Murphy v Innovior Pty Ltd (No 2)
[2021] FCCA 258
•17 February 2021
FEDERAL CIRCUIT COURT OF AUSTRALIA
Murphy v Innovior Pty Ltd (No 2) [2021] FCCA 258
File number(s): SYG 2786 of 2019 Judgment of: JUDGE BAIRD Date of judgment: 17 February 2021 Catchwords: INDUSTRIAL LAW – COSTS – Application for costs brought by respondent pursuant to s.570 of the Fair Work Act 2009 (Cth) following successful summary dismissal application – whether s.570(2) discretion to order costs enlivened – whether applicant commenced proceeding “without reasonable cause” – parties exchanged without prejudice offers after proceeding commenced – lump sum costs – whether appropriate to order – indemnity costs – whether appropriate to make an indemnity costs order – not satisfied applicant’s conduct warrants indemnity costs order in Fair Work context – Application for costs allowed – appropriate to order lump sum – costs awarded on party‑party basis Legislation: Fair Work Act 2009 (Cth), s 570 Cases cited: A2B Australia Limited & Anor v Oz Power Group Pty Ltd & Anor [2020] FCCA 2623
Australian Workers Union v Leighton Contractors Pty Limited (No 2) [2013] FCAFC 23; (2013) 232 FCR 23
Ashby v Slipper (No.2) [2014] FCAFC 67; (2014) 314 ALR 84Bellamy’s Australia Limited v Basil (No 2) [2019] FCAFC 169
Calderbank v Calderbank [1975] 3 All ER 333
Clifton (Liquidator) v Kerry J Investment Pty Ltd trading as Clenergy (No 2) [2020] FCAFC 112Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225
Gill v Karan Grewal Pty Ltd [2020] FCCA 1202
Henley Arch Pty Ltd v Del Monaco (No 2) [2020] FCCA 1911
Kanan v Australian Postal and Telecommunications Union [1992] FCA 539; (1992) 43 IR 257
Liang v Joblink Australia Pty Ltd [2019] FCA 429
Melbourne Stadiums Ltd v Sautner [2015] FCAFC 20; (2015) 229 FCR 221
Murphy v Innovior Pty Ltd [2020] FCCA 2060
Ryan v Primesafe [2015] FCA 8; (2015) 323 ALR 107
Trustee for the MTGI Trust v Johnston (No 2) [2016] FCAFC 190Tsilibakis v Transfield Services (Australia) Pty Ltd (No.2) [2015] FCA 1048
Number of paragraphs: 70 Date of last submission/s: 17 September 2020 Date of hearing: On the papers Place: Sydney Counsel for the Applicant: D O’Sullivan Solicitor for the Applicant: Matthew Warburton, Outlaw Legal Counsel for the Respondent: M Minucci Solicitor for the Respondent: Jonathon Leung, Strongman Crouch ORDERS
SYG 2786 of 2019 BETWEEN: DANIEL MURPHY
Applicant
AND: INNOVIOR PTY LTD
Respondent
ORDER MADE BY:
JUDGE BAIRD
DATE OF ORDER:
17 FEBRUARY 2021
THE COURT ORDERS THAT:
1.The Applicant pay the Respondent’s costs, including disbursements, and including the costs of this costs application, fixed as a lump sum pursuant to r.21 of the Federal Circuit Court Rules 2001 (Cth), in the total amount of $20,021.15.
2.The proceedings be dismissed.
REASONS FOR JUDGMENT
JUDGE BAIRD
INTRODUCTION
These reasons address the post-hearing application for costs made by the respondent, Innovior Pty Ltd, pursuant to s.570 of the Fair Work Act 2009 (Cth) (FW Act), following the success of its summary dismissal application. I gave judgment on that summary dismissal application, with reasons, on 20 August 2020: see: Murphy v Innovior Pty Ltd [2020] FCCA 2060 (principal judgment).
On 20 August 2020, I also directed Innovior within 7 days to inform the applicant, Mr Daniel Murphy, whether or not it intended to seek costs. I ordered Innovior, if it did so intend, to file and serve any application for costs, and brief submissions of no more than 4 pages, within 14 days, and that Mr Murphy respond, along with brief submissions of no more than 4 pages, within 14 days thereafter.
Further to the Court’s timetabling orders (although not necessarily in compliance with those orders), the parties have each filed and served written submissions, and affidavits in support of their respective positions on costs. Innovior’s written submissions at 8 pages exceeded the 4 pages ordered. Mr Murphy objects to the submissions being considered, or alternatively, submits that consideration be limited to the first 4 pages. I set out my determination on this issue below at [49]-[51].
Innovior relies on the affidavit of Jonathan Chung Wa Leung sworn 3 September 2020. Mr Murphy relies on the affidavit of Matthew James Warburton affirmed 17 September 2020. Each of those affidavits refer to, and attach offers of settlement. I refer to these offers below (see at [15] and following).
The parties have consented to the question of costs being heard and determined on the papers.
Overview of the parties’ competing positions on costs
In sum, Innovior submits that Mr Murphy instituted the proceeding without reasonable cause, the Court’s power under s.570 is enlivened, and the Court should make orders against Mr Murphy for payment of its costs on an indemnity basis, and as a lump‑sum, fixed in the sum of $30,573.15. Innovior submits that an order in such terms is appropriate further to its success on its summary dismissal application, and also relying on an open offer and a number of without prejudice offers it made, each of which was declined or expired by effluxion of time. It says that it is well established that a failure of a party to accept a reasonable offer of compromise may constitute an unreasonable act from which an order for costs might follow; citing Melbourne Stadiums v Sautner (2015) 229 FCR 221; [2015] FCAFC 20 at [166].
In response, Mr Murphy submits that this is not a matter in which any of the exceptions in sub‑s.570(2)(a)-(c) of the FW Act are made out. He further submits that in the circumstances the Court should not exercise its discretion to award costs, observing, as authority establishes, that the discretion should be exercised cautiously and that the reason should be clear: Ryan v Primesafe [2015] FCA 8; (2015) 323 ALR 107 at [64]-65], and reiterating this is “because of the exceptional nature of the power in an otherwise no-costs jurisdiction”: Trustee for the MTGI Trust v Johnston (No 2) [2016] FCAFC 190 at [8].
Mr Murphy submits the Court should not order costs, but if the Court decides to award costs, none of the factors are present that would substantiate an order being made on an indemnity basis. He sets out the factors relevant to the reasonableness of a refusal to accept an offer (see below at [29]), and says his conduct was reasonable. In any event, he says, any costs orders made should be fixed in accordance with the scale provided in Schedule 1 to the Federal Circuit Court Rules 2001 (Cth), and save as to this submission, submits costs should be no more than $5,624.00 (although I note this amount overstates items 12 and 13, and does not include disbursements). Save as to this submission, he says nothing as to whether costs should or should not be ordered as a lump sum. Mr Murphy also relies on a number of without prejudice counter offers he made, each of which Innovior declined or which expired by effluxion of time.
BACKGROUND – RELEVANT FACTS
This proceeding was instituted by Mr Murphy on 28 October 2019. Mr Murphy alleged contraventions of ss.90 and 323 of the FW Act, claiming he was not paid his salary for the period 1 July-3 September 2019, accrued leave entitlements, or interest. He contended that he was an employee of Innovior at all material times, and that his claims were not barred by a release contained in a Deed of Agreement entered into by him, Innovior, and other persons on 26 June 2019.
Prior to the commencement of the proceeding, and from about 25 July 2019, the parties, through their respective legal representatives, had engaged in disputatious correspondence, which from at least 11 September 2019 summarised their competing positions about the subject matter of the proceeding, including the operation and effect of the terms of the Deed. This correspondence was in evidence on the summary dismissal application, and is relied on by Innovior on the question of costs.
In the period 12 November 2019 to 5 December 2019, the parties exchanged several offers of settlement in correspondence sent by email – each of which, save for one, was stated to be made on a “without prejudice as to costs” basis. These offers are in evidence before me further to the affidavits of the parties’ solicitors (identified above at [4]).
On or about 5 December 2019, Innovior served its defence (unsealed), in which, among other matters, it denied Mr Murphy was an employee, and pleaded the Deed in bar. By a written open offer dated 5 December 2019 served the same day as the defence, and referring to the defence and reiterating Innovior’s position on the application of the Deed, Innovior notified Mr Murphy of its intention to apply for summary dismissal, and invited Mr Murphy by 11 December 2019 to agree to dismissal of the proceeding with no order as to costs. Innovior reserved the right to produce the letter to Court and to seek indemnity costs. Mr Leung, solicitor for Innovior, attests that Mr Murphy did not respond (that is, at least before the summary dismissal application was filed). Mr Warburton, solicitor for Mr Murphy, attests in his affidavit on the costs application, that “no offers for settlement of the application made by the applicant [Mr Murphy], were made by the respondent after 4th of December 2019”. In context, I apprehend Mr Warburton is referring to without prejudice offers before the principal judgment. Given the submissions of the parties, it is not necessary to resolve this controversy.
On 19 December 2019, Innovior filed an application in a case seeking summary dismissal of the proceeding pursuant to s.17A(2) of the Federal Circuit Court of Australia Act 1999 (Cth) (FCCA Act), and r.13.10 of the Rules. As stated above, I granted that application, and delivered the principal judgment on 20 August 2020.
For present purposes, the parties, their claims and defences, and the procedural history of the proceeding are sufficiently set out at [4]‑[12] of the principal judgment. I held that Mr Murphy’s claims had no reasonable prospect of success because his claims were barred by a release contained in the Deed: at [65] of the principal judgment.
COMPETING OFFERS OF SETTLEMENT
In each of their respective without prejudice offers communicated in the period 12 November – 5 December 2019 the parties stated their offer was made in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333, and Bellamy’s Australia Limited v Basil (No 2) [2019] FCAFC 169 (Calderbank principles).
In chronological order of making, the parties’ without prejudice offers made before I delivered the principal judgment are in summary:
(a)letter from Innovior to Mr Murphy dated 12 November 2019, in which Innovior referred to the Deed, summarised its firm view that the claim was released by the Deed, set out additional matters on which it relied, and offered to resolve the claim on the basis that it pay Mr Murphy $15,000 within 7 days of acceptance, and the proceeding be dismissed with no order as to costs. This Innovior first offer remained open for acceptance in writing until 4pm on 18 November 2019. Innovior put Mr Murphy on notice that should he not accept the offer, and fail to obtain a better outcome at trial, Innovior would rely on the letter to seek costs on an indemnity basis from the date of the letter (costs notice);
(b)letter from Mr Murphy to Innovior dated 22 November 2019, in which Mr Murphy rejected the Innovior first offer, stated his firm view that the claim was not released by the Deed, and offered to resolve the claim on the basis that Innovior pay Mr Murphy $59,000 within 7 days of acceptance, and the proceeding be dismissed with no order as to costs. This Murphy first offer remained open for acceptance in writing until 4pm on 28 November 2019. Reciprocally, Mr Murphy put Innovior on a costs notice;
(c)letter from Innovior to Mr Murphy dated 26 November 2019, in which Innovior rejected the Murphy first offer, referred to and repeated the matters set out in the Innovior first offer, offered to pay Mr Murphy $30,000 by 1 October 2020 (calculated as the first business day of the month following the last of the instalment payments to be made under the Deed), and the proceeding be dismissed with no order as to costs. This Innovior second offer remained open for acceptance until 4pm on 29 November 2019, and Innovior explained that the timing was informed by the need to prepare the defence as directed. The letter repeated the costs notice;
(d)letter from Mr Murphy to Innovior dated 29 November 2019, in which Mr Murphy rejected the Innovior second offer, reiterated his firm view that the claim was not released by the Deed, and offered to resolve the claim on the basis that Innovior pay Mr Murphy $55,000 within 5 days of it signing a negotiated deed of release, and the proceeding be dismissed with no order as to costs. This Murphy second offer remained open for acceptance in writing until 4pm on 2 December 2019. Mr Murphy repeated the costs notice;
(e)letter from Innovior to Mr Murphy dated 2 December 2019, in which Innovior rejected the Murphy second offer, referred to and repeated the matters set out in the Innovior first offer, and offered that Innovior’s [directors] “Mr Brkan or Mr Murphy” (sic) pay Mr Murphy $43,475 by 1 October 2020, and the proceeding be dismissed with no order as to costs. This Innovior third offer remained open for acceptance in writing “by 4pm tomorrow (3 December 2019)”, Innovior explained the timing as before, and repeated the costs notice;
(f)letter from Mr Murphy to Innovior dated 3 December 2019 in which Mr Murphy rejected the Innovior third offer, referred to and reiterated his firm view that the claim was not released by the Deed, and offered to resolve the claim on the basis of a deed of release, that Innovior pay Mr Murphy $55,000 by 1 October 2020, and the proceeding be dismissed with no order as to costs. This Murphy third offer remained open for acceptance in writing until 4pm on 4 December 2019. Mr Murphy repeated the costs notice;
(g)letter from Innovior to Mr Murphy dated 4 December 2019 at 12.27pm, in which Innovior rejected Mr Murphy’s “offer of $50,000” and “re-put its 2 December 2019 offer”, reduced to $40,000, open until 5pm that day (Revised Innovior third offer);
(h)letter from Mr Murphy to Innovior dated 4 December 2019 at 2:24pm in which Mr Murphy rejected the Revised Innovior third offer (of $40,000), reiterated his firm view that the claim was not released by the Deed, and offered to resolve the claim on the basis of a deed of release, that Innovior pay Mr Murphy $50,000 by 1 October 2020, and the proceeding be dismissed with no order as to costs. This Murphy fourth offer remained open for acceptance in writing by 10am on 13 December 2019. Mr Murphy repeated the costs notice. This offer lapsed by effluxion of time.
After delivery of the principal judgment, the parties exchanged further offers. They are, in the order in which they were sent:
(a)email from Innovior to Mr Murphy on 25 August 2020, in which Innovior stated its costs of the proceeding, up to and including delivery of the principal judgment were approximately $25,000, anticipated further costs of $6,000 to be incurred in the determination of costs, and stated that the whole of the above costs would be sought in their costs application. Innovior also stated that it believed that an appeal of the principal judgment would be unsuccessful. Innovior offered to resolve the costs application on the basis that Mr Murphy pay Innovior the sum of $20,000, and undertake not to appeal the principal judgment. This First Innovior costs offer remained open for acceptance until 2pm on 31 August 2020. Innovior restated its costs notice;
(b)responding email from Mr Murphy to Innovior on 30 August 2020, in which Mr Murphy rejected the First Innovior costs offer, rejected the notion that Mr Murphy acted unreasonably within s.570 of the FW Act, noted that Innovior made no offers to settle following its application for summary dismissal, and stated that he believed there were numerous grounds of appeal from the principal judgment. Nonetheless, Mr Murphy offered to forego his right to appeal if each party bore their own costs in relation to the costs application, and that agreement be recorded in a deed of release. This First Murphy costs offer remained open for acceptance until 2pm on 1 November 2020 (sic). No costs notice was given;
(c)Innovior responded by email on 31 August 2020, rejecting the First Murphy costs offer, and advising it would not engage in further correspondence as to settling the costs application;
(d)email from Mr Murphy to Innovior on 1 September 2020 notwithstanding the above, in which Mr Murphy offered to pay $10,000 in full and final settlement of the costs application, to forego his right to appeal the principal judgment, and that the agreement be recorded in a deed of release. This Second Murphy costs offer remained open for acceptance until 2pm on 2 September 2020. No costs notice was given;
(e)email from Innovior to Mr Murphy on 1 September 2020, in which Innovior stated it had incurred costs of preparing material for the costs application, rejected the Second Murphy costs offer, and “reinstated” the First Innovior costs offer of $20,000, open until 10am on 3 September 2020, and stated that it was Innovior’s final position. This offer expired by effluxion of time.
RELEVANT LEGISLATIVE PROVISIONS AND PRINCIPLES
Innovior’s application for costs falls to be determined by reference to the provisions of s.570 of the FW Act which limits the circumstances in which costs may be awarded in a proceeding in relation to a matter arising under the FW Act. Subsection 570(2) provides for certain exceptions to that limitation. Section 570 provides:
(1)A party to proceedings (including an appeal) in a court (including a court of a State or Territory) in relation to a matter arising under this Act may be ordered by the court to pay costs incurred by another party to the proceedings only in accordance with subsection (2) or section 569 or 569A.
(2)The party may be ordered to pay the costs only if:
(a)the court is satisfied that the party instituted the proceedings vexatiously or without reasonable cause; or
(b)the court is satisfied that the party’s unreasonable act or omission caused the other party to incur the costs; or
(c)the court is satisfied of both of the following:
(i) the party unreasonably refused to participate in a matter before the FWC;
(ii) the matter arose from the same facts as the proceedings.
The basis of Innovior’s application is that the Court should be satisfied Mr Murphy instituted the proceeding “without reasonable cause” within s.570(2)(a), and further (or perhaps alternatively) that his rejection of Innovior’s offers to settle the proceeding was an “unreasonable act” within s.570(2)(b) of the FW Act.
In Primesafe, Mortimer J dealt with an application for costs arising from proceedings under the FW Act. In relation to s.570 of the FW Act generally her Honour said (citations omitted):
[64]… The discretion conferred by the confined terms of s 570(2) should be exercised cautiously, and the case for its exercise should be clear. The reason for caution is the potential for discouraging parties’ pursuit in a complete and robust way of the claims for contravention which they seek to make under the Fair Work Act, or the defence of such claims. The policy behind s 570 is to ensure that the spectre of costs being awarded if a claim is unsuccessful does not loom so large in the mind of potential applicants (in particular, in my opinion) that those with genuine grievances and an arguable evidentiary and legal basis for them are put off commencing or continuing proceedings. It is an access to justice provision. Insofar as it operates to the benefit of respondents, it is designed to ensure respondents feel free to pursue arguable legal and factual responses to the claims made against them. There is an almost identical provision in s 611 of the Fair Work Act, giving the Fair Work Commission a similar costs power, conditioned by similarly‑worded considerations. …
[65]None of those propositions deny the court’s ability to find that one or both of the two preconditions expressed in ss 570(2)(a) and (b) exist where the factual circumstances warrant it. The legislative policy behind a provision such as s 570(1) is not inconsistent with the requirements for proceedings to be conducted reasonably, fairly and efficiently. As an access to justice provision, it contemplates parties and their legal representatives will access the court responsibly.
To similar effect, , in Tsilibakis v Transfield Services (Australia) Pty Ltd (No.2) [2015] FCA 1048, White J said (citations omitted):
[7]It is not necessary to canvass in detail the authorities bearing upon the application of s 570. The relevant principles are well established. Section 570 and its predecessors are to be understood as reflecting a legislative policy of protecting parties to proceedings under the FW Act from orders for costs so that parties with a genuine grievance will not be discouraged from pursuing a remedy to which they may be entitled, or from pursuing litigation in the manner which they deem best, for fear of an adverse costs order. The occasions upon which costs will be awarded under s 570 are likely to be exceptional.
[8]The questions of whether a party’s act or omission was unreasonable and whether such an act or omission has caused the other party to incur costs are to be determined having regard to the particular circumstances of each case. The fact that a party has conducted the litigation inefficiently, has made concessions relatively late, may have acted in a different or more timely fashion, or has adopted a genuine but misguided approach will be relevant to, but are not conclusive of, the party having acted unreasonably in the relevant sense. A party’s failure to comply with the duties imposed by s 37N of the Federal Court Act is also a relevant consideration.
The Full Court in Sautner at [140] explained that:
Section 570 operates as an express limitation on the broad discretion to award costs which is conferred on this Court by s 43 of the Federal Court of Australia Act 1976 (Cth) and on the County Court by s 78A of the County Court Act 1958 (Vic).
In Australian Workers Union v Leighton Contractors Pty Limited (No 2) (2013) 232 FCR 428; [2013] FCAFC 23 at [7], the Full Court summarised the relevant principles regarding s.570 as follows:
[7]In our view the authorities establish the following principles:
(1)The purpose or policy of the section is to free parties from the risk of having to pay their opponents’ costs in matters arising under the FW Act, while at the same time protecting those parties who are forced to defend proceedings that have been instituted vexatiously or without reasonable cause.
(2)It follows from the protection offered by s 570(2) that a person will rarely be ordered to pay the costs of a proceeding. But it is not necessary to prove that there are exceptional circumstances warranting the making of an order.
(3)The relevant question is whether the proceeding had reasonable prospects of success at the time it was instituted, not whether it ultimately failed. In Kanan v Australian Postal and Telecommunications Union (1992) 43 IR 257 at 264-5 (approved in [Kangan v AIRC (2006) 156 FCR 275]) Wilcox J said (citations omitted):
If success depends on the resolution in the applicant’s favour of one or more arguable points of law, it is inappropriate to stigmatise the proceeding, as being “without reasonable cause”. But where, on the applicant’s own version of the facts, it is clear that the proceeding must fail, it may properly be said that the proceeding lacks a reasonable cause.
See also, the latter decision of the Full Court (differently constituted) in Ashby v Slipper (No 2) [2014] FCAFC 67 at [35] (citations omitted):
Section 570 of the [FW Act] “reflects a policy of protecting a party instituting proceedings from liability for costs” and “costs will rarely be awarded under the section and exceptional circumstances are required to justify the making of such an order” … Moreover, “[a] party cannot be said to have commenced a proceeding ‘without reasonable cause’ …simply because his argument proves unsuccessful”, and costs will not be awarded against a party whose unsuccessful argument was “not unworthy of consideration”. Only a case that has “no real prospect of success, or was doomed to failure” will meet the tests set out in s 570(2)(a) of the [FW Act]. Each of these matters is a question of fact …
The Court must be satisfied that one of the statutory preconditions in s.570(2) is made out before the Court’s judicial discretion to make an order for costs is enlivened: Leighton at [7]; Ashby at [36]. Moreover, even if I am satisfied one or more of the preconditions are fulfilled, an order for costs remains at the discretion of the Court: Ashby at [7].
I summarised this Court’s approach to the exercise of its discretion in relation to orders for costs in Henley Arch Pty Ltd v del Monaco (No. 2) [2020] FCCA 1911 at [7] – [11] (noting, although this was a decision made in the intellectual property jurisdiction of the Court, the principles are applicable generally). As I said there, in sum, the discretion is broad, but is to be exercised judicially, and in the context of the relevant court rules. The general rule is that costs follow the event, costs may be awarded on a party and party basis or on an indemnity basis and the Court may set the amount of the costs, or the method of calculation, or refer the costs for taxation. If in a particular case the Rules are insufficient or inappropriate, the Court may apply, relevantly, the Federal Court Rules, which in Part 25 set out an optional means for quantifying costs entitlements when an offer of compromise is made, and the application of indemnity costs. Further, as I explained, a party entitled to costs may apply to the Court for an order that costs be awarded in a lump sum, instead of, or in addition to, any taxed costs.
The fundamental purpose of a costs order is to compensate a successful party rather than punish an unsuccessful party. Nonetheless, as the Federal Court’s costs practice note (GPN-COSTS) states, the court (and as I consider applicable, this Court) will consider the appropriateness of making a special costs order in circumstances which may warrant it, including where parties raise unmeritorious arguments before it or otherwise conduct themselves inappropriately in the litigation.
An order for indemnity costs is such a special costs order. In Clifton (Liquidator) v Kerry J Investment Pty Ltd trading as Clenergy (No 2) [2020] FCAFC 112 at [30], the Full Court reaffirmed the explication of the relevant principles by Sheppard J in Colgate‑Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233-234, and at [31], in the context of a failure to comply with discovery obligations, the Full Court stated: “The point which we wish to emphasise is that to justify a special costs order, there must be conduct deserving of criticism and resulting in greater expense to the innocent party.”
As to whether it was or was not reasonable to refuse an offer of compromise, relevant matters to take into consideration include the stage of the proceeding when the offer was made, the time afforded the offeree to consider the offer, the extent of the compromise offered, the offeree’s prospects of success assessed as at the date of the offer, the clarity of the terms expressed, and whether the offer foreshadowed an application for indemnity costs if refused.
In Henley Arch at [17] – [21] I discussed the principles applicable to a lump sum costs order. I incorporate by reference that discussion. The appropriateness of any discount, and the amount, is dependent on the facts of each case.
THE PARTIES’ SUBMISSIONS
Innovior’s submissions
As I indicated at [6] above, Innovior submits that it is entitled to an award of costs on an indemnity basis, and as a lump sum. It submits it is so entitled on two bases, first, pursuant to s.570(2)(a) of the FW Act, because the proceeding was instituted “without reasonable cause”, and secondly, pursuant to s.570(2)(b), because Mr Murphy’s conduct in rejecting Innovior’s 5 offers was manifestly unreasonable and imprudent (both individually and cumulatively), and caused Innovior to incur unnecessary costs, and damage in the form of legal costs.
First, it says that since or on about 25 July 2019, Mr Murphy’s solicitors were aware of “the fundamental shortcomings” in pressing claims for alleged underpayments given the clear and concise terms of the Deed. From the date of inception of the proceeding, Mr Murphy was “unable to succeed” due to the clear terms of the Deed, of which he was aware. Innovior says that once the Court was satisfied the proceeding could not succeed, this was a proceeding that met the threshold requirement of “without reasonable cause” in s.570(2)(a).
Accordingly, as the proceeding was commenced without reasonable cause, and in wilful disregard of known facts (per Clifton at [30]), Innovior should be entitled to an award of costs on an indemnity basis.
Secondly, Innovior submits that throughout the course of the proceeding, it has sought to settle the proceeding, making the offers I have described above, that 4 of the offers were expressed as made in accordance with the Calderbank principles, and that by the costs notice, each offer put Mr Murphy on notice of costs.
Innovior submits that it was unreasonable for Mr Murphy to refuse 5 offers. Mr Murphy was aware from the correspondence between the parties (prior to, and including in the offers), that among other things, the Deed operated as a complete bar to proceedings, and with full knowledge of the deficiencies in his case, rejected the offers.
Refusing to accept these offers, both individually and collectively, meets the threshold contemplated by the terms of s.570(2)(b) of the FW Act, thus enlivening the Court’s discretion to award costs. Further, that conduct constitutes unreasonable and imprudent acts by Mr Murphy in the conduct of this proceeding.
The rejection of offers made before the filing of the summary dismissal application resulted in unnecessary expense in the filing of a defence and filing and running the summary dismissal application. Innovior submits that it follows that it should be entitled to an award of costs on an indemnity basis as part of the ordinary exercise of the Court’s discretion.
Innovior further submits that there are no discretionary factors that weigh against an award of costs on the basis of sub-paragraphs (a) or (b) of s.570(2) of the FW Act.
Innovior’s itemisation of costs
In his affidavit Mr Leung has provided to an itemised account of the costs comprising the lump sum amount of $30,573.15 that Innovior seeks. Referring to the inappropriateness of any discount, Innovior submits it is for Mr Murphy to challenge the evidence of the costs incurred, and that “[where] there is no evidence of unreasonableness [of the claimed costs], it may be inappropriate to apply any discount”: Liang v Joblink Australia Pty Ltd [2019] FCA 429 at [10] (I observe here that Greenwood J’s observation was made in the context of a corporations law proceeding and is couched in optional, rather than mandatory terms). Innovior draws attention to the holding in Coshott v Burke (No 3) [2019] FCAFC 23 at [39]-[41], that in the absence of an itemised account (c.f., Mr Leung’s itemisation), a discount of 33% to solicitors fees, and no discount to Counsel’s fees, was appropriate.
Mr Murphy’s submissions
Mr Murphy submits that as Innovior filed submissions longer than the 4 page limit prescribed the application for costs should be dismissed, or alternatively, only the first 4 pages should be considered.
As I indicated at [7]-[8] above, Mr Murphy submits that if the Court is satisfied that he was unreasonable in commencing the proceeding, the Court should nonetheless exercise its discretion not to award costs, relying on Ashby, Primesafe at [64]-[65], and MTGI Trust, and referring to the exceptional nature of the power in an otherwise no-cost jurisdiction.
Mr Murphy submits that the intention of s.570 is to ensure that parties to proceedings under the FW Act feel free to pursue arguable legal and factual responses which are available to them, as he says they were to him in this case. He says that the proceeding raised a number of complex matters of law, including the application of principles in the cases referred to in the principal judgment (Kowalski, Atkins, Worpac and John Grant (citations omitted)), and the provisions of the FW Act, including s.61. Should these matters of law have been resolved in his favour, he submits his claim would have been successful, and consistently with the reasoning of Wilcox J in Kanan, approved in Kangan, and referred to with approval in Leighton (see above at [23]), the proceeding was not instituted without reasonable cause c.f. s.570(2)(a).
As to his rejection of Innovior’s offers, Mr Murphy submits that rejection of an offer which is subsequently bettered on judgment does not automatically give rise to a presumption that the rejection must be unreasonable. He refers to, and relies on, relevant factors to be taken into account when considering an offer of compromise and its rejection (see above at [29]).
If costs are to be awarded, Mr Murphy submits that the primary source for fixing costs is the event based scale in Schedule 1 of the Rules and departure from this is the exception rather than the norm (referring to Gill v Karan Grewal Pty Ltd [2020] FCCA 1202 at [23], I observe the Judge Jarrett there stated “that the starting point is that ordinarily costs…” will be the scale). In relation to the hearing of Innovior’s summary dismissal application, he proposes the amounts provided in Schedule 1 of the Rules giving a total of $5,624.00, comprising $3,744.00 (item 2), a half day hearing fee of $1,220.00 (item 13), and an advocacy loading of $660.00 (item 12). I note that the amounts for items 13, and 12 are overstated by $100 for each item in what appears to be a simple transcription error, however, Mr Murphy does not include any amounts for disbursements (such as Court fees, and other fees and payments, and photocopying, allowed under items 14 and 15).
In relation to Innovior’s claim for indemnity costs, Mr Murphy submits the principles flowing from Colgate-Palmolive are relevant, and in short, there must be a "level of blameworthiness which involves conscious or deliberate choices to flout the norms by which litigation is usually conducted, and courts expect it to be conducted".
Mr Murphy further submits that an inference can be drawn from the fact that Innovior did not file its application for summary dismissal until some 5 months after the proceeding was commenced, and from the magnitude of its offers made in the period 12 November 2019 to 2 December 2019, prior to Innovior putting on its defence - offering to pay Mr Murphy in the range of $15,000 to $43,475, that it considered the proceeding was not commenced without reasonable cause.
Mr Murphy submits that he had also put competing settlement offers to Innovior which resulted in the competing offers ultimately being less than $10,000 apart – in the context of Mr Murphy’s claim of approximately $69,000. Mr Murphy submits that given the timing of Innovior’s offers (see at [16] above), his rejection was not unreasonable conduct for the purposes of s.570(2)(b) of the FW Act.
In respect of the offers made after delivery of the principal judgment, Mr Murphy submits that the first Innovior costs offer ($20,000 – see above at [17]) was for an amount almost 4 times what would be awarded under the Court’s Schedule 1 costs scale, as well as being conditional on Mr Murphy foregoing his appeal rights. It was unreasonable. Mr Murphy submits his counter offer of $10,000, plus an agreement to forgo any appeal, was very reasonable.
CONSIDERATION AND DETERMINATION
It is appropriate I first turn to Mr Murphy’s objection to Innovior’s submissions (8 pages) exceeding the 4 page limit I directed. Whilst I am sympathetic to Mr Murphy’s objection, I am not persuaded that it is appropriate on this occasion to reject Innovior’s submission, or to limit my consideration to the first 4 pages.
In that the document recited the history of the proceeding, summarised findings made in the principal judgment, referred to the relevant statutory provisions and set out paragraphs from referenced case law, I consider the additional length would be unlikely to cause any surprise or greatly increase the costs of preparation of the response. Mr Murphy’s submission does not demonstrate any real prejudice to his counsel and legal representatives in being confronted with an 8 page, rather than a 4 page, document, and does not reveal any inability to meet and respond to Innovior’s submission by reason of the additional length of the document.
It follows that I have had regard to both parties’ submissions.
Was the proceeding commenced “vexatiously or without reasonable cause”?
In the principal judgment I rejected Mr Murphy’s construction of Kowalski (principal judgment at [54]). At principal judgment [56]‑[64] I construed the terms of the Deed, and at [65] concluded that the Deed operated to bar Mr Murphy from commencing the proceeding. I decided that the proceeding had no reasonable prospects of success and should be dismissed. That is, Mr Murphy’s application had no reasonable prospects at the time it was instituted, and on the facts of the terms of the Deed must fail: see Leighton at [7(3)], and Ashby at [35]. Further, the parties positions on the Deed were well released before the commencement of the proceedings. For these reasons, I consider that, on the particular facts of this case, the proceeding was commenced “without reasonable cause” for the purposes of s.570(2)(a) of the FW Act.
As a statutory precondition in s.570(2) is made out, it follows that the discretion to award costs in this proceeding is enlivened: see Leighton at [7]; Ashby at [35].
The authorities establish that suchdiscretion conferred by the confined terms of s 570(2) should be exercised cautiously and not pre-emptively, and the case for its exercise should be clear. Whilst in Leighton, the Full Court of the Federal Court observed that it is not necessary to prove that there are exceptional circumstances warranting the making of an order, in the later decision of Ashby, the Full Court reaffirmed that the occasions upon which costs will be awarded under s 570 are likely to be exceptional. Having regard to the authorities to which I have referred above, I adopt the approach that whilst it is not necessary that a party prove exceptional circumstances, the case for the exercise of the discretion to award costs is rare, and is likely to be exceptional.
Innovior made 5 offers of settlement, 4 of which were without prejudice, in circumstances where the parties had earlier exchanged correspondence setting out their competing views of the Deed. Thus, whilst the offers were made (and rejected) before a defence was filed, Mr Murphy cannot be said to have been unaware of the position Innovior would take in the litigation, its view as to the terms of the Deed, and the construction and application of the Deed for which it contended.
Indeed, whilst a number of the offers were made with a short timeframe for response (varying between 6 days, and the same day), it is apparent that from at least July 2019 Mr Murphy was aware of the arguments put forward by Innovior in support of its position, including as to the construction and application of the Deed. In substance, the matters at issue between the parties in their competing offers were the amount to be paid, and, in some of the offers, when payment would be made. These were not matters that on the facts of this case required significant time to consider, especially as and from the Innovior second offer and subsequent offers.
Taking into account the factors I have adverted to at [29] above, I consider that Mr Murphy acted unreasonably in rejecting at least the second Innovior offer, the third Innovior offer, and the Revised Innovior third offer. In these circumstances, whether or not the Innovior open offer was received is not a matter I need determine.
Further, Mr Murphy’s submission that had the principal judgment been in his favour he would have succeeded on his claim does not withstand scrutiny. I did not find in his favour. It is clear on the face of the principal judgment, and in the defence, that Innovior did not concede that Mr Murphy’s claims to be an employee and subject to the protections of the FW Act would be established should the summary dismissal application not succeed. Given Innovior’s defence, it cannot be said that it was axiomatic that Mr Murphy would have succeeded in his claim, but for the matter of the principal judgment.
I consider that the making and rejection of the Innovior without prejudice offers take the facts of this case out of the ordinary, and that this is an exceptional circumstance where it is appropriate to award costs.
Given that I have concluded that the precondition of s.570(2)(a) is made out, and that this is that rare or exceptional case where the making of an award of costs is appropriate, it is not strictly necessary that I also find whether the precondition of s.570(2)(b) is made out.
It will be apparent, however, from my above consideration that I have formed the view that Mr Murphy acted unreasonably in rejecting the Innovior without prejudice offers, and specifically, the second and subsequent Innovior offers.
Whilst Mr Murphy submits that it is a relevant factor that Innovior did not make any offer after serving its summary dismissal application, given the multiple opportunities afforded Mr Murphy to receive a payment and settle the proceeding before the costs of a defence and summary dismissal application were incurred, I do not consider that this complaint has merit. Mr Murphy was on the costs notice from the first Innovior offer. Innovior afforded him 5 opportunities to settle the proceeding, several of which contained offers to pay him. In the particular circumstances of this case, I consider it was unreasonable within the provision of s.570(2)(b) of the FW Act for Mr Murphy to reject the second and subsequent Innovior offers. That unreasonable conduct caused Innovior to incur costs. That Mr Murphy made counter offers does not make his position reasonable.
Amount and form of costs to be awarded
I am not persuaded, however, that Innovior’s costs should be awarded on a full indemnity basis for the whole of its costs. I do not consider that such an award necessarily follows from the exceptional circumstances I have found. I reject Innovior’s assertion that Mr Murphy must establish that the costs are unreasonable, and that unless he does, Innovior should have its full costs on an indemnity basis without discount, notwithstanding that this is usually a no-costs jurisdiction. I do not consider that principles set out in Colgate-Palmolive preference either party on the present facts.
I consider it is appropriate, logical, fair and reasonable, and in the parties’ interests to award costs as a lump sum, and avoid the further expense and time of a taxation. I do not consider that the parties would benefit from incurring further expense and delay in a taxation: see generally Henley Arch at [17] – [21], and [75].
I do not accept, however, Mr Murphy’s submission that Schedule 1 costs are appropriate. Mr Murphy’s submission does not take into account the consequences of his behaviour in rejecting the second and subsequent Innovior offers, which I have found to be unreasonable conduct, and I consider imprudent given the sums offered. Whilst rejection of offers of compromise is an occasion often giving rise to an award of indemnity costs, I consider that a fair and reasonable broad brush approach in the present circumstances is that Innovior be awarded its actual costs, taking into account that costs are awarded as a lump sum, and that may involve an element of discount, and also taking into account that Innovior was put to the expense of running its summary dismissal application, and, in addition, making costs submissions. I do not, however, consider that it is appropriate that counsel’s fees for conferring and drafting the defence be included in the award of costs.
I have the benefit of Mr Leung’s itemisation of Innovior’s costs.
In these circumstances, I consider that a fair and reasonable broad-brush approach is to award costs in a lump sum comprising actual solicitors’ costs incurred (totalling $14,252.50 ex GST), less a discount of 30% from those costs incurred, giving a total of $9,976.75 ex GST, together with the full amount of counsel’s fees actual and estimated, but excluding counsel’s first invoice for fees for reviewing brief, conferring with instructing solicitor and client, and preparation of the defence. That is, I award the costs of counsel’s fees for preparation of outline of submissions, review of affidavit, general attendance, preparation and attendance at hearing, and estimated for the preparation of costs submissions, in the total sum of $9,000 (being 3 x $3,000), ex GST. I exclude GST from each of solicitors’ costs and counsel’s fees because there was no GST disclosure in Mr Leung’s affidavit, and I am not informed whether or not Innovior is entitled to claim an input tax credit (c.f. items 6.7 and 6.8 of GPN-COSTS: see Henley Arch at [78] and A2B Australia Limited & Anor v Oz Power Group Pty Ltd & Anor at [72]). I allow the Court filing fee of $980.00, and ASIC searches of $55.40.
Thus, the amount of costs I award is the total of $9,976.75 + $9,000 + $980.00 + $55.40, being the sum of $20,012.15.
DISPOSITION
I have concluded that Innovior has made out its costs application, but not to the full extent of the costs sought. I will order that the applicant pay the respondent’s costs, including disbursements, including of this costs application, fixed as a lump sum pursuant to r.21 of the Federal Circuit Court Rules 2001 (Cth), in the total amount of $20,012.15.
It follows the proceeding otherwise should be dismissed. I will so order.
I certify that the preceding seventy (70) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Baird. Associate:
Dated: 17 February 2021
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