The Weaponisation of Costs Orders - by Marie M.

In February we reported on an unsuccessful attempt by a company to enforce a noncompete against a departing employee. The costs order has since come through and it is distressing to note that the successful respondent Mr Uelese was only allowed to recover $2250, around 13% of his actual legal costs from Davis Trading.

We assume Davis Trading asserted that its application for a restraint of trade injunction had merit and it was prepared to accept liability for a significant portion of Mr Uelese’s legal costs if its claim failed. It did fail, and despite the lack of any mention of contributory conduct that might have affected the costs award, the warehouse supervisor who was being paid $25.50 per hour by his new employer was effectively deemed by the ERA to be liable for 87% of his legal costs, representing a shartfall of about $15,000 including GST. If the outcome sought by Davis Trading was retaliation against a departing employee, then results like this hardly provide managers with a disincentive to retaliate in this way.

Another example of retaliatory litigation resulting in crippling costs orders, resulting in bankruptcy in this case, started in MBIE and made its way to the Supreme Court. In the most relevant jurisdictions the parties were anonymised to ITE v ALA (Information Technology Engineer v A Local Authority) in the Employment Court and before that, P v Q in the ERA (although the Court of Appeal published the parties' real names).

The mediated record of settlement included an indemnity clause and given that the departure of ITE came about in acrimonious circumstances including an allegedly bogus complaint to police, ITE’s lawyer Bill Nabney should never have advised his client to agree to that indemnity clause in mediation. ITE’s expectation that serious wrongdoing within the Local Authority would be aired during the criminal investigation about him. Those charges were eventually dropped by police but the circumstances leading to that triggered an apparent “breach” of the settlement agreement for which the ERA fined him (as party “Q”) $6,000 and awarded $15,000 costs to the Local Authority. Q/ITE challenged this to the Employment Court and P/ALA cross challenged on the basis that it was entitled to indemnity costs. Judge Inglis agreed with ALA and awarded full indemnity costs of $153,120 to ALA including $12,331 for an industrial psychologist who was presumably brought in to soothe ruffled feathers.

The lesson is, if a manager of a public sector organisation including local authority or even a medium size business with sufficient financial delegation wants to retaliate against a departing employee, and is not overly concerned about the reputational harm that may cause, then the ERA may be a good place to do it.

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