EMClarity Pty Ltd v BSO Network Inc & Anor [No 2] [2023] QCA 11

SUPREME COURT OF QUEENSLAND CITATION: EMClarity Pty Ltd v BSO Network Inc & Anor [No 2] [2023] QCA 11 PARTIES: In Appeal No 11321 of 2021: EMCLARITY PTY LTD ACN 139 128 180 (appellant) v BSO NETWORK INC (first respondent) APSARA NETWORKS INC (second respondent) In Appeal No 10237 of 2022: BSO NETWORK INC (first appellant) APSARA NETWORKS INC (second appellant) v EMCLARITY PTY LTD ACN 139 128 180 (respondent) FILE NO/S: Appeal No 11321 of 2021 Appeal No 10237 of 2022 SC No 12112 of 2019 DIVISION: Court of Appeal PROCEEDING: General Civil Appeals – Further Orders ORIGINATING COURT: Supreme Court at Brisbane – [2021] QSC 73 (Ryan J) DELIVERED ON: 10 February 2023 DELIVERED AT: Brisbane HEARING DATE: Heard on the papers JUDGES: McMurdo and Bond JJA and Flanagan J ORDERS: 1. In appeal number 11321 of 2021, the appellant pay to the respondents 95 per cent of their costs of that appeal. 2. In appeal number 10237 of 2022, the respondent pay to the appellants 95 per cent of their costs of that appeal. 3. The appeal against order number 12 made in the Trial Division on 31 August 2021 be dismissed. -- 1 of 6 -- 2 4. BSO Network Inc and Apsara Networks Inc be discharged from the undertakings given in the Trial Division on 5 September 2022. CATCHWORDS: APPEAL AND NEW TRIAL – PROCEDURE – QUEENSLAND – POWERS OF COURT – COSTS – where the appellant in appeal number 11321 of 2021 and respondent in appeal number 10237 of 2022 (“EMC”) had limited success on appeal – where the respondents in appeal number 11321 of 2021 and appellants in appeal number 10237 of 2022 (collectively, the “BSO parties”) enjoyed substantial success on appeal – where the point on which EMC succeeded was a short one which could not have constituted anything but a small proportion of EMC’s costs – where the point on which the BSO parties succeeded was substantial in its complexity, the time it occupied in the arguments, and in the likely costs of the preparation of the appeal – in what proportion the costs should be apportioned Speets Investment Pty Ltd v Bencol Pty Ltd (No 2) [2021] QCA 39, cited AION Corporation Pty Ltd v Yolla Holdings Pty Ltd [2013] QSC 191, cited COUNSEL: D G Clothier KC, with D E F Chesterman, for the appellant/respondent D O’Brien KC, with F Lubett, for the respondents/appellants SOLICITORS: Ashurst Australia for the appellant/respondent Johnson Winter & Slattery for the respondents/appellants [1] McMURDO JA: This judgment deals with the outstanding questions of costs in the proceeding which was determined by this Court’s judgment last September.1 [2] It is necessary to repeat what was said in the judgment about the five questions which this Court had to answer: In essence, EMC’s appeal and the respondents’ appeal and cross- appeal raise five questions, namely: 1. Whether the 2019 agreements constituted variations to the 2018 agreement, or whether, as the judge held, they were agreements which displaced the operation of the 2018 agreement. 2. Whether the judge correctly identified the parties for the 2019 agreements as EMC and Apsara. 3. Whether EMC repudiated the 2019 agreements. 4. Whether EMC breached a duty of confidence. 5. Whether, by July 2020, EMC was in breach of the 2019 agreements for failing to supply the products within a reasonable time.2 Questions 1 to 4 were raised by EMC’s appeal. Question number 5 was raised by appeal by the BSO parties. 1 EMClarity Pty Ltd v BSO Network Inc & Anor [2022] QCA 177. 2 EMClarity Pty Ltd v BSO Network Inc & Anor [2022] QCA 177 [15]. -- 2 of 6 -- 3 [3] EMC entirely failed on questions 1, 2 and 3. It had some but not complete success on question 4, in that this Court held that EMC had not breached its equitable duty of confidence by disclosing certain documents to the four individuals described as the McKay Brothers’ affiliated directors of EMC, and the orders of the trial judge were amended accordingly. It must be acknowledged that the outcome on question 4 provided some benefit to EMC from its appeal. However the point on which it succeeded was a short one which did not occupy much of the two days of hearing in this Court and it could not have constituted anything but a small proportion of EMC’s costs of the preparation for the appeal. Putting on one side for the moment the appeal and the cross appeal by the BSO parties, that limited success for EMC would be fairly recognised by ordering that EMC pay 90 per cent, rather than 100 per cent, of the costs of its appeal. [4] The fifth of those questions, which was that raised by the Notice of Appeal by the BSO parties, was one on which the BSO parties, more precisely Apsara, enjoyed substantial success. The significance of that outcome was that contrary to the conclusion of the trial judge, Apsara was entitled to damages for a breach by EMC of the 2019 agreements by failing to deliver radios by 20 July 2020. The likely quantum of those damages is not before this Court. But it is not suggested that this was a trivial issue and that the outcome is unlikely to be of some value to Apsara. In comparison with the litigation of the point upon which EMC succeeded in its appeal, this was a more substantial issue in its complexity, the time it occupied in the arguments and, no doubt, in the likely costs of the preparation of the appeal which related to it. [5] It is said for EMC that this represented a very limited victory for Apsara, in that it failed to persuade the Court that a reasonable time for delivery had expired by 31 January 2020. It is likely that success for Apsara in that respect would have resulted in a larger award of damages. But that it not to say that the potential award will not be a substantial sum for the breach of the contract that this Court found. The outcome was that the BSO parties established a cause of action which they had failed to prove at the trial. There is no demonstrated basis for denying the BSO parties the costs of their appeal. [6] There were other issues which were raised, at some stages at least, in this Court. The first was that which the trial judge listed as Issue 9. It was whether EMC breached the 2019 agreements by subjecting the orders for the radios to the quality review, or by delaying development and shipment on account of that quality review. The trial judge declined to determine that issue. The BSO parties argued in this Court that the judge ought to have found that the implementation of the quality review was repudiatory conduct, in that the conduct evinced an intention by EMC not to perform the 2019 agreements consistently with their terms. As I explained at paragraph [154] of the judgment, that contention was maintained in the Notice of Appeal filed (during the hearing) on behalf of the BSO parties, but only against the contingency that this Court accepted EMC’s argument that the 2019 agreements simply varied the 2018 agreement. Consequently, there was no issue for this Court to determine as the parties had put to the judge by Issue 9. Importantly, that contention was not abandoned by the BSO parties. It was maintained by them because of arguments which EMC advanced (unsuccessfully) on its appeal. [7] In their Notice of Appeal, the BSO parties abandoned the contentions that the implementation of the quality review was a breach of the contractual duty to cooperate and do all things as were necessary to enable the other party to have the -- 3 of 6 -- 4 benefit of the 2019 agreements, and that the breach of that duty was a breach of condition, a substantial breach or a sufficiently serious breach of an innominate term. The abandonment of those contentions is of some relevance, but those contentions, whilst they stood, could not have added much to the costs in this Court, because the quality review was something which was relevant to other questions upon which the BSO parties prevailed. It was relevant to the question of whether, overall, EMC had repudiated the 2019 agreements as well as to the question of whether a reasonable time had passed for the delivery of the radios by 20 July 2020. [8] Once regard is had to the substantial success enjoyed by the BSO parties, in proving a breach of contract which might result in a substantial award of damages, the overall outcome should be more favourable to them than had the only issues been the four questions raised by EMC’s appeal. [9] Because of the difficulties which are likely to be involved in allocating the costs between EMC’s appeal, and the BSO parties’ Notice of Appeal and their Notice of Cross-Appeal, it is preferable to give an overall apportionment of the costs to be paid by one party.3 In my conclusion, EMC should be ordered to pay 95 per cent of the costs of each appeal. [10] There remains the question of the orders for costs made in the Trial Division. Order number 12 of the judge’s orders made on 31 August 2021 was an order that EMC pay 90 per cent of the plaintiffs’ costs of up to and including the hearing on liability, including reserved costs. By its Notice of Appeal, EMC sought to have that order set aside. [11] There was no challenge to that order within the Notice of Cross-Appeal or the Notice of Appeal filed by the BSO parties. Consequently, it is submitted for EMC, this Court cannot disturb order number 12 adversely to EMC, although it is said that it can do so to reduce that percentage to 80 per cent. It is said that reduction is warranted by EMC’s success in this Court on the confidential information issue. [12] The trial judge, who gave careful and extensive reasons for judgment in relation to costs, was persuaded to apply that discount of 10 per cent only upon the basis of EMC’s success at the trial on the issue of confidential information. Her Honour observed that although “almost nothing was said in oral submissions” for the BSO parties’ arguments about confidentiality, the issues must have taken up a significant amount of time in the preparation of written submissions. EMC argues that, in consequence, all that may be considered by this Court is whether EMC’s further success on the confidential information issue warrants more than a 10 per cent discount of the BSO costs. [13] In my view that submission describes too narrowly the question for this Court. This Court’s discretion to vary the order is enlivened by the order having been made by the judge upon the premise of a certain outcome on the confidentiality issue which was incorrect. The questions then are whether the order should be varied, and if so, in what way, having regard to all of the considerations which are relevant to the costs of the trial. That involves a consideration of whether, on the overall outcome on all issues, the interests of justice require the order to be varied. 3 cf Speets Investment Pty Ltd v Bencol Pty Ltd (No 2) [2021] QCA 39 at [17]; AION Corporation Pty Ltd v Yolla Holdings Pty Ltd [2013] QSC 191 at [15]. -- 4 of 6 -- 5 [14] I am not persuaded that it ought to be varied to increase the extent of the discount of the plaintiffs’ costs. The submission for BSO is that the order should be varied by removing the discount, so that the BSO parties are given the whole of their costs of the liability trial. That submission also is unpersuasive. The confidentiality case was a definable and severable part of the case, and one which, the trial judge observed, occupied a significant part of the trial.4 [15] It is appropriate to apply some discount to the costs of the BSO parties. It appears from her Honour’s reasons that the costs of the confidentiality issues, as a proportion of the overall costs, are likely to have been higher in the Trial Division than in this Court. I am unpersuaded to vary the discount of 10 per cent, in either side’s favour. My reluctance to do so in favour of the BSO parties comes also from the fact that they did not file any document in this Court which challenged order number 12. There should be no variation to that order. [16] By order number 14, the trial judge ordered that the BSO parties were to pay EMC’s costs of a hearing on 28 July 2021, including the costs reserved in respect of a hearing on 14 June 2021 and those incurred in respect of an application for leave filed on 15 July 2021. There was no challenge to that order in the Notice of Appeal or Notice of Cross-Appeal filed on behalf of the BSO parties. No order should be made which disturbs that order. [17] There is a further question as to an undertaking which was filed by the BSO parties in the Trial Division on 5 September 2022. The background to that was an assessment of the costs the subject of order number 12 and another costs order in favour of the BSO parties made by Brown J. Certificates of assessment in respect of those costs were filed in the Trial Division and on 16 August 2022, the Deputy Registrar made an order which reflected the terms of Certificates. EMC declined to pay the costs as assessed because of the potential for the trial judge’s costs order to be disturbed and the suggested difficulties in recovering any overpayment from the BSO parties. Consequently, at EMC’s request, the BSO parties undertook to the Court that upon payment of a certain sum into the trust account of Johnson Winter and Slattery (the solicitors for the BSO parties), the BSO parties would instruct them not to disburse, distribute or otherwise pay from their trust account that amount prior to final orders being made by this Court in respect of the EMC appeal against order number 12. The BSO parties further undertook that if that order was set aside or varied in such a way that it benefitted EMC, the BSO parties irrevocably instructed their solicitors to repay the amount to EMC’s solicitors within three business days of that order being set aside or varied. Thirdly, the undertaking provided that if the costs order was not set aside or varied in such a way that benefited EMC, the BSO parties would be released from the undertaking that the funds not be disbursed, distributed or otherwise paid from the trust account. [18] Upon my view of the appropriate outcome, the result would be that by this Court’s orders, the BSO parties would be released from the undertaking. In that event, the BSO parties seek an order that EMC pay interest on the amount held in the trust account from 16 September 2022 to the date of this Court’s order in respect of order 12, at the rate prescribed by s 59 of the Civil Proceedings Act 2011 (Qld). [19] Section 59(2) provides that interest is payable from the date of a money order on the money order debt unless the court otherwise orders. Section 59(3) provides that the 4 BSO Network Inc & Anor v EMClarity Pty Ltd (No 3) [2021] QSC 192 at [112]. -- 5 of 6 -- 6 interest is payable at the rate prescribed under a practice direction made under the Supreme Court of Queensland Act 1991 unless the court otherwise orders. Section 59(4)(b) provides that if the money order includes an amount for costs, and costs are paid within 21 days from the ascertainment of the costs, interest on the costs is not payable unless the court otherwise orders. [20] Consequently, in the absence of any order under s 59, interest would be payable at the prescribed rate on the amount of the costs ordered by the Deputy Registrar on 16 August 2022, as and from 21 days from that date. It can be seen that that would be very close to the outcome which the BSO parties seek by a specific order; indeed it would be slightly more favourable than those orders. EMC does not seek an order to vary the effect of s 59. In the circumstances, no such order should be made. [21] In my conclusion there should be the following orders: 1. In appeal number 11321 of 2021, the appellant pay to the respondents 95 per cent of their costs of that appeal. 2. In appeal number 10237 of 2022, the respondent pay to the appellants 95 per cent of their costs of that appeal. 3. The appeal against order number 12 made in the Trial Division on 31 August 2021 be dismissed. 4. BSO Network Inc and Apsara Networks Inc be discharged from the undertakings given in the Trial Division on 5 September 2022. [22] BOND JA: I agree with the reasons for judgment of McMurdo JA and with the orders proposed by his Honour. [23] FLANAGAN J: I agree with McMurdo JA. -- 6 of 6 --