Torpia v Zarfati (No.2) - [2009] FMCA 1071

FEDERAL MAGISTRATES COURT OF AUSTRALIA

TORPIA v ZARFATI (No.2)

[2009] FMCA 1071

INDUSTRIAL LAW – Costs in relation to proceedings under the Workplace Relations Act 1996 (Cth).

Workplace Relations Act 1996 (Cth), ss.661, 663, 728, 824

A & L Silvestri Pty Ltd v Construction, Forestry, Mining and Energy Union (2005) 226 ALR 247; [2005] FCA 1658
A159 of 2002 v Minister for Immigration & Multicultural & Indigenous Affairs [2003] FCA 1087
Australian and International Pilots Association v Qantas Airways Ltd (No 3) (2007) 162 FCR 392; [2007] FCA 879
Australian Securities and Investments Commission v Mining Projects Group Ltd and Others (2007) 164 FCR 32; [2007] FCA 1620
Construction, Forestry, Mining and Energy Union and Others v Clarke (2008) 170 FCR 574; [2008] FCAFC 143
Dennington v Pee Cee Pty Ltd (No.2) [2008] FMCA 336
Thomson Brindal Limited v McLachlan [2000] SASC 58
Torpia v Empire Printing (Australia) Pty Ltd & Anor [2009] FMCA 853

Applicant:

VITALIANO TORPIA

Respondent:

FRANK ZARFATI

File Number:

SYG 2270 of 2008

Judgment of:

Barnes FM

Hearing date:

11 September 2009

Date of Last Submission:

28 September 2009

Delivered at:

Sydney

Delivered on:

5 November 2009

REPRESENTATION

Counsel for the Applicant:

Mr I Latham

Solicitors for the Applicant:

Beston Macken McManis

Solicitors for the Respondent:

Pope and Spinks (no appearance at hearing)

ORDERS

The application for costs is dismissed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 2270 of 2008

VITALIANO TORPIA

Applicant

And

FRANK ZARFATI

Respondent

REASONS FOR JUDGMENT

On 2 September 2008 the applicant commenced proceedings in this court under the Workplace Relations Act 1996 (Cth) (the WR Act) against Empire Printing (Australia) Pty Ltd (Empire Printing) and Mr Zarfati, the sole director of Empire Printing. Empire Printing went into liquidation. The applicant then sought orders only against Mr Zarfati. Mr Zarfati did not attend the hearing. Nor did his solicitors. The applicant succeeded in part in relation to the orders that he sought and now seeks that Mr Zarfati pay the costs of preparing an affidavit sworn by Mr Torpia on 9 April 2009 and filed on 14 April 2009 in which Mr Torpia described his duties at Empire Printing and the terms and conditions on which he was employed. The application for costs was determined on the basis of written submissions made after the substantive proceedings. While Mr Zarfati did not appear at the hearing, his solicitors subsequently made submissions in relation to costs.
The application is made under s.824(2) of the WR Act. Under s.824(1), a party to a proceeding in a matter arising under the WR Act, other than an application under s.663, “must not be ordered to pay costs incurred by any other party to the proceeding unless the first-mentioned party instituted the proceeding vexatiously or without reasonable cause”. Subsection (2) is as follows:
Despite subsection (1), if a court hearing a proceeding (including an appeal) in a matter arising under this Act (other than an application under section 663) is satisfied that a party to the proceeding has, by an unreasonable act or omission, caused another party to the proceeding to incur costs in connection with the proceeding, the court may order the first‑mentioned party to pay some or all of those costs.
The parties accepted that the award of costs sought was governed by s.824 of the WR Act.
In written submissions the applicant contended that he had pleaded a number of factual matters in his application and that in response Mr Zarfati did not admit the factual matters set out at paragraphs 11 to 21 of the application. It was submitted that, subject to arguments about privilege, a personal respondent to penalty proceedings was required to plead to the application (see A & L Silvestri Pty Ltd v Construction, Forestry, Mining and Energy Union (2005) 226 ALR 247; [2005] FCA 1658 at [17]) and that a lawyer owed a duty to the court not to bring or defend proceedings, or assert or controvert an issue in such proceedings unless there was a basis for doing so that was not frivolous (see A159 of 2002 v Minister for Immigration & Multicultural & Indigenous Affairs [2003] FCA 1087 at [23]).
It was asserted in written submissions that Mr Zarfati had subsequently sought to withdraw his admission in his response that the first respondent, Empire Printing, was a respondent to the Printing Industries (State) Award and the Printing Industry (Superannuation) Award, although no reference was made as to when and how this occurred.
It was, however, said that the applicant had sought to narrow the factual issues in debate by issuing a notice to admit facts, but that a number of those facts were denied or not admitted, so that consequently the applicant was required to prove the matters in dispute through his affidavit sworn on 9 April 2009. It was submitted that if those acts had not been required to be proved, the affidavit of 9 April 2009 would have been unnecessary.
By letter to Mr Torpia’s solicitors of 15 December 2008 Mr Zarfati’s solicitors had advised that the facts specified in paragraphs 1, 4, 5, 6, 7, 8, 9, 11, 12, 13, 14 and 15 were disputed. Among these matters were the fact that Empire Printing did not pay the applicant any redundancy payments on termination, that the respondent knew that Empire Printing did not intend to and participated in the decision not to pay any notice upon termination and that he also knew about and participated in the decision not to pay superannuation contributions for the applicant.
It was submitted that the court was entitled to see such actions as grounds for a costs order (see Dennington v Pee Cee Pty Ltd (No.2) [2008] FMCA 336) and that it was clear that the parties were obliged, upon receipt of a notice to admit facts, to consider the request carefully and to respond to it with at least the object in mind of endeavouring to assist in identifying the true issues between the parties (Thomson Brindal Limited v Mclachlan [2000] SASC 58) and that failure to properly admit facts could constitute unreasonable conduct for the purposes of s.824 of the WR Act (see Dennington v Pee Cee Pty Ltd (No.2) at [33]).
In effect, the applicant's submission is that the denial or failure to admit facts constituted unreasonable acts or omissions by Mr Zarfati within the meaning of s.824(2) of the WR Act. In support of this contention reference was made to the decision of O'Sullivan FM in Dennington v Pee Cee Pty Ltd (No.2). In that case it had been submitted that a failure to admit facts or the disputing of relevant paragraphs in a notice to admit facts amounted to “an unreasonable act or omission”. While O'Sullivan FM at [33] suggested that it was “hard not to characterise the respondent’s conduct, being the refusal to admit the facts contained in the Notice to Admit … as unreasonable for the purposes of section 824(2) of the WR Act”, his Honour found it unnecessary to determine that issue.
In the written submissions filed on behalf of Mr Zarfati, it was submitted that the respondent's contesting of the application was not frivolous; that “unfortunately” he was not in a position to be legally represented at the hearing or to give sufficient instructions to any representative to attend, and that the onus was on the applicant to prove the facts upon which an application should be made. It was contended that it was not generally the case that costs should be ordered under the WR Act and that there was nothing in this matter that would suggest that costs should be granted to the applicant. It was also pointed out that the liability of Mr Zarfati in this matter arose from his position as a director of the company which employed the applicant and submitted that such liability would not automatically fall to a director in these circumstances, so that contesting the application by the applicant, at least in the form of pleadings, should not be regarded as unreasonable, frivolous or vexatious and that no order as to costs should be made.
Under s.824(2) it is necessary to determine whether Mr Zarfati engaged in an unreasonable act or omission and, if so, whether such unreasonable act or omission caused another party to incur costs in connection with the proceeding (see Construction, Forestry, Mining and Energy Union and Others v Clarke (2008) 170 FCR 574; [2008] FCAFC 143).
The question of whether a party has engaged in an unreasonable act or omission depends upon an objective analysis of the particular circumstances of the case (see Australian and International Pilots Association v Qantas Airways Ltd (No 3) (2007) 162 FCR 392; [2007] FCA 879). However, as stated in CFMEU v Clarke, the exercise of the discretion to award costs on this basis is not necessarily engaged because a party does not conduct litigation efficiently, may have acted in a different or more timely fashion, made a late concession, or adopted a genuine but misguided approach.
Insofar as the applicant relied on the remark of O’Sullivan FM in Dennington v Pee Cee Pty Ltd (No.2), while the respondent in that case initially disputed certain facts in a notice to admit facts it subsequently agreed to the inclusion of those facts in a statement of agreed facts. It was in those circumstances that his Honour conceded that it was hard not to characterise the respondent's refusal to admit such “uncontroversial” facts as unreasonable for the purposes of s.824(2) of the WR Act. That is not the position in this case.
What is in issue is whether in the particular circumstances of this case Mr Zarfati’s response and refusal to admit facts in response to a notice to admit facts was an unreasonable act or omission. While Dennington v Pee Cee Pty Ltd (No.2) suggests that in particular circumstances such conduct may be characterised as unreasonable, clearly that will not always be the case.
The applicant's submission in this case relies on the respondent's failure to admit what are said to be factual matters set out in paragraphs 11 to 21 of the application, as well as the fact that a number of the "factual issues" addressed in the notice to admit facts were denied or not admitted. It is said that on this basis the applicant was required to prove the matters in dispute through the affidavit dated 9 April 2009.
I note however that as the proceeding involved the potential imposition of penalties on Mr Zarfati, while he might not be relieved from any obligation to file a defence, as Finkelstein J stated in Australian Securities and Investments Commission v Mining Projects Group Ltd and Others (2007) 164 FCR 32; [2007] FCA 1620 at [12]:
… In Daniels Corporation 213 CLR at 559 Gleeson CJ, Gaudron, Gummow and Hayne JJ said that penalty privilege “serves the purpose of ensuring that those who allege criminality or other illegal conduct should prove it”. That is, the plaintiff must prove his case without any assistance from the defendant: Abbco Iceworks 52 FCR at 129; Rich 220 CLR at 142. So it has been held that although in a civil action a defendant is required to deliver a defence he cannot be compelled to make any admissions in relation to the matters alleged against him. That is, penalty privilege operates to relieve a defendant from the need to deliver a defence that complies with the pleading rules if the rules would override the privilege. To the extent that pleading rules purport to impose such an obligation they must give way to the privilege: Hadgkiss v Construction, Forestry, Mining and Energy Union (2005) 146 IR 106 at 111-112; A & L Silvestri Pty Ltd v Construction, Forestry, Mining and Energy Union (2005) 226 ALR 247 at 251.
In A & L Silvestri Pty Ltd v Construction, Forestry, Mining and Energy Union Gyles J stated the position simply (at [17]):
A personal respondent to a penalty proceeding is entitled to put the applicant to proof of its case. Such a respondent cannot be forced to make an admission and no solicitor acting for that person can be held responsible for not ensuring that a party plead in a way which goes further than this. In other words, such a respondent can decline to admit matters alleged against it.
While Mr Zarfati did not expressly claim penalty privilege in his response, his failure to admit certain matters in his response or in relation to the notice to admit facts and whether such action was unreasonable, must be seen in light of the nature of nature of these proceedings as penalty proceedings in relation to a personal respondent. This factor may be seen as relevant both to whether his action was unreasonable and also to the question of the court’s discretion under s.824(2).
The matters addressed in paragraphs 11 to 21 of the application related to events at a meeting on 5 December 2007 about the absence of light duties for the applicant and the fact that the applicant continued to work until 23 May 2008, at which time he was dismissed allegedly as a consequence of restructure and changes. It was pleaded that the applicant did not receive redundancy payments, was terminated for temporary absence from work and was not paid notice in accordance with s.661 of the WR Act. In paragraph 17, the applicant sought compensation from and a civil penalty against Empire Printing for alleged breaches of the awards described earlier in the application as the Printing Industries (State) Award and the Printing Industry (Superannuation) Award. A failure by Empire Printing to pay required superannuation benefits for the applicant was also pleaded. The applicant also sought orders against Mr Zarfati on the basis of accessorial liability under s.728. The notice to admit facts relevantly covered a similar range of matters.
However it was for the applicant to make out its case, whether or not these matters were admitted by Mr Zarfati. I am not persuaded that the failure by Mr Zarfati at the time of his response to admit certain facts which cannot be said to have been uncontroversial (cf Dennington v Pee Cee Pty Ltd (No.2)), or his failure to admit such facts in response to the notice to admit facts, is such as to constitute an unreasonable act or omission. More generally, as the Full Court of the Federal Court 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.
Their Honours continued:
Indeed, while 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.
Insofar as the applicant's contention is to the effect that Mr Zarfati's failure to admit liability generally was an unreasonable act or omission because the applicant was required to prove all the aspects of his case not specifically admitted (including the application of the awards to him) I am not persuaded that the failure by Mr Zarfati to admit all of the claims of the applicant (in some of which he failed to succeed) can be said to amount to an unreasonable act or omission.
In any event, under s.824(2) the court may order a person pay some or all of the costs incurred by the other party, only if satisfied that the party has, by an unreasonable act or omission, caused the other party to the proceeding to incur costs in connection with the proceeding.
The affidavit of Mr Torpia sworn on 9 April 2009 was in addition to an earlier affidavit and dealt only with a narrow range of matters, in particular the fact that before he began work with Empire Printing he was given a copy of a duty statement, referred to job descriptions for other positions within the organisation containing tasks he carried out and described other tasks that he performed in addition to his job as a production manager. It also annexed a copy of a signed document setting out his terms and conditions. These matters do not relate to any reasons for the applicant's termination as relevantly pleaded in paragraphs 11 to 16 of the application but, rather, were relevant to the applicant's application for a penalty on the basis of alleged breaches by the first respondent of the awards (as NAPSAs) and accessorial liability of Mr Zarfati, as it was necessary for the applicant to establish that he was covered by the Award.
The applicant sought remedies on the basis of the failure by Empire Printing (and the involvement of Mr Zarfati in that failure), to pay Mr Torpia redundancy pay in accordance with the Printing Industries (State) Award, a matter touched on more directly in the notice to admit facts than the parts of the application referred to above, but the affidavit of 9 April 2009 related not to the conduct of Mr Zarfati (a matter addressed in the earlier affidavit) but rather to the question of whether the provisions of the award now contained in a NAPSA applied to Mr Torpia (see Torpia v Empire Printing (Australia) Pty Ltd & Anor [2009] FMCA 853 at [52] – [58]).
The paragraphs of the application not admitted by Mr Zarfati did not relate to this issue. Indeed Mr Zarfati admitted paragraphs 7 and 8 of the application, which stated that the awards relevantly provided for the payment of redundancy and superannuation by Empire Printing and that Empire Printing was required to make payments to a superannuation fund (Print Super) in respect of the applicant (although, as the applicant later conceded, the superannuation award was rescinded by the Print Industries (State) Award).
Even if Mr Zarfati’s failure to admit the matters specified in the application and the notice to admit facts could have been said to be unreasonable, such admissions would not have made it unnecessary for the applicant to satisfy the court of the issues addressed in the affidavit of 9 April 2009, as the applicant had to establish that the award (the terms of which were preserved as terms of a NAPSA) applied to his employment.
I am not satisfied that it was as a result of the non-admissions or denials by Mr Zarfati that the applicant was required to prove the matters dealt with in his affidavit of 9 April 2009 relevant to whether the provisions of the award applied to him as the first respondent's production manager.
Finally, having regard to the nature of the part of the proceedings in issue (as proceedings for a penalty under the WR Act), the particular costs incurred that are sought to be recovered and the position of Mr Zarfati as a personal respondent to penalty proceedings, I would not, as a matter of discretion, order that he pay the costs of preparing the affidavit of Mr Torpia sworn on 9 April 2009.
In summary, it cannot be said that the facts pleaded in the application in paragraphs 11 to 21 and the relevant paragraphs in the notice to admit facts were necessarily uncontested or incontrovertible such that the failure by Mr Zarfati to admit them was an unreasonable act or omission. Mr Zarfati did plead to the application and it has not been established that there was a failure to properly admit facts in the particular circumstances of this case.
Moreover, the nexus between the respondent's failure to admit facts and the affidavit of Mr Torpia sworn on 9 April 2009 is not such as to satisfy me that, even if Mr Zarfati's failure to admit the matters covered in those parts of the application was an unreasonable act or omission, it caused the applicant to incur the costs of preparation of the affidavit of 9 April 2009 such that Mr Zarfati should be ordered to pay the applicant's costs of preparation of that affidavit.
I am not satisfied that a costs order should be made in favour of the applicant for the costs of preparing the affidavit of 9 April 2008.

I certify that the preceding thirty-two (32) paragraphs are a true copy of the reasons for judgment of Barnes FM

Associate:

Date: 5 November 2009