Industrial Court of New South Wales CITATION: Beith v Racing NSW (No 2) [2007] NSWIRComm 141 APPLICANT Michael Beith PARTIES: RESPONDENT Racing NSW FILE NUMBER(S): IRC 6082 of 2004 CORAM: Staff J Costs - Unfair contract - Indemnity costs - Offer of compromise - Applicant successful in unfair contract claim - Judgment exceeded offer of compromise - Onus on respondent - Generally exceptional circumstances are required to justify order denying entitlement to indemnity costs - Respondent failed to discharge onus - Indemnity costs granted CATCHWORDS: Unfair contract - Indemnity costs - Offer of compromise - Applicant successful in unfair contract claim - Judgment exceeded offer of compromise - Onus on respondent - Generally exceptional circumstances are required to justify order denying entitlement to indemnity costs - Respondent failed to discharge onus - Indemnity costs granted LEGISLATION CITED: Industrial Relations Act 1996 Industrial Relations Commission Rules 1996 Beith v Racing NSW [2007] NSWIRComm 82 Calderbank v Calderbank [1976] Fam 93 CASES CITED: George Stewart v All-Fect Distributors Limited and Ors (No 2) [2006] NSWIRComm 303 Morgan v Johnson (1988) 44 NSWLR 578 South Eastern Sydney Area Health Service & Anor v King [2006] NSWCA 2 Van Huisstede v Commissioner of Police (No 2) (2001) 106 IR 56 HEARING DATES: 24 May 2007 DATE OF JUDGMENT: 6 June 2007 APPLICANT Mr AA Hatcher of counsel Solicitor: Mr P Punch Carroll & O'Dea LEGAL REPRESENTATIVES: RESPONDENT Mr JP Phillips SC Solicitor: Mr R Whyburn Maurice Blackburn Cashman JUDGMENT: - 1 - INDUSTRIAL COURT OF NEW SOUTH WALES CORAM: STAFF J 6 June 2007 Matter No IRC 6082 of 2004 MICHAEL BEITH v RACING NSW (NO 2) Application under s 106 of the Industrial Relations Act 1996 JUDGMENT [2007] NSWIRComm 141 1 On 20 April 2007, judgment was given in favour of Mr Michael Beith ("the applicant") in respect of an amended summons for relief under s 106 of the Industrial Relations Act 1996 ("the Act"): Beith v Racing NSW [2007] NSWIRComm 82. The Court permitted the parties to confer in light of the judgment and to file short minutes of order. 2 On 16 May 2007, the Court made the following orders: 1. The contract of employment entered into between the Applicant and the Respondent under which the Applicant performed work as the General Manager, Finance and Administration for the Respondent is declared to be an unfair contract on the grounds that the contract or arrangement failed to provide for reasonable notice and severance pay; 2. The said contract or arrangement is varied from its inception to include a term that upon termination of employment for reasons of redundancy, the Respondent shall pay the Applicant a redundancy payment equivalent to nine weeks remuneration calculated by reference to the Applicant's fully salary package; 3. The said contract, or arrangement, is varied from its inception to include a term that upon the termination of employment, the Respondent shall pay the Applicant reasonable notice equivalent to four months remuneration calculated by reference to the Applicant's full salary package, less any amount earned by the applicant in mitigating his loss over that period of four months. 4. The Respondent shall pay the Applicant amounts calculated in accordance with the variation to the contract, or arrangement, as set out in Orders 2 and 3 as follows:- (i) in respect of Order 2, $31,840.44; and (ii) in respect of Order 3, $32,172.87. 5. The Respondent shall pay interest on the amount specified in Orders 2 and 3 above in accordance with Sch 5 of the Uniform Civil Procedure Rules 2005 such interest to be payable from the date of the filing of the Summons for Relief filed 14 October 2004. 6. Payment of monies referred to in Order 4 hereof shall be made within 28 days of the date of this Order. 3 The parties were unable to agree on costs in circumstances where the applicant sought that the respondent pay its costs of the proceedings on a party/party basis up to 15 August 2005 and thereafter, on an indemnity basis. I heard the parties in respect of this outstanding issue on 24 May 2007. 4 The applicant relied on an affidavit of Peter Punch, a Partner of Carroll & O'Dea, Lawyers, who is responsible for the conduct of this matter on behalf of the applicant. That affidavit had attached to it a letter to the respondent's former solicitors enclosing an offer of compromise dated 15 August 2005. On the same day, a second letter was forwarded by the solicitors for the applicant to the former solicitors for the respondent, which contained a further offer to settle the proceedings for a figure less than that contained in the offer of compromise. The letter stated that the offer would remain open for a period of 14 days and that if the offer was rejected, the applicant would seek a costs order on an indemnity basis in accordance with the principles in Calderbank v Calderbank [1976] Fam 93. The former solicitors for the respondent, by letter dated 31 August 2005, rejected the applicant's offer of compromise and also the offer of settlement outlined in the second letter dated 15 August 2005. 5 Mr JP Phillips SC, who appeared for the respondent, in opposing the granting of indemnity costs, tendered a letter from the applicant's solicitors dated 10 June 2005, which set out, as requested by the respondent, the applicant's offer of settlement, which had been put at the conciliation of the matter. This letter also set out the history of the negotiations between the parties and foreshadowed that if the offer of settlement was not accepted and a certificate of failed conciliation was issued, the applicant would serve an offer of compromise consistent with the offer of settlement contained in the letter of 10 June 2005. Consideration 6 Rule 216(4) of the Industrial Relations Commission Rules 1996 provides as follows: Offer of Compromise ... (4) Where an offer is made by an applicant and not accepted by the respondent, and the applicant obtains an order on the claim to which the offer relates no less 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 from the day on which the offer was made, assessed on an indemnity basis in addition to costs incurred before and on that day, assessed on a party and party basis. 7 Mr AA Hatcher of counsel, who appeared for the applicant, succinctly submitted, relying upon r 216(4), that the Court's orders with respect to the applicant's claim, were significantly more favourable than the offer of compromise; the respondent carried the onus to persuade the Court that indemnity costs should not be ordered and that generally exceptional circumstances are required to justify such an order denying the applicant's entitlement. 8 Counsel relied upon the judgment of the New South Wales Court of Appeal in South Eastern Sydney Area Health Service & Anor v King [2006] NSWCA 2 where Hunt AJA (Mason P and McColl JA agreeing) said: [83] Part 52 rule 22 provides that, where a plaintiff who has made an offer of compromise in accordance with Part 22 (Division I) which is not accepted by the defendant, and where the plaintiff obtains a judgment no less favourable than the terms of the offer, then, unless the Court otherwise orders, the plaintiff will be entitled to an order against the defendant for costs on an indemnity basis in relation to his costs incurred from the day after the offer was made. The onus is on the defendant to persuade the Court that indemnity costs should not be ordered. He must demonstrate the basis on which an order should be made denying the plaintiff's entitlement to indemnity costs. He must establish that he had given serious thought to the risk involved in non-acceptance of the offer, and that he had assessed the plaintiff's case properly and in the context of the rule and the achievement of its purpose — to encourage the proper compromise of litigation, in the private interests of the litigants and in the public interest of the prompt and economical disposal of litigation. Generally, exceptional circumstances are required to justify such an order denying the plaintiff's entitlement. See, generally, Fowdl v Fowdl, Court of Appeal, 4 November 1993, unreported, per Kirby P at 12, 16; Hillier v Sheather (1995) 36 NSWLR 414 at 422-423; Morgan v Johnson (1998) 44 NSWLR 578 at 581-582 . (Emphasis added). [84] Although the Court may take into account the particular features of a case and the difficulty of putting an accurate estimate on its value in advance of the litigation, those considerations do not provide a basis by themselves for denying the party making the offer an order for indemnity costs: Hillier v Sheather (at 423). In Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 at 725, it was said that a miscalculation in a case with large imponderables, where the course taken by the party to whom the offer was made may have been perfectly reasonable, would provide a basis for denying an order, but the subsequent decision in Hillier v Sheather suggests that, whilst "large" imponderables may be a relevant factor in the particular case in denying an order for indemnity costs, in the general case a party's reasonable belief as to his own chances of success does not alone provide a basis for denying an order for indemnity costs. [85] In the present case, the respondent has submitted that the judge had wrongly considered that a belief that the appellants had reasonable grounds for defending the claim constituted exceptional circumstances disentitling her from an order for indemnity costs. However, the fact that the plaintiff's case had changed significantly between the date of the plaintiff's offer and the trial in which the judgment obtained is higher than the amount of the offer does provide a sufficient basis for an order denying the plaintiff's entitlement to indemnity costs: Maitland Hospital v Fisher [No 2] (at 725). The very nature of the situation itself demonstrates that it would be unfair to a defendant to make an order for indemnity costs when the evidence at the trial is different from that known to the defendant at the time of the offer. Whether or not this is an "exceptional" situation does not matter. 9 Hunt AJA referred to the decision of the Court of Appeal in Morgan v Johnson (1988) 44 NSWLR 578 where Mason P, in dealing with offers of compromise in the District Court, summarised the applicable principles from the leading cases dealing with the Supreme Court Rules 1970 and the District Court Rules 1973. His Honour said at 581: The leading cases on the Supreme Court Rules are Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 and NSW Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100. 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, 15 June 1995, unreported) and Houatchanthara v Bednarczyk (Court of Appeal, 14 October 1996, unreported). 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 725-726); 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: NSW Insurance Ministerial Corporation v 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 NSW Insurance Ministerial Corporation v Reeve (at 102-103). 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: NSW Insurance Ministerial Corporation v Reeve (at 102). As Clarke JA expressed it in Houatchanthara (at 2-3): "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 725-726). Reasons must be given for "otherwise ordering": Hillier (at 419); Quach . 10 The principles found in King and the earlier case of Morgan v Johnson have recently been applied by Boland J in George Stewart v All-Fect Distributors Limited and Ors (No 2) [2006] NSWIRComm 303. In All-Fect Distributors, Boland J refused an application for indemnity costs by the applicant who had served an offer of compromise which was exceeded by the judgment. His Honour found that the case the respondents were required to meet arguably changed significantly between the date of the applicant's offer of compromise and the trial in which the judgment obtained was higher than the amount of the offer. In such circumstances, his Honour determined that the respondents were entitled to the benefit of the doubt as the respondents may have considered the offer of compromise on the basis of the claim that the applicant was an employee and given no consideration to the possibility of the applicant being an independent contractor. Although the applicant submitted that the summons for relief had been drafted in the alternative, his Honour observed this was most obscure. The alternative status of contractor was only clearly raised by the applicant on the first day of the trial. His Honour determined that the applicant was a contractor. The amendment had the effect of saving the applicant's case. 11 Mr Phillips did not take issue with the principles and authorities relied upon by Mr Hatcher. Senior counsel submitted that the case the respondent expected to meet, at the time the offer of compromise was put, was different to the case they eventually had to meet at the trial. 12 Mr Phillips referred to the summons filed by the applicant on 14 October 2004 in which the applicant sought orders pursuant to s 106(1) of the Act, varying the contract of employment, as follows: A(1)(a) insert a provision term (sic) requiring the respondent to provide the applicant with 6 months notice of termination (or payment in lieu thereof) upon applicant's position becoming redundant and/or in circumstances where the applicant's position ceases to exist; A(1)(b) insert a provision requiring the respondent to provide the applicant with a redundancy or severance payment of 6 months upon applicant's position becoming redundant and/or in circumstances where the applicant's position ceases to exist; ... 13 It was submitted these claims were ambiguous and that it was not until an amended summons was filed on 13 February 2007 that the respondent understood what case it had to meet. The amendment was said to remove the ambiguity which emerged from the following additional order that was sought in paragraph A(1)(ba) of the amended summons: A(1)(ba) further or in the alternative, insert a provision requiring the respondent to pay the applicant a severance payment, in addition to payment in lieu of notice, in a quantum not less than the quantum of severance pay prescribed for an award regulated employee of the applicant's age and length of service as at the date of termination, according to the scale prescribed by the 1994 Redundancy Test case decision of the Industrial Relations Commission of New South Wales; ... 14 In my view, the orders sought in paragraphs A(1)(a) and (b) of the original summons are not ambiguous. Paragraph A(1)(a) seeks six months notice of termination (or payment in lieu thereof) and paragraph A(1)(b) seeks a redundancy or severance payment of six months. Furthermore, the summons in paragraph B, Summary of Matters of Fact and Law, asserted that the contract or arrangement was unfair, harsh or unconscionable because it failed to contain a term entitling the applicant to a redundancy or severance payment (paragraph 38(b)) and because it failed to contain a term requiring the respondent to provide the applicant with reasonable notice (paragraph 38(c)). Finally in Part D, Amount Claimed of the summons, the applicant sought six months notice plus six months redundancy pay (based on the value of the entire salary package). 15 In the reply to the summons for relief, the respondent denied that the applicant was entitled to the amounts claimed in Part D; contended in paragraph B.19, the applicant was advised that his employment would expire at the end of the fixed term and that his position was not made redundant. 16 In my view, there is no basis for the respondent to claim that it was in any doubt about the orders being sought by the applicant. 17 Paragraph A(1)(ba) of the amended summons for relief, which was filed after all of the evidence had been received, does no more than, in the alternative, seek a lesser quantum, in respect of severance pay. On one view, the amendment was unnecessary and had nothing to do with the essential issues in the case. 18 As I have already observed, the onus is on the defendant to persuade the Court that indemnity costs should not be ordered and it has failed to do so. Apart from tendering the letter from the applicant's former solicitors dated 10 June 2005, which did not refer to any exceptional circumstances, the respondent has ignored the evidentiary burden that falls upon it. 19 As the Court of Appeal observed in King: "generally, exceptional circumstances are required to justify an order denying an applicant's claim for indemnity costs." I have already rejected the defendant's contention that the orders sought in the original summons were ambiguous. It follows that the reliance placed by Mr Phillips on the Court of Appeal's comments at [85] of King are misconceived. This case is clearly distinguishable on the facts from those considered by the Court of Appeal in King and by Boland J in All-Fect Distributors. 20 I find that the respondent has failed to demonstrate exceptional circumstances, such that the applicant should be denied its costs on an indemnity basis. It follows that it was not reasonable for the respondent to have rejected the applicant's offer of compromise. 21 Accordingly, I order that the respondent pay the applicant's costs on an indemnity basis from 15 August 2005. In arriving at this decision, I am of the view that such an order should be made to meet the requirements of justice. I am also mindful of the observations of Walton J, Vice-President, in Van Huisstede v Commissioner of Police (No 2) (2001) 106 IR 56 that the granting of indemnity costs does not involve considerations of a punitive nature. ORDERS 22 The Court makes the following orders: 1. The respondent is to pay the applicant's costs in matter No IRC 6082 of 2004 on a party/party basis, up to 14 August 2005, as agreed, or as assessed in accordance with the Court's Rules. 2. The respondent is to pay the applicant's costs on an indemnity basis in respect of matter No IRC 6082 of 2004 on and from 15 August 2005. ------------------------- 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.