Summary

  • The recent Federal Court case of Richardson v Oracle Corporation Australia (No 2) demonstrates that an employer may be able to recover its costs, even where it is unsuccessful in defending proceedings, provided that it has made a reasonable offer of settlement under the Federal Court Rules.
  • Employers should objectively assess the merits of any employee claim and, where appropriate, make reasonable settlement offers as early as possible in proceedings. Where an employee succeeds in the matter but the damages award is less than any earlier offer of compromise, a favourable costs award may be made to the employer.
  • It is important to ensure that any settlement offer purportedly made under Federal Court Rules is in the prescribed form so that reliance can be had on the costs regime in the Rules when making an application for costs.

Background

In February, the Federal Court handed down its decision in Richardson v Oracle Corporation Australia Pty Limited .In that case, the employer was found to be vicariously liable for the sexual harassment of one employee by another employee and the employer was ordered to pay $18,000 in damages (see previous Herbert Smith Freehills update)2.

Following the substantive decision, the employer made an application for indemnity costs on the basis that the employee had rejected an offer of compromise made under the Federal Court Rules and obtained judgment on terms which were less favourable than the terms of the offer.

This application was dealt with in the Federal Court’s judgment in Richardson v Oracle Corporation Australia Pty Limited (No 2),3 which we consider in this article.

Facts

Before the case went to trial, three relevant settlement offers were made by the parties:

  • on 3 September 2010, Oracle made a first offer of $55,000 plus Ms Richardson’s costs;
  • on 20 September 2010, Ms Richardson made a counter offer of $106,500 plus her costs; and
  • on 21 December 2011, Oracle made a second offer of $85,000 “exclusive of costs”.

None of these offers were accepted and following the substantive proceedings, Oracle applied for indemnity costs from 4 September 2010, or failing that, from 22 December 2011.

Findings

Justice Buchanan found that Oracle had made an offer of compromise under the Federal Court Rules on 3 September 2010, the offer was not accepted by Ms Richardson, and Ms Richardson obtained a judgment ($18,000) that was less favourable than the terms of the offer ($55,000).

The Court ordered that Ms Richardson pay Oracle’s costs from 4 September 2010 on an indemnity basis.

The value of public vindication

Ms Richardson argued that her rejection of the offers should not be assessed only by reference to the amounts of money involved, asserting that:

  • public vindication of her position was important to her; and
  • neither of Oracle’s offers addressed the full range of relief sought (including an admission of liability, apology from Oracle, or changes to company policies).

Justice Buchanan found that the true position was that Ms Richardson thought Oracle’s offers were inadequate in monetary terms. This could be seen from the fact that public vindication of her position or admission of liability by Oracle was not a feature of Ms Richardson’s own offer on 20 September 2010.

The relevance of legal costs

Justice Buchanan said that Ms Richardson’s legal costs were not relevant to the Court’s assessment of the reasonableness of the offers made by Oracle.

By 21 December 2011, Ms Richardson’s legal costs were almost $225,000 and it was found that this was likely to have influenced her decision to reject the offers from Oracle.

However, the Court distinguished the adequacy of an offer addressed to a claim for damages from the overall financial outcome of a case after solicitors’ bills have been paid.

Formal requirements of offer

The Federal Court Rules provide that an offer of compromise must state whether “the offer is inclusive of costs” or whether “costs are in addition to the offer”. Ms Richardson argued that Oracle’s 21 December 2011 offer did not comply with the Rules as it stated the offer was “exclusive of costs”.

Justice Buchanan rejected this argument as the terms of the offer made it sufficiently clear that any payment of costs would be in addition to the offer.

Implications for employers

  • The Federal Court Rules provide strong incentives for parties to settle proceedings.
  • An employer may be able to recover its costs, even where it is unsuccessful in defending proceedings, provided it has made a reasonable offer of settlement under the Federal Court Rules.
  • It is important for employers to make an objective assessment of the merits of any claim and, where appropriate, to make reasonable settlement offers as early as possible.