stood over until 2 March 2022, when Registrar Walton ordered the proceedings to continue on pleadings and made timetabling orders for Xero to file and serve its statement of claim and for Mr Benson to serve his defence.
15. Xero's statement of claim was filed on 6 July 2022. It sought relief including what follows, but not damages: 1. A declaration that Mr Benson has contravened clauses 16 and 19 of the Employment Agreement executed between Xero and Mr Benson on 15 January 2018. 2. An order that Mr Benson be permanently restrained from using, disclosing and/or reproducing any confidential information and intellectual property belonging to Xero. 3. An order for the disposal of any evidence or material that comprises confidential information and/or intellectual property belonging to Xero. 4. Costs on the indemnity basis, otherwise on the ordinary basis.
16. On 17 August 2022, Mr Benson filed his defence.
17. Orders were then made on 22 August 2022 for Xero to serve its reply, for the parties to serve further evidence in chief and for Xero to serve reply evidence. A series of further case management orders requiring the parties to provide further reply and expert evidence were made on 22 August 2022, 5 December 2022, 28 February 2023 and 11 April 2023.
18. On 19 April 2023, the parties were required to attend a court-annexed mediation by 31 July 2023, and the matter was fixed for hearing before me on 18 March 2024 for three days. A mediation took place between the parties on 26 July 2023. The mediation did not resolve the proceedings.
19. From the Court's point of view, nothing further happened in this matter until Mr Benson's solicitors sent my Associate an email on 7 March 2024, less than two weeks before the scheduled final hearing, including the following: Mr Benson wishes to relist the matter at the earliest convenient time for [sic] his honour for the purposes of identifying and potentially narrowing the scope of the litigation that is presently listed on 18th of March 2024 for three days. We attach an open letter dated 26 February 2024 for his Honour's perusal as context to the foreshadowed issue sought to be agitated by Mr Benson which is namely whether the Court considers there is utility in dealing with prayer 1 of the relief of the statement of claim in circumstances where Mr Benson is willing to consent to the consequential relief by way of undertaking or court order. Xero has not accepted the offer in time. In order to save cost and further expense Mr Benson seeks to raise this issue with the Court, if the Court was minded to list it, in the first instance.
20. The matter was listed for directions on 12 March 2024. It was during that hearing that I was informed that only 32 documents remained in dispute and Mr Benson was willing to provide undertakings not to use any of Xero's confidential information which he may have in his possession and delete any remaining documents from his personal device. I strongly encouraged the parties to consider how they might come to an agreed position in the light of what I had been told, including how the destruction of those documents from any device of Mr Benson might be verified.
21. The consent orders were made on 15 March 2024: 1. The hearing dates allocated on 18 and 19 March 2024 be vacated. 2. The hearing date allocated on 20 March 2024 be reserved with an estimate of 30 minutes to: (a) permit Mr Benson to give evidence in relation to the destruction of documents as set out in order 4 to 6 below; and (b) allocate a hearing date for the parties' various costs applications as referred to in order 7 below. 3. Mr Benson be permanently restrained from using, disclosing, and/or reproducing any: (a) Confidential information and intellectual property belonging to Xero; (b) Documents, files or written materials, whether in hard copy or electronic form, in his possession, custody or control concerning the business or financial affairs of Xero (including Xero's clients, employees, trade secrets, information technology, resources, protocols, customer lists, databases and interfaces, system path words to access any software, and systems or encryptions used to operate or licensed by Xero) and any information obtained, accessed or acquired by Mr Benson during or after his employment with Xero. 4. In accordance with the email from Mr Benson's solicitor to Xero's solicitor sent on 13 March 2024 at 10:31am, Mr Benson undertakes to the Court to reformat the hard drive on his personal device for the purpose of deleting the documents identified in the "Final Production List" which is located at Appendix C to the Report of Nigel Carson dated 10 December 2024 from his personal devices. 5. Mr Benson undertakes to the Court to delete any documents (including any confidential information and intellectual property) belonging to Xero from any cloud-based system accessible to Mr Benson by which he retains any document identified in the "Final Production List" which is located at Appendix C to the Report of Nigel Carson dated 10 December 2024. 6. Mr Benson undertakes to the Court to delete any documents (including any confidential information and intellectual property) belonging to Xero from his personal devices and any cloud-based system that may become later known to him. 7. Permit the parties to bring applications asserting their various rights as to costs. 8. In respect of order 7: (a) Xero to file and serve an application claiming a gross sum costs order together with any affidavit evidence in support of such application pursuant to section 98(3)(c) of the Civil Procedure Act 2005 (NSW) by 4pm on Tuesday, 9 April 2024. (b) Mr Benson to file and serve any competing application for costs, including any potential gross sum application and evidence in support and any evidence in opposition to the application brought by Xero by 24 April 2024. 9. Xero serve any reply evidence in opposition to Mr Benson's application referred to in order 8(b) above by 1 May 2024. 10. The parties to file and serve any written submissions with respect to costs by 4pm on 10 May 2024. 11. The matter be listed for argument on the question of costs on Friday, 31 May 2024 at 2pm for 1 hour.
22. On 20 March 2024, Mr Benson provided the undertakings referred to in the consent orders in the witness box under oath. Orders were then made on 20 March 2024 timetabling the costs dispute the subject of this judgment and adjusting the orders made on 15 March 2024 under the slip rule: 1 Orders pursuant to the Slip Rule that in orders 4 and 5 made on 15 March 2024 the reference to 2024 be amended in each order to refer to 2021. 2 Direct the parties to file and serve any submissions in reply by 22 May 2024. 3 Vacate order 8 made on 15 March 24 and substitute: 8A Xero to file and serve an application by notice of motion for costs together with any affidavit evidence in support by 4pm 9 April 2024. B Mr Benson to file and serve by notice of motion any competing application for costs together with affidavit evidence in support of such application by 24 April 2024. 4 Vacate order 9 made on 15 March 2024 and substitute 9 The parties to file and serve any reply evidence in opposition to others application by 1 May 2024
23. Having recited the procedural history, these observations can be made in overview: 1. Over three and a half years, this matter has clearly taken up a considerable amount of the parties' and the Court's time. 2. By the time the proceedings came before me, the dispute seemed to have no utility, with the parties effectively already in a position between themselves to resolve it. In other words, there was nothing on the merits which the Court was required to determine given the position they had reached just short of a final agreement. 3. Throughout the dispute's extensive history, the parties had worked hard to comply with procedural orders, often working together to provide consent short minutes to the Court. That conduct is consistent with what the Court expects of parties, including Mr Benson's solicitors' approach to the Court prior to the hearing fixed before me when it became apparent that any remaining dispute between the parties had in substance, if not form, fallen away.

Xero's submissions - reasonableness

1. As noted at [8] above, Xero put forward two contentions as to why Mr Benson should pay their costs: 1. Mr Benson's conduct during the proceedings was not reasonable. 2. Mr Benson's agreement to the orders and undertaking provided in court amounted to a capitulation.
2. Xero submits that the conduct of Mr Benson was not reasonable on the basis that the offers Mr Benson put forward could never have been accepted by Xero. As appears between [41] and [44] below, the overriding concern of Xero towards all of the restraints and undertakings that Mr Benson offered was that they always relied on Mr Benson's subjective view of which documents were confidential and that any undertaking was only offered inter partes rather than to the Court.
3. The Court's attention was drawn to various pieces of evidence to demonstrate the basis of the parties' mutual distrust. This includes: 1. The affidavit of Mr Sargeant dated 6 August 2020 where Mr Sargeant deposes that Mr Benson informed him that he had 'returned everything belong [sic] to Xero when I left and destroyed any copies that were on my personal devices;" 2. The affidavit of Mr Benson dated 24 August 2020 where he deposed that he only became aware of files relating to Xero on his device after he received Mr Sargeant's 6 August 2020 affidavit and that the documents were only orphan files as the sharing privileges associated with those documents was changed once Mr Benson's access to the Xero Google Drive was terminated. In that affidavit he also deposed that he had shared material relating to Xero to his personal Google Drive account. 3. The affidavit of Mr Sargeant dated 9 September 2020 where he deposes that he noted Mr Benson had accessed documents in the Xero Google Drive on or around 10 May 2019 (Mr Benson having resigned some months earlier). 4. In Xero's written submissions the Court's attention was also drawn to various aspects of Mr Benson's 15 September 2020 affidavit which was not read at the hearing of the Motions where he denied accessing any of Xero's documents after he ceased employment, had determined that the orphan documents still on his personal drive contained no sensitive or current project or pricing information and therefore were not confidential, and he said he could not recall accessing the tender documents. 5. Correspondence from Mr Benson to Mr Sargent dated 9 November 2018 where he informed Xero that he had deleted documents upon his termination of employment and provided a copy of the employment contract at cl 19.3. 6. The defence filed by Mr Benson where he denied retaining confidential information.
4. Xero says that this evidence justifies the distrust between the parties as there was no policy allowing Mr Benson to share documents to his personal drive and Mr Benson gave no evidence as to the steps he had taken to remove the documents from his devices and did not unequivocally deny that he accessed the tender documents.
5. Xero also contends that their position and suspicions were validated after the Carson Report, Xero's expert report which was produced following Rees J's orders on 14 April 2021, because that report noted that Mr Benson did retain access to Xero's documents and 32 of the documents that Mr Benson had retained were confidential. During the hearing Mr Ratnam took me to a letter from Mr Benson's solicitors dated 28 January 2022 where Mr Benson continued to challenge the relevance of the report to Xero's claim for damages and challenged whether 23 of the 32 documents identified were actually confidential.
6. Xero contends that the evidence demonstrates that there was no certainty that Mr Benson did not retain access to Xero's documents because the evidence Mr Benson provided was speculative and also showed that Mr Benson may not be objective in his evaluation of what comprised confidential information. On this basis Xero submits it could never have accepted the offers put forward by Mr Benson and therefore those offers were unreasonable.
7. An analysis of the complaints put forward by Xero concerning each offer demonstrate Xero's persistent concern that Mr Benson's offers relied on his own subjective view of whether the documents were confidential and failed to enable Xero to verify if the documents would be deleted
8. It is contended that an offer made by Mr Benson on 24 November 2022 could not have been accepted and can have no relevance to costs because: 1. The offer was issued at a time when Xero's statement of claim had not been filed and evidence had not yet closed. It is also submitted that the list of documents which formed the basis of the orders, being the Annexure C documents to Mr Carson's second report was not yet even created. Therefore, this offer cannot be considered. 2. Mr Carson had not yet inspected Mr Benson's devices. 3. A hearing had not taken place to obtain delivery up and access orders to Mr Benson's devices - the extent of Mr Benson's access to Xero files remained unknown. 4. Mr Benson was dictating access to his computer device which did not accord with the Employment Agreement. 5. Mr Benson was offering a limited access regime which would not entitle Xero to verify which documents Mr Benson had retained. 6. Mr Benson was offering an access regime which offered no certainty of capturing all documents he had access to. 7. Mr Benson was contending that Xero should pay for the access regime which Xero would have minimal participation in. 8. Mr Benson offered no undertakings to the Court. 9. No appropriate destruction procedure was offered.
9. Offers made on 28 January 2022 and 28 July 2022 could not be accepted because: 1. No undertaking offered would be directly provided to the Court. 2. The restraints offered placed a subjective interpretation of what Mr Benson considered were confidential documents or Xero's intellectual property. 3. Mr Benson had not yet served expert evidence to determine which documents were confidential. 4. No appropriate destruction procedure was offered. 5. Mr Benson conditioned the offer on the parties executing a deed of settlement and release.
10. The 26 February 2024 offer referred to at [29] above could never have been accepted because: 1. The offer did not provide provision for any of Xero's costs other than the Rees J Costs Order. 2. The agreement by Mr Benson to be permanently restrained and delete documents relied on his own subjective determination of what he deemed to be confidential and did not allow for an independent party to participate in the process of document deletion. 3. The offer for the parties to enter into a Deed of Settlement and Release did not specify which claims would be the subject of that release.
11. In response, Mr Benson rejected that the offer was unreasonable, drawing attention to the fact that Xero appeared to make an offer for an inter partes undertaking on 4 August 2023. He also submitted that the basis for the rejections appeared to be Xero's desire to pursue their costs and damages claim, a claim which it later abandoned.

Xero's submissions - capitulation

1. Xero submits that the consent orders amounted to a capitulation on behalf of Mr Benson for two reasons: 1. Mr Benson never offered to provide an undertaking to the Court and any offer made by Mr Benson to delete the documents relied on Mr Benson making a subjective determination as to which documents were confidential or were the intellectual property of Xero. However, the orders Mr Benson subsequently agreed to required him to provide an undertaking to the Court and delete all documents on his computer. 2. The relief obtained in the consent orders was essentially the relief sought in the statement of claim.
2. The first reason is essentially a restatement of the concerns Xero had about whether Mr Benson had been reasonable with the offers he put forward during the proceedings (see [41] to [43] above). This same conduct was now relied upon to support an argument that Mr Benson capitulated in the sense that the undertakings and restraints he was previously not willing to give now formed part of the undertakings he provided pursuant to the consent orders.
3. Second, Xero in reply referred to Mr Benson's defence filled 17 August 2022. Paragraph [57] of that defence stated: [57] Save as hereinbefore expressly admitted, Mr Benson denies each and every allegation set out in the Statement of Claim as if the same had been set forth separately and traversed seriatim. In the premises, it is denied that Xero is entitled to the relief claimed, or any part thereof, for the reasons alleged or at all. Xero submits that the consent orders reflect such a significant change of Mr Benson's position that it amounts to a capitulation.
4. Third, Xero put forward seven reasons why the consent orders were better than any offer it put or that Mr Benson otherwise offered: 1. First, the 'reformatting' procedure Mr Benson agreed to undertake had the effect of wiping his hard drive. This eliminated the possibility of Mr Benson retaining any further documents or giving Mr Benson any discretion to decide which documents were confidential. 2. Second the reformatting procedure obviated the need for Xero's expert or a third party to confirm if the confidential documents outlined in the Carson report had actually been destroyed. 3. Third, the oral undertaking provided by Mr Benson to the Court on 20 March 2024 and confirming that he had undertaken the reformatting procedure gave confirmation to Xero that he acknowledged the importance of Xero maintaining the documents were confidential. 4. Fourth, Xero was provided with comfort that the restraints offered by Mr Benson had certainty and effect. 5. Fifth, the undertakings made to the Court have the effect that the undertakings are enforceable by contempt of court. 6. Sixth, Xero was never required to enter into a deed of settlement and release. 7. Seventh, Xero retained the Rees J Costs Order and was able to advocate for its costs in these proceedings.
5. In support of its second submission that Mr Benson in essence capitulated because Xero obtained the relief it sought in its Statement of Claim, Xero acknowledged that had the mater proceeded to hearing, Xero would have had to satisfy the Court (i) of the various contraventions of the Employment Agreement as contended, (ii) the documents Xero contended were confidential and/or the intellectual property of Xero attract those attributes and character and (iii) the destruction orders sought were appropriate in the circumstances.
6. Xero submits the declarations were necessary to support the restraints sought because Mr Benson was challenging whether the documents were confidential. The fact that they were not made is submitted to be irrelevant because it is contended Xero has achieved the relief it ultimately sought through the consent orders and Mr Benson's undertaking to the Court on 20 March 2024.

Xero's submissions - an alternative costs order

1. Xero also provided extensive written submissions as to why the Court should order Mr Benson to pay Xero's costs on several different bases. These submissions rely on the Court's discretion to order indemnity costs where a party fails to accept an offer better than what they achieved at the conclusion of the proceedings.
2. In light of the conclusion drawn at [84] below, the Court should not and will not embark on such a comparison of different offers put forward by Xero.

Xero's submissions - abandonment of part of its case

1. Xero conceded in its written submissions that it had abandoned that part of its case where it alleged it had suffered losses as a result of Mr Benson deleting documents relating to the project.
2. Xero contends that no consequences follow from this abandonment for two reasons: 1. Xero's case had always put Mr Benson's breaches of the Employment Agreement in issue and the project damages claim overlapped with the Employment Agreement contraventions claim. 2. Mr Benson initially put in issue his authority at Xero and the material relating to the project claim was relevant not just to the issue of document deletion but also to Mr Benson's role in Xero and the level of trust Xero placed in Mr Benson to deal with sensitive documentation.
3. For these reasons Xero contends that the evidence concerning the project could never be characterised as being of no utility to Mr Benson when regard is hard to the broader issues in the proceedings. However, Xero accepts it is not entitled to costs specifically relating to its claims of destruction of the project documents.

Mr Benson's submissions - Xero's conduct

1. In his written submissions Mr Benson also put forward two alternative bases for the Court to order Xero to pay his costs: 1. Xero's conduct justifies the imposition of a costs order against it. 2. The abandonment of the project damages claim (referred to at [53] above) amounts to a capitulation.
2. In the alternative to these possibilities, Mr Benson contended there should be no order as to costs from the filing of the statement of claim, or at all.
3. Mr Benson sought to impugn Xero's conduct of the proceedings as being unreasonable by providing an extensive overview of their history. Mr Benson submitted that in circumstances where the consent orders only provided for undertakings and did not account for any of the other declaratory relief or damages that Xero had persistently contended for, and which formed the basis of their rejections to several offers throughout the proceedings, their conduct was unreasonable.
4. For example, Mr Benson drew attention to a letter from Xero's solicitors to Mr Benson dated 13 November 2018 where Xero contended that Mr Benson was instrumental in the "wilful destruction of certain company documents," requested he provide all electronic devices used in the conduct of the business and company and noted that Xero held Mr Benson responsible for any losses it may suffer.
5. Mr Benson also submits that Xero engaged their expert Mr Carson despite Mr Benson's affidavits of 24 August 2020 and 15 December 2020 which purported to show that he had no knowledge of the files on his computer, that there was no restriction on him using his personal My Drive and in any event Mr Carson's report vindicated Mr Benson's position that there was a reasonable possibility that Mr Benson may have been able to have had access to documents "whether knowingly or not."
6. Mr Benson contends Xero unreasonably rejected his offer of 24 November 2020 which suggested that Mr Carson have access to Mr Benson's devices and remove relevant documents because they were determined to press their ultimately abandoned claim for damages. Mr Benson points out that Xero repeated this complaint in a letter to Mr Benson on 9 September 2021.
7. Mr Benson then points to his 28 January 2022 offer in which Mr Benson agreed to delete any documents from the final confidential production list, as well as agreed to provide undertakings in a variety of forms. Mr Benson acknowledges he did seek the discharge of the Rees J Costs Order but says that is irrelevant given he was willing to give up his ability to pursue his costs of the substantive proceedings. Mr Benson pointed out that Xero responded to that offer on 24 February 2022 by reasserting its claim for damages.
8. Mr Benson also submits that Xero's statement of claim filed on 7 July 2020, which sought to summarise the nature of the competing contentions, failed to plead any allegation as to the wrongful use of confidential information or otherwise any allegation that Mr Benson had deleted any project documentation. At this point Mr Benson submits that the statement of claim only sought declarations that certain clauses of the Employment Agreement had been breached, that Mr Benson be permanently restrained from using or disclosing any confidential information and that Mr Benson dispose of any evidence that comprised of confidential information. The confidential information in dispute at this time only related to the 32 items identified in Appendix C to the Carson Report of December 2021. Therefore, Mr Benson submits that Xero had abandoned any damages claim or any other claim under the CA.
9. Mr Benson submits that he again offered on 28 July 2022 to delete the files in the production list and offered other undertakings. Xero rejected this offer on 28 July 2022. Mr Benson submits that the reference to discharging the Rees J Costs Order in the offer was fair in circumstances where Mr Benson contends that he would have obtained costs thrown away from the claims abandoned by Xero.
10. Mr Benson finally made reference to offers made by Xero on 4 August 2023 and 24 January 2024 where Xero offered to resolve the proceedings on the basis that Mr Benson provide the permanent restraints and delete the documents identified in the Carson Report but also, in his view, sought excessive costs.
11. Mr Benson describes Xero's claim at the time of the hearing before me to be a "speculative effort to restrain the use and order the deletion of up to thirty-four documents, of which 13 were conceded not to be confidential…" in circumstances where there was neither any evidence adduced nor claim advanced in the substantive proceedings to suggest that Mr Benson had caused loss, engaged in any positive conduct to delete documents, or provided access to the documents to third parties.
12. In summary, his extensive submissions sought to show that Xero acted unreasonably by failing to accept his offers on the basis that it was pressing other aspects of its claim in circumstances where those ancillary claims were ultimately not part of the consent orders.
13. Finally, Mr Benson rejects Xero's submissions that the consent orders reflect a victory for Xero by characterising the undertakings provided as nominal success. Mr Benson referred the Court to several authorities where a party such as Xero had been ordered to pay the other sides' costs in circumstances where Xero had obtained relief no more substantial than that already offered by Mr Benson. He also relied on New South Wales v Stevens (2012) 82 NSWLR 106; [2012] NSWCA 415 as authority for when costs may be awarded against a party which achieves nominal damages in circumstances where they were seeking a much larger sum. No reasons were provided as to why these cases applied in these circumstances. Mr Benson alternatively submitted that Xero had only achieved what it has been offered since the commencement of this litigation and therefore Mr Benson must be seen as the successful party and therefore entitled to his costs.

Mr Benson's submissions - capitulation

1. Mr Benson also contended that Xero's acceptance of the consent orders amounted to a capitulation because they did not provide for any damages when Xero had persistently sought damages for losses it alleged arose from Mr Benson deleting confidential documents relating to the project in circumstances where Xero says those documents could have been used to resist claims that were brought against Xero in relation to the project.
2. Mr Benson submits that the rejection of his offers by Xero up until February 2022 based on the fact those offers did not account for Xero's damages claim shows that the damages claim was an essential part of their case. For example, Mr Benson drew attention to Xero's response on 2 December 2020 to Mr Benson's 24 November 2020 offer which emphasised that "our client's final claims for relief relate to damages suffered by our client as a result of your client deleting documentation from the Google Drive prior to his resignation." The high point of the resistance according to Mr Benson is Xero's response to the 28 January 2022 offer on 24 February 2022 that "our client's claim for damages in its various forms has been articulated ad nauseum yet you blindly ignore our correspondence to the detriment of your client." Mr Benson says that Xero's failure to plead their damages case in their Statement of Claim filed on 6 July 2022 is a form of capitulation.
3. Mr Benson also contended that that Xero's submissions concerning the damages claim were persuasive to Rees J when making her interlocutory orders on 14 April 2021. On this basis Mr Benson says he suffered an injustice by this part of the case being withdrawn, especially since a costs order was made against him.

Mr Benson's submissions - no order as to costs

1. In support of his alternative submissions that there should be no order as to costs (either after the filing of the statement of claim or at all), Mr Benson rejected Xero's submissions that entering into the consent orders represented a capitulation from Mr Benson's initial position. Mr Benson cited Lai Qin and Nichols to show that a costs order will only be made in matters which do not proceed to final hearing where the conduct of a party is manifestly unreasonable and such a determination can be made on the facts. In entering into the consent orders, he submitted that he was acting acting consistently with his obligations under s 56 CPA and cannot be treated as having engaged in unreasonable conduct or a capitulation.

Lai Qin

1. The general principles as to costs where there has been no determination of the merits are outlined at pages 624-625 of McHugh J's seminal judgment in Lai Qin (citations omitted): In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs (l). Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order (2). When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order. 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. The court cannot try a hypothetical action between the parties (3). To do so would burden the parties with the costs of a litigated action which by settlement or extra curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action (4). In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence litigation. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd (5), the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent Council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans. Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in South East Queensland Electricity Board v Australian Telecommunications Commission (6) where his Honour ordered the respondent to pay 80 per cent of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare. If it appears that both parties 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.
2. In short, it is only in circumstances where a judge is confident that one party was almost certain to succeed or that another party acted so unreasonably that a party may be able to obtain their costs even though the case settled before a final determination of the merits. Critically, the court would not embark upon making a prediction as to the outcome of a hypothetical case.
3. There are sound public policy reasons for this position. To emphasise a point made by McHugh J in Lai Qin (see page 624), to recreate a hypothetical action would "burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided".
4. The NSW Court of Appeal also restated and relied on the principles in Lai Qin in Nichols, a case very similar to the case at bar. In Nichols, a company brought proceedings against a former employee and his associate after alleging the employee had taken its confidential information. The defendant's devices were inspected by the company's representative and any information found on them was destroyed. The company subsequently abandoned its claim for compensation and the remainder of the proceedings was resolved by consent, with the court never determining whether the information was in fact confidential. The primary judge awarded the company the costs of the principal proceedings and the costs argument. However, that outcome was overturned on appeal.
5. The judgment of Payne JA summarised Lai Qin: [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.
6. His Honour at paragraphs [27]-[30] also outlined several other appellate authorities which had considered Lai Qin. These included Edwards Madigan Torzillo Briggs Pty Ltd v Gloria Stack [2003] NSWCA 302 in which Davies AJA, with whom Mason P and Meagher JA agreed, observed: [5] When proceedings are brought to an end without a determination after a trial, the judge may find it difficult, even impossible, to make an award of costs. If the judge does make an award, it will generally be because the judge is satisfied that one party has had a substantial victory and the other a substantial loss, or that there has been a marked difference in the reasonableness of the actions taken by the parties, so that one party should be rewarded for its reasonable actions and the other party should suffer a detriment in costs
7. Basten JA in Nichols at paragraphs [8]-[10] outlined how the Court should approach the question of whether a party has acted unreasonably: [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] ….. Further, once 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. [10] Once it becomes apparent that such a course is required, the hypothesis on which the examination was undertaken is negated and the inquiry should stop.
8. The issue of when the Court may determine whether one party has capitulated was also considered in ONE.TEL v Deputy Commissioner of Taxation (2000) 101 FCR 548; [2000] FCA 270 at [6] by Burchett J who said: [6] In my opinion, it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court's discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs.
9. His Honour's judgment has been cited with approval in several NSW Court of Appeal judgments cases including Nichols, Edwards and Shellharbour City Council v Minister for Local Government [2017] NSWCA 256.
10. Finally, the approach to the question of costs which is derived from Lai Qin is both fortified, and independently required, by the Court's obligation to exercise its discretion in accordance with the overriding purpose. It is completely antithetical to the overriding purpose to allow arguments over costs to become substantial satellite hearings which require the Court to traverse contested matters that have otherwise been resolved by settlement.

Consideration

1. The parties' motions provided the Court with nine different bases to award costs, the last of which was an order that each party bear their own costs of the proceedings. While in form that is not an order which the Court would make, its purport was clearly that expressed in the conclusion that there should be "no order as to costs with the intention that each party should bear their own costs". In my respectful view, that result is properly and sufficiently given effect by a notation that the Court makes no order as to costs.
2. The Court concludes that this last option - that there be no order as to costs - should be the outcome in accordance with the principles set out in [72] to [81] above. There are three reasons for this conclusion: 1. The Court cannot decide whether the parties acted reasonably in commencing and defending this litigation without traversing the merits of the dispute. 2. The Court cannot be satisfied based on incontrovertible facts that the consent orders reflect a capitulation by one of the parties. 3. The Court is otherwise not able to order costs on the ordinary basis as there has been no 'event' enabling the court to make such order.
3. In reaching this conclusion, I should record that I have deliberately refrained from reproducing the various offers and other documents relied upon by the parties. To have done so would have turned what has become a moderately lengthy judgment into a tome. In my respectful opinion, it is sufficient to have recorded what the parties said about the documents to demonstrate the vice in the approach that each party submitted that the Court should take.

Consideration - the Court cannot make a costs order without considering the dispute's merits

1. The parties' motions effectively required the Court to investigate different offers made during the proceedings and determine whether it was reasonable for them to have been made or rejected at that point in time. The Court cannot conduct such an investigation as it would require the Court to enter into the merits of the dispute and the parties' respective positions over the course of the dispute.
2. Notwithstanding both parties' assurances during written and oral submissions that their submissions would not traverse the dispute's merits, the Court's inability to avoid considering the merits is aptly demonstrated by the way the parties' submissions considered the merits in seeking the orders they sought.
3. For example, the evidence referred to at [36] which Xero used to show that it was unreasonable for Mr Benson to only provide inter partes undertakings was all evidence which referred to facts in issue in the proceedings. The Court would have had to examine whether and when Mr Benson had documents relating to Xero on his computer and whether they were confidential. Confidentiality of the remaining documents was never finally determined.
4. Additionally, the fact that Mr Benson eventually agreed to restraints and undertakings to the Court provides an insufficient basis in and of itself for the Court now to conclude that Mr Benson acted unreasonably by only ever offering to provide inter partes undertakings. While the willingness of a party to subject itself (or not subject itself) to punishment by contempt is undoubtedly a factor in assessing the reasonableness of an offer or its rejection, it will rarely be determinative of the assessment. This is not a case where it is determinative because of, as it turned out, the relatively small number of documents where confidentiality was still in dispute.
5. Nichols is directly analogous on this issue. Order 1 of the consent orders in that case provided that "The defendant be permanently restrained from using in any way any of the plaintiff's Confidential Information as defined in the orders made on 28 April 2017." As Justice Payne noted in that case (see also Basten JA at [63]), the fact that the defendant acquiesced in that order provides no basis for determining the reasonableness of its conduct in the proceedings:

[41] At the risk of repetition, in the absence of any hearing on the merits and in circumstances where it was and remained controversial whether there was any "Confidential Information" as defined, transferring documents and agreeing to order 1 made on 29 May 2017 provide no basis to conclude that the applicants, after litigating for some time, had effectively surrendered to the respondent or that the respondent had acted reasonably in prosecuting the action and the applicants had acted unreasonably in defending the action.

1. As for Mr Benson's case, the submission that Xero acted unreasonably by failing to accept the offers on the basis that they continued to seek other declaratory relief and pursue their damages case would also require the Court to consider the merits of the case. As Mr Ahmad noted, the issue the Court would need to consider would be the significance of the project damages case to the proceeding and whether it was reasonable for Xero not to accept earlier offers on the basis that they were continuing to pursue their damages claim.
2. That would raise facts in issue relevant to some of the issues about which Mr Ratnam conceded Xero would need to satisfy the Court if the matter proceeded to the merits (see [49] above). The Court also notes Mr Ratnam's submission that the project damages claim relied on facts which were relevant to the confidential documents case. Assuming that to be the case, the Court could not accept that Xero had been unreasonable by pursuing this claim based on facts which are manifestly present on the record and indisputable (see Basten JA in Nichols at [78] above).
3. Similarly, the fact that the consent orders did not include the declaratory relief Xero initially sought provides no basis for the Court to determine the reasonableness of Xero's conduct throughout the proceedings. For the avoidance of doubt, the Court also does not accept the submission that Xero should have been satisfied with the inter partes undertakings offered by Mr Benson, first, for the reasons set out in [89] above and, second, because that would again require the Court to assess the facts in issue referred to in [49] above.
4. It is also convenient at this point to record that at the start of the hearing of the motions I rejected an application by Mr Ahmad to cross-examine Mr Sargeant about a 30-page Google report which he said established that Xero brought a case that Mr Benson illegitimately deleted the documents at the same time as they had records of the documents as part of that report. He submitted that went to whether the case was properly brought. However, to have permitted that issue to be opened up in cross-examination would have invited an examination of whether the documents were deleted and, if so, if that had occurred properly in accordance with Mr Benson's contractual obligations. In other words, hypothesizing about the merits would have been inevitable.
5. In summary, the parties' submissions that the other acted unreasonably by not accepting offers at different times throughout the proceeding cannot be accepted because the Court would inevitably be required impermissibly to consider facts in issue in the proceedings, contrary to the principles in Lai Qin. Therefore, there is no basis for the Court to say that either party in the dispute has acted unreasonably either in its prosecution of the proceedings or as to how settlement offers were treated.

Consideration - no capitulation

1. I reject Xero's submission that Mr Benson effectively capitulated by entering into orders which required him to provide undertakings to the Court for two reasons.
2. First, I rely on my reasons set out in [89] above.
3. Second, I reject the submission that this was an example of Mr Benson effectively surrendering the litigation. I accept the submission of Mr Ahmad that the open offer which gave rise to the consent orders was an example of Mr Benson trying to do everything he could rid himself of the litigation in circumstances where the dispute had narrowed to a dispute about the confidentiality of 13 documents. As the 12 March 2024 directions hearing demonstrated, Mr Benson brought to my attention his solicitors' 26 February 2024 letter to show that the utility of the proceedings had in effect been exhausted by events leaving nothing further for the Court to consider, and to bring about a resolution consistently with the overriding purpose. It was not an act of capitulation, but rather one of common sense and adherence to the overriding purpose.
4. It is regrettable that the parties have been embroiled in a protracted dispute which they both clearly believe could have been resolved earlier and which has generated a large amount of costs that each still believes the other should meet. However, the parties have clearly been constantly engaging with each other and did eventually resolve the matter in accordance with the overriding purpose. It is antithetical to that purpose and the principles in Lai Qin for the Court to relitigate (or perhaps more accurately to permit the litigation for the first time) when a party should have accepted an offer except in the clearest of cases where contested facts do not need to be explored. As McHugh J noted in Lai Qin, to do otherwise would fundamentally undermine the purpose of settlements and the public policy in favour of them.
5. Equally I reject Mr Benson's submission that Xero's removal of the project damages claim is an example of capitulation on behalf of Xero. Its discontinuance on this aspect of the proceeding by not including reference to it in its statement of claim is a 'supervening event' which modified the subject matter of the dispute. It was not an example of a 'surrender' for the purposes of the costs of the proceedings because it had not been the subject of more than interlocutory assertion. I rely on my reasoning at [91] above for the conclusion that the absence of an order addressing the damages or any other interlocutory claim initially sought by Xero cannot form the basis for the Court to hold that Mr Benson would obviously have been the successful party in this case to warrant the ordering of costs.
6. Even if it be the case that the project dispute influenced the reasoning of Rees J when her Honour ordered made the Rees J Costs Order, that was an interlocutory hearing which only required her Honour to determine whether there was a triable issue to warrant the interlocutory relief ordered. Mr Ahmad accepted that I had no power to adjust that costs order.
7. Furthermore, Mr Ratnam's submissions that parts of the project damages case may have been relevant to the confidentiality issues in dispute and the inherent difficulty of determining whether costs were thrown away by the damages claim not being pressed also support the conclusion that the Court cannot, without delving much more deeply into areas of contest, safely conclude that there was a capitulation that should sound in costs.
8. In summary, the Court cannot definitively say, without entering contested factual areas, that either parties' actions reflect a capitulation. It is clear that the form and focus of this dispute has changed significantly over the course of the matter, so much so that by the time the matter came before me it had became a confidentiality dispute about 13 documents. A number of supervening events led to this state of affairs and at no point can the Court comfortably say that there has been a capitulation by either side or that it can be so sure that one party would have succeeded so as to obtain its costs.

Consideration - no basis for costs on the ordinary basis

1. As one of their alternatives, each party sought an order that the other pay their costs on the ordinary basis as agreed or assessed. This ignores the general rule pursuant to UCPR r 42.1 that costs follow the 'event'. In circumstances where the matter never went to final hearing, it is not possible to say that there has been an 'event'.
2. In this respect I respectfully adopt what Basten JA said in Nichols: [2] Where the parties resolve their differences, except as to the costs already incurred in litigation, they should usually expect that the court will not award costs. That is because the general rule applicable in civil litigation in superior courts Civil Procedure Act 2005 (NSW), s 98 and Uniform Civil Procedure Rules 2005 (NSW), r 42.1. is that costs will "follow the event". That rule is frequently paraphrased by reference to its purpose, namely that the successful party should generally recover its costs from the unsuccessful party. But where there has been no trial there is no "event" because, except in unusual cases, it is not possible to say that one party has been successful and the other unsuccessful. The orders made by consent may or may not demonstrate capitulation by the "unsuccessful" party. To the extent each sought such an order on the basis of an exception to the general principle expressed in Lai Qin, the reasons set out in [83] to [103] apply to explain why the Court will not make such an order in favour of either party.

Some final observations

1. The situation of parties being able, often after intense and protracted negotiations, to agree on the settlement of litigation other than as to costs is familiar to courts and litigation lawyers. While in order to settle their dispute the parties have been able to overcome the obstacle constituted by the (often) large amount of costs each has spent, the obstacle is too great in relation to settling the question of costs itself. Resolution of costs is also generally the last thing to which parties turn their minds, and by that point negotiation fatigue has set in, so that leaving costs to the Court becomes the easiest default option. To paraphrase the exhausted Macbeth, each party feels that it is stepped in so far in costs, and leaves that question to the Court so as not to risk the agreement reached on the substantive issues.
2. Two observations flow from the experience described in the preceding paragraph, while not overlooking that each case turns on its own facts and there can be no universal rules.
3. First, in general, to displace the outcome of there being no order as to costs the issues of unreasonable conduct or capitulation need to be demonstrable clearly and concisely by reference to uncontroversial facts. If complex submissions and large amounts of evidence are required, these are likely to be signs that the Court is being invited to descend into disputed facts and subjective analyses of parties' positions over the course of the litigation which Lai Qin and the overriding purpose in the CPA make clear the Court should not embark upon.
4. Second, when negotiating a settlement parties will often be well advised to consider whether they should factor in their respective expended legal costs at an early stage of their settlement calculus as something they are likely to have to bear, rather than leaving the question of costs until after all other issues have been agreed.
5. The Court's orders are: 1. The plaintiff's motion filed 9 April 2024 is dismissed; 2. The defendant's motion filed 31 May 2024 is dismissed; 3. Note that the Court makes no order as to the parties' costs of the proceedings not already the subject of a costs order (including as to their costs of the motions referred to in the preceding two orders).

Amendments 30 July 2024 - Correction to spelling of name in paragraphs 91 and 94 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: 30 July 2024