FEDERAL COURT OF AUSTRALIA

Trustee for The MTGI Trust v Johnston (No 2) [2016] FCAFC 190

ORDERS

THE COURT ORDERS THAT:

1.    The Trustee for MTGI Trust T/A Macquarie Technology Group International and Mr Paul Desmond Wallace be jointly and severally liable for the costs of Mr David Johnston of and incidental to the proceedings.

2.    The costs referred to in paragraph 1 of these Orders are:

(a)    fixed in the sum of $48,387.18; and

(b)    to be paid to Mr David Johnston within 28 days of the date of this Order.

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

REASONS FOR JUDGMENT

THE COURT:

1    On 18 October 2015 the Court delivered judgment in The Trustee for The MTGI Trust v Johnston [2016] FCAFC 140 (the primary judgment). The background facts are set out in detail in that judgment. It is sufficient to say that the Court found no merit in the application brought by the trustee (MTGI) for review of two decisions of the Full Bench of the Fair Work Commission, where the Full Bench had refused permission to appeal decisions of Senior Deputy President Boulton awarding Mr Johnston compensation equivalent to 20 weeks’ pay and costs.

2    In dismissing the application the Court also made case management orders for any costs application by Mr Johnston. On 1 November 2016 Mr Johnston filed an interlocutory application seeking orders in the following terms:

1.    The first respondent seeks:

a.    An order that Mr Paul Desmond Wallace pay the first respondent’s costs of these proceedings on the indemnity basis; and

b.    An order that the applicant pay the first respondent’s costs of these proceedings on the indemnity basis.

2.    Alternatively to 1, the first respondent seeks:

a.    An order that the [sic] Mr Paul Desmond Wallace pay the first respondent’s costs of these proceedings, with such costs to be assessed on the indemnity basis from 5 July 2016; and

b.    An order that the applicant pay the first respondent’s costs of these proceedings, with such costs to be assessed on the indemnity basis from 5 July 2016.

3    Mr Johnston filed an affidavit affirmed by his solicitor, Mr John Laxon, in support of this interlocutory application.

Submissions of the parties

4    In summary, Mr Johnston submitted:

    MTGI instituted the proceedings vexatiously or without reasonable cause within the meaning of s 570 of the Fair Work Act 2009 (Cth) (the FW Act).

    MTGI appeared to have had an ulterior purpose in applying for judicial review of the Full Bench’s decisions, namely an attempt to evade enforcement action commenced by the Fair Work Ombudsman which was stayed for the duration of the proceedings before the Court.

    On the eve of the hearing MTGI notified Mr Johnston that it would not press five of the 11 grounds it had originally pleaded in the statement of claim.

    Mr Johnston’s representatives had written to MTGI’s representative setting out reasons why the proceedings were vexatious and without reasonable cause.

    Mr Johnston made an offer to settle the proceeding on 5 July 2016, on the basis that MTGI discontinue the proceedings and each party pay its own costs. The failure of MTGI to accept that offer was an unreasonable omission which caused Mr Johnston to incur costs, as explained in such cases as Calderbank v Calderbank [1975] 3 All ER 333.

    Mr Johnston seeks an order for costs against a non-party, Mr Paul Wallace, pursuant to s 43 of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act), in circumstances where it is clear that Mr Wallace used MTGI as a mere device in the proceedings, where Mr Wallace conducted MTGI’s case before the Fair Work Commission, and where MTGI has already failed to pay compensation and costs in breach of orders of the Fair Work Commission.

5    MTGI submits, in summary, that:

    The proceedings were not instituted to avoid Fair Work Ombudsman enforcement action.

    The fact that MTGI abandoned a number of its grounds does not constitute evidence that its application for judicial review was vexatious.

    While MTGI did not accept Mr Johnston’s settlement offer, and its application was ultimately unsuccessful, MTGI wished to have the matters heard by the Court. Claims about how the Full Bench dealt with the unfair dismissal in the four cases before it were important to raise before the Court. There were no grounds to base a finding that MTGI was imprudent or unreasonable in its rejection of Mr Johnston’s offer: Apotex Pty Ltd v Les Laboratoires Servier (No 5) [2015] FCA 334.

    It is not appropriate that a costs order be made against Mr Wallace simply because he is a director of MTGI.

    There is no evidence before the Court that MTGI is a “straw man”.

    The Court should approach applications for costs pursuant to s 570 of the FW Act with caution.

Consideration

6    Section 570 of the FW Act provides:

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.

7    Mr Johnston relies on both s 570(2)(a) and (b) of the FW Act in his interlocutory application.

8    Section 570 of the FW Act confers discretion on the Court to order costs in Fair Work matters where proceedings were instituted vexatiously or without reasonable cause. Not only must this discretion be exercised judicially according to the terms defining it, it must be exercised with caution because of the exceptional nature of the power in an otherwise no-costs jurisdiction. The case for its exercise should be clearly demonstrated: Saxena v PPF Asset Management Ltd [2011] FCA 395 at [6]. As Mortimer J observed (correctly, in our opinion) in Ryan v Primesafe [2015] FCA 8 at [64]:

The reason for caution is the potential for discouraging parties’ pursuit in a complete and robust way of the claims for contravention which they seek to make under the Fair Work Act, or the defence of such claims. The policy behind s 570 is to ensure that the spectre of costs being awarded if a claim is unsuccessful does not loom so large in the mind of potential applicants (in particular, in my opinion) that those with genuine grievances and an arguable evidentiary and legal basis for them are put off commencing or continuing proceedings. It is an access to justice provision. Insofar as it operates to the benefit of respondents, it is designed to ensure respondents feel free to pursue arguable legal and factual responses to the claims made against them.

(cf Barker J in Pettit v Evolution Mining Ltd [2016] FCA 1304 at [62].)

9    We are satisfied that Mr Johnston is entitled to costs assessed on an indemnity basis against MTGI and Mr Wallace for the following reasons.

Vexatiously or without reasonable cause

10    Section 570(2)(a) distinguishes between proceedings which are instituted vexatiously and those which are instituted without reasonable cause. The concept of “vexatious” was recently explained by Pagone J in Garrett v Commissioner of Taxation [2015] FCA 117 at [4] as referring to proceedings which are scandalous, which disclose no reasonable cause of action, which are oppressive, which are embarrassing, or which are an abuse of the process of the Court. Although the question whether proceedings were instituted without reasonable cause is determined by reference to the facts of the particular case (Spotless Services Australia Ltd v The Honourable Senior Deputy President Jeanette Marsh [2004] FCAFC 155 at [13]) the phrase was explained by the Full Court in Australian Workers Union v Leighton Contractors Pty Limited (No 2) [2013] FCAFC 23 at [7] in the following terms:

(1)    The purpose or policy of the section is to free parties from the risk of having to pay their opponents’ costs in matters arising under the Act, while at the same time protecting those parties who are forced to defend proceedings that have been instituted vexatiously or without reasonable cause.

(2)    It follows from the protection offered by s 570(2) that a person will rarely be ordered to pay the costs of a proceeding. But it is not necessary to prove that there are exceptional circumstances warranting the making of an order: Spotless Services Australia Limited v The Hon Senior Deputy President Jeanette Marsh [2004] FCAFC 155 at [12]-[13] (to the extent that the Full Court in Council of Kangan Batman Institute of Technology and Further Education v Australian Industrial Relations Commission (2006) 156 FCR 275 (“Kangan”) held otherwise, we would respectfully disagree).

(3)    The relevant question is whether the proceeding had reasonable prospects of success at the time it was instituted, not whether it ultimately failed: R v Moore; Ex parte Federated Miscellaneous Workers’ Union of Australia (1978) 140 CLR 470 at 473 per Gibbs J; Kangan at [60]. In Kanan v Australian Postal and Telecommunications Union [1992] FCA 539; (1992) 43 IR 257 at 264-5 (approved in Kangan) Wilcox J said:

If success depends on the resolution in the applicant’s favour of one or more arguable points of law, it is inappropriate to stigmatise the proceeding, as being “without reasonable cause”. But where, on the applicant’s own version of the facts, it is clear that the proceeding must fail, it may properly be said that the proceeding lacks a reasonable cause.

11    These comments were cited with approval by the Full Court in Construction, Forestry, Mining and Energy Union v BHP Coal Pty Ltd (No 2) [2015] FCAFC 97 at [14], [17].

12    We are not satisfied that the proceedings were commenced “vexatiously” for the purposes of s 570(2)(a), in that we are not satisfied that the application was an abuse of process, scandalous, oppressive or embarrassing. We take a different view, however, as to whether the proceedings were commenced without reasonable cause.

13    The fact that MTGI was ultimately unsuccessful in the substantive proceedings does not mean that the proceedings were commenced without reasonable cause. However we are satisfied that MTGI’s application had no real prospects of success from the time it was instituted. We note that the application before the Court was the fifth piece of litigation between the parties, or the third after the rights of the parties had been originally determined according to law by Senior Deputy President Boulton. Further, for example:

    MTGI abandoned half of the grounds of its application on the eve of the hearing.

    MTGI’s claim of jurisdictional error in the Full Bench of the Fair Work Commission lacked particularisation to substantiate the claim ([97]-[99]).

    MTGI’s claim of lack of procedural fairness in the manner in which the Full Bench dealt with MTGI because it was not legally represented misunderstood the duty of tribunals in dealing with self-represented litigants ([102]-[109]).

    The grounds of appeal allegedly overlooked by the Full Bench were not identified by MTGI during the hearing ([113]).

    MTGI’s complaints in relation to “credit issues” appeared to be allegations unsupported by evidence ([116]).

    MTGI’s application for review of the Full Bench’s refusal of permission to appeal from Senior Deputy President Boulton’s costs decision was little more than an attempt to run an appeal when no appeal was available ([117]).

14    We further note the submission of Mr Johnston that the proceedings were instituted by MTGI to avoid an investigation by the Fair Work Ombudsman. The evidence supporting that allegation is not conclusive, and we do not consider it necessary to make such a finding. In any event, at the very least, it is apparent on the facts that MTGI, under the direction of Mr Wallace, continued to press litigation through the Full Bench up to this Court in circumstances where it was clear that MTGI’s case was without foundation.

15    We do not accept that there was a “public interest” in the Court considering “how the Full Bench dealt with the unfair dismissal in the four cases before it” in circumstances where there was no merit in the arguments put to the Court. In our view MTGI’s application was misconceived and without prospects of success from the time it was instituted. Accordingly, we are satisfied that MTGI instituted the proceedings without reasonable cause within the meaning of s 570(2)(a) of the FW Act.

Indemnity costs against MTGI

16    Second, we accept Mr Johnston’s claim to indemnity costs against MTGI. An order in these terms is appropriate both in the exercise of the discretion of the Court to award costs, and pursuant to s 570(2)(b) of the FW Act.

17    In Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 233 Sheppard J observed that to warrant a departure from the ordinary rule that costs be paid on a party and party basis there should be some “special or unusual feature in the case”. Such features include the fact that the proceedings were commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law, the making of allegations which ought never to have been made, or the undue prolongation of a case by groundless contentions (Colgate-Palmolive 46 FCR at 233, cf Coshott v Prentice [2014] FCAFC 88 at [135]).

18    As we have already observed, in this case we found that the application had no merit from the time it was instituted. Grounds were raised without foundation and then abandoned. In our view this case, which commenced in the Fair Work Commission, was unduly prolonged by groundless contentions in the application brought by MTGI against Mr Johnston in this Court. We consider that, in this respect, the litigation exhibited a “special or unusual feature” as explained in Colgate-Palmolive 46 FCR at 233 warranting an order for indemnity costs.

19    Further, we note that on 1 March 2016 Mr Laxon, the lawyer for Mr Johnston, wrote to applicant’s Counsel, and placed MTGI on notice that Mr Johnston considered the application to be frivolous, vexatious and without merit. On 5 July 2016 Mr Laxon again wrote to MTGI’s Counsel, materially in the following terms:

Offer

On a without prejudice basis, we invite your client to discontinue its Application within 21 days, with each party paying its own costs (Offer). The Offer is made pursuant to the principles in Calderbank v Calderbank [1975] 3 All ER 333, and will be relied upon in support of an application for indemnity costs. In this respect, we note that at the time of preparing this letter, our client’s costs in respect of the Application amount to $10,788.80.

We refer you to s 570 of the FW Act, which provides that the Court can make an order for costs where it is satisfied that:

1.    The party instituted the proceedings vexatiously or without reasonable cause; or

2.    The party’s unreasonable act or omission caused the other party to incur the costs.

For the reasons set out in this letter, we consider that the applicant has instituted the proceedings vexatiously, or without reasonable cause.

In the event that the Offer is not accepted, we will consider the failure to accept it an unreasonable act or omission by your client causing our client to incur legal costs, grounding an application by our client for costs on the indemnity basis.

Please note that it appears that the corporate trustee, and the MTGI Trust itself, has limited assets and may not be capable of satisfying a costs order made against it. Therefore, in accordance with the authority established in Knight v FP Special Assets Ltd (1992) 174 CLR 178, we will seek a costs order against Mr Paul Wallace personally, on the basis that he is using the corporate trustee as a mere device to bring these proceedings vexatiously.

20    It is clear from this correspondence that Mr Johnston, through his lawyer, put MTGI on notice that he would be seeking indemnity costs not only against MTGI, but personally against Mr Wallace in the event that MTGI’s application was dismissed. MTGI did not accept Mr Johnston’s Calderbank offer and the matter proceeded to trial.

21    It is well-established that a failure to accept a Calderbank offer may justify the exercise of the Court’s discretion to award costs on an indemnity basis. Principles referable to Calderbank offers are well-known. As the Full Court explained in Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2011] FCAFC 141:

19.    … The purpose of the principles governing Calderbank offers and offers of compromise in accordance with court rules is to ensure that, when one party makes another an offer that contains a genuine element of compromise, the recipient of the offer is compelled to give real consideration to the costs and benefits of prosecuting its claim by reason of the prospect of suffering an indemnity costs order should its failure to accept the offer prove unreasonable.

22    In determining whether the Court should exercise its discretion and order indemnity costs in light of a rejection by the unsuccessful party of a Calderbank offer, a key question for consideration by the Court is whether the Calderbank offer was reasonable and proposed a genuine compromise of a case brought without a realistic prospect of success: Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53 at [125].

23    In our view Mr Johnston’s offer was reasonable, and did propose a genuine compromise of MTGI’s case which, as we have found, had no realistic prospect of success at that time. The fact that Mr Johnston’s offer envisaged both parties “walking away” and bearing their own costs falls within the parameters of a reasonable offer: Sagacious Legal [2011] FCAFC 53 at [129]-[132]. This was particularly so in circumstances where Mr Johnston had been successful at all stages of the Fair Work Commission deliberations, there was a real likelihood that Mr Johnston would be successful in the Federal Court proceedings, and it appears that at the time of the offer Mr Johnston had already incurred costs in the amount of $10,788.80 (cf Sagacious Legal [2011] FCAFC 53 at [129]).

24    Further, we consider that the failure of MTGI to accept Mr Johnston’s offer of 5 July 2016 was an unreasonable omission which caused Mr Johnston to incur costs in these proceedings, within the meaning of s 570(2)(b) of the FW Act (cf Ashby v Slipper (No 2) [2014] FCAFC 67 at [2]-[3]).

25    No submissions of substance to the contrary were advanced by MTGI in respect of this aspect of Mr Johnston’s claim.

26    The usual practice in cases where the Court proposes to order costs against an unsuccessful litigant who has rejected a Calderbank offer is that indemnity costs are awarded from that time, prior to which the successful party is entitled to costs assessed on a party-party basis. On balance however, for reasons we have already explained relating to the complete absence of merit in the application from the time it was instituted by MTGI, we consider that the scope of the costs order against MTGI should be broadened to require MTGI to pay all costs of Mr Johnston of these proceedings on an indemnity basis.

Indemnity costs against Mr Wallace

27    Third, we consider it appropriate to make an order for indemnity costs personally against Mr Wallace, the sole director and shareholder of MTGI, notwithstanding that he is not a party to this litigation.

28    Section 43(1) of the Federal Court Act empowers the Court to award costs in all proceedings before the Court other than proceedings in respect of which that or any other Act provides that costs shall not be awarded. Section 43(2) provides that, except as provided by any other Act, the award of costs is in the discretion of the Court or Judge.

29    Section 43 empowers the Court to not only award costs against a non-party to proceedings (Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations (No 4) (2012) 200 FCR 154 at [84]), but to award indemnity costs against a non-party (re Hughes, in the matter of Firepower Operations Pty Ltd (In Liquidation) (No 3) (2010) 183 FCR 150).

30    Principles guiding the exercise of the discretion of the Court to award costs against a non-party were set out by Mason CJ and Deane J in Knight v FP Special Assets Ltd (1992) 174 CLR 178. As more recently explained by French CJ, Kiefel, Bell and Keane JJ in Selig v Wealthsure Pty Ltd [2015] HCA 18 at [43]:

In Knight v FP Special Assets Ltd, this Court held that its discretionary power to make orders against non-parties extends to the circumstance “where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party ... has an interest in the subject of the litigation.” There is, however, no rule that where a non-party falls into this category an order for costs will necessarily follow. Rather, as Mason CJ and Deane J said, “an order for costs should be made against the non-party if the interests of justice require that it be made.”

(footnotes omitted.)

31    MTGI submits that there is no evidence that MTGI is a “straw man” and that Mr Johnston has made no attempt to provide evidence to the Court that MTGI has no assets.

32    We do not accept this submission. Rather, it is clear to us that:

    Data extracted from the Australian Securities and Investments Commission dated 16 February 2016 indicated that the paid up capital of MTGI as at 16 February 2016 was $1.00, relating to one $1.00 share issued to Mr Wallace. Notwithstanding MTGI’s submissions, we note that no evidence was provided by MTGI to the Court contradicting the evidence that MTGI had no assets beyond the $1.00 on the ASIC records.

    Mr Wallace in proceedings before the Fair Work Commission submitted that MTGI had no cash and for that reason was unable to obtain legal representation or place money into trust funds (Johnston v Trustee for the MTGI Trust U2014/345, transcript of 6 August 2014 PN 149).

    In email correspondence dated 16 January 2015 to the chambers of Senior Deputy President Boulton and Mr Vasili Maroulis, Mr Wallace wrote that “any Judgment or Orders that attempt to bind The Trustee for the MTGI Trust T/A Macquarie Technology Group International is fundamentally erroneous & is incapable of being enforced”. We note that this argument was not pursued in the proceedings before this Court. However this correspondence indicates a likely resistance by MTGI – under the direction of Mr Wallace – to any costs orders against it.

33    Moreover, Mr Wallace as sole director and shareholder of MTGI played an active part in the conduct of this litigation at all stages, including representing MTGI in the Fair Work Commission proceedings and instructing Counsel in the proceedings in this Court. Further, as the aggressive and insulting personal correspondence of 25 June 2014 from Mr Wallace to the chambers of Senior Deputy President Boulton demonstrated, Mr Wallace had an interest in the proceedings which he was determined to pursue irrespective of the merits of the case.

34    In our view it is appropriate that a costs order should also be made against Mr Wallace. In the circumstances it is equally appropriate that this costs order should be on an indemnity basis.

Conclusion

35    Mr Laxon annexed to his affidavit a bill of Mr Johnston’s costs and disbursements in these proceedings in which those costs and disbursements from 1 February 2016 until 1 November 2016 were calculated as totalling $48,387.18. No submissions were made by MTGI disputing the quantum of costs claimed. In this case we consider it appropriate to make a lump sum award of indemnity costs against both MTGI and Mr Wallace in this amount.

36    We take this view because:

    As we have already observed, this application had no merit whatsoever and no prospects of success from the time it was instituted.

    As the evidence before the Court indicates, approximately 80% of the costs and disbursements incurred by Mr Johnston were incurred after the rejection of the letter with the Calderbank offer.

    We note that the bill of costs annexed to Mr Laxon’s affidavit includes costs incurred in finalising the costs submissions in respect of this interlocutory application. We also note that this interlocutory application has been considered on the papers, with no appearances from Counsel required. To that extent we infer that any costs incurred by Mr Johnston in these proceedings after 1 November 2016 were minimal.

    Paragraph 4 of the Costs Practice Note (GPN-COSTS) issued by the Chief Justice on 25 October 2016 refers to the preference of the Court, wherever it is practicable and appropriate to do so, to make a lump-sum costs order. In our view this case is one where it is both practicable and appropriate to do so.

    The protracted and bitter history of the proceedings and the evidence before the Court indicates that a lump sum order is an appropriate approach to finalising this litigation.

Associate:

Dated:    23 December 2016