DXC Connect Pty Ltd v Deibe & Ors

1. [1]

   After a three day hearing on 22, 23 and 25 August 2017, I delivered judgment on 31 August 2017 ([2017] NSWSC 1159) (“Judgment”) holding that an interlocutory injunction should be granted restraining the Sixth Defendant, Mr Robert McCabe, from disclosing or using specified information of the Plaintiff, DXC Connect Pty Ltd (“DXC”) until further order and that an order should also be made broadly reflecting the restraint clause in the employment contract between DXC and Mr McCabe. The parties subsequently agreed Short Minutes of Order to give effect to the Judgment, and also agreed a regime for the inspection of certain electronic devices and the return of any confidential information found on them, which was implemented by further orders made by the Court. The question of costs was in dispute and remains to be determined in this judgment.

2. [2]

   In paragraph 79 of the Judgment I observed, in respect of the question of costs:

DXC’s position

1. [3]

   DXC now seeks orders that Mr McCabe pay 75% of its costs of its application for the interlocutory relief sought against him in prayer 62 of its Amended Summons and paragraph 10 of its Notice of Motion filed on 3 August 2017. DXC relies on the entirety of its evidence read in the three day hearing before me, and further affidavits of Mr Luke Scandrett dated 23 August 2017 and Ms Annika Anderson-Carter dated 6 September 2017 in support of the application for costs.

2. [4]

   Mr Fernon, who appears with Mr Docker for DXC, rightly recognises that costs are in the Court’s discretion under s 98 of the Civil Procedure Act 2005 (NSW) and the general rule under r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) is that costs follow the event, unless it appears to the Court that some other order ought to be made as to the whole or part of the costs. Mr Fernon also draws attention to r 42.7 of the UCPR which provides that the costs of an interlocutory application are to be paid and otherwise dealt with in the same way as the general costs of the proceedings.

3. [5]

   Mr Fernon also refers to Petar v Macedonian Orthodox Community Church St Petka Inc (No 2) [2007] NSWCA 142 at [16]–[32], where the Court of Appeal referred to several authorities dealing with the costs of an application for an interlocutory injunction. Their Honours referred to authority that, where a plaintiff establishes an arguable or prima facie case for an interlocutory injunction, and the defendant does not concede that injunction, then the proper order is that the costs be the plaintiff’s costs in the cause or that the defendant pay the plaintiff’s costs in any event. The Court referred, inter alia, to Ausino International Pty Ltd v Apex Sports Pty Ltd [2006] NSWSC 1119 at [55], where Campbell J (as his Honour then was) noted that:

4. [6]

   As I noted above, DXC contends that the Court should order that Mr McCabe pay 75% of its costs of its application for interlocutory relief or alternatively that 75% of DXC’s costs of the application be its costs in the cause. Mr Fernon submits that Mr McCabe’s resistance to the orders sought was displaced by evidence that he had downloaded a significant amount of confidential information relating to his activities as general manager of DXC to a USB storage device (I interpolate, whether or not he, subjectively, believed he had good reason to do so, because of the perceived threat of litigation) (Judgment [26]–[30], [35]–[43]). Mr Fernon also points to Mr McCabe’s resistance to a restraint of his working for another entity, Data#3 Ltd (“Data3”), relying on a question of construction of the restraint as to which DXC was ultimately successful (Judgment [74]–[76]).

5. [7]

   DXC submits that its case seeking protection of confidential information and for the enforcement of the contractual restraint is strong and also submits that that question may not be revisited at a final hearing given the short duration of the contractual restraint, for three months, and the regime that has now been agreed for retrieval of confidential information from electronic devices. DXC submits that it would be unjust to DXC to make the recovery of its costs of the application for interlocutory relief contingent on establishing a claim for damages, equitable compensation or an account of profits against Mr McCabe at a final hearing, since the orders made at the interlocutory stage will likely be of substantial practical benefit to it and will likely reduce any loss which it would otherwise have suffered. It seems to me that there is considerable force in that submission.

6. [8]

   Mr Fernon recognises that a reduction in the amount of costs awarded, of the kind contemplated by paragraph 79 of the Judgment, may be ordered where there are multiple issues and a successful party did not succeed on all of them, including issues that were clearly dominant or separable, and that the question whether the ordinary rule should be applied depends upon considerations of fairness and the responsibility of each party for the incurring of the costs. Mr Fernon submits that an appropriate reduction is 25% to a costs order in its favour, and submits that most of the evidence that it led was relevant to its claims concerning confidential information, the contractual restraint and breach or apprehended breach of the duty of confidence or the contractual restraint, and little of that evidence went only to its claims based on a “springboard” argument.

7. [9]

   Mr Alkadamani, who appears for Mr McCabe, submits that the real dispute between the parties, at the time of the hearing, was whether Mr McCabe should be restrained from working for Data3 for three months or for six months from 21 September 2017 and that DXC was unsuccessful as to the latter submission. Mr Alkadamani submits that, had the Plaintiff not sought a restraint for six months, until 21 March 2018, and even if the parties had not otherwise resolved their disagreements, the matters before the Court would have been the proper construction of the scope of the restraint on competition and whether that restraint should continue until 28 December 2017 or until further order, and those issues would have been disposed of in less than the time that was required for the hearing. Mr Alkadamani submits that DXC should pay Mr McCabe’s costs of and incidental to the hearing of his claim for interlocutory relief in paragraph 62(a) and 62(b) of the Amended Summons dated 3 August 2017, except those costs referable to the preparation of affidavits to the extent to which they are relied on in a final hearing, on an indemnity basis.

8. [10]

   In the alternative, Mr Alkadamani submits that DXC was substantially unsuccessful in the interlocutory hearing, where a confidentiality order was not made in the form that was sought and Mr McCabe had offered to accept a confidentiality regime (Ex R1). On that basis, Mr Alkadamani submits that an appropriate order would be no order for costs to the intent that each party pay its own costs because the parties’ success on the relevant issues had been mixed.

9. [11]

   It seems to me that DXC must be treated as the successful party in the application before me, on the basis that it succeeded in obtaining relief as to confidentiality (although not in the form that it had initially proposed) and relief as to the restraint of trade in a wider form than Mr McCabe had been prepared to accept. Notwithstanding Mr Fernon’s submissions, it seems to me that the hearing would have been significantly shorter, had DXC not pressed its unsuccessful claim for a six month restraint of trade based on the springboard doctrine, since that application affected both the extent of the evidence that was required and the complexity of and time spent in legal submissions.

10. [12]

    As I noted above, UCPR r 42.1 provides that, subject to Pt 42, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs. In Commonwealth of Australia v Gretton [2008] NSWCA 117, Hodgson JA with whom Mason P agreed observed (at [121]) that:

11. [13]

    The case law recognises that the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed, although it may deprive a successful party of the costs relating to an issue on which it lost when that issue is clearly dominant or separable: Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38]; Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219 at [17]. In Bostik Australia Pty Ltd v Liddiard (No 2) above at [38], the Court of Appeal observed, inter alia, that:

12. [14]

    I am satisfied that a significant discount is necessary to the costs that should be ordered in favour of DXC, in respect of the application for interlocutory relief, to take account of the extent of the hearing and ancillary work that was devoted to DXC’s unsuccessful claim on a “springboard” basis. I am not satisfied that DXC’s proposed discount of its recovery to 75% of its costs sufficiently recognises that matter, although I also do not consider that has the consequence, for which Mr McCabe contends, that the costs should be costs in the cause. Although matters of this kind are necessarily matters of impression and evaluation, not capable of resolution with mathematical certainty, it seems to me that the proper order is that 60% of DXC’s costs of and incidental to the application heard before me on 22–23 and 25 August 2017, excluding costs referable to the preparation of affidavits to the extent they are relied on in the final hearing, as agreed or as assessed, be the Plaintiff’s costs in the cause. I will address the question whether that result is affected by a Calderbank [Calderbank v Calderbank [1975] 3 All ER 333] offer below.

Mr McCabe’s reliance on a Calderbank offer

1. [15]

   Mr McCabe in turn relies on a Calderbank offer dated 10 August 2017 (Anderson-Carter 6.9.17, Annexure AA-2) which, inter alia, offered to submit to a restraint from using or disclosing confidential information until 28 December 2017, while questioning the appropriateness of such an order, and offered a restraint from being employed, engaged or contracted by, or working for, Data3, directly or indirectly, until 28 December 2017. That offer was left open for acceptance for one business day, until late on 11 August 2017.

2. [16]

   Mr McCabe also relies on his offer, in the Calderbank letter, to consent to the order restraining the use of confidential information, although contending that the order sought was not properly formulated. I give little weight to that offer because, for the reasons Mr McCabe points out, the order to which he offered to consent was likely to be unenforceable in any practical way, and an offer to consent to an order that could not practically be enforced involved no real element of compromise by Mr McCabe. Mr Alkadamani also points out that the injunctive relief granted by the Court has been ordered “until further order”, which may or may not extend beyond 28 December 2017, depending upon the outcome of the final hearing, and submits that the result achieved by DXC was not more favourable to it than the Calderbank offer. Mr Alkadamani also points to matters which he submits made it reasonable for the Calderbank offer to be left available for one day, including that Mr McCabe’s affidavit evidence was due on 15 August 2017, and that costs would be incurred in preparing that evidence. It nonetheless seems to me that the time permitted to consider that offer was too short for it to assist Mr McCabe in present circumstances.

3. [17]

   Mr Fernon responds that Mr McCabe did not achieve a more favourable result than his Calderbank offer and, in particular, the order achieved by DXC extends to protection of confidential information, in specified categories, without restriction as to time; the restraint extends beyond Data3; and orders for inspection of electronic devices to permit the return of any confidential information held on them have been made. Mr Fernon refers to the authorities as to the circumstances in which a plaintiff’s failure to accept a Calderbank offer warrants departure from the general rule as to costs, and submits that a Calderbank offer will only support an order for indemnity costs if it was a genuine offer of compromise and it was unreasonable for a plaintiff not to accept it. Mr Fernon also submits that Mr McCabe’s offer was made at an early stage of the proceedings; that additional information became available to DXC on notice to produce and subpoena after that offer was made, which strengthened its claims against Mr McCabe in respect of confidentiality; and that Mr McCabe had not served any evidence at the time that offer had been made and DXC had not then had access to any of the USB devices that had been connected to Mr McCabe’s computer at various times. Mr Fernon also submits that the time allowed to consider that offer was insufficient to allow DXC to assess the strength of its case against Mr McCabe at that early stage of the proceedings and that there was little compromise in that offer from Mr McCabe’s perspective.

4. [18]

   In Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 816 at [9]–[15], Ward J (as her Honour then was) observed that:

5. [19]

   In Re MF Global Australia Ltd (in liq); Hopper v Campbell in his capacity as liquidator of MF Global Australia Ltd (in liq) [2015] NSWSC 1583 at [6], to which Mr Fernon refers, I summarised the principles applicable in determining the effect of a Calderbank offer as follows:

6. [20]

   I am satisfied that it was not unreasonable for DXC not to accept Mr McCabe’s Calderbank offer, given its incomplete knowledge as to the extent of confidential information that was in Mr McCabe’s possession at the time that offer was made and the short time that was allowed by Mr McCabe for consideration of that offer, and that offer does not assist Mr McCabe in respect of costs.

Orders

1. [21]

   Neither party has secured the orders that it sought in the application as to costs and there should be no order as to the costs of this application.

2. [22]

   Accordingly, I make the following orders: