Industrial Court of New South Wales CITATION: West & Anor v The Owners Strata Plan No 54288 (No 2) [2009] NSWIRComm 61 This decision has been amended. Please see the end of the judgment for a list of the amendments. FIRST APPLICANT John Hosking West PARTIES: SECOND APPLICANT Heather West FILE NUMBER(S): IRC 311 of 2007 CORAM: Staff J CATCHWORDS: Costs - Unfair contract - Calderbank letter - Application by respondent for indemnity costs - Principles applied in such circumstances - Reasonable for applicants to refuse respondent's offers - Indemnity costs denied LEGISLATION CITED: Industrial Relations Act 1996 Boyd & Anor v Maxx Implementation Pty Limited & Ors (No 3) [2008] NSWIRComm 200 Commonwealth of Australia v Gretton [2008] NSWCA 117 County Securities Pty Limited v Challenger Group Holdings Pty Limited (No 2) [2008] NSWCA 273 CASES CITED: Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 West v The Owners Strata Plan No 54288 [2009] NSWIRComm 30 Wheelahan v North Coast Area Health Service (No 2) [2008] NSWIRComm 244 HEARING DATES: 22 April 2009 DATE OF JUDGMENT: 8 May 2009 FIRST AND SECOND APPLICANTS Mr CP Taylor of counsel Solicitor: Mr P Hunt Hynes Lawyers LEGAL REPRESENTATIVES: RESPONDENT Mr A Rogers of counsel Solicitor: Mr S Radburn Somerville Laundry Lomax JUDGMENT: - 1 - INDUSTRIAL COURT OF NEW SOUTH WALES CORAM: STAFF J Friday, 8 May 2009 Matter No IRC 311 of 2007 JOHN HOSKING WEST & ANOR v THE OWNERS STRATA PLAN NO 54288 (NO 2) Application under s 106 of the Industrial Relations Act 1996 JUDGMENT [2009] NSWIRComm 61 1 On 13 March 2009, judgment was given in West v The Owners Strata Plan No 54288 [2009] NSWIRComm 30, in which I declined to declare void or vary a caretaking agreement between John and Heather West ("the applicants") and the Owners of Strata Plan No 54288 ("the respondent"). 2 The applicants had contended that the caretaking agreement was unfair in two respects, but were unsuccessful. The application was dismissed and the applicants were ordered to pay the respondent's costs. 3 The respondent seeks that the applicants pay its costs of the proceedings, up to and including 14 October 2008, on a party/party basis and thereafter on an indemnity basis. Background 4 In determining whether to award indemnity costs, it is necessary to review, briefly, the history of the matter. The applicants filed their summons for relief under s 106 of the Industrial Relations Act 1996 ("the Act") on 15 March 2007. A reply to the summons was filed by the respondent on 11 May 2007. On 21 June 2007, the parties attended a conciliation conference before Marks J, which was ultimately unsuccessful. On 7 February 2008, the respondent filed an amended reply to the summons. On 25 February 2008, the respondent filed a notice of motion seeking leave to file a further amended reply to summons, which was filed on 5 March 2008. Affidavit evidence of the applicants, respondent and in reply was filed by 16 May 2008. 5 On 23 May 2008, the matter was fixed for hearing to commence on Monday 20 October 2008. 6 On 23 June 2008, the solicitors for the applicants forwarded a letter containing an offer of settlement. 7 On 9 October 2008, the solicitors for the respondent made an offer of settlement in the form of a "Calderbank" letter. The letter contained five possibilities for settlement. 8 On 14 October 2008, the solicitors for the applicant wrote to the solicitors for the respondent rejecting all offers of settlement. Submissions of the parties 9 Mr C P Taylor of counsel, who appeared for the applicants, submitted that it was reasonable for the applicants to reject the offer of 9 October 2008 for the following reasons: (a) the applicants sought relief by way of amendment to the contract. The offer did not address such a matter; (b) the offer was not a genuine offer, but merely made in an endeavour to trigger cost sanctions (consistent with the respondent's present application). Applying the reasoning of Bergin J in Cat Media Pty Ltd v Allianz Australia Ltd [2006] NSWSC 423 acceptance of the offer, in circumstances where the respondent was aware that the applicant's costs were in excess of $50,000 was not in any way an offer designed to genuinely compromise the matter; (c) even if the offer was deemed to be genuine, the timing of the offer in circumstances where the applicants had an arguable case, was such that it rendered the offer as being capable of being perceived as unreasonable. 10 Mr A Rogers of counsel, who appeared for the respondent, in seeking an order for indemnity costs from 14 October 2008 (the date of the rejection of the offers), summarised his client's position this way: I put the respondent's case on indemnity costs on the basis identified in the draft orders - that is, weighing everything in the balance, even if your Honour is not convinced the rejection was unreasonable and we say it must have been - weighing in the balance of the matters in regard to the length of the hearing, the costs incurred, the extent and the variety of alternatives put to the applicants and in my submission, even if your Honour was not convinced - the making of the offers was such as to trigger the exercise of discretion for the grant of indemnity costs rather than costs on a party/party basis from the date of the rejection or from the date after the rejection, as sought in the orders. Principles 11 Recently, Boland J President, in Wheelahan v North Coast Area Health Service (No 2) [2008] NSWIRComm 244, reviewed the authorities on Calderbank offers and indemnity costs. His Honour said at [45] - [47]: [45] There is a significant amount of authority on Calderbank offers and indemnity costs. The concept was succinctly explained by the Court of Appeal in Elite Protective Personnel Pty Ltd & Anor v Salmon [2007] NSWCA 322: [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 …" [46] It is clear from the authorities that an offer and subsequent rejection of a Calderbank offer will not automatically result in indemnity costs in favour of the offeror: SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323; Leichhardt Municipal Council v Green [2004] NSWCA 341; Chint Australasia Pty Limited v Cosmoluce Pty Limited [2008] NSWSC 768. The award of indemnity costs based upon a Calderbank offer involves the exercise of the Court's discretion: Monie v Commonwealth of Australia (No. 2) [2008] NSWCA 15 at [11]. In Leichhardt Municipal Council at [47] the Court of Appeal said that: It is preferable to consider applications for indemnity costs following unaccepted offers of compromise by defendants as being applications for a favourable exercise of the Court's general discretion to award indemnity costs. As far as Calderbank offers go there is very little difference, the costs consequences of these lying entirely within the Court's general inherent discretion on costs. [47] The Court of Appeal recently considered Calderbank letters and indemnity costs in County Securities Pty Limited v Challenger Group Holdings Pty Limited (No 2) [2008] NSWCA 273. In that case, the Court outlined the discretionary nature of awarding indemnity costs and held that the person making the application for indemnity costs bears the onus of proving that indemnity costs should be awarded. The Court further said: [32] An offer with no real element of compromise in it, which is designed merely to trigger the costs sanctions, will not be treated as a genuine offer of compromise. Whether or not an offer is a genuine offer of compromise or merely a demand to capitulate depends upon an assessment of all the circumstances of the case at the time: Leichhardt Municipal Council v Green (at [21], [27]) per Santow JA (with whom Stein JA agreed); see also Herning v GWS Machinery Pty Ltd (No. 2) [2005] NSWCA 375 (at [4]); Gretton (at [44]) per Beazley JA ( Mason P agreeing); cf Hodgson JA ( Mason P also agreeing) (at [115]). [33] Other principles governing Calderbank offers were set out in Elite as follows: [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)." 12 I propose to apply these principles in determining the respondent's application for indemnity costs. Consideration 13 Mr Rogers acknowledged that the onus was on the respondent to show that the applicants' conduct in rejecting the offer was unreasonable: Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26]; County Securities Pty Limited v Challenger Group Holdings Pty Limited (No 2) [2008] NSWCA 273 at [31]; Commonwealth of Australia v Gretton [2008] NSWCA 117 at [117]. In demonstrating the applicants' unreasonableness in rejecting the offer, the respondent must prove that the offer of 9 October 2008 was a genuine offer and that there was an appropriate opportunity for the respondent to consider and accept the offer: Boyd & Anor v Maxx Implementation Pty Limited & Ors (No 3) [2008] NSWIRComm 200 at [30]; County Securities Pty Limited v Challenger Group Holdings Pty Limited (No 2); Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 at [4]. 14 The authorities make clear that the mere offer and rejection of a Calderbank letter will not result in an automatic entitlement to indemnity costs. The respondent must prove that it was unreasonable for the applicants to reject the offer and that, in the circumstances of the case, it is appropriate to order indemnity costs. In assessing the applicants' unreasonableness, I must consider whether the offer was a genuine offer to settle the matter. A second consideration, which does not arise here in light of the applicants' rejection of the offer, is whether they had sufficient time to consider and accept the offer. In County Securities Pty Limited v Challenger Group Holdings Pty Limited (No 2) the Court of Appeal said: [32] An offer with no real element of compromise in it, which is designed merely to trigger the costs sanctions, will not be treated as a genuine offer of compromise. Whether or not an offer is a genuine offer of compromise or merely a demand to capitulate depends upon an assessment of all the circumstances of the case at the time: Leichhardt Municipal Council v Green (at [21], [27]) per Santow JA (with whom Stein JA agreed); see also Herning v GWS Machinery Pty Ltd (No. 2) [2005] NSWCA 375 (at [4]); Gretton (at [44]) per Beazley JA ( Mason P agreeing); cf Hodgson JA ( Mason P also agreeing) (at [115]). 15 The respondent submitted that as at 9 October 2008, the matter was ready for trial and all affidavit evidence had been filed. It could not be said that the applicants were not in a position to assess the strengths and weaknesses of their case. It was also submitted that it could not be suggested that the offers made to the applicants were not genuine because they amounted to an offer to increase the wages of Mr West. Furthermore, it was submitted that when the range of alternatives were considered, the applicants could not make good a contention that the offer was not a genuine attempt to settle the matter. 16 The applicants submit that it was reasonable to reject the offer of 9 October 2008 because it did not address the relief sought by the applicants by way of variation to the contract. Offer 5 provided that the contract be varied as claimed by the applicants. However, the respondent proposed a further variation which was that the contract would provide for termination by the respondent on 12 months' notice. The contract that the applicants have with the respondent was for a period of 10 years, with an option for a further 10 years, which the applicants have exercised. Faced with this offer, in my view, it was not unreasonable for this offer to be rejected. 17 Offers 3 and 4 include as one of their terms that the respondent purchase the caretaking rights from the applicants in the sum of $45,000, or at a value as determined by an independent valuer. The applicants did not seek at any time to sell the caretaking agreement which provided long-term security of tenure, albeit, at rates that the applicants contended were below the market. In my view, it was not unreasonable for the applicants to reject such an offer. 18 Offer 1 sought to increase the annual remuneration of the applicants by an amount significantly less than the total amount claimed by the applicants. Offer 2 proposed a similar increase to order 1, together with an increase in the hourly rate, but sought to limit the applicants' hours of work to 20 hours per week. This offer provided that any work above 20 hours per week could only be performed with the express authority of the Owners Corporation and if agreed to by the respondent. In my view, this was not a reasonable offer in all the circumstances of the application. 19 The applicants' further contended that the offer was not a genuine offer because the applicants' costs were in excess of $50,000. This contention appears to misunderstand the respondent's offer. It was made exclusive of costs. This complaint would have had some force if the offer had been inclusive of costs. 20 It follows that I have had regard to the various offers to settle the claim set out in the letter to the applicants dated 9 October 2008 so far as they are relied upon by the respondent to demonstrate that the rejection of all of the offers by the applicants were unreasonable. On balance, I have formed the view that it does not seem appropriate to disclose the contents of the offers in any more detail than I have in this judgment. 21 In my view, for the reasons given, I find that it was reasonable for the applicants to reject the offers set out in the letter of 9 October 2008. It follows that the application for indemnity costs must fail. The orders made on 13 March 2009 in respect of costs shall stand. I order that the applicants pay the costs of the respondent thrown away by the vacation of the hearing in respect of costs on 23 March 2009. The applicants should have their costs of the hearing on 22 April 2009. I so order. ------------------------------------------------------ AMENDMENTS HISTORY: 08/05/2009 - Minor correction made in the Legal Representatives field - Paragraph(s) coversheet DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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