Pruessner v Caelli Constructions (Vic) Pty Ltd (No 2)
[2022] FedCFamC2G 697
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Pruessner v Caelli Constructions (Vic) Pty Ltd (No 2) [2022] FedCFamC2G 697
File number(s): MLG 4184 of 2020 Judgment of: JUDGE FORBES Date of judgment: 29 August 2022 Catchwords: INDUSTRIAL LAW – FAIR WORK – Application for costs under s 570(2) Fair Work Act 2009 (Cth) – whether substantive application instituted without reasonable cause – whether rejection of Calderbank offer unreasonable act – application for costs dismissed Legislation: Fair Work Act 2009 (Cth), s 570 Cases cited: Australian Securities and Investment Commission v Mitchell (No 4) [2021] FCA 1387
Calderbank v Calderbank [1975] 3 All ER 333
Construction, Forestry, Mining and Energy Union v Clarke (2008) 170 FCR 574, 582
Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [ 2022] HCA 1
McDonald v Parnell Laboratories (Aust) (No 2) (2007) FCR 591
Melbourne Stadiums Ltd v Sautner (2016) 229 FCR 221; [2015] FCAFC 20 at [166]
PIA Mortgage Services Pty Ltd v King(No 2)[2020] FCAFC 53
Richens v Commonwealth of Australia (as represented by the Commissioner of the Australian Federal Police) [2018] FCA 1276
Saxena v PPF Asset Management Ltd [2011] FCA 395
Stratton Finance Pty Ltd v Webb [2014] FCAFC 110
Trustee for the MTGI Trust v Johnston (No 2) [2016] FCAFC 190
ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2
Division: Division 2 General Federal Law Number of paragraphs: 79 Date of hearing: 6 May 2022 Place: Melbourne Counsel for the Applicant: Mr Howard Solicitor for the Applicant: Holding Redlich Counsel for the Respondent: Mr Fetter Solicitor for the Respondent: Davies Lawyers ORDERS
MLG 4184 of 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: PETER PRUESSNER
Applicant
AND: CAELLI CONSTRUCTIONS (VIC) PTY LTD
Respondent
ORDER MADE BY:
JUDGE FORBES
DATE OF ORDER:
29 AUGUST 2022
THE COURT ORDERS THAT:
1.The Respondent’s Application in a Proceeding dated 1 April 2022 seeking that its costs of the proceeding be paid by the Applicant (the Costs application) is dismissed.
2.The parties are to bear their own costs of the proceeding, including the costs application.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE FORBES
INTRODUCTION
On 25 March 2022 his Honour Judge McNab (as he then was) dismissed an application by the applicant, Mr Peter Pruessner, who had made various claims against the respondent, Caelli Constructions (Vic) Pty Ltd (CC), which were dependent upon a finding that
Mr Pruessner had been employed by CC from about August 2012 until about 15 July 2020.
As well as dismissing the application his Honour ordered that any application for costs by the respondent should be made within 7 days and be supported by written submissions and that the applicant file any written submissions in response within 14 days.
By an application in a proceeding dated 1 April 2022 the respondent now seeks that the applicant pay its costs of the proceeding on an indemnity basis, alternatively on a standard basis up to 4.00pm 29 September 2021 and thereafter on an indemnity basis.
His Honour was elevated to division 1 of the Court subsequent to his judgement and orders, made on 25 March 2022. The respondent’s application for costs has been allocated to me for determination.
Having considered the parties’ written submissions and having heard oral submissions from trial counsel on 6 May 2022, I have decided that no order for costs should be made and that the parties should bear their own costs of the proceeding. My reasons are set out below.
BACKGROUND
In the substantive proceeding, the applicant made various claims against CC for employment-related payments and entitlements, including unpaid superannuation, unpaid long service leave, redundancy payments and payments in respect of notice of termination. One way or another, all the claims were incidents of a purported employment relationship between the two parties.
It was alleged that an oral employment contract was made in August 2012 when Mr Pruessner was asked by Mr Paul Caelli to work at CC as a full-time formwork supervisor. CC denied such an employment contract was made or that a relationship of employment was established by the parties’ conduct over subsequent years.
In his reasons for judgement, his Honour found that the evidence did not support a finding of any agreement as at August 2012 that Mr Pruessner would work as an employee of CC[1]. Rather, the Court found that Pruessner Holdings Pty Ltd (PH), a company owned and controlled by the applicant, had agreed to supply services to CC, with that agreement having been made between Mr Pruessner as a director and shareholder of PH and Mr Paul Caelli on behalf of CC[2]. The Court found that a business was being conducted by PH[3] evidenced by, inter alia:
(a)the rendering of invoices to CC by PH;
(b)the filing of tax returns by PH which accounted for the income received based on the invoices rendered by PH to CC; and
(c)that PH paid superannuation contributions on behalf of the applicant in a number of years.
[1] reasons for judgement [35], [45]
[2] reasons at [34]
[3] reasons at [37], [43]
His Honour observed that much of the evidence of the applicant was directed at seeking to persuade the Court that it should look past the structures established to supply labour and the rendering of invoices by PH. The applicant contended that the Court should instead focus on the totality and all other features of the performance of work by the applicant and that this would support a finding that the applicant was in fact an employee of CC.
However, the “totality” approach contended for by the applicant did not find favour with his Honour who considered himself bound to follow[4] the approach taken by the High Court in ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (Jamsek) and Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [ 2022] HCA 1 (Personnel Contracting) . It is to be noted that both Jamsek and Personnel Contracting were decided after the case was argued at trial in November 2021.
[4] reasons at [42]-[49]
Although the Court acknowledged that there were matters that may point to an employment relationship, in particular in the way that work was performed by the applicant and that he worked exclusively at CC for the period, it was clear that no agreement was made that the applicant would be employed by CC. Moreover, the parties at all times proceeded on the basis that the applicant was not an employee of CC because it was agreed that PH would render invoices which accounted for the applicant’s labour[5]. The evidence supported a finding that the applicant was at all material times working for PH, whether providing services as a director for which he received director’s fees or as an employee for which he received wages[6].
[5] reasons at [50]
[6] reasons at [58]
His Honour Judge McNab dismissed the application and invited the parties to make submissions on the question of costs.
The Calderbank offer
The Court has been informed that on 20 September 2021, prior to the commencement of the trial, the respondent’s former solicitors Marchesin & Co sent a letter by email to the applicant’s solicitors which contained a settlement offer on a “without prejudice save as to costs” basis[7]. The offer remained open until 4.00pm on Wednesday, 29 September 2021.
[7] affidavit of Tracey Davies, exhibit TD-1
The correspondence made clear that the offer was conveyed on the basis that, if not accepted by the applicant and the applicant fails to better the offer at trial, the offer would be produced in support of an application that the applicant pay the respondent’s costs to the date of the offer and indemnity costs thereafter[8] (Calderbank offer).
[8] Calderbank v Calderbank [1975] 3 All ER 333
The correspondence from the respondent’s former solicitors runs over 3 ½ pages, so I will not reproduce it all in the body of these reasons. However, the content of the offer can be summarised as follows:
(a)by its heading, the correspondence is directed to the instant proceedings, Federal Circuit Court No. MLG 4184/2020;
(b)the first part of the letter provides commentary regarding the applicant’s prospects of success, noting that outlines of evidence had been filed and relevant documents discovered;
(c)in relation to the background, the respondent notes that simultaneous with his alleged employment the applicant had been in a business with Mr Paul Caelli known as PGP Tower Cranes Pty Ltd (PGP) and that that business had charged the respondent $1.3m during the period of alleged employment;
(d)the respondent’s solicitors contend that during the period of his alleged “employment”, the applicant was simultaneously a director of PGP and received payments from PGP of monies diverted from the respondent;
(e)the respondent contends that Mr Pruessner’s claim had very low prospects of success;
(f)the second part of the letter sits under the heading “PGP Claim”;
(g)The respondent’s solicitors informed the applicant that they have instructions to commence Federal Court proceedings against PGP and Paul Caelli and that they “will seek to trace monies paid by same to your client and Preussner Holdings”. It is alleged that PGP engaged in conduct which resulted in a loss of revenue to the respondent of at least $1.3m and that PGP had failed to pay rent for crane storage estimated to be in the vicinity of $150,000;
(h)The respondent’s solicitors allege that redirection of work away from the respondent to PGP “raises questions of breaches of directors duties, good faith and fiduciary duties in respect of which we are receiving further, more detailed instructions”. It goes on to assert that if the applicant is found to be an employee in the instant proceedings, the respondent will “join Mr Pruessner personally to the proceedings in respect of Paul Caelli and PGP on the basis of Mr Pruessner’s breach of fiduciary duties and a duty of good faith against his purported employer, by virtue (amongst other things) of the redirection of work away from [the respondent] to PGP”;
(i)The next part of the letter of offer sits under the heading “Application for stay of Federal Circuit Court Proceedings”;
(j)Here the letter goes on to reiterate that the respondent’s solicitors have received instructions to file proceedings in the Federal Court against Paul Caelli and PGP and states that steps will be taken to uplift the Federal Circuit Court proceedings to be heard and determined alongside the breach of duty proceedings, “as the factual issues raised by both proceedings will substantially overlap”. The letter contends that the factual overlap is evident from the decision by the applicant to call Mr Paul Caelli to give evidence in his case; and
(k)The respondent’s solicitors seek the consent of the applicant to join the two proceedings in the Federal Court. In the absence of consent the respondent foreshadows that it “will simply join [the applicant] personally to the Federal Court Proceedings, seek orders against [the applicant] for breach of duty, and seek an indemnity from Paul Caelli for whatever sums paid to your client in the Federal Court (sic) proceedings”.
The final page of the letter contains commentary under the heading “Calderbank offer”. Noting the summary above, it is appropriate in the context of this costs application to reproduce the offer:
“Calderbank offer
Despite our instructions to commence proceedings against Paul Caelli and PGP, and to trace into property owned by your client, the substance of the dispute to be litigated in the Federal Court is between Paul Caelli and his family, and not your client. Whilst our client is prepared to vigourously defend the Federal Circuit Court proceeding, it remains aware of the time, cost and strain litigation causes to business and familial/friendly relationships (particularly in this matter, given the long history of friendship between our clients).
Therefore, I hold instructions to put the following commercial offer in settlement of all matters in dispute between Peter Preussner and Caelli, and without any admission of liability:
(a)my client will pay Mr Preussner the total sum of $40,000 incl GST in full and final satisfaction of all of his Federal Circuit Court claims within 28 days of receiving a Deed of Release executed by him;
(b) Mr Preussner will forever release and discharge the Respondent and its employees/agents or officers past and present from and against any claims or demands, including not limited to those arising in the proceeding, as will our client forever release and discharge the Applicant against any claims or demands, including but not limited to those arising in the proceeding;
(c)Caelli will not seek any tracing remedy into property owner (sic) personally by Mr Preussner in the Federal Court Proceedings (though this does not in any way limit Caelli’s ability to seek remedies against PGP);
(d)Mr Preussner will give written notice to the Respondent that he unconditionally withdraws his claim against the Respondent with immediate effect and not, directly or via any 3rd party, proceed with any future claim against the Respondent; and
(e) the parties bear their own costs of the proceedings.
The above would be subject to the parties entering into a Deed of Release acceptable to both parties, capturing the above terms and containing usual clauses pertaining to confidentiality, non-disparagement and alike.
This offer is open until 4pm on Wednesday, 29 September 2021 after which time it will automatically lapse”.
The letter otherwise puts the applicant on notice that pursuant to s 570 of the Fair Work Act 2009 (Cth) (‘the FW Act’) the Court has power to award costs against the applicant in circumstances which include if the Court is satisfied that an unreasonable act or omission in connection with the conduct or continuation of the matter causes other parties to incur costs.
I note for completeness that the applicant has filed evidence[9] that as at 20 September 2021 his costs in the proceeding, including legal fees and disbursements, were $55,698.37 incl GST.
[9] affidavit of Benjamin Andrew McKinley sworn 8 April 2022
Respondent’s application for costs
CC seeks an order that Mr Pruessner pay its costs of the entire proceeding on an indemnity basis, alternatively on a standard basis up to 4.00pm 29 September 2021 and thereafter on an indemnity basis.
The respondent’s application for costs is pressed on two bases. First, it is contended that
Mr Pruessner instituted the proceedings without reasonable cause[10]. Alternatively, the respondent submits that the applicant acted unreasonably[11] by rejecting the Calderbank offer made by the company’s solicitors.
[10] s 570(2)(a)
[11] s 570(2)(b)
It is not contested that the proceedings engaged s 570 of the FW Act. Accordingly, it is common ground that the Court is not empowered to order costs unless its discretion is enlivened by its satisfaction as to one or more of the criteria in s 570(2), as discussed in more detail below.
Legal principles
Section 570 of the FW Act provides as follows:
(1)A party to proceedings (including an appeal) in a court (including a court of a State or Territory) in relation to a matter arising under this Act may be ordered by the court to pay costs incurred by another party to the proceedings only in accordance with subsection (2) or section 569 or 569A.
(2)The party may be ordered to pay costs only if:
(a)the Court is satisfied that the party instituted the proceedings vexatiously or without reasonable cause; or
(b)the Court is satisfied that the party’s unreasonable act or omission caused the other party to incur the costs; or
(c)the Court is satisfied of both the following:
(i) the party unreasonably refused to participate in a matter before the FWC; and
(ii) the matter arose from the same facts as the proceedings.
The Court’s power to award costs to a party in a FW Act matter is framed by the policy considerations which underpin a system which does not unduly discourage litigants from accessing justice. The policy behind s 570 is to ensure that the spectre of costs being awarded against an unsuccessful litigant does not loom so large in the mind of potential applicants that those with genuine grievances and arguable evidentiary and legal bases for them are put off commencing or continuing proceedings[12].
[12] Trustee for the MTGI Trust v Johnston (No 2) [2016] FCAFC 190 at [8]
For that reason, the threshold set by s 570(2) is high and the Court’s discretion to award costs is to be exercised with caution and in a clear case[13], in part to avoid discouraging parties from completely and robustly pursuing claims or in equally robustly pursuing their defence of such claims[14]. Even where the threshold is met, the Court retains a discretion.
[13] Saxena v PPF Asset Management Ltd [2011] FCA 395 at [5]-[6]
[14] Richens v Commonwealth of Australia (as represented by the Commissioner of the Australian Federal Police) [2018] FCA 1276 at [23] per Mortimer J
The applicant for costs bears the onus of satisfying the Court that one or more of the criteria in s 570(2) are met. Whether the threshold of the exercise of discretion is met will depend on the particular circumstances of the case, including the way a party has conducted itself in the litigation.
As to whether proceedings have been instituted without reasonable cause, the question is to be considered at the time the proceedings were commenced. The Court should consider whether, on the facts apparent to the applicant at the time of instituting the proceeding, the claim involved one or more arguable points of law such that it had a prospect of success.
As to the rejection of the Calderbank offer, it is well established that a failure to accept a reasonable offer of compromise may constitute an unreasonable act for the purposes of
s 570(2)[15]. Rejecting an offer and preserving a case with no realistic prospect of success may be grounds for an award of costs, including indemnity costs[16].[15] Melbourne Stadiums Ltd v Sautner (2016) 229 FCR 221; [2015] FCAFC 20 at [166]; McDonald v Parnell Laboratories (Aust) (No 2) (2007) FCR 591 at 598-9 per Buchanan J
[16] Trustee for the MTGI Trust v Johnston (No 2) [2016] FCAFC 190 at [21]-[22]
The Calderbank offer itself must be reasonable and capable of acceptance. But even if an offer is deemed reasonable, its rejection does not necessarily constitute an ‘unreasonable act’[17].
[17] Melbourne Stadiums Ltd at [167]
Calderbank letters are historically creatures of a costs jurisdiction and the relative reasonableness of an offer may be qualitatively different when considered in the context of a no-costs regime, such as a FW Act proceeding[18].
[18] Stratton Finance Pty Ltd v Webb [2014] FCAFC 110 at [80]
SUBMISSIONS
As mentioned, each of the parties filed written submissions on the question of costs and these submissions were developed orally by counsel at a hearing before me on 6 May 2022.
There is significant common ground between the parties as to the established principles. Where disagreement exists in this case, it is as to whether or not the Court’s discretion is enlivened and whether discretion should be exercised in favour of the respondent.
Without reasonable cause s 570(2)(a)
The respondent submits that the proceeding was instituted without reasonable cause because the applicant must have known from the outset that he could not prove his pleaded case.
The respondent takes aim at paragraph [5] of the Statement of Claim filed on 3 December 2020 where Mr Pruessner made the factual allegation that in or about August 2012, Mr Paul Caelli “asked [him] to work at Caelli [Constructions] as a full-time employee in the position of formwork supervisor”. The respondent submits that this conversation (which was defined in the pleading as the “Employment Contract”) was the sole pleaded foundation for the applicant’s legal claim to have been an employee of the respondent.
As the evidence fell out, this factual claim was never established. The respondent submits that Mr Pruessner was never asked to work as a “full-time employee” or as a “formwork supervisor”. There was no evidence of a job offer and no specific discussion about the formation of an employment contract. It is submitted that, as a participant in the conversation, the applicant must have known that the legal foundation of his claim would not be proved and that his application was bound to fail.
The applicant on the other hand submits that the respondent has misconstrued the pleading and on a proper reading it should be understood that paragraph [5] pleaded a legal conclusion not a single interaction as a material fact. Counsel for the applicant submits that paragraphs [6]-[11] of the Statement of Claim plead the terms of the employment, the applicant’s duties, his hours of work and other relevant indicia, all of which serve to inform the allegation at [5] that a contract of employment was established, not a contract for services.
The applicant submits that the case was run and closed based on then-current appellate authorities which permitted a multifactorial or indicia approach to the resolution of the issue. Counsel for the applicant contends that Mr Pruessner cannot be criticised for drawing a pleading at a time in which the ratio of Jamsek and Personnel Contracting was not known and could not be accounted for.
In any event, the applicant submits that even following the High Court’s decisions in Jamsek and Personnel Contracting, factors that inform the indicia approach can nonetheless be used to inform the content and legal effect of an oral contract. The label attached by the parties to an arrangement is not determinative, because the ultimate question as to whether or not a contract is one of employment or for services is a question of law for the Court[19]. In that context, it is submitted that the pleading at paragraph [5] was an allegation as to ultimate resolution of the question of law (that it was a contract of employment) and should never have been taken as quoting an oral conversation as to how the parties characterised the question for themselves in August 2012.
[19] Jamsek at [4]; Personnel Contracting at [64]
The applicant submits that the respondent’s assertion that the claim had no proper legal basis is pressed with the benefit of hindsight following Jamsek and Personnel Contracting. This fails to acknowledge that the indicia or “totality” approach held sway at the time the claim was made and the pleading was drafted. At the relevant time the question of law was arguable.
In reply on this point, the respondent’s submission is that there is no ambiguity in the pleading and the case was not run on a “totality of relationship” basis. The respondent submits that the case was squarely pleaded on the basis of an alleged employment contract being formed when Mr Caelli allegedly asked the applicant to be an employee in August 2012. Furthermore, it is submitted that even if the case was pleaded and run on the basis of the indicia approach, the applicant should have been aware by the time of trial that the High Court had given special leave to appeal in the Jamsek and Personnel Contracting cases, flagging that that approach might well be wrong. In any event, the respondent submits that the case could not have succeeded on the totality of relationship basis and the applicant should have appreciated that his application was doomed to fail
Unreasonable act or omission s 570(2)(b)
The second basis on which the respondent presses its application for costs is that the applicant acted unreasonably by rejecting the Calderbank offer in circumstances where he must have known that his case could not be made out.
The respondent submits that at the time of the offer in September 2021 the proceeding was close to trial. The pleadings were closed, outlines of evidence had been filed and relevant documents had been discovered. It is submitted that by that time the parties were in a fair position to evaluate their cases and the respondent’s observation that the applicant had poor prospects of success was accurate. Counsel for the respondent goes further and submits that the applicant had “nil prospect”.
The respondent contends that the Calderbank offer contained very significant benefits for the applicant and it was unreasonable for him to reject it in the circumstances. First, Mr Pruessner would receive $40,000[20] in cash. Secondly, Mr Pruessner would be released from any liability he had to the respondent including in relation to the PGP cranes matter. The respondent submits that this was a valuable benefit to the applicant as the respondent had given instructions to its lawyers to sue PGP for $1.4 million and was threatening to trace some of that loss to
Mr Pruessner personally by reason of his breaches of good faith and fiduciary duties.[20] incl GST
The respondent submits that in exchange for those very significant benefits, Mr Pruessner had to do no more than release the respondent from any claims he had against it, withdraw his Federal Circuit Court claim (which was bound to fail anyway), and sign a deed of release with standard terms including confidentiality and non-disparagement.
The respondent points out that the applicant was legally represented, the offer was made just before the parties were required to incur the costs of preparing and filing outlines of submissions and that 8 days was a reasonable time for the offer to be considered. In all the circumstances, it is submitted that the applicant’s rejection of the offer was unreasonable, with the consequence that indemnity costs should follow.
The applicant submits that the rejection of the Calderbank offer was not an unreasonable act. It is submitted that the terms of the Calderbank offer were not reasonable and can in no sense be described as such for various reasons.
First, the applicant submits that the offer itself was infused with threats and intimidation, including that Mr Pruessner was staring down the barrel of Federal Court litigation which would allege that he was involved in breaches of fiduciary duty for which liability to the tune of in excess of $1 million might be traced to him personally.
The applicant submits that this threat had no factual or legal foundation, and it was never pursued. It is also submitted that the evidence at trial revealed that the foundation for the threat could not be made out and that the respondent never had proper basis for instructing its lawyers to convey the threat. Furthermore, the applicant submits that the threat was intimidating and malicious at common-law and had Mr Pruessner been seduced by it, his acceptance would have been tortious.
Secondly, in its terms the Calderbank offer was not an acceptable proposition and cannot be described as a genuine compromise between competing positions. At the time the offer was made, the applicant’s claim was for $230,850 and a declaration that would have entitled him to approach the Australian Taxation Office for payments in respect of superannuation. His legal costs at the date of the offer were $55,698.37.
The respondents offer to pay $40,000 incl GST would not have even covered his legal costs. The $40,000 offer did not distinguish between Mr Pruessner’s contract and FW Act claims, nor did it properly identify components attributable to costs or interest.
Thirdly, the applicant contends that the offer itself was partial and inchoate. The offer was subject to a requirement that the applicant sign a Deed of Release, the terms of which had not been presented to him.
Fourthly, it is submitted that the 8 day window for acceptance of the offer was unreasonable. To consider the offer properly, Mr Pruessner had to obtain advice and instructions about the merits of the foreshadowed breach of duty proceeding and the merits of the Calderbank offer under that threat.
Finally, and it is unnecessary to rehearse this submission again, but the applicant maintains that he objectively had good reason to consider that he had a reasonable to strong case on the law as it stood at the time.
CONSIDERATION
Despite the overwhelming success of its defence at trial, the respondent has not persuaded me that the applicant should be ordered to pay its costs of the proceeding.
I do not find that the proceeding was commenced without reasonable cause. The test of course is not whether the applicant wins or loses his case but rather whether there was a proper legal basis to support a case which was arguable and with some prospect of success. The ultimate failure of the proceeding is not determinative.
I accept that parties should be closely held to their pleading, particularly in matters which carry the sanction of civil penalties. However, on a fair reading of the Statement of Claim and having regard to how the evidence was prepared and the case was run and closed at trial, it would have been apparent to the respondent that the applicant was relying upon a “totality of relationship” or “indicia” thesis and that the pleaded interaction between Mr Pruessner and Paul Caelli in August 2012 was but a piece of the jigsaw. On my assessment and having regard to the observations of his Honour Judge McNab, the case was never premised on a single conversation or the label attached to the relationship in that conversation.
The question of whether the applicant instituted proceedings without reasonable cause is to be considered at the time the proceedings were instituted. I accept the applicant’s submission that at the relevant time, in the absence of a written contract, it was open to rely on appellate authority to support the “indicia” approach as a means of determining the ultimate question.
True it is that the granting of special leave in Jamsek and Personnel Contracting should have alerted the applicant and his lawyers to the risk that that approach might ultimately be proven incorrect, but the presence of that risk is insufficient to characterise the claim as being without reasonable cause. Things might have turned out differently in the High Court and the respondent might not have enjoyed such an emphatic victory. I should also add that the indicia approach has not been completely consigned to the annuls of history and that it may still serve to inform the character of an ambiguous relationship in the absence of a written contract.
I am cognisant of the policy underpinnings of s 570 including that access to justice should be available to those with a genuine grievance and an arguable evidentiary and legal basis for their claim. Costs do not follow the event in FW Act matters and a party can only be ordered to pay the costs of another where the Court is satisfied as to one or more of the criterion in s 570(2).
I am not satisfied that the application was initiated without reasonable cause. Accordingly, the Court’s power to award costs for that reason is not enlivened.
The second basis for the respondent’s costs application is Mr Pruessner’s rejection of the Calderbank offer. This act is characterised as an unreasonable one which has caused the respondent to incur further unnecessary costs, conduct which enlivens the Court’s power pursuant to s 570(2)(b).
The onus is squarely on the respondent to satisfy the Court that Mr Pruessner acted unreasonably in rejecting the offer.
Unreasonableness is a question of impression and degree, to be assessed by reference to the particular circumstances of a given case[21]. Although a failure to accept a reasonable offer of compromise may constitute an unreasonable act for the purposes of s 570(2), much turns on the form and content of the offer and the conduct of the parties.
[21] Construction, Forestry, Mining and Energy Union v Clarke (2008) 170 FCR 574, 582 [28] (Tamberlin, Gyles and Gilmour JJ);
The determination of whether the applicant’s rejection is an unreasonable act requires consideration of numerous factors[22] including, among other things, the nature of the claim, the nature of the response, the evidence and documents filed in the proceeding and the information available to the parties at the time the offer is made, a realistic assessment of the parties’ cases, the stage of the proceeding at which the offer was made, the window for its consideration and acceptance, the financial position of the parties and the extent of the compromise and the consequences of non-acceptance. To those matters I would add the statutory framework within which the Court will ultimately hear and determine the application, including its no-costs presumption.
[22] eg Australian Securities and Investment Commission v Mitchell (No 4) [2021] FCA 1387 per Beach J at [33]
In PIA Mortgage Services Pty Ltd v King(No 2)[2020] FCAFC 53 at [20] the Full Court observed that whether the rejection of an offer is found to be ‘unreasonable’ in the circumstances of s 570 is a question for holistic consideration:
…whether the rejection of an offer to compromise proceedings can be impugned as unreasonable will be a question of impression and degree, to be informed by all of the circumstances that surround it. At the least, those circumstances will include the objective attractiveness of the offer, whether a more beneficial result was realistically possible and whether the effort required to achieve a more beneficial result was proportionate to any marginal benefit.
The description in the Calderbank letter of the applicant’s prospects as “poor” was apt and the judgement proved that to be correct. I accept that the applicant should have appreciated that his case was not a strong one. However, notwithstanding that the respondent scored an emphatic victory at trial and that Judge McNab saw little in favour of the applicant’s plea of employment, it does not follow that the respondent is entitled to its costs simply because it made an offer which, if accepted, would have left the applicant in a more favourable position.
As I observed earlier, Calderbank letters are historically creatures of a costs jurisdiction and the relative reasonableness of an offer may be qualitatively different when considered in the context of a no-costs regime, such as a FW Act proceeding[23].
[23] Stratton Finance Pty Ltd v Webb [2014] FCAFC 110 at [80]
Further complications arise, as is the case here, where there is no neat symmetry between the applicant’s claim and the content of the compromise contained in the Calderbank letter.
As can be seen from my description of the Calderbank letter, it was not directed solely to an assessment of the prospects of the applicant’s employment claim. The letter references another relationship between the respondent and Mr Pruessner and Mr Caelli, namely the business of PGP Cranes, in which Mr Pruessner was a director. The Calderbank letter alleges that
Mr Pruessner breached director’s duties and informs him that instructions had been received to commence Federal Court proceedings against Paul Caelli and PGP, into which Mr Pruessner may be drawn and his personal assets put at risk.The applicant submits that the Calderbank letter in and of itself was unreasonable because it contained tortious threats and intimidation. As such, rejection of an offer expressed in those terms should not be regarded as unreasonable. However it is not necessary for me to make a finding on that point. The question is whether that offer was unreasonably rejected by the applicant.
The Calderbank letter did not leave the applicant to ponder the offer of $40,000 weighed against his prospects of successfully prosecuting his claim and the costs and inconvenience he might incur in doing so. Rather, the Calderbank letter in its terms was a rolled up offer to resolve a suite of actual and potential litigation between the parties and between other parties which might involve the applicant. The offer was conveyed with the menace of threatened legal proceedings in relation to the PGP matter and the implicit if not explicit message that rejection of the offer might visit crushing consequences upon the applicant in terms of cost and personal liability.
The offer is further complicated by the fact that the threatened ancillary or related legal proceedings (if they materialised) would operate in a different costs regime and might have different consequences for the applicant and the other parties concerned, depending on outcome.
The respondent says that release from the threatened Federal Court litigation was a “valuable benefit” for Mr Pruessner. That may or may not be so, but it is not possible for this Court on the evidence before it to make any such assessment. It is equally possible that the threats were empty, enjoyed no prospect of success against the applicant and might ultimately have resulted in an award of costs in his favour.
If the Calderbank letter had engaged with the Federal Circuit Court litigation alone and had presented the applicant with a more binary choice between taking his case to trial and accepting an offer which was framed by reference to his prospects, I might have decided this costs application differently. But the offer was not so framed and did not present the applicant with that choice. For that reason, I do not consider that his rejection of that offer was an unreasonable act.
For completeness, I also accept two of the other bases advanced by the applicant as to why his rejection of the offer should not be regarded as unreasonable.
Objectively, the offer was not financially irresistible. The claim sought in excess of $230,000 and a declaration which might have enabled the applicant to access superannuation. His legal costs at the time of the offer were nearly $56,000. The applicant was not bound to accept the respondent’s subjective assessment of his case and in my opinion it was not unreasonable to reject the offer of $40,000 as falling short of a reasonable commercial compromise.
I also accept the applicant’s submission that the offer was partial and inchoate in the sense that it was subject to a Deed of Release, the terms of which had not been presented to Mr Pruessner. In the ordinary course I would be favourably inclined to the submission of the respondent’s counsel that in employment matters, reference to a deed “in usual terms” is not uncertain between practitioners familiar with negotiated settlements. But here the situation is different. The Calderbank letter engages with other legal rights and threatened litigation in other courts, all of which were to be embraced in the unsighted Deed of Release. An applicant in
Mr Pruessner’s position was perfectly entitled (and no doubt would be advised) to lay eyes upon such an important legal document and to seek fulsome legal advice before settling his substantive case.Having regard to all of these matters, I am not satisfied that the applicant’s rejection of the Calderbank offer was an unreasonable act. Accordingly, the Court’s power to award costs is not enlivened.
DISPOSITION
The respondent’s application in a proceeding dated 1 April 2022 seeking that its costs of the proceeding be paid by the applicant will be dismissed.
The parties are to bear their own costs of the proceeding, including the costs application.
I certify that the preceding seventy-six (79) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Forbes.
Associate:
Dated: 29 August 2022
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