Federal Court of Australia

HealthX Group Pty Ltd v Palling [2026] FCAFC 141

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be allowed in part.

2.    Order 5 of the orders made below on 24 October 2025 be set aside and, in its place, it be ordered that the applicant pay the respondent’s costs thrown away by its abandonment of the reasonable notice claim.

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

REASONS FOR JUDGMENT

THE COURT:

1    Between 1 July 2016 and 26 April 2023, the respondent, Ms Palling, served the appellant, HealthX Group Pty Ltd (hereafter, “HealthX”), as General Manager of its health- and aged care-focused labour hire business. Her engagement was subject to written contractual terms, to which it will be necessary later to return. For now, it suffices to note that one of those terms entitled Ms Palling to a share of profits generated by the business; and another purported to restrain her from working for competitor businesses for a period after her employment with HealthX ended.

2    Following Ms Palling’s resignation from HealthX in April 2023, a dispute arose (or continued) as between the parties concerning those contractual terms. Ms Palling maintained that amounts reflective of her entitlement to a share of HealthX’s profits had been wrongly withheld. HealthX asserted that Ms Palling had commenced employment in a competitor business in contravention of the restrictive covenant by which she had agreed to be bound.

3    In January 2024, HealthX commenced a proceeding in this court seeking declaratory relief directed to the existence of the profit share entitlement that Ms Palling asserted and injunctive relief to prevent what it maintained was an ongoing contravention of the restrictive covenant described above. The former was sought pursuant to (amongst others) provisions of the Fair Work Act 2009 (Cth) (the “FW Act”). By notice of cross-claim, Ms Palling charged HealthX with breach of contract by its failure to pay her the profit share to which she maintained that she was entitled.

4    The matter proceeded to trial in September 2025. By then, HealthX had abandoned its claim to injunctive relief under the restrictive covenant that featured in its originating application. Ultimately, that originating application was dismissed and Ms Palling’s cross-claim succeeded: HealthX Group Pty Ltd v Palling (No 2) [2025] FCA 1300 (hereafter, the “Primary Judgment”; Sarah C Derrington J). HealthX was ordered to pay damages for breach of contract in the sum of $366,405.20, interest, and a portion of Ms Palling’s costs relevantly including costs in relation to HealthX’s initial (and later abandoned) claim for injunctive relief pursuant to the restrictive covenant.

5    By notice dated 18 November 2025, HealthX appeals from the Primary Judgment. Eleven grounds of appeal are advanced but they distil to two central propositions: first, that the primary judge erred by finding that HealthX was contractually obliged to afford Ms Palling a share of its profits; and, second, that the primary judge erred by accepting that the circumstances were such as to authorise, for the purposes of s 570(2) of the FW Act, an order for costs related to the aborted claim for injunctive relief. Ms Palling defends the Primary Judgment on the basis that the errors that are alleged were not made; but also, by notice of contention dated 9 December 2025, on an alternative basis (restricted to the court’s profit share findings) that needn’t now be rehearsed.

6    For the reasons that follow, the appeal should be allowed in part. Respectfully, the court’s profit share findings were not attended by error; but the circumstances surrounding the withdrawal of the claim for injunctive relief were not such as to authorise an order for costs under s 570(2) of the FW Act. That order should be set aside but the appeal should otherwise fail. It is unnecessary to address Ms Palling’s notice of contention.

The contractual provisions

7    At this juncture, it is convenient to replicate the contractual provisions that assume prominence in this appeal. The profit share provision that was the primary focus of dispute between the parties was contained within a schedule to Ms Palling’s contract of employment. Item 10 of that schedule (hereafter, “Item 10”) provided as follows:

Profit share: All General Managers will participate in a profit share arrangement that will see achievable opportunity to receive a significant share in their Channel’s profit. The General Manager Health X will access a profit share in the amount of 5% of the Gross Contribution (GC) (EBIT [(Earnings Before Interest and Tax)] for the business unit before shared services costs).

The gates needed to be met to allow the profit share to flow are:

1. Top line revenue growth

2. Increased profitability

3. Team/staff survey showing committed and engaged staff (staff survey)

4. Client NPS [(Net Promoter Score)] improvement or NPS remains at an agreed level if already at maximums.

8    The restrictive covenant that featured initially in HealthX’s action was the subject of cl 14 of Ms Palling’s contract of employment. It suffices to summarise that provision. It purported to forbid Ms Palling from engaging in or assisting, “…a business similar to or in competition with the business of [HealthX]”. That prohibition was expressed to apply within various geographical locations (ranging from the whole of Australia down to locations within a 50-kilometre radius of HealthX’s offices) and for various periods of time following the termination of Ms Palling’s employment. The maximum possible duration of the restraint was two years.

Jurisdiction

9    Before addressing the content of the Primary Judgment, something might be said of the court’s jurisdiction. At first blush, the dispute that was the subject of the Primary Judgment presents as a simple one involving only allegations of contractual breach. HealthX maintained that it was not obliged to afford Ms Palling a share of its profits and sought to hold her to the post-employment terms of her contract; and Ms Palling maintained that she had been underpaid what she was due contractually. Ordinarily, those are not claims that attract this court’s jurisdiction.

10    In the matter below, however, it was suggested that Ms Palling’s entitlement to payment of a profit share (and her compliance with another contractual term concerning notice of termination, which was relevant to another, eventually-abandoned aspect of HealthX’s initial complaint) turned upon the operation of what the FW Act describes as “safety net contractual entitlements”. Conceptually, “safety net contractual entitlement[s]” include entitlements arising under contracts of employment that relate to any of the subject matters listed in ss 61(2) and 139(1) of the FW Act: FW Act, s 12. Those provisions list the matters that are or can be the subject of provision within the “National Employment Standards” to which pt 2-2 of the FW Act refers or within modern awards made pursuant to pt 2-3. Two of the subject matters covered by those provisions are “notice of termination” (FW Act, s 61(2)(i)) and “incentive-based payments, piece rates and bonuses” (FW Act, s 139(1)(a)(ii)).

11    No issue was raised on appeal—nor, it appears, below—about the court’s jurisdiction to determine the questions put before it. Nonetheless, it is the “very first duty of any Court” to be satisfied as to the existence of its jurisdiction to determine what it is asked to determine: Hazeldell Ltd v Commonwealth (1924) 34 CLR 442, 446 (Isaacs ACJ, with whom Gavan Duffy J agreed in the result; Starke J dissenting but not on that point). No less is that so on appeal: Police Federation of Australia (Victoria Police Branch) v Chief Commissioner of Police (Victoria) [2026] FCAFC 47 (Snaden, Kennett and Shariff JJ).

12    It strikes us, with respect, that considerable doubt attends the proposition that either of the contractual terms upon which the matter below turned were properly conceived of as “safety net contractual entitlements”. The express and/or implied “notice of termination” term that HealthX accused Ms Palling of contravening was a provision that required (or purported to require) that she give notice of her resignation. That is not a subject matter for which the National Employment Standards make provision. Likewise, there would appear to be scope for doubting that a profit share provision and an incentive-based bonus entitlement are synonymous.

13    Nonetheless, such doubt as there might be is not conclusive. Furthermore, there is no suggestion that claims were advanced below solely as a contrivance designed to clothe this court with jurisdiction to determine claims that would otherwise be beyond what it has jurisdiction to determine. That being so, the court was properly seized of the matter and, notwithstanding the reservations expressed above, its jurisdiction on appeal should not be doubted.

The primary judgment

14    Ms Palling’s cross-claim was one for damages arising from HealthX’s refusal to pay her, in respect of the period 1 July 2022 to 26 April 2023, the profit share for which Item 10 provided. En route to concluding that Ms Palling’s cross-claim against HealthX was made good, the primary judge had occasion to consider two foundational questions: first, whether payment of the profit share under Item 10 rested upon the exercise of a discretion; and, second (and assuming that it did not), whether the criteria that conditioned its payment in respect of the relevant period were met.

15    As to the former, her Honour reasoned (Primary Judgment, [38]-[42]):

38    I have already observed, HealthX submits that the ordinary meaning of the word “access” is “passage, channel, or doorway”, thereby connoting that actual payment is discretionary. I accept that the ordinary meaning of the noun form “access” has the meaning for which HealthX contends, but the word is used in its verb form in the agreement. The ordinary meaning of the verb “to access”, when not used with reference to computer data, is “to obtain” (The Oxford Dictionary). The meaning of the verb “to access” does not support the proposition that any “access” to the payment is discretionary.

39     The phrase “that will see achievable opportunity to receive significant share in their Channel’s profit” adds nothing to the record of the agreement; it is in the nature of commentary.

40     Nothing in the wording of Item 10 connotes any discretion on the part of HealthX as to whether or not the profit share will be paid to Ms Palling. To the contrary, the wording is clear that she will access (ie obtain) 5% of the EBIT before shared services costs once each of the gates has been met. That is clear from the proper grammatical construction of the phrase, “the gates needed to be met”. The use of the past participle “needed” connotes that the gates are to be met once. If it were an ongoing requirement, it would be expected that the phrase would use the future tense – the gates that “will need” to be met.

41     Item 10 is also plain as to the measure of the profit share – it is 5% of EBIT only (before shared services costs).

42     A reasonable businessperson involved in a business of this type would have understood that the General Manager of HealthX, upon achieving top line revenue growth, increased profitability, a satisfactory staff survey and client NPS improvement, had done what was necessary to participate in the profit share arrangement agreed upon and was from then on entitled to receive 5% of the EBIT for HealthX before shared services costs.

16    As to the second proposition—whether the “gates” to which Item 10 referred were “open” in respect of the amounts that were the subject of Ms Palling’s cross-claim—her Honour began by noting that, “…[t]he evidence…was hardly satisfactory”: Primary Judgment, [47]. There then followed some analysis (and criticism) of the evidence that HealthX led—and, perhaps more accurately, failed to lead—at the trial. It is to be recalled that the proceeding itself was commenced at HealthX’s initiative. To obtain the relief for which it agitated, it was incumbent upon it to establish evidentially the absence of the contractual entitlement upon which its claim depended. It is apparent that Ms Palling was content to rest upon equivalent evidence for the purposes of establishing her demands under the cross-claim.

17    That was, to say the least, an unfortunate way for the trial to have been run. HealthX’s prosecution of its own claim to relief was entirely coincidental with its defence of Ms Palling’s cross-claim: it maintained only that the profit share entitlement was discretionary and, hence, that it was not contractually bound to pay anything. Ms Palling’s prosecution of her claim, however, had two dimensions. The first challenged HealthX’s contention about its residual discretion not to pay a share of profits under Item 10. The second—necessarily premised upon the success of the first—was that the criteria governing the existence of that entitlement were met insofar as concerned the relevant period.

18    The ways in which the respective contentions were advanced is a matter that assumes some significance in this appeal. For now, it suffices to record—albeit at no more than a high level of generality—what the primary judge concluded about the criteria that conditioned payment of the profit share for which Ms Palling moved (having accepted, as her Honour did, that there was no element of discretion to its payment or non-payment): Primary Judgment, [40].

19    Her Honour considered what each of the four “gates” meant. As to the first—the existence of “top line revenue growth”—her Honour, after lamenting the state of the evidence, accepted that actual earnings before interest, tax, depreciation and amortisation (or “EBITDA”) was a suitable (and intended) conceptual proxy. Such evidence as was before her showed that HealthX’s EBITDA had improved across two consecutive quarters as far back as April 2019. That, her Honour concluded by inference, was sufficient to establish that that “gate” was relevantly “opened”: Primary Judgment, [52].

20    Similarly—and, as her Honour noted, in the absence of better evidence such as tax returns or other financial records—the primary judge accepted (Primary Judgment, [53]) that those consecutive quarters of “top line revenue growth” sufficed to establish “increased profitability”; and, therefore, to meet the second “gate”.

21    As concerned the third “gate”—staff investment—her Honour referred to such evidence as there was about the levels of staff engagement and commitment within HealthX’s business. It is fair to say that the evidence that HealthX was minded or able to produce left at least some room for doubt. Nonetheless and for reasons that she identified, her Honour was able to infer from records of staff surveys that the business enjoyed, or had at one point enjoyed, a level of staff commitment and engagement that sufficed to “open” the third “gate”: Primary Judgment, [54]-[55].

22    The fourth and final “gate” concerned “Client NPS [(net promoter score)] improvement or NPS remain[ing] at an agreed level if already at maximums”. Her Honour noted (Primary Judgment, [56]) that there was no evidence of any “agreed level of NPS”. There was in evidence a table that purported to record results of client surveys conducted between 2013 and 2023. Again, it is fair to say that the evidence surrounding the creation of that table could have been clearer but, given that it was evidence that HealthX led, her Honour proceeded to infer from it that it was accurate and that it demonstrated the requisite improvement—as her Honour put it, “…an increasing score of ‘promoters’…”: Primary Judgment, [57].

23    With those conclusions stated, her Honour was satisfied that, “…Ms Palling had met the gates which were a pre-condition to triggering the profit share arrangement to which the parties had agreed…”: Primary Judgment, [58]. There does not appear to have been (and, in any event, does not now remain) any dispute about the calculation of the profit share figure itself. Her Honour assessed it at $366,405.20: Primary Judgment, [59]-[60].

24    The primary judge then considered the question of costs. Alive to the restrictions imposed by s 570 of the FW Act, her Honour carefully rehearsed the chronology of events that preceded the matter’s progression to trial. After addressing some costs questions that don’t arise on appeal, her Honour’s attention shifted to HealthX’s decision to abandon its restraint of trade case against Ms Palling. It was noted that that case was not advanced until some seven months after Ms Palling was understood to have commenced in a new role with a competitor business and that, unlike in some similar matters, there had been no application for urgent injunctive relief: Primary Judgment, [92]. Further, her Honour noted that initial trial dates had had to be abandoned for want of compliance by HealthX with some procedural directions. At the point that the case in restraint of trade was withdrawn, the entirety of the most generous restraint period contained within Ms Palling’s contract of employment had expired.

25    With those headline facts rehearsed, her Honour concluded (Primary Judgment, [93]):

In all the circumstances, it was unreasonable for HealthX to delay commencing the restraint claim against Ms Palling for almost 12 months and then to delay taking any reasonable steps to prosecute it. That unreasonable conduct caused Ms Palling to incur the costs in meeting a claim which was ultimately abandoned for want of alacrity.

26    On that basis, HealthX was ordered to pay Ms Palling’s, “…costs thrown away by its abandonment of the restraint claim…”: Primary Judgment, [94].

The appeal

27    The grounds upon which HealthX’s appeal proceeds are, perhaps, more numerous than is ideal. As has been noted, they break down across two subject matters. Grounds 1 to 6 challenge the primary judge’s conclusions about the application of Item 10 and the court’s conclusions regarding Ms Palling’s entitlement to a share of HealthX profits; and grounds 7 to 11 challenge her Honour’s decision to award costs in light of the abandonment of the case in restraint of trade. It is convenient to approach the appeal with that bifurcation firmly in mind.

28    It is unnecessary to rehearse all of the appeal grounds falling within the first of the two tranches just identified. Of most significance are appeal grounds 5 and 6, which read as follows:

5.    The learned trial judge should have found that:

(a)     there was no contractual entitlement under item 10 to payment of a “profit share”. The only contractual entitlement was an entitlement to participate in the profit share arrangement with it being at the Appellant’s absolute discretion whether to pay a “profit share” or not;

(b)     the Respondent’s entitlement to participate in the profit share arrangement was enlivened upon the “gates[”] specified in item 10 being met;

(c)     the “gates” were required to be met on an ongoing quarterly basis; and

(d)     the gates of “top line revenue growth” and “increased profitability” required a comparison between budgeted EBITDA [Earnings Before Interest Tax Depreciation and Amortisation] and actual EBITDA with the gate being met when the latter exceeded the former.

6.     Consequent upon the findings in paragraph 5 above, the primary judge ought to have found that in the period relevant to the Respondent’s cross-claim:

(a)     as a matter of the exercise of its discretion, the Applicant was not liable to pay the Respondent the profit share claimed;

(b)     in respect of the “gates”, “top line revenue growth” and “increased profitability” had not been met such that the Applicant was not liable to pay the Respondent the profit share claimed.

29    It is similarly unnecessary to copy and paste each of the grounds that comprised the second tranche identified above. It suffices to note that HealthX’s appeal proceeds essentially upon the basis that the primary judge erred by concluding that Ms Palling had incurred costs because it had prosecuted its restraint of trade case unreasonably.

30    By a notice of contention dated 9 December 2025, Ms Palling identifies alternative bases upon which the orders of the primary judge might be upheld. For reasons that will become apparent, it is unnecessary to rehearse them here.

A new (and central) contention on appeal

31    It repays to make some observations about the court’s powers on appeal and the tight constraints that apply to their exercise.

32    The jurisdiction with which the court is presently seized is, of course, appellate by nature. The appeal is brought under s 24(1)(a) of the Federal Court of Australia Act 1976 (Cth) (“FCA Act”) and is properly described as an appeal by way of rehearing: Minister for Immigration and Multicultural Affairs v Jia (2001) 205 CLR 507, 533 [75] (Gleeson CJ and Gummow J). In such an appeal, the court’s powers—enumerated familiarly and most clearly in s 28(1) of the FCA Act—are exercisable for the purposes of correcting error: Allesch v Maunz (2000) 203 CLR 172, 180 [23] (Gaudron, McHugh, Gummow and Hayne JJ). For present purposes (and leaving aside, for one moment, Ms Palling’s notice of contention), the errors that are advanced are those that find expression in HealthX’s notice of appeal dated 18 November 2025.

33    As a general proposition (subject to exceptions not presently relevant), an appellant cannot, on appeal, succeed in establishing error on the part of a court at first instance where the error that is alleged inheres in a failure to make a finding of fact or draw a conclusion of law that the court was not asked to make or draw. Especially is that so when the finding or conclusion is one in respect of which evidence could have been given that “by any possibility” could have prevented its success: Coulton v Holcombe (1986) 162 CLR 1, 7-8 (Gibbs CJ, Wilson, Brennan and Dawson JJ); see also Po’oi v Minister for Immigration and Citizenship (2025) 314 FCR 376, 396 [81] (Kyrou and Needham JJ, with whom Snaden J relevantly agreed).

34    Presently, HealthX charges the primary judge with error insofar as she failed to accept (amongst other things) that, “the ‘gates’ were required to be met on an ongoing quarterly basis”: notice of appeal dated 18 November 2025, ground 5(c). That was not a contention that featured as part of the appellant’s defence of Ms Palling’s cross-claim below. Instead, that defence proceeded on the same bases as did HealthX’s prosecution of its own claims to relief: namely, that HealthX retained an absolute discretion as to whether or not it might pay a share of profits under Item 10.

35    It was not put as an alternative below—that is to say, as an alternative defence that HealthX advanced in the event that it failed to establish the discretion upon which it primarily relied (both for its own claim and in defence of the cross-claim)—that, properly construed, payments under Item 10 rested upon satisfaction of repeating and periodic requirements. HealthX did not ask the primary judge to make a finding on that score (although her analysis proceeded in any event on the contrary footing—see Primary Judgment, [40]; above, [15]).

36    Whether, or the extent to which, payments under Item 10 rested upon a measure of periodic qualification was an issue upon which evidence might have borne at the trial. We say so conscious of the primary judge’s observations about the state of the evidence: to indulge the hypothetical, it seems more likely than not that no additional evidence would, in fact, have been led as to that issue; but, as the authorities make clear, that is not the point. Being one of construction, it is (and need only be) possible that Ms Palling might have led additional evidence capable of bearing upon that question. HealthX cannot succeed in establishing error on the part of the primary judge that inheres in a failure to reach a conclusion that it did not ask her Honour to reach.

The proper construction of item 10

37    In light of the conclusion just stated, there are only two questions of construction that properly arise on appeal. The primary question is whether Item 10 of the schedule to Ms Palling’s contract of employment contemplated payments of a share in profits only as a matter of discretion. A secondary question arises (or possibly arises) as to what the provision intended by its reference to “top line revenue growth”.

38    At this juncture, it repays to record some matters of principle. In Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116-7 [46]-[51], French CJ, Nettle and Gordon JJ observed (references omitted):

46     The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.

47     In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.

48     Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

49     However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. It may be necessary in determining the proper construction where there is a constructional choice...

50     Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations.

51     Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption “that the parties … intended to produce a commercial result”. Put another way, a commercial contract should be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.

39    A provision in a contract might properly be described as ambiguous if (perhaps amongst other circumstances) it is expressed in words that are capable of sustaining more than one meaning. Ambiguity, in that sense, is assessed by reading the words in question in their proper context, including against the backdrop of relevant extrinsic material: Wardman v Macquarie Bank Ltd (2023) 322 IR 278, 339 [210] (Wheelahan J, with whom Bromberg and Snaden JJ relevantly agreed).

40    Presently, HealthX contends that, properly construed, Item 10 does no more than confer upon it a discretion to pay a share of profits. That contention is advanced in two ways: first, that that is the meaning that emerges from the words that the provision employs; and, second and insofar as the provision is ambiguous, the ambiguity resolves upon consideration of extrinsic material that supports the construction that HealthX advances.

41    As concerns the former, HealthX advances contentions on appeal equivalent to those that were advanced below. It maintains that the provision is expressed in aspirational terms: it confers “access” to what is described as an “achievable opportunity”, premised upon circumstances that “allow” a share in profits “to flow”. That phrasing, it maintains, is consistent with the notion that the obligation is discretionary.

42    On that footing, HealthX contends that Item 10 is properly construed as conferring upon it a discretion to pay a share of profits, informed by the quarterly meeting of what are described as the “gates”. Insofar as concerns one of those gates—“top line revenue growth”—the discretion was, it says, to be informed by whether actual quarterly EBITDA exceeded budgeted quarterly EBITDA.

43    Insofar as the phrasing in Item 10 admits of alternative constructions, HealthX submits that, in construing it, “…the primary judge erred by failing to have regard to critical contextual matters relevant to the question of construction…” The contextual matters—or matter—upon which HealthX relies on appeal concerns the existence and content of an earlier contract pursuant to which Ms Palling had been employed.

44    Some context is warranted.

45    The contract of employment that Ms Palling brought to an end in April 2023 was not the first contract under which she served as General Manager of the HealthX business. She initially commenced in that role on 1 February 2016, when that business constituted a division of her then employer, AWX Pty Ltd. Later in 2016, that business was spun out of AWX Pty Ltd and began to operate under HealthX’s control. It was in light of that demerger that Ms Palling came to be employed directly by HealthX, pursuant to the contract of employment dated 1 July 2016 (that being the contract that gave rise to the employment from which she resigned in April 2023). The primary judge referred (as we will) to the initial employment contract with AWX Pty Ltd as the “First Employment Contract” and the HealthX employment contract as the “Second Employment Contract”. Ms Palling’s role did not materially change over the progression from one to the other.

46    The First Employment Contract contained a provision similar to Item 10 (of the Second Employment Contract). There were some differences, perhaps the most significant of which being that there was an additional “gate”, being (howsoever ungrammatically), “[m]ust be on or above budget to participate”. That, the court was told, was a circumstance that fell to be considered under the light of correspondence sent to Ms Palling at the time that she received the First Employment Contract. It referred to a “General Manager Incentive”, which was “…to be reviewed at the end of each quarter”.

47    Also in evidence before the primary judge and referred to during the appeal was a document dated 1 July 2015 and entitled “AWX GROUP general manager incentive scheme”. That document purported to outline what was later described as a “Bonus Scheme”, by which “…the GM will be entitled to a gross payment of five per cent (5%) of the actual profit contribution before shared services” if he or she were to meet “…three performance measures”. The document continued (emphases original):

The GMs bonus is built around ensuring the focus is on client and staff satisfaction, culture and ensuring profit per activity doesn’t go backwards. With a total bonus pool of 100% (of the 5% profit) available, the three key measurement elements are;

1.    X Factor – minimum Client and Candidate NPS of 75%; (10% bonus weighting)

2.    Staff satisfaction survey – minimum rating of 80%; (10% bonus weighting)

3.    Profit contribution achieved or increased as budgeted, adjusting for agreed new strategic investment initiatives. (80% bonus weighting)

NOTE: Key Eligibility criteria - In order for the GM to be eligible to participate in the bonus scheme, the business unit must be operating on or ahead of budget in that specific quarter.

48    The incentive scheme document also provided that, in the event that there arose a dispute concerning the calculation of a profit share amount, “…the CFO, COO or CEO will have absolute discretion in making the final decision”. It also reserved for AWX Pty Ltd an “absolute discretion” to change the terms of the scheme without notice.

49    Presently, HealthX maintains that the First Employment Contract and the incentive scheme that appears to contextualise it each serve to inform the proper construction of Item 10. It is said that, “[c]onstruing Item 10 of the Second Employment Contract against the background of the critical contextual matters [just identified], a reasonable businessperson would have understood that in order for [Ms Palling] to be eligible to participate in the profit share arrangement, there first needed to be a profit in the sense of [HealthX]’s business operating on or ahead of budget in a specific quarter.” Ultimately, the court is asked on appeal to accept that the primary judge erred insofar as she failed to accept that the profit share arrangement for which Item 10 provided was payable entirely at HealthX’s discretion.

50    There are two reasons why that contention should not be accepted. The first is a development upon a theme already identified. Before the primary judge (as senior counsel for HealthX properly conceded), it was no part of HealthX’s case—that is to say, its own claim to relief or its defence of the cross-claim that Ms Palling pressed against it—that Item 10 was ambiguous in a way or ways that might be resolved by considering the First Employment Contract or the incentive scheme described above. The extent to which those instruments might have borne upon that issue was a topic that, had the question been live, might have been the subject of greater (or some) evidential exploration. HealthX cannot, in that universe, establish error on the part of the primary judge inhering in a failure to accept a proposition that it did not ask her Honour to accept.

51    Second and even were it otherwise, the contention is not compelling. Even accepting that Ms Palling’s entitlement to a share of profits under the First Employment Contract operated consistently with (or in a way that was properly informed by) the terms of the incentive scheme, we are unable to see how that should warrant any finding that the equivalent entitlement under the Second Employment Contract was payable solely at HealthX’s discretion.

52    Although the design of the AWX Pty Ltd incentive (or bonus) scheme and the resolution of disputes arising under it may have attracted measures of discretion, it is not clear why that should, of itself, support HealthX’s submission that the entitlement that it contemplated was payable solely at its discretion. But even if it should, those terms did not survive execution of the Second Employment Contract. HealthX effectively invites the court on appeal to construe Item 10 as though it includes the words that featured in the First Employment Contract, notwithstanding that they were quite obviously—and, one must assume, deliberately—omitted.

53    HealthX’s central contention—that a reasonable businessperson in the position of the parties, armed with knowledge of the relevant background circumstances, would understand the profit share entitlement to which Item 10 refers to operate solely at HealthX’s discretion—does not withstand analysis. On the contrary (and with respect), the reasoning of the primary judge (above, [15]) is compelling and we would adopt it as though our own.

54    For equivalent reasons, we are also not persuaded that there is reason to doubt the correctness of her Honour’s construction of the term, “top line revenue growth”. Whatever doubt there might be about what was meant by the “top line” descriptor, there is no obvious reason to introduce into the concept of revenue “growth” some need to consider underlying budgetary estimates. Conceptually, “growth” is not ambiguous; and nor, in the usual course, does its existence in the form of additional profit depend upon what might previously have been expected or budgeted. Again, the reasoning of the primary judge is compelling and we see no reason to doubt its correctness.

55    None of the appeal grounds that challenge the primary judge’s construction of Item 10 is made good.

The notice of contention

56    Ms Palling’s notice of contention posits alternative bases upon which the court might, on appeal, uphold the Primary Judgment. All of them are directed to the existence of Ms Palling’s entitlement to damages consequent upon HealthX’s breach of Item 10. Having reached the conclusions stated above, we accept that there was such an entitlement (which is to say that the primary judge was not in error in recognising one). It is, therefore, unnecessary to address what is advanced in the notice of contention: Boensch v Pascoe (2019) 268 CLR 593, 600-1 [7]-[8] (Kiefel CJ, Gageler and Keane JJ), 629-30 [101] (Bell, Nettle, Gordon and Edelman JJ).

Costs

57    Section 570 of the FW Act provides (and, at relevant times, provided) as follows, namely:

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.

…

(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

…

58    The section operates to constrain the otherwise wide discretion to award costs that the court enjoys under s 43 of the FCA Act: Melbourne Stadiums Ltd v Sautner (2015) 229 FCR 221, 252 [140] (Tracey, Gilmour, Jagot and Beach JJ, with whom White J relevantly agreed).

59    Presently, it is to be recalled that the primary judge upheld an application that Ms Palling made for costs related to HealthX’s claim (ultimately abandoned) that, by taking up employment with a competitor business, she had breached the restraint provision of her contract of employment. Respectfully, there is some (albeit perhaps only a minor) want of correspondence as between the reasoning upon which her Honour proceeded and the relief that she granted. Her Honour’s order was that HealthX, “…pay [Ms Palling’s] costs thrown away by its abandonment of the restraint of trade claim…” Her reasoning was that (Primary Judgment, [93]):

…it was unreasonable for HealthX to delay commencing the restraint claim against Ms Palling for almost 12 months and then to delay taking any reasonable steps to prosecute it. That unreasonable conduct caused Ms Palling to incur the costs in meeting a claim which was ultimately abandoned for want of alacrity.

60    To the extent that it might be necessary, it is appropriate for the court to read the relief that was the subject of her Honour’s orders under the light of the reasons for which it was granted: Yates Property Corporation Pty Ltd v Boland (1998) 89 FCR 78 (Drummond J, with whom Sundberg and Finkelstein JJ agreed). We have not understood it to be in dispute that HealthX was ordered to pay Ms Palling’s costs of and pertaining to the defence of the claim that it made in contract for breach of the restraint. That order was premised upon her Honour’s conclusions that the prosecution of that claim was attended by unreasonableness in two forms: first, in that it was unreasonable for HealthX to delay the commencement of the claim until the point that it was commenced; and, second, in that it was unreasonable for HealthX then to delay the taking of reasonable steps to prosecute it. Insofar as any of that might not be apparent solely from the orders that her Honour preferred, it is nonetheless clear beyond doubt from her reasons.

61    It is prudent to record some matters of baseline principle. By itself, the withdrawal of an otherwise live contention cannot amount to unreasonableness of the sort to which s 570(2)(b) of the FW Act refers, no matter when it occurs: PIA Mortgage Services Pty Ltd v King (No 2) [2020] FCAFC 53, [14] (Rangiah, Charlesworth and Snaden JJ). In that matter, the full court went on to observe (at [15]):

Unreasonableness may, however, arise by reason of the nature of the contention that is withdrawn or the circumstances in which that withdrawal occurs (or both). A litigant who fails until the proverbial eleventh hour to withdraw a speculative contention might more readily be thought to have committed an unreasonable omission for the purposes of s 570(2)(b) of the FW Act than would a litigant who withdraws an arguable contention at the same point or earlier. Similarly, the failure to withdraw a contention before the eleventh hour might more readily qualify as an unreasonable omission if there is reason to think that the party withdrawing it could, with proper care, have withdrawn it more promptly. In combination, the timing of the withdrawal, the quality of the withdrawn contention and the circumstances in which the withdrawal was effected inform whether a particular withdrawal trespasses into the realm of unreasonableness. It is, in that sense, that unreasonableness is a question of impression and degree, to be assessed by reference to the particular circumstances of a given case: Construction, Forestry, Mining and Energy Union v Clarke (2008) 170 FCR 574, 582 [28] (Tamberlin, Gyles and Gilmour JJ).

62    Negligence and inefficiency are not the same as unreasonableness: Fair Work Ombudsman v Grouped Property Services Pty Ltd (No 3) [2017] FCA 810, [26] (Katzmann J). A failure to conduct litigation in the most efficient way does not, without more, enliven the court’s discretion to award costs under s 570(2) of the FW Act: Tucker v Victoria (No 2) [2021] VSCA 182, [32(h)] (Kyrou, McLeish and Sifris JJA).

63    Presently, the costs that were the subject of the primary judge’s order were the costs that Ms Palling incurred in connection with the claim that HealthX mounted against her for breach of contract (specifically, breach of the restraint provision in her contract of employment). Respectfully, none of those costs could be said to have been incurred as a result of any delay or want of alacrity. Simply speaking, such costs as Ms Palling incurred were incurred because HealthX was minded to pursue the claim in contract that it pursued. They would no less have been incurred had there been no delayed instigation or prosecution of that claim. Indeed, had there been greater diligence to its prosecution, the opposite—that Ms Palling would have incurred greater costs—seems far more likely.

64    So to acknowledge is not to foreclose upon the possibility that delay might, in the right case, factor as a reason to award costs under s 570(2) of the FW Act. It might be open to argue that an otherwise sound claim for limited injunctive relief lacks reasonable cause for the purposes of s 570(2)(a) of the FW Act if, because of the time at which it was commenced, there is an obvious and inherent unlikelihood of the matter’s proceeding to determination within a timeframe swift enough to accommodate what is sought. “Reasonable cause” is apt to denote the existence of a prospect that one might obtain the relief for which one moves; and it will be lacking in circumstances where an applicant has no reasonable prospect in that regard: Dahdah v Platinum Distributors Australia Pty Ltd (Costs) [2023] FCAFC 102, [7] (Rangiah, Goodman and McElwaine JJ), citing Baker v Patrick Projects Pty Ltd (No 2) (2014) 145 ALD 548, 549-550 [9]-[10] (Dowsett, Tracey and Katzmann JJ).

65    We should not wish to put that too highly as it was not the basis upon which Ms Palling’s claim for costs here was advanced or accepted. In other words, it was not Ms Palling’s contention that HealthX’s case for injunctive relief to hold her to the terms of the restraint clause in her employment contract was, for want of prompt prosecution, instituted without reasonable cause.

66    Perhaps it could have been; perhaps not. It doesn’t much matter. The fact remains: the costs that were the subject of the primary judge’s order were costs that Ms Palling incurred independently of the delay and procedural delinquency that attended HealthX’s prosecution of its case. Even assuming that those things were unreasonable, they were not the reason why Ms Palling incurred the costs that were the subject of the primary judge’s order. As HealthX fairly submitted: “…there needs to be a causal nexus between the putative unreasonable act and the incurrence of costs by the other party.”

67    Whether or not HealthX’s appeal against her Honour’s costs order turns upon the existence of discretionary error of the kind described in House v The King (1936) 55 CLR 499 (Starke, Dixon, Evatt and McTiernan JJ) or error assessed against a “correctness standard” (as in Moore (a pseudonym) v The King (2024) 282 CLR 460 (Gageler CJ, Edelman, Steward, Gleeson and Beech-Jones JJ)) is an interesting but ultimately academic question. Both standards are satisfied presently. With respect—and acknowledging the legitimate criticisms that her Honour was astute to record—it was not open to the primary judge to make the order for costs that was made. Ms Palling did not incur those costs as a consequence of any unreasonable act or omission on HealthX’s part.

Disposition

68    The appeal should be allowed in part. Order 5 of the primary judge’s orders (that the applicant pay the respondent’s costs thrown away by its abandonment of the restraint of trade claim and the reasonable notice claim) should be set aside. In its place it should be ordered that the applicant pay the respondent’s costs thrown away by its abandonment of the reasonable notice claim. No other relief should be granted and there should be no order as to costs.

Associate:

Dated:    9 November 2026