FEDERAL COURT OF AUSTRALIA

Morris v McConaghy Australia Pty Ltd [2018] FCA 2099

ORDERS

THE COURT ORDERS THAT:

1.    To the extent necessary, the Appellant be granted an extension of time in which to apply for leave to appeal and be granted leave to appeal from the orders made by the Federal Circuit Court on 28 June 2017 and 16 August 2018.

2.    Appeal allowed.

3.    Set aside order 1 made by the Federal Circuit Court on 28 June 2017.

4.    Set aside all of the orders made by the Federal Circuit Court on 16 August 2018.

5.    Set aside Bankruptcy Notice No. BN 228762.

6.    The Respondent is to pay the Appellant’s costs of the application to set aside the bankruptcy notice as taxed or agreed.

7.    The Appellant pay the Respondent’s costs of preparing its bill of costs in proceeding SYG 1137 of 2017.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

PERRAM J:

1    On 14 September 2017 the Federal Circuit Court ordered the Appellant to ‘pay the Respondent’s legal costs and disbursements incurred in these proceedings on and from 28 June 2017 as well as reserved costs in an amount to be agreed or taxed under s 570 of the Fair Work Act 2009 (Cth)’. The Appellant’s claim before the Federal Circuit Court was a claim for unpaid wages under the Fair Work Act 2009 (Cth). Section 570(2) of that Act prohibits the making of a costs order in a proceeding of that kind unless, relevantly, the Court is satisfied that the party against whom the order is to be made instituted the proceeding vexatiously or without reasonable cause (s 570(2)(a)) or the Court is satisfied that the costs incurred were caused to be incurred by the party’s unreasonable act or omission (s 570(2)(b)).

2    In reaching the conclusion that a costs order was authorised, the Federal Circuit Court relied upon both s 570(2)(a) and (b). The Court’s reasons are recorded in Morris v McConaghy Australia Pty Ltd (No 2) [2017] FCCA 2243. At [9] of those reasons the Court explained why the costs order it made was authorised by s 570(2)(a). The explanation was as follows:

‘9.    I am further satisfied, in the circumstances of the present case, given the observations that were made by this Court at the time of the freezing application in respect of the nature of the alleged contract and the parties issue that was identified by the Court, that the proceedings were being instituted vexatiously or without reasonable cause within s 570(2)(a) of the Fair Work Act and that that is a further reason why an order as to costs should be made on and from 28 June 2017 as sought by the respondent.’

3    What were the circumstances to which this paragraph refers? The Court set out at [2]-[7] the following matters which it may be inferred it regarded as germane to the issues before it:

    the proceeding was commenced on 12 April 2017 and at its first return date the Court arranged for a mediation ([2]);

    the mediation was unsuccessful. After the mediation the Appellant sought to have the Court make a freezing order ([2]);

    the freezing order was pursued in a procedurally irregular fashion ([3]) and, in any event, had no reasonable prospects of success because there was no prima facie case ([4]);

    the freezing order application caused the Respondent to incur costs ([4]);

    the Appellant commenced a related proceeding in the Federal Court on 19 July 2017 ([7]);

    the Appellant discontinued the Federal Circuit Court proceeding on 31 July 2017 ([5]);

    it was unreasonable and vexatious for the Appellant to discontinue the proceeding because the Federal Circuit Court ‘was in a position to hear and determine the dispute between the parties’ ([5]);

    it was vexatious because the Federal Circuit Court had jurisdiction to determine the same subject matter in its associated jurisdiction ([6]); and

    the bringing of the new proceeding in the Federal Court and the discontinuance of the proceeding in the Federal Circuit Court was also vexatious ([7]).

4    The costs order made by the Federal Circuit Court cannot be justified under s 570(2)(a). None of the circumstances set out in [2]-[7] of the Court’s reasons provides a basis for a finding that the Appellant’s proceeding was instituted vexatiously or without reasonable cause. Indeed, the circumstances of the commencement of the Appellant’s proceeding is not a topic upon which the Court’s reasons touch. The statement at [9] that the Court was satisfied ‘that the proceedings were being instituted vexatiously or without reasonable cause’ makes neither grammatical nor legal sense. The expression suggests that the institution of a proceeding is something which may be on-going which does not make sense (cf. ‘the proceedings were being prosecuted vexatiously’). In any event, it fails to answer the question posed by s 570(2)(a) which is whether the proceeding was instituted vexatiously.

5    It may be that the Court thought that s 570(2)(a) could be used to assess the manner in which the proceeding was being conducted in an on-going sense (i.e. how it was being prosecuted) rather than the circumstances in which had been instituted and gave effect to that conclusion by the problematic expression ‘were being instituted vexatiously’. That view of the Court’s reasons is supported, to an extent, by the observation that such a conclusion would arguably be referrable to the matters the Court adverted to at [2]-[7].

6    Whether that is so does not, however, ultimately matter. Either the Court asked itself the wrong question (i.e. whether the proceeding was being prosecuted in a vexatious way rather than whether it had been commenced vexatiously) or it has asked itself the right question but answered that question in a way for which the balance of its reasons provide no support. In either case, the reasoning process involves an error of law: misapplying s 570(2)(a) on the former view; making a finding of fact for which there was no evidence on the latter.

7    The Court also reasoned that the costs order was justified under s 570(2)(b). Its reasoning about this was at [8]:

‘8.    I am satisfied that this is an appropriate matter in which the Court should exercise its powers under s 570 of the Fair Work Act. I am satisfied that the facts in the present case satisfy s 570(2)(b) of the Fair Work Act in that the applicant has engaged in unreasonable acts that have caused the respondent to incur costs.’

8    The reasons leave it the reader to ascertain the facts the Court believed satisfied s 570(2)(b). Doing one’s best, there were two findings which were material to the Court’s conclusion. The first was that the freezing order application should not have been pursued. The second was that it was vexatious for the Appellant to commence a related case in the Federal Court and then to discontinue his case in the Federal Circuit Court.

9    The second conclusion cannot enliven s 570(2)(b). The text of s 570(2)(b) is relevantly as follows:

‘570    Costs only if proceedings instituted vexatiously etc.

…

(2)     The party may be ordered to pay the costs only if:

    …

(b)    the court is satisfied that the party’s unreasonable act or omission caused the other party to incur the costs; or

    …’

10    The costs referred to are costs in the proceeding, not costs in some other proceeding (apart from any appeal). The act of filing a notice of discontinuance could not, and did not, cause costs to be incurred in the Federal Circuit Court; to the contrary, it prevented any further costs being incurred. Similarly, whilst the commencement of a proceeding in the Federal Court may cause costs to be incurred in that Court, it could not, without more, cause costs to be incurred in the Federal Circuit Court.

11    Consequently, it was erroneous for the Federal Circuit Court to take into account the notice of discontinuance and the filing of the Federal Court proceeding as part of its reasoning under s 570(2)(b). The Respondent submitted that this did not matter because the reasoning was not material to the outcome. However, that is not correct. The effect of the order is that all costs incurred after the filing of the freezing order are included within the scope of the costs order. Yet, the freezing order episode was concluded by 28 June 2017 when the Federal Circuit Court rejected the application and the entire proceeding was, as I have said, discontinued on 31 July 2017. This means that between 28 June 2017 and 31 July 2017 the only basis for the Federal Circuit Court’s costs order is its reasoning about the notice of discontinuance and the Federal Court proceeding. One cannot say therefore that the Court’s reasoning was not material.

12    Error having been established the question then becomes what order should have been made. In my view, no costs order should have been made. The proceeding was not commenced in circumstances which could be described as vexatious. It was a claim for unpaid wages. No doubt that claim is contestable; no doubt it forms part of a larger dispute and, most certainly, it is now the subject matter of a proceeding in this Court. However, none of those matters have the consequence that the proceeding was instituted vexatiously. Section 570(2)(a) does not apply.

13    Neither does s 570(2)(b). The Appellant sought a freezing order to prevent the removal of assets from the jurisdiction. The Federal Circuit Court accepted that there was an arguable case that the Appellant was entitled to relief (see Morris v McConaghy Australia Pty Ltd [2017] FCCA 1477 at [13]) but thought this was so only in relation to a shareholder dispute which was not before the Court. It also thought that it should not grant relief because the party against whom some of the relief was sought was not before the Court ([9]).

14    Both of these conclusions is wrong. The Federal Circuit was of the opinion that the shareholder dispute lay within its associated jurisdiction. The fact that the case was not presently pleaded was unsurprising in the circumstances of an application for urgent relief. The Court’s suggestion that the pleadings needed to be addressed before the application for urgent relief could be considered is wrong as a matter of procedure. Such claims are routinely entertained on an urgent basis.

15    The proposition that relief would not be granted against a non-party on a freezing order is also wrong. By r 1.05(2) of the Federal Circuit Court Rules 2001 (Cth), where those rules are ‘insufficient’ then the Federal Court Rules 2011 (Cth) apply. The Federal Circuit Court Rules 2001 (Cth) do not deal with the topic of freezing orders although the Court certainly has the power to make such orders: Federal Circuit Court of Australia Act 1999 (Cth) s 15(a). The rules are therefore ‘insufficient’ and the Federal Court Rules 2011 (Cth) apply.

16    Freezing orders in the Federal Court are governed by Division 7.4 of the Federal Court Rules 2011 (Cth). Rule 7.34(1) provides that ‘the Court may make a freezing order or an ancillary order against a person even if the person is not a party in a proceeding in which substantive relief is sought against the respondent.’ Accordingly, the fact that one of the entities to whom the order was to be addressed was not a party in the proceeding did not mean the orders should not have been made.

17    That means that both reasons advanced by the Federal Circuit Court for refusing the freezing order were wrong as a matter of law. It is not necessary to determine whether the Appellant’s application for a freezing order should have been granted. It is sufficient to note instead that there was nothing unreasonable about the conduct of the Appellant in making the application. Accordingly, the power to make a costs order under s 570(2)(b) was not enlivened and the Federal Circuit Court lacked the power to make the costs order which it did on 14 September 2017.

18    The consequence is that order 1 of 14 September 2017 must be set aside. There is a debate as to whether that order was final or interlocutory. On the assumption that it is interlocutory I would be disposed to grant leave to appeal. Although the amount involved is modest, the events which took place in the Federal Circuit Court were unjust. The leave application is out of time but there is an adequate explanation for this. The Appellant’s solicitor explained that it was decided not to appeal the costs order because it was thought only to be small and not worth appealing but once it became apparent that it was at least $28,000 that position was revisited. I accept this explanation. There will be a grant of leave (if necessary).

19    The costs order which I have just set aside was relied upon by the Respondent to prepare a bill of costs. That bill of costs resulted in the issue of a certificate taxation in the amount of $28,200. That certificate of taxation resulted in a bankruptcy notice. The Appellant applied to set aside the certificate of taxation on the basis that his solicitor had not received the initial estimate by the Registrar. The Federal Circuit Court rejected this argument but decided that it would set aside the costs certificate and then assess the costs itself which it did in the larger amount of $32,322.36.

20    Since the costs order upon which all of this activity is erected has been set aside, all of these steps must also be set aside. Consequently, I will vacate orders 1-3 made by the Federal Circuit Court on 16 August 2018. Leave is needed for this to occur which I grant for the reasons I have already given.

21    By order 4 of 16 August 2018 the Federal Circuit Court also ordered the Appellant to pay the costs of the hearing of the application to set aside the costs certificate (which had resulted in the certificate being set aside and the Federal Circuit Court increasing the amount). This was in the amount of $2,275. I will set that order aside as well. The hearing should never have happened.

22    The Appellant also sought, by interlocutory application accompanying the application for leave to appeal, an order setting aside Bankruptcy Notice No. BN228762 and an order that the Respondent pay the costs of the Appellant in relation to that on an indemnity basis. The making of a costs order on that application is not forbidden by s 570 since the application to set aside the bankruptcy notice is not an application under the Fair Work Act 2009 (Cth). Since the bankruptcy notice rests on a costs order which has been set aside it too will need to be set aside. I decline, however, to award indemnity costs but will order the Respondent to pay the Appellant’s costs of the application to set aside the bankruptcy notice as taxed or agreed.

23    One final matter should be noted. If the Appellant had appealed the costs order in time then the Respondent would not have had to incur the costs of preparing a bill of costs. Although I accept the Appellant’s explanation for the delay in seeking leave to appeal, the Respondent has nevertheless suffered that loss through no fault of its own. The Appellant agreed at the hearing of this appeal that he should be liable for these costs as the price for being granted leave to file out of time. The Appellant should therefore pay the Respondent’s costs of preparing its bill of costs.

24    The orders of the Court will be:

1.    To the extent necessary, the Appellant be granted an extension of time in which to apply for leave to appeal and be granted leave to appeal from the orders made by the Federal Circuit Court on 28 June 2017 and 16 August 2018.

2.    Appeal allowed.

3.    Set aside order 1 made by the Federal Circuit Court on 28 June 2017.

4.    Set aside all of the orders made by the Federal Circuit Court on 16 August 2018.

5.    Set aside Bankruptcy Notice No. BN 228762.

6.    The Respondent is to pay the Appellant’s costs of the application to set aside the bankruptcy notice as taxed or agreed.

7.    The Appellant pay the Respondent’s costs of preparing its bill of costs in proceeding SYG 1137 of 2017.

Associate:

Dated:    14 January 2019