Kheir's Financial Services Pty Ltd v Aussie Home Loans Ltd (No.2)

[2009] FMCA 586

FEDERAL MAGISTRATES COURT OF AUSTRALIA

KHEIR'S FINANCIAL SERVICES PTY LTD & ANOR v AUSSIE HOME LOANS LTD (No.2) [2009] FMCA 586

INDUSTRIAL LAW – COSTS – Competing costs claims following decision that the Court had no jurisdiction under the Independent Contractors Act 2006 (Cth) – application of s.17 of the Act considered – s.17 applies not only to proceedings under Part 3 of the Act but also to proceedings purportedly under that Part.

Federal Magistrates Act 1999 (Cth), s.79
Federal Magistrates Court Rules 2001 (Cth)
Independent Contractors Act 2006 (Cth), s.17
Trade Practices Act 1974 (Cth), ss.52, 82

Kheir's Financial Services Pty Ltd & Anor v Aussie Home Loans Ltd [2009] FMCA 340
PCS Operations Pty Ltd v Maritime Union of Australia (1988) 153 ALR 520
Shrimp v Landmark Operations Limited (No 2) [2008] FCA 25
Stevenson v Barham (1977) 136 CLR 190
WK Marble and Granite Pty Ltd v CASA China Ltd [2007] FCA 1382

First Applicant: KHEIR'S FINANCIAL SERVICES PTY LTD

Second Applicant: GAMEL KHEIR

Respondent: AUSSIE HOME LOANS LTD

File Number: SYG 2771 of 2008

Judgment of: Driver FM

Date of Last Submission: 17 June 2009

Delivered at: Sydney

Delivered on: 24 July 2009

REPRESENTATION

Counsel for the Applicant: Mr J Fernon, SC with Mr T Boyd

Solicitors for the Applicant: Kheir & Associates Solicitors

Counsel for the Respondent: Mr BA Coles, QC with Mr SB Docker

Solicitors for the Respondent: Kemp Strang

ORDERS

1. There shall be no order as to costs.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 2771 of 2008

KHEIR’S FINANCIAL SERVICES PTY LTD

First Applicant

GAMEL KHEIR

Second Applicant

And

AUSSIE HOME LOANS LIMITED

Respondent

REASONS FOR JUDGMENT

Introduction and background

1. On 28 May 2009 I gave judgment in the principal proceedings in this matter[1].  I dismissed the application before the Court brought by the applicants, purportedly under the Independent Contractors Act 2006 (Cth) (“the Independent Contractors Act”), because I found that the Court did not have jurisdiction to hear and determine it. In short, I found that the Court had no jurisdiction under the Independent Contractors Act to deal with the applicants’ claim because the claim related to contracts which had been terminated before the commencement of the Independent Contractors Act and that Act did not operate retrospectively. There was also a cross-claim brought by the respondent in the court’s accrued or associated jurisdiction which I dismissed as a consequence of the dismissal of the application.

   [1] Kheir's Financial Services Pty Ltd & Anor v Aussie Home Loans Ltd [2009] FMCA 340

2. I said in my judgment at [24] that I would hear the parties as to costs.  The parties elected to make written submissions on costs.  In written submissions filed on 11 June 2009 the respondent (“Aussie”) seeks an order that the applicants pay Aussie’s costs of the proceedings or, alternatively, that they pay the dominant proportion of those costs.  In submissions filed on the same day, the applicants seek an order that Aussie pay their costs on an indemnity basis.  That submission was contested by the respondent in a submission in reply filed on 17 June 2009. 

3. The procedural history of this matter is of some relevance and is as follows.

4. On 5 December 2007, the applicants commenced proceedings in the Federal Court by filing an application and a statement of claim. In the application, they claimed relief under the Independent Contractors Act, including the deletion of certain clauses of a contract dated 1 February 2005, as well as damages pursuant to s.82 of the Trade Practices Act1974 (Cth) (“the Trade Practices Act”). The statement of claim included the following allegations:

   a)that an earlier contract between the parties dated 20 January 2003 was a services contract under the Independent Contractors Act, including for the purposes of Part 3: paragraph 18;

   b)that the contract was harsh and unfair both because of its terms and the circumstances in which it was entered into: paragraphs 5-29;

   c)that Aussie had a duty to advise the applicants which it breached: paragraphs 13 and 26;

   d)that the contract was voidable and liable to be rescinded: paragraph 30;

   e)that the contract dated 1 February 2005 was also a services contract under the Independent Contractors Act, including for the purposes of Part 3: paragraph 36;

   f)that the contract dated 1 February 2005 was harsh and unfair both because of its terms and the circumstances in which it was entered into: paragraph 44; and

   g)the conduct of Aussie was in breach of s.52 of the Trade Practices Act and the applicants suffered loss and damage by this conduct: paragraphs 45-50.

5. In its defence filed on 13 March 2008, Aussie pleaded to all the applicant’s allegations.  In particular, Aussie did not admit the allegations in paragraphs 18 and 36 of the statement of claim and denied that the applicants were entitled to the relief claimed in the application or any relief at all.

6. On 13 March 2008, Aussie filed its cross-claim seeking payments from the first applicant under contracts dated 20 January 2003 and 1 February 2005. In its defence to the cross-claim filed on 27 October 2008, the first applicant alleged the contracts were unfair under the Independent Contractors Act.

7. On 7 April 2008, the applicants filed an amended application and an amended statement of claim. In the amended application, they claimed the same relief under the Independent Contractors Act as in the application, damages pursuant to s.82 of the Trade Practices Act and damages for breach of contract. The amended statement of claim contained the same allegations as were in the statement of claim but added paragraphs 51-55 which were a claim for damages under the 1 February 2005 contract. In its defence filed on 23 April 2008, Aussie did not admit the allegations in paragraphs 18 and 36 of the amended statement of claim and denied that the applicants were entitled to the relief claimed in the amended application or any relief at all.

8. On 16 June 2008, the applicants filed a further amended application and a further amended statement of claim. In the further amended application, they claimed the same relief under the Independent Contractors Act as in the amended application, added a claim for further relief under the Independent Contractors Act in respect of the contracts insofar as they related to upfront commission and, for the first time, claimed costs. The claims for damages pursuant to s.82 of the Trade Practices Act and damages for breach of contract were omitted from the further amended application but the pleading in respect of them was not omitted from the further amended statement of claim. The further amended statement of claim contained the same allegations as were in the amended statement of claim and added further allegations. In its defence filed on 7 July 2008, Aussie did not admit the allegations in paragraphs 18 and 36 of the amended statement of claim and denied that the applicants were entitled to the relief claimed in the amended application or any relief at all.

9. On 24 October 2008, the proceedings were transferred to this Court pursuant to an order made by Jagot J.

10. On 9 December 2008, the proceedings were fixed for hearing for four days on 20-23 April 2009.

11. On 11 December 2008, the applicants filed a second further amended application and a second further amended statement of claim. In the second further amended application, they claimed the same relief under the Independent Contractors Act as was claimed in the further amended application, they added claims for relief under the Independent Contractors Act in respect of a further clause of the contract dated 1 February 2005 as well as in respect of various clauses of the contract dated 20 January 2003 and they claimed costs. The second further statement of claim contained the same allegations in respect to the unfairness of the contracts as in the further amended statement of claim, added further allegations in that regard and omitted the allegations in respect of s.52 of the Trade Practices Act and for breach of contract. In its defence filed on 16 December 2008, Aussie did not admit the allegations in paragraphs 18 and 36 of the second further statement of claim and denied that the applicants were entitled to the relief claimed in the application or any relief at all.

12. On 17 February 2009, the proceedings were listed for directions and the applicants failed to appear.

13. On 20 April 2009 during the hearing, the applicants filed a third further amended application. In it they claimed the same relief under the Independent Contractors Act as in the second further amended application, they added claims for relief under the Independent Contractors Act in respect of a contract dated 29 September 2004 and for payment under the contracts as varied and costs.

Submissions

1. Aussie submits that it should receive an award of costs on a party and party basis because the applicants were unsuccessful in the litigation and costs should follow the event. Aussie submits that s.17 of the Independent Contractors Act (which restricts the Court’s power to make a costs order against a party) does not apply, or if it does apply, then it operates to protect all the parties against an adverse costs order.

2. The applicants submit that s.17 of the Independent Contractors Act only protects a party instituting proceedings which are brought and conducted reasonably and provides no protection to a respondent. In any event, the applicants submit that Aussie acted unreasonably by raising the issue of jurisdiction very late in the principal proceedings.

3. In reply, Aussie contends that its conduct was not unreasonable and that there is precedent for an award of costs against the moving party in similar circumstances. 

The legislation and Court Rules

1. Section 79 of the Federal Magistrates Act 1999 (Cth) (“the Federal Magistrates Act”) provides:

   (1)   This section does not apply to family law or child support proceedings.

   Note: See section 117 of the Family Law Act 1975 in relation to family law or child support proceedings.

   (2)    The Federal Magistrates Court or a Federal Magistrate has jurisdiction to award costs in all proceedings before the Federal Magistrates Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which any other Act provides that costs must not be awarded.

   (3)   Except as provided by the Rules of Court or any other Act, the award of costs is in the discretion of the Federal Magistrates Court or Federal Magistrate.

2. The Federal Magistrates Court Rules 2001 (Cth) (“the Federal Magistrates Court Rules”) relevantly provide:

   Rule 21.02

   (1)     An application for an order for costs may be made:

   (a) at any stage in a proceeding; or

   (b) within 28 days after a final decree or order is made; or

   (c) within any further time allowed by the Court.

   (2)  In making an order for costs in a proceeding, the Court may:

   (a) set the amount of the costs; or

   (b)   set the method by which the costs are to be calculated; or

   (c) refer the costs for taxation under Order 62 of the Federal Court Rules or under Chapter 19 of the Family Law Rules; or

   (d)  set a time for payment of the costs, which may be before the proceeding is concluded.

   Rule 21.05

   (1)  This rule applies if a proceeding is transferred to the Court from the Family Court or the Federal Court.

   (2)  If the court from which the proceeding is transferred has not made an order for costs, the Court may make an order for costs including costs before the transfer.

   (3)   Unless the court from which the proceeding is transferred otherwise orders, costs before the transfer must be in accordance with this Part.

   Rule 21.10

   Unless the Court otherwise orders, a party entitled to costs in a proceeding (other than a proceeding to which the Bankruptcy Act applies) is entitled to:

   (a)    costs in accordance with Part 1 of Schedule 1; and

   (b)    disbursements properly incurred.

   Note    For costs in a proceeding to which the Bankruptcy Act 1966 applies, see Part 13 of the Federal Magistrates Court (Bankruptcy) Rules 2006.

   Rule 21.15

   The Court or a Registrar may certify that it was reasonable to employ an advocate, or more than 1 advocate, to appear for a party in a proceeding.

   Rule 21.16

   If the employment of an advocate is certified as reasonable, the amount payable for counsel to appear is the daily hearing fee and advocacy loading in accordance with Part 1 of Schedule 1.

3. Section 17 of the Independent Contractors Act provides:

   (1)   A party (the first party) to a proceeding (including an appeal) in a matter arising under this Part must not be ordered to pay costs incurred by any other party to the proceeding unless the first party instituted the proceeding vexatiously or without reasonable cause.

   (2)   Despite subsection (1), if a court hearing a proceeding (including an appeal) in a matter arising under this Part is satisfied that a party (the first party) to the proceeding has, by unreasonable act or omission, caused another party to the proceeding to incur costs in connection with the proceeding, the court may order the first party to pay some or all of those costs.

   (3)   In this section:

   "costs" includes all legal and professional costs and disbursements, and expenses of witnesses.

Reasoning

1. In my principal judgment I noted that Part 3 of the Independent Contractors Act commenced on 1 March 2007 and found that that Part had no application to a contract terminated before the commencement of the Part. In short, the Independent Contractors Act has no retrospective operation. It does not follow, however, that s.17 of the Independent Contractors Act has no relevant application in the present situation. The section relates to costs of a proceeding in a matter arising under Part 3 and provides that the Court may not make a costs order against a party instituting a proceeding unless the proceeding was instituted vexatiously or without reasonable cause. Ordinarily, a party instituting a proceeding will be the applicant although the section is not cast in terms that provides protection only to applicants. Hypothetically, a respondent to a proceeding may themselves institute a proceeding under Part 3, for example, by way of a cross-claim or counterclaim.

2. On one view, s.17 has no application because, as I found in my principal judgment, the Independent Contractors Act did not apply to the contracts in issue because they were terminated before the commencement of Part 3. On that view, the proceeding did not relate to a “matter” arising under Part 3. However, in my view, s.17 does have relevant application in the present circumstances. First, s.17 bears upon costs of a proceeding brought under Part 3 rather than the substantive issues in dispute between the parties. A “matter” means a dispute. There was, in fact, a dispute between the parties purportedly arising under Part 3. Aussie raised a jurisdictional issue (which was contested by the applicants) which was part of that dispute. In my view, it would be absurd if s.17 operated in relation to proceedings resolved on the legal merits of a claim (excluding issues of jurisdiction) but did not operate where the claim is resolved on the basis of jurisdiction. In my view, s.17 applies not just to matters arising under Part 3 but also to matters purportedly arising under that Part which are found, because of a jurisdictional limitation, not to so arise.

3. The issue in relation to the applicants then is whether the proceeding was instituted vexatiously or without reasonable cause. I find that it was not. The applicants’ claim was a bona fide claim for relief in relation to contracts which the applicants considered operated unfairly. The applicants did not advert to the jurisdictional issue before it was raised by Aussie and, when the issue was raised, the applicants argued against the jurisdictional limitation. Their position was reasonably arguable. It follows, and I find, that the Court is unable to make a costs order against the applicants because of the operation of s.17(1) of the Independent Contractors Act, which operates as a limitation on the Court’s general powers to make awards of costs pursuant to s.79 of the Federal Magistrates Act and the Federal Magistrates Court Rules.

4. Section 17(2) of the Independent Contractors Act permits the Court to make a costs order against any party to a proceeding brought (or purportedly brought) under the Part if the party has, by an unreasonable act or omission, caused another party to the proceeding to incur costs in connection with the proceeding. No issue arises in relation to the applicants in that regard. The application was reasonably brought and, although the application had been through several iterations (including the removal of a claim under the Trade Practices Act which, if it had not been abandoned, would have provided a jurisdictional basis for a substantive decision) those various reformulations of the applicants’ claim was part of the ordinary and desirable refinement of the issues in dispute between the parties. The narrowing of the issues in dispute saved two days hearing time.

5. The remaining issue is whether a costs order should be made against Aussie on the basis of an unreasonable act or omission causing the applicants to incur costs.  There is no issue in relation to the cross-claim brought by Aussie.  That cross-claim was reasonably instituted in order to enforce Aussie’s contractual rights if the contracts were not rectified on the basis proposed by the applicants.  Although that cross-claim was brought in the Court’s associated or accrued jurisdiction, once brought, it became part of the Federal “matter” before the Court[2], which purportedly arose under Part 3 of the Independent Contractors Act. In respect of the cross-claim therefore, Aussie is entitled to the same protection as the applicants pursuant to s.17(1) of the Independent Contractors Act.

   [2] see PCS Operations Pty Ltd v Maritime Union of Australia (1988) 153 ALR 520

6. The applicants contend, however, that they should receive an order for costs because Aussie acted unreasonably in raising the jurisdictional challenge at a very late stage in the proceedings.  In Stevenson v Barham (1977) 136 CLR 190 Mason and Jacobs JJ (with whom Barwick CJ agreed) stated at page 202[3]:

   As a general rule it is desirable that an objection to jurisdiction be determined as early as circumstances will conveniently admit so that the Tribunal does not embark on a hearing which it lacks authority to conduct.

   [3] see also the observations by Allsop J in WK Marble and Granite Pty Ltd v CASA China Ltd [2007] FCA 1382 at [37]

7. The applicants also rely upon the decision of his Honour Besanko J in Shrimp v Landmark Operations Limited (No 2) [2008] FCA 25 and other authorities establishing that a costs order may be made in special circumstances in favour of an unsuccessful party, including on an indemnity basis.

8. In my principal judgment I expressed some concern that the issue of jurisdiction was not raised until closing submissions were made following receipt and testing of evidence at the trial.  It is certainly true that Aussie could have raised the jurisdictional issue much earlier and, if it had, significant costs would have been saved.  It does not follow, however, that Aussie should have done so. First, and importantly, there is no evidence that Aussie had averted to the jurisdictional issue before the trial of the matter. Its conduct in bringing a cross-claim based on the Court’s associated or accrued jurisdiction was inconsistent with such knowledge because, as I found, the cross-claim would be likely to fail if the proceedings brought under Federal jurisdiction failed on a jurisdictional basis. Further, there would have been little point in raising a jurisdictional challenge so long as the applicants maintained proceedings under the Trade Practices Act which provided an independent jurisdictional basis for the proceedings. The trade practices claim was only abandoned on the filing of a second further amended application and second further amended statement of claim on 11 December 2008. The directions hearing on 17 February 2009 might have been an opportunity for Aussie to raise the jurisdictional issue but the applicants failed to appear. Aussie also had to deal with the third further amended application filed on 20 April 2009 during the trial of the matter.

1. I conclude that Aussie did not act unreasonably by not raising the jurisdictional issue until closing submissions.  The timing of the raising of the issue, while unfortunate, was a consequence of the failure of all of the parties (and, for that matter, the Court) to advert to the issue before it was raised. 

2. As the decision of the High Court in Stevenson v Barham shows, each case must be considered on its own merits in relation to the issue of costs. There is no general principle that because an issue on which a party succeeds is raised late, that that party should bear the costs of the unsuccessful party. In terms of the operation of s.17 of Independent Contractors Act, there is no discretion in the Court to make an order for costs unless conduct was unreasonable. I have found that Aussie’s conduct in this matter was not unreasonable. It follows that the only appropriate order to make is that there shall be no order as to costs. I shall so order.

I certify that the preceding twenty-nine (29) paragraphs are a true copy of the reasons for judgment of Driver FM

Associate: 

Date:  24 July 2009