Supreme Court New South Wales Medium Neutral Citation: Smiths Detection (Australia) Pty Ltd v Basham (Costs) [2020] NSWSC 758 Hearing dates: On the papers Date of orders: 29 May 2020 Decision date: 29 May 2020 Jurisdiction: Equity Before: Rein J Decision: See [19], [22] and [27]. Catchwords: COSTS – Party/Party – Costs orders in interlocutory proceedings – Second to fourth defendants ("corporate defendants"), having successfully defended the plaintiff's motion, sought an order that the plaintiff pay the corporate defendants' costs on the basis that costs should follow the event (the "event" being dismissal of the plaintiff's motion) – Plaintiff argued that the costs of the motion should be costs in the cause of the overall proceedings, as the motion was not sufficiently separate from the substantive proceedings to warrant an interlocutory costs order, and the plaintiff may yet be successful against the corporate defendants at a final hearing – Held: the plaintiff should pay the corporate defendants' costs of the motion, as the motion was a discrete issue about striking out the corporate defendants' defences and their success on that issue stands even if they end up losing the overall proceedings; by their victory, the corporate defendants won the right to maintain their defences at trial. The corporate defendants' costs of the motion were held to include the costs of a short hearing in the Equity Duty List on 1 November 2019 dealing with a particular prayer of the plaintiff's motion. COSTS – Party/Party – Timing – Costs payable forthwith – The corporate defendants sought an order that their costs of defending the plaintiff's motion should be payable forthwith, which order the plaintiff opposed – Held: the Court made an order that the corporate defendants' costs of the motion are payable by the plaintiff forthwith, on the basis of the discrete nature of the motion and due to the lack of proximity to a final hearing. COSTS – Party/Party – Exceptions to general rule that costs follow the event – Misconduct of a party – The first defendant, having successfully defended the plaintiff's strike out motion, sought an order for costs against the plaintiff – The plaintiff argued that it brought its motion because the first defendant destroyed or attempted to destroy documents in defiance of a court order, which constitutes disentitling conduct with respect to costs irrespective of the first defendant's success in defending the motion – Held: the plaintiff did not establish at the hearing of the motion that the first defendant succeeded in deleting the documents, only that he attempted to delete them. The Court exercised its discretion by ordering that, although the first defendant succeeded in resisting the plaintiff's motion, his costs of the motion are to be his costs in the cause of the substantive proceedings yet to be heard. Legislation Cited: Civil Procedure Act 2005 (NSW) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Arian v Nguyen [2001] NSWCA 5; (2001) 33 MVR 37 Ausino International Pty Ltd v Apex Sports Pty Ltd [2006] NSWSC 1119 Brasington v Overton Investments Pty Ltd [2001] FCA 571 Fiduciary Ltd v Morningstar Research Pty Ltd [2002] NSWSC 432; (2002) 55 NSWLR 1 G. R. Vaughan (Holdings) Pty Ltd v Vogt [2006] NSWCA 263 His Eminence Metropolitan Petar, Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand v the Macedonian Orthodox Community Church St Petka Inc (No 2) [2007] NSWCA 142 Moseley v AB (No 2) [2017] NSWSC 1812 Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 Smiths Detection (Australia) Pty Ltd v Basham [2020] NSWSC 500 Texts Cited: Nil Category: Costs Parties: Smiths Detection (Australia) Pty Ltd (Plaintiff/Applicant) Mr Scott Basham (First Defendant/Respondent) Rapiscan Australia Pty Ltd (Second Defendant/Respondent) Rapiscan Systems Pte Ltd (Third Defendant/Respondent) SX Technologies Pty Ltd (Fourth Defendant/Respondent) Representation: Counsel: Mr A. Moses SC with Ms R. Gall (Plaintiff/Applicant) Mr A. Hourigan (First Defendant/ Respondent) Mr J. Clarke SC with Mr Y. Shariff and Ms T. Epstein (Second to Fourth Defendants/Respondents) Solicitors: Baker McKenzie (Plaintiff/Applicant) Thomas Henry Bray Lawyer (First Defendant/Respondent) Kingston Reid (Second to Fourth Defendants/Respondents) File Number(s): 2018/170579 Publication restriction: Nil Judgment 1. On 23 April 2020 I published my reasons for concluding that the Plaintiff's Notice of Motion (which sought to strike out the Defendants' Defences, wholly or in part) should be dismissed: see Smiths Detection (Australia) Pty Ltd v Basham [2020] NSWSC 500 ("the April reasons"). I shall use here the same terminology and abbreviations as were utilised in the April reasons. 2. There is a dispute as to the costs order that should follow. Rapiscan seeks an order that SDA pay its costs and an order that the costs should be assessed and payable forthwith. SDA submits that Rapiscan's costs should be costs in the cause and it opposes an order that the costs be payable forthwith. 3. Basham seeks an order that SDA pay his costs or, alternatively, that the costs of the Motion be costs in the cause. I have received submissions on costs from Rapiscan dated 6 May 2020 ("RSC"), Basham dated 8 May 2020 ("BSC"), submissions from SDA dated 13 May 2020 ("SDASC"), and submissions in reply from Rapiscan dated 18 May 2020 ("RR") and Basham dated 18 May 2020 ("BR"). 4. In SDA's Motion there were eight prayers for relief, but an order in accordance with prayer 7 had been made on 1 November 2019. When the matter came before the Court on 10 and 12 March 2020, SDA confined itself to the first four prayers and accepts that the three remaining prayers cannot stand independently of the first four. SDA, therefore, accepts that the consequence of the April reasons is that the Motion should be dismissed, but there was agreement between the parties at a directions hearing on 29 April 2020 that the formal entry of that order should await the outcome of the costs argument. 5. In the case of Rapiscan, my rejection of SDA's application is based, firstly, on my conclusion at [38] of the April Reasons and on further grounds at [43]-[50]. In the case of Basham, only [43]-[51] apply. 6. Dealing first with Rapiscan's costs, the usual order is that the party which has been successful in resisting a motion is entitled to its costs: see r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"). Normally, the costs awarded in respect of interlocutory applications are not payable forthwith but at the end of the proceedings: see UCPR 42.7. 7. Rapiscan was wholly successful on the grounds that were ventilated before me, and submits that costs should follow the event, the "event" being dismissal of the Motion. 8. Rapiscan refers to s 98 of the Civil Procedure Act 2005 (NSW) and submits that the Court retains an unfettered discretion to determine the appropriate costs order on an interlocutory application, and that the central and overriding principle in any order as to costs is that of doing justice to the parties in each particular case: see Moseley v AB (No 2) [2017] NSWSC 1812 at [65]-[66], in which Walton J also referred to the fact that the assessment required is heavily contextual and focuses on the conduct of the litigation itself. 9. Rapiscan points out that there are three categories of cases in which "forthwith orders", as I shall describe them, are made: 1. Where a costs order is made in respect of a discrete and separately identifiable aspect of the proceedings. 2. Where there is unreasonable conduct on the part of the party against whom costs have been ordered. 3. Where the final determination of the proceedings is far away, or there is "much to come" in the proceedings. See Fiduciary Ltd v Morningstar Research Pty Ltd [2002] NSWSC 432; (2002) 55 NSWLR 1 at [11]-[13] per Barrett J (as his Honour then was). 1. Rapiscan relies on categories (1) and (3) here. 2. Rapiscan submits that the strike out application was a discrete, self-contained application, severable from the substantive proceedings. In relation to the third category of case identified by Barrett J, they point out that SDA has still not filed its evidence in the case and it brought its strike out application (which, SDA contended, required previously made orders for the service of evidence by it to be suspended) long after it was aware that Basham had (on its case) deleted evidence or attempted to delete evidence, a fact of which it was aware by June 2018 and which it pleaded in its Statement of Claim filed 12 December 2018. The Court had made an order that SDA not be permitted to rely upon any evidence without leave of the Court. To this can now be added the fact that SDA has indicated that it intends to appeal from my decision. 3. SDA contends that the costs order should be Rapiscan's costs in the cause. The SDASC put forward two reasons in support of this: 1. That, whilst Rapiscan succeeded in resisting the striking out of their Defence, "whether that victory is ultimately one which is fruitful will depend on whether they succeed in the final hearing": reference is made to His Eminence Metropolitan Petar, Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand v the Macedonian Orthodox Community Church St Petka Inc (No 2) [2007] NSWCA 142 at [25] and Ausino International Pty Ltd v Apex Sports Pty Ltd [2006] NSWSC 1119 at [56]. 2. The Court was not in a position to adjudicate on the ultimate outcome of the proceedings. SDA asserts (with reference to [51] of the April reasons) that: "The Court's focus was on other considerations, in particular, on determining whether, on the evidence before it at the interlocutory hearing, that it was able to conclude the destruction of materials by the First Defendant, whilst an employee of the Third Defendant, produced a real risk of impairment to the case the Plaintiff may run." The Court may, SDA submits, draw adverse inferences against Basham, which may impact on Rapiscan. 1. I do not accept SDA's submissions. What had to be determined (on SDA's Motion) was whether Rapiscan's Defence (or part of it) should be struck out. If SDA was correct in that contention, Rapiscan would have been inhibited in maintaining its Defence. I have determined that Rapiscan's Defence should not be struck out. That decision will be unaffected by the outcome of the substantive case – i.e. at the hearing Rapiscan will be permitted to run all of its Defence. The victory that Rapiscan has obtained is the right to fully defend SDA's claims against it. In relation to the second point, reference needs to be made to [35]-[39] of the April reasons. Having regard to the factual matters referred to at [36], I said: "[38] The absence in the Statement of Claim of any allegation that SDA is liable for Basham's conduct is itself significant in considering this issue, but, in any event, in my view Rapiscan has, at the very least, a credible case that Basham, in endeavouring to delete material from the PNY USB (contrary to Rapiscan's instructions), was not acting in the interests of Rapiscan (for example, to undermine the ability of SDA to ascertain the information being used by Rapiscan, as Mr Moses submitted at T104) but, rather, in his own interest, not only to protect himself from claims against him by SDA arising from his having loaded SDA's documents on to his own USB whilst still employed by SDA (not Rapiscan) but also to endeavour to avoid dismissal by Rapiscan – the very thing that occurred on 6 June 2018. I do not accept that Rapiscan should be denied the right to contend that it is not to be held liable for Basham's conduct and, hence, that Basham's actions are not to be treated as Rapiscan's actions. It follows that SDA's contention that Rapiscan's Defence (or parts of it) should be struck out should be rejected. [39] In the light of the conclusion referred to in the previous paragraph, I do not need to consider Rapiscan's arguments relating to impairment, but because it is relevant to Basham's position as well, I shall deal with the issue of impairment next. 1. It follows that I do not accept SDA's assertion that "the Court's focus was on other considerations". The other considerations were relevant as well, but I hope I made it clear at [39] of the April reasons that the matters dealt with on that point were sufficient, in my view, to reject SDA's application in so far as it concerned Rapiscan. 2. I also accept Rapiscan's submission that Ausino supports its case not SDA's. I set out [55] and [56] of Campbell J's decision in Ausino: "[55] In contrast, the present proceedings before me are brought on the basis that they are an interlocutory process. The usual order which is made as to costs concerning interlocutory processes, is that if the plaintiff is the applicant, and succeeds, then the costs of the interlocutory process become the plaintiff's costs in the cause, while, if the plaintiff is the applicant, and loses, the usual order is that the plaintiff pay the defendant's costs of that application. [56] The rationale for that arises from the way that interlocutory proceedings are intended to advance the final hearing. If a plaintiff has a victory on the way to a final hearing, whether that victory is ultimately one which is fruitful will depend upon whether the plaintiff succeeds in the final hearing. However, if the plaintiff brings an interlocutory application and loses, then that interlocutory hearing is one which will, irretrievably, have cost the defendant money, and the justice of the situation is that the defendant should be indemnified for those costs, regardless of the outcome of the proceedings." 1. In relation to the forthwith orders, SDA refers to Brasington v Overton Investments Pty Ltd [2001] FCA 571 and the observations of Emmett J in that case at [13], to the following effect: "[13] The rationale for such a provision appears to me to be that, since an interlocutory proceeding does not resolve the final issues between the parties, it would, in ordinary circumstances, be inappropriate that an unsuccessful party in an interlocutory proceeding be required to pay costs immediately, since that party might ultimately be entitled to an order for costs in the substantive proceeding. The general principle appears to be that costs ought to be resolved when the proceeding has been concluded, and the rights of the parties have been finally determined." 1. The SDASC point out that Emmett J at [14] of Brasington accepted that the principle set out at [13] may need to be varied. Morningstar confirms the principle may be varied in the three categories of cases identified by Barrett J. 2. SDA accepted that the Motion was a discrete application yet put forward the following points to support their resistance to the forthwith orders: 1. The outcome of the application ought not to be regarded as a separate and completed phase of the proceeding that results in a new beginning as in Morningstar. The fact that SDA sought to have the Motion determined in advance of the final hearing is not inconsistent with this position – if SDA had been successful then "the nature and extent of any final hearing would be significantly limited". 2. Rapiscan's contention that the proceedings will not be finalised for some time is mere conjecture and at odds with the timetable presently ordered. 1. I accept SDA's submission that there was a legitimate reason for having its Motion determined in advance of the final hearing, but that does not detract from the fact that what was brought was discrete from the substantive hearing. As I have said, it was brought to restrict the ambit of Rapiscan's Defence and, in my view, the application to strike out Rapiscan's Defence based on Basham's conduct was not only discrete but of a nature that its failure warrants a forthwith costs order, a view strengthened by the delays to date in the finalisation of this case, being delays attributable to SDA. In relation to this latter point, the timetable to which reference was made in the SDASC has now been suspended due to SDA's indication that it intends to appeal, which only strengthens Rapiscan's contention that finalisation of this matter is a long way off and, thus, brings the matter within the third category identified in Morningstar. Basham 1. Basham, as I have noted, seeks an order that SDA pay his costs – he does not seek a forthwith order. SDA relies on his attempt to permanently delete material from his USBs as disentitling conduct and refers to Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at [40] and [69] and G. R. Vaughan (Holdings) Pty Ltd v Vogt [2006] NSWCA 263, and accepts that exceptional circumstances must exist before a party will not only be deprived entirely of costs but also required to pay part of the opponent's costs: Arian v Nguyen [2001] NSWCA 5; (2001) 33 MVR 37 at [37]. 2. Although the SDASC at [2.1] refer to attempted deletion of documents, at [2.6] SDA describes Basham's misconduct as the "deliberate destruction of certain documents knowingly and in defiance of orders made by the Court on 31 May 2018", and contends that it was this conduct which led to SDA bringing its Motion and that Basham brought no evidence to explain or qualify his actions, so the Court should conclude that his conduct falls in the most serious category of misconduct. 3. SDA claims that it brought the Motion because of Basham's conduct but it does not follow that SDA was justified in so doing. For example, if it was clear to SDA that Basham's attempt to delete had failed, SDA would not have been justified in bringing its Motion. I have determined that it has not been established that Basham did successfully delete relevant documents from his USBs or that if he did that those documents are not available elsewhere. On the other hand, his attempted deletion in the face of the Court's orders, of which he was fully aware, is conduct of a serious kind and one which I must take into account, even though he has successfully resisted SDA's strike out Motion. I am not prepared to impose on him the burden of paying SDA's costs in such circumstances, but I think that the attempted deletion is sufficiently serious that the Court should mark its disapproval of such conduct by departing from the usual costs order (i.e. that SDA should pay Basham's costs). I have given consideration to entirely depriving him of his costs but, on reflection, I have decided to make an order that Basham's costs of the Motion should be his costs in the cause, meaning that he would only be entitled to his costs of the Motion if he is successful in the substantive proceedings yet to be heard and determined. Costs of 1 November 2019 1. I have referred earlier to prayers 7 and 8. By those prayers SDA sought: "[7] Orders 1, 2, 3 and 4 of the orders by the Registrar on 16 October 2019 be vacated [8] Further or in the alternative to Order 7, Orders 2, 3 and 4 of the orders by the Registrar on 16 October 2019 be varied as follows: a. the date for the Plaintiff to serve any evidence be extended to a date 6 weeks after the Court has determined this motion; b. the date for the Defendants to serve any evidence be extended to a date 12 weeks after the Court has determined this motion; c. the Plaintiff serve any evidence in reply by a date 16 weeks after the Court has determined this motion; d. the matter be listed for directions to obtain a date for the final hearing." 1. Prayers 1, 2, 3 and 4 dealt with the evidence to be filed by the parties. SDA had failed to serve its evidence by 11 September 2019 and the Registrar on 16 October 2019 ordered that SDA could not rely on any evidence served after 30 October 2019 without leave of the Court. 2. On 29 October 2019 SDA wrote to the Defendants enquiring whether prayers 7 and 8 would be opposed and threatening to approach the Duty Judge to seek that orders be made in accordance with those prayers. The Defendant did not consent and the matter came before me, as Duty Judge, on 1 November 2019. I determined that an order in accordance with prayer 7 should be made. Mr Moses on that occasion submitted that costs should be reserved. I indicated that I thought that costs should be costs in the cause but Mr Clarke submitted that SDA should pay Rapiscan's costs: see T11.32 for 1 November 2019. 3. SDA claims that Rapiscan should pay its costs of 1 November 2019 and Rapiscan submits that since SDA was seeking an indulgence of the Court on that occasion it should pay Rapiscan's costs or, alternatively, the costs of that brief hearing should be part of the costs of the Motion. 4. Given that SDA was about to be in breach of orders that had been made on 16 October 2019, with potentially serious consequences, and that its sole explanation for that prospective breach was its wish to promote its Motion, I think that it was not inappropriate for Rapiscan not to consent to the orders sought and that the order to be made now is that the costs of 1 November 2019 should be treated as costs of the Motion – i.e. to follow the outcome of the strike out application. Since SDA has failed in that Motion, I think the costs of 1 November 2019 should be part of Rapiscan's costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 June 2020