Bitzer Australia Pty Ltd v Japp [2014] FCA 1040
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IN THE FEDERAL COURT OF AUSTRALIA |
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Applicant | |
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AND: |
First Respondent COLDWORKS AUSTRALIA PTY LTD Second Respondent RUDIGER RUDISCHHAUSER Third Respondent VIVEK PATIL Fourth Respondent |
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DATE OF ORDER: |
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WHERE MADE: |
THE COURT ORDERS THAT:
1. The respondents pay the applicant’s costs, including reserved costs, on a joint and several basis.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
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NEW SOUTH WALES DISTRICT REGISTRY |
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GENERAL DIVISION |
NSD 820 of 2013 |
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BETWEEN: |
BITZER AUSTRALIA PTY LTD Applicant |
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AND: |
ANDREW JAPP First Respondent COLDWORKS AUSTRALIA PTY LTD Second Respondent RUDIGER RUDISCHHAUSER Third Respondent VIVEK PATIL Fourth Respondent |
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JUDGE: |
KATZMANN J |
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DATE: |
26 SEPTEMBER 2014 |
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PLACE: |
SYDNEY |
REASONS FOR JUDGMENT
1 Bitzer Australia Pty Ltd (“Bitzer”) is a wholly owned subsidiary of a foreign corporation (Bitzer GmbH), a leading manufacturer of compressors, condensing units and pressure vessels for the global refrigeration market. Those products have been sold in Australia since 1960 and, since 1988, by Bitzer. Andrew Japp was formerly employed by Bitzer as its national marketing and heat exchange engineering manager. Bitzer alleged that, during his employment with Bitzer, Mr Japp stole its confidential information and passed it on to Coldworks Australia Pty Ltd (“Coldworks”), a relatively new company founded by two of Bitzer’s former employees, and that Coldworks used the information for its own benefit knowing that it had no right to do so. The information included Bitzer’s intellectual property, such as electrical schematic diagrams for various components and products made and supplied by Bitzer exclusively to particular customers; lists of the costs of Bitzer’s products, customer prices and discount strategy; and the results of its research and development.
2 Bitzer sued Mr Japp and Coldworks over the use of the information. A little over two months later Bitzer successfully applied to add as respondents the founders of Coldworks – Rudiger Rudischhauser, a former managing director of Bitzer, and Vivek Patil, another former Bitzer employee – alleging that they, too, had stolen Bitzer’s confidential information during their employment with Bitzer and, like Mr Japp, had passed it on to Coldworks. Bitzer alleged in doing so all three men improperly used their positions as officers and employees of Bitzer for their own or Coldworks’ advantage and/or in order to cause detriment to Bitzer, in contravention of their contractual and statutory obligations and in breach of their fiduciary duties.
3 The proceeding has now been resolved by the making of consent orders. The outstanding issue concerns costs.
Background to, and history of, the litigation
4 On 13 February 2013 Mr Japp announced that he was resigning from his employment with Bitzer. Arrangements were made for him to stay until 28 March 2013 in order to complete certain projects. In the meantime Coldworks became a direct competitor of Bitzer, promoting and distributing compressors manufactured by an Italian company (Dorin) and other refrigeration and heat exchange products supplied by another company (Luvata) in the Australian and New Zealand market, in direct competition with Bitzer’s compressor, compressor-based and heat exchange products. The compressor Coldworks was advertising was made using a Bitzer design and marketed under the Coldworks brand. About a week after his departure from Bitzer, Mr Japp announced on LinkedIn that he had become a director of Coldworks.
5 In accordance with usual business practice, on or about 3 April 2013 Peter Gibson, who had replaced Mr Rudischhauser as managing director, arranged with his finance manager to redirect Mr Japp’s emails to their computers so that they could monitor emails from clients and other business connections in order to ensure that all relevant business correspondence was answered and to gain a better understanding of the work Mr Japp had been managing in his employment. Mr Gibson then discovered that on his final day of employment Mr Japp emailed to his personal hotmail address two zip files containing hundreds of pages of highly sensitive confidential information belonging to Bitzer. That included:
electrical layout plans for the control of various refrigeration and heat exchange components for products manufactured and/or sold by Bitzer, including products manufactured and supplied by Bitzer exclusively to individual customers;
the complete list of Bitzer’s product costs, customer discounts and profit margins on each product; and
the test results, performance comparisons and cost, discount and profit analyses for the new coil and LDV-D Compressor soon to be launched by Buffalo Trident Pty Limited (“Buffalo Trident”), a business acquired by Bitzer in 1992.
6 This discovery prompted Bitzer to seek search orders to identify and recover its stolen confidential information, and to locate and preserve evidence of the theft and the use to which the information had been put, the breaches of obligations revealed by the expropriation of the information, and other evidence that would be relevant in proceedings Bitzer intended to bring against Mr Japp and Coldworks.
7 The originating application was filed on 16 May 2013. It claimed interlocutory relief in the nature of Anton Piller orders and final orders restraining the respondents from using Bitzer’s confidential information, requiring them to return all copies of the confidential information and to eliminate any electronic copies. The originating application also sought orders for compensation, damages or an account of profits, and various declarations. Insofar as they concerned Mr Japp, the declarations were to the effect that he had breached his obligations to Bitzer under ss 181, 182 and 183 the Corporations Act 2001 (Cth), had infringed Bitzer’s copyright, and was in breach of his fiduciary and contractual duties to Bitzer. In the case of Coldworks, Bitzer sought a declaration that Coldworks had received and used Bitzer’s confidential information in the knowledge that it belonged to Bitzer, that it had been stolen by Mr Japp and that Coldworks had no right to use it. Alternatively, Bitzer asked for a declaration that Coldworks received the benefits of Mr Japp’s breach of his fiduciary duty to Bitzer, knowing that those benefits were the product of Mr Japp’s breach. The originating application was supported by affidavits and also a statement of claim in which causes of action supporting the claims for relief were pleaded.
8 The same day Nicholas J made orders enabling searches to be carried out at the residence of Mr Japp and the offices of Coldworks as well as the offices of GJ Walker Air Handling Systems Pty Limited (“GJ Walker”), a company which is a shareholder in Coldworks and run by two of the directors of Coldworks. On 22 May 2013 he made interim orders restraining Mr Japp and Coldworks, who were then the only respondents, from using certain information alleged to be Bitzer’s confidential information.
9 On 24 July 2013, following the execution of the search orders, the originating application and statement of claim were amended to add Messrs Rudischhauser and Patil as respondents and to seek relief of the same kind from them.
10 Orders for discovery were made on 13 December 2013.
11 On 16 May 2014 Bitzer filed and served an affidavit sworn by Mr Gibson, identifying and explaining in detail the confidential information the company alleged had been stolen by Messrs Japp, Rudischhauser and Patil, and the role each of them played in the theft.
12 Finally, on 23 June 2014 orders were made by consent restraining the respondents from making use of the confidential information stolen from Bitzer and preventing them for a further four years from being involved, save in very limited circumstances, in the manufacture of products which were the subject of the stolen confidential information. The orders were in the following terms:
1. Each of the Respondents, by themselves or by their servants or agents, be restrained from using:
(i) any information contained in the two zip files emailed on 28 March 2013 from Andrew.Japp@bitzer.com.au to Andrew_japp@hotmail.com;
(ii) any technical electrical schematic designs for electrical equipment incorporated in refrigeration components and electrical controls for refrigeration systems devised, designed, manufactured and/or sold by the applicant;
(iii) lists of cost prices; sale prices; discounts; and pricing strategy in respect of products sold by the applicant to its customers;
(iv) technical data and pricing, including the results of applied research and development and comparisons with a competitor’s product, for the LDV-D condenser and/or new coil fin pattern under development by Buffalo Trident;
(v) any information contained in the documents in exhibit PG5 to the affidavit of Peter Gibson sworn 14 May 2013 and exhibit PG7 to the affidavit of Peter Gibson sworn 15 May 2014 and filed in these proceedings
except information, designs and data that are lawfully in the public domain (Applicant’s Confidential Information).
2. Each of the Respondents, by themselves or by their servants or agents, be restrained until 22 May 2018 from designing, manufacturing, importing, selling or supplying, whether on their own account, or as agent, employee or contractor for some other party, and whether solely or jointly with some other party:
(i) compressors;
(ii) commercial condensing units;
(iii) commercial compressor rack systems;
(iv) air-cooled heat exchange products (excluding chiller-related products with refrigerant Ammonia or cooling media Brine); and
(v) pressure vessels
used in commercial and industrial refrigeration systems in Australia and New Zealand.
3. Each of the Respondents be restrained until 22 May 2018 from having a direct or indirect interest as shareholder, or acting as a director, of a corporation carrying on business involved in designing, manufacturing, importing, selling or supplying, whether on its own account, or as agent, employee or contractor for some other party, and whether solely or jointly with some other party:
(i) compressors;
(ii) commercial condensing units;
(iii) commercial compressor rack systems;
(iv) air-cooled heat exchange products (excluding chiller-related products with refrigerant Ammonia or cooling media Brine); and
(v) pressure vessels
used in commercial and industrial refrigeration systems in Australia and New Zealand.
4. The restraints in paragraphs 2 and 3 will not prevent the individual Respondents from accepting employment with a party:
(i) which is not one, or a combination of, their spouses or family members;
(ii) which is not a corporation in which any of them and/or their spouses or family members, either individually or collectively, and either directly or indirectly, have a shareholding exceeding 2% of the issued shares;
(iii) which is not a trust in which any of them and/or their spouses or family members, either individually or collectively, and either directly or indirectly, have a beneficial interest exceeding 2% of the total beneficial interest;
(iv) which is not a corporation of which they are directors; and/or
(v) in relation to which the Applicant has provided consent in writing to the individual Respondent for that Respondent to be employed by that party.
5. The restraints in paragraph 2 and 3 will not apply to the extent that the Applicant specifically agrees in writing to waive a particular aspect of the restraints with respect to an individual Respondent and in respect of a particular activity and a particular product, unit or system.
(Original emphasis.)
13 It can readily be seen that the consent orders differ from the orders sought in the amended originating application in that they do not include any declarations and they do not provide for payment of compensation or damages or an account of profits. In addition, they made no provision for costs.
The present application
14 Bitzer seeks an order that the respondents pay its costs, including reserved costs, and that they be liable for those costs on a joint and several basis. It contends that, in the face of “clearly overwhelming evidence establishing the [alleged] causes of action”, the respondents elected not to “furnish” any evidence and to consent to “comprehensive” restraining orders. Bitzer claims that it has succeeded in its action and costs should follow the event. In support of its application it relied on affidavits sworn by Mr Gibson on 14 May 2013, 21 October 2013 and 15 May 2004, detailing the transfer of confidential information by Mr Japp and Mr Patil for use by Coldworks, Mr Rudischhauser’s participation in the unlawful enterprise, and the use to which Coldworks put the information.
15 On 23 June 2014 the respondents were ordered to serve any affidavits on the question of costs by 11 August 2014. No affidavits were filed by the respondents and they tendered no evidence.
16 Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge: Federal Court of Australia Act 1976 (Cth) (“FCA Act”), s 43(2). The question is how the discretion should be exercised.
17 Usually, costs follow the event, that is to say, ordinarily the successful party will obtain an order for costs. But the order is not automatically made: Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52 at [26]–[27], [34] (Gleeson CJ, Gummow, Hayne and Crennan JJ). While the main purpose of a costs award is to indemnify (or, more accurately, substantially indemnify) the successful party for costs incurred in the conduct of litigation (Latoudis v Casey (1990) 170 CLR 534 at 543, 562–3, 566–7; Cachia v Hanes (1994) 179 CLR 403 at 410), there is no absolute rule that, absent disentitling conduct, a successful party is to be compensated by the unsuccessful party: Oshlack v Richmond River Council (1998) 193 CLR 72 (“Oshlack”) at [40] (Gaudron and Gummow JJ). A provision like s 43(2), which confers jurisdiction or grants powers to a court, should not be construed as containing conditions or limitations which are not found in the words themselves or by implication from the subject matter, scope and purpose of the Act: Oshlack at [21] (Gaudron and Gummow JJ); Probiotec Ltd v University of Melbourne (2008) 166 FCR 30 at [47]–[48] (Rares J).
18 Yet, as I observed in Lo v Australian Community Pharmacy Authority [2013] FCA 639 (“Lo”) at [58], ordinarily there is a hearing on the merits and the determination of the merits will dictate who pays the costs. It is well-accepted that, when proceedings come to an end without a hearing on the merits, a court should not decide the question of costs by engaging in a hypothetical trial. In Lo I referred to the oft-cited remarks of McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 624–5 in which his Honour said:
The Court cannot try a hypothetical action …
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the costs of the proceedings.
(Citations omitted.)
19 But the respondents in the present case do not disagree with Bitzer’s claim that it should recover costs. Their contention is merely that Bitzer should not recover all its costs. They submit that the Court should make orders requiring them to pay only 65% of the costs and, in the case of Mr Rudischhauser and Mr Patil, only from the time they were added to the proceeding. They rely on the following matters:
(a) that the restraint of use orders Bitzer sought in order 1 of its originating application were agreed to at the first return date on 22 May 2013;
(b) that orders 2 and 3 of the originating application were actually proposed by the respondents were the subject of consent orders on 24 July 2013 and were “designed to ensure the Applicants could be satisfied that the Respondents could not inadvertently use any confidential information they may have had”;
(c) that the parties agreed to the market participation restraining orders in order 4 of the originating application when the proceeding settled on 23 June 2014;
(d) that the proceeding was resolved without Bitzer pressing for many of the orders it sought in its originating application;
(e) that the final consent orders were “offered up by the Respondents in order to end the litigation and so save costs. The Respondents were simply not in a position to defend the Applicant’s proceedings any further and so agreed to the orders proposed by the Applicant”.
The evidence on the application
20 The evidence Bitzer submitted to the Court was received without objection and was uncontradicted. What follows is a brief summary of it.
21 Bitzer is a market and innovation leader in Australia in the refrigeration industry. It is also the sole Australian manufacturer of refrigeration and heat exchange equipment. It distributes to the Australian and New Zealand markets products designed and manufactured by Bitzer GmbH as well as by Buffalo Trident. Generally speaking, customers engage Bitzer to design a refrigeration system for a specific purpose and Bitzer’s engineers design the system, which is then assembled with components manufactured by Bitzer, Bitzer GmbH, Buffalo Trident, or third-party suppliers. Sometimes, where there is no standard component available for a particular function, Bitzer’s engineers design and manufacture components specifically for that function. Among its customers are large users of commercial refrigeration equipment, such as Woolworths and Coles.
22 In developing and conducting its business Bitzer creates and uses information and technical data of a highly sensitive and commercially valuable nature, the secrecy of which it tries to protect at all times. That material includes plans, drawings, schematics and technical drawings of electrical systems derived from the investment of “thousands of engineering hours”; commercial details of products manufactured or sold by Bitzer including the costs of manufacture, profit margin and key account discount structure, test results, performance comparisons and proposed sale prices of new products. The information taken by the respondents covered the gamut of these items. It related to Bitzer’s compressors, compressor systems, heat exchange products, heat pumps and condensing units.
23 Mr Japp worked for Bitzer from 1 September 2003 until March 2005 when he was transferred to Bitzer South East Asia where he worked for Mr Rudischhauser. On 5 December 2010 Mr Japp entered into a written contract under which he was appointed as a consultant for a brief period and thereafter as Bitzer’s marketing manager and heat exchange technical manager. In the course of his duties he was privy to commercially sensitive and confidential information relating to Bitzer’s operations. Bitzer supplied him with a laptop computer and a mobile phone to assist him in his work and he had complete access from that computer to all of Bitzer’s records, including its confidential information.
24 Mr Rudischhauser’s employment was terminated by Bitzer on 27 June 2012. A month later, together with Mr Patil, who was still a Bitzer employee, he formed Hephaestus Pty Limited. Two days after that, on 2 August 2012, Hephaestus Pty Limited and GJ Walker together formed Coldworks. Mr Rudischhauser and Mr Patil, together with the directors of GJ Walker, became directors of Coldworks.
25 On 16 September 2012 Mr Patil sent an email to officers or employees of a competitor of Bitzer in China (Cold Magic) attaching a confidential drawing and a complete presentation given in October 2011 to Bitzer’s employees explaining Carel control products (critical components of Bitzer’s screw pack compressor systems). The confidential drawing was created for a specific customer design described by Mr Gibson in his final affidavit as “highly confidential intellectual property owned by [Bitzer]”.
26 Mr Patil’s employment came to an end on 28 September 2012. The day before, Mr Patil sent to his personal email address contact details for all of Bitzer’s clients.
27 On 3 October 2012, soon after he left Bitzer, Mr Patil sent an email to Mr Japp, copied to Mr Rudischhauser, asking Mr Japp to “get someone to line up Buffalo condensers” (which were designed and sold by Bitzer) and to “provide tech details along with cost (of the condenser + ComMECH Unit)”.
28 In the months leading up to his departure from Bitzer, Mr Japp passed on to Mr Patil and Mr Rudischhauser at their behest other confidential information belonging to Bitzer. Several examples were tendered in evidence on the costs application.
29 One was an email from Mr Japp to Mr Rudischhauser dated 27 September 2012 attaching Bitzer’s complete customer list for Asia and their addresses. The email requested Mr Rudischhauser to remove Mr Japp’s name and “all Bitzer names” from the list and to make the list “clean before you forward it”.
30 A second is an email chain beginning with an email sent from Mr Patil to Frankie Chan at Cold Magic and Mr Rudischhauser on 4 October 2012 to which Bitzer electrical drawings were attached. This email was apparently forwarded to Mr Japp, who responded to Mr Patil:
Are you nuts don’t use bitzer docs rework as your own.
31 The third was an email from Mr Japp dated 15 January 2013, the subject of which was entitled “Information as promised”, sent to Mr Patil and Mr Rudischhauser with instructions that it not be passed on to others in its current format “as it has authors etc included” and with a request that the data in it be cut and pasted into a new Excel spreadsheet. Mr Japp also wrote:
Vivek I have given you data on best market prices for WRC, LDV1 and LDV2 (new).
We need to ensure we are competitive against this level. This will basically ensure we will win always…
If you really want VB details see the file 2011 price list margin data. There is a TAB with VB data inside for you.
32 Mr Japp had been employed by Bitzer specifically to develop the LDV2 (also called LDV-D) condenser for Buffalo Trident.
33 The attachments to the email consisted of the 2011 price list and margin analysis; the 2012 master price list; and the comparison between the LDV-D and Heatcraft condensers.
34 On 21 March 2013 Mr Rudischhauser sent an email to Mr Patil, Mr Japp and Damon Walker (a director of Coldworks) directing Mr Patil to approach Cold Magic to determine whether it could build heat pumps from Bitzer’s designs and asking Mr Japp to obtain as much information as possible from Bitzer’s records while he continued to work there, with the object of providing a quotation to Woolworths for an alternative to Bitzer’s product. Mr Rudischhauser began the email with these words:
[T]his is a great opportunity.
We should be able to utilize the screw up of Bitzer to shine in the right light and present us as the professional chiller/HVAC/Dehum/Heatpump company.
35 On 26 March 2013 – two days before Mr Japp’s employment with Bitzer came to an end – Mr Patil sent three emails to Mr Walker and Mr Rudischhauser (copied to Mr Japp at his hotmail address). Attached to the first was a presentation given by Bitzer to Coles on heat pump designs and costings including technical and commercial details, from which the references to Bitzer and Coles had been expunged. The email also set out Bitzer’s costings for six specific heat pumps extracted from Bitzer’s computer records. Attached to the second were some of Bitzer’s confidential designs for heat pumps for installation in Coles supermarkets. Attached to the third were more of Bitzer’s confidential heat pump designs for Coles, together with alternative pricing, and a duplicate of the Bitzer presentation to Coles. In the body of the third email Mr Patil noted:
AJ [Andrew Japp] will get us latest BOMS [bills of materials, that is components and parts] & actual costs in next day or so
36 Mr Gibson referred to this course of conduct in his affidavits (without objection) variously as stealing and theft.
37 A convenient summary of the respondents’ conduct with respect to compressors appears in annexure PG6 to Mr Gibson’s second affidavit. It is an incomplete analysis from the documents obtained as a result of the Court’s search orders showing how Bitzer’s confidential information had been used by the respondents to develop a business with its Italian rival, Dorin. Mr Gibson began his analysis with the following statements:
1 Compressors are the most important part of Bitzer’s business: each of the systems sold by Bitzer incorporates a compressor which has been manufactured by Bitzer. Bitzer also sells compressors to third parties.
2 When Coldworks was first established it was not involved in the sale or distribution of compressors but, following the theft and use of Bitzer’s confidential information set out below, Coldworks has entered the compressor market.
3 The steps adopted by the respondents were as follows:
(i) firstly, they acquired confidential information which contained details of the costs to Bitzer of producing and obtaining the various compressors; the types of compressors purchased by individual Bitzer customers; the sale prices of compressors to individual customers after allowing for the confidential discounts offered to those customers; and the compressor models which had the best sales
(ii) they then used that confidential information to create a written market strategy for their own proposed compressor business, a strategy which addressed both short-term success and long-term viability. This suggested the setting of prices for Dorin Compressors by reference to the known costs and discount structures of Bitzer compressors, and the targeting of Bitzer compressor customers by reference to the nature and extent of Bitzer’s sales to those customers in the past.
(iii) they then targeted Bitzer’s customers by sending quotes to them for the supply of compressors of the nature and model which they knew, from Bitzer’s confidential information, those customers had purchased in the past, and for prices which, having regard to their knowledge of Bitzer's cos’s and customer discounts, they knew would be attractive to those customers. They also arranged for (scil.) Coldworks to purchase shipment of Dorin compressors with specifications comparable to the most popular models sold by Bitzer.
38 Thereafter Mr Gibson expanded on the three steps by reference to documents found on Mr Japp’s computer or otherwise found in the respondents’ possession.
39 Plainly, the respondents’ purpose was to acquire and use Bitzer’s confidential information and intellectual property for their own advantage to undercut Bitzer and position Coldworks initially as a real competitor in the marketplace and ultimately to undermine Bitzer’s dominance.
Conclusions
40 For the following reasons Bitzer should have the orders it seeks.
41 First, it is fair to say that Bitzer succeeded in its action, although it did not get all that it asked for. The evidence obtained from the respondents as a result of the search orders and discovery was, in truth, overwhelmingly against them. This was the only reason the respondents were not in a position to defend the proceedings further and the litigation was brought to an end. As their solicitor, Mr Johnston, candidly put it, the respondents had effectively capitulated, having been caught red-handed. He conceded that Bitzer would undoubtedly have established that the respondents had engaged in theft and use of confidential information. It also necessarily follows from those concessions, which were entirely appropriate, and also from the limited evidence Bitzer presented on this application, that the respondents breached their duties under ss 182 and 183 of the Corporations Act by using their positions as officers or employees to gain an advantage for themselves or others or to cause detriment to Bitzer (s 182) and by improperly using information obtained in that capacity to gain an advantage for themselves or others or to cause detriment to Bitzer (s 183). What is more, there is also uncontradicted evidence of infringement of Bitzer’s copyright in its designs. In these circumstances, Bitzer’s decision not to press for declaratory relief is immaterial.
42 Second, there is no evidence to support the submission that the respondents should pay only 65% of the costs. It is true that the respondents were cooperative after the proceeding was launched and plainly sought to minimise costs. In this respect, it is clear that they honoured their obligations under s 37N of the FCA Act. That requires all parties to litigation in the Court to conduct proceedings in a way that is consistent with the overarching purpose of the civil practice and procedure provisions of the FCA Act and the Federal Court Rules 2011 (Cth) (“FCA Rules”), that is to say, to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible (see FCA Act, s 37M). Section 37N(4) of the FCA Act states that, in exercising the discretion to award costs in a civil proceeding, the Court or a Judge is required to take into account any failure to comply with the duty imposed by s 37N. Complying with the duty, however, does not entitle a party to a reward or a discount.
43 Third, the mere fact that Bitzer did not press its claim for damages, compensation or an account of profits does not warrant a reduction in the costs for which the respondents should be liable. There is no evidence that the respondents incurred any costs in defending this aspect of the proceeding. Nor is it likely that any costs Bitzer may have incurred in investigating such a claim were significant.
44 Fourth, I do not consider that the costs order should distinguish between the respondents on the basis that Messrs Rudischhauser and Patil were not joined to the proceeding until 24 July 2013.
45 In general, where a court orders that costs be paid by two or more parties, whether applicants or respondents, third parties or non-parties, the liability is joint and several: G E Dal Point, Law of Costs, 2nd ed, LexisNexis Butterworths, Australia, 2009, [11.2]. The rationale for this principle is clear:
Were the law otherwise, it would imperil a basic principle of the law of costs, the costs indemnity rule. As the successful litigant is prima facie entitled to its costs of the action, he or she should not, it is reasoned, lose out if one of the parties against whom the costs order is made cannot or will not meet its share of the costs burden. It follows that a person who discharges a costs liability can seek contribution from others who are jointly liable to meet that liability. The issue of contribution – that of determining the relative responsibility for costs between those against whom the order is made – is a matter to be dealt with as between them rather than one that rests in the party who is awarded costs.
(Citations omitted.)
46 Of course this is not an invariable rule. It would not, for example, be just to saddle some respondents with costs the applicant incurs because of a separate and distinct defence run by a particular respondent in which they played no part: cf. Stumm v Dixon & Co (1889) 22 QBD 529.
47 Where, however, unsuccessful respondents have “basically the same interest”, it is appropriate to make them jointly and severally liable for the applicant’s costs: Shang v Zhang (No 2) [2007] NSWSC 1355 at [18]. That way the applicant will be paid and any questions of contribution between the respondents can be sorted out later, either amicably or upon taxation.
48 But Mr Johnston argued that this principle only applies from the time a person becomes a party to the proceeding. The difficulty with his argument is that it does not take into account the breadth of the Court’s power and the ability of the Court in an appropriate case to make an order for costs against a non-party: Knight v FP Special Assets Limited (1992) 174 CLR 178 (“Knight”) at 192 (Mason CJ and Deane J), 203 (Dawson J), 205 (Gaudron J). If it is in the interests of justice, such as where the non-party is the “real party” or the “effective litigant standing behind an actual party”, an order that a non-party pay or contribute to costs may be made: Knight at 190, 202, 205.
49 In Kebaro Pty Ltd v Saunders [2003] FCAFC 5 the Full Court reviewed the authorities and concluded at [103]:
In our opinion, the authorities establish, on the foregoing analysis, the following propositions:
• A non-party costs order is exceptional relief, although some categories of factual situations are now recognised as within the discretion, for example, the situation described by Mason CJ and Deane J in Knight at 192–193. The width of the jurisdiction is illustrated by a recent English decision that there can be circumstances in which it would be appropriate to order costs in favour of a non-party against a party (see Individual Homes v Macbreams Investments, 23 October 2002, High Court of Justice Chancery Division at 8).
• Whilst such an order is extraordinary, the categories of case are not closed, although in order to warrant its exercise, a sufficiently close connection, or as Gobbo J [in Bischof v Adams [1992] 2 VR 198 at 204–5] expressed it, a “real and direct and ... material” connection with the principal litigation, must be demonstrated; in the words of Callinan J [in Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation (2001) 179 ALR 406 at 414 [37]], the non-party can fairly be liable if adjudged by its conduct, to be a real party to the litigation, even if not the real party.
(Original emphasis.)
50 These cases, of course, are concerned with the situation in which the non-party never becomes a party. As the Full Court observed in State of Victoria v Sportsbet Pty Ltd (No 2) [2012] FCAFC 174 (“Sportsbet”) at [15] the FCA Rules do not preclude the recovery of costs that were incurred before a party was formally joined. Depending on the circumstances of the case, costs incurred in preparing for the litigation may be recovered. Insofar as the involvement of Mr Rudischhauser and Mr Patil was disclosed by the search orders, the costs Bitzer incurred in applying for and executing them are of this nature.
51 Here, the evidence reveals that the respondents were engaged in a common enterprise, albeit that the participation of Mr Rudischhauser and Mr Patil was unknown until after the search orders were carried out. I have no doubt that they would have been parties from the outset if Bitzer had then known of their involvement. Mr Rudischhauser and Mr Patil both encouraged Mr Japp to pass over Bitzer’s confidential information and its intellectual property with the common purpose of sharing the spoils. If the order Bitzer sought are not made, then Mr Japp may well end up paying the lion’s share of the costs without having any right to obtain a contribution from his accomplices, although to some extent at least he appears to have been doing their bidding.
52 In all these circumstances it seems to me that it is in the interests of justice that all respondents be jointly and severally liable for Bitzer’s costs regardless of when they became parties.
53 Accordingly, the order will be that the respondents pay Bitzer’s costs, including reserved costs, on a joint and several basis.
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I certify that the preceding fifty-three (53) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Katzmann. |
Associate:
