McCartney v Strathfield Group Limited

1 This interlocutory judgment deals with competing submissions made by the parties as to the effect of the response made by the applicant to an offer of compromise made by the respondent.

2 By an offer of compromise in usual form the respondent offered to compromise the applicant's claim brought under s 106 of the Industrial Relations Act 1996 by payment of a specified amount to the applicant by way of compensation and by payment of a further specified amount said to be inclusive of GST for the applicant's costs in the proceedings. The notice of offer said that acceptance of the offer as to the amount payable to the applicant was conditional upon the acceptance of all other parts of the offer, including the offer to pay the specified sum for costs. The offer was said to be made in accordance with Part 23 of the Industrial Relations Commission Rules 1996.

3 By letter the applicant's solicitors purported to accept the principal sum offered with respect to the applicant's claim under the proceedings but rejected the offer to pay the applicant's costs in the specified sum.

4 That letter continued: "In regard to our client's acceptance of the principal offer and rejection of the costs offer, we refer you to rule 216(2) of the Industrial Relations Commission Rules 1996 which, as you will note, indicates that "a term which purports to negative or limit the entitlement to costs, that term shall, unless the Commission otherwise orders, be of no effect for any purpose under Part 23 of this Rule".

5 On this basis the applicant's solicitors submitted that he was entitled to accept the principal offer, reject the specified offer as to costs and thereby became entitled to an order for costs in the usual terms, namely as assessed under the Legal Profession Act.

6 The respondent denied that the applicant was so entitled, and it is this controversy which is the subject of this interlocutory judgment.

7 Rule 216(2) of the Commission Rules is in the following terms:

216 Offer of compromise (2) If a notice of offer contains a term which purports to negative or limit the entitlement to costs, that term shall, unless the Commission otherwise orders, be of no effect for any purpose under Part 23 or this Rule.

8 There is a reference in rule 216(2) to Part 23 of the Commission Rules. Part 23 is concerned with offers of compromise and contains rules in usual form creating a mechanism for the making and acceptance of offers of compromise. This process is directed principally to creating a regime to encourage parties to litigation to put forward and accept realistic offers of compromise. The sanction for not doing so if the offer is not exceeded in the proceedings being the risk of the award of costs including costs on an indemnity basis. So much appears from Part 27 of the Rules dealing with costs and in particular rule 216 which sets out the circumstances in which indemnity costs may be claimed and awarded where an offer of compromise has been made. Rule 216(2) is contained within Part 27.

9 On a prima facie basis rule 216(2) provides that an offer of compromise containing a term which either denies entitlement to costs or limits an entitlement to costs is to have no effect for any purpose under that part of the Rules dealing with offers of compromise or the Costs Rule. That is, such an offer does not constitute an offer of compromise and does not attract the reward or sanction of indemnity costs (as the case may be).

10 This approach to construction, which in my opinion is the appropriate and correct approach, is consistent with a construction of the corresponding rule contained within the Rules of the Supreme Court of New South Wales, being rule 17(2) of Part 52. In Associated Confectionary (Aust) v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349 Giles J (as his Honour then was) held that to give effect to what his Honour said was the natural meaning of the words within that rule, an offer of compromise made inclusive of costs had no effect. The same conclusion was reached by Nicholas J in that court in Gibbons as official liquidator of Deemah Marble and Granite Pty Ltd (in liq) v Deputy Commissioner of Taxation [2003] NSWSC 1126. In those proceedings Nicholas J held that an offer which included "a specified amount for costs" should be considered in the same manner as an offer of compromise inclusive of costs and was therefore not an offer of compromise for the purpose of the Supreme Court Rules.

11 His Honour noted, however, that the Supreme Court Rules had been amended "to establish the scheme which distinguishes between an offer to compromise a non-costs claim (Pt 22 Div 1) and an offer to compromise a costs claim (Pt 22 Div 2)". As his Honour observes this created a facility to make a separate costs offer with respect to the costs element of a claim.

12 I conclude that the offer of compromise made in these proceedings is not an offer for the purpose of Part 23 of the Commission Rules and has no effect for the purpose of rule 216.

13 This leads to a consideration as to whether I should "otherwise order" pursuant to the discretion given in rule 216(2). The effect of the exercise of discretion would be to allow the offer made by the respondent including that part of it which specified the amount of costs to be offered, to be considered as an offer of compromise under Part 23 so as to trigger in turn the application of rule 216. The request for the exercise of discretion was made by the applicant and not by the respondent. I fail to see how the exercise of discretion can in any way benefit the applicant. It can only work to the advantage of the respondent by putting the applicant at risk in terms of a failure to recover costs of less than the amount specified.

14 The position is complicated because the applicant has not accepted the offer in its totality and the terms of the offer made by the respondent as such that it could only be accepted if both the compensation component and the costs component were both accepted. The applicant asserted that the discretion should be exercised to enable him to accept the amount offered by way of compensation and force the respondent to pay full costs in an amount assessed in default of agreement. In circumstances where the offer of compromise made by the respondent is clearly intended to achieve a lesser result, and has not been accepted, I can see no utility in attempting to exercise any discretion in the manner contended for by the applicant.

15 Accordingly, the applicant's submissions must fail.

16 The respondent sought costs. The applicant submitted that costs should be reserved. As the respondent has clearly succeeded in connection with these interlocutory proceedings which I have conducted, I propose to make a costs award in favour of the respondent.

17 My examination of the provisions of rule 216(2) has led to a conclusion that on a prima facie basis, and without seeking the exercise of discretion by the Commission, a party to proceedings is unable to make an offer inclusive of costs or to substantially compromise another party's costs by way of an offer in circumstances where the substantive claim being opposed may readily accede to a substantial compromise. Whilst I readily concede that offers inclusive of costs create their own difficulties in terms of assessment, if the prospect of the awarding of indemnity costs or the prospects of an adverse costs order are created by reference to the failure to sensibly accept an appropriate offer of compromise, it may be appropriate to make some provision in the rules of the Commission to allow for a costs offer to be made in conjunction with an offer of compromise which is appropriate in all the circumstances. This would require an amendment to the Commission Rules. The alternative is to compel parties in such a position to make offers of compromise which include within them the full costs of the other side, a situation which in certain cases may be inappropriate and counterproductive to forcing a settlement. This suggestion is made without having considered in any way the existence of the discretion contained within rule 216(2). I would merely observe that that discretion must be exercised judicially and may in turn require the exercise of a value judgment concerning the respective positions of the parties and the prospects of success within the litigation. On one view, this is a matter which may be better left to the parties in terms of the offer and counter-offer process which accompanies all settlement negotiations.

18 I should also formally refer to observations which I made during the course of the proceedings in connection with their case management. It is apparent from the documents filed that the costs in these proceedings will far exceed the amount in issue. While the applicant and the respondent may feel that there is a matter of principle which requires them to pursue their respective allegations to the bitter end, only one party will eventually be substantially successful, and it is impossible for either party to be guaranteed a result in their favour. However, what is certain is that substantial costs will be incurred. The parties and their legal practitioners are urged to re-examine their attitudes to the commercial resolution of these proceedings in a sensible and commonsense fashion. The parties and their legal practitioners are reminded that in s 106 proceedings before this court there is always available the assistance of a member of the Commission to provide for further conciliation.

19 ORDERS 1. The applicant's application is dismissed 2. The applicant is to pay the respondent's costs of the interlocutory application assessed in default of agreement.

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