Nichols v NFS Agribusiness Pty Ltd

[2018] NSWCA 84

Court of Appeal

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84

Hearing dates:

27 March 2018

Date of orders:

27 April 2018

Decision date:

27 April 2018

Before:

Basten JA at [1];
Meagher JA at [13];
Payne JA at [14]

Decision:

(1)   Grant leave to appeal.
(2)   Appeal allowed.
(3)   Set aside the order of the primary judge on 13 October 2017 and in lieu thereof:

 

Order that there be no order as to the costs of the proceedings below, including the application for costs, with the intention that each party bear its or their own costs.

 (4)   The respondent pay the appellants’ costs of the appeal as agreed or assessed.

Catchwords:

COSTS – leave to appeal – when costs awarded in a case which has been resolved without a hearing on the merits – whether clear that respondent would have succeeded in any event – whether respondent had acted reasonably and the applicants had acted unreasonably – Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 applied

Legislation Cited:

Civil Procedure Act 2005 (NSW), s 98
Supreme Court Act 1970 (NSW), ss 101(2)(c) and 101(2)(r)
Uniform Civil Procedure Rules 2005 (NSW), r 42.1

Cases Cited:

Bitannia Pty Ltd v Parkline Constructions [2009] NSWCA 32
Edwards Madigan Torzillo Briggs Pty Ltd v Gloria Stack [2003] NSWCA 30
Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd (2013) 250 CLR 303; [2013] HCA 46
International Finance Trust Co Ltd v New South Wales Crime Commission (2009) 240 CLR 319; [2009] HCA 49
Muhibbah Engineering (M) BHD & Anor v Trust Company Ltd & Anor [2009] NSWCA 205
Ralph Lauren 57 Pty Limited v Byron Shire Council [2014] NSWCA 107
Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622
Shellharbour City Council v Minister for Local Government [2017] NSWCA 256

Category:

Principal judgment

Parties:

Benjamin Nigel Nichols (First Applicant)
BNE Pty Ltd (Second Applicant)
Mimbe Pty Ltd (Third Applicant)

  NFS Agribusiness Pty Ltd (Respondent)

Representation:

Counsel:
W G Muddle SC / Dr E Peden (Applicants)
A D Crossland (Respondent)

  Solicitors:
Everingham Solomons Solicitors (Applicants)
Attwood Marshall Lawyers (Respondent)

File Number(s):

2017/340636

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity

Date of Decision:

13 October 2017

Before:

Rein J

File Number(s):

2017/122458

HEADNOTE

[This headnote is not to be read as part of the judgment]

Mr Nichols was a former employee of the respondent. The respondent obtained orders from the Supreme Court, ex parte, restraining the deletion, removal or amendment of its “Confidential Information” by the applicants (Mr Nichols and two related companies). Orders were later made by consent permanently restraining the applicants from using in any way any of the respondents’ “Confidential Information”. It was and remained controversial between the parties whether the applicants had ever possessed or used “Confidential Information” as defined in those orders.

The consent orders resolved the proceedings, save as to the question of costs. A hearing took place on the question of costs. The primary judge ordered that the applicants pay the respondent’s costs as agreed or assessed on the ordinary basis, including the costs of the application for costs.

The Court (Basten, Meagher and Payne JJA) held, allowing the appeal:

Per Payne JA at [25] and [30] (Basten JA agreeing at [2], Meagher JA agreeing at [13]):

If both parties to a proceeding which has been settled without a hearing on the merits have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the costs discretion will usually mean that the court will make no order as to the costs of the proceedings.

Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 applied.

Per Basten JA at [8]; Meagher JA at [13] and Payne JA at [31]:

Although it is possible to make an order for costs in a case which has resolved without a hearing on the merits against one party if it can be shown that it has invited the litigation by its unreasonable behaviour or, has unreasonably pursued litigation, such an order should only be made where that judgment is manifest by reference to known circumstances, not in dispute between the parties. If the question cannot be answered without reviewing large swathes of evidence and resolving, on a tentative basis, disputed questions of fact, the task should not be embarked upon.

In the present case the primary judge, whilst having regard to Lai Qin, proceeded to read the 200 plus pages of affidavit evidence on the costs question. That approach is contrary to principle as explained in Lai Qin and adopted by this Court in many cases since, including Edwards Madigan Torzillo Briggs, Muhibbah Engineering and Shellharbour City Council.

Edwards Madigan Torzillo Briggs Pty Ltd v Gloria Stack [2003] NSWCA 302, Muhibbah Engineering (M) BHD & Anor v Trust Company Ltd & Anor [2009] NSWCA 205, Shellharbour City Council v Minister for Local Government [2017] NSWCA 256 applied.

Judgment

1. BASTEN JA: There is a tendency for litigation to feed on itself. There are appeals for which the only commercial explanation can be a hope to recover the costs of the litigation. Where the appeal relates only to costs leave is required and this Court is generally slow to grant leave. However, there are cases where it is necessary to grant leave for the larger purpose of maintaining the proper administration of justice. This is such a case.

2. Where the parties resolve their differences, except as to the costs already incurred in litigation, they should usually expect that the court will not award costs. That is because the general rule applicable in civil litigation in superior courts[1] is that costs will “follow the event”. That rule is frequently paraphrased by reference to its purpose, namely that the successful party should generally recover its costs from the unsuccessful party. But where there has been no trial there is no “event” because, except in unusual cases, it is not possible to say that one party has been successful and the other unsuccessful. The orders made by consent may or may not demonstrate capitulation by the “unsuccessful” party.

   1. See, in this State, Civil Procedure Act 2005 (NSW), s 98 and Uniform Civil Procedure Rules 2005 (NSW), r 42.1.

3. In unusual cases, it may be possible to identify success which is manifest on the face of the record. However, to manufacture a dispute in order to resolve that question is to disregard the statutory obligation imposed on the parties, their legal representatives and the court to conduct civil proceedings so as to facilitate the just, quick and cheap resolution of the “real issues in the proceedings.”[2] As explained in Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd:[3]

“That purpose may require a more robust and proactive approach on the part of the courts. Unduly technical and costly disputes about non-essential issues are clearly to be avoided.

The Court further stated:[4]

“It could hardly be suggested that the pursuit of satellite interlocutory proceedings of the kind here in question in any way fulfils the overriding purpose of the [Civil Procedure Act]. To the contrary, it is the very kind of conduct which should be avoided if those purposes are to be achieved.”

2. Civil Procedure Act, s 56(1).

3. (2013) 250 CLR 303; [2013] HCA 46 at [57] (French CJ, Kiefel, Bell, Gageler and Keane JJ).

4. Expense Reduction at [59].

4. Although these remarks were made with respect to an error in the production of a document subject to client legal privilege, they apply equally to satellite proceedings directed only to determining responsibility for costs.

5. The manner in which the present proceedings were disposed of revealed a number of fundamental errors.

6. First, weight was given to the fact that the applicants (being the defendants in the court below) appeared to have readily capitulated, allowing orders to be made against them as sought by the initiating party, by consent. However that fact is, by itself, neutral. If one party commences litigation without making a pre-litigation demand, and allowing the other party a reasonable opportunity to respond, it cannot expect to recover the costs of obtaining orders which would not in any event have been opposed. There may be an exception in circumstances where destruction of material is reasonably feared and an ex parte injunction is deemed necessary. That step was taken in the present case, but its only purpose can have been to preserve evidence of the misuse of confidential material, in support of a claim for damages. That claim was abandoned and the justification for the ex parte injunction was thereby abandoned. Further, the terms of the injunction sought went well beyond that which was reasonably necessary even for that purpose, and required subsequent modification. As the High Court noted in International Finance Trust Co Ltd v New South Wales Crime Commission:[5]

“Unless a party moving a court to make orders in the absence of parties having an interest to oppose their making is obliged to make proper disclosure of all relevant materials, hearings will be needlessly multiplied and prolonged. Courts should not be asked to make orders in the absence of opposing interests on material that is or should be known to be deficient.”

5. (2009) 240 CLR 319; [2009] HCA 49 at [133] (Hayne, Crennan and Kiefel JJ).

7. In the present case, the definition of “confidential information” was, as was later conceded, too wide and the threat of destruction was not established. If, at that point in time, it had been necessary to determine whether one party had acted manifestly unreasonably, it may well have been the respondent.

8. Secondly, although it is possible to make an order for costs against one party if it can be shown that it has invited the litigation by its unreasonable behaviour, or has unreasonably pursued the litigation, such an order should only be made where that judgment is manifest by reference to known circumstances, not in dispute between the parties. If the question cannot be answered without reviewing large swathes of evidence and resolving, on a tentative basis, disputed questions of fact, the task should not be embarked upon.

9. Thirdly, if contrary to the views set out above, it was appropriate to investigate whether the applicants or the respondent had been unreasonable, either in their conduct prior to the proceedings, or in their conduct of the proceedings, the approach adopted was untenable. Thus, regard was had to the motives of the respondent in commencing proceedings, but no account was taken of the motives of the applicants in capitulating. Further, once it is clear that there is a real dispute as to a significant fact in issue in the proceedings, it is inappropriate to determine that matter, other than in making an interlocutory ruling, by accepting one party’s case without permitting the other party an opportunity to challenge the opposing party’s witnesses.

10. Once it becomes apparent that such a course is required, the hypothesis on which the examination was undertaken is negated and the inquiry should stop.

11. I do not disagree with the reasons of Payne JA; nevertheless, I prefer to rely upon the statement of principle set out above to avoid any reagitation of matters which should not have been agitated below.

12. I agree with the orders proposed by Payne JA.

13. MEAGHER JA: I agree with Payne JA.

14. PAYNE JA: Mr Nichols and two wholly owned companies, BNE Pty Ltd and Mimbe Pty Ltd, seek leave to appeal from a decision of Rein J in the Equity Division in which his Honour ordered that the applicants pay the respondent’s costs of proceedings which had been resolved without any hearing on the merits.

15. The respondent is a retail supplier of agricultural equipment. From April 2013, Mr Nichols was employed as a travelling salesman by the respondent, initially part time. From early 2016, Mr Nichols was employed by the respondent as a full time sales manager. He resigned on 24 December 2016. It is controversial between the parties precisely what Mr Nichols told Mr Leo Casey, the Operations Manager of the respondent, he planned to do after leaving the employ of the respondent and whether that conformed with what actually occurred.

16. On 24 April 2017, the respondent filed a summons and sought ex parte relief in the Equity Division being orders that the applicants deliver up to the Court any confidential documents or devices in the possession, custody or control of the applicants or their employees or agents. The respondent also sought orders that, inter alia, the applicants be restrained from deleting, removing or amending any confidential document from any device or any services. The remaining relief sought by the respondent in the summons was an account of profits and equitable damages.

17. On 24 April 2017, the respondent obtained orders from Slattery J, ex parte, restraining the deletion, removal or amendment of its “Confidential Information” by the applicants. “Confidential Information” was broadly defined in that order as comprising:

“Plaintiff’s Confidential Information means all information, trade secrets, ideas, knowledge, concepts, and processes which:

(a)   relate in any way to the plaintiff or its affairs, business, intellectual property, procedures, methodology or systems, or its sales, marketing, business or promotional plans or information, or its personnel, products, services, partners, associates, suppliers, service providers, contractors, principals, agents, or clients; and

(b)   includes, but is not limited to:

i.   all contact details of any persons who are or were clients of the plaintiff, including client lists of those persons;

ii.   all financial information of the plaintiff, including from MYOB and ‘Eclipse’, as described in paragraph 12(b) of the Casey Affidavit;

iii.   all Documents downloaded or otherwise obtained from the plaintiff’s computer systems or server, including all Documents from the file called ‘NFS Documents’ described in paragraph 12(c) of the Casey Affidavit;

iv.   all ‘supplier build sheets’ as described in paragraph 13 in the Casey Affidavit;

v.   all drawings prepared by the defendant for ‘Weed It’ during the Relevant Period, including those for which the defendant issued the plaintiff an invoice from BNE Pty Limited, as described in paragraph 17 of the Casey Affidavit;

vi.   all emails sent or received by the defendant during the Relevant Period to or from any of the following email addresses: [email protected], [email protected] and any other email account accessible by him;

vii.   photographs, including those referred to in paragraph 49 of the Casey Affidavit…”

18. On 28 April 2017, Slattery J made further orders, by consent and without admissions, extending the orders made ex parte but making clear that the definition of “Plaintiff’s Confidential Information” in those orders:

“….does not include any information, ideas, knowledge, concepts and processes which:

i.   are available in the public domain; or

ii.   were in the possession, power, custody or control of the Defendants prior to the first defendant being employed by the Plaintiff.

19. On 8 May 2017, there was an inspection of the applicants’ electronic devices by officers of the respondent, its solicitor, and an independent information technology expert engaged by the respondent. Mr Nichols and the solicitor for the applicants were also present at the inspection. In his reasons, the primary judge found that at the meeting:

“A list of the items which NFS wanted copied … was addressed and it appears that the plaintiff did obtain all of the documents it had sought and the deletion of those documents from Mr Nichols’ devices. Mr Nichols says that ‘at no time during the meeting did he admit that any of the information taken was confidential information’ ….”

20. On 15 May 2017, Prothonotary Kenna extended the operative orders made by Slattery J on 24 April 2017, as amended on 28 April 2017.

21. On 29 May 2017, Registrar Walton made the following orders by consent:

“1   The defendants be permanently restrained from using in any way any of the Plaintiff's Confidential Information as defined in the orders made on 28 April 2017.

2   The matter be otherwise dismissed, except as to costs.

3   The plaintiff file and serve any evidence and submissions in relation to costs by 12 June 2017.

4   The defendants file and serve any evidence and submissions in relation to costs by 29 June 2017.

5   The plaintiff file and serve any evidence or submissions in reply by 15 July 2017.

6    Stood over [to] 18 July 2017 before Application List Judge for Callover.”

22. These orders resolved the proceedings, save as to the question of costs. Two matters should be noted at the outset about those orders:

1. In relation to order 1, the extent to which the applicants had any “Confidential Information” of the respondent and whether they had used any “Confidential Information”, was and remains in dispute between the parties. That is, whilst the applicants consented to order 1, the applicants did not and do not acknowledge that they possessed or used or intended to use any “Confidential Information” as defined.

2. The respondent abandoned the claim for an account of profits or equitable damages it had sought in its summons. This is the effect of order 2. Counsel for the respondent on the appeal accepted that the only basis for the respondent seeking ex parte relief was in support of a misuse of confidential information case which the respondent subsequently abandoned. The respondent correctly submitted that the Court would not be concerned with the question of why the matter more broadly was not pursued by the respondent as “there could be commercial reasons for that being the case”.

23. On 18 July 2017, Parker J ordered that the respondent’s application for costs be heard on 29 September 2017. That hearing took place before Rein J. Apparently no transcript is available. Over 200 pages of affidavit evidence (including annexures) was read by the parties on the question of costs. The applicants objected to the evidence read by the respondent and read their own affidavits only to the extent that the respondent’s affidavits were ruled to be admissible. Those objections were not ruled upon by the primary judge. There was no cross-examination of any of the deponents. Written submissions were made. Oral submissions were made, apparently for 45 minutes in total.

24. On 13 October 2017, the primary judge ordered that the applicants pay the respondent’s costs as agreed or assessed on the ordinary basis, including the costs of the application for costs.

25. The relevant principles governing an application for costs in a case which has been resolved without a hearing on the merits were summarised by McHugh J in Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624-625; [1997] HCA 6:

“In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.

In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence litigation. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd, [6] the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans.

Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in The South East Queensland Electricity Board v Australian Telecommunications Commission [7] where his Honour ordered the respondent to pay 80 per cent of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare.

If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.” (footnotes omitted)

6. [1971] QWN 13.

7.    Unrep, FCA, 10 February 1989.

26. The principles summarised by McHugh J were not new. His Honour drew on numerous decided cases. The principles described by McHugh J in Lai Qin have been followed on many occasions since, including in this Court.

27. In Edwards Madigan Torzillo Briggs Pty Ltd v Gloria Stack [2003] NSWCA 302, after referring to the observations of McHugh J in Lai Qin, Davies AJA, with whom Mason P and Meagher JA agreed, observed (at [5]):

“When proceedings are brought to an end without a determination after a trial, the judge may find it difficult, even impossible, to make an award of costs. If the judge does make an award, it will generally be because the judge is satisfied that one party has had a substantial victory and the other a substantial loss, or that there has been a marked difference in the reasonableness of the actions taken by the parties, so that one party should be rewarded for its reasonable actions and the other party should suffer a detriment in costs.”

28. In Muhibbah Engineering (M) BHD & Anor v Trust Company Ltd & Anor [2009] NSWCA 205, although the Court was divided about the outcome, Handley AJA (with whom Young JA agreed) and Sackville AJA (who dissented) agreed about the legal test. In circumstances not dissimilar to the present the award of costs was predicated on the ability of the Court to find that one of the parties had acted unreasonably and the other reasonably.

29. In Shellharbour City Council v Minister for Local Government [2017] NSWCA 256, the Court (per Basten JA, Macfarlan JA and Sackville AJA) again applied the principles summarised in Lai Qin. The Court rejected the application for costs in that case. It was explained that the appellant resisted the conclusion that the parties should bear their own costs, there having been no determination on the merits, on two bases:

“[6] … The appellant described the Minister’s abandonment of the proposed amalgamation as “a complete capitulation.” It contended that if the appeal had proceeded it would “almost certainly” have succeeded. That was because the appeal which was listed for hearing on the same days, brought by Ku-ring-gai Council on identical grounds, was upheld. Further, it submitted that the Minister had been unreasonable in her conduct of the proceedings.

[7] It should be accepted that both these characterisations, if made good, may provide a basis for awarding costs against a party who has capitulated, as was recognised by Burchett J in One Tel Ltd v Commissioner of Taxation, in a passage cited with approval by Davies AJA (Mason P and Meagher JA agreeing) in Edwards Madigan Torzillo Briggs Pty Ltd v Gloria Stack. If the appellant made good its claim that, without addressing the merits, this Court could be satisfied that it would have succeeded in any event, it would also be appropriate to set aside the costs order made in the Land and Environment Court and allow the appellant its costs of the trial …

….

[11] The second basis upon which the appellant relied was the “unreasonable conduct” of the Minister…

….

[14] In short, while the appellant obtained the result it sought in the litigation as a result of a political decision by the Government, the resistance by the Minister to the proceedings in the Land and Environment Court was not shown to be unreasonable. It follows that the bases upon which the appellant sought to have its costs, in the absence of a determination of the appeal on the merits, must be rejected.” (footnotes omitted)

30. If both parties to a proceeding which has been settled without a hearing on the merits have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings.

31. In the present case his Honour’s judgment commenced by noting the applicants’ submission that he should not embark upon a determination of what would have been the outcome had the matter proceeded to a hearing, as such an approach would be contrary to Lai Qin. The primary judge, whilst having regard to Lai Qin, proceeded to read the 200 plus pages of affidavit evidence on the costs question and observed:

“[6] I have read all of the affidavits contained in the court book and I observe that there are a number of disputed conversations and events. I do not think it is necessary to set out any of the detail, because it is clear that:

(1)   Mr Nichols (and/or the other defendants) held documents which belonged to NFS, that he transferred those documents at the meeting of 8 May 2017 to NFS at NFS’ request or demand, and which documents he agreed on 8 May could be deleted from his devices.

(2)   Mr Nichols agreed to be permanently restrained from using ‘in any way any of the plaintiff’s confidential information as defined in the orders made on 28 April 2017’.”

32. I have concluded that this approach is contrary to principle as explained in Lai Qin and adopted by this Court in many cases since, including Edwards Madigan Torzillo Briggs, Muhibbah Engineering and Shellharbour City Council.

33. Neither of the matters identified by the primary judge was capable of demonstrating that there had been a capitulation by the applicants or that, if the case had proceeded, the respondent would “almost certainly” have succeeded. Nor was either capable of demonstrating that there had been a marked difference in the reasonableness of the actions taken by the parties, so that one party should be rewarded for its reasonable actions and the other party should suffer a detriment in the form of a costs order against them.

34. The first matter, that documents which “belonged” to the respondent had been transferred by the applicants, was not relevant to the question of any likely success on the part of the respondent. As the primary judge correctly recognised, at [17], to determine who was correct in their assertions about whether there was any “Confidential Information” as defined forming part of the documents transferred or deleted by the applicants would require a hearing. The primary judge was not in a position to determine that question, and did not do so. The observation that Mr Nichols (and the other applicants) held documents which “belonged” to the respondent did not allow any judgment to be made about whether the respondent would likely succeed in the case if it had been tried. In the absence of a determination whether there was any “Confidential Information” as defined, the fact that documents which “belonged” to the respondent were transferred or deleted did not demonstrate anything about the reasonableness of the conduct of the respondent in the litigation or the unreasonableness of the conduct of the applicants in that litigation.

35. The second matter, that Mr Nichols agreed to order 1 made on 29 May 2017, also did not touch upon the question of any likely success on the part of the respondent. The extent to which the applicants had any “Confidential Information” and whether they used any “Confidential Information”, were and remain issues in dispute between the parties. Those questions were not resolved by the making of order 1. The making of order 1 did not allow any judgment to be made about whether the respondent would likely succeed in the case if it had been tried, much less did it permit any finding that the respondent had acted reasonably and the applicants had acted unreasonably.

36. After referring to a number of authorities, including Lai Qin, the primary judge said at [12]:

“I think it is clear that a Court has power to order costs even where there has been no hearing on the merits, although I accept it will generally not do so. One instance where a Court will order costs, as Sackville AJA notes, is if the party has succeeded in obtaining relief sought in the proceedings (or, I would add, a material aspect of the relief sought). Another is where the party seeking costs is able to demonstrate without the need for a hearing of the proceedings just settled that the other party has no claim (or no defence).”

37. The reference to “Sackville AJA” was apparently intended to refer to the dissenting judgment of his Honour in Muhibbah Engineering. I do not consider that Sackville AJA’s decision in Muhibbah Engineering provides any support for the course adopted here. After setting out the principles being applied from Lai Qin, in Muhibbah Engineering Sackville AJA explained that:

“[54] McHugh J [in Lai Qin] identified the critical question in the case before him as whether or not the prosecutrix had acted reasonably in bringing the proceedings and whether the Minister had acted unreasonably in not promptly informing her that he was considering granting her a visa. His Honour pointed out that the Minister granted the visa because of the changed circumstances of the prosecutrix since her arrival in Australia, in particular her marriage to an Australian citizen and the fact that she had given birth to a child. McHugh J, having read the RRT’s decision and the affidavit filed in support of the application, considered that, although the prosecutrix had an arguable case, she did not have strong prospects of success. Since the Minister had been considering the prosecutrix’s case for only a few days prior to the proceedings being commenced in the High Court, there was nothing unreasonable in the Minister’s failure to inform her prior to the institution of proceedings that a decision in her favour might be made. Accordingly, his Honour declined to accede to the prosecutrix’s application for a costs order.

[55] In ONE.TEL Ltd v Deputy Commissioner of Taxation [2000] FCA 270; (2000) 101 FCR 548, Burchett J expressed the view that (at 553 [6]):

‘…it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court’s discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs.’

This passage was cited with approval by the Full Federal Court in Chapman v Luminis Pty Ltd [2003] FCAFC 162, at [7]. Both cases were decided after Ex parte Lai Qin and both referred to the judgment of McHugh J.”

38. That is, Sackville AJA was explaining that when in Lai Qin McHugh J described a case where the party seeking costs “in effect, has succeeded in obtaining the relief sought in the proceedings”, his Honour was referring to a case where one party, after litigating for some time, effectively surrenders to the other.

39. I respectfully disagree that the decision of Sackville AJA in Muhibbah Engineering provided authority permitting an examination of the affidavit evidence to determine whether the respondent had succeeded in obtaining a “material aspect of the relief sought”.

40. The primary judge held that “the handing over and deletion of documents on 8 May 2017 and the final orders on 29 May 2017 establish that [the respondent] has been successful and that is why there is no need for a hearing.”

41. This conclusion echoes the findings at [6] referred to at [31] above. At the risk of repetition, in the absence of any hearing on the merits and in circumstances where it was and remained controversial whether there was any “Confidential Information” as defined, transferring documents and agreeing to order 1 made on 29 May 2017 provide no basis to conclude that the applicants, after litigating for some time, had effectively surrendered to the respondent or that the respondent had acted reasonably in prosecuting the action and the applicants had acted unreasonably in defending the action.

42. His Honour next held:

“[19] … I do not think the reasons for Mr Nichols’ decision to agree to a permanent injunction, or to hand over material, he says ‘for commercial reasons and to avoid legal costs,’ is relevant.”

43. The respondent sought to defend this finding on the basis of the decision of this Court in Ralph Lauren 57 Pty Limited v Byron Shire Council [2014] NSWCA 107 where Preston CJ of the LEC (with whom Beazley P and Ward JA agreed) said at 29:

“In the case of a settlement, the court ordinarily will not look behind the settlement to the reasons or motivation of the parties to settle, and hence will not evaluate the reasonableness of the parties in settling….”

44. Ralph Lauren 57 involved the discontinuance of a proceeding, to which different considerations apply: Bitannia Pty Ltd v Parkline Constructions [2009] NSWCA 32 per Basten JA at [66]-[80]. The point being made by Preston CJ of the LEC is that a settlement prior to a hearing on the merits usually results in no order as to costs. The case is not authority for the proposition that, if costs were to be awarded, the applicants’ reasons for agreeing to a permanent injunction were not relevant.

45. Although the primary judge made no express finding about the reasonableness of the conduct of the respondent in prosecuting the action or the unreasonableness of the applicants in defending that action, in this Court the respondent submitted that his Honour implicitly made both findings.

46. In paragraph [20] the primary judge concluded that the respondent did not pay “close attention” to what documents Mr Nichols was taking with him when he left the respondent’s employ and that this “can be explained on the basis of what, prima facie, was the untrue statement as to his [Nichols’] intentions”. The “prima facie” untrue statement is a reference to a conversation deposed to by Mr Leo Casey in two affidavits read by the respondent as part of the costs application. Counsel for the respondent accepted that this conversation was “not a part of the cause of action”, but submitted that it was relevant to the question of costs as demonstrating the allegedly unreasonable conduct of the applicants. The primary judge recorded that Mr Nichols did not “specifically deny” this conversation in his affidavits. It is clear, however, that Mr Nichols gave a different version of that conversation.

47. The finding that the statement was “prima facie” untrue should not have been made. Any finding of potentially serious misconduct, such as that Mr Nichols made an untrue statement, could only have been made after permitting cross-examination of all the witnesses, in particular Mr Casey and Mr Nichols. That exercise, permitting the cross-examination of witnesses to determine costs issues in a case determined other than on the merits, is antithetical to the principles explained in Lai Qin and adopted repeatedly by this Court since. Such a course would also be contrary to the principles in Pt 6 Div 1 of the Civil Procedure Act 2005 (NSW) which encourages the settlement of litigious disputes.

48. I reject the respondent’s submission that the primary judge intended a finding that “Mr Nichols’ lie, or the discovery of it, precipitated [the respondent’s] approach to the Court”. The language used in paragraph [20] of a “prima facie” untrue statement is inconsistent with such a conclusion. The evidence did not permit a finding that the statement was “prima facie” untrue, much less that it was a “lie”.

49. To the extent that the primary judge found that the respondent had reasonable grounds to commence and prosecute the action, that finding was made at [21]:

“In relation to the proposition that Mr Nichols has not utilised the confidential information and did not intend to do so: see [8(8)], this would require an investigation of factual matters and credibility, which the Court is not required, or even able to embark on. [The respondent] had reasonable grounds to demand the material back and to seek the permanent injunction to protect the confidential information which belonged to it. I do not think it matters that the plaintiff abandoned its claim for damages or account of profits, particularly when that was done at a very early stage. A plaintiff does not have to succeed on every point to obtain a costs order in its favour. It is not suggested that any of the costs were expended solely on its claim for damages or account of profit… . I think that once [the respondent], on reasonable grounds, believed that Mr Nichols had misled them about his intentions post-employment, it was entitled to seek the ex parte injunction in an endeavour to prevent deletion of material that would assist its case.”

50. The finding has two aspects. The first is what appears to be a finding in the second paragraph about “the” confidential information. His Honour, however, was in no position to decide that question because it was in issue and not able to be decided on the papers. The second was the reference to the respondent’s belief that Mr Nichols had misled it about his intentions. That merely repeated the impermissible finding about the “prima facie” untrue statement which was based on an examination of the untested affidavit evidence.

51. In paragraph [23] the primary judge summarised the findings on this issue:

“In my view, the plaintiff, having succeeded in obtaining an ex parte interim injunction in an endeavour to prevent deletion of material that would assist its case, and then a permanent injunction and this in addition to the transfer to them and deletion of documents, which on their face were clearly characterisable as being confidential documents of NFS held by Mr Nichols, is entitled to the costs of obtaining those results because costs, as a general rule, follow the event. I do not accept that to impose a costs order on Mr Nichols involves any punishment of Mr Nichols.”

52. The first sentence records that the respondent’s success in obtaining the ex parte interim injunction was in effect an endeavour to prevent deletion of the material that would assist its case. The ex parte injunction, however, was only relevant to the case for equitable damages for misuse of confidential information, which was subsequently abandoned. By the time the primary judge came to deal with costs, there was no longer an issue in the proceedings about potential competition between the applicants and the respondent. Secondly, the conclusion that the material sought in the ex parte application was on its face clearly characterisable as being confidential required a consideration of underlying facts which his Honour, correctly, concluded at [17] he was not in a position to do.

53. The applicants require leave to appeal both because of the subject matter, costs, and also because the sum involved is less than $100,000: Supreme Court Act 1970 (NSW), s 101(2)(c) and s 101(2)(r). The errors of principle in the approach of the primary judge make this an appropriate case to grant leave to appeal.

52. The appeal should be allowed. This was not one of those cases where, in the language of Shellharbour, the respondent could make good its claim that, without addressing the merits, the primary judge could be satisfied that it would have succeeded in any event. It was not a case where, without addressing the merits, it was clear that the respondent had acted reasonably in commencing and prosecuting the claim and the applicants had acted unreasonably in defending the claim.

53. I propose the following orders:

1. Grant leave to appeal;

2. Appeal allowed;

3. Set aside the order of the primary judge on 13 October 2017 and in lieu thereof:

Order that there be no order as to the costs of the proceedings below, including the application for costs, with the intention that each party bear its or their own costs;

4. The respondent pay the appellants’ costs of the appeal as agreed or assessed.

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Endnotes

Amendments

25 February 2019 - Typographical changes made in [25], [28], [38] and [49]

26 February 2019 - Amended word order in Headnote to read "at [2]" rather than "[2] at"

Typographical corrections made in [20] and [52]

Decision last updated: 26 February 2019