FEDERAL COURT OF AUSTRALIA

Ryan v Primesafe [2015] FCA 8

THE COURT ORDERS THAT:

1.    Subject to paragraph 3 of these orders, Alan McDonald is to bear personally the legal costs of the third respondent incurred in this proceeding, up to 30 July 2014 and excluding any legal costs attributable to any proceedings in the Fair Work Commission.

2.    The legal costs referred to in paragraph 1 of these orders are to be paid on a party and party basis, and to be taxed in default of agreement.

3.    Alan McDonald is to bear personally the disbursements incurred by the third respondent in bringing this application for costs, including counsel’s fees.

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

REASONS FOR JUDGMENT

INTRODUCTION AND SUMMARY

1    This is an application by the third respondent for a costs order against the applicant, alternatively against the applicant’s solicitor Mr Alan McDonald, following the discontinuance of the proceedings by the applicant against all three respondents.

2    The Court’s discretionary power under s 43 of the Federal Court of Australia Act 1976 (Cth) to award costs in this proceeding (whether against a party, or against a legal representative pursuant to s 43(3)(f) of the Federal Court Act) is conditioned by the terms of s 570 of the Fair Work Act 2009 (Cth).

3    For the reasons I set out below, in my opinion there should be an order for costs in favour of the third respondent, and an order that Mr McDonald bear those costs personally.

RELEVANT STATUTORY PROVISIONS

4    The broad discretion conferred on the Court concerning the making of costs orders in a proceeding is contained in s 43 of the Federal Court Act. It includes an express power to order that a party’s lawyer bear the costs personally, and to order costs to be paid on an indemnity basis. Section 43 provides:

(1)    Subject to subsection (1A) and section 570 of the Fair Work Act 2009, the Court or a Judge has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which this or any other Act provides that costs shall not be awarded.(1A)    In a representative proceeding commenced under Part IVA or a proceeding of a representative character commenced under any other Act that authorises the commencement of a proceeding of that character, the Court or Judge may not award costs against a person on whose behalf the proceeding has been commenced (other than a party to the proceeding who is representing such a person) except as authorised by:

(a)    in the case of a representative proceeding commenced under Part IVA—section 33Q or 33R; or

(b)    in the case of a proceeding of a representative character commenced under another Act—any provision in that Act.

(2)    Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge.

(3)    Without limiting the discretion of the Court or a Judge in relation to costs, the Court or Judge may do any of the following:

(a)    make an award of costs at any stage in a proceeding, whether before, during or after any hearing or trial;

(b)    make different awards of costs in relation to different parts of the proceeding;

(c)    order the parties to bear costs in specified proportions;

(d)    award a party costs in a specified sum;

(e)    award costs in favour of or against a party whether or not the party is successful in the proceeding;

(f)    order a party’s lawyer to bear costs personally;

(g)    order that costs awarded against a party are to be assessed on an indemnity basis or otherwise;

(h)    do any of the following in proceedings in relation to discovery:

(i)    order the party requesting discovery to pay in advance for some or all of the estimated costs of discovery;

(ii)    order the party requesting discovery to give security for the payment of the cost of discovery;

(iii)    make an order specifying the maximum cost that may be recovered for giving discovery or taking inspection.

5    The power in s 43 is expressly conditioned by the terms of s 570 of the Fair Work Act. Section 570 provides:

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

(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.

6    Rule 26.12(7) of the Federal Court Rules 2011 (Cth) sets out the general position in respect of costs on a discontinuance:

Unless the terms of a consent or an order of the Court provide otherwise, a party who files a notice of discontinuance under subrule (2) is liable to pay the costs of each other party to the proceeding in relation to the claim, or part of the claim, that is discontinued.

7    Also relevant are the provisions introduced into the Federal Court Act by the Access to Justice (Civil Litigation Reforms) Amendment Act 2009 (Cth). Section 37M provides:

37M The overarching purpose of civil practice and procedure provisions

(1)    The overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes:

(a)    according to law; and

(b)    as quickly, inexpensively and efficiently as possible.

(2)    Without limiting the generality of subsection (1), the overarching purpose includes the following objectives:

(a)    the just determination of all proceedings before the Court;

(b)    the efficient use of the judicial and administrative resources available for the purposes of the Court;

(c)    the efficient disposal of the Court’s overall caseload;

(d)    the disposal of all proceedings in a timely manner;

(e)    the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute.

(3)    The civil practice and procedure provisions must be interpreted and applied, and any power conferred or duty imposed by them (including the power to make Rules of Court) must be exercised or carried out, in the way that best promotes the overarching purpose.

(4)    The civil practice and procedure provisions are the following, so far as they apply in relation to civil proceedings:

(a)    the Rules of Court made under this Act;

(b)    any other provision made by or under this Act or any other Act with respect to the practice and procedure of the Court.

8    Section 37N provides:

37N Parties to act consistently with the overarching purpose

(1)    The parties to a civil proceeding before the Court must conduct the proceeding (including negotiations for settlement of the dispute to which the proceeding relates) in a way that is consistent with the overarching purpose.

(2)    A party’s lawyer must, in the conduct of a civil proceeding before the Court (including negotiations for settlement) on the party’s behalf:

(a)    take account of the duty imposed on the party by subsection (1); and

(b)    assist the party to comply with the duty.

(3)    The Court or a Judge may, for the purpose of enabling a party to comply with the duty imposed by subsection (1), require the party’s lawyer to give the party an estimate of:

(a)    the likely duration of the proceeding or part of the proceeding; and

(b)    the likely amount of costs that the party will have to pay in connection with the proceeding or part of the proceeding, including:

(i)    the costs that the lawyer will charge to the party; and

(ii)    any other costs that the party will have to pay in the event that the party is unsuccessful in the proceeding or part of the proceeding.

(4)    In exercising the discretion to award costs in a civil proceeding, the Court or a Judge must take account of any failure to comply with the duty imposed by subsection (1) or (2).

(5)    If the Court or a Judge orders a lawyer to bear costs personally because of a failure to comply with the duty imposed by subsection (2), the lawyer must not recover the costs from his or her client.

9    The Court should take into account any failure to comply with the duties in s 37M in exercising its costs discretion: Specsavers Pty Ltd v The Optical Superstore Pty Ltd (2008) 208 FCR 78; [2012] FCAFC 183 at [57]-[58].

10    This proceeding concerned alleged contraventions of the Fair Work Act. The third respondent’s liability was alleged to arise pursuant to s 550 of the Fair Work Act, which provides:

550 Involvement in contravention treated in same way as actual contravention

(1) A person who is involved in a contravention of a civil remedy provision is taken to have contravened that provision.

(2) A person is involved in a contravention of a civil remedy provision if, and only if, the person:

(a) has aided, abetted, counselled or procured the contravention; or

(b) has induced the contravention, whether by threats or promises or otherwise; or

(c) has been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or

(d) has conspired with others to effect the contravention.

CIRCUMSTANCES OF THE APPLICATION

11    It appears that more money and resources may have been spent on debates about costs in this proceeding than any other aspect of it. This proceeding was commenced on 28 May 2014 and was discontinued by the applicant against all respondents on 30 July 2014. In fact, the Court had been advised at the only hearing held in this matter, a directions hearing on 16 July 2014, that the applicant’s claims in respect of the first respondent (Primesafe) and second respondent had settled. The second respondent was the Chief Executive Officer of Primesafe and was alleged by the applicant to have been involved in the contraventions of the Fair Work Act alleged against Primesafe. Aside from the initiating process and attendance at the directions hearing, the other principal step in the proceeding appears to have been a request for further and better particulars in respect of the applicant’s claim against the third respondent. An order to provide those particulars was made at the 16 July 2014 directions hearing. The applicant never provided those particulars, and instead discontinued his claim against the third respondent.

12    The applicant’s claim concerned an employment agreement he had entered into with Primesafe in July 2012. Primesafe is a Victorian government agency, and the applicant was employed as its Operations Manager. In January 2014 he was informed that his position would become redundant as a result of a restructure of the agency. The applicant was dismissed from his position with payment in lieu of five weeks’ notice on 18 March 2014.

13    His claim against Primesafe involved allegations that Primesafe had failed adequately to consult him in relation to the restructure and redundancy process and that this failure, and Primesafe’s failure to redeploy him to another suitable alternative position and its ultimate decision to dismiss him, constituted adverse action for the purposes of s 342(1) of the Fair Work Act.

14    The applicant then contended the adverse action was taken for prohibited reasons, including, in contravention of s 340, because the applicant had exercised his workplace rights to take personal leave and to initiate proceedings and participate in a conference before the Fair Work Commission. The applicant also alleged that the adverse action was taken because of his temporary absence from work while on personal leave (prohibited by s 352) and in contravention of the discrimination provisions in s 351, because of his age. Alternatively the applicant alleged that, by dismissing him and by failing to provide reasonable notice of 12 months, Primesafe breached terms of reasonable notice and of mutual trust and confidence implied by law in the employment agreement between the applicant and Primesafe. The applicant also alleged that, by failing to pay a redundancy payment equal to 12 weeks’ notice, Primesafe breached the National Employment Standards set out in Part 2-2 of the Fair Work Act. The applicant also made claims of misrepresentation from which the applicant alleged Primesafe was estopped from resiling, and claims under ss 18 and 31 of the Australian Consumer Law, as set out in Sch 2 to the Competition and Consumer Act 2010 (Cth).

15    The third respondent, Mr Derek Humphery-Smith, is a partner in the firm Lander & Rogers Lawyers. Lander & Rogers had been retained, for a considerable period prior to the events with which this proceeding is concerned, as legal representatives and legal advisers for Primesafe. Mr Humphery-Smith had been the partner in the firm with the care and conduct of many of Primesafe’s matters.

16    The applicant alleged it was Mr Humphery-Smith who advised Primesafe about the redundancy arrangements, including, the applicant alleged, advising Primesafe that it could not offer the applicant a redundancy package. He alleged Mr Humphery-Smith advised Primesafe about the termination of the applicant’s employment together with the kind of payments which could be made to him.

17    In the affidavit filed on this application, the applicant deposed to his familiarity with Mr Humphery-Smith’s role as a legal adviser to Primesafe over a long period of time, his attendance at meetings about the termination of the applicant’s employment, the role accorded by the second respondent to Mr Humphery-Smith as adviser and the second respondent’s deference to his views, together with the fact that Lander & Rogers acted on behalf of the respondents in this proceeding. He deposed to being advised by his solicitors that Mr Humphery-Smith should be a respondent to the proceeding.

18    Other passages in the applicant’s affidavit make it clear that when the applicant refers to “my solicitors”, he is referring to Mr Alan McDonald from the firm McDonald Murholme, who are the legal representatives for the applicant in this proceeding.

19    Mr McDonald filed a short affidavit deposing to having always acted on his client’s instructions. He stated that based on his experience as a lawyer in the Fair Work jurisdiction he formed the view on those instructions that it was correct to lodge an application with the Fair Work Commission which named Mr Humphery-Smith. He does not explain how he reached this view, or whether for example it was his usual practice to issue proceedings against lawyers giving advice to respondent clients. He does not explain what it was about the particular circumstances of Mr Humphery-Smith’s involvement which prompted him to take this course in this proceeding. He also deposed that he considered it correct to discontinue the proceedings against Mr Humphery-Smith on 30 July 2014 in accordance with his client’s instructions. I note a settlement against the other two respondents, including Primesafe as the alleged principal contravener of the Fair Work Act, had occurred two weeks earlier. Again, Mr McDonald does not explain in his affidavit why he formed the view he did at the end of July 2014, and not earlier. Nor does he explain what it was that occurred on or about 30 July 2014 which led him to form the view that it was appropriate for the applicant to discontinue against Mr Humphery-Smith at that time.

20    Mr Humphery-Smith filed an affidavit in support of the costs application, which deposed to the procedural history of the applicant’s claims against all three respondents, and exhibited relevant correspondence between the parties.

21    Mr Humphery-Smith had also been named as a respondent to the second of two proceedings lodged by the applicant in the Fair Work Commission against Primesafe. This application was served on Mr Humphery-Smith on 9 April 2014. Until that time, he had been the partner responsible for Primesafe’s matters, including its dispute with the applicant.

22    Initially, Mr Julian Riekert, another partner at Lander & Rogers, took over carriage of the Primesafe matter on behalf of all three respondents. One of the first pieces of correspondence from Mr Riekert to Mr McDonald was a letter dated 11 April 2014, which I extract at [73] below, objecting to the naming of Mr Humphery-Smith as a respondent to the proceeding in the Fair Work Commission.

23    On 23 April 2014 Mr Humphery-Smith decided to instruct lawyers separately, and instructed Hall & Wilcox Lawyers. Thereafter Mr Riekert continued to act for Primesafe and the second respondent only. After the proceeding was discontinued against Mr Humphery-Smith, from 31 July 2014 Mr Riekert took up ongoing representation of Mr Humphery-Smith in his costs claim against the applicant and Mr McDonald. Mr Humphery-Smith explained this change in his affidavit by reference to the view having been collectively formed by Mr Riekert and Mr Dunphy from Hall & Wilcox that once the proceedings in this Court were discontinued, it would be appropriate for Lander & Rogers, through Mr Riekert, again to act for Mr Humphery-Smith in relation to the pursuit of his legal costs.

24    This proceeding was commenced on 28 May 2014 and Mr Humphery-Smith was served, through Hall & Wilcox, with the orginating application and statement of claim on the same day.

25    The pleading against Mr Humphery-Smith was as follows:

53. Further and alternatively, the Third Respondent was involved in the above contraventions of the Fair Work Act 2009 (Cth) alleged in paragraphs 43-48 [the adverse action claims] as defined in section 550(2) of the Fair Work Act 2009 (Cth) insofar as he:

(a) filed a notice of Representative Commencing to Act stating that he acted for the First Respondent;

(b) provided legal advice to the First Respondent regarding the Restructure in the First Respondent and Redundancy Decision;

(c) provided legal advice to the First Respondent regarding the dismissal;

(d) provided management advice to the First Respondent regarding the Restructure in the First Respondent and Redundancy Decision;

(e) provided management advice to the First Respondent regarding the Dismissal;

(f) had actual knowledge of the essential facts constituting the contraventions;

(g) was knowingly concerned in the contraventions insofar as he acted on behalf of and advised the First Respondent; and

(h) was an intentional participant in the contraventions insofar as he acted on behalf of and advised the First Respondent.

54. By reason of the matters pleaded in paragraph 53, and by reason of the operation of section 550(1) of the Fair Work Act 2009 (Cth), the Third Respondent is taken to have contravened Part 3-1 of the Fair Work Act 2009 (Cth) in the same manner as that alleged against the First Respondent in paragraphs 43-48 above.

26    The statement of claim was signed by Mr McDonald, who provided the requisite certification pursuant to r 16.01 of the Federal Court Rules:

I, Alan McDonald, certify to the Court that, in relation to the statement of claim filed on behalf of the Applicant, the factual and legal material available to me at present provides a proper basis for each allegation in the pleading.

Date: 27 May 2014

Signed by Alan McDonald

Lawyer for the Applicant

27    Mr Humphery-Smith deposes to two early steps in the proceeding which should be noted. First, on 27 June 2014, Hall & Wilcox sought further and better particulars of the allegations against Mr Humphery-Smith. The request sought the following particulars:

1. As to paragraph 53(b) of the Statement of Claim:

Give the usual details of the legal advice provided by the Third Respondent to the First Respondent regarding the Restructure in the First Respondent and Redundancy Decision.

2. As to paragraph 53(c) of the Statement of Claim:

Give the usual details of the legal advice provided by the Third Respondent to the First Respondent regarding the Dismissal.

3. As to paragraph 53(d) of the Statement of Claim:

Give the usual details of the management advice provided by the Third Respondent to the First Respondent regarding the Restructure in the First Respondent and Redundancy Decision.

4. As to paragraph 53(e) of the Statement of Claim:

Give the usual details of the management advice provided by the Third Respondent to the First Respondent regarding the Dismissal.

5. As to paragraph 53(f) of the Statement of Claim:

Give the usual details of the Third Respondent’s actual knowledge of the essential facts constituting the contravention as alleged in each of:

(a) Paragraph 43 of the Statement of Claim; and

(b) Paragraph 44 of the Statement of Claim; and

(c) Paragraph 45 of the Statement of Claim; and

(d) Paragraph 46 of the Statement of Claim; and

(e) Paragraph 47 of the Statement of Claim; and

(f) Paragraph 48 of the Statement of Claim.

6. As to paragraph 53(g) of the Statement of Claim:

Give the usual details of the manner in which the Third Respondent was knowingly concerned in the contraventions alleged in:

(a) Paragraph 43 of the Statement of Claim; and

(b) Paragraph 44 of the Statement of Claim; and

(c) Paragraph 45 of the Statement of Claim; and

(d) Paragraph 46 of the Statement of Claim; and

(e) Paragraph 47 of the Statement of Claim; and

(f) Paragraph 48 of the Statement of Claim.

7. As to paragraph 53(h) of the Statement of Claim:

Give the usual details of the manner in which the Third Respondent was an intentional participant in the contraventions as alleged in each of:

(a) Paragraph 43 of the Statement of Claim; and

(b) Paragraph 44 of the Statement of Claim; and

(c) Paragraph 45 of the Statement of Claim; and

(d) Paragraph 46 of the Statement of Claim; and

(e) Paragraph 47 of the Statement of Claim; and

(f) Paragraph 48 of the Statement of Claim.

28    No response was received to this request. On 2 July 2014, Mr Riekert conveyed a settlement offer to the applicant, on behalf of Primesafe. A further offer from Primesafe was conveyed on 8 July 2014 in a telephone conversation between Mr Riekert and Mr McDonald, and confirmed by email. Both offers contained a condition that the proceeding against all respondents, including Mr Humphery-Smith, be discontinued.

29    The offers in those terms were expressly rejected. Mr McDonald sent a letter to Primesafe’s solicitors on 9 July 2014 advising that the applicant would accept the settlement payment offer of Primesafe and the second respondent but that the claim against Mr Humphery-Smith would need to be settled separately. That letter is exhibited to the applicant’s affidavit on this application. No explanation for this position was given at the time, nor has any explanation been given in the evidence on this application.

30    Primesafe and the second respondent accepted the applicant’s settlement offer the following day, 10 July 2014. Thus, the evidence reveals that on and from 10 July 2014 there was no ongoing dispute between the applicant and the principal alleged contravenor, Primesafe, nor between the applicant and the key member of the management team at Primesafe alleged to have been involved in the contravention, Mr Tatham.

31    The settlement between the applicant and Primesafe and the second respondent proceeded and was finalised by a deed of settlement, executed by the applicant on 23 July 2014 and by Primesafe and the second respondent on 28 July 2014. The deed was adduced in evidence on the application as an exhibit to the applicant’s affidavit. It shows, amongst other terms, that Primesafe agreed to pay the applicant the sum of $66,965 less any taxation payable according to law. I note that sum only for the purpose of comparison with the amounts in issue as costs on this application.

32    The applicant’s refusal to discontinue the proceeding against Mr Humphery-Smith, and insistence the proceeding continue only against him, led to the matter being brought on for a first directions hearing on 16 July 2014. An application had been made to Bromberg J by Mr Humphery-Smith seeking further and better particulars of the claim against him, in circumstances where the applicant had failed to answer the written request for such particulars. Mr Humphery-Smith deposes that his counsel informed the Court that subject to the provision of particulars he would move the Court to strike out the claim against him. Bromberg J ordered that the applicant provide the particulars on or before 30 July 2014.

33    At this hearing, the applicant, through his legal representatives, resisted the order sought for particulars on the basis he could not particularise the allegations without access to documents held by Mr Humphery-Smith. That argument was unsuccessful. Having unsuccessfully resisted the making of the order, instead of complying with it, the applicant discontinued the proceeding against Mr Humphery-Smith on the same date he filed notices of discontinuance against Primesafe and the second respondent. The filing of such notices against those two respondents formed part of the settlement between the applicant and those parties, whereas the discontinuance against Mr Humphery-Smith was unilateral and without notice. The debate about costs then began in earnest.

34    In a later letter in August 2014, with which I deal below, Mr McDonald referred to an offer he said was put by the applicant on 17 July 2014: namely that the applicant would discontinue the proceedings against Mr Humphery-Smith pursuant to a deed of release. Mr McDonald alleged Mr Humphery-Smith “rejected the offer purely for the reasons of seeking costs in a jurisdiction where costs can only be awarded in the exceptional circumstances outlined in s 570(2) of the Fair Work Act”.

35    Mr Humphery-Smith deposes no such letter was received by either Lander & Rogers or Hall & Wilcox. No such letter is exhibited to the applicant’s affidavit. Mr McDonald does not depose to any such letter in his affidavit. I am not satisfied on the evidence there was any such letter, or any such offer.

36    There was, as Mr Humphery-Smith points out in his affidavit, an offer made on behalf of the applicant on 23 July 2014. The 23 July 2014 letter should be set out, as it indicates the combative way Mr McDonald approached this aspect of the dispute:

You will be aware from the recent Directions Hearing that a confidential settlement has been reached with Primesafe and Tatham.

That leaves the issue of penalty against your client to be decided. The process for doing so appears to be quite clear and straightforward. It will require that the Applicant proves his case essentially before your client files a Defence. To do so, our client will need to prove at least most of the elements in his Statement of Claim.

He is very confident that he can do so and we have already interviewed witnesses and identified documents which are not legally professionally privileged as part of the evidence. We draw your attention to the recent decision of the Federal Circuit Court Bartolo v Doutta Galla Aged Services Ltd [2014] FCCA 1517 which was not available to us at the Directions Hearing.

Your counsel unwittingly set the scene for a penalty at the higher end of the scale at the directions hearing by claiming certain characteristics for your client and seeking to unnecessarily and provocatively defame the Applicant and his legal representatives.

Since our last without prejudice communication, our client has signed off on the settlement with the other two respondents.

Our client is happy with the settlement reached with the other parties. He needs to consider whether pursuing your client is worthwhile to him given the costs that he will incur.

Before incurring further costs, he is prepared to make an offer to your client that he will discontinue the proceedings. There would be an order that proceedings be struck out with no order as to costs.

This offer remains open for acceptance until 5.00pm Thursday 24 July 2014.

If the offer is not accepted and our client obtains a judgement more favourable at trial, then we shall produce a copy of this letter to the Court on the question of costs and seek an order that your client pay any costs incurred by our client after the date on which the offer expired on an indemnity basis.

In seeking such a costs order we will rely on the principles expressed in the case of Calderbank v Calderbank [1976] FAM 93: [1975] 3 ALL ER 333 and Cutts v Head [1984] 1 All ER 597, which has been given effect in Victoria by Byrne J in Mutual Community Limited v Lorden Holdings Pty Ltd (unreported, 28 April 1993 and by Gillard J in MT Associates Pty Ltd v Aqua-Max Pty Ltd & Anor (no.3) [2000] VSC 163.

37    Counsel for the applicant and Mr McDonald conceded, correctly, that, having reached a settlement with the first and second respondents, there was no basis for the assertion by Mr McDonald that Mr Humphery-Smith had an exposure to orders for penalties as an accessory under s 550 of the Fair Work Act.

38    On 24 July 2014 Hall & Wilcox rejected this offer on behalf of Mr Humphery-Smith, in the following terms:

We refer to your letter dated 23 July 2014.

We are instructed to respond as follows:

(a) your client’s claim against our client Mr Humphery-Smith will be unsuccessful as he will be unable to produce the evidence necessary to respond meaningfully to our client’s request for further and better particulars and will be unable to prove the matters alleged against our client in the statement of claim;

(b) our client will be successful in any application to have your client’s claim struck out;

(c) your client’s claim against our client has been without merit from the outset of the matter in the Fair Work Commission. This has been brought to your attention a number of times. We and Lander & Rogers have, by correspondence on the following dates, put your client on notice that a strike out application would be made in respect of your client’s claim:

(i) 11 April 2014;

(ii) 17 April 2014; and

(iii) 1 May 2014’

(d) your client’s offer is rejected;

(e) our client is prepare to agree to settle this matter on the basis of the execution of consent orders that provide that:

(i) the proceeding be dismissed; and

(ii) your client pay our client’s costs (including Counsel’s fees) on an indemnity basis from the date of the commencement by your client of the proceedings in the Fair Work Commission on 7 April 2014, in the amount of $36,635.00 (inclusive of GST).

This offer is open for acceptance until 5.00pm on Tuesday, 29 July 2014 after which time it is withdrawn.

This offer is made pursuant to the ruling in Calderbank v Calderbank [1975] 3 ALL ER 333. This letter will be produced to the Court on the question of costs should your client obtain an order less favourable to him than the offer contained herein, in which case our client will apply for an order that its costs of the proceeding from the date of this letter be paid by your client on an indemnity basis.

39    Mr McDonald, on behalf of the applicant, sought copies of the invoices relied upon to calculate the amount of costs specified in the letter. They were not provided in response to this request but were provided on 6 August 2014.

40    Mr McDonald wrote again, on 30 July 2014. In quite a lengthy letter, he sought to provide some arguments for how it might be said Mr Humphery-Smith could be found to have been “involved” in the alleged contraventions by Primesafe of the Fair Work Act. There is no merit in what is said in that letter, and Mr McDonald’s reliance in the letter on Sagona v R & C Piccoli Investments Pty Ltd [2014] FCCA 875 seems to refer to the question of knowledge in s 550 which, in my opinion, was less of a problem than the issues I refer to at [95]-[98] below. Mr McDonald then cavilled with aspects of Mr Dunphy’s affidavit filed prior to the 16 July 2014 directions hearing but asserted that:

Notwithstanding the merits of our client’s claim, he is content that the settlement that has been reached with Primesafe and Dr Tatham satisfies his claims against them. It was necessary for him to make a judgment regarding the settlement offer because of the costs provision of the Fair Work Act 2009 (Cth).

His rejection of the offer made by Primesafe and Dr Tatham could have been seen to be unreasonable [Mr McDonald then goes on to deal with costs risks by reference to the costs provisions in the FW Act].

…In light of the foregoing if there is good reason for the Applicant, notwithstanding the merit of the claim which is yet to be tested, to discontinue the proceedings, he should do so now before either party has incurred any costs in the litigation which might be recoverable against the other party.

41    Mr McDonald then attached to this letter, by way of service, the notice of discontinuance against Mr Humphery-Smith.

42    After this, when Mr Riekert resumed acting for Mr Humphery-Smith, correspondence continued between Mr McDonald and Mr Riekert, with the former seeking by a letter dated 4 August 2014 a statement of the costs said to have been incurred by Mr Humphery-Smith.

43    By a letter dated 6 August 2014, Mr Riekert responded in the following terms:

We act, as you know, for Derek Humphery-Smith who was named as the Third Respondent to the abovementioned application by your client, Brendan Ryan. Your client wholly discontinued the proceeding against our client unilaterally on 30 July 2014. No agreement was reached on the issue of costs and no costs were tendered. We are now instructed to seek costs from you and your client jointly and severally. If you are able to establish that the continuation of the proceeding against the Third Respondent was on instructions and contrary to your advice we would seek costs from your client only. In that regard we note that you signed the “proper basis” certificate for the statement of claim.

As you know, costs are not generally recoverable in proceedings under the Fair Work Act 2009 (FW Act) save in the circumstances described in s.570(2) of the FW Act

…

In our view the proceeding against Mr Humphery-Smith satisfies the criteria described in both sub-sections 570(2)(a) and (b). This will not be a novel contention to you or your client.

On 11 April 2014 we wrote to you requesting that you discontinue the proceeding against Mr Humphery-Smith because it was misconceived and doomed to failure. A copy of that letter is attached. You will notice the warning in the letter about the costs implications of a failure to comply with the request.

On 1 May 2014 Hall & Wilcox, who were then acting for Mr Humphery-Smith, wrote to you to similar effect. A copy of their letter is attached. You will notice the warning in the letter about the costs implications of a failure to comply with the request.

On 8 July 2014 we wrote to you (see the attached copy email) conveying a settlement offer from the First and Second Respondents which was conditional upon the whole proceeding (including the proceeding against Mr Humphery-Smith) being discontinued. You responded on behalf of your client that he would accept the settlement payment offered on condition that the Third Respondent was not also released. The First and Second Respondents accepted this counter-offer and, in due course the proceeding against them was discontinued.

The proceeding against the Third Respondent continued and, at the first directions hearing on 16 July 2014, your client was ordered to provide further and better particulars of his statement of claim to the Third Respondent by 30 July 2014. Those particulars were never provided. Instead your client filed the unilateral notice of discontinuance on that date.

The letter you wrote to Hall & Wilcox on 30 July 2014 (and the letter you sent us on 4 August 2014) offer not one convincing justification for the continuation of the proceeding against Mr Humphery-Smith. In particular, not one relevant fact changed between the 8 July offer of settlement and the date of discontinuance. However, you and your client nevertheless put the Third Respondent to the expense and inconvenience of a contested directions hearing only to abandon the entire claim a fortnight later.

In the circumstances described above we are instructed to seek recovery of full indemnity costs.

I attach copies of the invoices our client has received from Hall & Wilcox. They total $40,759.99. The disbursement on the invoice dated 31 July 2014 is for counsel’s fees. Please let us know if you would like to see a copy of counsel’s engagement letter.

I look forward to hearing from you within the one clear business day proposed in your letter to us dated 4 August 2014, ie by 5pm on Thursday, 7 August 2014.

44    By email the following day (7 August 2014) Mr Riekert invited Mr McDonald to make a settlement offer, and confirmed that all of Hall & Wilcox’s costs had been incurred after service of the applicant’s application on Mr Humphery-Smith and before the filing of the notice of discontinuance.

45    What then ensued was an inflammatory letter from Mr McDonald, making a series of serious allegations. Mr McDonald alleged Mr Riekert had breached the deed of release between the applicant and the first and second respondents and that Lander & Rogers had a conflict of interest when they resumed acting for Mr Humphery-Smith at the end of July 2014. Mr McDonald threatened that his firm would lodge a complaint with the Legal Services Commissioner and seek instructions from the applicant to apply for interlocutory relief against Lander & Rogers, restraining them from continuing to act for Mr Humphery-Smith.

46    On the evidence, those allegations were without merit. A comprehensive answer was provided by Mr Riekert on 11 August 2014, describing Mr McDonald’s letter as a “contumelious communication”. The outrage on both sides had obviously continued to increase, although the issues were now far away from the underlying dispute.

47    Ultimately, being unable to resolve whether the applicant should pay any costs to Mr Humphery-Smith when he filed a notice of discontinuance on 30 July 2014, this application was made by Mr Humphery-Smith on 27 August 2014.

SUMMARY OF THE PARTIES’ ARGUMENTS

48    Both Mr Humphery-Smith, and the applicant and Mr McDonald jointly, filed written submissions, which I have considered. In oral argument, a number of points were emphasised. Counsel for Mr Humphery-Smith contended this proceeding took the turn it did, and escalated in a way different to other Fair Work matters, entirely because of the decision to name Mr Humphery-Smith as a respondent. He submitted that decision was Mr McDonald’s. This situation was unique, and there was no reported decision where an applicant had taken such a course. Mr Humphery-Smith was compelled to cease to act for Primesafe and the second respondent, and to retain separate legal representatives, incurring significant costs in doing so. All this, his counsel submitted, occurred in circumstances where the evidence disclosed Mr Humphery-Smith had done nothing other than act in the usual way as a legal representative for an employer party in an employment dispute — giving advice, attending meetings and carrying out his client’s instructions. There was no evidence, he submitted, that Mr Humphery-Smith did anything but act as a lawyer, and certainly no evidence he became a mere agent or mouthpiece for Primesafe.

49    Counsel submitted offers had been made by the respondents in early July to settle the whole proceeding, but these were rejected. It was reasonable of Mr Humphery-Smith to reject the offer on 23 July 2014 because by that stage he had already incurred the costs of separate legal representation, and there were allegations against him on the public record. For those reasons, it was reasonable for him to seek some compensation for his costs if the proceeding were discontinued against him.

50    Counsel also submitted that it was reasonable for Mr Humphery-Smith to seek further and better particulars of the allegations against him before lodging any strike out application, so that the course he took before Bromberg J was a reasonable one.

51    Relying on the obligation in s 37M of the Federal Court Act, especially s 37M(1)(b), and the decision of Modra v Victoria (2012) 205 FCR 445; [2012] FCA 240, counsel submitted there was no attempt to resolve this proceeding quickly or inexpensively and the naming of Mr Humphery-Smith had the opposite effect. For Mr McDonald to assert in the 23 July 2014 letter that the applicant had a case against Mr Humphery-Smith and then refuse to particularise that case, instead lodging a discontinuance, was a failure to comply with the duties imposed by s 37M.

52    Counsel also submitted there was no proportionality between the decision to pursue Mr Humphery-Smith as an accessory, where by s 539 of the Fair Work Act the maximum penalty that may be imposed on an individual pursuant to s 545 for breaches of the general protections provisions was 60 penalty units, or approximately $10,000, and when the costs to both parties in pursuing such a claim would be well in excess of that figure.

Applicant and Mr McDonald

53    Counsel appeared on behalf of both the applicant and Mr McDonald. She submitted there was no conflict in her doing so, despite the fact alternative orders were sought against the applicant and Mr McDonald. She tendered a letter written by Mr McDonald to the applicant and dated 26 September 2014, which relevantly stated:

Dear Brendan

Hope the holiday is running to plan and very enjoyable. I am enclosing a copy of the Costs Submission in draft form. These are not due to be filed until Monday 29 September 2014 but we have prepared them early.

It is important that I further confirm our discussions before you left that if there is any costs order made against you, McDonald Murholme will indemnify you and you will not be paying any costs to Derek Humphery-Smith under any circumstances.

We are of course very confident that no costs will be ordered. Not only do we provide this indemnity in good faith, but also it means that you did not need separate representation which would add significant cost which may not be recovered.

Regards

Alan McDonald

McDonald Murholme

54    Counsel submitted this meant there was no conflict in her appearing for both the applicant and Mr McDonald. Given there was no contrary submission on behalf of Mr Humphery-Smith I do not consider this issue any further.

55    Counsel submitted it was incumbent on Mr Humphery-Smith, if he was so concerned, to apply to strike out the claim against him. At the Fair Work Commission, the Commissioner had not certified there was no case against Mr Humphery-Smith.

56    Her principal submission was that the pleading against Mr Humphery-Smith was that he had provided “management advice” to Primesafe, and this was not done in his capacity as Primesafe’s legal representative. She referred to Construction, Forestry, Mining and Energy Union v McCorkell (No 2) (2013) 232 IR 290; [2013] FCA 446 at [282] ff as authority which supported such an approach. She also referred to the way Mr Humphery-Smith described himself in an extract about his experience from his biography on the Lander & Rogers website:

Derek is regularly sought out by employers when matters are sensitive or where media interest will be high. He has particular experience and expertise in relation to:

defending claims of serious workplace bullying and sexual harassment;

managing all aspects of employment termination;

providing strategic industrial relations advice;

conducting investigations, reviews and mediations in the workplace;

developing enforceable restraint of trade provisions and seeking injunctive relief for clients for restraint breaches; and

delivering informative and entertaining workplace training on areas including appropriate workplace behaviour, ethical leadership, preventing workplace fraud and performance management.

57    She also relied on the following evidence from Mr McDonald in his affidavit:

I refer to the affidavit of my client Mr Ryan affirmed on 9 September 2014. Paragraphs 2-54 inclusive were the instructions which I received from Mr Ryan in writing before I lodged his application in the Fair Work Commission on 7 April 2014. I prepared this affidavit immediately prior to Mr Ryan leaving for overseas to enable me to file it within the time provided by the Orders of this Honourable Court. When I provided it to counsel engaged Mr Richard Niall QC for his comment, he suggested that Mr Ryan may want to receive independent legal advice. I sought an extension of time to allow Mr Ryan to do so. Mr Ryan has not advised me that he seeks further time to seek independent legal advice and I have instructions to file the affidavit.

58    If there was to be any order for costs, she submitted it should extend only to the proceeding in this Court, not the Fair Work Commission. I note Mr Humphery-Smith’s counsel did not dispute this proposition, and it is clearly correct. These reasons proceed on that basis.

59    She submitted there was no lack of compliance with the duties in s 37N of the Federal Court Act, given the proceeding was issued in May 2014, and the discontinuance was filed on 30 July 2014. The discontinuance was filed shortly after the settlement between the applicant and Primesafe and the second respondent, and after there had been only one directions hearing.

CONSIDERATION

Section 570: applicable principles

60    There is no need to rehearse the principles about the width of the general costs discretion in s 43 of the Federal Court Act. Costs orders against legal practitioners attract more confined principles and I deal with these at [89]-[90] below. In the present proceeding, the application of these principles is, however, conditioned by the terms of s 570 of the Fair Work Act.

61    In this proceeding, the applicant made claims under the Australian Consumer Law. Some consideration has been given in this Court to whether s 570 (and its predecessor provision s 824 of the Workplace Relations Act 1996 (Cth)) applies to all, or only part, of a proceeding in which the jurisdiction of the Court arises under the Fair Work Act (or the Workplace Relations Act) and another piece of Commonwealth legislation. In relation to s 824, a Full Court of this Court has held that in such circumstances, the constraints in s 824 applied only to that part of the proceeding concerned with claims under the Workplace Relations Act: see Construction, Forestry, Mining and Energy Union v Director, Fair Work Building Industry Inspectorate (No 2) (2013) 209 FCR 464; [2013] FCAFC 25 at [64]-[65] per North, Robertson and Logan JJ. This approach was applied to s 570 by Foster J in El-Debel v Secretary, Department of Immigration and Border Protection [2014] FCA 474, apparently on the basis of a submission by both parties that this was the correct approach. However in Stanley v Service to Youth Council Inc (No 3) [2014] FCA 716, especially at [25]-[36], White J found that the terms of s 570 of the Fair Work Act were more broadly expressed than s 824 of the Workplace Relations Act and, where claims were made in one proceeding under more than one piece of federal legislation, including the Fair Work Act, s 570 applied to the costs of the whole proceeding.

62    If it were necessary to decide the point, I would be inclined, with respect to Foster J, to agree with the approach taken by White J in Stanley. However, in this case the issue is a moot one, because the early discontinuance of this proceeding means it could not possibly be said that there were any particular costs attributable to the consumer law claim which were not constrained by the terms of s 570. Accordingly, I proceed on the basis (favourable to the interests of the applicant and Mr McDonald) that s 570 constrains the Court’s discretion to order costs as to the whole of this proceeding.

63    Mr Humphery-Smith sought to rely on ss 570(2)(a) and (b) for a costs order to be made in relation to a matter arising under the Fair Work Act on the following bases: first, that there was no reasonable cause for Mr Humphery-Smith to be named as a respondent in this proceeding and the proceeding against him was vexatious (s 570(2)(a)) and, second, that the unreasonable acts or omissions of the applicant, alternatively, Mr McDonald, caused Mr Humphery-Smith to incur costs (s 570(2)(b)).

64    I accept the general import of the authorities relied on by the applicant and Mr McDonald in their written submissions about the significance of the threshold set by s 570(2) of the Fair Work Act. Although some of the authorities relied on dealt with the predecessor provisions to s 570, there is no difference in substance in the way the threshold is expressed. The discretion conferred by the confined terms of s 570(2) should be exercised cautiously, and the case for its exercise should be clear: see Saxena v PPF Asset Management Ltd [2011] FCA 395 at [6] per Bromberg J. 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. There is an almost identical provision in s 611 of the Fair Work Act, giving the Fair Work Commission a similar costs power, conditioned by similarly-worded considerations. The predecessor provisions, and the conscious broadening of the statutory terms used in s 570, are traced by the Full Court in Australasian Meat Industry Employees’ Union v Fair Work Australia (No 2) (2012) 203 FCR 430; [2012] FCAFC 103 at [3]-[4] per Jessup and Tracey JJ.

65    None of those propositions deny the Court’s ability to find that one or both of the two preconditions expressed in ss 570(2)(a) and (b) exist where the factual circumstances warrant it. The legislative policy behind a provision such as s 570(1) is not inconsistent with the requirements for proceedings to be conducted reasonably, fairly and efficiently. As an access to justice provision, it contemplates parties and their legal representatives will access the Court responsibly.

66    Section 570, and the conditions it imposes on the Court’s general costs discretion under s 43 of the Federal Court Act, is not a licence to parties to ignore the requirements of s 37M of the Federal Court Act, nor the Court’s power to order costs against parties who fail to comply with their obligations under s 37N. The content of ss 37M and 37N, and parties’ obligations to assist the Court in achieving the objectives set out in s 37M, must be reconciled with access to justice provisions such as s 570(1). That reconciliation occurs through a focus on the reasonableness of parties’ conduct, the appropriateness of the Court processes undertaken by them, the timeliness of their compliance with Court orders or steps in the proceeding, and the existence of a substantive legal and factual basis for the claims made and arguments put.

67    In express terms s 570(1) constrains this Court’s power to order costs against a party, and s 570(2) directs attention to the conduct of a party. Neither provision purports to affect the Court’s power under s 43(3)(f) of the Federal Court Act, whether exercised as a general discretion or by reason of the application of ss 37N(2) and (5) and a failure by a lawyer to comply with her or his duties to the Court. The power in s 43(3)(f) depends, in my opinion, on the Court having formed the view that there should be an order that one party (or parties) pay the costs of another (or others). The power in s 43(3)(f) then enables the Court in an appropriate case to order that the party’s lawyer bear those costs personally, rather than the order being directed at the party. The liability for compliance with the costs order thus falls on the lawyer. It is, however, predicated on the formation of a view by the Court that a party (or parties) should compensate another party (or parties) by way of a costs order.

68    That being the case, where s 570 applies, the Court must first form a view whether the preconditions to an order for costs against a party are met. If they are, the Court may then consider whether to exercise the power conferred by s 43(3)(f) that the party’s lawyer bear the costs personally.

Application of these principles

69    In my opinion, the preconditions in ss 570(2)(a) and (b) are met, and there is power to award costs in favour of Mr Humphery-Smith. A limited order should be made, and it should be made in terms requiring Mr McDonald to bear the costs personally.

70    I note there was no suggestion by Mr McDonald that he was inhibited by any client legal privilege held by the applicant, or by any issues of confidentiality, in giving evidence in this proceeding in order to resist the costs application. Both parties produced all relevant correspondence between them, as well as drafts and final versions of the deed of settlement between the applicant and the first and second respondents.

71    Although, as the party to the proceeding, it is the applicant’s conduct which is assessed for the purposes of s 570(2), and the Court’s general costs discretion, I do not consider it appropriate that the applicant himself bear Mr Humphery-Smith’s costs in this instance. Considering all of the evidence, in my opinion the joinder of Mr Humphery-Smith, and the pursuit of him after the settlement with the other two respondents, were circumstances where the applicant relied on the professional judgment of Mr McDonald. The professional judgment which should have been exercised by him, was, in my opinion, not exercised, resulting in Mr Humphery-Smith incurring legal costs that he should not have incurred.

72    The applicant is an educated man, who ultimately held a senior managerial position in Primesafe: indeed, his evidence discloses that for some time he was appointed as Acting CEO of Primesafe by the Board of Directors. He is clearly capable of listening to and understanding legal advice when given it. No evidence suggested he was an unreasonable person, nor (as I have noted elsewhere) that he acted against advice. There is no basis to doubt his affidavit evidence that he witnessed many occasions, both before and during his dispute with Primesafe, where Mr Humphery-Smith attended meetings with management, and that it was Mr Humphery-Smith who sometimes requested that meetings occur. On untested evidence in an application such as this, I am unable to conclude whether the applicant’s observation that Mr Tatham “deferred” to Mr Humphery-Smith during such meetings is accurate. The accuracy of that observation is in any event immaterial in my opinion. Even if it occurred, there may be many explanations for observed “deference” in such meetings, including presenting a united face, or as a result of a prior arrangement: it is not a necessary inference that the “real” decision-maker, or driving force, was Mr Humphery-Smith. No such allegation was in any event pleaded.

73    The applicant knew, as he deposes, that when he commenced his first general protections claim in the Fair Work Commission against Primesafe and the second respondent, Mr Humphery-Smith filed a “Notice of Representative Commencing to Act” and was in fact the legal representative for Primesafe and the second respondent. When the applicant’s employment was terminated, he lodged a further general protections claim in the Fair Work Commission, and it was in this claim that Mr Humphery-Smith was named. That claim was drawn by Mr McDonald. That step provoked the following correspondence from Lander & Rogers to McDonald Murholme:

1. We refer to the above matter, in which our client, PrimeSafe, was served on 9 April 2014 with a copy of your client’s Form F8 – General Protections Application dated 7 April 2014 (Application).

2. Derek Humphery-Smith, a partner of our firm, is listed as the third respondent to the Application seemingly in his capacity as PrimeSafe’s external lawyer (Claim).

3. The inclusion of Mr Humphery-Smith as a respondent to the Application is manifestly inappropriate and entirely unreasonable.

4. The Claim is vexatious and without reasonable cause. Furthermore, it is clearly apparent that the Claim has no reasonable prospects of success.

5. There is absolutely no basis for the assertion that Mr Humphery-Smith played any role in the allegations made by your client against PrimeSafe and Dr Brendan Tatham. In any event, it is perverse that you have joined a party’s lawyer as a respondent to an application in these circumstances.

Withdrawal of Claim

6. In light of the above, we wish to provide your client with an opportunity to withdraw the Claim by 12.00 noon on Thursday 17 April 2014.

7. If the Claim has not been withdrawn within this timeframe, we will immediately seek to strike out the Claim without further notice (Strike-Out Application).

8. You are hereby put on notice that if we are successful in our Strike-Out Application our client will make an application for an order for the payment of its legal costs in connection with the Strike-Out Application against your client. In this regard, we trust that you will advise your client on this very important issue of costs, and will draw his particular attention to sections 375B and 611 of the Fair Work Act 2009 (Cth).

9. Our client will also seek a costs order against you personally and will produce this letter on the issue of costs. You will, of course, be familiar with sections 376 and 611 of the Fair Work Act 2009 (Cth).

10. We look forward to receiving notification that the Claim has been withdrawn by no later than 12.00 noon on Thursday 17 April 2014.

74    This communication was, as such communications often are, as much directed at those advising the applicant as at the applicant himself. The content of the letter was in my opinion accurate and appropriate. It may be accepted from his affidavit evidence that the applicant himself was persuaded that Mr Humphery-Smith had a role in his employment with Primesafe coming to an end. From his perspective, and based on the evidence, that is an understandable impression. It may be an impression not infrequently held by a client who approaches her or his own lawyer seeking legal advice and representation after her or his employment has been terminated. Part of the skill, judgment, knowledge and experience for which a client retains a lawyer is to examine the factual account given by the client and exercise professional judgment about whether or not there is a foundation in law, and likely admissible evidence to support that foundation, for a claim to be made in the way the client wishes.

75    In my opinion, although the applicant may well have come to Mr McDonald with his account of Mr Humphery-Smith’s involvement, Mr McDonald was too ready to make allegations against Mr Humphery-Smith without, so far as the evidence before the Court reveals, a sufficient factual or legal foundation. Having had the inappropriateness of the claim against Mr Humphery-Smith drawn to his attention very early in the dispute should have led at least to a reconsideration of that claim and a particularisation of it by Mr McDonald, if indeed it had a legal and factual foundation. This did not occur. In those circumstances Mr McDonald, and not the applicant, should take the burden of the conduct to be attributed to the applicant as the responsible party under s 570(2) of the Fair Work Act and which I consider falls within both paras (a) and (b) of that provision.

76    The applicant deposed:

I am informed by my solicitors and verily believe that I should make an application against Derek Humphery-Smith based upon my instructions about his involvement and the need to identify the decision maker for the purposes of my claim under the Fair Work Act 2009.

77    This is, I find, an accurate reflection of the reliance placed by the applicant on Mr McDonald’s exercise of professional judgement. There is, however, nothing in the evidence from the applicant, and certainly nothing in the evidence from Mr McDonald, which could have provided any factual foundation to suggest Mr Humphery-Smith was the “decision-maker” as the applicant’s account of his advice from Mr McDonald asserted. That was not, in any event, the allegation made against Mr Humphery-Smith in the pleading: rather, accessorial liability under s 550 of the Fair Work Act was alleged, yet still without sufficient factual or legal foundation.

78    In this application, Mr McDonald had the opportunity to explain the course he decided to take, but did not do so. No evidence about the alleged role of Mr Humphery-Smith was produced, nor even a summary of such evidence. Relying on the absence of such evidence, the submissions for Mr Humphery-Smith that he did no more than a legal representative would ordinarily do in such circumstances should be accepted. Unlike Ashby v Slipper (2014) 219 FCR 322; [2014] FCAFC 15, no explanation depending on client legal privilege was given by Mr McDonald for the absence of such evidence.

79    Although the letter to Hall & Wilcox from Mr McDonald dated 23 July 2014 asserts that Mr Ryan is “very confident” about his case against Mr Humphery-Smith and that “we have already interviewed witnesses and identified documents which are not legally professionally privileged as part of the evidence”, no witnesses were referred to by Mr Ryan in his affidavit tendered in opposition to this application, nor did he exhibit any documents which would have formed part of the evidence against Mr Humphery-Smith. Nor did Mr McDonald attempt to refer to these witnesses or documents in his short affidavit. What that leaves is an account in the evidence before the Court reflecting the ordinary professional conduct of a lawyer representing an employer in an employment dispute.

80    Further, the pleading itself was inadequate from the start. First, contrary to counsel’s submissions, it did not focus on the provision of “management” rather than legal advice by Mr Humphery-Smith to Primesafe. It included both phrases (whatever “management” advice was intended to mean) and, if anything, the pleading had more of a focus on Mr Humphery-Smith’s role as Primesafe’s legal representative. No material facts were pleaded which could provide any foundation for the highly generalised allegations made, nor the distinction sought to be drawn between the two kinds of advice.

81    Insofar as it made allegations concerning Mr Humphery-Smith’s role as Primesafe’s lawyer, the statement of claim made no allegations which would provide any foundation for a finding that Mr Humphery-Smith had exceeded the boundaries of, or stepped outside of, his role as a lawyer. It is difficult to see how a lawyer, acting in accordance with her or his professional obligations, could be said to be “involved” in a contravention of the general protections provisions of the Fair Work Act. It is likely there would need to be some conduct outside the lawyer’s professional role, or which constituted a breach of the lawyer’s ethical or professional obligations in giving advice and acting on behalf of a client, before such a finding could be made. For example, I do not consider s 550 is intended to apply where a lawyer gives advice in good faith to an employer about the lawfulness of the termination of employment, having diligently undertaken the necessary legal and factual inquiries, even if a Court subsequently finds, contrary to the lawyer’s advice, that the termination was adverse action taken for a prohibited reason.

82    The point made by Bromberg J in McCorkell 232 IR 290; [2013] FCA 446 at [288]-[289] is illustrative of what might be required. His Honour said:

The CFMEU contended that whilst it is necessary to prove that the accessory knew what the principal contravener was doing, an accessory cannot know what the other person is feeling or thinking. It argued that whilst it was necessary for an accessory to have knowledge of the essential elements of a contravention, it was not necessary for an accessory to have knowledge of the principal contravener’s motive for the contravention.

That submission must be wrong where a particular motive is a necessary element of the contravention. For instance, a person who assisted in the dismissal of an employee carried out by a contravener because of the employee’s race, could not be an accessory to the discriminatory conduct in the absence of having assisted knowing that the contravener’s conduct was motivated by race. Without that knowledge, it could not be said that the alleged accessory is “linked in purpose with the perpetrators”.

83    Adapting that example to the present facts, if, knowing Primesafe proposed to terminate the applicant’s employment for what was obviously a prohibited reason (such as age), Mr Humphery-Smith did not advise against such a course, or in fact supported such a course and failed to alert his client to the unlawfulness of the proposed course of conduct because he wished to ensure Primesafe remained a client (or because he considered the applicant was too old for the job), then there might be some basis for an allegation pursuant to s 550. Alternatively, if Mr Humphery-Smith made the decision to terminate the applicant’s employment instead of it being made by the responsible individuals within Primesafe, again there might be a basis for an allegation within the terms of s 550. The nature of such an allegation against a lawyer is obvious, and its gravity obliges the party making the allegation to set out a proper factual basis for it.

84    Counsel for the applicant and Mr McDonald properly conceded at the hearing that s 550(2) was not intended to cover legal representatives of employers acting in their professional capacities giving legal advice. Yet that is, in part, precisely what was pleaded against Mr Humphery-Smith. It is this failure to grapple, in the pleading, and in the submissions before the Court, with the distinctive place occupied by a lawyer in acting on behalf an employer in an employment dispute, which means that authorities dealing with provisions similar to s 550 of the Fair Work Act such as Yorke v Lucas (1985) 158 CLR 661, relied on by the applicant and Mr McDonald in submissions, cannot simply be transposed into the current circumstances.

85    The pleadings in [53] and [54] of the statement of claim should not, on the evidence before me, have been made. The applicant instituted proceedings against Mr Humphery-Smith without reasonable cause. There is insufficient evidence to find they were vexatiously instituted. Further, the applicant pressed the claim against Mr Humphery-Smith in the face of an early (and appropriate) request for particulars which the applicant refused to provide. When an offer was made, he unreasonably refused to settle the proceedings against Mr Humphery-Smith when he settled with the two clearly principal respondents. His persistence meant a directions hearing was necessary, and a contested application for particulars, which the applicant unsuccessfully resisted. He then failed to comply with the Court’s order, and instead unilaterally discontinued the proceeding against Mr Humphery-Smith. All this conduct was unreasonable and caused Mr Humphery-Smith to absent himself from his position as legal representative for Primesafe and retain independent lawyers to act for him, thus incurring costs.

The power in section 43(3)(f) should be exercised

86    Having determined the preconditions in ss 570(2)(a) and (b) are met and that the applicant must pay the legal costs of Mr Humphery-Smith, there is in my opinion sufficient basis for Mr McDonald to be ordered to bear those costs personally.

87    At the time of initiating the application in this Court, and providing the certification to the Court which he did, Mr McDonald was in my opinion obliged to give careful consideration to whether there was a factual and legal basis to take the unusual step of alleging an employer’s legal representative was “involved” in a contravention of the Fair Work Act, and to plead the factual basis for his client’s allegation against Mr Humphery-Smith fully and properly. The relevance of imprecise pleading to the manner in which a proceeding is conducted, the costs incurred by other parties and the burden placed on the Court was explained by Gray J in Modra 205 FCR 445; [2012] FCA 240 at [32], in the context of a costs order against a legal representative.

88    In Ashby 219 FCR 322; [2014] FCAFC 15 at [174]-[177], in the context of an appeal against a decision to dismiss summarily a proceeding on the ground of abuse of process in circumstances where the trial judge also made findings of abuse of process against the applicant’s lawyer, the Full Court stated:

Finally, when determining whether there was a reasonable basis for the inclusion of the 2003 allegations in the originating application, his Honour took into consideration the lack of evidence that the staff member involved in the 2003 allegations had ever complained to the Commonwealth about Slipper’s conduct or that he had any complaint to make. We agree with the submission that such consideration was not warranted given the unchallenged evidence of Harmer that at the time the originating application was filed, he believed that the 2003 allegations were supported by sworn or affirmed evidence; the summary nature of the application; the possibility, as submitted by Ashby, that Harmer may have had such “evidence”, but was not at liberty to disclose it due to his client asserting a claim of client legal privilege prior to trial; and again the provisions of s 140(2) of the Evidence Act.

We are of the opinion that the primary judge erred in law, when finding that Harmer and thereby Ashby “had no proper evidence or other basis on which to make the 2003 allegations”, in taking into consideration the ultimate admissibility of the evidence available to Ashby and his solicitor Harmer at the time of filing the originating application.

It is not a requirement that a party or their legal representative has in their possession at the preliminary stage admissible evidence in support of the allegations (whether sworn/affirmed, non-hearsay evidence or admissible documentary or other evidence), but only that the legal representative has available material to justify the making of the allegations: Medcalf v Mardell at [22], [45], [46], [75] and Momibo Pty Ltd v Adam (t/as Marsdens Law Group) (2004) 1 DDCR193 at [85], [86], [97] are illustrations of this approach. Harmer had deposed to his knowledge of the terms of the Revised Professional Conduct and Practice Rules 1995 made by the Council of the Law Society of New South Wales pursuant to its power under s 57B of the Legal Profession Act 1987 (NSW) (which rules were deemed to be made under the Legal Profession Act 2004 (NSW) by virtue of Sch 9, cl 24 to that Act). He was also aware of Pt VB of the FCA Act. He deposed in particular to his knowledge of the rules relevant to the making of allegations under privilege eg rr A.35, A.36, A.37 and that in settling and filing the originating application he attempted to discharge faithfully his professional obligations as he understood them.

The case law confirms that a solicitor is reasonably justified in initiating proceedings even in a case where the supporting evidence is weak but arguable: European Hire Cars Pty Ltd v Costello [2009] NSWSC 526 at [60] or “barely arguable”: Steindl Nominees Pty Ltd v Laghaifar [2003] 2 Qd R 683 at [24] although Ashby’s case was not characterised by the primary judge as falling into this category.

89    In White Industries (Qld) Pty Ltd v Flower & Hart (a firm) (1998) 156 ALR 169 at 231, 236, Goldberg J noted the caution needed before imposing costs orders on practitioners, and the difficulties of drawing boundaries between a lawyer who acts for a client in a case without merit, and one who acts in a way justifying a costs order against the lawyer:

There have been dicta in a number of cases which have suggested that commencing or maintaining proceedings with no or no substantial prospects of success enlivens the jurisdiction to order a solicitor to pay the costs of a party. However, a proposition expressed so broadly must be treated with considerable caution as it exposes a tension with the important right of a person to have a case conducted in the courts irrespective of the view which his or her legal adviser has formed about the case and its prospects of success. The courts must be open to any party who claims that he or she has been wronged and seeks to vindicate a right or to compel the enforcement of an obligation. In such circumstances clients should be entitled to expect that the practitioners acting for them will conduct their litigation without any conflict of interest and with a view, consistently with their duty to the court, to putting the client's case as instructed. A practitioner should not be looking over his or her shoulder wondering whether what the practitioner proposes to do as part of the strategy, tactics and conduct of the litigation may result in the practitioner being visited with a costs order (cf Ridehalgh v Horsefield [1994] Ch 205, 226). Ordinarily, such a situation would be quite oppressive and unacceptable in the court system as we presently know it. Nevertheless, practitioners have a duty to the court to ensure that the court's process is not abused and used for improper or ulterior purposes.

I consider there are limitations on the proposition that commencing or maintaining proceedings which have no or substantially no prospects of success may result in a costs order being made against a practitioner. Something more must be added to the equation such as, for example, an ulterior purpose, abuse of process or a serious dereliction of duty. …

…

The authorities do not support the proposition that simply instituting or maintaining a proceeding on behalf of a client which has no or substantially no prospect of success will invoke the jurisdiction. There must be something more namely, carrying on that conduct unreasonably. It is not clear what is encompassed by “unreasonably” initiating or continuing proceedings if they have no or substantially no chance of success. It seems to me that it involves some deliberate or conscious decision taken by reference to circumstances unrelated to the prospects of success with either a recognition that there is no chance of success but an intention to use the proceeding for an ulterior purpose or with a disregard of any proper consideration of the prospects of success.

Expressing the principle this way accommodates the competing principle that a party is entitled to have a practitioner act for him or her even in an unmeritorious case. This principle was expressed succinctly in Ridehalgh v Horsefield [1994] Ch 205 at 233-4:

A legal representative is not to be held to have acted improperly, unreasonably or negligently simply because he acts for a party who pursues a claim or defence which is plainly doomed to fail ... Legal representatives will, of course, whether barristers or solicitors, advise clients of the perceived weakness of their case and of the risk of failure. But clients are free to reject advice and insist that cases be litigated. It is rarely if ever safe for a court to assume that a hopeless case is being litigated on the advice of the lawyers involved. They are there to present the case; it is (as Samuel Johnson unforgettably pointed out) for the judge and not the lawyers to judge it.

It is, however, one thing for a legal representative to present, on instructions, a case which he regards as bound to fail; it is quite another to lend his assistance to proceedings which are an abuse of the process of the Court. Whether instructed or not, a legal representative is not entitled to use litigious procedures for purposes for which they were not intended, as by issuing or pursuing proceedings a case known to be dishonest, nor is he entitled to evade rules intended to safeguard the interests of justice, as by knowingly failing to make full disclosure on ex parte application or knowingly conniving at incomplete disclosure of documents. It is not entirely easy to distinguish by definition between the hopeless case and the case which amounts to an abuse of the process, but in practice it is not hard to say which is which and if there is doubt the legal representative is entitled to the benefit of it.

…

In order to affix liability for costs to a solicitor there must be something further added in the nature of acting unreasonably or for reasons unconnected with success in the litigation or for an otherwise ulterior purpose resulting in an abuse of process or in circumstances resulting in a serious dereliction of duty or serious misconduct in promoting the cause of and the proper administration of justice. I do not accept the submission advanced by White that the law is that because a solicitor's duty is to the Court he or she should refuse to pursue, on behalf of a client, a case which he or she knows to be hopeless, nor do I accept that Myers v Elman; Edwards v Edwards and Currie & Co v Law Society support this submission; something further is required. It is likely that the fact that a client insists on pursuing a hopeless case will raise an issue or enquiry as to whether the reason for pursuing the case is the pursuit of an ulterior purpose. However, an ulterior purpose or an abuse of process cannot, in my opinion, be assumed simply because of the fact that the case is hopeless.

90    The applicable principles are helpfully summarised by Wigney J in Mitry Lawyers v Barnden [2014] FCA 918 at [39], [42]-[43]. I respectfully agree with his Honour’s summary.

91    However, those principles require some qualification to recognise the presence and effect of ss 37M and 37N of the Federal Court Act, as Tracey J observed in Mijac Investments Pty Ltd v Graham [2013] FCA 296 at [45]-[49]. At [49], his Honour describes one aspect of that qualification in terms with which I respectfully agree:

The achievement of the overarching purpose of the civil practice and procedure depends in part on a practitioner offering objective and considered advice to a client. This includes advice as to matters such as whether a proper basis in law exists for the making and pursuit of a particular application and the contents of any affidavits sworn in support of such an application. Without such advice, the just resolution of disputes according to law and as quickly and inexpensively as possible may well be hampered, if not frustrated.

92    There is a clear link, in terms of legislative policy, between ss 37M and 37N, and s 43(3)(f). The provisions were introduced at the same time, and were designed to empower the Court to sheet home responsibility to legal practitioners, where appropriate, to bear personally the liability to make compensation for parties’ legal costs. In Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations (No 4) (2012) 200 FCR 154; [2012] FCAFC 50, the Full Court (Keane CJ, Lander and Foster JJ ) said (at [72]) that s 43(3):

was included at the same time as Pt VB of the FCA for the purpose of reinforcing the powers given to the Court by Pt VB by giving the Court explicit powers to make orders for costs not only following the ultimate verdict in a trial but during the management of any proceeding or appeal before the trial or hearing. In particular, subs (3) reinforced the Court’s power to award costs against a party’s lawyer (ss 43(3)(f) and 37N(5)) and to award costs on an indemnity basis (ss 43(3)(g) and 37P(6)(e)).

93    Whether or not it would be appropriate to describe the case against Mr Humphery-Smith as inevitably “hopeless” in an objective sense, it is certainly one where no factual or legal foundation was apparent, and none was pleaded. It was the decision by Mr McDonald nevertheless to make such serious allegations against Mr Humphery-Smith which in my opinion is appropriately characterised as unreasonable. It was obviously the product of a deliberate choice by Mr McDonald, for reasons which have remained unexplained by him.

94    Mr McDonald, in his affidavit, stated that after he received a request for further and better particulars of the allegations against Mr Humphery-Smith, he sought documents from Lander & Rogers “to assist me in responding to their request”. He stated that Lander & Rogers refused to produce these documents. As Mr Humphery-Smith submitted, many of those documents were subject to client legal privilege, and it is unsurprising they were not immediately made available to Mr McDonald.

95    More importantly, for Mr McDonald to proffer this sequence of events illustrates his failure to understand the real problem with his exercise of judgment. The problem lies in the original allegation, which appears to have been made without any factual foundation. As Mr Humphery-Smith submitted, nothing in the account of events contained in the applicant’s affidavit reveals that Mr Humphery-Smith did any more than what might be expected of a legal adviser to an employer. If that was the sum total of the factual material available to Mr McDonald, there was no basis in law or fact for the pleading at [53] and [54] of the statement of claim, and he should not have certified that there was. He could not possibly have considered it would be appropriate to rely only on documents which might be produced from the possession of Mr Humphery-Smith to provide the factual basis. The appropriate course, if on his instructions there was cause to believe Mr Humphery-Smith had engaged in conduct outside his professional role as a lawyer, was to wait until an evidentiary basis for that was apparent (whether through discovery or evidence) and then seek to amend the pleading accordingly. If there was such a basis, then any amendment application would have had substantial merit. To make such allegations against another legal practitioner without any existing basis is the antithesis of the appropriate approach.

96    Further, given that the liability was truly accessorial, it is difficult, to say the least, to see how Mr McDonald could have had any reasonable basis to maintain, as he did to Lander & Rogers in correspondence, that the applicant could continue a claim against Mr Humphery-Smith having settled his claims against Primesafe and the second respondent. It is obvious the deed of settlement, including as it did a full release, would preclude proof of any contravention of the Fair Work Act by Primesafe. I cannot see how Mr McDonald, if indeed he turned his mind to this at all before corresponding with Lander & Rogers and Mr Humphery-Smith, could reasonably have believed that when Mr Humphery-Smith’s liability under s 550(1) depended on him being “involved in a contravention” of the Fair Work Act, the contravention could possibly be proved, without a breach of the deed of settlement.

97    Mr McDonald, and his client, were put on notice about the deficiencies in the allegations against Mr Humphery-Smith from the time they were made. The 11 April 2014 letter from Lander & Rogers could not have been clearer. In the absence of any evidence to the contrary, I find Mr McDonald must consciously have decided to allow the proceeding to continue in the Fair Work Commission in that form, and to commence proceedings in this Court in the same form, despite any articulated factual foundation. There was no evidence that the applicant specifically instructed Mr McDonald, against advice, to continue against Mr Humphery-Smith after receipt of the 11 April 2014 letter. Lander & Rogers expressly invited Mr McDonald to clarify this, properly conceding they would not apply for costs to be paid by Mr McDonald if this were the case.

98    Similarly, despite the generalised and sometimes irrelevant assertions in some of his correspondence, Mr McDonald never did provide any further factual foundation for the allegations, nor did he ever provide any authorities which might support the most unusual course he elected to take on behalf of his client, one which inevitably called into question Mr Humphery-Smith’s professional conduct and thus was capable of affecting adversely his professional reputation. The authority referred to in Mr McDonald’s letter dated 30 July 2014 to Hall & Wilcox, a decision of the Federal Circuit Court in Sagona [2014] FCCA 875 at [333], does no more than make the distinction (for the purposes of s 550 of the Fair Work Act) between knowledge of the conduct said to constitute the contravention, and knowledge that conduct was made unlawful by the Fair Work Act. So much may be accepted, but it provides no legal support for the contention Mr McDonald needed to make good on behalf of the applicant: namely that a legal practitioner giving legal advice and assistance to an employer can, by the rendering of that advice and assistance, be found to have accessorial liability under s 550 of the Fair Work Act.

99    By at least 6 August 2014, Mr McDonald and his client were given all the Hall & Wilcox invoices, so the breakdown of the costs claimed could be examined. Mr McDonald and the applicant were invited to make some offer on costs. They did not.

100    The impression given to the Court at the 16 July 2014 directions hearing was that the applicant intended actively to pursue his claim against Mr Humphery-Smith. That is despite the applicant informing the Court at that hearing he had settled his claim with the two principal respondents — those against whom he alleged the substantive contraventions of the Fair Work Act. As Mr McDonald’s correspondence also demonstrates, he made much of his client’s confidence, and his own, concerning the merit of the claim against Mr Humphery-Smith, even after settlement with the two other respondents.

101    I return to the proposition that this single-minded pursuit of Mr Humphery-Smith in these circumstances is inexplicable on the evidence.

102    Counsel for Mr McDonald relied on the email sent by Mr McDonald to the applicant, informing him that, even if costs were ordered against the applicant, Mr McDonald would indemnify the applicant for those costs. She submitted this meant the Court could safely make any order it saw appropriate against the applicant knowing the payment of Mr Humphery-Smith’s costs would not come out of the applicant’s pocket. I do not accept that submission. There is no evidence about the circumstances in which Mr McDonald came to write that email to the applicant, nor about why it was written when it was; namely, only very shortly before the contested hearing in this matter. This submission could be taken to be a suggestion that a legal practitioner might be able to avoid the possible reputational harm that might be caused by a costs order against her or him personally by offering to indemnify her or his client instead. That would be a miscarriage of the Court’s power to award costs, and its purpose. Costs are compensatory not punitive, and therefore where a choice in how the power is exercised is available (as it is in relation to parties and their legal practitioners), the power should be exercised in a way which best represents the Court’s view, on the evidence, of who bears the responsibility for the incurring of legal costs for which the order will provide compensation. The proffering of an indemnity should not become a device through which a legal practitioner might avoid perceived reputational harm caused by being the subject of a personal costs order, if the Court considers it is appropriate for the legal practitioner to bear the costs personally.

103    Counsel’s distinction in oral argument between legal and “management” advice may, in theory, be a material one, but no basis for it has been established in this case, putting to one side that the argument requires the Court to ignore the pleadings, which dealt predominantly with Mr Humphery-Smith’s role in giving legal advice, not management advice, in this case. This being the foundation of the resistance to the costs application, the evidence adduced about how the alleged distinction was apparent on the factual material available to Mr McDonald needed to be stronger and more detailed for the argument to be tenable. Mr McDonald’s affidavit evidence in particular was general and vague. I note at [79] the assertions in correspondence about witnesses and documents, none of which was deposed to in the affidavit material resisting the costs application.

104    The conduct of this proceeding against Mr Humphery-Smith by Mr McDonald on behalf of the applicant is not one which, as Tracey J pointed out in Mijac, facilitated the just resolution of disputes according to law, and it certainly did not do so as quickly and inexpensively as possible. Practitioners such as Mr McDonald who are regular practitioners in this Court are, I infer, well aware of their individual responsibilities under s 37N(2) of the Federal Court Act. Acting on behalf of a client (and, I infer, recommending this course of action to a client) in a way which is so clearly inconsistent with those obligations is unreasonable, and capable of justifying an order under s 43(3)(f).

105    My conclusion, on the evidence, is that Mr McDonald bears responsibility for the forensic choices to join Mr Humphery-Smith at the outset, and to continue the proceeding against him after settlement with the other two parties without proper particulars. I am supported in this conclusion by the inflammatory language used by Mr McDonald in some of his correspondence with Lander & Rogers and Hall & Wilcox, by his incorrect assertions about Mr Humphery-Smith’s exposure to penalties under the Fair Work Act, by his continued assertions about the significant prospects of success the applicant possessed against Mr Humphery-Smith based on unparticularised allegations, and his conscious frustration of the Court’s order to provide particulars by the unilateral filing of a discontinuance. On the evidence, there is no suggestion these were the stubborn and unreasonable choices of a client, against his lawyer’s advice. I am satisfied on the balance of probabilities that those were forensic choices made by Mr McDonald himself. Those choices, and the manner in which Mr McDonald conducted himself in relation to Mr Humphery-Smith throughout the dispute, are sufficient to persuade me the appropriate order is that he personally bear the costs ordered against the applicant.

Whether rule 26.12 is relevant

106    Just as s 570 of the Fair Work Act can be said to condition the costs discretion in s 43 of the Federal Court Act, so it must be seen as affecting the operation of r 26.12(7) of the Federal Court Rules. I agree, with respect, with the characterisation of that rule expressed by McKerracher J in Travaglini v Raccuia [2012] FCA 620 at [36] as providing a “prima facie entitlement” that the non-discontinuing party is entitled to an order for costs in that party’s favour. Again, some reconciliation with the operation of s 570 of the Fair Work Act is required. That reconciliation must give priority to the terms of s 570, otherwise the purpose of that provision could be frustrated. It is difficult to see any room for the presumption in r 26.12(7) to operate in proceedings arising under the Fair Work Act.

107    One observation by McKerracher J was however relied on by Mr Humphery-Smith in his submissions. At [35] his Honour dealt with reputation issues for a respondent which might flow from a discontinuance:

It is also a relevant consideration in this regard, in my view, that Mr Travaglini advanced the contention against the second respondents that the relevant trust was a “sham”. The second respondent has been deprived of the opportunity to clear his name in respect of those allegations. As noted by her Honour, Stone J, in Smith (at [44]), this is also a relevant consideration. I emphasise that this is not deciding the matter in any respect on the merits but simply noting that the second respondent has been deprived, by reason of the discontinuance, of the opportunity to vindicate his position despite generally having incurred costs in preparing to do so. As her Honour noted in Smith (at [44]), although the reasons for discontinuance may vary considerably, it is likely to be in the interests of justice that in such circumstances the respondent to the claim should have those costs met by the discontinuing party.

108    It is true that, here, the discontinuance meant Mr Humphery-Smith was not given the opportunity to vindicate his position that he had done nothing more than act in accordance with his professional obligations to Primesafe as its lawyer, and that this could not bring him within s 550 of the Fair Work Act. The discontinuance, however, also put an end to the public airing of these allegations against him, and relieved him of enduring a public trial of those allegations. It does not seem to me that, over and above the fact which flows from the making of the allegations themselves without proper foundation, that there is any extra deprivation or damage and, indeed, there may have been a benefit.

109    In that sense, the filing of the discontinuance can be subject to particular criticism only in the sense of the incongruity between that event and Mr McDonald’s insistence that his client’s claim against Mr Humphery-Smith was strong even after the settlement with the other two respondents, and was well able to be particularised. The failure to provide particulars at any stage, even after the Court’s order, in my opinion is telling. Combined with the absence of evidence on this application of any factual basis for the pleaded allegations, the inevitable inference in my opinion is that the applicant’s legal representatives were experiencing real difficulty in providing proper particulars and, eventually, this reality led to the filing of a discontinuance rather than facing non-compliance with the Court’s orders.

Whether indemnity costs should be ordered

110    Mr Humphery-Smith relied in submissions on the decision of Harper J in Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189 at [7] to support his submission that any costs order should extend to an order for indemnity costs. Noting the categories of circumstances where an indemnity costs order will be appropriate are not closed, and the Court must take care not to produce a set of inflexible rules about when the costs discretion should be exercised in this way, Harper J said:

In seeking costs on an indemnity basis, the first defendant is asking the Court to depart from its usual course: Spencer v Dowling. Special circumstances must be present to justify such a departure: Australian Electoral Commission v Towney (No 2). These include:

(i) The making of an allegation, known to be false, that the opposite party is guilty of fraud: Fountain Selected Meats (Sales) Pty Ltd. v International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397.

(ii) The making of an irrelevant allegation of fraud: Thors v Weekes (1989) 92 ALR 131. 


(iii) Conduct which causes loss of time to the Court and to other parties: Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (unreported, Federal Court, French J, 3 May 1991). 


(iv) The commencement or continuation of proceedings for an ulterior motive: Ragata Developments Pty Ltd v Westpac Banking Corporation (unreported, Federal Court, Davies, J., 5 March 1993). 


(v) Conduct which amounts to a contempt of court: EMI Records Ltd v Ian Cameron Wallace Ltd [1983] Ch 59.

(vi) The commencement or continuation of proceedings in wilful disregard of known facts or clearly established law: J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA) Branch (No 2) [1993] FCA 42; (1993) 46 IR 301. 


(vii) The failure until after the commencement of the trial, and without explanation, to discover documents the timely discovery of which would have considerably shortened, and very possibly avoided, the trial: National Australia Bank v Petit-Breuilh (No 2) (unreported, [1990] VSC 395, 18 October 1999).

111    Mr Humphery-Smith relied especially on factors (iii) and (vi) in this proceeding.

112    Harper J’s decision has been applied in this Court: see Sacco t/as Globeline Automotive Service v FV Bilotto Nominees Pty Ltd [2011] FCA 1287 at [9] per Dodds-Streeton J. Another summary of the kinds of conduct justifying an order for indemnity costs can be found in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233-234 per Sheppard J:

I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weekes (1989) 92 ALR 131 at 152; evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp (supra)); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal); Crisp v Keng (unreported, Court of Appeal, NSW, Kirby P, Priestley JA, Cripps JA, No 40744/1992, 27 September 1993) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records (supra)). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.

113    I am not satisfied costs should be awarded on an indemnity basis. Although I have found that on the evidence before me there was no factual or legal basis for Mr McDonald to draw paragraphs [53] and [54] of the statement of claim as he did, and at the time he did, for the purposes of including Mr Humphery-Smith as a respondent and an alleged accessory pursuant to s 550 of the Fair Work Act, there is insufficient evidence for me to be satisfied that Mr McDonald wilfully disregarded the facts and the law in pleading the allegations as he did. As to factor (iii), there has been some loss of court time, in the sense that only the directions hearing before Bromberg J, and the orders for particulars which followed it, could be attributable to the allegations against Mr Humphery-Smith, but in comparison to circumstances in many cases which have been conducted unreasonably over a long period of time, the loss of court time is not such as to justify departure from the usual form of costs orders.

114    I accept there has been considerable inconvenience caused to Mr Humphery-Smith by the allegations in this proceeding. His own time has been wasted in having to respond as a party to these proceedings when there does not on the evidence appear to have been any proper basis for that to occur. He was precluded from acting for a client in circumstances where he was the partner responsible for that client’s matters within his firm. The proceedings in this Court were conducted over a relatively short period of time, and there was a discontinuance after matters were brought to a head by the order for particulars. I have found on the evidence before the Court that, for the purposes of ss 570(2)(a) and (b) of the Fair Work Act, the proceedings against Mr Humphery-Smith were instituted without reasonable cause and the unreasonable conduct in joining Mr Humphery-Smith caused him to incur costs. Without more, those factors do not justify what would be, in substance, a second departure from the underlying policy evidenced in s 570 by a costs order at the level of indemnity costs. One theme which might be said to run through the factors listed by Harper J in Ugly Tribe, and by Sheppard J in Colgate-Palmolive 46 FCR 225, is a level of blameworthiness which involves conscious or deliberate choices to flout the norms by which litigation is usually conducted, and courts expect it to be conducted. I cannot be satisfied on the evidence before me that Mr McDonald’s conduct is attended by that level of disregard. His choice to name Mr Humphery-Smith was unusual. He failed to articulate a proper factual and legal basis for it in his pleading, or in particular when sought. Whether he did so with some ulterior motive or purpose, or wilfully closing his eyes to his professional obligations, are not conclusions I am prepared positively to reach on the evidence before me.

Conclusion

115    The preconditions in ss 570(2)(a) and (b) having been met, Mr Humphery-Smith is entitled to be compensated for the legal costs he incurred in relation to this proceeding, during the period he was obliged to retain Hall & Wilcox to represent him, excluding any costs attributable to the application in the Fair Work Commission. Mr McDonald should bear those costs personally. Costs are payable on a party and party basis.

116    There is no evidence before me that Mr Humphery-Smith incurred any legal costs after 30 July 2014, when Mr Riekert recommenced acting for him. Accordingly, subject to the matter I refer to in [117] below, the costs will be limited to those incurred by Mr Humphery-Smith when he was represented by Hall & Wilcox in relation to the proceeding in this Court. As I have noted above, there was a proper concession that the letter of demand of 24 July 2014 was too widely expressed when it sought to incorporate the costs in the Fair Work Commission.

117    This application was contested by both the applicant and Mr McDonald. Mr Humphery-Smith is entitled to be compensated for any disbursements he has incurred in bringing the costs application, including counsel’s fees. As I have noted, there is no evidence of any fee agreement or arrangements within Lander & Rogers such as would found an order for solicitors’ costs on this application.

Associate:

Dated:    21 January 2015