NHB Enterprises Pty Ltd v Corry (No 5)

[2020] NSWSC 1838

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

NHB Enterprises Pty Ltd v Corry (No 5) [2020] NSWSC 1838

Hearing dates:

6-7 April, 5-6 and 17 May, 31 July 2020

Decision date:

17 December 2020

Jurisdiction:

Equity

Before:

Ward CJ in Eq

Decision:

1. Pursuant to s 99 and s 98(4)(c) of the Civil Procedure Act 2005 (NSW), order the Respondents to indemnify the Applicants for wasted costs in the fixed sum of $70,000, payable forthwith.

2.   Direct the parties to file brief written submissions within 7 days on the question of costs, with a view to dealing with costs on the papers if possible.

Catchwords:

COSTS — Party/Party — Orders against non-parties — Personal costs orders against lawyers

Legislation Cited:

Civil Procedure Act 2005 (NSW), ss 56, 57, 58, 59, 60, 98, 99

Evidence Act 1995 (NSW), s 140

Legal Profession Uniform Law Application Act 2014 (NSW), Pt 7

Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 (NSW), rr 6, 19, 31

Supreme Court Act 1981 (UK)

Cases Cited:

Abalos v Australian Postal Commission (1990) 171 CLR 167; [1990] HCA 47

Auspine Ltd v Australian Newsprint Mills Ltd (1999) 93 FCR 1

Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34

Brunskill v Sovereign Marine & General Insurance Co Ltd (1985) 59 ALJR 842; [1985] HCA 61

Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389

Deputy Commissioner of Taxation v Levick [1999] FCA 1580

Devries v Australian National Railways Commission (1993) 177 CLR 472; [1993] HCA 78

Easyfind (NSW) Pty Ltd v Paterson (1987) 11 NSWLR 98

Effem Foods Pty Limited v Lake Cumbeline Pty Limited [1999] HCA 15

Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Limited (2013) 250 CLR 303; [2013] HCA 46

Fox v Percy (2003) 214 CLR 118; [2003] HCA 22

Gitsham, Edwards & Jensen v Suncorp Metway Insurance Ltd [2002] QCA 416

Hadid v Lenfest Communications Inc [2000] FCA 628

Hamod v State of New South Wales [2011] NSWCA 375

Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213

Hecron Ltd v Cousins [1990] NSWCA 93

Holman v Holman [1964] 5 FLR 406

JKB Holdings Pty Limited v de la Vega [2013] NSWSC 501

Kelly v Jowett (2009) 76 NSWLR 405; [2009] NSWCA 278

Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300; [2005] NSWCA 153

Levick v Commissioner of Taxation (2000) 102 FCR 155; [2000] FCA 674

Myers v Elman [1940] AC 282

Nadarajapillai v Naderasa (No 2) [2015] NSWCA 209

Newell; Muriniti v De Costi (2018) 97 NSWLR 398; [2018] NSWCA 49

Orchard v South Eastern Electricity Board [1987] QB 565; [1987] 1 All ER 95

Re Bendeich (No 2) (1994) 53 FCR 422

Re Felicity; FM v Secretary, Department of Family and Community Services (No 4) [2015] NSWCA 19

Ridehalgh v Horsefield [1994] Ch 205; [1994] 3 All ER 848

Riverlate Properties Ltd v Paul [1975] Ch 133; [1974] 2 All ER 656

Saleh v Romanous (2010) 79 NSWLR 453; [2010] NSWCA 274

State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) (1999) 73 ALJR 306; [1999] HCA 3

Taylor v Johnson (1983) 151 CLR 422; [1983] HCA 5

Wentworth v Rogers [1999] NSWCA 403

Texts Cited:

J D Heydon, Cross on Evidence (10th ed, 2015, LexisNexis Butterworths)

Practice Note SC Gen 5

Category:

Costs

Parties:

NHB Enterprises Pty Ltd (First Applicant)
Finn Pharmaceuticals Pty Ltd (Second Applicant)
George Gerges (First Respondent)
Christopher Athanassios (Second Respondent)

Representation:

Counsel:
A T S Dawson SC with T B Senior (Applicants)
R A Dick SC with A R Zahra (Respondents)

Solicitors:
HWL Ebsworth (Applicants)
Sparke Helmore Lawyers (Respondents)

File Number(s):

2019/00054125

Publication restriction:

Nil

Judgment

1. HER HONOUR: Before me for hearing over a succession of hearing dates this year was an application brought by NHB Enterprises Pty Ltd and Finn Pharmaceuticals Pty Ltd, to whom I will refer collectively as the Applicants, by notice of motion filed on 12 August 2019, for an order pursuant to s 99(2)(c) of the Civil Procedure Act 2005 (NSW) (Civil Procedure Act) for indemnity costs against two solicitors (Mr George Gerges, the First Respondent, and Mr Christopher Athanassios, the Second Respondent) (the Respondents) (an order colloquially known as a “wasted costs” order).

2. The Applicants are the plaintiffs in proceedings brought against the first defendant, Mr Alexander Stephen Corry, and others in which allegations of breach of confidentiality obligations and misuse of the Applicants’ confidential information have been made. The Respondents are the solicitors acting for the second to fifth defendants in these proceedings (as I will explain shortly).

3. In the present application, the Applicants seek an order that the Respondents indemnify them in an amount to be determined by the Court for their costs incurred in the proceedings on and from one of three alternative dates: 22 March 2019 (that being the date shortly after the admitted (though inadvertent) breaches by the Respondents on 15 March 2019 of an undertaking given by them to the Court not to provide a particular password (the Password) to the defendants in the proceedings (the Undertaking)); 11 April 2019 (that being the date when the Respondents received an email that put them on notice that Mr Corry had access to a particular online platform referred to as the Dynamics Account and was using his access to monitor the Applicants’ review of documents on that platform (access to the Dynamics Account following execution of a search order made in the substantive proceedings and did not disclose this to the Applicants or the Court); and 23 April 2019 (that being the time from which the Respondents investigated, incompetently it is said, and wrongly dismissed as unfounded, concerns that had been raised by the Applicants as to breach of the Undertaking and as to deletions or attempted deletions on the Dynamics Platform).

4. The Applicants say that the Respondents’ conduct (as identified more particularly in the Points of Claim) amounted, if deliberate, to serious misconduct or, if inadvertent, to serious neglect or serious incompetence; and that, by reason thereof, the Applicants have incurred costs and/or have incurred costs improperly or without reasonable cause in circumstances where the Respondents are responsible therefor, thus enlivening the jurisdiction under s 99 of the Civil Procedure Act to make personal costs orders against the Respondents. Further, the Applicants seek a lump sum costs order, pursuant to s 98(4) of the Civil Procedure Act, in respect of those costs; and an order that the Respondents pay the Applicants’ costs of and incidental to the present application.

5. The Respondents admit breaches of the Undertaking (which I will outline further in due course) but say that they have now made full disclosure of the breaches; that they have apologised to the Court for the breaches; and that this should have been the end of the matter. They decry the conduct of the present application as being inconsistent with the admonition by McColl JA in Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300; [2005] NSWCA 153 (Lemoto) at [92](g) that judges “must be astute to control what threatens to become a new and costly form of satellite litigation” (her Honour there citing Ridehalgh v Horsefield [1994] Ch 205 (Ridehalgh) at 238-239; [1994] 3 All ER 848, per Bingham MR, Rose and Waite LJJ); and criticise the Applicants for the disproportionate cost of the present application (culminating in a hearing over some six hearing days) to recover alleged “wasted costs” of about $100,000 – a matter they say is relevant to the exercise of the Court’s jurisdiction having regard to ss 56-58 of the Civil Procedure Act, even if the discretion under s 99 of the Civil Procedure Act is enlivened.

6. At the outset, I should say that I do not accept that it was inappropriate for the Applicants to bring the present application (although the criticism of the incurring of disproportionate costs in relation thereto is a different matter); and I am firmly of the opinion that, where there are serious concerns as to aspects of the conduct of officers of the Court, it is incumbent on the Court, not least in the public interest of maintenance of the integrity of the rule of law, to ensure that those concerns be properly aired and addressed. In that regard, I am of the view that the present application raises an important issue as to the professional and ethical obligations of officers of this Court if those officers become aware, in the course of the proceedings, that one party to the proceedings (here, the director of the Respondents’ client but who was also a party in his own right) has secretly put in place a system by which that person could monitor the opposite party’s review of documents in the course of that party’s preparation for the conduct of the proceedings.

7. Insofar as there is criticism of the Applicants’ conduct of the proceedings, the Applicants’ response (which is not without force) is that the “elongation” of the hearing was at least in part caused by the Respondents’ “recent construction” argument in respect of orders made earlier in the proceedings, which argument they say was advanced for the first time by the Respondents’ written submissions for this hearing. Both sides made strident criticisms of belated contentions being advanced by the other: the Applicants accusing the Respondents of recent invention as to the Respondents’ understanding of orders made by Kunc J in February and March 2019; the Respondents accusing the Applicants of adopting the belated contention that the relevant orders were premised on there being “only one access point” to the Dynamics Account; and both sides vehemently denying the accusations made against them. It is unedifying to seek here to explore the extent to which those matters lengthened the hearing of the present application, although it will be necessary to address the respective contentions as to the proper construction of the orders; and the Respondents’ understanding thereof at the relevant time(s). Suffice it here to note that I consider that a degree of criticism can fairly be levelled at both sides for the circumstances in which the length of the hearing expanded beyond the dates initially listed for it.

8. Turning to their response to the claim itself, broadly speaking the Respondents’ say that it depends on a particular (they say incorrect) construction of orders that were made by Kunc J on 21 February 2019 and 14 March 2019, respectively (the 21 February 2019 Orders and the 14 March 2019 Orders), which construction they say was one that was raised by the Applicants before, and rejected by, Kunc J on 16 May 2019. The Respondents complain that the Applicants here seek inappropriately to cavil with the “findings” of Kunc J in relation to those orders. I interpose to note that it is not clear to me that his Honour made any “findings” as such on 16 May 2019, although I accept that there was debate on that occasion as to the scope of the earlier orders and his Honour made clear that he did not regard there as being in place any injunction to restrain the continued operation of the second defendant’s business. For their part, the Applicants do not accept the Respondents’ characterisation of the submissions made to Kunc J on 16 May 2019 (and, as adverted to above, they contend that the construction now advanced by the Applicants in respect of the orders is a recent construction and not one that was held by the Respondents at the relevant time(s)).

9. In any event, the position of the Respondents is that the 21 February 2019 Orders and the 14 March 2019 Orders did not preclude the defendants from accessing the “Dynamics Account” through any “login” or email account other than that which is referred to as the First Corry Email Account (see below); and that the respective orders were designed not to stop the defendants accessing the “live” system as such; but, rather, they were designed to “preserve the integrity of the access point that had been used to do the download [of the Dynamics Account]” (see 17/7/20 at T 39.20). In other words, the Respondents say that the references to the Microsoft 365 Dynamics Account in the relevant orders only ever meant the Microsoft 365 Dynamics Account “as able to be accessed and operated by Mr Corry’s specific login, being his email address” (i.e., the Dynamics Account that was accessed via the First Corry Email Account – the alex@nexgenpharma email account) (see 17/7/20 at T 63.48). On that contention, the debate is thus as to whether what the orders were intended (and understood) to preserve was the integrity of a password (through which access to a live platform could be obtained) or the integrity of what was on that live platform at the time of execution of the search orders in question.

10. The Respondents further say that, even if the construction of the 21 February 2019 Orders and the 14 March 2019 Orders for which they here contend is wrong, it was reasonable for them to have acted on the basis that that was the proper construction to be placed on the said orders. That submission, of course, presupposes that this was indeed the construction the Respondents placed on the 21 February 2019 Orders and the 14 March 2019 Orders at the relevant times – a proposition with which, as noted above, the Applicants here cavil. Moreover, it begs the question of what the Respondents understood (or, when considering the question of their alleged serious incompetence, what reasonably competent solicitors in their position would have understood) of the basis on which the Applicants were proceeding in relation to the 21 February 2019 Orders and the 14 March 2019 Orders at the relevant times, by reference to the contemporaneous communications and events. That, too, is a matter in dispute between the parties.

11. As to the Applicants’ claims of misconduct arising from alleged non- disclosure of information (in particular, non-disclosure of the fact that Mr Corry had access to the Dynamics Account and was reviewing, or being notified of, the documents that the Applicants were reviewing in the course of their inspection of the Dynamics Account), the Respondents say that the fact that they were aware from time to time that Mr Corry had accessed the Dynamics Platform or had commented on the Applicants’ access to files is of no moment and does not reflect poorly on the Respondents or their professional conduct. The Respondents say that this complaint involves the novel proposition that solicitors acting for an opposing party in “hard-fought” (indeed at one point they describe this as “bitterly-fought”) litigation (and where there is no suggestion of criminal conduct) have a duty to disclose the conduct of their client, or that of another party in a similar interest, to the other party, including when so doing may be contrary to the client’s (or a related party’s) interests and/or result in the disclosure of confidential and privileged communications. They maintain that there is no authority for such a proposition.

12. As to the claimed consequences of the impugned conduct, the Respondents say that there is no evidence demonstrating that any additional costs were caused by the breaches of the Undertaking or the other alleged misconduct; and that this alone is a sufficient basis to dispose of the present application. They point out that the legal representatives propounding the present application were involved in the drafting and implementation of the orders in question; and they say that the application depends on allegations that the Respondents ought to have disclosed matters to the Applicants’ solicitors that the Applicants’ solicitors either knew, ought to have known, or could readily have ascertained.

13. Finally, by way of introduction, I note that emotions appear to have run high on both sides in this matter. This is perhaps unsurprising given, on the one hand, the breaches of Undertaking and the manner in which the Respondents initially reacted to complaints made by the Applicants in relation thereto; and, on the other hand, the very serious allegations that are here now being made against the Respondents. As to the latter, it should be noted that the Applicants have not simply alleged serious misconduct, serious incompetence, and serious neglect on the part of the Respondents (allegations against officers of the Court that of themselves are serious enough); but they have also, in a number of instances, invited findings that the Respondents have deliberately concealed matters and have consciously lied in their evidence to the Court (allegations that are extremely serious indeed). However, with all due respect to both sides, it is most unfortunate that matters have come to this pass (not helped, I suspect, by the attitude that Mr Corry himself seems to have engendered, having regard to some of the email communications in evidence).

Background

14. The substantive proceeding in which the present application is brought is the second such proceeding to have been brought by the Applicants involving claims of breach by Mr Corry (who is not a party to the present notice of motion) of obligations in relation to the Applicants’ alleged confidential information (in particular, information relating to certain pharmaceutical formulas).

15. The first proceeding (the 2017 Proceeding) was resolved by compromise between the parties without a hearing on the merits (at a time when judgment was reserved on an issue of privilege against self-incrimination in respect of certain items that had been obtained on the execution of search orders). The second proceeding (the current 2019 Proceeding) was commenced last year and arises out of complaints as to what transpired following the settlement of the 2017 Proceeding. In essence, it is alleged that certain of the Applicants’ confidential information that was required to be returned to the Applicants or deleted had in fact been retained by one or more of the defendants and was continuing to be used in the second defendant’s competing business. The claims in the 2019 Proceeding as against the defendants other than Mr Corry have now been settled (as will be explained in due course) with a substantial payment made, without admission, to the Applicants but with no order as to costs. Relevantly, those claims were settled prior to the discovery by the Applicants of some or all of the conduct here impugned.

16. The Respondents are two of the directors and principals of Geomat Consulting Pty Limited, which trades as Miller & Prince Lawyers (Miller & Prince). They were admitted to practice at different times in 2015. As at the time of the commencement of their involvement in the substantive proceedings (in February 2019), they had been practising as solicitors for about 3½ and 4 years, respectively. Reliance is placed by the Respondents in submissions on their relative inexperience at the time of the events in question (inconsistently, the Applicants say, with how they have portrayed themselves in their affidavits and on their firm website). In my opinion, this could only relevantly go to the issue of discretion as to any sanction for the impugned conduct, since the Respondents’ obligations as legal practitioners in this regard do not depend on their level of experience at the time.

17. The Respondents initially commenced acting for the second defendant (Medicina Pty Limited, to which I will refer as Medicina) in the 2019 Proceeding on 19 February 2019. Later, they came also to act for the third to fifth defendants (who are the directors of Medicina other than Mr Corry – namely, Mr Ghaly, Mr Singh and Mr Goradia) in the 2019 Proceeding.

18. Although the Respondents did not, as I understand it, act at any stage for Mr Corry in his personal capacity, it will be seen from the chronology of events set out below that the Respondents were in regular receipt of communications and instructions from Mr Corry during the relevant period, those communications presumably being sent to them by Mr Corry in his capacity as a director of Medicina or as a party with a common interest to the Respondents’ clients’ claims. That has some relevance to the suggestion made in the course of submissions on the present application that it was not appropriate for the Respondents to disclose to the Applicants matters going to Mr Corry’s conduct, he not being their client.

Present application

19. The relevant events occurring in relation to the substantive proceeding are set out in the chronology of events below. As to the present application, on 8 October 2019, the Applicants filed and served Points of Claim, setting out the relevant background to, and basis for, the relief they now seek.

20. In summary, the Applicants allege that they have incurred unnecessary or wasted costs as a result of the Respondents’ conduct in: breaching the Undertaking; failing to conduct a competent investigation into the circumstances in which the Password was provided by them to Mr Corry in breach of the Undertaking and falsely asserting that they were not responsible therefor; failing to disclose their knowledge to the Court or the Applicants that Mr Corry had accessed the Dynamics Account, the existence of the Second Corry Email Account, and as to the use of the Second Corry Email Account by Mr Corry (including for the purpose of monitoring the Applicants’ access and review of the Dynamics Account); and failing to disclose their knowledge to the Court or the Applicants that documents had been deleted from the Dynamics Account, and misleading the Court and the Applicants by failing to disclose that knowledge in correspondence and in preparing, filing and serving the affidavits ordered to be served by Kunc J in May 2019 after the issue of disruption to the Dynamics Account had been raised (the May Affidavits, as to which see below).

21. The allegations of serious misconduct, neglect or incompetence, within the meaning of s 99 of the Civil Procedure Act, as articulated in the Points of Claim, are as follows.

(i)   Breaches of Undertaking (Points of Claim [76]-[78])

22. It is common ground that there were breaches by both Respondents of the Undertaking (see below) by the provision to the defendants of the Password (Mr Corry’s password to what has been referred to as the First Corry Email Account). The breaches occurred in the same way, namely by communications to the defendants, including Mr Corry, in which there was embedded an email chain containing an email which disclosed the Password.

23. Although in their Points of Claim it is alleged by the Applicants that, if deliberate, that conduct amounted to serious misconduct, it is here accepted by the Applicants that the breaches were inadvertent; and the contention now is simply that that conduct amounted to serious neglect or serious incompetence. Furthermore, although the Respondents have raised a pleading issue (i.e., that the Points of Claim plead only the breach of Undertaking by the First Respondent sending an email on 15 March 2019 which contained the Password – see at [27] of the Points of Claim – that being the first breach of the Undertaking), the Applicants contend that the Respondents were on notice of the allegation that there was a further breach by the Second Respondent in the sending of what is referred to below as the Further Breach Email (and they note that the sending of this Further Breach Email has been admitted by the Respondents).

(ii)   Failure to disclose breach of the Undertaking by provision of the Password (Points of Claim [79]-[81])

24. The complaint here made is that, on and from about 24 April 2019, despite having investigated matters raised by the Applicants in their 23 April 2019 letter, the Respondents: falsely confirmed that no one from Miller & Prince had provided the Password to the defendants (defined as the False Assertion) (see [50](b)); repeated the False Assertion on 30 April 2019 (see [60](c)); and did not disclose the falsity of the False Assertion to the Court or to the Applicants during the course of the proceeding.

25. The Applicants contend that, if the Respondents made and repeated the False Assertion knowing it to be false as a result of their investigations, then that conduct amounted to serious misconduct; and, if they did so without knowing it to be false despite their investigations, then that conduct amounted to serious neglect or serious incompetence.

(iii)   Failure to disclose Second Corry Email Account (Points of Claim [82]-[84])

26. The next complaint (chronologically arising at an earlier point in time to the previous complaint) is that, on and from 11 April 2019, the Respondents: knew that the First Respondent had accessed the Dynamics Account; knew of the existence of the Second Corry Email Account; knew of the use of the Second Corry Email Account by Mr Corry including for the purpose of monitoring the Applicants’ access and review of the Dynamics Account; and did not disclose that knowledge to the Court or the Applicants during the course of the proceedings. It is asserted that the Respondents were obliged as officers of the Court to disclose to the Court and the Applicants their knowledge of those matters.

27. The Applicants say that, when the Respondents realised that Mr Corry had access to the Dynamics Account (contrary, they say, to the regime which had been put in place by the Court’s orders on and from 21 February 2019, and then 14 March 2019) and that Mr Corry was using his access to monitor the Applicants’ review of the Dynamics Platform, the Respondents should immediately have disclosed both of these matters to the Applicants. In oral submissions it was accepted that, if the Respondents had the state of mind that there was nothing wrong with Mr Corry accessing the Dynamics Platform (a proposition with which the Applicants nevertheless cavil), then there would be no requirement for the Respondents to disclose that Mr Corry did have that access (see 17/7/20 at T 18.7), though the Applicants say that this would not address the complaint as to the non-disclosure of Mr Corry’s review of the Applicants’ access to the Dynamics Account.

28. Again, the Applicants contend that, if that conduct was deliberate (and they maintain that it is open to conclude that the Respondents did consciously conceal these matters), then it amounted to serious misconduct; and that, if inadvertent, then it amounted to serious neglect or serious incompetence.

(iv)   Failure to disclose the deletion of documents (Points of Claim [85]-[87])

29. The complaint here made is that, on and from about 24 April 2019, the Respondents: knew that documents had been deleted from the Dynamics Account (as a result of the receipt of an email from Mr Corry of that date in which reference is made to “deletion” of records); did not disclose that knowledge to the Court or the Applicants during the course of the proceedings; and misled the Court and the Applicants by failing to disclose that knowledge and by preparing, filing and serving the May Affidavits (see below).

30. Again, it is contended that, if deliberate, that conduct amounted to serious misconduct; and, if inadvertent, that conduct amounted to serious neglect or serious incompetence.

Applicants to be held to their pleaded case

31. I interpose here to note (as adverted to above) that the Respondents insist that the Applicants should be held to their “pleaded” case. Leaving aside the complaint that there was only one breach of the Undertaking that was the subject of an allegation in the Points of Claim, the Respondents say that it is not part of the Applicants’ pleaded case on this application that the Respondents were subject to “some duty to educate” the Applicants about how the “Dynamics Account” (which I will consider in some more detail shortly) operated, how it was used in connection with the Medicina business or the identity of the different users who accessed that system on a regular basis; nor that the Respondents had some duty to assist the Applicants to formulate orders they sought against the defendants.

32. The Applicants do not accept that they are here seeking to expand the case as “pleaded” in the Points of Claim. Nor did I understand the Applicants’ submissions as seeking to formulate some novel duty to educate one’s opponent in litigation (hard-fought or otherwise as the litigation may be). Rather, as I apprehend it, the complaint made as to non-disclosure of various matters (and in particular non-disclosure of Mr Corry’s monitoring of the Applicants’ review of documents on the Dynamics Account) is put on the basis of duties owed by solicitors as part of their professional obligations and more generally their obligation to assist in the administration of justice (as to which I will say more in due course).

Consequences of the impugned conduct

33. The unnecessary or wasted costs said to have been incurred by the Applicants as a result of the impugned conduct are set out at [88]-[90] of the Points of Claim and in an affidavit affirmed on 4 October 2019 by the Applicants’ solicitor, Mr Neil Wallman of HWL Ebsworth (HWLE) (the Wallman Costs Affidavit); and are as follows.

34. First, that the Applicants reviewed the Dynamics Account in the period from 22 March 2019 to 23 April 2019 in circumstances where they say that, had they known: that Mr Corry had created the Second Corry Email Account on 28 February 2019; that the Respondents had breached the Undertaking by providing the Password to Mr Corry; that Mr Corry had set up “Notification Alerts” (see below); and that the Respondents were also receiving those Notification Alerts; they would instead have taken immediate steps to cease that review and to relist the proceedings. (Pausing here, having regard to the history of the interlocutory stoushes in this matter there seems little reason to doubt that, had the Applicants known at an earlier time of the matters that they say the Respondents should have disclosed, then they would indeed have taken action of the kind to which Mr Wallman has deposed.) The Applicants say, in effect, that by reason of the Respondents’ conduct they were either uninformed or misinformed about the true circumstances pertaining at the time.

35. Second, that the Applicants were required to take the steps they did on and from 23 April 2019 (when their access to documents in the Dynamics Account was disrupted and they ceased their review) to 5 June 2019 to investigate and interrogate the cause of that disruption. It is said that they were prevented by the Respondents from properly understanding the true position, and that the Respondents’ conduct deprived them of the opportunity to relist the proceedings on a properly informed basis (referring to Mr Wallman’s evidence on 7/4/20 at T 15.30-32; 16.41-43; 17.4-9).

36. Third, that the Applicants are no longer able to prosecute their case against Mr Corry for use and exploitation of the relevant information without conducting a review of the Dynamics Account afresh (which they maintain cannot be done with any certainty in any event). Complaint is made that the imaged version of the Dynamics Account created by the Independent Computer Expert is unintelligible and cannot now be meaningfully reviewed (see Mr Wallman’s affidavit affirmed 12 August 2019 at [97]; his evidence on 6/4/20 at T 32.45-33.21; and Mr Wallman’s affidavit affirmed 16 May 2019); and that the Applicants can thus now have no certainty that the contents of the Dynamics Platform accurately reflect the contents of the platform as it was at the date of the execution of the Search Order (pointing to uncertainty as to the fact or extent of the deletion of records; whether documents such as sale records record the true position of Medicina in relation to sales and revenue; and the fact and extent of the deletion of any other records).

37. It is submitted that the fact that the costs of the steps taken in investigating the cause of the disruption to the Dynamics Account (as set out in Mr Wallman’s affidavit affirmed 12 August 2019 at [59]-[90], and the Wallman Costs Affidavit at [8](a)) were wasted is borne out by the fact that those steps failed to elucidate what was ultimately uncovered by Mr Wallman’s review of the Dynamics Platform once the settlement of the 2019 Proceeding as between the Applicants and the second to fifth defendants occurred (see Mr Wallman’s affidavit affirmed 12 August 2019 at [11]-[12]).

Points of Defence

38. In response to the Points of Claim, the Respondents filed and served Points of Defence on 21 November 2019.

39. In the Points of Defence, the Respondents admit to having breached the Undertaking (see Points of Defence at [27](n); Mr Gerges’ affidavit sworn 10 January 2020 at [17], and Mr Athanassios’ affidavit sworn 10 January 2020 at [15]). The Respondents contend that: the breach was inadvertent (which the Applicants now accept), the Password having been sent to Mr Corry as part of a lengthy email chain (Points of Defence at [27](j)); and (which the Applicants do not accept) that the breach was of no consequence because by then Mr Corry had already created the “Second Corry Email Account” and obtained access to the Dynamics Account on 28 February 2019 (Points of Defence at [27](m)).

40. The Respondents admit that they received from Mr Corry the emails on 22 and 26 February 2019 enquiring as to when he could access his email account related to the First Corry Email Account and the Dynamics Account (see Points of Defence at [18]-[19]). The Respondents further admit receiving the emails in relation to the Notification Alerts (Points of Defence at [35](a)). As to the existence of the Second Corry Email Account, the Respondents contend that: the Applicants were aware of the existence of the legal_ac@nexgenpharma email account from at least 26 February 2019; that the legal_ac@nexgenpharma account was one of the aliases of the Second Corry Email Account; and that the Second Corry Email Account was a “global administrator” account with broad access to the Dynamics Account (see Points of Defence at [35](c)-(d)). (The Applicants accept that they were aware of the existence of this email account but they point out that it was not linked to the Dynamics Account until 28 February 2019 – see 17/7/20 at T 51.39 – and they say that they did not know that the Second Corry Email Account was one to which global administrator access was attached.)

41. The Respondents’ position is that they undertook a competent investigation in April 2019 as to the complaints made by the Applicants (see Points of Defence at [42](a)). They admit that they did not disclose all the matters of which complaint is here made (but do not accept an obligation to make the disclosures the subject of the present complaint) (see Points of Defence at [67]-]70]). The Respondents admit that the May Affidavits do not refer to the 24 April 2019 email or to the bulk deletion of records (see Points of Defence at [68](a)-(b)). The Respondents do, however, point to the fact that the two affidavits affirmed by Mr Ghaly did refer to the deletion of documents (Points of Defence at [68](c)).

Relevant legal principles

42. Before turning to the chronology of events, it is convenient to set out the relevant principles that apply on an application pursuant to s 99 of the Civil Procedure Act (which were not here in dispute).

43. Section 99 of Civil Procedure Act provides, relevantly, that:

99      Liability of legal practitioner for unnecessary costs

(1)     This section applies if it appears to the court that costs have been incurred—

(a)     by the serious neglect, serious incompetence or serious misconduct of a legal practitioner, or

(b)    improperly, or without reasonable cause, in circumstances for which a legal practitioner is responsible.

(2)     After giving the legal practitioner a reasonable opportunity to be heard, the court may do any one or more of the following—

(a)     it may, by order, disallow the whole or any part of the costs in the proceedings—

…

(ii)     in the case of a solicitor, as between the solicitor and the client,

(b)     it may, by order, direct the legal practitioner—

…

(ii)     in the case of a solicitor, to pay to the client the whole or any part of any costs that the client has been ordered to pay to any other person, whether or not the client has paid those costs,

(c)    it may, by order, direct the legal practitioner to indemnify any party (other than the client) against costs payable by that party.

(3) Before making such an order, the court may refer the matter to a costs assessor (within the meaning of Part 7 of the Legal Profession Uniform Law Application Act 2014) for inquiry and report.

…

44. It should also be remembered that there remains an inherent jurisdiction of the Court to make orders that a legal representative personally pay the opposing party’s costs directly for unnecessary or wasted costs, that power arising out of the Court’s supervisory jurisdiction with respect to legal practitioners admitted by the Court (see Re Felicity; FM v Secretary, Department of Family and Community Services (No 4) [2015] NSWCA 19 (Re Felicity) at [20], per Basten JA, with whom Emmett JA and I agreed). Section 99 of the Civil Procedure Act does not confine that inherent or supervisory jurisdiction.

45. Before making a costs order under s 99 of the Civil Procedure Act, the legal practitioner must be given a reasonable opportunity to be heard (s 99(2) of the Civil Procedure Act extracted above; and see the provisions of Practice Note SC Gen 5 (Costs orders against legal practitioners)). The same principle applies where the application is in the inherent jurisdiction of the Court.

46. The relevant principles governing the exercise of the power to make costs orders against legal practitioners were summarised by McColl JA in Lemoto (see at [92]) and by her Honour again in Kelly v Jowett (2009) 76 NSWLR 405; [2009] NSWCA 278 (Kelly) (see at [60]). They were considered more recently in Re Felicity (at [7]-[24] per Basten JA); Nadarajapillai v Naderasa (No 2) [2015] NSWCA 209 (Nadarajapillai) (at [11] per Emmett JA, McColl and Macfarlan JJA agreeing); and Newell; Muriniti v De Costi (2018) 97 NSWLR 398; [2018] NSWCA 49 (Newell) (at [76], per Beazley P, as Her Excellency then was).

47. Relevantly, those principles include: that the jurisdiction is to be exercised “with care and discretion and only in clear cases” (Lemoto at [92](a); Kelly at [60]; Newell at [76]); that, in considering whether to make a wasted costs order arising out of a lawyer’s conduct of court proceedings, full allowance must be made for the exigencies of acting in that environment and only when, with all allowances made, a legal practitioner’s conduct of court proceedings is quite plainly unjustifiable is it be appropriate to make such an order (Lemoto at [92](d); Ridehalgh at 236); that, as adverted to above, a legal practitioner against whom a claim for a costs order is made must have full and sufficient notice of the complaint and full and sufficient opportunity of answering it (Lemoto at [92](e)); that, where a legal practitioner’s ability to rebut the complaint is hampered by the duty of confidentiality to the client he or she should be given the benefit of the doubt and in such circumstances, and an order should not be made against a practitioner who is precluded by legal professional privilege from advancing his or her full answer to the complaint made against him or her without it being fair in all the circumstances fair to do so (Lemoto at [92](f)); that, in exercising the jurisdiction, consideration is to be taken of the public interest reflected in the legislative provisions, namely, that litigants should not be financially prejudiced by the unjustifiable conduct of litigation by their, or their opponent’s, lawyers (Lemoto at [91]; Kelly at [60]; and Ridehalgh at 226); and that the procedure to be followed in determining applications for wasted costs must be fair and “as simple and summary as fairness permits”.

48. In Nadarajapillai, Emmett JA (with whom McColl and Macfarlan JJA agreed) said (at [11]):

11. Section 99 is described as applying where costs have been incurred “by the serious neglect, serious incompetence or serious misconduct of a legal practitioner”, or “improperly, or without reasonable cause, in circumstances for which a legal practitioner is responsible”. The (undefined) concepts in that subsection may be given meaning in the light of the discussion of the terms “improper”, “unreasonable” and “negligent” in Ridehalgh v Horsefield [1994] Ch 205, as well as the principles collected in Lemoto v Able Technical Ltd [2005] NSWCA 153; 63 NSWLR 300. The power conferred in s 99 must also be understood in the context of the obligations contained in ss 56-60 of the Civil Procedure Act: for example, a solicitor must not, by his or her conduct, cause a party to breach the duty to assist the court to further the “overriding purpose”, and the court may take into account a failure to do so in exercising a discretion with respect to costs.

[Citations omitted]

49. As noted in the above extract, the exercise of the power contained in s 99 of the Civil Procedure Act for the purpose of making an order against a legal practitioner in regard to wasted costs requires that there be regard to the provisions of ss 56-60 of the Civil Procedure Act. In particular, s 56(5) of the Civil Procedure Act requires the Court, in exercising a discretion with respect to costs, to take into account any failure to comply with the duty of a party or legal representative to assist the Court to further the overriding purpose of the just, quick and cheap resolution of the real issues in dispute (see Kelly at [57]-[59]).

50. It has been said that the decision to make an order under s 99(2) of the Civil Procedure Act against a practitioner requires a careful balancing of the public interest in maintaining and nurturing a legal profession which provides vigorous representation for litigants in court, uncompromised by fear of personal sanctions for failure; against the need to maintain and nurture the obligation to provide independent advice to litigants and to give proper weight to the public interest in the efficient administration of justice; and it is this latter element of the public interest which finds express recognition, in mandatory terms, in the overriding purpose provisions (Re Felicity at [14]).

51. The appropriate course in determining an application under s 99 of the Civil Procedure Act has been described as follows: first, to identify where costs have been incurred by a party as a result of any improper, unreasonable or negligent act or omission on the part of any legal or other representative (Re Felicity at [24]; adopting the approach taken in Ridehalgh at 232-233; and Newell at [71]); and, second, once a finding of conduct by a legal practitioner to engage the operation of s 99(1) of the Civil Procedure Act is made, to determine whether such conduct caused costs to be incurred that would not otherwise have been incurred but for that conduct (Newell at [71]).

52. As the Applicants here emphasise, the phrases used in s 99(1)(a) and (b) of the Civil Procedure Act do not constitute discrete and independent concepts; nor are they to be treated as terms of art. Further, the term “serious misconduct’ should not be construed by reference to the term “unsatisfactory professional conduct” (see Re Felicity at [24]). This is relevant in the present context where there was debate as to whether there was a breach of some professional conduct rule (the Applicants emphasising that this is not a prerequisite to a finding that there has been conduct of the kind that enlivens 99 of the Civil Procedure Act).

53. As to what is meant by the adjectives “improper” and “unreasonable” in this context, reference may be made to Ridehalgh, where Bingham MR, as his Lordship then was, considered the equivalent provision in the Supreme Court Act 1981 (UK) and (delivering the judgment of the Court) stated (in a passage cited with approval in Re Felicity (at [24]) and Wentworth v Rogers [1999] NSWCA 403 (Wentworth v Rogers) at [32]-[35]) at 232-233 that:

“Improper” means what it has been understood to mean in this context for at least half a century. The adjective ... covers any significant breach of a substantial duty imposed by a relevant code of professional conduct. But it is not in our judgment limited to that. Conduct which would be regarded as improper according to the consensus of professional (including judicial) opinion can be fairly stigmatised as such whether or not it violates the letter of a professional code.

“Unreasonable” ... aptly describes conduct which is vexatious, designed to harass the other side rather than advance the resolution of the case, and it makes no difference that the conduct is the product of excessive zeal and not improper motive. But conduct cannot be described as unreasonable simply because it leads in the event to an unsuccessful result or because other more cautious legal representatives would have acted differently. The acid test is whether the conduct permits of a reasonable explanation. If so, the course adopted may be regarded as optimistic and as reflecting on a practitioner’s judgment, but it is not unreasonable.

54. In Wentworth v Rogers, the Court of Appeal (at [27]-[30]) also cited with approval the following passages from the judgments of Viscount Maugham and Lord Wright in Myers v Elman [1940] AC 282 (Myers v Elman) as to the meaning of the word “misconduct” in an application for personal costs against a solicitor. At [27], [29], their Honours quoted what was said by Viscount Maugham at 289 and 292, namely that:

In my opinion the jurisdiction as to costs is quite different. Misconduct or default or negligence in the course of the proceedings is in some cases sufficient to justify an order [for costs against the solicitor]. The primary object of the Court is not to punish the solicitor, but to protect the client who has suffered and to indemnify the party who has been injured. Order LXV s.II, of the Rules of the Supreme Court provides the necessary machinery where the person injured is the client of the solicitor. It is a rule supplementary to the summary jurisdiction of the Court. It is not limited to misconduct or default, but expressly extends to costs incurred improperly or without reasonable cause, or which have proved fruitless by reason of undue delay in proceeding under a judgment or order. The jurisdiction to order the solicitor to pay costs to the opposite party is exercised on similar grounds. The principle will be found, clearly stated in Halsbury’s Laws of England, 2nd ed., vol. XXXI p.271, where a number of authorities are cited. It will be found that many of these authorities depend, in cases where the order as to costs has been made, on the negligence or mistake of the solicitor and in that sense only on his misconduct in the proceedings. Some of the cases are those where the solicitor has instituted an action without proper authority, and it may be that they can be supported on the ground that in such cases the solicitor has warranted that he had the authority of his client to act for him in the litigation; but it must be observed that that is not the ground stated by the Court and I think they rest on the jurisdiction of the Court over its officers.

…

But, although in the view I take it is not necessary to show that Mr Elman has been guilty of conduct which would justify the punishment of striking him off the rolls or of suspending him from practice, I entirely agree with the contention that the jurisdiction in question ought to be exercised only when there has been established a serious dereliction of duty as a solicitor either by himself or by his clerks.

55. At [30], their Honours quoted the following from Lord Wright (at 318-9):

The cases of the exercise of this jurisdiction [to order costs against solicitors] to be found in the reports are numerous and show how the Courts were guided by their opinion as to the character of the conduct complained of. The underlying principle is that the Court has a right and a duty to supervise the conduct of its solicitors, and visit with penalties any conduct of a solicitor which is of such a nature as to tend to defeat justice in the very cause in which he is engaged professionally, as was said by Abinger CB in Stephens v Hill (1842) 10 M & W 28. The matter complained of need not be criminal. It need not involve peculation or dishonesty. A mere mistake or error of judgment is not generally sufficient, but a gross neglect or inaccuracy in a matter which it is a solicitor’s duty to ascertain with accuracy may suffice. Thus, a solicitor may be held bound in certain events to satisfy himself that he has a retainer to act, or as to the accuracy of an affidavit which his client swears. It is impossible to enumerate the various contingencies which may call into operation the exercise of this jurisdiction. It need not involve personal obliquity. The term professional misconduct has often been used to describe the ground on which the Court acts. It would perhaps be more accurate to describe it as conduct which involves a failure on the part of a solicitor to fulfil his duty to aid in promoting in his own sphere the cause of justice.

[Emphasis added]

56. I note also what was said in Newell at [76]; Ridehalgh at 229; Re Bendeich (No 2) (1994) 53 FCR 422 at 427 per Drummond J; Deputy Commissioner of Taxation v Levick [1999] FCA 1580 at [11] per Hill J, the Full Federal Court approving the principles stated therein in Levick v Commissioner of Taxation (2000) 102 FCR 155; [2000] FCA 674 at [44] per Wilcox, Burchett and Tamberlin JJ; Gitsham, Edwards & Jensen v Suncorp Metway Insurance Ltd [2002] QCA 416 at [8] per White J, Davies and Williams JJA agreeing; Orchard v South Eastern Electricity Board [1987] QB 565 (Orchard) at 572 per Donaldson MR; [1987] 1 All ER 95.

57. It is accepted by the Applicants that, where findings are sought of such a serious nature that they could expose the legal practitioner to a penalty in the form of disciplinary action, the Briginshaw standard applies (Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 (Briginshaw) at 362, per Dixon J, as his Honour then was; and see s 140 of the Evidence Act 1995 (NSW) (Evidence Act)), though the Applicants cavil with the proposition that this standard applies when considering issues as to causation, as suggested in the Respondents’ submissions (see below).

Microsoft Dynamics 365 Account

58. It is convenient at this stage to describe the so-called “Dynamics Account”, not least because the Respondents say that there is a fundamental misconception underlying the Applicants’ case that derives from the imprecise usage of the term “Dynamics Account”. Indeed, I consider that much of the explanation for the current state of affairs lies in the apparent disconformity between the respective practitioners as to their understanding of precisely how the Dynamics Account operated and how access was able to be gained thereto.

59. Broadly speaking, the Microsoft Dynamics 365 system (or platform) is a “cloud-based” (or web-based) information and document management system in respect of which Medicina has an account (the Dynamics Account). The orders made by Kunc J are in the terms of the “Dynamics Account”, but I do not understand there to be any relevant distinction in terminology between reference to the “Dynamics Account” and the “Dynamics Account”, nor for that matter that there is any distinction between reference to the Dynamic’s “Account” and the Dynamics “platform”. (The terms Dynamics Account and Dynamics Platform are used interchangeably in these reasons.)

60. The Microsoft Business 365 Account, by contrast, is a reference to the system in respect of which individual Microsoft email accounts are operated by staff at Medicina.

61. Medicina uses the Dynamics Account in the conduct of its business to store information including formulas, client orders, sales and financial records, file notes of telephone discussions with clients, and materials relating to marketing, online sales and staff management. Access to the Dynamics Account is via a user’s username, being the user’s office email address. Relevantly, there appear to be different levels of access to the Dynamics Account within the Medicina organisation (the highest level being that of “global administrator”, that being the level of access that Mr Corry had to the Dynamics Account both through the First Corry Email Account and, later, the Second Corry Email Account (see Mr Gerges’ cross-examination on 7/4/20 at T 100.4 and T 102.47), though it is not clear that this was appreciated by all (or any) of the respective legal practitioners at the relevant time(s). The Second Respondent’s evidence, at least initially, was that he was aware that Mr Corry had “full access” through the Second Corry Email Account

62. The First Respondent’s evidence was that he knew that Mr Corry’s First Corry Email Account had “full access” to the Dynamics Platform as a global administrator account, describing it as “the be all and end all” (on 7/4/20 at T 100.5). As to the (later established) Second Corry Email Account, the First Respondent maintained that his understanding was that there was no impediment to the creation of the Second Corry Email Account with “full access” (on 7/4/20 at T 66.36-49). The First Respondent’s evidence is that he knew of the existence of the Second Corry Email Account (on 7/4/20 at T 102.4-6); but did not know and did not enquire as to the level of access that Mr Corry had through the Second Corry Email Account (on 7/4/20 at T 102.8-12), or the level of access Mr Ghaly had through his account (on 7/4/20 at T 101.40-102.2). The First Respondent’s evidence was that Mr Ghaly’s access was also that of global administrator (on 7/4/20 at T 100.23).

63. Relevantly, the Applicants point out that the First Respondent conceded in cross-examination that he could have used any of the First Corry Email Account, the Second Corry Email Account or the Ghaly account to conduct the privilege review, as each had the same global administrator access to the Dynamics Platform (on 7/4/20 at T 103.1-10).

64. At the time of the search, the login name for Mr Corry to have access both to the Dynamics Account and to his personal Microsoft Business 365 Account was the First Corry Email Address. It is relevant to note that the Dynamics Account to which Mr Corry was able to gain access through that login name was not a personal account as such; but, rather, an account or platform to which a number of other users had access (albeit with different levels of access). With hindsight, it is apparent that this was not necessarily understood at the time of the search (or for some time after) by some or all of the persons involved.

65. The evidence given by various of the key players as to their understanding of the Dynamics Account was as follows.

66. Mr Wallman has deposed that, generally speaking, the Dynamics Account includes the following types of documents: records of formulas of medications, and sales records and financial records (see Mr Wallman’s affidavit affirmed 7 May 2019). His understanding is that access to the Dynamics Account is via user accounts (so, for example, Mr Corry’s two email accounts both had access), and he has deposed to a list of users which shows who has access (i.e., other employees). Mr Wallman has deposed that what can be changed on the system depends on user status; as noted above, the Corry accounts had global administrator status (as, it now seems, also did Mr Ghaly’s account). It also appears that a notification function can be set up to provide notifications of what documents have been accessed and/or modified in the Dynamics Account, such as the notifications sent to the Second Corry Email Account of access to the Dynamics Account by a user gaining access through the First Corry Email Account (to which I refer in more detail in due course) (see Mr Wallman’s affidavit affirmed12 August 2019 at [55]).

67. The First Respondent has deposed that his understanding of the Dynamics Account was that it was an online based software which allowed users to access emails, business records, pricing, customer orders, formulas, and other document management options from a central location ([13] of his affidavit sworn 10 January 2020).

68. The Second Respondent has deposed to his understanding being that the reference in the Undertaking to the Microsoft 365 Dynamics Account was a reference “to both of the online accounts referred to on page 5 of the independent expert’s report” (at [13] of his affidavit sworn 10 January 2020) (see below as to the Independent Computer Expert’s report dated 21 February 2019). The Second Respondent has deposed that his understanding was that these accounts allowed access to electronic documents stored on a cloud-based platform through use of the “alex@nexgenpharma” username (i.e., the First Corry Email Account and a password) (see at [13] of his affidavit sworn 10 January 2020).

69. In evidence was an affidavit sworn by Mr Corry on 26 March 2019 (for other purposes connected with this proceeding) in which Mr Corry has deposed that the Dynamics Account is a “customised customer relationship management and business process management system”. He there deposed that “[t]he way we have built the system is unique because it allows us to run our entire business with one system in one location that is accessible anywhere where there is an internet connection” (see at [7] of his affidavit sworn 26 March 2019, p 166 of Ex 1).

70. Some of the Dynamics Account’s features that Mr Corry describes (at [8]-[16] of his affidavit sworn 26 March 2019) are as follows. First, that the system has a sales order process that is web based and integrated to the entire Dynamics system (i.e., if a customer places an order on the NexGen Pharma website, the order is immediately available for the company to see the order has been places and commence manufacturing, resulting in the company needing manually to input less data. Second, that the system has a “unique quality management system” that supplements the normal quality management processes of a compounding pharmacy. It automates the data entry, capture and analysis processes and allows electronic comparison of test results. Mr Corry describes quality management as being the process of a new product being tested, the test results being recorded and then comparing the results across multiple tests before the product is able to be sold.

71. Another of the defendants, Mr Singh, has deposed (in an affidavit that was required to be filed when the dispute over access to the Dynamics Account erupted in May 2019) to his understanding that “Microsoft Dynamics 365 is a web-based platform used as a customer relationship management tool that integrates with other software, such as Xero, and also integrates with Microsoft applications including (but not limited to) Microsoft Excel, and Microsoft Outlook”, and that Medicina “has an account with Microsoft Dynamics 365” (see his affidavit affirmed 24 May 2019; Ex 1).

72. The confusion that seems to have permeated much of the debate about the respective accounts arises in my opinion from the fact that, unfortunately, it is not always clear whether reference is being made to the Microsoft 365 Business Account (or Office Account) comprised of the facility through which individual users at Medicina have their own individual email accounts; or to the Microsoft 365 Dynamics Account, by which I mean the account described above (which was a “live” platform, to which a number of users had access through their respective individual login names and with their individual passwords).

73. The Respondents in submissions drew an analogy with the way in which Microsoft “Outlook” operates (a matter of which I was implicitly invited to take judicial note). A similar analogy drawn from personal experience might be by reference to a shared drive on a computer system to which a number of users are permitted access in order to edit documents (say, for example, written submissions or court judgments), access to which would ordinarily be through a user’s personal user ID and password, but where the documents on that shared drive would be the same whoever had access thereto; and amendments or deletions made by one user (assuming all users had equal access rights) would mean that the document when next accessed by another user would be the changed document (whereas one would assume that each user’s office email account would differ in content and other email account users would ordinarily (or not necessarily) have access thereto).

74. As I understand it (and I sought to confirm this understanding more than once in the course of submissions), provision of one user’s password enabling access to the Dynamics Account would not preserve the integrity of the documents on that account as at any particular point in time if there were other users whose access to the Dynamics Account through their own passwords enabled them separately to alter or delete documents on the Dynamics Platform; and therein lies the problem. There is an obvious tension between the Medicina business being able to continue to operate the Dynamics Platform (at least insofar as that involved altering documents, such as formulas or customer orders, on the system), and the preservation of the documents on the system frozen as at a particular point in time (at least until the downloading of the Dynamics Account was complete, assuming, which was not in fact the case, that the imaged version proved to be intelligible).

58. The tension between those two propositions is evident in the heated debate between the parties on the present application as to the significance (or otherwise) of the fact that the Applicants did not seek an injunction to restrain the continued use of the Dynamics Account or platform. The Applicants maintain (as must be the case from a practical perspective if the underlying premise is correct) that an injunction was not necessary because the provision of “all passwords” to the Microsoft 365 Dynamics Account meant that the defendants were effectively “locked out” of the system until such time as the passwords were returned to them. However, that is the case only if one operates on the assumption that “all” passwords were in fact provided, and there was only ever one access point (or password or “key”, however that may be described) to the Dynamics Account (or at least only one password with user rights that permitted alteration or deletion of material on the Dynamics Account). The Respondents’ position on the present application is that they were aware at all times that that was not the case.

Chronology of events

76. I turn now to the chronology of events, indicating throughout (in order to put the dispute in context) the differing construction put on various of the events by the respective parties.

2017 Proceeding

77. As noted above, the background to the present application may be traced back to 2017 when proceedings were commenced in this Court by the Applicants against a number of defendants; including, relevantly, Mr Corry, Medicina, and Mr Ghaly. The Second Respondent acted for Mr Ghaly in the 2017 Proceeding.

78. In the 2017 Proceeding, the Applicants alleged misuse of their confidential documents and information. The Applicants obtained and executed a search order (the independent solicitor and independent computer expert appointed on that occasion being the same as those who were later again appointed as independent solicitor and independent computer expert in the subsequent 2019 Proceeding).

79. The Respondents say that the electronic documents seized and reviewed on that occasion must have included the Dynamics Account, and that it may be inferred that the Applicants and the Independent Computer Expert had some familiarity with Medicina’s Dynamics Account and the way in which it was accessed and operated prior to the 2019 Proceeding. Pausing here, I do not know that such an inference can properly be drawn, at least insofar as it relates to the Applicants’ knowledge; not least because the 2017 Proceeding was settled at a time when, as I recall, issues of privilege had been raised and were the subject of a hearing on which judgment had been reserved. It is not clear to me what documents, if any, had been accessed by the Applicants by the time of settlement of the 2017 Proceeding; nor the extent of any examination by the Independent Computer Expert of the seized documents or computer systems at the time; and it is not appropriate to speculate thereon.

80. The 2017 Proceeding was settled in February 2018 and orders were made by consent on 16 April 2018 which, inter alia, required the defendants to those proceedings to deliver up certain software and documents, and for the defendants to be restrained from certain conduct.

Commencement of 2019 Proceeding and the Search Order

81. On 18 February 2019, the 2019 Proceeding was commenced, on an ex parte basis, by the Applicants against Mr Corry and Medicina. On that day, Kunc J made search orders, addressed to both Mr Corry and Medicina, permitting a search to be carried out at Mr Corry’s home and at the offices of Medicina (Search Order).

82. Paragraph 8 of the Search Order required members of the search party to be permitted (subject to paragraphs 10-20 of the Search Order) to enter the premises so that they could carry out the search and other activities referred to in the Search Order.

83. Paragraph 9 of the Search Order obliged Mr Corry and Medicina, having permitted members of the search party to enter the premises, to do certain things, including: to permit the members of the search party to search for, to inspect, and to make copies of, the listed things (sub-para (b)) which were defined in Schedule A of the Search Order. The listed things, as defined, included (at item 8): “Medicina Pty Ltd’s Microsoft Dynamics 365 software”.

84. Paragraph 9(e) of the Search Order obliged Mr Corry and Medicina to do all things necessary to enable the members of the search party to access the listed things, including “providing them with all necessary passwords and providing them with access to all email accounts”.

Execution of Search Order on 19 February 2019

85. The Search Order was executed on 19 February 2019 (see Mr Wallman’s affidavit affirmed 12 August 2019 at [14]-[15]) by a search party that included an independent solicitor (Mr Jeremy Mackenzie of Mills Oakley) (the Independent Solicitor) and an independent computer expert (Ms Leanne Balit of Klein & Co) (the Independent Computer Expert).

86. The Independent Computer Expert subsequently reported (see her report dated 21 February 2019) that, during the execution of the Search Order (at which time various laptops, phones and other computer devices were seized) Mr Corry “provided passwords for the following online accounts” (which were described by the Independent Computer Expert as a “Microsoft Office 365 business account” and a “Microsoft Office Dynamics Account”). The Independent Computer Expert noted that for each of those accounts, Mr Corry provided the same login name (to which I will refer as the “alex@nexgenpharma” login or the First Corry Email Account) (see Mr Wallman’s affidavit affirmed 12 August 2019 at [21]-[23]).

87. The Applicants say that the purpose of Mr Corry being required to provide his username and password to the Independent Computer Expert was to enable the Independent Computer Expert to change the password to ensure that the “accounts” (i.e., as I understand it, both the Dynamics Account and the office email account or Business Account) were not tampered with, while those accounts were downloaded offsite.

88. The Independent Computer Expert advised Mr Corry “that we will take control of the above accounts onsite and then download the contents of these online accounts from our offices”, to which it is said Mr Corry agreed; and it is noted that Mr Corry advised that “the data collected from these online accounts was also to be marked as privileged and segregated from the other forensic copies”.

89. Complaint has been made by the Applicants about a number of things that occurred during the execution of the Search Order (and indeed there have been separate contempt proceedings in this Court against both Mr Corry and his wife in relation thereto). Suffice it here to note that the matters of which complaint has been made include: that Mrs Corry had informed her husband in advance of the Search Order; that without disclosing his presence Mr Corry had been on a telephone line during a conversation between the Independent Solicitor and the Second Respondent; and that Mr Ghaly had removed documents from the business premises of Medicina and transported them to a mechanics workshop nearby (see the Independent Solicitor’s report at [30]-[33]; [59]-[67]).

90. I do not here consider the merits of those complaints, nor am I in a position to make any findings in relation thereto (and I note that the contempt proceedings have been heard and judgment is reserved). However, I note the allegations that have been made because they place in context the suspicions obviously harboured by the Applicants in relation to the matters that led to the present application; and because the Applicants say that the Respondents’ knowledge of those earlier events made it incumbent on them to act with care when communicating about passwords and the like.

91. The Independent Computer Expert’s report dated 21 February 2019 included a list “of evidence items located on each of the hard disk drives”, and set out “Evidence ID numbers” which it was said were “unique identifiers” applied in accordance with her firm’s evidence management procedures. Relevantly, that Evidence ID list included a number of items described as “Microsoft Office 365 Emails” each with a different user name and a different access ID (one of which was Mr Corry’s alex@nexgenpharma login). The last item on the list (to which, tellingly in my opinion, no access ID was appended) was “Microsoft Office Dynamics”.

92. The Independent Solicitor (as required by the Search Order) prepared a report dated 21 February 2019, following the execution of the Search Order, in which he noted (at [91]) that during the search Mr Corry (and Mr Ghaly) had at all times been compliant with any of his or the Independent Computer Expert’s requests. At [84], when dealing with how the computers and “cloud accounts” were to be searched, the Independent Solicitor noted (in a paragraph which was emphasised in the course of submissions on the present application) that:

84.   Any Microsoft 365 accounts (being email and Dynamics Accounts) would be downloaded offsite. Mr Corry provided his username and password to allow Ms Balit to change the password to ensure that these accounts were not tampered with until all downloads were completed by Klein & Co.

[Emphasis added]

93. Pausing here, what seems to me to be abundantly clear (albeit, I accept, with the benefit of hindsight) is that provision of Mr Corry’s username and password could not have ensured that the Dynamics Account was not “tampered with” if (as the Respondents say they always understood) there were other users who had access to the Dynamics Account and could alter or delete documents on the system. However, the Respondents say, in effect, that what was to be preserved under this regime was not the Dynamics Account (as such), but simply Mr Corry’s password (that enabled access by the Independent Computer Expert to both the email account and the Dynamics Account, so that those accounts could be downloaded without tampering). (I consider below the issues raised as to the proper construction of the relevant orders.)

94. Annexure “H” to the Independent Solicitor’s report was a copy of a handwritten list of the documents and items taken from Medicina’s premises. The list was signed by each of Mr Wallman, the Independent Solicitor, and Mr Corry. Item 4 in that list was:

Control of Alex Corry email acct (Microsoft Office 365)

against which item appear the words:

– eg all Nexgen [Medicina] staff emails

– + Dynamics

95. A line pointing towards the words appearing against item 4 has the annotation “privilege claim”, which is consistent with the Independent Computer Expert’s report that indicates that Mr Corry had raised a claim of privilege. The potential claim for privilege explains the need for the defendants’ solicitors first to review the seized documents over which it was considered that a privilege claim might be made, before the Applicants’ solicitors reviewed those documents. Also the note against item 4 indicates, in my opinion, an understanding that Mr Corry’s email account (accessed via the [email protected] login) gave access both to all the emails of Medicina staff (not just his own), as well as the Dynamics Account. The Respondents accept this. However, the Respondents place weight on the description “control of Alex Corry email acct” (as opposed to, say, “control of Medicina’s Dynamics Account”).

96. The Applicants say that, far from supporting the Respondent’s recent construction argument, the description at item 4 of Annexure H to the Independent Solicitor’s report, and the note to which the Respondents refer, are consistent with the explanation provided in the Independent Solicitor’s report at [84] and the report of the Independent Computer Expert about using Mr Corry’s login to take control of the Dynamics Platform.

97. I consider (from the notes to item 4 as extracted above) that it must have been understood at the time, at least by those practitioners who signed the document, that “control” of Mr Corry’s Microsoft Office 365 email account (the First Corry Email Account) would permit access not only to all the staff members’ individual email accounts but also to the Dynamics Account (and it is clear from the Independent Computer Expert’s Report that the access provided to that Microsoft Office 365 email account was via the [email protected] login).

98. In her report, the Independent Computer Expert recorded, inter alia, that Mr Corry had objected to the Independent Computer Expert seizing all of the computers, including the file server and the computer used to operate Medicina’s telephone system, on the grounds that he needed those for the continued operation of the business. The Independent Computer Expert recorded Mr Wallman’s instructions that: he did not require any of the computers from Medicina’s premises; he required the Independent Computer Expert to search the file server for relevant documents; and he required the Independent Computer Expert to obtain control of the “business Microsoft 365 account (emails) and the Microsoft Dynamics Account”.

99. As noted above, the Independent Computer Expert’s Report records that on the following day when Mr Corry requested access, the Independent Computer Expert advised Mr Corry that her instructions were that he would not have access until she had downloaded the contents of those online accounts from Klein & Co’s offices (see below). From this it would seem that, whatever access it might have been thought that other users would have in their personal office email accounts, Mr Wallman at least seems to have assumed that denying Mr Corry use of his password would mean “control” was obtained of the Dynamics Account; and those were the instructions given to the Independent Computer Expert.

100. The Independent Computer Expert’s report also attached as Appendix “D” the same list that the Independent Solicitor had included as Annexure “H” to his report.

101. Pausing here, the Respondents say that there is no suggestion that any member of the search party was prevented from searching materials on the execution of the Search Order, or from requesting relevant assistance from Mr Corry or others; and that the reports of the Independent Solicitor and the Independent Computer Expert establish that they were not impeded in any such way. (That submission does not, of course, take into account the alleged removal of devices from Medicina’s business premises in advance of the search, but that is another issue and not of relevance to the current proceeding; other than that it again no doubt serves to fuel the suspicion by the Applicants of Mr Corry’s conduct.)

102. The Respondents say that it is unsurprising (given that there were only two defendants at that time – Mr Corry and Medicina) that the focus of the enquiry was on Mr Corry’s login to the Microsoft Office 365 Business Account (and the Dynamics Account). (The Applicants complain that there is no evidence that this was the “focus”, and that it is no more than surmise on the Respondents’ part.) The Respondents say that Mr Corry was asked to provide that login and password details; that that is what he provided; and that there is no evidence of any request for any other logins or passwords. (The Applicants say, in effect, that the fact that no further password was requested is not to the point; since the orders referred to “all passwords”.)

103. It is also noted by the Respondents that the login and password to the First Corry Email Account (i.e., the alex@nexgenpharma login) provided by Mr Corry enabled the Independent Computer Expert to begin “interrogating” and downloading the Dynamics Account, which revealed many additional users and login details.

104. The Respondents point to Mr Ghaly’s affidavit of 27 May 2019 in which he refers to having access to the Dynamics Account via his own separate login “Rimon@nexgenpharma”, and that he used that login to access the Dynamics Account on a daily basis to perform his work for Medicina. They point out that Mr Wallman’s own evidence establishes that he was later able to “interrogate” the Dynamics Account to ascertain that other users had access to the Dynamics Account with a different login and password to Mr Corry, namely that there were thirty-eight “active users”; (and he obtained the details as to the name, contact telephone number and levels of access of each of those users). Mr Wallman’s evidence about the list of email accounts on pages 8-10 of the Independent Computer Expert’s Report is that his understanding was that it was no more than a list of email accounts that had been imaged or captured. The Applicants say that the matters Mr Wallman was able to identify on his review did not disclose to him that there were multiple passwords to the Dynamics Platform.

105. The Respondents say that it may be concluded that such information as Mr Wallman was later able to identify about the Dynamics Account must have been available to (and was probably known by) the Independent Computer Expert as early as 20 February 2019. It is submitted that the failure of the Applicants to call any evidence from the Independent Computer Expert to the contrary strengthens that “inherently probable” conclusion. (Pausing here, I do not accept the proposition put for the Respondents that the Independent Computer Expert was plainly a witness in the Applicants’ camp. That is contrary to the very notion of an independent expert appointed by the Court to conduct such searches and report thereon.) The Applicants say that the Independent Computer Expert was proceeding on the same basis as everyone else, namely that there was one password to the Dynamics Platform.

106. The Respondents argue that no issue was raised by the Independent Computer Expert, Mr Wallman, or the Applicants about other users or logins at the time (because they say, as adverted to above, that the Applicants’ focus and interest was in investigating what Mr Corry had done and in securing his personal password until a download of the Dynamics Account had been completed); and that using Mr Corry’s personal login was “plainly the safest way to ensure access to all of his files”. They argue that the evidence adduced by the Applicants on the present application demonstrates that personal folders and files relating to Mr Corry were accessed by the Applicants using his login, reference in particular being made to Ex B, p 152, which records access to a file described as:

my.sharepoint.com/personal/alex_nexgenpharma_com_au/Documents/Alex@Medicina Pty/QuickNotes.one

107. Reference is also made to other pages of Ex B which record access by the Applicants to Mr Corry’s personal folders or files (which the Respondents say highlights the Applicants’ interest in such material) (namely, Ex B pp 153-158, 160-161, 163, 165, 168, 178, 183, 187, 192, 198, 200-203, 207, 210, 217 and 221).

108. The Respondents say that there is no evidence to demonstrate that such personal files of Mr Corry could have been accessed using another user’s login and password; and that the Applicants made no effort to address that. The Applicants say that this is wrong. They note that Mr Corry’s access through both the First Corry Email Account and the Second Corry Email Account was that of global administrator and that, as Mr Gerges said in cross-examination, this was the highest level of access to the Dynamics Platform (on 7/4/20 at T 100.4 and T 102.47). As noted above, the evidence is that Mr Ghaly’s access was also that of global administrator (on 7/4/20 at T 100.23).

109. The Respondents say (and appear to invite judicial notice to be taken of this) that common experience would suggest that another personal login would not be able to access the personal files and information of a different user with a different login, particularly in the case of a senior executive and director such as Mr Corry (though, pausing here, I query how this submission squares with the evidence to the effect that Mr Corry was not the only person with global administrator access – Mr Ghaly also apparently having global administrator access as noted above).

522. To the extent that the Respondents rely on those responses as evidence that they complied with the 16 May Orders or otherwise fully disclosed the extent of the defendants’ knowledge of deletions from the Dynamics Account, the Applicants say that the information provided in those two affidavits plainly sought to minimise or otherwise play down the significance of the relevant deletions, and entirely omitted any reference to the bulk deletion of records.

523. It is noted that the First Respondent prepared, filed and served the May Affidavits and witnessed the affidavit of Mr Ghaly. It is said that the First Respondent did so in the knowledge that they contained false statements or misleading omissions as to the deletion of records in the Dynamics Account (Points of Claim at [69]); that such conduct misled the Applicants, the solicitors for the Applicants and the Court; and amounted to serious misconduct (Points of Claim at [70]).

524. The Applicants accept that at the time of the mediation and settlement of the 2019 Proceeding as between themselves and the second to fifth defendants on 4 June 2019, the Applicants already knew of the existence of the Second Corry Email Account, and that it was an active account on the Dynamics Account (see Points of Defence at [73](b)). However, they say that they were not aware of the use or significance of that email account, and they say that they were unable to appreciate this until their access to the Dynamics Account commenced following the mediation (see Points of Claim at [73], Points of Defence at [73], and see Mr Wallman’s affidavit of 16 August 2019 at [11]-[13], and his affidavit of 7 May 2019 at [46]-[49]).

525. In response to the Respondents’ submissions dealing with Mr Corry’s email of 24 April 2019 referring to the deletion of records (at [181]-[193]), the Applicants say that the reference to what the information meant or whether that information had been restored was beside the point because, on the Applicants’ case, the very fact that the email referred to the deletion of data on the Dynamics Platform meant that it or its contents should have been disclosed. The Applicants say that the Respondents did not need to make an assessment or conclude that any “nefarious” deletion of documents had occurred (cf their submissions at [183]-[184]). The Applicants say that this was a matter which the Applicants should have been entitled to investigate having been provided with the information in the Notification Alert (which they say did not require disclosure of the communication between Mr Corry and the Respondents if privileged (cf the Respondents’ submissions at [189]).

526. Insofar as (at [187]) the Respondents criticise the Applicants’ submission that their acceptance and reliance on what had been said by Mr Corry in the 24 April 2019 was untenable in circumstances where they were both aware that he had tried to frustrate the search order; the Applicants say that the circumstances in which Mr Wallman drew comfort that Mr Corry was locked out of the Dynamics Platform (because of his complaints and demands for access) are entirely different to the circumstances in which Mr Corry provided the information in his email of 24 April 2019 to the Respondents.

527. The Applicants in reply submissions say that [33]-[35] of the Second Respondent’s affidavit sworn on 13 March 2019 are consistent with the Applicants’ case that the parties were working on the basis that there was one Password to the Dynamics Platform; and inconsistent with the recent construction argument (but that if the Second Respondent did hold a view consistent with that construction argument at the time he swore the affidavit, the contents were seriously misleading).

528. Similarly, it is said that if the Second Respondent was genuinely referring only to Mr Corry’s login and password in [33]-[35] of his 13 March 2019 affidavit (as the Respondents contend at [90] of their submission), those paragraphs were equally as misleading. The Applicants say that those were matters that should have been immediately raised with the Court (referring to r 19.2 of the Solicitors’ Conduct Rules which imposes an obligation on a solicitor “to take all necessary steps to correct any misleading statement made by the solicitor to a court as soon as possible after the solicitor becomes aware that the statement was misleading”). Further, it is noted that nowhere in the affidavits of the Respondents sworn in respect of the present application do they suggest that they were referring to Mr Corry’s login in the 13 March 2019 affidavit; or that it was through that login that they intended to conduct the privilege review at the time.

Respondents’ submissions

532. As to the reference in Mr Corry’s email sent on 24 April 2019 at 7:59am to data deletion, the Respondents submit that, viewed in its entirety and in context, the email did not suggest that there had been any “nefarious” deletion of documents by Mr Corry or anyone else; noting that Mr Corry had emphasised that “we need more information”; that Mr Corry also advised in the email that the Applicants were continuing to access the Dynamics Account via the First Corry Email Account; and that there had been major updates to the Dynamics Account by Microsoft over the Easter break.

533. The Respondents emphasise that the Second Respondent sought instructions directly from Mr Ghaly (and to his best recollection, also from Mr Singh and Mr Goradia), and received confirmation that they did not have access to the Dynamics Account and they had not caused any interruption to the Dynamics Platform; and that Mr Corry’s own solicitor also wrote setting out his own denials in respect of the allegations.

534. The Respondents suggest that, insofar as Mr Wallman said that he was comforted that he had sufficiently locked Mr Corry out of the Dynamics Account because of Mr Corry’s communications complaining and demanding access, this amounted to acceptance by Mr Wallman of what Mr Corry had said at that time (and it is inconsistent therefore for the Applicants to argue that it was untenable for the Respondents to accept what Mr Corry said in his 24 April 2019 email). Further, it is said that, if Mr Corry was not to be believed, then that was a further reason not to convey what he had asserted in his email and not to include reference to it in the May Affidavits (cf the Applicants’ submissions at [163]).

535. The Respondents say that it was not for them to seek to interrogate Mr Corry (who was separately represented), nor for them to disbelieve what he or his solicitors asserted; and that it was reasonable, in all of the circumstances, for them to conduct themselves on the basis that what they had been told was accurate.

536. It is submitted that a further reason why the Respondents could not disclose the matters addressed in Mr Corry’s 24 April 2019 email is that the email, sent to both Respondents and copied to the other directors of Medicina, was a confidential and privileged communication. They say that it would have been entirely inappropriate for the Respondents to disclose it (or its contents) to the Applicants or their solicitors.

537. In all of those circumstances, it is submitted that the 24 April 2019 letter from Miller & Prince (settled by Counsel) was reasonable and appropriate; and that the sending of that letter did not amount to serious incompetence or serious misconduct.

538. The Respondents say that, once again, they took steps to seek instructions and to satisfy themselves that there had not been any inappropriate conduct before responding to the 29 April allegations. They accept that the detail of those privileged discussions has not been disclosed in the evidence. They say that this is appropriate and that the Respondents must be given the benefit of any doubt (citing Orchard at 572, per Donaldson MR; Ridehalgh at 229, per Bingham MR on behalf of the Court; Lemoto at [92](f), per McColl JA; Newell at [76], per Beazley P, as Her Excellency then was). Again, they note that the letter of 30 April 2019 was settled by Counsel.

539. In those circumstances, the Respondents say that the submission that the conduct of the Respondents, following receipt of the letter of 29 April 2019 from HWLE, was seriously incompetent or the product of serious neglect is without substance and should be rejected.

540. As to the allegation that the affidavits prepared in May 2019 by Mr Ghaly, Mr Singh and Mr Goradia contained false statements or misleading omissions as to the deletion of records in the Dynamics Account, and that the Respondents’ conduct in preparing those affidavits amounted to serious misconduct, the Respondents say that those affidavits were prepared on instructions and were based on the personal knowledge of the deponents. It is noted that the deponents to the affidavits have not been joined to this application and there is no allegation made that they perjured themselves in making their affidavits. The Respondents say that, for that reason alone, the assertion that the affidavits contained false statements should be rejected; but that, in any event, there is no basis for a finding that the Respondents assisted the deponents to make false or misleading statements in the affidavits.

541. The Respondents say that the May Affidavits plainly could not include references to the Notification Alert emails or Mr Corry’s 24 April 2019 email as those were confidential and privileged communications. As to Mr Corry’s own affidavit, they say that any criticism of that cannot be directed to the Respondents. It is submitted that there is no basis for any finding that the Respondents engaged in serious misconduct, neglect, or incompetence in connection Mr Corry’s email about deletions, the preparation of the May Affidavits, or otherwise.

Finding as to (iv)

542. The difficulty, as I see it, with the response to the 29 April Letter in relation to deletion of documents is that it does not make clear that there had been the deletions referred to in Mr Corry’s email. Instructions as to those deletions should have been conveyed to the Applicants. Those matters could have been conveyed without forwarding the email and without divulging privileged information, or instructions should have been obtained as to how that could be conveyed. Similarly, I am troubled by the fact that the references to deletions in the May Affidavits do not make reference to the deletions that Mr Corry had referred to in his email.

543. However, I am not persuaded that it was intentionally misleading (and hence is not serious misconduct); and I do not accept that this amounts to serious incompetence or neglect of the Respondents’ responsibilities as officers of the Court.

Consequences of the Respondents’ conduct

544. Accordingly, for the above reasons, I have found serious incompetence in relation only to the non-disclosure of the Notification Alerts and, more precisely, the fact that Mr Corry was secretly reviewing the Applicants’ solicitors’ review of the Dynamics Account. I have found this serious incompetence occurred from 24 April 2019. I am not persuaded to the requisite standard of proof that the Respondents realised, in the earlier period from 11 to 24 April 2019, the use that might forensically be able to be made of the Notification Alerts. Therefore, what falls to be considered are the costs incurred from 24 April 2019 (and I do not address the submissions that go to the costs incurred in the earlier periods).

Applicants’ submissions

545. The Applicants’ review of the Dynamics Account prior to 24 April 2019 was not caused by the failure of the Respondents to disclose the matters of which the Respondents then became aware in relation to Mr Corry’s access to, and use of, the Dynamics Account. Relevantly, the costs here sought from 24 April 2019 go to the proposition that they incurred the costs of interrogating and investigating their concerns about interruptions to their access to the Dynamics Account; and that the costs associated with that review and investigation have been wasted. They maintain that they were required to investigate the circumstances in which their access to the Dynamics Account was disrupted, which caused them to incur further wasted costs, including in obtaining orders for the defendants to file on affidavit evidence about their knowledge of those circumstances.

546. The Applicants further maintain that the costs of that review to date are now wasted, as the review would have to be conducted afresh (see Mr Wallman’s affidavit of 12 August 2019 at [96]), assuming that were to be possible (about which there appears to be considerable doubt having regard to the difficulty in accessing a legible version of the image downloaded by the Independent Computer Expert after execution of the search orders – see Mr Wallman’s evidence at T 33.1; T 33.11-21, T 36.4, T 36.26-29).

547. The Applicants’ submission is that, by reason of their ignorance of the Notification Alert emails, they were deprived of the opportunity to cease their review of the Dynamics Platform earlier; and thus incurred the costs of that review.

Respondent’s submissions

548. The Respondents put forward a raft of responses in relation to the issue as to whether the costs the subject of the Applicants’ claim were incurred “improperly or without reasonable cause in circumstances where the Respondents are responsible”; or that the Respondents’ conduct caused the Applicants to incur wasted costs. These include the following: that Mr Corry was the key person responsible for any “relevant mischief” (and nothing the Respondents are alleged to have done or failed to do could have independently caused the Applicants to waste any costs); that the level of culpability of Mr Corry’s own solicitors (who were involved and acting for Mr Corry at all relevant times) must be equivalent or higher than that of the Respondents; and that, a significant cause of any wasted costs must be the Applicants’ own conduct, or that of their legal representatives (by reference to a variety of matters included criticism as to the flawed drafting of the 21 February and 14 March 2019 Orders, failure to apply for an injunction restraining any access to the Dynamics Account or preventing the defendants from conducting the Medicina business and failure properly to instruct the Independent Computer Expert).

549. Further, the Respondents point to the negotiated settlement that the Applicants received (it being submitted that, on any view, the work the Applicants undertook and the legal costs they incurred in the proceedings served a useful purpose and resulted in a successful outcome). As to this, the Applicants point out that the settlement occurred before the discovery of the matters now in issue and included no amount referable to costs.

550. The Respondents also complain that the evidence does not allow for a proper calculation of what was wasted or what proportion should be borne by them.

551. The Respondents argue that if the Applicants discovered unlawful conduct as a result of the review that was conducted, that material would ultimately be deployed in evidence against Mr Corry or Medicina; and that if Mr Corry learned that the Applicants had accessed a file that revealed he had done something wrong, “that would surely be something useful to the Plaintiffs’ case that Mr Corry would read about in a pleading and then in the evidence in due course in any event”. Thus, it is said that there was no wasted costs in this regard. Reference is made to the expert evidence adduced by the Respondents that addressed the issue of deletions.

552. The Respondents also maintain that not disclosing Mr Corry’s 24 April 2019 email to the Applicants could not have resulted in any wasted costs because, if the Applicants submit that Mr Corry could not be believed, then the Applicants would have paid no attention to Mr Corry’s email. (Pausing here, I see a relevant difference between disbelieving Mr Corry’s assertions and believing admissions made by him in relation to, say, deletions having been made; but in any event, the issue here is as to a failure to disclose that Mr Corry was monitoring the Applicants’ review of the Dynamics Account and the evidence comfortably persuades me that if the Applicants had become aware of this they would have acted much earlier to re-list the matter and obtain appropriate orders.)

553. The Respondents complain that the Applicants have made no attempt in their submissions to explain the quantum of costs claimed, or to demonstrate that the costs are properly and reasonably claimable (assuming that the relevant alleged misconduct is established). The Respondents say that the Wallman Costs Affidavit does little more than summarise the costs incurred by the Applicants.

554. Relevantly, as to the period from 23 April 2019 to 5 June 2019, the Respondents say that they were not the cause of any costs being wasted by reason of Mr Corry causing any disruption to the Plaintiffs’ access to the Dynamics Account, and that any investigation arising from Mr Corry’s conduct was required in any event. Further, they say that the total costs incurred of $77,882 are excessive (including $37,425 of Senior Counsel’s costs and $5,300 of junior counsel’s costs) and involve many instances of overlapping work (pointing, by way of example, to entries for 29 April 2019 – see Ex C, p 16).

555. The Respondents say that satisfaction could not be reached (to the Briginshaw standard) that any costs were unnecessarily incurred or wasted “by the serious neglect, serious incompetence or serious misconduct” of the Respondents. Alternatively, it is said that even if it were found that the requirements of s 99 of the Civil Procedure Act are met and that the Respondents should be ordered to pay some component of the Applicants’ costs, appropriate reductions should be made having regard to the causative conduct of others (including the Applicants and their own legal representatives), the lack of specificity, duplication and high hourly rates in the invoices, the $1 million settlement, and the disproportionality between the time and cost associated with this application for a claim for wasted costs of about $100,000.

Applicants’ response

556. In response, the Applicants say that the Respondents’ submissions on the question of causation (at [199]-[211]) misstate the standard of proof required for determining issues of causation on the present application and do not engage with the “causation requirement” in s 99 of the Civil Procedure Act, as recognised in Newell at [71], per Beazley P, as Her Excellency then was (namely that “[s]uch conduct must have caused costs to have been incurred that would not otherwise have been incurred but for that conduct”).

557. Insofar as the Respondents assert that, even if they have engaged in serious misconduct, neglect, or incompetence such as to engage s 99 of the Civil Procedure Act, no order should be made because the Applicants have been compensated in full for their costs of the proceedings by virtue of the sum paid as part of their settlement with the second to fifth defendants (Points of Defence at [88](c)), the Applicants say that this contention overlooks that the terms of that settlement exclude costs and point to the evidence of Mr Wallman at T 13.34-40; T 13.42-45; and T 14.23- 26.

558. The Applicants say that, consistently with Mr Wallman’s evidence at T 16.41-43; 17.4-9, the Applicants were, by reason of the Respondents’ conduct, deprived of the opportunity to take appropriate steps in light of what the Respondents knew but did not disclose to the Applicants. Relevantly, they say that: on and from 24 April 2019, having ceased their review of the Dynamics Platform, they undertook a process of investigation (without the benefit of the information the Respondents had not disclosed concerning Mr Corry’s access to the Dynamics Platform and his use of that access, the disclosure of the Password in breach of the Undertaking and the fact of deletions in the platform).

556. The Applicants say that it follows that they would have taken different steps to those they in fact took were it not for the Respondents’ conduct. They say that the costs they incurred in taking those steps would not otherwise have been incurred but for that conduct; and that the causation requirement in s 99 of the Civil Procedure Act is therefore established. They say that it is no answer for the Respondents to contend, with the benefit of hindsight, that there were other ways in which the Applicants could have ascertained the information the Respondents failed to disclose. The Applicants say that the submissions as to Mr Corry’s conduct or the relative culpability of his solicitors (or their own solicitors’ conduct) do not in any event establish that the Respondents’ conduct did not cause the Applicants to waste any costs; and is an attempt to shift responsibility for their own failings. The Applicants further note that Mr Wallman was not cross-examined as to the contents of his affidavit of 4 October 2019 in support of his calculation of the wasted costs.

557. The Applicants reiterate their position that, as a result of the Respondents’ conduct, the Applicants: can now have no certainty that the contents of the Dynamics Platform accurately reflect the contents of the platform as at the date of the execution of the search order; and would otherwise have to conduct an entirely fresh review.

Consequences of the Respondents’ conduct

561. In relation to the consequence of the Respondents’ conduct, at least for the purposes of the orders here sought, I outline below my determination concerning causation and quantification of the costs (see at [574]ff).

Summary of Respondents’ position

562. The Respondents say that this is an unusual (and novel) application brought in circumstances where the Respondents breached an undertaking of the Court “in understandable circumstances”; and where the evidence does not demonstrate that any wasted costs flowed from that inadvertent breach. As adverted to above, they say that the fundamental basis of this application is an allegation that the Respondents, as solicitors for opposing parties in “bitterly fought” litigation, engaged in serious misconduct, neglect or incompetence by not helping the Applicants in the prosecution of the case against the Respondents’ clients by failing to reveal various pieces of information in certain circumstances.

563. They say that this was in circumstances where: the orders of the Court relied on by the Applicants are, on the construction most favourable to the Applicants, vague and ambiguous, and where the cause of any infelicity in the drafting of the orders lies with the Applicants; the disclosures the Applicants say should have been made were either matters which were known or ought reasonably to have been known by the Applicants, or privileged information, or information of no consequence; the Applicants failed in many ways to take steps to protect their own position, to interrogate properly the electronic files they sought and obtained access to, or otherwise to use computer expert services available to them to gather whatever information they required; the alleged wasted costs were costs incurred in conducting proceedings and building a case against defendants which allowed the Applicants to achieve a settlement payment of $1 million within a few short months; the alleged wasted costs are said to be about $100,000 but the evidence relied on in support of the claim is problematic and the amount claimed appears unreasonable; and, if there were any wasted costs, the conduct of many people other than the Respondents have caused such waste. Further, the Respondents say that the extensive hearing time and submissions devoted to the attack on their credit was both unjustified and unnecessary (in that they say that the key questions for determination do not depend on credit).

564. The Respondents say that, if it be found that the Respondents failed to disclose any relevant matters to the Applicants and that caused any wasted costs (both of which are denied), Mr Corry’s own solicitor (who must have been better placed than the Respondents to understand Mr Corry’s conduct) would have, in the circumstances, a significantly greater share of responsibility for wasted costs than the Respondents. Pausing here, it is not clear to me what the relevance of this is. The application for costs under s 99 of the Civil Procedure Act does not give rise to a proportionate liability argument so far as I am aware.

565. As noted earlier, the Respondents also argue that the alleged “wasted costs” in fact “contributed” to the Applicants achieving a settlement of $1 million, together with a five-year restraint of trade, within only a few months (the Applicants cavil with the premise of this submission). Further, they say there is an “overlap” between the Applicants’ costs settled as part of the settlement entered into on 5 June 2019 and the costs claimed in this application (again, the Applicants cavil with the premise of this). Further, the Respondents point to the report prepared by a computer expert retained by the Respondents who had investigated the Applicants’ difficulties accessing the Dynamics Account and concluded that no data had been lost.

566. The Respondents say that the Applicants (and their solicitors) knew at least the following matters prior to settling the proceedings with the second to fifth defendants in June 2019: that Mr Corry had created the Second Corry Email Account and Mr Corry’s explanation for its creation and use; that Mr Corry had used the Dynamics Account or Platform, via the Second Corry Email Account, on a near daily basis; that there were multiple other logins/email accounts that enabled access to, and had been used to access, the Dynamics Account or Platform; and that the data contained in the Dynamics Account had been preserved by virtue of being downloaded by the Independent Computer Expert shortly after the execution of the Search Order in February 2019.

567. The Respondents say that, while acknowledging the seriousness of their breach of the Undertaking to the Court, their conduct “does not come close” to the serious neglect, serious incompetence, or serious misconduct required to enliven the jurisdiction under s 99 of the Civil Procedure Act; and that in those circumstances, the bringing of this extremely lengthy and costly application by the Applicants (and their criticisms of the Respondents, including allegations of deliberate misconduct and perjury) reflects an approach to litigation of the type criticised by the High Court in Expense Reduction (to which I refer in due course). The Respondents say that the approach adopted by the Applicants cannot be reconciled with the usual expected procedure for such applications, as stated in Lemoto at [92](g), per McColl JA (as referred to above). Pausing here, I should say that part of the difficulty that necessitated a number of hearing days may be attributable to technological issues associated with the current COVID-19 pandemic (although, that said, the Court did its best to accommodate those difficulties with extended sitting hours).

568. The Respondents here seemingly criticise the Applicants for: commencing a first set of proceedings in 2017, another set of proceedings in 2019, contempt proceedings against Mr Corry and Mr Ghaly, and this costs application against the Respondents. (Pausing here, it is difficult to see how the Applicants can properly be criticised for bringing the second set of proceedings arising out of alleged misuse of confidential information in circumstances where, as I understand it, the basis for those proceedings was a concern that – despite the settlement of the first set of proceedings and unbeknownst to the Applicants – the defendants retained some of the Applicants’ confidential information. Nor, does it seem to me, that the Applicants can properly be criticised for bringing contempt proceedings – at least not without any finding that there was no reasonable basis for those proceedings to be brought.) Nevertheless, the Respondents say that the evidence demonstrates that the 2019 Proceeding and this application have been prosecuted by the Applicants “tirelessly and with no expense spared”.

Applicant’s response

569. As to the submission made by the Respondents that the Applicants’ approach to the matter reflects an approach to litigation of the type criticised by the High Court in Expense Reduction, the Applicants say that this overlooks the nature of the relevant conduct in the present proceedings and understates its seriousness. The Applicants say that this is not a case (as was the case in Expense Reduction) of an administrative mistake that should have been quickly rectified, but instead led to protracted satellite proceedings and substantial costs. Rather, the Applicants say the present case concerns the fact and consequences of a breach of undertaking to the Court and a failure by the Respondents to disclose that breach; and other matters which the Applicants say the Respondents ought to have done in accordance with their duty to the Court and the administration of justice (and that the Respondent’s failure to do so caused the Applicants to incur substantial wasted costs).

570. As to the Respondents’ submission that the Applicants’ approach to the present application cannot be reconciled with the usual expected procedure for such applications as stated in Lemoto, the Applicants accept that the procedure to be followed in determining applications for wasted costs must be fair (Lemoto at [92](g), per McColl JA) and as “simple and summary as fairness permits”; and that ordinarily “hearings should be measured in hours, and not in days or weeks”. However, the Applicants say that appropriate steps were taken to minimise the disruption to the hearing caused by the logistical challenges that arose from the COVID-19 pandemic; and they argue that the hearing of the present application was otherwise drawn out by the Respondents having raised the “recent construction argument” for the first time on the eve of the hearing (which they say, as a matter of fairness, needed to be tested in cross-examination); and by the Respondents’ “evasive and argumentative responses to that cross-examination in an attempt to tailor their evidence to fit their recent construction argument and to address the inconsistencies with that argument in their affidavit evidence”.

571. As to the way in which the present application has been prosecuted, the Applicants say that the Respondents and their insurer have fought the present application with equal determination and with no expense spared; and note that the Respondents have not “held back” in their criticisms of the Applicants and their legal representatives in seeking to resist the application (referring by way of example to the criticisms levelled against the Applicant’ legal representatives in respect of their drafting of the 21 February 2019 Orders).

Observations in relation to the application

572. As to the preceding, I here simply restate my observations that I do not accept that it was inappropriate for the Applicants to bring this application, although the criticism of the incurring of disproportionate costs in relation thereto is a different matter. Again, I am firmly of the view that, where there are serious concerns as here concerning aspects of the conduct of officers of the Court, it is incumbent on the Court to ensure that those concerns are ventilated and addressed. In that regard, I am of the view that the present application did, indeed, raise an important issue as to the professional and ethical obligations of the Respondents. Otherwise, again, I refer to my above observations.

Costs

573. The Applicants submit that the parties should be heard separately on the question of the costs of the application. In an effort to minimise ongoing costs it would be appropriate for this to be dealt with on the papers and I will make directions accordingly. If it be of assistance, I note that my tentative view is that it may be appropriate for each party to bear his or its own costs in circumstances where there has been a mixed outcome and emotions have run high. However, that is by no means a concluded view.

Conclusion

574. As noted above, I have concluded that the failure to disclose that Mr Corry was monitoring the Applicants’ solicitors’ review of the Dynamics Account amounted to serious incompetence or neglect of their professional and ethical obligations. Full allowance must be made for the exigencies of the litigious environment in which the Respondents were here acting and I have taken into account the level of experience the Respondents then had and the no doubt difficulties they experienced in dealing with Mr Corry (having regard to the tenor of his communications). However, and having regard to the observations of the High Court in a not wholly dissimilar situation in Expense Reduction, I consider that the conduct in question involves, to use the words quoted in Wentworth v Rogers (at [30]) from Lord Wright’s speech in Myers v Elman (at 319), a failure on the part of the Respondents to fulfil their duty to aid in promoting in their own sphere the cause of justice.

575. I accept that this failure caused the Applicants to incur wasted costs in the period from 24 April 2019 to 5 June 2019 in seeking to determine the cause of the disruption that had been experienced to their access to the Dynamics Account. The purpose of the wasted costs jurisdiction is not to punish the legal practitioners but, rather, to protect and indemnify the party who has incurred the wasted costs; and in those circumstances I do not consider it appropriate to engage in a “cheese-paring” exercise in the quantification of those costs (see McColl JA in Kelly at [91]).

576. In the circumstances, I consider that the appropriate order is to require the Respondents to indemnify the Applicants for the costs incurred by them from 24 April 2019 to 5 June 2019. I note, in this regard, that Respondents have apologised for the breaches involved in the disclosure of the Password and I consider that the undoubted stress that the present application will have caused is likely to have a salutary impact on the Respondents’ conduct in future.

577. I also consider it appropriate for the sum to be ordered as a lump sum costs order having regard to the principles considered in Hamod v State of New South Wales [2011] NSWCA 375 (Hamod) (at [813]-[820], per Beazley JA (as Her Excellency then was), with whom Giles and Whealy JJA agreed), to the discretion conferred by s 98(4)(c) of the Civil Procedure Act (and see also Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 (Harrison v Schipp) at [21]-[22], per Giles JA).

578. In the present case, I consider that the discretion is appropriate to be exercised, having regard to the scope and purpose of s 98(4)(c) of the Civil Procedure Act in circumstances where it seems likely that a costs assessment process will add to the already disproportionate level of costs that have no doubt already been incurred, and would be likely only further to protract the dispute between the parties; and where I consider it best to remove some of the apparent emotion from the dispute between the parties to the present application. I am satisfied that there is sufficient material before me to assess those costs and, given that I propose to order them on an indemnity basis, I consider that only a small discount for the exigencies of costs assessment should be applied. I will therefore fix the costs ordered to be indemnified at $70,000 and order that they be payable forthwith. I note in that regard that in Hamod it was said (at [819]) that in the exercise of the discretion the undertaking of a detailed examination of the kind appropriate on a formal costs assessment was not required (see Harrison v Schipp at [22], per Giles JA; Hadid v Lenfest Communications Inc [2000] FCA 628 at [35], per Lehane J; Auspine Ltd v Australian Newsprint Mills Ltd (1999) 93 FCR 1 at 5, per O’Loughlin J; [1999] FCA 673).

Orders

579. For the above reasons I make the following orders:

1. Pursuant to s 99 and s 98(4)(c) of the Civil Procedure Act 2005 (NSW) order the Respondents to indemnify the Applicants for wasted costs in the fixed sum of $70,000, payable forthwith.

2. Direct the parties to file brief written submissions within 7 days on the question of costs, with a view to dealing with costs on the papers if possible.

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Decision last updated: 17 December 2020