Federal Court of Australia

Central Innovation Pty Ltd v Garner (No 5) [2022] FCA 502

File number:

NSD 2221 of 2016

Judgment of:

BROMWICH J

Date of judgment:

5 May 2022

Catchwords:

COSTS - where costs assessment conducted by Judicial Registrar and reasons published – question of indemnity costs referred to trial judge to consider Calderbank offer and the offer of compromise from applicants – held: indemnity costs to be paid by first respondent

Legislation:

Corporations Act 2011 (Cth) s 500

Federal Court of Australia Act 1976 (Cth) ss 37M, 37N

Federal Court Rules 2011 (Cth)

Cases cited:

Central Innovation Pty Ltd v Garner (No 4) [2020] FCA 1796

Garner v Central Innovation Pty Limited [2022] FCAFC 64

Harris v Morabito Holdings Pty Limited [2018] NSWSC 1353

Keays v JP Morgan Administrative Services Australia Ltd [2012] FCAFC 100; 224 IR 406

Port Kembla v Coal Terminal Ltd v Braverus Maritime Inc (No 2) [2004] FCA 1437; 212 ALR 281

Division:

Fair Work Division

Registry:

New South Wales

National Practice Area:

Employment and Industrial Relations

Number of paragraphs:

23

Date of last submissions:

30 November 2021

Solicitor for the Applicants:

SD Commercial Lawyers

Solicitor for the First Respondent:

AJH Lawyers

ORDERS

NSD 2221 of 2016

BETWEEN:

CENTRAL INNOVATION PTY LTD

First Applicant

INTERCAD PTY LTD

Second Applicant

AND:

GARY GARNER

First Respondent

N C CADCAM SYSTEMS PTY LTD (IN LIQUIDATION)

Second Respondent

order made by:

BROMWICH J

DATE OF ORDER:

5 MAY 2022

THE COURT ORDERS THAT:

1.    The first respondent pay the applicants’ costs in the sum of $1,552,751.14.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

BROMWICH J:

Introduction

1    On 16 December 2020, I delivered judgment and gave a verdict in favour of the applicants against the first respondent, Mr Gary Garner: Central Innovation Pty Ltd v Garner (No 4) [2020] FCA 1796 (verdict judgment). The proceedings against the second respondent, N C Cadcam Systems Pty Ltd, were stayed by the operation of s 500 of the Corporations Act 2011 (Cth) by reason of the company going into liquidation eight months before the trial. I ordered that Mr Garner pay the applicant’s costs.

2    On 2 February 2021, Mr Garner appealed from the verdict judgment. That appeal was heard on 12 August 2021 and dismissed on 21 April 2022: Garner v Central Innovation Pty Limited [2022] FCAFC 64.

3    In the intervening period between the appeal from the verdict judgment being delivered and that appeal being dismissed:

(a)    On 26 February 2021, I further ordered:

1.    The sum of the judgment and verdict awarded to the applicants by order 1 made on 16 December 2020 be fixed in the sum of $552,564.

2.    The applicants costs of the proceeding be assessed by a registrar on a lump-sum basis and:

a)    on a party and party basis up to and including 16 December 2020;

b)    on a party and party basis up to and including 11.00 am on 30 July 2019, and on an indemnity basis between 11.00 am on 30 July 2019 and 16 December 2020;

c)    on an indemnity basis up to and including 16 December 2020.

3.    After the assessment by the registrar is carried out, the parties be at liberty to apply.

4.    Costs be reserved.

The reason for ordering the costs assessment on three alternative bases was to accommodate and inform the resolution of the question of indemnity costs sought by the applicants.

(b)    On 22 October 2021, Judicial Registrar Allaway published reasons for the assessments arrived at, taking into account a costs summary and submissions filed by the applicants, and a costs response and submissions filed by Mr Garner. Those reasons are annexed to these reasons. The conclusions Judicial Registrar Allaway reached as to the quantification of Mr Garner’s costs liability on the alternative bases set out in the 26 February 2021 orders were as follows (exclusive of GST):

(a)    on a party and party basis up to and including 16 December 2020 – $2,511,643.26 x 50% = $1,255,821.63

(b)    on a party and party basis up to 30 July 2019 and on an indemnity basis from 30 July 2019 to 16 December 2020

$1,405,796.81 x 50% =    $702,898.41

$1,105,846.45 x 70% =    $774,092.52

                                            $1,476,990.93

(c)    indemnity costs up to and including 16 December 2020 – $2,511,643.26 x 70% = $1,758,150.28

(c)    On 30 November 2021, the applicants filed submissions, in accordance with orders made on 10 November 2021:

(i)    primarily seeking indemnity costs up to the judgment date of 16 December 2020 in the sum of $1,758,150.28 (conclusion (c) above), plus costs upon the same basis as used by Judicial Registrar Allaway of 70% of costs incurred after 16 December 2020 to the date of those submissions, being 30 November 2021, of $75,760.21; and

(ii)    in the alternative seeking costs up to 16 December 2020 in the sum of $1,476,990.93 (conclusion (b) above), plus costs upon the same basis as used by Judicial Registrar Allaway of 70% of costs incurred after 16 December 2020 to the date of those submissions, being 30 November 2021, of $75,760.21.

(d)    Mr Garner did not file any submissions by 10 January 2022, in accordance with the 10 November 2021 orders, nor advise by that date that no such submissions were going to be filed.

(e)    On 18 January 2022, in response to an email to my chambers from the applicants’ solicitors noting that no submissions had been filed, Mr Garner’s solicitors advised by email that he did not intend to file any additional submissions concerning Judicial Registrar Allaway’s costs assessment. However, that email did say that Mr Garner referred to, and repeated, the matters raised in the his written costs response submissions filed on 3 August 2021, with a particular focus on what was said to be:

1.    the disproportionate nature of the Applicants’ costs;

2.    the extent to which the costs incurred by the Applicants were due to the conduct of the Applicants or in relation to other parties, outside the control of the First Respondent; and

3.    the First Respondent’s inability to properly assess the Applicants’ Calederbank letter and offer of compromise relied upon in relation to the question of costs.

4    In his reasons, Judicial Registrar Allaway addressed the first two issues adverted to in the email last referred to above namely the asserted disproportionate nature of the applicants’ costs relative to the verdict, and the extent to which the costs incurred by the applicants were said to be due to the conduct of the applicants or in relation to other parties outside the control of Mr Garner in a way that was partially favourable to Mr Garner. There being no identification of error in that regard by Mr Garner, let alone any attempt at substantiation of any such error, I do not propose to revisit those topics. I have carefully read Judicial Registrar Allaway’s reasons. I agree with them and I adopt them.

5    As to the third issue raised in the 18 January 2022 email from Mr Garner’s solicitors, Judicial Registrar Allaway correctly regarded the issue of indemnity costs as being something to be determined by me, by reference to the Calderbank offer and the offer of compromise relied upon by the applicant.

6    The applicants also seek to advance their claim for indemnity costs by way of further submissions directed to Mr Garner’s conduct of the litigation. They rely upon assertions of breach of or non-compliance with the obligations under ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth). They also rely upon the various ways in which it is said that Mr Garner caused them to incur excessive costs and disbursements by raising unmeritorious arguments and applications, thereby causing the proceedings to be complex, delayed and protracted. Each of these points were sought to be addressed by reference to material that was before Judicial Registrar Allaway, by way of the costs summary affidavit and response, by reference to portions of pre-trial transcript, and by reference to the judgment for the verdict and by reference to the competing submissions. This was an attempt to persuade me to give the primary relief sought of indemnity costs, both to cover the period before Calderbank offer and the offer of compromise, and to bolster those bases for indemnity costs after those offers were made.

7    Some of the arguments that the applicants rely upon have some force, as I observed in the verdict judgment. However, having considered the submissions carefully, I am not convinced that it is appropriate to go any further than I did in the judgment, or to go beyond what Judicial Registrar Allaway addressed, which included taking into account the adverse conclusions I reached about Mr Garner and the conduct of his case. I therefore turn to the assessment of the Calderbank offer and the offer of compromise.

8    On 7 June 2019, the solicitors for the applicants sent a 36 page letter to the solicitors for Mr Garner, expressed to be without prejudice save as to costs, and described as a Calderbank offer. The letter was divided into the following topics:

(a)    the terms of an offer of settlement, set out in full below, expressed to expire at 4.00 pm on 14 June 2019; and

(b)    details of the allegations made against Mr Garner, divided into:

(i)    his employment and the duties he owed the applicants;

(ii)    the access that he had to the applicants’ confidential information;

(iii)    his misuse of the applicants’ confidential information;

(iv)    his breaches of his employment contract, fiduciary duties, and duties under the Corporations Act 2001 (Cth);

(v)    the laptop computer provided by his subsequent employer and his claim that it had been stolen, and related events, in the context of orders made by Katzmann J on 23 December 2016, including what had taken place in subsequent court appearances as relevant to that topic (noting the limited findings that were ultimately able to be made on that topic in the verdict judgment);

(vi)    his inconsistent approach in reporting the alleged theft of the laptop to the police and his alleged failure to comply with the injunction orders made by Katzmann J (noting that I did not accept that the laptop had in fact been stolen but could go no further);

(vii)    his conduct during the proceedings.

9    The terms of an offer of settlement in the letter were as follows:

1.    Our clients’ Offer

1.1.    To resolve all issues in the proceeding, we are instructed that the Applicants will agree to the following terms of settlement:

1.1.1    The Applicants will accept payment from the First Respondent of just under 75% of the Applicants' legal costs and disbursements incurred in the proceeding to date, being $1,000,000.00. The total legal costs and disbursements incurred as at today amount to around $1,350,760.70 (excluding work in progress);

1.1.2    The Applicants will accept a further payment from the First Respondent of 50% of their lost profit due to the loss of customers to the Second Respondent as a result of the First and/or Second Respondent's misuse of the Applicants' confidential information, being $392,757. The total amount of our clients' lost profits exceeds $785,514. Therefore, our clients are seeking a total payment from the First Respondent of $1,392,757.00 (ie legal costs of $1,000,000.00 and lost profits of $392,757);

1.1.3    The First Respondent is to return all of the Applicants' confidential information to the Applicants;

1.1.4    The First Respondent is to provide an undertaking in the terms acceptable to the Applicants' not to use any of the Applicants' confidential information at all and into the future;

1.1.5    The settlement is to be documented in a Deed of Settlement, Release and Indemnity (Deed) which is to be drafted by us;

1.1.6    The proceeding is to be dismissed on terms, with no order as to costs, including all previous costs orders made against the First Respondent in the proceeding (Offer); and

1.1. 7    The Offer will remain open for acceptance in writing until 4:00pm on 14 June 2019, at which time it will lapse.

1.2    The Offer is made in accordance with the principles of Calderbank v Calderbank [1975] 3 All ER 333 and in the event that the Offer is not accepted, the Applicants reserve their right to rely on the content of this letter in relation to the question of indemnity costs being ordered against the First Respondent.

1.3    The Applicants are confident of being ultimately successful in the proceeding against the First Respondent, based on the number of reasons that are outlined below. Should the Offer not be accepted, the Applicants are prepared to proceed to trial to obtain judgment in their favour from the Court.

10    On 26 July 2019, the applicants’ solicitors sent a letter to Mr Garner’s solicitors a formal offer of compromise:

To the First Respondent

The First Applicant and the Second Applicant (Applicants) offer to compromise this proceeding.

The offer is that the First Respondent pay to the Applicants the sum of $1,392,757 in full and final settlement of the Applicants' claims in the proceeding.

This offer is inclusive of interest and costs.

This offer of compromise is open to be accepted for 28 days after service of this offer of compromise.

The amount of the offer will be paid within 28 days after acceptance of this offer.

This offer is made without prejudice.

11    There is no reason to doubt that this was a valid offer of compromise under r 25.01(1) of the Federal Court Rules 2011 (Cth) when read with Form 45. Mr Garner offers no argument to the contrary. Rule 25.14(3) provides:

If an offer is made by an applicant and not accepted by a respondent, and the applicant obtains a judgment that is more favourable than the terms of the offer, the applicant is entitled to an order that the respondent pay the applicant’s costs:

(a)    before 11.00 am on the second business day after the offer was served on a party and party basis; and

(b)    after the time mentioned in paragraph (a) on an indemnity basis.

The offer of compromise was served by email on Friday, 26 July 2019. It therefore took effect at 11.00 am on 30 July 2019, being the operative date for order 2(b) in the 26 February 2021 orders reproduced at [3(a)] above, and the operative date for conclusion (b) in Judicial Registrar Allaway’s 22 October 2021 assessment reproduced at [3(b)] above.

12    I also note that the sum of $1,392,757 in the offer of compromise corresponds to the same amount in the 7 June 2019 offer of settlement reproduced above. Mr Garner could not have been in any doubt as to how that figure was arrived at, being:

(a)    a 50% compromise on the estimated liability at that time of $785,514, and well below the verdict sum of $552,564; and

(b)    a substantial compromise of $1,000,000 on the costs by then incurred by that time (excluding work in progress) of just over $1,350,000.

13    On 26 January 2021, being after the verdict judgment was delivered and before Mr Garner filed his appeal, the applicants’ solicitors sent a letter to Mr Garner’s solicitors, inviting him to agree to a total costs order against him in the sum of $1,400,000. The applicants incurred costs in the period from the judgment verdict to the 30 November 2021 costs submissions to this Court of $108,228.87 (ex GST). The applicants contend that there should be no further costs assessment in that regard, but rather that costs should be awarded on an indemnity basis using the 70% figure applied by Judicial Registrar Allaway (that is, $75,760.21), or alternatively on a party and party basis using the 70% figure applied by Judicial Registrar Allaway (that is, $54,114.43).

14    There has been no submission made by or on behalf of the first respondent on the question of costs after the verdict judgment was delivered, being costs incurred in seeking a more advantageous costs assessment. It is apparent that this was a deliberate decision. As I consider that the arguments advanced by the applicants on this topic are both reasonable and unanswered, I will accede to them. Mr Garner will be ordered to pay those costs on an indemnity basis using the discount applied by Judicial Registrar Allaway of 70%, being $75,760.21.

15    Returning to the Calderbank offer and the offer of compromise, Mr Garner’s submission to Judicial Registrar Allaway, and still relied upon as his only submissions at this stage of the costs determination process, may be summarised as follows, accompanied by my response.

16    Mr Garner submits that both offers were incapable of being assessed at the time they were open for acceptance and, as a result, ought not to give rise to costs on an indemnity basis. That assertion does not avail him of anything in light of the effect of a formal offer of compromise, for the reasons set out below. In relation to the 7 June 2019 offer of settlement, that is misplaced in relation to the assertion that the applicants were, at that time, seeking to amend their statement of claim, complaining that it failed to identify the customers in relation to whom they sought to claim loss and damage. A case does not have to have fully crystallised before a settlement offer can be made and be reasonably capable of acceptance, as is the present case. Mr Garner cites a number of authorities in support of this assertion. However, on my examination of these authorities, they do not support the assertion.

17    In particular, Mr Garner relies upon Keays v JP Morgan Administrative Services Australia Ltd [2012] FCAFC 100; 224 IR 406 at [135] per Besanko J (with whom North J agreed, and with whom Gray J agreed on this point). That was a case involving a settlement offer made by the prospective respondent before proceedings were commenced by the applicant. As part of the reason for not departing from the primary judge’s refusal to order indemnity costs, Besanko J observed that the offer had not been accompanied by reasons. As set out above, that is not the present situation, with the Calderbank offer in this case contained within a letter setting out in some detail the context and reasons for the offer.

18    Mr Garner also relies upon Harris v Morabito Holdings Pty Limited [2018] NSWSC 1353 per McDougall J at [29]. That was a home building dispute. The owners were awarded damages of $400,000 for a claim of about $1.6 million. The offer in question was made soon after the proceedings had commenced and contained no details of the claimed defects. In such a case, the entire claim turns on the asserted defects. There was no suggestion that precise particulars were required, just some foundation for an assessment to be made. In those circumstances, McDougall J held that there was really no basis on which the merits of the offer could be assessed. Again, that is not the present position, particularly with regard to the detailed offer letter.

19    In my opinion, the complaint made about the specific identification of the customers lost as a result of Mr Garner’s conduct was not a sound basis upon which to reject the offer made on 7 June 2019, which I consider amply meet the description of a Calderbank offer. In the result, this conclusion operates as an alternative means of supporting a claim for indemnity cost, the primary and more clear-cut basis being the formal offer of compromise under the Rules.

20    In relation to the offer of compromise, as Hely J pointed out in Port Kembla v Coal Terminal Ltd v Braverus Maritime Inc (No 2) [2004] FCA 1437; 212 ALR 281 at [17] when considering Order 23 rule 11(4) in the former version of the rules of this Court, which is still apposite to the present r 25.01(1) of the Rules when read with Form 45 and r 25.14(3), that:

… Once an offer is made, and a judgment no less favourable obtained, a rebuttable presumption in favour of indemnity costs is created.  It then becomes incumbent on the defendant to show reason why the presumption should not crystallise.”

21    His Honour then said at [18]:

Even if an unsuccessful litigant acted reasonably in rejecting an offer of compromise based on its asserted defences, the authorities establish this of itself is not a sufficient reason to displace the presumptive or prima face operation of the Rules.  As Gleeson CJ (with whom Clarke and Cripps JJA agreed) stated in NSW Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100 at 102:

It is impossible exhaustively to state the circumstances in which a discretion to contrary effect might be exercised, and it would be imprudent to attempt any such exhaustive statement.  However, I do not read Maitland Hospital v Fisher (No 2) [(1992) 27 NSWLR 720] as authority for the proposition that discretion should be exercised against making an order for indemnity costs in any case in which it was reasonable for the defendant to take the view that it had a good chance of successfully defending the action.  The prima facie consequence, which will apply in the ordinary case, is that in the circumstances postulated by the rule an order for indemnity costs will be made.

This approach was endorsed in Morgan v Johnson (1998) 44 NSWLR 578 by Mason P (with whom Sheller JA agreed) who said (at 582):

The mere fact that it was reasonable for the litigant to take the view that he or she did in rejecting the offer is not enough to displace the rule: NSW Insurance Ministerial Corporation v Reeve (at 102).

22    Mr Garner made no serious attempt to demonstrate why the offer of compromise should not operate according to its terms and the terms of r 25.14. It is plain that the verdict judgment was no less favourable than that offer, being considerably better. He certainly did not attempt to demonstrate that he held any view that he had a good chance of defending the action, let alone that any such view was reasonable.

Conclusion

23    In all the circumstances I am satisfied that Mr Garner should be ordered to pay the applicants’ costs in the total sum of $1,552,751.14, comprising:

(a)    up to 16 December 2020 in the sum of $1,476,990.93 (Judicial Registrar Allaway ’s conclusion (b)); and

(b)    costs upon the same basis as used by Judicial Registrar Allaway for conclusion (b) of 70% of costs incurred after 16 December 2020 to the date of those submissions, being 30 November 2021, being $75,760.21.

I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Bromwich.

Associate:

Dated:    5 May 2022

ANNEXURE A – REASONS OF JUDICIAL REGISTRAR ALLAWAY

FEDERAL COURT OF AUSTRALIA

Central Innovation Pty Ltd and Anor v Gary Garner and Anor

Parties:

CENTRAL INNOVATION PTY LTD AND ANOR v GARY GARNER AND ANOR

File number:

NSD 2221 of 2016

Judicial Registrar:

ALLAWAY

Date of decision:

22 OCTOBER 2021

FEDERAL COURT OF AUSTRALIA

DISTRICT REGISTRY: NEW SOUTH WALES

DIVISION: GENERAL

NSD 2221 of 2016

BETWEEN:

CENTRAL INNOVATION PTY LTD

First Applicant

INTERCAD PTY LTD

Second Applicant

AND:

GARY GARNER

First Respondent

N. C. CADCAM SYSTEMS PTY LTD Second Respondent

JUDICIAL REGISTRAR:

ALLAWAY

DATE OF ORDER:

22 OCTOBER 2021

WHERE MADE:

MELBOURNE

The Honourable Justice Bromwich having ordered on 16 December 2020 that the first respondent pay the applicants’ costs of the proceeding;

And having further ordered on 26 February 2021 that

1.    The applicants’ costs of the proceeding be assessed by a registrar on a lump-sum basis and:

a)    on a party and party basis up to and including 16 December 2020;

b)    on a party and party basis up to and including 11.00am on 30 July 2019, and on an indemnity basis between 11.00am on 30 July 2019 and 16 December 2020;

c)    on an indemnity basis up to and including 16 December 2020.

2.    After the assessment by the registrar is carried out, the parties be at liberty to apply.

THE COURT MAKES THE FOLLOWING ASSESSMENT OF COSTS:

1.    The applicants’ costs are assessed on a lump sum basis as follows:

(a)    on a party and party basis up to and including 16 December 2020, in the amount of $1,255,821.63;

(b)    on a party and party basis up to and including 11.00am on 30 July 2019, and on an indemnity basis between 11.00am on 30 July 2019 and 16 December 2020, in the amount of $1,476,990.93; and

(c)    on an indemnity basis up to and including 16 December 2020, in the amount of $1,758,150.28.

2.    All amounts are exclusive of the GST.

FEDERAL COURT OF AUSTRALIA

DISTRICT REGISTRY: NEW SOUTH WALES

DIVISION: GENERAL

NSD 2221 of 2016

BETWEEN:

CENTRAL INNOVATION PTY LTD

First Applicant

INTERCAD PTY LTD

Second Applicant

AND:

GARY GARNER

First Respondent

N. C. CADCAM SYSTEMS PTY LTD Second Respondent

JUDICIAL REGISTRAR:

ALLAWAY

DATE:

22 OCTOBER 2021

PLACE:

MELBOURNE

REASONS FOR ASSESSMENT OF COSTS

Background and material filed

1    On 16 December 2020, Justice Bromwich ordered that the first respondent pay the applicants’ costs of the proceeding. On 26 February 2021, Justice Bromwich made the following further orders in relation to costs:

2.    The applicants’ costs of the proceeding be assessed by a registrar on a lump- sum basis and:

a)    on a party and party basis up to and including 16 December 2020;

b)    on a party and party basis up to and including 11.00am on 30 July 2019, and on an indemnity basis between 11.00am on 30 July 2019 and 16 December 2020;

c)    on an indemnity basis up to and including 16 December 2020.

3.    After the assessment by the registrar is carried out, the parties be at liberty to apply.

2    On 1 April 2021, I directed that I would make the assessment of costs on the papers and set a timetable for the filing of a costs summary and costs response and written submissions in accordance with the Court’s Costs Practice Note (GPN-Costs). On 1 June 2021, I extended the time for the filing of the first respondent’s costs response and submissions to 20 July 2021.

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3    In compliance with my directions and GPN-Costs, the applicant has filed a costs summary in the form of an affidavit by its solicitor, Mr Stephen D’Emilio sworn on 31 May 2021 (D’Emilio affidavit). The documents supporting the claim are annexed to the affidavit as exhibit SD-1 (SD-1). The affidavit is largely in accordance with the guide for preparing a costs summary which is annexed to GPN-Costs. On 20 July 2021, the first respondent filed a costs response in the form of an affidavit of his solicitor, Mr Jack Ryan (Ryan affidavit) and written submissions also dated 20 July 2021.

Applicants’ costs summary

4    The applicants have generated costs and disbursements in the proceeding up to 16 December 2020 of $2,511,643.26 (excluding GST),1 of which $1,471,570 or approximately 58.6% represents professional fees and $1,040,073.26 is disbursements.2 Counsels’ fees make up

$597,712.94 or approximately 23.8% of the total costs and disbursements incurred. Of the applicants’ total costs and disbursements, $1,405,796.81 was incurred up to and including 11.00am on 30 July 2019 and $1,105,846.45 was incurred between 30 July 2019 and 16 December 2020.

5    The applicants’ primary position is that they are entitled to costs on an indemnity basis for the entire proceeding of 80% of their total costs and disbursements or $2,009,314.61. Mr D’Emilio deposes that in his experience costs assessed on an indemnity basis range between 80 to 95% of a party’s total costs and disbursements.

6    The applicants’ secondary position is that they are entitled to an amount for costs and disbursements of $1,728,156.05, comprising $843,478.09 for the period to 30 July 2019 assessed on a party and party basis, being 60% of their costs and disbursements for that period and $884,677.16 for the period from 30 July 2019 to 16 December 2020 assessed on an indemnity basis, being 80% of their costs and disbursements incurred for that period. Mr D’Emilio deposes that in his experience costs assessed on a party and party basis range between 60 to 75% of a party’s total costs and disbursements.

7    A percentage breakdown of the fees incurred by category of work is provided at paragraph 20 of the D’Emilio affidavit. 50% of the costs incurred were in relation to preparation of lay and

 _______________________

1 Paragraph 6 of the D’Emilio affidavit verifies that the applicants are registered for GST purposes and are entitled to claim input tax credits in respect of any GST relevant to the claimed costs and disbursements and, accordingly, all figures referred to throughout this assessment are exclusive of GST

2 SD-1 at 585

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expert evidence. The time recorded and hourly rates applied by Mr D’Emilio and those assisting him in the matter are provided at paragraph 22 of the D’Emilio affidavit. 31.1% of the total time recorded was by Mr D’Emilio at an hourly rate of $450. A breakdown of disbursements incurred, including counsels’ fees, is provided at paragraph 24. I note that the first respondent has raised no specific objection to the charge out rates of Mr D’Emilio or his staff or of counsel engaged by the applicants.

8    The applicants point to the following matters that they say may impact the assessment of costs:

•    the first respondent’s conduct in the proceeding3

    early procedural history4

    joint computer expert delays5

    opposition to subpoenas6

    requests for further and better particulars7

    dispute as to discovery of financial documents8

    findings made by Justice Bromwich at the trial.9

9    I will consider these points in more detail below, to the extent that I consider them relevant to the assessment. It will be most convenient to do so whilst addressing the first respondent’s responses and objections.

First respondent’s costs response

10    The first respondent disputes the claimed costs according to the following categories:10

(a)    costs incurred by the applicants which are wholly disproportionate to the nature of the litigation and the expected benefit;

(b)    costs incurred by the applicants due to the conduct of the applicants or in relation to other parties, outside the control of the first respondent;

(c)    unnecessary costs incurred by the applicants in relation to matters which were ultimately not relied upon by the applicants at trial;

 ____________________

3 D’Emilio affidavit at [28] and [29]

4 Ibid at [30] to [50]

5 Ibid at [51] to [66]

6 Ibid at [67] to [73]

7 Ibid at [74] to [77]

8 Ibid at [ 78] to [80]

9 Ibid at [84]

10 Ryan affidavit at [11]

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(d)    costs incurred by the applicants which are a duplication of work carried out or performed by other practitioners; and

(e)    the alleged special features of the proceeding.

11    The first respondent also raises, as preliminary issues,11 the fact that the D’Emilio affidavit does not depose to or exhibit any costs agreement or disclosure statement between the applicants and their solicitors or counsel. They say that, in the absence of that evidence, it is unclear whether the applicants’ solicitor or counsel have complied with their obligations under the Legal Profession Uniform Law, and therefore whether the applicants have any liability for the costs claimed. They also query how much, if any, of those costs have been paid.

Court’s approach to lump sum costs assessments

12    The generally preferred approach to lump sum costs assessments is to start with the actual costs incurred and then to apply an impressionistic discount to that figure to take into account the contingencies that would be relevant to an assessment of costs, either under the party and party scale, or on an indemnity basis. In Ginos Engineers Pty Ltd v Autodesk Australia Pty Ltd12, Finn J stated the following in relation to the lump sum costs assessment process:

It is not uncommon, particularly, but not only, in intellectual property cases, for the court to take as its starting point the evidence of the charges for professional costs incurred and disbursements made by the lawyers of the party awarded costs — and this irrespective of whether the costs are to be estimated on an indemnity basis: compare Beach Petroleum NL at CLR 120; ALR 162; or on a party and party basis: compare Universal Music Australia Pty Ltd v Miyamoto [2003] FCA 812 at [29] and following. That figure is then characteristically adjusted to take account of the acceptability of the charges made, the conduct of the proceeding, the measure of success on issues and so on, to produce a sum which as a matter of judgment is neither over compensatory nor prejudicial to the successful party. Consistent with the broad brush approach, that adjustment ordinarily is effected through the application of a discount to the figure accepted by the court on the available evidence as appropriately reflecting actual professional costs charged and disbursements made. The case law evidences

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11 Ibid at [12] to [15]

12 (2008) 249 ALR 371 at 377

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wide variations in the percentages of discount sought and/or applied to reflect the exigencies of the matter in question.

13    Schedule 1 of the Federal Court Rules 2011 defines costs between party and party as the costs that have been fairly and reasonably incurred by the party in the conduct of the litigation. The costs allowable on a party and party basis for work done and services performed are set out in schedule 3 to the Rules (party and party scale). But while the party and party scale is material to the lump sum assessment of party and party costs, and to a lesser extent indemnity costs, it is not the Court’s role to engage in a meticulous application of the scale. The purpose of the lump sum costs procedure is to streamline and expedite the determination or resolution of the quantum of those costs, not to replicate the taxation process13 and to avoid the expense, delay and complication of a full taxation. The lump sum costs procedure champions speed and efficiency over arithmetical calculation and mathematical accuracy. The approach taken must be logical, fair and reasonable and the costs ought to be proportionate to the complexity of the case and the value in dispute. The process, as described by Finn J, is necessarily a broad-brush one, although the Court is not precluded, where appropriate, from undertaking a close assessment of the costs relating to particular issues or categories of costs. The Court may take into account the evidence before it, its observations of the proceeding and its own experience. My own experience in costs includes 14 years as a taxing officer of this Court.

14    Issues of proportionality can be relevant in calculating the discount, together with a comparison of the fees charged by solicitors and counsel against those provided by the party and party scale and the Court’s National Guide to Counsel’s Fees.14 The magnitude of the discount applied in the reported cases and in my experience varies but it is commonly in the range of 25% to 40%, but can extend beyond that range in given circumstances. A lower discount is usually appropriate where indemnity costs are awarded. The authorities also support applying a smaller discount to disbursements.

Consideration

Costs agreement and disclosure requirements

15    The first respondent contends that the absence of any evidence as to a costs agreement between the applicants and their lawyers makes it unclear whether the applicants have complied with

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13 GPN-Costs at 4.11

14 Although noting that the Guide has not been revised since it was published in 2013

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their obligations under the Legal Profession Uniform Law and, therefore, whether they are liable to pay the costs incurred by their lawyers. Mr D’Emilio states that there is no special or unusual costs arrangements underpinning the costs claimed.15 And I note that in some invoices there is a reference to a sundry expense recovery charge as per the costs agreement. 16

16    If there has been non-compliance with the costs agreement or disclosure requirements under the Legal Profession Uniform Law, it does not necessarily follow that the applicants’ lawyers will be disentitled to their costs. Ultimately, it will be a matter of whether the costs charged are fair, reasonable and proportionate.17 But fundamentally, whether the relevant requirements under the Legal Profession Uniform Law have been met is a consideration for the courts seized with jurisidiction under that law in matters as between lawyer and client. It is not a matter for me to determine in this inter-partes assessment of costs. The fact that the costs may not yet have been paid is also, in my view, irrelevant to the assessment.

Whether the costs are disproportionate

17    The first respondent notes that the costs claimed by the applicants are approximately 5 times the amount of the judgment of $552,564 and that the costs are therefore disproportionate to the benefit obtained. As I have indicated, whether the claimed costs bear a proportionate relationship to the value and importance of the subject matter in issue is relevant in determining whether the costs claimed have been reasonably and properly incurred, although the final outcome of the proceeding is just one factor to consider when determining whether the costs are proportionate. It might be that the final outcome may not reflect what was the expected or likely benefit when the proceeding was commenced or during the interlocutory stages. Other important considerations include the complexity or novelty of the matters in dispute and whether, in the context of the proceeding as a whole, certain work by the lawyers was or was not reasonably undertaken. As I will address in a moment, another significant factor is the conduct of the parties in the litigation which may have caused or contributed to increased costs.

Costs due to applicants’ conduct or matters outside first respondent’s control

18    The matters referred to by the first respondent under this objection include:

    eight amendments to the statement of claim

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15 D’Emilio affidavit at [27]

16 See, for example, SD-1 at 323, 346 and 365

17 Re Jabe; Kennedy v Schwartz [2021] VSC 106; Legal Profession Uniform Law, s172(1)

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    four interlocutory applications, two of which related to the amendment of the statement of claim

    costs related to obtaining material belonging to the second respondent

    steps in the proceeding between the applicants and second respondent which did not concern the first respondent.

19    The following extracts from Justice Bromwich’s judgment of 16 December 2020 are pertinent to the points raised by the first respondent in relation to amendment of the statement of claim and interlocutory applications and also highlight what the Judge considered were relevant aspects of the conduct of the first respondent in the litigation

In cases involving misuse of confidential information by a former employee, a former employer is often going to be at a practical disadvantage in ascertaining and proving what is suspected to have taken place at the new employer (and therefore in pleading a case), including in particular the use of the former employer’s confidential information. This was certainly so for the applicants, who have had considerable difficulty in marshalling evidence in support of their case. Not the least source of this difficulty was the supposed disappearance of a work laptop computer provided to Mr Garner by NCCS (NCCS Laptop). Mr Garner’s case is that the NCCS Laptop was stolen from him a matter of hours before he was served with orders made by a judge of this Court on Friday, 23 December 2016, requiring that he give the applicants’ computer expert access to it. This and other events resulted in corresponding difficulty for the applicants in finalising their pleadings, which took until the lead up to the trial. [at 8]

The course of the litigation leading to a final hearing has been protracted, with numerous interlocutory disputes and contested case management hearings, especially in relation to pleadings, expert computer evidence and discovery. The applicants undoubtedly had a very difficult task in assembling the evidence that they took to trial. Unsurprisingly, the basal dispute is the sufficiency of that evidence. The level of agreement and general cooperation between the parties has been poor. This has mostly, in my view, been the fault of the respondents and their solicitors, which since April 2019 has been confined to Mr Garner and his solicitors. [at 9]

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It is relevant that Mr Garner has been obstructive and uncooperative in this proceeding, from soon after the ex parte first steps in this proceeding when he was served with the initiating process and initial orders of the Court, and continuing right up to and including the time when he gave evidence at the trial. Mr Garner did not comply with important aspects of the interlocutory ex parte orders made against him by Justice Katzmann on 23 December 2016 and served on him that day. [at 10]

The court book containing the evidence adduced by the parties is voluminous, comprising some 17 lever arch folders and over 10,000 pages of material, mostly from the applicants. Despite that, only a relatively small proportion of that evidence required detailed consideration in these reasons. In part, that is due to evidence being required to be adduced by the applicants on all manner of mundane things. That was apparently (and I consider reasonably), seen to be necessary by the applicants because of Mr Garner’s pleaded defence to the applicants’ case. This was ultimately in response to the second further amended statement of claim (statement of claim) and was replete with denials of “each and every allegation”, often contradicted by counter pleading that in fact admitted key aspects of what was alleged. This approach by Mr Garner greatly increased the burden in writing this judgment. Once capable of being proven, most of the formal and background facts were not disputed by Mr Garner in opening or closing submissions, but that did not absolve the Court from needing to make numerous factual findings. [at 14]

20    Justice Bromwich commented on the very limited number of agreed facts admitted at trial. [17] I note also that in addition to the interlocutory disputes referred to in the judgment, there were contests arising from objections by the first respondent to subpoenas issued by the applicants,18 which were ultimately unsuccessful19, and proposed additional questions for the Court- appointed IT expert.20

21    The first respondent’s conduct in relation to the applicant’s costs and this assessment is

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18 SD-1 at [835] to [845]

19 SD-1 at [871] and following

20 SD-1 at [827] and following

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reminiscent of his conduct in the proceeding more broadly, as described by Justice Bromwich. The first respondent denies that the applicants’ costs are fair and reasonable and contends that they should not be awarded under any circumstances.21 Whilst he makes various grounds of objection, he does not offer any alternative estimate of what he considers to be the applicants’ fair and reasonable costs. Nor does he make any specific comment on the percentage discounts proposed by the applicants, nor proffer any alternative discount based on his grounds of objection. I find the first respondent’s approach to this assessment, therefore, is largely unhelpful.

22    Having regard to the observations by Justice Bromwich, and the other matters I have referred to, I do not regard the points raised by the first respondent in relation to amendment of the statement of claim and interlocutory applications as justifying any specific reduction in the costs claimed by the applicants.

23    The costs orders made by Justice Bromwich are that the the first respondent pay the applicants’ costs of the proceeding. They do not distinguish between the costs relating to the first respondent and those relating to the second respondent and so I make no reduction on that account.

Unnecessary costs incurred by the applicants

24    The costs identified under this heading concern:

    the evidence of expert witness Ms Leanne Balit which was not relied on by the applicants at trial

    the evidence of the court appointed information technology expert, Mr Graeme Conn, which was read at trial by the first respondent but not relied on, or contested, by the applicants at trial

    costs of five subpoeanas that were not relied on by the applicants at trial and costs of subpoenas not related to the claim against the first respondent

    invoices provided by the lawyers for the applicants provide insufficient detail of the nature and necessity of the work performed

25    The point made by the first respondent in relation to the evidence of Mr Conn is, in my view, misconceived. Expert witnesses are appointed to assist the Court, not to advance the case of a particular party; a fortiori in the case of a Court-appointed expert addressing specific issues for

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21 First respondent’s submissions at [6] and [12]

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the Court’s determination. Whether a party seeks to rely on the evidence provided by the expert is not to the point if it assists the Court. It is self-evident from the judgment of Justice Bromwich that the evidence of Mr Conn did assist his Honour in arriving at his decision.22 While it is true that the applicants did not specifically challenge Mr Conn’s evidence, the same can largely be said of the first respondent in relation to the evidence of Mr O’Kane23 and Ms Bateman.24 In neither instance does it follow that the costs of obtaining that evidence should not be recovered as part of a successful party’s costs of the proceeding.

26    The report of Ms Balit was in put evidence but, in the words of Justice Bromwich, was peripheral to the case as finally presented.25 On balance, therefore, I consider that the costs of obtaining the report of Ms Balit were ultimately unnecessary and should not be recovered as part of the applicants’ costs of the proceeding. I have had regard to this in arriving at my final assessment of costs.

27    The mere fact that evidence obtained under a subpoena is not relied on at trial does not establish that the subpoena was unnecessary, nor that the costs of obtaining the subpoena were not fair and reasonable. It is not contended that the subpoenas, save the one’s I have already referred to, were not properly obtained. The first respondent does no more than make a bald assertion that as the subpoenas were not relied on, therefore the costs of the subpoenas should not be recovered by the applicants. In the absence of anything more substantive, I am not persuaded that any discount of costs associated with subpoenas not relied on by the applicants at trial is warranted.

28    I have reviewed the invoices submitted by the applicants’ lawyers to their clients and, whilst the item descriptions in them are generally sufficient to satisfy me that the charges are fair and reasonable,26 there are deficiencies in some of the descriptions which mean that I cannot be satisfied in relation to those items. I have had regard to these in arriving at my final assessment.

Special features of the proceeding

29    The first respondent denies that his conduct throughout the proceeding was unacceptable or in breach of his compliance obligations and points out that he has appealed the judgment including the finding that he failed to comply with the Court’s orders made on

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22 Judgment at [203] and following

23 Judgment [233]

24 Judgment at [343]

25 Judgment at [189]

26 Noting that they are not, and are not intended to be, itemised bills. cf. the first respondent’s submissions at [14]

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23 December 2016. In addressing this issue I need do no more than refer again to the extracts from the judgment of Justice Bromwich in relation to his findings as to the conduct of the first respondent in the proceeding. The fact that the first respondent has appealed the judgment does not derogate from the significance of his Honour’s observations and findings in that regard. In coming to this assessment, I therefore attach no weight to the first respondent’s denial of his unacceptable or non-compliant behaviour.

Calderbank offer and offer of compromise

30    The applicants seek to rely on a without prejudice Calderbank letter dated 7 June 2019 and an offer of compromise dated 26 July 2019. In reply, the first respondent relies on his lawyers’ letters dated 8 July 2019, 14 August 2019 and 12 February 2021. The Calderbank letter, offer of compromise and responses of the first respondent are matters for the consideration of Justice Bromwich in relation to costs, once the matter returns to him on receipt of my assessment. But they are illustrative of the first respondent’s general approach to this assessment, and the litigation more broadly, as I have observed and as found by Justice Bromwich. They are largely dismissive and devoid of any substantive response to the offers conveyed by the applicants, purportedly on the ground of what they say are serious deficiencies in the applicants’ pleading. They contain repeated assertions that the offers are not genuine or legitimate or capable of being responded to. The contest in relation to the offers and responses and the consequences for the costs of this proceeding are matters for the Judge and not for me.

Conclusion

31    The applicants’ approach in starting with their actual costs incurred and then applying a percentage discount, as I have indicated, is in keeping with the Court’s usual approach to lump sum assessments and one that I consider is appropriate in this instance. The question is whether the discounts sought to be applied by the applicants in the circumstances of this proceeding are justified.

32    While the costs incurred in this matter by the applicants have undoubtedly been exacerbated by the conduct of the first respondent, as found by Justice Bromwich and as I have observed in these reasons, I consider there is some force in the first respondent’s contention that the costs are out of proportion to not only the final judgment obtained, but also the reasonably anticipated benefit to be derived from the litigation.27 In my view, the disproportionate level of costs

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27 The initial evidence of Ms Bateman quantified the loss at $615,893 – judgment at [342]

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cannot be wholly attributed to the conduct, or approach to the litigation, of the first respondent. Although recognising the proceeding was commenced by urgent pre-action application and there were extensive interlocutory stoushes, the case was not overly complex or novel and the trial occupied less than five sitting days. On balance, therefore, and while noting that the discounts proposed by the applicants are at the upper end of the usual range for both party and party and indemnity costs and have been applied to both professional fees and disbursements, I consider that higher discounts than those proposed are warranted in this instance.

33    In my assessment, having regard to the matters I have addressed in these reasons, and to achieve a result that I consider is neither over compensatory nor unreasonably prejudicial to the applicants, the appropriate impressionistic discounts are 50% in respect of party and party costs and 30% in respect of indemnity costs. This results in an assessment of costs as follows:

(a)    on a party and party basis up to and including 16 December 2020

       $2,511,643.26 x 50% = $1,255,821.63

(b)    on a party and party basis up to 30 July 2019 and on an indmenity basis from 30 July 2019 to 16 December 2020

               $1,405,796.81 x 50% = $702,898.41

               $1,105,846.45 x 70% = $774,092.52

$1,476,990.93

(c)    indemnity costs up to and including 16 December 2020

            $2,511,643.26 x 70% = $1,758,150.28

34    All amounts are exclusive of the GST.

Phillip Allaway

Judicial Registrar

22 October 2021