Aitken v Virgin Australia Airlines and Vandeven v Virgin Australia Airlines (No.2)
[2013] FCCA 2031
•29 November 2013
FEDERAL CIRCUIT COURT OF AUSTRALIA
| AITKEN v VIRGIN AUSTRALIA AIRLINES and VANDEVEN v VIRGIN AUSTRALIA AIRLINES (No.2) | [2013] FCCA 2031 |
| Catchwords: INDUSTRIAL LAW – Costs – reasonable offer of settlement – Calderbank offer – whether refusal of the offers was unreasonable. |
| Legislation: Fair Work Act 2009 (Cth), s.44, s.83, s.351, s.539, s.570 Workplace Relations Act 1996 (Cth), s.824 |
| Cases cited: Fair Work Ombudsman v A Dalley Holdings Pty Ltd [2013] FCA 509 Hopper & Ors v Virgin Blue Airlines Pty Ltd [2005] QADT 28 Plancor Pty Ltd v Liquor, Hospitality and MiscellaneousUnion (2008) 171 FCR 357 Ponzio v B & P Caelli Constructions Pty Ltd (2007) 158 FCR 543 R v Nuri [1990] VR 641 |
| Applicant: | KIRSTY AITKEN |
| Respondent: | VIRGIN AUSTRALIA AIRLINES |
| File Number: | BRG 141 of 2011 |
| Applicant: | LEONIE VANDEVEN |
| Respondent: | VIRGIN AUSTRALIA AIRLINES |
| File Number: | BRG 144 of 2011 |
| Judgment of: | Judge Burnett |
| Hearing date: | 4 October 2013. |
| Date of Last Submission: | 4 October 2013 |
| Delivered at: | Brisbane |
| Delivered on: | 29 November 2013 |
REPRESENTATION
| Counsel for the Applicants: | Ms C. Hartigan |
| Solicitors for the Applicants: | Maurice Blackburn |
| Counsel for the Respondent: | Mr C. Murdoch |
| Solicitors for the Respondent: | Corrs Chambers Westgarth |
ORDERS
That the applicant submit within seven days of this order a minute of order giving effect to the terms of these reasons and the reasons delivered 8 August 2013.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT BRISBANE |
BRG 141 of 2011
| KIRSTY AITKEN |
Applicant
And
| VIRGIN AUSTRALIA AIRLINES |
Respondent
BRG 144 of 2011
| LEONIE VANDEVEN |
Applicant
And
| VIRGIN AUSTRALIA AIRLINES |
Respondent
REASONS FOR JUDGMENT
Introduction
Following a lengthy trial I delivered reasons in these applications in August 2013. I found one contravention of the Fair Work Act 2009 (Cth) (“FW Act”) had been established in the application brought by Ms Aitken. I stood the matter over for the parties to submit a form of order giving effect to my reasons and to hear submissions on penalty. On the return of the application the respondent also made application for costs.
I have been assisted by both written and oral submissions by each of the parties addressing those matters.
Penalty
In my reasons I concluded that the respondent omitted to “take all reasonable steps to give [Ms Aitken] information about, and an opportunity to discuss, the effect of the decision [to render her redundant]” as it was required to do by s.83(1)(b) of the FW Act. That event constituted a contravention of the National Employment Standards (“NES”)[1] and was a civil remedy provision.[2]
[1] s.44(1) FW Act.
[2] s.539(1) FW Act.
The maximum penalty which a court may impose in respect of a civil remedy provision involving a corporation is 330 penalty units. At the relevant time, a penalty unit had a value of $110.00, resulting in a maximum penalty limit of $33,000.00.
Save for the points of departure discussed below, the parties broadly agree on the principles applicable to the imposition of a penalty. First, it is agreed that the overriding principle is to ensure that the sentence is proportionate to the gravity of the conduct. Further, the purpose of the imposition of penalty is three-fold:[3]
a.Punishment, which must be proportionate to the offence and in accordance with the prevailing standards;
b.Deterrence, both personal (assessing the risk of reoffending) and general (a deterrent to others who might be likely to offend); and
c.Rehabilitation.
[3] Ponzio v B & P Caelli Constructions Pty Ltd (2007) 158 FCR 543 at [93]-[94] per Lander J.
The task of sentencing is one which involves a process of instinctive synthesis,[4] a process which requires a court to take into account all relevant factors and arrive at a single result which takes due account of them all. The penalty must not be so great as to crush the person upon whom the penalty is imposed, nor reveal the person as a scapegoat: Ponzio v B & P Caelli Constructions Pty Ltd at [93]. The maximum penalty is reserved for the most serious of contraventions and overall proportionality and consistency must not prejudice a final check on the penalty assessed: Australian Ophthalmic Supplies at [53].
[4] Australian Ophthalmic Supplies Pty Ltd v McAlary–Smith (2008) 165 FCR 560 at [27] per Gray J and at [55] per Graham J.
In exercising this jurisdiction, a range of factors which may or may not be relevant when assessing penalty have been suggested. Significantly however, courts are warned against the use of checklists because of the risk that they transform the process of instinctive synthesis into an application of a rigid catalogue of matters for attention. As Buchanan J observed in Australian Ophthalmic Supplies at [91]:
“At the end of the day the task of the Court is to fix a penalty which pays appropriate regard to the circumstances in which the contraventions have occurred and the need to sustain public confidence in the statutory regime which imposes the obligations.”
The relevant principles and matters which might be considered in the process of assessing penalty being discussed in cases such as Stuart-Mahoney v Construction, Forestry and Mining Energy Union (2008) 177 IR 61 and Kelly v Fitzpatrick (2007) 166 IR 14 so far as they are relevant they are addressed under the headings listed below.
Nature and extent of the conduct which led to the breaches
For Ms Aitken it was submitted that the respondent’s contravening conduct towards her represented a failure to provide the basic entitlements under the NES that are afforded to an employee in her position seeking to return to work from parental leave. In particular, it was contended that she had a right to be consulted where that decision had the potential to impact her ongoing income and financial situation in circumstances where she had a very young child. It was for this reason that the applicant contended that the breach was egregious and militated in favour of a more significant penalty.
For the respondent it was contended that, accepting the failure, had it acted properly the result would have been the prospect of a further one week’s employment. That is to say that while the respondent conceded the breach it was part of the give and take of industrial disputation. However, in recent years industrial legislation has become increasingly codified and prescriptive on what is acceptable and unacceptable industrial conduct. The legislature has also moved to increase the penalties which may be imposed in respect of contraventions. However, here it was contended that the circumstances were such that the breach was more technical than substantive.
There is something in each of the submissions made by the parties. At the outset, it needs to be observed that the scheme provided for in the NES is protective of the rights of employees and establishes a benchmark below which employment standards are not permitted to fall. Any contravention of such rights constitutes a serious contravention. Although the respondent is correct in observing that the practical effect of the failure was inconsequential, that in my view is no answer. To suggest otherwise would lend support to a contention that it was open to employers to disregard the NES provided that the consequences were of little or no moment. That cannot be, and in my view is not an appropriate approach to a consideration concerning egregiousness.
It is plain from my review of the facts that given that the respondent was in the course of restructuring its business, and reasonably anticipated that redundancies would follow because of the nature of the restructure, someone within the organisation ought to have been alert to the legal consequences that would affect an employee such as Ms Aitken, particularly the requirements of an employee who was on maternity leave. The organisation’s processes were clearly inadequate in their failure to have in place a system that identified an issue such as this.
Although for the applicant it is contended that there were serious personal consequences which I acknowledge, the fact remains that the redundancy itself did not render those consequences any more severe than they would have been had the respondent consulted her as it ought to have. The fact remains that the respondent had determined that Ms Aitken was redundant to its needs; it had no other employment which it could offer and was within its rights to terminate her. As I noted in my reasons addressing damages for breach of contract, the circumstances of Ms Aitken’s employment were such that the best consultation would have achieved for her was the prospect of another week’s employment.
In my view it follows that there has been a contravention of a significant employment right which arose because of a failure of processes within the respondent corporation.
Circumstances in which the relevant conduct took place
The contravention occurred in the context of a major organisational restructure. The applicant was on parental leave and absent from the workplace at the time. She contends that particular regard ought be had to the fact that she had recently added a child to her family and would require greater employment security and thus a greater need for stable income than otherwise. Accordingly, it was submitted that a reasonable employer would have armed the applicant with the information necessary to plan for her family’s future. Accepting that, it was submitted that Virgin should have ensured that she received direct, sensitive and helpful communication and consultation, and that the company should have taken all reasonable steps to give her information about, and an opportunity to discuss, the effect of the relevant decision(s) on her pre-parental leave position. For Virgin it was contended that the applicant’s pre-parental leave position was made redundant against a background of re-organisation, and that despite its contravention the applicant was on reasonable notice of the precariousness of her position.
As my reasons indicate, I am satisfied that she was aware from early May 2010 that changes in management meant that her function was to be overhauled. Events following her initial informal discussion with Mr Borghetti would not have disabused her of that matter. Indeed, it would appear that the inevitability of her situation had dawned upon her by the time she first met Ms Keighery and proffered the suggestion of contract work. In the circumstances it would be disingenuous for the applicant to contend that she did not foreshadow her redundancy or that she was rendered more vulnerable to redundancy by reason of her individual circumstances. For reasons I have already set out, I am satisfied that she was rendered redundant because a large part of her duties were no longer required to be performed by Virgin, and the remaining duties were reallocated to those with a more sophisticated skill set who were to perform at a higher level. While the applicant’s personal circumstances might enliven a more sensitive or diplomatic response, I do not understand inter personal relations to be entirely confluent with the law of industrial relations.
Nature and extent of loss or damage
In my reasons I have examined this matter and assessed the loss in the context of a contractual claim at one week’s loss of pay. It is reasonable to infer from my assessment that the actual loss occasioned by the contravention was not significant.
Previous similar conduct of the respondent
The applicant contends that the respondent has been found to have contravened age discrimination laws in recent years. In particular, reference is made to Hopper & Ors v Virgin Blue Airlines Pty Ltd [2005] QADT 28 and Virgin Blue Airlines Pty Ltd v Hopper [2007] QSC 75. The second of those decisions is a review of the decision at first instance. It was contended that age discrimination laws are sufficiently analogous to the laws under consideration here as to be considered to be similar previous conduct, and therefore a relevant discretionary consideration in imposing a pecuniary penalty. In that sense it was contended that, like s.83 of the FW Act, age discrimination laws seek to prevent adverse treatment of employees on the basis of a personal attribute. It was contended that parental leave is a characteristic that appertains to pregnancy and that attributes of pregnancy and family responsibilities are protected under discrimination laws.
The applicant unsuccessfully claimed that the respondent had contravened s.351 of the FW Act. While it is correct that parental leave is a characteristic that appertains to pregnancy and family responsibilities, which are protected under the discrimination laws, I was satisfied that there were no contraventions. More particularly, the conduct complained of in Hopper concerned conduct related to the recruitment of cabin crew “in the period September 2001 to September 2002.”[5] While the applicant’s complaints were upheld in that instance, I do not consider the circumstances in that case to be overly helpful in determining whether or not in 2010, under new management, the culture of the organisation which prevailed in 2001 continued. Indeed, in that decision at first instance the tribunal member found that there was no discriminatory intention[6] and “… that the assessors unconsciously but invariably preferred younger people (largely of their own age) to older people in such assessment of competency not that the assessors were consciously only interested in magazine models.”[7] The events of Hopper are so factually and temporally removed from the events under review here as to be of little or no assistance in demonstrating that the respondent has a culture which tolerates discrimination.
[5] Hopper & Ors v Virgin Blue Airlines Pty Ltd at [1]. That was shortly after the airline had commenced business in Australia.
[6] Hopper & Ors v Virgin Blue Airlines Pty Ltd at [25].
[7] Hopper & Ors v Virgin Blue Airlines Pty Ltd at [26].
Size of the business
The respondent is a large, publicly listed corporation. It employs around 9,200 persons. It was contended for the applicant that in the circumstances it has substantial financial resources and sophisticated human resources support available to it, and in that regard the contravening conduct is therefore unacceptable. I accept those matters and plainly this is an instance where the organisation can and must do better.
Whether or not the breaches were deliberate
For the applicant it was argued that the respondent’s conduct, at best, was reckless. It was contended as a matter of logic that this conclusion must follow, as the decision to render the applicant’s employment redundant was a deliberate decision taken by the respondent, and that my finding that the contravention of s.83 occurred by omission does not amount to a finding as to whether the conduct was deliberate. I accept that the conduct to render the applicant redundant was a deliberate decision. However, the respondent’s failure to address the requirements of the relevant enterprise agreement and s.83 were acts of omission. That is to say they followed a failure to act in circumstances where the company ought reasonably have acted. In my view, that omission was a careless one. I am not satisfied that it was reckless. Recklessness imports something more than mere negligence, but is less than intentional. The term imports a concept of undertaking some activity with an indifference or disregard to the probable consequences of such action: R v Nuri [1990] VR 641 at 643; Derry v Peek (1889) 14 AC 337. Here the human resources department was mindful of the impact redundancy would have, but careless as to the manner in which redundancy ought be managed. I do not consider the officers of Virgin responsible for the implementation of decisions made in contravention of s.83 concerning the applicant to have done so indifferent to the consequences to her. However, I am satisfied that they were undertaken thoughtlessly, either because the relevant officers concerned were not alert to their legal responsibilities or they had an inadequate understanding of them and thereby were careless. Furthermore, the corporation failed to have in place sufficient checks and balances to ensure that in the event of human error (which appears to be the situation in this case) it did not unwittingly engage in a contravention.
Whether senior management was involved in the breaches and related issues
I accept that a senior, experienced manager who ought to have appreciated her obligations at law was involved in the contravention. However, contrary to the applicant’s submission, I do not accept that that person is Ms Keighery. The person who ought to have been alert to the responsibilities of these matters was Ms Armstrong, who was the manager of human resources. Ms Keighery was the Group Executive – Corporate Communications. Human resources issues did not fall within her area of expertise, and she appropriately sought the advice of the human resources department. While Ms Keighery took it upon herself to undertake the unpleasant task of notifying Ms Aitken of her redundancy, in my view she took all reasonable steps to do so appropriately. The organisation failed within its human resources department, where there ought to have been checks and processes in place to ensure that the statutory requirements were addressed in the course of enacting a redundancy. At some point, at a relatively senior level, error has occurred and I assess penalty on that basis.
It was further contended for the applicant that the respondent did not accept any wrongdoing and contested the application vigorously. While it is correct that the application has been vigorously contested, I respectfully consider the applicant’s submission on this point to overreach. The fact remains that there were seven events of contravention alleged by the applicant against the respondent, of which the respondent successfully defended six. While ultimately it failed in its defence of this particular complaint, that matter does not of itself demonstrate any failure to accept wrongdoing or lack of contrition. The respondent does not advance a positive submission in respect of these matters and overall I conclude this matter as being of neutral relevance.
The need for specific and general deterrence
The applicant contends, and I accept, that it is appropriate for the Court to impose a penalty on the respondent for its contravening conduct which will reinforce the importance of compliance with the basic safety net entitlements specified in the NES. I accept the submission that it is important that the respondent be made aware of its need to comply with a minimum standard relating to consulting employees on parental leave matters that will have a significant effect on their pre-parental leave position, so that employees who are absent from the workplace on unpaid parental leave are not deprived of the benefit of those entitlements. However, I think the greater mischief in this instance is to reinforce to an employer of this kind, that is, a large employer with well-resourced and sophisticated systems in place, that it needs to be ever vigilant to ensure that its systems address it legislative obligations. Ultimately, organisations are comprised of people. From my observations in this case there was nothing about the respondent organisation that suggested that its people lacked the values or sense of fairness which underlie the principles consistent with s.83. What the organisation lacked were processes to ensure that the values and fairness of the people comprising the organisation were addressed in a manner consistent with regulation.
Accordingly, the applicant contends that issues of both general and specific deterrence are relevant in this instance. While I accept specific deterrence as important, I am satisfied that these matters, having now been drawn to the attention of the respondent, will be addressed and are unlikely to occur again. However, as a matter of general deterrence I think it is important that a penalty be imposed to reflect the significance, particularly to large and well-resourced organisations, of the need for them to have in place processes that ensure they satisfy their statutory obligations in respect of employment.
Previous decisions
The applicant submitted the decisions in Fair Work Ombudsman v Tiger Telco Pty Ltd (in liq) [2012] FCA 479 and Fair Work Ombudsman v A Dalley Holdings Pty Ltd [2013] FCA 509 as appropriate comparators. While each of those cases address instances of conduct relating to a failure to consult on a period of maternity leave, the facts of those cases are not particularly helpful in the context of this application. In Fair Work Ombudsman v Tiger Telco Pty Ltd the parties agreed the penalty of 54 penalty units in respect of four contraventions in a case involving significantly more egregious and intentional conduct on the part of the proprietor of a small trading entity than is evident in this case. Fair Work Ombudsman v A Dalley Holdings Pty Ltd was also a case involving a small holding corporation. There is nothing in the material to suggest either Tiger Telco or A Dalley Holdings had in place the sophisticated systems that ought to have been in place in the respondent company. Furthermore, and most significantly, the attitude of senior management resulting in the offending conduct in those cases largely reflected the attitudes of the corporation. I am satisfied that this is not the case here.
The applicant contends that a penalty of about 75% of the maximum ought to be imposed, which is a penalty in the amount of about $24,750.00. For the respondent it is contended that a penalty of about 5% of the maximum, or $1,560.00, represents an appropriate quantum.
In my view, having regard to each of the factors addressed above, and in particular having undertaken a process of instinctive synthesis, I consider a penalty of about 15% of the maximum (45 penalty units) to reflect an appropriate penalty.[8] On that basis I consider a penalty of $4,950.00 to be appropriate and order a penalty in that sum. There is no dispute between the parties that, consistent with the principles in Plancor Pty Ltd v Liquor, Hospitality and MiscellaneousUnion (2008) 171 FCR 357 at 371, the penalty should be paid to Ms Aitken.
[8] I note in FWO v A Dalley (Supra), a case which at a stretch has some parallels, the parties agreed to a penalty of 35% against the corporation and 20% against the director or 55% of the maximum when aggregated, which I think is appropriate when considering a case involving a closely held corporation being the alter ego of its sole director. In that instance there were three groups of offences of which one group related to a failure to consult. Within one group three separate offences of failure to consult were accepted to have arisen from one act. There the Court did not weigh the penalties because they were ordered by consent. However if an equal weighting was given the relative weighting by the Court for the failure to consult offences was 15%-20% in the aggregate and with allowance for three separate contraventions. This suggests the 15% adopted by me reflects an appropriate allowance.
Costs
Each applicant contends that there should be no order as to costs. The respondent contrarily contends that on each application each applicant should be directed to pay the costs of the respondent to be assessed on the standard basis.
The power to award costs in an action under the FW Act is provided for in s.570, which relevantly states:
“Costs only if proceedings instituted vexatiously etc.
(1) A party to proceedings … in a court … may be ordered by the court to pay costs incurred by another party to the proceedings only in accordance with subsection (2) …
…
(2) The party may be ordered to pay the costs only if:
…
(b) the court is satisfied that the party’s unreasonable act or omission caused the other party to incur the costs; or
…”
A number of authorities have considered the terms of s.570 and its predecessor, s.824 Workplace Relations Act 1996 (Cth). The authorities dealing with those provisions have established that,
a.Costs can be awarded against a party for refusing a reasonable offer of settlement on the basis it constituted an “unreasonable act or omission, [which] caused another party to the proceeding to incur costs in connection with the proceeding”; and
b.It is open to the Court to consider without prejudice exchanges to determine whether rejection of a settlement offer amounts to an unreasonable act or omission by which a party caused another party to incur costs for the purposes of s.570 of the FW Act.[9]
[9] Australian Licensed Aircraft Engineers Association v International Aviation Service Assistance Pty Ltd (No 2) [2011] FCA 394 at [29].
In this case the respondent contends that it made a number of offers in respect of each application which were not bettered by the outcome. It contends that the refusals of those offers, which it submits were reasonable, thus constituted an unreasonable act or omission causing it to incur costs in connection with the proceedings.
The applicants contend in response that first, in part, the offers required confidentiality without admission of liability, a matter they say was not bettered, at least in respect of the application concerning Ms Aitken. Secondly, that by reason of the respondent’s conduct, particularly concerning disclosure, the applicants did not conduct themselves unreasonably in refusing the offers because, by inference, the respondent’s behaviour in non-compliance with disclosure orders impacted the applicants’ ability to properly assess and make an informed decision in respect of the offers.
The course of offers between the applicants and the respondent commenced following mediation conducted on 4 August 2011. Generally, the correspondence between the parties was applicant specific, although some items of lesser significance were common to both applicants. In respect of Ms Aitken’s application, the respondent first formally offered to resolve the matter by a letter dated 16 August 2011. In that letter, which was addressed as “Without prejudice except as to costs” and stated to be in a Calderbank form,[10] the respondent offered to settle on the usual terms including as to no admission of liability and confidentiality on the basis that it would pay Ms Aitken the sum of $60,000.00 as damages (less any applicable deductions of tax required by law) and $10,000.00 as legal costs (GST inclusive). The offer was stated to remain open until 31 August 2011.
[10] Calderbank v Calderbank [1975] 3 All ER 333.
That offer lapsed, and by a “Without Prejudice” letter of 1 September 2011 Ms Aitken’s solicitors wrote to Virgin offering to settle on the customary terms concerning liability and confidentially, but materially requiring the respondent “… pay to each of our clients the sum of $70,000 as general damages (and the parties anticipate that, as general damages, the sums will not be taxed) and $10,000 as legal costs (GST inclusive).” That offer was expressed to remain open till close of business on 15 September 2011.
By letter of 12 September 2011, the respondent’s solicitors counter offered. The letter of 12 September 2011 was again stated to be “Without prejudice except as to costs” and expressed to be in Calderbank form. It, in effect, re-opened the respondent’s initial offer of 16 August stating that in respect of Ms Aitken it would pay her $70,000.00 comprising “payment to Ms Aitken of $60,000 and a payment of $10,000 for her legal costs.”
Ms Aitken’s solicitors wrote on 13 September 2011 taking issue with the defendant’s view of the applicants tax liability in respect of any sum agreed to be taken by way of settlement. The offer of 12 September 2011 had been expressed to be open until 27 September 2011, but in the applicants’ solicitors’ letter of 13 September 2011 they were careful to note “We are not in a position to put a counter offer to your client on behalf of either or both of our clients, and this letter is not intended to constitute a counter offer.” Nothing appears to have come from that exchange, and ultimately the respondent’s offer contained in its letter of 12 September 2011 lapsed.
Subsequently, under cover of letter dated 11 October 2011, not stated to be ‘without prejudice,’ the applicant’s solicitors made a further offer expressed as follows:
“… our client offers to settle this matter on the following basis:
1. that Virgin Australia pay to our client a settlement amount of $95,000.00 apportioned as followed:
(a) $20,000.00 to legal costs;
(b) a tax-free amount equal to the balance of the genuine redundancy tax-free amount available but not used at the point of termination;
(c) the balance to be taxed as appropriate (which the parties envisage will be as an ETP);
…
(e) that your client provide our client with two years’ staff travel;
…”
The offer was expressed to be open for a period of fourteen days from 11 October 2011.[11]
[11] The 1 September 2011 offer also included a requirement that Virgin provide to Ms Aitken and Ms Vandeven respectively two years’ staff travel for Group 1 (i.e. the applicants, their respective partners and children).
Allowing for the increased quantum of legal costs, the sum claimed in the offer of 11 October appeared to increase the applicant’s damages claim by $5,000.00 to $75,000.00. The offer otherwise appeared to be in essentially the same terms as the earlier offer by the applicant of 1 September, except that the reference to two years staff travel was not further particularised as “Group 1” as earlier expressed. The offer was expressed to be open for fourteen days, however it lapsed for non-acceptance.
The final exchange of offers occurred in February 2012 when the respondent wrote to Ms Aitken’s solicitors by letter dated 20 February 2012 stating that it was “not willing to increase its previous settlement offers,” but in order to avoid confusion reopened its most recent settlement offer,[12] which was:
[12] An offer which, I assume, post-dated the offer of 11 October 2011.
“(a) Payment of $60,000 less applicable taxation (which means a net payment of $44,085 because our client does not accept that the payment is appropriately characterised as general damages);
(b) Payment of $10,000 in respect of legal fees (GST inclusive); and
(c) 12 months’ staff travel benefits substantially in accordance with the terms of the Staff Travel Policy in operation at the date of termination.”
That offer was contained in a letter headed “Without prejudice except as to costs” and also expressed to be in Calderbank form. The offer was to remain open for acceptance until 4:00pm on Thursday 23 February 2012.
By letter dated 23 February 2012, that offer was rejected with Ms Aitken then demanding $90,000.00 and staff travel, with the $90,000.00 made up as:
“(a) Up to $35,000 for legal fees and costs, on the provision of appropriate invoices;
(b) $14,205.50 which the parties anticipated would be tax-free as a redundancy payment;
(c) the balance as an ex gratia payment which the parties anticipate would be taxed as an ETP.”
This offer, not stated to be ‘without prejudice,’ was expressed to be open for acceptance until “… close of business on Monday 27 February 2012.”
Parallel to the offers and counter offers made concerning Ms Aitken’s claim, similar exchanges occurred in respect of Ms Vandeven.
In Ms Vandeven’s case, the first offer was for payment to her of a sum of $70,000.00 made up and upon the same terms as those in respect of Ms Aitken. Ms Vandeven’s initial counter offer was for $95,000.00, apportioned as:
“(a) $20,000.00 to legal costs;
(b) a tax-free amount equal to the balance of the genuine redundancy tax-free amount available but not used at the point of termination;
(c) the balance to be taxed as appropriate (which the parties envisage will be as an ETP);
…
(e) that your client provide our client with two years’ staff travel;
…”
That offer lapsed, and by letter of 20 February 2012 it was re-offered, except it had in the meantime been improved with the offer of staff travel as noted in respect of Ms Aitken. In response to the offer of 20 February, Ms Vandeven counter offered by letter of 23 February 2012 in terms similar to Ms Aitken, except to demand a sum of $90,000.00 to be apportioned as:
“(a) Up to $35,000 for legal fees and costs, on the provision of appropriate invoices;
(b)$18,315.50 which the parties anticipated would be tax-free as a redundancy payment;
(c) the balance as an ex gratia payment which the parties anticipate would be taxed as an ETP.”
In pure financial terms there is no question that the applicants did not better any offer made by the respondent. Indeed, the course of offers made by each of the applicants is puzzling. First, it should be noted that the respondent’s offer remained essentially the same, except that by February 2012 it was prepared to add staff travel benefits as an additional inducement to settlement.
For the applicants however the offers started at $70,000.00 and progressed upwards. While some part of the upward movement in offers can be explained and justified on the basis of legal costs being progressively incurred, the course of offers suggest that the initial spike was attributable to an increased claim in damages. There appears to be some temporal relationship between the increased damages claim and the dispute between solicitors concerning the tax treatment of any settlement.
The course of the offers raises two issues. The first is that the applicants increased their offers after the initial opening offers in respect of the general damages claims. In particular, the applicants increased their claims between their initial offers made on 1 September 2011 for $70,000.00 by way of general damages and $10,000.00 legal costs plus travel, to $95,000.00, made up as $75,000.00 by way of general damages and $20,000.00 legal costs plus travel, in their offer of 11 October 2011. Nothing of any moment appears to have occurred in the proceedings over that period; no statements were filed by either party. The only matter of significance is that which I have earlier addressed concerning the debate between lawyers about the tax characterisation of any damages payments made. From the material, the only inference to be drawn is that the applicants increased their demands in respect of damages to address a perceived tax problem, with their eye clearly focused on the bottom line.
The second matter concerns the applicants’ complaints regarding alleged misconduct on the respondent’s part in failing to make full disclosure. In the chronology of events provided by the applicants’ solicitors, it was stated that they sought further disclosure on 9 and 15 August 2011, which was followed up by a further request on 19 October. Further disclosure was subsequently forthcoming from the respondent. Significantly however, this alleged deficiency in disclosure was not so egregious as to impact the applicants’ capacity to make a presumably informed offer to settle. On that point, the applicants contend that the respondent’s failure to make full disclosure until pressed by the applicants, though it may not have had a material bearing on the result, put them at a disadvantage in considering any offers to settle. It was submitted that, consistent with the views expressed by Debelle J in Morris v McEwen (2005) 92 SASR 281, the respondent’s unreasonableness in relation to disclosure ought to disentitle it from relying upon offers to settle as a basis for costs.
The true nature of the dispute between the applicants and respondent concerning disclosure was not revealed in the material filed in the application. In the affidavit of the applicants’ solicitor filed by leave on 4 October 2013, the deponent simply noted that on 9 August and 15 August the applicant sought further disclosure. This request appears to have been followed up with a further request on 19 October. In response, the respondents wrote by letter of 25 October a letter which included by way of further supplementary disclosure a detailed explanation in relation to the categories which had been requested by the applicant and the respondent’s response to those requests. In particular, the applicants rely upon Debelle J’s statement at [2], where his Honour stated:
“A party who does not observe an obligation as fundamental as making full discovery of documents and the failure to do so has a material bearing on the result cannot, in my view, have the benefits of a Calderbank offer.”
In that case, as his Honour observed, when the Calderbank offer was made the plaintiff was not in a position to know the expenses in respect of the relevant property the subject of dispute because there had not been complete discovery of the documents which demonstrate the claim for those expenses. In the absence of that information, which was not disclosed until sometime after the offers, there was, as his Honour noted “… such a material non-disclosure that it disqualified the defendant from being able to rely on the Calderbank offer…”
In this case, none of the documentation referred to in the subsequent affidavit delivered in October 2011, which arguably could have had bearing on the series of offers exchanged up to that time, could be seen to have any particular material bearing on an assessment of the offer.
Perhaps more significant were the documents disclosed in the respondent’s letter of 17 February 2012. By that letter the respondent wrote to the applicants, noting:
“We refer to the lists of documents previously disclosed by our client in these matters.
Since those lists of documents were finalised, we have been provided with some other documents which have been identified by our client since its initial searches. As such, we attach by way of service a supplementary list of documents for each matter.”
Many of the documents which were later relied upon by the respondent to attack the credit of the applicants were included in the list of documents disclosed on 17 February 2012. The applicants complain that given the extensive lists and the timing of the disclosure, there was insufficient time for them to consider those documents in the context of the subsequent offer made on 20 February 2012.
Respectfully, in my view the applicants’ complaints concerning this matter are contrived. The documents addressed in that supplementary list were authored by each of the applicants and which, by their content, gainsaid the case being advanced by them. Given the course of offers to that time, it seems reasonable to infer that the applicants had not informed their solicitors that email correspondence of the kind authored by and put to them in cross-examination did in fact exist. Had that material been available to the applicants’ solicitors, their attitude to a negotiated settlement and advice to their clients concerning both prospects and terms of settlement quite probably would have been different.
The applicants’ attitude was expressed even in their latest offers before trial. The offer made on 23 February appears to have been influenced by a belief that these documents had not been revealed. While I accept that they were disclosed late in the history of the matter, they were revealed at a time close to the trial when one would expect that the parties were actively engaged in the final stages of trial preparation, and appropriate resources would have been applied to that purpose. Plainly, the applicants had hoped that these matters would slip by and the applicants’ solicitors and counsel were focused on other issues rather than closely examining the documents which had been recently disclosed. As the relevant documents did not go to a discrete issue identified in the pleadings, but rather to credit generally, it is understandable that they may have been overlooked in the course of trail preparation. My observations at trial were that the applicants were surprised when these documents were put to them. I am satisfied that they were possessed of prior knowledge of those matters. Accordingly it could not be said that they ought be surprised that their credit was in issue or of the basis upon which their credit could be attacked. They were simply caught out. In my view, the circumstances are entirely different to those that were being discussed by Debelle J; the party in that instance was denied the ability to make an informed decision about the reasonableness of an offer of damages in circumstances where documents relevant to the proof of damages had not been disclosed.
The other matter raised by the applicants is that in the offers exchanged between the parties the respondent was to be given the benefit of an obligation of confidence, with no admission as to liability. Accordingly, in considering whether the applicants had been unreasonable in refusing the offers, the court ought consider all the circumstances and not undertake a mechanical exercise of comparing the pecuniary result of trial with that aspect of the relevant offer to settle. In particular, that involves a consideration of the finding of liability of the respondent in respect of each of the applicants for breach of contract, as well as the contravention established against it in respect of Ms Aitken.
In considering the applicants’ submissions on this point it is important to note that the applicants are in no position to adopt the moral high ground. They were quite willing to trade their rights for money if the price could be agreed. Although the applicants are correct in their submissions that certain matters such as confidentiality and the capacity to settle without admission of liability cannot be metered in the final outcome, the fact remains that the respondent made generous offers to each applicant at an early stage of the litigation. Although the offers were made at an early stage of the litigation and before statements had been exchanged, they commenced being made at a time immediately following the mediation. The pleadings had been exchanged and the issues between the parties were defined. Mediation is an intelligence gathering exercise as much as anything else, and it is to be expected that following mediation each of the parties would have been reasonably apprised of the case to be advanced for and against. Although it is unlikely that the respondent would have been able to make much of the applicants’ credit at that stage, the applicants themselves would or should have been aware that the emails that each of them had forwarded to various parties would have existed. To some extent, their attitude to press ahead must have involved an informed assessment of the risk of those emails being disclosed with the consequent impact upon their credit and, in turn, the case advanced by each of them.
At the time of the initial offer made by the respondent this was knowledge which ought to have been pecuniarily available to them and ought to have informed their consideration of the offer. No doubt if that information had been provided by them to their instructing solicitors the advice they would have received concerning settlement would probably have been expressed in firmer terms. In this case there is nothing to suggest that the applicants’ solicitors had reason to suspect that there might be credit difficulties in the case. That belief might explain the subsequent increase in the applicants’ demands. In any event, as at 16 August, when the respondent made its first offer, I am of the view that the offer made was more than reasonable having regard to the respondent’s risks, including the likely costs that would be incurred if the matter progressed to trial. The offer constituted more than merely ‘go away’ money, and at that early stage would have delivered each of the applicants a reasonable sum after extinguishing legal costs and tax liabilities. At the time the offers were made each of the applicants faced not only the usual contingencies and risks associated with litigation but also held within their peculiar knowledge an appreciation of email correspondence authored by them which was adverse to their cases.
Against that background, I am satisfied that the applicants’ refusal to accept the offer of 16 August 2011 was unreasonable. Their refusal caused the respondent to incur further costs in connection with the proceedings. Accordingly, I am satisfied that the respondent has demonstrated that this is an appropriate occasion to award costs pursuant to s.570 on the basis that they incurred costs on and from 31 August 2011 because of the applicants’ unreasonable act in failing to accept the offer of 16 August 2011.
Although I am satisfied that it is appropriate that the applicants pay costs, I also recognise that the applicants have each achieved a minor victory in respect of one part of each claim. In respect of Ms Aitken’s claim, she alleged seven adverse events. She succeeded in prosecuting one claim. Accordingly, I consider it appropriate in her case that she pay 6/7 of the respondent’s costs incurred on and from 31 August 2011.
Concerning Ms Vandeven, she succeeded in respect of one of the six adverse action events complained of by her. Accordingly I consider that she should pay 5/6 of the costs incurred from 31 August 2011. In both instances costs are to be assessed on the standard basis.
I certify that the preceding sixty-three (63) paragraphs are a true copy of the reasons for judgment of Judge Burnett.
Date:29 November 2013
CORRECTIONS
Change citation from “Virgin Blue Airlines” to “Virgin Australia Airlines”.
Change name of the Respondent in each case from “Virgin Blue Airlines” to “Virgin Australia Airlines”.
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