Rees v Worthington Services Pty Ltd and Anor (No.2)
[2018] FCCA 2086
•2 August 2018
FEDERAL CIRCUIT COURT OF AUSTRALIA
| REES v WORTHINGTON SERVICES PTY LTD & ANOR (No.2) | [2018] FCCA 2086 |
| Catchwords: INDUSTRIAL LAW – Costs – where First Respondent to proceedings under the Fair Work Act 2009 (Cth) unsuccessfully applied for leave to file a cross-claim against the Applicant – whether Applicant entitled to costs incurred in relation to earlier mediation and/or the application for leave – s.570 of the Fair Work Act 2009 (Cth). |
| Legislation: Fair Work Act 2009 (Cth), s.570 Federal Circuit Court of Australia Act 1999 (Cth), s.34 |
| Cases cited: Construction, Forestry, Mining and Energy Union v Clarke [2008] FCAFC 143; (2008) 170 FCR 574 |
| Applicant: | JOEL REES |
| First Respondent: | WORTHINGTON SERVICES PTY LTD |
| Second Respondent: | BRAD WORTHINGTON |
| File Number: | SYG 1087 of 2016 |
| Judgment of: | Judge Barnes |
| Hearing date: | Heard on the papers |
| Date of Last Submission: | 17 November 2017 |
| Delivered at: | Sydney |
| Delivered on: | 2 August 2018 |
REPRESENTATION
| Counsel for the Applicant: | Mr Kane |
| Solicitors for the Applicant: | Hicksons Lawyers |
| Counsel for the Respondents: | Mr Fernon |
| Solicitors for the Respondents: | Yates Beaggi Lawyers |
ORDERS
The First Respondent pay the costs of the Applicant in relation to the application for leave to rely on a cross-claim filed on 10 May 2017 in accordance with Schedule 1 Part 1 of the Federal Circuit Court Rules 2001 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 1087 of 2016
| JOEL REES |
Applicant
And
| WORTHINGTON SERVICES PTY LTD |
First Respondent
| BRAD WORTHINGTON |
Second Respondent
REASONS FOR JUDGMENT
Background
The Applicant seeks a costs order against the First Respondent following an unsuccessful application by the First Respondent for leave to file a cross-claim against the Applicant.
On 3 May 2016 the Applicant (Mr Rees) commenced proceedings in this court against Worthington BMW Pty Ltd (Worthington BMW), and Mr Brad Worthington (the Second Respondent), under the general protections provisions of the Fair Work Act 2009 (Cth) (the Act). On 7 June 2016 directions were made for the filing of pleadings. A statement of claim was to be filed by 10 June 2016 and a response and defence by 8 July 2016. The response and defence were not filed until 21 September 2016. No cross-claim was included in the response or the defence. Orders were also made for mediation, which eventually took place on 21 February 2017.
The parties have acknowledged that “during” the mediation the Applicant’s solicitors were informed by the Respondents’ solicitors that Worthington BMW intended to pursue a cross-claim. There is no suggestion that this acknowledgement constitutes evidence of “anything said, or of any admission made, at a conference conducted by a mediator in the course of mediating” such as to render it inadmissible under s.34(4) of the Federal Circuit Court of Australia Act 1999 (Cth).
After the mediation, at the request of the parties I made consent orders which contemplated that either Mr Rees would consent to the filing of a cross-claim or that Worthington BMW would file an application in a case seeking leave to file a cross-claim. The timetable was varied (by consent) on 30 March 2017. I made further orders in relation to the foreshadowed application in a case on 19 April 2017.
The cross-claim and costs application
On 10 May 2017 Worthington BMW filed an application in a case seeking leave to file a cross-claim against Mr Rees (the first cross-claim application). Mr Worthington was not a proposed cross-claimant. Leave was required because the proposed cross-claim had not been included in Worthington BMW’s response or defence filed in September 2016. The date for hearing the first cross-claim application was delayed at the request of Worthington BMW.
The first cross-claim application was unsuccessful. In Rees v Worthington Services Pty Ltd & Anor [2017] FCCA 2245 I addressed pleading deficiencies in the proposed cross-claim and Worthington BMW’s unexplained delay in seeking to initiate such a cross-claim. However I gave Worthington BMW a final opportunity to seek leave to file a “properly formulated” cross-claim if it arose out of essentially the same facts as those raised in the substantive proceedings and provided any such leave was sought within 21 days of the date of judgment. On 6 October 2017 Worthington BMW filed a second application in a case seeking leave to file a re-formulated cross-claim against Mr Rees (the second cross-claim application). I subsequently granted such leave.
At the time of delivery of judgment in relation to the first cross-claim application, I ordered that Worthington BMW pay Mr Rees’ costs in relation to directions listings between the mediation and the filing of Worthington BMW’s first cross-claim application in circumstances where counsel for Worthington BMW conceded that Mr Rees was entitled to such a costs order pursuant to s.570(2) of the Act.
As foreshadowed at that time, Mr Rees also sought orders that Worthington BMW pay his costs incurred in preparing for and attending the mediation on 21 February 2017 (the costs of the mediation) and in preparing for and attending the hearing in relation to the first cross-claim application (the costs of the first application for leave).
The Applicant and the First Respondent were given the opportunity to file written submissions about outstanding costs issues in relation to the first cross-claim application. It was agreed that these aspects of the costs application would be dealt with on the papers.
Apart from the material before the court in relation to the first cross-claim application, Mr Rees relied on written submissions and an affidavit of his solicitor, Simon Robert Edward Obee, affirmed on 1 November 2017 which attached tax invoices said to relate to solicitors’ and counsel’s legal fees in respect of preparing for and attending the mediation and “dealing with” the first cross-claim application.
Worthington BMW relied on written submissions and an affidavit of Tamara Rabadi, solicitor, sworn on 9 October 2017 which addressed the chronology of events and, as discussed further below, provided (for the first time) some explanation for the First Respondent’s failure to file a cross-claim at the time its response and defence were filed. Relevantly, paragraph 16 of that affidavit purports to explain Worthington BMW’s delay as follows (emphasis in original):
I am instructed by Farshad Amirbeaggi (Mr Amirbeaggi), solicitor on the record for the respondents, that a Cross-Claim was not filed at the time the Defence was filed because the respondents were still in the process of reviewing a considerable amount of material to be in a position to particularise the Cross-Claim.
As indicated, Mr Rees has not sought any costs order against Mr Worthington. The orders for submissions on costs related only to the Applicant and the First Respondent. Despite this, written submissions were filed on behalf of both Respondents.
The Law
Section 570 of the Act is relevantly as follows:
(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
…
The parties were in agreement that the limitations in s.570 would apply to this application for costs on the basis that while Worthington BMW’s proposed cross-claim was based on allegations of breach of contract and fiduciary duty, it would form part of the same proceedings as Mr Rees’ claim under the Act for the purposes of s.570 of the Act (see Construction, Forestry, Mining and Energy Union v Director of the Fair Work Building Industry Inspectorate (No 2) [2013] FCAFC 25; (2013) 209 FCR 464).
Mr Rees submitted however that unreasonable acts or omissions of Worthington BMW had caused him to incur costs such that s.570(2)(b) was satisfied in relation to both the mediation and the first application for leave. This was disputed by Worthington BMW.
In Rentuza v Westside Auto Wholesale [2009] FMCA 1022; (2009) 236 FLR 231 at [26]-[28], Lucev FM (as his Honour then was) summarised the applicable principles in relation to s.570(2)(b) of the Act as follows:
26. For the purposes of s 570(2)(b) two criteria must be fulfilled. They are:
(a) that a party must have engaged in an unreasonable act or omission; and
(b) that the unreasonable act or omission must have caused another party to incur costs in connection with the proceeding.
27. Whether a party has engaged in an unreasonable act or omission depends upon an objective analysis of the particular circumstances of the case.
28. The exercise of the discretion in s 570(2)(b) is not necessarily engaged because:
(a) a party does not conduct litigation efficiently;
(b) a concession is made late;
(c) a party may have acted in a different or timelier fashion;
(d) a party has adopted a genuine but misguided approach. (footnotes omitted)
The Respondents submitted that the remarks of Mortimer J in Ryan v Primesafe [2015] FCA 8; (2015) 323 ALR 107 were apposite. Her Honour stated at [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: see Saxena v PPF Asset Management Ltd [2011] FCA 395 at [6] per Bromberg J. 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…
Mr Rees accepted the general proposition that a court should be careful not to exercise the discretion in s.570(2)(b) with too much haste for fear of discouraging parties from pursuing litigation under the Act in the manner they deemed best. However he submitted that this was a case in which it was appropriate to exercise the discretion to award costs.
Submissions
First, in support of his application for costs in relation to the mediation, Mr Rees relied on the fact that Worthington BMW had failed to include the proposed cross-claim in its response or defence as required by the Federal Circuit Court Rules 2001 (Cth) (the Rules), or, indeed, the Federal Court Rules 2011 (Cth) (and see r.1.05 of the Rules). He pointed to the absence at the time of the first application for leave of any explanation for this failure or for why the proposed cross-claim was not filed, or at least foreshadowed, prior to the appointed date for mediation, notwithstanding Worthington BMW’s submission to the court in support of the first application for leave that matters raised in the then proposed cross-claim arose out of matters pleaded in the defence (see Rees v Worthington at [10]). Mr Rees also relied on the fact that, on the evidence of Mr Worthington, it was not until the mediation that Worthington BMW’s solicitors advised Mr Rees’ solicitors (in Mr Rees’ presence) that Worthington BMW intended to pursue a cross-claim.
Mr Rees submitted that a mediation conducted before the issues between the parties were properly identified involved an unjustifiable drain on the court’s resources and that Worthington BMW’s conduct had subjected him (as an individual bringing proceedings against his former employer) to substantial delay and related cost consequences as discussed in Rees v Worthington at [41] and [43].
In submissions Mr Rees clarified that he sought costs in relation to preparing for and attending mediation (not all costs incurred in these proceedings up to the date of mediation). Insofar as Mr Rees intended to seek further costs in relation to the period between the mediation and the first cross-claim application (beyond those the subject of the earlier costs order), his submissions did not specifically address the application of s.570 to costs incurred in that period.
The other aspect of the costs now sought by Mr Rees is the costs of preparing for and attending the hearing of the first application for leave, that is, Worthington BMW’s initial, unsuccessful application for leave to file a cross-claim.
Mr Rees contended that it was relevant that the first application for leave was brought against the background of the matters relied on in support of the claim for costs in relation to preparing for and attending the mediation as well as repeated timetabling delays by Worthington BMW which were said to have been recognised in its acceptance of liability for costs under s.570(2) of the Act in relation to directions hearings between the mediation date and the time the first leave application was filed. Mr Rees also relied on the existence and extent of deficiencies in the proposed first cross-claim as considered in my earlier judgment (see, in particular, [29], [34]-[38], [49] and [50] in Rees v Worthington). It was submitted that it was all but inevitable in light of these deficiencies that had leave been granted to file the first proposed cross-claim, Mr Rees would have been put to the cost of a strike out application and/or a request for extensive particulars in circumstances where there had been more than adequate time for Worthington BMW to clarify such matters before seeking leave.
Mr Rees contended that it was reasonable to expect that Worthington BMW would have addressed the obvious deficiencies and lack of clarity in its first proposed cross-claim (where this had been brought to its attention in correspondence between the solicitors for the parties before leave was sought). Reliance was placed on the fact that Worthington BMW had initially subjected Mr Rees to the late provision of a copy of a proposed cross-claim (before the first application for leave was filed), which was then replaced by the version of the proposed cross-claim in respect of which leave was sought in the first cross-claim application. This second version of the proposed cross-claim was said to incorporate significant pleading deficiencies, despite such issues having been raised with Worthington BMW’s solicitors by Mr Rees’ solicitors.
It was said to be relevant in the context of s.570(2)(b) of the Act that Mr Rees had been subjected to the late raising of such a deficient proposed cross-claim without explanation for the delay (until the partial and what is said to be unsatisfactory explanation in Ms Rabadi’s affidavit filed in support of the second application for leave) and in circumstances of continued timetabling delays by Worthington BMW before the first cross-claim application. This combination of circumstances is said to have amounted to unreasonable acts and omissions which caused Mr Rees to have incurred the costs of defending the first leave application.
Mr Rees submitted that the court could draw guidance from Welsh v Allblend Holdings Pty Ltd (No 3) [2010] FMCA 378; (2010) 195 IR 229 which related to the predecessor to s.570 (s.824 of the Workplace Relations Act 1996 (Cth)). It was acknowledged that in Welsh the costs thrown away in mediation and in relation to an application to amend a response and defence and institute a cross-claim were not awarded, but submitted that the factors the court relied on in Welsh in deciding not to make a costs order pointed the other way in the present case.
Mr Rees referred to the fact that the “explanation” for the First Respondent’s delay in filing a cross-claim as attested to in paragraph 16 of Ms Rabadi’s affidavit was hearsay evidence. There is no evidence from the solicitor on the record for the First Respondent. It was also noted that no explanation has been provided as to why the possibility of a cross-claim was not notified to Mr Rees prior to the time of mediation. Nor was there an explanation in relation to why Worthington BMW agreed to attend mediation at a time when it was (on Ms Rabadi’s evidence) contemplating such a cross-claim. Issue was also taken with the absence of explanation for how the “considerable amount of material” referred to by Ms Rabadi (but said not to be reflected in the first proposed cross-claim) had prevented foreshadowing the proposed cross-claim or provision of an earlier draft to Mr Rees. Mr Rees submitted that Worthington BMW’s belated but inadequate explanation for the delay in filing the cross-claim highlighted why its conduct had been unreasonable such that a costs order should be made against it under s.570(2)(b) of the Act.
The Respondents submitted generally that the onus of establishing an unreasonable act or omission within s.570(2)(b) of the Act rested on Mr Rees and that it was not enough to show that an application was unsuccessful or that a delay had occurred. Rather, it was said that Mr Rees must show, with clear and cogent evidence, that the reason for the absence of success or for delay was the unreasonable act or omission of “the Respondents” so as to establish a clear basis for the exercise of the court’s discretion in circumstances where respondents must feel free to pursue arguable legal and factual responses to the claims made against them in the manner considered by Mortimer J in Ryan v Primesafe at [64].
It was submitted that Mr Rees’ written submissions sought to shift the onus and that insofar as he referred to the lack of an explanation in the Respondents’ evidence, the onus was not on the Respondents to establish that their actions were reasonable, but rather on Mr Rees to show unreasonableness. It was also submitted that the authorities cited by Mr Rees indicated that mere delay, absence of efficiency or mere lack of success was not enough.
The Respondents submitted that the evidence relied upon by Mr Rees did not establish any unreasonable act or omission and that while the judgment of the court in Rees v Worthington explained the initial failure of the first application for leave, it did not establish unreasonableness in this failure. It was also submitted that the judgment did not establish any reason for the failed mediation or any other reason for incurring other costs as was now claimed by the Applicant.
The Respondents submitted that insofar as Mr Rees asserted that the mediation was unsuccessful because they belatedly raised matters that were now the subject of the cross-claim, Mr Worthington was not a party to the cross-claim so that any alleged unreasonableness in this respect could not be by him in his personal capacity.
In addition, the Respondents contended that there was nothing unreasonable in the evidence of Ms Rabadi in paragraph 16 of her affidavit sworn on 9 October 2017 to the effect that the “Respondents” were still physically collating and investigating the matters that were the subject of the cross-claim up to the time of mediation. It was submitted that there was no evidence or suggestion that the Respondents had acted unreasonably in carrying out their investigation. It was contended that it could not be unreasonable to raise a claim well before the First Respondent was “obligated to” and to seek to have it dealt with as part of the one dispute. This contention appeared to be put on the basis that the First Respondent could have brought a claim of the nature contained in the proposed cross-claim in separate legal proceedings (in another court) subject to a 6 year limitation period.
The Respondents observed that mediations were conducted as “without prejudice confidential occasions” and that evidence of what occurred could not be led. It was pointed out that the only evidence before the court in this respect was that the proposal to rely on a cross-claim was raised at the mediation and that the mediation was unsuccessful. It was submitted that there was no causal connection referred to in this evidence, that it was impossible for the court to determine the reasons for the success or failure of the mediation and that it would undermine the confidential nature of mediations and the fairness and justice of the legal system if such circumstances could be used as a basis to recover costs.
The Respondents submitted that they clearly had a legally and factually arguable cross-claim and submitted that “[t]hey” should not now be penalised for raising it.
It was submitted that Welsh was of no assistance, that in any event the application for costs in that case was unsuccessful, but also that each case must be considered on its own facts. At the same time, it was contended that if different facts to those considered in Welsh existed, this did not mean that a different result followed.
It was submitted that to the extent there was any unreasonableness after the mediation, the Applicant had already been compensated for this.
In respect of the application for costs in relation to the first application for leave, the Respondents submitted that mere lack of success was not a basis for the award of costs under s.570 of the Act. It was said to be clear that, as recognised in Rees v Worthington, a basis for a cross-claim within the jurisdiction of the court may exist in this case. It was also pointed out that in considering the discretion to grant leave in relation to the first proposed cross-claim, the court had considered the limited costs jurisdiction under s.570 of the Act as a factor against the granting of leave. It was contended that to readily award costs for mere lack of success would be contrary to the discretionary factors applicable in relation to the grant of leave.
The Respondents accepted that there were deficiencies in the initial formulation of the cross-claim, but submitted that it was not “not unusual at all” that pleadings or claims required reformulation. It was also submitted that although the deficiencies were said to be “apparent”, the Applicant had not sought further particulars or raised its concerns other than through the court. It was submitted that “[t]he costs of (sic) First Application [for leave] were avoidable for reasons applicable to both parties”. It was contended that the deficiencies in the cross-claim were such that they had been readily overcome and were overcome. This appears to be a reference to the successful second leave application. It was submitted that “[t]he deficiencies were not unreasonable” and did not make the actions of Worthington BMW unreasonable.
Finally, the Respondents submitted that if the court was minded to find unreasonableness in the initial pleading of the cross-claim (which was denied), any such unreasonableness could not be on the part of the Second Respondent who was not a party to the cross-claim. Nonetheless it was submitted that both Respondents had incurred costs in responding to the costs application which, if their submissions were accepted, would be largely unsuccessful and that as a matter of discretion this was a reason why costs should not be awarded in respect of the first cross-claim application.
Resolution
The relevant principles in relation to s.570 of the Act are not in dispute in this case. The exception in s.570(2)(b) applies when two criteria are satisfied. First, one party must have engaged in “an unreasonable act or omission”. This issue is to be determined objectively. Secondly, if an unreasonable act or omission is established, it must be shown that this caused the other party to incur costs. If both criteria are satisfied the court “may” in its discretion order the party which engaged in the unreasonable act or omission to pay some or all of the costs of the other party.
In Rentuza Lucev FM referred to Construction, Forestry, Mining and Energy Union v Clarke [2008] FCAFC 143; (2008) 170 FCR 574 which summarised these principles in relation to the predecessor to s.570 of the Act. As the Full Court stated in CFMEU v Clarke at [28], whether a party has conducted itself or its litigation in such a way as to have engaged in an unreasonable act or omission “will depend on the particular circumstances of the case”.
I have borne in mind that, as their Honours stated in CFMEU v Clarke at [29]:
…Simply because a party does not conduct its litigation in the most efficient way does not mean that the Court should exercise its discretion in s 824(2) of the WR Act to make a costs order…[W]hile courts should use the discretion in s 824(2) to ensure that parties to litigation arising from the WR Act do not engage in unreasonable acts and omissions which put the other party to undue expense, they should also be careful not to exercise the discretion with too much haste, given that such haste may discourage parties, for fear of an adverse costs order, from pursuing litigation under the WR Act in the manner which they deem best.
The Full Court also pointed out (at [30]) that the mere fact that a party could have acted in a different or timelier fashion is not sufficient “in itself” to warrant the making of an adverse costs order under such a provision, particularly where the usual practice in litigation under the legislation in question is to make no order as to costs.
Such principles (and the need to exercise the discretion conferred by s.570(2) cautiously and only where the case for its exercise is clear) were reiterated by Mortimer J in Ryan v Primesafe at [64]. Nonetheless, as her Honour also observed at [65], such propositions do not deny the court’s ability to find that the preconditions in s.570(2)(b) exist “where the factual circumstances warrant it”. Significantly, as her Honour also pointed out, the legislative policy behind a provision such as s.570 is not inconsistent with the requirement that proceedings be conducted reasonably, fairly and efficiently. Indeed Mortimer J suggested that as an access to justice provision s.570(1) contemplated that parties, and their legal representatives, would access the court responsibly. While these remarks were made in relation to proceedings in the Federal Court and in light of specific provisions in the Federal Court of Australia Act 1976 (Cth) and the Access toJustice (Civil Litigation Reforms) Amendment Act 2009 (Cth), the general thrust of her Honour’s observation is in point.
As a preliminary point I note that it is not clear why both Respondents felt the need to make submissions in relation to a costs application which relates only to the First Respondent. As was made clear at the directions hearing on 1 November 2017 the orders for any evidence and/or submissions relating to the application for costs did not extend to the Second Respondent. Further, there is nothing in the Applicant’s written submissions to suggest that costs are sought against Mr Worthington as well as Worthington BMW. On the contrary, it is clear from Mr Rees’ submissions that his application for costs relates only to Worthington BMW, the First Respondent. Insofar as Mr Worthington also sought to address the costs application, that is a matter for him. It is not a reason why costs against Worthington BMW should not be awarded if the requirements of s.570(2) are satisfied.
As to the costs of mediation, insofar as Mr Rees’ written submissions suggest that he was seeking or should be entitled to costs “up to and including mediation”, he commenced these proceedings. No justification has been established for a broad order in relation to all costs incurred by Mr Rees up to the time of mediation.
Pleadings should be complete by the date of mediation so that the nature and extent of the dispute between the parties is apparent and hence the matter is ready for and amenable to mediation. This is reflected in the usual requirement that a cross-claim must be included in a response (or filed at the same time as a defence). While in itself a failure to file a cross-claim at the same time as a response or defence is not necessarily an unreasonable act or omission, in this case it is of considerable concern that the First Respondent provided no explanation for its significant delay in relation to the proposed cross-claim prior to or at the time of the first leave application. It has now, belatedly, provided a limited and somewhat unsatisfactory explanation in Ms Rabadi’s affidavit. Taken at its highest, Ms Rabadi seeks to explain why the proposed cross-claim was not included in the response or defence, which were not filed until some 4 months after the proceedings were commenced, on the basis of an assertion as to the amount of material which had to be reviewed to “particularise” the claim. It provides no explanation for why the intention to file a cross-claim was not brought to the attention of Mr Rees (or the court) before a date for mediation was fixed.
Moreover, what is clear on Ms Rabadi’s evidence is that as at the time Worthington BMW filed its defence (September 2016) it intended to rely on a cross-claim. Despite this, Worthington BMW agreed to participate in a mediation which was ordered on the assumption that the pleadings would be complete prior to mediation. Mr Worthington’s evidence is that the First Respondent’s solicitor first advised the Applicant’s solicitor that the First Respondent intended on pursuing a cross-claim during mediation in February 2017.
I am concerned that Worthington BMW’s action in proceeding to mediation knowing that it intended to raise a cross-claim, albeit that it had not done so at the time provided for in the Rules purely (on Ms Rabadi’s evidence) because of the need to review what is said to be “a considerable amount of material” to be in a position to particularise the cross-claim, meant that the mediation occurred in circumstances where the full extent of the dispute between the parties was not apparent on the pleadings at that time.
However, as the Respondents submitted, mediations are conducted as “without prejudice confidential occasions”, and evidence of what occurred in the mediation itself could not be led. The only evidence before the court in this respect is Mr Worthington’s own evidence that the cross-claim was raised at the mediation. There is no suggestion that Mr Worthington’s evidence, relied on in support of the first application for leave to file the cross-claim out of time, is evidence of “anything said, or of any admission made, at a conference conducted by a mediator” in the course of a mediation pursuant to referral under s.34(1) of the Federal Circuit Court of Australia Act 1999 (Cth) such as to render it inadmissible under s.34(4).
The mediation was unsuccessful. It is impossible for the court to determine the reasons for the success or failure of the mediation. An unsuccessful mediation may occur no matter the circumstances. Further, even if Worthington BMW’s acts or omissions in failing to alert Mr Rees to the proposed cross-claim prior to the mediation and in raising the intention to rely on a cross-claim on the day of mediation were unreasonable the requisite causal connection has not been established in relation to the costs of mediation as required under s.570(2)(b) of the Act.
While I am not satisfied that the requirements of s.570(2)(b) are met in relation to the costs of preparing for and participating in the mediation as such, all of the prior actions (and inactions) of Worthington BMW form part of the background to the first application for leave. Had there been some reason proffered at an earlier time for the First Respondent’s failure to seek leave to rely on a proposed cross-claim before the February 2017 mediation or had it at least foreshadowed its intention to seek leave to rely on a cross-claim, then its delay to that time and participation in a mediation when it knew the extent of the dispute between the parties was not apparent on the pleadings would not have been as problematic in this context. However, in the circumstances of this case, it was unreasonable for the First Respondent, which (on Ms Rabadi’s evidence) intended to rely on a cross-claim at the time the defence was filed, to delay in the manner and to the extent it did “because” of the need to review material to particularise the claim. This was not simply a lack of efficiency in considering litigation. It was not “probably misguided” in the Welsh v Allblend sense. Worthington BMW had ample opportunity to properly plead its case. This was compounded by its failure to explain the delay prior to or at the time of the first leave application. The fact that Worthington BMW could have commenced a separate contract and breach of fiduciary duty claim (in another court) within a 6 year limitation period does not prevent its actions in these proceedings from being characterised as unreasonable.
Moreover, Mr Rees, through his solicitors, sought to avoid the need for a contested application for leave to file a cross-claim once Worthington BMW informed him of its intention. However this resulted in further delay on the part of Worthington BMW. As detailed in Rees v Worthington, when Worthington BMW finally served a draft cross-claim on Mr Rees’ solicitors (outside the time provided for in consent orders and after further correspondence from Mr Rees’ solicitors) Mr Rees’ solicitors advised Worthington BMW’s solicitors that they did not consent to the filing of the proposed cross-claim. In that email (of 7 April 2017) Mr Rees’ solicitor drew attention to the inadequacies in the proposed cross-claim and the absence of any explanation for the delay in proposing the cross-claim. Outside the time ordered for the filing of any application in a case, Worthington BMW’s solicitors then served a revised proposed cross-claim and proposed application in a case. Mr Rees’ solicitor informed Worthington BMW’s solicitors that the revised proposed cross-claim lacked the specificity to enable him to know the case against him and pointed to particular inadequacy in the pleading in proposed paragraph 8. Worthington BMW did not address these obvious deficiencies at that time. Had it done so, a contested application for leave could have been avoided. I note that I did not find persuasive the suggestion for Worthington BMW at the hearing of the first leave application that even if the first cross-claim as pleaded did not constitute a valid pleading or set out a valid cause of action, this was not a reason to refuse leave to rely on a “late” cross-claim as it could be later addressed by a request for particulars or a strike-out application.
Eventually, the first leave application was filed on 10 May 2017. Notably, while Mr Worthington swore a supporting affidavit, there was no explanation in this affidavit or otherwise in Worthington BMW’s evidence at the time of the first leave application for the fact that the cross-claim was not included in the response or filed at the same time as the defence or the subsequent delay. Ms Rabadi’s affidavit of 13 July 2017 does not overcome this deficiency for present purposes. There was no explanation provided in support of the first leave application. The explanation now provided is not an entirely satisfactory explanation of the nature and extent of the delay. Nor is there any explanation for the failure to provide an explanation at the time of the first leave application. I am satisfied that seeking to rely on an obviously defective cross-claim which cannot be characterised as involving a reasonable attempt to plead a case in circumstances of such delay where the First Respondent had more than adequate time to plead this aspect of its case was, in all the circumstances, unreasonable.
This was not simply a matter of a failure to conduct litigation in the most efficient way (cf CFMEU v Clarke at [29]). Nor am I satisfied that Worthington BMW (which at all times has been represented) adopted a genuine but misguided approach. As indicated, Worthington BMW’s conduct in this respect, considered as a whole, was more than mere delay, absence of efficiency or lack of success. The costs incurred by Mr Rees in opposing the first application for leave would have been avoidable had Worthington BMW’s solicitors addressed the obvious pleading deficiencies which had been brought to their attention. This was associated with unexplained delay, not only in filing the cross-claim but in other respects thereafter. Mr Rees was put to undue expense. As Mortimer J pointed out in Ryan v Primesafe, the policy behind a provision such as s.570(1) is not inconsistent with the requirement that proceedings be conducted reasonably, fairly and efficiently.
I have had regard to all of the factual circumstances of this case and borne in mind the remarks of Mortimer J in Ryan v Primesafe at [64]-[65]. In particular, I have considered the procedural history of the matter, the obvious deficiencies in the first proposed cross-claim (which had been brought to Worthington BMW’s attention), its delay at various stages and failure (prior to or even at the time of the hearing of the first leave application) to provide any explanation for its failure to file the cross-claim with the response or defence or for the delay thereafter. I am of the view that it has been established that on an objective analysis of the circumstances of this case Worthington BMW’s conduct of that part of this litigation amounted to an unreasonable act within s.570(2)(b) of the Act.
On all the evidence I am satisfied not only that the manner in which Worthington BMW delayed even notifying Mr Rees of its intention to file a cross-claim, failed (at or before the time of the first leave application) to explain the failure to comply with the Rules or the subsequent delay in seeking leave and relied on an obviously deficient first proposed cross-claim was unreasonable within s.570(2) of the Act but also that such acts and omissions caused Mr Rees to incur unnecessary costs in connection with the proceedings consisting of the costs of opposing the unsuccessful first application for leave.
I am satisfied that in the circumstances of this case Worthington BMW should pay Mr Rees’ costs of preparing for and opposing the first leave application. However such costs should be calculated in accordance with the scale in Schedule 1 to the Rules of this court. Mr Obee’s affidavit is not helpful in relation to such quantification. I propose to give the parties the opportunity to address the calculation of the costs of the first application for leave in accordance with Schedule 1 to the Rules.
I certify that the preceding fifty-eight (58) paragraphs are a true copy of the reasons for judgment of Judge Barnes
Date: 2 August 2018
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