Industrial Relations Commission of New South Wales CITATION: Moad and A Whistle & Co Pty Ltd trading as Electrodry Carpet Cleaning [2007] NSWIRComm 1002 APPLICANT PARTIES: Michael Anthony Moad RESPONDENT A Whistle & Co (1979) Pty Limited t/as Electrodry Carpet Cleaning FILE NUMBER(S): 5482 of 2005 CORAM: Stanton C Application for costs - unfair dismissal - maximum compensation sought - no counter offer made - applicant in receipt of workers' compensation payments - alleged obdurate refusal to participate in settlement negotiations - reasonableness of claim - discretionary nature of costs - unreasonable failure to agree to settlement - risks of adopting inflexible approach to settlement - obligation upon parties to objectively assess prospects - parties entitled to test merits of claim in arbitration. CATCHWORDS: Held, no unreasonable failure to agree to claim - application dismissed - each party shall bear their own costs. LEGISLATION CITED: Industrial Relations Act 1996 Algeri and GGA Law Practice Pty Ltd t/as Galluzzo Golotta Andriano [2006] NSWIRComm 1082 Bankstown City Cuncil v Paris (1999) 93 IR 209 Bragg v NSW Department of Community Services [1999] NSWIRComm 551 CASES CITED: Copperart v Martin (1996) 68 IR 58 Four Sons Pty Limited v Sakchai Limsiripothong (No 2) (2000) 100 IR 400 Orange Community Accommodation Service Incorporated and Carolyn Vivienne Roddenby [2004] NSWIRComm 333 Luke v Handicapped Children's Centre (unreported Connor CC, IRC2586 of 1993, 4 May 1994) HEARING DATES: 23 November 2006 DATE OF JUDGMENT: 25 January 2007 APPLICANT Mr Wilkinson of counsel SOLICITOR LEGAL REPRESENTATIVES: Ms R Flick Cleaves Mallik Gibbs RESPONDENT Mr B Evans, Agent DECISION: - 11 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES CORAM : Stanton C 25 January 2007 Matter No IRC 5482 of 2005 Michael Anthony Moad and A Whistle & Co (1979) Pty Limited t/as Electrodry Carpet Cleaning Application by Michael Anthony Moad re unfair dismissal pursuant to section 84 of the Industrial Relations Act 1996. DECISION ON COSTS [2007] NSWIRComm 1002 1 This application seeks solicitor's costs of $9849.69, counsel costs of $4422.00 plus counsel's costs thrown away on 27 October 2006 amounting to $800.00. At issue is whether the applicant has a right to costs. 2 In the substantive proceedings, compensation of $3750 was ordered following a finding that the applicant's dismissal was procedurally unfair and in all the circumstances of the case harsh, unreasonable and unjust. The applicant had been in receipt of workers' compensation payments for a stress related illness since on or about the date of his termination. He had been previously employed in part and full time capacities over some two and a half years. 3 At the initial conciliation, the applicant was represented by Mr Wilkinson of counsel, instructed by Ms R Flick of Cleaves Mallik Gibbs, and sought a settlement of 26 weeks' pay. The respondent did not make a counter offer of settlement and Mr Wilkinson characterised that response as an obdurate refusal to participate in any attempt at conciliation. SUBMISSIONS For the Applicant 4 It was Mr Wilkinson's submission that he relied only on s181(2)(c) of the Act to the extent that the respondent had unreasonably failed to agree to a settlement of the applicant's claim and submitted that this particular section of the Act was designed to encourage parties to settle unfair dismissal proceedings. Accordingly, costs orders were available in circumstances where a party fails to properly conciliate to the extent that they have failed to reasonably facilitate a potential settlement of the matter. 5 Section 181(2) of the Act relevantly provides: 2) 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 [emphasis added] 6 Mr Wilkinson referred to Copperart v Martin (1996) 68 IR 58 where at 65 the Full Bench considered what constitutes an unreasonable failure to agree to a settlement of a claim: One offer refused does not, in our view, amount to grounds having been established for the unreasonable failure to agree to a settlement. In our view, settlement is a dynamic question which must be pressed on the opposing party if the submission that there has been an unreasonable failure to settle is to be used to ground an application for costs. We do not consider that the making of one offer of settlement which was not pursued can, in the circumstances set out in this case, establish an 'unreasonable failure to agree to a settlement'. We consider that only when the question of settlement of the application has been adequately pursued does the assessment of the actual content of negotiations become a part of the consideration under s.252. 7 Mr Wilkinson submitted two elements were required to be met to enable a successful costs application. Firstly, there has to be "a process of attempted settlement which was adequately pursued" and secondly, "that process needs to have been rejected." He referred to Luke v Handicapped Children's Centre (IRC 2586 of 1993, 4 May 1994, unreported) where Connor CC (as he then was) said: An order for costs on the grounds of an unreasonable failure to settle the matter should be contemplated only where there is such an obdurate refusal to participate in the discussions that there has been a total frustration of the conciliation process… 8 Mr Wilkinson also referred to the decision in Bragg v NSW Department of Community Services [1999] NSWIRComm 551 where Cambridge C said: [38] If, in a case such as Copperart , where a respondent formally rejected an offer of settlement made by an applicant, there was no finding of unreasonable failure to agree to a settlement, how then could DOCS be found to have unreasonably failed to agree to a settlement when in this case there was no formal offer and rejection? [39] The extent and manner by which settlement is pursued are obviously important factors in any determination of whether a Party has unreasonably failed to agree to a settlement of the claim. As the Full Bench stated in Copperart , settlement is a dynamic question and the conduct of both Parties needs to be examined carefully in deciding whether one side or the other unreasonably failed to agree to a settlement of the claim. ... [43] A clear inflexibility demonstrating no preparedness to consider compromise despite reasonable and diligent attempts by the other side would logically establish an unreasonable failure to agree to a settlement of the claim. However, an obdurate refusal to participate would not be the only circumstances that might establish a finding of an unreasonable failure to agree to a settlement of the claim. ... [45] Any assessment of whether settlement was " adequately pursued " must be considered having regard for all conduct of the Parties, and to suggest that an absence of formal settlement offers from the applicant must equate with less than adequate pursuit of settlement is overly simplistic. There is evidence in this matter of more subtle conduct which must be relevant to any assessment of whether the applicant " adequately pursued " settlement. ... [50] I have obtained some further guidance on the consideration of conduct which satisfies the terms: "unreasonably failed to agree to a settlement of the claim" from a more recent Decision of Deputy President Sams in the matter of Barbara Sparks and Fred Hoskings Pty Ltd . The following extract from that Decision is relevant: Even if a failure to settle is established, it does not follow that costs are automatically awarded. It must be a matter of degree and weight determined in the exercise of the Commission's discretion. I am of the opinion that an unreasonable failure to agree to a settlement would usually be accompanied with a deliberate intent to frustrate a settlement. From the material before me, I cannot find any evidence of a deliberate attempt to frustrate a settlement. 9 Mr Wilkinson conceded that the authorities he cited suggest "the bar is set fairly high in this matter for such an application" for costs. However, there had been a process of attempted negotiation and the respondent's refusal to participate represented a wilful or obdurate refusal. Formal written offers of settlement were unnecessary. 10 Mr Wilkinson recalled that following the conciliation and directions hearing on 10 November 2005, he wrote the following contemporaneous note to his instructing solicitor: The parties put a broad outline of their case and the Commissioner noted that as there was a dispute relating to fact, it was unlikely that an outcome could be negotiated. I informed the Commissioner that I was keen to discuss a compromise with Mr Burchell and if that were not successful, our client wished to proceed. Mr Burchell declined to negotiate. 11 On or about 11 November 2005, Mr Wilkinson said his instructing solicitor asked Mr Evans whether his client was willing to consider settling the matter. According to Mr Wilkinson, Mr Evans replied with words to the effect that his client saw no basis for the claim and was unlikely to offer "a couple of weeks at best ... this matter will have to go to hearing." Accordingly "no further written (sic) offers were made because as the applicant understood it, the respondent made his position quite clear. There was an obdurate refusal to participate" in any attempt to conciliate an outcome. For the Respondent 12 Mr Evans, the respondent's agent, submitted that he was instructed to act for the respondent shortly after the first hearing on 10 November 2005 and at no subsequent time did the applicant's representatives put any further offer of settlement to him. Mr Evans responded to Mr Wilkinson's submission concerning his discussion with Ms Flick on or about 11 November 2005 as follows: Ms Flick said she telephoned me ... That was in response to my call ... she wasn't in the office when I phoned, she phoned me back and went through the issues and said, "we are under clear instructions to settle on 26 weeks" and my response was, "I doubt very much then whether the company will make an offer, if any, but it may amount to a couple of weeks if that" . 13 Mr Evans subsequently sought further instructions from the respondent who authorised him to make a "commercial reality" offer of up to six weeks. According to Mr Evans, when he put that offer to Ms Flick she told him the applicant had instructed her to settle "at 26 weeks only". He said he was surprised at her response and nothing further was heard from the applicant's representatives until the day of hearing. 14 Mr Evans submitted that when he spoke to Ms Flick on or about 18 October 2006 concerning the question of costs, neither party had their files present and she could not recall the offer being made. Notwithstanding, Mr Evans submitted that while in retrospect it may be desirable, there was no requirement for the parties to reduce offers to writing and in this matter, no offers were put forward by either party in writing. 15 Mr Evans denied that there had been an obdurate refusal on the part of the respondent to negotiate. Simply put, the applicant did not move from his original claim for 26 weeks' compensation either before or during the hearing. Further, Mr Burchell's participation at the first conciliation should be viewed against the backdrop that he believed that he had been threatened with physical violence and in terminating the applicant he considered that he had not acted harshly. 16 Mr Evans submitted that the applicant's representatives had erred in maintaining the original 26 weeks' claim when he was in receipt of workers' compensation payments without loss of pay and "that error of judgement on their part" should not be held against the respondent employer. Moreover, the applicant had not moved from the initial ambit claim stated in his Form 7A application. 17 Mr Evans argued the decision of the Full Bench in Bankstown City Council v Paris (1999) 93 IR 209, required both parties to consider their obligations to resolve the claim. In the current proceedings, Mr Wilkinson had attempted to put that obligation squarely upon the respondent employer. 18 Mr Evans referred to the decision of McLeay C in Algeri and GGA Law Practice Pty Ltd t/as Galluzzo Golotta Andriano [2006] NSWIRComm 1082 where the Commissioner made reference to the decision in Bankstown City Council v Paris where at 219 the Full Bench canvassed the circumstances that affirmed the discretionary nature of costs in this jurisdiction: Construing the relevant part of s181(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. 19 Mr Evans submitted that given the applicant was in receipt of workers' compensation the respondent had not acted unreasonably in rejecting a claim for 26 weeks' compensation. 20 Mr Evans asserted that the initial claim for solicitor's costs of $9849.69 and counsel costs of $4422.00 were manifestly excessive and represented an ambit claim on the grounds that when he first conferred with Ms Flick on or about 18 October 2006 concerning the quantum of costs, he was invited to make an "offer" of settlement. 21 In reply, Mr Wilkinson said that he was not privy to any discussions between Mr Evans and Ms Flick and he maintained that an offer was made to negotiate at the first conciliation, that offer was refused and there was no evidence of any explanation for that refusal. CONSIDERATION 22 The power of the Commission to award costs in unfair dismissal proceedings is rare and strictly limited by the scope of s181(2). The applicant had pressed for the maximum compensation of 26 weeks' pay. Both Mr Wilkinson and Mr Evans acknowledge that costs are discretionary and do not follow the event in matters pursuant to s84 of the Act. 23 The principles applicable to determining an application for costs pursuant to s181(2)(c) of the Act, where it is alleged there has been unreasonable failure to agree to a settlement of an unfair dismissal claim are well settled: Bankstown City Council v Paris; Four Sons Pty Limited v Sakchai Limsiripothong (No.2) (2000) 100 IR 400. 24 In Orange Community Accommodation Service Incorporated and Carolyn Vivienne Roddenby [2004] NSWIRComm 333 the Full Bench observed that the decisions in Bankstown City Council v Paris and Four Sons Pty Limited v Sakchai Limsiripothong (No.2) require a two staged process. The Commission is first required to make a finding under the discrete provisions of s181(2)(c) of the Act that a party has unreasonably failed to agree to a settlement of a claim (or whose application was frivolous or vexatious) and second, where such a positive finding is made the Commission may subsequently invoke the general discretionary powers to award costs. The Full Bench enunciated the principles behind s181(2)(c) and this two stage process in Bankstown City Council v Paris at 219: Construing the relevant part of s181(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 s181(1) are available for exercise. 25 The consequent risks associated with the adoption by a party of a rigid position or inflexible approach towards settlement were identified by the Full Bench 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 s181(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. 26 Against the backdrop of that decision it is open to the Commission to find that a party has not met the test under s181(2)(c) where it can establish that party has rejected a reasonable offer of settlement of the claim and/or where it can be determined that the conduct of a party is inconsistent with an intention to settle the claim. 27 By steadfastly maintaining his claim for 26 weeks' compensation during, and subsequent to the first conciliation, the applicant adopted a very rigid negotiating position. Accordingly, it is open to the Commission to draw a conclusion that his apparent and uncompromising adherence to that position, when viewed objectively, was unreasonable and inconsistent with the legislative intention to settle the proceedings on any basis that could be considered reasonable, as observed by the Full Bench in Bankstown City Council v Paris. 28 That Full Bench also highlighted the obligation upon the parties in s84 matters to "properly conciliate proceedings" and warned that a firm position taken on the question of conciliation or settlement "runs significant risks in terms of the exercise of the power and discretion under s181(2)(c)." In maintaining the claim for 26 weeks' compensation the applicant has paid inadequate regard to his obligations under s84 to reasonably attempt to make an offer to settle the claim. 29 In Four Sons Pty Limited v Sakchai Limsiripothong (No 2), the Full Bench also examined the obligations on parties in unfair dismissal proceedings: [11] The obligations imposed on parties to proceedings under s84 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 ... 30 Mr Wilkinson submitted that the Commission should find that the respondent's conduct during the course of this matter represented an unreasonable failure to agree to a settlement of the claim. He characterised the response to the applicant's claim as an obdurate refusal to participate in any attempt of conciliation and referred to the Full Bench decision in Copperart v Martin to ground that contention. However, that Full Bench expressed a cautionary note concerning a party's failure to agree to settlement: One offer refused does not, in our view, amount to grounds having been established for the unreasonable failure to agree to a settlement. In our view, settlement is a dynamic question which must be pressed on the opposing party if the submission that there has been an unreasonable failure to settle is to be used to ground an application for costs. We do not consider that the making of one offer of settlement which was not pursued can, in the circumstances set out in this case, establish an 'unreasonable failure to agree to a settlement' . [emphasis added] DECISION AND FINDING 31 Having carefully assessed all of the material before the Commission and the relevant principles and authorities applicable to an application for costs, I have formed the view that the application must fail. The applicant adopted an unreasonably rigid stance towards settlement from the outset and no offers below 26 weeks were forthcoming. 32 The alleged intransigence of the respondent was not tested all. There was no evidence of either party committing any offers to writing. No Calderbank letters were served to agitate settlement and potentially provide a basis for the Commission to be asked to exercise its discretion to award costs in its favour. 33 In addition to the adoption of a rigid negotiating standpoint, the applicant and his legal representatives failed to carefully assess both the strengths and the inherent weaknesses of his case. 34 Consistent with the decision of the Full Bench in Bankstown City Council v Paris, the Commission is required to consider all relevant circumstances when considering whether there has been a failure on the part of one party to properly conciliate proceedings and/or agree to a settlement. 35 The applicant has not established the necessary pre-requisite that the respondent has unreasonably failed to agree to a settlement of the claim in accordance with the provisions of s181(2)(c) of the Act. The applicant opened negotiations with a claim for 26 weeks' compensation. That claim was rejected by the respondent in conciliation. Directions for arbitration were issued. A further offer was allegedly put to the applicant's solicitor by Mr Evans shortly after he received instructions to act in this matter. No contemporaneous notes or confirmatory correspondence were produced to support the making or rejection of that offer, although Mr Evans submitted a file note or similar record of the offer made, existed in the master file at his office. 36 On the material before the Commission, there was an apparent lack of certainty in the negotiations between the parties and an evidentiary gap between versions of events. Where offers are made and the issue of costs is likely to arise, it is preferable that such offers are put in writing with an advice that the offer may be relied upon in proceedings such as these. 37 The Full Bench in Copperart v Martin concluded that the bar is set fairly high when considering whether a party's conduct constitutes an unreasonable failure to settle. Indeed, the Full Bench refused to make a costs order on the grounds that only one offer of settlement was made. 38 Mr Wilkinson contended that the respondent's refusal to respond to the applicant's claim for maximum compensation at the conciliation conference was tantamount to an unreasonable failure to settle the matter. On the contrary, all litigants are entitled to test the merits of their claim in arbitration and they should not be penalised for pursuing that course. In this particular matter, the respondent employer was entitled to test the applicant's claim for 26 weeks' compensation in arbitration, as Connor CC observed in Luke v Handicapped Children's Centre: ... an employer's refusal to [accept] the settlement of a claim, permitting his views to be subsequently tested in an arbitrated hearing, must be accepted as something that he has every right to do. 39 On the material before the Commission when viewed against the relevant principles and authorities, I find there was no obdurate refusal on the part of the respondent to participate in the conciliation process that would constitute an unreasonable failure to settle the matter. Whilst often sensible or pragmatic, there is no obligation upon either party to make an offer in favour of settling the claim. 40 The circumstances of this matter lead me to the conclusion that the applicant failed to take seriously his obligation to attempt to settle proceedings which involve an objective consideration of the relative strengths and limits of his case. The single and final offer made by the applicant at conciliation was, in the circumstances of this case, patently unreasonable and reveals no such objective assessment. 41 Accordingly, the application is dismissed. Each party shall bear their own costs. The proceedings are so concluded. J D Stanton Commissioner DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.