DECISION NO:640/96 INDUSTRIAL LAW - APPEAL - COSTS - Application by respondent to appeal for an order for costs following appellant's discontinuance of appeal - Whether appeal instituted "without reasonable cause" - Whether there was no substantial prospect of success of appeal - Exercise of Court's discretion regarding costs - Costs awarded. Workplace Relations Act 1996, (formerly Industrial Relations Act 1988) s 347. No. SA95/1161R IMOGEN PTY LTD v ANTHONY SANGWIN CORAM: WILCOX CJ, RYAN and MADGWICK JJ PLACE: SYDNEY DATE: 20 DECEMBER 1996 IN THE INDUSTRIAL RELATIONS COURT ) OF AUSTRALIA ) No. SA95/1161R SOUTH AUSTRALIAN DISTRICT REGISTRY) ON APPEAL AGAINST A DECISION OF A JUDGE OF THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA BETWEEN: IMOGEN PTY LTD Appellant AND: ANTHONY SANGWIN Respondent CORAM: WILCOX CJ, RYAN and MADGWICK JJ PLACE: SYDNEY DATE: 20 DECEMBER 1996 MINUTES TO ORDER THE COURT ORDERS THAT: 1. The appellant, Imogen Pty Ltd, pay to the respondent, Anthony Sangwin, the costs incurred by him in connection with its appeal to the Full Court against the decision of von Doussa J given on 8 March 1996. 2. In default of agreement between the parties, the amount of the costs be calculated by the Registrar in accordance with the scale of costs prescribed by the Rules of the Federal Court of Australia. Note: Settlement and entry of orders is dealt with in Order 36 of the Industrial Relations Court Rules. IN THE INDUSTRIAL RELATIONS COURT ) OF AUSTRALIA ) No. SA95/1161R SOUTH AUSTRALIAN DISTRICT REGISTRY) ON APPEAL AGAINST A DECISION OF A JUDGE OF THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA BETWEEN: IMOGEN PTY LTD Appellant AND: ANTHONY SANGWIN Respondent CORAM: WILCOX CJ, RYAN and MADGWICK JJ PLACE: SYDNEY DATE: 20 DECEMBER 1996 REASONS FOR JUDGMENT WILCOX CJ: The question for determination in this application is whether the Court can and should order that an appellant who discontinued an appeal on the day before its scheduled hearing pay the respondent's costs of the appeal. The trial On 18 May 1995 Anthony Sangwin, the applicant on this motion was summarily dismissed by his employer, Imogen Pty Ltd ("Imogen"), the respondent. The two directors of the respondent, Lindsay Ashcroft and Robyn Stanton, took the decision to terminate Mr Sangwin's employment on the basis that he had been guilty of serious misconduct. The misconduct was said to have occurred the previous afternoon when he was alleged to have instructed his son, Karl, to take to his car a fasteners used for upholstery work. Karl, and his brother Anthony, had been employed by Imogen as apprentice upholsters. They were laid off that day because of a downturn in business. Following their termination they took their tools, some tools owned by Mr Sangwin, and the box of fasteners to the car. It was common ground that the fasteners were owned by Imogen, not Mr Sangwin. The question litigated before von Doussa J, in a review of a Judicial Registrar's exercise of power in an unlawful termination claim brought under Division 3 of Part VIA of the Industrial Relations Act 1988 (now the Workplace Relations Act 1996)("the Act"), was whether the fasteners were taken to the car inadvertently or as a result of an instruction by Mr Sangwin. Mr Sangwin conceded that he knew the fasteners belonged to Imogen and that any such instruction would have involved a serious breach of duty such as to render his summary dismissal not harsh, unjust or unreasonable. Numerous witnesses were called before von Doussa J. In his reasons for judgment, his Honour recorded that counsel for each party "attacked the credit and reliability of the witnesses for the opposing party". In doing this, they delved into several collateral issues. His Honour resolved all those issues favourably to Mr Sangwin. He also preferred the evidence of Mr Sangwin, and his two sons, to the evidence of the key Imogen witness on this issue, John Anthony Heath. Mr Heath said he had heard Mr Sangwin instruct Karl to take the fasteners to the car. It is apparent from his Honour's reasons that, in weighing this evidence, he was substantially influenced by his assessment of Mr Sangwin and his two sons, as compared to Mr Heath. In the result, von Doussa J found "the applicant [Mr Sangwin] was not a party to the alleged attempt to steal, and that Mr Heath was mistaken in his interpretation of the events which happened". His Honour also held that, by reason of Imogen's inadequate investigation of Mr Heath's report, its belief as to Mr Sangwin's guilt was incapable of constituting a valid reason for terminating Mr Sangwin's employment. The primary judge commented that, in any event, in all the circumstances "dismissal ... was disproportional to the gravity of the conduct alleged". Whilst acknowledging that Mr Sangwin occupied a position of trust, his Honour pointed to several features of the evidence that meant, in his opinion, the "dismissal was an overreaction". He said: "In all the circumstances the removal of the box of fasteners, assuming for the moment that the applicant had told his son to put them in the car, was not the kind of misappropriation that necessarily indicated that the employee lacked the qualities of honesty and trustworthiness that should be possessed by a person holding the position occupied by the applicant. It was not the kind of misappropriation which indicated a significant risk that the applicant might act to the detriment of the employer in the future. I am left with the feeling that the real reasons for the dismissal lay elsewhere, and that the allegation of attempted theft provided a convenient vehicle through which to achieve the end of dismissal, but whatever those reasons were they did not emerge from the evidence." In the result, his Honour held, there was no valid reason for the termination; hence s 170DE(1) of the Act was contravened. von Doussa J also upheld a claim that Imogen breached s 170DC of the Act. Mr Ashcroft and Ms Stanton took the decision to terminate Mr Sangwin's employment before even apprising him of the allegation made against him, much less giving him an opportunity to rebut it. At the hearing before von Doussa J, it was common ground between the parties that reinstatement was impracticable. Accordingly, his Honour considered a claim for compensation under s 170EE(2) of the Act. He awarded the maximum amount permissible under s 170EE(3), $16,900. The appeal von Doussa J delivered judgment on 8 March 1996. On 29 March 1996 Imogen filed a Notice of Appeal against the whole judgment. The notice stated the following grounds of appeal: "2. The Court erred in law in failing to find that the applicant [Imogen] had a valid reason within the meaning of s. 170DE(1) of the Industrial Relations Act 1988 for the respondent's [Mr Sangwin's] dismissal because: 2.1 There was no reasonable basis upon which the Court could find that the respondent [Mr Sangwin] was not a party to the alleged attempt to steal the applicant's [Imogen's] fasteners; and/or 2.2 The Court took into account irrelevant considerations in finding that Mr Heath was mistaken in his evidence that the respondent [Mr Sangwin] instructed his son Karl to take the applicant's [Imogen's] fasteners; and/or 2.3 The Court failed to take into account relevant considerations in finding that the respondent [Mr Sangwin] did not instruct his son Karl to take the applicant's [Imogen's] fasteners; and/or 2.4 The Court took into account irrelevant considerations and/or failed to take into account relevant considerations in finding that the applicant [Imogen] did not have an honest belief held on reasonable grounds that the respondent [Mr Sangwin] was guilty of the misconduct alleged against him. 3. In the alternative, the Court erred in law in awarding the respondent [Mr Sangwin] compensation of $16,900.00 because: 3.1 There was no reasonable basis upon which the Court could find that the maximum amount of compensation was an appropriate remedy." The Notice of Appeal sought an order for dismissal of Mr Sangwin's application under s 170EA of the Act or, alternatively, a lesser assessment of compensation. The appeal was listed for hearing before a Full Court on Tuesday, 3 September 1996. Notwithstanding the requirements of para D1 of the Court's Practice Note concerning proceedings before a Full Court, Imogen failed to file an Outline of Submissions. Instead, on Monday, 2 September 1996, the day before the projected hearing, it filed a Notice of Discontinuance of the appeal. The application for costs The effect of the Notice of Discontinuance was that the appeal was discontinued: see Order 22 rule 2 of the Court's Rules. There was no need for the Court to consider the matters raised by the Notice of Appeal. However, it was open to Mr Sangwin, as the respondent to the appeal, to apply for costs. This is because of the terms of rule 3 of Order 22: "3(1) Notwithstanding the filing of a notice of discontinuance pursuant to rule 2, application may be made to the Court on motion for an order for payment of costs. 3(2) The Court may determine the application and, subject to section 347 of the Act, make such order as it considers appropriate." The qualification in sub-rule (2) is important. Section 347 of the Act imposes a significant limitation on the Court's power to award costs. Section 347 reads: "347(1) A party to a proceeding (including an appeal) in a matter arising under this Act shall not be ordered to pay costs incurred by any other party to the proceeding unless the first-mentioned party instituted the proceeding vexatiously or without reasonable cause. (2) In subsection (1); 'costs' includes all legal and professional costs and disbursements and expenses of witnesses." On 6 September 1996 Mr Sangwin filed a Notice of Motion seeking the following relief: "1. That the respondent pay the applicant's costs of appeal in Action No SA96/1161RR. 2. That the sum of $16,900.00 paid into Court on 2nd July 1996 pursuant to the order of von Doussa J made on 28th June 1996 and such of the interest which has accrued thereon be paid out of Court to the applicant's solicitors in full or partial satisfaction of the judgment of His Honour Justice Von Doussa J made on 8th March 1996 in Action No SA95/1151IR. 3. Such further or other order that this Honourable Court deems fit." The Notice of Motion was supported by an affidavit of Mr Sangwin's solicitor, Frank Reginald Condon, setting out the history of the proceeding and a copy of the Outline of Submissions prepared on behalf of his client for use at the hearing of the appeal. The motion came before von Doussa J on 17 September 1996. He dealt with para 2 of the Notice of Motion. But he thought the application for costs ought to be determined by the Full Court that had been constituted to hear the appeal. Accordingly, he made directions to enable this to be done by reference to written submissions and without the need for oral argument. Pursuant to those directions, each party has filed written submissions. The submissions on power The respondent submits there is no substantial difference in meaning between "vexatious" and "without reasonable cause", as those terms are used in s 347 of the Act. I doubt that this is correct; if the two expressions were intended to mean the same thing, there would have been no need for Parliament to use both of them. If there is a difference in meaning, "without reasonable cause" is the lower standard. Accordingly, as I said in Kanan v Australian Postal and Telecommunications Union (1992) 43 IR 257, "for the qualification of s 347 to operate, it is sufficient that the proceeding be instituted `without reasonable cause'". The word "proceeding" in s 347 includes an appeal; therefore the first question in the present case is whether Imogen's appeal was instituted without reasonable cause. In Kanan I collected the authorities on the meaning of the phrase "without reasonable cause". At 264-265 I proposed a test: "It seems to me that one way of testing whether a proceeding is instituted `without reasonable cause' is to ask whether, upon the facts apparent to the applicant at the time of instituting the proceeding, there was no substantial prospect of success. If success depends upon the resolution in the applicant's favour of one or more arguable points of law, it is inappropriate to stigmatise the proceeding as being `without reasonable cause'. But where, on the applicant's own version of the facts, it is clear that the proceeding must fail, it may properly be said that the proceeding lacks a reasonable cause." Only minor modifications of that test are necessary to cover the situation of an appeal. The question would be whether, having regard to the arguments available to the appellant at the time of instituting the appeal, there was no substantial prospect of success. The prospect must be evaluated in the light of the facts of the case, the judgmemt appealed from and the points taken in the notice of appeal. If, having regard to those matters, there was a not insubstantial prospect of the appeal achieving some success, albeit not necessarily complete success, then it seems to me it cannot fairly be described as having been instituted "without reasonable cause". This is so even if, in the result, the appeal proved unsuccessful. The submission filed by Mr Condon on behalf of Mr Sangwin argues there was no substantial prospect of the appeal succeeding, even in part. Three points are made. First, the central factual issue in the case was whether Mr Sangwin instructed Karl to take the box of fasteners to the car. The trial judge's findings on this issue depended almost entirely upon his assessment of the reliability of Mr Heath, on the one hand, and Mr Sangwin and his two sons on the other. Mr Condon submits that the approach that would have had to be taken to this issue on the appeal, had it proceeded, is that outlined by the High Court of Australia in Abalos v Australian Postal Commission (1990) 171 CLR 167 and Devries v Australian National Railways Commission (1993) 177 CLR 472. In Abalos at 178 McHugh J (with whom all the other members of the Court agreed) quoted and applied the classic statement of Lord Sumner in SS Hontestroom v SS Sagaporack [1927] AC 37 at 47: "not to have seen the witnesses puts appellate judges in a permanent position of disadvantage as against the trial judge, and, unless it can be shown that he has failed to use or has palpably misused his advantage, the higher Court ought not to take the responsibility of reversing conclusions so arrived at, merely on the result of their own comparisons and criticisms of the witnesses and of their own view of the probabilities of the case. The course of the trial and the whole substance of the judgment must be looked at, and the matter does not depend on the question whether a witness has been cross-examined to credit or has been pronounced by the judge in terms to be unworthy of it. If his estimate of the man forms any substantial part of his reasons for his judgment the trial judge's conclusions of fact should, as I understand the decisions, be let alone." In Devries at 479, Brennan, Gaudron and McHugh JJ said: "More than once in recent years, this Court has pointed out that a finding of fact by a trial judge, based on the credibility of a witness, is not to be set aside because an appellate court thinks that the probabilities of the case are against - even strongly against - that finding of fact. If the trial judge's finding depends to any substantial degree on the credibility of the witness, the finding must stand unless it can be shown that the trial judge `has failed to use or has palpably misused his advantage' or has acted on evidence which was 'inconsistent with facts incontrovertibly established by the evidence' or which was 'glaringly improbable'." The second point put by Mr Condon is that, in von Doussa J's opinion, even if Mr Sangwin had been guilty of the alleged misconduct, the penalty of dismissal was disproportionate to the gravity of the conduct. He says: "On even the most liberal reading of the grounds of the appeal there is no challenge by the appellant to (this) finding ... On that basis alone the appeal must fail." Finally, Mr Condon notes that the notice of appeal does not challenge the trial judge's finding that the wages lost by Mr Sangwin up to the time of trial exceeded the maximum sum specified by s 170EE(3). The language of that subsection, he says: "compels the conclusion that in these circumstances the appropriate award of compensation is the prescribed maximum unless some special reason exists to depart from this approach." In response to this, Mr A Smetana, the solicitor for Imogen, submits that since the appeal has not actually been heard the Court should determine the present application by reference to the affidavit evidence. He agrees with Mr Condon that the predominant issue in the appeal would have been whether Imogen had a valid reason to dismiss Mr Sangwin. But he says this question would have had to be determined by the Full Court in accordance with the principles stated by Gibbs ACJ and Jacobs and Murphy JJ in Warren v Coombs (1979) 142 CLR 531 at 551: "... in general an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge. In deciding what is the proper inference to be drawn, the appellate court will give respect and weight to the conclusion of the trial judge, but, once having reached its own conclusion, will not shrink from giving effect to it." Mr Smetana then sets out four arguments that, he says, would have been open to his client. Re-arranging them into a more logical order, they are: (i) von Doussa J's finding that Mr Sangwin was not a party to the alleged attempt to steal was based on facts that were inconsistent with undisputed facts or patently unlikely in the circumstances; (ii) in finding that the removal of the fasteners was consistent with Mr Heath mishearing the conversation between Mr Sangwin and Karl, von Doussa J misapprehended the facts; (iii) in any event, even if Mr Sangwin was not a party to an attempt to steal, on the facts that were either undisputed or found by von Doussa J, Imogen had a valid reason for the termination within the meaning of s 170DE(1): "In particular, it was open for the Respondent to argue that it had a honest belief albeit mistaken, held on reasonable grounds, that the Applicant was guilty of the misconduct alleged against him. It was open to the Full Court to draw its own inferences of facts on this matter contrary to von Doussa J's conclusions. That is, that the Respondent investigated the allegations as fully as the circumstances permitted that the Applicant was informed precisely of the allegation and the Applicant was given a fair and full opportunity to respond. If the Full Court made such inferences then it could find that the Respondent had a valid reason." (Original emphasis) (iv) it was open to the Full Court to take a different view to von Doussa J on the question whether dismissal was a disproportionate penalty. Conclusions on power It will be noted that Mr Smetana does not suggest there was an argument available to his client in respect of the amount of compensation assessed by von Doussa J. I think this is realistic. Having regard to his Honour's findings about actual wage losses, and the absence of any suggestion that Mr Sangwin had failed to mitigate his loss, it is inconceivable that the Full Court would have interfered with von Doussa J's exercise of discretion in regard to the proper amount of compensation. Returning to the four points noted above, the first two are untenable. The written submission elaborates them to some extent, but they boil down to the proposition that von Doussa J should have preferred the evidence of Mr Heath to that of Mr Sangwin and his sons. To accept that submission, would be to fly in the face of Abalos and Devries. The resolution of the conflict in evidence depended substantially upon his Honour's assessment of the witnesses. These points do not fall within the principle enunciated in Warren v Coombs. That case has no application to an argument that seeks to go behind a trial judge's findings in order to advocate a particular view about disputed facts. The third proposition does fall within Warren v Coombs. It starts with the trial judge's findings and argues that, even so, there was a valid reason for dismissal because Mr Ashcroft and Ms Stanton had an "honest belief albeit mistaken, held on reasonable grounds" that Mr Sangwin had attempted to steal the fasteners. The submission raises the legal issue whether an honest, but mistaken, belief that an employee has been guilty of misconduct can furnish a valid reason for the employee's dismissal. This is an important issue about which we have not heard argument. I prefer to leave it open. Making the assumption that it can furnish a valid reason, as von Doussa J held, I would agree with his Honour's comment that: "For such a belief to constitute a valid reason the employer must establish that the allegation was investigated as fully as the circumstances permitted, that the employee was informed precisely of the allegation, and that the employee was given a fair and full opportunity to respond, that is to defend himself or herself against the allegation. Unless these steps have been taken a belief held by the employer will not have the quality which could constitute the belief a 'valid reason'". The finding of von Doussa J, based largely on undisputed facts, was that these conditions were not fulfilled. Mr Ashcroft and Ms Stanton prejudged Mr Sangwin's guilt by deciding to terminate him on the ground of misconduct before even apprising him of the allegation made against him. When they did inform him of the allegation, they did not put it with sufficient particularity. They failed to tell him precisely what he was alleged to have done. They gave him no opportunity of making a defence. Under these circumstances, it appears to me impossible to argue that their belief was held on reasonable grounds, so as to be capable of constituting a valid reason for the termination of Mr Sangwin's employment. I accept that Mr Smetana's fourth point, whether dismissal was disproportionate to the gravity of the offence, was arguable. But this issue was dealt with by von Doussa J only on the supposition that he was wrong about the earlier arguments concerning the lack of a valid reason. If he was correct about them, the issue of disproportionality does not arise. If von Doussa J'S view about the earlier arguments would have been unassailable on the appeal, as seems to me certain, it would not have assisted Imogen successfully to argue that von Doussa J was wrong about disproportionality; the appeal would still have been dismissed. I think this is a case where it may be properly be said that the appeal was instituted without reasonable cause, within the meaning of s 347(1) of the Act. It follows that this subsection does not constitute a barrier to the Court's exercising its power to order costs. As to that power, see Canceri v Taylor (1994) 1 IRCR 120. Exercise of the Court's discretion The remaining question is how the Court should exercise its discretion as to costs, the barrier of s 347 being inapplicable. I appreciate that a party who has been unsuccessful at trial may wish to have time to consider whether or not to prosecute an appeal. In order to avoid losing its right of appeal, the party may file a notice of appeal with the intention of discontinuing the appeal if, on reflection, it decides against proceeding. It is usual, in such a case, for the party who files the notice of appeal to inform the opposing party that no final decision has yet been made as to the prosecution of the appeal and to suggest that the latter defer incurring any substantial costs in connection with the appeal, pending a further intimation. If that course had been taken in this case, and a decision to discontinue made well before it was necessary for Mr Condon to prepare for the hearing of the appeal, I would have been attracted to the view that the Court ought not make an order about costs. But that course was not taken. Until very close to the projected hearing date, Mr Condon was allowed to believe that the appeal would proceed. Reasonably, he briefed counsel to appear for his client; costs were thereby incurred. The Notice of Discontinuance was filed only one day before the scheduled hearing. By that time, all the preparatory work had been done, including preparation of Mr Sangwin's Outline of Argument. Although the issues are often of great importance to the parties, the monetary amounts at stake in unlawful termination cases are usually relatively small. From the viewpoint of a dismissed employee, $16,900 is no doubt a significant sum of money. For a small company such as Imogen, it may also be a significant amount. Regrettably, however, it is a sum that may readily be consumed, or heavily eroded, by litigation. Parties to unlawful termination claims, and their legal advisers, need to be constantly aware of this point, and do whatever they can to avoid costs being unnecessarily incurred. Where they force avoidable costs on the opposing party, they must expect the Court to exercise its powers and discretions in such a way as to allow recovery of those costs. I think the Court should accede to the application for costs made in this case. I do not think it is appropriate that the Court determine the quantum of the recoverable costs. In the absence of agreement between the parties, that task should be performed by the Registrar. The items will be comparatively few, so it will not be burdensome for a bill of costs to be prepared. Order I propose that the Court order that Imogen pay to Mr Sangwin his costs of the appeal. The amount of the costs should be calculated by the Registrar in accordance with the scale of costs prescribed by the Rules of the Federal Court of Australia. I certify that this and the preceding seventeen (17) pages are a true copy of the Reasons for Judgment of Chief Justice Wilcox. Associate: Dated: 20 December 1996 APPEARANCES Solicitor for the Applicant: Condon & Co Solicitor for the Respondent: A J Smetana The application was dealt with by way of written submissions filed by the parties. IN THE INDUSTRIAL RELATIONS COURT ) OF AUSTRALIA ) No. SA 95/1161R SOUTH AUSTRALIAN DISTRICT REGISTRY ) ON APPEAL FROM A DECISION OF A JUDGE OF THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA BETWEEN: IMOGEN PTY LTD (trading as Carleton Custom Upholstery) (Appellant) AND: ANTHONY SANGWIN (Respondent) CORAM: Wilcox CJ, Ryan and Madgwick JJ PLACE: Sydney DATE: 20 December 1996 REASONS FOR JUDGMENT RYAN J: I have had the advantage of reading in draft the reasons for judgment of Wilcox CJ and am accordingly relieved of the need to rehearse the factual background of this application for costs. The existence of "reasonable cause" within the meaning of s. 347 falls to be determined at the time when the relevant proceedings were instituted. The fact that the party instituting the proceedings later discontinues them is therefore not a matter to be taken directly into account in the application of the section. However, an appeal stands in somewhat different case from proceedings at first instance in that discontinuance may bear indirectly on the discretion conferred by s. 347 by tending to confirm an impression derived from the grounds of appeal and the reasons for judgment below that the prospects of success on the appeal were slight. Not without significance to an assessment of the reasonableness of the institution of an appeal are the amount at issue and the nature of the points raised by the notice of appeal. Where, as here, the appeal is essentially against findings of fact made by the trial Judge after a two day hearing resulting in a judgment for $16,900 and raises no important or distinctive point of law or principle, the Court may more readily conclude that it was not reasonable in the circumstances to have instituted it. On a fairly fine balance of the relevant considerations and not without hesitation, I have been led to reach that conclusion in this case and agree with the Chief Justice and the orders which he has proposed. I certify that this and the preceding one (1) page are a true copy of the Reasons for Judgment of his Honour Justice Ryan. Associate: Date: 20 December 1996 IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA SOUTH AUSTRALIAN DISTRICT REGISTRY No. SA95/1161R On appeal from a single Judge of the Industrial Relations Court of Australia BETWEEN IMOGEN PTY LTD Appellant AND ANTHONY SANGWIN Respondent CORAM: WILCOX CJ, RYAN AND MADGWICK JJ PLACE: SYDNEY DATE: 20 DECEMBER 1996 REASONS FOR JUDGMENT MADGWICK J: I agree with the result proposed by Wilcox CJ and Ryan J. I agree also with the approach each takes to the case. Ryan J refers to a "fairly fine balance" of the relevant considerations. I would only prefer to say that, while there are stronger cases for the award of costs in meritless appeals, this case is strong enough. I certify that this is a true copy of the Reasons for Judgment herein of Justice Madgwick. Associate: Dated: 20 December 1996