Kumaran v Employsure Pty Ltd (No 2) [2022] NSWCA 247

Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Kumaran v Employsure Pty Ltd (No 2) [2022] NSWCA 247 Hearing dates: On the papers (last submissions 29 November 2022) Date of orders: 6 December 2022 Decision date: 06 December 2022 Before: Gleeson JA; Leeming JA; Kirk JA Decision: (1) The plaintiff pay 65 per cent of the defendants' costs of the proceedings at first instance as agreed or assessed. (2) The respondent to pay the appellants' costs of the appeal as agreed or assessed. (3) For the avoidance of doubt, order (2) does not include any costs in this appeal referable to the "protectable interest" issue. Catchwords: COSTS – costs at first instance following different outcome on appeal – costs of appeal – whether costs should follow the event, or whether fractional costs order should be made Legislation Cited: Restraint of Trade Act 1976 (NSW) Uniform Civil Procedure Rules 2005 (NSW), r 42.1 Cases Cited: Calvo v Ellimark Pty Ltd (No 2) [2016] NSWCA 197 Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219 McMurchy v Employsure Pty Ltd; Kumaran v Employsure Pty Ltd [2022] NSWCA 201 Windsurfing International Inc v Petit [1987] AIPC 90-441 Category: Costs Parties: Arumugam Kumaran (First appellant) ELMO Software Limited Pty Ltd (ABN 13 102 455 087) (Second appellant) Employsure Pty Ltd (ABN 40 145 676 026) (Respondent) Representation: Counsel: I M Neil SC / P Lowson (Appellants) P J Brereton SC / P Moorhouse (Respondent)

Solicitors: K & L Gates (Appellants) Kardos Scanlan (Respondent) File Number(s): 2021/328225 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division Citation: [2021] NSWSC 1179 Date of Decision: 26 October 2021 Before: Sackar J File Number(s): 2021/16210; 2021/53385

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Judgment 1. THE COURT: The Court delivered judgment in two related appeals on 11 October 2022: McMurchy v Employsure Pty Ltd; Kumaran v Employsure Pty Ltd [2022] NSWCA 201 (the appeal judgment). The McMurchy appeal was dismissed with costs. In the Kumaran appeal, the Court held that the primary judge erred in finding that a post-employment restraint against competition for a duration of nine months was reasonable. The Court allowed the appeal and set aside several orders below, including an order that the defendants (Mr Kumaran and ELMO Software Ltd (ELMO)) pay the plaintiff's (Employsure) costs of the proceedings as agreed or assessed, and in lieu, ordered that the summons filed 24 February 2021 be dismissed. The Court reserved the question of costs on appeal and directed the parties to file and serve submissions as to appropriate consequential costs orders in this Court and below, noting that the question of costs would be determined on the papers. Those submissions have now been received.

Costs at first instance 1. Mr Kumaran and ELMO seek an order that Employsure pay their costs of the proceedings below as agreed or assessed, relying upon the usual rule in Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.1, that costs should follow the "event", being the dismissal of Employsure's summons filed 24 February 2021. 2. Employsure contends that Mr Kumaran and ELMO should pay Employsure's costs of the proceedings below as agreed or assessed because it should be seen as the successful party on the two substantive issues at trial: the competition issue and the enforceable restraint issue. 3. There is no dispute that Employsure succeeded on the competition issue, there being no challenge on appeal to the finding that ELMO was in competition with Employsure, such that Mr Kumaran's post-employment restraint had been breached. 4. Employsure says that it was substantively the successful party on the enforceable restraint issue because a restraint for some period was reasonable but by the time of the appeal hearing there was no utility in further arguing about the length of the restraint as the period found by the primary judge of nine months had expired. (It was not necessary for the Court to consider whether the restraint should be read down to a lesser duration, under Mr Kumaran's contract (either six or three months) or under the Restraint of Trade Act 1976 (NSW), since Employsure made no submission in that regard.) 5. Mr Kumaran and ELMO respond that Employsure has mischaracterised the "event" for the purposes of UCPR r 42.1, that nothing in their conduct of the proceedings below justifies a departure from the usual rule in UCPR r 42.1, and that Employsure made a forensic decision not to seek a finding on appeal that a shorter restraint was reasonable. 6. In reply submissions, Employsure submits that the conclusion of this Court that "a restraint to protect against the misuse of Employsure's confidential information was reasonable" (appeal judgment at [142]), reveals a significant measure of vindication for Employsure, which should find reflection in the order as to costs of the proceedings below. 7. Alternatively, Employsure submits that if Mr Kumaran and ELMO should be viewed as the successful party in the proceedings below, there should be no order as to costs below on the basis that Employsure's costs of the competition issue cancels out any entitlement of Mr Kumaran and ELMO to be awarded their costs of the enforceable restraint issue.

Decision 1. It is necessary for this Court to reconsider the question of costs at first instance, taking into account the different outcome on appeal. Employsure's submission that it should be seen as the successful party at first instance conflated Employsure's success on particular issues at trial, with the "event" as referred to in UCPR, r 42.1. 2. Generally, the "event" refers to the event of the claim and may be understood as referring to the practical result of a particular claim: Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219 at [15] referring to Windsurfing International Inc v Petit [1987] AIPC 90-441 at 37,861-37,862 (Wardell J). 3. Here, the "event" is the outcome of Employsure's claims for relief in its summons. Employsure was ultimately unsuccessful on both liability and relief, including damages. Employsure's submission that it would have been successful at first instance on the enforceable restraint issue, although to a lesser (unidentified) extent, is speculative. Employsure made a forensic decision not to pursue on appeal any submission that a restraint for a shorter period than nine months was reasonable. Consequently, Employsure did not establish that the restraint, or a restraint for any identified shorter period, was reasonable. 4. The relevant question is whether there is any reason why costs should not follow the event of Mr Kumaran's and ELMO's ultimate success in defending the claim by Employsure. That question directs attention to whether there should be a special costs order reflective of Employsure's success on individual issues. In Calvo v Ellimark Pty Ltd (No 2) [2016] NSWCA 197 at [8]-[10], the Court (Ward, Gleeson, Leeming JJA) said: [8] Where a plaintiff is ultimately unsuccessful, but a defendant is unsuccessful on some – perhaps the majority – of matters raised by way of defence, there is recurringly a question whether costs should follow the event, or whether there should be a special costs order reflective of the plaintiff's success on individual issues. In each case, it is very much a matter of impression, based upon matters such as the severability of the issues, the reasonableness of reliance upon the issues, and the extent to which the issues incurred expending additional costs and time. [9] …, the mere fact that a defence was reasonably arguable does not preclude a court from making a special costs order departing from the starting point of costs following the event. Ultimately, as Hodgson JA explained in Commonwealth of Australia v Gretton [2008] NSWCA 117 at [121]: underlying the general rule that costs follow the event, and the qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs. [10] In making that assessment of fairness, regard may be had to the extent to which an issue contributed to the cost of the trial, and the extent to which it was arguable. However, the discretion as to costs is not circumscribed by the binary question whether or not an unsuccessful defence was reasonably arguable. The ultimate question – what is the appropriate order to achieve fairness – may in an appropriate case require a more nuanced analysis. 1. Whilst Mr Kumaran and ELMO failed on the competition issue which involved contested evidence, including cross-examination of experts, and also failed on the protectable interest issue, they ultimately succeeded on the enforceable restraint issue. 2. The competition issue was a discrete issue, which the primary judge described as "an important issue indeed and it occupied a good deal of time at the hearing": primary judgment at [337]. Some reduction in costs should be made for Mr Kumaran and ELMO's failure on this issue. Dealing with the matter broadly, on the limited materials available to this Court, a reduction in the successful parties' costs of 35 per cent is appropriate. 3. Although treated as a separate argument in submissions, the protectable interest issue was not a discrete issue; it was part of the enforceable restraint issue being closely connected to the reasonableness of the duration of the restraint on which Mr Kumaran and ELMO ultimately succeeded. No reduction in costs should be made for their lack of success on the related protectable interest issue. 4. In all the circumstances, the appropriate order is that Employsure pay 65 per cent of Mr Kumaran's and ELMO's costs at first instance as agreed or assessed.

Costs on appeal 1. Mr Kumaran and ELMO seek an order that Employsure pay their costs of the appeal, contending that costs should follow the event of their successful appeal: UCPR r 42.1. 2. Employsure initially contended that the Court should apportion the costs of the appeal and sought an order that it pay 50 per cent of Mr Kumaran's and ELMO's costs in this Court. 3. In opposing any apportionment of costs, Mr Kumaran and ELMO submitted that the "protectable interest" issue was the most important of the discrete issues on which they lost on appeal and was also an issue on which the appellants in the McMurchy appeal were unsuccessful and there should be no apportionment in the Kumaran appeal since "any costs related to that issue will be recovered by the respondent by virtue of the costs order it has in its favour in the McMurchy appeal". 4. In reply submissions, Employsure accepted that it should be ordered to pay Mr Kumaran and ELMO's costs of the Kumaran appeal as agreed or assessed on the basis that it is common ground that Employsure will recover all of its costs in relation to the protectable interest issue by virtue of the costs order in its favour in the McMurchy appeal (and will not have to pay any costs in the Kumaran appeal referable to that issue).

Decision 1. Given the concession by Employsure, there is no reason to depart from the usual order that costs follow the event of the appeal. However, for the avoidance of doubt concerning the basis upon which that concession was made, the costs order in favour of Mr Kumaran and Employsure does not include any costs referable to the "protectable interest" issue in the Kumaran appeal. The orders of the Court will include a notation to that effect.

Orders 1. Accordingly, the Court makes the following costs orders: 1. The plaintiff pay 65 per cent of the defendants' costs of the proceedings at first instance as agreed or assessed. 2. The respondent to pay the appellants' costs of the appeal as agreed or assessed. 3. For the avoidance of doubt, order (2) does not include any costs in this appeal referable to the "protectable interest" issue.

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