Industrial Relations Commission of New South Wales in Court Session CITATION : Wong v State Street Global Advisors Australia Limited and Anor [2004] NSWIRComm 273 APPLICANT: David Wong FIRST RESPONDENT: PARTIES : State Street Global Advisors Australia Limited (ACN 003 914 225) SECOND RESPONDENT: State Street Corporation Inc FILE NUMBER: IRC 4333 of 2001 CORAM: Schmidt J CATCHWORDS : Costs - costs of various motions - indemnity costs order sought by applicant - Calderbank offers - indemnity costs order made - interest - time from which it should flow in relation to value of shares and options Evidence Act 1995 LEGISLATION CITED : Industrial Commission Rules Listening Devices Act 1984 Abboud v State of New South Wales (Department of School Education) (No 2) (2000) 99 IR 299 Burgess & Ors v Mount Thorley Operations Pty Limited [2003] NSWIRComm 22 CASES CITED : Coshott v Learoyd [1999] FCA 276 Hairman v FileNET Corporation Pty Ltd [2002] NSWIRComm 76 Jones v Bradley (No 2) [2003] NSWCA 258 Wong v State Street Global Advisors Australia Limited & Anor [2004] NSWIRComm 212 HEARING DATES: DATE OF JUDGMENT: 09/17/2004 APPLICANT: Mr AB Thorpe, solicitor SOLICITORS: Aitken McLachlan & Thorpe LEGAL REPRESENTATIVES: RESPONDENTS: Mr GKJ Rich of counsel SOLICITORS: Baker & McKenzie JUDGMENT: - 13 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: Schmidt J DATE: 17 September 2004 Matter Number IRC 4333 of 2001 DAVID WONG v STATE STREET GLOBAL ADVISORS AUSTRALIA LTD AND ANOTHER Application under section 106 of the Industrial Relations Act 1996 JUDGMENT 1 In July 2004 judgment was given in this matter, it being concluded that David Wong's contract of employment was unfair in a number of respects. (Wong v State Street Global Advisors Australia Limited & Anor [2004] NSWIRComm 212) Orders varying the contract and requiring the respondents to pay Mr Wong certain sums in respect of notice, bonus, shares and options, annual leave, long service leave and redundancy pay were made. The parties were directed to calculate the money sums due and were given liberty to apply, if the calculation could not be agreed, or if no agreement could be reached in relation to costs. 2 The agreed quantum of the money orders was $664,155.15, apart from the question of interest. The competing interest calculations were $184,336.69 and $197,026.62. The parties were also unable to agree on the question of costs. Interest 3 The orders made were: 1 The contract and arrangement is varied ab initio to require the giving of seven months' notice of termination or payment in lieu; a payment on account of redundancy; pro rata bonus to the date of termination and the vesting of outstanding shares and options during the notice period. 2 The respondents are to pay the applicant the sum of: 2.1 (a) Seven months' pay in lieu of notice, less what the applicant earned in his new employment, in that period; (b) pro rata bonus for the period up to the termination of the applicant's employment; (c) the agreed value of the shares and options due to vest in the notice period; (d) the outstanding annual leave unpaid on termination; (e) the outstanding long service leave unpaid on termination; (f) 20 weeks' redundancy pay; plus 2.2 Interest on that sum from the date of termination to the date of judgment. 4 The respondents' position was that interest on the agreed value of the shares and options should not commence to accrue until the date when the shares and options would have vested, had the employment continued. To order interest from the date of termination involved overcompensation, because at that time the shares and options would not have vested. 5 I am satisfied that the respondents' argument cannot be accepted. The Court's power to order interest is discretionary, as discussed in Abboud v State of New South Wales (Department of School Education) (No 2) (2000) 99 IR 299 at 307. The order as to interest must be one, which is just in the circumstances of the case. In this case, there was no notice of termination given. The applicant was wrongly treated as having abandoned his employment. 6 The Court found that the contract was terminated by the employer, without the giving of any notice, in circumstances where a fair period of notice should have been given and the employer's redundancy policy applied. It was also concluded in the circumstances that the loss of shares and options, which would have vested during the notice period, was unfair, given the redundancy. Having found the contract unfair, it was varied to require, amongst other things, the vesting of outstanding shares and options, which would have vested during the notice period. 7 It follows that in order for justice to be done as between these parties, the money orders made have to reflect payment of the value of the shares and options, as at the date of termination of the contract, when the parties relationship ceased, as the result of the employers' actions. A different conclusion might have been reached, had notice been given. Accordingly, interest must flow from the date the relationship ended. 8 It follows that the applicant's interest calculation must be accepted. The final money orders must be calculated to the date of this judgment. To the date of the earlier judgment they amount to $197,026.62. Costs 9 The parties disagreed as to who should bear the costs of four motions pursued in the proceedings. They were agreed that the respondents should at least otherwise bear the applicant's costs of the proceedings on the usual party/party basis. Mr Wong also sought an indemnity costs order, having regard to three Calderbank offers, the first made on 13 May 2004. The Motions 10 Marks J heard two motions filed by Mr Wong on 25 November 2002. The first sought additional discovery of documents. The application was partially granted, with leave to revisit the balance, after the filing of affidavits. The second motion sought orders under the Evidence Act 1995, in relation to a potential breach of the Listening Devices Act 1984, which was adjourned to be dealt with at the trial. Mr Wong succeeded on this motion (see [96] to [105] of the July judgment). 11 The respondents filed motions in March and May 2004 seeking orders in relation to the giving of video link evidence, which was successful in relation to Mr Serhant giving evidence by video link. The position of Mr Fleites was reserved, because his affidavit evidence was not on. It was expected to be short evidence, called in response to something in an affidavit filed by Mr Wong. There was no further disagreement about Mr Fleites' evidence, which was given by video link. 12 Mr Wong filed a further motion in May 2004 seeking further discovery of documents. The motion was partially successful. The respondents conceded that the costs of this motion should be costs in the cause. 13 Rules 210 and 211 of the Court's Rules provide: 210 Costs reserved Where the costs of a motion under Rule 68 are reserved by the Commission, the costs so reserved shall, unless the Commission otherwise orders, be included in the final order for costs. 211 Costs of application or step within proceedings Subject to this Part, the costs of any application or other step in any proceedings shall, unless the Commission otherwise orders, be deemed to be part of the costs of the cause of the party in whose favour the application or other step is determined and shall be paid and otherwise dealt with in accordance with the provisions of this Part. 14 The usual order as to costs is that they should follow the event. Here, the applicant was successful in his claim that the contract was unfair, as well as in relation to the motions seeking further discovery and the Listening Devices Act. I can see no good reason for any departure from the usual rule in this context. It follows that the respondents must bear the costs of those motions. 15 As to the respondents' motion, I can see no warrant for any departure from the provisions of Rule 211. The respondents were successful in being permitted to bring evidence by way of video link. Thereby the costs of the proceedings were undoubtedly reduced, in the interests of both parties. I am well satisfied that costs of the motion should be borne by the applicant, in the usual way, given the outcome of the motion. The Calderbank offer 16 The trial commenced on 7 June. On 9 June, the summons was amended without objection. The money claim was reduced to $1,078,459, plus interest from 31 May 2001. On 13 May the applicant offered to compromise the proceedings by accepting $835,000, inclusive of interest, plus costs, as agreed or assessed. The offer was open for 14 days (ie up to 27 May). It was rejected on 25 May. 17 On 1 June, a second Calderbank offer was made, in the sum of $750,000 inclusive of interest plus costs. It was open until the commencement of the trial on 7 June. There was no response. On 3 June, a third Calderbank offer was made, in the sum of $700,000 inclusive of interest plus costs. It was open until 4 June. There was no response. 18 The agreed quantum of the money orders made in the July judgment was $664,155.15. Interest from the date of termination to the date of that judgment was $197,026.62. 19 The law as to the consequences of a refusal of a Calderbank offer is well settled. Costs are in the discretion of the Court under s181 of the Act. A Calderbank offer provides a basis upon which the discretion might be exercised differently from the usual way, namely with costs ordered in favour of the successful party, on a party/party basis. In such a case, the party who has refused the offer will need to show that it was not unreasonable to have refused the offer in the circumstances prevailing, if the party making the offer is more successful at the trial. Otherwise, an indemnity order in favour of the party making the offer will follow. 20 Here, there is no doubt that the applicant bettered all of the offers at trial. The respondents, however, argued that the onus fell upon the applicant to show that it was unreasonable for the respondents to have refused the offers. This argument was advanced by an examination of case law in the Federal Court and the Court of Appeal, which I do not find it necessary to revisit. I adhere to the views which I have earlier reached about this question in cases such as Hairman v FileNET Corporation Pty Ltd [2002] NSWIRComm 76 and Burgess & Ors v Mount Thorley Operations Pty Limited [2003] NSWIRComm 22. In any event, I agree with the observations of the Court of Appeal in Jones v Bradley (No 2) [2003] NSWCA 258 at [9], that the asserted differences between the two lines of authority dealt with in the submissions are more apparent than real. 21 The respondents argued that it had not been unreasonable for them to have rejected all three offers, because: (a) The First Offer was not materially bettered at trial; (b) No money orders were sought on account of redundancy until the trial; (c) The Offer of Compromise procedure was not used & the offers were made very late; (d) The Respondents were not unreasonable regarding settlement generally; (e) The wide discretion of the Court under s.106 of the Act; and (f) The Second & Third Offers were short in duration. 22 It was argued that the first offer, when proper regard was paid to the interest component, showed that the amount finally awarded, at most bettered the offer by 1.6%. That was too small a margin for the Court to ever exercise its discretion in favour of the applicant. 23 If the redundancy order was ignored, then each of the offers fell below what the applicant recovered. This was relevant because it was only at the trial that redundancy was claimed. It was not claimed at the time the offers were made. That did not crystallise until trial, when the third amended summons was tendered, notwithstanding that the question of redundancy had earlier been identified by the parties as an issue requiring determination at the trial. 24 Complaint was also made that the offer of compromise procedure available under the Rules was not used. The offers were made shortly before trial. To accept them the respondents would have had to relinqush any prospect of recovering part of the substantial costs then incurred. It was also relevant that the respondents had made offers of compromise for $236,000 plus interest and costs in August 2001; for $308,000, plus interest and costs in March 2002 and for $425,000 inclusive of interests plus costs, in June 2004. 25 It was also submitted that given the wide discretion available to the Court under the section and the numerous entitlements and offsets litigated in proceedings brought under s106, it was rarely knowable by the parties or their advisers, with precision or in advance, what outcome the proceedings might bring. In a case such as this, a difference in notice of one or two months can have large consequences - in the order of $230,000 to $240,000. Assessments as to bonus fell into a similar category. It followed that the respondents' position was not unreasonable and no indemnity costs order would flow against them. 26 For the applicant it was argued in reply that the failure of the respondents to have accepted any of the applicant's offers was unreasonable in the circumstances here before the Court. It was accepted that refusal of a Calderbank offer does not govern the exercise of the costs' discretion, but provides an applicant with a good start in convincing the Court to exercise the discretion in its favour (Coshott v Learoyd [1999] FCA 276 at [48] per Wilcox J). The underlying policy was to encourage sensible compromise of disputes. The policy was promoted if a party who rejects a realistic offer risked an order for indemnity costs, if no better outcome was later achieved at the trial. Here, each of the applicant's offers was genuine and realistic. 27 The difference between the applicant's first offer and the final judgment was just over 3%. If accepted, the need for the Court to sit for 8 days and to give a complex judgment would have been avoided and the parties would have saved considerable costs. Counsel's fees alone after 13 May for the applicant exceeded $176,000. The difference between the second offer and the judgment was $111,148.77 or 12.9% and between the third offer and the judgment $161,181.77 or 18.7%. 28 As to the redundancy claim, it was argued to have been an issue from the outset, and an agreed issue for the trial. The respondents' redundancy policy was not produced until the second day of the trial, in response to a Notice to Produce of 8 June 2004. That led to the amendment of the claim. The respondents should have earlier discovered the document. On 9 January 2003, Mr York swore an affidavit that there were no documents which fell into the relevant class, other than those referred to in the respondents' List of Documents. The relevant class was 'all policies of SSgA Australia in relation to human resources, termination of staff, annual reviews of staff, salary and bonuses'. If the redundancy policy had been discovered, as it should have been at that time, the claim for 20 weeks' redundancy pay, which flowed directly from the applicable policy, would earlier have been made. A failure to give proper discovery was not a basis to ground a submission that a Calderbank letter should not be given its full effect. 29 That an offer of compromise was not made under the Rules was also submitted to be irrelevant to the issues which here arose, particularly given the time at which the Calderbank offers were made, when Offers of Compromise under the Rules was not a course available to the applicant. 30 The applicant should not be punished for the time at which the offers were made, given that there had been conciliation early in the proceedings and the respondents' offers were not realistic, to the contrary, they discouraged settlement. At the time at which the applicant's offers were made, settlement of the litigation was still potentially valuable to the parties, particularly given the substantial costs incurred by the parties after the offers. It was relevant that the applicant expended more than 50% of his costs after 13 May. 31 It could also not be accepted that the respondent's offers were reasonable, given the outcome achieved at the trial and that at the time they were made, the respondents were aware of the provisions of the redundancy policy. Between March 2002 and June 2004, the respondents made no offers to the applicant, despite this situation. It was also submitted to be irrelevant to the exercise of the discretion as to costs, that some different outcome might have been achieved if the Court's discretion under s106 had been exercised in some different way. 32 As to the complaint that the offers were made shortly before the trial, it was submitted that it was apparent that there remained plenty of opportunity for the parties to assess their positions in relation to settlement and to engage in a dialogue. None of the applicant's offers were accepted and no counter offers were made. 33 Having considered the competing submissions advanced, I am well satisfied that the applicant must have an indemnity costs order from the time that the third offer was made, 3 June. The second offer was open until the commencement of the trial on 7 June, but it cannot sensibly be ignored that it was overtaken by an even lower offer on 3 June. There was no response to either offer. While the applicant bettered the first offer, it was by such a small margin that I am unable, in those circumstances, to conclude that the discretion should be exercised in his favour in respect of that offer. The same difficulty does not arise in relation to the second offer. 34 I do not accept at all the respondents' submissions in relation to the redundancy claim. The policy was always in the hands of the respondents. It plainly should have been discovered. Despite the failure to give discovery at the appropriate time, the parties agreed that the question of redundancy was in issue in the proceedings. The outcome of the exercise of any discretion in the applicant's favour, if he were successful in the case advanced, was plainly always going to be influenced by whether or not he was made redundant and if he was, by the terms of the respondents' redundancy policy, if it came into evidence. Had the policy not come to light, as it did during the trial, but afterwards, the respondents might be facing consequences other than a mere argument about an indemnity costs order. 35 I also do not accept that there can be any criticism directed to the applicant for failing to put on an offer of compromise under the Rules. Had the offers been made at an earlier time in that form, when an Offer of Compromise was still available to be made prior to the trial, the question of the exercise of this discretion would not have arisen, the result sought would have flown in the applicant's favour, by operation of the Rules. 36 There is no doubt that it is in the public interest that parties continue to try to settle their differences on sensible terms, even as a trial approaches, when Offers of Compromise under the Rules may no longer be made. Many cases settle at that time, precisely because the parties are then sensibly bending their thoughts and endeavours to what lies between them. 37 A Calderbank offer made at that point cannot simply be ignored by the Court, or by any party. Given what the parties undoubtedly incurred by way of costs in the proceedings, as well as the considerable resources which the Court directed to the controversy lying between them, there can be no doubt that the applicant's second and third offers should have been accepted. There was no complaint advanced by the respondents at the time, that they were given too little time to consider the offers. Nor were any counter offers made. These circumstances do not lead to the conclusion that the respondents were acting reasonably in refusing the offers. 38 Given the terms of the redundancy policy itself, at the time of the offers only known to the respondents, the conclusion that the respondents acted unreasonably in refusing the offers is, in my view, entirely unavoidable. 39 The respondents complained that it is not possible for parties and their advisers to predict how this Court might exercise its discretions in the circumstances of a particular case. That the section involves the exercise of a discretion has never been a basis for refusing to make an indemnity costs order. The submission also ignores that the vast majority of cases brought under s106 do not require the Court's determination; the parties settle them. When the Court is called upon to exercise its discretions, it does so judicially, in the context of the evidence, which the parties lead, and having regard to binding and persuasive authority. 40 It is also cannot be overlooked that the exercise of the discretion only occurs after the parties have pursued a process provided by the Court's Rules and directions, which are crafted to ensure that litigation is not conducted by ambush or surprise and to enhance the possibility that parties might still resolve their differences. Early in the litigation cycle, applications brought under s106 are the subject of a compulsory conciliation process, where the cases which the parties are respectively advancing, are examined with the assistance of a member of the Commission. If there is no settlement, evidence is put on in affidavit form, parties produce documents under the processes provided and must identify which documents they propose to tender at trial. Issues which require determination at the trial, must also be identified. If parties seek further assistance in conciliation, the Court also provides it. All of this is designed to assist parties to understand the case to be made against them and to help them resolve their differences, on sensible terms. 41 Given the evidence as to the circumstances in which this employment was brought to an end and what was revealed as to who was, in reality, responsible for that outcome, it cannot but be thought that there was much in this case which was quite predictable. The redundancy policy applied on termination, because it was plainly the employer who brought the employment to an end in circumstances where the applicant was redundant. While not a contractual entitlement, the policy not only envisaged the payment of redundancy pay, in the event that termination resulted from a redundancy, but that in the case of senior executives such as the applicant, more notice than the standard contractual terms would be given. The policy even referred to share and option entitlements, in the context of termination of employment. In other cases, the Court has concluded that other share and option schemes, which resulted in employees made redundant, simply losing all of their unvested rights, were unfair. Loss of bonus in redundancy situations has also been dealt with by the Court in other cases. 42 In those circumstances, the conclusion that the respondents had been reasonable in the earlier offers they had made to the applicant and then later, in refusing the Calderbank offers here in question, is simply not available. That the applicant is entitled to an indemnity costs order, appears to me to be an unavoidable conclusion, in the circumstances here before the Court. Orders 43 For all of the reasons given, I make the following orders: 1. The respondents are to pay the applicant $664,155.15 plus interest to the date of this judgment. Interest to the date of the July judgment is assessed as $197,026.62 . The respondents are to pay interest from that date to the date of this judgment, calculated on the same basis. 2. The respondents are to bear the applicant's costs of the proceedings, other than in relation to the respondents' motion in relation to the bringing of video link evidence. The applicant is to bear the costs of that motion, as agreed or assessed. The respondents are otherwise to bear the applicant's costs on a party/party basis to 3 June 2004 and thereafter on an indemnity basis. ------------------------ DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.