TOMRA Collection Pty Ltd v Minto

[2021] NSWSC 1323

Supreme Court

New South Wales

Medium Neutral Citation:

TOMRA Collection Pty Ltd v Minto [2021] NSWSC 1323

Hearing dates:

11 October 2021

Decision date:

18 October 2021

Jurisdiction:

Equity

Before:

Ward CJ in Eq

Decision:

1.   Order the plaintiff to pay the defendant’s costs of the proceedings on the ordinary basis.

Catchwords:

COSTS — Party/Party — General rule that costs follow the event — Proceedings discontinued

Legislation Cited:

Civil Procedure Act 2005 (NSW), ss 56, 98

Uniform Civil Procedure Rules 2005 (NSW), rr 12.1, 42.19, 42.20

Cases Cited:

Australian Unity Funds Management Ltd v NorthWest Healthcare Australia RE Ltd [2021] NSWSC 1039

Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365

Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32

Cristovao v Registrar Trott [2019] FCAFC 88

Crosby v Hanley [2021] NSWSC 507

Dyktynski v BHP Titanium Minerals Pty Ltd (2004) 60 NSWLR 203; [2004] NSWCA 154

Fordyce v Fordham (2006) 67 NSWLR 497; [2006] NSWCA 274

Freelancer International Pty Ltd v Matthew O’Kane [2019] NSWSC 159

Gundry v Sainsbury [1910] 1 KB 645

Harden v Willis Australia Group Services Pty Ltd [2021] NSWSC 1188

Harman v Secretary of State for the Home Department [1983] 1 AC 280

HCafe Chatswood Pty Ltd [2018] NSWSC 362

In the matter of HCafe Chatswood Pty Ltd [2018] NSWSC 362

McCullum v Ifield [1969] 2 NSWR 329

Murrumbidgee Irrigation Ltd v M & H Acar Pty Ltd [2019] NSWSC 807

Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84

OPENetworks Pty Ltd v Myport Pty Ltd [2019] FCA 1659

Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11

Re Minister for Immigration & Ethnic Affairs: Ex parte Lai Qin (1997) 186 CLR 622 at 625; [1997] HCA 6

Shaw v Yarranova Pty Ltd and Anor [2011] VSCA 55

Sonnet Corp Pty Ltd v Wilson [2008] NSWSC 579

Tarry v Pryce (No 2) (1987) 37 NTLR 209; [1987] NTSC 59

Timothy John Olsen and Louise Sarah Olsen (as executors of the Estate of the late Valerie Marshall Olsen) v Second East Auction Holdings Pty Ltd t/as Sotheby’s Australia [2014] NSWSC 1840

Category:

Costs

Parties:

TOMRA Collection Pty Ltd (Plaintiff)
Laurie Minto (Defendant)

Representation:

Counsel:
D Mahendra (Plaintiff)
J Darams (Defendant)

Solicitors:
Landerer & Company (Plaintiff)
Seyfarth Shaw Australia (Defendant)

File Number(s):

2021/00220005

Publication restriction:

Nil

Judgment

1. HER HONOUR: This matter, before me for hearing on 11 October 2021, concerned a dispute as to costs of the proceedings following the grant of leave on 14 September 2021 for the discontinuance by the plaintiff of its summons, filed on 2 August 2021. In essence, the dispute was as to whether the plaintiff, TOMRA Collection Pty Ltd (TOMRA), should pay the defendant (Mr Laurie Minto)’s costs of the proceedings (as Mr Minto contends, and as would ordinarily be the case pursuant to r 42.19 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR)) or whether the Court should otherwise order (as TOMRA here contending for an order that each party should bear its own costs or, in the alternative, that Mr Minto should pay its costs up to and including 5 August 2021 and that it, TOMRA, should pay Mr Minto’s costs thereafter).

Background

2. The underlying dispute between the parties, as can be gleaned from the material to which I was taken on the present application, may be summarised as follows (though I here emphasise that I am making no findings as to any factual matters in dispute between the parties).

3. TOMRA operates in the recycling/container deposit industry (described by its lawyers as a niche industry occupied by a small group of highly competitive businesses). The precise nature of TOMRA’s business appears to have been in dispute between the parties. Mr Minto’s solicitors (in correspondence on 16 July 2021) described the nature of TOMRA’s business as being that of a provider of reverse vending solutions, as well as a manufacturer and distributor of the technology for creating and installing reverse vending solutions. TOMRA’s solicitors (in their letter dated 22 July 2021) took issue with that description, advising that TOMRA is not a manufacturer of reverse vending machines (although noting its business activities included acting as a distributor of such equipment in Australia) and listing a number of other business activities in which TOMRA was involved. This dispute relates to whether the business of Mr Minto’s new employer, Re.Group Pty Ltd (Re.Group), as TOMRA contends, is substantially similar to or competitive with the present business of TOMRA or such other business activity in which TOMRA had substantially engaged during the term of Mr Minto’s employment, within the meaning of those words as used in Mr Minto’s employment agreement with TOMRA; a factual dispute I cannot possibly here determine.

4. Mr Minto commenced employment with TOMRA on 15 November 2017 as a Sales and Service Director pursuant to a contract of employment dated 9 November 2017. At the time of his resignation (on 7 June 2021) Mr Minto held the position of Operations Director (Qld, NT and WA) and was a member of TOMRA’s leadership team.

5. TOMRA says that, while in these roles, Mr Minto’s responsibilities included senior management responsibilities and duties in respect of, and helping to develop strategies for, TOMRA’s automated depots operated in connection with the container deposit schemes of various states and territories of Australia, and managing relationships with key internal and external stakeholders within TOMRA’s business relationships (see the letter dated 25 June 2021 from TOMRA’s solicitors to Mr Minto; and similar statements in a letter of the same date to Mr Minto’s new employer). It is further said that, in his employment with TOMRA, Mr Minto was exposed to significant amounts of information confidential to TOMRA, including financial information, strategies, business models, marketing, know-how, ideas, concepts, systems, technology, industrial, intellectual property and commercial knowledge relating directly and indirectly to TOMRA’s various business roles (as set out in the respective letters dated 25 June 2021).

6. Mr Minto’s employment contract with TOMRA included the following post-employment restrictions: a non-compete termination for a period of 6 months; a non-solicitation restriction for a period of 6 months; and restrictions in relation to TOMRA’s confidential information.

7. Mr Minto resigned from his employment with TOMRA on 7 June 2021, effective from 6 August 2021. The non-compete and non-solicitation provisions of his employment contract thus would run until the end of the day on 5 February 2022. At the time of his resignation, Mr Minto disclosed that he had accepted employment with Re.Group (Re.Group apparently being a wholly owned entity of Re.Hold Pty Ltd and part of the “Re.Group group of companies”).

8. By their letter dated 25 June 2021, TOMRA’s solicitors demanded that Mr Minto sign and return, by no later than 30 June 2021, an undertaking in the terms set out in the schedule to that letter (failing which it was foreshadowed that TOMRA might instigate urgent legal proceedings to enforce the post- employment restrictions without further notice). That undertaking included that Mr Minto would not commence any employment or engagement and/or any other activities with or for any member of the Re.Group group of companies prior to 7 February 2022. In a separate letter of the same date, an undertaking was also sought from Re.Hold Pty Ltd, for itself and on behalf of each of its subsidiaries, including that Mr Minto not be directly or indirectly employed or otherwise engaged in any capacity whatsoever before 7 February 2022, and that there be no communication directly or indirectly in any manner whatsoever with Mr Minto between the date of the undertaking and 7 February 2022. TOMRA says that the undertakings sought by it were consistent with the post-employment provisions of Mr Minto’s contract of employment.

9. TOMRA also alleged that, prior to Mr Minto’s departure, a significant amount of its data was copied by Mr Minto (on 20 April 2021) and/or otherwise retained by him. While the parties had agreed to a regime to enable TOMRA to trace the whereabouts of its information, TOMRA raised issues as to whether any of its information had been disclosed to any third parties.

10. Mr Minto retained solicitors to act for him (Seyfarth Shaw Australia), whose fee disclosure letter dated 12 July 2021 to Mr Minto confirmed: that the solicitors were also acting for Re.Group; that, if at any point in the future, Mr Minto’s interests and the interests of Re.Group were no longer aligned, they would cease acting for Mr Minto and continue to act for Re.Group; and that Re.Group “have agreed to pay for any costs incurred in our engagement with [Mr Minto]”.

11. By letter dated 16 July 2021, Mr Minto’s solicitors wrote to TOMRA’s solicitors responding to their letters dated 25 June 2021 to each of Mr Minto and Re.Group, noting that they acted for both. The letter rejected the assertion that Re.Group was a competitor of TOMRA, although accepting that both companies operated generally in the industry. The letter noted that Mr Minto would be working in the “ACT Business” of the group (noting that the relevant company in the Re.Group Group of Companies had an exclusive agreement with the government and was the sole Network Operator of collection points in the Australian Capital Territory). The letter stated that the solicitors’ clients did not intend to provide the undertakings requested by TOMRA but proffered undertakings by Mr Minto (the 16 July Undertakings) and an undertaking by Re.Group that it would not request or require Mr Minto to do anything inconsistent with the undertakings that Mr Minto there gave.

12. On 22 July 2021, TOMRA’s solicitors responded, stating inter alia that the six month period following termination of Mr Minto’s employment was critical to TOMRA, as it was planning to negotiate with the New South Wales government during that period for the extension of the term of the Network Operator Agreement (that being the same or a similar role to that performed by Re.Group in the ACT), and asserting that Mr Minto had detailed knowledge of confidential information of TOMRA relating to both the planned NSW government negotiations and the planning for the bid responses to the Victorian and Tasmanian governments. The letter also stated TOMRA’s intention to continue trying to enter the ACT market in the future, either in the capacity of a collection point operator or as a network operator.

13. The letter identified certain issues with the 16 July Undertakings offered by Mr Minto; and raised a concern about Mr Minto’s activities prior to his resignation, demanding a return of certain storage devices (so that an independent forensic examination could be made of them) and demanding undertakings addressing the post-employment restraints as well as the return of TOMRA’s property and confidential information. On 26 July 2021, Mr Minto’s solicitors advised that they were in the process of obtaining instructions in relation to the serious allegations that had there been made.

14. On 29 July 2021, Mr Minto’s solicitors responded to TOMRA’s solicitors, advising, inter alia, that they did not consider the non-compete restriction to be valid and enforceable but, in any event, they considered the undertakings Mr Minto had given provided adequate protection for the legitimate business interests that TOMRA could reasonably assert. The letter also proposed an alternative regime to the forensic examination that TOMRA had sought (relevantly, for it to be carried out by an independent expert).

15. Between 29 July 2021 and 30 July 2021, the parties negotiated (and agreed to) a regime in respect of the issues that had been raised in relation to the storage devices and TOMRA’s confidential information.

16. On 2 August 2021, TOMRA commenced proceedings in the Duty List, seeking, inter alia, restraints in terms that it maintains are consistent with the provisions of Mr Minto’s employment contract. Further, TOMRA’s solicitors refused to serve copies of confidential material in relation to its application on Mr Minto’s solicitors until those solicitors confirmed that they were no longer acting for the Re.Group group of companies (and they insisted upon Confidentiality Undertakings from the legal representatives solicitors in any event).

17. On 3 August 2021, Mr Minto’s solicitors confirmed that they no longer acted for Re.Group or any subsidiaries of Re.Hold Pty Ltd and provided (though raising objection to the requirement for this in light of their professional responsibilities and the principle contained in Harman v Secretary of State for the Home Department [1983] 1 AC 280) Confidentiality Undertakings signed by them (and advised that they would send through a signed undertaking from Counsel in due course; which was subsequently provided to the Court on 5 August 2021). TOMRA points out on the present application that there was no change to the costs agreement provided to Mr Minto on 12 July 2021, and says that therefore Re.Group continued to be liable for the fees incurred by Mr Minto.

18. On 5 August 2021, Mr Minto’s solicitors sent a letter to TOMRA’s solicitors which, inter alia, provided (on a without admissions basis) further undertakings (which TOMRA accepts broadened the scope of the undertakings previously given by him), expressly stating that this was to deal with the concerns identified by TOMRA in the evidence that it had served in the proceedings (the 5 August Undertakings). Those undertakings were apparently not acceptable to TOMRA, which pressed for interlocutory relief when the matter was before the Duty Judge.

19. The proceedings came before Lindsay J as Duty Judge on 5 August 2021 and on that occasion were stood over to 9 August 2021. On 9 August 2021, Lindsay J dismissed the claim for interlocutory relief in terms of prayer 12 of the summons and ordered that costs of the application be the costs of the parties. His Honour was of the opinion that TOMRA’s interests would be adequately protected by the 5 August Undertakings (noting that TOMRA did not currently have a presence in the ACT). His Honour then referred the matter to the Equity Registrar.

20. The matter ultimately came before me in the applications list on 14 September 2021 when, by consent, I gave leave for the proceedings to be discontinued with the question of costs reserved. That led to the current submissions.

TOMRA’s submissions

21. TOMRA points out that the 16 July Undertakings: did not include the undertakings set out at 2(b) and 2(c) of the 5 August Undertakings; did not include matters relating to the regime for the return of its confidential information; and that the undertaking at 2(a) was caveated by the words “unless he otherwise provides Tomra with 14 days’ written notice of any change to the Position” (whereas no such caveat was placed on 2(a) of the 5 August Undertakings).

22. TOMRA also points to the fact that, pursuant to the agreed forensic regime, Mr Minto agreed voluntarily to delete thousands of files (which it is said he would not otherwise have done but for the proceedings). It is said that the fact that the files were on Mr Minto’s devices in the first place was a breach of TOMRA’s Information Security Use Policy.

23. TOMRA submits that Mr Minto is not entitled to an order for costs in his favour pointing to Dyktynski v BHP Titanium Minerals Pty Ltd (2004) 60 NSWLR 203; [2004] NSWCA 154 (Dyktynski), where Mason P (at [7]-[8]) referred to the position where a party to an action has agreed with the solicitor that the party does not have to pay any costs, then costs cannot be recovered against the adversary under a party and party order (citing Gundry v Sainsbury [1910] 1 KB 645; McCullum v Ifield [1969] 2 NSWR 329 at 330); and to the alternative proposition that, if the solicitor/client agreement caps the amount of costs recoverable, this ensures to the benefit of the client’s adversary (citing Tarry v Pryce (No 2) (1987) 37 NTLR 209; [1987] NTSC 59).

24. TOMRA says (accepting that it bears the onus of establishing the retainer, and here referring to Shaw v Yarranova Pty Ltd and Anor [2011] VSCA 55 per Redlich and Mandie JJA at [19]) that in the present matter it is clear that Mr Minto was not under any legal liability to pay for his costs. It is said that the costs agreement provided to Mr Minto on 12 July 2021 made it clear that Re.Group (for whom Mr Minto’s solicitors also acted) had agreed to pay Mr Minto’s costs. Further, it is said that this is not a matter in which Re.Group could be said to fall within the exception to the indemnity principle explained in Cristovao v Registrar Trott [2019] FCAFC 88 (Cristovao) (see below) because Re.Group did not commence or defend the proceedings and simply use Mr Minto’s name (noting that the solicitors for Minto ceased to act for Re.Group on 2 August 2021) and because Re.Group was not under any statutory or contractual liability “to indemnify [Mr Minto] against all costs and expenditures of and incidental to the proceedings” and thereby exercise “its right to defend the proceedings in the defendant’s name” but, rather, had volunteered to indemnify Mr Minto in respect of his costs.

25. In such circumstances, it is submitted that Mr Minto cannot recover costs against TOMRA and the appropriate order is that each party should bear his or its own costs.

26. In the alternative, as noted above, TOMRA seeks an order that Mr Minto pay its costs of the proceedings up to and including 5 August 2021 and that TOMRA pay Mr Minto’s costs thereafter. It is submitted that the changes to the undertakings made by Mr Minto on 5 August 2021 were critical insofar as Mr Minto’s ability to resist the injunction sought by TOMRA. Further, it is said that, to a significant degree, the 16 July Undertakings were equivocal in that the undertaking at 2(a) was caveated by the words “unless he otherwise provides Tomra with 14 days’ written notice of any change to the Position” (whereas 2(a) of the 5 August Undertakings contained no such caveat).

27. It is said that, in similar circumstances, where a defendant had provided equivocal undertakings to a plaintiff prior to provision of unequivocal undertakings, Hamilton J in Sonnet Corp Pty Ltd v Wilson [2008] NSWSC 579 said (at [25]):

Bearing in mind the above circumstances - that is, the clear concession only on 30 May of consent to the four ongoing orders and the fact that the orders that I have made on the interlocutory application are to become the final disposal of these proceedings - I am of the view that the appropriate course is to order that the defendants pay the plaintiff’s costs of the proceedings up to and including 30 May 2008 and that the plaintiff pay the defendants’ costs of the proceedings from and including 31 May 2008.

28. TOMRA submits that, as acknowledged by Mr Minto’s solicitors, the 5 August Undertakings were designed to deal with the concerns identified by TOMRA in the evidence that it had served in the proceedings regarding the non-competition restraint. TOMRA says that it was entitled to commence and maintain the proceedings until 5 August 2021 at which time Mr Minto finally provided undertakings seeking to address the matters that had been raised by it. Thus it is submitted that if Mr Minto is entitled to any costs, the appropriate order is that he pay TOMRA’s costs up to and including 5 August 2021 and that TOMRA pay his costs thereafter.

Mr Minto’s submissions

29. Mr Minto says that, broadly speaking, by 16 July 2021, he undertook that he would not, until 7 February 2022, solicit any employees of TOMRA to terminate their employment; approach or solicit clients or customers of TOMRA to cease doing business with TOMRA; assist anyone to do any of those things; and work for any company in the Re.Group group of companies in any position other than the position that he had accepted (without giving TOMRA 14 days’ written notice). It is noted that Mr Minto also gave an undertaking dealing with TOMRA’s confidential information.

29. Thus it is said that, by 16 July 2021, without admission or concession, Mr Minto gave undertakings broadly consistent with the post-employment restraints in his employment contract; and that what Mr Minto did not agree to was the demand that he not commence work for any company within the Re.Group Group of Companies until 7 February 2022. It is noted that Mr Minto agreed only to work in the position he had been offered and accepted, which required him to perform services in respect of a business in the ACT, being a region in which TOMRA had no (then) operations.

30. As to the correspondence relating to Mr Minto’s use of external access devices and cloud-based storage during his employment, it is noted that this was dealt with in the correspondence between the parties and did not form part of the proceedings.

31. Mr Minto points out that, despite his provision of the undertakings on 16 July 2021, TOMRA commenced proceedings by way of summons on 2 August 2021 and sought procedural, interlocutory and final relief. In that regard, it is said that: the interlocutory and final relief sought in prayers 9, 10 and 11 included what had already been given by way of undertaking by Mr Minto on 16 July 2021; the final relief sought also included damages and equitable compensation (i.e., financial relief); and the interlocutory and final relief sought included an order that prevented Mr Minto from working for any company in the Re.Group Group of Companies until 7 February 2022 (at prayer 12 of the summons).

32. It is noted that, on 5 August 2021, Mr Minto’s solicitors had written to TOMRA’s solicitors querying why the summons included the claims in prayers 9, 10 and 11 given the undertakings of 16 July 2021; and that Mr Minto had proffered the undertakings that he said he would give to the Court (and which he did). It is said that the letter noted that the undertakings were those given on 16 July 2021 with some slight additions (set out in paragraphs 2(b) and 2(c)). (Mr Minto argues on this application that those paragraphs were already covered by paragraph 2(a), but says that these were included to remove any doubt and/or provide a further level of comfort to TOMRA.)

33. It is noted that on the same day, TOMRA’s solicitors replied to the letter of 5 August 2021 saying that the undertakings in paragraphs 1, 3 and 4 were acceptable (i.e., the 16 July Undertakings) but that the undertaking in paragraph 2 was not acceptable.

34. It is said that there is no evidence as to why TOMRA has chosen to discontinue the proceedings but that, in doing so, it has invoked r 12.1 of the UCPR. Mr Minto notes that s 98 of the Civil Procedure Act 2005 (NSW) governs the current application; and that r 42.19 applies where proceedings are discontinued by the plaintiff, as referred to in r 12.1. Rule 42.19(2) provides that unless the court orders otherwise (or the notice referred to in r 12.1(2) otherwise provides, which is not here the case) the plaintiff must pay such of the defendant’s costs as, at the date on which the notice of discontinuance was filed, had been incurred by the defendant in relation to each claim in respect of which the proceedings were discontinued.

35. Mr Minto refers to the observation as to the operation of r 42.19 by Sackar J in Timothy John Olsen and Louise Sarah Olsen (as executors of the Estate of the late Valerie Marshall Olsen) v Second East Auction Holdings Pty Ltd t/as Sotheby’s Australia [2014] NSWSC 1840 (at [16]), namely that:

The cases, especially the more recent decision of Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32, indicate that for the purposes of determining costs under r 42.19, there is no “presumption” that the discontinuing party pays the costs of the proceedings. However, a court commences with a predisposition that the party seeking discontinuance ought to be characterised as an unsuccessful party, and that unless there is some sound positive ground or good reason for departing from the ordinary course, the discontinuing party should pay the costs of the proceedings. In Lai Qin, the discretion with which McHugh J was dealing in the statutory context of that case was completely unhindered by any statutory predisposition. (Emphasis as per submissions)

37. Thus Mr Minto notes that it is for TOMRA on this application to persuade the Court to depart from the consequences of it discontinuing the proceedings and paying Mr Minto’s costs (citing Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 (Bitannia) at [54] per Hodgson JA).

38. Mr Minto submits that there is no good reason to depart from the predisposition of r 42.19 because nothing of utility was achieved in commencing the proceedings on 2 August 2021 in circumstances where it is said that TOMRA did not need the orders in prayers 9, 10 and 11 of the summons (Mr Minto having given the 16 July Undertakings consistent with that relief) and TOMRA’s claim for orders consistent with prayers 7 and 12 of the summons was dismissed by Lindsay J on 9 August 2021.

39. For Mr Minto, it is said that TOMRA was seeking to prevent Mr Minto from commencing employment with any company in the Re.Group Group of Companies before 7 February 2022 (noting that the 16 July Undertakings had been given and that TOMRA did not ask the Court to make orders in terms of prayers 9, 10 and 11 of the summons). It is said that TOMRA lost on that point (and, insofar that it is submitted the proceedings became futile after 9 August 2021, that this was is only because TOMRA was not going to achieve any further relief in the proceedings).

40. Mr Minto says that this is not a case where he effectively forced TOMRA to resort to the Court to resolve the dispute; rather that, through his solicitors, he had proactively engaged with TOMRA (through its solicitors) to try and reach a resolution of the dispute, whilst acknowledging and seeking to balance each parties’ rights and obligations. It is said that TOMRA did not achieve anything of substance (in addition to what it had from 16 July 2021) by commencing the proceedings. Thus it is said that there is no principled basis to depart from the operation of r 42.19 of the UCPR.

41. In response to the invocation by TOMRA of the “indemnity principle” (to preclude an order for costs in favour of Mr Minto), it is submitted that in the circumstances, the “indemnity principle” does not operate to preclude such an order.

42. Reference is made to the consideration of the operation and effect of the indemnity principle in Harden v Willis Australia Group Services Pty Ltd [2021] NSWSC 1188 (Harden), where Sackar J (at [14]), by reference to the decision of Mason P in Dyktynski, observed that:

[I]f a party has agreed with their solicitor that they do not have to pay any costs, then costs cannot be recovered against the adversary under a party/party order. The situation is different when a client has the benefit of an indemnity from a third party, so long as the client remains under a legal liability to the solicitor.

43. In Dyktynski, Mason P (at [9]) said:

The distinction is neatly stated by Bankes LJ in [Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495], in a passage explaining why a plaintiff, who was a member of a trade union that instructed a solicitor on his behalf in a successful action, could recover the solicitor’s costs. His Lordship said (at 501):

“... When once it is established that the solicitors were acting for the plaintiff with his knowledge and assent, it seems to me that he became liable to the solicitors for costs, and that liability would not be excluded merely because the Union also undertook to pay the costs. It is necessary to go a step further and prove that there was a bargain, either between the Union and the solicitors, or between the plaintiff and the solicitors, that under no circumstances was the plaintiff to be liable for costs“ [Emphasis as per submissions]

44. In Mr Minto’s submission, what is necessary before the indemnity principle can operate is that the Court be satisfied that he was not “under any circumstances” liable for the solicitor’s costs.

45. It is said that, while the fee disclosure letter confirmed that Re.Group had agreed to pay for any costs incurred in the solicitors’ engagement with Mr Minto, this does not establish, on its proper construction, that under no circumstances would Mr Minto be liable for the solicitors’ costs. In Mr Minto’s submission, the proper construction of that sentence, in light of the other terms of the fee disclosure letter, is that it merely acknowledges an indemnity in favour of Mr Minto from Re.Group in respect of his costs but that, otherwise, Mr Minto remains liable at all times for the solicitors’ costs.

46. In that regard, the following are noted: that Re.Group is not a party to the fee disclosure letter (it being between the solicitors and Mr Minto); the reference to the “agreement” does not on its terms refer to any agreement between the solicitors and Re.Group (and does not refer to an agreement between those parties that Mr Minto would not be liable to the solicitors to pay the costs if Re.Group did not pay the costs incurred); and that other terms of the letter clearly demonstrate an obligation on Mr Minto to pay costs (referring to the sections dealing with “Next Steps”, “Standard Terms” and “Your Responsibilities”).

47. Accordingly, it is submitted that the indemnity principle does not operate; and that the circumstances of the present case are not materially different from those in Harden. It is said that Harden was a case, such as the present, where claims were made by an employer that its former employee breached post-employment obligations; and it is noted that the former employer obtained concessions or admissions under cross-examination from the employee that his new employer was paying his costs (at [12]) but that, nevertheless, relying on McColl JA’s decision in Dyktynski (at [95]), and the decision of the Full Federal Court in Cristovao, Sackar J still held that a costs order could be made against the former employer (at [19]-[21]).

48. It is said that Sackar J, consistent with those decisions, effectively endorsed the proposition that the indemnity principle does not preclude an order for costs where a party with a real interest in the litigation had paid the costs. It is noted that McColl JA in Dyktynski (at [95]) said in those circumstances that:

Applying the indemnity principle to ensure that a real party with an interest in the litigation can recover the costs incurred in proceedings brought in another’s name accords with the proposition that “it is just and reasonable that the party who has caused the other party to incur the costs of litigation should reimburse that party for the liability incurred”: Latoudis v Casey.

49. Thus, Mr Minto argues that TOMRA should be ordered to pay his costs of the proceedings.

Determination

50. It is not disputed that there is a broad discretion in relation to costs orders (s 98 of the Civil Procedure Act 2005 (NSW)), that discretion to be exercised judicially (see Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [22] per Gaudron and Gummow JJ); and, I would add, having regard to the requirement imposed by s 56 of the Civil Procedure Act 2005 (NSW) that, in exercising this power, the Court must give effect to the overriding purpose of the facilitation of the just, quick and cheap resolution of the real issues in dispute in the proceedings.

51. Lest there be any doubt as to the existence of the discretion in this regard, I was taken in submissions to Australian Unity Funds Management Ltd v NorthWest Healthcare Australia RE Ltd [2021] NSWSC 1039 per Black J (at [13]) where his Honour noted authority for the proposition that the default order in r 42.20 of the UCPR (a similar provision to r 42.19 of the UCPR) did not establish a presumption in relation to the costs order to be made (citing Fordyce v Fordham (2006) 67 NSWLR 497; [2006] NSWCA 274 per McColl JA, with whom Beazley JA, as Her Excellency then was, agreed); and that an order contrary to the default order will involve an exercise of discretion to depart from that position contemplated by the rule “where some sound positive ground or good reason for departing from the ordinary course” is established (citing Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [10], [54]; Bitannia at [54] per Hodgson JA).

52. Where a matter has not proceeded to a contested hearing on the merits, reference is customarily made to the general rule that the Court will make no order as to costs (Re Minister for Immigration & Ethnic Affairs: Ex parte Lai Qin (1997) 186 CLR 622 at 625; [1997] HCA 6 (Lai Qin)). In Lai Qin, reference was made to the need in those circumstances (for there to be a costs order in favour of one party) to show that the other party’s conduct had been so unreasonable as to warrant such an order.

53. In cases such as Freelancer International Pty Ltd v Matthew O’Kane [2019] NSWSC 159 and Murrumbidgee Irrigation Ltd v M & H Acar Pty Ltd [2019] NSWSC 807 (Acar), I have considered the application of those principles to cases where (as here) the exercise of the discretion as to costs arises under r 42.19 of the UPCR following a discontinuance of proceedings; with a different result following in each of those cases for the reasons there set out. Reference was made in submissions to the decision of Darke J in Crosby v Hanley [2021] NSWSC 507 where the discretion was exercised in the context of discontinuance of a claim for private nuisance; and his Honour there referred (at [14]) among other authorities to OPENetworks Pty Ltd v Myport Pty Ltd [2019] FCA 1659.

54. Matters to be taken into account when exercising the costs discretion in this context can include whether the plaintiff has in any sense abandoned its claims (see Bitannia at [71]); or whether supervening events have overtaken the position at the commencement of the proceedings rendering further prosecution of them otiose (see In the matter of HCafe Chatswood Pty Ltd [2018] NSWSC 362 (HCafe) at [8]). In that context, although Mr Minto has pointed to the lack of explanation for the discontinuance of the proceedings, it seems to me reasonable to infer that (Lindsay J having determined that TOMRA’s position was adequately protected in an interlocutory sense by the undertakings proffered; the non-compete restriction being shortly to expire in February 2022; and the concerns as to Mr Minto taking up a position with the Re.Group group of companies having been overtaken by events by then) a decision was taken that there was no commercial advantage or necessity for TOMRA to pursue the substantive relief sought in the proceedings. In effect, that seems to me to be somewhat of an amalgam between the positions considered in Bitannia and HCafe; and I draw nothing from this.

55. Also relevant is the conduct of the parties in relation to the conduct of the litigation (whether the plaintiff acted reasonably in commencing them and the defendant acted reasonably in defending them, for example), as well as the question whether the result achieved (albeit by consent) is one that would not have been able to be achieved without the commencement of the litigation (issues of the kind that I considered in Acar).

56. What is clear is that it is inappropriate to embark upon an exercise of trying an hypothetical action in order to determine the question of costs (see Lai Qin; and more recently Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 at [8]-[9] per Basten JA with whom Meagher JA agreed, and Payne JA). So, for example, it is not possible on the present application to make any determination as to disputed issues such as whether Re.Group is a competitor of TOMRA or as to the reasonableness of the post-employment restraints; nor is it possible to determine whether the modification of the 16 July Undertakings into the 5 August Undertakings was determinative of the interlocutory application before Lindsay J. Payne JA confirmed (at [30]) that:

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.

57. In the present case, while there is, in effect, complaint as to the commencement of the proceedings in light of the 16 July Undertakings that had been proffered by Mr Minto, I accept that it was not unreasonable for TOMRA to harbour the concerns that led it to the commencement of the proceedings in the first place (although at least some of the complaint made as to the terms of the initial undertakings – such as the 14 days’ notice provision – seems not to have been raised in correspondence at the time; and hence Mr Minto did not have the opportunity of addressing such a complaint before the commencement of proceedings).

58. As to the position after the proffering of the 5 August Undertakings, while I do not suggest that it was unreasonable to pursue the application for interlocutory relief beyond that point, the fact that they were not accepted though Lindsay J found them to have adequately protected the position of TOMRA on an interlocutory basis) lends support to the conclusion that TOMRA was unlikely to be satisfied with something much less than holding Mr Minto out of employment with Re.Group until February 2022. Whether or not that be the case, TOMRA was in effect unsuccessful on the application for interlocutory relief, albeit that it obtained the benefit of the undertakings given voluntarily and without admission by Mr Minto. Moreover, the fact that Mr Minto was willing to proffer undertakings in the first place (and to modify those undertakings in order to address TOMRA’s concerns) means that it cannot be said, in my opinion, that the litigation was necessary in order to obtain something that could not otherwise have been obtained without the commencement of proceedings.

59. Thus, leaving aside the potential application of the indemnity principle, I would be of the view that there was no good reason to depart from the default position as to costs on a discontinuance of proceedings in this case. The question then is whether the application of the so-called indemnity principle would require a different outcome.

60. Mr Minto submitted that the indemnity principle is not engaged because on no proper construction of the fee disclosure letter could it be said that Mr Minto would in no circumstances be liable for legal costs (the letter simply noting that Re.Group had agreed to pay for any costs incurred in the solicitors’ engagement with Mr Minto). In particular, as noted above, Mr Minto points to the fact that Re.Group is not a party to the retainer agreement, and thus it is submitted that it cannot be said there is no circumstance in which Mr Minto might not ultimately be liable for costs. (In this context, it may also be relevant that, as a result of the refusal by TOMRA to serve the confidential material in the proceeding on Mr Minto’s solicitors while they continued to act for Re.Group, in the course of the proceedings Mr Minto’s solicitors ceased to act for Re.Group; the impact of which on the company’s willingness to meet any costs of the litigation remains unknown and untested.)

61. Further, it is said that (given that the relief sought would have prevented Mr Minto from working for the Re.Group group of companies) Re.Group had a real interest in the litigation; and in those circumstances the indemnity principle would not apply in any event.

62. I have concluded, essentially for the reasons put forward by Mr Minto, and adopting the approach taken by Sackar J in Harden, that the indemnity principle does not apply (there being sufficient doubt as to whether Mr Minto might ultimately be required to meet his solicitors’ costs and in any event Re.Group having a direct interest in the outcome of the proceedings); and that, even if Re.Group remains willing to indemnify Mr Minto for his costs, this should not in the circumstances result in the exercise of the costs discretion in TOMRA’s favour. At the very least, from the provision of the 5 August Undertakings TOMRA received all that that it was ultimately able to obtain on an interlocutory basis; and before then it is clear that there was a willingness on Mr Minto’s part to provide assurances that would obviate the need for costs to be incurred in litigation.

57. Accordingly, I have concluded that there is no good reason to depart from the default position under r 42.19 of the UCPR.

Order

64. For the above reasons, I make the following order:

1. Order the plaintiff to pay the defendant’s costs of the proceedings on the ordinary basis.

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Decision last updated: 18 October 2021