Industrial Relations Commission of New South Wales in Court Session CITATION : Public Service Association and Professional Officers' Association Amalgamated Union of New South Wales v Public Sector Management Office and anor (No 2) [2004] NSWIRComm 344 revised - 08/02/2005 APPLICANT Public Service Association and Professional Officers' Association Amalgamated Union of New South Wales FIRST RESPONDENT PARTIES : Public Sector Management Office SECOND RESPONDENT Legal Aid Commission Legal Aid Commission of New South Wales FILE NUMBER: 6627 of 2003 CORAM: Marks J CATCHWORDS : Award sought - whether implied term requiring indemnification of employee in employment contract - authoritities considered - indemnification sought where legal services provided without reasonable prospect of success - appropriate to make award - proceedings stood over to allow parties to draft and submit award. LEGISLATION CITED : Industrial Relations Commission 1996 Legal Profession Act s 198M Adamson v Jarvis [1824-34] All ER Rep 120 CASES CITED : Re Famatina Development Corporation Ltd [1914] 2 Ch 271 Simmons v The Commissioner for Railways (1948) ST R QD 19 HEARING DATES: 07/21/2004; 07/22/2004 DATE OF JUDGMENT: 11/18/2004 APPLICANT Mr M Gibian of counsel Solicitor: Mr A Howell Jones Staff and Co LEGAL REPRESENTATIVES: SECOND RESPONDENT Mr S E J Prince of counsel Solicitor: Ms L Booker Legal Aid Commission JUDGMENT: - 3 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES CORAM: MARKS J Thursday 18 November 2004 Matter No IRC 6627 of 2003 PUBLIC SERVICE ASSOCIATION AND PROFESSIONAL OFFICERS' ASSOCIATION AMALGAMATED UNION OF NEW SOUTH WALES v The LEGAL AID COMMISSION OF NEW SOUTH WALES/PUBLIC SECTOR MANAGEMENT OFFICE AND ANOR NO 2 Application under s 130 of the Industrial Relations Act 1996 JUDGMENT [2004] NSWIRComm 344 1 The background to these proceedings is fully described in a judgment which I delivered on 9 September 2004 ([2004] NSWIRComm 209). In that judgment I declined to make the award sought by the applicant union because it was arguable that the subject matter of the award would be accommodated by an implied term of the contract of employment of solicitors employed by the Legal Aid Commission and it was therefore unnecessary to make an award as sought. The proceedings were stood over to allow the parties to make submissions on this aspect, and this further judgment deals with those submissions and with the determination of the proceedings. 2 At paragraph [70] of my judgment I said: "This leaves for consideration only the question whether the implied indemnity which arguably exists in the contracts of employment of each and every solicitor employed by the Commission is sufficient to provide adequate protection for Mr Sergent and his fellow employed solicitors. As I indicated in paragraph 65 above, there appears to be a line of cases which would support such an implied term. In Adamson v Jarvis, Best CJ said: "It has been stated at the Bar that this case is to be governed by the principles that regulate all laws of principal and agent. Agreed. Every man who employs another to do an act which the employer appears to have a right to authorise him to do undertakes to indemnify him for all such acts as would be lawful if the employer had the authority he pretends to have. A contrary doctrine would create great alarm". (at 122). Such a statement would, it seems to me, prima facie apply to the circumstances revealed in these proceedings and would render unnecessary the making of an award. Because, however, neither party asserted that such an implied condition was contained within the relevant contracts of employment, I shall refrain from disposing of these proceedings to give each of the parties an opportunity of making submissions confined to the question whether at law an implied term of the kind to which I have referred does in fact exist and whether its provisions cover the circumstances of these proceedings". 3 The statement of principle set out by Best CJ in Adamson v Jarvis needs to be understood by reference to the background to those proceedings. The facts are conveniently set out in the headnote as follows: "The defendant, who had certain property in his possession, represented to the plaintiff, an auctioneer, that he had authority to dispose of it, and requested the plaintiff to auction it for him. This the plaintiff did, and paid to the defendant the net proceeds of the sale. Unknown to the plaintiff, the defendant in fact had no authority to dispose of the property. The true owner having recovered damages from the plaintiff, the plaintiff claimed to be indemnified by the defendant". Against this background, the statement of principle of Best CJ is unremarkable. There was no question of the plaintiff having any knowledge or otherwise engaging in any conduct which would indicate other than complete ignorance of any lack of authority in the defendant to sell the property. Adamson v Jarvis may therefore be seen to be authority for a proposition that an agent acting innocently and in good faith who suffers loss whilst lawfully performing duties in the course of his or her duties as an agent by reason of some fault of the principal is entitled to be indemnified by the principal to the extent of the loss. 4 Both parties referred in detail to the judgment of the English Court of Appeal in Re Famatina Development Corporation Limited [1914] 2 Chancery 271. Famatina is one of the authorities cited by Macken et al in "Law of Employment" (5th ed, LawBook Co, Sydney, 2002, at p 129) to which I referred in paragraph [67] of my earlier judgment. The applicant in Famatina was a consulting engineer engaged by the company. He was required to make certain inquiries about the value of properties owned by the company and report to the company thereon. He reported that the managing director had engaged in unlawful activities for his own gain. The managing director sued the applicant for damages for defamation and those proceedings were ultimately dismissed. The applicant incurred costs in defending those proceedings which he was unable to recover against the managing director. He sought indemnity for those costs against the company which, by then, was in liquidation. In reversing the decision of the trial judge the Court of Appeal upheld the applicant's entitlement to claim indemnity for the costs incurred. Unfortunately the report of the several judgments in the Court of Appeal seems to be in summary form only. Lord Cozens-Hardy MR is reported to have said that the applicant "was much more than a servant of the company and the duties imposed upon him were far wider than those of a consulting engineer. He was undoubtedly appointed to be the agent of the company for many purposes and all he had done was done in pursuance of his duties as agent. Therefore he came within the well-settled rule that an agent had a right against his principal, founded upon an implied contract, to be indemnified against all losses and liabilities, and to be reimbursed all expenses incurred by him in the execution of his authority" (at [282]). Obviously, this statement of principle needs to be qualified in a number of respects. Importantly, for present purposes, is the reference to losses and liabilities incurred by the agent "in the execution of his authority". This must of necessity be predicated upon the basis that the conduct of the agent must be undertaken fully within the agent's authority both implied and express. 5 I add for completeness that the report states that two other members of the Bench "gave judgment to the same effect". The report of the judgment of the Master of the Rolls does not make reference to any authority cited by his Lordship. 6 Both counsel made reference to the judgment of the Full Court of the Supreme Court of Queensland in Simmons v The Commissioner for Railways (1948) ST R QD 19. In his judgment in that case E A Douglas J cited Adamson and Famatina as well as other cases as authority for the principle that "In cases where a wrongful act, not in itself manifestly tortious to the knowledge of the person doing it, but which is injurious to the right of others, is done by one person at the request or as agent of another, a right of indemnity is given to the person acting at the request or as agent of another person, against such other person" (at [29]). However his Honour then stated that that right of indemnity "has not been extended to entitle a servant to an indemnity by his master for acts done at the direction of the master in consequence of which the servant suffers injury to his property" (at [29]). Thus, the indemnity did not extend to circumstances where a railway guard could claim indemnity from his employer, The Commissioner for Railways, when personal effects which were being carried in a carriage were damaged by fire. In the absence of any evidence of negligence on the part of The Commissioner for Railways no entitlement to indemnity existed. 7 In the course of his written submissions Mr Mark Gibian of counsel who appeared for the applicant union emphasised that the indemnity to be implied at general law was conditional on some fault or wrongful act on the part of the principal/employer and utilised the factual circumstances in Adamson v Jarvis for this purpose. However, as Mr Gibian properly conceded, the formulation of the principle in this way is not consistent with the judgment of the Court of Appeal in Famatina. These observations must, however, be qualified by the fact that the Famatina judgment contains obviously a summary of what was said by the Master of the Rolls and does not contain any extract of the judgments of the other two members of the Court. He submitted therefore that Famatina could not be read as supporting a broad proposition that an employer is liable to indemnify an employee against all losses or liabilities incurred in the course of employment. 8 Whatever the difficulty in reconciling the authorities in this area Mr Gibian submitted that there could be no implied term requiring indemnification of an employee where there was some fault on the part of the employee. In his submissions, Mr S E J Prince, counsel for the Legal Aid Commission of New South Wales, said that the respondent accepted that there was an implied term in the applicant's contract of employment requiring the employer to indemnify him "against costs incurred on behalf of the employer in the course of …employment". Such indemnity would be dependent upon an examination of what the employee was required to do by the employer to ensure that the liability had been incurred strictly within the course of employment. 9 Mr Prince raised, in passing, a point which he said had not been addressed by the applicant union when making the application for an award. The application was directed to circumstances where an order was made against a solicitor under s 198M of the Legal Profession Act. However there may be circumstances where proceedings are commenced against a solicitor seeking an order under s 198M. In circumstances where those proceedings have been successfully resisted the employed solicitor may have incurred costs in resisting the proceedings. Those costs would not be caught, it was said, by the award sought to be made. Whether this is a matter that the applicant union needs to take into account is not a matter which I am called upon to determine. 10 The difficulty which faces the Commission in determining these proceedings, as was emphasised by counsel for both parties, is that the indemnification sought would only apply in circumstances where there has been a finding that there has been the provision of legal services to a party without reasonable prospects of success. Such finding would need to be made against the background, as exists in these current proceedings, that all parties have expressed the opinion that no such situation arises in the circumstances of Mr Sergent. Nevertheless, there can be no guarantee that such a finding might not be made by a court, nor can there be any guarantee that the Commonwealth of Australia, through its solicitors, Minter Ellison, might not proceed to seek an order under s 198M. 11 To the extent that s 198M only applies where a solicitor has provided legal services to a party without reasonable prospects of success it is my opinion that there is no basis at law for implying a provision in the contracts of employment of solicitors employed by the Legal Aid Commission which would require indemnity to be extended with respect to any costs order made against the solicitor pursuant to that section. 12 In my earlier judgment I outlined in paragraph [69] five matters which I stated should be taken into account in determining that it was not appropriate that indemnity be extended to solicitors employed by the Legal Aid Commission so as to provide protection from the type of circumstances which gave rise to these proceedings. 13 Accordingly, I conclude that it is appropriate to make an award which, in general terms, reflects the award sought by the union. This will provide the requisite measure of comfort for Mr Sergent and other solicitors employed by the Legal Aid Commission and, in the public interest, will allow those solicitors to conduct themselves as legal practitioners in an appropriate manner free from the intimidatory and bullying tactics employed by the Commonwealth of Australia through their solicitors, Minter Ellison. 14 By reason of the provisions of Industrial Relations Act 1996 there are certain matters which will need to be included within the provisions of the award and there may be matters which will be the subject of discussion in terms of the exact wording of the award, especially the operative clause. For example, consideration may need to be given to the substitution of the word "or" for "and" in clause 1(ii) of the proposed award. 15 The proceedings are stood over to enable the parties to confer with respect to the drafting and submission of an award in hopefully agreed terms to reflect this decision. If any difficulty arises in this regard the matter may be re-listed before me by exercising the liberty to apply which I hereby grant. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.