Medlab v Zhou

[2018] NSWSC 1643

Supreme Court

New South Wales

Medium Neutral Citation:	Medlab v Zhou [2018] NSWSC 1643
Hearing dates:	26/10/2018
Date of orders:	26 October 2018
Decision date:	26 October 2018
Jurisdiction:	Equity
Before:	McDougall J
Decision:	No order as to costs.
Catchwords:	COSTS – where defendants offered undertakings which substantially resolved the dispute – whether plaintiffs should have their costs to date – reluctance to order costs where proceedings discontinued at interlocutory stage – nothing in the present case to suggest otherwise – no order as to costs.
Cases Cited:	Re Minister For Immigration and Ethnic Affairs; Ex Parte Lai Qin (1997) 186 CLR 622 Nichols v NFS Agribusinesses Pty Ltd [2018] NSWCA 84
Category:	Costs
Parties:	Medlab Pty Ltd (First Plaintiff) Medlab IP Pty Ltd (Second Plaintiff) Yusi (Joyce) Zhou (Defendant)
Representation:	Counsel: M Seck (Plaintiffs) S Lipp (Defendant)   Solicitors: Piper Alderman (Plaintiffs) Blackheath Lawyers (Defendant)
File Number(s):	2018/323108

Judgment   (ex tempore – revised 26 october 2018)

1. HIS HONOUR: There is to my observation (and I acknowledge that this may not be statistically valid) an increasing tendency in commercial litigation for relatively well resourced plaintiffs to attempt to apply against relatively under resourced defendants the commercial version of Voltaire's aphorism on the death of Admiral Byng. This appears to be such a case.

2. The defendant Dr Zhou is a research scientist with doctoral qualifications in biochemistry. The plaintiffs between them are companies engaging in what is called the biotechnology industry. They have a particular interest in the use of nanotechnology to assist in the treatment of chronic disease. Dr Zhou’s work involved her in that aspect of the plaintiffs' (it is not necessary to distinguish between them) activities.

3. Dr Zhou offered her resignation from the employ of the first plaintiff on 10 September 2018, and ceased working on 21 September 2018. She took annual leave from 12 to 18 September 2018. It came to the plaintiffs' attention that whilst Dr Zhou was on leave, she accessed the plaintiffs' Dropbox system and downloaded what is said to be confidential information.

4. I have been taken to affidavits, in respect of which confidentiality is claimed, that set out some details of the information that Dr Zhou is said to have downloaded. On a relatively quick perusal of those affidavits, the conclusion that I draw tentatively is that some of the material would appear on any view to be confidential but that other parts of it do no more than reflect another increasing tendency of modern commercial life: namely the desire of corporations to over-claim in respect of confidential information.

5. Regardless, the plaintiffs demanded that Dr Zhou give a number of undertakings. Those undertakings included that she has deleted electronic copies of downloaded material, returned any hard copies, and had not provided copies of anything to third parties. The undertakings demanded included also that she would not in the future act contrary to any other terms of her contract of employment, and in particular would not breach her contractual or other duties of confidence.

6. The reply suggested that Dr Zhou was offended by the suggestions that she had misused the plaintiffs' confidential information, and would not give the latter aspect of the undertakings demanded, in effect because they would amount to admissions of breach of contract. Dr Zhou offered an alternative and more limited undertaking.

7. After some more argy-bargy and correspondence, the plaintiffs came to court. They sought, by way of interlocutory relief, an order restraining Dr Zhou from using any confidential information of the plaintiffs, using copies of any such information, and restraining any other use of such information. To some extent, those aspects of the undertakings sought varied, although not in a significant way, from what had been demanded in correspondence.

8. The plaintiffs also sought, on an interlocutory basis, an order restraining Dr Zhou up until 21 March 2019 from carrying on or participating in any business that is in competition with the plaintiffs. There was no contractual justification for that demand. Mr Seck of Counsel, who appeared for the plaintiffs today, described it as a springboard injunction. I have no idea what he meant by that. Nor do I understand into what, from that springboard, it was intended that Dr Zhou would dive.

9. Dr Zhou has today offered undertakings to the Court. One is that she had deleted and has not retained any electronic copies of any of the plaintiffs' material. Another is that she has provided evidence of that activity. The third is that she has returned whatever hard or electronic copies she has to the plaintiffs. The fourth is that she has not used or disclosed or provided copies of it to anyone apart from her lawyers. The fifth is that she will not in the future use or disclose the material.

10. There is no undertaking in respect of future breaches of contract, in particular relating to confidential information, other than as caught by the five express undertakings. Nor is there any undertaking equivalent to the so-called springboard injunction that the plaintiffs sought.

11. One would have thought that, perhaps subject to the plaintiffs having an opportunity to satisfy themselves, from the material that Dr Zhou has provided, that she has indeed done what she said she has done, the matter would finish there. It did not. The plaintiffs seek an order that she pay their costs to date.

12. There is a very clear line of authority to the effect that the Court should be slow, when a matter has not progressed beyond the interlocutory stage, to order costs. The reason is obvious. The Court has not had an opportunity of investigating the merits of the parties’ competing positions.

13. In this context, reference is made frequently to the judgment of McHugh J in Re Minister For Immigration and Ethnic Affairs; Ex Parte Lai Qin [1] . The authorities and the principles were canvassed very recently by the Court of Appeal in Nichols v NFS Agribusinesses Pty Ltd [2] .

    1. (1997) 186 CLR 622.

    2. [2018] NSWCA 84.

14. I see little point in adding to the store of unreported cases in which the Lai Qin principles have been analysed. It is sufficient to say that, as Basten JA made clear in Nichols at [2], where parties resolve their differences except as to the costs already incurred, the usual approach is that the Court will not award costs, because there is no "event" by reference to which the order can be made. There is nothing different in the approach taken by Payne JA, with whom Meagher JA agreed (and I add that Basten JA agreed in the orders proposed by Payne JA and did not disagree with his Honour's reasons).

15. Mr Seck urged upon me numerous circumstances which showed, he submitted, that the plaintiffs had acted reasonably in approaching the Court. The obvious rejoinder to that is that, if they had acted unreasonably, they might well expect costs to be ordered against them. But acting reasonably in approaching a court does not of itself render the reasonable party entitled to its costs. There must be something more, in circumstances where (as here) there has been no final hearing on the merits.

16. The significance of a final hearing on the merits is, as I have said, that it will suggest an "event" for the purposes of the exercise of the costs discretion. But where there has been no decision on the merits, the Court is unable to say, except perhaps in very rare cases, where, as between the parties, the truth lies.

17. Where the Court cannot say that, it is very difficult to say why the interests of justice are served by exercising the costs discretion in favour of one party or the other. To put it another way, without a determination on the merits, the principled approach to the assessment of costs will generally suggest that they should lie where they fall. I repeat that, as with everything to do with the law so far as I am aware, there are exceptions to this approach.

18. Mr Seck pointed to the fact that Dr Zhou had not been prepared to give undertakings to the effect sought, and had offered an undertaking that was much less in extent than the undertakings that she has now offered. Those matters are undoubtedly correct. However, as against them, there is the fact that the plaintiffs demanded more than Dr Zhou has now provided, and in addition made offensive suggestions of dishonesty.

19. The plaintiffs did not resile from the suggestions of dishonesty. On the contrary, Mr Seck put in submissions that there were aspects of Dr Zhou’s communications which were inconsistent, and of themselves suggestive of dishonesty. It is doing no more than stating the obvious that, on an interlocutory hearing, where there has been no full evidence and no cross-examination, dishonesty is a conclusion that the Court ought not reach.

20. There are many reasons why a party to litigation may accede, in whole or in part, to the demands made by the other. One very obvious one is that it is not worth continuing, either in terms of what is at stake or in terms of the costs that would be involved in continuing. Where it can be seen that this is likely to be the case, the Court should not assume, simply from the fact that one party has acceded in substance to the demands of the other, that it would have lost at a final hearing had the matter gone so far.

21. I do accept that, in this case, the plaintiffs had good reason to come to court. I accept, also, that it is difficult to see, on the evidence to date, how Dr Zhou could have been required, for the purposes of her employment, to download the material when she did.

22. But it does not follow that she could not have given an explanation had this matter proceeded to a final hearing. To say that, because she has not given such an explanation, she should therefore bear the costs, seems to me, if I may say so, to invert the approach that should properly be taken.

23. In the present case, I simply do not feel sufficiently convinced of the ultimate merits of the plaintiffs' position to say that, without further investigation, they should have their costs. Nor do I feel that it is appropriate to put Dr Zhou in the position either of incurring further costs to give a fuller explanation of what she did or of suffering, by having to pay the plaintiffs' costs, if she does not.

24. For those reasons, my view is that there should be no order as to costs to date. I add that, if the plaintiffs are satisfied with the evidence as to what Dr Zhou has said that she has done, then they should procure the proceedings to be dismissed or discontinued in a way that does not involve her in further costs.

25. One of the exhibits to Dr Zhou's affidavit was a USB stick which contains information that the plaintiffs say is confidential. Mr Lipp of Counsel, who appeared for Dr Zhou, suggested that it be returned or handed out to the plaintiffs. I agree. That will be done.

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Endnotes

Decision last updated: 30 October 2018