Howard v Merdaval Pty Ltd

Introduction 1 On 5 February this year, the court dismissed the appellant's appeal from an order of a judge of the Federal Circuit Court. See Howard v Merdaval Pty Ltd (trading as North Essendon Auto Spares) [2020] FCA 43. 2 The appellant's unsuccessful case below and on appeal was that: (1) she was an employee of the respondent at all relevant times, not an independent contractor; (2) her employment was covered by the terms of either the Road Transport Distribution Award 2010 or the Vehicle Manufacturing, Repair, Services and Retail Award 2010; and (3) she was underpaid as a result in excess of $230,000. 3 The parties were asked, if they wished to, to file short written submissions on the question of whether any order as to costs should be made, which they did later in February. Regrettably, I overlooked the fact that submissions had been filed. The parties, quite properly, recently caused the oversight to be brought to my attention. 4 The respondent seeks its costs. The appellant resists such an order. 5 Section 570 of the Fair Work Act 2009 (Cth) relevantly provides: 570 Costs only if proceedings instituted vexatiously etc. (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: … (b) the court is satisfied that the party's unreasonable act or omission caused the other party to incur the costs … (Emphasis added.) 6 The respondent relies on the making by it of five offers of compromise to the appellant during the course of the proceeding below and the appeal. 7 It is well established that a failure to accept a reasonable offer of compromise may constitute an unreasonable act or omission for the purposes of s 570(2) of the Fair Work Act. See, eg, Melbourne Stadiums Ltd v Sautner (2015) 229 FCR 221 at 255 [166] (Tracey, Gilmour, Jagot and Beach JJ); PIA Mortgage Services Pty Ltd v King (No 2) [2020] FCAFC 53 at [20] (Rangiah, Charlesworth and Snaden JJ). And the appellant accepts that her rejection of each of the respondent's five offers constitutes an "act or omission" for the purposes of s 570(2)(b). Those acts or omissions also, obviously enough, "caused [the respondent] to incur the costs" in dispute. 8 The question for resolution is whether the rejection of each of the offers was "unreasonable".

The circumstances of the offers 9 The relevant correspondence containing the offers to settle was exhibited to affidavits of Ms Megan Taberner, solicitor for the respondent, and Mr Andrew Jewell, solicitor for the appellant, dated 11 and 18 February 2020 respectively.

First offer 10 The appellant commenced the proceeding below on 26 June 2015. A mediation took place in December 2015, but it was unsuccessful. 11 On 10 August 2016, the respondent made an offer to settle the matter for $4,000, inclusive of GST. That amount represented, at the time the arrangement between the appellant and the respondent ended, slightly more than six weeks' work. The letter containing the offer stated as follows: Your client … alleges that our client misrepresented your client's alleged employment as an independent contracting arrangement and that she was entitled to the incidences of employment … These allegations cannot be sustained by your client for the reasons set out in our client's Points of Defence filed 1 October 2015 including: that your client provided her own vehicle of a make and model of … her choice, engaged a delivery driver of her choice, rendered tax invoices to our client for the services rendered, was responsible for all insurances and paid all outgoings associated with the delivery service (save for tolls) … had the discretion to determine who provided the service, how the service was provided, when that service was provided on any given day, and the routes to be taken when providing the delivery service and there was no exclusivity with respect to the services provided by your client to our client. It is apparent that your client offered delivery services to others and was engaged to provide those services to entities other than our client. Our client's contention that your client was engaged by it on a contract for services, that is as an independent contractor, has been upheld by the ATO after an independent audit. 12 The offer lapsed without response on 19 August 2016. 13 On 12 September 2016, the appellant's solicitors sent a letter in reply. The letter stated that the appellant was "extremely confident of her position", and contained a counteroffer to discontinue the proceeding in exchange for $90,000. It also stated, among other things, that an employment relationship between the parties was clearly established by the following factors: (a) Our client worked 40 hours per week from 8:30am to 5:00pm, Monday to Friday, with a 30 minute unpaid lunch break; (b) Our client received remuneration of $920 per week on a regular basis until 1 November 2008 after which she received remuneration of $1,080 per week; (c) Our client was provided with a uniform by your client; (d) Our client would complete driving duties or any other duties as directed by … your client; (e) Our client provided services exclusively to your client; (f) Our client was not entitled to delegate work or determine the manner in which she performed work; (g) Our client did not represent herself as operating her own enterprise; and (h) From about 2010 our client received reimbursement [of] toll expenses. 14 On 18 January 2017, the proceeding was listed for a four-day trial commencing 19 June 2017.

Second Offer 15 On 28 April 2017, the respondent made a second offer to the appellant to settle the matter, this time in the sum of $20,000, inclusive of GST, and set out once again the reasons for its view that the appellant's claim would fail. The offer lapsed without response on 5 May 2017. 16 On the afternoon of 15 June 2017, the appellant proposed substantive amendments to her claim. 17 On the first morning of the hearing, the appellant was granted leave to amend her claim, resulting in the adjournment of the trial and an order for costs against her in the sum of $1,000. That costs order remains unpaid. The matter was relisted for a five-day hearing commencing 25 June 2018. 18 The matter was again adjourned in June 2018 and relisted for a four-day hearing commencing 15 October 2018.

Third offer 19 On 23 August 2018, the respondent re-put the offer made to the appellant on 28 April 2017 (to settle the matter for $20,000). This offer lapsed without response on 31 August 2018. 20 On 30 April 2019, the Federal Circuit Court dismissed the appellant's claim. 21 On 14 May 2019, the respondent wrote to the appellant with a proposal on the issue of costs. The respondent said it intended to apply for its costs, which it estimated were $170,000 on a solicitor/client basis, but said it would accept $85,000 in full and final settlement of such an application (including the $1,000 owing under the earlier costs order). The proposal expired on 21 May 2019. 22 On 21 May 2019, the appellant appealed the Federal Circuit Court decision dismissing her claim. 23 On 6 June 2019, the respondent re-put its proposal with respect to costs, and also stated its view that "the appeal must fail and should be withdrawn". This proposal was rejected the next day.

Fourth offer 24 On 17 June 2019, the respondent offered to accept $10,000 (including the outstanding costs order of $1,000) in lieu of making a costs application, provided the appellant discontinued her appeal. The letter containing the offer stated as follows: Your client's appeal has limited prospects of success where it is clear that there are no findings of the Federal Circuit Court Judge that are 'glaringly improbable' or contrary to 'compelling inferences' that would place this case in one of those rare instances that an Appellate Court would interfere with his Honour's factual findings. There is no clear case of error that [the appellant] can point to associated with the finding that she was not an employee but engaged as an independent contractor throughout the term of her engagement with the Respondent … 25 This offer lapsed without response on 25 June 2019.

Fifth offer 26 On 14 August 2019, the respondent made a final attempt to resolve the issues between the parties, by offering to refrain from suing for the costs associated with the trial and the appeal provided that the appellant discontinued the appeal. This offer lapsed without response on 20 August 2019. The letter containing the offer repeated the respondent's reasons for its view that the appeal would fail.

The respondent's submissions on costs 27 The respondent submits that, at the time it made each of the first three offers, the appellant must have known that she: (1) was going to give evidence that during her employment she had no wish to be an employee of the respondent; (2) would give evidence that she was running a business; and (3) provided her own motor vehicle. 28 The respondent submits that "[t]aking those matters together it is plain that her chances of success in her claim were minimal to vanishing". 29 It also submits that each of the pre-trial offers was accompanied by a letter which set out in detailed terms, correctly, why it was that the appellant's claim would fail. 30 The respondent's submissions continue as follows: The first offer was also made in circumstances where the Appellant had made no attempt to further her claim against the Respondent in eight months. In those circumstances her rejection of the first offer of $4,000 was unreasonable. If that was not unreasonable the rejection of the offer of $20,000, which was put twice, clearly was so. Following the dismissal of her claim [the] Appellant appealed. It is significant that [on] appeal the appellant did not challenge the Federal Circuit Court Judge's findings of fact, or his statement of the relevant legal principles. The appeal arose, at least chronologically, as a response to the Respondent's threat to apply for legal costs of the trial below. At paragraph 25 of the Appeal Decision his Honour said: In my view, most of the matters relied upon by the appellant in her counsel's written submissions listed at [20] and [21] above may be accepted, but they are for the most part either beside the point, or they do not affect one way or the other the issue to be decided. The Respondent's letters of offer prior to the hearing of the appeal set out why the appellant's case would fail. Given the manner in which the appeal was conducted it was unreasonable to reject the fourth offer, and even more unreasonable to reject the fifth. 31 For those reasons, the respondent seeks its costs on a party/party basis from: (1) 19 August 2016 (the date the first offer lapsed without response); (2) 5 May 2017 (the date the second offer lapsed without response); (3) 31 August 2017 (the date the third offer lapsed without response); (4) 25 June 2019 (the date the fourth offer lapsed without response); or (5) 20 August 2019 (the date the fifth offer lapsed without response).

The appellant's submissions on costs 32 The appellant submits that: The question of whether a party's act or omission was unreasonable is to be determined having regard to the particular circumstances of each case. The determination as to whether the conduct was unreasonable is a determination of the conduct as at that time. Thus, it involves an assessment of the strengths and weaknesses of a party's case, the merits of the offer, the issues yet to be determined or resolved in the proceeding, the extent of the offer with reference to the size of the [appellant]'s claim and whether the claim was soundly based. It is not to be considered with the benefit of hindsight arising from the fact that the [appellant] ultimately failed in her claim. (Emphasis in original, citations omitted.) 33 She says in summary that: (1) the respondent's offers were not reasonable as they were not genuine offers to resolve the dispute; (2) even if they were, it does not necessarily follow that the appellant's refusal of the offers was an unreasonable act; (3) she instituted proceedings with reasonable cause and she rejected each of the offers on the basis that she had reasonable prospects of success; (4) the relevant question is whether the proceeding had reasonable prospects of success at the time it was instituted, not whether it ultimately failed; (5) the question of whether the appellant was an employee or an independent contractor was an arguable point of law, and she genuinely believed that her case had reasonable prospects of success; and that (6) ultimately, she "acted with reasonable cause in instituting and pursuing proceedings … [and that it] follows that her refusals of the respondent's offers to settle her matter before her grievances were aired and determined at trial or on appeal, and for less than she believed she had a reasonable prospects of securing at trial or on appeal, were not unreasonable".

Consideration 34 The respondent's application falls to be considered by reference to the principles described by Mortimer J in Ryan v Primesafe [2015] FCA 8; 323 ALR 107 at 122-123 [64]-[65]: 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. In so far 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 … None of those propositions deny the Court's ability to find that one or both of the two preconditions expressed in s 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. 35 With those principles in mind, I am not disposed to order that the appellant pay the costs of the hearing before the Federal Circuit Court. Prior to the trial, it seems that based upon legal advice provided to the appellant by her solicitors (summarised in particular in the letter dated 12 September 2016 to the respondent's solicitors) she may be said to have had an arguable evidentiary and legal basis for her claim. 36 However, in circumstances where, on appeal, the appellant did not challenge any of the primary judge's findings of fact or statements of principle, and for the reasons given in Howard v Merdaval Pty Ltd (trading as North Essendon Auto Spares) [2020] FCA 43, the appeal was always destined to fail. In those circumstances, it was unreasonable in my view for the appellant not to have accepted the respondent's offer made on 14 August 2019 that the parties walk away and bear their own costs. 37 I will thus order that the appellant pay the respondent's costs of the appeal on a party/party basis from the expiry of the final settlement offer. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Callaghan.