Federal Court of Australia

Lees v Asaleo Personal Care Pty Ltd [2023] FCA 334

ORDERS

THE COURT ORDERS THAT:

1.    The application for an extension of time and leave to appeal be dismissed.

2.    The appeal is otherwise dismissed.

3.    There be no order as to costs.

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

REASONS FOR JUDGMENT

HESPE J:

1    Mr Lees filed a notice of appeal appealing a judgment of the Federal Circuit and Family Court of Australia (Division 2) (Circuit Court) made on 21 June 2022 and reported as Lees v Asaleo Personal Care Pty Ltd (No 3) [2022] FedCFamC2G 488 on 19 July 2022, within 28 days of judgment. The order appealed was in the following terms: “The applicant’s costs application, being the application in a proceeding filed on 11 May 2022, be dismissed”.

2    In the lead up to a case management hearing held on 9 November 2022, the Court raised with the parties the question of whether the order sought to be appealed was interlocutory in nature. Although not conceding that the order was interlocutory, Mr Lees thereafter filed an application for an extension of time to seek leave to appeal and leave to appeal pursuant to rr 35.12 and 35.14 of the Federal Court Rules 2011 (Cth).

3    The proceedings before this Court raise the following issues:

(1)    whether the order the subject of Mr Lees’ notice of appeal is interlocutory in nature;

(2)    if the order is interlocutory in nature, whether an extension of time to seek leave to appeal and leave to appeal ought to be granted; and

(3)    if the order is final in nature, or if an extension of time to seek leave to appeal and leave were granted, whether the appeal should be allowed.

4    The parties made submissions on all three issues.

Nature of the order appealed

5    The order appealed was an order dismissing an application for an order for costs under s 570(2) of the Fair Work Act 2009 (Cth) (FW Act). Section 570 relevantly provides:

(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:

…

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

6    By its terms, the order made was interlocutory, being an order dismissing “an application in a proceeding”. The reference to “an application in a proceeding” reflects r 4.06 of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) (Circuit Court Rules) and is distinct from an application for final orders made in accordance with r 4.01. The application form filed in the Circuit Court described the orders sought as “interlocutory”. The term “application in a proceeding” is defined in r 1.05 of the Circuit Court Rules:

Application in a proceeding means an application that is made in a proceeding that has already been started under these Rules and is an application for:

(a)    an interim order; or

(b)    a procedural order; or

(c)    an ancillary order; or

(d)    an interlocutory order; or

(e)    any other incidental order relating to an application or order.

7    There is a suggestion in some Full Court decisions that a costs order that forms part of the orders by which a proceeding is finally determined is a final order and may be the subject of an appeal without leave: see, eg, Probiotec Ltd v University of Melbourne [2008] FCAFC 5; (2008) 166 FCR 30 at 50 [79] (Rares J, Finn and Besanko JJ agreeing at 32 [1] and 51 [82], respectively); Les Laboratoires Servier v Apotex Pty Ltd [2016] FCAFC 27; (2016) 247 FCR 61 at 129 [291] (Bennett, Besanko and Beach JJ). However, it has more recently been said by the Full Court that the “prevailing view” is that a costs order, even when made as part of the final disposition of a matter, is interlocutory in nature: ALDI Foods Pty Ltd as General Partner of ALDI Stores (A Ltd Partnership) v Transport Workers’ Union of Australia [2020] FCAFC 231; (2020) 282 FCR 174 at 197 [69] (Besanko, Bromberg and O’Bryan JJ). The position was summarised by Colvin J in Caratti v Commissioner of the Australian Federal Police [2021] FCA 1067 at [9]–‍[13]:

[9]    I am satisfied that leave is necessary. It has been suggested in qualified terms that a costs order that forms part of the orders by which a proceeding is finally determined is a final order and may be the subject of an appeal without leave: Les Laboratoires Servier v Apotex Pty Ltd [2016] FCAFC 27; (2016) 247 FCR 61 at [291]; and Probiotec Limited v The University of Melbourne [2008] FCAFC 5; (2008) 166 FCR 30 at [79]. However, in the recent decision in ALDI Foods Pty Limited as General Partner of ALDI Stores (A Limited Partnership) v Transport Workers’ Union of Australia [2020] FCAFC 231, it was said (without determining the point) that the “prevailing view has been that a costs order, even when made as part of the final disposition of a proceeding, is interlocutory in nature”: at [69].

[10]    The uncertainty as to whether costs orders that form part of a final determination may be the subject of an appeal as of right even where the appeal is confined to the part of those orders that concerns costs (or is advanced even if the appeal is otherwise unsuccessful) has been addressed in some jurisdictions by statutory provision which limit the circumstances in which an appeal may be brought just about costs: see the observations concerning the position in New South Wales by Allsop CJ in Hacker v Weston [2015] FCA 790 at [3] and the discussion of the position in Western Australia by Martin CJ in Cardno BSD Pty Ltd v Water Corporation [No 2] [2011] WASCA 161 at [95]–[102]. There is no such provision in the Federal Court of Australia Act.

[11]    There is much to be said for the position that orders as to costs are always interlocutory. The usual test to be applied in determining whether an order is final or interlocutory “is whether the order, as made, determines the rights of the parties in a principal cause pending between them”: In the matter of an appeal by Gaye Alexandra Mary Luck [2003] HCA 70 at [4]. There is no substantive right to an order for costs. Costs orders are always discretionary. They are made to ensure fairness in procedure and to enable the Court to encourage the parties to confine the dispute to the real issues and to use the procedures of the Court for proper purposes. No one comes to the Court with a claim to costs. Therefore, the costs order made at the conclusion of proceedings is not aptly described as finally disposing of any rights of the parties to use the language in In the Matter of an Application by the Chief Commissioner of Police (Vic) [2005] HCA 18 at [28]. The making of costs orders (including such orders made at the time of pronouncing final orders) is a procedural incident of the conduct of the proceedings and does not involve the making of an order the legal effect of which is to finally determine a claim.

[12]    On an appeal, the discretion to make a costs order is re-enlivened if the appeal is successful so in such cases the possibility of a different costs order flows from substantive success in the appeal. Leave is not required in such cases in order to contend for a different costs order on appeal. However, if the appeal is unsuccessful and the appellant seeks nevertheless to over-turn a costs order then leave should be sought and obtained before the court is required to revisit the costs order. Other than in an instance where an appeal was otherwise successful, a costs order, like other interlocutory orders, may only be re-visited on appeal if a proper basis for leave to do so was demonstrated. It follows that costs orders made at the same time as final orders can be re-visited without the restrictions that would otherwise confine such circumstances and require an appeal. This approach appears to be consistent with the character of costs orders as orders that do not determine the substantive rights but are consequential procedural orders made in the exercise of discretion, albeit an important discretion for ensuring proper incentives as to the manner in which litigation is conducted.

[13]    There is support for the approach that costs orders are interlocutory in the reasoning of Jagot J in Melbourne City Investments Pty Ltd v Treasury Wine Estates Ltd [2019] FCA 1458 at [20]–[27].

8    Here, not only was the form of the order made in interlocutory terms, the order was made as a result of an application made after the order disposed of the substantive rights of the parties.

9    I consider that the order sought to be appealed was interlocutory in nature and that an extension of time to seek leave to appeal and leave to appeal are accordingly required. I observe that, even if the notice of appeal were to be construed as a request for leave, the notice was filed more than 14 days after the order appealed.

10    However, given the parties were heard on the applications for an extension of time to seek leave to appeal and leave to appeal together with the substantive appeal, these reasons address both the issues of leave and the substantive grounds of appeal. For the reasons set out below, the merits of the substantive grounds of appeal do not enjoy sufficient prospects of success to warrant an extension of time or the grant of leave to appeal. For the same reasons, any appeal would also be dismissed.

Relevant factual background

11    On 30 March 2020, Mr Lees was dismissed from employment with the Respondent, Asaleo Personal Care Pty Ltd. On 25 June 2020, Mr Lees commenced a proceeding in the Circuit Court in respect of this dismissal, alleging that Asaleo had contravened s 340 of the FW Act by taking adverse action against him and breached his contract of employment by failing to undertake a formal performance review. He also claimed an entitlement to a redundancy payment on termination under s 119 of the FW Act.

12    Before the Circuit Court, Mr Lees succeeded in relation to his s 340 claim but not in respect of his claim for a redundancy payment or his claim for breach of contract. Mr Lees was awarded $22,552.80 in economic loss, $7,500 in non-economic loss, and $2,669.26 of interest on those amounts. Two pecuniary penalties in the sum of $44,100 and $22,050 were imposed. The total sums ordered to be paid by Asaleo amounted to $98,872.06.

13    On 11 May 2022, Mr Lees applied for an order that Asaleo pay his legal costs on an indemnity basis on and from 17 September 2021, which was the date on which Mr Lees had sent Asaleo a Calderbank letter. In this letter, Mr Lees offered to settle the proceeding on the following basis:

(a)    Mr Lees be provided with a statement of service confirming that his employment ended by reason of redundancy;

(b)    Mr Lees receive payment of $61,788.46, as “a genuine redundancy”;

(c)    if requested to do so, Mr Lees execute a deed of release; and

(d)    payment be made within seven business days following the Respondent’s receipt of an executed deed of release.

14    The offer remained open for seven days.

15    By letter dated 29 September 2021 (after Mr Lees’ offer had lapsed), the Respondent confirmed its rejection of the offer and counter-offered with a final offer to settle on the basis that Mr Lees’ dismissal would be re-characterised as a resignation but not offering to pay Mr Lees any amount. This counter-offer was described in the letter as “reasonable given the lack of merit in the claim”.

Costs proceedings before the primary judge

16    In support of his application for an order for costs under s 570(2) of the FW Act, Mr Lees relied upon two acts or omissions of the Respondent which he contended were unreasonable:

(1)    the Respondent’s refusal to accept Mr Lees’ “reasonable” Calderbank offer; and

(2)    the Respondent’s counter-offer to settle the case on “a walk-away basis”.

17    The primary judge quoted (at [15]) the following principles from Tucker v State of Victoria [No 2] [2021] VSCA 182 at [32] (Kyrou, McLeish and Sifris JJA), as applying to s 570(2)(b):

(f)    Paragraph (b) is enlivened when two criteria are satisfied:

(i)    one party has engaged in an “unreasonable act or omission”; and

(ii)    that unreasonable act or omission has caused the other party to incur costs.

(g)    Unreasonableness is to be determined objectively. It is a question of impression and degree, to be assessed by reference to the particular circumstances of a given case.

(h)    Unreasonableness is not to be confused with negligence or inefficiency. A failure to conduct litigation in the most efficient way does not, without more, enliven the paragraph. The fact that a party has conducted litigation inefficiently, made belated concessions, or adopted a misguided approach may be relevant to, but will not be conclusive of, the question of unreasonableness.

(Footnotes omitted.)

18    The primary judge observed that a failure to accept a reasonable offer of compromise may constitute an unreasonable act for the purposes of s 570(2)(b): Melbourne Stadiums Ltd v Sautner [2015] FCAFC 20; (2015) 229 FCR 221 at 225 [166] (Tracey, Gilmour, Jagot and Beach JJ).

19    The primary judge concluded (at [17]) that it was not unreasonable for the Respondent to not accept Mr Lees’ Calderbank offer.

20    Although her Honour accepted (at [20]) that the Respondent’s counter-offer was not reasonable, the primary judge also concluded that the making of that counter-offer did not cause Mr Lees to incur costs.

21    The primary judge concluded (at [16]–[17]) that the Respondent’s conduct did not warrant a costs order under s 570(2)(b):

[16]    Asaleo acknowledged that Mr Lees was awarded more money than he offered in his Calderbank letter to settle for, being $98,872.06 as opposed to $61,788.46. However, Asaleo noted that the terms of the Calderbank offer included that Mr Lees be given a letter stating that his employment ended by reason of redundancy. Mr Lees’ employment did not end by reason of redundancy. Asaleo submitted, without challenge, that it would have been contrary to Australia’s taxation laws for Asaleo to provide a letter stating that Mr Lees’ employment had ended for reasons of redundancy when it did not. I accept that is the correct position. Redundancy payments are treated favourably under taxation law. It would have been a fraud on the Commonwealth for Asaleo to provide a letter stating that Mr Lees’ employment had terminated for reasons of redundancy.

[17]    In these circumstances, it cannot be said that it was unreasonable for Asaleo to not accept the Calderbank offer. Although Mr Lees bettered the amount of money that he offered to settle for, he did not secure one of the terms of his settlement offer. It follows that, overall, Mr Lees did not better his Calderbank offer.

Grounds of appeal

22    Mr Lees’ notice of appeal raised five grounds of appeal, three of which were pressed at hearing. The grounds as pressed were:

1.    The learned trial judge erred in failing to conclude … that the Respondent’s refusal to accept the Appellant’s Calderbank offer was an unreasonable act or omission, by finding at [16] that the potential taxation treatment of the proposed settlement precluded acceptance of the [Appellant’s] offer, when in fact the offer was refused based on [the] Respondent’s erroneous claim that the [Appellant] had no reasonable prospects of success.

2.    The learned trial judge erred in failing to conclude … that the Respondent’s refusal to accept the Appellant’s Calderbank offer was an unreasonable act or omission for the purpose of section 570(2) of the Fair Work Act 2009 (Cth), as the potential taxation treatment of the proposed settlement would have been a fraud on the Commonwealth, in circumstances where the Appellant’s claim included a right to a redundancy payment.

3.    The learned trial judge erred in failing to conclude … that the Respondent’s refusal to accept the Appellant’s Calderbank offer was an unreasonable act or omission for the purpose of section 570(2) of the Fair Work Act 2009 (Cth), by finding at [17] that the Appellant’s failure to better his Calderbank offer was an irrelevant consideration to the question of reasonableness. In fact, the [Appellant] did better his Calderbank offer, and in any case, this consideration is irrelevant as regards the question of unreasonableness, which concerns the Respondent’s conduct at the time that the offer was made.

23    As elaborated in oral submissions, the essence of Mr Lees’ contentions is that the primary judge erred in relying on the potential taxation treatment of his proposed settlement to conclude that the Respondent did not act unreasonably in failing to accept that offer for three reasons:

(1)    As a matter of fact, the Respondent did not reject the offer because of the taxation treatment that would follow, but because of the Respondent’s unreasonable view that Mr Lees’ claim lacked merit.

(2)    It could not be said that, at the time the offer was made, agreeing to represent that Mr Lees had been made redundant would constitute a fraud on the Commonwealth because, at the time the offer was made, whether Mr Lees had been made redundant was a matter in issue and which was yet to be determined.

(3)    The fact that it was subsequently found by the Court that Mr Lees had not been made redundant was irrelevant to determining whether the Respondent had acted unreasonably in rejecting Mr Lees’ offer. The reasonableness of the Respondent’s conduct must be assessed at the time the offer was rejected and not with the benefit of hindsight.

Consideration of the merits of the grounds of appeal

24    The making of a costs order is generally a matter of discretion. The Court’s power to make a costs order under s 570(2)(b) of the FW Act is predicated on the Court being satisfied that a party’s unreasonable act or omission caused the other party to incur costs. The circumstances in which a Court, on appeal, might interfere with a decision based on the formation of a state of satisfaction by the decision-maker were set out by Dixon J in Avon Downs Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR 353, where his Honour stated (at 360):

If he does not address himself to the question which the sub-section formulates, if his conclusion is affected by some mistake of law, if he takes some extraneous reason into consideration or excludes from consideration some factor which should affect his determination, on any of these grounds his conclusion is liable to review. Moreover, the fact that he has not made known the reasons why he was not satisfied will not prevent the review of his decision. The conclusion he has reached may, on a full consideration of the material that was before him, be found to be capable of explanation only on the ground of some such misconception. If the result appears to be unreasonable on the supposition that he addressed himself to the right question, correctly applied the rules of law and took into account all the relevant considerations and no irrelevant considerations, then it may be a proper inference that it is a false supposition. It is not necessary that you should be sure of the precise particular in which he has gone wrong. It is enough that you can see that in some way he must have failed in the discharge of his exact function according to law.

25    There was no error of this kind in the primary judge’s reasons. There were two aspects to Mr Lees’ offer:

(a)    a quantitative aspect, being the monetary sum; and

(b)    a qualitative aspect, being its characterisation as a redundancy payment.

26    The first ground of appeal is not supported by a finding of fact. The facts as found were that the Respondent rejected Mr Lees’ offer. That rejection involved rejecting both aspects of the offer. The primary judge found that, having regard to the qualitative aspect of the offer, it could not be said that the Respondent’s rejection of the offer was unreasonable.

27    The second and third grounds of appeal do not reflect a fair reading of her Honour’s reasons. The Respondent’s rejection of Mr Lees’ offer, having regard to its qualitative aspect, was not unreasonable when, at the time of considering the offer, the Respondent’s position was that Mr Lees’ employment had not ended for reasons of redundancy. That position was confirmed as correct by the primary judge who found (at [16]) that Mr Lees had not, in fact, been made redundant. Accepting Mr Lees’ offer would have required the Respondent to make a representation to the Commissioner of Taxation which the Respondent did not consider was correct and which view was subsequently vindicated by the decision of the primary judge. The making of misleading statements to the Commissioner of Taxation would expose the Respondent to the risk of penalties under the Taxation Administration Act 1953 (Cth). There was no erroneous regard by the primary judge to hindsight reasoning.

Disposition

28    At the hearing, the Respondent confirmed that, if successful, it would not seek costs in an endeavour to bring this matter to an end. The Respondent’s approach in this respect is concordant with the obligation of parties to conduct litigation efficiently and at a cost commensurate with the complexity of the matters in dispute (as required by ss 37M and 37N of the Federal Court Act 1976 (Cth)).

29    The applications for an extension of time and leave to appeal are dismissed and the appeal is otherwise dismissed. There will be no order as to costs.

Associate:

Dated:    14 April 2023