[2] Matter C2004/6456 was a notice of appeal by DEWR against a decision[1] and order[2] of Commissioner Raffaelli dated 15 October 2004. In the decision and order the Commissioner found the termination of the employment of Mr Jason Oakley by DEWR was harsh and reinstated Mr Oakley and maintained the continuity of his employment between the date of the termination and the date of his reinstatement.

[3] The operation of the decision and order of Commissioner Raffaelli was stayed by Senior Deputy President Acton on and from 3 November 2004 until the determination of the appeal or until further order of the Commission.[3]

[4] The notice of appeal was heard by a Full Bench of the Commission on 1 December 2004. On 15 December 2004 the Full Bench issued a decision[4] and order[5] granting leave to appeal, quashing the decision and order of Commissioner Raffaelli and dismissing Mr Oakley's unfair dismissal application.

[5] The application for an order for costs against Mr Oakley is made under ss.170CJ(2) and (3) of the Act. DEWR seeks its costs from 2 November 2004, which DEWR says is the date on which Mr Oakley rejected an offer to settle the proceedings for the sum of $15,000.

[6] We heard DEWR's costs application on 15 February 2005. At the conclusion of the hearing we gave the following decision in transcript:

"We have reached a decision in this matter. We are of the view that the matter of costs in respect of the application for a stay order sought by the Department is a matter which, if the Department wishes to pursue it, should be dealt with by Senior Deputy President Acton. With respect to the application for costs in respect of the hearing of the application for leave to appeal, and the appeal, we decline to grant costs against Mr Oakley. We will issue reasons for decision in due course. If Mr Oakley wishes to pursue costs in respect of the Department's costs application, he should make an application pursuant to section 170CJ of the Act. We now adjourn."[6]

[8] Sections 170CJ(2) and (3) of the Act are as follows:

"(2) If the Commission is satisfied that a party (first party) to a proceeding relating to an application under section 170CE has acted unreasonably in failing:

(b) to agree to terms of settlement that could lead to the discontinuance of the application;

the Commission may, on an application under this section by the other party to the proceeding, make an order for costs against the first party.

(a) that a party (first party) to a proceeding relating to an application made under section 170CE caused costs to be incurred by the other party to the proceeding; and

(b) that the first party caused the costs to be incurred because of the first party's unreasonable act or omission in connection with the conduct of the proceeding;

the Commission may, on an application by the other party under this section, make an order for costs against the first party."

[9] In support of its costs application, DEWR submitted that on the facts available to Mr Oakley when the appeal was instituted it should have been apparent to Mr Oakley that he had no substantial prospect of success in the appeal.

[10] In respect of this submission, DEWR said:

• Mr Oakley and his legal practitioner should have been aware there were no facts to support the finding on which Commissioner Raffaelli based his decision that the termination of Mr Oakley's employment was harsh, namely that DEWR had made a decision not to terminate Mr Oakley's employment in July 2003.
• Mr Oakley and his legal practitioner should have been aware other findings of the Commissioner supported DEWR, namely that Mr Oakley had engaged in misconduct and DEWR had a valid reason for terminating his employment and that Mr Oakley was informed of the valid reason and given an opportunity to respond.
• No additional evidence was received in the hearing of the appeal.
• The comments of Senior Deputy President Acton on 3 November 2004 in deciding to stay the operation of the Commissioner's order reinforced Mr Oakley's poor prospects of success. Her Honour said:

"I have reached a decision in this matter. I am satisfied there is an arguable case with some reasonable prospect of success in respect of both the question of leave to appeal and the substantive merits of the appeal, having regard to the Commissioner's reliance in paragraph 44 in respect of his determination that the termination was harsh and his reliance on the department's own decision that the gravity of the misconduct did not justify termination in July 2003, and also having regard to the Commissioner's assessment of the evidence at paragraph 22 that the department had made a decision to put in abeyance the code of conduct process until the criminal case was progressed.

In light of those two paragraphs, I think there is an arguable case in respect of both leave and the substantive merits of the appeal. As to the balance of convenience, I am satisfied that the balance of convenience is for granting the stay order. I am so satisfied having regard to the fact that Mr Oakley has current employment, indeed at a higher rate of remuneration and the potential disruption that is likely to occur or that could occur should the appeal be successful. In light of such satisfaction, I will grant the stay order sought and a formal stay order will issue in due course."[7]

• Mr Oakley had further opportunities to assess his prospects of success on reviewing DEWR's written submissions to the Full Bench.
• The Full Bench decision reveals the Full Bench considered it to be apparent from a fair reading of the Commissioner's decision that in concluding the termination of Mr Oakley's employment was harsh, the Commissioner was heavily influenced by "DEWR's own decision that the gravity of the misconduct [by Mr Oakley] did not justify termination in July 2003". However, the Full Bench said the evidence before the Commissioner did not support a conclusion or finding that DEWR did so decide.

[11] DEWR also submitted in support of its costs application that Mr Oakley acted unreasonably in failing to settle when DEWR made a reasonable offer of settlement on 1 November 2004.

[12] In respect of this submission, DEWR said:

• On 1 November 2004 DEWR made a reasonable written offer to Mr Oakley in the following terms:

"We are instructed that the Commonwealth wishes to pursue this appeal on the grounds that Commissioner Raffaelli erred in his decision of 15 October 2004. However, in order to avoid the inconvenience, uncertainty and expense of litigation, we are instructed to offer Mr Oakley the sum of $15,000 (including costs) in full and final settlement of his claims. This offer is conditional on Mr Oakley:

• consenting to orders reflecting the Commonwealth's view that Commissioner Raffaelli's decision and consequent orders were made in error and should be quashed by the full bench; and
• executing a deed of release and indemnity in favour of the Commonwealth, it's [sic] officers, servants and agents.

This offer remains open until 5pm Tuesday, 2 November 2004.

If you refuse to accept this offer, the Commonwealth proposes to rely on the terms of this letter on the question of costs in the event that the appeal proceeds to hearing."

• Mr Oakley failed to accept DEWR's offer and made an unreasonable counter offer for payment of $21,000 and for him to be permitted to resign and be provided with an Employment Separation Certificate to that effect. Both the failure to accept DEWR's offer and Mr Oakley's counter offer were unreasonable. They were unreasonable because Mr Oakley was attempting to obtain a higher than reasonable cash settlement in circumstances where the Commissioner had made no order for lost remuneration. They were also unreasonable because Mr Oakley was attempting to clear his record of the termination without sufficiently factoring in an objective assessment of his prospects of successfully defending the appeal and the legal impossibility of him being allowed to resign post termination.
• The unreasonable counter offer was fanciful and constituted unreasonable conduct.
• Mr Oakley continued to act unreasonably by failing to make any counter offers at later stages of the proceedings.

[13] DEWR also submitted it incurred substantial legal costs in pursuing its appeal and no public interest considerations were against the making of a costs order.

[14] Mr Oakley opposed the Commission making an order for costs against him, essentially having regard to the indeterminate nature of the settlement offer made to him by DEWR and the merits of his s.170CE application.

[15] We decided DEWR's application for costs in respect of its application for an order that the operation of Commissioner Raffaelli's order be stayed pending the determination of its appeal or until further order of the Commission should be dealt with by Senior Deputy President Acton, if DEWR wished to pursue it, having regard to the fact her Honour heard and determined the application for the stay order.

[16] We considered that as Senior Deputy President Acton, rather than the Full Bench, heard and determined DEWR's application for a stay order, it was most appropriate her Honour deal with the application for costs in respect of the stay order application.

[17] Accordingly, we left it up to DEWR to advise Senior Deputy President Acton if it wished to pursue its application for costs in respect of its stay order application.

[18] With respect to the remainder of DEWR's application for an order for costs, we were not satisfied the pre-requisites for the Commission to exercise its discretion under either s.170CJ(2) or s.170CJ(3) of the Act existed.

[19] In this regard, s.170CJ(2)(a) of the Act provides the Commission may, in this instance, make an order for costs against Mr Oakley if satisfied he acted unreasonably in failing to discontinue the appeal to the Full Bench. Since Mr Oakley did not lodge the appeal, he was not in a position to discontinue it. Accordingly, we were not satisfied he acted unreasonably in failing to discontinue the appeal to the Full Bench.

[20] We add that we considered that even if we were wrong about our construction of s.170CJ(2)(a) of the Act and its operation, we were not satisfied Mr Oakley "acted unreasonably in failing to discontinue the proceeding" having regard to our conclusions, as set out below, in our consideration of s.170CJ(2)(b) of the Act.

[21] Section 170CJ(2)(b) of the Act provides the Commission may, in this instance, make an order for costs against Mr Oakley if satisfied he acted unreasonably in failing to agree to terms of settlement that could lead to the discontinuance of his s.170CE application.

[22] We did not think Mr Oakley acted unreasonably in failing to agree to terms of settlement that could lead to the discontinuance of the s.170CE application.

[23] Section 170CJ(2) of the Act, as it was before its amendment in 2001, was considered by the Full Federal Court in Blagojevch v Australian Industrial Relations Commission.[8] Section 170CJ(2) then read:

(a) the Commission has begun arbitrating a matter the subject of an application under section 170CE; and

(b) the Commission is satisfied that a party to the proceeding has acted unreasonably in failing ... to agree to terms of settlement that could lead to the discontinuance of the matter before the conclusion of the arbitration;

the Commission may, on an application under this section by the other party to the proceeding, make an order for costs against the first-mentioned party."

"I should refer to one other matter which was adverted to during the proceedings in this Court but not developed at any length by counsel for the applicant. Section 170CJ(2)(b) raises for consideration whether a party has `acted unreasonably in failing ... to agree to terms of settlement ...'. A `failure to agree' comprehends not only the rejection of an offer of settlement but probably more. The section does not say `refusal to agree to terms of settlement'. The expression `failing to agree' describes a wider range of conduct than `refusing to agree'. An offer was made in this case and no counter offer made. However the rejection of an offer can be absolute or qualified. By that I mean an offer can be rejected and no counter offer made or, on the other hand, an offer can be rejected but a counter offer made. If an offer is made which, as to monetary amount, is in the upper range of what might be an appropriate figure to settle on, and is rejected but no counter offer is made then that may, in my opinion, constitute conduct which was acting `unreasonably in failing to agree to terms of settlement' in some circumstances. Those circumstances might arise if the only real dispute between the parties is the amount for which the matter might be settled. Ordinarily, of course, the amount for which any proceeding (claiming, inter alia, a monetary amount), might reasonably be settled will depend on the actual and perceived strengths and weaknesses of the cases of the parties. However in a situation where an offer was made which was not fanciful and no counter offer was made by the opposing party to bring the negotiations into the range the opposing party thought was reasonable, the failure to make any counter offer could, depending on the circumstances, constitute acting unreasonably in failing to agree to terms of settlement."[9]

"We do not think there is any basis in the Act for giving primacy to any particular factor. Section 170CJ(2) directs attention to the reasonableness, or otherwise, of the conduct of a party in failing, when the question arises, to agree to terms of settlement. The reasonableness of the terms offered (together with the expressed willingness, or otherwise, of the other party to enter into negotiation) will be relevant in applying the statutory test but is unlikely, usually, to be the only, or primary, relevant matter. Certainly there is no reason to give primacy to the result of a mechanical comparison between an amount offered and the amount of compensation ultimately awarded; although, if an applicant offers to settle for a particular amount and the arbitration results in the award of a substantially lesser amount by way of compensation, it would no doubt be only in unusual circumstances that the respondent would be held to have acted unreasonably in rejecting the offer. We see no error in the Commission's approach to that aspect of the case ...

Knowledge on the part of the employer as to the truth of matters alleged against the applicant and as to whether, as claimed, he had been warned should have been taken into account in assessing the reasonableness of the employer's response to the applicant's offer. The terms of the offer itself could have left the employer in no doubt that the truth of its account would be vigorously challenged. It may well be, of course, that the same conclusion will not always follow in cases where the Commission prefers the evidence of one party to that of another; it is not unreasonable to respond to an offer in the light of the offeree's genuine perception or recollection of events. But this, on the Commission's findings, was not such a case: it is implicit that false evidence had been deliberately given.

More generally, there is no doubt, in our view, that s 170CJ arms the Commission with a power designed to discourage frivolous or vexatious applications, to encourage genuine participation in conciliation and reasonable and genuine negotiation and to avoid outcomes of the kind which happened in this case: a three day hearing before the Commission (followed by separate applications under s 170CJ to the Senior Deputy Commissioner and then to the Full Bench) concerning a claim the maximum potential value of which did not significantly exceed the amount actually awarded, $10,500. It is inappropriate, in our view, to take a confined or technical approach to a consideration of which matters are relevant to the question whether a party has acted unreasonably in failing to do either of the things with which s 170CJ(2) is concerned."[10]

[26] The chronology of settlement offers and counter offers between the parties was as follows.

[27] Mr Oakley's lawyer emailed DEWR's lawyer on 26 October 2004 advising that Mr Oakley would "settle all industrial matters with DEWR for $55,000 plus costs".[11]

[28] On 29 October 2004, Mr Oakley's lawyer again emailed DEWR's lawyer "to offer $22,000 plus costs in exchange for a full release".[12]

[29] Later on 29 October 2004, DEWR's lawyer faxed the following letter to Mr Oakley's lawyer:

"On 26 October 2004 you informed us Mr Oakley will oppose an application to stay the order for reinstatement if DEWR institutes an appeal. You also made an offer to settle all industrial matters with DEWR for $55,000 plus costs. You made a further offer today to settle for $22,000 plus costs in exchange for a full release.

DEWR intends to appeal the decision of Commissioner Raffaelli and seek a stay of the reinstatement order. We anticipate filing and serving the appeal documents today.

DEWR is not prepared to consider making a counter offer until its proposed application for a stay of the reinstatement order is determined. We request your early advice as to whether Mr Oakley will continue to oppose an application for a stay order.

In our view, it is likely that the stay will be granted by the Commission as Mr Oakley is currently employed and is earning more than he would earn at DEWR if he was reinstated. In contrast, DEWR would be prejudiced if the stay order was not granted as it would be required to employ Mr Oakley and his employment would be difficult to undo given the complex interactions between the Public Service Act 1999 and the Workplace Relations Act 1996.

In light of these matters and Mr Oakley's current employment, we are putting you on notice that we consider that there is no reasonable basis on which you could oppose the application for a stay of the reinstatement order. Consequently, if Mr Oakley does not consent to the stay and continues to oppose it, and DEWR is successful, DEWR will seek its costs of making the application.

When the issue of the stay has been determined, DEWR will consider its position on settlement. Any offer made will reflect our client's view that the reinstatement order was made in error and should be quashed by the full bench.

In the event that DEWR's appeal is successful, Mr Oakley will have no entitlement to costs or re-instatment."

[30] Still later on 29 October 2004, Mr Oakley's lawyer sent an email to DEWR's lawyer advising he was not familiar with the considerations of the Commission in deciding to grant a stay order. As a result, he said, he was not in a position to advise Mr Oakley as to whether he should oppose the stay order application and would not be able to advise of Mr Oakley's position until 2 November 2004. In a later email on 29 October 2004, Mr Oakley's lawyer also asked DEWR's lawyer for further particulars about the complex interactions between the Public Service Act 1999 (Cth) and the Workplace Relations Act 1996 (Cth).

[31] DEWR's lawyer responded by letter faxed on 29 October 2004 to Mr Oakley's lawyer confirming the notice of appeal and application for a stay order were to be filed in the Commission that day and explaining DEWR's difficulties in terminating Mr Oakley's employment if the stay order was not granted but its appeal was successful.

[32] Mr Oakley's lawyer responded by email to DEWR's lawyer on 1 November 2004 indicating:

• the stay order application would be opposed;
• Mr Oakley had advised his current employer he would be leaving to return to DEWR;
• the Commission had ordered Mr Oakley's reinstatement by DEWR;
• there were other considerations for Mr Oakley apart from pecuniary ones;
• Mr Oakley wished to continue his career path with DEWR;
• every day he was not reinstated prejudiced his position; and
• there was no substantial prejudice to DEWR warranting a stay order.

[33] On 1 November 2004, DEWR's lawyer faxed the following letter to Mr Oakley's lawyer:

"We are instructed that the Commonwealth wishes to pursue this appeal on the grounds that Commissioner Raffaelli erred in his decision of 15 October 2004. However, in order to avoid the inconvenience, uncertainty and expense of litigation, we are instructed to offer Mr Oakley the sum of $15,000 (including costs) in full and final settlement of his claims. This offer is conditional on Mr Oakley:

- consenting to orders reflecting the Commonwealth's view that Commissioner Raffaelli's decision and consequent orders were made in error and should be quashed by the full bench; and

- executing a deed of release and indemnity in favour of the Commonwealth, it's [sic] officers, servants and agents.

This offer remains open until 5pm Tuesday, 2 November 2004.

If you refuse to accept this offer, the Commonwealth proposes to rely on the terms of this letter on the question of costs in the event that the appeal proceeds to hearing."

[34] Mr Oakley's lawyer responded by email on 2 November 2004 as follows:

"I refer to your letter of 1 November 2004 and the offer contained therein. The offer is rejected. I fail to see how we can consent to orders reflecting the Commonwealth's view that Commissioner Raffaelli's decision and consequent orders were made in error and should be quashed. I do not believe that the Full Bench would agree to consent orders in those terms. It could not possibly have any legal binding effect unless the Full Bench actually made that determination.

In any event Mr Oakley instructs that he will settle this matter for $15000 plus $6000 costs. This is conditional that he is permitted to resign by written resignation and that he is provided with a separation certificate to this effect. He agrees that he is not entitled to any accrued benefits having regard to the continuity aspect of the order and he will execute a release and indemnity in favour of the Commonwealth.

Similarly the offer is open to 5pm today and that if it is refused Mr Oakley intends to rely on the terms of this document on the question of costs in the event that the appeal proceeds to hearing."

[35] Later on 2 November 2004, DEWR's lawyer emailed Mr Oakley's lawyer as follows:

"We note that you have rejected DEWR's offer and instead offered to settle this matter for $21,000 on the terms detailed below.

For the sake of clarity, we confirm that your rejection of DEWR's previous offer means that the offer is no longer open or capable of acceptance. To the extent necessary DEWR's offer is withdrawn. DEWR will not make any further offers at this time."

[36] The decision and order of Commissioner Raffaelli determined the termination of Mr Oakley's employment was harsh and provided for his reinstatement, consistent with the bases of Mr Oakley's s.170CE application.

[37] Further, although Commissioner Raffaelli found in his decision that there was a valid reason for the termination of Mr Oakley's employment because of his conduct in breaching DEWR's policies concerning the use of departmental credit cards and Mr Oakley was notified of that reason and given an opportunity to respond,[13] the Commissioner also made a number of findings in his decision supporting a conclusion that the termination of Mr Oakley's employment was harsh, unjust or unreasonable, apart from his finding about DEWR's decision in July 2003. The Commissioner's findings in this regard included that:

• Mr Oakley was contrite;
• Mr Oakley had performed well in his employment since the conduct that constituted the valid reason for the termination of his employment; and
• stable employment was important to Mr Oakley's recovery from his alcohol and gambling addictions.[14]

[38] In the circumstances, we could not be satisfied Mr Oakley acted unreasonably in failing to agree to terms of settlement that could lead to the discontinuance of his s.170CE application.

[39] Mr Oakley had obtained in the decision and order of Commissioner Raffaelli that which he had sought in his s.170CE application, namely a determination as to the unfairness of his termination and a remedy of reinstatement.

[40] The settlement offer of DEWR was for a monetary amount conditional on consent orders quashing the Commissioner's decision and order and a deed of release and indemnity. Mr Oakley in turn made a settlement counter offer for a monetary amount, deed of release and indemnity conditional on him being permitted to resign and be provided with an Employment Separation Certificate to that effect.

[41] The terms of Mr Oakley's counter offer could not be regarded as unreasonable or fanciful given the proximity of the monetary amounts in DEWR's offer and Mr Oakley's counter offer, Mr Oakley's historical preparedness to revise his settlement offers downwards, the terms of the Commissioner's decision and order, the other terms of DEWR's offer and the findings of the Commissioner weighing in favour of a conclusion the termination was harsh, unjust or unreasonable.

[42] Further, while Commissioner Raffaelli found there was a valid reason for the termination of Mr Oakley's employment and he was notified of it and given an opportunity to respond, being factors weighing against a conclusion the termination was harsh, unjust or unreasonable, the Commissioner also made a number of findings weighing in favour of a conclusion the termination was harsh, unjust or unreasonable, apart from his finding about DEWR's decision in July 2003.

[43] Indeed, on the hearing of the appeal, the Full Bench only decided the termination of Mr Oakley's employment was not harsh, unjust or unreasonable, on balance, after weighing a number of considerations which were for and against such a decision.[15]

[44] Section 170CJ(3) of the Act provides the Commission may, in this instance, make an order for costs against Mr Oakley if satisfied he caused costs to be incurred by DEWR and he caused the costs to be incurred because of his unreasonable act or omission in connection with the conduct of the proceeding relating to an application under s.170CE.

[45] Section 170CJ(3) of the Act was considered by a Full Bench in Barbaro v Certegy Australia PLC.[16] The Full Bench said:

"[27] Finally, we did not believe Mr Barbaro's lodging of the appeal or decision to proceed with it were unreasonable acts given the facts apparent to him at the relevant times. In our view, in order to attract s.170CJ(3) a party must perform an unreasonable act or unreasonably omit to do something in connection with a proceeding that has already been instituted. The mere making of the appeal or its prosecution does not attract s.170CJ(3). Had either of those acts been unreasonable s.170CJ(1) or (2) would have been attracted. We have already found that not to be the case."

[46] We did not think the matters raised by DEWR in support of its costs application fell within the "unreasonable act or omission" contemplated by s.170CJ(3) as they were not "in connection with the conduct of the proceeding" relating to an application made under s.170CE.

[47] Even if we were wrong in that regard, we did not think the matters raised by DEWR in support of its costs application were unreasonable acts or omissions for the reasons given above in our consideration of s.170CJ(2)(b) of the Act.

[48] Accordingly, we declined to grant DEWR's application for costs in respect of the hearing of the application for leave to appeal and the appeal.

D. Donovan appearing for the Federal Department of Employment and Workplace Relations.

I. Latham, of counsel, appearing for Jason Oakley.

8 (2000) 98 IR 32.

16 PR932979, 17 June 2003 per Acton SDP, Kaufman SDP and Hingley C.

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