Haros v Linfox Australia Pty Ltd

REASONS FOR JUDGMENT 1 On 22 June 2011 I ordered that an application, made by Mr George Haros, should be dismissed with costs: see Haros v Linfox Australia Pty Ltd [2011] FCA 699. 2 The respondents subsequently made application for orders that Mr Haros pay costs on an indemnity or party-party basis. They did so on the basis of three offers of compromise which they had made and which, in each case, had been rejected by Mr Haros. The offers had been made in 2009 and 2010. 3 The first offer of compromise was made under O 23 of the Federal Court Rules 1979 (Cth) ("the 1979 Rules"). It was made on 16 December 2009. The first and second respondents offered to settle the proceeding on the payment by Linfox to Mr Haros of the sum of $15,000. The offer was open for acceptance for 14 days. 4 The second offer was also made under O 23 of the 1979 Rules. It was made on 17 June 2010. The respondents offered to compromise the proceeding upon Linfox paying to Mr Haros the sum of $200,000. The offer was open for 14 days. 5 The third offer was also made under O 23. The offer was made on 30 June 2010. It offered to compromise the proceeding upon the respondents paying Mr Haros the sum of $405,000 plus costs plus interest. The offer was open for 14 days. 6 The timing of the offers is material because the respondents seek orders pursuant to O 23 r 11(6) of the 1979 Rules. Those Rules were superseded by the Federal Court Rules 2011 (Cth) ("the 2011 Rules") which commenced operation on 1 August 2011. Rule 1.04 of the 2011 Rules provided: "(1) These Rules apply to a proceeding started in the Court on or after 1 August 2011. (2) These Rules apply to a step in a proceeding that was started before 1 August 2011, if the step is taken on or after 1 August 2011." 7 The proceeding was commenced before 1 August 2011 and the relevant steps were the making and the rejection of the various offers, all of which occurred prior to 1 August 2011. Order 23 r 11(6) of the former rules therefore governs the present application. 8 That rule provided: "If: (a) an offer [of compromise] is made by a respondent and not accepted by the applicant; and (b) the respondent obtains an order or judgment on the claim to which the offer relates as favourable to the respondent, or more favourable to the respondent, than the terms of the offer; then, unless the Court otherwise orders: (c) the respondent is entitled to an order that the applicant pay the respondent's costs in respect of the claim incurred up to 11 am on the day after the day the offer was made, taxed and a party and party basis; and (d) the respondent is entitled to an order that the applicant pay the respondent's costs in respect of the claim incurred after that time, taxed on an indemnity basis." 9 Mr Haros submitted that O 23 r 11(6) did not apply because each of the offers related to his claim for damages. The order made on 22 June 2011 followed a hearing on issues of liability only. It was not, so Mr Haros submitted, "an order or judgment on the claim to which the offer relates" for the purposes of O 23 r 11(6)(b). If O 23 r 11(6) did not apply, the respondents' application fell to be determined in accordance with common law principles. Under those principles a costs order would not be made on an indemnity basis unless the rejections were imprudent or plainly unreasonable. 10 The parties had invited the Court to deal with issues of liability separately and before dealing with any relief which might be granted following a liability finding in Mr Haros' favour. I accepted this proposal. The judgment given on 22 June 2011 dismissed the proceeding because Mr Haros had failed to establish any liability on the part of the respondents. This constituted "a judgment on the claim" to which the various offers related. The requirements of O 23 r 11(6)(b) were, therefore, satisfied. 11 It was common ground that the requirements of O 23 r 11(6)(a) had also been satisfied. 12 As a result a presumption arose in the respondents' favour that orders of the kind contemplated by paragraphs (c) and (d) of r 11(6) should be made: see Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40 at [10]. 13 The authorities on the construction and application of O 23 r 11(6) were considered by a Full Court in IFTC Broking Services Limited v Commissioner of Taxation (2010) 268 ALR 1 at 4-5: "It may be accepted that the prima facie position established by O 23 r 11(6) can be departed from. So much is clear from the statement of exception in the rule which the appellants seek to invoke (unless the Court otherwise orders). The cases say more than this, however. The cases establish that: (1) If O 23 r 11(6) is engaged it is for the applicant to satisfy the Court that the prima facie position established by that rule should be departed from: Futuretronics at [12]. (2) Unlike a case in which a Calderbank offer (named after the decision in Calderbank v Calderbank [1975] 3 All ER 333; [1976] Fam 93) is made, the fact that an unsuccessful litigant acted reasonably in rejecting an offer of compromise "is not of itself a sufficient reason to displace the operation of the rule": Futuretronics at [11]. (3) It is true that doubts have been expressed about a need to show "compelling and exceptional circumstances" to justify otherwise ordering: see Port Kembla Coal Terminal at [17]. Nevertheless, properly understood, the rule creates a presumption in favour of indemnity costs which the unsuccessful party must rebut. A court may depart from the presumptive position but only "for proper reasons which, in general, only arise in an exceptional case": Port Kembla Coal Terminal at [17] cited with approval in Futuretronics at [10]. (4) The requirement for "proper reasons" for any departure from the prima facie position of indemnity costs reflects the purpose of the rule. As explained by Mason P in Morgan v Johnson (1998) 44 NSWLR 578 at 581F-582E (Morgan) the rule is intended to encourage the compromise of litigation (such compromise being in both the private and the public interest) and to oblige parties "to give serious thought to the risk involved in non-acceptance" on the basis that "litigation is inescapably chancy": Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 at 725. For these reasons "the ordinary provision is expected to apply in the ordinary case" (referring to New South Wales Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100 at 102-103)." The case identified as "Port Kembla Coal Terminal" is reported as Port Kembla Coal Terminal Limited v Braverus Maritime Inc (No 2) (2004) 212 ALR 281 (Hely J). 14 Mr Haros identified what he said were "compelling and exceptional" circumstances which, he contended, displaced the presumption created by O 23 r 11(6). They were that: The respondents' first offer was for a negligible sum, the amount offered being so low as to derisory in nature; During the period in which the first offer was open for acceptance he did not have sufficient information properly to assess the prospects of the respondents' defences succeeding; and His case could not have been fairly characterised as being without prospect of success from the outset. 15 Linfox's first offer of compromise to Mr Haros was in the sum of $15,000. It was made before the fast track "pleadings" had closed and almost six months before the trial commenced. 16 I do not consider that the amount involved was derisory. Fifteen thousand dollars is not an insubstantial sum. Mr Haros has made no attempt to explain why he regarded it as derisory. He may have so characterised the offer having regard to the legal expenses which he had, by then, incurred or by reference to what he anticipated would be the sum awarded to him by the Court should he establish the liability of one or both of the respondents. Whatever may have been his reason or reasons for branding the offer as derisory, it was not an offer which warranted summary rejection. 17 The information which Mr Haros said that he lacked in December 2009 related to matters of evidence. He said that he was unaware of the respondents' position on which he described as "key matters" such as: The employment of Messrs Grant, Giddings and Polk and their involvement in the commercial activities of Linfox's business, including the fact that Mr Haros had, on his first day of employment with Linfox, been provided with a business card on which Mr Grant was said to occupy the position of "Commercial Manager, Avalon Airport"; The respondents' version of the various conversations in which he participated and which occurred during the period between his application for the business manager's position and the commencement of his employment with Linfox; When Linfox knew that Mr Anderson was going to resign; and The true reasons for Linfox's termination of his employment. 18 At the time at which he commenced the proceeding Mr Haros was well aware of the nature and extent of the involvement of Messrs Grant, Giddings and Polk in relation to Avalon Airport. He had complained about their participation in commercial dealings relating to the Airport whilst he was still employed by Linfox. Linfox had not sought to deny their involvement. It was not, however, until April 2010 that Mr Haros amended his "pleadings" to allege the making of two additional misleading and deceptive representations concerning the performance of commercial work relating to Avalon. Mr Haros alleged that Linfox had represented to him that, at the time his employment was being negotiated, it did not employ anyone other than Mr Anderson in the management or performance of the activities comprehended by the business manager's role and that Linfox had omitted to advise him that Messrs Grant, Giddings and Polk were undertaking such work. I found that these representations had not been made and that, in any event, had they been made they would not have been misleading. The evidence of witnesses called by the respondents at trial had no bearing on the principal basis for rejecting these parts of Mr Haros' case. 19 Given that Mr Haros had not raised these issues before the first offer was made, it is hard to understand how his lack of awareness of the respondents' evidence in relation to them could have had any bearing on his decision not to accept Linfox's offer. 20 When he commenced the proceeding Mr Haros was also well aware of what he said had transpired in the course of the various conversations which he had had with personnel at the employment agency which acted on behalf of Linfox and with Linfox managers between June and November 2008. At trial, the respondents' witnesses denied that particular persons were privy to some of the conversations and also disputed some of the statements which Mr Haros attributed to Linfox managers. 21 Ultimately, nothing turned on these evidentiary disputes. I held that the representations on which he relied had not been made even accepting his account of his exchanges with representatives of Linfox and with Mr Anderson. 22 Issues relating to when Linfox knew that Mr Anderson was going to resign and the true reason for Linfox's decision to terminate Mr Haros' employment had no bearing on the outcome of the proceeding. 23 Even had his case been assessed as having some prospect of success when it was commenced that assessment would not have displaced the presumption in favour of the award of costs on an indemnity basis. 24 For these reasons I consider that Mr Haros has failed to displace the presumption in respect of the first offer. 25 That finding is sufficient to support the making of the orders sought by the respondents. I will, nevertheless, deal with some of the matters raised in relation to the second and third offers. 26 These offers were made in June 2010 after the trial had commenced. In each case they were for considerably larger sums than that offered on the first occasion. 27 Mr Haros submitted that certain observations which I had made in the course of the trial had given him such comfort as to the likely outcome of his application as to warrant his determination not to accept the offers made in June 2010. 28 The first of these was made while Mr Anderson was being cross-examined about the amount of time Mr Grant spent on commercial work in relation to Avalon between July and September 2008. The following exchange occurred on 13 May 2010: "HIS HONOUR: Whether the project has got over the line or not, it would appear that in July, August, September 2008, Mr Grant was doing a good deal of commercial work in relation to Avalon? --- Your Honour, the passenger terminal was a very small part of the structure there. Well, that may be, but I'm speaking in terms of man hours put in by Mr Grant in relation to Avalon and it wasn't confined to the evidence we have been looking at. Not confined to the passenger terminal. It extended, at least, to hangers? --- Yes, your Honour. I don't - yes, your Honour." 29 Mr Haros appears to have understood my questions as indicating my acceptance of the facts that the respondents were aware of Mr Grant's activities and that they had concealed them from Mr Haros. This was said to be "a central part" of his case. 30 A reading of the two questions which I directed to Mr Anderson discloses no more than a desire on my part to clarify his evidence. 31 Furthermore, for reasons which I have already given, the dismissal of Mr Haros' application was not influenced by this evidence. 32 On the following day cross-examination of Mr Anderson continued. He appeared stressed in the witness box. Unexpectedly he said: "I'd just like to stop the trial and apologise. You know, I think I have been - I haven't been frank with some of the - I have to apologise, your Honour. This has been a stressful few days for me, and I just …" 33 I adjourned the hearing so that Mr Anderson could speak with his legal advisers. When the hearing resumed about a quarter of an hour later senior counsel for the respondents advised the Court that: "… there are a number of extrinsic pressures on Mr Anderson, including health issues concerning his wife who is up in Sydney. It's got to the point where he's at the verge of physical and mental collapse and we ask for the day to be adjourned." Counsel for Mr Haros consented to the adjournment. Before adjourning the hearing I said that "on what I have heard of the trial so far, … it may be unavoidable that adverse findings that might have wider implications may be made." I strongly suggested that the parties discuss the resolution of the matters in dispute. 34 The further hearing of the proceeding was adjourned to 9 August 2010. 35 Whilst the resumption of the hearing was pending the second and third offers were made but were not accepted by Mr Haros. 36 After the hearing resumed Mr Anderson gave evidence explaining the external pressures which had been bearing on him on 14 May 2010 and clarifying what he had meant by saying that he hadn't been "frank". He said: "… I - I haven't had the opportunity to still apologise for that, your Honour. I was - I was just unwell that morning and I was under a lot of stress at work. And my wife had a big operation on the Friday before. I wasn't being frank about my mental state, I was just trying to be stoic and get through that day. But, you know, it was just a combination of a lot of work pressures that I had in Sydney, at the time. And I have to be frank, I've never been in this situation before, so that was tiring me out a bit. My wife had a four-and-a-half-hour operation on the Friday before the trial, due to some, you know, female, sort of, business of a number of caesareans over the years, that we couldn't reschedule. And that - it was all - that played very heavily on me. I picked up my wife on the Sunday afternoon, in Sydney. Virtually, she couldn't walk. I had to lay her on the bed and just - then I had to come down to Melbourne, here, with my two-year-old and my four-year-old because she couldn't stand up. And I was looking after my two-year-old during that week and trying to run my Sydney business, so I was just having a difficult time and I wasn't being frank with my mental state, that morning. And I remember being asked about - you know, the funny thing was - the Banyan Tree, by Mr Wood. And I said, "I went to the Banyan Tree." Anyway that was probably when I thought - so I just wanted to apologise, actually, your Honour. I know I - you know, particularly to Mr Wood and Mr Bourke, but especially to you, because I know the court time is valuable. And it upset me that I upset the court on that day so that was all. I just wasn't well." This evidence wasn't challenged and I accepted it. I made no adverse findings about the credit of any witness. Mr Haros was not, of course, privy to this evidence when he declined to accept the second and third offers. 37 Mr Haros submitted that, as a result of my statements, he was justified in anticipating that his case on liability was sound and that it would further improve with more cross-examination of Mr Anderson and the remaining witnesses to be called by Linfox. 38 Mr Haros is an experienced lawyer. He was represented by senior and experienced counsel. I do not accept that what I said on 13 May 2010 or before adjourning the Court on 14 May 2010 could, reasonably, have influenced Mr Haros when he made his decisions not to accept the substantial offers made to him by the respondents in June 2010. On 13 May 2010 I did no more than direct questions to Mr Anderson. My remarks on 14 May 2010 were directed to all parties in an effort to encourage further discussions with a view to settlement of the proceeding. What I said about the prospect of adverse findings was qualified and expressed tentatively. Furthermore, Mr Haros could not have assumed that any adverse credit findings which I might have been minded to make in respect of Mr anderson would necessarily lead to him (Mr Haros) successfully prosecuting his claims. 39 Confronted with the second and third offers Mr Haros had an obligation to consider them, paying proper regard to the purpose and effect of O 23 r 11(6). When deciding not to accept the offers Mr Haros chose to accept the risk that the Rule might subsequently operate to his detriment: see IFTC at 5. 40 I do not consider that Mr Haros has demonstrated that proper reasons exist for any departure from the prima facie position provided for in O 23 r 11(6). This, like IFTC, was "an ordinary case". Mr Haros did not accept offers made to him. Instead, he decided to "chance [his] hand" in "the inherently risky business of litigation": see IFTC at 6. 41 The terms of the orders sought by the respondents would require Mr Haros to pay their costs of the proceeding on a party and party basis up to 11:00 am on 17 December 2009 and, thereafter, on an indemnity basis. 42 Mr Haros submitted that any order made under O 23 r 11(6) should not apply to costs incurred after 1 September 2010. This was because any costs incurred after that date were incurred in relation to the determination of the quantum of his loss. 43 Orders for the preparation of the parties' cases on quantum were made on 4 August and 21 October 2010. Those orders were made by consent. There is, therefore, no reason to limit the operation of the indemnity costs order in the manner contended for by Mr Haros. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tracey.