Lightforce Australia Pty Ltd v Culley - [2012] SADC 88

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Interlocutory Application)
LIGHTFORCE AUSTRALIA PTY LTD v CULLEY
[2012] SADC 88
Ruling of His Honour Judge Rice
29 June 2012
PROCEDURE - COSTS - INTERLOCUTORY PROCEEDINGS
The plaintiff obtained a Search Order with injunction ex parte (Anton Piller orders) - defendant applied to have the orders set aside and filed affidavits - defendant succeeded in having the Search Order with injunction set aside - plaintiff appealed to a single Justice of the Supreme Court - the appeal process led to a negotiated resolution as to what was to happen to the seized material, but otherwise the appeal was dismissed - the defendant applies for costs on an indemnity basis for the successful application to set aside the Search Order with injunction.
Held: Defendant should have his costs on an indemnity basis, payable forthwith, bearing in mind that the application to set aside succeeded, in part, on the basis that there had been material non-disclosure.
Designs Act 2003 (Cth) s 73; District Court Act 1991 s 42(1), referred to.
Anton Piller K.G. v Manufacturing Processes Ltd [1976] Ch 55; Colgate-Palmolive Company and Another v Cussons Pty Limited (1993) 46 FCR 225; Casley-Smith v F S Evans & Sons Pty Ltd (No. 6) (1989) 148 LSJS 483; R v Wilcox (1997) 72 FCR 151; John S Hayes Pty Ltd v Kimberley-Clark Australia Pty Ltd (1994) 52 FCR 201; Sigma Chemicals (1986) Pty Ltd as Trustee of the Sigma Chemicals Trust v Brown and Ors [2002] WASC 12, considered.

LIGHTFORCE AUSTRALIA PTY LTD v CULLEY
[2012] SADC 88
Introduction

There are three applications before the Court:
1.Given the history of the matter which is outlined below, that the plaintiff pay the defendant’s costs on an indemnity basis payable forthwith;
2.The plaintiff seeks an order that the proceedings be adjourned pending an examination pursuant to s 73 of the Designs Act 2003 (Cth);
3.The plaintiff seeks an order that Fyrlyt Pty Ltd be joined to the proceedings as a defendant. As to this application, as at the date of argument concerning costs, the application had not been served upon the company and hence was not pressed at this stage.
Background
Something needs to be said about the history of these proceedings to put the remaining applications in context.
On 17 August 2011, the plaintiff commenced the proceedings by application for a Search Order with injunction in the nature of what is known as an Anton Piller order: Anton Piller K.G. v Manufacturing Processes Ltd[1] and DCR 148. A Search Order was made by a Judge of this Court on 18 August 2011. The purpose of the Search Order was to preserve materials said to be in the defendant’s possession relating to allegations of breaches of a Deed of Non‑Disclosure, Non-Competition and Assignment (“NDA”). As is the way with such orders, it was made ex parte.
[1] [1976] Ch 55
The Search Order was executed on 22 August 2011. Certain material, comprising computer hardware, was seized pursuant to the Search Order. That material was lodged with the Court.
It should be noted at this stage that the plaintiff, on 21 May 2009, had terminated the defendant’s employment for what was said to be serious and wilful misconduct. The plaintiff, by its sole director, Dr Dennis, in his affidavit of 16 August 2011, said that he had “recently been made aware that the defendant” had breached the NDA by his involvement in two businesses (para 26).
On 17 October 2011, the defendant filed an application that the Search Order be set aside. On the same day, the plaintiff filed an application for access to the seized material. The applications were heard by me on 18 November 2011 and 16 December 2011.
On 22 December 2011 I upheld the application to set aside the Search Order and set aside the Search Order. The application for access to the seized material was dismissed. I reserved the question of the defendant’s costs of and incidental to the application to set aside the Search Order.
The conclusion that I reached was that the plaintiff had failed to make adequate disclosure under certain headings as required by the Rules. Put generally, the headings were possible defences of the defendant, the extent of the vulnerability of the defendant, that it had a strong prima facie case and that the defendant was in possession of evidentiary material in respect of which there was a real possibility of destruction by the defendant. More will need to be said about the extent or degree of non-disclosure in consideration of the application for indemnity costs.
On 19 January 2012, the plaintiff filed an appeal in the Supreme Court against my decision to set aside the Search Order. On the hearing of the appeal, the parties resolved some of the procedural issues upon undertakings on behalf of the defendant and the defendant’s solicitors. The Justice on appeal noted that the defendant consented to a direction in those proceedings that the material held by the District Court be released into the possession and control of the defendant’s solicitors. Further, it was noted that the defendant’s solicitors are to preserve the integrity of that material and not release that material to any other person until further order. Upon the giving of those undertakings, the appeal was dismissed and the plaintiff was ordered to pay the defendant’s costs of the appeal fixed at a certain sum and payable within 14 days.
Defendant’s application for indemnity costs
As mentioned, one of the applications now before me is that the plaintiff pay the defendant’s costs of the successful set aside application on an indemnity basis and payable forthwith.
The defendant’s present application is based not only upon the failure of the plaintiff to make full disclosure when initially seeking the Search Order, but also its failure to respond to, and comply with, two early letters from the defendant.
It is convenient to deal with those letters at this stage. The defendant refers to them as “the capitulate letters.” The letters are dated 5 and 13 September 2011 respectively. The substance of each letter is the same, namely, points to be made by the defendant in a proposed application to set aside the Search Order based upon non-compliance with the requirements of the Rules, particularly Rule 148. The first of those letters then says:
Having said that, in order to avoid the costs of argument with respect to the Search Order, we invite your client to withdraw the Application and to not contest the Search Order being set aside on the basis that costs be costs in the cause and the matter proceed in the ordinary way. Our client will have the materials restored into his possession and will make disclosure in so far as is required by the rules in the ordinary way in due course.
In the event that your client refuses to accept the above offer, our client reserves the right to bring this letter to the attention of the Court on the subject of costs. If our client is successful in setting aside the Search Order, our client will seek an order for indemnity costs payable forthwith by your client.
The second letter, at its conclusion, proposes a timetable to deal with an application to set aside the Search Order. There was no response to either letter.
The defendant now relies upon these letters. The defendant submits that some of the substantive arguments made in those letters have been accepted and the Search Order set aside. Further, as foreshadowed in the quoted excerpt, in that eventuality, the defendant seeks indemnity costs payable forthwith. The defendant submits that the failure of the plaintiff to agree to the first of those letters has been shown to be misguided and that the defendant has been put to unreasonable and unnecessary expense. I do note, however, that the plaintiff was asked to accept that possession of the seized material was to be restored to the defendant personally. Given the nature of the plaintiff’s proposed claim, I can understand why, at that early stage, the plaintiff was unwilling to accept such a proposal.
Whilst those letters have a relevance to the exercise of the discretion as to costs in the two ways referred to, they are not decisive of the matter. Further, a bona fide dispute was ongoing at that time.
Principles to be applied
As noted, the defendant seeks an order for indemnity costs and that they be payable forthwith.
The plaintiff submits that the circumstances do not warrant the award of costs on an indemnity basis. The plaintiff submits that the costs of the applications should be reserved to costs in the cause.
Pursuant to s 42(1) of the District Court Act 1991, the Judge has an unfettered discretion as to costs. The discretion is subject to the Rules. Rule 263(1) provides that, as a general rule, costs follow the event. Rule 264(1) provides that the Court may award, in the exercise of its discretion as to costs, costs on any basis the Court considers appropriate.
The principles to be applied in this general area were reviewed by Sheppard J in Colgate-Palmolive Company and Another v Cussons Pty Limited[2]. An order for costs will usually be made on a party and party basis. There must be something special or unusual in the circumstances of the case to warrant departing from the usual course: Colgate-Palmolive[3]; Casley-Smith v F S Evans & Sons Pty Ltd (No. 6)[4]; R v Wilcox[5]. There are no closed categories of circumstances that circumscribe the discretion: John S Hayes Pty Ltd v Kimberley-Clark Australia Pty Ltd[6].
[2] (1993) 46 FCR 225 at 232-334.
[3] (1993) 46 FCR 225 at 233.
[4] (1989) 148 LSJS 483 per Olsson J at 487-488.
[5] (1997) 72 FCR 151 at 152.
[6] (1994) 52 FCR 201 at 203.
Although the circumstances that now call for the exercise of the discretion are unusual (discharge of the Search Order), that is not, in itself, in my view, sufficient to depart from the usual course. In the context of this case, the material non-disclosure must be sufficiently significant to warrant the departure from the usual course. It is not, in my view, necessary for the defendant to show that the original Search Order would not have been made. Such an onus on the defendant would be difficult, if not impossible, to fulfil. The material non-disclosure must be significant.
Cases where an Anton Piller order is set aside (in whole or in part) do not often arise. Counsel for the plaintiff, Mr Coppola, referred to the decision of White AUJ in Sigma Chemicals (1986) Pty Ltd as Trustee of the Sigma Chemicals Trust v Brown and Ors[7]. In that case White AUJ made the original Anton Piller order and also discharged it. The Judge refused an application for costs on an indemnity basis.
[7] [2002] WASC 12.
The facts of that case are markedly different from the case at bar. In that case the plaintiff believed that the defendants had documents, chemicals and equipment relating to the manufacture of X-ray fluxes in a particular manner which would have involved actions in contempt of previous orders of the Court. Pursuant to the injunction, representatives of the plaintiff entered the defendants’ premises, examined and took photographs of the contents and seized certain papers which were then lodged with the Court[8].
[8] Sigma Chemicals (supra) at para 2.
The Judge then decided that the items seized should be the subject of an independent expert report. Such a report later satisfied the Judge that there was no evidence establishing, on a balance of probabilities, that the defendants were, in the manufacture of X-ray fluxes, in breach of an injunction. In these circumstances, the Anton Piller injunction was discharged. That must have been because the purpose or object behind the original order was spent. As mentioned, the Judge refused an application for indemnity costs although it is, with respect, difficult to discern the reason for that approach other than in the exercise of the discretion as to costs.
One observation made by the Judge in that case I do, with respect, adopt. His Honour said[9]:
…I am of the view that Anton Piller proceedings constituted a discrete matter which can and should be resolved without regard to other aspects of the action between the parties.
[9] Sigma Chemicals (supra) at para 7.
Discussion
I return to the question of the significance of the non-disclosure by the plaintiff.
In my view, the failure of the plaintiff, when seeking the Search Order, to fully disclose to the original Judge that the defendant was a vulnerable person, was such a significant matter. There was an abundance of material that should have been disclosed as to the defendant’s mental illness after his employment was terminated and which the plaintiff must have known was ongoing.
The other significant matter relates to the period between the termination of his employment and the application for the original orders. The defendant’s employment was terminated on 21 May 2009. The application for the original orders was made on 17 August 2011. On the affidavit material now available to me, it could not be said that the defendant was in possession of evidentiary material in respect of which there was a real possibility of destruction by the defendant.
Having regard to all matters and the exercise of my discretion, it is appropriate to order that the plaintiff pay the defendant’s costs on an indemnity basis. As indicated earlier, this is a discrete area and the defendant should not have to wait for the proceedings to be completed before payment of these costs is made. The costs are to be paid forthwith or within such time as is ordered upon hearing the submissions of the parties.
Adjournment of the proceedings
The plaintiff has submitted an item referred to as a Genesis Spot reflector Registration No. AU 317836S for examination by the Registrar of Designs pursuant to s 73(3) of the Designs Act 2003 (Cth). The provisions of the Designs Act are not without their difficulties in the context of these proceedings. Whether the Registrar undertakes an examination and, if it was, how long it would take, remains problematic.
I am not prepared to adjourn the proceedings indefinitely. I am prepared to adjourn the matter to the Master’s list for 31 July 2012.