Sallehpour v Frontier Software Pty Ltd

3 Late in the afternoon on 24 March 2005, the respondent filed its submissions on the question of costs. Although the written document was headed "Outline of Respondent's Submission on Costs", given that the Court did not intend that the parties have an opportunity to orally expand on their written submissions it will treat that document as the respondent's fullsubmissions on costs. 4 The respondent sought costs under s 170CS(1)(b) of the Act. That provision states: "Subject to this section, a party to a proceeding under section 170CP must not be ordered to pay costs incurred by any other party to the proceeding unless the court hearing the matter is satisfied that the first-mentioned party:

(b) caused the costs to be incurred by that other party because of an unreasonable act or omission of the first-mentioned party in connection with the conduct of the proceeding."

5 Section 170CP(1) is the provision under which the applicant applies to the Court in respect of an alleged contravention of s 170CK(2). The applicant, therefore, was a party to a proceeding under s 170CP, being the proceeding the subject of the principal judgment. 6 Section 170CS(1)(b), unlike s 347(1), does not focus on the initiating party but applies to any party to the proceeding. It is similar in content to s 85A of the Native Title Act 1993 (Cth). That section provides:- "(1) Unless the Federal Court orders otherwise, each party to a proceeding must bear his or her own costs.

(2) Without limiting the Court's power to make orders under subsection (1), if the Federal Court is satisfied that a party to a proceeding has, by any unreasonable act or omission, caused another party to incur costs in connection with the institution or conduct of the proceeding, the Court may order the first-mentioned party to pay some or all of those costs."

7 Section 43 of the Federal Court of Australia Act 1976 (Cth), so far as is material, provides: "(1) … the Court or a Judge has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which any other Act provides that costs shall not be awarded. … (2) Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge."

8 Section 170CS(1)(a) of the Act, like s 347(1), is an example of a reference to a proceeding in respect of which provision is made that costs not be awarded. However, s 170CS(1)(b) is of a different nature. The Court has jurisdiction to award costs if the circumstances referred to in that paragraph are made out. Nevertheless whether an award of costs is made is in the discretion of the Court, as provided in s 43(2) of the Federal Court Act. 9 In Ward v Western Australia (1999) 93 FCR 305 in considering an application under s 85A of the Native Title Act, Lee J observed, at 311, that s 170CS: "… permits an order for costs to be made against any party to the proceeding whose unreasonable conduct in the proceeding has caused another party to incur costs."

10 In its written submissions the respondent submitted that the applicant had engaged in unreasonable conduct in the following ways: · by failing to accept early and reasonable settlement offers; · by failing to define the issues that had to be raised; · by engaging in other unreasonable pre trial conduct; and · by engaging in unreasonable conduct during the trial. 11 Although it is applicable only to proceedings in the Australian Industrial Relations Commission, s 170CJ of the Act enables a costs order to be made against a party who has acted unreasonably in failing to agree to a settlement that could have led to the matter being discontinued prior to the arbitration concluding before the Commission: see, for example, Blagojevch v Australian Industrial Relations Commission (2000) 98 FCR 45. 12 The Court sees no reason why it should not view as unreasonable conduct, the failure of a party to agree to a settlement offer in circumstances where he was incapable of achieving a better result by continuing with the proceeding. That is expressly so, where the legislature, albeit in the context of a proceeding before the Commission, has shown that it considers that failure to agree to reasonable settlement offers may, in certain circumstances, lead to adverse costs orders. 13 The proceeding before the Court commenced on 10 January 2003. On 27 November 2003, the respondent's solicitors wrote to the applicant offering him $25,000 as an "all in" settlement of all claims relating to his employment or its termination. At that stage, Mr Sallehpour was out of time to agitate any issue concerning his claim for workers' compensation. The only claim relating to his employment was the one before the Court. 14 Reinstatement was a totally unrealistic remedy for the applicant in the event that the Court found the respondent to have breached s 170CK. The applicant had submitted medical certificates to the respondent showing that he had little or no prospect of returning to work in any capacity. Such certificates were sent from prior to the termination of his employment and there is one which is applied up to 11 May 2005. Because the applicant was unfit to return to work he was not capable of demonstrating any loss for the purpose of an award of compensation under s 170CR(1)(c). The Court would have been able to impose a penalty of up to $10,000 if the applicant had succeeded at trial. Under s 356(b) the Court may have ordered that the penalty be paid to the applicant. In other words, the very best outcome for the applicant, in respect of the proceeding, would have been to receive $10,000. Giventhe applicant's rejection of an offer of $25,000, well prior to trial, there are sound reasons for considering that the applicant thereby engaged in an unreasonable act by failing to accept the offer of settlement for $25,000 made on 27 November 2003. That offer was left open until 16 December 2003. 15 A further offer of $20,000 plus costs, taxable on a party-party basis was made by the respondent to the applicant on 29 June 2004. The offer was left open for acceptance until 13 July 2004. In the letter containing the offer, the applicant was informed that there could be serious costs consequences for the applicant if he did not obtain a judgment as favourable as the offer. There are also sound reasons for considering that the failure to accept the 29 June 2004 offer constituted unreasonable conduct. In the event that, despite the certificates, the applicant was able to obtain an order under s 170CR(1)(c), the highest available sum would have been equal to about six months salary. The offer of 29 June 2004 and the 27 November 2003 offer were close to or equivalent to six months salary for the applicant. However, as previously indicated, the applicant would not have been able to demonstrate any loss at all and would have been dependent for any monetary outcome on an order under s 356(b) of the Act. 16 The failure to accept the settlement offer of 29 June 2004 was unreasonable conduct on the applicant's behalf. This was not disputed in written submissions filed on his behalf. However, it has been submitted on behalf of the applicant that the concept of "unreasonableness" in s 170CS(1)(b) must not be viewed objectively from the standpoint of a reasonable person. It was contended that when the applicant rejected the settlement offers in November 2003 and June 2004 he was suffering from a mental disability, which inhibited his understanding about what was expected of him in continuing with the proceeding. Consequently, it was submitted, the applicant's unreasonable behaviour arose as a direct consequence of his depressive illness, which affected his ability to make rational decisions about the litigation, including the rejection of settlement offers which no reasonable person would have rejected. 17 As Finkelstein J said in Zhang v The Royal Australian Chemical Institute Inc (No 2) [2004] FCA 1626 at [7]: " … even if a case falls within one of the limbs of s 170CS(1), there is still a discretion whether or not to award costs against a party."

18 Although the applicant acted unreasonably in refusing the offer of settlement which expired on 13 July 2004, the Court has a discretion not to make an order which would fully take into account that unreasonable conduct. The applicant's solicitor has urged the Court, in the exercise of its discretion, to take into account that the applicant was so affected by his depressive illness that he was unable to comprehend the significance of the rejection of the 29 June 2004 offer. It is tempting to be swayed by that submission and have great sympathy for the applicant. On the other hand, why should a respondent have to bear the entirety of its own costs simply because it was the subject of an unreasonable act by a mentally disabled applicant? The fairest course in the circumstances is to reduce the costs order that the Court would have made had the applicant not been suffering from a mental disability. In doing so, the Court notes that the discretion available under s 43(2) of the Federal Court of Australia Act is not limited by s 170CS(1)(a) of the Act. The best assessment of the fairest course in the circumstances is that the applicant should pay 50% of the respondent's costs incurred on and from 13 July 2004 until 15 March 2005, the latter being the final day of the hearing of the substantive application. The applicant's possible inability to comply with such an order does not impact on whether it is appropriate for the Court to make the order in question. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Marshall.

Solicitor for the Applicant: DEAC Legal Services

Solicitor for the Respondent: TressCox Lawyers

Date for completion of written submissions: 7 May 2005

Date of Judgment: 25 May 2005