Australian Defence Apparel Pty Limited v Graham & Anor

Initially this matter concerned a claim by the plaintiff (Australian Defence Apparel) that the first defendant (Matthew Graham) had, in essence, breached various terms of his employment agreement by commencing work with the second defendant (Unisync Group).

The matter was set down for hearing before me on 9 August 2019.

On 6 August I was informed that the parties had settled the matter in principle.

Also on 6 August by way of notice of motion, the plaintiff requested that judgment be entered for the plaintiff in particular terms. The matter was relisted before me to determine whether judgment should be entered for the plaintiff or the defendants as well as the appropriate costs order.

The motion was heard on 27 August 2019.

On 27 May 2019, by way of Amended Summons the plaintiff sought various forms of final relief as against the first and second defendants, including:

The first defendant had been employed as the CEO by the plaintiff and President International of its associated Canadian company (Logistik Unicorp). Mr Graham’s employment was terminated on 6 March 2019. Shortly after the termination, Mr Graham commenced employment with Unisync Group.

Broadly, the plaintiff’s case was that Mr Graham had breached his employment agreement by working for a competitor of Australian Defence Apparel or its broader corporate group within 12 months after the termination of his employment. The plaintiff’s case was essentially two pronged; first a restraint of trade in relation to Mr Graham’s employment with Unisync and secondly, a breach of contract in relation to certain conduct of Mr Graham while he was on sick leave. The defendants denied the employment with Unisync was in breach of the employment agreement and further that the restraints were unreasonable.

It became apparent during the litigation that of particular concern to all parties was a potential upcoming tender from the Canadian Department of Defence, and the ability of Mr Graham to work with the second defendant on that tender.

On 29 June 2019, the defendants jointly made an offer of compromise to the plaintiff. The plaintiff did not accept the offer.

On 26 July 2019, the plaintiff issued an offer of compromise to the defendants. Later on the same day, the defendants jointly made a further offer of compromise to the plaintiff. The offer was stated to remain open until 4pm on 8 August 2019.

The terms of the offer of compromise were as follows:

Schedule 1, as attached to the offer of compromise, was in the following terms:

Annexure A lists many businesses across Australia and the US as well as, in particular, the Canadian Department of Defence.

It is worth noting that the offer essentially restrained the first defendant from working on the Department of Defence tender if it is released before 21 December 2019.

By written notice on 6 August 2019, the plaintiff accepted the offer.

It is accepted that the offer of compromise and the following acceptance were each made in compliance of r 20.26 of the UCPRs.

The plaintiff then by notice of motion also dated 6 August 2019, applied for judgment to be entered in its favour.

The defendants have proffered the undertakings to the Court in compliance with the offer of compromise (CB 129-136).

The Uniform Civil Procedure Rules 2005 (NSW) govern the making and accepting of offers:

‘Judgment’ is further defined in s 3 of the Civil Procedure Act 2005 (NSW) as; “judgment includes any order for the payment of money, including any order for the payment of costs.”

The UCPRs further provide for costs in circumstances where there has been an offer of compromise:

It is important to note the Court’s general discretion as to costs under s 98 of the CPA subject to any other rules of Court or any other Act.

Rule 20.27 and the interaction with r 42.13A was discussed by Ward JA in Johnston v Johnston [2016] NSWCA 52 (with Leeming and Simpson JJA agreeing), at [16]-[17]:

And later at [36]-[39]:

Briefly, if the offer of compromise is deemed a ‘mixed offer’ then the costs rule in 14.13A will not apply.

The plaintiff submits that under r 20.27(3) of the UCPRs judgment should be entered for the plaintiff in respect of the claim, in the terms envisaged in the offer. The plaintiff states that the offer is a complying one, it secures the plaintiff in large part the relief it sought, and the offer represents a genuine compromise.

The plaintiff submits that the terms of r 20.27(3) allow either party to a compromise to apply for judgment to be entered accordingly. Further ‘accordingly’ is a reference back to the beginning of the section, ‘if an offer is accepted’. This therefore enables the offeree to apply to have the judgment entered (T8/7).

The plaintiff submits that under r 20.27(3), in the absence of a ‘judgment’ in the offer of compromise, the Court has discretion to enter a judgment for a particular party.

The plaintiff submits that in the circumstances of these proceedings, the offer delivers to the plaintiff the essence of its claim, because it delivers the first defendant’s compliance with his post-employment restraints. Given the strident denials contained in the pleadings, the undertaking proposed by the defendants represents a significant move away from their pleaded position. The plaintiff notes that looking at the whole of the offer, first the defendants offered up conduct-based undertakings and secondly, that an order be made that the proceedings be otherwise dismissed. A holistic review of the offer of compromise makes clear that the plaintiff has been substantially successful (T38/10).

The plaintiff contends that the undertakings offered by the defendants operate in substantially the same way as an order of court, and have a very real impact and effect. In particular, the plaintiff notes that it was successful in protecting its business interests in Australia, and that the first defendant is prevented from working on the C2 Contract from the Canadian Department of Defence in the event that contract is released before 21 December 2019. The plaintiff notes that given the maximum restraint was till 6 March 2020, the reduction of the restraint period of a number of weeks is of no practical significance.

Further it is no impediment to the plaintiff’s case that the judgment which the plaintiff seeks does not provide for a monetary sum. There is nothing in the text of r 20.27(3) that suggests judgment refers only to a money judgment, and further nothing in the definition of judgment in s 3 of the CPA.

The plaintiff submits that should a judgment be entered in its favour then pursuant to r 42.13A(2), it should be awarded a costs order in its favour on an ordinary basis until 26 July 2019 (T2/23), and then from 6 August for the motion (T2/39). The plaintiff submits that the offer could not be characterised as a ‘mixed offer’, as there is nothing to support a finding that there be judgment for the defendants or a requirement placed upon the plaintiff. Therefore there is no question that r 42.13A(2) would apply.

Alternatively, if no judgment is entered for the plaintiff under r 20.27(3), then s 98 of the CPA should govern the costs issue and the Court should undertake the same sort of enquiries as to whether it would award judgment or not (T22/47-49), that is, given the plaintiff has been substantially successful, costs should be awarded in favour of the plaintiff (T23/13).

The first defendant submits that no judgment should be entered for the plaintiff, instead and in accordance with the offer of compromise, the proceedings should simply be dismissed.

The first defendant submits that in particular r 20.27(3), and the analysis in Johnston, does not provide for a party to apply for judgment to be entered for that party. Rather it provides for a party to apply for judgment to be entered in accordance with the offer which has been accepted. He further notes that r 20.27(3) is engaged only where the offer provides for a party to consent to the Court doing something (T32/50-33/1). This is not the case here, and thus there is no discretion to enter judgment.

It is not necessary to determine whether r 20.27(3) extends to an order not being a money judgment. However, the first defendant notes, that reading r 20.28 with its counterpart in 20.29 (which distinguishes between a judgment and an order), the better construction is that 20.27 extends to money judgments. Rule 20.29 prescribes the rights of parties to obtain orders consequent upon an accepted offer, accordingly, the only appropriate order is to give effect to the offer and dismiss the summons.

He notes, the terms of the offer do not go anywhere near granting the final relief sought by the plaintiff, and therefore this is not a ‘mixed offer’ and r 42.13A applies. This is because the undertakings given by the defendant do not have any practical effect, particularly the first defendant remains employed by the second defendant. The non-competition undertaking offered only concerned competition in countries in which the second defendant was not alleged to operate.

The first defendant submits that the plaintiff could not be awarded costs under r 42.13A(2). They submit “judgment” in r 42.13A(2) refers to a money judgment, for several reasons:

There is no question that the offer did not propose a money judgment in favour of the plaintiff and further no judgment in favour of the plaintiff and therefore 42.13A(2) does not apply.

The first defendant moreover submits that an order dismissing the summons is an order within the extended meaning of judgment in favour of the defendant within r 42.13A(3). Therefore the defendant should get his costs assessed on an ordinary basis up to the time when the order was made.

In the alternative, if the court concludes the offer was a mixed offer and r 42.13A(3) does not apply, costs fall to be determined in the Court’s general discretion. The starting point is r 42.20: the summons is to be dismissed and unless the Court orders otherwise the plaintiff is to pay the defendants’ costs. The first defendant further submits that there is no reason to depart from this starting point, given that the plaintiff has surrendered much of their initial claims and completely abandoned the claim related to the sick leave.

The second defendant submits that orders should be made as set out in the offer of compromise that is, orders should be made that the proceedings be dismissed. The second defendant submits that on reading 42.13A(3), in conjunction with r 42.20, judgment in favour of the defendant, includes a dismissal of proceedings, and thus they should be awarded their costs (T25/13-42).

The second defendant submits that there is nothing in the offer of compromise that suggests judgment should be entered for the plaintiff, the plaintiff has not obtained the relief it sought against the defendants. Rather the defendants have been wholly successful in the proceedings by the plaintiff accepting the offer of compromise for the following reasons:

Even if the offer of compromise was found to be a ‘mixed offer’ and r 42.13A did not apply, under s 98 of the CPA, the Court should exercise its discretion to award costs in favour of the defendants given that the plaintiff has failed in respect of its primary case (T30/42).

Further the second defendant submits it is entitled to costs associated with the first defendant’s defence of the proceedings by operation of r 42.13A or alternatively if the offer is considered a ‘mixed offer’, based on the Court’s general discretion.

Parties are able always to compromise matters on their own terms. Parties are also able to invoke the framework of the Court’s protocol to structure their offers and/or counter offers in a way where absent complete agreement the rules of Court will govern the final disposal of claims. This may happen for a number of reasons. The parties given best efforts may not be able to agree on costs as an example. Nonetheless, it is convenient to progress resolution by the offer and/or acceptance of other important terms. Between sophisticated parties who are legally represented, parties must be taken to appreciate only too well the effect upon the final resolution of matters by invoking the Court’s rules.

The issues before me for determination are the particular terms of the appropriate orders, including the disposal of proceedings and/or costs in circumstances where there had been a valid offer of compromise which in turn had been validly accepted.

The plaintiff argued that when viewed in totality, it had been successful in its case and I should therefore exercise the Court’s discretion to enter judgment in its favour under r 20.27(3). The defendants together argued that no judgment was in fact offered; rather the offer of compromise specifically contemplated the proceedings being dismissed.

It is clear that the offer of compromise encompassed various undertakings on the part of the defendants before noting, ‘the proceedings be otherwise dismissed’. In my view, dismissed, clearly means, that the plaintiff’s statement of claim or summons is dismissed and therefore there is no case thereafter on foot.

In r 20.25, a judgment in favour of the defendant is specifically defined to include a dismissal of a statement of claim or summons. Further in r 42.13A, a judgment in favour of the defendant again specifically includes a dismissal of a statement of claim or summons. It is clear the effect of the rules is that, a dismissal of a claim, or a judgment carries, with it the same costs consequences.

Rule 20.29 again contemplates, that the defendant can have the ‘proceedings dismissed’ and ‘judgment entered accordingly’. The plaintiff on the other hand, can have ‘the defence struck out’ and ‘judgment entered accordingly’. There is an obvious important distinction, between dismissing a summons or statement of claim and striking out a defence, although both can lead to the end of proceedings. It all turns on what is offered and indeed what is accepted.

The offer of compromise here clearly and expressly contemplated a dismissal of proceedings, which is, in my view, antithetical to a judgment in favour of the plaintiff. It is indeed analogous to judgment in favour of the defendant.

In my view, once the plaintiff accepted the offer of compromise, it accepted that the appropriate order was that the proceedings be dismissed. In these circumstances, it seems to me, r 42.13A(3) applies. It seems to me therefore, the plaintiff must pay the defendants costs and r 20.27(3) simply does not apply. In particular, I am of the view that what r 20.27(3) does (as was submitted by the first defendant) allow for application for a judgment to be entered by reasons of the terms of the particular offer that was accepted. Indeed, in my view it would be nonsensical to permit the plaintiff to now apply for a judgment contrary to the effect of the offer they accepted.

A party must be held to its compromise and the obligations that lawfully flow. These were sophisticated, commercially minded parties. The purpose of the whole scheme provided for by the rules, is to provide certainty and finality to disputes in the context of offers of compromise. The rules provide for certain costs orders to be made following the particular way a dispute may resolve. It would be inappropriate, in my view, to make orders contrary to the clear outcome as contemplated by the parties.

Further, even if I were of the view that the Courts discretion was enlivened by r 20.27(3) beyond entering a judgment in accordance with what was offered, I would not enter judgment in favour of the plaintiff. In the circumstances of this case, contrary to the plaintiff’s argument, I am not satisfied that a judgment in favour of the plaintiff would be an accurate reflection of the offer of compromise accepted. No judgment was offered by the defendants, and significantly no judgment was requested by the plaintiff.

I am also not satisfied that the offer accepted reflected a substantial ‘win’ on the part of the plaintiff. It is clear to me that the restraint agreed in the undertakings of the first defendant in particular is far more restricted in both time and territory than what was claimed for by the plaintiff. In particular, the first defendant is still working for the second defendant. In addition no declaration or injunctive relief was offered, nor was any monetary compensation. It goes without saying, although I will briefly note, that I do not believe that this offer is a ‘mixed offer’ as per Johnston. I am not of the view that the offer accepted reflected a “win” for the plaintiff, and cannot accurately be characterised in any way as amounting to a ‘judgment for the plaintiff’.

There was some discussion from the parties as to whether the term ‘judgment’ in r 20.27(3) or r 42.13A(2) or (3) was restricted to a ‘money judgement’. In my view, there is nothing in the text or the rules as a whole to suggest such a confined meaning. Indeed it is common practice for this Court to make judgements where no monetary sum is awarded.

I would not enter judgment for the plaintiff under r 20.27(3). Rather the plaintiff should pay the defendants costs pursuant to r 42.13A(3). I invite the parties to prepare short minutes of order to reflect these reasons.