Background
Income Asset Management Group Limited (IAM) sued its former employee, Kimberley Henry, alleging he had misappropriated company money. It sought remedies under the Corporations Act 2001 (Cth) and the general law. Mr Henry cross-claimed for wrongful termination and misleading or deceptive conduct.
IAM later sought leave to discontinue its claim because it considered any recovery commercially futile given Mr Henry’s financial position. Mr Henry consented to discontinuance but sought his costs of defending the claim. After IAM applied to discontinue, Mr Henry amended his cross-claim to add claims under the Fair Work Act 2009 (Cth), including adverse-action allegations.
The Court’s Holding
Justice Moore granted IAM leave to discontinue, but ordered it to pay Mr Henry’s costs of IAM’s claim, excluding costs already covered by earlier costs orders. Those costs became payable upon filing the notice of discontinuance and did not include the costs of Mr Henry’s cross-claim.
Section 570 of the Fair Work Act, which generally limits costs orders in proceedings concerning Fair Work Act matters, did not apply. Although the later Fair Work Act claims could have created a sufficient relationship between the claim and cross-claim in other circumstances, they were introduced only after IAM had applied to discontinue. The proceeding was not, at the relevant time, one in relation to a Fair Work Act matter.
The Court declined to depart from the ordinary rule in r 26.12(7) of the Federal Court Rules 2011 (Cth): a party discontinuing a claim ordinarily pays the other party’s costs. IAM’s commercial decision not to pursue a claim against an apparently asset-poor defendant was not a supervening event that made the litigation futile in the relevant legal sense.
Key Takeaways
- A later-added Fair Work Act cross-claim did not retrospectively invoke the Fair Work Act’s no-costs regime for an earlier discontinuance application.
- Commercial unviability of recovery is ordinarily not enough to displace the usual costs consequence of discontinuance.
- Costs of the discontinued claim were payable immediately and were not deferred pending the cross-claim.
Why It Matters
The decision confirms that timing matters when determining whether s 570 of the Fair Work Act restricts a costs order. A Fair Work Act claim added after a party has sought to discontinue a separate claim will not necessarily alter the costs consequences of that discontinuance.
It also reinforces that discontinuing litigants bear a substantial burden to show why the default costs rule should not apply. A sensible commercial choice to stop litigating does not itself shift the expense of the abandoned claim to the opposing party.