s.45 appeal against decision Print S1668

s.170CE application for relief in respect of termination of employment

Application for relief in respect of termination of employment - costs - s.170CJ - order against solicitor.

[1] The first appellant Mr I McKenzie, made an unsuccessful application for a remedy in relation to the termination of his employment. At the end of the proceedings his former employer, the respondent to this appeal, sought an order for costs against him. In a decision[1] and order[2] given and made respectively on 8 December, 1999 Commissioner Foggo granted the respondent's application and ordered Mr McKenzie and McDonald Murholme, being Mr McKenzie's solicitors and the second appellant, to pay the respondent's costs in the unfair dismissal application.

[2] When lodged the appeal was expressed to be against the Commissioner's decision of 8 December, 1999. The notice of appeal contained no reference to the Commissioner's order although it is clear enough from the grounds of the appeal that it is really the Commissioner's order which is under attack. When this was pointed out during the hearing of the appeal to Mr McDonald, who appeared on behalf of both appellants, he sought leave to amend the notice of appeal by including reference to the Commissioner's order. He subsequently alluded to the possibility that it may not be possible to cure the defect by amendment and a fresh appeal, together with an application for leave to appeal out of time, might be required. We do not understand the respondent to object to either course. All of the issues raised in the notice of appeal were debated. The appropriate course is to allow the appellants to institute an appeal out of time against the Commissioner's order of 8 December, 1999 and to waive compliance with the relevant Commission rules. We do so.

[3] Mr McKenzie was employed by the respondent as a security supervisor/crowd controller from 2 January, 1997 until March, 1998. He filed an application for relief in respect of the termination of his employment on 21 April, 1998. During a conciliation conference presided over by Commissioner Gay, the respondent offered to reinstate Mr McKenzie. The offer was not accepted. Following the conference Commissioner Gay issued a certificate on 14 July, 1998 which contained the following:

"Should the evidence support the position outlined by the respondent the application, in my view, does not have substantial merit."

[4] The matter was listed for arbitration before Commissioner Frawley on 8 October, 1998. On 7 October, 1998 McDonald Murholme filed what purported to be a notice of discontinuance on Mr McKenzie's behalf. The respondent was apparently not served with the notice and attended on 8 October in accordance with the notice of listing. The matter did not proceed and the respondent subsequently sought an order for costs for that day. That application was heard by Commissioner Frawley on 16 November, 1999. At that hearing Mr McKenzie contended through his counsel that the notice of discontinuance had been filed subject to the preparation of terms of settlement. Since the terms of settlement were not subsequently prepared he submitted that the notice of discontinuance should be disregarded and the application set down for arbitration. On 21 December, 1998, for reasons which are not material, Senior Deputy President Williams decided that as a matter of law the proceedings had not been validly discontinued. The substantive application subsequently came back before Commissioner Frawley for determination. On 18 June, 1999 the Commissioner dismissed the application[3]. In doing so he reserved leave to the respondent to revive its application for costs.

[5] Commissioner Frawley dismissed the application on the ground that Mr McKenzie had abandoned his employment and, it must be inferred, that the employment had not been terminated at the initiative of the respondent: see s.170OCE(1) and the definition of "termination" in s.170OCD. He reached the conclusion that Mr McKenzie had abandoned his employment after weighing up conflicting evidence. Mr McKenzie testified to the effect that he had not abandoned his employment but that through no fault of his the respondent had refused to allocate him work. The respondent's witnesses testified to the effect that Mr McKenzie had failed to attend for a rostered shift and had failed to contact the respondent thereafter. Questions of credibility arose and it is clear that on critical issues Commissioner Frawley preferred the evidence of the respondent's witnesses. Mr McKenzie appealed. The appeal was unsuccessful. In its decision of 21 September, 1999, the Full Bench held that it was reasonably open to the Commissioner to find that Mr McKenzie had abandoned his employment and it declined to grant leave to appeal. Following the appeal the respondent sought an order for costs before Commissioner Foggo and was successful. The Commissioner's decision and consequent order in that part of the proceedings has given rise to this appeal.

[6] The Commissioner carefully spelt out why she had decided to award costs to the respondent. Before going to those reasons it is appropriate to set out the relevant part of the statutory provisions governing the Commission's powers to award costs.

(1) If the Commission is satisfied that a person or organisation made an application under section 170CE vexatiously or without reasonable cause, the Commission may, on an application by the employer under this section, make an order for costs against the person or organisation.

(a) the Commission has begun arbitrating a matter the subject of an application under

(b) the Commission is satisfied that a party to the proceeding has acted unreasonably in

failing to discontinue the matter before the Commission or 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.

(a) a person or organisation has made an application under section 170CE; and

(b) the person or organisation elects, under subsection 170CFA(1), (2), (3) or (5) to proceed to arbitration; and

(c) after the making of that election the person or organisation discontinues the matter before the Commission;

the Commission may, on an application made under this section by the employer, make an order for costs against the person or organisation if the Commission is satisfied that the person or organisation has acted unreasonably in failing to discontinue the application at an earlier time."[4]

[7] It can be seen that the Commission's power to award costs is limited by the terms of s.170CJ. In summary, that section provides that costs may be awarded against an applicant in three situations:

(a) if the Commission is satisfied that a person has made an application under s.170CE vexatiously or without reasonable cause (s.170CJ(1));

(b) if the Commission has begun arbitrating and it is satisfied that the applicant has acted unreasonably in failing to discontinue the matter or agree to terms of settlement that could lead to its discontinuance (s.170CJ(2)); or

(c) if the applicant elects to proceed to arbitration but subsequently discontinues the matter and the Commission is satisfied that the he or she acted unreasonably in not discontinuing the matter earlier (s.170CJ(3)).

An order for costs involves a two stage process. In the first place it is necessary to ascertain whether the situation is one in which there is a power to award costs. If the Commission decides it is such a situation, it will then have to consider whether in all of the circumstances an order for costs is appropriate.

[8] The Commissioner's reasons for awarding costs in the respondent's favour in this case are based on three factors. The first factor is that she was satisfied that Mr McKenzie acted unreasonably in failing to discontinue his application once he became aware of the terms of the certificate issued by Commissioner Gay at the end of conciliation.[5] The second factor is that she was satisfied that Mr McKenzie acted unreasonably in failing to accept the respondent's offer of reinstatement.[6] The third factor concerns the costs incurred by the respondent as a result of the attempt to discontinue Mr McKenzie's application and the subsequent decision not to do so[7]. It will be necessary to deal with each of these matters separately.

[9] We turn first to the Commissioner's finding that Mr McKenzie acted unreasonably in failing to discontinue his application when he became aware of the terms of the certificate issued by Commissioner Gay. Mr McDonald, who appeared on behalf of the appellants, submitted that the Commissioner erred in her construction of Commissioner Gay's certificate or, alternatively, that she placed too much weight on it. The relevant terms of the certificate are "Should the evidence support the position outlined by the respondent the application...does not have substantial merit." This amounts to a finding that the respondent will be successful if, on the hearing of the case, it persuades the Commission that its version of events is correct. On that construction of the certificate we do not think that it was unreasonable of Mr McKenzie not to discontinue the application when he became aware of the terms of the certificate. It is evident from Commissioner Frawley's decision that there was a serious conflict between the applicant's version of relevant events and the version given by the respondents' witnesses. Clearly this was a case in which the evidence was more important than usual. We have no reason to doubt that Mr McKenzie had a bona fide belief that the respondent had terminated his employment. While Commissioner Frawley preferred the evidence of the respondent's witnesses, he made no adverse finding about Mr McKenzie's honesty. In the absence of such a finding there is no basis to criticize Mr McKenzie's failure to discontinue. We agree with Mr McDonald's submission that it was not reasonably open to the Commissioner to conclude that Mr McKenzie acted unreasonably pursuant to the terms of s.170CJ(2).

[10] In dealing with this factor the Commissioner referred to the words of s.170CJ(3) namely "has acted unreasonably in failing to discontinue the matter at an earlier time".[8] That section only applies when a matter has been discontinued. Although an attempt was made to discontinue the proceedings, the case did go forward to hearing. The Commissioner should have referred to s.170CJ(2). We are satisfied, however, that in the circumstances it is not necessary to pursue that matter further.

[11] The second factor the Commissioner relied on was that the respondent had offered to reinstate Mr McKenzie. She found that Mr McKenzie was unreasonable in not accepting that offer. The nub of the Commissioner's approach was that reinstatement is the primary remedy provided by the Act, and that the respondent's offer amounted to an offer of compromise which it was manifestly unreasonable not to accept. Mr McDonald sought to attack this reasoning. He submitted first that because the only offer of reinstatement was one made in the conciliation conference before Commissioner Gay the offer could not be taken into account on the question of costs. He also submitted that Mr McKenzie never sought reinstatement, his claim always being for compensation only. It could not therefore be unreasonable for him to reject an offer of reinstatement. It is only necessary to deal with the first of these submissions - that related to the nature of the offer.

[12] An offer of settlement made in conciliation proceedings is by its nature made on a without prejudice basis. It is inappropriate that an offer made in those circumstances should be taken into account in a costs application unless the offer is subsequently repeated on an open basis. It has long been accepted that positions taken in conciliation are without prejudice to the position to be taken in arbitration. The protection afforded to participants by this principle is an essential feature of conciliation proceedings. This is so whether the conciliation takes place in relation to an industrial dispute, an application pursuant to s.170CE or any other proceeding. In this case, however, the respondent's representative referred to the offer in the proceedings before Commissioner Foggo and relied upon the fact that the offer had been made. Mr McDonald acknowledged that when the offer was referred to by the respondent's representative, counsel then appearing for Mr McKenzie made no objection. We think it is clear that this failure to object constituted a waiver by Mr McKenzie of his right to object to the disclosure in arbitral proceedings of anything said or done in conciliation: s.104(5). But does it follow that the Commissioner was entitled to take the offer into account when considering the question of costs? With respect to the Commissioner's view we do not think it does. Reference to the offer in the hearing before Commissioner Foggo did not change the offer from one which was made on a without prejudice basis to one which was appropriate to be taken into account on the question of costs. To hold otherwise would not only be contrary to principle but would also have the potential to do great damage to the conciliation process which is such a central part of the Commission's work. If the offer had subsequently been repeated in a fashion which deprived if of its without prejudice status in relation to costs, the position would have been quite different. In this case, however, there is no suggestion that the offer was repeated in that way. By relying on Mr McKenzie's failure to accept the respondent's offer of reinstatement the Commissioner fell into error. The offer could not be taken into account in considering an application for costs for the reasons we have given. Although this point was not raised before the Commissioner we cannot ignore it because of the importance of the issue which underlies it.

[13] The third factor relied upon by the Commissioner concerned the costs incurred by the respondent in the further proceedings resulting from the failed attempt to discontinue the application. In summary, the chain of events was as follows. The second appellants, McDonald Murholme, had been acting both for Mr McKenzie and for his brother in proceedings under s.170CE against the respondent. McDonald Murholme wrongly filed a notice of discontinuance on Mr McKenzie's behalf following a conversation with counsel in which confusion arose as between the progress of the applications filed on behalf of Mr McKenzie and his brother respectively. It appears that the notice was filed in the absence of any instructions from Mr McKenzie. As already noted, the notice was filed the day before Mr McKenzie's case was to be heard by Commissioner Frawley. Furthermore, the respondent did not receive the notice of discontinuance and attended at the Commission. When, at a later date, the respondent sought the costs of that hearing it was submitted on Mr McKenzie's behalf that the application should be restored to the list. After a further hearing Senior Deputy President Williams held that the application had never been discontinued, and in due course the application was heard and dismissed by Commissioner Frawley.

[14] There is no doubting the cost and inconvenience to which the respondent was put in this part of the sorry saga which the proceedings became. Nevertheless the power to award costs is only attracted if the situation is one coming within the terms of s.170CJ. It is clear that the erroneous and aborted attempt to discontinue Mr McKenzie's application is not such a situation. It is not relevant to the question of whether the proceedings were instituted vexatiously or without reasonable cause within s.170CJ(1) nor to whether Mr McKenzie acted unreasonably in failing to discontinue the proceedings or to agree to terms of settlement within s.170CJ(2). Since there was never a valid discontinuance s.170CJ(3) does not arise for consideration. It follows that the attempt to discontinue and the circumstances surrounding it did not give rise to a situation in which there was a power to award costs.

[15] Before leaving this issue we should point out that the Commissioner may have dealt with the aborted attempt to discontinue the application as one of a number of factors justifying an order for costs against the appellants rather than as a factor which of itself gave rise to a power to award costs under the Act. We have dealt with it in the way we have to ensure that any possible basis for the application of s.170CJ is properly examined.

[16] Apart from the three factors we have identified the Commissioner also indicated that in her opinion the respondent's cost of attending the various proceedings, seven in all, would be very significant and would far outweigh the compensation which Mr McKenzie might potentially be awarded[9]. We think the Commissioner in this passage was giving a reason why she had decided to exercise her discretion in the respondent's favour and she was not addressing the requirements of s.170CJ. Out of an abundance of caution, however, we will deal with that issue on the basis that Mr McKenzie's conduct in persisting with his application throughout a large number of hearings might be relevant to the question of whether any of the terms of s.170CJ are attracted.

[17] The conduct cannot be relevant to the terms of ss.170CJ(1) or (3). Section 170CJ(2) relevantly has two bases for application, failure to discontinue and failure to agree to terms of settlement. The conduct could not be relevant to the latter basis because no open offer of settlement was ever made. That leaves only the question of whether it was open to the Commissioner to find that Mr McKenzie acted unreasonably in failing to discontinue his application because his costs were likely to far outweigh any award made in his favour.

[18] The Commissioner's examination of this question appears to have been influenced by a misapprehension about the period of Mr McKenzie's employment by the respondent. She stated that the employment was for 6 weeks. In fact it was for a year and 6 weeks as indicated in Commissioner Frawley's decision. This misapprehension arose because of an error made in the original application filed by McDonald Murholme on Mr McKenzie's behalf. Therefore Commissioner Foggo's conclusion is flawed. We do not think that the escalation of costs arising from the various proceedings rendered it unreasonable of Mr McKenzie not to discontinue. If he had been successful it is possible that the amount of compensation awarded would have been considerable, even taking his costs into account. Furthermore there can be good reasons other than financial ones for pursuing an application pursuant to s.170CE.

[19] After examining the Commissioner's reasons we have reached the conclusion that in the circumstances there was no power to award costs. None of the situations referred to in s.170CJ(1),(2) or (3) was present in this case. It follows that the order for costs must be set aside. We grant leave to appeal, uphold the appeal and quash the order of 8 December 1999.

[20] In conclusion we mention one other matter. The Commissioner's order for costs in this case was expressed to be against the applicant, Mr McKenzie, and against his solicitors, McDonald Murholme. During the course of the appeal we raised the issue of whether the Commission has power to award costs against a solicitor or other representative. The terms of s.170CJ(1) and (3) provide that in the circumstances with which they deal an order for costs may be made against an applicant whether it be a person or an organization. Section 170CJ(2) provides that in the circumstances set out an order for costs may be made against a party. There is no reference to a power to award costs against a representative. We doubt whether there is such a power unless it can be said to be a necessary incident of the power to award costs against a party. The matter was not fully explored in argument and since it is unnecessary that we decide the point we think it would be undesirable to do so.

[21] We think it only proper to point out that because of the manner in which Mr McKenzie's application has been prosecuted the respondent has been put to a significant amount of unnecessary trouble and expense. This is to be deplored. We refer in particular to the circumstances surrounding the filing of the notice of discontinuance and the eventual reinstatement of the proceedings. We have little doubt that in the civil courts the respondent would have recovered costs against Mr McKenzie and against Mr McKenzie's solicitors personally. As we have pointed out, however, the Commission's power to award costs in termination of employment cases is limited by the terms of s.170CJ. What has occurred in this case indicates that a reconsideration of the limits currently imposed by s.170CJ may be desirable in the interests of justice.

R Graham for Meran Rise Pty Ltd t/as Nu Force Security Services

Termination of employment - unfair dismissal - appeal - full bench - costs - s170CJ Workplace Relations Act 1996 - matter listed for arbitration on 8 October 1998 - notice of discontinuance subsequently made but apparently not served on employer who attended hearing - order for costs sought - discontinuance later disregarded - application set down for arbitration - proceedings not validly discontinued - matter set down for determination - Commission dismissed application - matter appealed - appeal unsuccessful - Commission subsequently awarded costs in respondents favour based on a number of factors - each factor dealt with separately by full bench including applicant acted unreasonably in failing to discontinue application, acted unreasonably in not accepting offer of reinstatement and cost incurred by respondent in the further proceedings resulting from the failed attempt to discontinue application - application made no reference to reinstatement only compensation - whether Commission entitled to take offer of reinstatement into account when considering question of costs - whether requirement of s170CJ addressed - full bench concluded that Commission had no power to award costs - none of the situations referred to in s170CJ(1),(2) or (3) was present in this case - orders for costs set aside - leave to appeal granted - appeal upheld - question raised whether Commission had power to award costs against a solicitor or other representatives - matter not fully explored in argument - Commission deplored the significant amount of unnecessary trouble and expense respondent was put to - Commission limited by terms of s170CJ - Commission commented that reconsideration of the limits imposed by s170CJ may be desirable in the interests of justice.

I McKenzie and Meran Rise Pty Ltd t/as Nu Force Security Services

Printed by authority of the Commonwealth Government Printer

[5] Print S1668 at paras[40] and [47] - [49]