Europa International Pty Ltd v Child (No 2)

1. [1]

   HIS HONOUR: On 8 July 2016, I gave judgment which, in substance (and despite the plaintiff’s attempts to rewrite history), found in favour of the defendants: [2016] NSWSC 923. In these reasons, I deal with the costs applications made by each party.

Background

1. [2]

   To give content to, and facilitate an understanding of, what follows, I set out [1] to [3] of my earlier reasons:

The issues in dispute in the previous hearing

1. [3]

   The issues that were contested between the parties, and that were resolved (to the extent necessary) by my earlier reasons were as follows:

How those issues were resolved

1. [4]

   I concluded that:

   1. (1)

      the confidentiality of the specification of the dry and wet ingredients and additives used to make Europa’s aromatic bitters product, including the respective quantities of those ingredients and additives, could be assumed (but not found), because if those matters were truly confidential, Europa’s interest was adequately protected by the undertakings that the defendants had given to the Court.

   2. (2)

      In any event, there was no evidence of misuse or threatened misuse of that information.

   3. (3)

      Europa’s method of manufacture was not confidential.

   4. (4)

      The only other confidential information identified was financial information of Europa that the defendants had taken with them when they left its employ.

   5. (5)

      There was no evidence of misuse or threatened misuse of that financial information.

2. [5]

   I found that neither Mr Child nor Ms Reddy had entered into any confidentiality agreement. It followed that issues 5 and 6 did arise.

3. [6]

   I found that to the extent there was any “know-how” involved in Europa’s method of manufacture of aromatic bitters (as distinct from the actual recipe to which that method was applied), it had become an integral part of Mr Child’s own know-how, or stock of knowledge, skill and experience. Accordingly, I found, there was no basis for restraining Mr Child from using, otherwise than for the purposes of Europa, his own knowledge, skill and experience.

4. [7]

   In essence, the resolution of these issues followed the resolution of issues 1 to 3. It is however important to repeat that there was no evidence of actual or threatened misuse of any of Europa’s information that could be assumed to be, or properly described as, confidential.

5. [8]

   I found that Europa’s interests were adequately protected by the undertakings that the defendants had given, and thus that there was no case made out for any further or other relief.

6. [9]

   The issues of fact that occupied the great bulk of the hearing were those relating to Europa’s recipe and its method of manufacture, and those relating to the confidentiality agreements that, Europa asserted, Mr Child and Ms Reddy had made. It is important to note at this point that I regarded the evidence of Europa’s principal witnesses – Mr Raj Beri, Mr Anil Beri and Mr Thomas – as unsatisfactory (in the case of the first-named, dishonest in part). My conclusions as to the credibility of those principal witnesses essentially dictated the findings of fact that I made.

7. [10]

   It is also important to note that I concluded that Europa was using its claim for confidentiality in an attempt to suppress competition from the defendants.

The costs issues

1. [11]

   The defendants sought an order that Europa should pay their costs on the ordinary basis up until 1 or alternatively 18 December 2015, and thereafter on the indemnity basis. The claim for indemnity costs was based on the service of what they said was a Calderbank offer on the former date, open for acceptance up until the latter. The defendants submitted that:

   1. (1)

      the offer was not accepted (this is non-contentious); and

   2. (2)

      the outcome to Europa of the orders etc proposed by the Calderbank offer was more favourable to it than the outcome of the proceedings.

2. [12]

   Europa proposed four alternative costs orders:

   1. (1)

      that the defendants pay 90% of its costs;

   2. (2)

      that the defendants pay 30% of its costs;

   3. (3)

      that each party pay its own costs; or

   4. (4)

      that it pay 70% of the defendant’s costs.

3. [13]

   In support of that surprising variety of orders, Europa submitted that, contrary to the conclusion I had expressed, it had not substantially failed but, rather, had succeeded. The proposition that it had succeeded was based on the defendants’ acknowledgment (which I recorded) that they remained bound by their undertakings given to the Court, according to their terms.

4. [14]

   Alternatively, Europa submitted, costs ought to be apportioned to reflect what it said was the parties’ relative success or failure on five issues that it identified, said to be “clearly capable of demarcation”, in the proceedings. Those issues, Europa submitted, were:

5. [15]

   Europa and the defendants provided detailed submissions, in chief and in reply, in support of their respective positions. They also sought to rely on affidavit evidence. In large part, that evidence was apparently tendered to put before the Court the way in which the parties had dealt with each other both at the time of the interlocutory hearing on 8 July 2015 and thereafter up until the hearing. Much of that evidence was, at best, repetitious, and otherwise of minimal relevance to the costs question.

6. [16]

   I do not propose to burden the reader of these reasons with references to the detail of the parties’ submissions or of the evidence.

Decision

1. [17]

   The starting point is that:

   1. (1)

      by s 98 of the Civil Procedure Act 2005 (NSW), costs are in the discretion of the Court; and

   2. (2)

      ordinarily (or as a “default position”), costs will follow the relevant event (r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW)).

2. [18]

   In this case, the relevant event was that, although recognising that the defendants remained bound by their undertakings to the Court, I dismissed Europa’s claim against them. I do not agree that recognition of the continuing force of the defendants’ undertakings demonstrates that Europa succeeded. It had the benefit of those undertakings, and the protection that they afforded, from 8 July 2015. If that protection were in substance the outcome that Europa sought to achieve, there was no need for it to proceed beyond 8 July 2015. The very fact that Europa was not content to rest on those undertakings, but pressed its other claims for relief with great vigour, demonstrates that the real event, for the purpose of r 42.1, was the balance of the relief that Europa sought.

3. [19]

   Thus, I remain of the view that costs should follow the substantive event: the dismissal (save for acknowledgement of the undertakings) of Europa’s claim.

4. [20]

   Before turning to the defendants’ claim for indemnity costs, I should deal with Europa’s submissions on what it said were the five separate issues in the proceedings.

5. [21]

   The general position is that where there are multiple issues, the Court does not seek to differentiate between them for the purpose of fashioning a costs order. There are cases that recognise that separate costs orders may be made where there is “a particular issue or group of issues [that] is clearly dominant or separable”, in respect of which success and failure do not follow the outcome of the proceedings overall: Bostik Australia Pty Ltd v Liddiard (No. 2) [2009] NSWCA 304 at [38].

6. [22]

   This is not an appropriate case to seek to divide up the issues. The whole of Europa’s case was put in issue. It succeeded in persuading me that its financial information was confidential (and the defendants did not seriously contest this position, at either the evidentiary level or at the level of principle). Otherwise (apart from my assuming that the recipe for bitters was confidential), Europa failed. Specifically, Europa failed:

   1. (1)

      to demonstrate that its method of manufacture was confidential;

   2. (2)

      to demonstrate that Mr Child and Ms Reddy had entered into confidentiality agreements; and

   3. (3)

      to demonstrate that Mr Child’s stock of knowledge, skill and experience was Europa’s protectable confidential information as opposed to Mr Child’s own unprotectable know-how;

   4. (4)

      to demonstrate any misuse or threatened misuse of information that was either assumed or shown to be confidential; and

   5. (5)

      to demonstrate that it required any protection beyond the undertakings that the defendants had given to the Court.

7. [23]

   Even if there were, as was submitted for Europa, clearly demarkable separate issues in the proceedings, its level of success was not such as to warrant any attempt to apportion success or failure on those issues and reflect that success or failure in a costs order. At the risk of repetition:

   1. (1)

      I found that Mr Child and Ms Reddy did not enter into confidentiality agreements;

   2. (2)

      I assumed, but did not find, that Europa’s aromatic bitters recipe was confidential, but found that there was no actual or threatened misuse;

   3. (3)

      I found that Europa’s licensing arrangements with Sultry Spirits were not confidential, and that there was no actual or threatened misuse;

   4. (4)

      I found that the method of manufacture was not confidential; and

   5. (5)

      I found that the plaintiff’s records of suppliers and customers were not confidential; its financial information was; but that there was no evidence of actual or threatened misuse of that information.

8. [24]

   Even if those issues were “clearly dominant or separable” (and in my view they were not), there is no reason why the costs incurred in respect of them should not follow the outcome of the proceedings overall; to the contrary, there is every reason why they should.

9. [25]

   The background to the making of the Calderbank offer is important. On 5 July 2015, the defendants’ solicitor wrote to Europa’s solicitors, with reference to the interlocutory hearing listed for 8 July 2015, setting out the undertakings to the Court that the defendants were prepared to give (and did give) on 8 July 2015. Either then or shortly thereafter, the defendants’ solicitor confirmed that the undertakings were given “generally”.

10. [26]

    The undertakings were noted on 8 July 2015. No further orders (of present relevance) were made.

11. [27]

    The matter was listed for a final hearing in November 2015. For reasons that do not need to be recounted, it did not proceed. On 6 November 2015, shortly before that hearing was due to commence, the defendants provided to Europa’s solicitors the recipe for their own aromatic bitters product (the Kindred recipe). Europa’s solicitors replied the same day. After some sniping about the time at which the recipe had been made available, the letter said:

12. [28]

    The defendants’ solicitor replied on 7 November 2015:

13. [29]

    The Calderbank offer was made by letter dated 1 December 2015. The offer that it propounded is as follows:

14. [30]

    The letter explained why the offer was made. First of all, it referred to the statement of general satisfaction in Europa’s solicitors’ letter of 6 November 2015. Next, it predicted (accurately) that “it is very likely that the Court will find that our clients have not misused your client’s recipe [and] … that your client’s method for producing bitters is not confidential”. The letter added (again accurately) that the Court would be likely to find, in substance, that Mr Child could use his know-how for the purpose of producing bitters according to the Kindred recipe.

15. [31]

    The reasons concluded with the following:

16. [32]

    As I have said, it is common ground that the offer was not accepted.

17. [33]

    On 7 December 2015, the defendants’ solicitor wrote to Europa’s solicitors. That letter stated, among other things:

18. [34]

    In the circumstances, that was a reasonable assumption to make, particularly having regard to the statement of general satisfaction in Europa’s solicitor’s letter of 6 November 2015.

19. [35]

    Europa’s solicitors replied on 8 December 2015. The letter said that they were “puzzled” by that assumption. A week or so later, it became clear that Europa had revised its position, and that Mr Raj Beri and Mr Thomas had put their heads together and decided that the Kindred recipe “is mostly identical [to] or a closely similar derivative or modified version of [Europa’s] aromatic bitters recipe”. Thus, it was said, Europa “has grave concerns about [the defendants’] proposed use of the Kindred recipe”. [Europa] demanded that the defendants “immediately cease and desist from taking any steps to manufacture aromatic bitters using the “Kindred recipe””.

20. [36]

    Not surprisingly, the defendants declined to provide the undertakings sought. They were justified in taking that position, because the assertions made by Europa through its solicitors were unsustainable. In reality, the two recipes are different. Mr Thomas sought to suggest that they were essentially the same, because the two products had a similar taste. That was nonsense: the information alleged to be confidential was the Sultry Spirits / Europa recipe, not the flavour that its use produced.

21. [37]

    In my view, the sequence of correspondence, in which Europa moved from a position where it was prepared to accept that the defendants could use the Kindred recipe to manufacture bitters, to a position where it demanded that they undertake not to do so, supports the proposition that in substance Europa was using these proceedings as an attempt to stifle competition.

22. [38]

    It is clear that the defendants bettered the offer that they made. Put conversely, it is clear that the offer was more beneficial, from Europa’s perspective, than the orders that I made. That is because the offer offered a six month non-competition period, in addition to acknowledging the ongoing restraint flowing from the defendants’ undertakings given to the Court on 8 July 2015. And the offer proposed that each party pay its own costs.

23. [39]

    It may be accepted that a party who has served a Calderbank offer that has been either rejected or not accepted by the opposing party, and who betters the position propounded by that offer, is not automatically entitled to indemnity costs. All the circumstances of the case must be considered. The question is whether, in those circumstances, the failure to accept the offer warrants departure from the ordinary rule as to costs. See Giles JA in SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37].

24. [40]

    Further, and as Giles JA recognised in SMEC Testing Services, the decision, whether to depart from the ordinary rule as to costs, must take into account the public interest in the promotion of settlement of disputes.

25. [41]

    The defendants’ Calderbank offer was clear. It enunciated the reasons why it was made. In the main (and to the extent that it matters), those reasons correctly predicted the decision that I gave. Europa has not suggested that it was given insufficient time to consider the offer, or that it had insufficient information to enable it to consider the offer. Those submissions, if made, could not succeed, having regard to the background that I have sketched in.

26. [42]

    Europa submitted that there was no real compromise proposed. I do not agree. What I have said at [38] shows why.

27. [43]

    In my view, Europa’s conduct in declining to accept the Calderbank offer was relevantly unreasonable. A month before the offer was made, Europa (through its solicitor) had expressed general satisfaction with the Kindred recipe. In context, that must constitute a recognition by Europa that there was sufficient difference between the Kindred recipe and its recipe, so that the former could not be said to use, let alone misuse, any confidential aspects of the latter. However, within the time limited for acceptance of the offer, Europa resiled from that position.

28. [44]

    There is absolutely nothing in the evidence to show that Europa had any basis for resiling from its “November position” in relation to the Kindred recipe. The reasons advanced were specious. The only available inference, and the inference that I draw, is that Europa changed its mind because it was concerned at the threat of competition. As I have said, the correspondence relevant to this issue confirms my earlier view, that Europa (by this stage at least) was using the proceedings in an attempt to stifle competition.

29. [45]

    In those circumstances, the further obvious inference is that Europa did not concern itself with the merits of the offer (or of the reasons underlying it). Its failure to deal with the offer suggests, at best, a failure to engage with the important public policy in the promotion of settlement of disputes.

30. [46]

    For those reasons, I conclude that the making and non-acceptance of the Calderbank offer does provide a sufficient basis for departing from the general rule, namely that costs should be assessed on the ordinary basis.

31. [47]

    That leaves for consideration the time from which indemnity costs should be ordered. In the ordinary way, I would incline to the view that it should not be until the expiry of the time limited for acceptance of the offer that indemnity costs (if ordered) should run. The analogy of offers of compromise might suggest that, on rejection or non-acceptance, costs should run from the date of making of the offer. It is unnecessary to pursue that point because in my view it is clear that Europa had no intention whatsoever of accepting the offer. Thus, in my view, indemnity costs should run from 1 December 2016.

32. [48]

    There appears to be some question as to whether the costs payable by Europa should include the costs of the interlocutory application of 8 July 2015. The Court (Ball J) ordered that the costs of that application be costs in the cause. The effect of that order is “that the costs of the interlocutory proceedings correspond with the final order for costs in the action”: His Eminence Metropolitan Petar v The Macedonian Orthodox Community Church St Petka Inc (No. 2) [2007] NSWCA 142 at [18] (Beazley, Giles and Hodgson JJA).

33. [49]

    The submissions and evidence raised a bewildering variety of other issues. To my mind, those issues – in particular, those raised in the submissions and evidence for Europa – have no bearing on the fundamental costs question, which is whether any order for indemnity costs should be made. I do not propose to waste time dealing with them.

Conclusion and order

1. [50]

   The defendants have made good their claim for indemnity costs. I make the following further orders:

   1. (1)

      vary order 3 made on 8 July 2016 by adding the following;

   2. (2)

      Direct that the exhibits in the substantive hearing be returned.