Furnish & Finish Pty Ltd v Hollands

1. [1]

   HER HONOUR: This is an application, to be dealt with on the papers, in relation to costs as part of the disposition of proceedings commenced by the plaintiff, Furnish & Finish Pty Ltd (to which I will refer as Furnish), against two defendants (Ms Luci Hollands, the first defendant, and Cordony Designs Pty Ltd, the second defendant, to which I will refer as Cordony). The dispute between the parties involved a complaint as to alleged breach of non-compete covenants in the context of a previous employment arrangement between Furnish and Ms Hollands.

Background

1. [2]

   The following summary of the background to the dispute is taken from the parties’ respective submissions and affidavit evidence relied upon for the purpose of the present costs application. I make no findings as to any disputed questions of fact.

2. [3]

   Furnish operates a business in New South Wales and Queensland, providing property styling, interior design, and long-term hire services. Ms Hollands was employed by Furnish as a Client Relationship Manager. Ms Hollands resigned from her employment by letter dated 21 April 2020, with effect from 24 April 2020, citing as her reason for leaving that she was “sick of the industry” and wished to work for her husband’s building company. Ms Hollands requested that she be relieved from working out her notice period (which would have been until 26 May 2020). Furnish acceded to that request.

3. [4]

   On about 27 May 2020, Furnish’s director, Ms Grant, discovered that Ms Hollands had contacted clients of Furnish, offering them property styling services through her new employment with Cordony.

4. [5]

   On 2 June 2020, Furnish’s solicitors issued letters to both defendants drawing their attention to the operation of the restraint covenants in Ms Hollands’ employment contract. There was no response to those letters.

5. [6]

   Furnish’s representatives subsequently discovered, on about 11 and 15 June 2020, that the defendants were continuing to contact Furnish’s clients to offer property styling services.

6. [7]

   On 17 June 2020, Furnish commenced proceedings in this Court, obtaining orders ex parte from the duty judge for leave for short service of a summons seeking, inter alia, interlocutory orders restraining the defendants from competitive business activities and employment arrangements until 26 August 2020 (the Restraints). Leave was granted to Furnish to issue a notice to produce to Cordony (the Notice to Produce).

7. [8]

   On 18 or 19 June 2020, the defendants’ solicitor, Mr Chedid, received instructions to act and instructed counsel to appear before the duty judge.

8. [9]

   The Notice to Produce was returnable before the Court on 19 June 2020. That afternoon the application for interlocutory relief came back before the duty judge, on which occasion orders substantially similar to the Restraints sought by Furnish were made by consent, on a without admissions basis. Those orders are expressed to be “until further order or 26 August 2020, whichever is the earlier”. The Notice to Produce was stood over to 23 June 2020 and costs were reserved.

9. [10]

   On 29 June 2020, orders were made by consent directing Furnish to file and serve a statement of claim by 21 August 2020.

10. [11]

    Following correspondence between the parties (in which the defendants say they sought a negotiated outcome), on 12 July 2020 Cordony filed a notice of motion to set aside the Notice to Produce.

11. [12]

    There followed a succession of appearances before the Court (including a number of occasions on which Cordony apparently did not appear). Complaint is made by Furnish that Cordony’s position with respect to the Notice to Produce frequently was notified to Furnish at very short notice, including during the listing of the Notice to Produce before the Court on one occasion.

12. [13]

    On 25 August 2020, by email, the defendants sought an explanation as to why the plaintiff had not filed a statement of claim in accordance with the Court’s orders.

13. [14]

    On 31 August 2020, (perhaps not coincidentally, shortly after the expiry of the Restraints) Furnish’s solicitors by email advised the defendants that the claim for final relief in the summons was no longer pressed. The defendants point out that no explanation for the change in position was there provided.

14. [15]

    Furnish now seeks orders in relation to its costs of the appearances on 17 and 19 June 2020 (see below). The defendants, conversely, seek orders in their favour as to the (unheard) motion to set aside the Notice to Produce.

15. [16]

    The orders now sought by Furnish to bring a conclusion to these proceedings are as follows:

16. [17]

    Furnish submits that it is appropriate that the defendants pay the costs of and incidental to the hearings on 17 and 19 June 2020 for the following reasons.

17. [18]

    Furnish says that the issue of the Restraints was a discrete, identifiable aspect of the proceedings. It is noted that the summons sought: procedural interlocutory orders; substantive interlocutory orders (interlocutory injunctions in the form of the Restraints); and final relief. Furnish says that the making of the procedural interlocutory orders on 17 June 2020 resolved the first aspect of the summons, including the listing of the matter on 19 June 2020 for urgent hearing of the application for injunctive relief. It is noted that orders giving effect to the Restraints were made on 19 June 2020, on a without admissions basis.

18. [19]

    Furnish submits that it is appropriate that the defendants pay its costs of the above steps because the defendants’ conduct was causative of unnecessary delay and expense (and consequently was unreasonable), thus enlivening the basis for ordering payment of costs even though the issues before the Court were not resolved on the merits (citing Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 (Lai Qin) at 624-625, per McHugh J; [1997] HCA 6).

19. [20]

    In particular, Furnish emphasises that there was no response by the defendants to the letter of 2 June 2020, alerting the defendants to the issue of the Restraints and foreshadowing a claim for injunctive relief. It is said that Furnish had no choice but to commence the proceedings on 17 June 2020, after learning that the defendants had ignored its correspondence and were continuing potentially competitive business activities. It is said that, following service of the summons and the Notice to Produce on 17 June 2020, the defendants did not indicate a possibility of resolving the Restraints without a hearing, and Furnish incurred costs preparing for what was expected to be a contested hearing. Furnish says that the first occasion that the defendants expressed any willingness to resolve the Restraints by compromise was only after the 19 June 2020 hearing had commenced, noting that orders were then made by consent, substantially mirroring Orders 9 and 10 of the summons (i.e., the Restraints).

20. [21]

    Furnish says that Court resources and party costs could have been spared if the defendants had responsibly engaged with it in early June 2020 or at any time before the 19 June 2020 hearing in relation to the Restraints issue.

21. [22]

    As to the costs regarding the Notice to Produce, Furnish submits that the appropriate order is for each party to bear its own costs associated with the Notice to Produce, including Cordony’s notice of motion filed on 12 July 2020 to set aside the Notice to Produce.

22. [23]

    Furnish seeks that order on the basis that Cordony: did not initially comply with the Notice to Produce by the time directed; did not raise any issues as to the scope of the Notice to Produce at the 19 June 2020 hearing, where the solicitor for the defendants indicated that Cordony would be in a position to produce the documents listed in the Notice to Produce by close of business on 19 June 2020; and then failed to appear at hearings relating to the Notice to Produce on 23 and 29 June 2020.

23. [24]

    Furnish otherwise accepts that the proceeding should be dismissed and that it should pay the defendants’ costs, subject to the specific orders as to costs sought above.

24. [25]

    The defendants say that r 42.19(2) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) here applies, characterising the conduct of Furnish as a decision “out of the blue” not to press for final relief after having commenced this application on an ex parte basis. Rule 42.19(2) provides that:

25. [26]

    The defendants say that Furnish should be granted leave to discontinue but that Furnish should be ordered to pay the defendants’ costs. The defendants say that Furnish has not shown some positive ground or good reason for departing from the ordinary course, noting that there is no evidence deposing to the reason why Furnish seeks now to discontinue the proceeding.

26. [27]

    Furnish did not exercise its liberty to file reply submissions.

Determination

1. [28]

   The relevant principles applicable to the current application were not in dispute. The award of costs is a matter within the discretion of the Court, whether there is a discontinuance or dismissal of proceedings or, indeed, where there has been a hearing on the merits. That discretion is recognised as a broad one, but it must be exercised judicially and consistently with the overriding mandate provided for under the Civil Procedure Act 2005 (NSW) (Civil Procedure Act) in respect of the conduct of litigation in this Court (see ss 56-59 of the Civil Procedure Act).

2. [29]

   On dismissal of the proceedings, the usual order is for the plaintiff to pay the defendant’s costs of the proceedings, subject to other specific orders as to costs of particular steps in the proceedings (r 42.20 of the UCPR). Similarly, on discontinuance of the proceedings, again subject to an order otherwise, the plaintiff must pay the costs of the defendant up to the discontinuance (s 42.19 of the UCPR).

3. [30]

   Both r 42.19 (which operates where there is a discontinuance) and r 42.20 (which operates where proceedings are dismissed) therefore expressly contemplate that the Court, in the exercise of its discretion, may make an order otherwise than as provided under those rules.

4. [31]

   In Chen v Fang [2019] NSWSC 960, when considering r 42.19(2), Darke J said (at [53]-[54]):

5. [32]

   One matter for consideration in the exercise of the discretion is the reason the proceedings were discontinued (see Ritchie’s Uniform Civil Procedure NSW at [42.19.5]).

6. [33]

   Where there has been a hearing on the merits, the usual rule is that costs follow the event. What constitutes the “event” may vary from case to case but it is generally understood as referring to the practical result of a particular claim. Interlocutory costs may be dealt with similarly to general costs of the proceedings. Interlocutory costs may be ordered to be payable forthwith or before conclusion of the proceedings where: the costs order is relevant to a discrete, separately identifiable aspect of the proceedings; and where there is demonstrated some unreasonable conduct (see Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 60 NSWLR 425; [2004] NSWSC 381).

7. [34]

   It is abundantly clear on the authorities that where there has been no hearing of the merits of the case (and that is here the case both at the interlocutory stage – where the Restraints were made by consent and without admissions – and ex hypothesis at the final stage which has not yet been, and will now not ever be, reached), it is not appropriate to embark on a hearing of the merits in order to determine the question of costs on the discontinuance or dismissal of the proceedings (see Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [4], per Bryson JA; Renton v Kelly [2018] NSWSC 1377 at [36]; Fordyce v Fordham (2006) 67 NSWLR 497; [2006] NSWCA 274 at [79], per McColl JA; and, more recently, Freelancer International Pty Ltd v Matthew O’Kane [2019] NSWSC 159 (Freelancer International v O’Kane) at [61]).

8. [35]

   The difficulty in the present case is that there has been no hearing on the merits of any of the issues in the proceedings; and satellite litigation in relation to costs is clearly to be avoided. It is well recognised that, in those circumstances, ordinarily for there to be a costs order in favour of one party, it is necessary to show that the other party’s conduct has been so unreasonable as to warrant such an order (applying the principles applicable in Lai Qin). As I indicated in Freelancer International v O’Kane, it is difficult to see why the same kind of considerations would not be relevant when deciding whether to depart from the “starting position” in rr 42.19 and 42.20 of the UCPR.

9. [36]

   In Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84, Payne JA said (at [30]) that:

10. [37]

    In the same case, Basten JA said (at [8]-[9]) that:

11. [38]

    In the present case, the competing positions as to whether the proceedings should be dismissed or discontinued appear to be of no particular moment. In either case, the real issue as between the parties is as to who should bear the costs of the proceedings either in whole (as the defendants contend) or in part (as Furnish contends).

12. [39]

    In my opinion there should be no order as to costs, with the intent that each party should bear its own costs of the proceedings, including the motion to set aside the Notice to Produce. True it is that interlocutory orders were obtained on an ex parte basis on 17 June 2020 for short service and then an interlocutory restraint regime was put in place by consent and without admissions on 19 June 2020 (and it may not have been necessary for such an application to have been made had there been an earlier response to the initial correspondence from the defendants’ solicitors). However, it is impossible (without engaging in satellite litigation of the kind that is to be discouraged) to ascertain where the underlying merits of the dispute as to the non-compete provisions might have been found to lie.

13. [40]

    I am not persuaded that the defendants’ conduct in what might be said to be a dilatory response to the initial demands was so unreasonable as to warrant the making of a costs order against them in relation to the 17 and 19 June 2020 hearings in accordance with the principles in Lai Qin. Nor, however, am I persuaded that Furnish should pay the costs of the proceedings as a whole, despite not having proffered a reason for not proceeding with the claim for final relief. There may have been any number of reasons for such a decision. The apparent expiry of the restraint period might be one of them. It is not worthwhile here to speculate thereon. The failure of the defendants to respond at an earlier stage to the defendants’ concerns does seem to me a good reason for departing from the position that would otherwise have pertained on the discontinuance or dismissal of the proceedings; particularly since the intention to seek injunctive relief had been foreshadowed. There was little else the plaintiff could have done at that stage to protect its claimed rights.

14. [41]

    In my opinion, the appropriate outcome on costs is for the costs to lie where they fall. I will so order.

Order

1. [42]

   For the above reasons, I order as follows:

   1. (1)

      The proceedings be dismissed with no order as to costs.