Industrial Relations Commission of New South Wales CITATION : Orange Community Accommodation Service Incorporated and Carolyn Vivienne Roddenby [2004] NSWIRComm 333 APPELLANT PARTIES : Orange Community Accommodation Service Incorporated RESPONDENT Carolyn Vivienne Roddenby FILE NUMBER: IRC2444 of 2004 CORAM: Walton J Vice-President; Sams DP; Murphy C CATCHWORDS : Appeal - application for leave to appeal and appeal - unfair dismissal - costs in unfair dismissal proceedings - whether unreasonable refusal to settle claim - failure to consider various offers made to settle the claim - errors of law and principle - leave to appeal granted - appeal raised issues for the disposal of costs applications in unfair dismissal proceedings - focus on initial offers and not the overall conduct of the parties - appellant did not unreasonably refuse to settle claim - appeal upheld - Commissioner's orders set aside - parties to pay own costs at first instance and on appeal. LEGISLATION CITED : Industrial Relations Act 1996 Legal Profession Act 1987 Bankstown City Council v Paris (1999) 93 IR 209 Four Sons Pty Ltd v Sakchai Limsiripothong (No 2) (2000) 100 IR 400 IGA Distribution Pty Ltd and Moses No 3 [2003] NSWIRComm 230 CASES CITED : Knowles v Anglican Church Property Trust (No 2) (1999) 95 IR 380 Perrot v Xcellnet Australian Limited (1998) 84 IR 255 Van Huisstede v Commissioner of Police (No 2) (2001) 106 IR 56 Weisser v Spur Group Pty Ltd [2003] NSWIRComm 79 HEARING DATES: 10/22/2004 DATE OF JUDGMENT: 11/22/2004 APPELLANT Mr S Coleman of counsel Instructed by: Ms V Leary, Curwood & Partners Solicitors LEGAL REPRESENTATIVES: RESPONDENT Mr R Moore of counsel Instructed by: Mr R Lund, Thomson Playford Lawyers JUDGMENT: - 16 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES CORAM: WALTON J, Vice President SAMS DP MURPHY C 22 November 2004 Matter No IRC04/2444 Orange Community Accommodation Service Incorporated and Carolyn Vivienne Roddenby Application by Orange Community Accommodation Service Incorporated for leave to appeal and appeal against a decision of Commissioner Cambridge given on 1.4.2004 in matter no. IRC3341 of 2002 DECISION OF THE FULL BENCH [2004] NSWIRComm 333 1 This is an application for leave to appeal and, if granted, appeal, pursuant to s188 of the Industrial Relations Act 1996 ('the Act') against a costs decision and orders of Cambridge C, given on 1 April 2004. In the Commissioner's decision the appellant, Orange Community Accommodation Service Inc, was ordered to pay the costs of the respondent, Carolyn Vivienne Roddenby, following her successful s84 application for relief from unfair dismissal pursuant to Pt 6 Ch 2 of the Act. BACKGROUND 2 In the substantive decision of Cambridge C of 24 October 2003, the respondent obtained orders for reinstatement, lost remuneration and continuity of employment. Following that decision, the respondent's solicitors filed a notice of motion and an accompanying affidavit seeking costs against the appellant on an indemnity basis. 3 In the costs decision now under appeal, the Commissioner referred to the exchanges of correspondence concerning offers and counter offers of settlement between the parties. 4 The Commissioner then referred to the decisions in Bankstown City Council v Paris (1999) 93 IR 209 and Four Sons Pty Limited v Sakchai Limsiripothong (No.2) (2000) 100 IR 400. At this juncture, we would observe that the principles established in both these decisions are applicable in the present circumstances. We reaffirm the conclusions and principles established by them. 5 The Commissioner made the following findings: 36. The application for costs on the part of the successful applicant in this unfair dismissal claim has logically involved a detailed examination of the conduct of the parties in the pursuit of settlement. The applicant has sought that the Commission find that the employer's conduct in the pursuit of settlement represented an unreasonable failure to agree to the settlement of the claim. 37. Having carefully considered the evidence of the relevant conduct of the respective parties, and having regard for authorities and relevant principles that should be applied to a costs application such as this, the Commission is compelled to conclude that the applicant's claim for costs should succeed. 38. In particular, the Commission is compelled to conclude that the employer's approach to the settlement of the claim as identified by the correspondence dated 17 September 2002, from the employer's then solicitors to the applicant's solicitors, represents a highly regrettable, and entirely unreasonable approach to settlement of the matter. 39. In addition, considering the totality of the evidence of the parties' approach to the pursuit of settlement, the Commission must conclude that the employer had unreasonably failed to agree to a settlement of the claim, both in respect of the particular conduct identified by way of the correspondence of 17 September 2002, and more generally. 40. Although the applicant had sought that costs be provided on an indemnity basis, the Commission concludes that the special circumstances that would provide for the exercise of the discretion to order costs on an indemnity basis do not exist in this instance. Therefore costs orders shall be provided on the usual, Party - Party basis. Submissions on leave to appeal 6 The appellant submitted that this appeal raised issues as to the appropriate tests to be applied and the approach to be adopted by the Commission in determining whether to award costs in unfair dismissal proceedings pursuant to s181(2)(c) of the Act and, in particular, whether a party who makes an offer of 26 weeks salary prior to the arbitration hearing can be said to have unreasonably failed to agree to the settlement of a claim where costs have allegedly been incurred but have not been agreed or assessed, and there was no evidence before the Commission as to costs. 7 It was further put that the orders of the Commissioner operated unjustly on the appellant by awarding costs in favour of the respondent in circumstances where the appellant had not unreasonably failed to agree to the settlement of the claim. 8 The respondent submitted that no issue existed in this case as would dictate or require the granting of leave by the Full Bench. There existed no issue of general application or principle beyond the position as between the present litigants that would enliven public interest considerations. Nor was there any error of principle disclosed as to the application of the established principles of relevant Full Bench decisions as would otherwise warrant appellate intervention. Submissions on the appeal 9 The appellant submitted that the appeal should be upheld on the following grounds: i. The Commissioner erred in concluding that the appellant unreasonably failed to agree to the settlement of the claim. ii. The Commissioner erred in finding or observing that an earlier refusal of an offer effectively prevented the employer from relying on its conduct following that refusal. iii. The Commissioner erred in drawing the conclusion that the appellant could not rely on offers subsequent to the 17 September 2002 letter as evidence that it had made reasonable attempts to settle the matter. iv. The Commissioner erred by taking into account an irrelevant consideration; that is, he took into account the alleged costs of the applicant without having any evidence before him as to those costs, without enquiring as to the validity of those costs, and implicitly accepting that any offer to settle, in order to be considered reasonable, should include alleged costs incurred by the applicant to date. v. The Commissioner failed to give sufficient weight to the strict limits on the power of the Commission to award costs in unfair dismissal proceedings and the intention of the legislation that costs be awarded in such proceedings in rare circumstances. 10 The respondent submitted that: i. It should be borne constantly in mind that the termination of the respondent by the appellant was for alleged misconduct and that an evidentiary onus was placed upon the appellant to prove this matter in the proceedings. It had failed to do so. ii. The nature of the allegation made against the respondent by the appellant was that the respondent had engaged in " sexual relations " with her " boyfriend Mr Brown in the Manager's office at Lawson House ". This was a most serious and distasteful allegation to be made by the appellant against the respondent and required cogent and reliable evidence to support it. iii. The failure of the appellant as found below related to a failure on the part of the appellant to satisfy the Commissioner that the termination of the respondent was both substantively and procedurally fair. The appellant could not do so. iv. The reasonableness of an offer, or a party's conduct generally as to settlement, is to be assessed not only as to the quantum of the offer as made but also the time at which the offer is made. If this was otherwise, every offer of 6 months pay on the appellant's case made on the first day of hearing ought to be found to be reasonable. This cannot be the case. The appropriateness or reasonableness of the offer as made, as to both timing and quantum, is to properly be determined having identified the strengths and weaknesses of the respective cases as sought to be argued. This identification ought to be made at the earliest opportunity. v. In a matter such as the present matter, the strength or weakness of the appellant's case ought not to alter - it having acted on the facts as found by it in first terminating the respondent's employment for misconduct. vi. If the appellant was mistaken as to the strength of its case as at the date of termination, by 10 September 2002 it was clearly on notice both from the respondent's solicitors and the Commissioner that its position was not as robust as it might first have imagined. The evidence would appear to support a finding that a realistic and reasonable assessment of the strength of the case was not made by the appellant until shortly before hearing when the offers of firstly 4 months, then 6 months were made. vii. The payment of "costs thrown away" which was volunteered to be paid by the appellant on 18 March 2003, in order to secure an adjournment to better prepare its case, cannot be relevant to the reasonableness of any offer and cannot be relied upon by the appellant. The payment was made not to settle the proceedings, but to achieve a continuation of them. viii. The correct assessment of the " reasonableness " of the offer was that " in other circumstances a reasonable offer of six months remuneration was proposed ". However, in the circumstances of this matter and given the timing of the offer, made on the first day of hearing, the position was patently not reasonable. Such a finding was open on the evidence. ix. The statement made as to costs incurred, as at 18 March 2003, is based on unchallenged evidence. 11 Both parties sought costs in the appeal. CONSIDERATION Leave to appeal 12 In Perrot v Xcellent Australian Limited (1998) 84 IR 255 at 256 the Full Bench observed that: ...leave will not be lightly or automatically granted, a proper case must be made out. 13 In Knowles v Anglican Church Property Trust (No 2) (1999) 95 IR 380, three issues of importance to the question of leave to appeal were identified by the Full Bench: a. Whether the decision appealed from was inconsistent with established law and principle. b. Whether the appellant has brought a substantially different case in the appeal. If so, this may constitute the basis for refusing leave to appeal. c. Whether the appeal raises substantial and important considerations evaluated in the light of: The nature of the issues raised in the appeal, including "whether the appeal raises substantial issues of principle or law or has widespread implications for the jurisprudence of this Commission, including whether the decision has widespread practical application". 14 We are satisfied that the issues in this appeal raise important matters for the disposal of costs applications in unfair dismissal proceedings and have general practical application for the Commission's unfair dismissal jurisdiction. We are further satisfied that the decision of the Commissioner demonstrated at least two errors which, as matters going to the proper administration of justice, require correction on appeal. We therefore grant leave to appeal. The Appeal 15 The principles for determining an application for costs in unfair dismissal proceedings were considered in Bankstown City Council v Paris and Four Sons Pty Limited v Sakchai Limsiripothong and reaffirmed in Van Huisstede v Commissioner of Police (No 2) (2001) 106 IR 56, IGA Distribution Pty Ltd and Moses No. 3 [2003] NSWIRComm 230 and Weisser v Spur Group Pty Ltd [2003] NSWIRComm 79. 16 It will be readily seen from these decisions that determination of a costs application under Pt 6 Ch 2 of the Act requires a two staged process. Firstly, the Commission is required to make a finding under the discrete provisions of s181(2)(c) of the Act. Those provisions are relevantly as follows: However, the Commission when it is not in Court Session may award costs only in the following cases: (a) … (b) … (c) the Commission may award costs against a party to proceedings under Part 6 of chapter 2 (Unfair Dismissals) who, in the opinion of the Commission, unreasonably failed to agree to a settlement of the claim or whose application was frivolous or vexatious. 17 Secondly, if a positive finding is made under this section (the jurisdictional "gateway"), the Commission may then move to the general discretionary powers to award costs. We refer, in this respect, to the provisions of s181(1) which are set out below: (1) Subject to the rules of the Commission and any other Act or law: (a) the Commission may award costs, and (b) costs are in the discretion of the Commission, and (c) the Commission may determine by whom and to what extent costs are to be paid, and (d) the Commission may order costs to be assessed on the basis set out in Division 6 of Part 11 of the Legal Profession Act 1987 or on any other basis. 18 This two stage process was explained by the Full Bench in Bankstown City Council v Paris: Construing the relevant part of s 181(2)(c) in its overall statutory context, we conclude that the evident purpose of the provision is to encourage the settlement of proceedings to which it applies. The criterion set out in the provision is to be applied objectively and requires a consideration of the whole of the conduct of the party against whom the order is sought, or some discrete part of that party's conduct, with a view to ascertaining whether it unreasonably failed to agree to a settlement of the claim. We also consider that on the proper construction of the provision, an affirmative conclusion may be reached on at least two bases. First, where there was a proposal put by a party which could be described as a reasonable settlement of the claim and that was not agreed by the other party. The second situation in which the criterion could be satisfied is where the course of conduct of the party over a relevant period could be said to amount to conduct inconsistent with an intention to settle the proceedings on any basis that could be considered reasonable. We emphasise that, although the legislature has clearly intended that there be strict limits on the power of the Commission to award costs in unfair dismissal proceedings, the legislature has also evinced a clear intention that costs orders be available in circumstances where there has been a failure on the part of a party to properly conciliate proceedings to the extent that they have failed reasonably to facilitate a potential settlement of them. Further, the Commission is obliged to consider all relevant circumstances in deciding whether such failure has occurred. Once the statutory criterion has been met, the Commission's broad powers and discretions under s 181(1) are available for exercise. 19 The Full Bench emphasised the risks which a party runs if it adopts a firm position or inflexible approach towards the settlement of the case, observing (at 220): Far from indicating any retreat from the inflexible approach adopted by the appellant, its approach in relation to settlement on this occasion, served only to emphasise the consistent position that had been adopted. We emphasise that there will be many circumstances in which parties to litigation, including unfair dismissal proceedings, may appropriately take a firm position generally, including on the question of conciliation or settlement. Nevertheless, such a position runs significant risks in terms of the exercise of the power and discretion under s 181(2)(c). This is particularly so where such a position is assumed without due regard to the policy of the Act which requires parties to take seriously their obligation to attempt to settle the proceedings. That in turn involves an obligation to consider in an objective way the strengths or limits upon the case that they will be propounding should the matter proceed to arbitration. On the material before us, we consider that the appellant failed to give appropriate consideration to such matters before it adopted its inflexible position. We consider that, in the circumstances of this matter, the criterion in the relevant provision has been made out. It has been met as to the proceedings both at first instance and on appeal. 20 In Four Sons Pty Limited v Sakchai Limsiripothong (No 2) the Full Bench considered the issue of 'nominal offers' of settlement and observed (at 403- 404): The obligations imposed on parties to proceedings under s 84 of the Act, as identified in the Full Bench judgment in Bankstown City Council v Paris , require parties to such proceedings to undertake a responsible and careful assessment of the prospects of the litigation, in the absence of which an unsuccessful party may realistically face the prospects of a costs order being made against it. In those circumstances, it may often be appropriate for a party to consider making an offer to settle, even if the offer could be seen, either with the benefit of hindsight or otherwise, to be at a rather low level. However, the making of such an offer on "the low side" does not exhaust the responsibilities of a party to reasonably attempt to settle the claim. It is conceivable that if the respondent had responded to those offers in a more timely way, the proceedings may have settled. We doubt, however, that that is the appropriate finding on the evidence before us. Rather, the evidence as to further negotiations makes plain that the appellant had no realistic intention to make an offer which was likely to settle the proceedings before McKenna C. However, it would be inappropriate not to take into account the lack of a timely response from the respondent to the nominal offers of settlement which were made by the appellant in August and September 1999. Offers of Settlement 21 In determining this appeal it is necessary to examine the various offers and counter offers made by the parties. The chronology of events was set out by the appellant as follows and not disputed by the respondent: DATE EVENT 11 Jun 2002 Applicant files application for unfair dismissal 19 August 2002 Applicant's solicitor proposes settlement: a) Reinstatement; b) Withdrawal of allegations; c) Payment of all moneys from termination date to re-instatement; d) Full support by committee in discharge of her duties as manager; e) Offer open for 22 days. 20 August 2002 Respondent's counter offer: a) payment of 4 weeks salary less appropriate tax; b) Deed of release; c) Each party to pay its own costs Committee of the view that there was a fixed 12 month contract with 3.5 weeks to run. 26 August 2002 Applicant's solicitor rejects offer. Primary position re-instatement; belief that there was a 12 month contract is incorrect. 10 September 2002 Preliminary Hearing 3 months after application; Foreshadows application under s. 181(2)(c). Offer by applicant: 1) In the realms of 6 months notice 2) Public withdrawal of allegations. Respondent's representative to obtain instructions 17 September 2002 Letter from Respondent's agent rejecting offer made at hearing. 30 October 2002 Listed. Settlement discussions (Annex P page 7): Respondent offers 2 months salary: Applicant makes counter offer: a) 6 months pay; b) all costs c) Public withdrawal of allegations; d) Apology; e) Useful reference; f) Payment of an alleged underpayment. 15 November 2002 Formal confirmation of respondent's offer of 2 months. 2 December 2002 Offer by Applicant: a) 6 months salary; b) payment of applicant's legal costs as agreed or assessed; c) public apology in form provided. 17 March 2003 Respondent offers 4 months salary. 18 March 2003 Date of Hearing; Respondent offers to settle, prior to hearing, for 6 months salary, with each party to pay its own costs. Applicant rejects offer. Counter offer by applicant of: a) 6 months salary, b) Respondent to pay applicant's costs of proceedings in excess of $50,000. Respondent seeks adjournment of hearing, to file further evidence; offers to pay costs "thrown away" of $11,500. Contested. Adjournment granted. 22 As will be seen from the above, the respondent initially sought reinstatement and a public apology from the appellant. She was eventually reinstated by the Commission. However, it is clear from the chronology of events that the respondent had entertained the possibility of settlement for a monetary amount as early as 10 September 2002. In other words, the appellant was on notice that the primary relief of reinstatement was not the only basis upon which settlement might be reached. It was unsurprising therefore, that it moved its offers upwards after this point in time (in the light of its assessment of the respective parties' cases). 23 The sequence of events was that the appellant made an initial offer to settle the matter of four weeks' salary on 20 August 2002. The applicant rejected that offer and insisted on reinstatement. At the preliminary hearing, the applicant's solicitor indicated that a compensatory settlement in the realms of six months and a public withdrawal of the allegation of misconduct would settle the matter. On 30 October 2002, the respondent offered two months' salary. The applicant responded with six months, payment of costs and a public withdrawal of the allegation and an apology. On the day before the hearing, the respondent offered four months' salary. This was rejected. On the day of the hearing the respondent offered six months' salary with each party to bear their own costs. This was also rejected by the applicant. 24 While it might be said that the final offer was made somewhat late in the proceedings, it would seem to us that the appellant's overall conduct could hardly be said to be one of intransigence or inflexibility. We would observe that offers and counter offers are commonplace in the lead up to the hearing of unfair dismissal matters. Such a process represents an unremarkable dynamic to litigation of this type. 25 The appropriateness of the position of any party will depend, in part, upon the nature of the offers advanced. Thus, an offer of monetary compensation may be wholly inadequate in circumstances where the applicant plainly insists upon the remedy of reinstatement or re-employment and the circumstances of the case indicate that such an aspiration is soundly based (having regard to the legislature giving primacy to this remedy). However, the respondent did not maintain such a position in this case and made various monetary offers of settlement. 26 We would express some concern that the conciliation of the claim (curiously described as "preliminary hearing") did not take place until three months after the application was filed. 27 There appears to be a number of reasons for the delay, including the issuance of a summons for production on 19 July 2002 by the applicant, which was contested by the respondent and a change in solicitors acting for the respondent. No doubt the listing in Bathurst also contributed to the delay. That being said, we believe that a three month delay before the first listing of an unfair dismissal claim, is unlikely to be conducive to the prospects for settling the matter. 28 We turn now to the Commissioner's decision. It is apparent that the Commissioner focused on two particular matters when he determined that the appellant had unreasonably failed to agree to a settlement of the claim. 29 Firstly, the Commissioner focused on the transcript of the conciliation proceedings on 10 September 2002 and terms of correspondence shortly thereafter from the appellant's solicitors as representing "a blunt rejection of any settlement." He said (at 24): The transcript of the conciliation proceedings of 10 September 2002, provides a record of the respective positions that were adopted at what might be considered to be the most important time relevant to any assessment of an alleged unreasonable stance on the part of one party or the other. 30 It is clear that each application as to costs under s181(2)(c) must be determined on its own facts and circumstances. In this case the Commissioner regarded "the most important time relevant" to his conclusions, as the time of the initial offer of four weeks. However, we consider that the Commissioner placed undue emphasis upon this initial transaction and that this skewed his ultimate evaluation away from an overall assessment of the respective positions of the parties. This was an error. 31 While the Commissioner's assessment of the initial transaction may have been correct for that particular exchange, it obviously did not represent the appellant's ongoing position, or its last offer of 18 March 2003. On any view of it, a 26 week offer in comparison to an initial offer of four weeks, must represent a significant shift in the appellant's position. In our view, the Commissioner's focus on the initial offer, without paying sufficient regard for the later offers made by the appellant, represented an error requiring appellate intervention. 32 Secondly, the Commissioner made an assessment of whether the six months offer of settlement was reasonable by comparison to the legal costs of the respondent in preparation for the case. The Commissioner said (at 27): 27. Subsequently the evidence revealed that the employer ultimately agreed to the settlement figure of six months remuneration. However the costs that had been incurred in respect of preparation of the matter for trial exceeded the six months remuneration figure by more then two fold. Consequently the applicant would be substantially out of pocket by accepting the employer's offer of six months remuneration which was made at a time after which the applicant had been compelled, by virtue of the correspondence from Baldock Stacey & Niven of 17 September 2002, to incur the substantial costs associated with the preparation of the matter for trial. 33 In our view, the test of whether a party has unreasonably failed to agree to a settlement of a claim should not be made by reference to the extent of costs expended by the other party. If that was so, a party could incur substantial legal expenses, and simply argue that any offer of settlement which failed to go close to meeting such expenses, demonstrated an unreasonable failure to agree to a settlement. That is not the appropriate test under s181(2)(c) of the Act. By focusing on such a comparison the Commissioner was deflected from the correct statutory instruction to determine whether a party had unreasonably failed to agree to a settlement of the claim. 34 As a result of these conclusions we consider that the appeal must be upheld. Further, we have reached the conclusion that, on the facts and circumstances of this matter, it could not be concluded that the respondent had made out a case to satisfy the jurisdictional gateway of s181(2)(c) in accordance with the principles in Bankstown City Council v Paris and Four Sons Pty Limited v Sakchai Limsiripothong. 35 We make one final observation. At the conclusion of both counsels' submissions on 22 October 2004, the Full Bench invited the parties to consider settling the proceedings. We did so, conscious it is said that the respondent has, or will be required to meet an enormous costs imposition (in excess of $150,000) in circumstances where the respondent was successful in her substantive case. We were subsequently advised that settlement could not be achieved. We are greatly troubled by the costs incurred in the proceedings below, in what was, in our view, a relatively straightforward unfair dismissal matter; albeit that it involved allegations of serious misconduct. 36 Indeed, it might be said in this case, that the introduction of costs into the equation by the applicant in the later stages of negotiations starting from 30 October 2002 (and nominated as being in excess of $50,000 at the time of the first hearing date of 18 March 2003) acted as a deterrent to settlement, especially in response to the six months compensation offered on 18 March by the appellant. 37 We do not consider that the appellant has established a basis for costs of the appeal. ORDERS 38 Pursuant to s188 of the Industrial Relations Act 1996, the Full Bench of the Commission orders that: 1. Leave to appeal is granted. 2. The appeal is upheld and the decision and orders of Cambridge C of 1 April 2004 are set aside. 3. The parties to pay their own costs in the appeal. 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