14 July 2015

The High Price of Refusing to Settle

An academic has recently been ordered to pay $900,000 in indemnity costs after she failed to convince the Federal Court that she had been subject to 53 instances of sex discrimination and sexual harassment by two fellow academic staff members at Monash University over the last two years of her five year employment at the University. Her complaints were only made after she failed in her bid for a promotion and she believed the department head had set out to sabotage her career.

The Federal Court found that while the allegations were serious and advanced with “great passion”, they were “without foundation” and many were not supported by the evidence put to the Court. There were certain allegations that even if they were supported by evidence, they would not have amounted to discrimination or harassment under section 5 of the Sex Discrimination Act 1984 (Cth). The application was dismissed with costs.

At a later hearing on 5 June 2015, Dr Chen was ordered to pay $900,000 in costs on an indemnity basis. The Court found that in May 2013, the respondents made Dr Chen an offer of compromise of $30,000. The solicitors for the respondent’s ensured that Dr Chen was aware of the implications of making such an offer, including the consequences of a failure to accept a reasonable offer, as Dr Chen was not legally represented at the time the offer was made. Dr Chen did not accept the respondent’s offer. Her reasons for rejecting the offer included that the offer did not address the “real dispute”, which, at the time, did not relate to her desire for monetary compensation. 

When deciding the reasonableness of an applicant’s failure to accept an offer of compromise, all the relevant circumstances at the time the failure occurred and the knowledge the applicant had are taken into consideration. Dr Chen’s submissions at the hearing included a continued argument about the merits of her case, including her persistence that certain claims constituted sexual harassment despite the adverse findings made by the Court in rejecting her claims. The Court took into account written advice received by Dr Chen in January 2013 from a senior lawyer at Victoria Legal Aid that much of the conduct which she complained did not constitute sexual harassment. 

The Court looked unfavourably on Dr Chen’s rejection of a generous offer before any substantial costs had been incurred and upheld the respondent’s submission that Dr Chen pay costs in a lump sum stating that the Court did not have confidence that Dr Chen would abide by any other orders as she continued to press her claims.

Lessons for Employers

  • Courts are prepared and willing to award costs in employment matters including those arising from the Fair Work Act;
  • In any employment litigation, employers should always consider making a settlement offer even in circumstances where the employee’s claim are unsubstantiated – this may avoid costly litigation, possible reputational damage and potentially lead to a quick resolution. This will need to be balanced against potentially opening the floodgates to unfounded claims made in the hope of being offered a settlement;
  • Employers should also carefully consider any offer of settlement to minimise the risk of a potential costs award against them following the hearing; and
  • Employers should, where a reasonable offer of settlement has been made in the proceedings by it, consider an application for costs following the hearing. 
Posted in Legal Advice & Consulting.
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