Industrial Relations Commission of New South Wales in Court Session CITATION: Cherny & Anor v Isbiz Pty Limited [2006] NSWIRComm 91 FIRST APPLICANT: David Cherny SECOND APPLICANT: PARTIES: D.C. Consulting Pty Limited (ACN 073 598 857) RESPONDENT: Isbiz Pty Limited (ACN 066 338 332) FILE NUMBER(S): IRC 4400 of 2003 CORAM: Schmidt J CATCHWORDS: Costs - departure from the usual costs orders refused - respondent to bear applicants' costs as agreed or assessed Cretazzo v Lombardi (1975) 13 SASR 4 CASES CITED: David Cherny and Anor v Isbiz Pty Ltd [2005] NSWIRComm 452 Lane v The Commonwealth Bank of Australia [2001] NSWIRComm 57 Oshlack v Richmond River Council (1998) 193 CLR 72 HEARING DATES: 03/03/06 DATE OF JUDGMENT: 03/22/2006 APPLICANTS: Mr J Hammond of counsel SOLICITORS: Abrahams & Associates LEGAL REPRESENTATIVES: RESPONDENT: Mr MJ Easton of counsel SOLICITORS: TressCox JUDGMENT: - 1 - INDUSTRIAL COURT OF NEW SOUTH WALES CORAM: Schmidt J 22 March 2006 Matter No IRC 4400 of 2003 DAVID CHERNY AND ANOTHER V ISBIZ PTY LTD Application under s.106 of the Industrial Relations Act 1996 JUDGMENT ON COSTS [2006] NSWIRComm 91 1 Judgment was given in this matter on 7 December 2005 (David Cherny and Anor v Isbiz Pty Ltd [2005] NSWIRComm 452), with the parties being directed to confer on the orders to be made. The parties were unable to agree on the calculation of the money orders, or on the appropriate costs orders. 2 At the further hearing on 3 March, the parties reached an agreement on the money orders to be made and thus only the question of costs remained to be determined. 3 The applicants sought the usual costs order in their favour, costs as agreed or assessed. The respondent sought orders in the following terms: 3. The Applicants are to pay the Respondent's costs of and incidental to the Applicants' claim regarding the alleged unfairness of the 'golden parachute' and the alleged termination of the Contract, as agreed or assessed. 4. Subject to the following, the Respondent is to pay the Applicants' costs or and incidental to the Applicants' claim regarding the unfairness of the Contract in relation to stock: (a) The Applicants are to pay 60% of the Respondent's costs directly attributable to attending proceedings before the Court, as agreed or assessed; (b) Where it is not possible to differentiate whether a discrete cost items fall within order (4) above, the Applicants are to pay to the Respondent 60% of the Respondent's costs relating to that item, as agreed or assessed. 4 By motion filed on 10 March, after I had reserved on the question of costs, the applicants sought to amend the orders sought and further orders: 1. Pursuant to Part 36 r 17 of the UCPR the draft orders annexed to the affidavit of Mr Daniel Abrahams dated 2 March 2006 being Exhibit 12 on the Court file be amended to insert the words " within 28 days of the date of entry of these Orders " before the word "in" and after the figure "$79,218.00" in paragraph 2 and after the figure "$19,337.87" in paragraph 3. 2. Costs. 3. Any such order this Court thinks fit. 5 The respondent did not oppose that application, taking the view that the question of the time at which the money orders were to be paid, was within the Court's discretion. 6 Mr Hammond of counsel argued for the applicants that there would be no departure from the usual order in this case. The applicants' case in relation to the nature of the parties' contract, the Court's jurisdiction, the unfairness of the contract and the money orders in relation to stock had succeeded. That the claim in relation to the golden parachute provision of the contract had failed, was not a proper basis for a costs order in favour of the respondent. There had been numerous issues which required the Court's determination in these proceedings; they were intertwined and required a consideration of the parties' respective conduct, before the contract was entered, during its operation and after it came to an end. Justice required an order in favour of the applicants, on the usual terms, given the results achieved. 7 The respondent's assertions as to the time spent in the proceedings in relation to the two aspects of the case were also not agreed. There were, in any event, more than two issues which required the Court's determination. 8 Mr Easton of counsel argued for the respondent that there were, in reality two 'distinct and severable' parts of the claim - that relating to stock and that relating to the golden parachute. The applicants had comprehensively failed to make out their case in relation to the golden parachute claim, which had taken up the major part of the trial. In those circumstances, justice demanded not only that the respondent not be required to bear the applicants' costs of the proceedings, but that the applicants bear its costs. That, after all, would have been the outcome, if the golden parachute claim had been litigated separately. This approach would also pay regard to the basis upon which this aspect of the applicants' claim had failed. 9 It was estimated that some 60% of the case had revolved around the golden parachute claim. The order sought also provided a formula which provided a fair mechanism for apportioning costs in relation to those aspects of the case which was relevant to both claims. Consideration 10 There was no issue between the parties that the Court had jurisdiction to make orders of the kind sought by the respondent, as a matter of discretion. The respondent was unable, however, to refer to any authority where the discretion had been exercised in the manner here sought. There is, it seems to me, good reason why such an approach is not one to which a court would readily be attracted. 11 As has oft been observed, an order for costs is not made to punish an unsuccessful party, but rather to compensate the successful party, for the costs incurred in the litigation. 12 I discussed the approach to be adopted when a departure from the usual costs order is sought in Lane v The Commonwealth Bank of Australia [2001] NSWIRComm 57, at [11] to [15}: 11 There have been a number of cases in this Court in which the usual order as to costs has been departed from in particular circumstances. Such circumstances include, as here, where a party has been successful only as to part of the claim advanced. Other Courts have similar discretions as to costs. It is convenient therefore to refer to the law as to when such a departure is appropriate. In Oshlack v Richmond River Council (1998) 193 CLR 72, the High Court was dealing with costs orders made by the Land and Environment Court. Gaudron and Gummow JJ said at 81: "The provisions of s 69 of the Court Act which confer upon the Court the discretion exercised by the primary judge attract the application of a general proposition that it is inappropriate to read a provision conferring jurisdiction or granting powers to a court by making conditions or imposing limitations which are not found in the words used ... The terms of s 69(2) contain no positive indication of the considerations upon which the Court is to determine by whom and to what extent costs are to be paid. The power conferred by the section is to be exercised judicially, that is to say not arbitrarily, capriciously or so as to frustrate the legislative intent. However, subject to such considerations, the discretion conferred is, to adapt the words of Dixon J, unconfined except in so far as 'the subject matter and the scope and purpose' of the legislation may enable an appellate court to pronounce the reasons given by the primary judge to be 'definitely extraneous to any objects the legislature could have had in view' ( Water Conservation and Irrigation Commission (NSW) v Browning (1947) 74 CLR 492 at 505)." 12 McHugh J (while in dissent as to the outcome), dealt with the principles upon which the ordinary rule would be departed from. Those principles have been applied in other cases (See Mannix v Loumbos [2000] NSWCA 32; Arian v Nguyen [2001] NSWCA 5; Hayle Holdings Pty Ltd v Australian Technology Group Ltd [2000] FCA 1699.) McHugh J said at 97: "The traditional exceptions to the usual order as to costs focus on the conduct of the successful party which disentitles it to the beneficial exercise of the discretion. In Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All ER 873 at 874, Devlin J formulated the relevant principle as follows: 'No doubt, the ordinary rule is that, where a plaintiff has been successful, he ought not to be deprived of his costs, or, at any rate, made to pay the costs of the other side, unless he has been guilty of some sort of misconduct.' 'Misconduct' in this context means misconduct relating to the litigation, or the circumstances leading up to the litigation. Thus, the court may properly depart from the usual order as to costs when the successful party by its lax conduct effectively invites the litigation; unnecessarily protracts the proceedings; succeeds on a point not argued before a lower court; prosecutes the matter solely for the purpose of increasing the costs recoverable; or obtains relief which the unsuccessful party had already offered in settlement of the dispute. Apart from anomalous examples in the equity jurisdiction, there are very few, if any, exceptions to the usual order as to costs outside the area of disentitling conduct. The Court may award costs in favour of a defendant where the plaintiff has obtained only nominal damages. However, this practice can be justified on the basis that, in reality, the successful party lost the litigation and the unsuccessful party won." 13 These approaches are consistent with the approach of the Court of Appeal in England, where in Re Elgindata Ltd (No2) [1993] 1 ALL ER 232, Nourse LJ, with whom Stocker LJ agreed, discussed the principles to be applied at 237: 'In order to show that the judge erred I must state the principles which ought to have been applied. They are mainly recognised or provided for (it matters not which) by s51 of the Supreme Court Act 1981 and the relevant provisions of RSC Ord 62, in this case rr2(4), 3(3) and 10. They do not in their entirety depend on the express recognition or provision of the rules. In part they depend upon established practice or implication from the rules. The principles are these. (1) Costs are in the discretion of the court. (2) They should follow the event, except when it appears to the court that in the circumstances of the case some other order should be made. (3) The general rule does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where there has caused a significant increase in the length or cost of the proceedings he may be deprived of the whole or a part of his costs. (4) Where the successful party raises issues or makes allegations improperly or unreasonably, the court may not only deprive him of his costs but order him to pay the whole or a part of the unsuccessful party's costs. Of these principles the first, second and fourth are expressly recognised or provided for by rr2(4), (3(3) and 10 respectively. The third depends on well-established practice. Moreover, the fourth implies that a successful party who neither improperly or unreasonably raises issues or make allegations on which he fails ought not to be ordered to pay any part of the unsuccessful party's costs. It was because of his disregard of that principle that the judged erred in this case.' 14 In Hughes v Western Australian Cricket Association (Inc) & Ors (1986) ATPR 40-748 Toohey J applied the observations of Jacobs J in Cretazzo v Lombardi (1975) 13 SASR 4 at 12: 'But trials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law. The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case. There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of the issues, and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues.' 15 Toohey J also noted at 48,136: 'It is relevant, but not conclusive, to consider how much time of the hearing was taken up with evidence and submissions relating to those issues on which the applicant failed. This is not an easy task because much of the evidence bore upon more than one cause of action. Counsel for the applicant did offer some dissection of time spent, by reference to the evidence of particular witnesses and to addresses and noted what he contended was the relatively little time taken up in addresses on those issues on which the applicant failed.' 13 Even in the authorities cited for the respondent, a caution was sounded against a departure from the usual approach to costs. In Cretazzo, where the Court accepted that a successful plaintiff might be ordered to pay a defendant's costs in relation to issues the plaintiff has failed to make out, Jacobs J warned at 16: Having said that, I would wish to sound a note of cautious disapproval of applications, which are being made with increasing frequency, to apportion costs according only to the success or failure of one party or the other on the various issues of fact or law, which arise in the course of trial. It is true that in the case of Foster v.Farquahar , which is often relied upon, a successful plaintiff, acting through it in good faith, was deprived of his costs and ordered to pay the defendant's costs on certain issues. But there are two things to notice about that case. In the first place, it was a jury trial, and the relevant rule (Order LXV, rule 1) under which the general discretion was conferred carried a proviso, that "where any action ... is tried by a jury, the costs shall follow the event unless the judge ... shall for good cause otherwise order." The general discretion of the Court was not being invoked. Secondly, the plaintiff claimed damages for breach of contract under four distinct heads, in total some three hundred and ninety-four pounds, but his verdict was for only twelve guineas, being less than half the claim under one head of damage. The three severable heads of damage, in respect of which the defendant was awarded costs, did not flow from the defendant's breach, and in respect of those severable items the claim was misconceived. But trials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law. The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case. There are, of course, many factors affecting the exercise if the discretion as to costs in each case, including in particular, the severability of the issues, and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues. 14 In this case, I am satisfied, that justice could not permit the orders which the respondent sought. Firstly, the respondent did not assert that the applicants had engaged in the kind of misconduct discussed by McHugh J in Oshlack. Secondly, the case was not neatly divided into two, as the respondent asserted. 15 To the contrary, there were a number of issues which required determination in the proceedings, as the parties agreed from the outset. They are identified at [4] of the December judgment: 1. What is the Contract in this case whereby it is claimed that work is performed in an industry? 2. What are the relevant terms of this Contract, including: (a) Does the agreement to purchase stock (CB00117) form part of the Contract under which work was performed? 3. Was the Contract unfair? Stock claim 4. Does the Industrial Relations Commission have jurisdiction to make a relevant order in reference to the stock claim because that part of the claim is not a contract whereby work is performed in an industry? 5. If so, were the terms of the contract or arrangement in relation to the payment for stock unfair? Golden Parachute Claim 6. Is the term of the Contract in relation to the golden parachute unfair? 7. If so what orders should be made? 8. Did the Respondent discontinue the work contract for the purposes of the golden parachute provision? 16 There were numerous evidentiary contests pursued, in relation to these matters, as the judgment also reveals. 17 This was a case where the Court's jurisdiction to grant part of the relief sought by the applicants was challenged by the respondent. The respondent also challenged the applicants' case as to the nature of the contractual arrangement which the parties had entered. A deal of the evidence and the submissions advanced by the parties were directed to the resolution of these issues. The applicants succeeded on these matters. 18 The fairness of the contract was challenged it is true, in two respects. One in relation to stock and the other in relation to the golden parachute provision. The parties led evidence as to their respective conduct, to advance and resist their cases in relation to the nature of the contract, the jurisdictional question and the fairness of those aspects of the contract under challenge. As the judgment reveals, certain of that evidence was relevant to various of the issues which had to be determined. 19 This explains why the orders which the respondent seeks recognise that not all of the case can be neatly tied to one aspect of the unfairness claimed, or the other. The orders propose a formula which adjusts costs between the parties, having regard to the respondent's assessment that 60% of the case was concerned with the golden parachute clause and 40% with the stock. 20 The applicants rejected the respondent's assessment, as an accurate reflection of the case. It is an assessment that I am also unable to accept. It fails, in my view to have regard to the issues which arose for determination on the case advanced by the respondent and on which the applicant succeeded. 21 In any event, the approach adopted is one, which in my view, would be unlikely to achieve any sensible resolution between the parties on the question of costs, even if the case were divisible into two parts, as the respondent asserts. Such orders would rather be likely to result in further acrimonious litigation before an assessor. Even if I accepted the respondent's assertions as to how the case was divided, which I do not, I am satisfied that this approach could not be adopted in fairness. It would fail to achieve justice between the parties, being likely to result in further disagreement and additional costs being incurred, in determining whether or not particular costs related to the stock issue. 22 Having in mind the approach which the authorities outline must be adopted to a consideration of a claim such as this, I am satisfied that this is not a case where there could in justice be a departure from the usual costs order. True it is that the respondent has successfully resisted one aspect of the claim advanced. It failed in other respects, including in relation to the nature of the parties' contract and the resulting challenge to the Court's jurisdiction. This cannot be ignored. Orders 23 For the reasons given and having regard to the other matters which the parties came to agree on, I make the following orders: 1. The contract between the Applicants and the Respondent ("the Contract") made on or about 17 October 2002 is declared unfair and is varied ab initio, to provide that all stock invoiced by the Applicants to the Respondent be paid for in full by 31 March 2003, with the exception of: a. Goods which the Applicants accepted were not in saleable condition; and b. Goods which the Applicants sold; 2. Within 28 days of the date of entry of these orders, the Respondents shall pay the Applicants the amount of $79,218.00 in connection with the Contract which has been declared unfair, plus 3. Interest on the above amount from 1 April 2003 up to judgment on 7 December 2005 on the basis of 9 per cent per annum as prescribed in Schedule 5 of the Uniform Civil Procedure Rules NSW pursuant to section 100 of the Civil Procedure Act 2005, that amount being $19,337.87. 4. The Respondent shall pay the Applicants' costs of the proceedings as agreed or failing agreement, as assessed. ------------------------ 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.