Michelle Thompson v St John of God Health Services NSW

Costs - proceedings initiated after the enactment of s 108A of the Industrial Relations Act 1996 - whether there should be any departure from usual costs order in favour of respondent - whether respondent should have an indemnity costs order in light of Calderbank offers - application for indemnity costs refused - applicant to bear the respondent's costs as agreed or assessed CATCHWORDS:

Aveling v UBS Capital Markets Australia Holdings Limited (2004) 135 IR 98 Bowker & Anor v Software Engineers Australia (NSW) Pty Limited & Ors [2003] NSWIRComm 213 Burgess & Ors v Mount Thorley Operations Pty Limited [2003] NSWIRComm 22 Coffee v Scanlon (1992) 41 IR 65 Colley v Futurebrand FHA Pty Ltd and Anor (2005) 142 IR 437 Commissioner for Children and Young People v 'A' (No 2) [2004] NSWIRComm 8 Hogan v Snorkel Elevating Work Platforms Pty Ltd [2005] NSWIRComm 267 CASES CITED: Kennedy v Contract Transport Solutions Pty Ltd [2003] NSWIRComm 158 Michelle Thompson v St John of God Health Services NSW [2004] NSWIRComm 46 Mullins v Peoplebank Australia Pty Limited (2003) 134 IR 1 Nakat & Anor v UBS Capital Markets Australia Holdings Limited [2005] NSWIRComm 257 Ruddock and Others v Vadarlis and Others (2001) 188 ALR 143 Yatras and Anor v Moraitis Administration (NSW) Pty Limited and Others [2005] NSWIRComm 130

APPLICANT: Mr AR Moses of counsel SOLICITORS: Haywards LEGAL REPRESENTATIVES:

RESPONDENT: Mr JP Phillips SC SOLICITORS: Carroll & O'Dea

• 10 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION

MICHELLE THOMPSON v ST JOHN OF GOD HEALTH SERVICES NSW

Application under section 106 of the Industrial Relations Act 1996

1 These proceedings were commenced in December 2003, pursuant to s 106 of the Industrial Relations Act 1996 ('the Act'). The respondent filed a motion in December 2003, seeking an order dismissing the application for want of jurisdiction, because the applicant's remuneration package exceeded the jurisdictional limit of $200,000 fixed by s 108A of the Act. At the time, the applicant was employed as the respondent's CEO. The matter was unsuccessfully conciliated by Kavanagh J in February 2004. The applicant unsuccessfully pursued a motion seeking to restrain the respondent from exercising its rights to terminate the contract. Kavanagh J gave judgment on this application on 26 February 2004 (see Michelle Thompson v St John of God Health Services NSW [2004] NSWIRComm 46). The applicant's employment was terminated in March 2004. Her Honour later issued a certificate of unsuccessful conciliation in February 2005. 2 The respondent's motion was finally not pressed because the applicant consented to the dismissal of the proceedings, given the judgment of a Full Bench of the Commission in Aveling v UBS Capital Markets Australia Holdings Limited (2004) 135 IR 98. The parties were, however, unable to agree on the matter of costs. The costs hearing was stood over, pending the Court of Appeal's decision in Colley v Futurebrand FHA Pty Ltd and Anor (2005) 142 IR 437, which confirmed the correctness of the decision in Aveling. 3 The parties were still unable to agree upon the proper costs order. The respondent sought an order for costs in its favour, on a party/party basis to 11 February 2004 and thereafter, on an indemnity basis. The applicant's position was that no order as to costs should be made against her, although conceding that the position of the costs involved in her own unsuccessful motion, where costs had been reserved, might require separate consideration. 4 The respondent relied upon various offers of settlement made by Calderbank letter, after the conciliation conference on 6 February 2004 - on 9 February and 18 February. 5 The applicant was first employed as the respondent's CEO in April 2002, having agreed to a three year contract. The summons initiating the proceedings in December 2003, noted that the respondent had stood the applicant down from her position in November 2003 and had appointed an investigator to consider certain allegations which had been made against her. The summons sought orders declaring void or varying the applicant's employment contract, in relation to the conduct of the investigation and the notice of termination of the employment required to be given, together with money orders just in the circumstances. 6 In December 2003, the applicant also filed a motion seeking orders restraining the respondent from terminating her employment. The motion was dismissed by Kavanagh J on 26 February 2004, having been heard on 23 February. The judgment records at [9] that the respondent had determined to proceed with its investigation, after the failure of the conciliation conference on 6 February and that the applicant was thereupon served with the investigator's report. On the evidence before her, Kavanagh J declined the orders sought as a matter of discretion, having considered and rejected arguments that the respondent was in contempt of court and that the balance of convenience lay with the applicant, in having the relief sought granted. The parties' respective cases 7 The case advanced for the respondent by Mr Phillips SC was that under s 181 of the Act, costs were in the discretion of the Court. The usual order was that costs should follow the event. There would be no departure from that approach in this case, except that the respondent was entitled to an indemnity costs order, given the applicant's rejection of its two Calderbank offers. The applicant would have been better off had the offers been accepted. Both letters conveyed substantial compromises and warned of the difficulties faced by the applicant, given the jurisdictional position. Jurisdiction could not be established and as a result of the applicant's conduct of the case, the respondent was very substantially out of pocket. An indemnity costs order should follow. 8 Reliance was also placed on various decisions of the Court, including several where costs orders had been made against applicants in a position similar to that of the applicant here, they also having commenced proceedings in circumstances where the Court had no jurisdiction, given the enactment of s 108A in 2002. 9 The case advanced by Mr Moses of counsel for the applicant was that in this case, there would be no order as to costs. It had been reasonable in the circumstances for the proceedings to have been initiated. There were good arguments to be advanced at that time, in relation to the Court's jurisdiction to hear the claim advanced, given the judgments in Bowker & Anor v Software Engineers Australia (NSW) Pty Limited & Ors [2003] NSWIRComm 213 and Kennedy v Contract Transport Solutions Pty Ltd [2003] NSWIRComm 158, as to s 108B. 10 Reliance was also placed upon the approach of the Full Federal Court in Ruddock and Others v Vadarlis and Others (2001) 188 ALR 143 at [11] to [13], where it was observed: [11] Within the general discretion of the courts to award costs it is accepted by decisions in both Australian and English jurisdictions that: • Ordinarily costs follow the event and a successful litigant receives costs in the absence of special circumstances justifying some other order. • Where a litigant has succeeded only upon a portion of the claim, the circumstances may make it reasonable that the litigant bear the expense of litigating that portion upon which he or she has failed. • A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other parties' costs of them. In this sense "issue" does not mean a precise issue in the technical pleading sense but any disputed question of fact or law.

See Hughes v Western Australian Cricket Association (Inc) (1986) 69 ALR 660; ATPR 40-748 at 48,136; approved by the Full Court in Queensland Wire Industries Pty Ltd v BHP Co Ltd (1987) 17 FCR 211 at 222; 78 ALR 407.

[12] The award of costs to a successful party is principally by way of perceived restorative justice. The general rule assumes that where an applicant succeeds it will have incurred costs because the respondent's conduct made it necessary for the applicant to bring the proceedings. If the applicant fails, the respondent will have incurred costs defending an action which ought not to have been brought against it. The order made in such cases is compensatory: If one thing is clear in the realm of costs, it is that, in criminal as well as civil proceedings, costs are not awarded by way of punishment of the unsuccessful party. They are compensatory in the sense that they are awarded to indemnify the successful party against the expense to which he or she has been put by reason of the legal proceedings: Cilli v Abbott [(1981) 53 FLR 108 at 111]. ( Latoudis v Casey (1990) 170 CLR 534; 97 ALR 45 per Mason CJ at CLR 543; ALR 50; see to similar effect McHugh J at CLR 567; ALR 68.)

[13] It has been argued, in academic commentary, that the general compensatory principle rests upon two alternative rationales. The first is that the successful party is entitled to be compensated for its costs because it has been wronged at the hands of the unsuccessful party. Costs under this rationale function as a species of damages. But that characterisation is not always tenable. Where, for example, declaratory relief is sought because of genuine uncertainty about the interpretation of a document or a statute, it will not explain why the successful party should be reimbursed at the cost of its opponent where the legal issue is novel and has consequences extending beyond the particular litigation. The alternative rationale for the compensation principle is simply that the winner should not have to suffer financially for vindicating its rights. The criticism of this intuitively attractive approach is again that it does not necessarily follow that the obligation to compensate the winner should be imposed on the losing party. For the losing party may have had very good legal grounds for its position and have conducted itself in the litigation in an entirely reasonable way. Where the case is close or difficult and involves no obvious element of fault on the part of the loser the proposition that costs automatically follow the event may work unfairness. Moreover it may set up a significant barrier against parties of modest means even if the contemplated claim has substantial merit: see Tollefson, "When the 'Public Interest' Loses: The Liability of Public Interest Litigants for Adverse Costs Awards" (1995) 29 University of British Columbia Law Review 303 at 309-11; see also McCool, "Costs in Public Interest Litigation: A Comment on Professor Tollefson's Article" (1996) 30 University of British Columbia Law Review 309. These criticisms will not justify a global modification, in public interest cases, of the usual rule that costs follow the event. They do, however, indicate the desirability of avoiding calcification of the discretion with rigid rules governing its exercise. Consideration

11 I am satisfied that in this case justice requires that a costs order be made in favour of the respondent. These proceedings were initiated in December 2003, after the enactment of s 108A in the June 2002. The section provides:

108A Employment contracts in respect of which applications cannot be made (1) An application cannot be made for an order under this Division if the application relates to a contract of employment under which: (a) a remuneration package that exceeds the remuneration cap is paid or received (or is payable or receivable) during the period of 12 months immediately before the application is made (or, if the application concerned relates to a contract that has been terminated, immediately before the termination), or (b) a remuneration package is paid or received (or is payable or receivable) during a period of less than 12 months immediately before the application is made (or, if the application concerned relates to a contract that has been terminated, immediately before the termination) that would, if the remuneration package had been paid or received (or been payable or receivable) for a period of 12 months, have exceeded the remuneration cap. (2) An application cannot be made for an order under this Division by a person who is a partner carrying on a business if: (a) the application relates to a contract between that partner and the other persons carrying on that business in partnership, and (b) the share of the net profits, or payments contingent on the net profits, of the business that are paid to or received by (or payable to or receivable by) the applicant during the period of 12 months immediately before the application is made (or, if the application relates to a contract that has been terminated, immediately before the termination) exceed: (i) $200,000, or (ii) if an amount is prescribed for the purposes of paragraph (b) of the definition of "remuneration cap" in subsection (3) - that amount. (3) In this section: contract of employment means any contract or arrangement under which work is done by a person in the capacity of an employee, and includes a related condition or collateral arrangement with respect to such a contract. employment benefit means a benefit provided to an employee at the cost of his or her employer (being a benefit of a private nature) and, without limitation, includes: (a) contributions payable to a superannuation scheme by an employer in respect of the employee, including any liability of that employer to make any such contributions or to pay costs associated with that scheme, or (b) the provision by an employer of a motor vehicle for private use by the employee, or (c) any other benefit prescribed by the regulations for the purposes of this definition. monetary remuneration includes any performance-related bonus or incentive payment. remuneration cap means: (a) $200,000, except as provided by paragraph (b), or (b) any greater amount prescribed by the regulations (being a regulation that increases the amount by reference to increases in the amount referred to in section 83 (1) (b)). remuneration package means the total value of monetary remuneration and employment benefits payable or receivable under a contract of employment. 12 On its face the section precluded a person such as the applicant, from commencing proceedings such as these. On 12 December 2003, shortly prior to the filing of this process, Haylen J gave judgment in Mullins v Peoplebank Australia Pty Limited (2003) 134 IR 1, taking the view that s 108A operated as from the date of its enactment, to preclude an application such as this being brought. In coming to that conclusion, his Honour considered other cases where the construction of s 108B had been considered by other members of the Court, but came to a different view, in relation to the section before him. 13 The view which Haylen J came to was later confirmed, both by the Full Court in Aveling and later by the Court of Appeal in Colley. 14 This sequence of events does not provide any basis for a departure from the ordinary rule that costs should follow the event. The applicant commenced proceedings, aware that there was doubt as to the Court's jurisdiction to entertain the application made, given the enactment of s108A and the decision on point in Mullins. 15 The Court's lack of jurisdiction to hear the claim made, given s 108A, was promptly raised by the respondent, who filed a motion seeking to have that question determined. Before it was dealt with, the applicant not only pressed on with her claim to conciliation, but also unsuccessfully sought interlocutory relief, restraining the respondent from acting in accordance with its contractual right to bring the employment to an end. Those steps were plainly taken in a context where, in the ordinary course, if the applicant failed to establish jurisdiction, she was at risk of a costs order being made against her. 16 Consistently with the view which I expressed in Burgess & Ors v Mount Thorley Operations Pty Limited [2003] NSWIRComm 22, that the reason why a claim does not succeed is because the Court has no jurisdiction to entertain the claim advanced, is not a proper reason for refusing to entertain a costs order in favour of the successful respondent. 17 Here, the applicant ultimately accepted that there was no jurisdiction for the claim made to be dealt with. That other members of the Court had earlier taken a different view in relation to the provisions of s 108B of the Act, cannot provide a sound basis for a departure from the usual costs order in this case. The question to be determined is not whether it was reasonable for the applicant to have commenced the proceedings. As explained in Ruddock, a costs order is not designed to punish an unsuccessful party such as the applicant, but to compensate the respondent for having been brought before the Court to defend a claim, which in a case such as this, the Court had no jurisdiction to deal with, as the respondent had promptly raised from the outset. 18 This is not a case such as that before the Federal Court in Ruddock, where matters of great public interest arose for consideration, so that a departure from the usual costs order was warranted. It is not even a case such as that dealt with by the Full Court in Commissioner for Children and Young People v 'A' (No 2) [2004] NSWIRComm 8, where the view was taken that there should be a departure from the usual costs order, because the matter was one of general importance, which could have been dealt with by the Commission in its arbitral jurisdiction, where no costs orders would be made. 19 Here, there is no good reason why the respondent, who has been proven correct in the view taken from the outset, that the Court had no jurisdiction to entertain the application brought, should not have the usual order for costs. As Cahill J accepted in Coffee v Scanlon (1992) 41 IR 65, the question must be decided in accordance with fixed principles, not according to private opinion, benevolence or even sympathy. 20 I also note that similar conclusions have been reached in other cases to which s 108A applied - see Hogan v Snorkel Elevating Work Platforms Pty Ltd [2005] NSWIRComm 267 and Yatras and Anor v Moraitis Administration (NSW) Pty Limited and Others [2005] NSWIRComm 130. Kavanagh J came to a different view in Nakat & Anor v UBS Capital Markets Australia Holdings Limited [2005] NSWIRComm 257, but for reasons not present here - namely where the applicants were not legally represented at the relevant time and where efforts at resolving the matter by conciliation had continued. Neither of these factors were present here. 21 I am satisfied that the same conclusion as to costs must flow in relation to the motion which Kavanagh J dismissed in February 2004. The applicant failed to make out the case advanced. The usual order should accordingly flow in the respondent's favour. 22 As to the respondent's application for indemnity costs, I am unable to conclude that such an order can properly be made as a matter of justice in this case. True it is that if the offer had been accepted, the applicant would have been considerably better off. What cannot be ignored however, was that the respondent's offers were not only inclusive of costs, but also sought to bring the employment to an end, at a time when the applicant had been stood down and the respondent was conducting an investigation into allegations made against her, while she remained on full pay. The offer sought to bring the investigation, the employment and the litigation to an end. The parties were unable to agree upon the money sum which would achieve all these objectives, or on terms such as an agreed reference, in circumstances where the applicant was complaining of damage to her reputation. It is also relevant to note that in her February 2004 judgment, while dismissing the applicant's motion, Kavanagh J observed at [39] that the applicant had an arguable claim as to the unfairness of the contract, in relation to the procedures followed in the investigation. 23 Like the conclusion reached in Mount Thorley, in that context, I am unable to conclude that the applicant was unreasonable in refusing the offers made. Had the offers been confined to the settlement of the proceedings, another conclusion may well have resulted. That, however, was not how the offers were put. Orders 24 For all of the reasons given, I order that the applicant bear the respondent's costs of the proceedings, including the applicant's unsuccessful motion, as agreed or assessed.

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