Olson v Keefe

Introduction 1 On 18 December 2018, I delivered judgment in Olson v Keefe (No 3) [2018] FCA 2001, refusing a request by the applicant in this proceeding, Mr Kevin Olson, to file a second version of a further amended statement of claim (second FASOC). At [46] of the judgment, I concluded in respect of the application and topic of costs that: Leave to file the FASOC in the draft form provided to the Court on 25 June 2018 is refused. There does not seem to be any apparent reason why costs should not follow the event, and I will so order. The respondents foreshadowed seeking costs on an indemnity basis. The threshold for such an order is substantial. I will, however, allow an opportunity for such an application to be brought. 2 On the same day, I made orders which included the following: 1. The applicant be refused leave to file a further amended statement of claim in the draft form provided to the Court on 25 June 2018. 2. The applicant pay the costs of the first, third and fourth respondents as agreed or assessed. 3. The first, third and fourth respondents be granted leave to make an application for a further or different costs order by 4.00 pm on 30 January 2019. 3 Order 3 was stayed on 17 January 2019, pending the determination of an appeal by Mr Olson of the above orders. Mr Olson also sought an extension of time to appeal against orders made on 16 October 2017 summarily dismissing the proceeding against the second respondent and parts of his amended statement of claim in respect of the first, third and fourth respondents (respondents): see Olson v Keefe (No 2) [2017] FCA 1168; 122 ACSR 395. Those applications, heard by Lee J, were unsuccessful: see Olson v Keefe [2019] FCA 339 (Appeal Applications). 4 On 22 March 2019, I granted the respondents, by consent, an extension of time to make an application for a further or different costs order in respect of Mr Olson's application to file his second FASOC. On 27 March 2019, the respondents filed an interlocutory application and an accompanying affidavit of the respondents' solicitor, which sought that: 1. Order 2 made on 18 December 2018 be varied to read as follows: 'The applicant pay the costs of the first, third and fourth respondent on an indemnity basis as agreed or assessed'. 2. The Court further order that: 'Costs ordered under order 2 on 18 December 2018 be payable forthwith'. 3. The applicant pay the first, third and fourth respondents' costs of the application forthwith. 4. Any further order the Court deems appropriate. (Emphasis in the original) 5 Following consultation with the parties, I considered it appropriate that the respondents' interlocutory application be determined on the papers, and accordingly made orders on 4 April 2019 for the filing of submissions and evidence. Submissions were filed by both parties, but only the respondents sought to adduce evidence, being the affidavit of the respondents' solicitor, Ms Natalie Tatasciore of King & Wood Mallesons, sworn 27 March 2019 (Tatasciore affidavit). 6 Pursuant to an order dated 1 May 2019, Mr Olson has since filed a FASOC with the consent of the respondents. A procedural timetable is in place for the closure of pleadings by early July 2019.

Background 7 The request to file the second FASOC was obviously not Mr Olson's first attempt at re-pleading his case. By way of background, and noted at [7]-[8] of Olson v Keefe (No 3), there have been repeated attempts by Mr Olson to rectify fundamental defects in his pleadings, especially in so far as they seek to plead causes of action going beyond a claim of breach of contract arising out of his employment with, in the alternative, the third or fourth respondent, or both. The respondents have maintained, in correspondence between the parties and before the Court, opposition to four such claims, being: (1) an unconscionable conduct claim, alleging contraventions of ss 20 and 21 of the Australian Consumer Law (contained in Schedule 2 to the Competition and Consumer Act 2010 (Cth)) (Unconscionable Conduct Claim); (2) a claim alleging rights to a "profit interest" or equity share in the sale of the third respondent's Australian business (Profit Interest Claim); (3) a claim for a breach of an implied term in Mr Olson's "Contract of Employment" to act with fidelity to "the bargain" (Implied Terms Claim); and (4) a claim of contraventions of the Corporations Act based on financial information not provided to Mr Olson (Financial Reporting Claim). (At the hearing of the application the subject of Olson v Keefe (No 3), senior counsel for Mr Olson advised that there was no separate financial reporting claim, and that this aspect of Mr Olson's pleading went to his breach of contract claim.) 8 Following delivery of Olson v Keefe (No 2) on 29 September 2017, Mr Olson sought leave to file a FASOC (first FASOC) and further amended originating application. At the hearing of that application on 16 March 2018, Mr Olson withdrew his application for leave and was ordered to pay the respondents' costs. On 25 June 2018, Mr Olson furnished to the Court the second FASOC. The application for leave to file the second FASOC was heard on 13 September 2018. As noted in the uncontested Tatasciore affidavit, versions of the Unconscionable Conduct Claim and the Financial Reporting Claim have been included in the drafts of statements of claim served on the respondents since 28 November 2017; and versions of the Profit Interest Claim and the Implied Terms Claim have been included since 13 April 2018. As set out in Olson v Keefe (No 3), leave to file the second FASOC, which pleaded all four claims, was not granted. It should be noted that an earlier pleaded claim relating to an alleged profit interest was summarily dismissed by consent: see Olson v Keefe (No 2) at [19]. 9 For the reasons that follow, I have determined that Mr Olson should pay the respondents' costs of, and incidental to, his application to file the second FASOC on an indemnity basis; and the costs of this costs application on an ordinary basis. Contrary to the respondents' application, however, I have determined that the costs should not be made payable forthwith. Rather, in accordance with r 40.13 of the Federal Court Rules 2011 (Cth), the respondents must not tax the costs until the proceeding has finished (or as otherwise agreed between the parties).

Submissions of the parties and consideration 10 It is convenient to set out the submissions of the parties, and my consideration, consecutively in respect to: (1) whether an indemnity costs order should be made; and, (2) if so, whether such an order should be made payable immediately (or 'forthwith'). 11 It is important to note that, although this matter arises from an employment relationship, it is (presently) pleaded as principally a breach of contract claim and not pursuant to the Court's jurisdiction under the Fair Work Act 2009 (Cth). As such, the limits imposed by s 570 of the Fair Work Act on the awarding of costs for matters in the Fair Work Division of this Court do not apply. Noting the general discretion to award costs vested in the Court pursuant to s 43(2) of the Federal Court of Australia Act 1976 (Cth), I am guided by the applicable provisions of the Act, Rules, and common law principles.

Whether costs should be awarded on an indemnity basis

Unreasonable conduct as basis for order 12 Both parties are in agreement that costs ordered on an indemnity basis are compensatory in nature for the successful party, rather than a form of punishment to be imposed on the unsuccessful party. The respondents note that a party seeking an indemnity costs order usually must show some conduct that is unreasonable or delinquent, and which is connected to the litigation, citing, among other authorities, Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72; Ingot Capital Investments Pty Ltd and Others v Macquarie Equity Capital Markets Ltd (No. 7) [2008] NSWSC 199; 65 ACSR 324; and Mead v Watson as liquidator for Hypec Electronics [2005] NSWCA 133; (2005) 23 ACLC 718 at [9]. 13 Mr Olson submits that analysis of the authorities reveals a recognised set of categories or classes of cases, which are not closed, wherein an order for indemnity costs have been awarded; and that the category of "unreasonable conduct" sought to be introduced by the respondents is not supported by the authorities cited. Further, the reference to "unreasonable conduct" in Ingot, for example, was in the context of proceedings brought with, on Mr Olson's characterisation, no reasonable prospect of success. Mr Olson submits that there is no suggestion that his second FASOC sought to persist in a claim that the Court earlier held to be unavailable or was otherwise an abuse of process. Rather, he has unsuccessfully sought leave to amend for a third time, in response to earlier successful applications by the respondents to strike out parts of the pleadings, which are hallmarks of heavily contested litigation. 14 The respondents' submit in reply that Mr Olson's contention is incorrect; and that there is an abundance of appellate authority confirming the discretion to order indemnity costs where there is evidence of an unsuccessful litigant having engaged in unreasonable conduct. I agree with the respondents that evidence of unreasonable conduct enlivens the discretion of the Court to order indemnity costs. Also, unreasonable conduct does not need to rise to the level of vexation or abuse of process for such costs to be awarded. As Mason P (with whom Clarke A-JA agreed) stated in Rosniak v Government Insurance Office (1997) 41 NSWLR 608 at 616: Later cases have emphasised that the discretion to depart from the usual "party and party" basis for costs is not confined to the situation of what Gummow J described as the "ethically or morally delinquent party" (Botany Municipal Council v Secretary, Department of the Arts, Sport, the Environment, Tourism and Territories (1992) 34 FCR 412 at 415): see Baltic Shipping Co v Dillon, "Mikhail Lermontov" (1991) 22 NSWLR 1 at 34; Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233-234. Nevertheless the court requires some evidence of unreasonable conduct, albeit that it need not rise as high as vexation. This is because party and party costs remain the norm, although it is common knowledge that they provide an inadequate indemnity. 15 The respondents submit that Mr Olson's conduct may be described as unreasonable for the following reasons.

Profit Interest Claim 16 The respondents note that the Profit Interest Claim appeared to be a re-introduction of a claim previously summarily dismissed in Olson v Keefe (No 2), with the consent of Mr Olson. The respondents raised this in correspondence to the applicant on 30 April 2018, annexed to the Tatasciore affidavit, also noting that indemnity costs would be sought on a forthwith basis if leave to file were unsuccessful. Mr Olson submits in response that the Profit Interest Claim is relevant to a breach of an implied duty to co-operate, and a material fact in determining damages for breach of contract at termination. 17 At [37] of Olson v Keefe (No 3), I concluded that: The profit interest claim was abandoned at the hearing that took place on 14 June 2017, partly for the reason that the claim could only arise in the event of the sale of Hilco's Australian business, which it has never suggested took place. That claim cannot now be reintroduced, whether as a particular to another claim or otherwise. The respondents correctly note that, as the sale event did not take place, there is no entitlement that could be relevant to a breach of any implied duty to co-operate; nor could it have any bearing on the question of damages. It was unreasonable for the applicant to attempt to reintroduce this claim, whether as part of a particular claim or otherwise.

Unconscionable Conduct Claim 18 The Unconscionable Conduct Claim was struck out in Olson v Keefe (No 3) and leave to re-plead was denied. At [32], I referred to this being the applicant's third attempt to amend the pleading of this cause of action, and fourth attempt to amend his pleadings in total. The respondents argue that they gave repeated notice of the issues pertaining to the Unconscionable Conduct Claim in correspondence to the applicant on 12 December 2017 and 30 April 2018, annexed to the Tatasciore affidavit, again noting that indemnity costs would be sought on a forthwith basis. Mr Olson contends that the respondents cite no authority for the proposition that two unsuccessful attempts at formulation of a pleading warrants an order for costs on an indemnity basis. In reply, the respondents refer to the decision of Liberty Financial Pty Ltd v Scott (No 4) [2005] VSC 472, in which Harper J ordered indemnity costs in circumstances where the plaintiff had appealed the primary judge's decision to strike out the pleading; the appellate court made comments indicating there may be a case underpinning the relevant pleading, but that the attempted pleading was so poorly drafted that the task of filing a defence was near impossible (see also Liberty Financial Pty Ltd v Scott [2005] VSCA 263). 19 The respondents' made a more global complaint at the hearing of the application for leave to file the second FASOC, and in submissions for this costs application, in respect of the standard of Mr Olson's pleading being below what may reasonably be expected, noting the comment of Lee J in the Appeal Applications at [34], wherein his Honour described the applicant's second FASOC as "self-evidently defective". The respondents submit that the task of preparing a defence is made almost impossible due to no real attempt to produce a document containing clear assertions of fact and law, and that "the pleading is so fundamentally flawed that the repeated failure to properly amend it and produce an acceptable document amounts to unreasonable conduct." 20 Although conceding that the pleading was "not as fluent as one might hope", Mr Olson submits that it is nonetheless apparent from reading the transcript of the Appeal Applications hearing that the respondents understand every element of the case advanced against them; and that the respondents have previously conceded on two occasions that Mr Olson has a case to bring and that they would be able to address issues through the requesting of further particulars. I am not convinced by this argument. As should be clear from my decision of Olson v Keefe (No 3), the deficiencies in the second FASOC could not have easily been cured by the provision of further particulars. 21 I would not go so far as to say that the task of the respondents' drafting of a defence to the second FASOC was near impossible in its totality. However, for the reasons given in Olson v Keefe (No 3), there were evidently sufficient deficiencies in the proposed pleadings to necessitate refusal of leave to file the second FASOC. Such deficiencies were within the context of Mr Olson, as a legally represented party, having been afforded multiple attempts to redraft his pleadings, particularly in relation to the Unconscionable Conduct Claim, both before the Court and in correspondence with the respondents. In all the circumstances, I consider Mr Olson's conduct to be unreasonable, such that the respondents should be compensated in the form of a costs order on an indemnity basis. 22 Having determined that Mr Olson should pay the respondents' costs of, and incidental to, his application to file the second FASOC on an indemnity basis, I now turn to consider whether those costs should be made payable forthwith.

Whether the costs should be payable immediately (or 'forthwith') 23 The respondents' interlocutory application seeks for the indemnity costs order, and the costs of this interlocutory application, to be made payable forthwith. The respondents acknowledge that, per r 40.13 of the Rules, if an order for costs is made on an interlocutory application, the party in whose favour the order is made must not tax those costs until the proceeding is finished; but that the Court may otherwise order that the costs be taxed immediately. The respondents note that the discretion may be exercised where it is in the interests of justice to do so, and where there has been some unreasonableness in the conduct of the unsuccessful party, citing Cytel Pty Ltd v Peoplebank Recruitment Pty Ltd (No 2) [2008] FCA 697 at [7] and Rosegum Corporation Pty Ltd v Young, in the matter of Rosegum Corporation Pty Ltd (No 2) [2017] FCA 36 at [13]. 24 The respondents submit that Mr Olson having engaged in unreasonable conduct, with multiple attempts to plead claims causing delay in the progress of the proceeding to final hearing, falls within a recognised circumstance in which it is appropriate to order interlocutory costs to be paid forthwith. The respondents note that in Rosegum, the Court ordered costs to be made payable forthwith where there had been "substantial delays" and the plaintiffs had inadequately articulated the case against the defendants, in particular, by removal of numerous causes of action, which put the case in an exceptional position: see [24]. The respondents also contend that the costs orders are relevant to a discrete and separately identifiable aspect of the proceedings, being the pleadings stage, and more specifically the applicant's attempt to amend his statement of claim. The respondents argue that whether the applicant ultimately succeeds in his claim at final hearing has no bearing on his liability to pay the respondents' costs arising from his repeated, unsuccessful attempts to amend and re-plead his case. 25 Mr Olson submits that such an order would be premature given the pleadings have not yet closed, and necessitate costs in the proceeding being taxed twice. Further, the order would not be in respect of a discrete aspect of the proceedings, such as the determination of a separate question. Mr Olson notes that he has not done anything more than legitimately exercise his rights to seek leave to re-plead and to appeal from earlier orders. He further submits that an order requiring payment forthwith would act as a punishment, rather than compensation. 26 The respondents correctly note that a repeated failure to properly plead a case is a recognised exception to the general rule relating to when interlocutory costs orders may be taxed or made payable, citing Orrcon Operations Pty Ltd v Capital Steel & Pipe Pty Ltd (No 2) [2008] FCA 24 at [18]. In Rosegum, McKerracher J noted at [12]-[13] that: An obvious reason for the existence of this Rule is to avoid a multiplicity of assessments of costs. Additionally, it is not usually appropriate to pay costs immediately because that party may ultimately succeed in the substantive proceedings. From a logical point of view there may be capacity to set off respective liabilities for costs or other awards of the Court at completion of the proceedings in most instances. Nevertheless, in circumstances where the interests of justice require there should be departure from the Rule. It would be rare to make an order of this nature unless there was some unreasonableness in the conduct of the unsuccessful party and/or a likelihood of a long delay between the interlocutory proceeding and the conclusion of the principal proceeding: Rafferty v Time 2000 West Pty Ltd (No 3) (2009) 257 ALR 503 per Besanko J. 27 A further consideration, noted by Besanko J in Rafferty v Time 2000 West Pty Ltd (No 3) [2009] FCA 727; 257 ALR 503 at [20], is that the general rule also serves to prevent interlocutory proceedings being used as a weapon to exhaust the financial resources of one of the parties. Although the applications to re-plead were brought by Mr Olson, the capacity of a costs order to stultify proceedings, particularly brought by persons who may be seen (even without specific evidence) to have limited resources, is an important consideration: see, for example, Rissanen v Nunan [2019] NSWSC 418 at [53]. 28 Whilst it is true that Mr Olson filed his original claim in September 2016, and I accept the respondents' contention that the substantive proceedings may not take place until mid-2020 given the current stage of the matter, I do not consider the likely delay to the finalisation of the proceedings, or what Mr Olson's contribution may be to that delay, sufficient to warrant a costs order payable immediately. The contention that a costs order made payable forthwith would act as a punishment to the unsuccessful party, rather than as compensation to the successful party, cannot stand as a general principle (nor was it advocated as such by Mr Olson). However, the particular circumstances of the case militate against such an order being made. Although no evidence was put forward by Mr Olson on this point, I consider him being a natural person as relevant to determining whether to exercise the discretion, particularly in circumstances where an order for costs to be paid immediately may stymie the continuation of proceedings. In all of the circumstances, I do not consider it in the interests of justice to require departure from r 40.13 of the Rules.

Conclusion 29 For the reasons above, Mr Olson is to pay the respondents' costs of, and incidental to, his application to file the second FASOC on an indemnity basis; and the costs of, and incidental to, this costs application on an ordinary basis. Contrary to the respondents' application, however, I have determined that the costs should not be made payable forthwith. Rather, in accordance with r 40.13 of the Rules, the respondents must not tax the costs until the proceeding has finished (or as otherwise agreed between the parties). If Mr Olson is ultimately successful, then the costs orders may be set-off against any liability for costs and other awards. If Mr Olson is ultimately unsuccessful, then costs will be taxable at that stage. If the matter otherwise settles between the parties prior to the substantive hearing and determination of the matter, they will be at liberty to negotiate at their discretion. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bromwich.