DXC Connect Pty Ltd v Deibe

[2017] NSWSC 1356

Supreme Court

New South Wales

Medium Neutral Citation:	DXC Connect Pty Ltd v Deibe & Ors [2017] NSWSC 1356
Hearing dates:	22, 23 and 25 August 2017, costs submissions 7 September 2017
Decision date:	05 October 2017
Jurisdiction:	Equity
Before:	Black J
Decision:	The Court orders that sixty per cent of the Plaintiff’s costs of and incidental to the application heard on 22–23 and 25 August 2017, excluding costs referable to the preparation of affidavits to the extent they are relied on in the final hearing, as agreed or as assessed, be the Plaintiff’s costs in the cause, and that there be no order as to the costs of the application for costs.
Catchwords:	COSTS — Party/Party — Costs orders in interlocutory proceedings — where interlocutory relief would reduce ultimate loss to Plaintiff – whether Plaintiff’s costs should be its costs in the cause – reduction to costs order where Plaintiff partly unsuccessful   COSTS — Party/Party — Exceptions to general rule that costs follow the event — Offers of compromise/Calderbank offers – whether unreasonable for Plaintiff not to accept Sixth Defendant’s Calderbank offer
Legislation Cited:	- Civil Procedure Act 2005 (NSW), s 98 - Uniform Civil Procedure Rules 2005 (NSW), Pt 42, rr 42.1, 42.7
Cases Cited:	- Ausino International Pty Ltd v Apex Sports Pty Ltd [2006] NSWSC 1119 - Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 - Calderbank v Calderbank [1975] 3 All ER 333 - Commonwealth of Australia v Gretton [2008] NSWCA 117 - Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219 - DXC Connect Pty Ltd v Deibe [2017] NSWSC 1159 - Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34 - John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995 - Kraissa v Hair Industrie Penrith Pty Ltd [2015] NSWSC 1905 - Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 816 - Petar v Macedonian Orthodox Community Church St Petka Inc (No 2) [2007] NSWCA 142 - Re MF Global Australia Ltd (in liq); Hopper v Campbell in his capacity as liquidator of MF Global Australia Ltd (in liq) [2015] NSWSC 1583
Category:	Costs
Parties:	DXC Connect Pty Ltd (Plaintiff) Stephen Deibe (First Defendant) Antonino Arena (Second Defendant) Rohan Michael Busteed (Third Defendant) Jay Manaen Henry (Fourth Defendant) David Troy Hunter (Fifth Defendant) Robert McCabe (Sixth Defendant) Joseph Arcuri (Seventh Defendant)
Representation:	Counsel: J J Fernon SC/S B Docker (Plaintiff) R Alkadamani (Sixth Defendant)   Solicitors: Lander & Rogers Lawyers (Plaintiff) Haywards Solicitors (Sixth Defendant)
File Number(s):	2017/226378

Judgment

1. After a three day hearing on 22, 23 and 25 August 2017, I delivered judgment on 31 August 2017 ([2017] NSWSC 1159) (“Judgment”) holding that an interlocutory injunction should be granted restraining the Sixth Defendant, Mr Robert McCabe, from disclosing or using specified information of the Plaintiff, DXC Connect Pty Ltd (“DXC”) until further order and that an order should also be made broadly reflecting the restraint clause in the employment contract between DXC and Mr McCabe. The parties subsequently agreed Short Minutes of Order to give effect to the Judgment, and also agreed a regime for the inspection of certain electronic devices and the return of any confidential information found on them, which was implemented by further orders made by the Court. The question of costs was in dispute and remains to be determined in this judgment.

2. In paragraph 79 of the Judgment I observed, in respect of the question of costs:

“In the result, DXC has had some success in respect of its application. That success was founded on confidentiality and the contractual restraint of trade, not on the claim for an injunction under the “springboard” principle. Any argument as to the matters on which DXC succeeded would likely have been able to be determined within a shorter period than this hearing, although likely more than the three hours which the parties had originally estimated this application would take. It seems to me that the fact that the application ultimately took about two days, spread over a three day period, was largely referable to DXC’s attempt to establish a wider injunction under the springboard principle, as to which it has been unsuccessful, and my tentative view is that that should be reflected in a reduction of any costs ordered in DXC’s favour in respect of this application.”

DXC’s position

3. DXC now seeks orders that Mr McCabe pay 75% of its costs of its application for the interlocutory relief sought against him in prayer 62 of its Amended Summons and paragraph 10 of its Notice of Motion filed on 3 August 2017. DXC relies on the entirety of its evidence read in the three day hearing before me, and further affidavits of Mr Luke Scandrett dated 23 August 2017 and Ms Annika Anderson-Carter dated 6 September 2017 in support of the application for costs.

4. Mr Fernon, who appears with Mr Docker for DXC, rightly recognises that costs are in the Court’s discretion under s 98 of the Civil Procedure Act 2005 (NSW) and the general rule under r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) is that costs follow the event, unless it appears to the Court that some other order ought to be made as to the whole or part of the costs. Mr Fernon also draws attention to r 42.7 of the UCPR which provides that the costs of an interlocutory application are to be paid and otherwise dealt with in the same way as the general costs of the proceedings.

5. Mr Fernon also refers to Petar v Macedonian Orthodox Community Church St Petka Inc(No 2) [2007] NSWCA 142 at [16]–[32], where the Court of Appeal referred to several authorities dealing with the costs of an application for an interlocutory injunction. Their Honours referred to authority that, where a plaintiff establishes an arguable or prima facie case for an interlocutory injunction, and the defendant does not concede that injunction, then the proper order is that the costs be the plaintiff’s costs in the cause or that the defendant pay the plaintiff’s costs in any event. The Court referred, inter alia, to Ausino International Pty Ltd v Apex Sports Pty Ltd [2006] NSWSC 1119 at [55], where Campbell J (as his Honour then was) noted that:

“The usual order which is made as to costs concerning interlocutory processes, is that if the plaintiff is the applicant, and succeeds, then the costs of the interlocutory process become the plaintiff’s costs in the cause.”

The Court of Appeal made an order that the plaintiff’s costs be costs in the cause in Petar v Macedonian Orthodox Community Church St Petka Inc (No 2) above, where the plaintiff had succeeded in obtaining interlocutory relief over the defendant’s opposition.

6. As I noted above, DXC contends that the Court should order that Mr McCabe pay 75% of its costs of its application for interlocutory relief or alternatively that 75% of DXC’s costs of the application be its costs in the cause. Mr Fernon submits that Mr McCabe’s resistance to the orders sought was displaced by evidence that he had downloaded a significant amount of confidential information relating to his activities as general manager of DXC to a USB storage device (I interpolate, whether or not he, subjectively, believed he had good reason to do so, because of the perceived threat of litigation) (Judgment [26]–[30], [35]–[43]). Mr Fernon also points to Mr McCabe’s resistance to a restraint of his working for another entity, Data#3 Ltd (“Data3”), relying on a question of construction of the restraint as to which DXC was ultimately successful (Judgment [74]–[76]).

7. DXC submits that its case seeking protection of confidential information and for the enforcement of the contractual restraint is strong and also submits that that question may not be revisited at a final hearing given the short duration of the contractual restraint, for three months, and the regime that has now been agreed for retrieval of confidential information from electronic devices. DXC submits that it would be unjust to DXC to make the recovery of its costs of the application for interlocutory relief contingent on establishing a claim for damages, equitable compensation or an account of profits against Mr McCabe at a final hearing, since the orders made at the interlocutory stage will likely be of substantial practical benefit to it and will likely reduce any loss which it would otherwise have suffered. It seems to me that there is considerable force in that submission.

8. Mr Fernon recognises that a reduction in the amount of costs awarded, of the kind contemplated by paragraph 79 of the Judgment, may be ordered where there are multiple issues and a successful party did not succeed on all of them, including issues that were clearly dominant or separable, and that the question whether the ordinary rule should be applied depends upon considerations of fairness and the responsibility of each party for the incurring of the costs. Mr Fernon submits that an appropriate reduction is 25% to a costs order in its favour, and submits that most of the evidence that it led was relevant to its claims concerning confidential information, the contractual restraint and breach or apprehended breach of the duty of confidence or the contractual restraint, and little of that evidence went only to its claims based on a “springboard” argument.

9. Mr Alkadamani, who appears for Mr McCabe, submits that the real dispute between the parties, at the time of the hearing, was whether Mr McCabe should be restrained from working for Data3 for three months or for six months from 21 September 2017 and that DXC was unsuccessful as to the latter submission. Mr Alkadamani submits that, had the Plaintiff not sought a restraint for six months, until 21 March 2018, and even if the parties had not otherwise resolved their disagreements, the matters before the Court would have been the proper construction of the scope of the restraint on competition and whether that restraint should continue until 28 December 2017 or until further order, and those issues would have been disposed of in less than the time that was required for the hearing. Mr Alkadamani submits that DXC should pay Mr McCabe’s costs of and incidental to the hearing of his claim for interlocutory relief in paragraph 62(a) and 62(b) of the Amended Summons dated 3 August 2017, except those costs referable to the preparation of affidavits to the extent to which they are relied on in a final hearing, on an indemnity basis.

10. In the alternative, Mr Alkadamani submits that DXC was substantially unsuccessful in the interlocutory hearing, where a confidentiality order was not made in the form that was sought and Mr McCabe had offered to accept a confidentiality regime (Ex R1). On that basis, Mr Alkadamani submits that an appropriate order would be no order for costs to the intent that each party pay its own costs because the parties’ success on the relevant issues had been mixed.

11. It seems to me that DXC must be treated as the successful party in the application before me, on the basis that it succeeded in obtaining relief as to confidentiality (although not in the form that it had initially proposed) and relief as to the restraint of trade in a wider form than Mr McCabe had been prepared to accept. Notwithstanding Mr Fernon’s submissions, it seems to me that the hearing would have been significantly shorter, had DXC not pressed its unsuccessful claim for a six month restraint of trade based on the springboard doctrine, since that application affected both the extent of the evidence that was required and the complexity of and time spent in legal submissions.

12. As I noted above, UCPR r 42.1 provides that, subject to Pt 42, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs. In Commonwealth of Australia v Gretton [2008] NSWCA 117, Hodgson JA with whom Mason P agreed observed (at [121]) that:

“In my opinion, underlying both the general rule that costs follow the event, and the qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs. Costs follow the event generally because, if a plaintiff wins, the incurring of costs was the defendant’s responsibility because the plaintiff was caused to incur costs by the defendant’s failure otherwise to accord to the plaintiff that to which the plaintiff was entitled; while if a defendant wins, the defendant was caused to incur costs in resisting a claim for something to which the plaintiff was not entitled … Departures from the general rule that costs follow the event are broadly based on a similar approach.” [Citations omitted]

That observation was cited, with apparent approval, by the Court of Appeal in Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34 at [98].

13. The case law recognises that the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed, although it may deprive a successful party of the costs relating to an issue on which it lost when that issue is clearly dominant or separable: Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38]; Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219 at [17]. In Bostik Australia Pty Ltd v Liddiard (No 2) above at [38], the Court of Appeal observed, inter alia, that:

“Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends upon matters of impression and evaluation.”

In Kraissa v Hair Industrie Penrith Pty Ltd [2015] NSWSC 1905 at [5] I referred to the relevant cases and noted that:

“The authorities also recognise that a costs order in favour of a successful party can be modified to reflect its failure on particular issues even if the successful party did not act unreasonably in raising those issues, and it may be appropriate to deprive a successful party of costs or a portion of its costs if the matters upon which it was unsuccessful took up a significant part of a trial, either by way of evidence or argument, and an issue by issue approach may be adopted if it will allow a fairer result than giving a party all of its costs.”

14. I am satisfied that a significant discount is necessary to the costs that should be ordered in favour of DXC, in respect of the application for interlocutory relief, to take account of the extent of the hearing and ancillary work that was devoted to DXC’s unsuccessful claim on a “springboard” basis. I am not satisfied that DXC’s proposed discount of its recovery to 75% of its costs sufficiently recognises that matter, although I also do not consider that has the consequence, for which Mr McCabe contends, that the costs should be costs in the cause. Although matters of this kind are necessarily matters of impression and evaluation, not capable of resolution with mathematical certainty, it seems to me that the proper order is that 60% of DXC’s costs of and incidental to the application heard before me on 22–23 and 25 August 2017, excluding costs referable to the preparation of affidavits to the extent they are relied on in the final hearing, as agreed or as assessed, be the Plaintiff’s costs in the cause. I will address the question whether that result is affected by a Calderbank [Calderbank v Calderbank [1975] 3 All ER 333] offer below.

Mr McCabe’s reliance on a Calderbank offer

15. Mr McCabe in turn relies on a Calderbank offer dated 10 August 2017 (Anderson-Carter 6.9.17, Annexure AA-2) which, inter alia, offered to submit to a restraint from using or disclosing confidential information until 28 December 2017, while questioning the appropriateness of such an order, and offered a restraint from being employed, engaged or contracted by, or working for, Data3, directly or indirectly, until 28 December 2017. That offer was left open for acceptance for one business day, until late on 11 August 2017.

16. Mr McCabe also relies on his offer, in the Calderbank letter, to consent to the order restraining the use of confidential information, although contending that the order sought was not properly formulated. I give little weight to that offer because, for the reasons Mr McCabe points out, the order to which he offered to consent was likely to be unenforceable in any practical way, and an offer to consent to an order that could not practically be enforced involved no real element of compromise by Mr McCabe. Mr Alkadamani also points out that the injunctive relief granted by the Court has been ordered “until further order”, which may or may not extend beyond 28 December 2017, depending upon the outcome of the final hearing, and submits that the result achieved by DXC was not more favourable to it than the Calderbank offer. Mr Alkadamani also points to matters which he submits made it reasonable for the Calderbank offer to be left available for one day, including that Mr McCabe’s affidavit evidence was due on 15 August 2017, and that costs would be incurred in preparing that evidence. It nonetheless seems to me that the time permitted to consider that offer was too short for it to assist Mr McCabe in present circumstances.

17. Mr Fernon responds that Mr McCabe did not achieve a more favourable result than his Calderbank offer and, in particular, the order achieved by DXC extends to protection of confidential information, in specified categories, without restriction as to time; the restraint extends beyond Data3; and orders for inspection of electronic devices to permit the return of any confidential information held on them have been made. Mr Fernon refers to the authorities as to the circumstances in which a plaintiff’s failure to accept a Calderbank offer warrants departure from the general rule as to costs, and submits that a Calderbank offer will only support an order for indemnity costs if it was a genuine offer of compromise and it was unreasonable for a plaintiff not to accept it. Mr Fernon also submits that Mr McCabe’s offer was made at an early stage of the proceedings; that additional information became available to DXC on notice to produce and subpoena after that offer was made, which strengthened its claims against Mr McCabe in respect of confidentiality; and that Mr McCabe had not served any evidence at the time that offer had been made and DXC had not then had access to any of the USB devices that had been connected to Mr McCabe’s computer at various times. Mr Fernon also submits that the time allowed to consider that offer was insufficient to allow DXC to assess the strength of its case against Mr McCabe at that early stage of the proceedings and that there was little compromise in that offer from Mr McCabe’s perspective.

18. In Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 816 at [9]–[15], Ward J (as her Honour then was) observed that:

“The rationale for the principles applied in relation to Calderbank offers was outlined in Commonwealth v Gretton [above] by Beazley JA, her Honour noting (at [41]) that the public policy considerations underpinning the making of favourable costs orders where a Calderbank offer has been made (and not accepted) are the encouragement of settlement of disputes as soon as possible and the discouragement of wasteful and unreasonable behaviour by litigants.

The Court of Appeal in Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 recently reiterated the public policy objectives of special costs orders in the context of offers of compromise. Basten JA (with whom McColl and Campbell JJA agreed) referred at [6] to the objects underlying the formal offer of compromise procedures under the then court rules that were identified in Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 as including:

1.   To encourage the saving of private costs and the avoidance of the inherent risks, delays and uncertainties of litigation by promoting early offers of compromise by defendants which amount to a realistic assessment of the plaintiff’s real claim which can be placed before its opponent without risk that its “bottom line” will be revealed to the court;

2.     To save the public costs which are necessarily incurred in litigation which events demonstrate to have been unnecessary, having regard to an earlier (and, as found, reasonable) offer of compromise made by a plaintiff to a defendant; and

3.   To indemnify the plaintiff who has made the offer of compromise, later found to have been reasonable, against the costs thereafter incurred. This is deemed appropriate because, from the time of the rejection or deemed rejection of the compromise offer, notionally the real cause and occasion of the litigation is the attitude adopted by the defendant which has rejected the compromise. In such circumstances, that party should ordinarily bear the costs of litigation.

The onus is on the party seeking to rely on a Calderbank offer (in this case, the defendants) to satisfy the court that it should exercise the costs discretion in its favour (Evans Shire Council v Richardson (No 2) [2006] NSWCA 61). An indemnity costs order will not automatically follow from the fact that a genuine offer of compromise more favourable than the final judgment was made nor is there any presumption to that effect (Cat Media Pty Ltd v Allianz Australia Insurance Ltd [2006] NSWSC 790; Rolls Royce Industrial Power (Pacific) Ltd v James Hardie & Co Pty Ltd [2001] NSWCA 461). What must be considered is the reasonableness of the offeree’s rejection or non-acceptance of the offer, having regard to the relevant circumstances at the time that the offer fell to be considered (ie, here, as at September 2006) (citing MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd [1996] 70 FCR 236 per Lindgren J). The question is whether, in all the circumstances, the failure to accept the offer “warrants departure from the ordinary rule as to costs” (SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 per Giles JA at [37]).

Counsel for the defendants (Mr Stitt) submits that, insofar as the Court is to have regard to the particular circumstances of the case, this includes the evidence advanced, the conduct of the parties and the ultimate result (referring to Knight v Clifton [1971] Ch 700; Hally v Dennis (1955) 95 CLR 661 at 664) and that relevant conduct of the parties to be taken into account may include not only conduct in the course of the proceedings (Beoco Ltd v Alfa Laval Co Ltd [1995] QB 137) but also conduct leading up to commencement of the proceedings (Peters v Peters (1907) 7 SR (NSW) 398 at 399).

Save where there is a special costs order by reference to the procedure provided for under the Rules or in accordance with the principles in Calderbank v Calderbank [above], it has been said that a court should depart from the general rule (and award indemnity costs only where the conduct of the party against whom the order is sought is “plainly unreasonable” (Sydney City Council v Geftlick [2006] NSWCA 280; Dunstan v Rickwood (No 2) [2007] NSWCA 266). In Leichhardt Municipal Council v Green [2004] NSWCA 341, Santow JA (at [57]) said that indemnity costs orders should be reserved for the most unreasonable actions by unsuccessful plaintiffs.”

19. In Re MF Global Australia Ltd (in liq); Hopper v Campbell in his capacity as liquidator of MF Global Australia Ltd (in liq) [2015] NSWSC 1583 at [6], to which Mr Fernon refers, I summarised the principles applicable in determining the effect of a Calderbank offer as follows:

“… the making of a Calderbank offer does not give rise to a presumption in favour of indemnity costs: Perisher Blue Pty Ltd v Nair-Smith (No 2) [2015] NSWCA 268 at [14]. Similarly, the fact that a plaintiff ultimately achieves a worse result than he or she would have achieved if he or she had accepted that offer, does not itself establish that the defendant should be awarded indemnity costs, unless it can be said that it was unreasonable for the plaintiff not to accept that offer, so as to warrant a departure from the general rule as to costs: Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [above] at [9]–[11]; Jones v Bradley (No 2) [2003] NSWCA 258 at [8]–[9]; Perisher Blue Pty Ltd v Nair-Smith (No 2) above at [16].”

20. I am satisfied that it was not unreasonable for DXC not to accept Mr McCabe’s Calderbank offer, given its incomplete knowledge as to the extent of confidential information that was in Mr McCabe’s possession at the time that offer was made and the short time that was allowed by Mr McCabe for consideration of that offer, and that offer does not assist Mr McCabe in respect of costs.

Orders

21. Neither party has secured the orders that it sought in the application as to costs and there should be no order as to the costs of this application.

22. Accordingly, I make the following orders:

1.   Sixty per cent of the Plaintiff’s costs of and incidental to the application heard on 22–23 and 25 August 2017, excluding costs referable to the preparation of affidavits to the extent they are relied on in the final hearing, as agreed or as assessed, be the Plaintiff’s costs in the cause.

2.   There be no order as to the costs of this application.

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Decision last updated: 06 October 2017