Dodds v Premier Sports Australia Pty Ltd (No 2)

[2004] NSWSC 389

CITATION:	Dodds v Premier Sports Australia Pty Ltd and Ors (No 2) [2004] NSWSC 389
HEARING DATE(S):	5 May 2004
JUDGMENT DATE:	5 May 2004
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Palmer J
DECISION:	Costs apportioned; Calderbank offer reasonably refused; set off allowed.
CATCHWORDS:	COSTS APPORTIONMENT - whether costs on different issues should be apportioned between the parties depending on the result. - CALDERBANK OFFER - whether reasonable to refuse if no redress offered for wrongful allegation of dishonesty. - COSTS - SET OFF - whether costs orders should be set off against judgment debt.
LEGISLATION CITED:	Corporations Law - s.232, s.237 Fair Trading Act - s.42 Industrial Relations Act 1996 (NSW) - s.106
CASES CITED:	- Burke v Lunn [1976] VR 268 - Preston v M.D. Nikolaidis & Co [2003] NSWSC 72 - Skalkos v Assaf (No 2) [2002] NSWCA 236 - Watkins Limited v Calcaria Pty Limited (1983) 78 FLR 417
PARTIES :	David James Maitland Dodds - Plaintiff (50060/03); Defendant (50059/03) Premier Sports Australia Pty Ltd - First Defendant (50060/03); First Plaintiff (50059/03) Sports Investments Australia Pty Ltd - Second Defendant (50060/03); Second Plaintiff (50059/03) News Limited - Third Defendant (50060/03); Third Plaintiff (50059/03)
FILE NUMBER(S):	SC 50060/03; 50059/03
COUNSEL:	N.A. Cotman SC, P.R. Glissan - Plaintiff (50060/03); Defendant (50059/03) M.A. Pembroke SC, N.J. Beaumont - Defendants (50060/03); Plaintiffs (50059/03)
SOLICITORS:	Anthony J. Restuccia - Plaintiff (50060/03); Defendant (50059/03) Allens Arthur Robinson - Defendants (50060/03); Plaintiffs (50059/03)

Ex tempore

Introduction

1    In this matter I gave judgment on 24 October 2003. I indicated then the orders which I proposed to make and stood this matter over for the bringing in of Short Minutes of Order and for argument as to costs. The proceedings have now come back, some five months after the date of judgment, for further argument on a number of issues. 2    The issues are: first, what is the proper order as to the costs of the proceedings; second, how should interest be calculated on sums which Premier has conceded it owes Mr Dodds; third, whether an order should be made permitting Premier to set off against any judgment recovered by Mr Dodds in the proceedings the costs which Mr Dodds may be ordered to pay to Premier. I deal first with the issue as to costs.


The litigation and the issues raised

3 It is necessary to give a brief recapitulation of the structure of the proceedings and the issues which arose. Mr Dodds commenced proceedings in the Industrial Relations Commission seeking relief under s.106 of the Industrial Relations Act . What he really sought was damages for breach of an alleged term of his contract of employment, which he said entitled him to a termination payment in excess of $5,000,000. A claim under s.106 of the Industrial Relations Act was not the appropriate vehicle for achieving that end. 4 Premier responded by commencing proceedings in the Federal Court of Australia. The Statement of Claim alleged that there was no term in Mr Dodds' contract of employment for a termination payment, as Mr Dodds claimed. However, the Statement of Claim went on to raise many other grounds upon which it was said that if Mr Dodds’ contract contained such a term he should nevertheless be deprived of its benefit. It was said that the termination provision was unenforceable because of a mistaken belief of Premier, induced by Mr Dodds, that a renewed contract of employment would contain no such term. It was said that the contractual term had been procured by conduct of Mr Dodds which contravened s.42 of the Fair Trading Act ; that the contractual term had been procured by Mr Dodds acting in breach of his duty of good faith under s.232 of the Corporations Law ; and it was unenforceable under s.237 of the Corporations Law . 5 Further, and most importantly, Premier alleged that Mr Dodds had been guilty of breaches of his duty to act honestly as an officer of Premier in a number of transactions, whereby he was liable to pay it substantial sums of money which should be off set against any termination payment due to him under the termination bonus provision of his contract, if it was found to contain such a term. 6 Mr Dodds' proceedings in the Industrial Relations Commission were cross vested into this Court and became Proceedings 50060 of 2003. Likewise, Premier's proceedings in the Federal Court were cross vested into this Court and became Proceedings 50059 of 2003. The proceedings were heard together, the evidence in one being evidence in the other. 7 By a Cross Claim filed in Court on the first day of the trial in Proceedings 50059 Mr Dodds sought the relief which he had been seeking in substance in the proceedings under s.106 of the Industrial Relations Act . He sought payment of his alleged termination bonus of about $5.4M, payment of $65,104 in unpaid bonus commissions, and payment of certain statutory entitlements, interest and costs. 8 The majority of the time expended in court in the trial was consumed in the issue whether the alleged termination bonus formed part of the contract of employment between Mr Dodds and Premier. On that issue Mr Dodds failed. 9 However, considerable time was expended on the other issues raised by Premier in Proceedings 50059, that is whether Mr Dodds' wrongful conduct had procured the contractual term, if it existed, and whether he had committed breaches of his fiduciary duties as an officer of Premier entitling Premier to set off against any termination payment the losses it had suffered by such beaches. As it transpired, during the course of the trial the allegations of breach of fiduciary duty came to have less and less prominence, but it is fair to say that a considerable body of affidavit and documentary evidence was directed to these issues. On the issues alleging wrongful conduct on the part of Mr Dodds, Premier failed. 10 Premier disputed its liability to Mr Dodds for $65,104 in respect of unpaid commission on the ground that the calculation of the commission was not properly founded on the company’s management accounts. Further, it disputed its liability for the commission and for $353,592 in other statutory entitlements on the ground that it was entitled to set off against those amounts any amounts for which Mr Dodds was found liable to it in respect of the various breaches of duty it alleged against him. 11 In my judgment I announced that I proposed to dismiss Mr Dodds’ summons for relief under s.106 of the Industrial Relations Act to make a declaration to the effect that Mr Dodds' contract of employment with Premier did not include a provision for the termination bonus and that there would be judgment for Premier on Mr Dodd' Cross Claim. The last proposed order was the result of suggestions made in the course of the trial that determination of the issues as to the termination bonus and the alleged wrongful conduct of Mr Dodds would produce resolution of the remaining claims of Mr Dodd in the Cross Claim. I did not intend to suggest that I had decided that Mr Dodds was not entitled to his bonus commission of $65,104 or to his statutory entitlements. 12    It is in these circumstances that I must consider what costs order should now be made. I leave aside for the moment the effect of Calderbank offers which were exchanged between the parties. Those offers may, or may not, modify the costs orders that may otherwise be made.


Apportionment of costs

13 Mr Pembroke SC, who appears for Premier with Mr Beaumont, submits that the matter may be dealt with thus: Premier succeeded in its assertion in the Statement of Claim in Proceedings 50059 that there was no contractual term and as to the termination bonus; the fact that it failed on the other issues which it raised should not deprive it of its costs of Proceedings 50059 as a whole; Mr Dodds failed completely in the proceedings originally seeking relief under s.106 of the Industrial Relations Act so that Premier should have its costs of Proceedings 50060 also. There were no substantial separate issues debated as to Mr Dodds' entitlement to bonus commission and statutory entitlement as claimed in his Cross Claim so that there should be no deduction, or no substantial deduction, from Premier's costs order on that account. 14    Mr Cotman SC, who appears with Mr Glissan for Mr Dodds, submits that Mr Dodds should have the costs of the issues on which Premier failed and that those issues and the costs thereby occasioned are substantial. I think that Mr Cotman's submission is correct. 15    The existence or otherwise of the termination bonus as a term of Mr Dodds’ contract was ultimately decided on relatively uncontested facts. However, a great deal of evidence and time at the trial and in preparation were devoted to issues raised by Premier denying the enforceability of that contractual term on the basis that it had been procured by a mistake induced by Mr Dodds or by other alleged wrongful conduct on his part, including conduct which amounted to dishonesty. Mr Dodds in my opinion should have the costs of all of these issues. 16    It seems to me that it will be a relatively straightforward exercise in the costs assessment to identify those costs attributable to the issue whether, as alleged by Mr Dodds, the termination bonus was incorporated into Mr Dodds' contract of employment by assignment or course of conduct and those costs which are attributable to the other issues in the case. Mr Dodds must pay Premier's assessed costs in the first category. Premier must pay Mr Dodds' assessed costs in the second category, save for the costs of the following issue. 17    Mr Pembroke points out that one of the issues in the trial was whether or not the termination bonus should be calculated on the basis of management accounts which had been prepared within the company or upon another basis, the latter basis being one which according to Premier's expert accountants would show that in fact no profit had been made by the business and that accordingly no termination bonus would have been payable to Mr Dodds. On that issue I accepted the evidence of Premier's expert and held that as a matter of construction and accepting the accounting methodology the business had not generated the profits which had been shown in the management accounts. 18    It seems to me that in the assessment of costs the costs of that issue which I would think would be fairly readily identifiable should be paid by Mr Dodds. 19    For the sake of clarity, I should deal with the costs incurred in respect of Mr Dodds’ claim for $65,000 odd for bonus commission. That claim was based upon the profits of the relevant business conducted by the Sports Channel. The profits had been calculated on the basis of management accounts prepared within Premier. There was an issue flagged in the proceedings that those management accounts did not properly reflect the profits of the Sports Channel business and therefore were not the proper basis upon which either the bonus commission or the termination bonus, if payable, should be calculated. I determined that for the purposes of calculating the termination bonus the management accounts were not the proper basis for calculating profit. That decision was founded upon the construction of the provisions as to termination bonus said to be incorporated into the Mr Dodds’ contract of employment. 20    When the matter came back before me on 17 November, Mr Pembroke foreshadowed an argument that the profits as shown in the management accounts were, likewise, not the proper basis for the determination of the bonus commission payable to Mr Dodds. 21    That issue was going to be the subject of further argument. However when the matter came back before me today, although Mr Cotman had prepared written submissions on the point, I was informed that the parties had reached a compromise and that, without admissions, Premier would pay the sum of $65,000 odd bonus commission. 22    It was therefore not necessary for me to determine whether the bonus commission was correctly calculated on the basis of the management accounts. Mr Pembroke has now averted to that circumstance as possibly affecting the way in which costs of the issue relating to the calculation of bonus commission should be assessed. 23    I should say that if the matter had been argued before me I would have upheld the submissions of Mr Cotman that the bonus commission was rightly calculated on the internal management accounts prepared by the company. I should very briefly give my reasons in this regard. 24    It seems to me that the term as to payment of bonus commissions was incorporated into the contract of employment between Premier and Mr Dodds by a course of conduct or dealing between the parties. That course of conduct comprised the claim made on a number of occasions by Mr Dodds for payments founded upon calculations based upon the management accounts and the authorisation of those payments by his superiors in accordance with those calculations. His superiors knew the basis upon which the amount claimed for commission was calculated and they approved it. In those circumstances it seems to me that there is to be implied into the contract by conduct of the parties a term that bonus commissions would be paid and calculated in accordance with the management accounts. This result is, of course, entirely different from the result one arrives at by construing the provisions of the earlier agreement with Liberty Sports as to payment of a termination bonus. 25    It follows in my view that any separate costs attributable to the issue whether or not the sum of $65,000 odd was properly claimed by Mr Dodds should be paid by Premier and so assessed in the cost assessment.


Calderbank offers

26    I come now to the effect, if any, of the Calderbank offers exchanged between the parties. By letter dated 25 August 2003, on the first day of the trial, Premier's solicitors made an offer to Mr Dodds' solicitors which, in money terms, was better than the result which he has achieved in the proceedings. The offer expired at noon on 27 August 2003. By letter dated 27 August 2003 Mr Dodds' solicitors made a counter offer which, in money terms, was far higher than Premier's offered terms and far higher than the result which he has achieved in the proceedings. However, paragraph 3 of the letter required as a term of any settlement:
“… publication in the Financial Review, newspapers of general circulation and trade publications of the fact that the parties have settled these proceedings on mutually satisfactory terms (but without disclosure of such terms).”

The offer from Mr Dodds' solicitors was rejected in toto by Premier.

27    Mr Pembroke submits that in these circumstances Mr Dodds should be ordered to pay the costs for which he is liable on an indemnity basis from noon on 27 August 2003 onwards. 28    Mr Cotman submits that it was reasonable for Mr Dodds to reject Premier's offer because that offer did not contain any redress for the injury to Mr Dodds' commercial reputation, let alone his own feelings, which had been occasioned by the allegation of misconduct and dishonesty levelled against him by Premier and upon which Premier had failed. 29    The assessment of the effect and consequences of a Calderbank offer and whether it has been reasonably or unreasonably refused is ultimately a matter for the exercise of a somewhat broad judicial discretion founded upon the circumstances of the particular case: see, for example, Skalkos v Assaf (No 2) [2002] NSWCA 236 and the cases cited therein. 30 In the present case it is true that Mr Dodds achieved in money terms far less in the result of the proceedings than he was offered by Premier's Calderbank letter. But I think it is fair to say that money was not the only thing at stake in the proceedings. Mr Dodds had a very high profile job, in a very high profile industry, with a very high profile employer. Commonsense and experience of life tells one that his departure from his employer on bad terms would have become widely known in his industry. It is not fanciful to believe that the allegations of dishonesty levelled against him by Premier would also have received some notoriety in the industry. All of these circumstances affected Mr Dodds’ commercial reputation and, consequently, his ability to find other employment in an industry in which he is highly experienced. 31 In my view, a compromise of the proceedings which, in the mind of the industry in which Mr Dodds is engaged, left the cloud over his reputation undispelled, was one which it was reasonable for him to refuse. He sought in paragraph 3 of his counter-offer a term which would have gone a considerable distance in assuring the industry in which he operates that Premier accepted that it should announce publicly that it could compromise amicably with him as an honourable person. For this reason I think it was not unreasonable for Mr Dodds to reject Premier's offer. There will be no order that the costs for which Mr Dodds is liable will be paid on an indemnity basis.

Interest

32    The next issue is how interest should be calculated on sums which Premier has conceded it owed to Mr Dodds. First, as to the sum of $65,104 in respect of Mr Dodds' bonus claim, Premier says that interest on this sum should be calculated not from the date when Mr Dodds left his employment on 4 October 1999 but rather from 1 November 1999, allowing 31 days for commission to be paid in respect of the July-September 1999 quarter. Mr Pembroke submits that normal industry practice would envisage that payment of such a commission would not be made immediately but would be made after a month's grace. 33    There is no evidence of such industry practice and I think that the circumstances of Mr Dodds' departure would, in any event, militate against following such a practice even if it existed. In my view, Mr Dodds was entitled to the payment of his bonus commission when his contract for employment was terminated on 4 October 1999. Accordingly, interest will be calculated, as Mr Dodds contends, from 4 October 1999. 34    The next question is whether the interest should be calculated up to the date of Premier's Calderbank letter, that is 27 August 2003 or up to today. It seems to me that the Calderbank offer of Premier, being put on a ‘take it or leave it’ basis and having been reasonably refused by Mr Dodds, can not cut off the interest payable on the bonus commission as at 27 August 2003. Interest should be calculated on the bonus commission up until the date of payment. 35    Finally, I come to the calculation of interest on the amount of Mr Dodds' statutory entitlement. This amount, which was $53,592.50, was conceded by Premier to be owing to Mr Dodds prior to the commencement of the trial. On 22 August 2003 Premier tendered a cheque for this amount to Mr Dodds. For some reason which has not been explained, Mr Dodds did not bank that cheque. It still has not been presented. Premier says that interest on the payment of $53,592 should be calculated from the time of first entitlement, which I would take to be the termination of Mr Dodds' employment, up until the date of tender of payment, 27 August 2003. Mr Dodds says that as he has not presented the cheque, interest should run from the date of termination of his employment up until today. I do not think that Mr Dodds' contention in this respect is correct. It was up to him to bank the cheque or not bank the cheque. For whatever reason he saw fit, he has not banked the cheque. I think that Premier has discharged its obligations in this respect by tender of the cheque on 23 August 2003 and that Mr Dodds is not entitled to any interest thereafter.

Set off

36    I now deal with the question whether an order should be made permitting Premier to set off against any judgment recovered by Mr Dodds in these proceedings costs which Mr Dodds may be ordered to pay to Premier. Mr Pembroke submits that such orders are not infrequent and that it is proper to make such an order in this case. He says that it is quite clear that the costs which Mr Dodds will be ordered to pay in the proceedings will be very substantial and in all probability will exceed $65,000 which is the amount which Mr Dodds is entitled to recover from Premier on his Cross Claim. I think that there is certainly substance in that submission. 37    Mr Cotman, on the other hand, says there should not be a set off order made, that Mr Dodds should be entitled to payment of his judgment debt, and that it should be left to be worked out later what amounts are payable in respect of costs on both sides, and that there should be an adjustment at that stage. 38    Whether or not such an order should be made is a matter of broad judicial discretion. There is certainly well established precedent for the making of an order setting off against a judgment debt costs in the proceedings which the judgment creditor must pay to the judgment debtor. This is illustrated by the decision of the Supreme Court of the Northern Territory in Watkins Limited v Calcaria Pty Limited (1983) 78 FLR 417 and the cases discussed therein. That decision has been followed in New South Wales by Campbell J in Preston v M.D. Nikolaidis & Co [2003] NSWSC 72, para.17. 39 While there is no evidence that Mr Dodds would be financially incapable of repaying a sum of $65,000 if the judgment debt owing by Premier is paid to him immediately, nevertheless it must be borne in mind that the costs incurred by both sides of these proceedings are considerable. I would be surprised if the costs on either side did not exceed $65,000 by a very large sum. There was, after all, a six day trial and the volume of evidence adduced was considerable. 40 Bearing in mind that the costs assessment will be a fairly lengthy task, that the sums involved are considerable, that I have no evidence that Mr Dodds is in financial hardship at the moment and requires immediate payment of the judgment debt, I think that it is appropriate in these circumstances to make an order setting off the costs to be paid by Mr Dodds to Premier against the judgment debt of $65,000 odd, which Premier will be required to pay Mr Dodds on the Cross Claim. I think it appropriate to order a stay of the judgment on the Cross Claim for $65,000 odd until the costs in the proceedings are assessed, and to order that the costs payable by both parties should be set off against each other and any surplus of costs owing by Mr Dodds to Premier should be set off against the judgment debt to which Mr Dodds will be entitled on his Cross Claim. This was the form of order made in Burke v Lunn [1976] VR 268, and I think it is the appropriate order in this case.

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Last Modified: 05/10/2004