McRae v Watson Wyatt Australia Pty Ltd (No.2)

[2009] FMCA 89

FEDERAL MAGISTRATES COURT OF AUSTRALIA

MCRAE v WATSON WYATT AUSTRALIA PTY LTD (NO.2) [2009] FMCA 89

COSTS – TRADE PRACTICES – Calderbank letter – whether respondent declined offers unreasonably.

Trade Practices Act 1974, ss.53B, 82

Walker v Citigroup Global Markets Pty Ltd 233 ALR 687
Commonwealth of Australia v Gretton [2008] NSWCA 117
Mutual Community Ltd v Lorden Holdings Pty Ltd & Ors (1993) (unreported, Vic Sup Ct, Byrne J, 15 April 1993)
MT Associates Pty Ltd v Aqua-Max Pt Ltd (No 3) [2000] VSC 163
Premier Building and Consulting Pty Ltd (Receivers appointed) v Spotless Group Limited (No 13) (2007) VSC 516;
Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority(No 2) [2005] VSCA 298
NMFM Property Pty Ltd and Others v Citibank Ltd (No 11) (2001) 187 ALR 654
Alpine Hardwoods (Aust) Pty Ltd and Anor v Hardys Pty Ltd and Anor (No 2) [2002] FCA 224
Wenzel v Australian Stock Exchange Ltd [2002] FCA 353
John S Hayes & Associates Pty Ltd v Kimberly-Clark Australia Pty Ltd  (1994) FCA 1520
Dais Studio Pty Ltd v Bullet Creative Pty Ltd [2008] FCA 42

Applicant: KATHRYN ANN MCRAE

Respondent: WATSON WYATT AUSTRALIA PTY LTD

File Number: SYG 3894 of 2007

Judgment of: Raphael FM

Hearing date: 10 February 2009

Date of Last Submission: 10 February 2009

Delivered at: Sydney

Delivered on: 13 February 2009

REPRESENTATION

Counsel for the Applicant: Ms L Clegg

Counsel for the Respondent: Mr R Crow

Solicitors for the Respondent: Mallesons Stephen Jaques

ORDERS

1. Application to award indemnity costs dismissed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 3894 of 2007

KATHRYN ANN MCRAE

Applicant

And

WATSON WYATT AUSTRALIA PTY LTD

Respondent

REASONS FOR JUDGMENT

1. The successful applicant in these proceedings seeks indemnity costs based upon the existence of two “calderbank” letters, the first dated 6 December 2007 and the second dated 15 April 2008. In the first of those letters the applicant offered to accept the sum of $95,000.00 in total. There was no reference to costs because at that stage the proceedings had not commenced. The application in the matter was filed on 20 December 2007. In the second letter the applicant offered to settle the matter on the basis of the payment to her of $95,000.00 plus an additional $30,000.00 in relation to costs. Both letters included the statement that:

   “The above offer is made on the basis of the principle in Calderbank v Calderbank.  If this offer is rejected and subsequently our client obtains at least the above from contested litigation, we will be tendering this letter in support of an application for indemnity costs from the date we set for the acceptance of this offer.”

2. The first offer remained open for six days from the 6 to 12 December 2007. The second offer remained open for two days from 15 to 17 April 2008. Neither letter gave any exposition of the applicant’s claim or the reasons why the applicant believed that the respondent’s defence had to fail.

3. I have been greatly assisted by the helpful written submissions of Mr Crow on behalf of the respondent who has set out in some detail the chronology of the various claims made by the applicant. Put simply, the applicant’s claim against the respondent was for a severance payment upon the termination of her contract with the respondent employer by reason of redundancy. However, the basis upon which the applicant claimed to be entitled to such a severance payment and its calculation went through a number of iterations. The respondent set out seven claims in paragraph 7 of its submissions noting that in the final further amended statement of claim term 7 was pleaded in alternative to term 6 on 19 August 2008 when the matter came on for hearing. The submissions note that only three of the seven terms were pressed at hearing, term 1, the implied term of trust and confidence, term 5, the entitlement to the benefits of membership of the respondent’s superannuation fund and either of term 6 or 7, an entitlement to a redundancy payment of either one month’s remuneration per year of service or four weeks remuneration per year of service. The contractual nature of the entitlement was only pleaded after both the applicant’s calderbank letters had expired. The court found the existence of this contractual entitlement and assessed damages on the basis of it. It also found that the respondent had made certain representations (which became contractual representations) and that those representations were in breach of the Trade Practices Act 1974 (the “Act”). However, the court did not calculate damages under the Act on the basis that such damages could not exceed the contractual damages and a discussion upon the manner in which they should be calculated was therefore moot. In adopting this course of action the court following Full Bench authority in Walker v Citigroup Global Markets Pty Ltd 233 ALR 687.

4. It is clear that the applicant made strenuous attempts to settle this matter prior to commencing proceedings and prepared draft statements of claim, one of which was sent to the respondent on 26 October 2007.  That draft only alleged terms 1, 2, 3 and 4 and did not allege term 6.  Term 1 proved to be of no assistance to the applicant in this case; see [50] of my judgment.  When the first calderbank letter was issued this was the only draft statement of claim that the respondent had and it therefore had no notice of the allegation in term 6.

5. The first filed statement of claim alleged only terms 5, 1 and 4, it did not allege the contractual term.  This was the statement of claim that was in existence when the second calderbank letter of 15 April was received.  The first time the contractual claim was alleged was on 5 June 2008 in the amended statement of claim.  Although there had been no allegation of a contractual term it is fair to say that the principal allegation of the applicant which I found to have proved was that representations of her entitlement to redundancy pay were made by the then managing director of the company to her in a conversation prior to her signature of the employment contract.

6. The respondent argues that at all times it believed that it had a substantive defence to the claims made under the Act in that even if the representations were established (and the principal witness for the respondent did not accept that they had been made) the applicant had suffered no loss as a result of their breach. The basis of this argument was that the applicant had at no time established or sought to establish what her earnings or superannuation entitlements would have been had she not entered into the contract with the respondent.

7. The principles which the court should follow in considering whether or not to make an order for indemnity costs following the revelation of the existence of a calderbank letter were authoratively described by the Court of Appeal of New South Wales per Mason P, Beazley JA, Hodgson JA in Commonwealth of Australia v Gretton [2008] NSWCA 117 in the Headnote:

   “1. The usual rule as to costs is that costs follow the event unless the court considers  that some other order ought to be made: UCPR r 42.1.

   2.   A Calderbank offer may be the reason for making some other order.

   3.  The making of a Calderbank offer does not automatically result in a favourable costs order, notwithstanding that the judgment is more favourable to the party making the offer than the terms of the offer. The court must be satisfied that some other order than costs follow the event is justified:

   SMEC Testing Services Pty Ltd v Campbelltown City Council[2000] NSWCA 323; Jones v Bradley (No 2)[2003] NSWCA 258; Leichhardt Municipal Council v Green[2004] NSWCA 341 (all applied).

   4.   In order to be entitled to an order for costs on an indemnity basis after the making of a Calderbank offer, the offer must be a genuine offer of compromise, which it unreasonable for the offeree not to accept:

   Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375; Leichhardt Municipal Council v Green[2004] NSWCA 341 (both cited).

   (i) It is not sufficient for the offeror to merely establish that its offer was reasonable in order to establish that the offeree was unreasonable in rejecting it.

   (ii) An offer that is no more than a “walk-away” offer may be a genuine offer of compromise, if it is seen as a genuine attempt to reach a negotiated settlement, rather than merely to trigger any costs sanctions.

   5. The Court’s discretion is to be exercised having regard to all the relevant circumstances in the case.

   Leichhardt Municipal Council v Green[2004] NSWCA 341 (applied).

   8. The exercise of discretion must be based on fairness, which involves a consideration of the responsibility of parties in incurring the costs.

   Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15 (considered).

   9. The onus is on the party making a Calderbank offer to satisfy the court that it should exercise the costs discretion in its favour:

   Evans Shire Council v Richardson (No 2)[2006] NSWCA 61 (applied).

   That onus may require the offeror to disclose to the court the quantum of any costs order that it has in its favour and which is not included in the offer.

   12. Where offer of settlement is made by a Calderbank letter, the question is whether the circumstances of making the offer and the failure to accept it warrants departure from the ordinary rule as to costs:

   SMEC Testing Services Pty Limited v Campbelltown City Council[2000] NSWCA 323; Jones v Bradley (No. 2)[2003] NSWCA 258 (both considered).

   13. Whether a party should have to pay costs on an indemnity basis rather than party and party basis, it is generally necessary that the party seeking assessment on an indemnity basis satisfy the court that the other party was acting unreasonably in refusing the offer:

   Jones v Bradley (No. 2)[2003] NSWCA 258; Leichhardt Municipal Council v Green[2004] NSWCA 341; Rosniak v Government Insurance Office (1997) 41 NSWLR 608 (all considered).”

8. These authorities which represented the situation in New South Wales are substantially mirrored by decisions in Victoria in particular Mutual Community Ltd v Lorden Holdings Pty Ltd & Ors (1993) (unreported, Vic Sup Ct, Byrne J, 15 April 1993); MT Associates Pty Ltd v Aqua-Max Pt Ltd (No 3) [2000] VSC 163; Premier Building and Consulting Pty Ltd (Receivers appointed) v Spotless Group Limited (No 13) (2007) VSC 516; Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority(No 2) [2005] VSCA 298 and in the Federal sphere by NMFM Property Pty Ltd and Others v Citibank Ltd (No 11) (2001) 187 ALR 654; Alpine Hardwoods (Aust) Pty Ltd and Anor v Hardys Pty Ltd and Anor (No 2) [2002] FCA 224; Wenzel v Australian Stock Exchange Ltd [2002] FCA 353; John S Hayes & Associates Pty Ltd v Kimberly-Clark Australia Pty Ltd (1994) FCA 1520; Dais Studio Pty Ltd v Bullet Creative Pty Ltd [2008] FCA 42.

9. The applicant’s case for an award of indemnity costs is based upon the existence of the calderbank letters after an extensive period of negotiation between the parties, including the submission to the respondent of a document that became very important in the case being an envelope upon which the applicant had written notes of her conversations with the former managing director. As I understand it the applicant would argue that she put all the relevant facts to the respondent before commencing proceedings, achieved no satisfactory response and so issued the first calderbank letter just prior to the proceedings being commenced. A few months later the second letter was issued after the statement of claim had been filed.  The respondent again did not accept the offer bringing about the necessity of a lengthy hearing to which many witnesses were called but in consequence of which the applicant was awarded damages exceeding the amount she would have accepted pursuant to the calderbank letters.

10. The respondent on the other hand argues that it was not unreasonable for it to decline to accept the offers, firstly because the successful claim had not been pleaded when they were issued; secondly because the applicant’s evidence had not been filed when the second offer was made; thirdly that the applicant was not successful in all of its claims and did not proceed with some of them outlined in the draft statement of claim and original statement of claim that were in existence at the time of the calderbank letters; fourthly that the calderbank letters did not give the respondent an adequate opportunity to consider their position giving only six and then three days for a response. The respondent also says that the applicant has not satisfied the court as to why it should make an order for indemnity costs and that it never explained in the calderbank letters why the respondent’s case was destined to fail.  The respondent argues that all these matters are shown by the authorities to be required to be taken into account by a court in considering a discretionary costs order.

11. I accept the arguments put by the respondent. My reading of the authorities indicates that for a discretionary award of indemnity costs to be made it should be objectively clear that a respondent is acting unreasonably by refusing to compromise at the amount suggested by the applicant. The objective analysis would take into account the status of the pleadings, the evidence and the law at the time the offer is made. In the instant case the status of the pleadings was that the contractual claim which eventually succeeded had not been pleaded. The status of the evidence was that the applicant herself had not committed to a sworn affidavit and whatever she claimed in the past she might be going to say she was entitled to resile from it until such time as the affidavit was filed and served. The status of the law was (and remains) that the calculation of damages for the breach of s.53B under s.82 of the Act is by no means clear and had the applicant not amended her statement of claim so as to plead the contractual term the respondent may have made out its case that no damage was suffered. At least, it was open to the respondent to take that view.

12. The applicant has not satisfied me that it was unreasonable of the respondent to reject the offers contained in the calderbank letters as at the dates that those offers expired. I would therefore not propose to exercise my discretion in her favour to order that indemnity costs be paid to her. The order which I made at [57] of my judgment that she should be paid costs at 80% of the Federal Court scale to be taxed if not agreed shall stand. This is the second of two applications made today in this matter. The applicant was successful in the first. The appropriate way to deal with the costs of today is to make no order.

I certify that the preceding twelve (12) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate: 

Date: