FEDERAL COURT OF AUSTRALIA

Hill v Forteng Pty Ltd [2019] FCAFC 105

ORDERS

THE COURT ORDERS THAT:

1.    The appeal against the order made on 5 October 2018 dismissing the appellant’s claim for damages for breach of his contract of employment be dismissed.

2.    The appeal against the costs orders made on 6 February 2019 be upheld, those orders be set aside, and in lieu thereof it be ordered that the appellant pay the respondents’ costs of the proceedings below on a party and party basis, to be taxed in default of agreement.

3.    The appellant pay 90% of the respondents’ costs of the appeal.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

1    The appellant, Mr Andrew Hill, was a director, shareholder and employee of the first respondent, Forteng Pty Ltd. The other three respondents are directors of Forteng, sued in their capacity as trustees of their respective family trusts. Mr Hill became a director of Forteng in July 2011 and an employee on 21 January 2013. He resigned from both of those positions on 2 October 2015.

2    In the period between early January 2013 (prior to Mr Hill becoming an employee later that month) and December 2013, the directors of Forteng, including Mr Hill, agreed on eight occasions to receiving reduced or no remuneration as employees, because of ongoing financial difficulties that the company was experiencing. Well after Mr Hill left Forteng, and in circumstances in which there was no evidence of there ever having been any discussion or even contemplation of the amount of the reduced remuneration being paid, he brought a proceeding in the original jurisdiction of this Court. He claimed that the respondents had agreed to repay him the withheld salary and corresponding superannuation totalling $154,876.63 and had failed to do so. This was said to constitute a breach of his contract of employment and oppressive conduct giving rise to an entitlement to relief under s 233(1) of the Corporations Act 2001 (Cth). Mr Hill also brought a claim disputing the expert valuation of the shares he had held in Forteng that were purchased from him when he resigned, as provided for in a shareholders deed.

3    Mr Hill’s employment contract and oppression claims failed, but his share valuation claim succeeded. That success resulted in an order that the expert re-determine the valuation, ultimately being in the sum of less than $5,000. Mr Hill was ordered to pay all of the respondents’ costs of the proceeding despite his success on the share valuation claim. In addition, Mr Hill was ordered to pay the respondents’ costs from 18 July 2018 on an indemnity basis on the ground that he had acted unreasonably and imprudently in refusing an offer by the respondents to settle the proceeding. He appeals from the primary judge’s orders dismissing his employment claim and from the order that he pay the respondents’ costs, seeking instead an order that they pay his costs below and of this appeal. Forteng relies upon a notice of contention, seeking to uphold his Honour’s decision on the employment contract claim upon alternative grounds of termination and a new contract of employment to encompass the reduced remuneration, estoppel, and mistake and set-off in relation to dividend payments, should Mr Hill’s appeal otherwise succeed.

Before the primary judge

4    Mr Hill’s employment contract claim failed because the primary judge found that there was never any agreement that the withheld salary and superannuation would be repaid by way of arrears, and instead there had been an oral variation of the employment contracts between each of the directors and Forteng, necessarily including Mr Hill, supported by consideration.

5    In finding that there was consideration to support the variation of Mr Hill’s employment contract, the primary judge applied the reasoning of Santow J in Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 at 746-749 to the effect that consideration for the variation of a contract could be found by the conferral of a “practical benefit”. Musumeci in turn discussed and in part applied Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1. As discussed in some detail below, Musumeci was cited with evident approval in the criminal assets forfeiture case of Director of Public Prosecutions for Victoria v Le [2007] HCA 52; 232 CLR 562 (DPP v Le) at [43] (per Gummow and Hayne JJ, in dissent as to the result).

6    The primary judge distinguished the decision of French J in Martech International Pty Ltd v Energy World Corp Ltd [2006] FCA 1004; 234 ALR 265 at [138]-[141] on the facts in that case. Mr Hill asserts that his Honour erred.

7    The primary judge reproduced a part of the evidence of Mr Hill in cross-examination, during which he gave evidence to the effect that he accepted a reduction in his remuneration as an employee because of the impact not being able to pay employees and creditors would have on the value of his stake in the company as a shareholder, being something that he wanted to avoid. His Honour (at [55]-[56]) accepted the following characterisation of consideration advanced in oral submissions on behalf of the respondents, constituted by both practical benefit and avoidance of practical detriment (at [55]):

(1)    In the context of the financial circumstances of the company, it was of significant value to Mr Hill and also a significant avoidance of detriment to him that he kept his employment with the company, in circumstances where the un-contradicted evidence was that the company was unable to pay its employees, its creditors, and the full director salaries and that, had the plaintiff and the other directors not agreed to take reduced salaries, the company may not have been around in a month or two months. Further, Mr Hill had the practical benefit strictly in his capacity as an employee because his employment could continue as a result of the salary reductions.

(2)    The practical benefit to Mr Hill is also apparent from his own evidence in that he obtained a benefit in terms of an improvement to his business investment. His evidence as to why he agreed to the variations in his salary meant that the business could retain employees and pay creditors, and this all had a direct impact on Mr Hill, who was a shareholder.

(3)    Further, Mr Hill, as a director, also avoided a detriment by virtue of avoiding the windup of the company and being placed in a situation, with the other directors, of the risk of insolvent trading.

(4)    Mr Hill also received consideration by way of the agreement of the other directors to agree to the same process, which was to reduce their remuneration, or stop their remuneration, thereby increasing capital in the business and increasing the value of the [sic] Mr Hill’s investment.

(5)    Mr Hill also increased his likelihood of being paid dividends in the future, including by reference to the directors’ strategy to have the company on a path whereby, in approximately 2016, the combined salary and dividends would be around $160,000.

8    The primary judge (at [57]) found that Mr Hill understood the practical benefits to the company and therefore the directors and employees of the salary reductions, noting an email by Mr Hill in which he referred to the reductions as a “sacrifice”. His Honour observed that Mr Hill had proposed even more severe reductions because “if we make sacrifices now we will be better off in the long run”. Earlier, at [46], his Honour observed that if the amounts unpaid were to be repaid, it would be a “stretch” to describe the non-payment as a “sacrifice”, and if that had been intended, it would have been raised at the time. At [47] his Honour found that it was “not possible to conjure from the uncontroversial facts a term or agreement that arrears were payable” noting that counsel for Mr Hill at the trial ultimately “quite properly did not seek to contend otherwise”. His Honour (at [60]) also rejected a submission that the variations to Mr Hill’s employment agreement were void for uncertainty. No ground of appeal directly sought to challenge those factual findings. It was faintly suggested at the appeal hearing that this was the import of appeal ground 7, taking issue with Martech being distinguished by his Honour. That suggestion must be rejected because ground 7 simply does not challenge any factual finding, either expressly or by any reasonable implication.

9    At the hearing of the appeal, Mr Hill sought leave to further amend the amended notice of appeal to include a ground to the effect that the primary judge erred to the extent that his Honour impliedly concluded at [46] that the parties intended that the salary reduction was not to be repaid, being a conclusion that was said to be contrary to the evidence that his Honour accepted at [23] and [24]. Leave was refused. The reasons for refusing leave may be shortly stated: quite apart from the substantial problem with the lack of notice, the inherent unfairness to the respondents, and the additional cost to be incurred in responding to this additional ground some time after the long-scheduled appeal hearing, which in themselves militate against a grant of leave, the proposed ground lacks any reasonable prospect of success because it does not rise higher than suggesting an alternative conclusion that his Honour could have reached, and therefore does not meet the considerable hurdle of establishing error. 

10    It follows that the appeal as to the employment contract variations must be confined to the conclusions of the primary judge as to consideration and uncertainty. Mr Hill also challenges the primary judge’s decision to award costs to the respondents, necessarily including the indemnity basis.

Grounds 1-7: asserted error in finding consideration

11    It is convenient to commence by considering the authorities referred to by the primary judge on the topic of consideration, together with certain other relevant authorities. The key legal issue advanced by Mr Hill is whether “practical benefits” as consideration for a contract variation, as applied in Musumeci, is good law in Australia. If it is good law, then the debate moves to the question of whether his Honour’s finding of consideration in this case was nevertheless in some way erroneous.

12    As noted above, Musumeci was cited with evident approval in the High Court criminal assets forfeiture case of DPP v Le. One of the issues in DPP v Le was whether a statutory test of “sufficient consideration” for the acquisition of an interest in a matrimonial home by a wife from her offender husband had been met, so as to exclude from automatic forfeiture her interest in otherwise tainted property. That in turn involved determination of whether, and if so how, the ordinary concept of consideration contributed to the meaning to be given to that statutory test. Part of that deliberation was by Gummow and Hayne JJ at [43], who were in dissent as to the result.

13    The High Court in DPP v Le, by majority (Gleeson CJ agreeing with Kirby and Crennan JJ), upheld the Court of Appeal in dismissing an appeal from the primary judge. That explicitly included approval of the Court of Appeal upholding the primary judge’s finding that “natural love and affection” could constitute “sufficient consideration”, albeit with the reservation that it might not be sufficient for a commercial contract. The Court of Appeal had found that “sufficient consideration” in the statutory test included the common law concepts of “good consideration” and “valuable consideration”: see Kirby and Crennan JJ at [71], referring to Director of Public Prosecutions (Vic) v Le [2007] VSCA 18; 15 VR 352 at [45].

14    The plurality decision of Kirby and Crennan JJ in DPP v Le noted (at [107]) that prior decisions of the High Court had recognised that consideration may have different meanings in different contexts, that it has a wider operation in conveyancing than in simple contracts, and that in conveyancing effective consideration is not required to be sufficient to support other types of contracts. After analysing the differences further, their Honours concluded (at [122]) that given that natural love and affection was sufficient consideration for conveyancing purposes, and given the mutual obligation of support owed between spouses, the criminal assets forfeiture legislation would have had to be specific in preventing exclusion from forfeiture a joint interest of an innocent spouse, which it did not do.

15    Gleeson CJ, while agreeing with Kirby and Crennan JJ, made additional comments on the topic of sufficient consideration. The Chief Justice observed (at [6]) that relating “sufficient consideration”, without any further statutory definition, to conveyancing and contract law concepts of “valuable” and “good” consideration was not easy. Valuable consideration at least excluded nominal consideration, but was not restricted to commercial transactions supported by payment in money or money’s worth. Transfers to relatives, however, could be motivated by factors that did not reflect any form of obligation. The Chief Justice concluded that the consideration was “sufficient consideration” in that case, but expressly stated that the Court of Appeal decision should not be taken to be saying that natural love and affection would always satisfy the statutory test.

16    The dissenting justices in DPP v Le, Gummow and Hayne JJ, who concluded that natural love and affection did not meet the statutory test of “sufficient consideration”, did so after surveying the character given by the general law to a conveyance expressed to be made for such consideration. Good consideration pertained to motive, which would operate to defeat a resulting trust, but would not be effective against creditors or purchasers. Valuable consideration would attract the intervention of equity. Applied to a statutory setting in which third party interests were involved, their Honours concluded that it was unlikely that the statutory term “sufficient consideration” extended to a limited species of consideration such as natural love and affection. It was in this context that their Honours (at [43]) made the following observations (footnotes inserted), relied upon by the primary judge in this case (at [48]):

When used elsewhere in the general law, the term “sufficient consideration” imports a notion of tangible benefit or advantage conferred by the promisor upon the promisee, as in the case of a forbearance to sue [Crears v Hunter (1887) 19 QBD 341; Combe v Combe [1951] 2 KB 215], a bona fide compromise of a disputed claim [Wigan v Edwards (1973) 47 ALJR 586], or the conferral of some other form of practical benefit [Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723]. In these cases, the “threshold of legal recognition” regarding the consideration turns on the existence of such a real benefit [cf Carter and Harland, Contract Law in Australia, 4th ed (2002), p 112 [323]]. However, natural love and affection imports no such benefit.

17    Gummow and Hayne JJ were therefore identifying what was required to constitute “sufficient consideration” in the general law, so as to demonstrate why their Honour’s considered natural love and affection fell short of what was required to meet that description in the general law, and therefore fell short of the statutory test expressed in the same way. Their Honour’s pithy summary is a useful statement of the general law, if not binding authority in its own right. It indicates that Musumeci has some authoritative weight in assessing the presence or absence of consideration for general law purposes. It may be observed that, unlike in DPP v Le, a finding in this appeal that there was consideration for the variation of the contract would not have the effect of depriving a third party of an interest in property. However, failing to find such consideration would result in Mr Hill being able to claw back a benefit that he had so clearly agreed to forgo on the unchallenged factual findings of the primary judge, unless estoppel applied.

18    Martech was overturned on appeal, but on a point that did not affect the aspect of French J’s reasons relevant here: Martech International Pty Ltd v Energy World Corp Ltd [2007] FCAFC 35; 248 ALR 353. Martech has been cited relatively recently as being part of a line of authority for the proposition that consideration “can be found in the mutual abandonment of existing rights, the conferment of new benefits by each party on the other, or the incurring of liability to an increased detriment”: see Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd [2018] NSWCA 213 at [232].

19    Martech via Cellarit also lends support to the notion of a practical benefit as constituting consideration for a contract variation, as applied in Musemeci. That is not surprising when further consideration is given to the reasoning of French J in Martech. A part of the decision in Martech that was not reproduced in the primary judge’s reasons was in the balance of [141], where French J observed as follows:

Vanbergen v St Edmunds Properties Ltd [1933] 2 KB 223 (Vanbergen) involved an indulgence solely for the benefit of one party to a creditor/debtor relationship. Lord Hanworth MR, after citing Foakes, quoted from Smith’s Leading Cases, and said (at 232):

… a creditor cannot bind himself by a simple agreement to accept a smaller sum in lieu of an ascertained debt of larger amount, such an agreement being nudum pactum. But if there be any benefit, or even any legal possibility of benefit to the creditor thrown in, that additional weight will turn the scale and render the consideration sufficient to support the agreement.

20    In Martech, the first part of the passage quoted from Vanbergen v St Edmunds Properties Ltd [1933] 2 KB 233 applied because the unilateral reduction in the fees charged by the employee, Mr Brand, was found by French J to be mere forbearance and thus not supported by any consideration. There was no suggestion in Martech of “any benefit, or even any legal possibility of benefit … thrown in”, in Mr Brand’s favour, to “turn the scale and render the consideration sufficient to support the agreement”.

21    Lord Hanworth MR in Vanbergen, after the passage quoted by French J in Martech reproduced above, observed that the phrase “any benefit, or even any legal possibility of benefit” had earlier been considered in the House of Lords case of Foakes v Beer (1884) 9 App Cas 605. Lord Selborne said towards the end of his speech in Foakes v Beer (at 613):

What is called “any benefit, or even any legal possibility of benefit,” in Mr. Smith's notes to Cumber v. Wane [1 Sm. L. C. 8th ed. 366], is not (as I conceive) that sort of benefit which a creditor may derive from getting payment of part of the money due to him from a debtor who might otherwise keep him at arm’s length, or possibly become insolvent, but is some independent benefit, actual or contingent, of a kind which might in law be a good and valuable consideration for any other sort of agreement not under seal.

22    The concept of “any benefit, or even any legal possibility of benefit” may be regarded as similar in nature to a “practical benefit” of the kind identified and applied in Musumeci, and “real benefit” found by Gummow and Hayne JJ to be lacking in DPP v Le. Looked at in this way, what must be found for consideration to render a contract variation binding is something more than one party to the existing contract simply forgoing an existing contractual right. This can be seen to accord with the accepted “modern” conceptualisation of consideration stated in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 at 855 as an “act or forbearance of the one party, or the promise thereof is the price for which the promise is bought”. As it was put in Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424 at 456-457, what is needed on top of the offer capable of acceptance, and the act put forward as consideration for that offer, is the existence of a quid pro quo.

23    The difference between finding, or not finding, such consideration, can turn on subtle variations in the facts. In Australian Woollen Mills, the example was given (at 457) of A saying to B “I will pay you £1,000 on your arrival in Sydney”. Without more, there is no binding contract due to the absence of a relationship between the two acts. But if A had earlier told B that it was of vital importance to him (A) that B should come to Sydney, and B objected because it might cause him a financial loss unrelated to anything to do with A, then B’s acceptance of the offer of payment might not only establish the agreement, but also the consideration for it.

24    It follows from the above analysis that, if a benefit can be found accruing to Mr Hill in return for him accepting a lower payment for the performance of substantially the same duties (assuming that to be an accurate characterisation of his ongoing role, which is disputed), then the authority for characterising that as consideration able to give the variation agreement contractual force is more substantial than his arguments suggest. The notion of something akin to practical benefit has stronger support in long-standing authority than just Musumeci, without any need to adopt or endorse the detail of Santow J’s reasons. It is, in essence, a fact-finding exercise, albeit requiring legal characterisation.

25    The reasoning in the preceding paragraph means that the real question underpinning this aspect of the appeal is not whether or not Martech was or was not correctly distinguished on the facts, nor whether the detail of the reasoning in Musemeci is good law. Rather, what matters is whether or not the primary judge’s characterisation of factors as being sufficient to amount to consideration, such that the agreements to vary remuneration were binding, was infected by any error. That is, has Mr Hill demonstrated that his Honour erred in finding that he obtained a sufficient benefit in return for accepting a lower payment; or to use the language accepted since 1884 in Foakes v Beer, was there “any benefit, or even any legal possibility of benefit” flowing to him, to amount to consideration?

26    Mr Hill contends that the primary judge erred in finding consideration because the notion of practical benefits did not apply, given that:

(1)    he agreed to perform an existing contractual duty;

(2)    he claimed a liquidated sum from Forteng, which he contends placed him in a situation analogous to Foakes v Beer; and

(3)    the practical benefits were at best hypothetical, uncertain and merely incidental to the employment contract.

27    The uncertainty aspect of the last of the above points is the basis for ground 8, which is the convenient point at which to address that topic.

28    The respondents dispute that Mr Hill had agreed to perform an existing contractual duty, pointing to differences in his duties arising from the departure of a major client. While there appears to be some force to this argument, it is in substance a trial and fact-finding point that is neither necessary nor desirable to decide by way of re-hearing on appeal. It need only be dealt with if Mr Hill’s argument as to there being a want of consideration succeeds.

29    As to the liquidated sum point, the respondents submit that, in substance, Mr Hill’s reliance on Foakes v Beer is misplaced. That is because, they assert, the factual foundation for this argument is absent. The factual position they contend for is that, at the time the contract remuneration variations were agreed to, the amount claimed by Mr Hill was not (and is not) a liquidated debt that was due and owing to him at that time, unlike the debtor/creditor situation in Foakes v Beer. Rather, his claim for damages was calculated over the period from January 2013 to October 2015, and therefore the alleged obligation on Forteng to pay that amount had not crystallised at the time those variations were agreed to, even if the amount could be calculated. The respondents’ argument should prevail. Mr Hill’s characterisation of a liquidated debt could not be correct, other than by suggesting that the fortnightly difference between the original contractual sum payable and the lesser amount paid by agreement was a known amount. However, that is not the relevant contractual concept by which an agreed amount is owing and it is agreed that it is required to be paid. Mr Hill did not have a liquidated debt that could stand in the way of otherwise binding contract variations if consideration was present.

30    On the pivotal issue of consideration, Mr Hill summarises as follows the findings of the primary judge (at [55] and [57], reproduced and summarised respectively at [7]-[8] above) on the circumstances said to constitute practical benefits amounting to consideration:

(1)    the avoidance of detriment in that “he kept his employment with the company” in circumstances where “the company may not have been around in a month or two months”;

(2)    the practical benefit being that “his employment could continue as a result of the salary reductions”;

(3)    the practical benefit “in terms of an improvement to his business investment … [as] a shareholder”;

(4)    the avoidance of a detriment “by avoiding the windup of the company … [and] the risk of insolvent trading”;

(5)    the practical benefit of “increasing capital in the business”;

(6)    the practical benefit of “increasing value of … Mr Hill’s investment”;

(7)    the practical benefit of an “increased … likelihood of being paid dividends in the future” and a “strategy” to have “combined salary and dividends [of] around $160,000”; and

(8)    the practical benefits to the company “and therefore the directors and the employees” were “understood” by Mr Hill because he stated in an email that “if we make sacrifices now we will be better off in the long run”.

31    Mr Hill submits that the above benefits found by the primary judge were:

(1)    merely future possibilities which were just as likely not to occur, citing Wolfe v Permanent Custodians Limited [2012] VSC 275 at [114], [123];

(2)    not necessarily in the nature of a “benefit”, particularly in relation to the continuation of employment at a reduced salary where there was no evidence that Mr Hill was unable to obtain other employment and certainly no evidence that his promise of performance (already owed) was worth more to Forteng than any likely remedy against Mr Hill (which did not exist and was not even alleged), citing Musumeci at 747;

(3)    hypothetical benefits flowing to and not from Forteng in the case of the alleged “increasing capital in the business”, citing Martech at [140];

(4)    hypothetical benefits that may have occurred as a consequence of acts including by non-parties unrelated to Mr Hill’s promise to accept a reduced salary, citing Pharmanet Group Limited v Primeland Pty Ltd, in the matter of Pharmanet Group Limited [2015] FCA 208 at [37];

(5)    not directly connected to the original employment contract, citing Schwartz v Hadid [2013] NSWCA 89 at [119], but rather in relation to dividends that were covered by a separate and discrete shareholder’s deed, and in relation to Mr Hill’s status as director, that was covered by the Corporations Act where a defence to insolvent trading in s 588H was likely to be available;

(6)    hypothetical post facto consequences that were not bargained for: because Forteng did not promise that its share value would increase, or that it would remain solvent, these benefits were merely incidental to the promise and do not accord with conventional notions of consideration, again citing Pharmanet at [37]; and

(7)    constituted a false and circular assumption that Mr Hill understood that he also lost his right to recover the shortfall of his money, when the primary judge found, at [57], that he “understood” that he was better off with only part of his money and should be bound by it if he thinks he will be “better off in the long run”.

32    Mr Hill therefore contends that no sufficient consideration was given and received for the variation of his employment contract. He submits that, because the primary judge’s decision was not based upon there being a termination of the old employment agreement and creation of a new agreement, which might have avoided the issue of consideration, his Honour’s decision amounts to authority for the proposition that an employer may unilaterally vary an employment contract with an employee who is also a shareholder to reduce their salary, provided the employer does so to make the business potentially better off for shareholders, without providing any guarantee that the share price will increase, or that it will remain solvent. He argues that “practical benefits” should not be applied to allow such an outcome and thereby permit a unilateral removal of contractual benefits from one party to a contract without proper consideration.

33    Forteng submits that the evidence established the following facts and circumstances:

(1)    Mr Hill and Forteng had entered into the employment contract for him to perform work in return for payment;

(2)    prior to either completing their obligations under that contract, Forteng’s directors, including Mr Hill, became concerned that the company would not be able to fulfil its obligation to pay him (and the other director employees) at the remuneration amount agreed to;

and consequently

(3)    Mr Hill, along with the other directors, agreed to accept reduced remuneration from Forteng, despite promising to complete his existing obligations, because by doing so he obtained a benefit and avoided a detriment that was capable of being viewed as worth more to him than the likely remedy that he would have had against Forteng.

34    Forteng submits that the benefits accruing to Mr Hill identified by the primary judge were not merely “possible, undefined future benefits”; nor were they only hypothetical. Rather, it was critical to Mr Hill’s agreement to receive reduced remuneration that all the directors of Forteng also agreed to reduce their remuneration and instead invest the foregone amount in the company. This benefit, being the diversion of the salary from each of Forteng’s directors, was certain, defined at each time, and immediate in its effect each time. As a result, the improvement of the financial position of Forteng, in which Mr Hill had a financial stake, increased the value of his investment, which was also certain, defined and immediate. This placed Mr Hill in a better financial situation than the alternative he was facing at the time, which was why he agreed to it, as recognised by the primary judge, especially at [57], summarised at [8] above. This should be accepted as an accurate characterisation of what occurred.

35    Forteng therefore correctly submits that Mr Hill’s submissions fail to recognise that the assessment of whether the benefit of continuing with his temporarily altered employment contract was capable of being viewed as worth more to him than any alternative that was available had to be determined at the time he agreed to each remuneration variation taking place. Had Mr Hill not agreed to these variations, he was faced with the prospect that Forteng could instead lawfully terminate his contract. Under the terms of the agreement, either party could terminate Mr Hill’s employment “for any reason” on four weeks’ notice, which translates to a payout of at most $10,000 on the original contract value of $120,000 per annum. Thus the value to Mr Hill of Forteng remaining in business, assisted by all the directors effectively diverting their salaries into Forteng, was worth more to him than this. Forteng points out that even on Mr Hill’s own evidence, he formed the view that he was better off taking reduced remuneration as the alternative was something he wanted to avoid.

36    In relation to Mr Hill’s argument that he only benefited from the contract variations in his capacity as a director and shareholder, not as an employee, Forteng points out that on his own evidence he conflated his roles and interests as an employee, director and shareholder. He referred to his roles as director and employee of Forteng as “interchangeable” and agreed that its financial status impacted on him personally as someone who had a financial stake in the company. Accordingly, it was open to the primary judge to find (at [53]) that Mr Hill “self-evidently acted qua director, member and employee in order to protect his investment as a shareholder in the company, as his own evidence made clear”.

37    Forteng’s characterisation of the benefits accruing to Mr Hill is therefore to be preferred to the version he advances as summarised above. The directors’ evident perception of the risk of the business failing was neither hypothetical nor speculative, as was the corresponding risk of insolvent trading and subsequent civil and even criminal sanctions. The directors were responding, responsibly, to an existential threat by reason of those risks as well as the interest in longer term profitability, all of which would affect them as employees, directors and shareholders. The directors apparently did not compartmentalise these different roles, and it is clear that Mr Hill did not do so. The possibility of Mr Hill’s employment being lawfully terminated on four weeks’ notice was at least on the cards, and in any event was an objective circumstance by which to recognise the value of continued employment to him.

38    It needs to be remembered that much of contract consideration, especially for executory contracts, is predictive in nature and entails the giving of promises as to future events, conduct and anticipated outcomes. Sometimes they do not come to pass; but provided what was promised is of some substance, the remedy is not to deny the existence of the contract, but enforcement of the contractual promise given. Provided the benefit gained, or the detriment avoided, will likely have some discernible value to the promisor (as to which courts do not engage in an assessment of the value) and is in the realm of a reasonable prospect rather than being illusory or so speculative as to be worthless at law, there is no requirement of certainty that the benefit promised, or detriment avoided, will ultimately be realised, as opposed to sufficient clarity as to what that benefit or detriment is.

39    Here, the bargain struck was for company money to be diverted away from directors’ remuneration as employees. This was to Mr Hill’s immediate detriment, being the consideration flowing from him to Forteng. In exchange, Forteng provided consideration by deploying those funds in an endeavour to ensure the survival, future growth and enhanced value of Forteng, as well as Mr Hill’s continued employment and remuneration well in excess of the value of the real possibility of only four weeks’ pay on lawful termination on notice.

40    Viewed in totality, the exchange of benefits was different in character and content to the unilateral circumstances in Martech in which the director, Mr Brand, merely unilaterally announced that he would temporarily accept less than the consideration to which he was entitled, even though his motivation was not dissimilar to that of Mr Hill and his fellow directors. That motivation did not form any part of any agreement between Mr Brand and the company. Mr Hill was not simply unilaterally accepting less money to do the same as he had contracted for, but rather was trading that reduction for what he perceived to be immediate and continuing benefits. The point of distinction identified by his Honour, with some degree of additional elaboration, was that in Martech, unlike this case, Mr Brand made several successful unilateral offers to accept reduced remuneration temporarily by reason of the company’s financial difficulties, rather than an agreement on both sides to do so. Moreover, in Martech it was not asserted that Mr Brand received any additional benefit in return for him reducing his remuneration, and his offer to reduce his remuneration was not conditional upon any other director doing the same. By contrast, here the contract variations were made with the unanimous agreement of all of the directors, including Mr Hill. The key issue on Mr Hill’s employment contract appeal is whether he benefitted from this new arrangement in a manner that amounted to consideration.

41    Forteng also submits that the contract, in both its original form and as varied, was executory in nature, rather than being, for example, a debt agreement or loan agreement, or the like. For that reason, a number of the authorities relied upon by Mr Hill were not sufficiently similar to be applicable. That submission should also be accepted when regard is had to the nature of the variation agreement in each case, which involved nothing more than unilateral forbearance:

(1)    in Foakes v Beer, a creditor’s unilateral agreement to accept less than she was entitled to and not sue for the entire debt was found to be without consideration;

(2)    in Wolfe, there was default on a loan agreement, and a collateral agreement to stay execution of a warrant of possession was unenforceable for want of consideration;

(3)    in Re Selectmove Ltd [1995] 1 WLR 474, revenue officials were able to enforce a tax debt in full when there was a default in the payment of an instalment for a lesser agreed overall sum;

(4)    in Amos v Citibank Ltd [1996] QCA 129, a claim of accord and satisfaction in relation to a loan to purchase a car failed for want of consideration, largely turning on a rejection of the debtor’s evidence; and

(5)    in Schwatrz v Hadid, inter alia, a collateral agreement not to enforce the repayment of a loan until one or other of a number of other business transactions were profitable failed for want of consideration.

42    By contrast, Forteng submits, the practical benefit test of consideration has been specifically held to apply to contracts for goods and services on the basis that they are executory on both sides, citing Wolfe at [118] by which Williams v Roffey was distinguished upon this basis, such that the practical benefits test of consideration applies and was properly found to be made out by the primary judge. Those submissions should also be accepted, although it is not necessarily the case that practical benefits or the like are confined to executory contracts, as opposed to such contracts, as a practical matter, possibly presenting better opportunities for the consideration to exist.

43    Finally in relation to consideration generally, and for completeness, Forteng correctly submits:

(1)    that Mr Hill’s assertion that the reservation of his right to claim arears was implied in the acceptance of the temporary reduction of his fees, as was found to have occurred in Martech at [138], was contrary to the evidence and unchallenged finding by the primary judge (see [38]-[46], culminating at [47]) that the contract variations contained no term that the amounts foregone would be back paid at a later date; and

(2)    that the benefit Mr Hill received from the contract variations did not have to be contained within the confines of his contract, citing Musumeci at 747-748.

Conclusion on consideration grounds

44    Mr Hill’s grounds of appeal as to want of consideration must fail.

Ground 8: asserted uncertainty

45    Mr Hill relies upon the observation of French J in Martech at [143] that a “reduction in fees for an unspecified but temporary period apparently to be determined at the will of one party does not import certainty of obligation.” While French J did not decide the case upon the basis of that alleged uncertainty, Mr Hill relies upon it in his appeal because the temporary reductions in salary were ad hoc, as is said to have been acknowledged by his Honour at [5] in referring to the changes in remuneration as being agreed upon from time to time, with nothing being said about the repayment of arrears.

46    Forteng submits that no error was made by the primary judge in finding that the variations agreed upon were not void for uncertainty. That is because Mr Hill relied upon what had taken place in Martech, which the primary judge (at [59]-[60]) properly distinguished on the facts as involving a unilateral variation by reduction of fees apparently to be determined at the will of one party, Mr Brand. To the extent that Mr Hill’s argument asserts uncertainty arising out of the lack of a term about repayment of the alleged arrears, he ultimately conceded that he could not assert a term (express or implied) to the effect that the amounts foregone would be paid at a later date had ever existed. It followed that Mr Hill could not assert uncertainty based on the lack of a term never contemplated by the parties.

47    Moreover, as Forteng points out, there was no uncertainty as to the amounts and timeframes that were part of the variations agreed upon, noting that in Vroon BV v Fosters Brewing Group Ltd [1994] 2 VR 32 at 67, Ormiston J accepted that:

…in commercial transactions the court should strive to give effect to the expressed arrangements and expectations of those engaged in business, notwithstanding that there are areas of uncertainty and notwithstanding that particular terms have been omitted or not fully worked out.

The variations in this case were more settled than his Honour evidently envisaged as being within the ordinary exigencies of commercial life, falling well short of being legally uncertain.

48    Mr Hill has not made good his assertion of error by the primary judge on the topic of uncertainty. That is largely, but not entirely, because Forteng’s argument should prevail. The nature of the variations was not attended by the lack of clarity or predictability that is the hallmark of contractual uncertainty. All of the directors, including Mr Hill, could not have been in any doubt as to what they were agreeing to, even if the duration of each forbearance was not fixed at the time it was agreed upon. Each variation fixed a reduced rate of remuneration until such time as it was agreed that should end or a different agreement was reached. This was in the context of a contract that was terminable on four weeks’ notice. It follows from the foregoing that Mr Hill has failed to establish any error on the part of the primary judge as to uncertainty.

Respondents’ notice of contention

49    In light of the adverse conclusions reached on all of Mr Hill’s original amended notice of appeal grounds (that is, except as to costs, which are considered below), there is no need to consider and determine the respondents’ notice of contention, which only arose in the event of success or partial success by Mr Hill.

Grounds 8A-8D: error in the award of costs to the respondents

50    Mr Hill also appeals the primary judge’s orders as to costs.

51    Following the publication of the decision, the primary judge invited the parties to file written submissions on the question of costs. His Honour determined the question of costs on the papers after receiving and reviewing the parties’ written submissions.

52    During the course of the proceeding, the respondents had made two offers to settle the proceeding, referring in each letter of offer to the principles in Calderbank v Calderbank [1976] Fam 93, Cutts v Head [1984] Ch 290, and Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; 13 VR 435. The first offer was by letter dated 18 July 2018, which was in the following terms:

As you are aware, we act for all defendants in this matter.

In an attempt to settle this matter without it proceeding further and on a purely commercial basis, we are instructed to make an offer in full and final settlement of this matter in the following terms:

1.    Forteng Pty Ltd (Forteng) pays Mr Andrew Hill (Mr Hill) a total amount of $30,000 comprised of:

a.    $7,020.00 for Mr Hill’s oppressive conduct claim in respect of the alleged manifest error 1 (as set out in the expert report of Mr Robert Ruddick (Mr  Ruddick) annexed to the affidavit of Mr Robert John Ruddick dated 5 June 2018) calculated as follows:

$14.26 (being the value of each share in Forteng as calculated by Mr Ruddick) x 1,800 (being the number of shares formerly held by Mr Hill) less $18,648.00 (being, the amount already paid to Mr Hill for the purchase of his shares by the remaining Forteng shareholders); and

b.    $22,980.00 for Mr Hill’s legal costs.

2.    Mr Hill wholly discontinues Federal Court proceeding number TAD16/2017 (Proceeding) against all defendants with no order as to costs; and

3.    the parties enter into a suitable deed of settlement containing a release in favour of all defendants in this matter with respect to the subject matter of the Proceeding.

The offer remains open for your acceptance until 5:00pm on Wednesday, 25 July 2018.

This letter is served in accordance with the principles commencing with Calderbank v Calderbank [1976] 3 All ER 333 and applied in Cutts v Head [1984] Ch 290 and since adopted in Australia – see Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435.

53    The respondents made a second offer to settle the case by letter dated 12 September 2018, which was in the following terms –

As you are aware, we act for all defendants in this matter.

In an attempt to settle this matter without it proceeding further and on a purely commercial basis, we are instructed to make an offer in full and final settlement of this matter in the following terms:

(1)    Forteng Pty Ltd (Forteng) pays Mr Andrew Hill (Mr Hill) a total amount of $40,000 inclusive of costs;

(2)    Mr Hill wholly discontinues Federal Court proceeding number TAD16/2017 (Proceeding) against all defendants with no order as to costs; and

(4)    The parties enter into a suitable deed of settlement containing a release in favour of all defendants in this matter with respect to the subject matter of the Proceeding.

The offer remains open for your acceptance until 5:00pm on Friday, 14 September 2018.

This letter is served in accordance with the principles commencing with Calderbank v Calderbank [1976] 3 All ER 333 and applied in Cutts v Head [1984] Ch 290 and since adopted in Australia – see Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435.

The primary judge’s decision on costs

54    The primary judge ordered that Mr Hill pay all of the respondents’ costs of the proceeding, and ordered that the respondents’ costs of the proceeding from 18 July 2018 (being the date of the respondents’ first Calderbank offer) be taxed on an indemnity basis. His Honour reasoned as follows.

55    First, the primary judge recognised at [5] that the awarding of costs is at the discretion of the Court, and that costs may be awarded with respect to different parts of the proceeding, or in specified proportions: Federal Court of Australia Act 1976 (Cth), s 43.

56    Second, the primary judge recognised that usually, in the exercise of that discretion, it is ordered that costs should follow the event: Plaintiff M76/2013 v Minister for Immigration, Multicultural Affairs and Citizenship (2013) 251 CLR 322 at [241] (Kiefel and Keane JJ).

57    Third, the primary judge recognised that in some cases, the “event” may be contestable, especially where separate issues have fallen in different ways: Plaintiff M76/2013 at [241].

58    Fourth, his Honour considered that the respondents were ultimately the successful party in the case. The primary judge considered that Mr Hill’s success in relation to the share valuation dispute was Mr Hill’s only success, and that the additional sum payable to him of $4,132 following the redetermination by the expert was insignificant when compared to the other amount that Mr Hill had claimed, and when considered in the context of the costs of the litigation as a whole. His Honour concluded that therefore the respondents, and not Mr Hill, were prima facie entitled to their costs.

59    Fifth, the primary judge declined to make any order separating the costs of the two issues. His Honour described the share valuation dispute as a “subsidiary issue that paled in comparison to the employment dispute”. His Honour said that Mr Hill must have known that the share valuation dispute was a minor facet of his own pleaded case. In any event, his Honour found that the issue on which the respondents failed (the share valuation dispute) was not of “sufficient significance in proportion to the whole case to warrant a special order to deprive that party of the costs of that issue”: BHP Billiton Iron Ore Pty Ltd v National Competition Council (No. 2) [2007] FCA 557 at [23].

60    Finally, the primary judge determined that the respondents should have their costs on an indemnity basis from the date of the first Calderbank letter, 18 July 2018. His Honour referred to authorities of this Court that have considered the principles applicable to the exercise of a discretion to make a special costs order when a Calderbank offer has been made: Black v Lipovac [1998] FCA 699; 217 ALR 386 at [213]-[218]; Kiefel v State of Victoria [2014] FCA 411 at [37]-[40]. His Honour concluded as follows:

In my view, the plaintiff acted unreasonably and imprudently in not accepting the first Calderbank offer (and if it matters, the second one). By failing to accept the offer and pressing on, he ran the risk that he would be unsuccessful and then face the need to accept responsibility not only for his own solicitor’s costs but also for the costs incurred by the defendants – and he chose to accept the risk that the Calderbank principles might, after the trial, operate to his detriment: cf, IFTC Broking Services Ltd v Commissioner of Taxation (2010) 268 ALR 1 at 6. Accordingly, the plaintiff should pay costs on an indemnity basis, from 18 July 2018, and on a party party basis before that date.

The parties’ submissions in relation to the primary judge’s costs decision

61    Mr Hill advanced the following grounds of appeal in relation to the costs orders (grounds 8A to 8D):

The learned trial judge erred at [14] of the Costs Decision in finding that “given the disparity between the two amounts referred to above, the time spent at trial on matters going to the two respective issues is of little consequence in this case”.

The learned trial judge erred at [15] of the Costs Decision in failing to find that the issue upon which [Mr Hill] was successful was of “sufficient significance in proportion to the whole case to warrant a special order to deprive that party of the costs of that issue”.

The learned trial judge erred at [21] of the Costs Decision in finding that [Mr Hill] “acted unreasonably and imprudently in not accepting the first Calderbank offer (and if it matters, the second one)”.

The learned trial judge erred at [24] of the Costs Decision in awarding the plaintiff/respondent costs of the proceeding from 18 July 2018 on an indemnity basis.

62    By his amended notice of appeal, Mr Hill seeks an order that, if successful on appeal, the respondents pay his costs of the proceeding at first instance, as well as his costs of the appeal.

63    Mr Hill submits that the issues before the Court at first instance were severable, and pointed to the structure of the primary judge’s reasons, which separated consideration of the issues under headings:

(1)    “the first dispute” (at [18]-[26], [34]-[61]), which concerned Mr Hill’s claim for unpaid remuneration; and

(2)    “the second dispute” (at [27]-[32], [62]-[88]), which concerned a claim arising out of a share valuation dispute.

64    Mr Hill submits that the share valuation dispute involved two separate and relatively complex identifiable errors by an expert valuer, expert reports, examination and cross-examination of two experts, references to a valuation textbook, case law and legislation, making claims under s 232 of the Corporations Act for an oppression remedy, and breach of a shareholders’ deed. He submits that the time researching, preparing, and conducting the hearing on that issue was significant when compared to the first dispute. On that basis, Mr Hill submits that the share valuation dispute was not merely a “subsidiary issue that paled in comparison to the employment dispute” or a “minor facet of his own pleaded case” as reasoned by the primary judge at [15] of the costs decision, particularly given that his Honour at [82] of the original decision had found that “the company’s expert did commit a manifest error in not having appropriate regard to the future prospects of the company”, and his Honour accepted the submission at [81] that “any substituted valuation is entirely in the realm of the unknown”.

65    The respondents submit that the primary judge’s decision on costs was correctly made, in accordance with the exercise of his Honour’s broad costs discretion and established principles. The respondents submit that Mr Hill was successful only in respect of a small component of his entire claim. The respondents rely on the primary judge’s statement in the reasons for the costs decision at [15] that it was “clear from the pleadings, the trial itself and from the primary decision that the share valuation dispute was a subsidiary issue that paled in comparison to the employment dispute”. The respondents submit that the primary judge was correct in holding that Mr Hill was, in substance, unsuccessful with respect to the claims made save for an insignificant part of his case in terms of the overall value of the claims made. The respondents also submit that the primary judge was correct to hold that Mr Hill’s rejection of their first Calderbank offer was imprudent and unreasonable in the circumstances.

Costs decision – consideration

66    Mr Hill’s appeal to this Court, including on the question of costs, is an appeal by way of re-hearing. The powers of this Court on appeal are exercisable upon the identification of some legal, factual, or discretionary error: Allesch v Maunz (2000) 203 CLR 172 at [23] (Gaudron, McHugh, Gummow and Hayne JJ). In Minister for Immigration and Border Protection v SZVFW [2018] HCA 30; 357 ALR 408 at [37]-[49], Gageler J identified two standards of appellate review for an appeal by way of re-hearing:

(1)    the standard applicable to the exercise of discretions that are entrusted to the Court where the decision-maker is allowed some latitude as to the choice of decision to be made; and

(2)    the standard that is otherwise applicable to a conclusion that demands a unique outcome.

67    The first category is exemplified by cases such as House v The King (1936) 55 CLR 499 and Norbis v Norbis (1986) 161 CLR 513, and the second category is exemplified by Warren v Coombes (1979) 142 CLR 531, which requires the Court on appeal to give effect to its own judgment if upon reviewing the trial, and whilst recognising any advantages enjoyed by the primary judge, it considers that the decision of the primary judge was wrong. Sitting alongside these categories are the separate considerations involved in appeals from decisions involving questions of practice and procedure, where there is an added restraint requiring that particular caution be exercised in appellate review: Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at 171.

68    The primary judge’s decision as to costs involved an exercise of discretion conferred by s 43(2) of the Federal Court of Australia Act 1976 (Cth). As such, for the purposes of identifying error on appeal, the decision attracts the classic statement in House v The King at 505:

If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance.

69    Within the above statement of grounds on which error may be shown in a discretionary decision is if the primary judge mistakes the facts. In identifying whether a primary judge has mistaken the facts, the principles essayed in Warren v Coombes and Fox v Percy [2003] HCA 22; 214 CLR 118 apply.

70    The primary judge treated the respondents as the successful party, notwithstanding that they were unsuccessful in the share valuation claim. His Honour determined that costs should not follow the event on that claim, as the respondents had succeeded in relation to Mr Hill’s employment dispute claim of $154,876.63, and the primary judge considered that the amount of the additional share value of $4,132 was comparatively insignificant.

71    The judge’s conclusions in this regard involved discretionary considerations that are not shown to have been in error. Specifically, it was open to the primary judge to regard the respondents as the successful party, and it was open to the primary judge in the exercise of his discretion to decline to make any apportionment of costs.

72    In relation to the primary judge’s award of costs to the respondents on an indemnity basis from the date of the first Calderbank offer, the primary judge held at [16] and [21] of the costs decision that Mr Hill had acted “unreasonably and imprudently” in not accepting either of the respondents’ two Calderbank offers. The primary facts supporting that conclusion are reviewable if they were mistaken, but the conclusion itself involves matters of judgment and impression in respect of which there might be room for reasonable differences of opinion: Hazeldene's Chicken Farm at [24]. Those value judgments directly inform the exercise of the statutory discretion. For the purposes of appellate review, a conclusion that the rejection of an offer to settle was unreasonable or imprudent is to be regarded as a discretionary decision.

73    We have set out the first Calderbank offer at [52] above. The offer had the following features. First¸ it was substantially an offer to settle the share valuation dispute. No part of that offer was attributable to the larger claim in relation to the employment dispute. In substance, it therefore invited abandonment of the claim in relation to the employment dispute.

74    Second, the offer specified an amount for Mr Hill’s legal costs, namely $22,980. The question whether it was unreasonable to reject an offer in these terms is difficult to evaluate following trial without knowing what Mr Hill’s party and party costs were at the time the offer was made. The same can be said for the respondents’ second Calderbank offer, which was for a sum of $40,000 inclusive of costs. In response to that offer, Mr Hill’s solicitors had claimed by email dated 13 September 2018 that the offer did not cover his costs, and made a counter-offer of $120,000 inclusive of costs.

75    Third, the offer referred to Calderbank, Cutts v Head, and Hazeldene's Chicken Farm. Calderbank and Cutts v Head were cases in which “without prejudice” save as to costs offers were made to settle proceedings where payment into court procedures were not available. In both cases the offers were held to be admissible on the question of costs of the proceedings for the period following the making of the offers. Neither case involved an application for indemnity, or solicitor client costs.

76    Hazeldene’s Chicken Farm concerned an application for indemnity costs by a successful respondent to an appeal on the ground that the unsuccessful appellant had rejected an offer to settle the appeal. The Victorian Court of Appeal held that the rejection of a Calderbank offer that was more favourable than a result achieved at trial, or on appeal, does not give rise to a presumption of an entitlement of the offeror to indemnity costs. Rather, the rejection may support an order for indemnity costs where the rejection of the offer was unreasonable in the circumstances. A Full Court of this Court had earlier reached much the same conclusion in Black v Lipovac at [217]-[223], where it was held that an award of indemnity costs may be made if an offer was “unreasonably or imprudently refused”.

77    The reasonableness of Mr Hill’s rejection of the offers was to be assessed in light of the circumstances that existed at the time of their rejection. The fact that by not accepting the Calderbank offers he “chose to accept the risk that the Calderbank principles might, after the trial, operate to his detriment” does not, without more, make the rejection of the offers unreasonable and imprudent ([21] of the primary judge’s costs decision).

78    In this case, the respondents’ reference to Hazeldene’s Chicken Farm in the letters of offer implicitly foreshadowed an application for indemnity costs, but that should be understood as a reference to an application on the ground that the offers were unreasonably refused. We note that the offer of compromise provisions of the rules in this Court provide as a presumption in the event that an applicant succeeds at trial, but on terms less favourable than an offer of compromise that was rejected, for the costs of the respondent from 11.00 am on the second business day after the offer was served to be taxed on an indemnity basis: Federal Court Rules 2011 (Cth), r 25.14(1)(b). If an offer of compromise had been served, then the costs consequences provided for by the Rules would follow. But no such offer was made.

79    As we have observed, the first Calderbank offer was expressed to be an offer to compromise the share valuation dispute, and sought the discontinuance of the proceeding and releases, which would have involved the abandonment of the employment dispute claim. On the assumption that there had been a material error in the valuation of the shares, it is not apparent that any amount due to Mr Hill could have been reliably identified at the time the offer was made. At [81] of the primary reasons for judgment, the primary judge referred to evidence given at trial by Mr Hill’s valuer that any substituted valuation was entirely in the realm of the unknown.

80    In order to evaluate whether Mr Hill’s rejection of either of the Calderbank offers was unreasonable and imprudent, it was necessary to consider his likely party and party costs incurred to the time the offers were made: Smallacombe v Lockyer Investment Co Pty Ltd [1993] FCA 257; 42 FCR 97 at p 101-102 (Spender J). It was also necessary to consider the merits of the employment dispute claim, which by the first offer Mr Hill was effectively required to abandon. In relation to the employment dispute claim, the primary judge regarded that as the overwhelming claim, which led his Honour to treat the respondents’ success on that claim as substantial success in the proceeding. However, his Honour did not make any finding that the pursuit of the claim relating to the employment dispute was itself unreasonable on the ground that the claim was lacking in merit.

81    We consider that the primary judge’s discretionary decision that Mr Hill’s rejection of the first Calderbank offer was unreasonable and imprudent miscarried. His Honour’s reasons do not expose any consideration of the costs position at the time the offers were made, or of the merits of the employment dispute claim, looking at that claim prospectively at the time the offers were made.

Conclusions on costs of the proceeding below

82    We shall not interfere with the primary judge’s decision to treat the respondents as having been substantially successful in the proceeding: there was no relevant error in that decision. However, we consider that the discretionary decision to order that the respondents’ costs be taxed on an indemnity basis from 18 July 2018 to be an error. The discretion as to whether an order for indemnity costs should be made now falls to be re-exercised. For our part, although we have decided to dismiss Mr Hill’s appeal in relation to the employment dispute claim, we are not persuaded that it was so lacking in merit that the rejection of an offer to give up the claim was unreasonable. To the contrary, the point was properly arguable.

83    Further, we are not able to evaluate the offers that were made without knowing what the likely costs position was at the time.

84    Finally, looking at the costs position overall, we think that an award to the respondents of their entire costs of the proceeding on a party and party basis is the appropriate outcome for all parties.

85    Accordingly, we shall set aside the orders as to costs below, and in their place order that Mr Hill pay the defendants’ costs of the proceeding on a party and party basis, to be taxed in default of agreement.

Conclusion

86    Mr Hill’s appeal in relation to the dismissal of his employment claim must fail.

87    Mr Hill’s appeal as to costs must succeed, but only to the limited extent that the basis for the costs order, which had been for costs on a party and party basis until 18 July 2018 and on an indemnity basis thereafter, should be replaced with an order that he pay the respondents’ costs below on a party and party basis.

88    Given the limited extent of Mr Hill’s success on this appeal, he should pay 90% of the respondents’ costs.

Associate:

Dated:    21 June 2019

SCHEDULE OF PARTIES