Godfrey Hirst Australia Pty Ltd v Rechenberg-Dupe
[2023] VSC 532
•7 September 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
INTELLECTUAL PROPERTY LIST
S ECI 2023 00727
BETWEEN:
| GODFREY HIRST AUSTRALIA PTY LTD (ACN 000 849 758) & ORS (according to the attached Schedule) | Applicants |
| v | |
| SUSAN ANNE RECHENBERG-DUPE & ORS (according to the attached Schedule) | Respondents |
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JUDGE: | Ierodiaconou AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 1 August 2023 |
DATE OF RULING: | 7 September 2023 |
CASE MAY BE CITED AS: | Godfrey Hirst Australia Pty Ltd & Ors v Rechenberg-Dupe & Ors |
MEDIUM NEUTRAL CITATION: | [2023] VSC 532 |
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COSTS —Supreme Court (General Civil Procedure) Rules 2015 (Vic) rr 32.05, 32.11 — Costs of preliminary discovery proceeding — Restraint of solicitor application within preliminary discovery proceeding — Costs of restraint of solicitor application — Costs where preliminary discovery dispute resolved and substantive proceeding issued — Degree of cooperation with pre-issue discovery requests — Costs where solicitors sought to be restrained are not acting in substantive proceeding — Solicitors sought to be restrained named as defendant in substantive proceeding — Cobankara v ANZ Banking Group Pty Ltd [2017] FCA 419 — Guest v Guest (No 2) [2016] VSC 76.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicants | Mr L Merrick | Herbert Smith Freehills |
| For the First Respondent | Mr M Rinaldi | Rigby Cooke |
| For the Second and Third Respondents | Mr P Anastassiou KC with Mr T Dowling | Piper Alderman |
TABLE OF CONTENTS
Evidence............................................................................................................................................... 2
Background......................................................................................................................................... 2
Costs orders sought by parties...................................................................................................... 18
Applicable legal principles............................................................................................................ 18
What orders should be made for costs between the applicant and the first respondent?. 21
Preliminary discovery application........................................................................................... 21
Submissions........................................................................................................................ 21
Analysis............................................................................................................................... 22
What orders should be made for costs between the applicants and the other respondents? 24
Preliminary discovery application........................................................................................... 24
Submissions........................................................................................................................ 24
Analysis............................................................................................................................... 24
Restraint of solicitor application............................................................................................... 25
Submissions - applicants.................................................................................................. 25
Submissions - second and third respondents................................................................ 26
Analysis............................................................................................................................... 27
Conclusion......................................................................................................................................... 30
HER HONOUR:
This ruling determines a fiercely contested costs dispute in a preliminary discovery proceeding. The proceeding has resolved. A substantive proceeding has been issued. The dispute concerns liability for costs, and whether liability should be determined in this proceeding or the substantive one.
I will now outline the principal protagonists and circumstances of the dispute.
By way of Originating Motion filed 24 February 2022 (the ‘preliminary discovery application’), Godfrey Hirst Australia Pty Ltd, Premium Floors Australia Pty Limited, Floorscape Limited and Godfrey Hirst NZ Limited (the ‘applicants’), sought preliminary discovery pursuant to r 32.05 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (the ‘Rules’).
By their application, the applicants sought documents from Susan Rechenberg-Dupe (the first respondent) pertaining to her employment and communications regarding her work. Documents were also sought from Cowes Bay Group Pty Ltd (the second respondent) and Braeside Mills Operations Pty Ltd (the third respondent). The applicants say the documents were sought so they could decide whether they had a viable cause of action against the respondents. At that time, the proposed cause of action concerned the use and disclosure of confidential documents and potential breach of employment obligations by the first respondent.
The applicants made a further application by way of summons filed on 17 March 2023, seeking to restrain Piper Alderman from acting for the second and third respondents (the ‘restraint of solicitor application’).
The applicants filed a substantive proceeding by way of writ and statement of claim on 13 July 2023 (the ‘substantive proceeding’).[1] On 24 July 2023, the second and third respondents to the applications filed their notice of appearance as defendants to the substantive proceeding, indicating that they had engaged alternative legal representation for the substantive proceeding.
[1]Godfrey Hirst Australia Pty Ltd (ACN 000 849 758) & Ors v Cowes Bay Group Pty Ltd (CAN 635 970 222) & Ors (Supreme Court of Victoria, S ECI 2023 03101 commenced 13 July 2023) (the ‘substantive proceeding’).
Save for costs, the applications had effectively been resolved by the hearing date of 1 August 2023.
Evidence
The applicants rely on the affidavits of:
(a) Emma Lee-Anne Iles, solicitor, affirmed on 24 February 2023 (the ‘first Iles affidavit’), 17 March 2023 (the ‘second Iles affidavit’), 6 July 2023 (the ‘third Iles affidavit’), 25 July 2023 (the ‘fourth Iles affidavit’); and
(b) Lachlan Stuart McMurtrie, general counsel and company secretary, affirmed on 24 February 2023 (the ‘first McMurtrie affidavit’) and 17 March 2023 (the ‘second McMurtrie affidavit’).
The first respondent relies on the affidavit of Robert Jackson, solicitor, affirmed 28 July 2023 (the ‘Jackson affidavit’).
The second and third respondents rely on the affidavit of James Alexander Hill, solicitor, sworn 28 July 2023 (the ‘Hill affidavit’).
Each party made oral and written submissions.
Background
The applicant companies are within a group of Mohawk Industries Inc. companies.[2] Mohawk Flooring Oceania (‘Mohawk’) is a business unit of Mohawk Industries Inc.[3] Mohawk Flooring Oceania comprises the businesses conducted by the second and third applicants. The first and fourth applicants are subsidiaries of the second applicant. Mohawk companies design, manufacture and supply floor coverings.[4]
[2]Affidavit of Lachlan Stuart McMurtrie affirmed 24 February 2023 (the ‘first McMurtrie affidavit’), [1].
[3]First McMurtrie affidavit, [1].
[4]First McMurtrie affidavit, [11].
The second and third respondents are related entities ultimately owned by Mr Kim McKendrick.[5] The third respondent trades under the business name Armstrong Flooring Inc (‘Armstrong Flooring’). Armstrong Flooring is a designer and manufacturer of floor coverings.[6] The applicants say it is a competitor to Mohawk in relation to hard flooring products, and a potential competitor in relation to soft flooring products.[7]
[5]First McMurtrie affidavit, [22], [23]; Affidavit of Emma Lee-Anne Iles affirmed 24 February 2023 (the ’first Iles affidavit’), [7]-[13].
[6]First McMurtrie affidavit, [15].
[7]Ibid.
The first respondent commenced employment with the first applicant in about July 2001.[8] Her recent positions include General Counsel, Company Secretary and HR Director Oceania for the applicants.[9]
[8]Affidavit of Robert Jackson affirmed 28 July 2023 (the ‘Jackson affidavit’), [5].
[9]Jackson affidavit, [5], [18]; First McMurtrie affidavit, [27]-[28].
On 11 July 2022, the first respondent notified Mohawk of her resignation, giving three months’ notice.[10]
[10]First McMurtrie affidavit, [31].
On 13 July 2022, the first respondent signed an employment contract with the second respondent for the position of General Counsel.[11]
[11]Jackson affidavit, [13].
On 11 October 2022, the first respondent ceased employment with the first applicant.[12]
[12]Jackson affidavit, [18]; First McMurtrie affidavit, [31].
On 12 October 2022, the first respondent says she commenced employment for the second and third respondents.[13]
[13]Jackson affidavit, [21].
There is a dispute between the parties regarding when the first respondent commenced work for the other respondents. The applicants say the first respondent commenced working for the other respondents whilst still employed by the applicants. They refer, for instance, to metadata obtained from documents placed on the Armstrong Flooring website. They say it reveals that their employees created documents downloaded and copied by the first respondent when she was still their employee.[14]
[14]First McMurtrie affidavit, [50]-[59]; Affidavit of Lachlan Stuart McMurtrie affirmed 17 March 2023 (the ‘second McMurtrie affidavit’), [29].
The first respondent says that during her notice period, and while still an employee of the first applicant, she assisted the owner of the second respondent, Mr Kim McKendrick, with the acquisition of the third respondent. She says this assistance was “on a voluntary, unpaid and ad hoc basis.”[15] The first respondent says this did not affect the performance of her duties for the first applicant.
[15]Jackson affidavit, [15].
In or around October and November 2022, the applicants undertook a forensic IT investigation of the first respondent’s activity. It uncovered information that caused them concern. The applicants say this information included that the first respondent had been using a ‘Cowes Bay’ email address while still employed with the applicants, had downloaded thousands of their documents, appeared to have prepared legal documents for the second and third respondents, and appeared to have been working with Piper Alderman and its principals Chris Hartigan and Bruce Cameron in connection with the second and third respondents’ affairs.
In particular, there appeared to be emails sent to Bruce Cameron and Andrew Cutler of Piper Alderman, from the first respondent’s ‘Cowes Bay’ email address on 17 July 2022, 22 July 2022, 30 July 2022 and 17 August 2022, some of which enclosed draft legal documents.
On 6 December 2022, Herbert Smith Freehills (‘HSF’), solicitors for the applicants, engaged FTI Consulting Technology (Sydney) Pty Ltd (‘FTI’) as digital forensic IT experts.[16]
[16]First Iles affidavit, [31].
On 19 December 2022, HSF wrote to the first respondent alleging that she had acted unlawfully (the ‘HSF 19 Dec 22 letter’).[17] The applicants alleged that the first respondent had commenced employment duties for the second respondent while still in the employ of the first applicant. Further, that she had made unauthorised copies of confidential information while still employed by the first applicant, and some of the documents copied were made available on the Armstrong Flooring website. The applicants alleged that their copyright had been infringed. Part 3 of the letter describes the types of documents allegedly copied by the first respondent. The letter stated that HSF had been instructed to engage an external forensic consultant to further investigate matters.
[17]Exhibit ‘ELI-1’ to the first Iles affidavit, 325-329.
In part 5 of the HSF 19 Dec 22 letter, the applicants required that by midday on 22 December 2022, the first respondent provide by way of a statutory declaration: information as to the commencement of work with the other respondents, details as to any work she had undertaken for them while employed by the first applicant, a list of all documents and confidential information taken from the first applicant before resignation or that she retained post-resignation, the details of any disclosures to the other respondents, and confirmation that she had deleted, destroyed or returned their confidential information, including confirmation she had removed such information from the Armstrong Flooring website.
On 22 December 2022, Kennedys, solicitors for the first respondent at the time, replied (the ‘Kennedys 22 Dec 22 letter’).[18] The letter stated that despite the inadequate notice period given by the applicants, Kennedys had obtained some preliminary instructions. The letter stated that the first respondent became employed by the second respondent ”as and from 12 October 2022, a date after her employment with the first applicant came to an end.” Concerning the allegations she had copied and retained the applicants’ documents, the letter stated that the first respondent: ”advises that any such Documents in her possession will be destroyed or deleted (insofar as she is reasonably able to do so).” The letter included a denial of liability.
[18]Ibid, 330-331.
On 22 December 2022, HSF responded to Kennedys noting that their letter “fails to engage with our letter in significant respects” (the ‘HSF 22 Dec 22 letter to the first respondent’).[19] HSF noted, amongst other things, that the response did not address when the first respondent began performing work, did not respond to the request for a list of documents or provide a statutory declaration. HSF sought an urgent substantive response and stated they would separately write to the second respondent. The letter concludes by reserving rights to commence proceedings.
[19]Ibid, 332-333.
On 22 December 2022, HSF wrote to the second and third respondents (the ‘HSF 22 Dec 22 letter to the second and third respondents’).[20] The letter outlined the applicants’ concerns regarding the first respondent’s conduct, that her preliminary response (the Kennedys 22 Dec 22 letter) had not complied with requests they had made, and placed the second and third respondents on notice that if they were in possession of the applicants’ confidential information or had benefited from any breach by the first respondent of her obligations to the applicants, legal action may be commenced against them. The letter stated that Armstrong Flooring was a direct competitor of the applicants. It particularised documents on the second and third respondents’ websites created by the first respondent while she was employed by the first applicant and asserted the applicants owned the copyright subsisting in the documents. The letter asserted that by having the documents on their website and reproducing them, the applicants had a right to commence legal proceedings against the second and third respondents.
[20]Ibid, 338-342.
In part 4 of the letter, the applicants required the second and third respondents to provide a statutory declaration, by midday on 2 January 2023, in terms similar to that sought from the first respondent. The letter demanded that the second and third respondents take steps to identify and quarantine the applicants’ documents, delete or destroy copies in their possession and undertake that the documents would not be further used. In particular, part 4.2 of the letter identified the types of documents about which details were sought. By that letter, the applicants notified the second and third respondents that if they failed or refused to provide the information sought, the applicants would take the necessary steps to protect their legal rights, without further notice.
On 2 January 2022, Mr Cameron emailed HSF confirming Piper Alderman was acting for the second and third respondents (the ‘Piper Alderman 2 Jan 23 email ’).[21] The email stated that the first respondent was separately represented and the allegations would need to be discussed with her before Piper Alderman could fully respond. The email referred to the time, being one working day before Christmas, saying those instructions could not be obtained at that time, and noting the subject matter of the allegations had been known to the applicants for some months. The email stated, “insofar as these general allegations relate to our clients, they are baseless.” Piper Alderman stated: “If you intend to commence proceedings seeking injunctive relief, you must first notify us. We are instructed to accept service and our client will defend the proceedings strenuously. Also, if you wish to have a sensible discussion about the matters you have raised you can contact the writer on the below mobile number”.
[21]Ibid, 344-345.
On 18 January 2023, HSF wrote to Kennedys noting it was almost four weeks since the HSF 22 Dec 22 letter, and there had been no response (the ‘HSF 18 Jan 22 email’).[22] An “urgent substantive response” was required.
[22]Ibid, 334.
On 18 January 2023, HSF wrote to Piper Alderman seeking a complete response to the HSF 22 Dec 22 letter to the second and third respondents.[23]
[23]Ibid, 343-344.
On 19 January 2023, HSF wrote to Piper Alderman outlining concerns that Piper Alderman was in a position of conflict as advisor to the first and second respondents (the ‘HSF 19 Jan 23 letter’).[24] It outlined concerns about Piper Alderman being in possession of confidential and privileged information belonging to the applicants. It again detailed the applicants’ concerns and sought a response by 23 January 2022.
As you are aware, our 22 December 2022 letter raised concerns that the Cowes Bay Group, through its employment of a former employee of Godfrey Hirst, may be in possession of Godfrey Hirst’s confidential information or otherwise have benefited from a breach of that employee’s duties to Godfrey Hirst (the Dispute). The information Piper Alderman possesses about Godfrey Hirst as a result of the matters in (a) to (c) above is therefore likely to be highly relevant to the Dispute.
Godfrey Hirst is therefore very concerned that Piper Alderman considers it is able to act against Godfrey Hirst in relation to the Dispute.
[24]Exhibit ‘ELI-2’ to the affidavit of Emma Lee-Anne Iles affirmed 17 March 2023 (the ‘second Iles affidavit’), 16-17.
The letter sought that if, despite its contentions, Piper Alderman continued to act in this dispute, it inform HSF why and provide a detailed explanation of the measures Piper Alderman had put in place to prevent any inadvertent use or disclosure of its confidential information.
On 20 January 2023, Piper Alderman wrote to HSF replying to the HSF 22 Dec 2023 letter to the second and third respondents (the ‘Piper Alderman 20 Jan 23 email’).[25] Piper Alderman stated that neither the second nor third respondent was aware of the first respondent being in possession of any confidential information, and she had disclosed none to them. They referred to the letter sent by the first respondent’s solicitor, namely the Kennedys 22 Dec 22 letter. Piper Alderman stated that the third respondent would cease using the documents identified by the applicants on its website to void any suggestion of copyright infringement and without any admission of liability. Amongst other things, Piper Alderman stated that the second respondent employed the applicant on 12 October 2022. The letter rejected the assertion that the third respondent was a direct competitor of the applicants.
[25]Exhibit ‘ELI-1’ to the first Iles affidavit, 343.
On 23 January 2023, Piper Alderman wrote to HSF concerning the alleged conflict of interest.[26] The letter concluded with “Any information which Piper Alderman may, or may not, have received from Godfrey Hirst during the course of acting for that company historically has no bearing on the claim you assert in your letters, and it cannot therefore give rise to any sensible possibility of a conflict. This is sufficient to deal with your conflict claim”. Piper Alderman further noted that the confidential information asserted by the applicants to be in its possession had not been identified, and that Piper Alderman had not undertaken any relevant work for the applicants since 2018.[27]
[26]Exhibit ‘ELI-2’ to the second Iles affidavit, 18-19.
[27]Ibid, 18.
On 25 January 2023, Kennedys wrote to HSF replying to the HSF 22 Dec 22 letter and 18 Jan 23 email (the ‘Kennedys 25 Jan 23 letter’).[28] Kennedys stated they were instructed that some documents identified in that letter had been removed from Armstrong Flooring’s website. Kennedys stated that this, and their 22 Dec 22 letter were “sufficient to respond to [the applicants’] claims, which are not accepted.”
[28] Exhibit ‘ELI-1’ to the first Iles affidavit, 336.
On 23 February 2023, FTI Consulting provided a forensic IT report to HSF (the ‘FTI report’).[29]
[29]First Iles affidavit, [32]; Exhibit ‘ELI-1’ to the first Iles affidavit, 346-806.
On 24 February 2023, HSF filed the preliminary discovery application. On the same day, by letter from HSF to Piper Alderman serving the application, the applicants again detailed their concerns about Piper Alderman’s conflict of interest (the ‘HSF 24 Feb 23 letter’).[30] The letter concluded:
In light of the above matters, your letter has been wholly inadequate in allaying Godfrey Hirst’s legitimate and well-founded concern regarding Piper Alderman continuing to act for the Cowes Bay Group in relation to the issues in dispute.
Please advise urgently by reply whether Piper Alderman continues to have instructions to accept service for the Cowes Bay Group in respect of the Application. In those circumstances we have been instructed by our client to file an application to restrain Cowes Bay Group from retaining Piper Alderman to continue to act.
Our client reserves its rights, including seeking the costs of any application to restrain Cowes Bay Group from retaining Piper Alderman with respect to the Application.
[30]Exhibit ‘ELI-2’ to the second Iles affidavit, 20.
On 28 February 2023, Piper Alderman wrote to HSF (the ‘Piper Alderman 28 Feb 23 letter’).[31] The letter stated that they were reviewing the originating motion, and the substantial material filed with the affidavits, including the FTI report. The letter stated that the report “details for the first time the documents alleged to have been taken” by the first respondent. It says that the second and third respondents “are now able to make more detailed enquiries of its employees and IT consultants” and the first respondent, “and more fully respond to the allegations” and they would provide a response as soon as practically possible.
[31]Ibid, 24-25.
The Piper Alderman 28 Feb 23 letter referred to the applicants’ concerns about conflict of interest:
We are giving due consideration to your clients’ concerns regarding the alleged conflict which you assert would prevent Piper Alderman from acting for Cowes Bay or BMO. We will provide a detailed response to each of your clients’ concerns once we have reviewed the authorities referred to and conducted further investigations in relation to a number of the matters raised.
On 3 March 2023, Rigby Cooke filed a notice of appearance on behalf of the first respondent.
On 9 March 2023, Piper Alderman filed their notice of appearance on behalf of the second and third respondents. The notice identified Bruce Cameron as lawyer with carriage of the matter. On the same date, Piper Alderman wrote to HSF (the ‘Piper Alderman 9 Mar 23 conflict query letter’).[32] The letter details a response to the applicants’ conflict concerns and asserts that “there is no proper reason for us to cease acting”. It concludes that should the applicants make an application to restrain Piper Alderman from acting, the application will be opposed and costs will be sought.
[32]Ibid, 26-27.
On the same date, Piper Alderman wrote to HSF regarding the application for preliminary discovery (the ‘Piper Alderman preliminary discovery 9 Mar 23 letter’).[33] The letter stated that their clients “intend to co-operate with your clients by providing the documents described in paragraph 2 of the orders sought in the Originating Motion… (subject to any claims of privilege).” Further, their clients had engaged Forensic IT to conduct a forensic review of its computer systems. The letter stated that whilst the second respondent did not have an internal IT support function due to its size and nature, the third respondent did, and that its internal IT support function had provided them with “a preliminary list of relevant documents”. The letter stated that Piper Alderman expected to provide HSF “with any relevant material following completion of both the forensic review being conducted by Forensic IT and our clients’ ongoing investigations”, and any more material identified in addition to that already removed from Armstrong Flooring’s website (and referred to in the Piper Alderman 28 Feb letter). The letter also stated that a statutory declaration would confirm compliance with the sought disclosure.
[33]Ibid, 28.
On 17 March 2023, HSF filed the restraint of solicitor application. The covering letter enclosing the application states that Piper Alderman had failed to address the substance of the applicants’ concerns. It explains why the applicants remain concerned and had issued the summons (the ‘HSF 17 Mar 23 letter’).[34]
[34]Exhibit ‘ELI-3’ to the third Iles affidavit, 255-256.
HSF sent another letter to Piper Alderman on 17 March 2023 enclosing consent orders for the provision of discovery by the second and third respondents.[35]
[35]Exhibit ‘JAH-1’ to the affidavit of James Alexander Hill sworn 28 July 2023 (the ‘Hill affidavit’), 51.
On 22 March 2023, Piper Alderman wrote to HSF providing a detailed response to the originating motion, and enclosing an 11 page schedule of relevant documents in their possession and copies of those documents (the ‘Piper Alderman 22 Mar 23 letter’).[36] The letter stated that disclosure followed an IT search and inquiries, including with the first respondent. It stated that the second and third respondents would provide a statutory declaration separately. The letter also disclosed, for the first time, the following:
In late July or early August 2022, Ms Rechenberg-Dupe purchased a laptop computer for Cowes Bay work (SRD’s Cowes Bay Laptop), for which Cowes Bay reimbursed her the cost. Ms Rechenberg-Dupe uploaded some of the GHA Documents on various occasions to SRD’s Cowes Bay Laptop, if and when she needed them. She did not upload all of the GHA Documents.
Prior to receiving your letter in late December 2022, Ms Rechenberg-Dupe used the GHA Documents:
(a) to prepare the terms and conditions of supply and purchase for Armstrong Flooring; and
(b) as a template for preparing a number of other Armstrong documents, such as internal employment policies and operations manuals.
The particular documents that Ms Rechenberg-Dupe created using GHA Documents were emailed by Ms Rechenberg-Dupe, using SRD’s Cowes Bay Laptop to a number of other employees at Cowes Bay and Armstrong Flooring. Importantly, we are instructed that none of the GHA Documents used by Ms Rechenberg-Dupe or emailed by Ms Rechenberg-Dupe to employees at Cowes Bay and Armstrong Flooring related to the business strategy of Godfrey Hirst, as described in paragraphs 60-65 of the affidavit of Mr McMurtrie sworn 24 February 2023.
[36]Exhibit ‘ELI-3’ to the third Iles affidavit, 9.
On 29 March 2023, HSF wrote to Piper Alderman welcoming the discovery provided to date but noted it was heavily redacted.[37] It proposed Mr McMurtrie provide a confidentiality undertaking. It also followed up the proposed statutory declaration. The second and third respondents provided the applicants with a statutory declaration made by Paul Tiralosi, company secretary of the second and third respondents, on 29 March 2023.[38] Mr Tiralosi declared that the second and third respondents had disclosed all documents in their possession falling into the categories specified in the originating motion save for some exceptions described in the Piper Alderman 22 Mar 23 letter.
[37]Exhibit ‘JAH-1’ to the Hill affidavit, 52-53.
[38]Exhibit ‘ILI-4’ to the affidavit of Emma Lee-Anne Iles affirmed 25 July 2023 (the ‘fourth Iles affidavit’), 166-167.
On 30 March 2023, Piper Alderman wrote to HSF stating the proposed confidentiality agreement was unnecessary as the applicants were seeking access to documents in the respondents’ possession, which have been provided.[39] It disputed the suggestion the documents were heavily redacted. The letter referred to the second and third respondents providing a statutory declaration the previous afternoon.
[39]Exhibit ‘JAH-1’ to the Hill affidavit, 54.
On 6 April 2023, by consent, orders were made for the first respondent to give discovery by 14 April 2023.[40]
[40]Order of Judicial Registrar Gitsham (Supreme Court of Victoria, S ECI 2023 00727, 6 April 2023).
On 14 April 2023, the first respondent filed an affidavit of documents.
On 17 April 2023, HSF wrote to Piper Alderman requesting the second and third respondents undertake further searches for documents.[41]
[41]Exhibit ‘JAH-1’ to the Hill affidavit, 56-69.
On 19 April 2023, Piper Alderman replied to HSF, noting the third respondent’s IT department was reviewing the request and they would revert.[42]
[42]Ibid, 70.
On 20 April 2023, HSF wrote to Rigby Cooke querying documents (hard drives) disclosed by the first respondent in her affidavit of documents as being destroyed.[43]
[43]Exhibit ‘RLJ-1’ to the affidavit of Robert Jackson affirmed 28 July 2023 (the ‘Jackson affidavit’), 26-27.
On 4 May 2023, Rigby Cooke replied to HSF referring to destruction of documents per the demand [in part 5 paragraph (f)] of the HSF 22 Dec 22 letter to the first respondent.[44]
[44]Exhibit ‘RLJ-1’ to the Jackson affidavit, 28-2.
On 12 May 2023, Piper Alderman wrote to HSF enclosing more documents (the ’12 May 23 letter’).[45]
[45]Exhibit ‘JAH-1’ to the Hill affidavit, page 72.
On 28 June 2023, Piper Alderman wrote to HSF noting that if a substantive proceeding were issued (and referring to the draft writ and statement of claim already provided), they would not be able to act for the second and third respondents (the ‘Piper Alderman 28 June 23 email’).[46] Piper Alderman suggested that the restraint of solicitor application was a waste of time. They confirmed that the second and third respondents were in the process of arranging for an independent IT expert to conduct a complete audit of their IT systems to ensure any documents identified by the applicants were, with the applicants’ permission, permanently deleted, and producing a report of the same. The following day, Piper Alderman wrote HSF an email seeking a response regarding whether the restraint of solicitor application would proceed.[47]
[46]Exhibit ‘ELI-3’ to the affidavit of Emma Lee-Anne Iles affirmed 6 July 2023 (the ‘third Iles affidavit’), 257; Exhibit ‘JAH-1’ to the Hill affidavit, 109.
[47]Exhibit ‘ELI-3’ to the third Iles affidavit, 257.
On 29 June 2023, HSF wrote to Piper Alderman and Rigby Cooke (the ‘HSF 29 June 23 letter’).[48] The letter noted Piper Alderman’s 28 June 23 correspondence that it would be unable to act in the substantive proceedings. It confirmed that the applicants intended to file substantive proceedings. The letter enclosed proposed consent orders discontinuing this proceeding, reflecting the relief sought in the restraint application and associated costs, and seeking that the remaining costs be in the cause of the substantive proceeding or reserved if was not commenced within 45 days. The letter asserted the decision to retain Piper Alderman was “entirely unreasonable and is a matter that justifies our client being awarded its costs of the Restraint Application.” The proposed consent orders sought to restrain Piper Alderman from acting for the second and third proceedings in this proceeding “or any proceedings in connection with or arising out of these proceedings”.
[48]Ibid, 259-260.
On 3 July 2023, Piper Alderman replied by letter (the ‘Piper Alderman 3 Jul 23 letter’).[49] The letter stated due consideration was being given to the proposed letter and consent orders, and anticipated a fulsome response would be provided shortly.
[49]Ibid, 265.
On 4 July 2023, Piper Alderman wrote to HSF (‘the ‘Piper Alderman 4 Jul 23 letter’).[50] It confirmed that their clients were now in the process of engaging, at their clients’ cost, an independent IT expert to conduct a final audit of their IT systems to ensure any documents belonging to the applicants had been identified and, with their clients’ permission, permanently deleted. It stated that Piper Alderman would provide a copy of their expert's terms and draft scope of engagement for HSF’s input before formally engaging him.
[50]Exhibit ‘JAH-1’ to the Hill affidavit, 110.
On 7 July 2023, Piper Alderman wrote to HSF (the ‘Piper Alderman 7 Jul 23 letter’) regarding the proposed orders and in response to the HSF 29 June 23 letter.[51]
Your letter acknowledges that your clients’ restraint application was based on Piper Alderman being unable to act in any ‘substantive proceeding’ where lawyers of Piper Alderman may be witnesses of fact or respondents in that substantive proceeding. The same cannot be said for the preliminary discovery proceeding. In our email to you on 28 June 2023, we accepted that were Piper Alderman to be joined to any proceeding brought by your clients, our firm would be unable to continue acting, rendering the filing of any material on your clients’ summons to restrain in the present proceeding redundant and a waste of costs.
[51]Exhibit ‘ELI-4’ to the fourth Iles affidavit, 10-11.
The Piper Alderman 7 Jul 23 letter states it was not apparent on what basis the restraint of solicitor application would have succeeded had the applicants not subsequently decided to commence a claim against the respondents and Piper Alderman. Having made that decision, the letter states that the landscape has fundamentally changed. The letter suggests that the applicants discontinue this proceeding without any further delay given that the applicants intend to file the substantive proceeding.
Regarding costs, the Piper Alderman 7 Jul 23 letter states that their clients have co-operated, and provided the documents sought in the application, and that the extent of those documents was only revealed by the originating motion and FTI consulting report. The letter rejects the contention that the respondents should pay the costs of the restraint application. It proposes that the costs of this proceeding be costs in the cause of the substantive proceeding if issued within 45 days or otherwise the parties bear their own costs. The letter foreshadows that if there is no agreement to the proposed costs orders, the respondents will seek their own costs, if necessary.
On 12 July 2023, HSF replied to Piper Alderman (the ‘HSF 12 Jul 23 letter’).[52] The letter stated that the fact Piper Alderman continued to act, despite their clients’ objections and in the face of a position of conflict, does not mean it was right to do so. It referred to the discovery of emails by the respondents to Piper Alderman. It stated that the unreasonable refusal of Piper Alderman to cease to act showed the second and third respondents had not made all reasonable efforts to cooperate. The letter stated that the applicants had been put to unnecessary costs. It stated that these were matters to be traversed in the substantive proceedings, and that the applicants would agree not to pursue the orders sought in the restraint of solicitor application if the second and third respondents agreed that the costs of this proceeding, including the restraint application, be costs in the cause of the substantive proceeding to be issued before 31 August 2023 or if not issued by then, that the parties bear their own costs. The letter sought agreement from the second and third respondents by no later than 10am on 14 July 2023.
[52]Ibid, 12-13.
On 12 July 2023, HSF also replied to the Piper Alderman 28 June 23 and 4 Jul 23 letters regarding the intended audit of IT systems.[53] HSF stated that the audit would not resolve matters, or address all of the applicants’ concerns. HSF stated these matters would be the subject of discovery in a substantive proceeding.
[53]Exhibit ‘JAH-1’ to the Hill affidavit, 112.
On 13 July 2023, the applicants filed a writ commencing the substantive proceeding. The writ included the respondents to the applications, but also named additional defendants, including Piper Alderman.
On 17 July 2023, HSF wrote to Piper Alderman and Rigby Cooke seeking a response to the HSF 12 Jul 23 letter.[54]
[54]Exhibit ‘ELI-4’ to the fourth Iles affidavit, 64-65.
On 19 July 2023, Piper Alderman replied.[55] Their email disputed the assertions made in that letter. They stated that the preliminary discovery proceeding should be dismissed, with each party bearing their own costs, and requested draft consent orders be circulated.
[55]Ibid, 64.
On 21 July 2023, HSF wrote to Piper Alderman and Rigby Cooke (the ‘HSF 21 Jul 23 email’).[56] The email stated that their clients did not agree with the proposed orders. HSF stated that as there was no agreement on the orders to dispose of the proceeding and the restraint application, including costs, the applicants would prepare submissions and further evidence per the Court’s timetable.
[56]Ibid, 66, 77.
On 21 July 2023, Piper Alderman replied to the HSF 21 Jul 23 email.[57] They sought clarification that the parties were in agreement that the proceeding be dismissed and an order should be made as to costs. They sought confirmation that the only dispute was about costs.
[57]Ibid, 68.
On the same day, Rigby Cooke also replied to the HSF 21 Jul 23 letter.[58] The email confirmed agreement that this proceeding should be discontinued but stated costs were not agreed. The letter stated that the first respondent should have no liability for costs concerning the restraint application. As for the costs of the proceeding, they referred to the first respondent’s affidavit of documents filed on 14 April 2023 and stated that from her perspective, the proceeding concluded then. The email proposed that the liability of costs be deferred and be costs in the substantive proceeding in which discovery will be an interlocutory step.
[58]Ibid, 79.
On 24 July 2023, the second and third respondents filed their notice of appearance in the substantive proceeding. Milton Lawyers are acting for them in the substantive proceeding.
On 25 July 2023, Rigby Cooke wrote to Chambers seeking that the first respondent be excused from attendance at the hearing on 1 August 2023 given that it concerned the restraint application, which was only against the second and third respondents.[59]
[59]Exhibit ‘RLJ-1’ to the Jackson affidavit, 35.
The following day, HSF wrote to Chambers indicating that the only issue was the costs of the restraint summons, and that was not a matter for the first respondent.[60]
[60]Ibid, 39.
The applicants sought to maintain the hearing date of 1 August 2023 listed for their restraint summons to seek orders concerning the costs of the same.
Costs orders sought by parties
By the time of the hearing on 1 August 2023, the parties’ positions may be summarised as follows.
The applicants seek orders that the parties’ costs of the preliminary discovery application be in the cause of the substantive proceeding and that the second and third respondents pay their costs of the restraint application.
The first respondent seeks orders that the applicants pay her costs of the preliminary discovery application.
The second and third respondents seek orders that the applicants pay the costs of the preliminary discovery application and restraint of solicitor applications.
Applicable legal principles
Order 32 of the Rules applies to the preliminary discovery application. R 32.11(1) of the Rules provides:
Costs
(1)On an application under this Order, the Court may make an order for the costs and expenses of the applicant, of the person against whom the order is made or sought and of any party to the proceeding, including the costs of—
(a)making and serving any affidavit of documents;
(b)producing any document for inspection in accordance with Rule 32.09; or
(c)complying with any direction given under Rule 32.10.
I gratefully adopt the following principles given by Mortimer J (as her Honour then was) in the matter of Cobankara v ANZ Banking Group Pty Ltd[61] where her Honour said:
[61][2017] FCA 419, [18].
I accept the prospective respondent’s submission that the approach in Lai Qin is not appropriate because there are authorities suggesting a distinct approach to costs in pre-trial discovery applications. Indeed, there are a great many such authorities. The “contingent” approach for which the prospective respondent contends is but one of the approaches revealed by the authorities. The authorities, state and federal, suggest there is no uniform view on what that distinct approach should be. In ObjectiVision Pty Limited v Visionsearch Pty Limited (No 3) [2015] FCA 304 (Objectivision), Perry J said (at [13]):
It has been doubted that there is as yet a “conventional approach” as to the manner in which the discretion as to costs and expenses is to be exercised in preliminary discovery applications: Apache Northwest Pty Ltd v Newcrest Mining Ltd [2009] FCAFC 39; (2009) 182 FCR 124 (Apache) at 146–147 [90]–[91] (Flick J (in dissent but on issues not presently relevant)); J & A Vaughan Super Pty Ltd v Becton Property Group Ltd [2013] FCA 340 (Vaughan Super) at [16] (Kenny J). Any order for costs must necessarily be dictated by the facts and circumstances of the proceeding: Apache at 146 [89]; Vaughan Super at [16]. The decided cases are therefore illustrative only of the manner in which the discretion has been exercised in the circumstances of the particular case and provide guidance in that sense.
(Emphasis in original.)
I respectfully agree with her Honour.
In the ObjectiVision case, and with her Honour’s customary thoroughness, Perry J reviewed the relevant authorities. Having canvassed a number of authorities where doubts were expressed about the kind of “contingent” costs orders proposed in Cappuccio and SmithKline Beecham plc v Alphapharm Pty Ltd, her Honour said (at [21]-[23]):
[21]Similar doubts as to the desirability of making contingent costs orders were expressed by McDougall J in Steffen v ANZ Banking Group [2009] NSWSC 883 (Steffen) at [31] with respect to the principles applicable to an application for preliminary discovery under the Uniform Civil Procedure Rules 2005 (NSW). McDougall J considered that generally it is better to deal with costs on an application for preliminary discovery by making an order with immediate rather than contingent operation (at [33]). However, his Honour took a different view as to where the burden of costs should lie on a contested application for preliminary discovery, considering at [32] that: “where an application for preliminary discovery is contested in an adversarial fashion, then the ordinary consequences of that decision should follow unless some good reason is shown why they should not.” (following Simpson J in Airways Corp of New Zealand v The Present Partners of Pricewaterhouse Coopers Legal [2002] NSWSC 521 (Airways Corp of NZ)).
[22]Besanko J in Proctor v Kalivis (No 3) [2010] FCA 1194 (Proctor) adopted a similar approach to that in Steffen, stating at [17] that:
First, the jurisdiction to make an order for preliminary discovery is an extraordinary jurisdiction. There is a sense in which a respondent is entitled to remain passive until the applicant makes out a case for preliminary discovery: Glencore International AG v Selwyn Miners Limited (2005) 223 ALR 238 at 241 [15] per Lindgren J. Secondly, if the respondent does not take an adversarial approach to the application for preliminary discovery and in fact provides discovery then it may be appropriate to make the type of order sought by the respondents in this case [namely, a contingent costs order]. Thirdly, if the respondent does take an adversarial approach then it may be appropriate to order that it pay the costs caused by that adversarial approach: Re Steffen; Western Bulk Carriers (Australia) Pty Ltd v Cosco Bulk Carrier Co Ltd [2002] FCA 1520.
[23]I consider that there is considerable force in the approach adopted in Proctor and Steffen in contested cases such as the present. I also consider that the exceptional nature of the jurisdiction remains a matter to be taken into account in determining costs and may lead to a closer scrutiny than might otherwise be the case of the extent to which a successful prospective applicant should receive its costs: cf Hughes at 48,136 (Toohey J).
(Emphasis in original.)
Again, I respectfully agree with her Honour and cannot improve on her Honour’s analysis. Some additional scrutiny should be applied to whether, even if a prospective respondent has been “adversarial”, the usual orders as to costs following the event should be made, because of the extraordinary jurisdiction involved.
In Guest v Guest (No 2) [2016] VSC 76 at [19] (Guest), Mukhtar AsJ said:
It comes to this. On the current variable state of authority, it cannot be said that when an application for pre-action discovery is granted, then the usual rule is that costs of the application follow the event. So much depends on the case. The application is discrete, and depending on the circumstances, an applicant can and I would think ought be liable to pay a respondent’s costs of a successful application if there was a genuine dispute and the respondent did not act unreasonably in refusing to give discovery otherwise than by being ordered to do so by a court.
As Perry J noted in ObjectiVision at [39], there is a distinction between costs incurred on application for preliminary discovery and the costs of complying with an order for preliminary discovery. The same distinction was drawn by Mukhtar AsJ in Guest. I consider each aspect separately.
The applicants rely on Racing New South Wales v Racing Victoria Ltd (No 3)[62] (‘Racing NSW’). Ball J held that the costs of a preliminary discovery application should be in the substantive proceeding if it is commenced shortly afterwards and joins affected parties. His Honour stated this was the preferable approach procedurally. Some other costs, namely compliance costs, were ordered to be paid by the applicant. This authority is simply an example of one approach that may be taken to the costs of a preliminary discovery application.
[62][2023] NSWSC 838.
What orders should be made for costs between the applicant and the first respondent?
Preliminary discovery application
Submissions
The applicants say the costs of the preliminary discovery application, including compliance costs, should be costs in the substantive proceeding. The materials produced are relevant to the substantive proceeding. The factual and legal issues arising in the preliminary discovery application overlap almost entirely with the substantive proceeding. They say the materials produced would be discoverable in the substantive proceeding, and treating the preliminary discovery application as distinct would be artificial. The applicants say it is therefore appropriate that the costs be in the substantive proceeding. It is the preferable order procedurally. It avoids complexity. A compelling factor is that the substantive proceeding is already on foot. It does not disadvantage other parties. The applicants accept that the cost liability in the substantive proceeding regarding the preliminary discovery application should be limited to parties in this proceeding and not extend to all parties in the substantive proceeding.
With respect to the costs of compliance, the applicants accept that there is a difference between the first respondent and the other respondents. This is because the first respondent complied with the consent orders and made an affidavit of documents. However, the second and third respondents did not make discovery in response to an order, but rather unilaterally.
The first respondent says that the applicants should pay the preliminary discovery application costs. She says that she co-operated by destroying documents per the HSF 22 Dec 22 letter to her. Further, she co-operated by filing an affidavit of documents in the proceeding and providing information requested by the applicants.
The first respondent contends that this proceeding should never have been commenced because the applicants had sufficient information to commence the substantive proceeding. The first respondent says that the commencement of this proceeding breached the Civil Procedure Act 2010 (the ‘CPA’).
On the other hand, the applicants say they only received the information necessary to decide whether to commence the substantive proceeding after the respondents provided documents as a consequence of the preliminary discovery application. The pleadings commencing the substantive proceeding specifically rely upon documents produced by the respondents in response to the application.
Analysis
The first respondent’s submission that applicants should pay costs because they breached the CPA must be firmly rejected for two reasons.
Firstly, it invites the determination of an issue that has resolved, namely whether preliminary discovery should be ordered.
Secondly, and relatedly, there is evidence to the contrary. I refer to the first McMurtrie affidavit at paragraphs [78] to [79].
Thirdly, as revealed by the background cited above, only after the applicants issued proceedings did the first respondent capitulate and provide an affidavit of documents. Prior to that, the applicants were stonewalled by the first respondent. The HSF 19 Dec 22 letter specified the documents allegedly taken by the first respondent in part 3, and requested a list of documents, which was more generally described, in part 5. Reading the letter as a whole, it ought to have been clear to the first respondent as to the documents to be described in the list.
The first respondent did not provide any substantive response to the request for a list of documents in the response of her solicitors, namely the Kennedys 22 Dec 22 letter. Nor did the first respondent reply to follow-up correspondence sent on behalf of the applicants, namely the HSF 22 Dec 22 letter to the first respondent and HSF 18 Jan 23 email. The Kennedys 25 Jan 23 letter did not refer to the request for the list of documents, and stated that the first respondent had sufficiently responded to the applicants’ claims, which she did not accept.
As to the costs of the restraint application: it concerned the second and third respondents and Piper Alderman, not the first respondent. The Jackson affidavit deposes that it caused costs to the first respondent. However, the costs appear to be primarily directed at preparation for the hearing on 1 August 2023. This hearing was about costs. The hearing costs should be regarded as costs in the preliminary discovery application between the applicants and the first respondent.
Pursuant to r 32.11(1), the applicants should pay the first respondent’s costs of making an affidavit of documents per the consent orders made on 6 April 2023.
The authorities outlined above emphasise that costs are a discretionary matter, and that different approaches are taken in preliminary discovery matters depending on the circumstances. I have decided to apply the ‘contingent’ approach and order that costs between the applicants and the first respondent, save for those pursuant to r 32.11(1), be costs in the substantive proceeding for the following reasons.
The first respondent cooperated with the applicants after the proceeding was commenced, as revealed by the background above. However, before commencement of the proceeding, the first respondent took an adversarial approach, as discussed above. I decline to make the costs order sought by the first respondent that the applicants pay her costs. It would be unjust, given that the first respondent’s adversarial approach necessitated the preliminary discovery application, and then she capitulated. For the same reasons it would be unjust to order each party bear their own costs. Moreover, the substantive proceeding is already on foot, and the documents produced will likely be part of discovery in that proceeding.
What orders should be made for costs between the applicants and the other respondents?
Preliminary discovery application
Submissions
The applicants seek costs be in the substantive proceeding. I refer to their submissions above. They also say that by their Piper Alderman 2 Jan 23 email, the second and third respondents said the applicants’ claims were baseless.
The second and third respondents say the preliminary discovery application was premature, unnecessary and without proper basis. They say the applicants had sufficient information to commence their substantive proceeding. Further, that once served with the preliminary discovery application, they promptly produced adequate documents to the applicants. They say it may be inferred that, had they been given the opportunity to do so, they would have provided the documents without the need for the preliminary discovery application.
Analysis
The applicants should pay the second and third respondents’ costs of the preliminary discovery application, save for the restraint of solicitor application, for the following reasons.
Firstly, the second and third respondents did not act unreasonably in failing to provide a list of documents prior to the originating motion. The applicants did not seek a list of documents from them prior to this proceeding. The HSF 22 Dec 22 letter to the second and third respondents did not seek a list of documents. I accept that it did seek a statutory declaration which included disclosure of the details of their confidential information disclosed by the first respondent. I accept that the Piper Alderman 2 Jan 23 and 20 Jan 23 emails did not provide any details of information disclosed to them by the first respondent, although the latter email did say it was removing some of the documents the applicants had referred to on the third respondent’s website. The 2 Jan 23 email description of the applicants’ claims as ‘baseless’ may be regarded as premature. So too the assertion that no confidential information had been disclosed by the first respondent to them. The applicants did not further engage by correspondence but issued this proceeding. This leads to the next point.
The applicants did not serve the FTI report on the second and third applicants before issuing the originating motion. The documents served on the respondents with the originating motion included the first Iles affidavit exhibiting the FTI report. Had a draft originating motion been served on the second and third respondents with the FTI report, they may have provided the documents sought without the necessity of issuing against them.
Secondly, the second and third respondents did not act in an adversarial manner in respect to the preliminary discovery application once commenced. They cooperated with the applicants’ request for documents. I refer to the Piper Alderman 28 Feb 23,the Piper Alderman preliminary discovery 9 Mar 23, the Piper Alderman 22 Mar 23 and Piper Alderman 12 May 23 enclosing documents.
Restraint of solicitor application
Submissions - applicants
The applicants seek that the second and third respondents pay the costs of the restraint application. They say the following.
Piper Alderman's conflict of interest precluded them from acting for the second and third respondents in this dispute from the very outset. Piper Alderman grappled with the issue only in or around June 2023 by not acting in the substantive proceeding. Piper Alderman should never have accepted instructions for service in this proceeding.
It should have been clear to Piper Alderman that they may hold discoverable documents. This conflicted them from acting in the preliminary discovery application.
Email correspondence obtained by FTI’s forensic IT search showed that lawyers of Piper Alderman were taking instructions from the first respondent regarding work she was undertaking for the benefit of the second and third respondents.[63] Mr Cameron stated in the Piper Alderman 20 Jan 23 email that the first respondent had no involvement in assisting the second and third respondents, despite receiving emails from her with the second respondent’s email address while the applicants still employed her.
[63]See eg, exhibit ‘EIL-3’ to the third Iles affidavit, 76, 85, 249.
Further, Mr Cameron is director of the second respondent; his obligations as a director and as a legal advisor conflict. The second and third respondents have not addressed how Mr Cameron could comply with his Harman obligations to only deal with materials that come into his possession in connection with this dispute, while also complying with his director’s duties to the second respondent.
The HSF 24 Feb 23 letter details why Piper Alderman was in a position of conflict. The applicants also rely on the HSF 17 Mar 23 letter serving the restraint of solicitor summons, and the HSF 29 June 23 letter regarding costs.
Piper Alderman refused to acknowledge a conflict until 28 June 2023. In doing so, the second and third respondents have acted unreasonably, which necessitated the restraint of solicitor application and incurring costs.
The issue has effectively been resolved favourably to the applicants. Piper Alderman is not acting for the respondents in the substantive proceeding. Therefore, it is appropriate that the second and third respondents bear the costs of the restraint application.
Submissions - second and third respondents
The second and third respondents say that the applicants should pay their costs. They say the following.
The applicants have inappropriately conflated the position of Piper Alderman in this proceeding with Piper Alderman’s position in connection with the substantive proceeding. Piper Alderman has not asserted it could act for the second and third respondents in the substantive proceeding.
The applicants have not identified why Piper Alderman should not act in the preliminary discovery application. There was no warrant to restrain Piper Alderman from acting in the preliminary discovery application, especially when such an application necessarily means a substantive proceeding is only putative. Piper Alderman, particularly Mr Cameron, has a significant relationship with Mr McKendrick, who ultimately controls the two corporate entities. However, it does not follow that because of that relationship, or because Mr Cameron holds directorships, that Piper Alderman is conflicted from acting in connection with the preliminary discovery obligation.
The notion that Piper Alderman could not comply with its Harman obligations while holding the roles of director and legal advisor of the second and third respondents is misconceived. The issue is what is what documents their clients produce, not documents produced to them due to discovery. Therefore the Harman obligation is irrelevant here.
There is an analytical impossibility of restraining Piper Alderman from acting in the substantive proceeding by bringing a restraint application in this preliminary discovery proceeding. The nature of a preliminary discovery proceeding means there is no certainty as to whether a substantive proceeding may be commenced. A party who has already decided to commence a substantive proceeding cannot succeed in a preliminary discovery application.
Analysis
I will make orders that the costs of the restraint of solicitor application be costs in the substantive proceeding, as between the applicants and the second and third respondents. I have evaluated the following factors and concluded that this is what justice demands.
Firstly, this is not an occasion where costs should follow the event. There has been no adjudication on the restraint of solicitor issue. Nor should there be within this costs ruling. This weighs against making costs orders in favour of any party.
Secondly, I am satisfied that there was a proper basis for the part of the application that sought to restrain Piper Alderman from acting in this proceeding. The application was supported by the second, third and fourth Iles affidavits, and the second McMurtrie affidavit. I refer to the relationships between Mr Cameron, who wore several hats (partner of Piper Alderman and director of the second respondent and McKendrick Family Nominees Pty Ltd), the second respondent and Piper Alderman. Piper Alderman had previously acted for the first applicant for at least 15 years. I also refer to the information exchanged between the second respondent and Piper Alderman, which the applicants assert was their confidential information and unlawfully disclosed by the second respondent. This factor weighs against making a costs order in favour of the second and third respondents.
I reject any suggestion that legal practitioners cannot be in a position of conflict in a preliminary discovery proceeding. It is, for instance, entirely conceivable that such a conflict may arise when advising on disclosing documents that may expose the lawyers to a legal claim.
For completeness, I agree with the submissions of the second and third respondents concerning the relevance of the Harman undertaking here; it is not relevant.
Thirdly, the application sought to restrain Piper Alderman from acting in any substantive proceeding. By its very nature, this proceeding was not the proper proceeding to make that application. Any substantive proceeding was hypothetical. If an applicant has decided to commence substantive proceedings, a preliminary discovery application should not be made. If the substantive proceeding is commenced, and a conflict of interest arises, the restraint application should be made in the substantive proceeding. This factor weighs against making a costs order in favour of the applicants.
Fourthly, the second and third respondents have not capitulated on the restraint of solicitor application. Piper Alderman remains on record in this proceeding. I do not regard the fact that Piper Alderman is not representing the second and third respondents in the substantive proceeding as a capitulation in this proceeding. A key distinction between this proceeding and the substantive proceeding is that Piper Alderman is a party to the substantive proceeding. This weighs against making a costs order in favour of the applicants.
Fifthly, there is a nexus between the restraint of solicitor application in this proceeding and the substantive proceeding. In the substantive proceeding, the applicants seek a declaration that Piper Alderman was knowingly a party to the first respondent’s breach of fiduciary duties and knowingly involved in the first respondent’s breach of equitable duties of confidence owed to the applicants. They also seek a declaration that Piper Alderman contravened ss 181, 182 and 183 of the Corporations Act 2001 (Cth).[64] The allegations against Piper Alderman in the substantive proceeding overlap with those made in the correspondence (cited in the background above) in this proceeding.[65] Indeed, the statement of claim relies on the Piper Alderman 2 Jan 23 and 20 Jan 23 emails in support of a claim for exemplary damages.[66] In the circumstances, it would be unjust to order that the applicants or second and third respondents bear their own costs of the solicitor restraint application in the preliminary discovery proceeding.
[64][F] of the prayer for relief in the Statement of Claim filed on 13 July 2023 in the substantive proceeding.
[65]Ibid, Part I.
[66]Ibid, [125].
To avoid further dispute it is necessary to apportion the costs of the hearing day as between the applicants and the second and third respondents. I will apportion half as costs in the preliminary discovery application, and half to the restraint application.
Conclusion
I will make orders that:
(a) pursuant to r 32.11(1), the applicants pay the first respondent’s costs of making an affidavit of documents per the consent orders made on 6 April 2024, such costs to be taxed in default of agreement, and otherwise, costs between the applicants and the first respondent be costs in the substantive proceeding;
(b) save for the restraint of solicitor application, the applicants pay the second and third respondents’ costs of the preliminary discovery application, to be taxed in default of agreement;
(c) the costs of the restraint of solicitor application as between the applicants and the second and third respondents be costs in the substantive proceeding; and
(d) taxation of the costs referred to in sub-paragraphs (a) and (b) above is stayed until determination of the substantive proceeding or further order.
Staying taxation of costs will avoid multiplicity of taxation regarding overlapping matters between this proceeding and the substantive proceeding regarding the production and inspection of documents. Further, it recognises that the parties are likely to set off their respective costs liabilities should the applicants obtain a favourable costs order following the determination of the substantive proceeding.
SCHEDULE OF PARTIES
| S ECI 2023 00727 | |
| BETWEEN: | |
| GODFREY HIRST AUSTRALIA PTY LTD (ACN 000 849 758) | First Applicant |
| PREMIUM FLOORS AUSTRALIA PTY LIMITED (ACN 152 867 984) | Second Applicant |
| FLOORSCAPE LIMITED (COMPANY NUMBER 1496430) | Third Applicant |
| GODFREY HIRST NZ LIMITED (COMPANY NUMBER 79542) | Fourth Applicant |
| - v - | |
| SUSAN ANNE RECHENBERG-DUPE | First Respondent |
| COWES BAY GROUP PTY LTD (ACN 635 970 222) | Second Respondent |
| BRAESIDE MILLS OPERATIONS PTY LTD (ACN 659 692 421) | Third Respondent |
0
2
0