Industrial Court of New South Wales CITATION: Boyd and Anor v Maxx Implementation Pty Limited and Ors (No 3) [2008] NSWIRComm 200 This decision has been amended. Please see the end of the judgment for a list of the amendments. LINDSAY DOUGLAS BOYD First Applicant FINGER LIMEING GOOD PTY LIMITED (FORMERLY ALCONLEIGH PTY LIMITED) (ACN 076 969 465) AS TRUSTEE FOR THE ALCONLEIGH TRUST Second Applicant MAXX IMPLEMENTATION PTY LIMITED (ACN 073 058 849) First Respondent PARTIES: MAXX PTY LIMITED (ACN 098 422 354) Second Respondent GERHARD MARTIN LUDWIG Third Respondent EBENEZER GUMNUT PTY LIMITED (ACN 073 555 898) AS TRUSTEE FOR THE GM LUDWIG FAMILY DISCRETIONARY TRUST Fourth Respondent FILE NUMBER(S): IRC 1509 of 2004 CORAM: Schmidt J Costs - whether any costs order to be made in favour of second applicant - order made - indemnity costs order in favour of applicants reflective of offer of compromise - offer to be regarded as Calderbank offer - respondents acted unreasonably in refusing offer - misconduct of respondents also considered - misconduct of applicants considered - costs in relation to profit share claim ordered in favour of applicants, given success in demonstrating unfairness CATCHWORDS: Orders - orders in favour of second applicant reflective of conclusions reached as to unfairness of contract - interest - no order for interest reflective of applicants' delay in pursuing case - money orders against third respondent in relation to profit share claim refused - orders otherwise as agreed to reflect judgment LEGISLATION CITED: Industrial Relations Act 1996 Agius v Arrow Freightways Pty Ltd [1965] AR 77 Blagojevch v Australian Industrial Relations Commission (2000) 98 FCR 45 Boyd and Another v Maxx Implementation Pty Limited and Others (No 2) [2008] NSWIRComm 121 Davies & Anor v General Transport Development Pty Ltd & Ors [1967] AR 371 CASES CITED: Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 Leichhardt Municipal Council v Green [2004] NSWCA 341 Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15 Oshlack v Richmond River Council (1998) 193 CLR 72 Sabah Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306 HEARING DATES: 13 October 2008 DATE OF JUDGMENT: 22 October 2008 APPLICANTS: Mr P Strain, counsel SOLICITORS: Hedges Bhatty Solicitors LEGAL REPRESENTATIVES: RESPONDENTS: Mr R Alkadamani, counsel SOLICITORS: Thomas and Company JUDGMENT: - 23 - INDUSTRIAL COURT OF NEW SOUTH WALES CORAM: Schmidt J 22 October 2008 Matter No IRC 1509 of 2004 LINDSAY DOUGLAS BOYD AND ANOTHER v MAXX IMPLEMENTATION PTY LIMITED AND OTHERS Application under s.106 of the Industrial Relations Act 1996 JUDGMENT (No 3) [2008] NSWIRComm 200 1 Judgment was given in this matter in June 2008, the contracts challenged being found to have been unfair in accordance with the provisions of s 106 of the Industrial Relations Act 1996 ('the Act'). (See Boyd and Another v Maxx Implementation Pty Limited and Others (No 2) [2008] NSWIRComm 121.) This judgment deals with the questions of final orders and costs. 2 The parties were directed to confer on the terms of the final orders to be made, in accordance with the judgment. They were unable to agree entirely on the appropriate orders, or as to the proper order as to costs. Accordingly, I turn to deal with the matters still lying between the parties. Annual Leave 3 There was a claim advanced in respect of four weeks annual leave, of over $13,000. The evidence in Mr Gower's expert's report about this claim was based on instructions given by Mr Boyd. No other evidence was led, on which conclusions could be reached as to the amount outstanding. The respondents conceded a sum of $8,286 to be owing and in submissions it was accepted for the applicants, that in the absence of any other evidence, the Court's order could not go beyond that concession, given the state of the evidence. Accordingly, it is appropriate that the Court's order reflect the position finally agreed between the parties, as to this issue. Profits 4 The applicants claimed orders that: 4. The profits of the business be fairly calculated, having proper regard to both the interest of Mr Boyd and Mr Ludwig, in respect of their agreed entitlements and once those profits have been calculated, Mr Boyd be reimbursed his share of the profits not already paid to him by the First and Second Respondent. 5. Should the orders in paragraph 1 fail to be complied with then the amounts appearing at schedule 1 be payable in respect of paragraph 4 above. 5 The applicants argued that while it had been concluded in the June judgment that Mr Boyd's contracts should be varied to deal with profit share, but that no money order should be made against Maxx Implementation, in relation to what was claimed to be fairly due in that respect while it operated the business, given the amounts accepted by the applicants in the administration of Maxx Implementation, it would make a 'nonsense' of the observations and conclusions otherwise reached in the judgment, if money orders in respect of a 25% share of the profits of the Maxx Implementation business were not made against Mr Ludwig. 6 The respondents opposed such an order as impermissibly giving the applicants an opportunity to re-litigate matters already decided against them. The applicants had been given a fair opportunity to present their case, which had failed in this respect. The applicants could not now challenge the conclusions reached. 7 I am unable to accept that the orders which the applicants seek are open to be made, given the conclusions reached in the June judgment. They relevantly included that: 1 That the profit share elements of the contracts concerning the Maxx Implementation business were relevantly unfair (at [150] and [162]). 2 That the claims made in relation to profit share were within jurisdiction, the overall arrangement from the outset being that Mr Boyd would receive a 25% profit share for his work in the business, that share being delivered under various contractual arrangements, over the years (at [121] and [122]). 3 The Maxx Implementation business was transferred as a going concern to Maxx [137]. This occurred without notice or the applicants' consent, effectively terminating the second applicant's contractual entitlement to a share in the profits of the business and without ensuring that Mr Boyd had a 25% share of the profits of the business when operated by Maxx [154]. 4 The affairs of the respondents were inextricably interlinked and Mr Ludwig operated the business without paying real attention to Mr Boyd's interests [155]. The way in which the Maxx Implementation business was operated, including calculation of profit and distribution, unfairly advantaged the respondents, to the detriment of the applicants [162]. 3 Orders of variation must follow [196]. The unfairness found was to be remedied by a variation of Mr Boyd's employment contract, to entitle him to access to the financial records of the Maxx Implementation business and to be properly consulted about how the profits of the business were calculated and that they be fairly calculated, having proper regard to both the interests of Mr Boyd and Mr Ludwig [198]. 4 No consequential money orders to be made against Maxx Implementation, given the applicants' claims in the administration of the company in relation to outstanding salary expenses, superannuation and a share of profits, and the deed of company arrangement which the applicants agreed in June 2004 in settlement of their claims [207]. 5 As to whether the applicants had demonstrated that the applicants received less than 25% share of the profits of the Maxx Implementation business, Mr Gower's report did not suggest that apart from a final outstanding amount of $1,800, the 25% profit share had not been paid [212]. His report rested on assumptions he had been instructed to make, not on views which he independently reached, having considered the relevant financial records; those assumptions were not, in any event, established (at [217], [218], [219], [220], [221], [222] and [223]). 6 The applicants were not promised by Mr Ludwig that Maxx would pay them for any outstanding profit share for the time when Maxx Implementation operated the business. When the business was transferred, it had not been trading profitably for some time. It never achieved any cash flow after the transfer to Maxx, before Mr Boyd's employment by Maxx was terminated in October 2003. While orders were made against Maxx for what Mr Ludwig promised Mr Boyd it would pay him in respect of outstanding employee entitlements and expenses, there was no basis for any order against Maxx for past failures by Maxx Implementation to pay any profit share to the applicants [227]. 7 Mr Ludwig should be made jointly and severally liable for the money orders made [230]. 8 It was clearly concluded in the judgment that no money orders would be made in respect of any past failures by Maxx Implementation to pay any profit share to the applicants. It follows that no money orders could be made against Mr Ludwig in respect of any such failures, which in any event, were not established on the evidence. It is not open to the applicants to seek to re-agitate these conclusions, at this stage of these proceedings. The reliance placed on what was said at [223] of the judgment was misplaced. There I observed: 223 It is unnecessary to deal further with the balance of Mr Gower's report, especially that dealing with interest calculations and uncommercial loans. As the respondents submitted, that would require a close consideration of Mr Gower's report and the answers which he gave in cross examination, as to whether the assumptions he had been instructed to make, were made out, especially having regard to the relevant financial records. It is significant to observe that I am entirely doubtful that even if it were possible to make out such claims, that they were established through Mr Gower's report and his evidence, given his answers in cross examination. It is not, however, necessary to come to a concluded view about this question, given the views I have otherwise reached. 9 The words there used, 'given the views I have otherwise reached', included the various conclusions referred to above. The second applicant 10 The parties agreed that the second applicant's claims should be dismissed against all four respondents, but they were disagreed as to what costs orders should flow. I am unable to accept that agreement as properly reflecting the conclusions reached in the judgment. 11 As observed above, the second applicant succeeded in establishing the unfairness of the contract to which it was a party. At [162], I concluded: On the evidence, the contracts with Maxx Implementation were clearly shown to have been unfair. They permitted the respondents to conduct themselves in ways which were unfair, so far as the applicants were concerned. They were also unfair in what they provided, and failed to provide for, including, fundamentally, that Mr Boyd be paid for his work and have his expenses reimbursed and that the business be operated in a transparent way, so that Mr Boyd would be able to understand how profit was calculated and distributed. Both calculation of profit and distribution, unfairly advantaged Mr Ludwig and entities associated with him, to the detriment of the applicants. 12 At [233], I found: For the reasons given, I find the contracts here in question relevantly unfair. I propose to order their variation, in accordance with the terms of this judgment. The parties are directed to confer as to the terms of the orders to be made, to reflect this judgment. If they are unable to agree on such terms, they should each file the orders which they will submit that the Court should make and I will hear them on the terms of those orders. Such draft orders should be filed within 21 days of the date of this judgment. 13 I took the view that given the parties' relationships, the demonstrated unfairness of the various contracts was adequately remedied by variation of Mr Boyd's employment contracts. The variation of his contract with Maxx Implementation, gave Mr Boyd the right to access the financial records of the business; to be properly consulted on how profits were calculated and that the payments were to be fairly calculated, having regard to his interests, as well as those of Mr Ludwig. The contract with Maxx was also varied to give Mr Boyd a 25% share of the profits. No further variation was required given that no profits were, in fact, generated by the business when operated by Maxx. Given the variations made to the employment contracts, I took the view that it was unnecessary to also order the variation of the contract to which the second applicant was a party, especially given the conclusions reached as to what the evidence had demonstrated in relation to the outstanding profit share claim. 14 That approach reflects a view of the section long held by this Court and its predecessors, that the section is intended to protect 'one set of men from another set of men, the one from their situation and condition, being liable to be oppressed or imposed upon by the other' (See Agius v Arrow Freightways Pty Ltd [1965] AR 77 at 88 per Beattie J). In Davies & Anor v General Transport Development Pty Ltd & Ors [1967] AR 371, Sheldon J observed at p 374 that 'smart operators would do well to consider whether it may be cheaper in the long run to assume, with what equanimity they can summon, the burdens that fall on more orthodox employers' and at p 373, that 'destruction, dilution, renovation and patching are all weapons in the section's arsenal', but that therefore, 'such massive power' granted by the section 'should be exercised with proper restraint' at p 374. 15 In my view, only orders which will provide a practical answer to the unfairness identified in a particular case, need be made by the Court in proceedings such as this. In this case, it was sufficient to vary the employment contracts in order to address the unfairness found, in relation to both applicants' contractual entitlements to a profit share. That view was confirmed by the conclusion that no money order as to a profit share could flow. 16 That does not mean that the second applicant failed in the case which it advanced in these proceedings. To the contrary, it succeeded in the claims advanced as to the unfairness of the contract to which it was a party, resulting in the conclusion reached at [233], that the contract was relevantly unfair. That unfairness was addressed by the order of variation made to Mr Boyd's contract. Costs The second applicant 17 The second applicant is entitled to a costs order in its favour, reflective of the conclusions which I reached as to its success in the proceedings. The fourth respondent 18 The parties agreed that the proper order as to the fourth respondent was that the applicants' claim be dismissed, the application having been brought out of time. They did not agree on a costs order, with the fourth respondent seeking an order in its favour and the applicants arguing that there should be no order as to costs, because no costs additional to those incurred by the other respondents, had resulted. 19 I am unable to accept the applicants' submissions, given that the proceedings were brought against the fourth respondent by way of amended summons filed in September 2004, when the contract in question had been terminated in June 2003 and the proceedings had been commenced against the other respondents in March 2004 (see [116]). This gave rise to issues not relevant to the position of the other respondents, which the fourth respondent raised successfully, leading to the dismissal of the claims brought against it. Justice requires that costs must follow that event. Indemnity costs against the first, second and third respondents 20 The applicants sought an indemnity costs order against the first, second and third respondents, relying on an offer of compromise made after the conciliation of the proceedings, in the following terms: The Applicants offer to compromise their claims on the following basis: 1. Payment to the Applicants of the sum of $145,000.00. 2. Payment of Applicants' costs as agreed or assessed. This offer is made in accordance with the provisions of Part 27 Rule 126 of the Industrial Relation(sic) Commission Rules. It is open to be accepted for 28 days. It will be relied on in respect of the question of costs. 21 The respondents argued that the offer was flawed and could not lead to an indemnity order as it was made to all four respondents. 22 The applicants also relied on the respondents' conduct in the proceedings, as entitling them to an indemnity order, arguing that the respondents' case had no real prospects of success, given that the respondents had not honoured promises made to the applicants, or even their statutory obligations to make certain payments. The attempt to deny that the business had been transferred as a going concern had failed utterly. The result was that the applicants were forced to maintain the proceedings in circumstances where the respondents did not have a reasonable defence. 23 Also to be considered were the findings that Mr Boyd had been exploited and that Mr Ludwig had received the benefit of that conduct. That both Mr Ludwig and Ms Grove were prepared not to adhere to their oath, when giving their evidence, also brought this case into that category where it was unreasonable and unfair that the applicants should be out of pocket as a result of the proceedings. 24 The respondents' argument was that it could not be overlooked that they had succeeded on the majority of the applicants' claim, by reference to the amounts claimed. The applicants had only achieved a partial victory. The respondents' case was not unarguable, indeed they had succeeded, in part. 25 As to the credit findings adverse to the respondents, that was submitted to be 'rarely a ground for the award of indemnity costs'. Nor could Ms Grove's evidence be regarded as constituting conduct by the respondents. Also to be considered was how the applicants had conducted their case, which included the fact that the expert's report had concluded that only some $1,800 profit share had been unpaid, but even so, the cross examination of the witnesses was on the basis that year after year, profit share had not been paid. 26 Rule 216(4) of the Court's Rules provides: (4) Where an offer is made by an applicant and not accepted by the respondent, and the applicant obtains an order on the claim to which the offer relates no less favourable than the terms of the offer, then, unless the Commission otherwise orders, the applicant shall be entitled to an order against the respondent for costs in respect of the claim from the day on which the offer was made, assessed on an indemnity basis in addition to costs incurred before and on that day, assessed on a party and party basis. 27 Applied strictly, it will be seen that the offer does not provide a basis for the order sought. The applicants' claim against the fourth respondent failed entirely, so it is not open to conclude that the applicants obtained an order against it, which was no less favourable than what was offered. That is not, however so, in the case of the other three respondents. 28 It was also accepted that the offer could also be considered as if it were a Calderbank offer. On that basis, the offer arises to be considered in the context of the policy and purpose underlying the courts' approach to Calderbank offers, described by Santow J in Leichhardt Municipal Council v Green [2004] NSWCA 341 at [14]: It can be seen from these cases that the practice of Calderbank letters is allowed because it is thought to facilitate the public policy objective of providing an incentive for the disputants to end their litigation as soon as possible. Furthermore, however, it can be seen as also influenced by the related public policy of discouraging wasteful and unreasonable behaviour by litigants. 29 Despite the public interest in such offers being made and accepted, underpinned in these proceedings by the conciliation process which parties are afforded under s 109 of the Act, a Calderbank offer never results automatically in the Court making an indemnity costs order. Two questions must always be considered. Firstly, was the offer a genuine offer of compromise? (See, for example, Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 at [4].) The second, was there an appropriate opportunity to consider and accept the offer? (See the discussion in Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 at [99].) 30 The onus falls on the applicants to satisfy the Court as to both issues, in order to establish that it was unreasonable for the respondents to have refused the offer. 31 There is no doubt that the applicants achieved a result significantly greater than the offer which they made. Had the offer been accepted by these respondents, or any of them, they would have been better off. The offer of some $145,000 must be contrasted to the money orders made, totalling over $164,000, even despite the fact that the applicants failed to achieve any money order in respect of the claim for a 25% profit share. There can be no doubt in the circumstances that the offer was a genuine one. 32 As to the question of whether there was an appropriate opportunity to consider the offer, it must unquestionably be concluded that there was. That offer was made after the conciliation conducted by Boland J in September 2004 and was available to be accepted for 28 days. There was no response. On any view, the issues lying between the parties had been explored in the conciliation process, so that they each came to an understanding of the others' positions. 33 The cases also show that prospects of success is a relevant consideration in considering a Calderbank offer. While in proceedings such as this, what has first to be demonstrated by an applicant is the unfairness of the contract, the prospects which the applicants had given the matters on which they succeeded, were well within the knowledge of the respondents. The claims concerned outstanding statutory entitlements, as well as expenses incurred which had not been reimbursed. The contracts had been terminated without any notice and a notice claim was advanced. Clearly, the applicants' claims in these respects, had a good foundation. 34 The applicants succeeded in demonstrating unfairness of their contracts, also achieving money orders in connection with outstanding salary, superannuation entitlements, annual leave entitlements, unpaid expenses and notice of termination. The conclusions as to unfairness, in part, flowed from evidence given by Mr Ludwig himself, as well as from the respondents' business records and the evidence called from Ms Grove, a senior, long term employee in the business. That Mr Ludwig and Ms Grove were not prepared to be truthful in their evidence, must also be considered. In Blagojevch v Australian Industrial Relations Commission (2000) 98 FCR 45, a Full Bench of the Federal Court observed at [35] - [36]: [35] The second alleged error gives rise to more difficult questions. The applicant, in submissions before the Senior Deputy President and the Full Bench, relied on aspects of the employer's conduct in the course of the proceeding; but it is fair to say that the precise basis on which that conduct was said to be relevant emerged only in the course of oral argument before us. Principally, the applicant relied on the conduct of the employer in resisting the applicant's claim for compensation, and rejecting the offer of settlement, in intended reliance on evidence which, ultimately, the Commission did not accept. That conduct was relevant and should have been taken into account, the argument proceeds, because although the Commission made no express finding of fraud or that evidence had been deliberately concocted, it nevertheless found, on the balance of probabilities, among other things, that a director of the employer both gave evidence, which was untrue, of the giving of warnings and made a series of entries in a diary, after the event, which did not reflect what had actually happened. The necessary consequence of those findings was that, at the time when the settlement offer was made and refused, the employer (by its director) knew that the applicant had not been given the warnings which it claimed had been given and knew also that the applicant had not arrived late for work on anything approaching the number of occasions which the employer alleged (an allegation which the employer then sought to corroborate by producing the diary entries). Thus, it was said, the findings as to the employer's conduct should not have been excluded as irrelevant to a consideration of the reasonableness of its conduct in refusing the offer of settlement: what it knew of the relative merits of claim and defence must be material to that consideration. It could hardly be said, after all, that a finding as to the knowledge of the employer at the date of the settlement offer required the application of a standard of proof different from that applied in determining the claim for compensation; nor could it be said that a finding of knowledge at the time of the settlement offer did not follow from the Commission's findings in deciding the claim for compensation, merely because the latter findings were made according to the civil standard. In those circumstances, to deny the relevance of the Commission's findings on the evidence would lead to a conclusion that could not possibly be right: the more confident an employer is of its ability to defeat a claim for compensation on the basis of evidence which it knows to be false, the more reasonable its conduct in rejecting an offer of settlement. [36] To state the argument in that way is, in our view, to demonstrate its correctness. Knowledge on the part of the employer as to the truth of matters alleged against the applicant and as to whether, as claimed, he had been warned should have been taken into account in assessing the reasonableness of the employer's response to the applicant's offer. The terms of the offer itself could have left the employer in no doubt that the truth of its account would be vigorously challenged. It may well be, of course, that the same conclusion will not always follow in cases where the Commission prefers the evidence of one party to that of another; it is not unreasonable to respond to an offer in the light of the offeree's genuine perception or recollection of events. But this, on the Commission's findings, was not such a case: it is implicit that false evidence had been deliberately given. 35 In this case, that the respondents sought to resist the claim on the basis of evidence which they knew to be false, must equally be taken into account. It is thus necessary to have regard to the conduct of Mr Ludwig and Ms Grove. They each gave evidence about the circumstances in which the business came to be transferred to Maxx as a going concern, which was found not to have been given, as it ought to have been. There were difficulties with other parts of Mr Ludwig's evidence, which could not be accepted as having been truthfully given. These were serious conclusions, rightly to be regarded as misconduct relating to the litigation. The respondents cannot distance themselves from Ms Grove's evidence as they sought to do. They called affidavit evidence from her, which she revealed to have been untruthful in her oral evidence. That evidence confirmed the true position in relation to the transfer of the business, a matter always within the respondents' knowledge. 36 I return then to the fact that the offer was made to all the respondents, including the fourth, who later successfully resisted the applicants' claim, establishing that it had been brought out of time. Can that result in the conclusion that the offer cannot fairly be relied upon by the applicants as they seek to do in relation to the other respondents? 37 In Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15, the Court of Appeal considered an offer made by three plaintiffs, only two of whom succeeded. An order was made in favour of the two successful plaintiffs, the Court taking the view that the offer was a statement to the defendant, that it did not need to concern itself with the plaintiffs' individual claims or how the plaintiffs would distribute the moneys amongst themselves. 38 This offer may be approached on a similar basis. The evidence showed that Mr Ludwig operated complex business arrangements through which he conducted the business in which Mr Boyd worked, involving the other respondents to his advantage by inextricably interlinking his affairs with those of various other entities. Three of those entities were respondents in the proceedings, in addition to Mr Ludwig. By their offer, the applicants were communicating to the respondents their preparedness to settle their claims on the payment of the specified sum, being content to leave it to the respondents, as to how, as between themselves, that amount was to be paid. 39 I am satisfied that this approach did not fatally flaw the offer, so that it could not be regarded as a Calderbank offer. To accept the submissions which the respondents made to that effect, would require the important policy underpinning Calderbank offers to be ignored, as well as the reality of the relationship between the respondents, operated by Mr Ludwig to his significant advantage and the applicants' disadvantage. This approach would not do justice between these parties and would be inconsistent with the policy underpinning s 146(2) of the Act, which expressly requires that the Court take account of the public interest in the exercise of its functions. It would be contrary to the public interest to permit Mr Ludwig and the other respondents to shield themselves in this way. 40 There can be no doubt that the applicants achieved an outcome which the evidence called by the respondents made unavoidable. They ought to have accepted what, on any view, was a reasonable offer of settlement. 41 In the result, I am satisfied that apart from costs orders already made in the proceedings, the applicants should have an indemnity costs order in their favour, but with two exceptions, to which I now turn, consistently with McHugh J's discussion in Oshlack v Richmond River Council (1998) 193 CLR 72 at [67] - [69]: 67 The expression the "usual order as to costs" embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party [ Latoudis [1990] HCA 59; (1990) 170 CLR 534 at 543 per Mason CJ, at 562-563 per Toohey J, at 566-567 per McHugh J; Cachia v Hanes [1994] HCA 14; (1994) 179 CLR 403 at 410 per Mason CJ, Brennan, Deane, Dawson and McHugh JJ. If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation. 68 As a matter of policy, one beneficial by-product of this compensatory purpose may well be to instil in a party contemplating commencing, or defending, litigation a sober realisation of the potential financial expense involved. Large scale disregard of the principle of the usual order as to costs would inevitably lead to an increase in litigation with an increased, and often unnecessary, burden on the scarce resources of the publicly funded system of justice. 69 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 King & Co v Gillard & Co [1905] 2 Ch 7; Donald Campbell & Co Ltd v Pollak [1927] AC 732 at 812, or the circumstances leading up to the litigation [ Bostock v Ramsey Urban District Council [1900] 2 QB 616]. 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 [ Jones v McKie [1964] 1 WLR 960; [1964] 2 All ER 842; Bostock [1900] 2 QB 616 at 622, 625, 627.]; unnecessarily protracts the proceedings [ Forbes v Samuel [1913] 3 KB 706]; succeeds on a point not argued before a lower court [ Armstrong v Boulton [1990] VR 215 at 223]; prosecutes the matter solely for the purpose of increasing the costs recoverable [ Hobbs v Marlowe [1978] AC 16]; or obtains relief which the unsuccessful party had already offered in settlement of the dispute [ Jenkins v Hope [1896] 1 Ch 278]. The proceedings on 9 September 2008 42 Judgment was given in June 2008, with the parties directed to confer on costs and orders. The respondents served draft orders as directed, but the applicants provided no response. The matter was relisted and on 23 July, a timetable was fixed for preparation of the matter for further hearing, the applicants being required to file and serve draft orders and an outline of submissions within 21 days, with the respondents to do likewise by 15 September. 43 When the matter came on again on 9 September, the applicants had served draft orders on 5 September, but no submissions. No explanation was given and a new timetable was fixed, but even then it was not entirely complied with by the applicants. 44 The unexplained failure to comply with the Court's directions and the consequential additional costs unnecessarily incurred in the relisting necessitated on 9 September, plainly led to costs which should be borne by the applicants themselves. Indeed, so much was finally accepted in the case advanced on their behalf. 45 Even those in whose favour an indemnity costs order is made, should not expect to recover costs wastefully and unnecessarily incurred in proceedings such as this. The costs of proceedings before Haylen J 46 These proceedings were listed for hearing before Staunton J in December 2006. As a result of the late service of Mr Gower's expert report, the hearing was adjourned. 47 Earlier, various financial records had been produced by the respondents, in answer to summonses for production served by the applicants, but no expert's advice had been obtained by the applicants in order to advance their claims as to outstanding profit share, until just before the hearing commenced. 48 Mr Gower had been instructed to prepare his report on certain assumptions he was instructed to make. Mr Gower advised that if he was himself to independently assess and quantify the second applicant's loss of profit share, he would need to be provided with access to other of the respondents' financial records which he identified in a schedule. Further summonses were subsequently issued for the production of such records, with Haylen J later resolving a disagreement between the parties raised by way of motion, as to the extent of the production required. Before his Honour, the applicants' case was that the documents were required so that Mr Gower could complete his report, the applicants claiming that without the documents they were 'hamstrung by not having the documents of the business to come up with a figure rounded in the reality of the figures, but he has worked on certain assumptions provided to him by our client. What we are trying to do is to get to the documents that will support the foundation of that claim'. 49 The respondents then produced some 3,500 pages of documents in response to the summonses. Despite this production, no further expert's report was commissioned from Mr Gower. There was no explanation given as to why this further evidence was not led from Mr Gower. There was no evidence that he was ever instructed to undertake the task of independently assessing and quantifying the loss, which had led to the production sought. On the evidence, he was not asked to look at the documents until the commencement of the hearing, but even then the foreshadowed further evidence was not sought to be called from him, understandably, given at that point, leave to lead such late evidence was unlikely to be granted. Given that approach, in their case, the applicants had to establish a foundation for the assumptions Mr Gower was instructed to make. They attempted this through cross examination of witnesses, including Mr Ludwig. 50 Some of the documents were, however, put to Mr Gower in cross examination, in order to demonstrate that assumptions he had been instructed by the applicants to make in his report, had no foundation. 51 I am entirely satisfied from this history that the respondents ought not to have to bear the costs incurred by the applicants in this expensive and ultimately unnecessary forensic foray, let alone indemnity costs. While it was argued that it could not be concluded that the documents produced had not been used at all in the applicants' case, for example, by being considered by the applicants' solicitors, no evidence was called to support the submission. The matter raised must be determined on the basis upon which the parties litigated. 52 Before Haylen J, the documents were sought by the applicants for a purpose for which they were not used. Nor did they otherwise form a part of the applicants' case. The 25% profit share claim in respect of which they were sought, failed to result in any money orders. The applicants had long since settled their claims in this respect by the agreement which they had reached with other creditors, in the administration of Maxx Implementation. It had long traded without generating profits. 53 All of the steps taken to pursue these documents must be considered against the background of Mr Gower's conclusion that it was some $1,800 profit share which had not been paid to the applicants. The other claims advanced in relation to profits, were supported by the assumptions Mr Gower had been instructed to make. Despite the records sought being produced, Mr Gower was never asked to consider whether there was a basis in the financial records for those assumptions. In so far as it was necessary to consider the evidence in relation to those assumptions, I came to the view that the assumptions were not proven. 54 In that context, on any view, what was incurred by the applicants in their pursuit of the summonses for production before Haylen J, was an amount which justice could not permit the respondents being called upon to bear. The respondents' costs in resisting the 25% profit share claim 55 The respondents sought an order in their favour, in relation to these costs on the basis that this claim had failed. The applicants opposed such an order, observing that had the offer of settlement which they had earlier made, been accepted, as it should have been, these costs would not have been incurred. There is obvious force in that submission. The respondents' costs would not have been incurred had they not refused to accept what was on any view, a reasonable offer of settlement. It ought not to be overlooked in this respect that the amount of the offer was less than the respondents have been ordered to pay in relation to all of the other heads of claim on which the applicants succeeded. The failure of the profit share claim led to no different position. 56 In Sabah Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306, the Court of Appeal observed at [24]: In the case where there are multiple issues litigated, the court may, in the exercise of its discretion, order that a successful party have part only of its costs. However, it does not necessarily follow that that is the appropriate order. The commencing position is that costs follow the event so that a successful party is entitled to costs. It may be appropriate to order that a successful party be deprived of costs or a portion of the costs if the matters upon which that party is unsuccessful took up a significant part of the trial, either by way of evidence or argument. This proposition is well established and does not require any discussion of the case law, which is conveniently contained in the annotations to r 42.1 in Ritchie's Uniform Civil Procedure (NSW): paras 42.1.5; 42.1.10; 42.1.15. 57 That course is not appropriate in this case, not only given the rejection of the applicants' offer of settlement, but for the additional reason that while the respondents succeeded in resisting a money order in respect of the 25% profit claim, they did not succeed in resisting a finding that the applicants' contracts were unfair in this respect. 58 As the authorities have long established, a finding of unfairness is a precondition to the exercise of any discretion given by the section, firstly to order the variation of the contract, or to declare it void and secondly, to make consequential money orders in favour of an applicant. 59 The applicants succeeded on the first two aspects of this statutory triumvirate, but not the last. For their part, while the respondents successfully resisted the making of a money order, they failed to make out the other critical parts of their case. I am satisfied that the costs of this part of the proceedings should follow the event, in favour of the applicants, on an indemnity basis, for the reasons earlier given. That flows properly from the respondents' refusal of the applicants' offer. Superannuation 60 This issue was raised in passing. Given how it was dealt with I make no orders as to how outstanding superannuation is to be paid. If there are statutory obligations which fall on the parties in this respect, they will have to adhere to them. Interest 61 The applicants sought an order for interest in respect of the money orders, from the date of termination of the employment to the date of judgment. Section 181 of the Act gives the Court power to make such an order, which was not opposed, except as to the period from December 2006 when the hearing of the application was adjourned, given the applicants' belated service of Mr Gower's expert's report, to the date when the hearing commenced before me on 31 March 2008. 62 I accept the respondents' submission as reflecting a fair adjustment of the parties' position in the circumstances in which that adjournment was brought about by the applicants. It was their inadequate preparation of the case which brought about an unnecessary delay. The respondents should not bear the interest consequence. Orders 63 For the reasons given, I make the following orders: 1. The contracts between the applicants and the first, second and third respondent, the subject of these proceedings, are found to be unfair contracts. 2. The employment contract between Maxx Implementation and Mr Boyd, is varied to provide that: 2.1 On termination, Mr Boyd be paid outstanding salary, statutory entitlements and the expenses incurred for Maxx Implementation, prior to 30 June 2003. 2.2 Mr Boyd be entitled to access to the financial records of the business operated by Maxx Implementation and to be properly consulted about how the profits of the business are calculated. 2.3 The profits of the business be fairly calculated, having proper regard to both the interests of Mr Boyd and Mr Ludwig. 3. The contract between Maxx and Mr Boyd, is varied to provide that: 3.1 On termination, Mr Boyd be paid salary and statutory entitlements for the work which he performed, between 1 July 2003, until termination on 14 October 2003, at the rate to which he was entitled under his contract with Maxx Implementation. 3.2 On termination, Mr Boyd be repaid the expenses which he incurred for Maxx, on the same basis as his expenses had been met by Maxx Implementation. 3.3 On termination, Mr Boyd be entitled to payment of six months' salary in lieu of notice. 3.4 On termination, Mr Boyd be paid what Mr Ludwig had promised in relation to outstanding salary, statutory entitlements and expenses, not paid by Maxx Implementation. 3.5 Mr Boyd be entitled to a 25% share of any profits of the business up to the time of termination. 4. Maxx and Mr Ludwig are to pay Mr Boyd the following sums, in respect of which they are jointly and severally liable: 4.1 $47,545 in respect of outstanding salary from 7 June to 14 October 2003. 4.2 $4,050 in respect of outstanding superannuation for the period from 7 June to 14 October 2003. 4.3 $8,286 in respect of outstanding annual leave entitlements as at 14 October 2003. 4.4 $19,115 in respect of outstanding expenses as at 14 October 2003. 4.5 $85,020 in respect of 6 months' salary in lieu of notice, including superannuation. 4.6 Interest at Supreme Court rates calculated on the total of these sums, from the date of termination of Mr Boyd's employment with Maxx on 14 October 2003 to the date of judgment, except for the period from 4 December 2006, when the hearing of the matter was vacated on the application of the applicants, until the hearing commenced on 31 March 2008. 5. The claims brought against the fourth respondent are dismissed. The applicants are to pay any costs incurred by the fourth respondent, in addition to those otherwise incurred by the other respondents, as agreed or assessed. 6. The first, second and third respondents are to pay the applicants' costs of the proceedings, on a party/party basis until 23 March 2005 and thereafter on an indemnity basis, other than: 6.1 Costs already ordered in favour of the respondents. 6.2 The costs incurred by the applicants in relation to: (a) the proceedings on 9 September 2008. (b) the costs incurred in relation to the challenge to the March 2007 summonses dealt with in the proceedings before Haylen J, at the hearing on 17 April 2007 and the hearing itself. ------------------------ AMENDMENTS HISTORY: 28/10/2008 - Slip Rule - reference to '21 December 2006' in point 4.6 of the Orders amended to '4 December 2006' - Paragraph(s) Orders - 4.6 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.