By Harold Downes, Partner and William Ash, Senior Associate

We often hear that section 570 of the Fair Work Act 2009 (the Act) operates such that it is a waste of time to apply for costs in matters arising under the Act.

Section 570(b) gives discretion to the court to award costs against a party if it is satisfied that a party (a) engaged in an unreasonable act or omission, and (b) that that act or omission must have caused the other party to incur costs.

That test is not satisfied if a party conducts themselves inefficiently, makes a late concession or has adopted a genuine, but misguided, approach to the litigation. The Courts are cautious not to discourage parties from pursuing claims.

Calderbank offers are made to set up to put bargaining pressure on an unreasonable opponent by putting them at risk for costs. Previously that risk has been seen as low because the Court previously suggested that it is inapt to describe an offer to settle in proceedings under the Act as a Calderbank offer as it presupposes a ‘costs jurisdiction’ (see Stratton Finance Pty Ltd v Webb [2014] FCAFC 110 at [80] (‘Stratton’)). The principles are similar, it is all about an unreasonable rejection of an offer (without the express presumption with Calderbank offers, if a party is awarded something less than offered in the Calderbank at trial they are at risk for the offering party’s costs).

It is also not uncommon for plaintiff/applicants (former employees) in litigation to make threats, such as to cause reputational harm or otherwise cause damage to the defendant/respondent (the former employer). The obvious basis for the threat is to get an improved offer of settlement.

In the very recent decision of Adamczak v Alsco Pty Ltd (No.4) [2019] FCCA 7 (‘Adamczak’) the Federal Circuit Court was considering an application for costs under section 570(b) of the Act. It looked at the Calderbank offers made by Alsco and the applicant/former employee’s conduct during settlement negotiations. The former employee was legally represented at the time the offers were made (but not the hearing of the application for costs). The Court noted at [125]:

In addition, Mr Adamczak’s proposal to settle the matter included a veiled threat that he would reveal information regarding Alsco’s business operations into the public arena. What was the nature of this information was not the subject of elaboration. More significantly, what was its relationship to the cause of action pleaded by him under the FWA was entirely unspecified. In my view, at best, the letter represented an inept attempt to tickle up the offer or, at worst, an attempt at extortion.

The Adamczak decision does not reference the decision in Stratton but it did hold that:

1. ‘Calderbank letters are a legitimate tool of civil litigation and have an important public interest purpose, including in public interest areas of litigation, such as the Fair Work jurisdiction’.; and
2. that Mr Adamczak had acted unreasonably in not giving proper consideration to the Calderbank offers of settlement, evidenced though the threats used in his counter-offers.

The take away

The Adamczak decision makes settlement negotiation behaviour important and provides support for former employers to recover (some of the) costs from former employees who reject offers unreasonably, including by threatening to release unspecified information public to try and exact a higher offer of settlement. Respondent employers should refer to and rely on it when dealing with an unreasonable or threatening applicant/former employee in the settlement negotiations.