Federal Court of Australia

HealthX Group Pty Ltd v Palling (No 2) [2025] FCA 1300

ORDERS

THE COURT ORDERS THAT:

1.    The Applicant’s claim for a declaration that it is not liable to pay the “Bonus” as demanded by the Respondent be dismissed.

2.    The Cross-Claimant’s cross-claim be allowed.

3.    Within 28 days of the date of these Orders, the Cross-Respondent pay to the Cross-Claimant damages in the sum of $366,405.20 plus interest.

4.    The Applicant’s interlocutory application filed on 15 April 2025 be dismissed.

5.    The Applicant pay the Respondent’s costs thrown away by its abandonment of the restraint of trade claim and the reasonable notice claim.

6.    There otherwise 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

SARAH C DERRINGTON J:

INTRODUCTION

1    HealthX Group Pty Ltd is a corporation which operates a labour hire business that supplies nurses and aged care workers to health and aged care facilities throughout Australia. It was originally founded in 2008 as a division of AWX Pty Ltd but commenced operating in its own corporate capacity in 2012 and became an independent business in 2016. AWX was started and owned by Mr Tom Strachan, who died on 29 August 2022 in a plane crash west of Brisbane.

2    Ms Carollyne Palling was employed within the AWX group of companies from about June 2012 until about November 2015, latterly in a business called Regional Workforce Management, which was focussed on the placement of meat processing workers within the business known as “Teys”. Uncomfortable working in the meat processing industry as a vegetarian, Ms Palling purported to resign in mid-2015 but was convinced by Mr Strachan to stay within the group to become the General Manager of the “HealthX” business. Ms Palling commenced in that role on 1 February 2016 pursuant to a written contract of employment signed on 23 November 2015 with AWX as her employer (First Employment Contract). Upon the cessation of “HealthX’s” affiliation with AWX in or about 2016, Ms Palling signed a written contract of employment on or about 1 July 2016 with HealthX as her employer (Second Employment Contract). Ms Palling remained in the role of General Manager of HealthX until 26 April 2023 when she resigned.

3    Ms Palling’s resignation was consequent upon a dispute that had arisen between her and HealthX as to whether or not she was entitled to be paid a profit share (or Bonus as it was referred to by HealthX) for the period from 1 July 2022 to 26 April 2023 pursuant to Item 10 of the Schedule to the Second Employment Contract.

4    HealthX commenced this proceeding against Ms Palling in January 2024 seeking, inter alia, a declaration pursuant to s 543 of the Fair Work Act 2009 (Cth) (FWA) and/or s 21 of the Federal Court of Australia Act 1976 (Cth) (FCA Act) that HealthX is not liable to pay the Bonus as demanded by Ms Palling or at all. At the commencement of trial, HealthX sought leave to discontinue its claims for a declaration that Ms Palling contravened the resignation terms of the Second Employment Contract and damages and interest for breach of those terms. By the time of trial, it had also abandoned its claim for an injunction prohibiting Ms Palling from being employed by her current employer, Acacium Group, the outer limit of any contractual restraint having expired in April 2025.

5    Ms Palling has cross-claimed against HealthX and seeks damages in the sum of $366,405.20 plus interest for breach of Item 10 of the Schedule to the Second Employment Contract.

6    Two main issues remained for resolution at trial. First, what is the proper construction of the Second Employment Contract and what relief, if any, flows from that construction? Secondly, what orders should be made as to costs, including in relation to various interlocutory matters?

Construction of the Second Employment Contract

7    There is no dispute between the parties that the Second Employment Contract was entered into between them, pursuant to which Ms Palling was to fulfil the role of “General Manager – HealthX” commencing on 4 July 2016.

8    As I have already noted, Ms Palling had in fact been employed as the General Manager of HealthX since 1 February 2016 pursuant to the First Employment Contract with AWX. She deposed to having been asked by “someone in [HealthX’s] administrative team” to sign a new employment contract after HealthX became an independent business and was no longer affiliated with the AWX group. It was for this reason that Item 8 of the Schedule to the Second Employment Contract recognised Ms Palling’s “original commencement date” for “continuity purposes”.

The parties’ submissions

9    Item 10 of the Schedule to the Second Employment Contract provides as follows:

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

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

1.    Top line revenue growth

2.    Increased profitability

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

4.    Client NPS improvement or NPS remains at an agreed level if already at maximums.

10    HealthX submits that a plain reading of Item 10 makes clear that it affords HealthX “a discretion whether or not to pay a profit share/bonus” to Ms Palling and that her right to have the discretion exercised “was only enlivened upon the ‘gates’ being met”. It submits that one of the gates that was required to be met was the “budgetary EBIT figure”. HealthX points to the following features of the clause in support of that construction.

11    First, it says that Ms Palling’s ability to “receive a significant share” was not expressed as an absolute right but rather as an “achievable opportunity”. It submits that the use of the word “opportunity” connotes that any actual payment is discretionary.

12    Secondly, it says that the use of the word “access” also conveys that any actual payment is discretionary because one needs to go through (access) a “passage, channel or doorway”, in this case “the gates”, in order to “access” any profit share.

13    Thirdly, HealthX argues that Item 10 does not express that meeting the gates confers an absolute right to a profit share. Rather, it submits, that meeting the gates is a circumstance which “allows the profit share to flow”, thereby conveying that the actual payment is discretionary.

14    Ms Palling submits that the clause is unambiguous in affording her an automatic entitlement to be paid a profit share once the “gates” were opened. She points to the following features of the clause in support of her construction.

15    First, Ms Palling submits that the use of the term “profit share”, rather than “bonus”, suggests an entitlement in the nature of a shareholder or business owner, rather than a discretionary payment on top of remuneration.

16    Secondly, the use of the word “profit” and the use of “EBIT” by which to calculate a business unit’s “Gross Contribution” suggests that the payment is defined by the performance of the business and is not a matter of mere discretion on the part of her employer.

17    Thirdly, the clause is definitive in its language that she “will participate in a profit share arrangement” and “will access a profit share”.

18    Fourthly, Ms Palling submits that the use of the word “opportunity” with respect to receiving a profit share is referable to the “opportunity” to open the gates, at which point the profit share will be allowed to flow.

19    Fifthly, the phrasing in relation to the gates does not include any words suggesting an annual or regular requirement. Ms Palling submits that the phrasing means once the gates are opened, the profit share flows from then on. She submits that this construction is supported by the singular language of each gate’s requirement. She points particularly to gate 2, “increased profitability”, rather than “increasing” profitability, and to the solitary “staff survey” referred to for gate 3.

20    Finally, Ms Palling points to the absence of any reference to a budget or any other restriction on the entitlement and the absence of any reference to who within the business would make a determination about the entitlement if it truly were discretionary. Ms Palling submits that the absence of detail suggests an automatic entitlement once the gates had been met.

Principles of construction

21    The principles relevant to the construction of commercial contracts, of which an employment contract is a species, are well settled. In Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; 256 CLR 104, French CJ, Nettle and Gordon JJ said:

46    The rights and liabilities of parties under a provision of a contract are determined objectively [Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640 at 656 [35]], by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose [Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; 149 CLR 337 at 350, 352].

47    In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract [Electricity Generation at [35]].

48    Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning [Codelfa at 352].

49    However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating” [Electricity Generation at [35]]. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.

50    Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations [Codelfa at 352].

51    Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption “that the parties ... intended to produce a commercial result”. Put another way, a commercial contract should be construed so as to avoid it “making commercial nonsense or working commercial inconvenience” [Electricity Generation at [35]].

22    To similar effect, see Simic v New South Wales Land and Housing Corporation [2016] HCA 47; 260 CLR 85 at [78] per Gageler, Nettle and Gordon JJ; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; 261 CLR 544 at [16] per Kiefel, Bell and Gordon JJ; Victoria v Tatts Group Ltd [2016] HCA 5; 90 ALJR 392 at [51].

The Second Employment Contract

23    The context in which the Second Employment Contract was executed, and its purpose, must be considered.

24    HealthX required Ms Palling to sign this contract only seven months after she had already entered into a contract of employment in the same role, albeit with a different corporate entity controlled by Mr Strachan. Ms Palling gave uncontradicted evidence that she had been duchessed over a period of months after tendering her initial resignation in 2015 and that the profit sharing arrangement was offered to her as an incentive to remain with HealthX. An email from Mr Simon Small, Chief Operating Officer, to Mr Strachan dated 15 June 2017 asking the latter to “set up meeting with CP to progress what’s in it for [her] when we pull off Thunderbirds [the project to grow and sell HealthX]” is consistent with her evidence.

25    The Second Employment Contract refers to the Schedule in the recital, which states:

This contract of employment made on the date shown in Item 1 of the Schedule shall apply to HealthX Group Pty Ltd (herein after referred to as “the Employer”), and the Employee, Carollyne Palling. The purpose of the contract is to provide comprehensively the wages and conditions of employment for work performed by the employee as described in Item 4 of the Schedule.

26    Item 4 reads:

Employee’s Job Title/Position: General Manager – HealthX

27    Relevantly, clause 5 of the Second Employment Contract dealt with remuneration in the following terms:

5.1    The Employee shall be paid the salary in fortnightly instalments to their nominated bank account in the amount directed in Item 7 of the Schedule.

5.2    …

5.3    The Employer will also make superannuation contributions on the Employee’s behalf in accordance with the Superannuation Guarantee (Administration ) Act 1992 or any successor legislation as amended from time to time.

5.4    …

28    Clause 8 made provision for annual leave, clause 9 for personal leave, and clause 10 for compassionate leave. Clause 11 imposed obligations relating to confidential information, clause 12 in relation to employer property and clause 13 dealt with the employer’s intellectual property rights. Clause 14 was a restraint of trade clause. Clause 15 imposed certain obligations on the employee with respect to media and other publications.

29    Clause 20 provided:

20.1     The parties hereby specifically agree that it is intended that this Contract of Employment (also referred to as the “agreement”) shall create the relationship of Employer and Employee between them and they hereby state that it is not their intention to create any other relationship and, in particular, the relationship of princip[al] and contractor or the relationship of partners.

30    Clause 28 was the “entire agreement” clause. It provided:

28.1    This agreement:

a)     constitutes the entire agreement of the parties as to it[s] subject matter and supersedes and cancels all prior agreements, discussions, arrangements, understandings and negotiations in connection with it and there are no promises, term[s], conditions or obligations oral or written, express or implied other than those contained in this document, except to the extent that any terms, conditions or obligation[s] implied by law is at law and not able to be excluded; and

b)    may only be altered in writing signed by all parties.

31    The Second Employment Contract refers to Items 1, 2 (albeit in error) and 4-8 of the Schedule. There is no reference in the main clauses to Items 3, 9, 10 or 11.

Item 10

32    The first observation to be made about Item 10 is that it speaks expressly of a profit share, not a bonus.

33    The Macquarie Dictionary defines “bonus” as “1. something given or paid over and above what is due. 2. a sum of money paid to a shareholder, partner, employee, or agent of a company, a returned soldier, etc., over and above his regular dividend or pay… 8. any unsolicited or unexpected gift.” The Australian Concise Oxford Dictionary defines it as “an unsought or unexpected extra benefit”.

34    The Macquarie Dictionary defines “profit sharing” as “the sharing of profits, as between employer and employee, esp. in such a way that the employee receives, in addition to his wages, a share in the profits of the business.” The Australian Concise Oxford Dictionary defines it as “the sharing of profits esp. between employer and employees”.

35    The difference between a bonus and a profit share arrangement is that there can be no expectation that a bonus will be paid in any given year. It connotes a discretionary payment “over and above” an employee’s contractual entitlements. By contrast, if an arrangement has been reached between an employer and an employee to share in the profits of the business, and that arrangement finds form in the contract of employment itself, there will be an expectation on the part of the employee that, should the business make a profit, the employee will be entitled contractually to the specified share.

36    The Second Employment Contract is clear that it provides “comprehensively the wages and conditions” of Ms Palling’s employment with HealthX. Clause 28 reiterates that, subject to any matter of law, all of the relevant terms and conditions are contained in the agreement.

37    Item 7 is clear as to the amount Ms Palling is to be paid by way of salary. The effect of Item 10 is to record that there has been a profit sharing agreement reached between HealthX and Ms Palling. Item 10 records that:

•    as General Manager of HealthX, Ms Palling will participate in a profit share arrangement

•    as General Manager of HealthX, Ms Palling will “access” a profit share of 5% of the gross contribution (EBIT for the business unit before shared services costs)

•    that “access” is dependent upon four “gates” being met.

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

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

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

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

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

43    HealthX’s contention that Item 10 did no more than confer on it a discretion to pay the “bonus”, which was enlivened upon the gates being met, one of which was that the “budgetary EBIT figure” was reached, cannot be reconciled with the plain meaning of Item 10. Given the wording of Item 10 is unambiguous, it is impermissible to have recourse to surrounding circumstances (Codelfa at 352). Thus, contrary to its submission, HealthX’s alleged “practice” of approving the “gates” for top line revenue growth and increased profitability by comparing budgeted EBITDA (earnings before interest, taxes, depreciation and amortisation) with actual EBITDA before approving Ms Palling’s “bonus” 5% is irrelevant to the construction of Item 10.

44    In any event, the alleged practice cannot be reconciled with the construction for which HealthX contends.

45    First, although submitting that its discretion was enlivened once the “budgetary EBIT” was reached, the basis on which it had been making payments to Ms Palling was the difference between budgeted EBITDA [Earnings Before Interest Tax Depreciation and Amortisation] and actual EBITDA. Nowhere in Item 10 is there a reference to “budgeted EBITDA”.

46    Secondly, the limited documents in evidence which refer to the quarterly payments to Ms Palling demonstrate that revenue growth was the only “gate” with which HealthX was concerned. Those documents comprised emails from Manager, Ms Rhiannon Bennett to Mr Strachan dated 30 October 2019, 31 January 2020, 16 April 2021, 16 July 2021, 31 January 2022, 5 May 2022, and 19 July 2022. By 22 October 2020, it had become clear from an email exchange between Mr Strachan, Ms Palling and Ms Rubleen Sandhu, HealthX’s internal accountant, that at least the “NPS” component had become irrelevant. HealthX could not explain why, on its preferred construction of Item 10, all but one gate had become irrelevant to the profit share arrangement.

Were the gates met?

47    The evidence as to whether (and if so when) any of the four gates were met was hardly satisfactory. HealthX has not produced any admissible evidence to establish that the gates had not been met. Any documents to assist with findings as to these matters were wholly within the power and control of HealthX. The only person from HealthX to give evidence relevant to this issue was its Non-Executive Chairman and Director, Mr John Quinlan. HealthX relied on four affidavits of Mr Quinlan dated 5 August 2024 (First Quinlan Affidavit), 13 September 2024 (Second Quinlan Affidavit), 15 November 2024 (Third Quinlan Affidavit) and 24 January 2025 (Fourth Quinlan Affidavit) respectively.

48    Mr Quinlan gave evidence that he was not involved with the HealthX business until March 2022. In cross-examination, Mr Quinlan accepted that a number of people who either had been or were still involved in the HealthX business itself or the wider corporate group may have been able to give evidence relevant to the matters in issue in this proceeding, including as to the existence of documents. Such people include: Ms Claire MacGinley, who had been the personal assistant to Mr Strachan at all relevant times; Ms Sandhu, who had been the Director of Corporate Services of HealthX at the relevant time until leaving HealthX in January 2025; Mr Dominic Quilligan, who has been a Director of HealthX since August 2022; Mr Small, to whom Ms Palling reported for a large portion of her time at HealthX and who remained in the employ of HealthX until February of 2023; Ms Bennett, the General Manger of HealthX in 2022, and Mr Andrew McAuliffe, who held the title “HealthX Business Projects” at the relevant time and remains employed within the wider corporate group. In the circumstances, I draw the inference that any evidence these people may have been able to give would not have assisted HealthX: Jones v Dunkel [1959] HCA 8; 101 CLR 298.

49    As to the first gate, no evidence was given as to what was meant by “top line revenue growth”.

50    Exhibit JQ-15 to the Fourth Quinlan Affidavit is a series of tables which purports to show budgeted EBITDA as compared with actual EBITDA from Quarter 1 of the 2016-2017 financial year until Quarter 4 of the 2022-2023 financial year. The tables disclose the dates on which Ms Palling was paid an amount apparently in accordance with Item 10. The original records from which that document was apparently prepared were not produced, nor was Mr Quinlan able to say who within HealthX had prepared the document. No document was produced that showed EBIT only for HealthX over the relevant period.

51    An email dated 29 April 2019 from Mr Strachan to Ms Palling, notably with the subject line “Profit share - let’s get it happening”, said:

Now that the business is underpinned by monthly profit … it is paramount that you instigate the profit share structure …

I know we discussed waiting until July to implement but would be comfortable if you commenced from June.

52    Exhibit JQ-15, being the best financial evidence available, shows that as at the date of that email, there had for the first time been two consecutive quarters of “top line revenue growth”, using actual EBITDA as a proxy for that term. I infer from Mr Strachan’s email that such was sufficient to meet the requirement of the first gate.

53    Similarly, and in the absence of any tax returns or other financial records, I infer that those two consecutive quarters showed “increased profitability” so as to meet the requirement of the second gate, given that actual EBITDA increased from $42,401.00 to $125,642.00.

54    As to the third gate, Exhibit JQ-14 to the Fourth Quinlan Affidavit is a table which purports to record the results of HealthX staff surveys conducted between Q3 of FY2013 and October 2024. Mr Quinlan could not say who had prepared the table, nor could he verify that there had in fact been no survey conducted in the periods for which the table was blank. The surveys themselves were not in evidence. Mr Quinlan gave evidence that they were nevertheless available. No evidence was given as to what scale was used to determine whether or not a survey showed “committed and engaged staff”, nor was there any evidence of the participation rate with respect to each survey.

55    Again, this table being the only evidence of the results of staff surveys, I find that at least between Q2 of FY2016 and Q3 of FY2018, what surveys had been undertaken showed greater than 50% of those who participated as being “promoters”, and in all but two quarters within that period an overall score of 55.9 or above, thereby showing committed and engaged staff. The table does not record the results of any surveys between Q4 of FY2018 and 29 April 2019. I therefore infer that the requirements of the third gate had been met prior to Mr Strachan’s email of that date.

56    The fourth gate required “Client NPS improvement or NPS remains at an agreed level if already at maximums”. There was no evidence of any agreed level of NPS. Exhibit JQ-13 to the Fourth Quinlan Affidavit is a table which purports to record the results of HealthX Client NPS surveys conducted between Q3 of FY2013 and Q4 of FY2023. Again, Mr Quinlan could not say who had prepared the table, nor could he verify whether or not there had been any surveys conducted in the periods for which the table was blank. Similarly to the situation with the staff surveys, the client surveys themselves were not in evidence. Mr Quinlan gave evidence that they were nevertheless available. There was no evidence of the participation rate with respect to each survey.

57    Again, this table being the only evidence of the results of client surveys, I find that the surveys showed an increasing score of “promoters” from what was recorded as at the date of the Second Employment Contract (1 July 2016), being 45% at the end of Q4 of FY2016, to 55% at the end of Q3 of FY2018. The table does not record the results of any surveys between Q4 of FY2018 and 29 April 2019. I therefore infer that the requirements of the fourth gate had been met prior to Mr Strachan’s email of that date.

58    Consequently, on the best evidence available, I find that Ms Palling had met the gates which were a pre-condition to triggering the profit share arrangement to which the parties had agreed in the Second Employment Contract. Ms Palling’s entitlement to 5% of EBITDA was not a matter within any discretion on the part of HealthX.

Calculation of the profit share entitlement

59    I find that the actual EBITDA for HealthX in the period relevant to Ms Palling’s cross-claim, as set out in Exhibit JQ-15 (with the exception of the Q4 figure, which is confined to April 2023 only and sourced from Exhibit JQ-3 to the Third Quinlan Affidavit), was:

Q1 2022-23    $1,684,761.00

Q2 2022-23    $2,321,731.00

Q3 2022-23    $2,231,729.00

Q4 2022-23    $1,089,883.00

60    Five per cent of each of those amounts totals $366,405.20, calculated as follows:

5% x $1,684,761.00 = $84,238.05

5% x $2,321,731.00 = $116,086.55

5% x $2,231,729.00 = $111,586.45‬

5% x $1,089,883.00 = $54,494.15

TOTAL          $366,405.20    

61    Ms Palling is entitled to be paid that sum plus interest. It follows that the declaration sought by HealthX must be refused and Ms Palling’s cross-claim must succeed.

Waiver and estoppel            

62    Ms Palling submits that if, contrary to my finding, the terms of the Second Employment Contract are ambiguous, HealthX has nevertheless waived any right to refuse to pay a 5% profit share, or to insist on any pre-conditions prior to each payment of such amount. Alternatively, she submits that HealthX should be estopped from adopting the position it has adopted in relation to any such entitlement as from the end of Q1 of FY2023 until the date on which her resignation took effect.

63    Given my findings as to the terms of the Second Employment Contract and the consequent entitlement for Ms Palling to be paid the profit share in the amount the subject of her cross-claim, it is unnecessary to deal with any issue of waiver or estoppel.

Costs

64    The remaining issue is that relating to costs. It is an issue that has become significant because of the changing nature of the case HealthX has prosecuted. It is to be recalled that the originating application, filed on 22 January 2024, sought inter alia a declaration that HealthX was not liable to pay the “Bonus” to Ms Palling, a declaration that Ms Palling had breached the Second Employment Contract by failing to give proper notice, damages consequential upon that alleged breach, and an injunction prohibiting Ms Palling from being employed by Acacium Group (her current employer) until 25 April 2025.

65    In addition to any costs order that flows from the decision in this proceeding, there are four costs issues that fall to be determined concurrently.

66    First, by application filed on 15 April 2025, HealthX seeks to set aside paragraph 2 of the orders made on 2 April 2025, by which it was ordered to pay the costs of its interlocutory application filed on 19 February 2025 and the costs of a case management hearing conducted on 12 November 2024, which were reserved.

67    Secondly, if those orders are set aside, Ms Palling applies for her costs of the interlocutory application determined on 2 April 2025.

68    Thirdly, on 3 June 2025, HealthX was granted leave to abandon the restraint of trade case because of the expiration of the longest possible restraint period which had been alleged. Costs were reserved.

69    Fourthly, on 3 September 2025, six days prior to the commencement of the trial, HealthX told Ms Palling that it would seek leave to discontinue its claim relating to her alleged failure to give reasonable notice under the terms of the Second Employment Contract. Ms Palling did not oppose leave but seeks her costs consequential upon leave being granted.

Relevant principles

70    Section 570 of the FWA applies to the whole of the proceeding. It 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.

Note:    The Commonwealth might be ordered to pay costs under section 569. A State or Territory might be ordered to pay costs under section 569A.

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

(a)     the court is satisfied that the party instituted the proceedings vexatiously or without reasonable cause; or

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

(c)          the court is satisfied of both of the following:

(i)        the party unreasonably refused to participate in a matter before the FWC;

(ii)        the matter arose from the same facts as the proceedings.

    (Emphasis added.)

71    Ms Palling relies only on s 570(2)(b) in pursuing her claims for costs.

72    As I observed in Hebashy v SGS Australia Pty Ltd [2024] FCA 28, the bar to engage s 570 of the FWA is set relatively high. That is no doubt because the effect of the section is to curtail, in proceedings relating to matters arising under the FWA, the discretion which the Court would otherwise have with respect to costs: Altintas v O’Dea Lawyers (No 2) [2018] FCAFC 187 at [6] per White, Perry and Charlesworth JJ. Thus, the discretion to award costs under s 570 of the FWA must be exercised cautiously. As Mortimer J explained in Ryan v Primesafe [2015] FCA 8; 323 ALR 107:

64    … 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 …

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.

(Emphasis added.)

73    I am conscious of the significance of s 570 as an access to justice provision. I also observe that the present case is one between a corporate employer and a former senior executive of that employer who is currently employed in a senior management role with a competitor entity. That circumstance does not detract from the constraint on the Court’s power imposed by the terms of s 570 of the FWA. It remains the case that the Court only has the power to make the costs orders sought by Ms Palling if two conditions are established. First, the Court must be satisfied that HealthX, by its actions or omissions, behaved unreasonably. That question is to be determined objectively. Secondly, the Court must be satisfied that those unreasonable acts or omissions caused Ms Palling to incur costs: Fair Work Ombudsman v Grouped Property Services Pty Ltd (No 3) [2017] FCA 810 at [25]; Australian and International Pilots Association v Qantas Airways Ltd (No 3) [2007] FCA 879; 162 FCR 392 at [32]. Only once those two conditions are established is the Court’s discretion to award costs in Ms Palling’s favour enlivened: Construction, Forestry, Mining and Energy Union v Clarke [2008] FCAFC 143; 170 FCR 574 at [28].

74    As Katzmann J emphasised in Grouped Property Services at [26], the touchstone for the exercise of the power is unreasonableness, not negligence or inefficiency. The relevance of ss 37M and 37N of the FCA Act falls to be considered once the power has been enlivened.

Chronology

75    The following events in the chronology are relevant.

1 February 2023     Ms Palling tenders her resignation

2 February 2023    HealthX accepts resignation; Ms Palling immediately placed on “gardening leave” because Mr Quinlan suspected she had accepted a role with Acacium Group

26 April 2023        Ms Palling’s employment with HealthX ceases

1 May 2023        Ms Palling’s employment with Acacium Group commences

20 June 2023    HealthX receives confirmation from the CEO of Acacium Group that Ms Palling had commenced with it on 1 May 2023

27 October 2023    Letter from HealthX’s solicitors to Ms Palling’s solicitors raises concerns about confidential information, the possibility of pre-litigation discovery, and outlines causes of action it would have against her, including injunctive relief

7 November 2023    Reply from Ms Palling’s solicitors to HealthX’s solicitors refutes assertion that any confidential information she may have was relevant to her role with Acacium Group

22 January 2024    This proceeding commences

1 March 2024        Defence and cross-claim filed

17 May 2024    Ms Palling’s solicitors seek further particulars from HealthX and request a response within 14 days

17 June 2024        HealthX’s solicitors respond to the request for particulars

22 July 2024    Orders made by consent timetabling delivery of affidavits, outlines of arguments, and authorities for a hearing to be listed not before 16 September 2024

2 August 2024        HealthX’s evidence, outline, and authorities due to be filed

1 August 2024    HealthX seeks an undertaking as to confidentiality from Ms Palling’s solicitors

2 August 2024    Ms Palling’s solicitors indicate a response will be provided the following week

5 August 2024    HealthX serves on Ms Palling an affidavit referring to a “confidential exhibit” but does not provide it

Aug-Sept 2024    Exchange of correspondence between the parties about asserted confidentiality

12 September 2024    HealthX responds to letter of 26 August 2024, saying it would proceed without reliance on the “confidential exhibit”

13 September 2024    HealthX files a different version of the 5 August affidavit (omitting reference to a confidential exhibit) and submissions

2 October 2024    Ms Palling provides draft order (in terms substantially agreed to on 11 November 2024), seeks consent to the proposed orders and states it would be unfair for HealthX to tender the “confidential exhibit” at or shortly before trial without her having seen it

11 October 2024    Ms Palling’s solicitors follow up on previous letter having received no response

23 October 2024    Ms Palling’s solicitors again ask whether HealthX will seek to rely on the “confidential exhibit”

11 November 2024    HealthX files a further version of the 5 August affidavit containing the “confidential exhibit” without further explanation. At 3.00pm HealthX sends draft orders it had been relying on previously. At 3.40pm HealthX sends revised draft orders in essentially the same terms as those proposed by Ms Palling on 2 October 2024 (except as to costs)

12 November 2024    Case Management Hearing: time for HealthX to file its materials extended to 15 November 2024 and for Ms Palling to 13 December 2024; time for HealthX’s reply materials extended to 24 January 2025; matter listed for trial in March 2025

24 January 2025    HealthX’s reply materials due; HealthX files two affidavits

19 February 2025    HealthX files interlocutory application to amend originating application and statement of claim to add a new claim for relief and new foundation in law for claim for relief, including a permanent restraint on Ms Palling’s employment with Acacium Group and on using or disclosing confidential information

27 February 2025    Orders made by consent timetabling interlocutory application to hearing on 13 March 2025; March trial dates vacated

13 March 2025    Hearing of interlocutory application

2 April 2025    Interlocutory application dismissed; HealthX ordered to pay Ms Palling’s costs of the application and costs of case management hearing on 12 November 2024 previously reserved: HealthX Group Pty Ltd v Palling [2025] FCA 298 (HealthX (No1))

25 April 2025        Latest date to which contractual restraint clause could operate

30 May 2025    HealthX files Amended Statement of Claim removing restraint of trade claim

3 June 2025    Orders made by consent for: leave nunc pro tunc for HealthX to file its Amended Statement of Claim; timetabling in respect of consequential pleadings; Ms Palling’s costs thrown away as a consequence reserved to trial; matter listed for trial on 9 and 10 September 2025

26 August 2025    Ms Palling requests matter be brought on for mention because of dispute between the parties as to whether matter has been proceeding on an agreed basis that the parties’ cases need not be confined to formal pleadings but may be set out in pleadings, affidavit evidence and submissions

29 August 2025    Matter mentioned and case management hearing set for 3 September 2025

3 September 2025    Case Management Hearing: Order made that Ms Palling provide HealthX with a document describing the species of waiver and estoppel on which she relies and articulating the elements of those causes of action or defences by 4pm on 4 September 2025

HealthX emails Ms Palling indicating the “reasonable notice” case will be discontinued

9 September 2025    Trial commences

2 April 2025 orders

76    On 2 April 2025, I ordered that HealthX pay Ms Palling’s costs of the interlocutory application filed on 19 February 2025, which had been dismissed, and the reserved costs of the case management hearing held on 12 November 2024.

77    By an interlocutory application filed on 15 April 2025, HealthX seeks an order pursuant to r 39.04, or alternatively r 39.05 of the Federal Court Rules 2011 (Cth), that the costs order of 2 April 2025 be vacated. HealthX submits that it was not given the opportunity to be heard as to the jurisdiction of the Court to order costs where s 570 of the FWA applies.

78    Ms Palling contends that the application should be dismissed and that HealthX should be ordered to pay her costs of the November case management hearing. Alternatively, if the order is vacated, she seeks her costs nonetheless.

79    I do not accept that HealthX did not have the opportunity to be heard as to the jurisdiction of the Court to order costs where s 570 of the FWA applies. Ms Palling’s written outline of submissions dated 12 March 2025 in response to HealthX’s interlocutory application could not have been clearer that she sought her costs, both of the interlocutory application itself in the event that she was successful and of the case management hearing. Had HealthX wished to be heard on the issue, it had every opportunity to say so.

80    Both parties have made extensive submissions on the effect of s 570 and its application in the present circumstances. HealthX submits that it was entitled to make forensic decisions as to the approach it took to its confidential documents and so it cannot be said that its application to amend the originating application to seek permanent injunctions was an unreasonable act that caused Ms Palling to incur the costs. I do not agree.

81    At the time HealthX filed the application to amend so as to contend that the employment relationship had at its core a duty of confidence such as to justify a permanent injunction restraining Ms Palling from ever working with her current employer worldwide, and from using or disclosing confidential information, particulars of which it was unable to identify (HealthX (No 1) at [29]), the proceeding had already been on foot for more than 12 months. Despite the alleged sensitivity of the information, no interim or interlocutory injunction had been sought. By letter dated 7 November 2023, Ms Palling had provided a detailed refutation of the allegations of any breach of her obligations relating to confidential information and intellectual property, drawing particular attention to the fact that she had ceased performing all duties for HealthX on 2 February 2023 such that any information she may have would already be stale. Further, HealthX had conceded in its statement of claim that Ms Palling’s new employer had in any event acquired significant confidential information during discussions as to a possible acquisition of HealthX’s business: HealthX (No 1) at [30].

82    As I explained in my reasons for dismissing the application to amend (HealthX (No 1) at [35]), HealthX was unable to provide an adequate explanation which, even on a prima facie basis, would raise the prospect that it would be entitled to the extraordinary relief it then sought. For that reason, coupled with the extraordinary delay, it was unreasonable for HealthX to have brought the application to amend. The bringing of the application caused Ms Palling to incur costs in resisting it. I am satisfied that the power under s 570(2)(b) of the FWA was enlivened and that it was appropriate to exercise my discretion to order that HealthX pay Ms Palling’s costs of the interlocutory application.

83    In relation to the reserved costs of the case management hearing held on 12 November 2024, I am similarly satisfied that the power under s 570(2)(b) was enlivened and that it was appropriate to exercise my discretion to order that HealthX pay Ms Palling the reserved costs of that hearing. The case management hearing was triggered by HealthX’s actions following its failure to comply with Orders requiring it to file and serve its evidence by 2 August 2024.

84    The unreasonableness arises from the circumstance that HealthX was the applicant in the matter and was allegedly concerned about breach of confidentiality or use of confidential information by Ms Palling. Despite this concern, the first occasion on which HealthX sought any type of undertaking about confidentiality from Ms Palling’s solicitors was on 1 August 2024, the day prior to the date on which it had been ordered to file its material. HealthX had allowed a year and a half to elapse following Ms Palling’s resignation before expressing any concern about the confidentiality of its material. It is to be assumed that when drafting its pleading HealthX must have turned its mind to these issues. In the ensuing months, the parties corresponded back and forth about proposed confidentiality orders.

85    Ultimately, on 2 October 2024, Ms Palling proposed draft orders following correspondence from HealthX on 24 September 2024 in which it had asserted that it “does not [pur]port to limit its response to any matter which is required to defend the counter claim” and that “it is impossible to speculate what documentary evidence HealthX may seek to tender at trial”. The draft orders proposed, relevantly, extending the time for HealthX’s material to be filed and served until 16 September 2024 (albeit presumably in error), providing for service of an electronic copy of any document it intended to rely on by 18 October 2024, extending the time for Ms Palling’s material to be filed and served until 15 November 2024, providing for service of an electronic copy of any document she intended to rely on by 15 November 2024, extending the time for HealthX’s material in reply to be filed and served until 22 November 2024, and providing for service of an electronic copy of any document it intended to rely on in reply by 29 November 2024.

86    Ms Palling followed up a response to that letter on 11 October 2024. HealthX responded on 18 October 2024, rather facetiously saying that “Your voluminous correspondence of 2 October 2024 did not specify a time frame for a response”. It also said that “HealthX may not seek to rely upon any documents at trial other [than] the affidavit”. HealthX expressed its concern at Ms Palling’s ongoing delay in filing and serving her material and indicated it would be left with no choice but to approach the Court for a case management hearing and gave the required 2 days’ notice. HealthX also objected to the proposed orders requiring each party to provide an electronic copy of any document it proposed to rely on at trial, describing that proposal as “a substantial variation to the original orders”.

87    Ms Palling responded on 23 October 2024 seeking clarification that HealthX wished to reserve its right to rely on any document at trial and explaining the basis for the proposed draft orders as to the provision of documents, namely that she be fairly appraised of the case against her, “particularly as to the alleged ‘confidential information’ your client has referred to but not produced”. Ms Palling otherwise agreed that a further case management conference would be appropriate if the parties could not agree on orders for the future conduct of the matter.

88    HealthX had not responded to that correspondence by the date of the case management hearing. Nevertheless, on the morning of 11 November 2024, the day before the hearing, Ms Palling was served with the full affidavit, including the exhibit material previously termed “confidential”, without explanation or comment. On that same day at 3pm, HealthX proposed draft orders in essentially the same terms as the orders I made on 22 July 2024. At about 3.40pm on that day, it consented to the orders that had been proposed by Ms Palling on 2 October 2024, again without explanation.

89    HealthX has not provided any reasonable explanation for failing to file its material on 2 August 2024 when it ultimately did so without demur on 15 November 2024.

90    For these reasons, I decline to vacate order 2 of the orders made on 2 April 2025.

Abandonment of the restraint of trade case

91    HealthX abandoned its restraint of trade claim against Ms Palling on 30 May 2025. As Ms Palling submitted, the operation of the restraint clause was, at best, for a period of 2 years and possibly as little as 3 or 6 months after the date her employment ceased. Nevertheless, HealthX’s evidence was that it suspected that Ms Palling had accepted a position with the Acacium Group as early as the date on which Ms Palling tendered her resignation, being 1 February 2023. By 20 June 2023, it had actual knowledge that Ms Palling was employed by the Acacium Group from 1 May 2023.

92    Despite this knowledge, HealthX made no application for urgent relief to restrain Ms Palling from continuing to be employed by the Acacium Group. It did not even commence the proceeding until a further seven months had elapsed. It did not seek an urgent hearing after the proceeding had been commenced. It did not ever raise the restraint claim as a reason for an expedited trial. To the contrary, HealthX was evidently relaxed about when the matter came on for hearing. Potential trial dates in late 2024 were abandoned after HealthX failed to comply with timetabling orders requiring it to file its material for trial by 2 August 2024. As has already been described above, consent orders were eventually made in November 2024 setting the matter down for hearing in March 2025. By this time, only one month remained of the longest possible restraint period on HealthX’s own case.

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

94    HealthX must pay Ms Palling’s costs thrown away by its abandonment of the restraint claim.

Abandonment of the reasonable notice case

95    Similarly, there was simply no reasonable basis for HealthX’s assertion that Ms Palling was obliged to give 12 months’ notice of resignation in circumstances where it was an express term of the Second Employment Contract that Ms Palling was to give no less than 12 weeks’ notice of resignation, with which term she complied.

96    HealthX proffered no evidence that it ever sought to have Ms Palling continue in her role after she resigned and indeed, Mr Quinlan placed Ms Palling on immediate gardening leave on receiving her notice of resignation. Such conduct was fatal to HealthX’s “reasonable notice” claim from the beginning. It should never have been commenced.

97    HealthX did not seek leave to discontinue this claim until the morning of trial. That was unreasonable. Its conduct caused Ms Palling to incur costs in resisting this aspect of the case.

98    HealthX must pay Ms Palling’s costs thrown away by its eventual abandonment of the reasonable notice case.

Disposition

99    For these reasons, HealthX’s claim for a declaration that it is not liable to pay the “Bonus” as demanded by Ms Palling or at all must be dismissed.

100    Ms Palling’s cross-claim for damages for breach of Item 10 of the Schedule to the Second Employment Contract must succeed. She is entitled to damages in the sum of $366,405.20 plus interest.

101    HealthX’s interlocutory application filed on 15 April 2025, seeking that order 2 of the orders made on 2 April 2025 be set aside, must be dismissed.

102    HealthX must pay Ms Palling’s costs thrown away by its abandonment of the restraint of trade claim and the reasonable notice claim.

103    There should otherwise be no order as to costs. It cannot be said that HealthX’s conduct in prosecuting its claim for the declaration it sought approached the threshold required to satisfy s 570(2)(b) of the FWA.

Associate:

Dated:    24 October 2025