Federal Court of Australia

Fortrend Securities Pty Ltd v Wollermann (No 3) [2025] FCA 444

ORDERS

THE COURT ORDERS THAT:

1.    The applicants pay the respondents’ costs of the proceeding:

(a)    before 11am on 3 October 2023 — on a party and party basis; and

(b)    thereafter — on an indemnity basis.

2.    The costs in order 1 be paid as a lump sum.

3.    The calculation of the lump sum be referred to a registrar of this court to fix the amount of the lump sum payable, and:

(a)    within 28 days of the date of this order, the respondents file and serve any costs summary and submissions in accordance with the Costs Practice Note (GPN-COSTS);

(b)    within 28 days of service of the respondents’ costs summary and submissions, the applicants file and serve any costs response and submissions in accordance with the Costs Practice Note; and

(c)    pursuant to r 1.37 of the Federal Court Rules 2011 (Cth), the registrar determine the quantum of costs in any referred costs dispute in such manner as they think fit (including, if thought appropriate, on the papers) and, within two weeks of the making of the determination, make orders for the payment of the amounts so determined.

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

REASONS FOR JUDGMENT

O’CALLAGHAN J

Introduction

1    These reasons deal with the issue of costs following my judgment in Fortrend Securities Pty Ltd v Wollermann (No 2) [2025] FCA 96 (the primary judgment), and they assume familiarity with it.

2    At trial, Fortrend Securities Pty Ltd (FSA) and Fortrend Securities Inc (FSI) (together, Fortrend or the applicants) contended that Shaw and Partners Limited (the third respondent) obtained the benefit of Fortrend’s confidential information and sued Messrs Wollermann and Lyle (the first and second respondents) for breaches of their contractual obligations, their obligations under ss 182(1) and 183(1) of the Corporations Act 2001 (Cth) (Corporations Act) and their fiduciary duties as employees of Fortrend. The applicants claimed loss and damage, allegedly arising from the use of Fortrend’s confidential information by Shaw, Mr Wollermann, Mr Lyle and LWAM Pty Ltd (the fourth respondent) to benefit themselves, in the sum of $11.4 million.

3    The pleaded case on the claim for damages in that amount was put this way in the further amended statement of claim dated 9 April 2024:

126.    The FSA Clients would not have transferred from FSA to Shaw but for the use by Wollermann and Lyle of the Confidential Client Information to encourage those clients to leave FSA and move to Shaw.

126A.    By reason of Shaw inducing Wollermann and Lyle to use the Confidential Client Information in breach of their EA’s (as admitted) Shaw, Wollermann and Lyle have caused FSA to lose the value of its business as at September 2022.

126B.    It is to be inferred in all the circumstances that Shaw has, by reason of the receipt from Wollermann and Lyle of the Confidential Client information increased the value of its business (Shaw FSA Clients Increased Value).

126C.    In FY22 FSI earned commission and advisory fees totalling US $2,639,572.

126D.    In FY23 FSI earned commission and advisory fees totally [sic] US $770,365.

126E.    In the circumstances it is reasonably to be inferred that the US $1,869,207 decrease in Commission and Advisory fees suffered by FSI in FY23 was earned by Shaw in consequence of its receipt and use of the Confidential Client Information (the “FSI fees” received by Shaw).

126F.    By further reason of the matters set out in paragraph 57(i) above herein, it is reasonably to be inferred that Shaw will continue to achieve the FSI fees received by Shaw in the sum of approximately US $1.9m per annum in FY24, FY25, FY26, FY27, FY28 and FY29.

126G.    In the circumstances set out in paragraph 57(i), and paragraphs 126C- to 126F [sic], the Shaw FSA Clients Increased Value is reasonably to be assessed as being no less than the present-day value of US $1.9 million x 6 = US $11.4 million.

4    The first key question that arose in respect of every pleaded and pressed cause of action was: did Mr Wollermann and Mr Lyle use confidential information of Fortrend in breach of their duties and/or breach of contract?

5    For the reasons I gave in the primary judgment, the answer to that question was “no”, with the consequence that the proceeding was dismissed. The question of damages, including Fortrend’s claim for $11.4 million, never arose.

6    The parties later filed written submissions about costs in accordance with my directions to do so, and having considered those submissions, I determined that the matter was appropriately to be dealt with on the papers.

7    In those submissions, the respondents sought their costs on an indemnity basis from two alternative dates. Fortrend contended that the usual party-party order should be made.

8    In the primary judgment, I also dealt with what occurred at an interlocutory hearing before Anderson J on 1 February 2023. I mention it now because Fortrend contended that it is relevant to the costs question.

9    The applicants consistently argued that what Mr Dalton KC (who appeared with Mr Minucci of counsel for the respondents) said at the hearing before Anderson J was an important concession upon which they were entitled to rely. At [90] of the primary judgment, I found to the contrary because the concession:

(a)    only related to the question of whether there was a prima facie case that Mr Wollermann and Mr Lyle had breached the confidentiality term of their respective employment contracts; and

(b)    only went as far as conceding that the so-called “ranking list” contained certain information set out in Mr Wollermann’s evidence (which I reproduced at [17] of the primary judgment) — namely, the abbreviated names of FSA’s most significant clients, together with their asset value rankings but not the asset values themselves.

The offers of compromise

10    In their submissions, the respondents sought their costs on an indemnity basis from two alternative dates, triggered by two different offers to settle the case, each of which involved an offer by the respondents to pay to the applicants a substantial sum of money plus their costs to date. The respondents contended that the applicants unreasonably failed to accept those offers.

11    Both offers were in the form of notices of offer to compromise in accordance with Pt 25 of the Federal Court Rules 2011 (Cth) (the Federal Court Rules).

12    The first notice of offer to compromise dated 28 September 2023 (the First Offer) was attached to a covering letter of the same date which was addressed to the applicants’ then-solicitors and headed “Without prejudice save as to costs” (the Covering Letter).

13    The second notice of offer to compromise dated 12 April 2024 (the Second Offer) was not attached to a covering letter.

14    The Covering Letter attaching the First Offer read as follows (omitting formal parts):

We refer to the above proceeding and enclose, by way of service, a notice of offer to compromise in accordance with Pt 25 of the Federal Court Rules 2011 (Cth) (Rules).

The claim made in the proceeding

At the heart of the dispute is the allegation that the first respondent (Wollermann) and the second respondent (Lyle) entered into a fraudulent scheme during their employment with Fortrend Securities Pty Ltd (FSA) to divert part of the business of FSA (Scheme).

Further it is alleged that the fourth respondent (LWAM), the fifth respondent (Alta Via) and the sixth respondent (Grolla), all of which are entities associated with Lyle and/or Wollermann were involved in the Scheme, and that the third respondent, Shaw and Partners Limited (Shaw), knew of the Scheme, and later became a party to it.

The key feature of the alleged Scheme appears to be that Wollermann and Lyle have used confidential or commercially sensitive information of the applicants to identify clients of FSA and induce them to move their business to Shaw.

The Respondents deny that the Scheme existed. Rather, the position is that Wollermann and Lyle resigned from their employment (as was their prerogative) and took up their trade at Shaw (via a contracting arrangement between Shaw and LWAM). The respondents accept that Wollermann and Lyle then contacted a number of their former clients and, where those clients indicated a preference to do so, initiated a process to transfer those clients from FSA to Shaw using information provided to them by those clients, after their employment with FSA had ended. It is important to recognise that this involved Wollermann and Lyle contacting individuals who were well-known to them as a result of their relationships with them.

Against this background, it can be seen that the proceeding will involve a number of significant legal and factual issues, including notably the validity of the restraint provisions asserted against Wollermann and Lyle and whether the applicants can identify the misuse of any protectable commercial information which has occasioned any loss to them.

Likely outcome of the proceeding

The respondents are confident that their position will be vindicated at trial.

A key plank of the applicants’ case is that the identities of clients and their contact information is confidential information. However, that information is either publicly available or forms part of the accumulated knowledge of Wollermann and Lyle. The Court will not act to prevent the use of such information by Wollermann and Lyle.

Further, the restraint clauses relied upon by the applicants do not assist it. The restraints are not reasonable, as they are impermissibly broad and therefore unenforceable (for the reasons set out in the defences of Wollermann and Lyle).

The high watermark of FSA’s case to date is the access by Wollermann of the rankings contained in the StoneX database for the purposes of verifying the “Confidential Client List” (as defined in the statement of claim). However, this aspect of Wollermann’s conduct has not caused any loss to the applicants (given the process by which Wollermann and Lyle went about inviting clients to transfer to Shaw described above) and there is no on-going misuse of any such information.

We understand that the applicants intend to seek to recover the entire value of their business at trial, although the value of that business has not been particularised to date. In our view, such a claim will be rejected. It is unsurprising that clients of Wollermann and Lyle would elect to follow them to their new firm, given the nature of the relationships involved. This is not a case where Wollermann and Lyle have sought to appropriate a business from the applicants, but rather one where they have left to ply their trade elsewhere. The applicants’ business is carrying on as it did before, albeit without two of its employees.

Even if the applicants’ claims for loss or damage are made out, the respondents’ position is that any compensable loss would be materially confined by the above circumstances. For example, even if the restraints alleged against Wollermann and Lyle are upheld in full (which is denied), they would have been free from 16 June 2023 to approach clients with whom they had worked at FSA to invite them to move to Shaw. It is evident that many such clients would have done so.

Offer to compromise the proceeding

The enclosed notice of offer to compromise is for the amount of $280,000 in addition to costs (to be taxed on a party-party basis against the offeror up to and including 14 days after the offer was made, in accordance with r 25.12 of the Rules).

The amount of $280,000 exceeds the revenue derived by the respondents in the period from 16 December 2023 to 16 June 2023 from clients that have transferred their accounts from FSA to Shaw. In light of the matters outlined above, in our view, this represents a greater figure than any amount to which the applicants would ultimately be entitled at the determination of the proceeding.

We consider that the offer is clear in its terms. However, if you consider that any aspect of it needs to be clarified, please let us know.

15    The First Offer was in the following terms (omitting formal parts):

To the Applicants

The Respondents offer to compromise this proceeding.

The offer, on a without admission basis, is:

1.     The respondents pay to the applicants the sum of $280,000.

2.     The Amended originating application filed 25 May 2023 otherwise be dismissed.

This offer is in addition to costs.

This offer of compromise is open to be accepted for 14 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.

16    The Second Offer was in these terms (omitting formal parts):

To the Applicants

The Respondents offer to compromise this proceeding.

The offer, on a without admission basis, is:

1.    The respondents pay to the applicants the sum of $560,000.

2.    The Amended originating application filed 25 May 2023 otherwise be dismissed.

This offer is in addition to costs.

This offer of compromise is open to be accepted for 14 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.

Applicable principles

17    Section 43 of the Federal Court of Australia Act 1976 (Cth) confers a broad discretion on the court to award costs in proceedings.

18    Rule 25.14(2) of the Federal Court Rules provides:

If an offer is made by a respondent and an applicant unreasonably fails to accept the offer and the applicant’s proceeding is dismissed, the respondent is entitled to an order that the applicant pay the respondent’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.

19    In Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151 at 152, Black CJ said:

… it is well established that the starting point for any consideration of an application for indemnity costs is that in the ordinary case costs will follow the event and the Court will order the unsuccessful party to pay the costs of the successful party, on a party and party basis, a basis which will fall short of complete indemnity. Nevertheless the court has an absolute and unfettered jurisdiction in awarding costs, although the discretion must be exercised judicially. So, indemnity costs may properly be awarded where there is some special or unusual feature in the case justifying the Court exercising its discretion in that way.

20    One circumstance justifying an award of indemnity costs is an imprudent refusal of an offer to compromise.

21    In such cases, a key question is whether the offeree’s refusal of the offer was “unreasonable” when viewed in light of the circumstances existing at the time the offer was rejected.

22    The circumstances to be taken into account in determining whether the rejection of an offer was “unreasonable” may include:

(a)    the stage of the proceeding at which the offer was received;

(b)    the time allowed to the offeree to consider the offer;

(c)    the extent of the compromise offered;

(d)    the offeree’s prospects of success, assessed as at the date of the offer;

(e)    the clarity with which the terms of the offer were expressed; and

(f)    whether the offer foreshadowed an application for an indemnity costs order in the event of the offeree rejecting it.

23    An unsuccessful party is not liable to pay indemnity costs merely because it received an offer to settle on terms more favourable than it achieved at trial and rejected that offer. Assessment of the “unreasonableness” of an offeree’s refusal of a settlement offer is a broad-ranging inquiry that is not restricted to consideration of the extent or quantum of the compromise offered. See, for example, Anchorage Capital Partners Pty Limited v ACPA Pty Ltd (No 2) [2018] FCAFC 112 at [5]–[8] (Nicholas, Yates and Beach JJ).

The parties’ submissions

The respondents’ submissions

24    In their written costs submissions dated 3 March 2025, the respondents contended that the applicants unreasonably failed to accept the First Offer for the following reasons.

25    First, they submitted that the applicants’ prospects of success (assessed at 28 September 2023) were low because:

(a)    there were obvious deficiencies in the applicants’ pleading of the confidential information case which were ultimately fatal to most of the applicants’ claims, including in relation to the ranking list (see primary judgment at [70]–[71] and [81]–[82]);

(b)    in any event, as stated in the respondents’ defence filed 10 April 2024 and in the Covering Letter that accompanied the First Offer, the information that was the focus of the applicants’ case was not confidential in equity and formed part of the know-how of Messrs Wollermann and Lyle (see primary judgment at [78]–[80]);

(c)    there was no evidence that Mr Wollermann or Mr Lyle retained any documents after their employment ended (apart from the ranking list, which fell outside the pleaded case) (see primary judgment at [67] and [81]–[82]); and

(d)    the applicants’ argument that Mr Wollermann and Mr Lyle breached the contractual restraint in each of their employment contracts was ultimately abandoned, and the weakness of that case should have been readily apparent to the applicants at all times.

26    Secondly, the respondents submitted that there is no doubt that the applicants would have been far better off had they accepted the First Offer, because they would have received $280,000 in respect of damages and had their costs paid on a party-party basis. As it was contended, “[i]nstead, they walk away with nothing and are likely to have a very substantial costs liability to the Respondents”. See respondents’ costs submissions at [8].

27    Thirdly, and relatedly, the respondents submitted that, as at 28 September 2023, there was no reasonable prospect that the applicants would have achieved a better result at trial. As the Covering Letter accompanying the First Offer stated:

The amount of $280,000 exceeds the revenue derived by the respondents in the period from 16 December 2023 to 16 June 2023 from clients that have transferred their accounts from FSA to Shaw. In light of the matters outlined above, in our view, this represents a greater figure than any amount to which the applicants would ultimately be entitled at the determination of the proceeding.

28    Fourthly, the respondents submitted that, taking the applicants’ case at its highest, their best-case scenario was that the respondents would pay damages equal to the profits generated from the clients transferred to Shaw during the restraint period. It was contended that, on any view of the case, the respondents were free to approach clients after the restraint period ended. The First Offer therefore would have delivered the best outcome that the applicants could reasonably have anticipated.

29    Fifthly, the respondents submitted that the First Offer was made at an early stage of the proceeding and both parties could have avoided the significant legal expenses which were ultimately incurred in taking the matter to a 15-day trial. Although that offer was made at an early stage, the respondents contended that the applicants were nonetheless well-placed to assess it at the time because they:

(a)    had the benefit of having reviewed the affidavits filed by the respondents in connection with the interlocutory injunction application;

(b)    had the benefit of reviewing the disclosure made by the respondents as part of the interlocutory injunction process; and

(c)    knew that the restraint clauses upon which the applicants sued had expired.

30    It was also submitted that the applicants were able to assess the fees that they claimed to have lost (and, conversely, to make an informed estimate of the likely fees generated by respondents in connection with the clients who transferred to Shaw). The respondents contended that if the applicants had made such an assessment, they would have appreciated that the First Offer was generous and should have been accepted.

31    In the alternative, but for the same reasons, the respondents submitted that the applicants unreasonably failed to accept the Second Offer, which was substantially more generous than the First Offer.

32    Further, the respondents submitted that the Second Offer was made when the case was all but ready for trial and would have seen the applicants obtain $560,000 in damages and costs on a party-party basis. At that point in time, the applicants had the benefit of:

(a)    all the evidence, including Messrs Wollermann and Lyle’s “detailed evidence … about the transfer of clients from Fortrend to Shaw”, which was “not challenged in any material respect” (see primary judgment at [66]); and

(b)    discovery, including discovery of documents evidencing the revenue generated by the respondents from the clients who had transferred from Fortrend to Shaw.

33    The respondents submitted that the applicants, acting reasonably, should have known that their broadly pleaded case was very likely to fail and that, in any event, their claims for damages of no less than US$11.4 million were grossly exaggerated and found no support in the evidence.

The applicants’ submissions

34    The applicants’ solicitors filed written costs submissions dated 13 March 2025 which relevantly contended as follows:

First Offer

…

6.    The following circumstances existed at the time the First Offer was made:

(a)    On 1 February 2023, an admission was made by the Respondents (by their Senior Counsel) in a hearing before his Honour Justice Anderson. That admission was that the Second Respondent and Third Respondent had accessed the confidential information of the Applicants, and had provided that confidential information to the Fourth Defendant.

(b)    The Applicants had, on 9 February 2023, obtained interlocutory injunctions against the Second Respondent, Third Respondent and Fourth Respondent, which restrained them from contacting and/or providing trading services to any of the Applicants’ then clients.

(c)    The Respondents had not yet filed the evidence upon which they intended to rely at trial.

(d)    Expert evidence as to quantum had not been obtained and/or filed by either the Applicants or the Respondents.

(e)    Discovery was not yet complete. Documents were discovered by the Respondents in February 2023 and January 2024.

7.    The Applicants submit that it was not unreasonable for them to reject the First Offer for the following reasons.

8.    First, the admission referred to at paragraph 6(a) above formed part of the Applicants’ assessment of prospects of success at the time the First Offer was made. The Applicants proceeded on the basis that the Respondents were bound by the admissions and the findings of his Honour Justice Anderson. The Respondents sought to try and direct the court away from those admissions on the first day of the ultimate trial, but did not withdraw those admissions prior.

9.    Secondly, the Applicants had obtained interlocutory orders which remained on foot at the time the First Offer was made.

10.    Thirdly, the entirety of the evidence was not available to the Applicants to assist in their consideration of the First Offer. Notably, no expert evidence had been filed (or, at the time of the First Offer, obtained by the Applicants). The result of this is that the Applicants were not in a position to make a reasonable and fully informed decision in respect of the First Offer.

11.    Fourthly, the Respondents have failed to establish that the Applicants were unreasonable in rejecting the First Offer. Contrary to the authorities, reliance is placed by the Respondents upon the findings of his Honour Justice O’Callaghan, and matters that could not have been said to have been known to the Applicants at the time the First Offer was made, including but not limited to their intention to withdraw from the aforementioned admission.

Second Offer

12.    The Applicants likewise submit that it was not unreasonable for them to reject the Second Offer.

13.    While the Applicants accept that the Second Offer was made at a time where the evidence was available to them, the Applicants were, at the time the Second Offer was made, running their case on the basis that the Respondents were bound by the admissions referred to at paragraph 6(a) above. The Applicants repeat paragraph 8 above.

14.    Moreover, the Applicants had obtained independent expert evidence which suggested that their damages were far greater than the quantum of the Second Offer. That evidence formed [sic] the Applicants’ assessment of prospects at the time the Second Offer was made, and based on that evidence, the Second Offer did not represent a reasonable compromise.

15.    It is further submitted that, to the extent the Respondents seek to rely upon the conduct engaged in by Mr Forster in connection with the proceeding in support of their application for indemnity costs, such a submission should be rejected on the basis that it is irrelevant to the question of costs.

Conclusion

16.    For the reasons set out above, the Court ought to reject the Respondents’ submissions, so far as they seek to support a claim for indemnity costs.

17.    Without any admission, the Applicants say that the more appropriate order to be made in the circumstances is that the Applicants pay the Respondents costs of the proceedings.

Consideration

35    In my view, the respondents are entitled to have their costs on an indemnity basis from the second business day after service of the First Offer (namely, from 3 October 2023).

36    It seems to me that the case for the making of such an order is overwhelming, for the litany of reasons given by counsel for the respondents in their submissions. I cannot improve on them by repeating them.

37    The applicants continue to place considerable store on the so-called concession made to Anderson J at the interlocutory hearing, but it should have been obvious to them that the concession was limited, for the reasons I gave in the primary judgment at [83]–[90]. That the applicants “proceeded on the basis that the Respondents were bound by the admissions and the findings of his Honour Justice Anderson” is only to restate the folly in having done so.

38    Further, the fact that the applicants had obtained interlocutory orders which remained on foot at the time the First Offer was made was not a reason not to assess the merits of their final case. The existence of those orders meant that they had persuaded a judge that they had a prima facie case and that the balance of convenience favoured the grant of an injunction until the trial of the proceeding, but that was hardly a reasonable basis for not examining with care the ultimate prospects of success of the case at the time of the First Offer.

39    It is true that not all of the evidence was available to the applicants to assist in their consideration of the First Offer, and that no expert evidence had been filed at that time, but the notion that Fortrend’s business had been destroyed by the departure of two of its brokers and that it was entitled to millions of dollars in damages was always fanciful.

40    For those reasons, and for the reasons advanced by counsel for the respondents set out above, in my view it is appropriate that the applicants pay the respondents’ costs on an indemnity basis from 3 October 2023 (being the date fixed by operation of r 25.14(2) of the Federal Court Rules).

41    I should add that although the respondents urged me to take into account Mr Forster’s conduct which I outlined in the primary judgment at [104]–[108], I have not done so.

Disposition

42    I will make orders that the applicants pay the respondents’ costs of the proceeding before 11am on 3 October 2023 on a party and party basis, and thereafter on an indemnity basis. I will also order that those costs be paid as a lump sum.

Associate:

Dated:    6 May 2025