Kennett v Industrial Court of NSW

Kennett v Industrial Court of NSW - [2010] NSWCA 307 - NSWCA 2010 case summary — Zoe

[18]

[2] The proceedings were heard by Schmidt J over some 20 hearing days and resulted in 12 separate judgments. The proceedings were plagued by difficulties, with the applicants, from time-to-time, found to be in breach of the case management timetable. In essence, her Honour found that there was an oral contract for Professor Kennett and Mr Pak to provide consultancy services on an on-going basis for the new proprietors of the College. For some time those services had been provided but had not been paid for by the new proprietors. Her Honour found, however, that a substantial part of the case for the applicants had not been made out: the applicants had alleged that the terms of the sale contract for the College were unfair and were not based upon a true reflection of the profit of the College asserted by the applicants to be $300,000 per annum. There were also allegations that the applicants had been overborne during the course of negotiations for the sale price such that its terms were unfair to the applicants. Her Honour's extensive judgment on liability was delivered on 27 May 2008 ( Kennett and anor v Mayrana Pty Ltd & ors (No 9) [2008] NSWIRComm 106). On 4 November 2008 ( Kennett and anor v Mayrana Pty Ltd & ors (No 10) [2008] NSWIRComm 207) her Honour made orders declaring the applicants' consultancy contracts to be unfair contracts, that the contract should be varied to provide notice to each of the applicants but that while Mr Pak should receive the amount of $1,700, there should be no payment ordered in favour of Professor Kennett. In relation to both Professor Kennett and Mr Pak her Honour, on the evidence, found that Mr Pak had banked in the account of Excelsior College the sum of $38,000 that rightfully belonged to the new proprietor and further, that sum had not since been passed on or credited in any way to the new proprietor: in dealing with the fairness of the arrangements her Honour took this sum into account in reducing the amount of the money order to be paid to the applicants in relation to the consulting contract.

[24]

[4] Broadly speaking, these orders arose from a variety of submissions made by the parties as to the appropriate costs orders that should be made having regard to the fact that, while the applicants had succeeded on a relatively small part of their case, they had failed in relation to a substantial part of the case which had consumed the majority of the hearing time. The respondents also raised the conduct of the case on behalf of the applicants and, in particular, the fact that her Honour had found that the alleged $300,000 per annum profitability status of the College, although continually asserted, was utterly without foundation and that the applicants should have known that was the case and in any event, were well placed as the proprietors to ascertain the true financial position of the College prior to the sale negotiations. Her Honour held that the case was prolonged not only by the applicants' unreasonably pursuing this aspect of their case but also because the expert called to substantiate this assessment of the profitability of the College (Mr Prior), when faced with the expert evidence of the respondents, discovered that he had not been briefed with the same source documents and was then required to resile from his first stated view and formulate another view. In early September 2007 the respondents, having regard to the state of the evidence then before her Honour, forwarded a Calderbank letter to the applicants offering the applicants the opportunity to settle the proceedings by being allowed to walk away from the proceedings with each party to pay their own costs. Her Honour held that, on the state of the evidence at the time this letter was received, the applicants should have accepted the offer and that it was unreasonable to have refused it. Her Honour was convinced by not only the unreasonable rejection of this offer but the applicants' general misconduct in the proceedings as warranting the granting of indemnity costs to the respondents from the date of the Calderbank letter.

[26]

[6] Her Honour then dealt with the situation of the applicants' then counsel, Dr Berwick. Dr Berwick was unable to continue to represent the applicants due to illness leading to three hearing days in February 2008 being unable to be properly utilised in finalising the case. Her Honour accepted, on the basis of medical evidence before the Court, that Dr Berwick was ill but, relying on r 209 of the Industrial Relations Commission Rules 1996, held that Dr Berwick should repay Professor Kennett the costs the Professor must pay the respondents in relation to those three days. Her Honour found that r 209 was compensatory in nature and was not disciplinary and it was, therefore, appropriate that such an order be made against Dr Berwick." 3 The appeals that were sought to be brought by Professor Kennett were described by the Industrial Court in [7]-[8] of their reasons on the leave application as follows: "[7] In relation to these orders, Professor Kennett (and his nominee company - together 'the appellants') has brought two appeals, the first relating to the reasons for decision of 27 May 2008 and the orders given on 4 November 2008 and the second in relation to the reasons delivered on 29 June 2009 and the orders given on 4 November 2008. The first appeal challenges her Honour's decision to take into account the amount of $38,000 banked in the College's account (and therefore to the benefit of both Professor Kennett and Mr Pak) in determining that, as a result, Professor Kennett should not receive any money by way of order of the Court as a result of what the parties referred to as a 'set-off'. It was argued that there was no jurisdiction to take into account the $38,000 and to effectively reduce by way of set-off the amount of money that might otherwise have been payable to Professor Kennett because of the unfairness of the consultancy contract. It was put that the fact that the money was paid into the account of Excelsior College, a non-party to the proceedings, meant that her Honour was unable to take that amount into account in reducing the money order made in favour of Professor Kennett. During the course of the hearing, leave was granted to amend the appeal to include an allegation that there was no finding as to jurisdiction made by her Honour in respect of the sale contract, an amendment apparently designed to clarify the way in which the jurisdictional point was to be raised. Despite Professor Kennett's reliance on the sale agreement at all relevant stages of the trial, it is contended that her Honour had no jurisdiction to take into account the amount of $38,000 because it arose under the sale agreement.

[27]

[8] In the second appeal, Professor Kennett raised the issue of the indemnity costs order in favour of the respondents and the alleged failure of her Honour to properly apply the principles applicable when considering such an order. It was said that her Honour had no basis for making such an order and that the usual costs order should have been made such that, because of their success on the consultancy contracts, the applicants should have received their costs of the proceedings. It was submitted that her Honour had no proper basis for concluding that the sale contract case was bound to fail or that the Calderbank offer had been unreasonably rejected. It was also submitted that the four respondents all appeared in the same interests and therefore had unnecessarily added to the costs: her Honour had thereby erred and failed to apply principle and authority to the circumstances by taking this fact into account. Similarly, it was submitted in relation to the granting of indemnity costs, that her Honour had failed to correctly apply principle and authority in deciding the issue. An issue was raised regarding the failure of the legal representatives to join Excelsior College and the costs that should flow from that omission." 4 The Industrial Court dismissed these applications for leave for reasons given in [10]-[13] of their reasons, as follows: "[10] In relation to the two Professor Kennett appeals (Mr Pak did not appeal), the Court is unable to find that the question of jurisdiction raised by the appellants (arising in relation to her Honour's treatment of the so-called "set-off" approach) warrants the grant of leave. The Further Amended Summons for Relief filed in September 2006 made it clear that the appellants were proceeding on the basis of an arrangement that involved not only the sale contract but also the circumstances in which Professor Kennett would have an ongoing paid role in the operation of the College. Professor Kennett did not proceed on the basis that there were two distinct and separate contracts but, as has become frequent in this jurisdiction, relied upon the totality of the arrangements between the parties in order to establish a basis for a declaration of unfairness and the making of money orders. In those circumstances it was open to her Honour to address the issue of unfairness on a broad basis and to take into account a wide but relevant variety of conduct in determining what order as to the payment of money in connection with the arrangements was 'just in the circumstances of the case' (see s 106(5) of the Act). Having regard to the manner in which the applicants had framed their case at first instance, it was open to her Honour to have regard to the money that had been banked in the account of Excelsior College in circumstances where it was open for her Honour, on the evidence, to find that the money belonged to the new proprietors. The respondents had squarely raised that matter and counsel then appearing for the applicants had conceded to her Honour that she was entitled to take that course. In those circumstances, Professor Kennett is bound by the conduct of his case below and it is inappropriate to grant leave to appeal that issue ( Coulton v Holcombe (1986) 162 CLR 1). Nor can we discern an error in the exercise of discretion by her Honour discounting the money orders which may have been otherwise made under s 106(5) in these circumstances.

[41]

(c) It was submitted that the Full Bench committed jurisdictional error in concluding that Schmidt J had denied Ms Muc and Mr Healey procedural fairness in making costs orders against them in respect of a motion as to costs. 8 For the following reasons each of these arguments fails. The summons should be dismissed with costs. 9 As to the position of Excelsior, it was not a party to the proceedings. No order was, however, made against it. Schmidt J decided that money orders would be open to be made under the Industrial Relations Act 1996 (NSW), s 106(5). That section is in the following terms: "(5) In making an order under this section, the Commission may make such order as to the payment of money in connection with any contract declared wholly or partly void, or varied, as the Commission considers just in the circumstances of the case." 10 It was submitted that since the sale contract was found by her Honour not to be amenable to relief under s 106 and Excelsior was not a party, no lawful consideration could be given to its retention of funds to which one of the respondents was entitled. This was so, it was submitted, because it was not a factor sufficiently closely connected with the contract declared to be unfair - the oral consultancy agreement. Reliance was placed on what Barwick CJ said (with whom McTiernan, Windeyer and Owen JJ agreed) in Brown v Rezitis [1970] HCA 56; 127 CLR 157 at 165 about a similar antecedent provision: "… the power to make an order … is at best no more than a power to make such an order as can reasonably be thought to have a real connexion with the making, variation or avoidance of the contract or arrangement which has been varied or avoided." 11 When one appreciates the whole of the context of Brown v Rezitis and what was said at 164-166, this argument fails. The holding by a company of funds, to which a respondent is entitled in the circumstances here, being a company which the applicants (Professor Kennett and Mr Pak) own and control, is clearly a matter sufficiently close to the resolution of the issue between the parties concerning the varied contract. There was a sufficient connection with that varied contract by it being a circumstance relevant to the justice of the amount of the payment. 12 Schmidt J made no error, jurisdictional or otherwise. The Full Bench was correct to refuse leave. 13 As to the application of r 209, the issue concerned what were said to be the costs wasted on 20, 21 and 22 February 2008. Schmidt J's reasons were encapsulated in [204]-[205] of her Honour's reasons ([2009] NSWIRComm 99): "[204] It was argued for Professor Kennett that Rule 209 of the Industrial Relations Commission Rules contemplated that orders could be made in his favour in respect of the consequences of Dr Berwick's illness and his withdrawal from the proceedings. What occurred amounted to a default, where the proceedings could not conveniently proceed, or were adjourned, without useful progress. On Dr Berwick's evidence, the reason why the hearing of the submissions on 20, 21 and 22 February 2008 could not proceed, was the result of the consequences of the illness from which he was suffering. That evidence must be accepted. That being so, it must also be accepted that the order Professor Kennett seeks is available to be made. The Rule in this respect is compensatory, rather than disciplinary.

[42]

[205] The Rule clearly contemplates that a client such as Professor Kennett may be sheltered from the cost consequences which must inevitably fall upon someone, when such an illness occurs. In the circumstance, I am satisfied that the discretion should be exercised in favour of Professor Kennett, both in respect of Dr Berwick's costs and the costs Professor Kennett has been ordered to pay the respondents, in this respect. Neither Professor Kennett nor Dr Berwick are responsible for Dr Berwick falling ill, but clearly the Rule contemplates that the consequences of such a situation, if it arises, may properly fall on the legal representative, rather than on the client. In this case, that seems to me a just outcome, particularly given the evidence as to how it was that Dr Berwick came to appreciate his illness and to seek treatment and the consequences which resulted for Professor Kennett." 14 At [11]-[13] of the reasons of the Full Bench ([2010] NSWIRComm 41), there is a full and careful recitation of the underlying facts: "[11] The substantive proceedings had been adjourned in late September 2007, after 19 hearing days, with the evidence substantially completed but with a requirement to hear one further witness for the respondents. Her Honour made arrangements with the parties to have the matters relisted on the February dates to receive the further evidence and then to hear the parties' submissions. When the matter resumed on 20 February 2008, however, Dr Berwick made an application that the matter proceed by way of written submissions. Her Honour rejected that application on the basis that it was clearly understood at the September adjournment that the three February days would be available for the taking of additional evidence and the making of final submissions by all parties so that the matter would be concluded in that time frame. In the course of making his submission, Dr Berwick accepted that all of his submissions had not been fully prepared and were not complete and that he would need to examine accounting material in order to be able to properly address the issues for the applicants. Following her Honour's ruling against an adjournment for the purposes of filing written submissions, a further and final witness was called for the respondents. This evidence was relatively brief and Dr Berwick cross-examined the witness. At the conclusion of that evidence, Dr Berwick tended some further material for the applicants and closed the applicants' case. After the morning tea adjournment, Dr Berwick was directed to commence submissions on the basis that he had accepted that they were well advanced although not yet completed and that there were further matters to attend to. Dr Berwick's address continued after the luncheon adjournment and into the afternoon and finally reached the point where Dr Berwick required a further adjournment because of matters that had been raised in exchanges with her Honour and his need to consult the transcript. He sought to have the remaining time used by the other parties. Her Honour declined to call on the other parties at that time and was critical of Dr Berwick for not being able to complete his submissions noting, to the extent that submissions had been made, they had not yet addressed much of the substance of the application. Her Honour adjourned one hour earlier than normal and reserved the costs of the adjournment.

[44]

[13] When the matter resumed on 22 February 2008, Dr Berwick announced that a situation had arisen where 'for the moment he was unable to continue with the case' as there were issues he needed to address. He needed some assistance and he was about to receive that assistance - he had discussed his position with those at the bar table. It became clear that Dr Berwick was referring to an inability brought about by his own illness. His initial application was that the matter be stood over generally but he did say that it may not be very sensible for him to make any commitment in regard to new dates as he did not want to further inconvenience her Honour or the parties by accepting dates where there may or may not be further difficulties. During discussion her Honour noted that, if the position was that Dr Berwick was unable to continue, the sensible thing was that he should no longer appear at the bar table and ought to withdraw and his instructing solicitor should take instructions from the applicants. Her Honour then adjourned briefly so that the parties could have some discussions and upon resumption, the applicants' solicitor, Mr Healey, appeared. Mr Healey then engaged in discussion as to an appropriate timetable on the basis that other counsel would have to be briefed to conclude the matter. The matter was then adjourned until 11 March 2008. On that day new counsel appeared for the applicants and having filed written submissions, addressed those submissions orally. The other parties then addressed her Honour and the matter was concluded on that day." 15 The central argument put to the Full Bench which was accepted was encapsulated by the Full Bench in [7] of its reasons: "… while the rule is not only punitive but is also compensatory, no order can be made under the rule unless there is some dereliction on the part of the practitioner in the conduct of the case. Inability to continue to appear for parties because of illness leading to the adjournment of proceedings was a circumstance that did not fall within the provisions of r 209." 16 In a full and careful consideration of r 209, the Full Bench examined its history, and in particular its adaption from the Supreme Court Rules 1970 Pt 52A rr 43 and 43A. The Full Bench also examined the many cases on cognate rules in Australia and England: Wentworth v Rogers [1999] NSWCA 403, Myers v Elman [1940] AC 282, Ridehalgh v Horsefield [1994] Ch 205, Leicester v Walton [1995] NSWCA 258, Bagley v Pinebelt Pty Ltd [2000] NSWSC 655, Lemoto v Able Technical Pty Ltd [2005] NSWCA 153; 63 NSWLR 300, De Sousa v Minister for Immigration, Local Government & Ethnic Affairs (1993) 41 FCR 544 and Ex Christmas Islanders Association Inc v Attorney-General (Cth) (No 2) (2006) 233 ALR 97. 17 From these authorities, the Full Bench concluded that the foundation for making an order against a practitioner under such a rule has always been held to include some basis in dereliction of duty or blameworthy conduct. That was a correct appreciation of the authorities. 18 On the material before the Full Bench, it was open to conclude that Schmidt J had misapplied well-known authority. 19 There was no jurisdictional error in the way the Full Bench approached the matter. 20 The third subject of appeal was the view taken by the Full Bench that Schmidt J had denied Ms Muc and Mr Healey procedural fairness in the making of a costs order. 21 The issue arose in the following way. On 29 June 2009, the primary judge made orders and published reasons in various costs applications (Kennett v Mayrana Pty Ltd (No 11) [2009] NSWIRComm 99). The argument had taken place over three days in February 2009. Extensive reasons of 208 paragraphs were published in support of five orders that were set out in [3] of the Full Bench's reasons set out at [2] above. 22 Her Honour, however, omitted to make any costs order on the motion itself. This was later brought to her Honour's attention and without further hearing the parties, on 29 July 2009, she published the following reasons and made the following order (Kennett v Mayrana Pty Ltd (No 12) [2009] NSWIRComm 116): "[1] In a judgment given on 29 June 2009, I dealt with various costs orders (see Kennett and Anor v Mayrana Pty Ltd and Ors (No 11) [2009] NSWIRComm 99). The solicitors for the applicants' former counsel, Dr Berwick, have drawn my attention to his application for an order for costs in his favour on the applicants' motions, which was addressed in submissions, but not dealt with in the judgment.

[49]

[6] For the reasons given, I order that Dr Berwick and the former solicitors bear the costs of Professor Kennett's motion, as agreed or assessed and that Mr Pak must bear the costs of his motion as agreed or assessed." 23 The Full Bench took the view that Ms Muc and Mr Healey had been denied procedural fairness, stating at [33] of their reasons of 1 April 2010 ([2010 NSWIRComm 41): "[33] In relation to the appeals against her Honour's costs order made against Dr Berwick and Mr Healey for the hearing of Professor Kennett's motion for costs against his legal advisors, it is clear that the legal practitioners were not given the opportunity to address, in full, as to what costs orders should be made. It is clear that no opportunity was provided to Ms Muc and Mr Healey in this regard , although for Dr Berwick a submission was made at the end of argument that a costs order should be made in his favour. Little could be usefully submitted until it was known on what basis her Honour proposed to make orders for costs against the legal practitioners. The failure to hear the practitioners as to these costs orders, being a denial of procedural fairness, is of sufficient seriousness to warrant the upholding of both appeals and the setting aside of the costs orders made by her Honour on 24 July 2009." (emphasis added) 24 The applicant submitted that the Full Bench had misunderstood its task and asked itself the wrong question thereby committing jurisdictional error. That was so, it was submitted, because it asked itself whether they had been heard, not whether they had had an opportunity to be heard. It was submitted that the solicitors like Dr Berwick, had an opportunity to put submissions about costs at the hearing of the motion. 25 Looking at the reasons in [33] I am unpersuaded that the Full Bench misunderstood the relevant principle. Therefore, there is no basis upon which an argument for jurisdictional error could be developed. 26 Whether or not the Full Bench reached a view about the question that I would have reached is not the point. They addressed the correct question. 27 In circumstances where the Full Bench appreciated its task under the Industrial Relations Act, s 191 and where it has not been shown that it applied a wrong legal test, there is no foundation for any argument of jurisdictional error. 28 The summons should be dismissed with costs. 29 YOUNG JA: I agree with Allsop P. 30 HANDLEY AJA: I agree with Allsop P. **********

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