Responding to unlawful termination – a cautionary tale for would-be litigants

Calderbank offers and offers of compromise

All litigation in Australian Courts is conducted in accordance with the “Rules of Court”. These rules are built on the basis that court time and resources are valuable commodities and not to be wasted. Accordingly, the rules encourage parties to make settlement offers to one another during the course of the litigation in the hope that the cost of a trial can be avoided.

The way in which such offers are conveyed to the other party is by the filing in court (and serving) what is known as Offers of Compromise. These offers are attempts to put pressure on one’s opponent to accept a lower amount than what is originally claimed in court documents with a view to resolving the matter.

Offers of Compromise in higher courts are usually open for acceptance for at least 14 days, while in lower courts (such as Magistrates Courts) for at least 7 days. They cannot be withdrawn during the time for acceptance and, in addition, they carry with them an obligation to pay your opponent’s legal costs from the date the offer is made until the conclusion of the matter. Offers of Compromise can only be made once legal proceedings have been commenced.

The Calderbank Offer is a close relative of the Offer of Compromise. It is usually set out in a letter expressed to be “Without Prejudice Save As to Costs”, rather than a court form. Essentially, such offers are made outside the context of the Court Rules and for this reason can be made even before proceedings have been filed with the Court. In addition, there is no requirement that they be left open for acceptance for a minimum period of time, so long as the period is reasonable. This might be less than 24 hours (Telecommunications v CCP Australian Airships [2003] VSC 141). For this reason, they have a flexibility when events are changing rapidly during the course of a matter leading up to trial. You can also make a Calderbank Offer that is exclusive of costs.

Disastrous consequences can follow where mistakes are made in evaluating the quantum of a claim and allowing an Offer of Compromise to lapse.

Serving of offers of compromise – welcome to the board game

An example of the devastating role that Offers of Compromise can play in modern litigation is the decision of the Federal Court of Australia of Richardson v Oracle Corporation Australia Pty Ltd (No 2) [2013] FCA 359.

Although the claim of Ms Richardson (“the Applicant”) was brought in the context of a sexual harassment claim and not breach of contract, it nevertheless illustrates the consequences of mis-diagnosing the quantum of a litigant’s claim and therefore failing to properly respond to an Offer of Compromise.

In this case, the Applicant made a claim for very substantial damages in the Federal Court, which was ultimately unsuccessful.

The Applicant filed proceedings in the Federal Court alleging that she had been sexually harassed while at work and claiming damages of $450,000.

During the course of the proceedings, both the Company and the former co-worker responsible for the harassment made a joint settlement offer under Order 23 of the Federal Court rules. This was for the sum of $55,000 plus interest. The offer was rejected.  Subsequently, the Applicant made a counter offer in the sum of $106,500 plus interest together with the cost of the proceedings. This counter offer was not accepted.

Finally, on 21 December 2011, there was a further joint offer made by the Company and the Applicant’s former co-worker in the sum of $85,000, although not including the question of costs.

This final offer was also rejected by the Applicant. The main reason for the rejection of the final offer was because the Applicant had already at that stage incurred legal costs assessed at approximately $224,478.80 (inclusive of GST).

How you can win the battle but lose the war – checkmate

On 20th February 2013, the Federal Court made orders finding that the Federal Sex Discrimination Act 1984 had been breached and harassment had occurred, but only awarding the Applicant $18,000 by way of damages.

A finding of this nature was to have dire consequences for the Applicant because the amount of damages awarded fell far short of what she could have received had she accepted the settlement offer of $85,000. Normally, the costs consequences would have been dealt with at the end of the hearing. However, the parties sought the leave of the Court to make further submissions regarding the question of costs as part of a separate application to the Court.

Costs consequences for Ms Richardson

In a decision handed down by Buchan J on 19th April 2013, the Federal Court held that, if the Applicant had accepted the settlement offer of $85,000, the expense of the trial could have been avoided.

As a result, the following consequences would apply:

1. She would have to bear her own legal costs of $224,478.80. In other words, these costs would not be reimbursed by Oracle or the former co-worker; and

2. She would also have to pay indemnity costs of both Oracle and the former co-worker from the date the joint Offer of Compromise was made. What those costs were is not mentioned in the judgment, but they would almost certainly have been in the tens of thousands.

One needs to be particularly mindful in this instance that this was the outcome in circumstances where the Applicant had “won” the case, in the sense that she had established that harassment had occurred.

Quotes from the court

“…the final outcome of these proceedings, in financial terms at least, will probably be devastating for Ms Richardson both financially and personally. Although the findings made in the earlier judgment provide public vindication of her position, she will remain solely responsible for the payment of the bulk of her own legal costs and obliged to pay a high proportion of the legal costs of the Respondents (i.e. Oracle and former co-worker). That will be a high price to pay for her victory. However, to the extent that the proceedings were maintained in pursuit of a claim for damages by way of compensation in an amount higher than what was offered, the Respondents are entitled to the protection contemplated by the Rules…”(page13) (Buchanan J).

Take away message – litigation can be a swamp

Having to commence legal proceedings is a major undertaking for anyone. In the context of employment law, the stakes are even higher if this means taking legal action against your immediate past employer. Such a course of action may not be without its career implications. A former employer is more likely to speak negatively about an executive who has taken legal action.

In litigation, there is no such thing as a “guaranteed outcome”. It is possible that you may receive full recovery of your claim in damages, but, as in the case of Ms Richardson, you may only receive partial recovery.

Irrespective, however, of whether you receive a full payout, a partial payout or indeed no payout at all, the operation of the Offer of Compromise rules means that the burden of paying legal costs (your own and your opponent’s) may far outweigh whatever financial benefit you thought you might have achieved out of the litigation.

Can you financially handle a worst-case scenario?

While there are some matters that will not resolve without the issuing of proceedings, you need to undertake a careful risk assessment before taking such a step and consider how you would handle a worst case scenario such as that referred to above.