Defendant ordered to pay indemnity costs by reason of her unreasonable conduct

The Supreme Court of New South Wales in Seven Network (Operations) Limited v Amber Harrison [2017] NSWSC 952 has ordered that the defendant in the proceedings pay indemnity costs because her conduct had been unreasonable, resulting in the incurring of unnecessary and significant legal costs by the plaintiffs. The decision, by Sackar J, serves as a timely reminder that civil litigation must be conducted responsibly and, at all times, with due regard to the risk of an unfavourable costs order being made in the event of a lack of success.

The proceedings concerned alleged breaches by the defendant of her contract of employment with the first plaintiff, and of a deed of release which the defendant had subsequently entered into with the plaintiffs. In particular, the plaintiffs alleged that the defendant had breached clauses of the deed of release which:

• imposed confidentiality and non-disclosure obligations on the defendant;
• imposed obligations on the defendant to return company property; and
• contained a release by the defendant discharging the plaintiffs from and against all claims she could have against them and providing that the plaintiffs could rely on the deed as a complete bar to any claims, to the extent permitted by law.

According to Sackar J (at [61]), the proceedings from the outset were “engulfed in a vitriolic atmosphere” and the allegations made by both sides, whether completely true or not, were often ”personal, scandalous, and sadly ripe for media and public consumption.”

A few days before the commencement of the final hearing of the proceedings, the defendant tweeted that she had made a realistic assessment of her case and was choosing not to run it. On the next day, she notified the Court that she had terminated her lawyer’s retainer and would not be attending the hearing in person on the date fixed for the commencement of the hearing.

The plaintiffs then sought, amongst other things, final injunctive relief restraining the defendant from breaching her obligations under the deed of release, an order that the defendant return all the plaintiffs’ property to them, declaratory relief reflecting the defendant’s breaches of the deed of release and employment contract, and costs on an indemnity basis. The defendant did not oppose the injunctive relief or the return of company property but opposed the declaratory relief and the indemnity costs order. She sought an order that each party bear its own costs.

Liability

On the question of liability, Sackar J found (at [46]-[48]) that the defendant had been bound by the terms of the deed of release at all times and had engaged in numerous breaches of the deed of release and employment contract. Those breaches, his Honour said, had been persistent and flagrant. His Honour further said that the allegations concerning the breaches had never been challenged by admissible evidence in the Court, although they had been the subject of a media campaign waged by the defendant. Accordingly, his Honour considered that it was appropriate to grant declaratory relief.

Costs

On the question of costs, Sackar J made the following observations (at [57]-[59]). References to the cases have been omitted.

• The Court’s discretion to determine by whom, to whom and to what extent costs were to be paid was recognised in s 98(1) of the Civil Procedure Act 2005 (NSW).
• The usual rule was that costs followed the event and were payable on an ordinary basis, as provided for by rr 42.1 and 42.2 of the Uniform Civil Procedure Rules 2005 (NSW).
• Given the Court’s largely unfettered discretion to award costs, the Court could depart from the usual rule, including making an order that each party bear its own costs or an order that costs be awarded on an indemnity basis.
• There were no exhaustive or determinative categories which justified a Court exercising its discretion in departing from the usual rule, the question always turning on whether the facts and circumstances of the particular case justified the making of an order for the payment of costs other than on a party and party basis.

His Honour then made a number of key points about the facts and circumstances of the proceedings which, in substance, were as follows (at [62]-[76]). References to the cases have been omitted.

• Litigation was not a game but a serious business with serious consequences for the parties, winners and losers, alike. It was rare that even a successful party recouped its legal expenses, whether or not indemnity costs were awarded.
• Every experienced litigator learned early in their career that costs consequences had always to be factored into the legal landscape of any litigation and this was even more so when the proceedings were heated and acrimonious as were the proceedings before the Court.
• The defendant’s decision to persist in running a case without any admissible evidence to rely upon reflected a real disregard for any adverse costs consequences that would follow from such conduct. She had had every opportunity at earlier stages of the proceedings to bring the proceedings to an end, including, after adverse interlocutory findings had been made against her, accepting a Calderbank letter in which the plaintiffs had made an offer of settlement. If that Calderbank letter had been accepted, she would not have borne the plaintiffs’ costs.
• Instead of making a “realistic assessment” of her case at an earlier stage, the defendant, who had been represented by highly skilled, competent and reputable lawyers, had chosen to file and maintain a cross-claim claiming that the plaintiffs had breached the deed of release, the employment contract and the adverse action provisions of the Fair Work Act 2009 (Cth), and to commence proceedings in the Federal Court of Australia claiming that the plaintiffs had contravened the Fair Work Act.
• The question of what evidence she was ever going to deploy must have been the subject of active and ongoing consideration and, whilst lawyers could assist in the drafting of documents, it was ultimately in the client’s hands to produce the factual materials to support the case. Yet the defendant had made no apparent attempt to substantiate the allegations and file evidence in genuine efforts to support her pleadings.
• Any experienced litigator would know serious costs consequences could flow from the lack of success in proceedings if allegations remained unsubstantiated, and it could be inferred that the defendant was informed of this by her lawyers and that her allegations were not substantiated by evidence because no such evidence existed.
• Furthermore, the defendant had freely entered into the deed of release with legal advice, and the obligations in that deed were not imposed upon her but were the subject of negotiation.
• It was a fundamental principle of the law that persons should be held to their contracts. With the defendant failing to honour the deed of release on numerous and repeated occasions, and persisting with her cross-claim, the plaintiffs had every entitlement to commence proceedings to protect their rights under the deed and to take the proceedings seriously given the reputational damage at stake, and had conducted the proceedings in an orthodox and proper fashion. Irrespective of the depth of their pockets, the plaintiffs would be significantly out of pocket following the proceedings – a position they would not have found themselves in had the defendant chosen to capitulate at an earlier time.
• The defendant’s financial position would not be factored into the determination of costs. The defendant’s assertion of impecuniosity as grounds for why costs orders should not be made against her was unsupported by any evidence in admissible form and, in any case, while parties’ financial positions could be relevant to the question of security for costs, in principle, the parties’ relative financial positions were not relevant to the question of whether each party should bear its own costs. No principle existed that the costs discretion would be exercised in such a way as to ensure that orders were not made against a party who was not in as good a position to bear the legal costs as the party in whose favour they were made.

Sackar J then considered the defendant’s claim that each party should bear its own costs and made the following points (at [79]-[83]). References to the cases have been omitted.

• The losing party was required to, and the Court had to be satisfied of, some “exceptional measure” to justify depriving a successful party of their costs. In the absence of any admissible evidence to rely on, the defendant had not satisfied the Court of any grounds for why she should not pay the costs of the plaintiffs, at least on an ordinary basis, as the unsuccessful party in the proceedings.
• The defendant’s failure to provide the Court with any evidence of circumstances that could justify the Court taking the exceptional measure of ordering each party to bear its own costs spoke to the weakness of her claim for such an order. Given that she had retained experienced and reputable lawyers up until shortly before the hearing, presumably the defendant was given proper advice on the costs consequences of a belated capitulation in proceedings which were hotly contested, and the need to devise a fall-back position regarding costs.

Accordingly, his Honour found that it was not appropriate to order each party to bear its own costs.

As to whether the defendant should be ordered to pay indemnity costs as sought by the plaintiffs, his Honour made the following points (at [84]-[88]). References to the cases have been omitted.

• The Court could also depart from the usual order for ordinary costs by awarding costs on an indemnity basis under s 98(1) of the Civil Procedure Act. Such departure was again only appropriate where there were special circumstances which justified the losing party being required to compensate the successful party for the legal costs incurred by reason of the proceedings.
• Most commonly, an award of indemnity costs would be appropriate where a party had maintained proceedings that they should have known had no real prospect of success. Other circumstances where such an award could be appropriate included where allegations had been made which should never have been made, or the proceedings were prolonged by groundless contentions.

His Honour then concluded (at [89]) that, in all the circumstances of the case, it was appropriate to order that the defendant pay the plaintiffs’ costs of the proceedings, including the defendant’s cross-claim, on an indemnity basis. This was because the defendant had decided to contest a claim and run a cross-claim mounted on allegations she could not substantiate, and had continued to run this case in the face of adverse interlocutory findings, settlement offers, and a complete absence of evidence. His Honour said that this conduct was unreasonable, resulting in the incurring of unnecessary and significant legal costs by the plaintiffs, and that the making of such an order was not, as had been claimed by the defendant, to punish her “for taking a stand’, but was rather necessary and appropriate to compensate the plaintiffs for the unreasonable costs incurred in the proceedings.