McLennan & Anor v Infinity Constructions Pty Limited & Ors

SECOND RESPONDENT Alan Yasbek

THIRD RESPONDENT Theofilos Orfanos

Costs - Application for declaration pursuant to s 154 of Industrial Relations Act 1996 - Indemnity Costs - Calderbank offer rejected and not bettered in litigation - Not reasonable for applicants to reject offer - Indemnity costs granted CATCHWORDS: Declaration pursuant to s 154 of Industrial Relations Act 1996 - Indemnity Costs - Calderbank offer rejected and not bettered in litigation - Not reasonable for applicants to reject offer - Indemnity costs granted

LEGISLATION CITED: Industrial Relations Act 1996

Ballard v Incoll Management (No 2) [2001] NSWIRComm 217 Calderbank v Calderbank [1976] Fam 93 CASES CITED: McLennan & Anor v Infinity Constructions Pty Limited & Ors [2007] NSWIRComm 10 Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425 Van Huisstede v Commissioner of Police (No 2) (2001) 106 IR 56

HEARING DATES: Written Submissions: 29 January 2007 and 26 February 2007

APPLICANTS Dr J Berwick of counsel Solicitor: Ms D Kaiti CBD Legal LEGAL REPRESENTATIVES: RESPONDENTS Mr M Elliott of counsel Solicitor: Mr H Koops Henry Davis York

CARL McLENNAN AND ANOR v INFINITY CONSTRUCTIONS PTY LIMITED & ORS (NO 2)

Application by Carl McLennan for declaratory relief under s 154 of the Industrial Relations Act 1996

1 On 2 February 2007, judgment was given in favour of the respondents in respect of an amended application filed by Carl McLennan and S & M Constructions (Australia) Pty Limited ("the applicants"), seeking a declaration pursuant to s 154 of the Industrial Relations Act 1996 ("the Act") and orders pursuant to s 174 of the Act: McLennan & Anor v Infinity Constructions Pty Limited & Ors [2007] NSWIRComm 10. 2 The applicants were ordered to pay the respondents costs of and incidental to the application, as agreed, or in default, as assessed. The respondents made an application for indemnity costs. The parties were directed to file written submissions and were advised that the application may be determined on the papers. This judgment determines that application. Background 3 On 25 October 2006, the solicitors for the respondents forwarded two letters to the solicitors for the applicants. The first letter of 25 October 2006 relevantly provided: Deficiencies with your client's application Our clients' position is that your clients' application in the above proceedings is misconceived for the following reasons: 1. The parties have in fact reached agreement on the terms of settlement of proceedings 3402 of 2005 (which are now contained in the Deed of Release executed by your clients on 20 June 2006). Our clients are attending to execution of the deed to formalise their agreement to its terms. By reason of clause 12 of the deed of release, which provides that the deed records the entire agreement between the parties and that it supersedes all previous negotiations, understandings and agreements the Heads of Agreement dated 4 April 2006 is no longer in force, in those circumstances the amended application seeks to enforce an agreement that has been superseded; and 2. In circumstances where the parties have either agreed on the terms contained in the Deed of Release or executed and exchanged the Deed of Release, there is a real question as to whether the Industrial Court has jurisdiction to enforce the Deed of Release. In light of the above, we invite your clients to discontinue or amend their current application to reflect the agreement presently in force. Our client will then consider their position. If your clients do not amend their amended application, we put you on notice that if our clients are successful in having your clients' application dismissed or stayed they will seek the costs of your clients' application. 4 The second letter of 25 October 2006 relevantly provided: In the interests of avoiding a hearing on 11 December 2006 regarding the matters set out in our open letter dated 25 October 2006 and the costs of a hearing on the matters which are the subject of your clients' amended application, our client proposes that the proceedings be settled on the following basis: 1. Our clients will provide your clients with an executed counterpart of the deed of release executed by your clients on 20 June 2006; 2. Our clients will make the payments referred to in clause 2.1(a) and (b) of the deed of release within 7 days of your client's acceptance of this offer; 3. Your clients will arrange to provide to our clients copies of the valid tax invoices referred to in clause 2.1(c) of the deed of release as soon as practicable after your clients' acceptance of this offer; 4. Subject to your clients' compliance with 3 above, our clients make the payment referred to in clause 2.1(c) of the deed of release within 7 days of your clients' acceptance of this offer; 5. Consent orders be filed as soon as practicable after your clients have accepted this offer, in each of proceedings 3402 of 2005 and 3043 of 2006 to the effect that: (a) the proceedings be discontinued; and (b) there be no order as to costs. This offer is made in accordance with the principles of Calderbank v Calderbank [1976] Fam 93 and section 131(2)(h) of the Evidence Act (NSW) and without any admission on the part of our clients. The offer is open for acceptance until 5pm on 1 November 2006 at which time it is withdrawn. In the event that this offer is not accepted and your clients obtain a judgment no more favourable than the terms of this offer, our clients intend to produce this letter to the Court in relation to the question of costs. 5 A further offer was made by the solicitors for the respondents on 8 November 2006, which was in similar terms to the offer made on 25 October 2006, but included an offer by the respondents to pay the applicant's costs, as agreed or assessed, in this matter. This offer remained open until 10 November 2006. The applicants allowed each of the offers of settlement to lapse. 6 The respondents seek an order that the applicants pay their costs on an indemnity basis. 7 The applicants oppose this application. Consideration 8 The respondents' position is that it made an offer of compromise on terms far more favourable to the applicants than the judgment in this matter. The offer was made in accordance with the principles in Calderbank v Calderbank [1976] Fam 93. The first offer made by the respondents to settle the matter on 25 October 2006 not only contained an offer to pay money to the applicants, but was also sent in conjunction with an open letter which explained why the applicants' claim would fail. 9 Further attempts to settle the matter were also rejected by the applicants, who failed to advance any sensible form of compromise. The only offer made by the applicants required the respondents to agree to all orders sought and to pay the applicants' costs of these proceedings. 10 Boland J reviewed a number of cases dealing with a Calderbank offer in Ballard v Incoll Management (No 2) [2001] NSWIRComm 217. His Honour observed at [8] - [17]: [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 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 [No 2] (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 [No 2] 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 (No 2) [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. 11 In dealing with this application, I propose to follow the approach adopted by Boland J who followed the approach taken by Rolfe J in Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425. In this case, a genuine offer of settlement was made, rejected and not bettered the litigation. The onus, therefore, falls on the applicants to establish that it was reasonable for them not to accept the offer. 12 Dr J Berwick of counsel, who appeared for the applicants, submitted that the second letter forwarded by the respondents on 25 October 2006 stated, inter alia: Our clients expressly reserve all of their rights in relation to your clients' statement made to WorkCover on 16 June 2006 as set out in our letter dated 30 June 2006 to Home Wilkinson Lowry. 13 Dr Berwick submitted that the second letter dated 25 October 2006, if read in conjunction with the first letter dated 25 October 2006, could only mean that the respondents intended to pursue defamation proceedings against the applicants. 14 In the open letter dated 25 October 2006, the respondents invited the applicants to discontinue or amend their current application to reflect the agreement which they contended was presently in force. They advised that they would then consider their position. This was taken by the applicants to be a reference to a letter from the respondents to the applicants then solicitors Home Wilkinson Lowry dated 30 June 2006 in which the respondents contended that statements made by the first applicant had defamed the respondents. They alleged that statements made by the first applicant to Inspector Chaston of the WorkCover Authority of New South Wales were false and defamatory. The respondents sought that the first applicant undertake to immediately cease making such statements, provide a signed retraction and apology that could be distributed to any person or organisation that had seen the alleged defamatory statements. 15 The offer of 25 October 2006 remained open until 5.00 pm on 1 November 2006. The subsequent offer of 8 November 2006 remained open until 5.00 pm on 10 November 2006. The applicants put a counter offer to the solicitors for the respondents by letter dated 6 November 2006, five days after the respondents' offer of 25 October 2006 had elapsed. The applicants' counter offer sought a settlement of the current proceedings on the terms set out in the respondent's letter of 25 October 2006, together with a proposal that the respondents pay the applicants' costs of approximately $15,000. The respondents in their letter of 8 November 2005 rejected this offer as they considered the quantum of costs excessive. They proposed that the matter resolve on the basis of the terms outlined in their letter of 25 October 2006, together with an offer to pay the applicants' costs of and incidental to the amended application filed on 20 September 2006, together with such costs up to 8 November 2006, as agreed, or assessed. The applicants responded by letter dated 10 November 2006, in effect, restating their offer of settlement of 6 November 2006. 16 Taking into account the positions adopted by the parties in this matter, I am left to conclude that it was not reasonable for the applicants to have rejected the respondents' offer of compromise contained in the Calderbank letters of 25 October 2006 and 6 November 2006. 17 Accordingly, I order that the applicants pay the respondents' costs on an indemnity basis from 25 October 2006. In arriving at this decision, I am of the view that such an order should be made to meet the requirements of justice. I am also mindful of the observations of Walton J, Vice-President in Van Huisstede v Commissioner of Police (No 2) (2001) 106 IR 56 that the granting of indemnity costs does not involve considerations of a punitive nature. In my view, in light of the Calderbank offer, the applicants maintained what was ultimately found to be an unmeritorious and untenable case. ORDERS

1. The applicants are to pay the respondents' costs in respect of Matter No IRC 3043 of 2006 up to 24 October 2006, as agreed, or as assessed in accordance with the Court's Rules.

2. The applicants are to pay the respondents' costs on an indemnity basis in respect of Matter No IRC 3043 of 2006 on and from 25 October 2006.

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