Transfield Services (Australia) Pty Limited v James Gaha
[2012] NSWSC 865
•03 August 2012
Supreme Court
New South Wales
Medium Neutral Citation: Transfield Services (Australia) Pty Limited v James Gaha [2012] NSWSC 865 Hearing dates: 29 June 2012 Decision date: 03 August 2012 Jurisdiction: Equity Division Before: Ball J Decision: See paragraphs 38 and 39 of this judgment.
Catchwords: PROCEDURE - costs - where no hearing on merits and proceedings resolved by consent - general principle that parties should bear their own costs - whether this general principle should be departed from - where defendant has effectively capitulated - whether plaintiff acted unreasonably in continuing proceedings after multiple offers of settlement in circumstances where extent of defendant's improper conduct unknown. Legislation Cited: Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Calderbank v Calderbank [1975] 3 All ER 333
Fire Containment Pty Ltd v Robins (No 2) [2011] NSWSC 547
Re Minister for Immigration and Ethnic Affairs (Cth); Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622Category: Costs Parties: Transfield Services (Australia) Pty Limited (Plaintiff)
James Gaha (Defendant)Representation: AP Cheshire (Plaintiff)
PC Moorhouse (Defendant)
Minter Ellison (Plaintiff)
Whittens Lawyers & Consultants (Defendant)
File Number(s): 2011/106083
Judgment
Introduction
The defendant, Mr Gaha, was formerly an employee and director of the plaintiff, Transfield Services. On 7 January 2011, he resigned from his position and indicated that he intended to take up a position with a competitor. He was placed on gardening leave until 6 April 2011, but remained an employee during that time.
Following Mr Gaha's resignation, Transfield Services discovered evidence that suggested that Mr Gaha had copied onto various electronic devices, including his home computer, extensive information regarding the business of Transfield Services. Transfield Services then commenced these proceedings ex parte on 1 April 2011 seeking various orders preventing the use or dissemination of that information and also seeking interlocutory orders preserving all electronic devices for the purpose of a forensic examination.
The court granted ex parte orders in the terms sought by Transfield Services. Those orders were varied by consent on 14 April 2011. On 20 April 2011, again by consent, a number of the orders made on 1 April 2011 were extended until further order either in their original or in a varied form and further orders were made for the examination of various electronic devices belonging to Mr Gaha. Following examination of those devices by an expert, directions were made on 1 September 2011 for the proceedings to continue on pleadings. Transfield Services filed a statement of claim on 7 November 2011. In the meantime, there was without prejudice correspondence between the parties in an attempt to settle the proceedings. Ultimately, the proceedings were settled on the basis of consent orders. Paragraph 8 of the consent orders provided:
Any party which seeks to make an application in relation to the costs of the proceedings is to file such application along with any supporting evidence within 21 days of the date of these orders.
Both Transfield Services and Mr Gaha have filed motions in accordance with paragraph 8 of the consent orders. By its motion filed on 3 April 2012, Transfield Services seeks its costs on an indemnity basis or alternatively on the ordinary basis. It submits that it was substantially successful in the proceedings and should have its costs for that reason. By his motion filed on 4 April 2012, Mr Gaha seeks his costs on the basis that it was unreasonable for Transfield Services to commence and to pursue the proceedings. Mr Gaha's primary position is that he should be entitled to all his costs on the basis that the proceedings should never have been commenced. Mr Gaha makes various alternative submissions that it was unreasonable of Transfield Services to persist with the proceedings beyond certain specified times.
It is those competing claims that is the subject of this judgment.
Factual background
It is necessary to begin by saying something more about the background to the proceedings.
As I have said, Mr Gaha resigned and was placed on gardening leave on 7 January 2011. From that point in time he had no access to Transfield Services' computer system.
On 21 February 2011, Mr Gaha returned his company laptop.
On 10 March 2011, Mr Gaha returned an AVEVA USB device which contained information belonging to Transfield Services and Transfield Services asked Mr Gaha to sign an acknowledgement that he had returned all company property. On 18 March 2011, Mr Gaha signed and returned to Transfield Services that acknowledgement.
Transfield Services arranged for a computing expert to examine the AVEVA USB device. That examination revealed that the files on the device were copied to it on 9 March 2011 and were copied from a device other than Mr Gaha's company laptop (which had been returned on 21 February 2011).
Following discovery of those matters, Transfield Services commenced these proceedings by summons seeking the following relief:
1. An order that the Defendant deliver up to the Plaintiff any property belonging to the Plaintiff.
2. An order that the Defendant deliver up to the Plaintiff any confidential information belonging to the Plaintiff.
3. An order that the Defendant deliver up to the Plaintiff any and all copies of the whole or any part of any of the files set out on pages 43 to 68 at Tab 13 of the exhibit ECH1 to the affidavit of Elizabeth C. Hunter sworn 31 March 2011.
4. A final and interlocutory order that the Defendant, whether by himself or through partners, employees, agents or others acting on his behalf or on his instructions or with his encouragement or in any other way, be restrained from disclosing to any person, corporation or other entity or removing from Australia:
a. any confidential information belonging to the Plaintiff; and
b. the whole or any part of any of the files set out on pages 43 to 68 at Tab 13 of the exhibit ECH1 to the affidavit of Elizabeth C. Hunter sworn 31 March 2011.
5. An interlocutory order that the Defendant, whether by himself or through partners, employees, agents or others acting on his behalf or on his instructions or with his encouragement or in any other way, be restrained from:
a. altering or deleting any data on any personal computer, hard drive, DVD, CD, USB Device or other data storage device now or at any time in the future in his custody, possession or control;
b. destroying or otherwise taking any step likely to interfere with the ability to retrieve data from any personal computer, hard drive, DVD, CD, USB Device or other data storage device now or at any time in the future in his custody, possession or control;
c. removing from Australia any personal computer, hard drive, DVD, CD, USB Device or other data storage device now or at any time in the future in his custody, possession or control.
6. Further or other relief.
7. Costs.
On 1 April 2011, the court relevantly made the following order (order 3) ex parte:
Up to including 4 April 2011 the Defendant, whether by himself or through partners, employees, agents or others acting on his behalf or on his instructions or with his encouragement or in any other way, is restrained from disclosing to any person, corporation or other entity or removing from Australia:
a. any confidential financial strategy or tendering information relating to the Plaintiffs infrastructure division and
b. the whole or any part of any of the files set out on pages 43 to 68 at Tab 13 of the exhibit ECH1 to the affidavit of Elizabeth C. Hunter sworn 31 March 2011.
The court also made an order (order 4) restraining Mr Gaha from altering or deleting any data on "any personal computer, hard drive, DVD, CD, USB Device or other data storage device now or at any time in the future in his custody, possession or control" until 5 April 2011.
There were difficulties in serving Mr Gaha and, as a result, the orders made on 1 April 2011 were extended ex parte on 5 April 2011 until 7 April 2011 and again on 7 April 2011 until 19 April 2011.
After Mr Gaha had been served, on 12 April 2011, Whittens, Mr Gaha's solicitors, wrote to Minter Ellison, Transfield Services' solicitors. In that letter, which was expressed to be without prejudice except as to costs, Whittens said:
The data on the USB stick was copied from both a Western Digital My Passport and from our client's home computer. Our client copied the data to the USB stick in order to comply with your client's request that it be returned.
The letter also refers to an Imation USB device, on to which Mr Gaha had copied files.
In fact, according to subsequent forensic investigations:
- On 6 January 2011, Mr Gaha copied a large number of work files onto his home computer. Those files included a large number of files that were not copied onto the AVEVA USB device;
- On 8 March 2011, Mr Gaha copied work files onto the Western Digital hard drive;
- On 9 March 2011, Mr Gaha copied work files onto the Imation USB device.
The letter from Whittens went on to make the following offer:
Moving forward
Our client proposes to satisfy your client's concerns, and give your client undertakings which correspond with all of the final relief sought in the summons (except for costs), by:
1. providing undertakings that correspond with orders 1, 2, 3 and 4 in the summons, including undertakings that restate his obligations of confidence;
2. making his computer and other electronic devices available for review by your client's forensic experts; and
3. subject to agreement on which files are to be deleted, making all electronic devices containing your client's data available to your client's forensic expert to perform the deletions and to confirm to the parties that the deletions have occurred.
Undertakings
Our client is prepared to give undertakings:
(a) that he will deliver up to your client any of its property or confidential information, including all copies of the files referred to in proposed order 3 of the Summons; and
(b) to continue to be bound by his obligations of confidence flowing both from his employment and the deed of confidentiality dated 7 May 2007, and for those undertakings to be framed in terms of the relief sought at paragraph 4 of the summons.
The second of those undertakings is otiose, in that our client is abiding by his obligations of confidence anyway, and is offered in circumstances where you [sic] client has not provided any proper basis for suggesting that our client will not abide by his obligations of confidence and accordingly would not be able to obtain a final order to that effect. However, the undertaking is offered in case your client will take some comfort from our client restating his obligations.
The letter made it clear that the costs of the independent expert were to be borne by Transfield Services.
Minter Ellison responded to Whittens' letter on 14 April 2011 saying that Transfield Services was prepared to explore settlement with Mr Gaha "involving undertakings to the Court and delivery up" subject to two important matters. The first of those was that Transfield Services needed to be satisfied that there had been no use or disclosure of the confidential information by Mr Gaha. For that purpose, it proposed that an independent expert conduct a forensic examination of Mr Gaha's computer and other relevant devices and that Mr Gaha swear an affidavit explaining what confidential information he had retained and what use and disclosure he had made of it. The second was that Mr Gaha agree "to pay, or at least make a very significant contribution to, Transfield Services' costs".
Following that letter, on 20 April 2011, the court made orders by consent continuing orders 3 and 4 made on 1 April 2011 (with some variations) until further order and made detailed orders for the examination of Mr Gaha's computer and other devices by a computer expert. That computer and those devices were delivered to the expert on 27 April 2011 for that purpose.
The expert completed his examination on or about 7 July 2011. The parties then went through the list of files identified by the expert seeking to classify them and, in particular, to identify which of the files contained information belonging to Transfield Services.
On 25 August 2011, Whittens wrote to Minter Ellison asserting that the examination by the computer expert had not revealed the existence of any further devices or the disclosure or use of any of Transfield Services confidential information. Whittens asserted that Transfield Services had obtained all the orders it needed to protect its business interests by 20 April 2011 and that the only outstanding issue appeared to be costs. The letter went on to say:
If your client disagrees that the proceedings ought now be concluded it should promptly plead a case that it has suffered damages.
At a directions hearing held on 1 September 2011, directions were made for the case to continue on pleadings.
On 8 September 2011, Minter Ellison sent Whittens a without prejudice letter setting out the terms on which Transfield Services was prepared to settle the proceedings. Those terms included orders that all relevant devices be destroyed, that the independent expert be permitted to inspect emails on the relevant devices for the purpose of ensuring that there had been no disclosure of confidential information, that Mr Gaha provide an affidavit in the terms previously proposed, that Mr Gaha consent to an injunction preventing any use or disclosure of "TSA Information" and that Mr Gaha pay 90 percent of Transfield Services' actual costs which were said to be "in the order of $250,000 plus GST". The letter defined "TSA Information" to mean:
(i) the TSA Files; and
(ii) other information relating to TSA [that is, Transfield Services] (including tender and strategy information) to which Mr Gaha had access during his employment with TSA other than information which is in the public domain.
"TSA Files" was defined to mean "the files identified in the investigation as belonging to TSA and will be listed in a schedule to the agreement".
Whittens responded to that offer on 26 September 2011. In that response they proposed relevantly:
1. the existing orders and undertakings continue;
2. the storage medium on all relevant devices be destroyed before the remaining computer hardware associated with devices is returned to our client (subject to your expert confirming this is appropriate - in the absence of such confirmation the devices to be destroyed);
3. although an affidavit is unnecessary, given the existing orders and undertakings, our client will provide an affidavit confirming that he has not breached your client's confidence and addressing the matters at point 3 of your without prejudice letter;
4. ...
5. the proceedings to be otherwise dismissed, with each party to bear its own costs of the proceedings, or, alternatively at your client's choice,
6. the proceedings to be otherwise dismissed save as to costs, with any party seeking to make any application in relation to the costs of the proceedings to do so within 21 days.
Minter Ellison did not respond to that letter. However, on 7 November 2011, they filed a statement of claim. That statement of claim did not claim damages. Nor did it allege that Mr Gaha had used or disclosed any information belonging to Transfield Services.
Mr Gaha was late in filing his defence. Ultimately, directions were made by consent requiring Mr Gaha to file his defence or to file a motion seeking to strike out the proceedings on the basis that their continuation was an abuse of process. Mr Gaha chose the latter course.
There was then further discussion between the parties resulting in consent orders disposing of the proceedings. The orders are extensive, but in substance:
- Mr Gaha undertook to the court not to use or to disclose any confidential information relating to Transfield Services and its associates and their respective businesses including, but not limited to, a long list of information which was described by reference to its subject matter (for example, confidential financial information) and by reference to all the files which had been identified on Mr Gaha's computer and storage devices;
- Mr Gaha undertook to the court to deliver up to Transfield Services any physical property, hard copies of confidential information and hard and electronic copies of specified files belonging to it;
- The court ordered that Mr Gaha file and serve an affidavit confirming that he has not used or disclosed any confidential information and that he has complied with the undertakings given to the court on 20 April 2011;
- It was agreed that the computer expert could permanently destroy all data on Mr Gaha's computer and devices and could then return them to Mr Gaha.
Relevant legal principles
The general rule in relation to costs is that costs follow the event unless it appears to the court that some other order should be made: Uniform Civil Procedure Rules 2005, r 42.1. Where proceedings are finalised without a hearing on the merits, there is no event to "enliven" the operation of UCPR r 42.1: Fire Containment Pty Ltd v Robins (No 2) [2011] NSWSC 547 at [11] per Gzell J. Nor is it appropriate for the court to embark on an inquiry of what the outcome would have been. Consequently, where proceedings are settled and no order for costs has been agreed, it is generally appropriate that each party bear their own costs: Re Minister for Immigration and Ethnic Affairs (Cth); Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 at 624-5 per McHugh J. There are, however, two exceptions to that general principle. One is where one of the parties has acted so unreasonably that the other party should obtain the costs of the action. The other is where the court is confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried: Lai Qin at 624-5. One instance where the court may be satisfied that that is the position is where the consent orders agreed by the parties amount, in effect, to capitulation by one of the parties.
In addition to these principles, it may be appropriate in accordance with the principles established in Calderbank v Calderbank [1975] 3 All ER 333 to make a special costs order in relation to costs incurred after one party has made an offer of compromise and the other party has ultimately done no better than that offer. However, it is doubtful whether those principles add anything in the context of this case. The relevant question in this case is whether Transfield Services acted unreasonably in pursuing its case having regard to the position taken by Mr Gaha. That question turns on whether it was unreasonable to pursue the case in circumstances where Mr Gaha at an early stage had made offers to settle it. The answer to that question depends on a comparison of the offers that were made, and the reasons those offers were rejected, with the settlement that was ultimately agreed.
Was Transfield Services almost certain to succeed in the proceedings?
In my opinion, on the evidence available, it was. The evidence from Transfield Services' computer expert was that Mr Gaha had copied to his home computer and other storage devices confidential information belonging to Transfield Services. Transfield Services was entitled to an order that that information be returned to it - which was the effect of the consent orders. In obtaining the consent orders, Transfield Services was successful in obtaining the relief that it sought. The starting point, then, is that Mr Gaha should pay Transfield Services' costs, although in my opinion there is no basis for concluding that those cost should be paid on an indemnity basis. The question is whether some other costs order should be made because Transfield Services pursued the case notwithstanding the offers made by Mr Gaha.
Did Transfield Services act unreasonably in pursuing its claim for relief?
Mr Gaha put his case that Transfield Services acted unreasonably on various alternative bases.
First, he submitted that it was unreasonable for Transfield Services to commence these proceedings at all without notice and that if notice had been given Mr Gaha would have agreed to the orders ultimately sought in the summons, making the proceedings unnecessary. I do not accept that submission. Transfield Services had evidence which suggested that Mr Gaha had kept copies of information belonging to it without its agreement. I do not think it was unreasonable in those circumstances for Transfield Services to commence the proceedings without notice.
Second, Mr Gaha submitted that it was unreasonable for Transfield Services to pursue its case after 14 April 2011, when Minter Ellison responded to the offer from Whittens made on 12 April 2011. In that offer, Whittens indicated that Mr Gaha was prepared to give undertakings in terms of the orders sought in paragraphs 1 to 4 of the summons and to make his computer and other electronic devices available for inspection, provided Transfield Services bore the costs of inspection. Mr Moorhouse, who appeared for Mr Gaha, submitted that, if Transfield Services had accepted that offer, it would have obtained all the orders it sought in the summons, and it was therefore unreasonable for Transfield Services to continue with the proceedings.
I do not accept that submission. It is true that, if the offer had been accepted, Transfield Services would have obtained in substance all the final relief that it sought in the summons. I accept that normally it would be unreasonable for a plaintiff to continue proceedings once an offer in those terms had been made. However, in this case it is important to bear in mind that the proceedings were commenced on an urgent basis when Transfield Services did not know and had no means of ascertaining all the relevant facts. It was for that reason it also sought an interlocutory order giving it access to Mr Gaha's home computer and other storage devices. It was reasonable to anticipate that Transfield Services may have needed to amend the relief that it sought once it had obtained further information. If the only final orders Transfield Services sought were the orders identified in the summons then, once Mr Gaha agreed to those orders, there was no utility in the order for access. Neither party, however, proceeded on that basis. Transfield Services wanted access to determine whether it should seek other final relief, and Mr Gaha accepted (properly, in my view) that it was appropriate for Transfield Services to adopt that course, admittedly on the basis that Transfield Services should bear the costs of the expert. The important point, however, was that Mr Gaha did not assert that an order for access was not appropriate because he was prepared to agree to all of the final relief that Transfield Services had and, for the reasons I have given, I do not think that it was open to Mr Gaha to make that assertion at that stage. In those circumstances, it was not unreasonable for Transfield Services to continue the proceedings.
Third, Mr Gaha submitted that it was unreasonable for Transfield to pursue the proceedings after the court made the orders on 20 April 2011. I do not accept that submission. The orders made by the court included detailed interlocutory orders relating to the inspection of Mr Gaha's computer and other electronic storage devices. Those orders were interlocutory orders which could not remain in effect following final resolution of the proceedings. For the reasons I have given, it was reasonable for Transfield Services to keep the proceedings on foot to obtain the benefits of those orders. The fact that the investigations ultimately did not reveal the existence of any further copies of confidential information does not make the investigations themselves unreasonable.
Fourth, Mr Gaha submitted that it was unreasonable for Transfield Services to continue the proceedings following the offer made by Whittens on 26 September 2011. At the time that offer was made, Transfield Services had conducted its investigations and had not discovered any use of confidential information or any further copies of confidential information belonging to it. The offer was an offer to continue the existing orders and undertakings, which corresponded to the final relief in the summons. Mr Gaha also agreed to the destruction of the relevant data on all storage devices and agreed to swear an affidavit confirming that he had not breached Transfield Services' confidence. He proposed that each party bear his or its own costs of the proceedings or alternatively that the court determine the question of costs. Mr Cheshire, who appeared for Transfield Services, submitted that it was reasonable for Transfield Services to refuse to accept that offer because Minter Ellison in its letter dated 8 September 2011 had proposed more detailed orders in place of the orders made on 20 April 2011. By Whittens letter dated 26 September 2011, Mr Gaha rejected that offer, although ultimately Mr Gaha agreed to those more detailed orders.
I do not accept Mr Cheshire's submission. The offer made in Whittens letter dated 26 September 2011 gave Transfield Services all the orders it sought in its summons and more. By that stage, the expert had completed his investigations. No further breaches of confidence were revealed by that investigation. Whittens' proposal to deal with the disputed issue of costs was a reasonable one. The final orders agreed between the parties were more detailed than those sought in Minter Ellison's letter dated 8 September 2011 and those that were ultimately agreed. However, I do not think it could be said that the orders were significantly different in substance. As I have said, the offer made by Whittens reflected what was sought in the summons. In my opinion, it was unreasonable for Transfield Services to pursue the proceedings from that time.
Mr Gaha seeks his costs on an indemnity basis from 26 September 2011. However, in the circumstances of this case, I do not think that it is appropriate to award costs on that basis. Mr Gaha ultimately agreed to the form of orders sought by Transfield Services in Minter Ellison's letter dated 8 September 2011; and I do not think Transfield Services' conduct was so unreasonable to justify an order for indemnity costs.
Orders
It follows that the defendant should pay the plaintiff's costs up to and including 26 September 2011. With one qualification, the plaintiff should pay the defendant's costs from 27 September 2011.
The qualification is that each party has been partially successful in relation to the question of costs. In those circumstances, there should be no order for costs in relation to the motion filed by Transfield Services on 3 April 2012 and the motion filed by Mr Gaha on 4 April 2012.
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Decision last updated: 03 August 2012