Industrial Court of New South Wales CITATION: Domanko v Business Catalyst International Pty Ltd (No 3) [2010] NSWIRComm 54 Robert Domanko (Applicant) Business Catalyst International Pty Ltd (In Liq) (First Respondent) PARTIES: Zia Qureshi (Second Respondent) Business Catalyst Consulting Pty Ltd (Third Respondent) Business Catalyst (Hong Kong) Ltd (Fourth Respondent) FILE NUMBER(S): IRC 581 of 2005 CORAM: Staff J CATCHWORDS: COSTS - s 106 unfair contract proceedings - discretion to award proportion of a party's costs - relevant principles to be applied in departing from general rule that costs follow the event - applicant succeeded overall in proceedings although not in respect of all claims of unfairness - offers of compromise made - counter offers made and rejected - Calderbank offer - costs follow the event - applicant entitled to costs of proceedings - Industrial Relations Act 1996 s 181 LEGISLATION CITED: Industrial Relations Act 1996 Alamdo Holdings Pty Limited v Australian Window Furnishings (NSW) Pty Ltd [2008] NSWSC 7 Archer v Archer (No 2) [2000] NSWCA 315 Brown v Rezitis (1970) 127 CLR 157 Calderbank v Calderbank [1975] 3 All ER 333 Domanko v Business Catalyst International Pty Ltd and anor [2008] NSWIRComm 120 Domanko v Business Catalyst International Pty Ltd (No 2) [2009] NSWIRComm 219 Elite Protection Personnel Pty Ltd v Salmon [2007] NSWCA 322 CASES CITED: Elite Protective Personnel Pty Ltd & Anor v Salmon (No 2) [2007] NSWCA 373 James v Surf Road Nominees (No 2) [2005] NSWCA 296 McFadzean & Ors v Construction Forestry Mining and Energy Union & Ors [2007] VSCA 289 Patrick Stevedores No 1 Pty Ltd v Kilkelly [2004] NSWCA 237 Ruddock and Others v Vadarlis and Others (No 2) (2001) 115 FCR 229 Smallacombe v Lockyer Investments Co Pty Ltd (1993) 42 FCR 97 Twohill v Mental As Anything Touring Pty Ltd and ors (No 2) [2008] NSWIRComm 75 Turkmani v Visvalingam (No 2) [2009] NSWCA 279 Walter Construction v Walker Corporation [2001] NSWSC 359 HEARING DATES: 31 March 2010 DATE OF JUDGMENT: 4 May 2010 Mr D Shoebridge of counsel (Applicant) LEGAL REPRESENTATIVES: Barwick Legal Mr F Austin of counsel (Respondents) JUDGMENT: - 1 - INDUSTRIAL COURT OF NEW SOUTH WALES CORAM: STAFF J Tuesday 4 May 2010 Matter No IRC 581 of 2005 ROBERT DOMANKO v BUSINESS CATALYST INTERNATIONAL PTY LTD & ORS Application under s 106 of the Industrial Relations Act 1996 JUDGMENT [2010] NSWIRComm 54 1 In Domanko v Business Catalyst International Pty Ltd (No 2) [2009] NSWIRComm 219, I determined an application brought pursuant to s 106 of the Industrial Relations Act 1996 ("the Act"). The following orders were made: 1. The contract entered into between the applicant, Robert Domanko and Business Catalyst International Pty Ltd on 29 July 2002 is declared to be an unfair contract on the following grounds, namely, that the contract: (a) was unfair, harsh and unconscionable; (b) was against the public interest; (c) failed to provide for provision of the payment of redundancy and reasonable notice. 2. The contract is varied by inserting a provision to the following effect: Zia Qureshi is required to pay Robert Domanko seven weeks redundancy and two weeks pay in lieu of notice calculated on the salary that Robert Domanko was paid at the date of termination. 3. Such payment shall be made by the second respondent, Zia Qureshi to the applicant Robert Domanko. 4. The second respondent shall pay interest on the amount specified in order 2 hereof in accordance with Sch 5 of the Uniform Civil Procedure Rules 2005. The interest shall be payable from the date of the filing of the original summons for relief to the date of this judgment. 5. The second respondent shall pay the applicant's costs of the proceedings in an amount as agreed or assessed. If the parties are unable to agree they have liberty to apply. 2 Upon giving judgment and announcing the orders, Mr F Austin of counsel, who appeared for Zia Qureshi ("the second respondent"), Business Catalyst Consulting Pty Ltd ("the third respondent") and Business Catalyst (Hong Kong) Ltd ("the fourth respondent") sought to be heard on the question of costs. I directed that in accordance with a timetable, the parties file written submissions in respect of this issue. Submissions were filed by the second, third and fourth respondents on 10 February 2010. 3 On 24 February 2010, the applicant's submissions on compensatory orders were filed. The applicant advised that submissions in respect to costs had been completed and served on the respondents, but had not been filed by reason of r 20.30 of the Uniform Civil Procedure Rules 2005 ("UCPR"). This rule deals with disclosure of offers of compromise to the Commission. 4 Accordingly, the applicant sought that the question of liability and compensatory orders as against the third and fourth respondents be dealt with prior to the filing of his submissions as to costs. On the basis of submissions made at the trial, Mr D Shoebridge of counsel, who appeared for the applicant, sought that compensatory orders be made jointly and severally against the second, third and fourth respondents. The applicant set out in draft final orders, the monetary amounts flowing from my orders. The applicant also sought that the existing orders be varied to provide that the second, third and fourth respondents be jointly and severally liable to pay the applicant the sums awarded in order 2. 5 The Court did not make any orders against the third and fourth respondents. At [79] - [84] of my judgment, I dealt with the submissions of the respective parties regarding whether orders should be made against the second, third and fourth respondents. The applicant pressed for orders and the respondents opposed orders against the third and fourth respondents. I determined that an order should only be made against the second respondent. In light of the controversy that had arisen in respect of my judgment, as to whether the orders should include the third and fourth respondents, I delivered an ex tempore judgment on 31 March 2010 utilising r 36.17 of the UCPR Rules ("the slip rule"), to address this omission. The orders were amended by adding order 3(a) to provide as follows: 3(a) the proceedings are dismissed as against the third and fourth respondents. 6 Final orders were also made with respect to the sums awarded in order 2. The outcome was that the applicant recovered judgment in the sum of $22,500 against the second respondent together with interest of $10,996.64. The amount awarded represented seven weeks redundancy and two weeks pay in lieu of notice, calculated on the salary of the applicant at the date of termination. Original claim 7 The applicant's amended summons for relief claimed: (a) the value of lost salary entitlements. The applicant claimed $8,308 salary reduction; (b) redundancy pay and pay in lieu of notice. The applicant claimed $63,467; (c) a claim for additional remuneration under a new pay structure. The applicant claimed $29,040; (d) the applicant claimed the value of 20,000 units offered to him in an employee participation trust deed valued at $1 per unit; and (e) the applicant claimed a discretionary bonus of $50,000 per annum. 8 The applicant was only partly successful in respect of his claim for redundancy pay and payment in lieu of notice. The remaining four claims were successfully defended. Leaving aside claims in respect of interest, the outcome of the proceedings was that the applicant recovered judgment in the sum of $22,500 in respect of claims quantified at $170,815. The applicant was successful in respect of one claim out of five pressed. 9 The applicant submitted, prima facie, that he had succeeded on the claim and was therefore entitled to his costs. As the proceedings were determined before 1 February 2010, it was submitted that the issue of costs involved rights that accrued under the Industrial Relations Commission Rules 1996 ("the 1996 Rules") and the Act. 10 Mr Austin submitted that, in the circumstances of this matter, it would be unjust and unreasonable to order the second respondent to pay the applicant's costs on the ordinary basis for the following reasons: (i) the applicant was only successful in a small portion of its overall claim. It may be noted that in both his original and his further amended summons for relief, Pt D, the applicant claimed relief in the form of five separate monetary orders. The applicant was unsuccessful in four of those five prayers; (ii) on the one claim that the applicant was successful (notice and redundancy), the applicant was awarded only a portion of the amount claimed, that is $22,500 of the $63,467 claimed; (iii) the applicant was unsuccessful in the vast majority of contested factual issues which took up a considerable portion of the pleadings, the affidavit and documentary evidence and the hearing itself. The length of the proceedings (over almost five years), was greatly prolonged and the associated legal costs greatly increased as a consequence of unproven factual issues. In this respect, the applicant was unsuccessful in proving every factual issue regarding the claims of unfairness in relation to the salary reduction, discretionary bonus, and the alleged new pay structure; (iv) in contradistinction, the factual issues surrounding the notice and redundancy claim were relatively straightforward: see judgment [50] - [61]. It is difficult to point to any factual matters contested by the second respondent in which the applicant was successful, other than the quantum of the notice/redundancy claim, to which a concession was made by counsel for the second respondent: see judgment [56], [59]. 11 Mr Austin submitted that if there was ever a s 106 claim in which the Court should refrain from making the usual orders as to costs, this was the case. Counsel submitted that to award the applicant costs on the ordinary basis, would be to undercut the Parliamentary intention evidenced in the creation of the statutory discretion found in s 181 of the Act. 12 Mr Austin submitted that whilst it may not be appropriate to award the second respondent part of its costs, it would be unjust and unreasonable to award the applicant more than one third of his costs, as agreed, or assessed. 13 In determining the question of costs, the Court must proceed having regard to the discretion that is imposed by s 181(1) of the Act, which is in the following terms: 181 Costs (1) Subject to the rules of the Commission and any other Act or law: (a) the Commission may award costs, and (b) costs are in the discretion of the Commission, and (c) the Commission may determine by whom and to what extent costs are to be paid, and (d) the Commission may order costs to be assessed on the basis set out in Division 11 of Part 3.2 of the Legal Profession Act 2004 or on any other basis. 14 It is immediately apparent that this section provides for the awarding of a proportion of a party's costs. It is well established, at common law, that proportionality is an important factor to take into account in the exercise of discretion in relation to costs. Mr Austin referred the Court to various authorities dealing with the awarding of a proportion of a party's costs, including a judgment of Barrett J in Alamdo Holdings Pty Limited v Australian Window Furnishings (NSW) Pty Ltd [2008] NSWSC 7, where his Honour considered the relevant principles to be applied in departing from the general rule that costs follow the event and whether it was feasible to judge the outcome in a proceeding according to issues, matters, or heads of controversy. I have been assisted in the determination of the question of costs in this matter by his Honour's consideration and the authorities referred to in his Honour's judgment to which I now refer. 15 In Ruddock and Others v Vadarlis and Others (No 2) (2001) 115 FCR 229, the Full Court of the Federal Court considered the law as to when a judge should depart from the usual order, that costs follow the event, and stated at [11]: Within the general discretion of the courts to award costs it is accepted by decisions in both Australian and English jurisdictions that: · Ordinarily costs follow the event and a successful litigant receives costs in the absence of special circumstances justifying some other order. · Where a litigant has succeeded only upon a portion of the claim, the circumstances may make it reasonable that the litigant bear the expense of litigating that portion upon which he or she has failed. · 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 parties' 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 law. 16 Black CJ and French J (as he then was) went on to state at [15]: Usually the circumstances in which a successful party is denied all or part of its costs have to do with its conduct of the proceedings. The Federal Court Rules 1979 (Cth) make specific provision for the case in which a judgment is obtained which is not more favourable than terms previously offered by a respondent: O 23, r 11. Within the general discretion to award costs, costs may be refused where, for example, the applicant has made an exaggerated claim which has occupied a significant proportion of the proceedings and has succeeded only on a minor aspect of its original claim. Costs may be apportioned according to success or failure on particular distinct or severable issues: see, for example, Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 42 FLR 213 at 220; Hughes v WA Cricket Association (Inc); Inn Leisure Industries Pty Ltd v DF McCloy Pty Ltd (No 2) (1991) 28 FCR 172; Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272. And a trial judge may award only a proportion of the successful party's costs if the conduct of that party at trial was such as to unreasonably prolong the proceedings: Latoudis v Casey at 544; Cummings v Lewis (1993) 41 FCR 559; 113 ALR 285 at 602-603; 327 (Cooper J, Sheppard and Neaves JJ agreeing). 17 In James & Ors v Surf Road Nominees Pty Limited & Ors (No 2) [2005] NSWCA 296, the Court of Appeal stated at [31] - [36]: [31] Costs orders in the Supreme Court are governed by the provisions of s.76 of the Supreme Court Act 1997 and the Supreme Court Rules . Section 76 provides, relevantly that subject to the Act and the Rules, costs shall be in the discretion of the Court: s.76(1)(A). Part 52A r.11 acts as a limited proscription of the Court's discretion conferred by s.76. Part 52A r.11 provides that, subject to Part 52A, the Court shall order that costs follow the event " except where it appears to the Court that some other order should be made as to the whole or any part of the costs ". [32] The effect of Pt 52A r.11 is that an unsuccessful party may be ordered to pay the entirety of the costs of the successful party, even though the successful party did not succeed on all issues. However, as is specified by the rule itself, the Court is entitled to make a different order. That may occur where there are multiple issues involved. This was the subject of comment in Waters v. P C Henderson (Aust) Pty. Limited (unreported CA(NSW) Kirby P, Mahoney and Priestley JJA, 6 July 1994) where Mahoney JA said: "Where the proceedings involve multiple issues the application of the rule that costs follow the event may involve hardship where a party succeeds on some issues and yet fails on others. Particularly is this so where, for example, a defendant succeeds on issues that occupied the bulk of the time taken by the proceedings. Nevertheless, unless a particular issue or group of issues is clearly dominant or separable, it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed." [33] Similarly, Toohey J made the following observations in Hughes v Western Australian Cricket Association (1986) ATPR 40-748: "1. Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order. 2. 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 he has failed. 3. 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 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." (references omitted) [34] Where a matter involves multiple issues and the question before the court is whether it should make some other order as to costs other than the order that costs follow the event, a distinction is commonly drawn between cases which involve clearly discrete issues for determination, and those in which all issues are inseparable, or at least sufficiently linked, with respect to the overall disposition of a particular matter. In Permanent Trustee Aust Ltd v FAI General Insurance Co Ltd (unreported, NSWSC, 3 June 1998), Hodgson CJ in Eq noted that the obvious examples of a matter involving discrete issues is one where a plaintiff makes separate claims for different relief, or a claim by a plaintiff and a cross-claim by a defendant. Another example is where a respondent is successful in having an appeal against an earlier decision dismissed, but for reasons other than those raised in the respondent's Notice of Contention. This is not to say that so-called "discrete issues", for the purposes of apportioning costs, only exist in cases where there are separate claims made within a single matter. As Toohey J stated in the passage quoted at [33] above, it can relate to " any disputed question of fact or law " before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter. [35] In Madden v Connell [2001] NSWSC 1051, Hamilton J referred to there being a "rule" that where there are "discrete issues and the time taken on each issue at the hearing can be identified or realistically estimated", an order for costs may be made against the party which fails on such issues, or alternatively, that party may be deprived of its costs for that portion of the matter. In the Court's opinion it is preferable not to speak in terms of "rules". However, the underlying approach to the "rule" stated by his Honour may be an available approach to the exercise of the court's discretion as to costs in a particular case, depending upon all of the circumstances. [36] Where the court does exercise its discretion to apportion costs, the apportionment itself involves the exercise of discretion. As Gummow, French and Hill JJ recognised in Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261: "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." This case is a classical example of that sentiment. 18 The Supreme Court of Victoria, Court of Appeal, in McFadzean & Ors v Construction Forestry Mining and Energy Union & Ors [2007] VSCA 289, upheld orders that successful plaintiffs pay 40 per cent of the costs of unsuccessful defendants. The Court (Warren CJ, Nettle and Redlich JJA) stated at [153], [156], [158]: [153] The judge below acknowledged that in the normal course, a plaintiff who was only successful on one of a number of pleaded causes of action would be entitled to costs. In our view, the reasons his Honour gave for departing from this course were sound. The Rules of Court are wide enough to permit an apportionment of costs according to issues or causes of action. Importantly, the judge regarded the case brought by the successful appellants as a 'substantial failure ... whether assessed by references to causes of action or issues.' His Honour observed that the plaintiffs had been successful in eight of the 63 causes of action they had brought, and that, assessed as a proportion of the disputed questions of fact resolved in their favour, the success of the plaintiffs was substantially less than that. In these circumstances, there was clearly a reasonable basis for his Honour's conclusion that a 'substantial injustice' would result from an award of costs in favour of the successful plaintiffs. ... [156] The appellants also put their complaint in these terms: that the judge erred in failing to have regard to the fact that the 'plaintiffs' claims' were not severable. As we have noted, in exercising its discretion as to costs the court is entitled to take into account the failure of a party on certain 'issues'. But in this context, as the judge noted, 'issue' is not used in the technical pleading sense, but refers to any disputed question of fact of law. Accordingly, the question of the severability of 'claims', in the sense of causes of action, is not precisely to the point. In any event, his Honour was aware of the need to consider the extent to which the evidence led in respect of the successful Wilkinson v Downton claims also related to the other causes of action. Despite the complex nature of the case, his Honour found that 'it remains entirely possible to identify the disputed issues which I had to resolve, and the evidence adduced specifically with respect to each of them.' As his Honour found, the causes of action on which the successful plaintiffs failed dominated the trial. ... [158] In fixing costs a superior court may treat 'heads of controversy as units of litigation' and give directions to the taxing master in relation to them, such units not being circumscribed by pleadings, causes of action or issues capable in themselves of leading to the granting of relief. But to avoid the complications of taxation resulting from making orders recognising the entitlements to costs of a party on each action on which they were successful, the orders may be notionally set off against each other or other adjustments made so as to produce an order for a proportion of one party's costs. This approach to costs orders where an action has had mixed success has been followed in a number of cases. In Hughes v Western Australian Cricket Association (Inc), Toohey J had regard to the fact that the plaintiff had succeeded on some issues but failed on others, but concluded that: 'it would be unsatisfactory to attempt to apportion issues and leave the fixing of costs of those issues to the taxing officer. That would impose a very great burden on him and upon the parties' legal representatives.' In our view, the judge's approach to the apportionment of costs was particularly apposite in this case, having regard to the multiplicity of parties, actions, and issues, and the mixed success enjoyed by the plaintiffs. 19 Recently, the Court of Appeal in Elite Protective Personnel Pty Ltd & Anor v Salmon (No 2) [2007] NSWCA 373, stated at [7] - [8]: [7] As the appellants submit, the commencing position is that costs follow the event so that a successful party is entitled to costs. In relation to trials it has been said that it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument: Sabah Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306 (at [24]). A similar approach is adopted in the Court of Appeal. If the appellant loses on a separate issue argued on the appeal which has increased the time taken in hearing the appeal, then a special order for costs may be appropriate which deprives the appellant of the costs of that issue: Sydney City Council v Geftlick & Ors (No 2) [2006] NSWCA 374 (at [27]). [8] ether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the court, which powers should be liberally construed: State of New South Wales v Stanley [2007] NSWCA 330 (at [18]) per Hislop J (with whom Beazley JA and Tobias JJA agreed). See also Turkmani v Visvalingam (No 2) [2009] NSWCA 279. 20 In Twohill v Mental As Anything Touring Pty Ltd and ors (No 2) [2008] NSWIRComm 75, Marks J cited Elite Protection Personnel Pty Ltd v Salmon [2007] NSWCA 322, in support of his decision to refuse an application to apportion costs in respect of an application brought pursuant to s 106 of the Act. Although there were multiple allegations of unfairness with separate claims and money orders sought, his Honour observed that "the applicant sought findings of unfairness in the alternative directed to his contract of employment with the first respondent or his partnership with the second and third respondents" (at [28]). As here, the applicant in Twohill succeeded overall in the proceedings, although the award of monetary compensation was much less than that claimed in the proceedings because of the rejection of four of the five claims that the applicant argued should be payable to him as a matter of fairness. As Marks J observed, the authorities and principles referred to by Barrett J in Alamdo Holdings Pty Ltd, referred only to circumstances where multiple issues were involved in the proceedings (at [27]). 21 Mr Austin submitted that his Honour did not appear to give full weight to the meaning given in the various authorities referred to by Barrett J in Alamdo Holdings Pty Ltd, particularly to the notions of "discreet issues", "disputed questions of fact and law", and "heads of controversy". Counsel submitted that these decisions make plain that the fact there is only one course of action does not prevent the application of the principles and that therefore the decision of Marks J was of limited assistance to this Court in exercising the discretion provided for by Parliament in s 181 of the Act. Consideration 22 I do not agree with the submissions of Mr Austin that it would be unjust and unreasonable to order the second respondent to pay the applicant's costs on the ordinary basis. 23 In my view, a substantial injustice would result if the general rule was not applied in respect of the applicant's costs. The proceedings were directed solely to a contract of employment with the first respondent. The applicant succeeded overall in the proceedings, although he did not succeed in respect of all claims of unfairness in respect of his contract of employment. In my view, the proceedings cannot be characterised as involving multiple issues as were the subject of consideration by Barrett J in Alamdo Holdings Pty Ltd and the authorities therein considered. In exercising the discretion conferred upon me by s 181 of the Act, I would allow the applicant to recover his costs of this action, as agreed, or, as assessed. There will be an order accordingly. Costs - third and fourth respondents 24 Although the proceedings were dismissed against the third and fourth respondents, Mr Shoebridge submitted that there should be no order as to costs in their favour. Counsel observed that no evidence had been filed by those parties in the proceedings and that they had engaged the same counsel as was retained by the second respondent. In the alternative, Mr Shoebridge submitted that as Marks J had made an interlocutory order that the costs of a notice of motion seeking to join the third and fourth respondents be costs in the cause, that the Court may form the view that it is appropriate to revisit that matter and make an order that the third and fourth respondents have the benefit of the costs of the joinder motion: Domanko v Business Catalyst International Pty Ltd and anor [2008] NSWIRComm 120. 25 Mr Shoebridge submitted that it was reasonable for the applicant to bring proceedings against the third and fourth respondents where the first respondent was in liquidation and the second respondent was denying any liability. To the extent that there was any potential liability for costs as against the applicant in regard to the third and fourth respondents, counsel submitted, this would be an appropriate case for the unsuccessful second respondent to bear such costs by way of a "Bullock order": Patrick Stevedores No 1 Pty Ltd v Kilkelly [2004] NSWCA 237. 26 Mr Austin submitted that there was nothing concerning the conduct of the second respondent which would make it fair to impose upon him any costs for the third and fourth respondents pursuant to a Bullock order. Counsel submitted that the second respondent had neither sought to involve the third and fourth respondents, nor denied his authority as Chief Executive Officer of the first respondent, or had he, by his conduct, caused the applicant to believe he was a man of straw or a flight risk. 27 Applying the usual rule, a successful party should not be deprived of costs because of their association with an unsuccessful litigant, as opposed to their own conduct of the proceedings: Ruddock v Vadarlis at [14] - [15]. The mere fact that the third and fourth respondents shared the same legal representation as the second respondent, or, that the unsuccessful litigant was associated with these legal entities, does not, in my view, automatically disentitle them to costs. 28 As I have observed, Mr Shoebridge submitted that I should make a Bullock order, which would result in the unsuccessful second respondent bearing the costs of the third and fourth respondents. I do not propose to make such an order. There is nothing concerning the conduct of the second respondent which, in my view, would make it fair to impose upon him, the costs of the third and fourth respondents, pursuant to a Bullock order. The second respondent did not seek to involve the third and fourth respondents, deny his authority as CEO of the first respondent, or seek to deflect responsibility on the third or fourth respondents. The joinder of the third and fourth respondents was strongly resisted. Marks J observed at [14]: The respondent parties also submitted that there was no utility in allowing the third and fourth respondents to be joined as additional respondents, particularly as the second respondent Mr Qureshi, who is associated with both of those corporations, is before the Court, albeit by reason of his association with the first respondent. Whether, pragmatically, and taking into account the cost effective prosecution of this matter, this submission is soundly based, it is not sufficient in my opinion, based upon the principles which apply to proceedings of this kind, to deny the applicant the ability to amend the proceedings as sought. 29 His Honour also observed at [3], [5]: [3] The proposed amended summons asserts that on 7 February 2005, the first respondent, presumably through the liquidator, sold "the business, plant and equipment and intellectual property of the first respondent" to the fourth respondent. It is alleged that "from this time the fourth respondent became a beneficiary of, the making or operation of the said unfair contract." The second respondent is alleged to be a director of the fourth respondent which, as I have said, is a Hong Kong corporation. The proposed amended summons also alleges that "the third respondent carries on the business known as and holds itself out to be the business of 'Business Catalyst International'. The third respondent trades on the goodwill and reputation of the first respondent and accordingly became a beneficiary of the making or operation of the said unfair contract." ... [5] In seeking to justify the addition of the third and fourth respondents, the applicant said that he was merely endeavouring to trace the assets of the first respondent which in fairness he should be entitled to do, based on the development of the Brown v Rezitis principles. 30 Ultimately, there was no evidence adduced by the applicant in respect of these assertions. The applicant joined the third and fourth respondents based on the principle in Brown v Rezitis (1970) 127 CLR 157, in circumstances where the third and fourth respondents came into existence after the applicant's termination. 31 As I have observed, the third and fourth respondents were represented by the same counsel who appeared for the second respondent. No additional evidence was called by them. In my view, the appropriate order in respect of the third and fourth respondents, is that the applicant pay the costs of the third and fourth respondents in relation to the joinder motion heard on 16 June 2008. There should be no other order for costs in respect of the third and fourth respondents. Offers of compromise 32 Mr Austin submitted that it was appropriate to consider offers of compromise and any Calderbank offers after determining the question of costs. I accept this approach as appropriate in this matter. On 23 December 2008, the second respondent made an offer to pay $22,000 to the applicant, representing a payment in lieu of notice and redundancy, and $8,000 interest, and half of the applicant's costs, as agreed, or, as assessed, or in the alternative, the sum of $20,000. The offer of compromise was conditional upon the applicant agreeing to accept the respective offers made by the third and fourth respondents. The offer remained open until 5.00 pm on 9 January 2009 and was made in accordance with the principles laid down in Calderbank v Calderbank [1975] 3 All ER 333. 33 The third respondent also made an offer of compromise on 23 December 2008 that the matter be discontinued as against the third respondent, that each party bear their own costs and that the offer was conditional upon the applicant agreeing to accept the respective offers of the second and fourth respondents. This offer was said to be open until 5.00 pm on 9 January 2009. 34 Also on 23 December 2008, the fourth respondent made an offer of compromise that the matter be discontinued against the fourth respondent, that the applicant pay the fourth respondent's costs, as agreed, or, as assessed, or in the alternative, the sum of $2,500 and that the offer was conditional upon the applicant agreeing to accept the respective offers of the second and third respondents. The offer was said to remain open until 5.00 pm on 23 December 2008 (sic). 35 Mr Austin submitted that in terms of the substantive relief granted to the applicant, the second respondent's offer was more generous, in that it included interest, than the offers of compromise subsequently made by the applicant in 2008. The difficulty, presumably from December 2008, was the question of legal costs. 36 The applicant made a number of offers of compromise to the respondents over time. All were refused. The offers were as follows: (a) on 17 January 2008 a Calderbank offer of $55,000 inclusive of costs; (b) on 24 November 2008 a formal offer under Pt 23 of the 1996 Rules of $30,000 together with costs against the second, third and fourth respondents was made. (When interest from the date of the termination of the applicant to 24 November 2008 is calculated it represents $9,126.37 which, when combined with the judgment sum of $22,500, shows the applicant to have done better than the offer putting the issue of costs and the third and fourth respondents to one side); (c) on 22 December 2008 a formal offer under Pt 23 of the 1996 Rules of $22,000 together with costs, as agreed, or, as assessed, against the second respondent with no order as to costs against the third and fourth respondents was made; (d) on 22 December 2008 a Calderbank offer of $22,000 together with costs, as agreed, or, as assessed, against the second respondent with no order as to costs against the third and fourth respondents was made; (e) on 4 February 2009 an offer under Pt 23 of the 1996 Rules of $22,000 together with costs in such proportion as between 50 per cent and 100 per cent as the Court determines, as agreed, or, as assessed, against the second respondent with no order as to costs against the third and fourth respondents was made. This offer was made, Mr Shoebridge submitted, as the respondents were debating proportionality on costs and, whilst not accepting this fundamental proposition, in order to minimise costs the applicant was willing to agree to such formula and allow the Court to determine any proportionality; and (f) on 29 June 2009 a further Calderbank offer of $22,000 together with costs, as agreed, or, as assessed, against the second, third and fourth respondents was made. 37 In respect of the offer of 17 January 2008, since the decision in Elite Protective Personnel Pty Ltd v Salmon there is no rule against offers being inclusive of costs. 38 However, McColl JA (Beazley JA agreeing, Basten JA agreeing in a separate judgment), observed (at [111] - [116]), that the problem with such inclusive offers is that where they are used by the offeror to better its position on costs, the offeree is placed in a difficult position of having to determine the appropriate amount to attribute to the substantive claim and the amount to attribute to costs. Her Honour reviewed the authorities which had considered Calderbank offers that were inclusive of costs. Her Honour observed that there was a line of authority commencing with Smallacombe v Lockyer Investments Co Pty Ltd (1993) 42 FCR 97 to the effect that a Calderbank letter expressed to be inclusive of costs will not warrant departure from the usual basis upon which a successful party's costs are calculated (at [100]). 39 Her Honour subsequently considered further authorities where effect had been given to Calderbank offers inclusive of costs (at [102] - [110]) before observing at [111] - [116]: [111] The Smallacombe line of authority has been developed by experienced trial judges whose views, in my opinion, should be accorded great weight. The underlying premise of such cases rests in the proposition that an offeree cannot be said to have acted unreasonably in not accepting an offer expressed to be inclusive of costs, because of the offeree does not have an adequate opportunity to consider the offer and because of the difficulties posed when a court comes to consider the reasonableness of the offeree's conduct in rejecting/not accepting it. In other words such an offer presents practical difficulties. [112] First, the recipient of such an offer would not know the likely party and party costs to date on taxation or assessment: see Smallacombe (at 102); Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) . Secondly, in considering the reasonableness of the offer at the time the question of its costs consequences arose, it would be necessary to indulge in a taxation, or assessment, of costs: Associated Confectionery (at 351). The Court should not be required to postpone the decision as to the basis upon which costs should be awarded while awaiting the outcome of that exercise. Nor should it be required either to speculate as to what the outcome of an assessment might be, nor arbitrate on a dispute between the parties on this topic. [113] In Sm allacombe (at 102) Spender J opined that "all-in" offers "would not promote the finality of litigation, but fragment it", a proposition implicitly recognised by Cole J (as his Honour then was) in W Jeffreys Holdings Pty Ltd v Appleyard and Associates (1990) 10 BCL 298 when he said "[g]reat difficulty is encountered if offers are framed in Calderbank letters on an inclusive of costs basis. It leads to ex post facto and unsubstantiated estimates of what costs may have been at a given date". [114] In my view, the point was well made by Goldberg J in Dr Martens where his Honour said: "[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." In GEC Marconi Systems Pty Limited v BHP Information Technology Pty Limited [2003] FCA 688; (2003) 201 ALR 55 Finn J referred (at [34] – [36]) to the views expressed in the Smallacombe line of authority and in M T Associates Pty Ltd v Aqua-Max Pty Ltd (No 3), and said he was not prepared to say that the Smallacombe approach was clearly wrong, particularly in the light of the views expressed by Goldberg J in Dr Martens at [24]. [115] I agree with Allsop J that Smallacombe does not lay down a "definitive rule" that an "all-in" Calderbank offer can never be considered on the question of indemnity costs. The Court cannot fetter the s 98 discretion by legal rules: Oshlack (at [35]). Smallacombe does, however, afford guidance as to the exercise of the s 98(1) discretion. It informs the question of the reasonableness of an offeree's refusal to accept an "all-in" offer. In my view it has a sound practical basis. While I accept each case should be considered on its facts, Smallacombe provides sound reasons to discourage offerors from drafting Calderbank letters on an "all-in" basis. [116] Further, Smallacombe reflects the policy considerations which, no doubt, led to the adoption of UCPR 20.26(2). Requiring Calderbank offers to be exclusive of costs prevents a court from becoming embroiled in collateral issues, such as the offeree's ability to assess the quantum of the costs component of an offer or the reasonableness of the opinion as to this issue an offeree formed at the time of rejection/non-acceptance. In this respect Calderbank offers which are exclusive of costs assist the Court in facilitating the just, quick and cheap resolution of the real issues in the proceedings: s 56(1) Civil Procedure Act . 40 In this matter, the offer of 17 January 2008 was made before the affidavit evidence was closed and the applicant did not make any attempt to particularise the interest component, or his fair and reasonable costs. However, the onus was on the applicant to demonstrate that the second respondent was unreasonable in not accepting the offer of 17 January 2008, which it did not address. 41 Mr Austin submitted that the applicant had not bettered any of its subsequent offers: 24 November 2008, 22 December 2008, 4 February 2009 and 29 June 2009, as each of these offers expressly incorporated a term allowing for a verdict and judgment against the third and fourth respondents, presumably to make the third and fourth respondents jointly and severally liable to pay any compensatory order that may have ultimately been made against the second respondent. The offers of 24 November 2008 and 29 June 2009 included a term allowing for costs payable by the third and fourth respondents. 42 It is an established principle that an offer of compromise must be capable of acceptance by each of the parties to whom it is addressed, although it may be made interdependent upon acceptance by another party: see Walter Construction v Walker Corporation [2001] NSWSC 359 and Archer v Archer (No 2) [2000] NSWCA 315 at [8]. Here, the offers were expressed as a set of mutually inclusive terms, such that neither the second respondent, nor, for that matter, the third or fourth respondents, were capable of accepting all three terms. In other words, they were not mutually exclusive offers to each of the parties. 43 The leading authority which provides that an offer of compromise must be capable of being accepted by a party to whom it is addressed is Arthur v Archer. Each of the Calderbank offers and offers of compromise under the 1996 Rules were incapable of being accepted by the second respondent. It follows that they were ineffective. 44 Mr Austin submitted that the offers made by the second respondent and the offers made by the third and fourth respondents on 23 December 2008 were separate offers, forwarded in separate correspondence to the applicant and were interdependent. However, the critical question is whether the offers were mutually exclusive: Archer v Archer. Mr Shoebridge conceded that there may well have been a defect in respect of the offers of compromise, but submitted that such offers could be taken into account in accordance with the 1996 Rules and treated as a Calderbank offer. The offers of compromise, or the Calderbank offers, all required a verdict and judgment against the third and fourth respondents. Treating all of the offers made by the applicant as Calderbank offers, the question becomes "was it unreasonable for the second respondent to reject the offers?" 45 In my view, it was not unreasonable, because if all of the offers are treated as Calderbank offers, each offer still required a verdict and judgment against the third and fourth respondents. They made no allowance, at least, to paying some of the costs of the third and fourth respondents. Such offers need also to be analysed against the offer made by the second respondent on 23 December 2008. 46 Applying the principles set out earlier, the applicant has not bettered any offers made on or after 23 November 2008. The applicant has not persuaded me that the second respondent was unreasonable in rejecting its offer of 17 January 2008. This offer was made before the affidavit evidence was closed and there was no attempt by the applicant to demonstrate the interest component and costs component in the offer: see Elite Protective Personnel Pty Ltd (at [110]). 47 In respect of the second respondent's offer of 23 December 2008, there is some force in Mr Shoebridge's submission that this offer was unreasonable in that it was made on 23 December 2008 and had expired on 9 January 2009, noting that the offer of the fourth respondent was said to have expired on the day it was made, which, presumably, was an error. Although not applicable to Calderbank offers, in determining a reasonable period, guidance may be found in r 47.14(3) of the UCPR Rules, which provides that an offer of compromise must be open for not less than 28 days after it is made. On balance, taking into account the time of year when the offers were made and the short period they remained open, in my view, such offers were not open for a reasonable period. 48 Taking all these factors into account, I do not propose to make any order for indemnity costs. The only order in respect of costs will be that which I have already determined, namely, an order that the second respondent pay the applicant's costs of the proceedings, as agreed, or, as assessed. The applicant is to pay the third and fourth respondents' costs of the joinder motion, as agreed, or, as assessed. ORDERS 1. The second respondent is to pay the applicant's costs, as agreed, or, as assessed. 2. The applicant is to pay the third and fourth respondents' costs of the joinder motion before Marks J, as agreed, or, as assessed. ------------------------------------------- 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.