Industrial Court of New South Wales CITATION: Lassithiotakis v Cardile and Ors [2008] NSWIRComm 148 APPLICANT: Bill Lassithiotakis FIRST RESPONDENT John Cardile PARTIES: SECOND RESPONDENT: Ultra Modern Developments Pty Limited ACN 069 518 770 THIRD RESPONDENT: Cardile Investment Corporation Pty Limited ACN 068 769 951 FILE NUMBER(S): IRC 6800 of 2002 CORAM: Schmidt J CATCHWORDS: Costs - unfair contract - matter settled by agreement between parties, with Court to determine costs - how Court's discretion as to costs to be exercised - no hearing on merits - respondents' payments and admissions considered - costs as agreed or assessed, in favour of the applicant, other than in relation to the costs order earlier made in favour of the respondents Annual Holidays Act 1944 LEGISLATION CITED: Industrial Relations Act 1996 Industrial Relations Commission Rules Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 CASES CITED: Austress Freyssinet Pty Limited v Joseph & Ors [2007] NSWSC 1513 Oshlack v Richmond River Council (1998) 193 CLR 72 Re Minister for Immigration & Ethnic Affairs ex parte Lai Qin (1997) 186 CLR 622 HEARING DATES: 5 August 2008 DATE OF JUDGMENT: 14 August 2008 APPLICANT: Mr LAH Macinnis, solicitor SOLICITORS: Dibbs Barker Gosling Lawyers LEGAL REPRESENTATIVES: RESPONDENTS: Mr T Lynch of counsel SOLICITORS: Hunter Lawyers JUDGMENT: - 10 - INDUSTRIAL COURT OF NEW SOUTH WALES CORAM: Schmidt J 14 August 2008 Matter No IRC 6800 of 2002 BILL LASSITHIOTAKIS v JOHN CARDILE AND ORS Application under s.106 of the Industrial Relations Act 1996 JUDGMENT [2008] NSWIRComm 148 1 This judgment deals with the costs of these proceedings, brought in November 2002, pursuant to s 106 of the Industrial Relations Act 1996 ('the Act'), which were otherwise settled by agreement of the parties, reached in April 2007. The applicant sought the usual costs order, costs as agreed or assessed, in his favour, subject to an earlier costs order made in favour of the respondents by his Honour Justice Marks, being set off. The respondents opposed that order, seeking instead an order that each party bear their own costs of these proceedings. 2 There was no disagreement as to the relevant facts. The proceedings were brought in November 2002, after the applicant's employment had been terminated for misconduct. The applicant claimed that the contract under which he had been employed was unfair in various respects and challenged the respondents' right to have terminated the employment for misconduct, claiming rather, that it had been brought to an end on account of redundancy. The applicant also sought money orders of over $300,000, for payment in lieu of notice/redundancy, superannuation, annual leave; and commission and bonuses. 3 In August 2003, the respondents paid the applicant over $59,000, for underpayment of commission; underpayment of annual leave entitlements and interest. The parties later amended their various pleadings. On the applicant's side, the summons was amended as to facts and matters relied upon, as well as money orders sought. In particular, account was taken of the monies paid by the respondents; a debt owing to the respondents was admitted and a claim for money retained by the employer, allegedly to reflect sums embezzled by the applicant, was pursued. The respondents then also commenced proceedings in the Local Court, seeking to recover this sum from the applicant. 4 In March 2006, the respondents offered to settle these proceedings on the basis of a payment in lieu of notice and superannuation, of over $100,000. The offer was refused. One of the terms of the offer was that the respondents would pay the applicant's costs of the proceedings, only to August 2003, the time of the first payment made to the applicant. 5 In April 2007, the matter was settled, essentially on the basis of an acceptance of the money sum earlier offered by the respondents, although how the settlement was described differed and with the question of costs being left to be resolved by the Court's order. The proceedings on foot before the Local Court were not resolved by the settlement which the parties reached. That matter is the subject of a stay, granted by consent on the eve of the hearing of that matter before the Local Court. 6 The applicant's case was that an order would be made in his favour, because he was the successful party in the proceedings (see Oshlack v Richmond River Council (1998) 193 CLR 72 at 97). The respondents' case was that the applicant was not the successful party. The matter having been settled without judgment, the usual order was that each party would pay their own costs of the proceedings (see Re Minister for Immigration & Ethnic Affairs ex parte Lai Qin (1997) 186 CLR 622 at 624). 7 In Lai Qin it was observed by McHugh J: In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs [ Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534]. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order [ Latoudis at 543, 566-560]. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order. In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties [ Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201]. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action [ Australian Securities Commission v Aust-Home Investments Ltd ]. ... Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in The South East Queensland Electricity Board v Australian Telecommunications Commission [Unreported; Federal Court of Australia, 10 February 1989] where his Honour ordered the respondent to pay 80 per cent of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare. If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases. 8 This approach has been followed and applied in many cases. In Austress Freyssinet Pty Limited v Joseph & Ors [2007] NSWSC 1513 (12 December 2007), Brereton J observed at [9], after referring to these observations: 9 That passage establishes that where litigation is compromised it will often, but not invariably, be appropriate for the Court to refrain from deciding how the costs of the litigation should be borne, and leave them to be borne by each party. As his Honour said, where there has been no hearing on merits, a court is necessarily deprived of a crucial fact to determine whether or not or how to make a costs order. But as his Honour also said, in an appropriate case a court will make an order for costs, even where there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. In some such cases, the court may be able to conclude that one of the parties has acted so unreasonably that the other should receive costs, and in some cases a judge may feel confident that although both parties have acted reasonably, one was almost certain to have succeeded if the matter had be fully tried. 9 In Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365, Bryson JA, with whom McColl JA agreed, observed: 48 This passage from Lai Qin is not readily applicable to decision under r.42.20(1). UCPR r.42.20 is not entirely consistent with McHugh J.'s observation that the proper exercise of the costs discretion will usually mean that the Court will make no order as to costs. Justice McHugh's observations were directed to the discretionary power in O71 r39 of the High Court Rules (Cth), set out in Lai Qin at 623, which was discretionary overall, whereas in contrast r.42.20(1) creates a starting point by requiring "… the plaintiff must pay the defendant's costs of the proceedings …" unless that outcome is displaced by a discretionary decision. It should in my opinion no longer be said that if the moving party, or if both parties have acted reasonably in commencing and defending proceedings the proper exercise of the costs discretion will usually mean that the Court will make no order as to the costs of the proceedings; observance of the starting point under r.42.20 will make this outcome less usual than it earlier was. 49 Justice McHugh's observation acknowledges the discretionary nature of the power, and does not purport to limit the way the discretion is to be exercised. The usual outcome which McHugh J. indicated is the usual end point, not the starting point, for the exercise of discretion. Cases including Australian Securities Commission v Aust-Home Investment Ltd (to which McHugh J. referred) at 200-202 indicate a range of considerations and outcomes. 50 In One.Tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548 at 553 Burchett J. said: [6] In my opinion, it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the court's discretion otherwise than by an award of costs by the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs. 51 This passage was cited with approval in Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302 by Davies AJA at [5]: Mason P and Meagher JA agreed. Adopting this classification, there is no element of a supervening event defeating IAS's claim; although IAS surrendered early, the circumstances are closer to what Burchett J. referred to as an effective surrender. The conduct of REX in disregarding the Statutory Demand should not be said to have precipitated the litigation: see Ritter v Godfrey , Hifu Electronics Pty Ltd v Fujian Pacific Pty Ltd FCA 1 December 1998 (Burchett J. unreported). 10 For his part, Basten JA said: 64 Rule 42.20(1) provides that, in the case of a dismissal of proceedings, "the plaintiff must pay the defendant's costs of the proceedings". The Court is given power to order otherwise, being a power which would usually be exercised on the application of the plaintiff, on the basis that the statutory rule would not do justice between the parties: see Civil Procedure Act , s 56(1). However, the mere fact that the plaintiff was "justified" in commencing proceedings, or that the parties acted "reasonably in commencing and defending the proceedings" would not necessarily warrant interference with the statutory order: c.f. Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 625 (McHugh J). 65 In order to avoid the statutory order, it was necessary for the plaintiff to show more than justification, in the sense that it commenced proceedings in the exercise of a statutory right available to it. It would have needed to show some additional factor, such as that conduct of the defendant led it to the reasonable belief that litigation would be necessary to enforce its right to payment in a timely fashion or that winding up the defendant was an appropriate means of obtaining payment. As Bryson JA has shown, by detailed reference to the facts before the Court, Aspirion was unable to demonstrate any such basis for the Court to otherwise order. 11 In this Court, the Act provides in s 181: 181 Costs (1) Subject to the rules of the Commission and any other Act or law: (a) the Commission may award costs, and (b) costs are in the discretion of the Commission, and (c) the Commission may determine by whom and to what extent costs are to be paid, and (d) the Commission may order costs to be assessed on the basis set out in Division 11 of Part 3.2 of the Legal Profession Act 2004 or on any other basis. 12 The Court's Rules provide that: 215 Discontinuance Where pursuant to Part 19 a party to any proceeding discontinues the proceeding without leave as to whole or any part of the relief claimed against any other party, the discontinuing party shall, unless the Commission otherwise orders, pay the costs of the party against whom the discontinued claim was made incurred before service of notice of the discontinuance and the latter party may request the Commission or the Registrar to make an order accordingly. 13 It follows that in this case, the parties having settled the proceedings, other than in relation to the matter of costs, the question here to be determined is whether this is one of those cases where it is appropriate to make an order for costs, even though there has been no hearing on the merits. Two factors have convinced me that this is such a case. 14 The first is the payment made by the respondents in 2003, in respect of an accepted underpayment of annual leave entitlements and commission. Neither of those payments depended upon any finding in these proceedings, of relevant unfairness in the contract. While such claims were pursued in these proceedings, as money orders just to be made by the Court in all of the circumstances relied upon in the summons, they did not depend upon the Court coming to any concluded views as to the unfairness of the parties' contract, the subject matter of the proceedings. The annual leave entitlement depended upon the provisions of the Annual Holidays Act 1944 and the commission payment was a calculation which flowed from the terms of the parties' contract. The respondents' payment was not made on the basis of any settlement, or part settlement of these proceedings. To the contrary, it was a payment made together with a payment for interest, in respect of the intervening period. 15 This, no doubt, explains why, in the subsequent settlement offer, which the respondents made in 2006, the respondents offered to pay the applicant's assessed costs of these proceedings incurred up to the time of the payment in 2003. This acknowledged the reality that the payment which the respondents then made, was a payment which the respondents ought to have made on termination of the applicant's employment in 2002, as a matter of its statutory and contractual obligations at that time. The offer to pay the applicant's costs, reflected what the applicant had to incur, in pursuing his acknowledged rights as to those claims. 16 When the offer to settle the matter was made by the respondents in 2006, there was no similar acknowledgment, in relation to the payment then proposed. In 2007, the payment made by the respondent in relation to the applicant's termination was made as a redundancy payment. It was described by the parties in their 2007 agreement as: (b) the Respondents will within seven (7) days from the date of this Order pay to the Applicant the sum of $60,446.68 in respect of the Applicant's claim for a redundancy payment together with the further amount of $27,797.00 to the Australian Taxation Office and $11,818.89 to the Applicant's nominated superannuation fund in respect of such payment; 17 It was also agreed that the Court would determine the question of costs. For the respondents, it was argued that this circumstance brought the parties into the situation described by McHugh J, as one where the parties had each acted reasonably in commencing and defending the proceedings and that the agreement reached, represented a compromise reached in litigation, which left the Court in a position where it had not determined the issue lying between the parties, on the merits. Accordingly, the Court had been 'deprived of the factor that usually determines whether or how it will make a costs order'. 18 I am unable to accept that submission. The settlement, given its terms, reflected an agreement between the parties that in truth, in 2002 when the employment was brought to an end, it was brought to an end by the respondents, in circumstances of the applicant's redundancy. The respondents had claimed in these proceedings, up until the time of the settlement that the reason for the dismissal was misconduct. 19 Both parties accepted that under the applicable tax legislation, the employer would have committed an offence, if it had treated the circumstances of the 2002 termination as involving a redundancy, so that the applicant was entitled to receive beneficial tax treatment in respect of the payment made in relation to the termination of his employment, if, in truth, there had been no redundancy. The treatment of the agreed payment as a redundancy payment, undoubtedly amounted to an admission by the respondents that when the employment was brought to an end in 2002, for misconduct, the reality was as the applicant had always claimed, the termination had in truth been on account of redundancy, not a dismissal on account of misconduct. 20 That being so, it cannot be doubted, as the applicant argued, that in these proceedings he succeeded in obtaining relief of the kind claimed in respect of the termination of his employment, namely in relation to his claims for notice/redundancy, superannuation, annual leave and commission. While the various money amounts claimed were the subject of compromise in the settlement which the parties finally reached, given what the applicant initially claimed; what was paid without compromise in 2003 and what he finally accepted in complete settlement of his remaining claims in 2007, there can be no doubt that the applicant succeeded in establishing that he was made redundant in 2002. The respondents had failed to pay him large money sums, in relation to each of the heads of complaint which he agitated in these proceedings. In total, the applicant was paid over $160,000. This has to be acknowledged as a 'surrender' by the respondents. 21 In those circumstances, I am satisfied that this is one of those cases where a costs order should flow to the applicant, even though there has been no hearing on the merits. In this case, the respondents' admissions put that conclusion beyond doubt. 22 I am also unable to accept the respondents' submission that there should be no costs order, in respect of the period after the offer of March 2006. The basis upon which the parties settled these proceedings in 2007, was on similar terms to those offered in 2006, other than as to costs. The 2006 offer was made on the footing that the respondents should not bear the applicant's costs of the proceedings, after the payment made in 2003, despite having accepted in 2006, that, in reality, the applicant was made redundant in 2002, as he had always claimed. I am unable to see, as a matter of justice, that the respondents should not bear the applicant's costs of the proceedings, after the 2006 offer, given that acceptance. 23 The payment made in 2003 and the agreement reached in 2007, were not merely compromises of a claim. The respondents' conduct amounted to an acceptance that a particular state of affairs existed in 2002, which had particular consequences, at that time for the respondents' obligations under its contract with the applicant, as well as under the relevant statutory schemes, which imposed obligations on the respondent, at that point. While the applicant and the respondents agreed to a compromise of the claim brought under s 106, that compromise rested on a basis where, given the respondents' admission as to the failure to meet statutory and contractual obligations in 2002, justice requires that the respondents should bear the usual costs flowing from the applicant's successful pursuit of these proceedings. Orders 24 For the reasons given, I make the usual costs order, as agreed or assessed, in favour of the applicant, other than in relation to the costs the subject of the order earlier made in favour of the respondents in these proceedings, by his Honour Justice Marks. ------------------------ 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.