Australia: Careful case preparation may help avoid indemnity clause costs

Indemnity clause leads to costs awarded for rejection of offer

Two teachers have been ordered to pay their former employer's costs on an indemnity basis after they unreasonably refused a $10,000 settlement offer. Mr Carr and Mr Pathik commenced proceedings in the Federal Circuit Court alleging that their former employer, ILSC (Brisbane) Pty Ltd, had underpaid them, breached the modern award that covered their employment and breached their general protections by reducing their weekly hours after they made a complaint in relation to their employment.

Before the hearing of the matter, ILSC sent each applicant a letter offering, on without prejudice basis, to settle their claims in exchange for a lump sum payment of $10,000 each and the parties entering into a deed of release. ILSC stated that the offer would be open for acceptance for 28 days. Both Mr Carr and Mr Pathik rejected ILSC's offer two business days later. They both counter offered, proposing that ILSC pay them $95,000 each to settle their respective claims.

AWARD OF COSTS

Costs orders are not usually made in proceedings under the Fair Work Act 2009 (Cth) (Act). The Court does have discretion under the Act to award costs where a party has acted unreasonably, refused to participate in the matter, or the claim is vexatious or without reasonable cause. In the event costs are awarded, they are usually awarded on a party/party basis. In these circumstances, only a portion of the costs paid by the party are recoverable. However, in exceptional cases the Court has discretion to award costs on an indemnity basis, meaning that one party is required to pay the entire costs paid by the other party.

INDEMNITY COSTS ORDERED TO BE PAID: JUDGE'S REASONING

Mr Carr and Mr Pathik were ordered to pay ILSC's costs on an indemnity basis from the date of the $10,000 offer onwards. Justice Cameron considered that Mr Carr and Mr Pathik behaved unreasonably in rejecting ILSC's offer as:

  • $10,000 is a 'real and not token' sum, even if it is not substantial
  • the speed with which the rejection was communicated showed they did not give proper consideration to the offers
  • they failed to take due care in preparing their claims and, if they had taken more care, they would have understood that their claims were weak and acted differently; and
  • their counter proposals were 'provocative, belligerent and gave no hint of a willingness to compromise'.

Justice Cameron commented that it is not appropriate for parties to factor into their considerations the potential civil penalties that might be ordered to them. He stated, 'a successful party has no enforceable right to be paid penalties and should not count on penalties being made payable to them in the exercise of the Court's discretion', reinforcing that all claims and settlement offers should be prepared and considered carefully.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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