Industrial Relations Commission of New South Wales CITATION: Scott Herden and Tearoc Pty Ltd [2007] NSWIRComm 1051 APPLICANT PARTIES: Scott Herden RESPONDENT Tearoc Pty Ltd FILE NUMBER(S): 2699 of 2005 CORAM: Macdonald C CATCHWORDS: Unfair dismissal application - application set down for Hearing - applicant charged by police - Hearing deferred - Local Court criminal proceedings - Applicant found guilty - Applicant unsuccessfully appealed to District Court - Applicant applied to IRC to discontinue his unfair dismissal application - Respondent disagreed - Respondent's costs application - frivolous and vexatious and unreasonably failed to settle as grounds for costs application - Respondent's grounds made out - Respondent seeks indemnity costs - Commission's discretion to award costs - indemnity costs awarded on limited basis. LEGISLATION CITED: Industrial Relations Act 1996 Attorney General v Wentworth (1998) 14 NSWLR 481 Australian Workers Union, NSW Branch v Colgate Palmolive Pty Ltd (1988) 27 IR 420 Bankstown City Council v Paris (1999) 93 IR 209 Copperart Pty Ltd v Martin (1996) 68 IR 58 CASES CITED: General Steel Industries Inc v Commissiner for Railways (1964) 112 CLR 125 Mervat Wahba & Miles Fresh Food Market Trading as Brighton Fruit Farm Pty Limited (1999) NSWIRComm 329 Orange Community Accommodation Service Incorporated and Carolyn Vivienne Roddenby (2004) NSWIRComm 333 Peden v Lake Macquarie Generation Pty Limited [2004] NSWIRComm 66 Tuholi Pty Ltd v Caltex Australia Petroleum Pty Ltd (2001) 103 IR 329 HEARING DATES: Written Submissions DATE OF JUDGMENT: 5 October 2007 APPLICANT Ms E Brus Barrister LEGAL REPRESENTATIVES: RESPONDENT Mr M Selinger Solicitor, Carroll & O'Dea Lawyers DECISION: INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES CORAM: COMMISSIONER MACDONALD 5 October 2007 Matter No IRC 2699 of 2005 Scott Herden and Tearoc Pty Ltd Application by Scott Herden re unfair dismissal pursuant to section 84 of the Industrial Relations Act 1996 DECISION ON COSTS [2007] NSWIRComm 1051 1 This Decision concerns an application for costs made by an employer (Tearoc Pty Ltd) against a former employee (Scott Herden). 2 The grounds for the costs application are: (a) the unfair dismissal application was frivolous or vexatious; or (b) the Applicant unreasonable failed to settle; or (c) the unfair dismissal application was commenced without reasonable cause. BACKGROUND 3 Mr Scott Herden filed an unfair dismissal application on 26 May 2005. The unfair dismissal application was filed by Dooley & Associates, Solicitors in the Court House, Parramatta. 4 The unfair dismissal application stated that Scott Herden had been employed as a Bar Manager (working in the hospitality industry). He was engaged to work on 3 September 2004 and was summarily dismissed on 15 May 2005. The summary dismissal was effected by Michael Roche, Managing Director. The reason was alleged theft of monies from the employer. 5 The Employer's Reply to the unfair dismissal application was filed on 10 June 2005. The employer's legal representative was stated as Carrol & O'Dea, Lawyers. 6 The Employer's Reply stated that Scott Herden had been summarily dismissed for gross misconduct being theft of the employer's property to the value of approximately $18,000. Further, Scott Herden had signed a letter (drafted by the employer and provided to Herden to consider) which admitted that he had stolen money from the employer. (A copy of that letter - bearing a signature - was attached to the Employer's Reply.) Finally, Scott Herden had (allegedly) made a verbal admission, in the presence of a witness (not named), confirming theft of money by him. 7 The matter came on for Conciliation and Directions on 17 June 2005. Scott Herden was represented by an agent, Mr M Campbell. 8 Mr Campbell put on the record that Scott Herden denied theft of any monies, denied signing any letter (admitting to any theft) and denied making a verbal admission of any guilt to another person. 9 Mr M Selinger, solicitor for the employer said there was a very, very strong circumstantial case against Scott Herden for the theft of approximately $18,000 of the employer's money. Further, Mr Selinger advised that the employer had notified the police and that the fraud squad at Surry Hills Police Station was dealing with the matter. 10 Mr Selinger advised that the employer ran two bars as its business. 11 The transcript of the proceedings of 17 June shows that there was an attempt at settlement of this matter through off-record discussions. The transcript records the Commission stating that Scott Herden/Mr Campbell had but a proposition for settlement to Mr Selinger/Mr Roche, through the Commission's role as conciliator. The transcript records myself as saying, " ... the respondent (the employer) considered that proposal and if there was a counter to the applicant's (Herden) proposal I am unaware of it. " (Tr p 4) The Commission was "unaware" because the Commission had not been fully involved in the off-record discussions to settle the matter. 12 The matter was set down for a Hearing in September, 2005. Prior to that date, the parties filed their respective affidavit material. 13 On the first day of the Hearing (13 September), Ms E Brus, barrister (with Mr Campbell) appeared for Scott Herden. Mr A Britt, barrister (with Mr Selinger) appeared for the employer. By consent of the parties (and the Commission), the Hearing was deferred until two days in November 2005. During that intervening period of time, Scott Herden was to respond to a Notice to Produce served on him. 14 The Hearing set down for November 2005 did not take place then - or thereafter. The Commission received correspondence from Scott Herden's firm of solicitors, advising that he had been charged by the Police in relation to the circumstances surrounding his unfair dismissal application. 15 The Commission granted Herden's application to vacate the November Hearing dates and the matter could be relisted at any time by either party. 16 By correspondence of 24 August 2006, the Commission was advised by Dooley & Associates, Solicitors, that a guilty verdict had been reached in relation to the criminal prosecution against Scott Herden, but he had also lodged an appeal against that finding. 17 Carroll & O'Dea, Lawyers wrote to the Commission on 4 December 2006, advising that Scott Herden's appeal to the District Court was unsuccessful and the conviction upheld. Further, the Commission was advised that the employer would be seeking that the unfair dismissal application be dismissed - with costs. 18 By correspondence of 15 December, Scott Herden's firm of solicitors confirmed that the appeal to the District Court was unsuccessful. The Commission was then asked to exercise its discretion to discontinue the unfair dismissal claim without any orders as to costs. Should the Commission not grant that request, then any costs application would be defended. A submission as to a defence to costs was then set out in that correspondence. 19 The employer's representative advised the Commission by letter of 15 December 2006, that it did not consent to the discontinuance of the unfair dismissal application. 20 At the request of the parties, the Commission did not call this matter on formally for the setting of Directions for the costs application, in order to save costs. The parties duly filed written submissions on the issue of costs sought by the employer. WRITTEN SUBMISSIONS 21 The written submissions for the employer set out three grounds for the awarding of costs against the employee, Scott Herden. 22 The first ground for a costs order was that the unfair dismissal application was "frivolous or vexatious": s 181(2)(a) of the Act. The meaning of that term included that a claim was so if it was "manifestly groundless" (General Steel Industries Inc v Commissioner for Railways) (1964) 112 CLR 125 at129. The unfair dismissal claim was "manifestly groundless" because Scott Herden had stolen monies from his employer. This had been proven beyond a reasonable doubt through the Local Court Criminal proceedings. 23 More than that, the timing as to when Scott Herden was found guilty, beyond a reasonable doubt, of the said theft cannot be the determining factor as to why his unfair dismissal is "frivolous or vexatious". This is so because Scott Herden had stolen the said money and he knew that he was "in fact guilty of theft," before he lodged his unfair dismissal application. In regard to that actual knowledge of theft, Scott Herden had been confronted about the theft and had initialled a document (dated 14 May 2005) confirming the said theft. 24 The second ground for a costs order was that Scott Herden had instituted the unfair dismissal application without reasonable cause: s 181(2)(b) of the Act. This submission was intertwined with that of the submission for "frivolous or vexatious" and it seemed to the Commission that the argument for this ground was the same as for "frivolous or vexatious". (The Commission will comment later on the availability of this ground for a costs application for unfair dismissal proceedings.) 25 The third ground for a costs order was that Scott Herden had "unreasonably failed to agree to a settlement of the claim": s 181(2)(b) of the Act. The employer had made offers to settle the unfair dismissal application, despite the employer's adherence to its allegation that the employee had stolen money. The employer's offers to settle were significant compromises in light of the employee's guilt (from the beginning and as found by the Local Court) and in light of the extensive costs incurred in fully preparing for a Hearing in September. All offers to settle were rejected by the employee and accordingly, he had unreasonably failed to settle. 26 In conclusion, the employer sought an order from the Commission that the employer was entitled to all its costs for the proceedings, not simply from the date that the employee's guilt was proved beyond a reasonable doubt by the Local Court. For the Employee 27 The written submissions for the employee rejected the costs claim and sought that the file be discontinued with no order as to costs. In the alternate, any costs order must be limited to the period after 6 December 2006, the date the criminal proceedings were finalised. 28 Ms Brus, barrister for the employee, set out the reasons in the employee's written submissions for rejecting the employer's submissions on costs. 29 Ms Brus rejected the claim that the employee's unfair dismissal application was "frivolous or vexatious." This was so as the employee denied and continued to deny the theft of any money. The employee had begun his unfair dismissal application - had participated in the conciliation process - and was not interviewed by the police prior to the original scheduled Hearing dates in September 2005. Had that September Hearing gone ahead, then it is possible that the Decision of the Commission could have been in favour of the employee and that would have been prior to the determination of the criminal proceedings. 30 Further, the finding of guilt by the Local Court is not determinative of the costs issue on the ground of "frivolous or vexatious". The employee denied the theft and continued to do so. He did not know and could not know, at the time of lodging the unfair dismissal application, that he would be found guilty of theft some 16 months later. 31 The employee denied the theft and denied that he had signed a letter making an admission to such a theft. 32 Ms Brus set out the reasons for rejecting the employer's claim that the employee had "unreasonably failed to agree to a settlement." The employer had made three offers of settlement and the employee's rejection of all three was not unreasonable. 33 Thus, the first two offers were made by the employer prior to the scheduled Hearing and prior to the employee being charged by the police. His rejection of those offers was not unreasonable as he claimed he was not responsible for the theft. 34 Thus, the third offer by the employer was made in a context that could not make its rejection unreasonable. The employer made an offer to settle both the unfair and criminal proceedings (a "rolled up" offer). But this was made in the context where the employee had one separate representation for the unfair dismissal application to that of the criminal proceedings. Accordingly, Dooley & Associates (the unfair dismissal representative) responded to the employer's offer to settle on the basis that it was not possible to advise the employee on the offer to settle in relation to the unfair dismissal proceedings until the criminal proceedings were exhausted. 35 It was also rejected that the employee sought to discontinue the unfair dismissal application, once the employer sought to recover its costs. The employee could no longer continue the unfair dismissal application in light of the guilty finding in the criminal proceedings and that was why he sought to discontinue the unfair dismissal application at the time that he did. Employer's Right of Reply 36 Carrol & O'Dea, Lawyers put on a right of reply for the employer. 37 The employer reiterated that the unfair dismissal application was "frivolous or vexatious" because the employee had in fact stolen money and this had been the finding of the Local Court. More than that, the employee's theft of the money was a fact as at the date of the termination of employment. That fact made the employee's unfair dismissal application "manifestly groundless". 38 The employer reiterated that the employee had "unreasonably failed to agree to a settlement of the claim." This was so, as the employee knew at the time of those offers to settle, that he in fact stole money from his employer, and that there was a real chance that he could lose his unfair dismissal application - particularly if he was charged and found guilty by the criminal courts. (He was so found guilty). 39 In the alternate to the above, the employee knew, at the time of those offers to settle, that there was a substantial dispute to his claim; that there was a real risk that he could lose his case and, at the time of those offers to settle, the employee had access to all the evidence filed by the employer as to his guilt. In particular, the Commission could be satisfied that the employee unreasonably refused the offer of 2 November 2006 because of the knowledge of the evidence against the employee, then available to the employee. 40 The employer rejected the defence by the employee's legal representative that it could not advise the employee on the employer's third offer, because it was not engaged to run the criminal proceedings. The evidence in the criminal proceedings was available to be reviewed by the employee and his industrial relations legal representative, in order to assess the third offer from the employer. 41 The employer sought indemnity costs. CONSIDERATION 42 This Decision concerns an application for costs by the employer against the former employee. The costs application is made in the context where the unfair dismissal application did not proceed to a Hearing. The Hearing was deferred in light of the New South Wales Police formally charging the employee over his then alleged theft of monies. The matter came before a Local Court magistrate who found the theft charge proven. The employee appealed unsuccessfully to the District Court of New South Wales. 43 The employee then sought to discontinue the unfair dismissal application in light of the outcome of the criminal proceedings. The employer does not consent to the discontinuance and seeks costs against the employee on the grounds of (a) the unfair dismissal application was frivolous and vexatious; (b) the unfair dismissal application was made without reasonable cause; and (c) the employee unreasonably refused to settle his unfair dismissal application. The Applicable Statutory Law 44 There have been Full Bench decisions of the Industrial Relations Commission of New South Wales that suggest that the only costs grounds available for an unfair dismissal application, are those grounds contained in s 181(2)(c) of the Act: Orange Community Accommodation Service Incorporated and Carolyn Vivienne Roddenby (2004) NSWIRComm 333; and Peden v Lake Macquarie Refrigeration Pty Limited [2004] NSWIRComm 66 at para 14 (Wright J, President, Walton J. Vice-President, Macdonald C). ("Peden's Case"), This suggestion comes from the reference, by those two Full Bench decisions. to the available costs grounds for unfair dismissal matters. Thus, in Peden's Case the Full Bench sets out the availability of cost grounds as follows: "181 Costs (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 ................. (2) However, the Commission when it is not in Court Session may award costs only in the following cases: (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, or ..." 45 Accordingly, it would appear that the only grounds for a costs application, in respect of an unfair dismissal application (Part 6 of Chapter 2), are those grounds contained in s 181(2)(c) of the Act. The grounds set out in s 181(2)(a) and (b) would appear not to be available for a costs application arising out of an unfair dismissal application. 46 Thus the Commission will not consider employer's claim for costs on the ground that the unfair dismissal application was made "without reasonable cause" (s 181(2)(b)). In any event, this is a mute point in these proceedings as the employer did not advance a separate and distinct submission based on the facts of the case, to support a costs claim under s 181(2)(b). Ground(s) for Costs Application 47 Section 181(2)(c) sets out three grounds for a costs application: (a) one party failed to agree to a settlement; (b) the unfair dismissal application was frivolous; (c) the unfair dismissal application was vexatious. The employer relies upon all three grounds. The Commission will now consider the submissions surrounding each ground. The employer's written submissions did not distinguish between the terms, " frivolous " and " vexatious ". Accordingly, the Commission will consider those two terms concurrently. Ground of Frivolous or Vexatious 48 The Full Bench Decision in Peden's Case (pp 8 to 13 inclusive) sets out the relevant authorities on the meaning of "frivolous" and "vexatious". 49 The discussion by the Full Bench of those two terms indicates that the two terms are not interchangeable in their meanings - with one exception, where the relevant authorities show that the two terms share the common meaning of "manifestly groundless." (The employer submits in this matter that the employee's unfair dismissal application was "manifestly groundless." 50 The Full Bench in Peden's Case refers to a definition of "vexatious" in Attorney General v Wentworth (1998) 14 NSWLR 481 per Roden J. That definition has three aspects to it, one of which is that a proceeding is vexatious if the proceeding is "manifestly groundless". 51 However, the other two aspects require the element of motive to be involved. That is, they require the identification of an intention on the part of the mover to the proceedings, in order to satisfy the definition of vexatious. For example, proceedings are vexatious if instituted with the intention of annoying or embarrassing the person against whom the proceedings are brought. There was no evidence brought in the costs matter now before the Commission to assert that the employee had the element of intention in order to satisfy those aspects of the definition of vexatious. Therefore, the Commission is considering the employer's claim of " frivolous or vexatious " where those two terms mean (as per the employer's written submissions) that the unfair dismissal application was "manifestly groundless". The term, " vexatious " is not being used by the employer to include the personal element of motive (intention). 52 The employer relies upon, in its written submissions, the decision of the Local Court that the employee had been found guilty of stealing the employer's money and therefore the employee's unfair dismissal application was "manifestly groundless". 53 The Commission was not provided with a copy of that Local Court decision and could not satisfy itself as to what charge(s) were before that Court - what evidence was brought by the prosecutor - what defence was put by the employee (apart from not guilty) - and the reasoning of that Court. 54 Be that as it may, the written submissions of the two parties brought out certain information about the Local Court decision and which has a bearing on the Commission's decision in this matter as to whether the employee's unfair dismissal application was "manifestly groundless." 55 The employer's written submissions (filed 19 December 2006) states that the Local Court Magistrate was convinced beyond reasonable doubt that the employee had made an admission on 15 May 2005 that he had stolen money from the employer. Further, the employee had appealed on all issues to the District Court, but unsuccessfully. In particular, it was put that the employee denied, before the District Court, that he had signed a document admitting guilt or made an admission of guilt, and this had been rejected by the District Court. (paras 8 and 9) The employee's written submissions (filed 19 February 2007), does not take issue with the foregoing assertion that the employee had been found to have made an admission of guilt or had signed a document admitting guilt. 56 The conclusion then from the foregoing, is that there was a finding by the Local Court Magistrate (not upset on appeal) that the employee had engaged in the alleged theft that led to his summary dismissal. To put that another way, the employee had engaged in theft and he was aware of that fact prior to his lodging his unfair dismissal application. It is on that basis, that the employer submits that the employee's unfair dismissal application was " manifestly groundless ", because the employee was aware of his own guilt prior to lodging the application. 57 It is because of this undisputed finding by the Local Court Magistrate as to the employee's admission of guilt on or around 15 May 2005, that the Commission agrees with the employer's submission that the unfair dismissal application was "manifestly groundless". 58 In coming to that decision, the Commission did not merely accept the concept, that because the Local Court Magistrate made a certain finding, then this Commission was bound by that certain finding: Australian Workers Union, NSW Branch v Colgate-Palmolive Pty Ltd (1988) 27 IR 420 at 427, per Watson J. In that case (appeal proceeding), Watson J stated that " the conclusion of the magistrate does not determine the event in this appeal ." (The appeal and magistrate proceedings involved the same parties and the same subject matter. That is, there was an appeal by the union against a decision of a conciliation commissioner not to reinstate an employee dismissed for an alleged theft. The magistrate proceeding was the criminal proceeding for the alleged theft.) 59 His Honour, in the appeal case, also considered further evidence in order to determine if the decision of the conciliation commissioner should be overturned. 60 In the costs matter before this Commission member, there has been no further evidence put on that is designed to have this Commission not accept the soundness of the decisions of the two criminal court proceedings, on the admission of guilt by the employee. Accordingly, the Commission cannot find that he did not make such an admission as to his guilt. 61 The Commission has, accordingly, found that the employer has made out its case for a costs application on the grounds of "frivolous and vexatious". The Commission will now consider the other ground put by the employer for its claim of costs - before considering the other two issues for final determination of this costs application: whether the Commission should exercise its discretion to grant the costs application and (b) the employer's claim for indemnity costs. The Ground of Unreasonably Failed to Settle 62 The employer also sought costs against the employee on the alternate ground that the employee had "unreasonably failed to agree to a settlement of the claim ...": s 181(2)(c). 63 An analysis of what constituted an unreasonable failure to settle was considered by a Full Bench of this Commission in Bankstown City Council v Paris (1999) 93 IR 209. The relevant passage is found at page 219. "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 the 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 discretion under s 181(1) are available for exercise." 64 This Full Bench decision sets out authoritative guidelines on the approach to be adopted to the consideration of any alleged unreasonable failure to agree to a settlement. Those guidelines require the Commission to consider whether: (a) there was a rejection by a party of a reasonable offer to settle the claim; or (b) there was conduct by a party (over a relevant period) that is found to be inconsistent with an intention to settle the unfair dismissal claim. Further, the Commission is obliged to consider " all relevant circumstances " in deciding whether a party has unreasonably failed to settle. 65 From a reading of the transcript of proceedings of the only conciliation before myself (17 June 2005) and the filed written submissions the following chronology of offers and counter-offers is established: (a) 17.06.05 - The employee made an offer to settle during the Conciliation and Directions listing of 17 June 2005. The employer's response is unknown to the Commission. The file is programmed for a Hearing in September 2005. (b) 28.06.05 - The employee makes an offer to settle by letter of 28 June 2005. This letter was not provided to the Commission. The employer's written submissions record this offer as being $5,950 gross. (page 2) (c) 04.07.05 - The employer's letter of 4 July 2005, rejects employee's offer to settle. The employer's letter states that it will vigorously defend the unfair dismissal claim. Further, it is expressly made clear that if the employee proceeds to a Hearing and is unsuccessful, then the employer will seek indemnity costs, on the basis that the employee's claim is vexatious. In that respect, the letter states that sworn Affidavits will be filed setting out the circumstances in which the employee admitted both in writing and verbally to stealing money from the employer. (d) 05.08.05 - The employee makes an offer to settle by letter of 5 August 2005. The employer's written submissions records this offer as $6,800 gross. (page 2) (e) 18.08.05 - The employer's letter of 18 August 2005, rejects the employee's offer to settle. The employer's letter states that the employee's unfair dismissal application will be vigorously defended. The employer's letter reiterates the assertion that the employee had admitted (orally and in writing) to stealing the money. The employer also referred to documentary evidence it would bring forward to support the employee's guilt admissions. The employer's offer to settle was then set out: the employee was to withdraw his unfair dismissal application and costs would not be pursued by the employer. That offer was to expire on 24 August 2005. The employee's written submissions (filed 19 February 2007) indicate that this offer was rejected. (para 3.1) (f) The scheduled Hearing for September 2005 was deferred until November 2005. (g) 06.10.05 - The employee was first interviewed by the police and subsequently charged with criminal offences. In consequence, the scheduled November 2005 Hearing of the unfair dismissal application was deferred. (h) 02.11.06 - The employer wrote to the employee and made an offer to settle. This offer was made after the Local Court magistrate had found that the employee had stolen the employer's money and with the knowledge that the employee was appealing the Local Court's decision. The offer by the employer was for the employee to discontinue his unfair dismissal application and his appeal; make restitution for the stolen money as ordered by the Local Court; and each party would bear its own costs in the unfair dismissal proceedings. (i) The employee's written submissions advise that the employee was not in a position to respond to this offer. Thus, the offer had been made to the employee's legal representative for the unfair dismissal application but this was not the same legal representative for the criminal proceedings. Accordingly, the former legal representative could not give advice to the employee about this offer to settle both the industrial and criminal proceedings. (j) The appeal to the District Court failed and the employer seeks indemnity costs. 66 The Commission has set out above the chronology of offers between the parties in order to assess whether the employee has unreasonably failed to settle. In making that deliberation, the Commission has decided that the chronology does not set out "all relevant circumstances." The relevant circumstance is the impact of the finding by the Local Court Magistrate that the employee had admitted to the employer to his own guilt in stealing the money. 67 The "impact" is that the employee was aware of his own guilt at the time of the offers to settle. Because of that knowledge, the employee had unreasonably failed to settle. 68 The finding in the criminal proceedings that he had this knowledge of his own guilt all along, causes this Commission to reject any defence by the employee that he believed he had reasonable prospects of success with his unfair dismissal application and that he had not unreasonably failed to settle. Costs - The Commission's Discretion 69 The awarding of costs is a two stage process. Firstly, a party seeking costs must establish that one of the grounds contained in s 181(2)(c) has been made out. Only if one of those grounds has been made out, does the second stage come into play. That second stage is the exercise of the Commission's discretion as to whether costs should be awarded (despite one of the grounds being made out): s 181(1)(b). In this case, the employer has made out both grounds of frivolous or vexatious and unreasonably failed to settle. 70 The employer seeks an order for indemnity costs (all costs incurred by the employer for the unfair dismissal proceeding). 71 A judgement of Wright J of this Commission sets out the relevant principles as to the application of indemnity costs: Tuholi Pty Ltd v Caltex Australia Petroleum Pty Ltd (2001) 103 IR 329 at 335 to 339. The essence of those principles, as to the application of indemnity costs, is that there must be some special or unusual feature in a case to justify a court in departing from the ordinary practice of only awarding costs on a party to party basis. The relevant principles cited by Wright J, provide an explanation of what circumstance would qualify as "special or unusual feature". Thus: a party had a wilful disregard of known facts; and a party should have known that their case had no chance of success. 72 The chronology of offers by both parties, show that the employer put the employee on notice that the strength of its case rested on the employee's admission of guilt (in writing and orally to another person). In light of the finding by the Local Court (not disturbed on appeal) that the employee had admitted to that guilt from the start (so to speak), then the employer's putting the employee on notice as to the strength/nature of its case against him, becomes significant for the Commission on the issue of costs. 73 The employer's letter of 4 July 2005 put the nature/strength of the employer's case against the employee and put him on notice as to indemnity costs. It was then that the employee ought to have discontinued his unfair dismissal case - given that the employee was aware all along of his guilt in stealing the money. Accordingly, the Commission determines, in the exercise of its discretion, to grant such costs incurred by the employer, as a result of the rejection of this letter of 4 July 2005. 74 Having considered the submissions of both parties and the relevant principles on the application of indemnity costs, the Commission determines to grant an order in favour of the employer on an indemnity basis - but limited by the Commission's exercise of its discretion set out below. 75 The Commission declines to award costs for and associated with the Conciliation and Directions listing on 17 June 2005. The Commission agrees with the view of Sams DP of this Commission that "in most circumstances costs associated with conciliation proceedings, should not be taken into account" : Mervat Wahba & Miles Fresh Food Market Trading as Brighton Fruit Farm Pty Limited (1999) NSWIRComm 329 (29 July 1999) There is nothing about the proceedings surrounding that Conciliation and Direction listing that would cause this Commission to depart from the above extract. Indeed, the Commission was aware that the employee had made an offer to settle during off record attempted conciliation of his unfair dismissal application on that day. As already noted in this Decision, the employer's response to that offer was not made known to the Commission. 76 There was only one Conciliation and Direction listing before this Commission. 77 The parties did engage in offers to settle. Relevantly, there were two written offers to settle by the Respondent in which the issue of indemnity costs was raised. 78 The first such letter is dated 4 July 2005. The letter warned the Applicant of a potential indemnity costs claim as follows; " Further, we are instructed that should the matter proceed to hearing and your client be unsuccessful, and application for indemnity costs will be made ... " (emphasis added) The Commission takes the view that as the unfair dismissal application did not "proceed to hearing", then this claim on the Applicant for indemnity costs is baseless. 79 The second such letter, dated 18 August 2005, is couched differently to the prior letter as to the foundation for a claim for indemnity costs. Thus, the letter reads: "There will be substantial costs incurred in preparing and conducting this hearing, ..." (emphasis added) There was no hearing but this time the Respondent claims costs for the preparation of the Respondent's case against the Applicant. 80 The letter of 18 August 2005 gave the Applicant the opportunity to withdraw his unfair dismissal claim by close of business, Wednesday 24 August 2005. The Applicant did not do so. The Hearing was scheduled for two days on 13 and 14 September 2005 but was deferred on 13 September by application from the Applicant's barrister. This deferral was by consent. The Hearing was rescheduled for 3 and 4 November 2005 but did not proceed because the Applicant was charged by the NSW Police Force. 81 The Commission takes the view that the Respondent is entitled to its indemnity costs claim in respect of the preparation of its case against the Applicant. Such indemnity costs is not only limited to the preparation of its case but as well (and per the Respondent's letter), limited to such preparation as occurred on and after 25 August 2005. The date of 25 August 2005 is selected because that was the date by which the Applicant was to withdraw his unfair dismissal claim in order to avoid indemnity costs. 82 That date also is relevant because of the way that the Respondent puts its claim for indemnity costs in respect of the preparation of its case. The Respondent's letter is specific that, it will be claiming costs for that preparation it has yet to prepare. Thus the letter reads: " There will be substantial costs incurred in preparing and conducting this hearing, ... " (emphasis added) The Commission's reading of the above extract is that the Respondent indicates that it will make a claim for costs to be incurred in the preparation of its case but it is for that preparation yet to be put in place - that. is, a future preparation indemnity costs claim. The indemnity costs letter of 18 August is not expressed as a costs claim for preparation already carried out. Given the context of the Respondent's letter that there is a deadline (close of business on 24 August) by which the Applicant is to withdraw his unfair dismissal claim, then the future preparation for which the Respondent can claim indemnity costs is on and after 25 August 2005. 83 The Commission notes that the preparation involved by the Respondent in preparing its witness statements, does not fall within "future preparation". The Respondent's witness statements were due to be filed on 12 August 2005 (a date prior to the indemnity costs letter of 18 August and the close of business deadline of 24 August) and were filed on 17 and 18 August 2005. For the record, the Applicant's statement(s) was due on 15 July and was filed on 14 July 2005. O R D E R 84 For the reasons set out above, the Commission orders that: (a) The Applicant (Mr Scott Herden) pay the costs of the Respondent (Tearoc Pty Limited) on an indemnity basis, as agreed or assessed. (b) The order for costs on an indemnity basis (as agreed or assessed) is limited to the costs incurred by the Respondent in the preparation of its case, and only for such preparation that took place on or after 25 August 2005. (c) The order for indemnity costs (as agreed or assessed) is in respect of the unfair dismissal proceedings (IRC 2699/05). A Macdonald 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.