Industrial Court of New South Wales CITATION: Twohill v Mental As Anything Touring Pty Ltd and ors (No 2) [2008] NSWIRComm 75 APPLICANT David Francis Twohill FIRST RESPONDENT PARTIES: Mental As Anything Touring Pty Ltd SECOND RESPONDENT Martin Edward Murphy THIRD RESPONDENT Andrew Macarthur Smith FILE NUMBER(S): 4627 of 2005 CORAM: Marks J CATCHWORDS: S106 unfair contract proceedings - application to apply slip rule to calculation of compensation - error in assessing compensation by reference to net amount rather than gross amount - application that interest and costs be awarded on usual basis - applicant found to be employee of first respondent - offer of compromise made - counter-offer made and rejected - no prima facie presumption of indemnity costs - cannot apply Calderbank principles - costs follow the event - applicant entitled to costs of proceedings - applicant entitled to interest on monetary compensation - original judgment varied Industrial Relations Act 1996 ss106, 181 LEGISLATION CITED: Industrial Realtions Commission Rules r151 Uniform Civil Procedure Rules 2005 schedule 5 Alamdo Holdings Pty Ltd v Australian Window Furnishings (NSW) Pty Ltd [2008] NSWSC 7 Elite Protection Personnel Pty Ltd v Salmon [2007] NSWCA 322 Jones v Bradley (No 2) [2003] NSWCA 258 CASES CITED: Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 Timms v Clift (1998) 2 QdR 100 Twohill v Mental As Anything Touring Pty Ltd & ors [2008] NSWIRComm 17 WorkCover Authority of NSW (Inspector Mark Morganthal) v DHL Exel Supply Chain (Australia) Pty Ltd, McGill Holdings Pty Ltd and DTC Pty Ltd (No 2) [2008] NSWIRComm 49 HEARING DATES: 4 April 2008 DATE OF JUDGMENT: 16 April 2008 APPLICANT Mr A Britt of counsel Solicitor: Mr J Laxon Hillman Laxon Tobias Lawyers LEGAL REPRESENTATIVES: RESPONDENTS Mr J DeMeyrick of counsel Solicitor: Mr J Kenny Kenny & Co Solicitors JUDGMENT: INDUSTRIAL COURT OF NEW SOUTH WALES CORAM: Marks J Wednesday 16 April 2008 Matter No IRC 4627 of 2005 Twohill v Mental As Anything Touring Pty Ltd and ors (No 2) Application under s 106 of the Industrial Relations Act 1996 JUDGMENT WITH RESPECT TO SLIP RULE, COSTS AND INTEREST [2008] NSWIRComm 75 1 In a judgment delivered on 14 February 2008 in Twohill v Mental As Anything Touring Pty Ltd and ors [2008] NSWIRComm 17 I upheld a claim brought by the applicant David Twohill against the first respondent, Mental As Anything Touring Pty Ltd and the second and third respondents, Martin Edward Murphy (also known as Martin Plaza) and Andrew Macarthur Smith (also known as Greedy Smith), brought under s 106 of the Industrial Relations Act 1996 ("the Act"). In that judgment, I ordered that the respondents pay the applicant the sum of $12,100 by way of monetary compensation and I reserved costs and interest. 2 The applicant has sought that I apply the slip rule to the calculation of the monetary compensation and that interest and costs be awarded on the usual basis. The respondents opposed the application of the slip rule and asked that the Court order that the applicant meet his own costs up to 12 October 2006 and thereafter pay the respondents' costs on either a party-party or indemnity basis or, in the alternative, that the respondents pay 9.4% of the applicant's costs. The respondents also resisted the making of any order for the payment of interest. The slip rule 3 In [68] of my judgment I found that the applicant should have been afforded six months' notice of termination of his employment and should have been paid monetary payment in lieu, but allowing for credit of four weeks pay that had been actually made. In [69] and [79] I proceeded to calculate the amount of the monetary compensation on the basis of 22 weeks at $550 per week. The amount of $550 was said to be that which had been received by the applicant from the first respondent by way of regular payments of "wages". The evidence in the proceedings was that this was the amount that had been paid each week to the applicant and to the other principal members of the band, Mental As Anything. However, there was evidence in the proceedings, in the nature of PAYG payment summary forms submitted by the first respondent to the Australian Taxation Office, that indicated that the $550 per week was an amount received net of PAYG taxation deductions. That is, for the year ending 30 June 2004, the gross payment received by the applicant of "wages" from the first respondent was $36,595. The applicant submitted that it was the gross amount that should have formed the basis of the calculation rather than the net amount and this would have resulted in the awarding of monetary compensation of $15,482.92. 4 Mr J DeMeyrick of counsel, appearing for the respondents, resisted the application of the slip rule. He submitted that as the payment of monetary compensation under s 106(5) was to be assessed generally on a discretionary basis, it could not be said with confidence that it was my intention to apply the calculation in the manner asserted by the applicant. I reject this submission as being contrary to the very clear intention of the manner in which the amount was to be calculated as revealed in my reasons for judgment. 5 I have had occasion to discuss the relevant authorities and the principles to be derived from them concerning the application of the slip rule recently in WorkCover Authority of NSW (Inspector Mark Morganthal) v DHL Exel Supply Chain (Australia) Pty Ltd, McGill Holdings Pty Ltd and DTC Pty Ltd (No 2) [2008] NSWIRComm 49. The discussion commences at [79]. It is not necessary that I repeat material contained therein or refer in any detail to it. I observe that Rule 151 of the Rules of this Court governs the application of the slip rule, which is in the following terms. 151 Minute of judgment or order (1) Where there is a mistake in an order or decision, arising from an accidental slip or omission, a tribunal, on application by any party or of its own motion, may at any time correct the mistake or error. (2) A tribunal, on application by any party or of its own motion, may, at any time, for the purpose of carrying out its intention and to express accurately its meaning, correct any order or decision. (3) The power in this Rule is additional to the power in Rule 38. 6 In my opinion it is abundantly clear that I was in error in assessing compensation by reference to a net amount received by the applicant rather than the gross amount. If a party had pointed out to me during the course of the proceedings, or if I had become aware, that $550 was indeed the net amount and not the gross amount and that there was evidence of the gross amount, I would have applied the gross amount. This is in accordance with principles governing the quantification of compensation for monetary loss of this kind which are so well known that there is no necessity to refer to them. Accordingly, I intend to apply the slip rule to the quantification of the monetary compensation. Costs 7 In order to resist the making of the "usual" costs order, the respondents, in essence, relied on two substantive arguments. The first was that the respondents had made an offer of settlement which had been rejected by the applicant and that this rejection would impact upon the making of an appropriate costs order. The second argument was based upon the limited success in terms of monetary compensation which accrued to the applicant in terms of the nature and extent of his claim before the Court. I shall deal with each of these arguments in turn. Respondents' offers of settlement 8 In order to deal with the respondents' arguments, it is first necessary to describe the relationship between the applicant and the first respondent, secondly, the existence of another entity which was not part of the proceedings, namely a unit trust, and thirdly, the subject matter of the proceedings. 9 The applicant claimed that he was, in the alternative, an employee of the first respondent or a partner with the second and third respondents. In my judgment I found that the applicant was an employee. The operation of the activities of the band was channelled through the first respondent and the accumulated earnings from performances and other activities were distributed on a regular basis each week to each band member in a set amount. The first respondent also paid the band's expenses including manager's fees, payment to casual and other regular performers, touring expenses and the like. 10 Syray Pty Ltd ("Syray") was a trustee of the unit trust. The intellectual property including common law and registered trade marks and copyright in musical works, sound recordings and certain artistic works of the band was either owned by or licensed by the unit trust. The applicant and the second and third respondents were directors and equal shareholders of the trustee company and each held an equal amount of units in the trust. However, as I found, "….not all of them received equal payments from the unit trust, the preponderance of payments going to those members who were recognised as being the composers of particular songs, for royalties accruing in connection with those songs. Syray did not receive any income from live performances by the band." 11 The s 106 proceedings, which were the subject of my judgment, were directed only, in the ultimate, to the contract of employment between the applicant and the first respondent. It was alleged, as I found, that the contract was unfair in a number of ways. The finding of unfairness led to a variation of the contract and the awarding of monetary compensation calculated by reference to a period of notice of termination which I found, as a matter of fairness, should have been afforded to the applicant. 12 The applicant also brought claims for payment of annual leave and long service leave entitlement, which I rejected. 13 It is against this background that it is necessary to have regard to certain offers of settlement which were made by the respondents in the proceedings. These offers were made in the context of ongoing negotiations between the parties and their representatives. Not unnaturally, the respondents were anxious to resolve the totality of the disputation which they had with the applicant. That is, they wanted to resolve firstly such claim that the applicant had against the respondents whether based on employment or partnership and secondly, the claim made by the applicant with respect to his entitlement under the unit trust. It was this intention that pervaded the course of the negotiations between the parties. In making this observation I should not be seen to be in any way critical of the stance taken by the respondents. In endeavouring to settle the totality of the applicant's claim arising out of his involvement with the band, they were acting reasonably and sensibly. 14 By an offer of compromise, filed under part 23 of the Rules of this Court, dated 11 August 2006, the applicant offered to settled the proceedings upon payment to him of a sum of $25,000 inclusive of interest and a further payment to him of his legal costs as agreed or taxed. On 24 August 2006, the respondents' solicitors wrote enquiring as to whether this offer was intended to settle not only the proceedings but also the claim with respect to the unit trust. 15 After further communications between the parties, the respondents' solicitors wrote to the applicant's solicitor on 12 October 2006. That letter contained, inter alia, a "counter-offer". There was agreement to pay to the applicant the sum of $25,000 together with costs as agreed or assessed "in respect of all matters and claims covered by the Amended Summons and their relationship generally…." There then followed an offer to deal with the payment of ongoing royalty payments to the applicant from the unit trust which, in essence, accommodated the applicant's share of any music recording royalties, royalties with respect to any songs which he had composed or co-composed and the payment of part of "mechanical royalties" in respect of songs recorded by the band before his departure from it. 16 By letter dated 19 October 2006, the applicant's solicitor rejected that counter-offer. 17 Thereafter, correspondence between the parties shows that the applicant increased the amount that he was prepared to accept to $90,000 together with costs provided that certain royalties continued to be paid to him. The negotiations between the parties continued to deteriorate thereafter. 18 In the upshot, the applicant was awarded compensation of the order of $15,482.92 after application of the slip rule. The question of costs remains controversial. 19 The respondents submitted that the offer made by them in the letter of 12 October 2006 not having been exceeded by the applicant, and in the circumstances of the making of that offer generally, the Court should exercise its discretion so as to deprive the applicant of any costs after that date and to award the respondents costs in their favour on and after that date. 20 In making his submissions, Mr J DeMeyrick of counsel who appeared for the respondents relied on the line of authority dealing with offers of compromise which has come to be described as the Calderbank principles. 21 Those principles were described succinctly in a recent judgment of the New South Wales Court of Appeal in Elite Protection Personnel Pty Ltd v Salmon [2007] NSWCA 322 by both McColl JA and Basten JA. At [97] to [99] McColl JA said, "97 A Calderbank letter is the appellation given to a letter which conforms to the structure of that deployed in Calderbank v Calderbank , namely one which is marked "without prejudice", makes an offer of settlement, and warns that the letter will be relied upon on the question of costs if and when that issue arises: Messiter v Hutchinson (1987) 10 NSWLR 525. "Calderbank offers" are well recognised means of making offers of settlement in circumstances where the party making the offer ultimately seeks a costs advantage if the offer is not accepted: Jones v Bradley (No 2) [2003] NSWCA 258 (at [5]). 98 The general principles concerning Calderbank offers were set out in Jones v Bradley (No 2) where the Court approved Giles JA's statement in SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 (at [37]) that: 'The making of an offer of compromise in the form of a Calderbank letter ... where the offeree does not accept the offer but ends up worse off than if the offer had been accepted, is a matter to which the Court may have regard when deciding whether to otherwise order, but it does not automatically bring a different order as to costs. All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure ...' 99 In Leichhardt Municipal Council v Green [2004] NSWCA 341 (at [46]) Santow JA (with whom Stein JA agreed) reviewed the authorities concerning Calderbank letters. His review demonstrated that such a letter would only justify an order for costs on an indemnity basis, rather than the ordinary basis, if it constituted a genuine offer of compromise, which it was unreasonable for the appellant not to accept: Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 (at [4]) per Handley, Beazley and Basten JJA. Among the issues germane to the question of the reasonableness of the offeree's conduct will be whether the offeree had an 'appropriate opportunity ... to consider and deal with the offer': Donnelly v Edelsten (1994) 49 FCR 384 (at 396) (Full Court of the Federal Court, Neaves, Ryan and Lee JJ)." 22 Furthermore, there is no prima facie presumption that if an offer of this kind is rejected that a party not receiving a result more favourable than the offer is required to pay indemnity costs. Any controversy in this State concerning the existence or otherwise of such a prima facie presumption was firmly resolved by the New South Court of Appeal in Jones v Bradley (no 2) [2003] NSWCA 258. The Court (Meagher, Beazley and Santow JJA) said at [7] to [9] "7 The other line of authority rejects the 'prima facie presumption' approach. In MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FCR 236 Lindgren J said at page 239: 'It is important, however, to appreciate that the mere making of an offer by a Calderbank letter and its non-acceptance followed by a result more favourable will not automatically lead to the making of an order for payment of costs on an indemnity basis.' His Honour said the manner of exercise of the discretion 'depends on all relevant circumstances of that case'. His Honour's view reflected the jurisprudence in the Federal Court at the time: see WCW Pty Ltd v Charthill Ltd (unreported, Federal Court, Olney J, 7 July 1992); John S Hayes & Associates Pty Ltd v Kimberly-Clark Australia Pty Ltd (1994) 52 FCR 201; and has continued to be applied in that Court: see The Sanko Steamship Co Ltd v Sumitomo Australia Ltd (unreported, Federal Court, Sheppard J, 7 February 1996) and NMFM Property v Citibank [2001] FCA 480; (2001) 109 FCR 77. 8 This principle has also been enunciated in this Court. In SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 Giles JA stated at para 37: 'The making of an offer of compromise in the form of a Calderbank Letter ... where the offeree does not accept the offer but ends up worse off than if the offer had been accepted, is a matter to which the court may have regard when deciding whether to otherwise order, but it does not automatically bring a different order as to costs. All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure.' It appears that Priestley JA, by his Orders in this case, would endorse this approval. But in any event, the principle has been applied in the Supreme Court both at first instance and on appeal: see Enron Australia Finance Pty Limited (in liquidation) v Integral Energy Australia [2002] NSWSC 819; Nobrega v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney (No 2) [1999] NSWCA 133; LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2003] NSWCA 74; and Cummings v Sands [2001] NSWSC 706. 9 It is worth pausing to note that the difference between the two lines of authority may be 'more apparent than real' as in either approach the Court must consider all the circumstances of the case: see CBA Investments Limited v Northern Star Limited (No 2) [2002] NSWCA 164. Be that as it may, we consider that the approach taken by the Court in SMEC Testing Services is correct and is the approach which should be consistently applied when dealing with Calderbank offers." 23 In considering the application of the Calderbank principles to the circumstances of these proceedings and in approaching the making of a costs order in the proceedings generally, I have 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. 24 Leaving aside the omission in the letter relied upon by the respondents of any reference to the sanction concerning payment of costs if the offer of 26 October 2005 was not accepted, and the entitlement to rely upon the offer for the purpose of the proceedings, the difficulty that the respondents encounter is that the offer relied upon included the settlement of matters which were not the subject of these proceedings, namely the applicant's entitlements arising under the unit trust. There is no evidence of any kind before the Court touching upon those entitlements. Accordingly, there are no means by which the Court can attempt to assess the extent to which the offer made by the respondents was reasonable having regard to the two components, namely the substantive proceedings with which the Court was dealing and those matters which were not covered by the proceedings. It follows therefore that the Court cannot begin to consider whether and to what extent the applicant may have acted unreasonably in declining to accept the offer. In these circumstances, there is no basis upon which the Court can consider the application of the Calderbank principles. Furthermore, the Court is similarly hampered in considering whether in the exercise of its discretion overall there is any reason why the usual costs order should not be made in favour of a successful party. 25 For the reasons advanced, I am unable to apply the Calderbank type principles or otherwise exercise the Court's discretion in any manner other than by reference to the usual principle of costs follow the event. Mr DeMeyrick relied upon a decision of the Queensland Court of Appeal in Timms v Clift [1998] 2 QdR 100. Those proceedings considered a Rule of Court which required consideration of whether there had been an offer to settle made by a plaintiff, not accepted by a defendant and the plaintiff had obtained a judgment "no less favourable than the offer to settle". The proceedings at first instance were defamation proceedings. The plaintiff had made an offer of settlement inclusive of a requirement for an apology. Even though, in the end result, the plaintiff had not obtained an apology in the proceedings, he had received an award of damages very much higher than an offer he had made to settle the proceedings. It was held that the court rule entitled the plaintiff to recover an order for costs on a solicitor-client basis. I do not understand how that authority can assist the respondents in these proceedings. 26 In the same way, Mr DeMeyrick relied upon a judgment of McHugh J in the High Court of Australia in Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622. Those proceedings concerned an appeal from proceedings before the Refugee Review Tribunal. The question for determination was whether or not the applicant had acted reasonably in commencing the proceedings in the High Court in all the circumstances. Again, I cannot see how that authority and any part of the judgment of McHugh J bears any relevance to the issue which I am required to determine in these proceedings. In Lai Qin, there had been no determination of the matter on the merits because it had resolved shortly after the proceedings commenced. 27 In the alternative, Mr DeMeyrick submitted that the applicant should be entitled to a proportion of his costs only, being the proportion that the amount awarded for compensation bore to the amount claimed in the proceedings. This was approximately 9%. I know of no authority that would support such a submission. Mr DeMeyrick relied on a line of authority that dealt with proceedings where there were multiple issues and the plaintiff/applicant succeeded on some of those issues and failed on others. The authorities and principles in this area have been referred to by Barrett J in the Supreme Court of New South Wales in Alamdo Holdings Pty Ltd v Australian Window Furnishings (NSW) Pty Ltd [2008] NSWSC 7. The relevant material is to be found in [24] to [30] of his Honour's judgment. I gratefully acknowledge and adopt his Honour's summary of the relevant principles based on the authorities and extracts from judgments which his Honour has set out. However, as I have said, they refer only to circumstances where multiple issues were involved in the proceedings. 28 In these proceedings, the applicant sought findings of unfairness in the alternative directed to his contract of employment with the first respondent or to his partnership with the second and third respondents. In either case, the applicant asserted that the relevant contract was unfair and he sought ultimately monetary compensation. He succeeded overall in the proceedings, albeit that the award of monetary compensation was much less than that claimed in the proceedings. This reflected, however, my rejection of the amount of notice or payment in lieu that the applicant claimed should have been payable to him as a matter of fairness. The applicant had also made a claim for annual leave and long service leave. He did not succeed with respect to these claims. However, these discrete claims did not involve the adducing of any additional evidence and were the subject only of submissions. 29 I should add for completeness that the proceedings originally issued by the applicant were directed solely to an alleged contract of employment with the first respondent. The partnership claim was only made later by amendment of the proceedings as a result of an assertion by the respondents that there was no contract of employment and that in reality the relationship was one of partnership. For reasons set out in my earlier judgment, I rejected the respondents' case in this regard. 30 Overall, the proceedings were strenuously resisted by the respondents and each and every issue was disputed. 31 I am unable to discern any reason based on authority why the applicant should only be entitled to a proportion of his costs, especially one fixed by reference to the amount claimed and where, in essence, the proceedings could not be characterised as involving multiple issues. 32 For these reasons I reject this submission. Accordingly, the applicant is entitled to his costs of the proceedings and I shall so order. Interest 33 It is also necessary to deal with the question of interest. Mr DeMeyrick submitted that interest should only be ordered up to the date of the making of the respondents' offer on 12 October 2006. In circumstances where the applicant did not act unreasonably in refusing the offer, for the reasons that I have already set out, there is no reason why he should not be entitled to interest on the monetary compensation awarded and I shall so order. Orders 34 I make the following orders. 1. My judgment of 14 February 2008 in Twohill v Mental As Anything Touring Pty Ltd and ors [2008] NSWIRComm 17 is varied by deleting Order 2 and substituting therefor the following "2. The respondents are jointly and severally liable to pay the applicant the sum of $15,482.92." 2. The respondents are jointly and severally liable to pay the applicant interest on the said sum of $15,482.92 from the date of filing of the original summons on 5 September 2005 until the date of this judgment calculated in accordance with schedule 5 of the Uniform Civil Procedure Rules 2005. 3. The respondents are to pay the applicant's costs of the proceedings, including these proceedings, assessed under the Legal Profession Act in default of agreement. 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.