Industrial Relations Commission of New South Wales in Court Session CITATION : Peter Rochester Gow v Cronulla Sutherland Leagues Club Limited (No 2) [2003] NSWIRComm 424 APPLICANT: Peter Rochester Gow PARTIES : RESPONDENTS: Cronulla Sutherland Leagues Club Limited Cronulla Sutherland District Rugby League Football Club Limited Barry Michael Pierce FILE NUMBER: IRC 4711 of 1999 CORAM: Walton J Vice-President CATCHWORDS : Costs - Indemnity costs - Calderbank offer by respondent - Offer to settle two distinct proceedings in separate courts - Offer did not include applicant's costs to date - Offer of compromise - Apportionment. Australian Mutual Provident Society v Avis (unreported, Matter Nos IRC96/5473 and IRC96/5941, 18 December 1997) Connor v Hatgis (No 2) (CA(NSW) Kirby P, Priestley and Powell JJA, 7 December 1995, unreported, BC9501810) Calderbank v Calderbank [1976] Fam 93 Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602 CASES CITED : McKerlie v State of New South Wales (No 2) [2000] NSWSC 1159 Maurice Michael O'Sullivan v The Crown in the Right of the State of New South Wales (Department of Education and Training) [2003] NSWIRComm 303 Morgan v Johnson (1998) 44 NSWLR 578 Peter Rochester Gow v Cronulla sutherland Leagues Club Ltd [2002] NSWIRComm 247 Van Huisstede v The Commissioner of Police (No 2) (2001) 106 IR 56 HEARING DATES: 09/04/2003 DATE OF JUDGMENT: 12/05/2003 APPLICANT: Mr J V Murphy of counsel SOLICITOR: Mr C McArdle KPMG Legal LEGAL REPRESENTATIVES: REPONDENTS: Mr C Newlinds of counsel SOLICITOR: Mr M Greene Henry Davis York Lawyers JUDGMENT: - 12 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: Walton J, Vice-President 5 December 2003 Matter No. IRC 4711 of 1999 PETER ROCHESTER GOW v CRONULLA SUTHERLAND LEAGUES CLUB LTD and ORS. Application under Section 106 of the Industrial Relations Act 1996. JUDGMENT RE COSTS [2003] NSWIRComm [424] 1 On 3 October 2002 judgment was given in Peter Rochester Gow v Cronulla Sutherland Leagues Club Ltd [2002] NSWIRComm 247. In accordance with that judgment, and with the short minutes of order filed thereafter, the following orders were made by consent on 11 November 2002: 1.1 That the first and second respondents pay the applicant $105,000 within 28 days; and 1.2 That the first and second respondents pay the applicant interest on $105,000 of $32,593.31 within 28 days; and 1.3 The application against the third respondent is dismissed. 2 Costs were reserved. 3 Written submissions on costs were then filed by both parties. The matter was listed for hearing in relation to costs on 4 September 2003 and, following the hearing, both parties filed supplementary written submissions. submissions 4 The respondents made the following submissions: 4.1 The applicant, having been wholly unsuccessful against the third respondent, should pay his costs. 4.2 The respondents made an offer in accordance with the principles of Calderbank v Calderbank [1976] Fam 93 on 15 March 2001 which should have been accepted by the applicant but was not. In essence the offer contained the following terms: Proceedings to be dismissed; Each party to pay their own costs; Without admission of liability, the first and second respondents agreed to pay the applicant $200,000 by a cash payment of $183,000 and the release of an obligation by the applicant to pay the respondents' costs of $17,000 in separate District Court proceedings; The parties agreed to co-operate to obtain an order dismissing the District Court proceedings with no further order as to costs; A mutual release from all claims (present and future) in relation to any matter; The second and third respondents to provide "necessary" assistance to the applicant in relation to the production of documents in Licensing Court proceedings involving the applicant and the first and second respondents; and Strict confidentiality of settlement agreement. 4.3 On 4 July 2001 the respondents served an Offer of Compromise pursuant to Part 23 of the Industrial Relations Commission Rules which should have been accepted by the applicant but was not. The respondents offered to pay the applicant the sum of $140,000 inclusive of interest, plus the applicant's costs. 4.4 The Offer of Compromise would have improved the applicant's position by $16,000: had judgment been delivered on 4 July 2001 (the date of the offer), the total amount awarded to the applicant would have been $124,000. Without elaboration, the applicant rejected this approach to comparing the interest component of the offer and the judgment as if they had occurred on the same date. 4.5 The respondents further submitted that this was an appropriate case for apportionment of costs; that such an apportionment should be determined by calculating the time referable to successful and unsuccessful aspects of the case; and that in this case there were three discrete issues which took approximately a third of the time each. 4.6 In conclusion, the respondents submitted that they should be entitled to all of their costs: the costs incurred before the Offer of Compromise because these costs related to the first two thirds of the case in respect of which the applicant was unsuccessful; and those incurred after the Offer by operation of Rule 216(6). Alternatively, if the Court did not accept such a temporal link, the respondents submitted that the applicant should be entitled to one-third of his costs to 4 July 2001 and thereafter pay the respondents' costs. 4.7 In support of their submission relating to the first two thirds of the case, the respondents submitted that a change in the applicant's case became apparent and was flagged at the end of the fifth day of the hearing; the respondents then sought leave to adduce further evidence; and thereafter the Court directed the parties to prepare a Statement of Issues. The applicant served a Statement of Issues on 1 August 2001 and it was not until this time that it became common ground that the applicant was running a case that the conduct of the respondents in negotiating a further consultancy agreement constituted unfairness for the purposes of the Act. It was upon this aspect of his case only that the applicant was successful. 5 The Applicant made the following submissions in response: 5.1 The first and second respondents should pay the applicant's party/party costs of the proceedings in accordance with the common law custom that costs follow the event. Although the applicant was not successful in all aspects of his case, the unsuccessful components did not unduly lengthen proceedings nor significantly increase costs and were necessary to establish the factual background to the case. It would be inappropriate to proportionally reduce any costs order which may be made in favour of the applicant. 5.2 Alternatively, the applicant claimed indemnity costs on the basis that: · the respondents consistently denied that an agreement had been reached with the applicant at the Meeting - a factual dispute the Court found in the applicant's favour; and · the respondents' offers in these proceedings did not give the applicant the security he sought in relation to a potential costs order in the Licensing Court proceedings; and · the respondents' conduct in the Licensing Court proceedings. 5.3 Rule 216(6) of the Industrial Relations Commission Rules does not apply to the Offer of Compromise dated 4 July 2001 because the order obtained by the applicant was more favourable than the offer in non-monetary respects: · the applicant, by proceeding to judgment, obtained an order varying the arrangement, a benefit not encapsulated in the respondents' offer; and · If the applicant had accepted the offer, important issues would have been unresolved and the third respondent would have had "the last word on these matters"; by proceeding to judgment the applicant had been "largely vindicated". · The Offer of Compromise did not preclude the risk that the applicant may face an order for costs in the unrelated Licensing Court Proceedings. 5.4 Alternatively, if Rule 216(6) did apply, the Court should not order the applicant to pay the respondents' party/party costs from the date of the offer because of the respondents' consistent denial that any agreement had been reached with the applicant at the Meeting. 5.5 The respondents' offer of 15 March 2001 was unacceptable because: · at the time it was made, the applicant and two of the applicant's witnesses had been challenged under cross-examination as to their version of events. This insensitivity was not addressed in the offer; · by the time of the offer the Applicant had already incurred legal costs of $194,005 rendering the offer manifestly inadequate; and · the offer did not give the applicant any security in relation to a risk that he may be personally liable for costs in the unrelated Licensing Court Proceedings referred to above. 5.6 No costs order should be made in respect of the third respondent who was not separately represented; may not be personally liable for costs; and was found by the Court to be a witness without credit. 6 The figure of $194,005 was disputed by the respondents on the basis of a memoranda of fees produced by the applicant in answer to a Notice to Produce which demonstrated that, rather than $195,000, the applicant's costs as at 19 March 2001 were in fact $134,000 less costs relating to many different legal proceedings which had been inappropriately included. Counsel for the applicant, Mr Murphy, was unable to obtain instructions on the apparent discrepancy between the figures in the applicant's affidavit and the memoranda of fees, but submitted that in any event it was not relevant. consideration The Third Respondent's Costs 7 The application against the third respondent was dismissed. At no stage of the proceedings did the applicant formulate a specific claim against the third respondent, notwithstanding early submissions by the respondents and questions by the Court as to this fundamental omission. To join a party to proceedings without even attempting to establish a cause of action is a matter of grave concern and I order the applicant to pay the third respondent's costs of the proceedings. The extent to which the respondents' costs are referable to the third respondent alone is a matter for determination by the costs assessor, not a reason for ordering otherwise. Indemnity Costs 8 The respondents did not apply for indemnity costs and there are no exceptional circumstances surrounding the respondents' conduct of their case or otherwise to justify the applicant's petition for indemnity costs. The Court may, in its discretion, consider awarding indemnity costs in unusual cases in order to meet the requirements of justice, rather than to punish. As I noted in Van Huisstede v The Commissioner of Police (No 2) (2001) 106 IR 56 the granting of indemnity costs does not involve considerations of a punitive nature. Often (but not always) such cases involve unmeritorious or improper conduct on the part of one party, like the maintenance of a vexatious or untenable case, or the wilful disregard or known facts or clearly established law. Fierce opposition to a claim, including (as here) a dispute as to key facts which was ultimately decided in a manner different to that advanced by either party, is not sufficient. Indeed, in Australian Mutual Provident Society v Avis (unreported, Matter Nos IRC96/5473 and IRC96/5941, 18 December 1997), the Full Bench specifically excluded an adverse finding of unfairness under s106 as conduct sufficient to warrant an order for indemnity costs: The view of Morling J in Tobacco Industry Case, consistently with our thinking, was that fierce opposition to the claim was insufficient to ground indemnity costs; something more is needed. It seems to us that findings that the applicant should succeed under s 106 with respect to conduct which is unfair, harsh or unconscionable would be insufficient to meet that test. Further, the fact that the respondent has acted in a way which justifies the application of the section would equally be insufficient. The Calderbank Offer 9 The general principles which apply to the costs component of offers in the form of Calderbank letters were considered by Goldberg J of the Federal Court in Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602 at paragraph [24]: 24 If the purpose of a Calderbank letter is to offer to bring litigation to an end it should be couched in such terms as enable the offeree to make a carefully considered comparison between the offer made and the ultimate relief it is seeking in all its aspects. An offer inclusive of costs confuses this issue as it puts the offeree in a position of not being able to determine the appropriate amount to attribute to the money sum it is seeking. Although an estimate can be made of what the offeree's taxed party and party costs might be at the time of the offer, the offeree is not being offered the opportunity to have those costs assessed by taxation in default of agreement, in addition to being made an offer to settle its claim. As a matter of principle, if a party is to be put at risk of losing its costs, even if ultimately successful, by not accepting an offer made to settle or compromise the proceeding at a point of time prior to trial, that risk should only be imposed if the party is given the opportunity, at the time of the offer, to obtain its taxed costs to date in addition to the offer made, knowing that it has been able to make a careful comparative assessment of the value of the offer as against the ultimate relief sought to be obtained. 10 There are two problems with the respondents' offer by letter dated 15 March 2001 which preclude me from relying upon it to displace a customary costs order in accordance with the Calderbank principles. First, this Court is not in a position to determine whether or not the offer has been bettered: it is effectively an offer to settle two sets of proceedings, and there is no evidence before this Court as to the outcome of the District Court proceedings; the costs incurred; or even the amount in dispute. It may be that an offer straddling unrelated proceedings in two jurisdictions is ipso facto ineffective as a Calderbank letter; neither party referred the court to any authority on this subject. In any event, the absence of evidence makes it impossible to assess whether or not the applicant has achieved a more or less favourable result than that contained in the offer. 11 Secondly, contrary to the principles enunciated by Goldberg J, the offer did not give the applicant the opportunity to obtain his taxed costs to date (in either proceedings) in addition to the amount being offered. In McKerlie v State of New South Wales (No2) [2000] NSWSC 1159 the Supreme Court of New South Wales held expressly that an offer to settle a case by dismissing it with no order as to costs did not enliven the consequences of a Calderbank letter. Whether an independent agreement to pay money (in the form of a proportion of the claim plus costs), to be noted by the Court but not to take the form of Court orders, is sufficient to distinguish the present offer from that considered by the Supreme Court in McKerlie v State of New South Wales (No2) need not be determined. I tend to the view that it would not. 12 For these reasons it is unnecessary for me to consider whether or not the applicant's failure to accept the offer was so unreasonable that the respondents should be entitled to their costs from the date of the offer. Indeed the lack of evidence which precludes an assessment of whether or not the applicant achieved a result more favourable than the offer also precludes an assessment of whether or not he acted reasonably in failing to accept it. The Offer of Compromise 13 Rule 216(6) of the Industrial Relations Commission Rules 1996 provides: (6) Where an offer is made by a respondent and not accepted by the applicant, and the applicant obtains an order on the claim to which the offer relates not more favourable than the terms of the offer, then, unless the Commission otherwise orders, the applicant shall be entitled to an order against the respondent for costs in respect of the claim up to and including the day the offer was made, assessed on a party and party basis, and the respondent shall be entitled to an order against the applicant for costs in respect of the claim thereafter, assessed on a party and party basis. 14 I do not accept the applicant's submissions that the judgment handed down was more favourable to him than the offer of compromise because, in essence, he considers that he has now been publicly vindicated and the respondents have not "had the last word". Acceptance of this argument would clearly undermine the public policy behind offers of compromise to encourage parties to give serious consideration to reasonable offers of settlement. 15 Authorities pertaining to offers of compromise in other jurisdictions were considered by the New South Wales Court of Appeal in Morgan v Johnson (1998) 44 NSWLR 578. Mason P extracted the following principles from the relevant case law at 581: The leading cases on the Supreme Court rule are Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 and New South Wales Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100 (" Reeve "). The leading cases on the corresponding provision in the District Court rules are Hillier v Sheather (1995) 36 NSWLR 414, Quach v Mustafa (Court of Appeal, unreported, 15 June 1995) and Houatchanthara v Bednarczyk (Court of Appeal, unreported, 14 October 1996). The following principles can be extracted: (1) The purpose of the rule is to encourage the proper compromise of litigation, in the private interests of individual litigants and the public interest of the prompt and economical disposal of litigation: Maitland Hospital at 725-6; Hillier at 421, 431. (2) The aim is to oblige the offeree to give serious thought to the risk involved in non-acceptance: Maitland Hospital at 724. (3) The prima facie consequence of non-acceptance will be that the rule will be enforced against the non-accepting party: Reeve at 102; Hillier at 422. This is because, from the time of non-acceptance "notionally the real cause and occasion of the litigation is the attitude adopted by [the party] which has rejected the compromise" : Maitland Hospital at 724; see also Hillier at 420. (4) Lying behind the rule is the common knowledge that "litigation is inescapably chancy" : Maitland Hospital at 725. For this reason, the ordinary provision is expected to apply in the ordinary case: ibid ; Reeve at 102-3. The mere fact that it was reasonable for the litigant to take the view that he or she did in rejecting the offer is not enough to displace the rule: Reeve at 102. As Clarke JA expressed it in Houatchanthara at p4: "The rule lays down the general principle that should be applied, and the order provided for in that rule should only be departed from for proper reasons which, in general, only arise in an exceptional case. It is clear that if the rule operates, the plaintiff will be significantly disadvantaged, but that disadvantage flows naturally from the risks of litigation. The idea behind the rule is to encourage settlement or compromise of proceedings, and more specifically, to encourage litigants to give serious consideration to the settlement of proceedings. Where an offer is made by a defendant to a plaintiff, the latter is put on notice that unless he or she accepts that offer, there is a significant risk that the order provided for by the rule may follow. In declining to accept the offer, the plaintiff undertakes the risk and the consequences that flow naturally from that risk." (5) The discretion to displace the rule is a judicial one, requiring the private and public purposes of the rule to be borne in mind: Maitland Hospital at 725-6. Reasons must be given for "otherwise ordering": Hillier at 419; Quach . 16 Mason P further held in Morgan v Johnson that, generally, exceptional circumstances would be required to justify a departure from the rule. 17 A number of decisions have held that such a departure will not be justified on the basis that the judgment amount only marginally exceeds the amount of the offer: in Connor v Hatgis (No 2) (CA(NSW), Kirby P, Priestley and Powell JJA, 7 December 1995, unreported, BC9501810) the difference was $4000 and in Houatchanthara v Bednarczyk the difference was only $750. Accordingly, even if I accepted the applicant's submission that the offer should be measured against the judgment figure, incorporating as it does interest over an additional fifteen months, the fact that the offer was only $2,406.49 more than the judgment sum is insufficient to justify a departure from the rule. In fact, I accept the respondents' submission that interest should be calculated over the same period to yield a valid comparison, making the relevant difference $16,000. 18 The applicant has not persuaded me that his failure to accept the Offer of Compromise was reasonable, let alone persuaded me of any exceptional circumstances to justify a departure from the rule. The fact that the offer did not give him any security in relation to costs of proceedings in the Licensing Court is irrelevant: nor did the judgment handed down in this matter, nor could it have. It is difficult to see the relevance (far less the probative value) of the applicant's submission that the normal operation of Rule 216(6) should be displaced because the respondents consistently denied that an agreement had been reached at the Meeting. 19 Accordingly, I accept the respondents' submission that the applicant should pay the first and second respondents' party/party costs from 4 July 2001. Apportionment 20 It remains to consider liability for costs incurred before 4 July 2001. The Court recently considered the principles governing apportionment of costs in Maurice Michael O'Sullivan v The Crown in the Right of the State of New South Wales (Department of Education and Training) [2003] NSWIRComm 303 at [198]: However, costs may be apportioned in certain circumstances. The relevant general principles in that regard are contained in the judgment of Toohey J in Kimberley John Hughes v Western Australian Cricket Association (Inc) and Ors (1986) ATPR 48, subject to the qualifications in Cretazzo v Lombardi (1975) 13 SASR 4, namely: (a) Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order; (b) Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which it has failed; (c) A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party's costs of them. In this sense, "issue" does not mean a precise issue in the technical pleading sense but any disputed question of fact or of law; and (d) Notwithstanding the above, the interests of justice may not be served if parties are dissuaded by the risk of costs from canvassing all issues which might be material to the decision in the case. 199 I note also the decision of the Full Federal Court in Dodds Family Investments Pty Ltd (formerly Solar Tint Pty Ltd) and Anor v Lane Industries Pty Ltd and Ors (1993) 26 IPR 261 at 272 as follows: Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion for the trial judge. Mathematical precision is illusory and the exercise of the discretion will often depend upon matters of impression and evaluation. 21 I accept the respondents' submission that, on a perfunctory basis, the applicant succeeded in relation to one aspect only of a case which essentially had three limbs, but I do not accept the respondents' submission that this constitutes the appropriate basis upon which to apportion costs. Nor do I accept the respondents' submission (which is really a variation on the same theme) that the applicant should pay the respondents' costs up to 1 August 2001, being the date when the third (and ultimately successful) aspect of the applicant's case became apparent. To an extent, I agree with the applicant's submission that unsuccessful components of his case were necessary to establish the factual background to the case: the evidence and submissions relating to the Meeting, and to what was agreed at the Meeting, were complicated and material to the ultimate decision. 22 There was, however, one aspect of the applicant's case which did unduly lengthen the proceedings and increase costs: that part of the case relating to serious misconduct. The applicant's insistence that his conduct could not be classified as serious misconduct demanded the expenditure of significant time and energy rebutting a position which should have been conceded with humility rather than fought with indignation. Costs should be apportioned to take this aspect of the case into account. 23 Consequently, I order that the first and second respondents pay 80% of the applicant's costs on a party/party basis up to and including 4 July 2001. orders 24 I make the following orders for payment of costs as agreed by the parties or as assessed: 1. The applicant pay the third respondent's costs of the proceedings; 2. The applicant pay the first and second respondents' party/party costs from 4 July 2001; and 3. The first and second respondents pay 80% of the applicant's costs on a party/party basis up to and including 4 July 2001. ________________________________________ 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. 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