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Supreme Court of Victoria |
Last Updated: 26 April 2012
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
LIST E
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JUDGE:
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WHERE HELD:
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Melbourne
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DATE OF HEARING:
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DATE OF JUDGMENT:
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CASE MAY BE CITED AS:
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COSTS – Plaintiff’s claim is dismissed - Plaintiff succeeds on an issue taking up a not insubstantial amount of court time and preparation – Determination of the issue not strictly necessary – Issue of some assistance in relation to other matters.
COSTS - Calderbank offer – Whether failure to accept was reasonable.
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APPEARANCES:
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Counsel
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Solicitors
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For the Plaintiff
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Gadens Lawyers
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For the Defendant
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Holding Redlich
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1 On 14 March 2012 I published my reasons for dismissing the claim by Wallis Nominees (Computing) Pty Ltd (“DWS”), the plaintiff, against Matthew William Pickett, the defendant. In those reasons I held that the relevant restraint of trade covenant purporting to prevent Pickett from providing certain information technology services to DWS’ former clients was invalid as there was no legitimate interest that it served to protect and its scope was too broad. [1]
2 In my reasons, notwithstanding that it was unnecessary to do so, I also determined that if the covenant in restraint of trade was upheld then Pickett would have been in breach of that covenant due to the overlap between the services he provided to DWS’ former client, Grocon Pty Ltd (“Grocon”), while employed by DWS and those he proposed to provide to Grocon when employed by Grocon directly.
3 The case has been disposed of save as to costs. The parties have filed written submissions and have agreed that the matters of costs be determined on the papers. There are three contested issues in relation to costs. First, whether Pickett is entitled to costs on the usual basis. Secondly, whether a Calderbank offer sent by Pickett was unreasonably rejected by DWS. Thirdly, whether or not Pickett’s costs in relation to an interlocutory application for an injunction by DWS were thrown away.
B. Pickett’s entitlement to costs
I. The submissions of the parties
4 DWS submits that Pickett’s consistent denial of any breach, contrary to my findings, and of which he must have been aware putting to one side the validity of the clause, had a “significant effect on the time and work required in both the preparation for and the conduct of the trial”. DWS contends that Pickett’s denial of breach resulted in a large amount of affidavit material that would not otherwise have been necessary and that the trial would not have extended into the second day had Pickett not contested this point.
5 Consequently, it was submitted by DWS that this case involves special circumstances that justify the court departing from the general rule that costs follow the event and that I should order that each party bear its own costs. DWS relies on the decision of Atkin LJ in Ritter v Godfrey[2] for the proposition that Pickett should be denied costs because by contesting breach, Pickett “has done something connected with the instigation or conduct of the suit calculated to occasion unnecessary litigation and expense”.[3] DWS also relies on the decision of Byrns v Davie,[4] where Gobbo J awarded the relevant defendants only 40% of their costs in a trial where the plaintiff succeeded on matters relating to 70% of the hearing time but failed on a threshold issue.
6 Conversely, Pickett submits that a consequence of the covenant in restraint of trade being found to be void is that it must be treated as “though it had not been given”.[5] Thus, the question of breach does not arise and DWS’ claim has wholly failed.
7 Picket also contests DWS’ characterisation of the proceedings and submits that there is no good reason or special circumstances that justifies the court departing from the usual rule. Pickett notes that the evidence that was adduced regarding breach was, in substantial part, also required in order to interpret the covenant and thus to determine whether the restraint of trade was reasonable.[6] Further, Pickett submits that DWS’ submissions regarding the construction of the contract were first articulated only during closing submissions and it would be unreasonable to expect Pickett to admit breach prior to DWS explaining its construction of the covenant.
8 In relation to the evidence adduced to establish breach, Pickett notes that there was a contest on the evidence and Pickett was not in a position to know what would be adduced as a result of cross-examination relating to breach. Additionally, Pickett contests DWS’ assertion that large amounts of affidavit material produced on behalf of the defence was solely directed towards questions of breach, suggesting that these materials also generally concerned, among other things, questions of the customer connection interest and mitigation of loss. Thus, this case was said to be distinguishable from Byrnes v Davie as it cannot be said that a substantial part of the hearing time or preparation time was dedicated solely to the question of breach.
9 Pickett also does not accept that it was solely the issue of breach that necessitated a second day of hearing, noting that an adjournment of the proceedings was required on the first day of trial as a result of DWS’ subpoena addressed to Grocon.
II. Conclusion as to Pickett’s entitlement to costs
10 In my view, and in the exercise my discretion, costs should be awarded on the usual basis with no deduction or allowance for the issue on which Pickett was not successful.
11 First, the evidence adduced in relation to breach was useful for other purposes during the trial and thus a not insubstantial portion of it would have been adduced even if Pickett had admitted the breach. As contended by Pickett, it was necessary to hear much of the evidence relevant to breach for other purposes, including ascertaining the proper construction of the covenant, to investigate the claimed customer connection interest and possible claims regarding loss.
12 Secondly, the trial was run efficiently and without undue prolongation. There was only a matter of weeks between the initial interlocutory injunction application by DWS and the trial and I have seen no evidence that Pickett acted in a manner that was calculated to occasion unnecessary litigation and expense.[7] In relation to the second day of hearing, I am of the view that it would have been needed even if Pickett had not contested breach.[8]
13 Thirdly, this case is distinguishable from those cited by DWS insofar as the issue on which DWS succeeded did not, as a discrete issue, occupy a large majority of hearing time. In Byrns v Davie, for example, the plaintiff succeeded on matters relating to 70% of the time spent in hearing,[9] it cannot be said that anything close to 70% of the hearings in this matter was related solely to breach.
14 Thus, there being no special circumstance or good reason to depart from the usual rule, I propose to make the usual order as to costs.
C. The reasonableness of the Calderbank offer
15 Pickett relies on a Calderbank letter sent to DWS on 15 February 2012. The letter offered DWS $6,100 in “full and final settlement of th[e] proceeding and any claim [DWS] may have against [Pickett] arising from [Pickett’s] employment with [DWS].” The offer was stated to be made in accordance with the principles expressed in Calderbank v Calderbank[10] and Hazeldene’s Chicken Farm v VWA (No 2)[11] and was open for acceptance until 4:00pm on 22 February 2012. Receipt of the letter was acknowledge by DWS’ solicitors on the day it was sent, but the letter was otherwise not responded to and can be taken to have been rejected.
16 The question for determination is whether, in all the circumstances, it was unreasonable for DWS to reject the offer made by Pickett.[12] It is Pickett who bears the burden of persuading the court that the rejection of the offer was unreasonable.[13]
17 Pickett submits that the offer was reasonable as:
(a) it allowed seven days for acceptance (which is said to be generous in light of the expedited nature of the proceedings);
(b) it involved a genuine compromise based on a rational calculation of DWS’ likely lost revenue (adjusted for mitigation and costs);
(c) its terms were clear; and
(d) its costs implications were foreshadowed.
18 Further, Pickett submits that DWS’ rejection of the offer was unreasonable as:
(a) the offer was made before the parties needed to incur the costs associated with trial;
(b) DWS’ prospects of success in relation to the validity of the restraint of trade covenant were largely dependant on DWS’ own evidence (thus DWS should have had a realistic view of its prospects in the proceeding at the time the offer was made);
(c) DWS did not respond in a substantive way to the offer (this was suggested to be contrary to a public policy that parties address offers in a meaningful way); and
(d) DWS has not suggested that it had or has any other claims against Pickett that would have been covered by the offer.
19 DWS responds that the breadth of the proposed settlement, particularly its reference to any claims DWS may have against Picket arising from Pickett’s employment with DWS; the timing of the offer (five days after Pickett’s resignation); and the insubstantial settlement amount offered, make it clearly reasonable for DWS to have rejected the offer. DWS also notes that the outcome of the proceedings were less favourable to Pickett than the settlement proposed, insofar as Pickett was not released from all claims arising from his employment with DWS but only the claim arising from the covenant in restraint of trade.
20 The offer made by Pickett can be analysed in two parts. First, the amount of the offer, namely $6,100; and second, the proposed scope of the settlement, namely to include settlement of the proceedings on foot and any claims DWS may have had against Pickett arising from Pickett’s employment.
21 Considering the second element first, the breadth of the compromise requested by Pickett goes beyond what he achieved at trial and I do not consider it unreasonable for DWS to have rejected the offer given its broad scope. At the point in time the offer was made, and indeed even now, it was not clear what other claims DWS was entitled to make against Pickett and, given the nature and length of the relationship between the parties, it is not unreasonable for DWS to have wished to preserve its rights in relation to other potential claims that may surface in relation to Pickett’s employment. It is not unusual for claims to arise from employment relationships some time after the relationship ceases as unknown facts become known. Further, Pickett did not identify any additional claims that the proposed settlement would have covered.
22 In relation to the amount of the offer, I find that the offer of $6,100 in settlement of the proceedings was inadequate given the injunctive relief that was being sought. While Pickett based this amount on his calculation of DWS’ expected loss (with certain adjustments and assumptions made), I am not satisfied that an offer of $6,100 was a reasonable compromise in these proceedings, which involved a claim for an injunction preventing Pickett from working for DWS’ former client for a period of 12 months. Indeed, the offer appears to be closer to a demand to capitulate than a genuine offer of compromise. Thus, while not necessary, I also find that it was not unreasonable for DWS to reject the offer given the inadequacy of the settlement amount offered.
D. The interlocutory application
23 The final costs issue to be dealt with relates to an interlocutory application made by DWS prior to the commencement of the trial. At that application DWS applied for an injunction restraining Pickett from providing certain services to Grocon. The application was not pressed at the hearing on 10 February 2012, as instead the matter was set down for an expedited trial. Costs were reserved.
24 Pickett relies on Rule 63.15 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) and requests that I apply the ordinary rule that if a plaintiff discontinues or withdraws a proceeding or any part of it before its close, the plaintiff must pay the defendant’s costs to the time of the withdrawal. Pickett argues that there was no need for DWS to apply for an urgent injunction, as the trial could have been, and was, heard in a matter of weeks. Further, DWS did not make a demand of Pickett on the terms set out in its application for an injunction. Finally, DWS delayed applying for an injunction for two weeks after Pickett resigned. Pickett thus submits that, if I depart from the usual rules as to costs in relation to the issues discussed above, he is entitled to the costs of the 10 February 2012 hearing.
25 DWS submits that Pickett’s costs of the 10 February 2012 hearing were not thrown away as the submissions filed by Pickett in that hearing were largely directed to DWS’ right to ultimate relief (and were relied upon at trial); the evidence filed at the 10 February 2012 hearing was all relied upon at trial (and constituted a large portion of the evidence led by Pickett); and the case would have necessitated at least one directions hearing in any event.
26 While not strictly necessary to decide this issue, in my view it would not be appropriate to order that DWS pay Pickett’s costs of the 10 February 2012 hearing on the basis that it was an opposed interlocutory injunction hearing. As noted by DWS, much of preparation for the hearing was useful for the trial, a directions hearing is likely to be have been required even if DWS had not applied for an injunction and the evidence adduced at the hearing was relied upon at trial. Thus Pickett’s costs for the hearing were not thrown away. However, Pickett is entitled to his costs of 10 February 2012 on the basis that the hearing on that day was a directions hearing.
27 Given the reasoning above, the orders of the court will be as follows:
(1) The plaintiff’s claim is dismissed.
(2) The plaintiff pay the defendant’s costs, including costs reserved, such costs to be taxed as between party-party in the absence of agreement.
[1] Wallis Nominees (Computing) Pty Ltd v Matthew William Pickett [2012] VSC 82.
[3] Ibid. at 60.
[4] [1991] VicRp 93; [1991] 2 VR 568.
[5] McFarlane v Daniell (1938) 38 SR (NSW) 337, 348 (Jordan CJ).
[6] Butt v Long [1953] HCA 76; (1953) 88 CLR 476, 487 (Dixon CJ).
[7] Ritter v Godfrey [1920] 2 KB 47 at 60.
[8] As opposed to, for example, the two day extension of proceedings caused by the ultimately successful applicant which Keely J dealt with in Minister for Immigration, Local Government and Ethnic Affairs (No 2) [1993] FCA 650; (1993) 47 FCR 81 at 89, by awarding the applicant only 90% of her costs.
[9] [1991] VicRp 93; [1991] 2 VR 568.
[11] [2005] VSCA 298; (2005) 13 VR 435.
[12] Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298.
[13] Foster v Galea and Sgambara (No 2) [2008] VSC 331, [11] (per Byrne J).
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