SBP Employment Solutions Pty Ltd v Smith

RANGIAH J: 1 On 8 June 2021, in SBP Employment Solutions Pty Ltd v Smith [2021] FCA 601, I determined the appellants' appeal from three judgments of the Federal Circuit Court of Australia. On 7 July 2021, I made final orders except as to the costs of the appeal. 2 The parties have now exchanged affidavits and submissions as to costs. These reasons determine the costs of the appeal. 3 The orders of the Federal Circuit Court included declarations that the appellants had contravened ss 44 and 340 of the Fair Work Act 2009 (Cth) (the FWA); orders imposing pecuniary penalties; and orders for the payment of compensation of $589,439.43 and interest of $13,925.16. 4 The appellants also sought leave to appeal from orders that they pay 60% of the respondent's costs on a party-and-party basis. 5 I made orders allowing the appeals in part. I set aside some of the pecuniary penalty orders and reduced the quantum of the remaining penalties. I ordered that the amount of compensation awarded to the respondent be reduced to $115,478.75 and that interest be reduced to $9,982.25. I granted leave to appeal from the primary judge's costs orders and ordered that there be no order as to the costs of the proceedings before the Federal Circuit Court. 6 The appellants now seek an order that the respondent pay their costs of the appeal. The appellants rely upon a collective offer they made to the respondent on 5 March 2020 (the Offer) to settle the proceedings for $260,100. 7 The Offer was made after the appeal had been commenced, and was expressed to be made pursuant to the principles in Calderbank v Calderbank [1975] 3 All ER 333. On 19 March 2020, the respondent rejected the Offer. The Offer proved to be over $66,000 more than the total amount the respondent was ultimately awarded. 8 The power of the Court under s 43 of the Federal Court of Australia Act 1976 (Cth) (the FCA Act) to award costs is limited by s 570 of the FWA. That section 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: (a) the court is satisfied that the party instituted the proceedings vexatiously or without reasonable cause; or (b) the court is satisfied that the party's unreasonable act or omission caused the other party to incur the costs; or (c) the court is satisfied of both of the following: (i) the party unreasonably refused to participate in a matter before the FWC; (ii) the matter arose from the same facts as the proceedings. 9 The appellants rely upon s 570(2)(b) of the FWA. The appellants submit that the respondent's rejection of the Offer was an unreasonable act that ought to result in an order that the respondent pay the appellants' costs on a party-and-party basis from 19 March 2020 onwards. 10 In Fair Work Ombudsman v Grouped Property Services Pty Ltd (No 3) [2017] FCA 810, Katzmann J held at [25] that s 570(2)(b) of the FWA requires the Court to be satisfied that: (a) one party, by its act or omission, behaved unreasonably - that question to be determined objectively; and (b) the party's unreasonable act or omission caused the other party to incur costs. 11 Justice Katzmann further held at [26]: Importantly, the touchstone for the exercise of the power is unreasonableness, not negligence or inefficiency. That said, once the power is enlivened and the Court is considering whether or not to exercise its discretion to make an order, the Court is bound to exercise that discretion in the way that best promotes the overarching purpose of any statutory provision on a matter of practice and procedure referred to in s 37M of the FCA Act: s 37M(3). At this point questions of inefficiency are very relevant, for the overarching purpose of the civil practice and procedure provisions includes the efficient resolution of disputes. 12 In Shea v EnergyAustralia Services Pty Ltd (No 2) [2015] FCAFC 14, the Full Federal Court held at [11]: [T]he power to order costs, once a criterion in s 570(2) has been satisfied, is discretionary and should be exercised, not so as to impose a penalty or punishment on the losing party but to provide an appropriate means of compensating the successful party having regard to all of the circumstances… 13 In Melbourne Stadiums Ltd v Sautner (2015) 229 FCR 221, White J observed at [166]: It is well established that a failure to accept a reasonable offer of compromise may constitute an unreasonable act for the purposes of s 570(2) and its predecessors… 14 In Cugara v Frankston City Council [2012] FCA 1299, Tracey J held at [31]: A deliberate decision to refuse a reasonable offer of settlement is a factor which would normally weigh more heavily in favour of a finding of unreasonable action than would a mere failure to respond by an unrepresented litigant. 15 The respondent was legally represented during the appeal, including at the time the Offer was made and rejected, but was self-represented in respect of the costs application. 16 The respondent submits that he has not acted unreasonably in respect of his refusal to accept the Offer. He submits that he is the victim and has suffered as a result of the appellants' conduct. He submits that the only reason either party incurred costs was the appellants' failure to comply with ss 44 and 340 of the FWA. In particular, the respondent observes that the appellants only paid his entitlements to annual leave after he had incurred substantial legal costs, just a few weeks short of the commencement of the trial. The respondent blames his rejection of the Offer on what he asserts was bad legal advice. 17 The respondent also asserts that he should have his costs of the appeal on an indemnity basis. The only apparent basis for that claim is that the appellants filed their application for leave to appeal against the primary judge's costs orders made in his favour out of time. It is not evident that the appellants' delay caused the respondent to incur any additional costs. I am not satisfied that there is any basis for any award of costs in favour of the respondent. 18 The respondent's rejection of the Offer was, as it turned out, imprudent. However, what is required in order to engage s 570(2)(b) of the FWA is not mere imprudence, but unreasonable conduct. Whether the respondent's rejection of the Offer was objectively unreasonable must be judged in light of all the relevant circumstances. 19 At the time when the Offer was made and rejected, the respondent had the benefit of judgments of the Federal Circuit Court in his favour, which included orders against each appellant for the payment of very substantial compensation and penalties. The success of the appeal was always dependent upon the demonstration of error in the judgments of the primary judge to the satisfaction of the appellate court. 20 The proceedings at first instance and in the appeal itself were complex and involved multiple parties and strands of argument. The six appellants are comprised of two companies and the four directors of those companies. Although the appellants are closely related, the appellants each had, or were alleged to have had, different roles in the conduct that was found to have contravened the FWA. There were substantial issues concerning whether the appellants had individually contravened the FWA. The second, fifth and sixth appellants were successful in overturning the declarations of contravention, and orders imposing penalties, made against them. The first, third and fourth appellants were successful in reducing the amount of compensation, and amounts of the penalties, awarded against them. However, the appellants' success was far from complete. In particular, the first, third and fourth appellants failed to overturn the declarations that they had contravened s 340, and the first and fourth appellants failed to overturn the declarations that they had contravened s 44 of the FWA. The outcome was that the first, third and fourth appellants were still required to pay substantial compensation and penalties to the respondent. 21 While there were ultimately different outcomes in the appeal in respect of the individual appellants, the Offer was a single offer made on behalf of all the appellants. That added complexity to the respondent's decision whether to accept or reject the Offer. 22 At the time the appellants made the Offer, the outcome of the appeal against the quantum of compensation was far from certain. Although I held that the primary judge's quantum assessment was wrong, it is possible to see that reasonable minds could differ upon the appropriate award. I held that the penalties imposed by the primary judge were manifestly excessive, but the egregious conduct of the first appellant and two of the directors always necessitated the imposition of substantial penalties and made the appropriate level of penalties difficult to gauge. 23 Another issue is whether there could have been any compromise of the pecuniary penalties ordered by the Court. That issue was not addressed by the parties and it is unnecessary that it be resolved. It is enough to say that the issue may have added another layer of complexity to the respondent's decision whether to accept or reject the Offer. 24 In all the circumstances, I am not satisfied that the respondent acted unreasonably in rejecting the Offer. 25 The appropriate order is that there be no order as to the costs of the appeal. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Rangiah.