Ballard v Incoll Management

1 On 22 August 2001 judgment was given in Ballard v Incoll Management [2001] NSWIRComm 181. An order was made that the respondent shall pay to the applicant an amount of $10,000 representing two month's pay in lieu of notice plus interest to be calculated from the date of the filing of the summons for relief under s 106 of the Act (i.e., 11 August 1998) to the date of judgment. Costs were reserved.

2 The question of costs was listed for mention at the time of handing down the judgment in the matter. At that time I was informed that the respondent had made an offer of settlement on 6 November 1999 in the form of a "Calderbank" letter. The matter was re-listed before me on 11 September 2001 when the respondent made it clear that it was not relying on the Calderbank letter as a basis for seeking indemnity costs. Instead, the application was that the applicant pays the respondent's costs on a party and party basis from 7 November 1999. The applicant opposed the application regarding costs. He submitted that:

· The respondent altered the basis of its opposition to the applicant's claims thereby prolonging the proceedings. · The applicant underestimated his costs at the time of negotiations to settle the matter. · Given the findings against the respondent in the substantive proceedings, the applicant should be entitled to the usual costs order.

3 The Calderbank letter, which was sent by facsimile message to the applicant's solicitors, said: We refer to our offer of settlement made by our client to your client in this matter on the 3rd November, 1999. We are prepared to resolve this matter on the following basis:- 1. A further payment by our client to your client of a gross amount of $10,000.00 less tax. 2. Payment of the Applicant's costs as assessed or agreed noting agreement in this regard to those costs of $5,000.00. We also note that so far as the above offer of settlement is concerned our client has indicated its willingness to structure that settlement in any way which is most tax effective for your client's purposes subject to the taxation of the above settlement being consistent with the circumstances of this case and with the Applicant's allegations. We are instructed by our client to indicate that this offer of settlement is open to be accepted by your client at any time up to 5.00 pm on Friday 12th November, 1999. We confirm that if your client is agreeable to settlement on these terms your client will be required to execute a Deed of Release and to discontinue the proceedings presently before the Industrial Relations Commission. We put you on notice that if we do not receive confirmation of your client's agreement to settle on the above terms prior to 5.00 pm on the 12th November, 1999 your client's claim will then simply have to be heard and determined by the Court. We also put you on notice that if the Applicant does not achieve a result in the proceedings which is more favourable to the applicant than the above offer we propose to rely on this correspondence in seeking an order that the Applicant pay our client's costs on and after the date of this letter. If necessary we will tender a copy of this correspondence in support of the application that we propose to make concerning costs.

4 There was no response to the respondent's Calderbank letter. On 25 May 2000 the respondent filed and served an offer of compromise in accordance with Pt 23 of the Industrial Relations Commission Rules 1996. However, the amount of the offer was $7,500. That is, an amount less favourable to the applicant than the order made on 22 August 2001.

5 The applicant, in a letter dated 16 April 1998 also proposed a settlement on the basis that the respondent paid to him $34,906. The offer was withdrawn on 11 August 1998. The applicant's letter was not in the form of a Calderbank letter.

Consideration 6 An order for costs lies within the Court's discretion: s 181 of the Industrial Relations Act 1996. The Industrial Relations Commission Rules make comprehensive provision for Offers of Compromise: Rules 168 and 216. However, the respondent in this matter does not rely on its Offer of Compromise of 25 May 2000 but rather the Calderbank offer of 6 November 1999.

7 I have reviewed a number of the cases dealing with a Calderbank offer and it is apparent that the issue usually arises in the context of a claim for indemnity costs. As I mentioned at the outset, the respondent is only seeking costs on a party and party basis. Nevertheless, as the cases dealing with indemnity costs also address the approach to be taken to a Calderbank offer, they provide a useful guide as to what course I should follow.

8 In SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 (14 November 2000) the NSW Court of Appeal (Priestley JA, Giles JA, Rolfe AJA) said: 45 A Calderbank letter may be deployed even though the rules provide for offers of compromise ( Messiter v Hutchinson (1987) 10 NSWLR 525 (as to payment into court); AWA Ltd v Daniels (Rogers CJ Com Div, 8 October 1992, unreported); Beregold Pty Ltd v Mitsopoulos (Cole J, 20 November 1992, unreported; England v Van Donk (CA, 5 December 1997, unreported) per Powell JA.

9 A Calderbank offer is a formal offer to settle the case, together with a warning that, in the circumstances of such an offer by the respondent, if the applicant does not achieve a result in the proceedings which is more favourable to the applicant than the offer made, the offer will be disclosed to the court in the context of the question of costs. The origin of a Calderbank letter was explained by Rogers J in Messiter v Hutchinson (1987) 10 NSWLR 525 as follows: The offer made by the letter of 3 April is of a kind which in England has become known as a Calderbank letter, taking its name from the comments of Cairns LJ in Calderbank v Calderbank [1976] Fam 93; {1975] 3 WLR 586; [1975] 3 All ER 333. In Cutts v Head [1984] Ch 290 the Court of Appeal held that a Calderbank letter may be relied on in proceedings in any division of the Court, not just in family disputes.

10 A Calderbank offer may be taken into account in the exercise of the court's discretion in determining whether a special order displacing that which generally obtains of costs following the event should be made: Messiter v Hutchinson. The qualification placed on this by Rogers J was that a Calderbank offer "should influence but not govern the exercise of discretion".

11 In Maitland Hospital v Fisher [No2] (1992) 27 NSWLR 721 at 724 the Court of Appeal examined the purpose of an offer of compromise in the context of Pt 52 r 17 of the Supreme Court Rules 1970. That Rule is similar to r 216 of the Industrial Relations Commission Rules. The Court of Appeal said: The obvious purpose of providing Pt 52 r 17 is to facilitate the proper compromise of litigation. This has been attempted by the twin measures of a "carrot" and "stick". Relevantly, the "carrot is the promise of indemnity costs to a plaintiff in the event that the defendant is found unreasonably to have refused an offer of compromise. The "stick" is the threat of a penalty of the imposition of an indemnity costs order against a defendant in such circumstances. It is the obvious intention of the rule to oblige a defendant, which has received an offer of compromise, to give serious thought to the risk which it may run of losing the proceedings and then being ordered to pay costs on an indemnity basis.

The objects of the rule include: 1. To encourage the saving of private costs and the avoidance of the inherent risks, delays and uncertainties of litigation by promoting early offers of compromise by defendants which amount to a realistic assessment of the plaintiff's real claim which can be placed before its opponent without risk that its "bottom line" will be revealed to the court;

2. To save the public costs which are necessarily incurred in litigation which events demonstrate to have been unnecessary, having regard to an earlier (and, as found, reasonable) offer of compromise made by a plaintiff to a defendant; and

3. To indemnify the plaintiff who has made the offer of compromise, later found to have been reasonable, against the costs thereafter incurred. This is deemed appropriate because, from the time of the rejection or deemed rejection of the compromise offer, notionally the real cause and occasion of the litigation is the attitude adopted by the defendant which has rejected the compromise. In such circumstances, that party should ordinarily bear the costs of litigation.

12 I note however, in Marsland v Andjelic [No2] 32 NSWLR 649 at 654 the Court of Appeal regarded an indemnity costs order as compensatory and not penal.

13 In Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425 at 451 Rolfe J, after a comprehensive review of the authorities and after referring specifically to a judgment of Young J in Wallace v Baulkham Hills Smash Repairs Pty Ltd (No 2) (SC(NSW), 21 August 1995, unreported), said at 440-441: Whether it is correct to say that there is a general policy or whether it is, perhaps, with respect, more correct to say that normally a Calderbank letter generally will be given effect according to its terms, and thus fulfil the functions of an Offer of Compromise, does not seem to me to differ in substance. However, all these authorities support the view, which in my opinion is correct, that when an Offer of Compromise is made in either of the forms to which I have referred, in circumstances where there can be no doubt that if the offeree does not accept it the making of the offer will be called in aid of an application for an award of indemnity costs if the offer is not bettered and, provided the offer reflects a compromise, the Court commences its consideration of the application from the position that such an order should be made unless the offeree can persuade the Court that it should not be. However, as I have said on several occasions the ultimate decision will depend on a consideration of the particular facts and circumstances in each case.

14 The approach endorsed by Rolfe J in Multicon Engineering to an offer of compromise was expressed at 451: In my opinion the proper approach to take to an Offer of Compromise, whether made under the Rules or pursuant to a Calderbank letter, is that there should be a prima facie presumption in the event of the offer not being accepted and in the event of the recipient of the offer not receiving a result more favourable than the offer, that the party rejecting the offer should pay the costs of the other party on an indemnity basis from the date of the making of the offer. I proceed on the basis that the unreasonableness was the failure by the offeree to accept the offer, which unreasonableness is demonstrated, prima facie, by the ultimate result. This approach is consistent with the decisions to which I have referred, the policy evidenced by the Act and the Rules and the widely accepted philosophy that settlements should be encouraged. The relevant Rules provide that costs will be paid on the basis set out therein "unless the Court otherwise orders". My understanding is that the Court is required to proceed on the basis that it should make the order provided for by the Rules, unless the party rejecting the offer is able to establish good reason for having done so.

15 At 452, Rolfe J added: In saying what I have I acknowledge the force and accept the applicability of the principle that each case must be determined by an exercise of the judicial discretion having regard to the particular facts of each case. Thus the prima facie position having been established the Court must be satisfied that an order for indemnity costs is not appropriate. As I have indicated if that is not done there is a failure to exercise the judicial discretion. 16 In Nobrega v Trustees Roman Catholic Church Archdiocese of Sydney (No2) [1999] NSWCA 133 (21 May 1999) the Court of Appeal (Priestley, Powell JJA and Sheppard AJA) per Powell JA said:

Even if the offer which had been contained in one or more of the letters written by the Respondent's solicitors had been made the subject of a formal order for compromise delivered pursuant to the provisions of SCR Pt. 22 the Court would have retained a discretion not to order the Appellant to pay the Respondent's costs of the appeal's success on an indemnity basis ( Fotheringham v. Fotheringham (No. 2) [1999] NSWCA 21) and, even if one or other of the letters written by the Respondent's solicitors be regarded as "a Calderbank Letter ", the position clearly is that the court retains a discretion not to make an order for the payment of costs assessed on an indemnity basis, that discretion to be exercised in the light of all the circumstances of the case. Thus, as Oliver LJ (as he then was) said in Cutts v. Head [1984] 1 Ch 290, 312:

"I would add only one word of caution. The qualification imposed on the without prejudice nature of the Calderbank Letter is, as I have held, sufficient to enable it to be taken into account on the question of costs; but it should not be thought that this involves the consequence that such a letter can now be used as a substitute for payment into court, where a payment into court is appropriate. In the case of the simple money claim, a defendant who wishes to avail himself of the protection afforded by an offer must, in the ordinary way, back his offer with cash by making a payment in and, speaking for myself, I should not, as at present advised, be disposed in such a case to treat a Calderbank offer as carrying the same consequences as payment in." a similar observation being made by Fox LJ in the same case supra at paras. 16-19.

21 In Sanko Steamship Co. Limited v. Sumitomo Australia Limited supra Sheppard J, having earlier referred to the decision in the Federal Court of Australia of Olney J in WCW Pty. Limited v. Charthill Limited 7 July 1992 (unreported) and Hill J in John S. Hayes & Associates Pty. Limited v. Kimberley-Clarke Australia (1994) 52 FCR 201 to the effect that there was no authority supporting the proposition that the mere writing of "a Calderbank letter" would justify an order for costs in favour of a successful party being taxed on a solicitor and client or an indemnity basis, an observation with which his Honour agreed, later wrote (inter alia): "In all those circumstances it seemed to me to be difficult for the defendant to maintain that this case was an appropriate one for an order for payment of costs on an indemnity basis. At the relevant time its offer was to accept more than it would have been entitled to recover if the action had been determined by a judgment entered then. Apart from this matter though, it seems to me that one needs to be careful about making orders based on perceived unreasonable conduct in refusing to accept offers. It is in the public interest, as well as in the interest of the parties to litigation, for negotiations to settle cases to take place and for settlements to be achieved if they possibly can be. It has been said that the fact that the law does not provide a full indemnity for costs may be an important spur to settlement; see the judgments of Devlin LJ in Berry v. British Transport Commission (1962) 1 QB 306 at 323 and Handley JA in Cachia v. Hanes (1991) 23 NSWLR 304 at 318 referred to in the Judgment in Cussons at 227-8. In some cases the so called Calderbank approach may place a weapon in the hands of parties to litigation which ought not to be allowed to be abused. The ordinary rule is that costs when ordered in adversary litigation are to be recovered on the party and party basis. Any attempt to disturb that situation needs to be carefully considered. It should only be departed from where the conduct of the party against whom the order is sought is plainly unreasonable."

17 In determining the question of costs in this matter I adopt a similar approach to that taken by Rolfe J in Multicon Engineering, namely, there is a prima facie presumption that an order for indemnity [in this case, party and party] costs should be made if an offer of settlement was made, rejected and not bettered in litigation, unless the party rejecting the offer establishes that it was reasonable for it not to accept the offer. The exercise of judicial discretion with respect to costs, however, depends upon a consideration of the particular facts and circumstances.

18 Clearly in this case a genuine offer of settlement was made, rejected and not bettered in litigation. The onus, therefore, falls on the applicant to establish that it was reasonable for him not to accept the offer. On the question of costs the applicant was represented in person and he was unable to express any relevant basis as to why it was reasonable for him not to accept the offer. He did refer to the respondent having prolonged the proceedings by changing the basis of its opposition but there is no substance in this contention.

19 The respondent's offer was made formally on 6 November 1999. This was shortly after a conference under s 109 of the Act conducted before Kavanagh J on 3 November 1999. At that conference an experienced solicitor represented the applicant. Apparently, the matter was not settled and the conference before her Honour was adjourned to 15 November 1999. Without explanation, none of the parties attended the scheduled conference. On 3 March 2000 Kavanagh J indicated her intention to issue a certificate that reasonable attempts to settle the matter by conciliation had been made but were unsuccessful.

20 The applicant does not appear to have been under any disadvantage in respect of a consideration of the offer of compromise made by the respondent. At the relevant time an experienced solicitor represented the applicant and there is no reason to believe that the solicitor would not have advised the applicant regarding the Calderbank offer.

21 The applicant was aware of the offer of compromise from 3 November 1999 but the offer did not take the form of a Calderbank offer until 6 November 1999. The offer remained open until 5.00 pm on 12 November 1999. There was nothing unusual or ambiguous about the offer and it seems to me that six days provided sufficient time for mature consideration of the offer. I note that the period prescribed by r 168(3) of the Commission's Rules for acceptance of an offer of compromise is not less than 28 days. The authorities, however, are clear that Court Rules in relation to offers of compromise do not constitute a code so that if a party wishes to obtain a cost advantage from an offer of compromise its only course is to invoke the provisions of Pt 23 so as to attract the provision of Pt 27 r 216 of the Industrial Relations Commission Rules: see for example Macquarie Bank Ltd v National Mutual Life Association of Australia Ltd (SC(NSW), 27 July 1994, Cole J, unreported, at 3-4). In determining whether the period allowed for accepting a Calderbank offer is reasonable, I think depends upon a consideration of the particular facts and circumstances of the case. If the applicant or his solicitor considered that the time allowed for consideration of the offer was insufficient, it would have been a simple matter of responding accordingly. There was never any response to the Calderbank offer.

22 I am left to conclude that it was not reasonable for the applicant to have rejected the respondent's offer of compromise contained in the Calderbank letter of 6 November 1999. Accordingly, I order that the respondent is to pay the applicant's costs up to and including 6 November 1999 on a party and party basis and the applicant is to pay the respondent's costs on a party and party basis from 7 November 1999 in an amount as agreed or assessed.

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