New South Wales Court of Appeal CITATION: Peter Willis v Health Communications Network Ltd (No 2) [2008] NSWCA 2 HEARING DATE(S): On the papers JUDGMENT DATE: 8 February 2008 JUDGMENT OF: Mason P; Tobias JA; McColl JA (a) Appeal dismissed; (b) Set aside the orders for costs made by his Honour Judge Finnane in the proceedings at first instance and in lieu thereof : DECISION: (i) the appellant to pay 80% of the respondent's costs of the proceedings in the District Court on an ordinary basis up to and including 23 June 2006 and on an indemnity basis thereafter, and, (ii) the respondent to pay 20% of the appellant's costs of the proceedings in the District Court on an ordinary or party/party basis, such costs to be set off against each other. (c) The appellant to pay 80% of the respondent's costs of the summons for leave to appeal and the appeal on an ordinary or party/party basis and the respondent to pay 20% of the appellant's costs of the summons for leave and the appeal on an indemnity basis, such costs to be set off against each other. CATCHWORDS: Costs - Ordinary costs - Indemnity costs - Costs on a party/party basis - Calderbank offer - Offer of compromise - Whether costs should be paid on an indemnity basis - Settlement negotiations - Reasonableness of offer - Unreasonableness of refusal of offer - Costs at first instance - Costs on appeal - Separate costs in respect of separate claims - Costs where appellant pursues claim on a different basis on appeal - Costs where outcome of appeal is less favourable than offer. PARTIES: Peter Willis Health Communication Network Ltd FILE NUMBER(S): CA 40673/06 COUNSEL: A: J de Meyrick R: R Goot SC SOLICITORS: A: Bryan Gorman & Co, Sydney R: Clayton Utz, Sydney LOWER COURT JURISDICTION: District Court LOWER COURT FILE NUMBER(S): DC 4065/05 LOWER COURT JUDICIAL OFFICER: Finnane DCJ LOWER COURT DATE OF DECISION: 26 September 2006 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40673/06 DC 4065/05 MASON P TOBIAS JA McCOLL JA Friday 8 February 2008 PETER WILLIS v HEALTH COMMUNICATION NETWORK LTD (NO.2) Judgment on Costs 1 THE COURT: The substantive judgment in this appeal was delivered on 6 November 2007: Peter Willis v Health Communications Network Ltd [2007] NSWCA 313. Formal orders were not made on that occasion as there was an outstanding matter of costs, the parties being directed to file written submissions as to the costs of the appeal and the costs of litigating what was referred to in the proceedings as the superannuation issue in the District Court, including whether any such costs should be paid on an indemnity basis. Written submissions in respect of those matters have now been filed by both parties. 2 The appellant, whose employment by the respondent was terminated on 13 April 2005, litigated two claims both before the primary judge and this Court. The first was that when his contract of employment was terminated he had in fact been made redundant and was therefore entitled, pursuant to that contract, to redundancy pay equivalent to 3.5 months' salary (the redundancy claim). The second was that in breach of his contract of employment the respondent had failed to pay to the appellant's superannuation fund a 9% superannuation contribution with respect to the six months' salary which he had received in lieu of notice when his employment was terminated (the superannuation claim). 3 Before the primary judge the appellant failed on both the redundancy and the superannuation issue. In this Court, he failed on the former but succeeded on the latter. As the amount with respect to both claims was less than $100,000, the appellant had sought leave to appeal from this Court which was granted particularly with respect to the redundancy issue on 4 April 2007. 4 The appellant instituted proceedings in the District Court on 20 September 2005, at which time his redundancy claim (including interest) was $63,507 and his superannuation claim (including interest) was $9,798, a total of $73,305. On 24 October 2005 the respondent filed its defence denying both claims. 5 In accordance with the District Court's standard directions, the evidence in the proceedings was to be by affidavit. So far as the respondent's evidence was concerned, its affidavit and documentary evidence was not filed and served until 7 July 2006. In the meantime a number of Calderbank offers were exchanged between the parties. 6 By letter dated 10 March 2006 the solicitors for the respondent, having asserted that there was no basis with respect to either of the appellant's claims, offered to settle all matters in dispute by paying a superannuation contribution equal to what it would have paid had the appellant remained employed for up to six months after the date of the termination of his employment or to the date when he obtained alternative employment, whichever was the earlier. That offer was conditional upon the proceedings being dismissed with no order as to costs. 7 The practical effect of this offer was that the respondent would pay to the appellant's superannuation fund the amount of the superannuation claim of $9,404. That offer did not include the payment of any interest notwithstanding that some 11 months had passed since the appellant's employment had been terminated. That offer was rejected on 21 March 2006. 8 However, for present purposes it is relevant to note that the respondent's offer was prefaced by its solicitors reciting that the redundancy claim was based on an alleged breach of his contract of employment, in that the respondent had failed to make a redundancy payment in accordance with its Redundancy Policy dated 9 August 2000. This was later than 10 December 1999 on which date the appellant accepted an offer from the respondent to employ him as its Chief Financial Officer. 9 The letter of 10 March 2006 relevantly made the following comments with respect to the redundancy claim: "As stated in its Defence, HCN denies that the Redundancy Policy is a term or condition of your client's contract of employment. In this regard we note that: (a) the Redundancy Policy came into existence after our client entered his contract of employment with HCN; (b) your client's claim will not succeed merely because the Redundancy Policy was put in place by HCN during your client's employment (a fact which HCN does not admit). You (sic) client must establish that the Redundancy Policy was expressly or impliedly incorporated into his contract of employment; (c) the terms of the Redundancy Policy were never expressly incorporated into your client's contract of employment; and (d) there is no basis for the assertion that the Redundancy Policy was implied into your client's contract of employment." 10 On 1 June 2006 the appellant's solicitors made an offer to the respondent to settle the litigation for the sum of $85,918 comprising $60,952.50, being the amount of the redundancy claim as alleged by the appellant in his Statement of Liquidated Claim plus interest to 31 May 2006 of $5,756.24 together with the sum of $19,210 being his legal expenses to the date of the offer. The only element of compromise contained in that offer was to abandon the superannuation claim of $9,404 plus interest. 11 That offer was rejected by the respondent's solicitors by letter dated 16 June 2006 which contained a counter-offer whereby the respondent offered to pay to the appellant or on his behalf the sum of $50,000 less applicable tax (if any) upon the condition that the proceedings were otherwise dismissed with no order as to costs. 12 Although no part of the $50,000 was attributed to any particular part of the appellant's claim, the respondent submitted that it could be taken as comprising the following elements: first, the full amount of the superannuation claim including interest in the sum of $10,417.42; second, the full amount of his costs assessed in his solicitor's letter of 1 June 2006 at $19,210; and third, a balance of $20,372.58 representing approximately one third of the redundancy claim of $60,952.50 excluding interest. 13 The respondent's offer of $50,000 inclusive of interest and costs was rejected in a letter from the appellant's solicitor's dated 23 June 2006 upon the following basis: "As the matter is viewed by the plaintiff, his claims are not open to any discounting or mitigating circumstances. His claim is not based in damages but founded on ascertainable sums in debt. He will either be awarded the full amount or none at all as the issues are determined. That being so there is really no basis for considering any unrelated lesser sum. As earlier advised, the plaintiff is resolute in his determination and his only reason for compromising his claim was in consideration of certain advice given to him that he might expect some delay and loss in the recovery of his costs, and that at least from the date of that offer he could seek those costs on an indemnity basis." 14 As at the date of the respondent's offer of 16 June 2006 the appellant's claims, including interest, stood at $67,342 in respect of the redundancy claim; $10,390 in respect of the superannuation claim and costs of $19,210 – a total of $96,942. The offer of $50,000 was a little more than half of the total amount claimed but nevertheless, as I have already noted, could be taken as being in full payment of the superannuation claim and costs together with $20,400 towards the redundancy claim or 30.29% of that claim when interest was included. 15 As noted in the substantive judgment (at [25]), the primary judge found "as a fact" that the respondent had adopted its redundancy policy and that the appellant was entitled to the benefits of that policy if in fact he had been made redundant in accordance with its terms. However, as he considered that the appellant had not been made redundant but had been dismissed, the redundancy claim failed. 16 The superannuation claim was pleaded by the appellant in a manner which appeared to cause a great deal of confusion as to the legal basis upon which it was sought to be advanced in final addresses. Ultimately the primary judge rejected the claim upon the basis that under the relevant Commonwealth superannuation legislation the respondent was not required to make a superannuation contribution in respect of the payment of money to an employee in lieu of notice where that employee's employment had been terminated. 17 However, it is clear from the substantive judgment of this Court (at [68] and [81]) that at all material times the appellant was entitled under his contract of employment to the full amount of the superannuation claim, an entitlement which was ultimately conceded by the respondent and paid. 18 It was for that reason that the tentative opinion was expressed in [85] of the substantive judgment that the respondent should pay one fifth of the appellant's costs of the appeal possibly on an indemnity basis. 19 In the appellant's submissions in chief filed on 16 November 2007 on the question of costs, it was submitted that the tentative opinion expressed by the Court should be confirmed although those submissions did not suggest that the costs payable either by or to the appellant should be other than on an ordinary basis. 20 The respondent's submissions on the other hand may be distilled into the following propositions: (a) The appellant should pay the respondent 90% of its costs of the appeal being those relating to the redundancy claim on an indemnity basis as a consequence of the unreasonable rejection by the appellant of the respondent's offer made on 16 June 2006 to settle the appellant's claims in the sum of $50,000 inclusive of interest and costs; alternatively, it was submitted that those costs should be paid on a party/party basis. (b) There should be no order with respect to the costs of the appeal in relation to the superannuation claim with an alternative order that the respondent pay 5% and no more than 10% of the appellant's costs of the appeal on a party/party basis. (c) There should be no order for costs in the District Court with respect to the superannuation claim as and from 23 June 2006 being the date of expiry of the respondent's offer contained in its solicitor's letter dated 16 June 2006 but that the respondent should pay the appellant 5% of its costs in the District Court but only up to 23 June 2006 and then on a party/party basis. 21 The respondent accepted that the relevant principles with respect to Calderbank offers were stated by this Court in Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37] and Leichhardt Municipal Council v Green [2004] NSWCA 341 at [57]. Those principles were recently reiterated by McColl JA, with whom Beazley and Ipp JJA agreed, in Dunstan v Rickwood (No 2) [2007] NSWCA 266 at [44] where her Honour said: "A court should only depart from the general rule [that is, that costs should be assessed on the 'ordinary basis': UCPR 42.2] and award indemnity costs where the conduct of the party against whom the order is sought is 'plainly unreasonable': Sydney City Council v Geftlick & Ors [2006] NSWCA 280 at [90] per Tobias JA, Mason P and Hodgson JA agreeing. Indemnity costs orders should be reserved for the most unreasonable actions by unsuccessful plaintiffs: Leichhardt Municipal Council v Green [2004] NSWCA 341 per Santow JA at [57]." 22 After referring to the making of an Offer of Compromise under UCPR 20.26, her Honour continued at [50]: "The Court's jurisdiction to award costs on an indemnity basis is not, however, confined by the making of an offer of compromise conforming with the [UCPR] or a Calderbank offer. Such an order may also be made where a party has refused a reasonable offer of settlement. Whether or not it was reasonable for a party to reject an offer of settlement will rarely however be determined by a bald comparison between the offers made and the outcome. Rather, the question whether a party's attitude to settlement offers have been so unreasonable as to warrant an indemnity costs order requires careful analysis of the issues in the proceedings and the state of the evidence at the time the various offers were made: Rolls Royce Industrial Power (Pacific) Ltd (Formerly John Thompson (Australia) Pty Limited) v James Hardie & Co Pty Ltd (Pacific) Limited [2001] NSWCA 461; (2001) 53 NSWLR 626." 23 Two issues arise with respect to the question of costs both in the proceedings at first instance as well as upon the appeal. The first proceeds upon the assumption that the respondent should pay part of the appellant's costs with respect to the superannuation claim, the appellant contending that it should be 20% of the costs both below and on appeal and the respondent contending that it should be no more than 10%. The latter submits that on the hearing of the application for leave to appeal a little over 80% of the transcript of the argument related to the redundancy claim and that approximately 75% of the written submissions filed by the parties in the appeal related to that claim. If those figures are accurate, then they contain a concession that approximately 20% of the relevant time was spent on the superannuation claim. 24 The appeal hearing lasted three hours. The respondent submitted that only approximately 20 minutes was spent on the superannuation claim which represented 10% of the hearing time. However, as the appellant submitted in reply, the relatively insignificant amount of time spent on the superannuation claim on the hearing of the appeal was due to the respondent ultimately conceding that claim once it became clear that the appellant was pursuing it upon a contractual basis. In our opinion it is appropriate to confirm this Court's tentative view that at least on the appeal an appropriate order, if one is to be made, is that the respondent should pay 20% of the appellant's costs of the appeal. 25 The respondent nevertheless submitted that the appellant should not have the benefit of any order for costs with respect to the superannuation claim in the proceedings before the primary judge given that he ultimately did not pursue that claim before his Honour on a contractual basis. As that claim was advanced before the primary judge on the basis that the appellant only had a statutory entitlement to a superannuation contribution by the respondent, he should not now be entitled to any order for costs with respect to that claim as it was only before this Court that it was pursued on a contractual basis and shortly after the appellant raised his contractual entitlement to superannuation on the appeal, the full amount was paid. 26 There is no doubt that in his Statement of Liquidated Claim the appellant pleaded the superannuation claim on a contractual as well as a statutory basis. Paragraphs 68 to 72 of the substantive judgment set out the manner in which that claim was pursued before the primary judge. However, in his written submissions in chief on the question of costs, the appellant has recorded in some detail by reference to the relevant parts of the Black Book how it came about that ultimately the appellant withdrew his submission before the primary judge that he was contractually entitled to a 9% contribution by the respondent with respect to one half of the full amount of his salary. The respondent in reply has not put any of those submissions in issue. The appellant refers to the relevant exchanges as "disjunctive", a description with which we agree. In all the circumstances in our view, the appellant should not be penalised so far as the question of the costs of the superannuation claim is concerned at trial and, if otherwise entitled, should receive 20% of his costs at first instance as being referrable to that claim. 27 The second issue concerns the effect of the various Calderbank offers which were made and, in particular, the respondent's offer in its solicitor's letter dated 16 June 2006 to settle the appellant's claims for the sum of $50,000 inclusive of interest and costs. Obviously, as the respondent submits, the ultimate outcome of the proceedings is significantly less favourable to the appellant than the terms of that offer had it been accepted. However, that is not the end of the matter, the question being whether, first, that offer in the circumstances that then prevailed was reasonable and, second, whether the appellant's rejection of that offer was unreasonable. 28 The respondent submits that the appellant's rejection of the offer was unreasonable in the light of the reasons for that rejection set out in the appellant's solicitor's letter dated 23 June 2006 recorded in [13] above. This is because, so it was submitted, the appellant's rejection of the offer was on the basis that he will either be entirely successful or unsuccessful with his claim and, therefore, that there was no basis for any compromise on his part. In the light of the appellant's attitude as so conveyed, it was submitted that the respondent's genuine willingness to compromise in order to settle the dispute was frustrated by the appellant's intransigence. 29 The respondent further submitted that the position taken by the appellant with respect to settlement was unreasonable for the following reasons: (a) The appellant made two quite separate claims and success or failure with respect to one bore no relationship to the success or failure of the other. (b) In order to succeed on the redundancy claim, the appellant had to establish first, that the respondent's redundancy policy was incorporated into his contract of employment and, second, that he was in fact made redundant within the meaning of that policy. The appellant ultimately failed to prove either proposition. 30 For these reasons it was submitted that the appellant's rejection of the respondent's offer to settle the whole of the dispute for $50,000 was unreasonable with the result that the appellant should pay the respondent's costs of the redundancy claim both below and on appeal on an indemnity basis as and from 23 June 2006. 31 The appellant's response was that the offer of $50,000 was on an "all up" basis in circumstances where the appellant was left to speculate as to which parts of his claim were being accepted or rejected or, for that matter, compromised in circumstances where the respondent's affidavit and documentary evidence had not as yet been filed. Accordingly, he contended that his rejection of the offer was reasonable in all the circumstances. 32 Although the primary judge held that the respondent's redundancy policy had been incorporated as a term of the appellant's contract of employment, it was this Court's opinion, as expressed in the substantive judgment, that such a finding was in error. The redundancy policy was neither expressly nor impliedly incorporated into that contract. That the respondent's case was that the policy had not been so incorporated into the appellant's contract of employment was made clear by its solicitor's letter of 10 March 2006, the relevant portion of which we have set out in [9] above. Accordingly, the appellant was at all relevant times on notice as to the legal basis of the respondent's denial of the redundancy claim. 33 In our opinion the appellant's rejection of the respondent's offer contained in its solicitor's letter of 16 June 2006 was in the circumstances unreasonable. The effect of that offer as we have already noted in [14] above was that, if accepted, the appellant would be paid in full in respect of his superannuation claim and costs together with just over 30% of his redundancy claim when interest was included. In our view it was unreasonable for the appellant to take the attitude that his success or otherwise in the proceedings was an all or nothing situation: clearly it was not and never was. In his solicitor's letter of 23 June 2006 rejecting the respondent's offer, it was made plain that the appellant was not prepared to compromise his claims and was "resolute in his determination" to pursue both claims and, in particular, the redundancy claim. 34 At a time when he could have resolved the dispute by accepting what we consider to be a reasonable offer for settlement at that time, the appellant acted unreasonably. It follows that the respondent is entitled to 80% of its costs at first instance on an ordinary basis up to and including 23 June 2006 and on an indemnity basis thereafter. 35 On the other hand, although the appellant is entitled to 20% of his costs with respect to his pursuit of the superannuation claim at first instance, those costs should be paid on an ordinary or party/party basis given the rejection by the appellant of the respondent's offer of 16 June 2006 which, if accepted, would have substantially exceeded the full amount of that claim together with the whole of his costs to that date. 36 The costs of the appeal fall into a different category for no further Calderbank offer was made by the respondent after the institution of the appeal. It clearly would have been open to the respondent to have renewed its offer of 16 June 2006 or to have at least offered to settle the appeal upon the basis that the superannuation claim would be paid in full as it ultimately was. 37 In these circumstances, although the respondent is entitled to 80% of its costs of the appeal, those costs should be paid on an ordinary or party/party basis. 38 The basis upon which the appellant is entitled to 20% of his costs of the appeal given his success on the superannuation claim, in our view involves different considerations. As we have indicated, the respondent never had any answer to the appellant's contractual basis for the superannuation claim. Even after it was made clear during the course of the hearing of the appeal that the appellant was pursuing that claim on a contractual basis, it was not conceded – the respondent raising the submission referred to in [75] of the substantive judgment. That submission was quite hopeless. 39 In these circumstances it is our view that the appellant should be entitled to 20% of his costs of the appeal on an indemnity basis. 40 For the foregoing reasons the Court makes the following orders: (a) Appeal dismissed. (b) Set aside the orders for costs made by his Honour Judge Finnane in the proceedings at first instance and in lieu thereof (i) the appellant to pay 80% of the respondent's costs of the proceedings in the District Court on an ordinary basis up to and including 23 June 2006 and on an indemnity basis thereafter, and, (ii) the respondent to pay 20% of the appellant's costs of the proceedings in the District Court on an ordinary or party/party basis, such costs to be set off against each other. (c) The appellant to pay 80% of the respondent's costs of the summons for leave to appeal and the appeal on an ordinary or party/party basis and the respondent to pay 20% of the appellant's costs of the summons for leave and the appeal on an indemnity basis, such costs to be set off against each other. ********** 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.