Imak International Pty Ltd v WDN Exports Pty Ltd

[2006] FCA 1152

FEDERAL COURT OF AUSTRALIA

Imak International Pty Ltd v WDN Exports Pty Ltd [2006] FCA 1152

IMAK INTERNATIONAL PTY LTD ABN 15 002 732 756 v WDN EXPORTS PTY LTD ABN 77 115 855 653 & ORS

NSD541 OF 2006

EMMETT J

22 AUGUST 2006

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD541 OF 2006

BETWEEN:

IMAK INTERNATIONAL PTY LTD ABN 15 002 732 756
Applicant

AND:

WDN EXPORTS PTY LTD ABN 77 115 855 653
First Respondent

ANTONY JOHN WILLIAMS
Second Respondent

JONATHAN PAUL NICHOLS
Third Respondent

JUDGE:	EMMETT J
DATE OF ORDER:	22 AUGUST 2006
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.The respondents pay all reasonable costs of the applicant reasonably incurred up to 23 June 2006.

2.If, upon taxation in accordance with Order 1, the applicant’s costs are certified as being $126,000 or more, the respondents pay the applicant’s costs of the motion.

3.Otherwise, the applicant pay the respondents’ costs of the notice of motion.

Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD541 OF 2006

BETWEEN:

IMAK INTERNATIONAL PTY LTD ABN 15 002 732 756
Applicant

AND:

WDN EXPORTS PTY LTD ABN 77 115 855 653
First Respondent

ANTONY JOHN WILLIAMS
Second Respondent

JONATHAN PAUL NICHOLS
Third Respondent

JUDGE:

EMMETT J

DATE:

22 AUGUST 2006

PLACE:

SYDNEY

REASONS FOR JUDGMENT

1. The second respondent, Mr Anthony John Williams (‘Mr Williams’) was, from July 2003 until January 2003, an employee of the applicant, Imak International Pty Limited (‘Imak’).  Imak is a licensed meat exporter and exports beef, pork and sheep meats to markets throughout the Commonwealth of Australia, Papua New Guinea and the Far East and South Pacific. 

2. Mr Williams resigned his employment with Imak during January 2006.  There is some disputation as to precisely when his employment ceased, but it was either on 9 or 11 January 2003.  Following his departure, Imak formed the view that he had committed breaches of duty as an employee by forwarding to himself by email information that Imak claims to be confidential.

3. On 17 February 2006, Imak’s solicitors wrote to the third respondent, Mr Jonathan Paul Nichols (‘Mr Nichols’), a director and shareholder of the first respondent, WDN Exports Pty Limited (‘WDN Exports’).  The letter was marked ‘without prejudice except as to costs’, although it may be that that heading resulted from some misapprehension as to what was proposed.  To the extent to which an offer of compromise by the execution of the deed of release was being made it may be that the letter would appropriately attract a privilege against any admission.  The letter asserted that Mr Williams had made confidential information available to WDN Exports.  A demand was made for Mr Nichols and WDN Exports to return all information and other property of Imak in their possession.  Imak also required each of Mr Nichols, Mr Williams and WDN Exports to execute a deed of release.

4. In any event, the solicitors for the respondents replied on 24 February 2006 in an open letter.  The reply asserted that the letter of 17 February 2006 was defamatory and inflammatory, particularly affecting Mr Williams.  The letter asserted that, on their instructions, the assertions were untrue in substance and in fact.  The letter called upon Imak’s solicitors to specify with precision when, where and how the alleged instances of dissemination of confidential information by Mr Williams occurred, why it was asserted that the occurrences were either serious or persistent and what it was that had been disseminated and to whom.

5. The letter also called on Imak’s solicitors to produce what they had characterised as incontrovertible evidence that Mr Nichols and WDN Exports had been complicit in the dissemination of confidential information.  The letter asserted that it was outrageous to suggest a deliberate conspiracy, as Imak’s solicitors had.  The letter went on to say that the respondents denied any contravention of law protecting Imak’s confidential information and would strenuously defend any proceedings commenced.  The letter denied that any of the respondents had in his or its possession any information or property of Imak.

6. However, on the same day, the respondents’ solicitors wrote to Imak’s solicitors making an offer that Mr Williams enter into a deed of settlement in terms of a draft, which was attached.  Imak’s solicitors responded on 1 March 2006, observing that there had been no response from either WDN Exports or Mr Nichols.  That letter was marked ‘without prejudice’.  It went on to say that Imak would derive little benefit from any deed proposed without some agreement from Mr Nichols and WDN Exports.

7. After further exchanges, in which the respondents’ solicitors made clear that WDN Exports and Mr Nichols were not offering to be parties to any settlement, Imak commenced this proceeding by filing an application and statement of claim on 15 March 2006.  On 22 March 2006, the respondents’ solicitors served a notice to produce, requiring production of copies of the documents referred to in the statement of claim.  On 24 March 2006, Imak’s solicitors responded, indicating that all documents to which reference was made in the statement of claim may be inspected in the week commencing 29 March 2006. Following a directions hearing on 7 April 2006, a folder containing some 180 pages of documents referred to in the statement of claim was provided to the respondents’ solicitors on 12 April 2006. 

8. On 20 April 2006, the respondents’ solicitors requested particulars of the statement of claim.  On the same day, a ‘without prejudice’ letter was written by the respondents’ solicitors proposing a compromise.  The letter asserted that Imak had no prospect of recovering compensation for damages, even if injunctive orders sought in the proceeding were ultimately made. The letter also asserted that WDN Exports had not profited from use of Imak information.  The letter proposed that the draft deed of settlement, which had been forwarded by the respondents’ solicitors on 24 February 2006, be amended to include WDN Exports and Mr Nichols as parties, whereby they would confirm that they would not act in competition with Imak and would otherwise enter into similar provisions concerning the return of property. The letter proposed that the parties bear their own costs. 

9. The respondents filed a defence to the statement of claim on 27 April 2006 making significant admissions.  On 29 May 2006, Imak’s solicitors responded to the request for particulars contained in the letter of 20 April 2006.

10. Further correspondence resulted in various exchanges of proposed short minutes of order that would be made by consent.  The correspondence ultimately led to the Court’s making orders by consent on 23 June 2006.  The orders that were made by consent on 23 June 2006 involve a compromise so far as Imak’s claims are concerned. 

11. In its application, Imak sought relief which might be summarised as follows: 

    ·an order that the respondents deliver up copies of the confidential information;

    ·an order that the respondents be restrained from using, viewing or disseminating the confidential information;

    ·declarations that Mr Williams had contravened ss 181, 182 and 183 of the Corporations Act; and

    ·declarations that WDN Exports and Mr Nichols were involved in that contravention. 

    The application also claimed an order that Mr Williams repay salary payments received during the period 14 June 2005 to 9 January 2006 and orders for compensation, account of profits and damages.

12. In its statement of claim, Imak, after prefatory averments, asserted that Mr Williams, by reason of his employment and the communication of confidential information to him, owed a fiduciary duty and a duty of fidelity and good faith to Imak.  It was alleged that, during the course of his employment, Mr Williams caused to be transmitted to WDN Exports, to himself and to Mr Nichols, Imak’s customer list and customer contact details, Imak’s pricing information and particulars of enquiries by third parties as to Imak’s availability to export goods to those third parties.  That material was said to be confidential information and that its communication was a breach of the duty of fidelity and good faith and the fiduciary duty owed by Mr Williams. 

13. The statement of claim also alleged conspiracy between the respondents, from 14 June 2005 until 9 January 2006, to defraud and injure Imak’s business. In addition, the statement of claim asserted that Mr Williams was an officer of Imak and that, by reason of the matters to which I have briefly referred, he acted in contravention of ss 181, 182 and 183 of the Corporations Act 2001 (Cth). WDN Exports and Mr Nichols were alleged to be involved in the various breaches and contraventions alleged against Mr Williams.

14. The substantive orders made on 23 June 2006 required the respondents to deliver up to Imak all hard copies and to destroy all electronic copies of confidential information of Imak that was in their care, custody or control.  Each of the respondents undertook that he or it would not make any further use, whether for profit or otherwise, of any of Imak’s information transmitted to them by Mr Williams.  Finally, each of the respondents undertook that he or it would not, for a period of 12 months, become engaged, concerned or interested in any capacity in any business, undertaking or venture involving the export of frozen and chilled meat, frozen fish, frozen French fries and flour, from the Commonwealth of Australia to Papua New Guinea and parts of the Far East and the South Pacific. 

15. Apart from directions relating to the determination of questions of costs, the proceedings were otherwise dismissed.  It is clear that the compromise involved the abandoning by Imak of substantive claims made in its application.  On the other hand, the defence that was filed contains significant admissions by the respondents in relation to allegations made in the statement of claim.  In substance, the defence admitted that Mr Williams had in fact provided the information alleged to be confidential to WDN Exports and himself. 

16. As I have said, the matter that was left outstanding was the question of costs.  The parties have exchanged correspondence on that question, the details of which I do not think it is necessary to recount in detail.  Imak’s solicitors claim that costs in the sum of some $126,000 have been incurred in relation to the proceeding.  By its notice of motion, fixed for hearing today, it claims an order that the costs of the proceeding be paid by the respondents on an indemnity basis.  The respondents, on the other hand, have indicated that they will submit to an order that the costs of the proceeding be paid on the usual party/party basis.  To that extent, the respondents, on one view, have gone further than they might otherwise have been required to go. 

17. Ordinarily, the power to order costs is exercised after a hearing on the merits.  As a general rule, the successful party is entitled to an order for costs.  Success in an action, or on particular issues, is the fact that usually controls the exercise of the discretion to order costs.  When there has been no hearing on the merits, a court is necessarily deprived of the factor that determines whether or how to make a costs order.  Where a proceeding is compromised, if it appears that both parties have acted reasonably in commencing and defending the proceeding and the conduct of the parties continues to be reasonable until litigation is settled, the proper exercise of the costs discretion will usually mean that the Court will make no order as to the costs of the proceeding.

18. As I have said, however, the respondents are willing to submit to an order for costs on the ordinary basis.  Imak asserts that special circumstances have been demonstrated by reason of the admission of significant allegations made in the statement of claim.  Imak says that, on the pleadings, there have been egregious breaches of duty on the part of Mr Williams and that that is sufficient special circumstance to justify an order that the respondents pay Imak’s costs on an indemnity basis. 

19. True it is, where a proceeding is defended and the claimant is put to expense in proving its case in circumstances where it is clear that the defence should never have been raised and that the claim should never have been defended, it may be appropriate to order a defendant or respondent to pay costs on an indemnity basis.  In this case, however, ultimately, while a defence was filed which did put certain matters in issue, the proceeding has been compromised without the need for a trial. 

20. The real issue between the parties, it seems to me, is not so much a concern as to the basis upon which costs should be assessed.  Rather, the real issue is a concern that the quantum of costs claimed by Imak is perceived to be excessive.  The material that I have seen does suggest, although I am not in a position to make any findings about the matter, that Mr Williams acted somewhat dishonourably in relation to the discharge of his duties, insofar as he appears to accept that he attempted to obtain information from his employer.

21. Correspondence was written in which he denied that assertion, although at the same time without prejudice correspondence suggested to the contrary.  In terms of the open correspondence, however, the respondents put Imak to the cost of commencing a proceeding, providing particulars and providing evidence of contraventions or breaches of duty, of which Mr Williams should have been well aware.  Ultimately, however, the proceeding resulted in a compromise whereby Imak has obtained relief with which it is satisfied, although it may well not be all of the relief to which it would have been entitled had the proceeding gone to a hearing.

22. In all of the circumstances, I consider that the appropriate order for costs is to require the respondents to pay all reasonable costs of Imak reasonably incurred up to 23 June 2006.  I am mindful of the fact that that may or may not give either party the result contended for.  That, however, leaves the question of who should bear the costs of today.  While it is unusual, I consider that it is appropriate to make an order in the nature of a compromise.  The costs of the motion should abide the outcome of the taxation of costs of the proceeding. 

I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate:

Dated:       29 August 2006

Counsel for the Applicant:	Ms M. Painter
Solicitor for the Applicant:	Thomson Playford
Counsel for the Respondents:	Ms K. Rose
Solicitor for the Respondents:	Malcolm Johns & Co
Date of Hearing:	22 August 2006
Date of Judgment:	22 August 2006