Industrial Court of New South Wales CITATION: Vic Cherikoff Food Services Pty Ltd v Cherikoff Rare Spices Pty Ltd (No 2) [2010] NSWIRComm 57 Vic Cherikoff Food Services Pty Ltd (First applicant) Vic Cherikoff (Second applicant) PARTIES: Cherikoff Rare Spices Pty Ltd (in liquidation) (First respondent) Frederick Theodore Gulson (Second respondent) John Stephen Bax (Third respondent) FILE NUMBER(S): IRC 6408 of 2002 CORAM: Marks J CATCHWORDS: COSTS - unfair contract proceedings - removal of first applicant from proceedings - summons amended - whether court should depart from well established principle that costs follow the event - risk and cost of initiating litigation - respondent awarded costs thrown away by reason of the amendment directed only to legal work that would otherwise not have been undertaken - orders made LEGISLATION CITED: Industrial Relations Act 1996 - s 105, s 106, Fish v Solution 6 Holdings Limited (2006) 225 CLR 180 CASES CITED: Laguillo v Haden Engineering Pty Ltd [1978] 1 NSWLR 306 Solution 6 Holdings Ltd v Industrial Relations Commission (NSW) (2004) 60 NSWLR 558 HEARING DATES: 13 April 2010 DATE OF JUDGMENT: 7 May 2010 Mr D Stewart of counsel (First and second applicant) Solicitors Kells The Lawyers Mr M Seck of counsel (Second respondent) LEGAL REPRESENTATIVES: Solicitors Cordato Partners Mr R Alkadamani of counsel (Third respondent) Solicitors Haywards Solicitors JUDGMENT: INDUSTRIAL COURT OF NEW SOUTH WALES CORAM: Marks J Friday 7 May 2010 Matter No IRC 6408 of 2002 Vic Cherikoff Food Services Pty Ltd v Cherikoff Rare Spices Pty Ltd (No 2) Application under s 106 of the Industrial Relations Act 1996 JUDGMENT ON COSTS [2010] NSWIRComm 57 Introduction 1 Immediately before 27 March 2009, these proceedings, brought under s 106 of the Industrial Relations Act 1996 ("the Act"), were constituted by a first further amended summons for relief. The proceedings were originally commenced in 2002. 2 The parties to the first further amended summons for relief were Vic Cherikoff Food Services Pty Ltd, first applicant, and Victor Cherikoff, second applicant; the respondents were Cherikoff Rare Spices Pty Ltd (in liquidation), first respondent, Frederick Theodore Gulson, second respondent, and John Stephen Bax, third respondent. Included within the first further amended summons for relief were claims for orders and other relief directed, essentially, to two different contracts, including an agreement as is defined in s 105 of the Act. The first was directed to an "agreement made on or about 1 June 2001 between the first applicant and the Respondent, and associated contracts, arrangements, related conditions and collateral arrangements …." I shall assume, for present purposes, that the reference to "the Respondent" is a reference to the first respondent. This is made clear in the further recitals in the document. In any event, it is not important because the significant point is that what is sought to be made the subject of relief is an agreement between the first applicant and the first respondent. 3 The second contract which is sought to be made the subject of relief was described in the first further amended summons as "the employment contract between the second applicant and the first respondent, and associated contracts, arrangements, related conditions and collateral arrangements ….". 4 It will be seen, therefore, that in essence there was sought to be litigated allegations of unfairness etc directed to two distinct contracts. 5 On 27 March 2009, with leave of the Court, the proceedings were amended and were thenceforth constituted by the second further amended summons for relief. The effect of this second further amended summons for relief is to delete any claim made by the first applicant against the first respondent based upon the agreement said to have been made on or about 1 June 2001. There is excised from the proceedings a considerable amount of material under the heading "Summary of matters of fact and law" which pertain to the claim formerly made by the first applicant against the respondent based upon the agreement made on or about 1 June 2001 and there is excised also all material relating to the relief that was formerly claimed by the first applicant against the first respondent. 6 What remains, therefore, is an application brought under s 106 of the Act by the sole remaining applicant, Victor Cherikoff, against the respondents. It is directed solely to the employment contract and the form of relief and the monetary relief claimed are modified accordingly. I should add for completeness that the first respondent is now described as ACN 003 355 753 Pty Ltd, in liquidation. 7 By motion, the third respondent has sought an order that both applicants pay his costs thrown away by reason of the amendment of the proceedings as constituted by the second further amended summons for relief. The right to seek these costs was reserved at the time that the Court granted leave for the proceedings to be amended. 8 Prima facie, the third respondent is entitled to an order for his costs thrown away by reason of the amendment made. In effect, the former first applicant has discontinued the proceedings with leave of the Court and costs should follow the event. This principle is so well established that it does not require any detailed discussion. A statement of the principle in this regard is to be found in the judgment of Reynolds JA in the New South Wales Court of Appeal in Laguillo v Haden Engineering Pty Ltd [1978] 1 NSWLR 306 at 308. It has always been a cardinal principle to be borne in mind, when exercising a judicial discretion as to costs, that, except in special circumstances, a successful defendant who has been brought to court at the suit of the plaintiff should have his costs. ... Another principle of importance is that, as a general rule, a party is entitled to the costs of an issue on which he succeeds. 9 However, I cannot see any justification in making a costs order at this stage of the proceedings in favour of the third respondent as against both the former first applicant, who has discontinued its proceedings, and as against the second applicant. Whether and to what extent the former second applicant should be made the subject of an order for the payment of the third respondent's costs thrown away by reason of the amendment is a matter that should, in all the circumstances, await the final determination of the proceedings. 10 The former first applicant sought to resist the making of a costs order on a number of bases. Firstly, the first applicant pointed to the circumstances in which the proceedings were amended. In 2004, the New South Wales Court of Appeal delivered judgment in Solution 6 Holdings Ltd v Industrial Relations Commission (NSW) (2004) 60 NSWLR 558. The Court of Appeal judgment had the effect of casting doubt upon the jurisdiction of this Court to apply the provisions of s 106 to the type of agreement that the first applicant had sought to impugn against the respondents. The decision of the New South Wales Court of Appeal was affirmed in the High Court of Australia in Fish v Solution 6 Holdings Limited (2006) 225 CLR 180, in a judgment delivered on 18 May 2006. Following lengthy communications between the parties concerning the furnishing of particulars and other matters, the third respondent filed a Reply document in this Court on 12 December 2006 in which it raised the question of jurisdiction to deal with that part of the proceedings which concerned the agreement between the first applicant and the first respondent. Subsequently, there were communications between the solicitors acting for the parties and interlocutory proceedings were commenced by the third respondent. These culminated in the application made by the applicants to amend the proceedings in the manner that I have earlier described. 11 It was submitted on behalf of the first applicant that in the circumstances which prevailed, namely a general change in the understanding of legal practitioners concerning the jurisdiction of this Court to deal with certain contracts as reflected in the appellate decisions to which I have referred, that it would be unjust in all the circumstances to visit upon the first applicant an order for costs. It was suggested that it would be more equitable that the parties bear their own costs. 12 Unfortunately, from time to time, the general appreciation and understanding of parties and of legal practitioners representing them concerning the state of the law are found to be misplaced by reason of decisions of appellate courts. This will result in claims or defences, which parties to litigation have previously relied upon, no longer being available to them. In these circumstances, the question arises as to where, as a matter of fairness, the costs burden should fall. 13 In general terms, it seems to me that when a party embarks upon litigation with a particular understanding of the state of the law and the way in which it will be applied by the courts, and there is no change to any underlying statutory basis for the law, then a party initiating the proceedings will suffer the usual misfortune associated with being unable to successfully prosecute the claim. In other words, the risk associated with the commencement of the proceedings in the general terms to which I have referred, is to be borne by the party seeking to exercise the jurisdiction and power of the Court. Here, the provisions of s 106 of the Act did not change; the changed circumstances were brought about by statements of principle made by firstly the New South Wales Court of Appeal and secondly the High Court of Australia. The risk of changed circumstances of this kind must be borne by the applicant, and not by any respondent who is compelled to participate in the proceedings at the instigation of an applicant. 14 In all the circumstances, the change in the general understanding of the way in which s 106 operates and the circumstances in which this occurred does not justify a departure from the usual rule that costs should follow the event. 15 The first applicant also submitted that there had been a delay by the third respondent in raising the issue and that, for this reason, the third respondent should be precluded from claiming all, or perhaps part of, his costs. Whilst respondents in proceedings clearly have an obligation to bring matters of significance to the attention of opponents and, indeed, of the Court, especially where they go to matters such as jurisdiction and power, there nevertheless remains an obligation on solicitors representing an applicant to monitor the state of the law as it impacts upon any current proceedings instituted by the client. In circumstances where the third respondent raised the issue of jurisdiction in December 2006 following the publication of the judgment of the High Court of Australia in May 2006, I cannot conclude that in some way the third respondent is disentitled from claiming a costs order based on the usual principle that applies. Indeed, the question of jurisdiction is a matter that should have been considered by the solicitor for the applicants immediately following, at the latest, the High Court of Australia judgment. 16 Because there were in essence two distinct claims within the one initiating application, the costs order should require the first applicant to pay the costs of the third respondent incurred in the performance of legal work that would not have been undertaken if the first applicant had not been a party to the proceedings. As the first applicant has in effect discontinued its claim in the proceedings, such costs should be made payable forthwith. 17 Finally, I should refer for completeness to the provisions of an order made by me in hearing a notice of motion on 22 March 2007 to clarify the terms of the costs order that I made on that day. I confirm, as it appears from page 5 of the transcript of that day, that I made an order that the applicants should bear the costs of the third respondent of the notice of motion heard that day as agreed or assessed. Those proceedings concerned the provision of particulars. 18 I make the following orders: 1. The first applicant is to pay the costs of the third respondent incurred in the performance of legal work that would not have been undertaken if the first applicant had not been a party to the proceedings, in an amount assessed in default of agreement. Those costs are payable forthwith. 2. The third respondent's claim for costs against the former second applicant, now the applicant, occasioned by the filing of the second further amended summons for relief is reserved with liberty to apply. 3. The first applicant is to pay the third respondent's costs of the motion in an amount assessed in default of agreement. 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