Chippington v Sterling Software

APPLICANT: Ms P Lowson of counsel SOLICITORS: Spooner & Hall LEGAL REPRESENTATIVES: RESPONDENTS: Mr B Hodgkinson of counsel SOLICITORS: Clayton Utz

JUDGMENT: - 3 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: Schmidt J

DATE: 22 March 2001 Matter Number IRC 2300 OF 2000 RAYMOND JOHN CHIPPINGTON v STERLING SOFTWARE (PACIFIC) PTY LTD AND ANOR Application under section 106 of the Industrial Relations Act 1996

1 This judgment concerns the question of the costs order to be made in these proceedings. Judgment was given by Maidment J in favour of the applicant on 7 March 2001. The matter was reallocated to me for the purpose of dealing with the orders to be made to reflect the judgment. The parties were able to agree about the orders as to the amount to be paid and the interest flowing therefrom, but not as to whether or not an indemnity costs order should be made. 2 The applicant seeks an order for indemnity costs in respect of costs incurred after 4 August 2000, relying upon an offer of compromise made on that day, in the sum of $117,000. The offer was not accepted. The applicant was successful before Maidment J, in the sum of $138,996.95, plus interest. 3 Rule 216(4) of the Court's Rules provides: '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.'

4 The Supreme Court rules contain similar provisions, which have been considered on a number of occasions by the Court of Appeal. In Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 at 724, the purpose of the rule was described as: '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.'

5 In Marsland v Andjelic [No 2] 32 NSWLR 649 at 654, the Court of Appeal dealt with the question of onus, which arose under the rule: 'The master declined to make an order that the respondent pay the appellant's costs on an indemnity basis. Although, of course, that was a discretionary decision, the basis of it has now gone: he had found a verdict for the appellant in a figure slightly more than $2 million, whereas this Court has held that the proper figure was $2.5 million. This Court, of its own decision, upon the new premises established by its variations of the master's judgment, should order indemnity costs for itself. Such costs shall date from 18 March 1991 when the plaintiff made his offer, now demonstrated to have been reasonable: see Supreme Court Rules 1970, Pt 52, r 17(4). However, even it this factor were absent it seems to us that the learned master did not, if we may say so with respect, apply the right test. He said: "In my view, this is not a case where justice demands that the defendant bear the sanction of an order for costs taxed on an indemnity basis." That manner of stating the question seems to us to contain two errors of principle: first, it involves a reversal of the onus: the question is not whether the plaintiff has proved an entitlement to an order for indemnity costs but whether the defendant has dislodged the plaintiff's right to such an order; and secondly it treats an order for indemnity costs as if it were penal and not compensatory.'

6 There was no issue between the parties as to the law in relation to the making of the costs order in question. 7 For the respondents it was submitted by Mr Hodgkinson of counsel that in the circumstances of this case the Court would exercise its discretion in favour of the respondents. The novelty of Maidment J's approach in the case was submitted to favour the respondents. This arose, so it was submitted, from the fact that a part of the applicant's case had been that he had understood that his redundancy payment would include an amount referable to commission. Maidment J rejected the applicant's evidence on this point. 8 Nevertheless, Maidment J concluded that the contract of employment between the parties was unfair in all of the circumstances, which included that commission payments, as well as superannuation and car allowance, had not been included in the calculation of severance pay in circumstances where the period for which that payment had been calculated was modest. 9 That approach was submitted to be new, not having been taken in any other s106 application of which the respondents were aware. In all other respects, Maidment J had found for the respondents. It followed that in those circumstances, the discretion provided in Rule 216 would be exercised in favour of the applicant. 10 For the applicant it was submitted by Ms Lowson of counsel that there were two issues which fell to Maidment J to decide, in circumstances where the applicant had received no payments at all from the respondents, even on the contractual basis it was submitting in the proceedings was fair. The applicant had succeeded in convincing his Honour that the contract was unfair in not taking account of the commission and other aspects of his remuneration package. He had not succeeded in having the length of the payment increased. Nevertheless, the end result was to have his severance payment increased by $138,000. 11 In those circumstances, there was no basis for any departure from the usual rule as to indemnity costs. Nor would it be accepted that his Honour's approach to severance payments, having regard to the whole of an employee's remuneration package, was novel. His Honour had follow a long line of authority in the Court as to such matters - See Starky v Healthcare Corporation Pty Ltd [1999] NSWIRComm 352 (24 August 1999); Maguire v Rostcom Pty Ltd t/as Penrith Mazda Centre [2000] NSWIRComm 156; Caine v LEP International Pty Ltd [1999] NSWIRComm 459 (21 October 1999); Crossley v Colgate-Palmolive Pty Ltd [1999] NSWIRComm 72 (5 March 1999); Vincent v Merrill Lynch Australia Pty Ltd [2000] NSWIRComm 160; Henshaw v Sqribe [2000] NSWIRComm 279 and Ross v GN Comtext (Australia) Pty Limited [2000] NSWIRComm 133. 12 Reliance was also placed upon the Court of Appeal's decision in NSW Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100 at 102, where a submission that it had been reasonable for a defendant to resist a claim, had been rejected as providing a proper basis for any departure from the usual rule as to costs embodied in the counterpart to Rule 214. There it was held that: 'It is impossible exhaustively to state the circumstances in which a discretion to contrary effect might be exercised, and it would be imprudent to attempt any such exhaustive statement. However, I do not read Maitland Hospital v Fisher [No 2] as authority for the proposition that a discretion should be exercised against making an order for indemnity costs in any case in which it was reasonable for the defendant to take the view that it had a good chance of successfully defending the action. The prima facie consequence, which will apply in the ordinary case, is that in the circumstances postulated by the rule an order for indemnity costs will be made.'

Consideration 13 In this case, I am satisfied that no case has been made out by the respondent for any departure from the operation of Rule 216(4). The respondent was certainly here entitled to defend the claim brought, but an offer of compromise having been made, did so on the basis of being at risk of an order as to costs being made on an indemnity basis under the Rule. There were two issues to be determined. The respondents were successful as to one, but not the other. Indeed, on any view, it was unsuccessful on that part of the claim which had the greater impact in money terms. The claim was for $203,608 and the applicant was successful as to $138,996.95. 14 In the result the contract was found unfair, Maidment J concluding: '21 In the 12 months prior to his termination the remuneration of Mr Chippington had included his salary of $87K, bonus of $50,835 and commission of $133,737. The severance payment proffered by Computer Associates was the equivalent of 24.67 weeks at the sum of the above salary and bonus amounts but not including the commission component of his remuneration.

22 It is seen that a significant proportion of the remuneration provided to Mr Chippington, who had been a faithful employee of Sterling Software for almost eight years, had been by way of commission. The opportunity to earn future commission was taken from him as a consequence of the decision by Computer Associates to acquire Sterling Software and integrate the operations of the two companies with resultant redundancies.

23 My consideration of the evidence leads me to the view that Mr Chippington had no reasonable ground for thinking that commission would be included as a component of his redundancy pay. In this regard I certainly do not accept his evidence that Mr Mitchell had suggested that commission would be so included.

24 The fact that Computer Associates unilaterally imposed its redundancy formula upon Mr Chippington who had no opportunity to affect its content does not of necessity render the formula unfair, for example the fact that a manifestly excessive pay out which was unilaterally determined by an employer could hardly be, on that account, unfair.

25 That Mr Chippington accepted redundancy knowing that the formula did not include a commission component does not preclude him from complaining that the formula was, on that account, unfair.

26 In my view the failure of the formula to encompass commission payments is unfair in circumstances in which a significant proportion of Mr Chippington's remuneration was by way of commission, the period upon which the payment was calculated is modest and the retrenchment resulted from company acquisition.

27 I am similarly persuaded that the failure to include components referrable to superannuation and motor vehicle subsidy represented unfairness. As I understand the evidence those components comprised part of his ordinary remuneration which was proffered to him by way of a package

28 Ms Lowson argues that the period of calculation is modest to the point of unfairness and relies upon a number of authorities going to appropriate periods for payment in lieu of notice and for the purpose of the calculation of retrenchment pay. Each case, of course, turns on its own facts and it is thus difficult to obtain anything other than general guidance in considering such authorities.

29 Whilst I consider that the period of calculation is modest I nonetheless consider it to be within the appropriate range bearing in mind the level, nature and duration of Mr Chippington's employment. In this regard I note that, having been made redundant on 26 April, he found alternative employment by 28 June albeit not commencing that employment until 24 July 2000. That alternative employment is reasonably comparable with that with Sterling Software. I might add that no explanation was given as to the delay in commencing his new employment.

30 The evidence of Mr Chippington as to the circumstances of the timing of his accepting this new employment was unsatisfactory and unconvincing, however, as those circumstances do not impact upon the issues as I perceive them I need not expand upon that matter.

31 As an alternative argument Ms Lowson relied upon the scale of payments contained in the regulations made pursuant to the Employment Protection Act 1982 which, she argued, should be added to the period of payment in lieu of notice relevantly provided for by s.170CM of the Workplace Relations Act 1996 (Cth) thus providing payment for the equivalent of 25 weeks remuneration.

32 Whilst not losing sight of those provisions in a background sense I do not accept that, assuming the provisions applied, it would be appropriate to add the sum relevantly prescribed under the State Act to that under the Federal prescription. I reject the argument.

33 In my view the contract of employment and collateral arrangements were unfair to the extent that they failed to include, for the purposes of the calculation of termination pay of 24.67 weeks, an amount reflective of the salary package and commission which Mr Chippington had received in his pre-retrenchment position. I would vary the terms of the contract of employment and collateral arrangements to the extent necessary to rectify that unfairness. I accept that the calculation should be based upon the weekly average of the remuneration he had earned during the 12 months prior to his termination.'

15 It is in that context that the offer of compromise of $117,000 arises for consideration, in accordance with Rule 216(4). 16 In my view, the approach adopted by Maidment J does not have the feature of novelty contended for by the respondent. Many different salary arrangements have come before the Court for consideration under s106 of the Industrial Relations Act 1996 ('the Act') and its predecessors. Inclusion of commission arrangements in orders made under s106(5) of the Act, to reflect what is just in the circumstances of a case concerned with payments on termination was within the jurisdiction, open in the circumstances found by his Honour and plainly available as a matter of discretion. This was one of the issues before His Honour and was decided against the respondents. In those circumstances, it is apparent that the respondents took an obvious risk in rejecting the offer of compromise made by the applicant, given the issues which here fell to be decided. 17 An order for indemnity costs in these circumstances would well satisfy the purpose for which Rule 216(4) exists. In that respect, the explanation of the Court of Appeal in Maitland is entirely applicable to the Rules of this Court and I respectfully adopt it. As made plain in Marsland, an order for indemnity costs under the Rule is compensatory in nature and not punitive. The matters relied upon by the respondent are not a proper basis for dislodging the applicant's rights under the Rule.

Order 18 For all of these reasons, I make the order as to costs in the terms sought by the applicant. I order: The Respondents to pay the Applicant's costs, such costs to be on an indemnity basis for work performed after 4 August 2000. ------------------------

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