Kennett and Anor v Mayrana Pty Ltd and Ors (No 13) [2010] NSWIRComm 29 (9 March 2010)

New South Wales Industrial Relations Commission

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Kennett and Anor v Mayrana Pty Ltd and Ors (No 13) [2010] NSWIRComm 29 (9 March 2010)

Last Updated: 9 April 2010

NEW SOUTH WALES INDUSTRIAL RELATIONS COMMISSION

CITATION :
Kennett and Anor v Mayrana Pty Ltd and Ors (No 13) [2010] NSWIRComm 29
This decision has been amended. Please see the end of the judgment for a list of the amendments.


FILE NUMBER(S):
IRC 2189 of 2008; 1050; 1200 and 1286

HEARING DATE(S):
8 March 2010


EX TEMPORE DATE:
9 March 2010

PARTIES:
Keith Franklin Kennett (1st appellant in IRC2008/2189 and 2009/1050; respondent in IRC2009/1200; 1st respondent in IRC2009/1286)
K F Kennett Nominees Pty Ltd (2nd appellant in IRC2008/2189 and 2009/1050; 2nd respondent in IRC2009/1286)
Mayrana Pty Ltd (1st respondent in IRC2008/2189 and 2009/1050)
Garratts Limited (2nd respondent in IRC2008/2189 and 2009/1050)
Katarina Muc trading as G H Healey & Co., Hurstville (5th respondent in IRC2009/1050; 1st appellant in IRC2009/1286)
Gregory Harrison Healey trading as G H Healey & Co., Sydney (6th respondent in IRC2009/1050; 2nd appellant in IRC2009/1286)
Dr John P Berwick (7th respondent in IRC2009/1050; appellant in IRC2009/1200; 3rd respondent in IRC2009/1286)

CORAM:
Boland J President Walton J Vice-President Haylen J


CATCHWORDS: APPEAL - UNFAIR CONTRACT - Applications for leave to appeal and appeal - Two appeals by appellant - Cross Appeal by counsel for appellant - Appeal by appellant's solicitors - Appellants required to address leave question separately - Sale agreement - Consultancy agreement - Whether leave should be granted in respect of first instance decision refusing to make money order in favour of appellant notwithstanding finding of unfairness - Whether leave should be granted in respect of alleged jurisdictional error to 'set off' debt owed by appellant against money order that might otherwise be made under s 106(5) of Industrial Relations Act 1996 - COSTS - Whether leave to appeal should be granted in respect of indemnity costs order made in favour of respondents - Wasted costs - Whether leave should be granted in respect of decision to award costs to respondents each separately represented by counsel - Whether leave should be granted in cross appeal in respect of decision to order appellant's counsel to pay appellant's costs that the appellant must pay to the respondents in relation to the costs of the proceedings on days counsel was unable to continue to represent appellant - Rule 209 of the Industrial Relations Commission Rules 1996 - Whether leave should be granted in respect of decision to order legal representatives of appellant to pay appellant's costs of a motion in circumstances where legal representatives not advised that trial judge intended to entertain the issue of costs regarding the motion - Leave refused in respect of appellant's appeals - Leave granted in respect of cross appeal - Leave granted in respect of solicitor's appeal.

LEGAL REPRESENTATIVES
Mr A J McQuillen of counsel for 1st and 2nd appellants in IRC2008/2189; IRC2009/1050; respondent in IRC2009/1200; 1st and 2nd respondents in IRC2009/1286
Mitchell Lawyers
Mr A J Bulley of counsel for 1st and 2nd respondents in IRC2008/2189 and IRC2009/1050
Gadens Lawyers

Mr R J Darke SC for 5th and 6th respondents in IRC2009/1050; 1st and 2nd appellants in IRC2009/1286
Middletons Lawyers

Mr G P Craddock SC for 7th respondent in IRC2009/1050; appellant in IRC2009/1200; 3rd respondent in IRC2009/1286
McCabe Terrill Lawyers Pty Limited

CASES CITED:
Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1
Kennett and anor v Mayrana Pty Ltd & ors (No 9) [2008] NSWIRComm 106
Kennett and anor v Mayrana Pty Ltd & ors (No 10) [2008] NSWIRComm 207
Kennett and anor v Mayrana Pty Ltd & ors (No 11) [2009] NSWIRComm 99
Lemoto v Able Technical Pty Ltd & ors [2005] NSWCA 153; (2005) 63 NSWLR 300

LEGISLATION CITED:
Industrial Relations Act 1996


TEXTS CITED:




JUDGMENT:

INDUSTRIAL COURT OF NEW SOUTH WALES

FULL BENCH

CORAM: BOLAND J, President
WALTON J, Vice-President
HAYLEN J

Tuesday 9 March 2010

Matter No IRC 2189 of 2008

KEITH FRANKLIN KENNETT AND ANOTHER v MAYRANA PTY LTD AND OTHERS

Application by Keith Franklin Kennett for leave to appeal and appeal against judgment of Justice Schmidt given on 27 May 2008 and judgment and orders given on 4 November 2008 in Matter No IRC 3679 of 2003

Matter No IRC 1050 of 2009

KEITH FRANKLIN KENNETT AND ANOTHER v MAYRANA PTY LTD AND OTHERS

Application by Keith Franklin Kennett for leave to appeal and appeal against judgment of Justice Schmidt given on 29 June 2009 and judgment and orders given on 4 November 2008 in Matter No IRC 3679 of 2003

Matter No IRC 1200 of 2009

DR JOHN BERWICK v KEITH FRANKLIN KENNETT

Application by Dr John Berwick for leave to cross-appeal and cross-appeal from the judgments and orders of Justice Schmidt given on 29 June 2009 and 24 July 2009 in Matter No IRC 3679 of 2003

Matter No IRC 1286 of 2009

KATARINA MUC AND ANOTHER v KEITH FRANKLIN KENNETT AND OTHERS

Application by Katarina Muc and Anor for leave to appeal and appeal against a judgment and orders of Justice Schmidt given on 24 July 2009 in Matter No IRC 3679 of 2003

EX TEMPORE JUDGMENT OF THE COURT
[2010] NSWIRComm 29

1 The Court has before it four applications for leave to appeal arising from proceedings brought under s 106 of the Industrial Relations Act 1996. In those proceedings, the applicants, Professor Kennett and Mr Pak, sought orders declaring that the contract, arrangement or collateral arrangement between the applicants and four respondents (said to consist of the negotiations to provide employment to the applicants together with the associated sale of Excelsior College Pty Ltd) was an unfair contract and certain consequential orders were sought. The proceedings concerned the sale of an English Language College and the circumstances in which, as part of the sale arrangement, Professor Kennett and Mr Pak, as the proprietors and operators of the College, would continue to render paid service under the College's new management.

2 The proceedings were heard by Schmidt J over some 20 hearing days and resulted in 12 separate judgments. The proceedings were plagued by difficulties, with the applicants, from time-to-time, found to be in breach of the case management timetable. In essence, her Honour found that there was an oral contract for Professor Kennett and Mr Pak to provide consultancy services on an on-going basis for the new proprietors of the College. For some time those services had been provided but had not been paid for by the new proprietors. Her Honour found, however, that a substantial part of the case for the applicants had not been made out: the applicants had alleged that the terms of the sale contract for the College were unfair and were not based upon a true reflection of the profit of the College asserted by the applicants to be $300,000 per annum. There were also allegations that the applicants had been overborne during the course of negotiations for the sale price such that its terms were unfair to the applicants. Her Honour's extensive judgment on liability was delivered on 27 May 2008 (Kennett and anor v Mayrana Pty Ltd & ors (No 9) [2008] NSWIRComm 106). On 4 November 2008 (Kennett and anor v Mayrana Pty Ltd & ors (No 10) [2008] NSWIRComm 207) her Honour made orders declaring the applicants' consultancy contracts to be unfair contracts, that the contract should be varied to provide notice to each of the applicants but that while Mr Pak should receive the amount of $1,700, there should be no payment ordered in favour of Professor Kennett. In relation to both Professor Kennett and Mr Pak her Honour, on the evidence, found that Mr Pak had banked in the account of Excelsior College the sum of $38,000 that rightfully belonged to the new proprietor and further, that sum had not since been passed on or credited in any way to the new proprietor: in dealing with the fairness of the arrangements her Honour took this sum into account in reducing the amount of the money order to be paid to the applicants in relation to the consulting contract.

3 Schmidt J then heard the parties as to what further orders should be made and delivered judgment in relation to those matters on 29 June 2009 (see Kennett and anor v Mayrana Pty Ltd & ors (No 11) [2009] NSWIRComm 99). In that judgment her Honour made the following orders:

(1) The first and second respondents are to bear the applicants' costs of the hearing of the jurisdictional argument and otherwise, the applicants are to bear the first and second respondents' costs of the proceedings and on an indemnity basis, from the date of the offer of settlement made on 13 September 2007.

(2) The costs as between Professor Kennett and his former solicitors, thrown away as the result of Mr Prior resiling from the opinions expressed in his first reports, as dealt with in the judgment, are disallowed.

(3) Mr Healey is to repay Professor Kennett the costs he must pay the respondents in relation to their costs thrown away as the result of Mr Prior resiling from the opinions expressed in his first reports, as dealt with in the judgment.

(4) The costs as between Professor Kennett and Dr Berwick in relation to the proceedings on 20, 21 and 22 February 2008 are disallowed.

(5) Dr Berwick is to repay Professor Kennett the costs he must pay the respondents in relation to the costs of the proceedings on 20, 21 and 22 February 2008.

4 Broadly speaking, these orders arose from a variety of submissions made by the parties as to the appropriate costs orders that should be made having regard to the fact that, while the applicants had succeeded on a relatively small part of their case, they had failed in relation to a substantial part of the case which had consumed the majority of the hearing time. The respondents also raised the conduct of the case on behalf of the applicants and, in particular, the fact that her Honour had found that the alleged $300,000 per annum profitability status of the College, although continually asserted, was utterly without foundation and that the applicants should have known that was the case and in any event, were well placed as the proprietors to ascertain the true financial position of the College prior to the sale negotiations. Her Honour held that the case was prolonged not only by the applicants' unreasonably pursuing this aspect of their case but also because the expert called to substantiate this assessment of the profitability of the College (Mr Prior), when faced with the expert evidence of the respondents, discovered that he had not been briefed with the same source documents and was then required to resile from his first stated view and formulate another view. In early September 2007 the respondents, having regard to the state of the evidence then before her Honour, forwarded a Calderbank letter to the applicants offering the applicants the opportunity to settle the proceedings by being allowed to walk away from the proceedings with each party to pay their own costs. Her Honour held that, on the state of the evidence at the time this letter was received, the applicants should have accepted the offer and that it was unreasonable to have refused it. Her Honour was convinced by not only the unreasonable rejection of this offer but the applicants' general misconduct in the proceedings as warranting the granting of indemnity costs to the respondents from the date of the Calderbank letter.

5 In view of the evidence before her Honour as to the role the applicants' former solicitor, Mr Healey, and the failure to properly place before the expert the financial information relevant to the true financial status of the College which resulted in the expert's first report being withdrawn, those costs thrown away as costs between the Professor and Mr Healey were disallowed. Further, her Honour ordered Mr Healey to pay Professor Kennett the costs that the Professor was to pay the respondents in relation to their costs thrown away as a result of the expert resiling from the opinions expressed in the first report.

6 Her Honour then dealt with the situation of the applicants' then counsel, Dr Berwick. Dr Berwick was unable to continue to represent the applicants due to illness leading to three hearing days in February 2008 being unable to be properly utilised in finalising the case. Her Honour accepted, on the basis of medical evidence before the Court, that Dr Berwick was ill but, relying on r 209 of the Industrial Relations Commission Rules 1996, held that Dr Berwick should repay Professor Kennett the costs the Professor must pay the respondents in relation to those three days. Her Honour found that r 209 was compensatory in nature and was not disciplinary and it was, therefore, appropriate that such an order be made against Dr Berwick.

7 In relation to these orders, Professor Kennett (and his nominee company - together 'the appellants') has brought two appeals, the first relating to the reasons for decision of 27 May 2008 and the orders given on 4 November 2008 and the second in relation to the reasons delivered on 29 June 2009 and the orders given on 4 November 2008. The first appeal challenges her Honour's decision to take into account the amount of $38,000 banked in the College's account (and therefore to the benefit of both Professor Kennett and Mr Pak) in determining that, as a result, Professor Kennett should not receive any money by way of order of the Court as a result of what the parties referred to as a "set-off". It was argued that there was no jurisdiction to take into account the $38,000 and to effectively reduce by way of set-off the amount of money that might otherwise have been payable to Professor Kennett because of the unfairness of the consultancy contract. It was put that the fact that the money was paid into the account of Excelsior College, a non-party to the proceedings, meant that her Honour was unable to take that amount into account in reducing the money order made in favour of Professor Kennett. During the course of the hearing, leave was granted to amend the appeal to include an allegation that there was no finding as to jurisdiction made by her Honour in respect of the sale contract, an amendment apparently designed to clarify the way in which the jurisdictional point was to be raised. Despite Professor Kennett's reliance on the sale agreement at all relevant stages of the trial, it is contended that her Honour had no jurisdiction to take into account the amount of $38,000 because it arose under the sale agreement.

8 In the second appeal, Professor Kennett raised the issue of the indemnity costs order in favour of the respondents and the alleged failure of her Honour to properly apply the principles applicable when considering such an order. It was said that her Honour had no basis for making such an order and that the usual costs order should have been made such that, because of their success on the consultancy contracts, the applicants should have received their costs of the proceedings. It was submitted that her Honour had no proper basis for concluding that the sale contract case was bound to fail or that the Calderbank offer had been unreasonably rejected. It was also submitted that the four respondents all appeared in the same interests and therefore had unnecessarily added to the costs: her Honour had thereby erred and failed to apply principle and authority to the circumstances by taking this fact into account. Similarly, it was submitted in relation to the granting of indemnity costs, that her Honour had failed to correctly apply principle and authority in deciding the issue. An issue was raised regarding the failure of the legal representatives to join Excelsior College and the costs that should flow from that omission.

9 At the commencement of the hearing of the appeal, the Court invited the parties in all four appeals to separately address the issue of leave. Having heard the parties on that question, the Court is now in a position to determine the question of leave in each matter.

10 In relation to the two Professor Kennett appeals (Mr Pak did not appeal), the Court is unable to find that the question of jurisdiction raised by the appellants (arising in relation to her Honour's treatment of the so-called "set-off" approach) warrants the grant of leave. The Further Amended Summons for Relief filed in September 2006 made it clear that the appellants were proceeding on the basis of an arrangement that involved not only the sale contract but also the circumstances in which Professor Kennett would have an ongoing paid role in the operation of the College. Professor Kennett did not proceed on the basis that there were two distinct and separate contracts but, as has become frequent in this jurisdiction, relied upon the totality of the arrangements between the parties in order to establish a basis for a declaration of unfairness and the making of money orders. In those circumstances it was open to her Honour to address the issue of unfairness on a broad basis and to take into account a wide but relevant variety of conduct in determining what order as to the payment of money in connection with the arrangements was "just in the circumstances of the case" (see s 106(5) of the Act). Having regard to the manner in which the applicants had framed their case at first instance, it was open to her Honour to have regard to the money that had been banked in the account of Excelsior College in circumstances where it was open for her Honour, on the evidence, to find that the money belonged to the new proprietors. The respondents had squarely raised that matter and counsel then appearing for the applicants had conceded to her Honour that she was entitled to take that course. In those circumstances, Professor Kennett is bound by the conduct of his case below and it is inappropriate to grant leave to appeal that issue (Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1). Nor can we discern an error in the exercise of discretion by her Honour discounting the money orders which may have been otherwise made under s 106(5) in these circumstances.

11 In relation to the remaining grounds, the Court is unable to detect any error of law or principle that would call into question the orders made by her Honour. Her Honour had an abundance of evidence as to not only the conduct of the proceedings but the state of the information known to the appellants from the proceedings when the Calderbank offer was received. She was well placed to determine that the rejection of this offer was unreasonable. It was open on the evidence for her Honour to find that Professor Kennett had made no real attempt to establish for himself the profitability of the College yet had insisted upon maintaining the case when he had received advice from Dr Berwick that, absent hard supporting evidence, this aspect of the case was unable to succeed. Her Honour made no error in relation to the awarding of costs to all the respondents, having heard from the applicants as to why some of those costs should not be allowed because the respondents were all in the same interest. It was open to her Honour to conclude that there was sufficient difference in the interests of the respondents to warrant their separate representation: further, her Honour examined the record and concluded that there was no unnecessary duplication in the conduct of the cases because of the nature of this representation. Her Honour considered and addressed the law in relation to the awarding of indemnity costs and addressed the circumstances in which they may be granted. In the exercise of her broad discretion as to costs, we are unable to detect any error in relation to this issue. As to the costs that were submitted should flow from the failure to join Excelsior College, it was open to her Honour to treat the matter as she did.

12 As to the issue of jurisdiction concerning the sale contract, an issue raised by way of amendment to the grounds of appeal at the beginning of the hearing, the Court is not satisfied that such an issue arises. Importantly, Professor Kennett proceeded before her Honour on the basis that the arrangement was within jurisdiction and defended attacks on that position: Professor Kennett cannot approbate and reprobate and now submit for the purposes of some aspects of this appeal that the sale contract was not within jurisdiction and/or that her Honour made no finding in this regard.

13 In relation to all grounds of appeal pursued by Professor Kennett, the Court can discern no issue of such importance that, in the public interest, leave to appeal should be granted. No other basis for the grant of leave has been properly established.

14 The remaining two appeals and cross-appeals are brought by Dr Berwick, (originally counsel for the applicants before her Honour) and appeals brought by Ms Muc and Mr Healey, solicitors who acted for the applicants in the original proceedings.

15 Dr Berwick's appeal raises two issues: firstly, the order made that Dr Berwick was to repay Professor Kennett the costs that the Professor was to pay the respondents in relation to three hearing days in February 2008 that were unable to be profitability used due to Dr Berwick's illness. Her Honour accepted medical evidence that Dr Berwick was indeed suffering from an illness but nevertheless relied upon the provisions of r 209 of the Rules of the Commission to make Dr Berwick liable for the costs of those lost hearing days. Speaking generally, r 209 makes provisions for barristers, solicitors or agents to repay costs caused by delay and misconduct. The rule operates on costs being improperly incurred or incurred without reasonable cause or where costs are wasted by undue delay or by other misconduct or default where it appears to the Court that a barrister, solicitor or agent is responsible. If that situation is found to exist by the Court there is power to disallow the costs as between the barrister and the barrister's instructing solicitor or between the barrister and the client. There is also power to direct the barrister to repay the clients costs that the client has been ordered to pay to another party.

16 In construing this rule her Honour was guided by the judgment of the Court of Appeal in Lemoto v Able Technical Pty Ltd & ors [2005] NSWCA 153; (2005) 63 NSWLR 300 noting that the court's power to make orders against legal representatives in these circumstances of default was a wide one and further noting that the jurisdiction was not "merely punitive but compensatory". Her Honour accepted that Dr Berwick's illness was neither the responsibility of Professor Kennett nor Dr Berwick but held that the rule was compensatory so that the costs had to properly fall somewhere and that Dr Berwick should therefore bear the costs. On its face the rule appears to deal with various kinds of default although her Honour identified no such default on the part of Dr Berwick. While r 209 has since been repealed, provisions to similar effect now apply to proceedings in the Court. The proper construction of the rule and the arguable error of her Honour in misapplying the rule to impose costs orders upon Dr Berwick are matters of sufficient significance to warrant a grant of leave to appeal. Dr Berwick will therefore be given leave to appeal in relation to the costs orders made against him pursuant to provisions of r 209.

17 Dr Berwick, Ms Muc and Mr Healey ('the legal representatives') appeal against aspects of the order made by her Honour on 24 July 2009. Her Honour's judgment on 29 June 2009 had dealt generally with costs but it had been brought to her Honour's attention that, by oversight, she had not dealt with the issue of the costs of Professor Kennett's motion seeking costs against his legal representatives. Her Honour noted that, in relation to Professor Kennett's motion, it succeeded in part with an order in the Professor's favour against Dr Berwick in relation to the three vacated hearing days in February 2008 and in relation to orders against his former solicitors concerning costs thrown away as a result of the expert resiling from the opinions expressed in his first reports. The other orders sought by Professor Kennett were refused. Her Honour then noted that the ordinary rule was that costs should follow the event and while Professor Kennett was only partially successful on his motion "that was not as a result of any misconduct in relation to the pursuit or hearing of the motions". Her Honour then expressed the opinion that she could see no basis on which an order for the costs of the motions could be made in favour of either Dr Berwick or the former solicitors and so made an order that Dr Berwick and the former solicitor bear the costs of Professor Kennett's motion.

18 The legal representatives argued that they were denied procedural fairness and were not heard in relation to these orders although, undoubtedly, much of the relevant background was fresh in her Honour's mind when she delivered this final costs judgment. The matters that the legal representatives wish to put in relation to the appropriate costs orders to be made regarding Professor Kennett's motion have been shortly stated in the written submissions received by the Court and do not require any further extensive hearing or evidence to support the submissions. The Court is persuaded that the making of costs orders without fully hearing the parties is a significant error and bearing in mind the brevity of the point raised and the nature of the principle arising on the appeals, the legal representatives should be granted leave to appeal in relation to her Honour's costs orders given on 24 July 2009.

19 It follows that the Full Bench should make the following orders and does so:

(1) In relation to the appeals Matter No IRC 2189 of 2008 and Matter No IRC 1050 of 2009:

(a) Leave to appeal is refused;

(b) The appeals are dismissed.

(2) In relation to Matter No IRC 1200 of 2009, leave to appeal is granted.

(3) In relation to Matter No IRC 1286 of 2009, leave to appeal is granted.

____________________________

AMENDMENTS:


26/03/2010 - First sentence of this paragraph to be corrected by inserting the word "former" between the words "applicants" and "solicitor". - Paragraph(s) [5]


LAST UPDATED:
26 March 2010