District Court New South Wales Medium Neutral Citation: Elegant Australia Pty Ltd v Chen; Chen v Elegant Australia Pty Ltd (No 2) [2020] NSWDC 49 Hearing dates: 14 February 2020; Defendant written submissions – 31 January 2020, Plaintiff written submissions – 10 February 2020, Plaintiff submissions in reply – 14 February 2020, Defendant supplementary written submissions – 14 February 2020 Date of orders: 28 February 2020 Decision date: 28 February 2020 Jurisdiction: Civil Before: Hatzistergos DCJ Decision: (1) In lieu of the order as to costs of 28 January 2020 (order 4), there will be no order as to costs both in respect of the initial Claim and Cross Claim. Catchwords: COSTS – Where proceedings involved a matter arising under Fair Work Act – Whether s 570(1) of the Fair Work Act applied – Whether the exceptions under s 570(2)(a) and (b) of the Fair Work Act applied Legislation Cited: Civil Procedure Act 2005 (NSW), ss 64, 98(1) Fair Work Act 2009 (Cth), s 570 Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Ashby v Slipper (No 2) (2014) 144 ALD 10; [2014] FCAFC 67 Australian and International Pilots Association v Qantas Airways Ltd (No 3) (2007) 162 FCR 392 Bannon v Nauru Phosphate Royalties Trust (Cost Ruling) [2018] VSC 643 Calderbank v Calderbank [1975] 3 All ER 333 Construction Forestry, Mining and Energy Union v Clarke [2008] FCAFC 143; (2008) 170 FCR 574 Elegant Australia Pty Ltd v Michelle Chen [2020] NSWDC 7 Fair Work Ombudsman v Skilled Offshore (Australia) Pty Ltd [2015] FCA 1509 Melbourne Stadium Ltd v Saunter [2015] FCAFC 20; (2015) 229 FCR 221 R v Patrick Projects Pty Ltd (No 2) [2017] FCA 388. Rossetti v Aus Gold Mining Group Pty Ltd (No 2) [2019] FCA 1104 Shroder-Turk v Murdoch University (No 2) [2019] FCA 1434 Stanley v Service of Youth Council (No 3) (2014) 225 FCR 357 Category: Costs Parties: Elegant Australia Pty Ltd (Plaintiff/First Cross Defendant) Michelle Chen (Defendant/Cross Claimant) Guchao Zhou (Second Cross Defendant) Representation: Counsel: Ms L Andelman (Defendant/Cross Claimant) Solicitors: Herald Legal (Plaintiff/Cross Defendants) MacKellars Lawyers (Defendant/Cross Claimant) File Number(s): 2018/372594 Publication restriction: Nil Judgment 1. Following a hearing extending over 6, 7, 14 and 15 November 2019, I delivered judgment on 28 January 2020, relevantly ordering: 1. Verdict and judgment in favour of the Plaintiff in the sum of $50,690.64 2. Pre judgment interest on the said sum is to be awarded from pursuant to s 100 of the Civil Procedure Act 2005 from 4 December 2018 at the rates provided in District Court Practice Note 15 3. Verdict for the Cross Defendants on the Further Amended Statement Cross Claim 4. Subject to any application to my Associate within fourteen day for any further or other order as to costs the Defendant/Cross Claimant is to pay the Plaintiff/Cross Defendants' costs. 1. Pursuant to order 4, the parties sought to have the matter relisted for argument in relation to the question of costs. [1] The matter was consequently listed on 14 February 2020. Both parties submitted written submissions in anticipation of oral argument. [2] Both parties were also permitted to lodge supplementary submissions following oral argument. The Defendant/Cross Claimant did so on 14 February 2020. Submissions Plaintiff/First Cross Defendants 1. On 11 October 2019 the solicitors for the Defendant/Cross Claimant wrote to the Plaintiff/Cross Defendants' solicitors in the following terms: As we understood the position, your client refuses to retract its claim. To that end, we note our offer of compromise issued to you in April and our subsequent discussion. Further, that our client does not intend paying your client any money, and certainly nothing in the order of what it is being claimed. This is because she is simply not in a financial position to offer to pay your client any money as she has not been able to obtain employment since leaving the employment of your client. She has however, been prepared to withdraw her claims on the condition your client also withdraws. And subject to instructions may be prepared to reconsider such an offer of compromise again. However, if your client is intent on recovery of any money from our client then in these circumstances we query the validity of attending a settlement conference other than to satisfy the Court's predisposition of making these kinds of orders. [3] 1. That was responded to by the Plaintiff/Cross Defendants' solicitors stating: … We agree with your comments regarding the utility of holding an ISC in circumstances where the parties appear to be substantially apart both in terms of their legal rights and quantum. We note your client's concerns about keeping costs low and your advice that she is already struggling to meet her legal costs of the matter. In the circumstances, we would propose that the parties exhaust settlement by writing to one another with their respective offers as opposed to attending an actual ISC. To this, we will seek our client's instructions and hopefully write to you early next week. [4] 1. On 15 October 2019 the Plaintiff/Cross Defendants' solicitors forwarded to the Defendant/Cross Claimant's solicitors advising of a Calderbank [5] offer in the sum of $90,000 inclusive of costs and interest which was open for acceptance until 5.00pm on 25 October 2019. Also annexed were a number of invoices issued by the Plaintiff/Cross Defendants' solicitors to the Plaintiff for legal work performed. [6] 2. In short, the Plaintiff/Cross Defendants contended that based on an entitlement to prejudgment interest and costs to 25 October 2019, their offer of $90,000 (inclusive of costs) was more favourable than the judgment delivered by a sum of $16,055.86. In addition, it pointed to a costs order made in their favour on 8 February 2019 by Priestley SC DCJ. 3. Accordingly, the Plaintiff/Cross Defendants contended that the Court in its discretion should order the Defendant/Cross Claimant pay the Plaintiff/First Cross Defendants' costs on a party to party basis prior to 25 October 2019 and on an indemnity basis thereafter. Defendant/Cross Claimant's Submissions 1. The Defendant/Cross Claimant contended that the Court's general discretion to award costs pursuant to s 98(1) of the Civil Procedure Act 2005 (NSW) [7] is subject to s 570 of the Fair Work Act 2009 (Cth), [8] which reads as follows: 570 Costs only if proceedings instituted vexatiously etc. (1) A party to proceedings (including an appeal) in a court (including a court of a State or Territory) in relation to a matter arising under this Act may be ordered by the court to pay costs incurred by another party to the proceedings only in accordance with subsection (2) or section 569 or 569A. Note: The Commonwealth might be ordered to pay costs under section 569. A State or Territory might be ordered to pay costs under section 569A. (2) The party may be ordered to pay the costs only if: (a) the court is satisfied that the party instituted the proceedings vexatiously or without reasonable cause; or (b) the court is satisfied that the party's unreasonable act or omission caused the other party to incur the costs; or (c) the court is satisfied of both of the following: (i) the party unreasonably refused to participate in a matter before the FWC; (ii) the matter arose from the same facts as the proceedings. 1. In these circumstances, the Defendant/Cross Claimant submitted that there should be no orders as to costs as the Defence and Cross Claim related to a matter arising under the FW Act. It contended that the FW Act claim was one of the claims in the proceedings, and consequently s 570 applied to the entirety of the matter and that no costs order should be made. Plaintiff/First Cross Defendant's submissions in reply 1. The Plaintiff/First Cross Defendants' submissions in reply acknowledged the force of s 570 but contended its application should be confined to the Cross Claim and not extend to the initial Claim. Further, it contended that the Court should exercise its discretion under s 570(2) (a) and (b) and make an order in its favour. Application of Section 570 (1) 1. The Plaintiff/Cross Defendants contended that the initial Claim and the Cross-Claim were separate proceedings, pursuant to Part 9 of the Uniform Civil Procedure Rules 2005 (NSW). [9] It therefore submitted that s 570 was not engaged in respect of the initial Claim as it did not comprise any matter arising, or at least properly arising, under the FW Act. [10] 2. It pointed to fact that the Defence filed 25 February 2019 advanced no claim under the FW Act. It further argued that the Amended Defence filed 18 September 2019 erroneously pleaded that the Defendant was entitled to FW Act relief when no such relief could not have been granted by way of Defence; nor could any such relief form a proper defence under the FW Act, whether by set off or otherwise. [11] 3. This submission was said to be supported by the terms of s 570(2) which referred to "the party instituted the proceedings." This was said to lend support to the view that: 1. Any relief sought under the FW Act could only be obtained by affirmative action by way of a cross claim and not defence; and 2. The proceeding intended to be captured under s 570(1) of the FW Act is a proceeding involving an affirmative action. [12] 1. The Defendant/Cross Claimant contended that the appropriate enquiry was whether or not the FW Act claim is one of the claims in the proceedings. If it was, s 570 applied to the whole of the proceedings. [13] Consideration 1. I accept the Plaintiff/Cross Defendants' contention that both its initial Claim and the Cross Claim were each proceedings for the purposes of s 570 (1) of the FW Act. This is consistent with the concept of what constitutes "proceedings" in authorities referable to the section and its predecessor provisions. [14] However I would not accept that the wording of one of three exceptions contained in the form of s 570(2)(a) qualifies what would otherwise be within the scope of s 570(1) of the FW Act. 2. Section 570(1) applies to proceedings "in relation to a matter arising under the [FW Act]." When the FW Act was first enacted, the section applied when "exercising jurisdiction under this Act." [15] In 2012, this phrasing was replaced with the pre-FW Act words present in the section today. The Explanatory Memorandum to the Fair Work Amendment Act 2012 (Cth) clarifies the reason for the amendment: Part 1 of Schedule 10 to the Bill will amend section 570 of the FW Act so that it operates in relation to matters arising under the FW Act, rather than in relation to courts exercising jurisdiction under the FW Act. This amendment confirms that the FW Act is generally a 'no costs' jurisdiction (including in appeal proceedings)." [16] 1. In Construction Forestry, Mining and Energy Union v Clarke, [17] the Full Court of the Federal Court of Australia in respect of the previous s 824(1) of the Workplace Relations Act 1996 (Cth) [18] stated at [27]: …The cases relevant to this point typically regard the "matter" (that is, not the "proceeding") as the lynchpin of the prohibition contained in s 824(1) (or its predecessor, s 347(1)). A good example of this is the decision of the Full Court in Commonwealth of Australia v Construction, Forestry, Mining and Energy Union [2003] FCAFC 115; (2003) 129 FCR 271. In that case, the matter was held to arise under ss 170NC and 170NG of the WR Act, with certain steps in the litigation process, including an application for leave to appeal and the appeal itself, being regarded as separate proceedings "in" the broader "matter". The reasoning in that case supports our conclusion that the prohibition on the making of costs orders in s 824(1) applies to both the respondent's and the appellants' notices of motion. Both of them are "proceedings" which are to be considered as part of or "in" the broader "matter" arising under the WR Act. 1. The terms of [18] (b) and (c) and [20] (l) and (m) of the Further Amended Defence pleaded relief pursuant to sections 326(3), 545, 546 and 547 of the FW. [19] Ultimately the only issue advanced was one of setoff in relation to a payment that had been made by the Defendant to the Plaintiff in the sum of $9,987.16. [20] 2. Even putting that matter aside, the Plaintiff/Cross Defendants accepted that s 570(1) of the FW Act was engaged in terms of the Cross Claim. That being the position, it is clear that the initial Claim and the Cross Claim are proceedings relating to a matter under the FW Act irrespective of the extent to which they each engage the jurisdiction of the FW Act. Further, the terms of s 570(1) apply to "any party to proceedings" not just the initiating party. 3. I am satisfied that s 570(1) applies to the proceedings as they were advanced 'in relation to a matter arising under the FW Act.' Section 570(2)(a) – Proceedings were instituted vexatiously or without reasonable cause 1. Next the Plaintiff/Cross Defendants submitted that if the Court was of the view that s 570(1) applied to the proceedings, that it should nevertheless exercise its discretion to order costs as the Defendant/Cross Claimant instituted her proceedings without reasonable cause. 2. In respect of the Defence this was said to be: …because the claim did not comprise any matters arising or, at the very least, properly arising under the FW Act. Although the defendant in the Amended Defence filed 18 September 2019 erroneously pleads by way of defence that the defendant is entitled to relief under the FW Act, it is submitted that no such relief could have been granted by way of defence, nor could any such relent form a proper defence under the FW Act, whether by set off or otherwise. [21] 1. So far as the Cross Claim was concerned, it contended it was instituted: …without reasonable cause within the meaning of s 570(2)(a) of the FW Act. In order for the cross-claimant to have succeeded, she required a finding that the relationship between the cross-claimant and the cross-defendant was one of employee-employer. In light of the Deed, it is submitted that this finding could not possibly have been made as it was clear on the face of the document and the supporting context, which was unchallenged, that the arrangement was one to lease a business or an arrangement analogous thereto. [22] Consideration 1. As I have stated, s 570(1) applies to proceedings both on the initial Claim and Cross Claim. The exception in s 570(2)(a) applies to "proceedings instituted." 2. In Ashby v Slipper (No 2) [23] the Full Court stated at [35]: Section 570 of the FWA "reflects a policy of protecting a party instituting proceedings from liability for costs" and "costs will rarely be awarded under the section and exceptional circumstances are required to justify the making of such an order": Council of Kangan Batman Institute of Technology and Further Education v Australian Industrial Relations Commission (2006) 156 FCR 275 at [60]. Whilst Kangan was decided before the introduction of the FWA and concerns the former s 347(1) of the Workplace Relations Act 1996 (Cth) (WRA), s 347(1) of the WRA was similar in terms to s 570(2)(a) of the FWA. Moreover "[a] party cannot be said to have commenced a proceeding 'without reasonable cause'...simply because his argument proves unsuccessful", and costs will not be awarded against a party whose unsuccessful argument was "not unworthy of consideration": R v Moore; Ex parte Federated Miscellaneous Workers' Union of Australia [1978] HCA 51; (1978) 140 CLR 470 at 473. Only a case that has "no real prospects of success, or was doomed to failure" will meet the tests set out in s 570(2)(a) of the FWA: Kangan at [60]. Each of these matters is a question of fact. They were neither entertained nor determined by the Court. 1. In Fair Work Ombudsman v Skilled Offshore (Australia) Pty Ltd, [24] Gilmore J stated: [8] The purpose of s 570 is to ensure that litigants, including respondents, are not deterred from "complete[ly] and robust[ly]" defending claims for contravention: Ryan v Primesafe (2015) 323 ALR 107 at [64]. … [10] That a party has a "self-evidently weak case" is not enough to warrant a costs order. There must be "a higher level of criticism or disapprobation": Clarke v Dixie Cummings Enterprises Pty Ltd [2013] FCA 987 at [14]. Indeed, costs were not awarded against the FWO in Fair Work Ombudsman v Valuair Limited (No 3) [2014] FCA 1182 even though elements of the FWO's case were "artificial and unsatisfactory" and "potentially bizarre": at [12]–[17] cross-referencing to the liability decision —Fair Work Ombudsman v Valuair Ltd (No 2) (2014) 224 FCR 415 . … [13] Even if the Court is satisfied of a s 570(2) precondition, it retains a discretion not to order costs: Corinthian at [12]. 1. Taking into account these principles, the Cross Defendants did not demonstrate how it can be said that the Cross Claim was instituted without reasonable cause. While the Cross Claimant was ultimately unsuccessful in her claim, the Cross Defendants have failed to demonstrate that the Cross Claim was "doomed to fail". Nor was any action/submission to such an effect advanced ahead of the costs hearing. 2. Overall, I am not satisfied the circumstances justify the award of costs under s 570(2)(a). Section 570(2)(b) – Defendant's unreasonable act or omission caused the Plaintiff to incur costs 1. The Plaintiff/Cross Defendants next sought to rely on s 570(2)(b) of the FW Act. A number of grounds were advanced. 2. First, earlier submissions were repeated, contending that the prosecution of any incompetent or hopeless case could be regarded as an "'unreasonable act", including a party who maintains a proceeding which is misconceived in the sense of being incompetent or unsupportable. [25] 3. Next, it was contended that the Defendant/Cross Claimant conducted the litigation inefficiently and thereby acted unreasonably. [26] 4. In this respect, attention was drawn to the fact that the Defendant/Cross Claimant caused two days of hearing (on 6 and 14 November 2019 respectively) to be delayed by making applications for further amendments to her pleadings. It was pointed out that the Defendant/Cross Claimant conceded that she was aware at all relevant times that the application to amend could and should have brought earlier, and there was no reason as to why it was not brought earlier. No reason as to why it was not brought earlier was provided to the Court, and the Court formally reserved its position on costs. [27] 5. Thirdly, the Plaintiff/Cross Defendants contended that the Defendant/Cross Claimant's attitude to the Calderbank letter was unreasonable (as it amounted to a failure to accept a reasonable offer) causing it to incur costs. [28] Consideration 1. As to the first ground, the Plaintiff/Cross Defendants relied on earlier arguments advanced in respect of its s 570(2)(a) application. In light of my consideration above and findings referred to in my principal judgment, [29] I do not regard the Defendant/Cross Claimant's case to be misconceived (as the Plaintiff/Cross Defendants contended) such that its pursuit amounted to an unreasonable act that caused the Plaintiff to incur costs. 2. In respect of the second argument, it is useful to set out what the Full Court of the Federal Court of Australia held in Clarke: [29] …. As the authorities indicate, there is a distinction between a party who pursues arguments which are ultimately abandoned or rejected by the Court and a party who commences a proceeding which is misconceived in the sense of being incompetent or unsupportable: Australian and International Pilots Association 162 FCR at 402; Standish v University of Tasmania (1989) 28 IR 129 at 138-139. Simply because a party does not conduct its litigation in the most efficient way does not mean that the Court should exercise its discretion in s 824(2) of the WR Act to make a costs order. In our view, neither the late abandonment of some of its defence, nor the use of a notice of contention to advance a previously minor and ultimately unsuccessful argument, crosses the threshold of being "an unreasonable act or omission" for the purposes of s 824(2)… Although it is arguable that the lateness of the concession may have put the appellants to some extra costs, we are of the view that it cannot be characterised as "unreasonable" in the circumstances of this case. Indeed, while courts should use the discretion in s 824(2) to ensure that parties to litigation arising from the WR Act do not engage in unreasonable acts and omissions which put the other party to undue expense, they should also be careful not to exercise the discretion with too much haste, given that such haste may discourage parties, for fear of an adverse costs order, from pursuing litigation under the WR Act in the manner which they deem best (emphasis added). 1. Whilst s 64 of the CP Act enables a pleading to be amended at any time, the ability to do so is subject to the guiding principles in Division 1 of Part 6 of the that Act. 2. The first proposed amendment did not involve making a FW Act claim. It occupied relatively little time, [30] and there was no formal motion filed. The application was ultimately abandoned and the discussion appeared to overlap with that in respect of the pleaded claim. The second proposed amendment did not rely on any additional evidence by the Defendant/Cross Claimant. The matter proceeded to judgment. [31] Overall this application consumed approximately half a day. [32] Some amendments were allowed which the Plaintiff/Cross Defendants were in a position to meet. At around 4 pm that day (Day 3), I was informed that both parties had prepared written submissions and wished to revise them; no doubt in light of the oral evidence. On Day 4 the Court sat from 10.08am to 4.14 pm. It is apparent that in light of the length of submissions, the case would not have concluded on Day 3 even if the Defendant/Cross Claimant's motion had not proceeded. 3. It can be accepted that defending the motion on Day 3 caused the Plaintiff/Cross Defendants to incur some additional costs. However, in the context of the case as a whole it is doubtful that the case could have concluded earlier that the four days consumed. Criticism may no doubt be levelled against the Defendant/Cross Claimant's legal representatives over the conduct of the proceedings. They initially sought through Statement of Issues to advance unpleaded claims, then unsuccessfully sought to amend the pleadings and still pursed them in the written submissions. 4. Forensic decisions were no doubt involved in the Defendant/Cross Claimant's decision to pursue the applications referred to. Taking account of all the circumstances referred to, I am not satisfied that the decision to do so was on the whole unreasonable 5. Further, even if I were to conclude that the Defendant/Cross Claimant acted unreasonably causing costs to be incurred by the Plaintiff/Cross Defendant, I would not in the exercise of discretion make orders for costs, bearing in mind the limited impact that these acts had in the context of the length of the case overall and the difficulty in separating them from the balance of the proceedings. 6. In respect of the third argument, the Calderbank offer included a component for costs in circumstances where s 570 might otherwise have applied. I am not satisfied that in rejecting the offer in those circumstances, the Defendant/Cross Claimant acted unreasonably. She plainly had a position in relation to the claim that she wished advance, and made clear she was not prepared to make any offer involving money. [33] 7. Viewed in its context, the Defendant/Cross Claimant's failure to engage with the offer cannot be found to be unreasonable. 8. Section 570 invokes Parliament's intention that costs will be sparsely granted in relation to matters arising under the FW Act. I am not satisfied that in the present case the circumstances justify a departure from this intention. ORDERS 1. For these reasons, the Court orders: 1. In lieu of the order as to costs of 28 January 2020 (order 4), there will be no order as to costs both in respect of the initial Claim and Cross Claim. ********** Endnotes 1. Defendant/Cross Claimant's email dated 7 February 2020, Plaintiff/Cross Defendant's email dated 11 February 2020. 2. Plaintiff/Cross Defendants' Submissions dated 10 February 2020 and Submissions in Reply dated 14 February 2020; Defendant/Cross Claimant's Submissions dated 31 January 2020. 3. Exhibit B email from Mackellar's Lawyers dated 11 October 2019 at 14:06. 4. Exhibit B email from Mackellar's Lawyers dated 11 October 2019 at 14:06. 5. Calderbank v Calderbank [1975] 3 All ER 333. 6. Exhibit A; Annexure A, Letter from Herald Legal dated 15 October 2019. 7. Hereinafter referred to as the "CP Act". 8. Hereinafter referred to as the "FW Act". 9. Plaintiff/Cross Defendants' Submissions in Reply at [1]. 10. Plaintiff/Cross Defendants' Submissions in Reply at [3]. 11. Plaintiff/Cross Defendants' Submissions in Reply at [3]. 12. Plaintiff/Cross Defendants' Submissions in Reply at [4]. 13. Defendant/Cross Claimant's submissions dated 31 January 2020 at [16]. 14. Stanley v Service of Youth Council (No 3) (2014) 225 FCR 357 at [26] and [36], approved in Melbourne Stadium Ltd v Saunter [2015] FCAFC 20; (2015) 229 FCR 221 at [157]-[158]: followed in Bannon v Nauru Phosphate Royalties Trust (Cost Ruling) [2018] VSC 643; Rossetti v Aus Gold Mining Group Pty Ltd (No 2) [2019] FCA 1104; Shroder-Turk v Murdoch University (No 2) [2019] FCA 1434. 15. Explanatory Memorandum to Fair Work Bill 2008 (Cth), 338-339. 16. Explanatory Memorandum to Fair Work Amendment Bill 2012 (Cth), 10. 17. [2008] FCAFC 143; (2008) 170 FCR 574 (Clarke). 18. Which was in similar terms to that of the current s 570 (1) of the FW Act. 19. Defendant's Further Amended Defence, [18](b)-(c), [20](l)-(m). 20. Defendant/Cross Claimant's Schedule of Issues: MFI C [D] and Day 2 T 4. 21-10.25. 21. Plaintiff Submissions in Reply at [3]. 22. Plaintiff Submissions in Reply at [10]. 23. (2014) 144 ALD 10; [2014] FCAFC 67 (Mansfield, Siopis and Gilmour JJ). 24. [2015] FCA 1509 followed in R v Patrick Projects Pty Ltd (No 2) [2017] FCA 388. 25. Australian and International Pilots Association v Qantas Airways Ltd (No 3) (2007) 162 FCR 392 at [36]. 26. Construction, Forestry, Mining and Energy Union v Clarke (2008) 170 FCR 574 at [29]-[30]. 27. Plaintiff/Cross Defendants' Submissions in Reply at [11]-[15]. 28. Plaintiff/Cross Defendants' Submissions in Reply at [16]-[21]. 29. Elegant Australia Pty Ltd v Michelle Chen [2020] NSWDC 7 at [118]-[126]. 30. Day 1 T 3.4- 9.11. 31. Delivered orally on Day 4. 32. Day 3 T 1- 37. 33. Exhibit B, email from Mackellar's Lawyers dated 11 October 2019 at 14:06. 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. Decision last updated: 01 April 2020