Industrial Relations Commission of New South Wales CITATION: Carlton and United Beverages Limited & Brunt [2007] NSWIRComm 135 APPELLANT (RESPONDENT ON MOTION) Carlton and United Beverages Limited PARTIES: RESPONDENT (APPLICANT ON MOTION) Phillip Brunt FILE NUMBER(S): IRC 4689 of 2005 CORAM: Walton J Vice-President; Sams DP; Ritchie C Notice of motion - application for costs - application sought to cover entire proceedings - application disaggregated - costs on the appeal to be determined by Full Bench - balance of application to be determined by single member - statutory framework - s 181(2)(c) of the Act - jurisdictional gateway - whether appellant unreasonably refused to settle claim - exchanges of settlement offers - no factual contest - principles considered. CATCHWORDS: Held; offers of settlement did not include reinstatement - generous offers of financial settlement made during conciliation - offers rejected - subsequent offers decreased - conclusion unable to be drawn that appellant unreasonably refused to settle claim - appellant's conduct did not evince an intention to unreasonably refuse to settle claim - application for costs orders dismissed. LEGISLATION CITED: Industrial Relations Act 1996 Bankstown City Council v Paris (1999) 93 IR 209 Carlton and United Beverages Limited and Phillip Brunt [2006] NSWIRComm 98 Carlton and United Beverages Limited v Phillip Brunt [2005] NSWIRComm 338 Four Sons Pty Ltd v Sakchai Limsiripothong (No 2) (2000) 100 IR 400 Jones v Bradley (No 2) [2003] NSWCA 258 CASES CITED: McLennan & Anor v Infinity Constructions Pty Limited and Ors (No. 2) [2007] NSWIRCom 58 Phillip Brunt and Carlton and United Beverages Ltd - Fosters People Limited [2007] NSWIRComm 17 Peden v Lake Macquarie Refrigeration Pty Ltd (2003) 134 IR 149 Phillip Brunt v The Continental Spirits Company [2005] NSWIRComm 1133 Phillips v Industrial Relations Commission of NSW (2006) 154 IR 96 Powerlan Limited & Anor v Squires (No. 2) [2007] NSWIRCom 1168 SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 HEARING DATES: (Written submissions) 1, 8 and 15 May 2007 DATE OF JUDGMENT: 4 June 2007 APPELLANT (RESPONDENT ON MOTION) Mr A Moses of counsel Assisted by: Mr S Schmitke LEGAL REPRESENTATIVES: Australian Federation of Employers and Industries RESPONDENT (APPLICANT ON MOTION) Mr W Szekely Szekely and Associates Lawyers JUDGMENT: - 15 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES CORAM: VICE-PRESIDENT, WALTON J SAMS DP RITCHIE C Monday 4 June 2007 Matter No IRC 4689 of 2005 Carlton and United Beverages Limited & Phillip Brunt Application by Carlton and United Beverages Limited for leave to appeal and appeal against a decision of Commissioner Macdonald given on 26.8.2003 in matter no. IRC 175 of 2005 DECISION ON NOTICE OF MOTION [2007] NSWIRComm 135 1 This appeal was determined by a Full Bench of the Commission on 9 June 2006: Carlton and United Beverages Limited and Phillip Brunt [2006] NSWIRComm 98. Thereafter the respondent, Mr Brunt, by a notice of motion filed on 10 April 2007, sought an order for the costs of the appeal (and the related stay proceedings) against the appellant, Carlton and United Beverages Ltd, pursuant to s187 and s188 of the Industrial Relations Act 1996 ('the Act'). 2 We intend to outline the lengthy background to the present proceedings in order to appreciate the context in which this notice of motion was brought. 3 The respondent was dismissed by the appellant for misconduct on 23 December 2004, after 18 years service. The misconduct related to the unauthorised consumption of alcohol at the applicant's warehouse distribution site at Botany and the theft of the applicant's product; namely the alcohol. The misconduct was not denied, but was said to have been as a result of the stress the respondent was experiencing at work as a consequence of his occupational health and safety duties and apparent conflict with a supervisor. 4 Following unfair dismissal proceedings filed by the respondent, pursuant to Pt 6 Ch 2 of the Act, Macdonald C reinstated the respondent to his former position, but without his occupational health and safety duties: Phillip Brunt v The Continental Spirits Company [2005] NSWIRComm 1133.. 5 On 7 September 2005, the respondent sought leave to appeal and appeal of the Commissioner's decision and a stay of the decision. A conditional stay was granted by Schmidt J on 19 September 2005: see Carlton and United Beverages Limited v Phillip Brunt [2005] NSWIRComm 338. The subsequent appeal was successful in part. Leave to appeal was granted and the reinstatement orders of the Commissioner were quashed. However, the finding of the Commissioner that the respondent's dismissal was harsh was not disturbed on appeal. As a result, the issue of what remedy, if any, should be ordered by the Commission, pursuant to s 89 of the Act, was remitted to Sams DP for further hearing. On 13 February 2007, his Honour published a decision and issued orders reinstating the respondent on conditions: Phillip Brunt and Carlton and United Beverages Ltd - Fosters People Limited [2007] NSWIRComm 17. 6 The issue of costs was foreshadowed during these proceedings and Sams DP directed that any application for costs be filed by way of notice of motion within 28 days. As a result, the solicitors for the respondent filed a notice of motion and accompanying affidavit on 14 March 2007. The notice of motion sought costs for the entire proceedings; that is the first instance proceedings before Macdonald C, the stay proceedings before Schmidt J, the appeal proceedings before the Full Bench, the remittal proceedings before Sams DP and the costs of the motion. 7 The notice of motion was listed before Sams DP for directions on 28 March 2007 at which time His Honour raised with the parties whether the Commission, sitting alone, had the power to determine the costs application in so far as it related to the appeal and stay proceedings before the Full Bench and Schmidt J. After consulting with the Full Bench his Honour re-listed the matter and informed the parties that any application for costs relating to the appeal proceedings must be made to the Full Bench within 7 days. The balance of the costs application to be dealt with by Sams DP was programmed and listed for hearing on 22 May 2007 (later changed to 11 June 2007). 8 Solicitors for the respondent subsequently filed the aforementioned notice of motion seeking the following orders: A. On A DATE TO BE FIXED, the Respondent will seek the following orders: 1. An Order that the Appellant pay the Respondent's legal costs and disbursements incurred in the Stay proceedings and the Appeal proceedings since the date of commencement of the Appeal proceedings, or from such other date as the Commission shall determine, on an indemnity basis. 2. An Order that the Appellant pay the Respondent's legal costs and disbursements incurred in the Stay proceedings and since the date of commencement of the Appeal proceedings, or from such other date as the Commission shall determine on a party-party basis. 3. An Order that the Appellant pay the Respondent's legal costs and disbursements of the Motion. 4. Such further or other Order as to (sic) the Commission may see fit. 9 The motion was listed for hearing before the Full Bench on 23 April 2007. Mr S Schmitke, for the appellant, sought an adjournment of the notice of motion, citing the short notice of the hearing and the inability of the appellant to obtain detailed instructions. Mr W Szekely, for the respondent, consented to the adjournment. While the Full Bench expressed some reluctance in granting the adjournment, directions were issued for the filing of submissions and to establish whether there existed any factual contest between the parties relevant to the issue of costs. If no contest of the facts was identified the matter might then be determined on the papers. On 21 May the parties advised that the matter should be dealt with on the papers. We proceed to do so on that basis, thereby determining the question of costs of the appeal and stay proceedings. SUBMISSIONS For the respondent 10 Mr Szekely outlined the statutory framework for costs applications in unfair dismissal matters and submitted that the leading authorities in which the provisions of s181(2)(c) of the Act were considered were: Bankstown City Council v Paris (1999) 93 IR 209; Four Sons Pty Ltd v Sakchai Limsiripothong (No 2) (2000) 100 IR 400 and Phillips v Industrial Relations Commission of NSW (2006) 154 IR 96. 11 Mr Szekely said it was noteworthy that in the proceedings before the Full Bench at the conciliation stage and given the nature of the offers being exchanged between the parties, that no offer was couched in terms of an offer of compromise as contemplated by Part 23 of the Industrial Relations Commission's Rules. 12 It was submitted that the respondent was entitled to his costs having regard to the nature of the offers made and the substantially successful outcome of the appeal. He said the offers from the appellant had become increasingly less attractive to the respondent. 13 Mr Szekely said that costs were sought on an indemnity basis from the date of the commencement of the hearing having regard to the rejection of the offers by the respondent which, whilst not in Calderbank form, nor in an offer of compromise, nevertheless merit consideration on the basis that the respondent obtained a more favourable outcome than what the appellant had offered. In addition, Mr Szekely submitted that the respondent sought costs on a party to party basis in relation to the stay application before Schmidt J. 14 Mr Szekely acknowledged that, while the appellant had been successful on the technical issue of the operation of s 89(2) of the Act, the respondent was successful in other significant respects. In particular, the finding that the respondent's dismissal was harsh was not disturbed on appeal and leave to appeal was refused on that matter. The only question remitted for further consideration was the issue of remedy. Mr Szekely said the appellant's submissions in the appeal primarily dealt with the 'harshness' question. 15 In support of his submissions the respondent relied on paras 18 to 26 (particularly 23 to 25) of Exhibit 'WMS 1', an affidavit of William Mark Szekely dated 5 April 2007 which had been filed in the costs proceedings before Sams DP. These paragraphs are as follows: 18. On 8 September 2005 I submitted draft Orders to the Commission's Registry in order to "take out" those Orders. The Orders were sealed on 9 September 2005 and uplifted from the Registry and served by Licensed Commercial Agent upon: (a) the Proper Officer, The Continental Spirits Company Pty Ltd; (b) the Proper Officer, Carlton & United Beverages Ltd; (c) the representative of the Appellant, Employers First. Later, on the morning of 9 September 2005, I received a telephone call from a Registry officer who said to me words to the following effect: " An Appeal has been filed in these proceedings and is returnable for mention on 13 September 2005 before her Honour Justice Schmidt ." Later again, on 9 September 2005 I received a letter from the representative of the Appellant enclosing the Application for Leave to Appeal and Appeal. A copy of that letter is annexed hereto and marked "O". 19 To date the Appellant has not complied with the Orders of Commissioner McDonald (sic) made 26 August 2005. 20. On 13 September 2005 I caused to be sent to the representative of the Appellant a letter a copy of which is annexed hereto and marked "P". 21. On 14 September 2005 I received a letter from the Appellant's representative serving an affidavit of David Cunneen sworn 14 September 2005. None of what Mr Cunneen deposed to in paragraphs 6 to 10 of his affidavit was put before Commissioner McDonald (sic) and no evidence of such nature was led by the Appellant before Commissioner McDonald (sic) from any of its witnesses as to whether re-instatement or re-employment (in a role with less responsibility) was not practicable. It was always open to the Appellant to lead such evidence. 22. The Respondent in the subject proceedings, filed an Application for a Stay of the Order of Commissioner MacDonald (sic), pending the outcome of the Appeal Proceedings. On 19 September 2005 Her Honour Justice Schmidt gave her decision and Orders relating to the Application Stay of Proceedings and granted a stay upon the certain terms which involved payments to the Applicant in the subject proceedings. 23. On 23 November 2005 Counsel for the Appellant submitted a "without prejudice" offer by email to Counsel for the Respondent. A copy of the said email is annexed hereto and marked "Q". 24. On or about 8 February 2006 the Counsel for the Respondent contacted Counsel for the Applicant (the Respondent in the appeal proceedings) and made an offer in the following terms: (i) Respondent to pay Applicant the equivalent of twelve (12) months remuneration plus $25,000.00 towards costs; and (ii) Applicant is to retain all monies paid to date by the Respondent. No reference was made by Counsel for the Respondent in relation to the issue of redundancy or any consequential retrospective effect on superannuation. 25. On or about 15 February 2006 prior to the Appeal Proceedings having heard, there was Conciliation attempted before Deputy President Sams. The Respondent (the Appellant in the appeal) through its Counsel initially offered two (2) months remuneration on a redundancy basis plus $25,000.00 towards Costs. This was rejected by the Applicant and the Respondent through its Counsel then put an offer of three (3) months remuneration on a redundancy basis plus $10,000.00 towards costs. Both offers made on this date by the Respondent made no reference to the Defined Benefits Superannuation issue. Both offers were rejected by the Applicant. 26. After hearing on 15, 20 and 22 February 2006, on 9 June 2006 the Full Bench in proceedings No. IRC 4689 of 2005, delivered its decision and orders. 16 The offer in Annexure Q referred to in para 23 was: The respondent is to pay to the applicant the balance of the back pay to the date of the settlement less amounts already paid pursuant to the conditional stay; Upon the settlement, consent orders will be filed dismissing the appeal with no order as to costs, the stay is to be dissolved and effect is to be given to the terms of the orders of Commissioner McDonald (sic). Shortly after the reinstatement takes effect (1 to 2 days) the applicant will accept a redundancy offer and be paid a redundancy payment of 66 weeks' pay (based on the average weekly pay earned in the twelve months preceding the dismissal which gave rise to the proceedings). Upon the redundancy, the Trustees of the applicant's superannuation find (sic) will be advised that the applicant's employment came to an end by reason of redundancy on the date of the redundancy above and the respondent will do all things necessary to ensure that the trustees will treat the reason for the cessation of the applicant's employment upon redundancy as a redundancy. The respondent will pay to the applicant an amount equal to his costs as agreed of (sic) assessed (an indication of costs in the range of $35,000). Submissions for the appellant 17 Mr Moses contended that the application for costs was baseless and was made without reasonable cause. He also referred to the authorities on costs in unfair dismissal cases in which the following principles, it was submitted, can be distilled: a. S181(2) is a statutory criterion that must be met before an order can be made as to costs. b. There are at least three grounds upon which that criterion can be met i. There was an application that was frivolous or vexatious; see Peden v Lake Macquarie Refrigeration Pty Ltd (2003) 134 IR 149 at [19] & [20]; ii. That a party put a proposal to settle the claim and the other party acted unreasonably in not accepting that offer; and iii. The course of conduct of a party over a period of time is indicative of an intention not to settle the proceedings on any basis or any reasonable basis. c. Once the statutory criterion has been met, the Commission's broad powers and discretions under s181(1) are available for it's exercise. 18 Mr Moses put that the rule relating to offers of compromise are not a code for the making of costs orders. Nor does a Calderbank offer bring a different order as to costs, but it is a matter to be taken into account in the exercise of the Commission's discretion : See Jones v Bradley (No 2) [2003] NSWCA 258 and SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323. 19 It was submitted that the respondent's submissions were entirely misconceived. While referring to the leading authorities, the submissions did not in any way address the statutory criterion in s181(2) of the Act. Decisions of the Commission are not relevant unless the statutory criterion of s181(2) has been met. 20 It was contended that the offer of the respondent set out in para 23 of Exhibit 'WMZ 1' involved no real element of compromise and merely invited the appellant to capitulate to the claim. Moreover, orders relating to redundancy and superannuation were beyond power. It was therefore, not unreasonable for the appellant to reject the offer. 21 On the other hand, the appellant's offer of 12 months remuneration, $25,000 towards costs with the respondent retaining all monies already paid by the appellant was a substantial offer which could not be said to demonstrate an unreasonable refusal to settle the proceedings. 22 Mr Moses put that if the Full Bench took the view that the statutory criterion had been met, the appellant maintained that, in the exercise of its discretion, a costs order should not be made. He submitted that the fact an offer of compromise was not made was hardly surprising considering that rule only applied to proceedings in the Industrial Court. Further, the respondent conceded that its final offer was not in Calderbank form. 23 Mr Moses said that the assertion that the respondent was "substantially successful in the appeal overall" must be seen in the context of the Commissioner's orders in favour of the respondent being set aside and the issue of appropriate relief being remitted to another member of the Commission. 24 Mr Moses submitted that the appellant was so concerned with reemploying the respondent that it made an offer of settlement well in excess of any compensatory order that could be made by the Commission. Ultimately each party had some success on the appeal such as it was appropriate that each party bear its own costs. In reply 25 Mr Szekely emphasised that the test in any costs application in an unfair dismissal matter was one of "reasonableness". 26 Mr Szekely said that the appellant had sought to challenge the findings of the Commission in respect the "harshness" of the dismissal. In this respect, leave to appeal was refused. Mr Szekely said that when the matter was remitted on the question of remedy, new evidence was admitted which, had it been available before the Commissioner, may well have directed him to more comprehensively consider the effect of s 89(2) of the Act. In reality the respondent was re-employed by the Commissioner and by the Deputy President on remittal with related orders concerning back pay. 27 Mr Szekely submitted that the two offers made by the appellant prior to the hearing of the appeal were not only substantially less than what the respondent had put, without prejudice, but less than what was ultimately awarded by the Deputy President. These offers decreased as the conciliation progressed indicating no real element of compromise by the appellant. Such offers were put to ensure the respondent rejected them. 28 Mr Szekely relied on two further authorities involving Calderbank letters, where a party was substantially successful in the appeal overall as was the case here. See: McLennan & Anor v Infinity Constructions Pty Limited and Ors (No. 2) [2007] NSWIRCom 58 and Powerlan Limited & Anor v Squires (No. 2) [2007] NSWIRCom 68. 29 Finally, Mr Szekely said the respondent should be entitled to two thirds of his costs on a party-party basis up to 15 February 2006, the date when his offer was rejected and the unreasonable offers put by the appellant and thereafter two third of costs on an indemnity basis up to 9 June 2006. Thereafter the costs of the application should be on the basis of party-party costs in the respondent's favour. CONSIDERATION 30 The provisions governing the awarding of costs in unfair dismissal matters are found at s181(2)(c) of the Act which are in the following terms: (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. 31 The principles to be applied by the Commission in determining such applications are now well established; see Bankstown City Council v Paris (1999) 93 IR 209; Four Sons Pty Ltd v Sakchai Limsiripothong (No 2) (2000) 100 IR 400. In Paris the Full Bench identified two bases upon which a conclusion might be reached that a party had unreasonably failed to a settlement of the claim. At page 219 the Full Bench said: 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. 32 The conclusions in Paris were recently considered by the New South Wales Court of Appeal in Phillips where at paras [19] to [21] Mason P (with whom Spigelman CJ and Beazley JA agreed) said: 19 When the Full Bench in Paris spoke of applying the statutory criterion "objectively" it was correctly discerning that the standard of unreasonable failure was to be applied by reference to the hypothetical yardstick of the fictional "man on the Clapham omnibus" or his Australian, gender-neutral counterpart. This does not mean that this hypothetical personage is placed anywhere other than in the context of the party in question (here the party against whom costs are sought). Nor does it mean the reasonableness assessment may commit hindsight error. But it does mean that the standards of the actor in question are not determinative. Thus, in the realm of negligence law, a person's conduct may be held unreasonable even though he or she was ignorant of the circumstances calling for a particular response or even if he or she lacked the capacity to discern or provide a correct response in the circumstances. 20 Under s181(2)(c) costs may be awarded against the employer or the employee, depending on who has failed to agree to a settlement and done so unreasonably. The reference to the opinion of the Commission emphasises, if emphasis were required, that the criterion is to be decided by the Commission applying its own perception of what was unreasonable, as distinct from the perception (if any) of the party. This does not permit the Commission to ignore the standpoint or standards of the party concerned, but the Commission must not be captive to those matters. Were it otherwise, the costs discretion could not be invoked against a pig-headed litigant blinded by self-absorbed stupidity or malice. 21 I therefore cannot read the "objective" aspect of Paris as embodying a jurisdictional or other error of law in regard to the application of s181(2)(c). 33 For the respondent to be successful in this application, it will be necessary for him to establish that the provisions of s181(2)(c), as discussed in Paris, had been attracted in the circumstances of this appeal. This must necessarily involve a consideration of the various exchanges of settlement referred to in para 23-25 of Exhibit 'WMZ 1'. 34 We would observe that in some unfair dismissal proceedings a dismissed employee will consistently seek reinstatement (or re-employment) as the primary remedy for the alleged unfair dismissal. In these circumstances, even an apparently generous financial offer of settlement will be rejected because the employee simply wants his/her job back. Of course, a dismissed employee is perfectly entitled to maintain a steadfast desire for reinstatement, without necessarily demonstrating an unwillingness to settle the claim as contemplated by s181(2)(c) of the Act. This is because of the scheme of Pt 6 of Ch 2 of the Act and the primacy given to the remedy of reinstatement. Similarly, an employer may be entitled in appropriate circumstances to maintain a firm position of refusing to make any offers of settlement. In both these circumstances however, there is an element of risk associated when any future costs application is considered within the statutory framework. That risk was considered in Paris at page 220 where the Full Bench said: 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. 35 In this case however, once the respondent abandoned reinstatement as the primary remedy - as he most certainly did in the offer of 23 November 2005 - then the focus of whether a party unreasonably failed to settle the claim shifts to consideration of the offers advanced by both parties and the conduct of the parties during these exchanges. 36 That being said, we are of the opinion that the offer proposed by the respondent's solicitor on 23 November 2005 was little more than an "invitation to the appellant to capitulate" and did not evince any proper intention to compromise the claim. Moreover, the proposition which sought to have the respondent notionally reinstated and then treated as a redundant employee for the purposes of redundancy pay and superannuation, was to ascribe to the respondent's termination of employment a characterisation which it plainly was not at the time the offer was made (and having regard to the stage the proceedings had then reached). We do not consider the rejection of this offer by the appellant to be unreasonable in all the circumstances. 37 The appellant put a counter offer on 8 February 2006. The offer was generous. It involved the payment of 12 months salary, $25,000 towards costs and the respondent being able to retain monies already paid to him (eight months salary). We do not conceive how it is possible to construe this offer as an unreasonable refusal to settle the claim. 38 The offer represented the payment of 20 months remuneration and $25,000 towards costs. This is more than three times the maximum allowable amount of remuneration for compensation for unfair dismissal available in s89(5) of the Act. 39 We do not see how this offer could be seen as representing conduct by the appellant which demonstrated an unwillingness to settle the claim. The fact that the appellant subsequently decreased the offer reflects no more than a vigorous and dynamic approach to the negotiations, and no doubt developments in the negotiations between the parties and the proceedings themselves. 40 Bearing in mind these considerations, combining the limited success of the respondent on the appeal, we consider that there was no proper basis to bring the costs application in this matter. The jurisdictional pre-conditions for an award of costs under s181(2)(c) have not been met. Excepting for those statutory limitations and the absence of any application for costs by the appellant, we would have been minded to make an order for costs against the respondent with respect to the motion. 41 We make the following order: 1. The respondent's notice of motion dated 10 April 2007 is dismissed. 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.