Freelancer International Pty Ltd v Matthew O'Kane

[2019] NSWSC 159

Supreme Court

New South Wales

Medium Neutral Citation:	Freelancer International Pty Ltd v Matthew O’Kane [2019] NSWSC 159
Hearing dates:	20 February 2019
Decision date:	27 February 2019
Jurisdiction:	Equity
Before:	Ward CJ in Eq
Decision:	1. The proceedings be dismissed on the application of the plaintiff under r 29.8 of the Uniform Civil Procedure Rules 2005 (NSW). 2.   The defendant is to pay the plaintiff’s costs of the proceedings, including the costs of and in relation to the notice of motion filed 29 November 2018 and the hearing on 20 February 2019.
Catchwords:	COSTS — application by plaintiff for dismissal or discontinuance of proceedings –– preliminary discovery application –– where matter has not been heard on the merits –– whether defendant’s conduct warrants a costs order against defendant –– defendant’s deliberate deletion of documents –– costs awarded against the defendant
Legislation Cited:	Civil Procedure Act 2005 (NSW), ss 56-59, 98 Uniform Civil Procedure Rules 2005 (NSW), rr 5.3, 12.3, 29.8. 42.19, 42.20, 42.40, Part 5
Cases Cited:	Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 Edwards v Adam [2016] NSWSC 1534 El-Saeidy v NSW Land and Housing Corporation [2011] NSWSC 447 Fordyce v Fordham & Anor [2006] NSWCA 274; (2006) 67 NSWLR 497 Genworth Financial Mortgage Insurance Pty Ltd v Hodder Rook & Associates Pty Ltd [2017] NSWSC 640 King v Flowers [2014] NSWSC 1266 Liu v The Age Company Ltd (2016) 92 NSWLR 679, [2016] NSWCA 115 Mirus Australia Pty Ltd v Gage [2017] NSWSC 1046 Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84 Re Minister for Immigration and Ethnic Affairs (Cth); Ex Parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 Renton v Kelly [2018] NSWSC 1377
Category:	Costs
Parties:	Freelancer International Pty Ltd (Plaintiff) Matthew O’Kane (Defendant)
Representation:	Counsel: M Williams (Solicitor) (Plaintiff) B Miles (Defendant)   Solicitors: Gilbert + Tobin (Plaintiff) Solve Legal Pty Ltd (Defendant)
File Number(s):	2018/00197262
Publication restriction:	Nil

Judgment

1. HER HONOUR: Before me for hearing on 20 February 2019 was a dispute between the plaintiff, Freelancer International Pty Limited (Freelancer) and the defendant, Mr Matthew O’Kane, as to the costs of proceedings commenced by Freelancer in this Court in June last year seeking asset preservation orders and then, by way of an application for preliminary discovery, seeking access to documents claimed by Freelancer to contain its confidential information.

2. I interpose to note that Mr O’Kane disputes the characterisation of Freelancer’s application as a preliminary discovery application, for reasons I will explain in due course. Suffice it for present purposes, however, to note that the notice of motion filed on 10 July 2018 by Freelancer (after the filing in the duty list of Freelancer’s summons on 26 June 2018) in terms sought, among other relief, an order for the provision of preliminary discovery and inspection pursuant to Part 5 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR).

3. Freelancer now moves on a notice of motion filed 29 November 2018, seeking orders for the dismissal, or alternatively the discontinuance, of the proceedings. Mr O’Kane does not oppose the making of an order for the dismissal of the proceedings pursuant to r 29.8 of the UCPR (indeed he submits that this is the appropriate course). He does oppose the grant of leave for the proceedings to be discontinued at least in the absence of a term pursuant to r 12.3 of the UCPR that Freelancer be prevented from claiming the same relief in fresh proceedings.

4. As was made clear at the outset of oral submissions, Freelancer is content for there to be an order made for the dismissal of the proceedings (accepting that from its perspective the subject matter has now gone from the proceedings, such that there would be no opportunity in the future to re-litigate over the subject matter which was peculiar to these proceedings – see T 2.50). The only substantive dispute between the parties now is as to what order should be made as to costs.

5. In its 29 November 2018 notice of motion, Freelancer has sought an order for Mr O’Kane to pay its costs of the proceedings as agreed or assessed (or, in the alternative that there be no order as to costs of the proceedings) and that Mr O’Kane pay its costs of the motion as agreed or assessed. Mr O’Kane submits that Freelancer should be ordered to pay his costs of the proceedings.

6. Freelancer says that there is no longer any utility in the proceedings (and that the subject matter of the proceedings has now gone) on the basis that the affidavit sworn 24 September 2018 by Mr O’Kane verifies (for the first time) that the documents in question have either been destroyed by him or, to the extent that they have not been so destroyed, are produced by way of exhibit to that affidavit. Freelancer submits that Mr O’Kane should not now be rewarded (by way of an order for costs in his favour) for his conduct (as I will explain in due course). Freelancer accepts that an appropriate order for costs in the circumstances which have transpired would be its alternative claim that each party pay his or its own costs. For his part, Mr O’Kane presses for a costs order in his favour, though accepting that there is a discretion reposed in the Court in relation to costs; and says that the starting point for consideration of costs is to be found in rr 42.20 and 42.19 of the UCPR (dealing with the usual order as to costs on the dismissal or discontinuance of proceedings, respectively).

Background

7. The background to these proceedings is fairly straightforward (and broadly not in dispute). Mr O’Kane is a former employee of Freelancer. After the termination of his employment, which I am informed was in August 2016, proceedings were commenced by Mr O’Kane in the Federal Circuit Court in which Mr O’Kane made a claim of wrongful dismissal. Those proceedings culminated in a judgment in April 2018. However, in the course of those proceedings, certain evidence was given by Mr O’Kane as to documents that Mr O’Kane had copied and retained from Freelancer’s computer systems, which Freelancer contends contained its confidential information (to which I will refer, without making any finding as to the confidential or otherwise nature of the relevant documents, as the Freelancer Confidential Information). It does not appear to be disputed that in the Federal Circuit Court proceedings there was a dispute as to the “purported possession” by Mr O’Kane of Freelancer’s electronic confidential or commercially sensitive information (see T 10.45 on the application before me, where Counsel for Mr O’Kane cited the terms of an undertaking that had been given to the Federal Circuit Court in that regard; and see below at [11]); and also a dispute as to the confidential nature of those documents or the information contained therein.

8. What transpired after the judgment in the Federal Circuit Court proceedings was that a dispute arose as to what was to happen to the Freelancer Confidential Information and, in particular, as to a demand made by Freelancer that Mr O’Kane retain (and permit Freelancer access to) the said information on storage devices in Mr O’Kane’s possession followed by Mr O’Kane’s communicated intention to destroy the said information.

9. The time line of the key events in relation to that dispute (which led to the filing by Freelancer of the summons now sought to be dismissed or discontinued) relevantly commences in June 2018 although in oral submissions for Mr O’Kane emphasis was placed on certain orders made earlier in the course of the Federal Circuit Court proceedings and so, for completeness, I will start there.

10. The Federal Circuit Court proceedings by reference to the file number, commenced in 2016. On 30 October 2017, Judge Manousaridis made orders granting to Freelancer’s solicitors custody until 5pm on 1 November 2017 of a server that had been produced (presumably by Mr O’Kane) in answer to a notice to produce and granting Freelancer (and the second defendant in those proceedings who is not a party to the present proceedings) access to “the relevant part of the server” (see Exhibit 2).

11. On 1 March 2018, Judge Manousaridis noted an undertaking given to the Court by Freelancer on a without admissions basis that, until close of business on 7 March 2018, it would not commence any proceedings in any court or tribunal in relation to “the purported possession” by Mr O’Kane of Freelancer’s “electronic confidential or commercially sensitive information” (also part of Exhibit 2).

12. Pausing here, Counsel for Mr O’Kane identifies the relevance of the above orders as putting into context the reference by Freelancer to evidence at the earlier proceedings as to Mr O’Kane being in possession of documents copied or downloaded from Freelancer’s computer systems (referred to at [7] above) (see T 10). In particular, it is submitted for Mr O’Kane that: the fact that Judge Manousaridis on 30 October 2017 gave liberty to the parties to apply to the Federal Circuit Court means that it was that Court which was the proper forum for any dispute as to access to the documents in relation to an order made by that Court (and no such application was made by Freelancer); and the order made on 1 March 2018 (in particular, the undertaking there noted by the Court) demonstrates the “long-standing nature” of threats by Freelancer to commence proceedings in courts or tribunals in relation to possession of this information (namely, that these did not arise in June 2018, but were at least in existence since 28 February 2018, when Mr O’Kane says, the application to which the undertaking responded was filed, and “even earlier” than that) (see T 10).

13. Leaving aside the question as to the relevance of those orders, what transpired after the April 2018 decision in the Federal Circuit Court proceedings was as follows.

14. On 6 June 2018, Freelancer’s then solicitors wrote to Mr O’Kane, in a without prejudice letter, responding to an earlier letter of 14 May 2018 (which does not appear to be in evidence but which, from the text of other correspondence, appears to have related to or contained a proposal for a computer image to be taken of Mr O’Kane’s computer devices) and expressing their view (in what must be said to be rather inflammatory terms) that Mr O’Kane was “hindering and protracting the proper presentation of information that [Mr O’Kane] admitted stealing from [Freelancer]”. It was said that:

All our client wishes is to have all the above defined information disclosed, returned and any deletions or interference with that information made known to our client. The proceedings themselves [that have] given rise to your client’s admissions of unlawful theft and continued retention are over and that judgment has been made against your client. It can be inferred that the conduct of your client in protracting the delivery and return of the information has been for forensic purposes and calculated to hinder the sole possession of our client of its stolen information.

We have been advised by Counsel that the court’s intervention in this matter is required. [my emphasis]

We reiterate that your client should not have nor do anything that interferes with the retention of the stolen information and its access. We note that your client referred to legal advice to retain the stolen information and this will be put before the court.

15. The 6 June 2018 letter, apparently responding to an assertion suggesting the contrary in the 14 May 2018 letter from Mr O’Kane’s solicitors stated that Freelancer “should have the right to take further actions including informing the relevant Police authorities and enforcement agencies together with the right to commence legal proceedings”. It was asserted that Freelancer did not know the contents, index or nature of the “stolen property” (see Exhibit A pp 2-4).

16. In an open letter dated 8 June 2018 in response thereto, Mr O’Kane’s solicitor: expressed “concern” with the allegations made against Mr O’Kane; stated that it was Mr O’Kane’s understanding that the intention of Freelancer “seeking to image” his computers was to ensure that he had returned, divested himself of, or otherwise deleted Freelancer Confidential Information in his possession and that Freelancer had now admitted it had “other intentions, including as to criminal proceedings” against Mr O’Kane; and advised that “short of Freelancer withdrawing all such claims and/or assertions as to criminal proceedings, and undertaking to our client not to pursue same”, Mr O’Kane would be exercising his rights and legal privileges “to refuse to participate in any computer imaging process now sought to be undertaken by Freelancer (by agreement or otherwise)” (see Exhibit A pp 5-6).

17. The letter went on to assert that Freelancer had been given “every opportunity to resolve this matter on reasonable and appropriate terms in a very short timeframe”; that Freelancer had chosen not to take up that opportunity; that Freelancer’s “delaying conduct and approach” identified that Freelancer “is not at all concerned about its confidential information purportedly in the possession of our client, and has abandoned all suggestions as to this matter warranting any ‘urgency’”; that Mr O’Kane had properly identified the nature and scope of his possession of Freelancer’s electronic information during cross-examination before the Federal Circuit Court; and that a copy of that information had been provided to Freelancer’s former lawyers during the course of the hearing. The letter further stated:

It is abundantly clear that our client could simply delete any Freelancer information in his possession (verified by Freelancer) in final resolution of this matter. It is Freelancer who wants to take a different approach. It is only because of that approach (by Freelancer) that our client has not deleted Freelancer information in his possession to date and this matter remains unresolved. This situation cannot, and will not, continue indefinitely. This is especially so in circumstances where despite a period of eight months, Freelancer has not one piece of evidence as to the misuse of Freelancer confidential information by our client. [See Exhibit A pp 5-6.]

18. There does not seem to have been a substantive response to that email. By letter dated 25 June 2018, emailed at 9.21am, Mr O’Kane’s solicitor then notified Freelancer’s solicitor that, should Freelancer “fail”, prior to noon 26 June 2018, to provide Mr O’Kane with the written withdrawals and undertakings as set out in the 8 June 2018 letter and to agree to a computer inspection regime outlined in the 14 May 2018 letter referred to above:

our client will immediately divest himself of, or otherwise delete/erase, any and all Freelancer confidential information in his possession. This will include our client shredding and/or reformatting his relevant electronic devices.

19. The letter concluded:

To be clear, time is of the essence in respect of this deadline of Noon tomorrow. Further extensions will not be agreed to. Proposals inconsistent with the above will not be agreed to.

(See Exhibit A p 7.)

20. In oral submissions on the present application, Counsel for Mr O’Kane emphasised that “[w]hatever one may think of the terms of the letter of 25 June, it is in no way ambiguous. It is not one that suggests any further undertaking not to delete the information will be proffered. … It is clear from the terms of that letter, time is of the essence, further extensions will not be agreed to, proposals inconsistent with the order will not be agreed to” (see T 20.44). (Accepting that this is indeed what the letter stated, it does not, however, make reasonable the unilateral imposition of the non-negotiable deadline, nor unreasonable a delay of just over a day in the commencement of proceedings seeking to avert the implementation of that threat – as to which I say more in due course.)

21. Freelancer’s response, by a without prejudice letter sent by email by its solicitor at 7.58pm the same day (see Exhibit A pp 8-9), was to state that the threat of destruction of corporate confidential information without its verification or oversight was a matter of “serious concern”; that the threat to destroy information seriously compromised its duties to stakeholders and its “national and international obligations” in relation to the privacy and integrity of the information; and that the threat of destruction of confidential information “seriously undermines our client’s ownership and rights to investigate and ascertain the extent of the unlawful coming into possession and retention of such information”.

22. A written undertaking (perhaps in the hope that a measure of commonsense or reasonableness might prevail) was sought (by 9.30am the following day) from Mr O’Kane not to “divest himself of, or otherwise delete/erase any and all Freelancer confidential information in his possession” (underlining as per original) and not to shred and/or reformat his relevant electronic devices. Relevantly, for present purposes, the letter foreshadowed that if the undertakings were not given Freelancer would approach this Court for preservation orders “and other such orders which will secure and assure the integrity of the company’s information”.

23. By email sent at 9.10am on 26 June 2018, Mr O’Kane’s solicitor reiterated his client’s position as outlined in the 25 June 2018 letter and stated his client’s understanding that a copy of “the files in question” would remain recoverable from Google Drive for a period of 25 days after deletion (presumably to indicate that any deletion would not thereby render the documents irrecoverable – though query the consistency of this with the threat to shred and/or reformat the devices) (see Exhibit A p 10).

24. Freelancer’s solicitor responded by email sent at 11.55am (i.e., five minutes before the unilaterally imposed and non-negotiable noon deadline), advising that he had instructions to make an urgent application to the duty judge that morning to prevent the destruction of Freelancer Confidential Information and attaching a copy of an unsealed summons, in which orders styled as freezing orders were sought which were clearly designed to prevent the deletion of the Freelancer Confidential Information (see Exhibit A pp 11-18).

25. At some time around a couple of hours after that, by a without prejudice letter dated 26 June 2018 which referred to a telephone conversation between the respective solicitors on 26 June 2018 at 1.40pm (see further at [26] below), Freelancer’s solicitor notified Mr O’Kane’s solicitor that the matter had been listed for an urgent application before me at 3.00pm that day at which he said interlocutory relief would be sought. The letter requested advice as to matters such as: the basis of the solicitor’s understanding that the confidential information was deleted; the time at which it was deleted, the devices from which it was deleted; whether further copies were made of any of the information; and whether the information was on-forwarded to any recipient (Exhibit 1).

26. The matter then came before me in the duty list at about 3.00pm on 26 June 2018. By that time, as adverted to in the without prejudice letter referred to at [25] above, Freelancer’s then solicitor had apparently spoken with Mr O’Kane’s solicitor and, according to the former’s account of that conversation, Mr O’Kane’s solicitor had said “you know the material has been destroyed, he said he was going to do it” (see Exhibit A p 21). My attention was quite properly drawn to that communication when the application for an asset preservation order was made on an ex parte basis that afternoon. When I queried the seeming futility of such an order if there was evidence that the material had been deleted, the position of Counsel then appearing for Freelancer was: that it was unclear whether Mr O’Kane’s solicitor knew the truth of the matter or to the extent the information had been deleted; and that it was unclear if the information had been forwarded, whether there were further copies available, and whether the information was held on any of the devices (see T 26/6/18; 4.40). On the usual undertaking as to damages proffered by Freelancer through its Counsel, I then made orders including an interim order restraining the deletion of the said information and stood the matter over to the duty list the following day, having abridged the time for service of the relevant documents.

20. I interpose here to note that Mr O’Kane’s evidence on the present application included reference to a conversation with his solicitor in which his solicitor advised that he had not checked his emails prior to the noon “deadline” (and, if so, would not have seen the 11.55am email referred to at [24] above) (see T 15.22; T 23.25). Be that as it may, it is apparent from the above that, as at whatever time the deletion in fact occurred on 26 June 2018, Mr O’Kane was on notice (by reference to the email referred to at [22] above, to which he had seemingly been able to give the instructions conveyed by his solicitor in the email response referred to at [23] above) of Freelancer’s intention to approach this Court for interlocutory relief if he, Mr O’Kane, did not give written undertakings not to delete the Freelancer Confidential Information and not to reformat his electronic devices and Mr O’Kane had refused to provide any such undertakings. It is also apparent that Mr O’Kane’s solicitor understood (whether or not his understanding was correct is another matter), and had conveyed as much to Freelancer’s solicitor, that as at around 1.40pm that day (before the ex parte application was made in the duty list) that Mr O’Kane had (at least to some extent) carried though with his threat of deletion (though the position as to shredding or reformatting was something to which he did not there advert).

21. When the matter came back before me on 27 June 2018 again in the duty list, orders were made for the delivery up to Mr O’Kane’s solicitor of any computer devices in Mr O’Kane’s custody, control or possession that contain or have contained the defined Freelancer Confidential Information and for those devices to be kept safe and secure by Mr O’Kane’s solicitor until further order of the Court. I also made directions for the filing and service of a notice of motion in respect of preliminary discovery and a supporting affidavit (see Exhibit A p 25).

22. The matter then proceeded with confirmation from Mr O’Kane’s solicitor as to the particular devices that were in his custody in accordance with the orders I had made (see Exhibit A pp 27-28) and a request by Freelancer’s solicitor for particulars as to the circumstances in which Mr O’Kane said he deleted the confidential material. The response to that request, in essence, was that all details concerning that enquiry were set out in the affidavit of Mr O’Kane’s solicitor of 26 June 2018 and the bald statement that “[n]o further information is to be provided (at all)” (see Exhibit A pp 29-32). This was followed by a further more detailed request by Freelancer’s solicitor for information as to when and how the information had been deleted and from which devices (see Exhibit A pp 33-35), it being noted that there had been no “direct” evidence from Mr O’Kane as to the deletion (see Exhibit A p 37).

23. This culminated in the filing on 10 July 2018 of Freelancer’s notice of motion for preliminary discovery (see Exhibit A pp 38-41), following which (after directions for the filing of evidence by 17 August 2018) Mr O’Kane made his affidavit of 24 September 2018 (only parts of which were read on the present application) to which were exhibited a large number of documents. (Those documents ultimately not being admitted into evidence on the present application.)

24. Broadly, it does not appear to be disputed that, as summarised by Freelancer’s solicitor (Mr Williams) in his affidavit sworn 29 November 2018 on the current application (at [25]), Mr O’Kane’s affidavit of 24 September 2018 disclosed that: he had Freelancer Confidential Information in his possession at the time the summons was filed, at least via his Google Drive (referring to [12], [115] and [142] of his affidavit); the Freelancer Confidential Information had been destroyed or deleted by him (referring to [109] – [121], [140] and [194] of his affidavit); he produced all of the Freelancer information remaining in his possession from the Google Drive in the exhibits to his affidavit (referring to [116]-[121] of his affidavit); and, on the production of the documents from Google Drive, the Freelancer Confidential Information was no longer in his possession (referring to [109]-[121], [140] and [194] of his affidavit).

25. The matter came before Registrar Walton on 24 October 2018, by which time Freelancer’s current solicitors were retained in the matter, and the Registrar was advised that, on the basis of Mr O’Kane’s September affidavit, Freelancer sought by consent a short timetable to file an application for leave to withdraw and that there would be a contest about costs (see T 24/10/18; 1.17-23).

26. It is Freelancer’s position that it was not until service of that September 2018 affidavit that it knew what was the “status” of the Freelancer Confidential Information and whether Mr O’Kane had deleted or destroyed some or all of it (since the previous “suggestions of destruction of some of the information” had been unverified) (see [26] of Mr Williams’ affidavit); and that, following the production of the documents exhibited to Mr O’Kane’s 24 September 2018 affidavit, it accepts that there is no further Freelancer Confidential Information that could be produced by Mr O’Kane in response to the summons (see [27] of Mr Williams’ affidavit).

27. Hence, the present application. As noted already, there is no resistance by Freelancer (though it argues that it is strictly unnecessary) to proceeding by way of dismissal not discontinuance of the proceedings; the only live issue now being costs.

Freelancer’s submissions

35. The basis on which Freelancer sought in its 29 November 2018 notice of motion that there be an order for costs in its favour (as explained in Mr Williams’ affidavit sworn 29 November 2018 at [35]) is that Freelancer commenced the proceedings to protect a legitimate legal interest and now finds itself in the position where the proceedings have no further utility because of the conduct of Mr O’Kane in destroying and/or surrendering to Freelancer all of the subject matter of the proceedings. Thus it is contended that there has been a capitulation by Mr O’Kane following the commencement of the proceedings.

36. At [31] of his affidavit, Mr Williams deposes (by reference to an affidavit filed earlier in the proceedings of Nick de Jong but not read on the present application) that one of the purposes of Freelancer’s preliminary discovery application was to identify with precision the Freelancer Confidential Information in Mr O’Kane’s possession and that this purpose has been frustrated by the deletion of the Freelancer Confidential Information and the refusal of Mr O’Kane to identify the documents that were deleted.

37. Freelancer submits that it commenced the proceedings in circumstances of urgency in order to secure access to its own confidential material in response to the unilateral threat made by Mr O’Kane on 25 June 2018 to destroy all Freelancer Confidential Information in his possession by midday on 26 June 2018.

38. It is submitted that Freelancer moved promptly to obtain court orders to prevent the deletion of its proprietary documents when it first became aware of the threat of destruction and was met with an “unverified suggestion” that the threat had in fact been carried out. Freelancer notes that Mr O’Kane’s solicitor suggested in correspondence that the documents remained recoverable by Mr O’Kane (from his Google Drive) for a period of 25 days after deletion. Freelancer says that, as at the date of its application for preliminary discovery on 10 July 2018 (seeking production of documents still in Mr O’Kane’s possession), it was unaware whether its documents remained in Mr O’Kane’s possession or control and that this was not clarified until 24 September 2018, when Mr O’Kane filed his affidavit verifying that he had destroyed some of Freelancer’s documents that had been in his possession at the time the proceedings were filed and produced the remaining documents in his possession (as exhibits to his affidavit).

39. It is submitted that Freelancer then: concluded that the proceedings had no further utility; promptly advised the Court four weeks later at the next directions hearing (on 24 October 2018) that it would seek leave to bring the proceedings to an end (by discontinuance or dismissal); and filed its current notice of motion in accordance with the set timetable.

40. Freelancer argues that there is a material difference between the conduct of the parties in the present case: on the one hand that it acted reasonably in commencing the proceedings and filing the summons in the face of Mr O’Kane’s unilateral threat to destroy the Freelancer documents in his possession; and, on the other hand that Mr O’Kane only produced the balance of the documents retained by him in the face of the summons (when he exhibited them to his 24 September 2018 affidavit). It is submitted that Mr O’Kane could have done so much earlier and brought the proceedings to an earlier end.

41. It is submitted that Freelancer has enjoyed sufficient success in the proceedings (because the subject matter of the proceedings was partially destroyed by Mr O’Kane and the balance of the documents in his possession returned to Freelancer) to warrant the conclusion that there was effectively a surrender by Mr O’Kane (noting that in such a case, a plaintiff may be awarded costs, referring to King v Flowers [2014] NSWSC 1266 per Garling J at [62]-[64] and the decisions there cited); but that, alternatively, there should be an order that the parties bear their own costs of the proceedings (citing Genworth Financial Mortgage Insurance Pty Ltd v Hodder Rook & Associates Pty Ltd [2017] NSWSC 640 per Black J at [33], in turn citing Edwards v Adam [2016] NSWSC 1534 per Slattery J). It is submitted that the same order would follow if the Court considered it more appropriate that the proceedings be dismissed (citing El-Saeidy v NSW Land and Housing Corporation [2011] NSWSC 447; Fordyce v Fordham & Anor (2006) 67 NSWLR 497; [2006] NSWCA 274).

42. Freelancer resists an order awarding Mr O’Kane his costs of the proceedings, arguing that on no view was Mr O’Kane successful in the proceedings and that he should not be rewarded for destroying documents that had been in his possession at (or perhaps more precisely at or about) the time Freelancer filed the proceedings (when, I would add, Mr O’Kane was aware of Freelancer’s intention to seek orders preventing the deletion of the documents). It is thus submitted that Mr O’Kane’s actions deprived the proceedings of utility and that there has been no unreasonable conduct on the part of Freelancer to warrant an order for costs in Mr O’Kane’s favour.

Mr O’Kane’s submissions

43. As noted earlier, Mr O’Kane seeks an order for costs in his favour.

44. Counsel for Mr O’Kane identified the fundamental issue between the parties in relation to costs as the proposition that these proceedings were commenced without delay, noting that Mr O’Kane last worked for Freelancer in August 2016 and asserting that Freelancer had adopted a “provocative and unwarranted approach” of simply holding the threat of proceedings, including criminal proceedings, against Mr O’Kane in relation to information that (on Mr O’Kane’s account) he only had for the purposes of the Federal Circuit Court proceedings, which had finalised in April 2018.

45. Apart from referring to the allegations made by Freelancer’s then solicitor in the correspondence prior to commencement of the proceedings (that Mr O’Kane was guilty of theft and stealing information, was hindering or protracting access to that information, and that the matter that should be referred to police and enforcement agencies), it is noted that when Freelancer notified Mr O’Kane that proceedings had been commenced it was alleged that Mr O’Kane was “potentially in contempt of court”.

46. It is submitted for Mr O’Kane that, in circumstances where a plaintiff has made such serious allegations but has elected not to pursue them, the appropriate course is for the whole of the claim for relief be dismissed under r 29.8 of the UCPR and that the starting point for consideration as to costs is that the plaintiff must pay the defendant’s costs (referring to r 42.20 in relation to the dismissal of proceedings and r 42.19 in relation to the discontinuance of proceedings). (Pausing here, this is not, as I see it, a case where allegations of fraud or the like have been made in the pleadings or in the course of the proceedings as such; rather, the present proceedings were confined to a specific issue, namely, the preservation and discovery of documents believed to be in Mr O’Kane’s possession and allegedly comprising Freelancer’s confidential information.)

47. Mr O’Kane notes that the discretion in relation to costs under r 42.20 and s 98 of the Civil Procedure Act 2005 (NSW) is subject to the requirement in s 56 of the Civil Procedure Act that, in exercising this power, the Court must give effect to the overriding purpose of the facilitation of the just, quick and cheap resolution of the real issues in the proceedings.

48. It is noted by Mr O’Kane that Freelancer, in seeking an order different from that provided under the UCPR, has the burden of persuading the Court that there is some good reason from departing from the ordinary course. Mr O’Kane submits that the application by Freelancer for an order that Mr O’Kane pay its costs is “a colourable attempt to avoid the costs consequences of commencing proceedings that were entirely misconceived from the outset”.

49. As to the submission by Freelancer that Mr O’Kane effectively surrendered to Freelancer, Mr O’Kane submits that the originating summons was confined to procedural matters and that neither the “purported” motion for preliminary discovery filed on 10 July 2018 nor the affidavits filed in support thereof (of Nicholas Hairs and Justin Hanby, both affidavits being made on 10 July 2018) addressed the critical aspects of an order for preliminary discovery, contained in r 5.3 of the UCPR (i.e., the identification of the claim for relief; that the plaintiff had made reasonable inquiries; and that the plaintiff is unable to obtain sufficient information to decide whether or not to commence proceedings).

50. Mr O’Kane also points to the following matters: that Freelancer had access to the “relevant part” of the server by the court orders made by the Federal Circuit Court on 30 October 2017 (including liberty to apply) (see [10] above); that Freelancer positively asserted in June 2018 that it had advice that the Court’s intervention in this matter was required (see the italicised portion of the quote at [14] above); and that Freelancer positively asserted on 4 July 2018 that an order for preliminary discovery was not necessary (see Exhibit A p 34).

51. It is submitted that, insofar as the application stems from a dispute about the effect of and compliance with the orders made by the Federal Circuit Court on 30 October 2017, this Court was “always an inappropriate forum”.

52. Criticism is made that Freelancer has made no attempt to explain its delay by: not responding to the letter dated 14 May 2018 until 6 June 2018; not responding “at all” to the email sent on 8 June 2018 (though it does appear that there was a brief response acknowledging that email on that day (T 8.1)); not responding until 7.58pm on 25 June 2018 to the email received at 9:22am on 25 June (which notified Freelancer that material would be deleted by noon the following day); and, “[d]espite the unambiguous terms of the email of 25 June and confirmation that no undertaking would be offered”, not approaching the Court until after the expiration of the deadline.

53. Mr O’Kane submits that Freelancer, in commencing these proceedings, has “abandoned” the issues that were between the parties, by which it refers to the assertion by Freelancer of “a right to rely upon the information to commence legal proceedings without restriction” and of “a right to refer matters to police, enforcement agencies” (and its refusal of an undertaking that it would not do so). It is submitted that each of these assertions was abandoned on 26 June 2018 when Freelancer gave an undertaking to the Court that it would not “without leave of the Court, use any information obtained as a result of this order for the purpose of any civil or criminal proceedings”, referring to the terms of usual undertaking proffered on the making of the asset preservation orders.

54. Mr O’Kane also says that Freelancer asserted a right to have access to information that was the subject of a claim for legal professional privilege or private information, including information contained in the email subject and name of any attached file. It is submitted that Mr O’Kane never agreed to provide such information and that no such information was contained in the 24 September 2018 affidavit relied upon by Freelancer.

55. It is submitted that if, as Freelancer asserts, Mr O’Kane’s affidavit of 24 September 2018 was effectively a surrender, then Freelancer would have acted promptly to finalise the proceedings (and that it did not do so).

56. Thus, it is submitted that there is no proper basis for Freelancer’s application for a different order as to costs and that, in accordance with r 42.20, the usual order for costs in these circumstances should be made, i.e., for Freelancer to pay Mr O’Kane’s costs.

Determination

57. A number of points can be made at the outset.

58. First, the suggestion that this Court is an inappropriate forum for an application for relief sought in relation to the threatened destruction of company records or documents allegedly containing confidential information has only to be stated to be rejected. The fact that Freelancer might have had liberty to apply for similar relief in the Federal Circuit Court proceedings is not to the point. This Court clearly had jurisdiction and, on the face of the material before the Court, that jurisdiction was being regularly invoked. By the time of the interlocutory proceedings in this Court, the Federal Circuit Court proceedings had been determined (other than as I understand it, the question of costs). Moreover, there was no application by Mr O’Kane to cross-vest the proceedings or suggestion at the time that the proceedings in this Court were an abuse of process. Rather, his position seems to have been that it was all too late as the documents had been destroyed.

59. Second, it is accepted by both parties that the award of costs is a matter within the discretion of the Court. That is the case whether there is a discontinuance or dismissal of proceedings or, indeed, where there has been a hearing on the merits. That discretion is recognised as a broad one but it must be exercised consistently with the overriding mandate provided for under the Civil Procedure Act in respect of the conduct of litigation in this Court (see ss 56-59 of the Civil Procedure Act to which Counsel for Mr O’Kane referred).

60. Third, it is not suggested that there is any relevant difference (in the exercise of the costs discretion in the present case) as to whether leave is granted to Freelancer to discontinue the proceedings (which was Freelancer’s principal application) or an order is made, on Freelancer’s own application, for the proceedings to be dismissed (which course Freelancer is content here to pursue). Both r 42.19 (which operates where there is a discontinuance) and r 42.20 (which operates where proceedings are dismissed) expressly contemplate that the Court in the exercise of its discretion may make an order otherwise than as there provided.

61. Fourth, there has been no hearing of the merits of the case and it is not appropriate now to embark on a hearing of the merits in order to determine the question of costs on the discontinuance or dismissal of the proceedings. (In this regard, Freelancer cited Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 per Bryson JA at [4]; my decision in Renton v Kelly [2018] NSWSC 1377 at [36]; and Fordyce v Fordham per McColl JA at [79].) Thus, the issue before me is not as to whether, as Freelancer contended when it commenced these proceedings, any material in the possession of Mr O’Kane comprised its confidential information (a proposition still disputed by Mr O’Kane); or whether Mr O’Kane was entitled to resist its production or to retain whatever material was then still in his possession; or whether Freelancer was entitled to have access to Mr O’Kane’s computer devices if its purpose in so doing was to obtain evidence to use in other proceedings against Mr O’Kane.

57. Fifth, there is no conventional or usual rule applicable to the cost of preliminary discovery applications per se, which applications depend on the facts of the relevant case, see the observations made by McColl JA in Liu v The Age Company Ltd (2016) 92 NSWLR 679, [2016] NSWCA 115 at [270]:

In my view the court should approach the question of costs of a preliminary discovery application, recognising the exceptional nature of the jurisdiction, but nevertheless applying s 98(1)(b) and UCPR, r. 42.1. That leaves it open to the court in each case to consider whether, in all the circumstances of the case, to exercise the court’s discretion to make some other order as to the whole or any part of the costs.

63. In that regard, while Mr O’Kane has argued that the notice of motion filed by Freelancer on 10 July 2018 was a “purported” application for preliminary discovery, the question whether Freelancer complied with what would have been required for a preliminary discovery application (or, conversely, whether its notice of motion and supporting affidavits were deficient in some regard) is not to the point. It is apparent that what Freelancer was seeking at the commencement of these proceedings to do was to restrain the threatened imminent deletion of material that it contended was its confidential information (in respect of which it maintained it owed various duties) and to have access to Mr O’Kane’s computer devices in order to determine what, if any, use had been made of that material.

64. Sixth, whatever may have been the perceived threats by Freelancer (long-standing or not) for the commencement of criminal or other proceedings against Mr O’Kane in relation to his possession of the material that Freelancer claimed had been wrongfully downloaded or copied and was in his possession; and whatever may have been the rights or wrongs of Mr O’Kane’s complaint as to delay in resolving the dispute as to retention or access to documents (and as to the fact that Freelancer did not exercise the liberty granted to it in the Federal Circuit Court proceedings for relief in relation to the allegedly retained information), there is nothing in my opinion that would warrant a conclusion that the proceedings in this Court were not a regular and bona fide invocation of the jurisdiction of this Court to grant orders to preserve the subject matter of the dispute between the parties.

65. Seventh, though this is not a matter I take into account in determining how the discretion as to costs is to be exercised in the present case, this is yet another regrettable instance where the tone of the communications between the solicitors on both sides in the course of the proceedings (and I do not include Freelancer’s current solicitors in this criticism) is unfortunate, to say the least. It behoves members of the legal profession to represent their clients’ interests with professionalism and objectivity; and to engage with other members of the profession with courtesy and respect, in other words, to remain above “the fray”.

66. I turn then to three alternatives raised in relation to the costs of the overall proceedings in this Court: first, an order for costs in Freelancer’s favour; second, an order for costs in Mr O’Kane’s favour; and, third, an order that each party pay its or his own costs. (It was accepted by both parties that costs of the present motion would properly follow the event and so they may be put to one side for the present.)

67. As to the first and second of those possibilities which contemplate costs orders against one or other of the parties, I will deal with those together.

68. I have difficulty in characterising Mr O’Kane’s position as a surrender or capitulation (as Freelancer has suggested). The circumstances in which he ultimately verified the position in relation to the destruction of documents and produced those that had either not been destroyed or were able in some way to be retrieved from his Google Drive were that he did so in response to directions made for the filing of evidence in the proceedings. Although in a very real sense what Freelancer has achieved by the commencement of the proceedings is the best outcome it could have achieved (once it was accepted that it had been too late to prevent the deletion of any of the documents), and thus it might be said that it was the successful party in that it achieved something that it can be assumed from Mr O’Kane’s solicitor’s own correspondence) it would not have done but for the commencement of the proceedings, I do not accept that there was effectively a capitulation on Mr O’Kane’s part.

69. Nor, however, do I accept the proposition that there was any relevant abandonment by Freelancer of any relevant issue in dispute in the present proceedings (as Mr O’Kane has suggested). The fact is that assertions as to the wrongful conduct (or unlawfulness) involved in the copying or downloading of Freelancer’s information, or “theft” of that information, were not issues raised in these proceedings (these proceedings being confined to the preservation of and access to the documents in Mr O’Kane’s possession). Nor is it to the point to say that Freelancer would have needed leave to use, in other proceedings, evidence obtained through the preliminary discovery process. Matters of that kind, including as to whether in fact the information was or remained confidential in the sense considered in the authorities, are of no relevance when determining who should bear the costs of proceedings that no longer have any utility for the reasons explained by Freelancer.

70. More problematic, in my opinion, is the question whether Mr O’Kane’s conduct in relation to the proceedings was such as to warrant a departure from the so-called starting position under whichever of rr 42.19 or 42.20 of the UCPR is applicable in the present case, so as not merely to result in a costs order of the third kind here under consideration but to result in a costs order against him and in favour of Freelancer. It is well recognised that, where a matter has not been heard on the merits, ordinarily for there to be a costs order in favour of one party it is necessary to show that the other party’s conduct has been so unreasonable as to warrant such an order (applying the principles applicable in Re Minister for Immigration and Ethnic Affairs (Cth); Ex Parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 (Lai Qin)). It is difficult to see why the same kind of considerations would not be relevant when deciding whether to depart from the “starting position” in rr 42.19 and 42.20.

71. In this regard, it is worth again noting (as I did in Renton) what was said by each of Payne JA (Meagher JA agreeing) and Basten JA in Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84 as to the appropriate considerations in cases where there has been no hearing on the merits. What Payne JA said (at [30]) was that:

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.

72. Earlier in Nichols, at [8]-[9], Basten JA said:

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.

Thirdly, if contrary to the views set out above, it was appropriate to investigate whether the applicants or the respondent had been unreasonable, either in their conduct prior to the proceedings, or in their conduct of the proceedings, the approach adopted was untenable. Thus, regard was had to the motives of the respondent in commencing proceedings, but no account was taken of the motives of the applicants in capitulating. Further, once it is clear that there is a real dispute as to a significant fact in issue in the proceedings, it is inappropriate to determine that matter, other than in making an interlocutory ruling, by accepting one party’s case without permitting the other party an opportunity to challenge the opposing party’s witnesses.

73. To reframe what I said in Renton (at [59]), in the present context the real question is whether it can be concluded that Mr O’Kane’s conduct was so unreasonable as to warrant the making of a costs order against him. That question is to be determined having regard to the evidence before me as to his conduct both before and after the commencement of the proceedings.

74. The reason that I say that this issue is problematic in the present case is because I am troubled by the conduct of Mr O’Kane in deliberately deleting documents at a time when he was on notice that Freelancer was intending to seek orders from this Court to prevent that happening. In those circumstances, the high-handed setting of a unilateral and non-negotiable deadline by Mr O’Kane was in my opinion unreasonable and merits censure. It does not accord with the manner in which litigation in this Court should be conducted. The complaint that Freelancer had not chosen to exercise liberty to apply for orders from the Federal Circuit Court is no answer to this. Nor is the complaint as to delay by Freelancer at an earlier stage in seeking orders to preserve the documents in question, when one takes into account that the parties had apparently been seeking for some time to negotiate a regime for the computer imaging of the documents. The fact that, as was emphasised by Mr O’Kane, Freelancer had asserted it had Counsel’s advice that curial intervention might be necessary does not make it unreasonable for Freelancer not to have rushed into so acting.

75. Similarly, the making of demands by Mr O’Kane for undertakings from Freelancer (not to seek to use the documents in other proceedings or not to exercise whatever rights or pursue whatever causes of action Freelancer may have had in respect of Mr O’Kane’s conduct in retaining possession of the documents), and the refusal by Freelancer to accede to those demands do not in my opinion assist Mr O’Kane’s position (nor does his implicit argument that Freelancer’s delay in not seeking relief until after the expiration of the deadline some way entitled or justified him to take the threatened steps to delete the documents).

76. Indeed, insofar as reliance is placed by Mr O’Kane on the threat of other proceedings, that would simply give more credence to an argument (though I accept that none was here put) that the documents were deliberately deleted in order to destroy evidence that might otherwise be available in such proceedings. (See, by way of example, an instance where conduct of that kind amounted to a contempt of court, Mirus Australia Pty Ltd v Gage [2017] NSWSC 1046, where a secure deletion application was run by the defendant on his computer device the evening before he knew an application for interlocutory relief was before the Court and I concluded that the defendant had done so intentionally for the purpose of preventing that information being located on his computer the following day – that conduct being calculated to interfere with the administration of justice by destroying evidence that he knew was the subject of that application.) I note, however, that no such complaint is here made.

77. As to the complaint made by Mr O’Kane that Freelancer did not act promptly in bringing its application for interlocutory relief in this Court, that is an unpalatable argument in circumstances where the deadline set by Mr O’Kane was in effect not much more than one business day’s notice. An undertaking sought to preserve the status quo (albeit in a request made after usual business hours that day) was peremptorily refused. In those circumstances, and particularly where litigants cannot control how quickly a matter will be dealt with in what will often be a busy duty list, the suggestion that there was some unreasonable delay on the part of Freelancer or its legal representatives cannot be accepted (and I say this duly noting that the first communication to my chambers of an interlocutory application that day was not received until two minutes after the deadline had expired – so it could not possibly have been dealt with prior to the lapse of the stated deadline).

78. Ultimately, I have concluded that Mr O’Kane’s conduct, not so much in imposing an unreasonable deadline for the destruction of documents but in acting on that threat when he was on notice of Freelancer’s intention to seek interlocutory relief to restrain him from so doing (and then – see [29] above – initially resisting, in dogmatic terms, attempts by Freelancer to obtain information as to the circumstances in which the documents had been deleted; Mr O’Kane unhelpfully refusing to provide any further information “at all” beyond that contained in his solicitor’s affidavit) does warrant a departure from the starting position under rules and that there should be an order that Mr O’Kane pay Freelancer’s costs of the proceedings.

79. Had I not reached the above conclusion that Mr O’Kane’s conduct warranted a departure from the starting position under rr 42.19 and 42.20 of the UCPR, I would have chosen the third course. I consider that in the context of this clearly acrimonious litigious saga, particularly where the proceedings at hand were not determined by any decision on the merits but were rendered of no utility through no fault of Freelancer (who obtained, as a result of the orders made in these proceedings, the only relief that it could realistically now have sought following the precipitous destruction of documents by Mr O’Kane), at the very least it would have been appropriate that each party bear his or its own costs of the proceedings.

80. On either of the first or third courses of action, since this was not the result for which Mr O’Kane contended, and since both parties accepted that costs of the hearing of the 29 November 2018 notice of motion should follow the result, Freelancer’s costs of that motion should be borne by Mr O’Kane. As it is, I consider the first alternative to be the appropriate one and hence costs of the motion will form part of the costs of the proceedings to be borne by Mr O’Kane.

Orders

81. For the above reasons, I make the following orders, which will now finally dispose of the proceedings:

1. The proceedings be dismissed on the application of the plaintiff under UCPR, r 29.8.

2. The defendant is to pay the plaintiff’s costs of the proceedings, including the costs of and in relation to the notice of motion filed 29 November 2018 and the hearing on 20 February 2019.

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Decision last updated: 27 February 2019