s.45 appeal against decision Print S0691

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

[1] This decision deals with an appeal by Ms N Ellawala (the appellant) under s.45 of the Workplace Relations Act 1996 (the WR Act) against the decision and order made by Commissioner Foggo on 5 November 1999 in Prints S0691 and S0711 respectively. The decision and order arose out of an application for relief filed by Ms Ellawala in respect of the termination of her employment. Ms Ellawala was a former employee of the Australian Postal Corporation (the respondent). In the decision subject to appeal the Commissioner found that the termination of the applicant's employment was harsh but that reinstatement was inappropriate. The Commissioner ordered the respondent to pay Ms Ellawala an amount in lieu of reinstatement. The order subject to appeal is in the following terms:

"A. Further to a decision at Melbourne on 5 November 1999 [Print S0691], the following order is issued.

1. I order the Australian Postal Corporation pay to Mrs Ellawala all entitlements which were accrued to her at 30 January 1998 and;

2. I order the Australian Postal Corporation pay to Mrs Ellawala an amount equivalent to eight (8) weeks wages.

3. These payments are to be paid within fourteen (14) days from the date of this order.

B. This order shall come into operation from 5 November 1999."

[2] The background to this matter is set out in considerable detail in the decision of Commissioner Foggo. We deal with the background, in brief terms, below.

[3] Ms Ellawala had been employed as a postal services officer with the respondent from 26 October 1990 until the termination of her employment on 30 January 1998. In the four years prior to the termination of her employment Ms Ellawala worked at the St Albans Post Office.

[4] In 1995 Ms Ellawala was the subject of an internal inquiry regarding her handling of Express Mail Service (EMS) documentation. Relevant documentation could not be found in some 16 EMS transactions. We note here that counsel for the appellant questioned the extent of the effort taken by the respondent to locate this documentation. Arising out of that inquiry Ms Ellawala was counselled to take more care in her work in the future.[1]

[5] On 19 December 1997 Ms Ellawala accepted a parcel to go by EMS to Macedonia, she assessed the weight of the parcel and printed a label for $42 postage. The relevant operating procedures provide that the printed postage label is to be stuck on the top of the EMS form and the top copy of the EMS form is to go into the postal officer's cash register. At the end of each day all EMS forms are placed in a satchel on the postal manager's desk. Ms Ellawala's recollection of what happened in respect of the Macedonian parcel is set out in her witness statement in the following terms:

"7. I think that what happened on 19 December was that I got distracted and made a mistake, and put the label itself in my drawer and did not put it on the EMS form on the parcel. I made a mistake in terms of the paperwork, but I did charge and receive the correct amount for the postage. No-one raised any errors with me at that time.

8. 8 January 1998 was also a very busy day. Again, the St Albans office was 2 staff members down, and it was pension day, which is always busy. On that day, a customer came in with a parcel for Malta. The customer paid the correct postage for the weight, which was $61.00. It seems that on this day, I did not generate a label for that parcel. I think what happened was that the customer went away to fill out the customs declaration, and I went on with serving other customers. I did not print out a label, but I must have thought that I had. I must have got confused, and I grabbed the earlier $42.00 postage label from my drawer and stuck that on the parcel. I did not notice the discrepancy at the time."

[6] On 8 January 1998 Ms Ellawala noticed that her cash drawer balance was $70.00 over and she reported this to her postal manager.

[7] On 15 January 1998 the appellant received formal notification that an inquiry would be held into her conduct as an employee of Australia Post and she was suspended with pay until further notice. The notification stated that the subject of the inquiry would be that "all employees are expected to display skills, care and diligence in the performance of the official

duties for which they are engaged, in particular all employees will ensure that they do not suppress any moneys, belonging to Australia Post."[2] The notification concluded in the following terms:

"If the Inquiry Officer finds your misconduct proven, she may recommend the following disciplinary action;

* transfer to another position at the same or lower level

[8] Ms Ellawala was subsequently interviewed by the Inquiry Officer, Miss Michele Dalton. The internal inquiry revealed that the paperwork could not be found in respect of some 13 EMS transactions by Ms Ellawala in December 1997 and January 1998.[4] The appellant's explanation was that she had complied with the paperwork and could not explain why the relevant documentation could not be found.

[9] On 28 January 1998 Miss Dalton provided a report of her inquiry to the appellant's area manager, Mr Halsall. The report concludes with the following recommendation:

"As a result of my investigation, I find that the allegation `not displaying skill, care and diligence in the performance of her official duties' against Mrs Ellawala proven and as such I recommend that Mrs Ellawala be dismissed from Australia Post**.**

o Mrs Ellawala acknowledged printing the label for an EMS article on 19/12/97 and not bringing it to account as per accounting instruction 65.1.

o Mrs Ellawala acknowledged using the label generated on 19/12/97 on a parcel accepted on 8/1/98.

o Mrs Ellawala is unable to account for 12 other EMS labels that she generated throughout December and January, valued at $373.00."[5]

[10] After receiving Miss Dalton's report, Mr Halsall discussed the matter with his superior Mr John Haywood. Mr Haywood was the Operations Manager, Retail for Australia Post. In his witness statement he says:

"After considering the matter and taking into account Mrs. Ellawala's length of service, I decided to accept Ms. Dalton's recommendation that Mrs. Ellawala be dismissed from Australia Post. It was my view that Mrs. Ellawala's failure to use correct accounting procedures when printing labels for EMS articles showed a failure on her part to display skill, care and diligence in the performance of her duties as a Postal Services Officer. I took into account the fact that she had been previously warned in regard to her not following correct procedures in regard to EMS articles."[6]

[11] On 30 January 1998 Mr Haywood advised the appellant, in writing, that her services were being terminated effective 30 January 1998.

I refer to an inquiry into your conduct as an employee of Australia Post, under the Australia Post Code of Conduct. The inquiry was conducted by the Area Manager, South Melbourne, Ms Michele Dalton on 19th - 22nd January, 1997.

I have read carefully the inquiry officers report and spoken to both the inquiry officer and your Area Manager, Mr Tony Halsall, and I have decided to accept the inquiry officers recommendation. It is my view, that the allegations that you failed to use correct accounting procedures when printing labels for EMS articles are of a serious nature.

You will be dismissed from employment with Australia Post from the 30th January, 1998.

You have the right of appeal if you consider this decision to be harsh, unreasonable, unjust or unfair.

Appeals must be lodged with the General Manager - Victoria/Tasmania, GPO Box 2020s within 14 days of the date of this notification."[7]

[12] Ms Ellawala subsequently filed an internal appeal against the decision to terminate her employment. A "Board of Reference" appeal was conducted on 6 March 1998. The appeal was dismissed and Ms Ellawala was advised of this fact by letter dated 11 March 1998.[8]

[13] Ms Ellawala filed an application for relief in relation to the termination of her employment pursuant to s.170CE of the WR Act. Conciliation was unsuccessful and the arbitration of Ms Ellawala's claim was heard before the late Commissioner Frawley on 7 and 8 June and 20 August 1999. On 1 October 1999 the President appointed Commissioner Foggo pursuant to s.34(1), to constitute the Commission for the purpose of determining the application.

[14] In the decision subject to appeal the Commissioner found that there was a valid reason for the termination of Ms Ellawala's employment on the basis that she had breached the respondent's procedures and "by doing so left the respondent in a position where it could have little or no confidence that it could rely on the applicant to effectively carry out her responsibilities."[9] The Commissioner went on to conclude that there were circumstances which rendered the termination harsh. In this regard she said:

"I have accepted that the applicant has physically and economically suffered the consequences of the termination of her employment. The failure of the respondent to pay to the applicant her outstanding entitlements has been, in my view, harsh. I can perhaps understand that Mrs Ellawala would not have been paid her entitlements until the completion of the Appeal process. However, she should have been paid them after the Appeal process was completed. The fact that the respondent has kept those entitlements

until the end of the proceedings before the Commission amounts to a sequestering of the applicant's entitlements. Ms Doyle has provided submissions in relation to the difficulty which the applicant has faced following the end of her employment with Australia Post. Had she received the moneys due to her, the financial hardship may have been less severe.

This matter adds an element of harshness to the termination of the applicant and is one reasons why I find that there should be compensation paid by the respondent."[10]

[15] The Commissioner concluded that reinstatement was not appropriate and ordered the respondent to pay Ms Ellawala her "accrued entitlements" and an amount equivalent to eight weeks wages.

[16] Pursuant to the Commissioner's order the respondent paid the appellant $4673.43, representing twelve weeks gross salary less tax, based on a gross weekly wage of $568. It is apparent that the respondent interpreted the Commissioner's order as requiring the payment of an amount in lieu of notice, which it calculated as four weeks pay.

[17] The grounds of appeal set out in the notice of appeal are in the following terms:

"1. The Commissioner erred in law by failing to order that the Appellant be reinstated.

2. The Commissioner erred in law in her calculation of the compensation to be paid by the Respondent in lieu of reinstatement."

[18] The appellant did not seek leave to amend these grounds.

[19] The appellant submitted that having regard to the following factors, it was not open to the Commission to conclude that it was inappropriate to order that she be reinstated:

* The Commission did not find that there was any element of dishonesty or intent to deprive the respondent in the appellant's actions.

* The respondent suffered no loss as a result of the appellant's actions.

* The appellant had not received any prior warnings about this matter.

* The appellant stated that she was aware of the relevant procedures and would abide by them.

* Given the above there was no basis for the Commissioner to conclude that the appellant "was not capable of carrying out the responsibilities of her position of postal officer" or that the respondent could not have "faith [in her and that she] will carry out the procedures which are put in place to protect them from fraud and to provide a safeguard to employees".

* The effect of the termination on the appellant was unduly harsh and reinstatement would have been a more appropriate remedy than compensation.

[20] Accordingly, the appellant submitted that we ought vary the order subject to appeal to provide that the respondent reinstate the appellant and pay to her an amount in respect of the remuneration lost between the time of termination and the time of reinstatement.

[21] In the event that we determined that the Commissioner did not err in failing to order that the appellant be reinstated, the appellant submitted that the Commissioner erred in her assessment of the amount ordered in lieu of reinstatement. In particular it was argued that the Commissioner failed to assess the remuneration lost, which is a factor to which the Commission must have regard. It was also put that it was apparent from the decision subject to appeal that the Commission had failed to follow the steps laid down in Sprigg v Paul's Licensed Festival Supermarket (Sprigg).[11] in calculating the lost remuneration. The appellant submits that if the correct method had been followed, the calculation of compensation would have resulted in an order of payment to the appellant of six months' remuneration.

[22] As the focus of the appeal was on the Commissioner's consideration of the remedies to be awarded we have decided to set out the relevant principles before turning to our consideration of the particular points advanced by the appellant.

[23] Section 170CH of the WR Act 1996 deals with the remedies available in the event that the Commission determines that a termination of employment was "harsh, unjust and unreasonable". The section is in the following terms:

"(1) Subject to this section, the Commission may, on completion of the arbitration, make an order that provides for a remedy of a kind referred to in subsection (3), (4) or (6) if it has determined that the termination was harsh, unjust or unreasonable.

(2) The Commission must not make an order under subsection (1) unless the Commission is satisfied, having regard to all the circumstances of the case including:

(a) the effect of the order on the viability of the employer's undertaking, establishment or service; and

(b) the length of the employee's service with the employer; and

(c) the remuneration that the employee would have received, or would have been likely to receive, if the employee's employment had not been terminated; and

(d) the efforts of the employee (if any) to mitigate the loss suffered by the employee as a result of the termination; and

(e) any other matter that the Commission considers relevant;

(3) If the Commission considers it appropriate, the Commission may make an order requiring the employer to reinstate the employee by:

(a) reappointing the employee to the position in which the employee was employed immediately before the termination.

(b) appointing the employee to another position on terms and conditions no less favourable than those on which the employee was employed immediately before the termination.

(4) If the Commission makes an order under subsection (3) and considers it appropriate to do so, the Commission may also make:

(a) any order that the Commission thinks appropriate to maintain the continuity of the employee's employment; and

(b) subject to subsection (5)--any order that the Commission thinks appropriate to cause the employer to pay to the employee an amount in respect of the remuneration lost, or likely to have been lost, by the employee because of the termination.

(5) If, as a result of an application under section 170CP, a court has awarded an amount of damages for a failure to give notice of a termination as required by section 170CM, any amount ordered to be paid by the Commission under paragraph (4)(b) in respect of the termination is to be reduced accordingly.

(6) If the Commission thinks that the reinstatement of the employee is inappropriate, the Commission may, if the Commission considers it appropriate in all the circumstances of the case, make an order requiring the employer to pay the employee an amount ordered by the Commission in lieu of reinstatement.

(7) Subject to subsection (8), in determining an amount for the purposes of an order under subsection (6), the Commission must have regard to all the circumstances of the case including:

(a) the effect of the order on the viability of the employer's undertaking, establishment or service; and

(b) the length of the employee's service with the employer; and

(c) the remuneration that the employee would have received, or would have been likely to receive, if the employee's employment had not been terminated; and

(d) the efforts of the employee (if any) to mitigate the loss suffered by the employee as a result of the termination; and

(e) any other matter that the Commission considers relevant.

(8) In fixing an amount under subsection (6) for an employee who was employed under award conditions immediately before the termination, the Commission must not fix an amount that exceeds the total of the following amounts:

(whichever is higher) for any period of employment with the employer during the period of 6 months immediately before the termination (other than any period of leave without full pay); and

(b) if the employee was on leave without pay or without full pay while so employed during any part of that period--the amount of remuneration taken to have been received by the employee for the period of leave in accordance with the regulations.

(9) In fixing an amount under subsection (6) for an employee who was not employed under award conditions immediately before the termination, the Commission must not fix an amount that exceeds:

(a) the total of the amounts determined under subsection (8) if the employee were an employee covered by the subsection; or

(b) the amount of $32,000, as indexed from time to time in accordance with a formula prescribed by the regulations;

(Note: section 170CH(9)(b) indexed to $34,600 from 1 July 1999)

(10) For the avoidance of doubt, an order by the Commission under paragraph (4)(b) or under subsection (6) may permit the employer concerned to pay the amount required in instalments specified in the order."

[24] A number of general observations may be made about s.170CH. First, the decision to make an order that provides for a remedy is discretionary. It is a discretion which "may" be exercised, but only in the circumstances set out in s.170CH(1). Before an order can be made to provide for a remedy the Commission must have determined, on completion of the arbitration, that the termination in question was "harsh, unjust or unreasonable".

[25] Second, the Commission must not make an order that provides for a remedy unless it is satisfied, having regard to all the circumstances of the case including the matters set out at paragraphs 170CH(2)(a) - (e), that the remedy ordered is appropriate. Subsection 170CH(2) is couched in mandatory terms. It should be construed as requiring the Commission to take all circumstances into account and in particular to take into account each of the particular circumstances specified in paragraphs 170CH(2)(a), (b), (c), and (d), as well as any relevant matter within the scope of paragraph 170CH(2)(e). These matters are to be taken into account as fundamental elements in determining whether to make an order providing for a remedy.[12]

[26] Third, it is apparent from the terms of s.170CH that in determining the question of a remedy the Commission must first consider reinstatement.[13] This follows from the terms of s.170CH(6) which provides that the Commission may only consider the remedy of compensation if it "thinks that the reinstatement of the employee is inappropriate". The remedies available are reinstatement and the payment of an amount in lieu of reinstatement. Each of these is dealt with below.

[27] If the Commission considers it "appropriate" it may make an order requiring the employer to reinstate the employee by:

* reappointing the employee to the position in which the employee was employed immediately before the termination (s.170CH(3)(a));

* appointing the employee to another position on terms and conditions no less favourable than those on which the employee was employed immediately before the termination (s.170CH(3)(b)).

[28] Section 170CH(4) provides that if a reinstatement order is made then the Commission may also make orders to maintain the continuity of the employee's employment and to require the employer to pay the employee an amount in respect of the remuneration lost, or likely to have been lost by the employee because of the termination.

[29] The current statutory framework requires the Commission to consider whether reinstatement is "appropriate". Under the former s.170EE(2) the Commission was required to consider whether reinstatement was "impracticable". A consideration of the appropriateness of reinstatement involves the assessment of a broader range of factors than impracticability.[14] One of the factors to be taken into account is whether there has been a loss of trust and confidence. This is a relevant consideration, but it is not necessarily conclusive.[15] In Perkins v Grace Worldwide (Aust) Pty Ltd,[16] the Full Court of the Industrial Relations Court said:

". . . we accept that the question whether there has been a loss of trust and confidence is a relevant consideration in determining whether reinstatement is impracticable, provided that such loss of trust and confidence is soundly and rationally based.

At the same time it must be recognised that, where an employer, or a senior officer of an employer, accuses an employee of wrongdoing justifying the summary termination of the employee's employment, the accuser will often be reluctant to shift from the view that such wrongdoing has occurred, irrespective of the Court's finding on that question in the resolution of an application under Division 3 of Part VIA of the Act.

If the Court were to adopt a general attitude that such a reluctance destroyed the relationship of trust and confidence between employer and employee, and so made reinstatement impracticable, an employee who was terminated after an accusation of wrongdoing but later succeeded in an application under the Division would be denied access to the primary remedy provided by the legislation. Compensation, which is subject to a statutory limit, would be the only available remedy. Consequently, it is important that the Court carefully scrutinise any claim by an employer that reinstatement is impracticable because of loss of confidence in the employee.

[30] While Perkins was decided under the former statutory scheme the above observations remain relevant to determining whether reinstatement is appropriate.[17] Such a determination requires a judgement to be made by the member at first instance based on the evidence and material before the Commission.[18] In the event that the Commission thinks that the reinstatement of the employee is inappropriate it may make an order requiring the employer to pay the employee an amount in lieu of reinstatement (s.170CH(6)).

[31] The principles applicable to determining an amount to be ordered in lieu of reinstatement are dealt with in Sprigg. In that case the Full Bench endorsed the following approach:

Step 1: Estimate the remuneration the employee would have received, or have been likely to have received, if the employer had not terminated the employment (remuneration lost).

Step 3: Discount the remaining amount for contingencies.

Step 4: Calculate the impact of taxation to ensure that the employee receives the actual amount he or she would have received if they had continued in their employment.

[32] Any amount provisionally arrived at by application of these steps is subject to whether offsetting weight is given to other circumstances, including those that need now to be taken into account under paragraphs 170CH(7)(a), (b) and (c). The legislative cap on the amount able to be ordered is then applied pursuant to ss.170CH(8) and (9).

[33] The first step in this process - the assessment of remuneration lost - is a necessary element in determining an amount to be ordered in lieu of reinstatement. Such an assessment is often difficult, but it must be done. As the Full Bench observed in Sprigg:

". . . we acknowledge that there is a speculative element involved in all such assessments. We believe it is a necessary step by virtue of the requirement of s.170CH(7)(c). We accept that assessment of relative likelihoods is integral to most assessments of compensation or damages in courts of law."[19]

[34] Lost remuneration is usually calculated by estimating how long the employee would have remained in the relevant employment but for the termination of their employment. We refer to this period as the "anticipated period of employment". This amount is then reduced by deducting monies earned since termination. Only monies earned during the period from termination until the end of the "anticipated period of employment" are deducted. An example may assist to illustrate the approach to be taken.

[35] In a particular case the Commission estimates that if the applicant had not been terminated then he or she would have remained in employment for a further 12 months. The applicant has earned $3,000 a month for the 18 months since termination, that is $54,000. Only the money earned in the first twelve months after termination - that is $36,000 - is deducted from the Commission's estimate of the applicant's lost remuneration. Monies earned after the end of the "anticipated period of employment", 12 months after termination in this example, are not deducted. This is because the calculation is intended to put the applicant in the financial position he or she would have been in but for the termination of their employment.[20]

[36] The next step is to discount the remaining amount for "contingencies". This step is a means of taking into account the possibility that the occurrence of contingencies to which the applicant was subject might have brought about some change in earning capacity or earnings.

[37] In Wynn v NSW Insurance Ministerial Corporation the High Court (per Dawson, Toohey, Gaudron and Gummow JJ) made the following observations about deductions for contingencies:

"It is necessary to say something as to contingencies or `vicissitudes'. Calculation of future economic loss must take account of the various possibilities which might otherwise have affected earning capacity. The principle and the relevant considerations were identified by Barwick CJ in Arthur Robinson (Grafton) Pty Ltd v Carter as follows:

"Ill health, unemployment, road or rail accidents, wars, changes in industrial emphasis, so that industries move their location, or are superseded by new and different techniques, the onset and effect of automation and the mere daily vicissitudes of life are not adequately reflected by merely and blindly - taking some percentage reduction of a sum which ignores them." [(1968) [1968] HCA 9; 122 CLR 649 at 659]

It is to be remembered that a discount for contingencies or `vicissitudes' is to take account of matters which might otherwise adversely affect earning capacity and as Professor Luntz notes, death apart, `sickness, accident, unemployment and industrial disputes are the four major contingencies which expose employees to the risk of loss of income'. Positive considerations which might have resulted in advancement and increased earnings are also to be taken into account for, as Windeyer J pointed out in Bresatz v Przibilla, [(1962) [1962] HCA 54; 108 CLR 541 at 544] `(a)ll "contingencies" are not adverse: all "vicissitudes" are not harmful'. Finally, contingencies are to be considered in terms of their likely impact on the earning capacity of the person who has been injured, not by reference to the workforce generally. Even so, the practice in New South Wales is to proceed on the basis that a 15% discount is generally appropriate, subject to adjustment up or down to take account of the plaintiff's particular circumstances."[21]

[38] Four points may be drawn from this extract:

* calculations of future economic loss must take account of the various probabilities which might otherwise have affected earning capacity;

* apart from death, the four major contingencies which expose employees to the risk of loss of income are sickness, accident, unemployment and industrial disputes;

* positive considerations which might have resulted in advancement and increased earnings are also taken into account; and

* contingencies are to be considered in terms of their weekly impact on the earning capacity of the applicant, not by reference to the workforce generally.

[39] Assessing the impact of contingencies requires the exercise of a broad general discretion. As the Full Court of the Federal Court said in Hall and another v Tarlinton:

". . . it is not the law, in our opinion, that unfavourable contingencies are always to be assumed, and that the plaintiff has the onus of establishing that there are countervailing favourable contingencies. In our opinion, in each particular case, the question is one for the trial judge or jury: on all the evidence, does it appear that the calculation of the plaintiff's loss of earning capacity, based on his wages at the time of the accident, should be increased for favourable contingencies, decreased for unfavourable contingencies, or left unchanged for the combination of both . . . the matter is not one for calculation, but for the exercise of a broad general discretion."[22]

[40] We note that in Sprigg the Commission adopted a 25 per cent discount for contingencies in accordance with the deduction made by North J in Slifka v JW Sanders Pty Ltd.[23] In that case his Honour dealt with this issue in the following terms:

"In relation to the loss of wages after 27 October 1995 (paragraph (d)), the existing significant differential between the applicant's current actual earnings and the earnings he would have received from continued employment with the respondent may well reduce in the remaining 2½ years. Although the applicant's wages have not increased in the last 12 months, there is some chance that the longer he remains in employment the more likely an increase in wages becomes, with a consequent reduction in the differential. The applicant was a very experienced employee in the electrical wholesaling trade. This experience should prove valuable to his new employer. Of course, against this must be balanced the chance that he will lose his current job and find it difficult to obtain a new one.

In relation to the items referred to in paragraphs (d), (e) and (g), some allowance should be made for the contingency that the applicant may not have served the whole of the remaining 2 ½ years as an employee of the respondent, for reasons such as ill health, lawful termination by the respondent, voluntary resignation, or closure of the respondent's business. None of these contingencies should attract a high allowance.

Finally, some allowance should be made for the fact that some part of the compensation will be received up to 2 ½ years earlier than if the applicant had completed his employment with the respondent.

In all the circumstances, it appears to me that an appropriate reduction for contingencies relating to the future is 25%. As the total of the items referred to in paragraphs (d), (e) and (g) is $30, 000, a reduction of 25% brings these items to a total of $22, 500."[24]

[41] It is apparent from the above extract that his Honour was not seeking to lay down a discount for contingencies which would be generally appropriate. Rather he adopted a 25 per cent discount factor on the basis of the circumstances of the particular case before him.

[42] It would be open to the Commission to proceed on the basis that a certain percentage discount for contingencies was generally appropriate, subject to adjustment up or down to take account of an applicant's particular circumstances.[25] But we are not necessarily convinced that a 25 per cent discount would be generally appropriate. We note that in Wynn v NSW Insurance Ministerial Council[26] the High Court observed that the practice in New South Wales was to generally adopt a 15 per cent discount for contingencies.

[43] We note that in Slifka North J only applied the deduction for contingencies to prospective loss, that is loss occasioned after the date of the hearing. This approach has also been adopted in a number of first instance arbitrations by members of the Commission.[27] As a matter of logic this approach has some appeal. A discount for contingencies is a means of taking account of the various probabilities that might otherwise affect earning capacity. At the time of hearing any such impact on an applicant's earning capacity between the date of termination and the hearing will be known. It will not be a matter of assessing prospective probabilities but of making a finding on the basis of whether the applicant's earning capacity has in fact been affected during the relevant period. But this matter was not raised before us and we were not directed to any evidence upon which we could make a finding as to whether Ms Ellawala's earning capacity was adversely effected by some event which took place in the period between her termination and the hearing of the matter at first instance.

[44] As these issues of general principle were not argued before us we do not propose to express a concluded view on them. It may be that they will need to be determined by a future Full Bench.

[45] In relation to the fourth step set out in Sprigg we note that the usual practice is to settle a gross amount and leave taxation for determination_._

[46] The appellate jurisdiction conferred on us by s.45, in relation to an appeal concerning an order arising from arbitration of an application under s.170CE, is conditioned by s.170JF(1) which limits the grounds of an appeal. The only ground is that the member of the Commission who conducted the arbitration was in error in deciding to make an order. That can be an error of fact or an error of law.[28]

[47] Because the order of Commissioner Foggo is a discretionary one, the appeal is to be determined in accordance with the principles applicable to appeals from such an order; that is, the principles stated in House v The King.[29]

[48] In House v The King, Dixon, Evatt and McTiernan JJ stated these principles as follows:

"The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the

appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred."[30]

[49] In Norbis v Norbis, Mason and Deane JJ, having categorised the order in that case as discretionary because it depended on the application of a very general standard, said:

"The principles enunciated in House v The King were fashioned with a close eye on the characteristics of a discretionary order in the sense which we have outlined. If the questions involved lend themselves to differences of opinion which, within a given range, are legitimate and reasonable answers to the questions, it would be wrong to allow a court of appeal to set aside a judgment at first instance merely because there exists just such a difference of opinion between the judges on appeal and the judge at first instance. In conformity with the dictates of principled decision-making, it would be wrong to determine the parties' rights by reference to a mere preference for a different result over that favoured by the judge at first instance, in the absence of error on his part. According to our conception of the appellate process, the existence of an error, whether of law or fact, on the part of the court at first instance is an indispensable condition of a successful appeal."[31]

[50] In Construction, Forestry, Mining and Energy Union v Giudice, the Full Court of the Federal Court said:

"It can be seen from s.45(1) that an appeal lies to a Full Bench only with the leave of the Full Bench. Section 45(1) confers a power on the Full Bench to grant leave and s.45(2) requires a Full Bench to grant leave if it forms the opinion that the matter is of such importance that in the public interest leave should be granted. The formation of that opinion dictates that leave be granted. Section 45(2) does not prescribe the test for the grant of leave. It requires the Full Bench to grant leave, if the Full Bench forms the requisite opinion. The conventional considerations for the granting of leave, including whether, in all the circumstances, the decision is attended with sufficient doubt to warrant its being reconsidered by the Full Bench, or whether substantial injustice would result if leave were refused, supposing the decision to be wrong, are not replaced by a different test: rather, s.45(2) provides a further, and obligatory, basis for the grant of leave."[32]

[51] In the light of the principles applicable to an appeal from a discretionary order, we now turn to consider whether an error within these principles was made by the Commissioner in the exercise of her discretion.

[52] The primary submission advanced by the appellant was that it was not reasonably open to the Commissioner to conclude that reinstatement was inappropriate. It is apparent from her decision that the Commissioner was concerned that the respondent had been left in the position where it could have little or no confidence that it could rely on Ms Ellawala to effectively carry out her responsibilities.[33] At paragraphs 27, 32 and 33 of her decision the Commissioner said:

"[27] It is not sufficient for the applicant to merely state that she made a mistake and because she admitted to that mistake, that the employer should not take any further action. I can understand that the employer would have ongoing concerns with the ability of the applicant to abide by the correct procedures during any future employment because she had breached the procedures despite stating, in evidence and before the Appeals Board, that she understood the procedures and that they were not difficult. On balance, I conclude that Mrs Ellawala has by her own actions led to a situation where the employer cannot have confidence that she will show due diligence in her work. In this context I do not accept the primary application of the applicant that reinstatement should be ordered.

[32] I do not consider that the applicant should be reinstated and transferred to another branch or that she could work at her previous branch at St Albans if the previous supervisor was not present. It is not the future communication with other employees which concerns the Commission in this matter. Rather, the major consideration relates to whether Mrs Ellawala is capable of carrying out the responsibilities of her position of postal officer and whether she has shown despite her eight years of employment that the errors would not occur again.

[33] On the evidence before me I cannot conclude that the error by the applicant on 18 December 1997 was a `one-off' situation and that the respondent should overlook her actions and provide continuing employment. The incident on 18 December 1997 was serious but on the evidence, it was compounded by the fact that Mrs Ellawala was a postal officer of eight years standing and because she made it clear throughout the interview process that she fully understood the procedures she should have followed."

[53] In our view the Commissioner's conclusion that reinstatement was not appropriate was reasonably open to her. There was evidence and material to support the Commissioner's finding that the respondent could have little or no confidence that it could rely on Ms Ellawala to effectively carry out her responsibilities, for example:

* the procedures for processing EMS transactions were described by Ms Inch, one of the appellant's work colleagues, as "routine"[34], and the appellant was aware of those procedures;[35] and

* in 1995 Ms Ellawala was the subject of an internal inquiry regarding her handling of EMS documentation. Arising out of that inquiry Ms Ellawala was counselled to take more care in her work. The following exchange during the course of Ms Ellawala's cross-examination in the proceedings at first instance is relevant in this regard:

"Mr McKeown: . . . you had previously been warned in regard to the issues involving EMS documentation?

Ms Ellawala: I don't know whether I considered it as a warning or counselling or whatever you call it now. I recollect Mr Tony Halsall speaking to me and telling me to take more care in my work."[36]

[54] Counsel for the appellant contended that Ms Ellawala had stated that she was aware of the correct procedures for processing EMS transactions and would abide by them in the future. We accept that in a document provided by Ms Ellawala to the Board of Reference appeal she made the following statement:

"I now realise the importance of following the correct accounting procedures and would not fail to follow them in future unless I am specifically directed to do so in writing by the Postal Manager."[37]

[55] But what Ms Ellawala meant by the above statement was clarified during the course of her cross-examination and it is apparent that the words do not carry the meaning counsel for the appellant sought to ascribe to them. Ms Ellawala said:

" . . . Well, what I referred to here actually was that I should have insisted that my excess of $70 on the 8 January should have brought into account straight away and that I should have insisted that I be present at my stamp check on 12 January. That's what I meant there."[38]

[56] On the basis of her subsequent clarification it is apparent that Ms Ellawala's earlier statement was a reference to her desire to ensure her supervisors followed correct accounting procedures. It did not amount to an undertaking as to her future performance.

[57] We note that the written submissions in reply filed on behalf of the appellant contain a collateral challenge to the Commissioner's finding that there was a valid reason for Ms Ellawala's termination. This point was only advanced in the course of submissions in reply and was not one of the grounds set out in the notice of appeal. Nor was the point developed during the course of oral argument. These considerations would normally lead us to dismiss the point out of hand. But to put the matter beyond doubt we make it clear that we are satisfied that the Commissioner's conclusion on this point was reasonably open to her having regard to the factual background we have set out earlier in our decision.

[58] The appellant's submissions in relation to the Commissioner's assessment of the amount to be ordered in lieu of reinstatement have more substance.

[59] In determining an amount in lieu of reinstatement, s.170CH(7) requires the Commission to consider each of the matters in paragraphs 170CH(7)(a), (b), (c) and (d), as well as any relevant matter within the scope of paragraph 170CH(7)(e). Not only must the matters be considered but the words "must have regard to" signify that each must be treated as a matter of significance in the decision making process.[39] A consequence of this construction of s.170CH(7) is that the Commission is obliged to make a finding in respect of each of the circumstances specified in paragraphs 170CH(7)(a) to (d) insofar as each of these paragraphs is relevant to the factual circumstances of a particular case.[40]

[60] Paragraph 170CH(7)(c) requires that consideration be given to "any remuneration the employee would have received, or would have been likely to receive, if the employee's employment had not been terminated"; in other words lost remuneration. We have decided that it is not apparent from her decision that the Commissioner gave consideration to that factor at first instance. For a determination applying s.170CH(7), the Commissioner would have had to estimate lost remuneration in a way that took into account likely future remuneration. We do not think that occurred, at least not on the face of the decision. At paragraph 29 of her decision the Commissioner says:

"I accept the submission for the respondent that for the purposes of this application, the relevant steps in determining the level of compensation to award are those set out in the decision in Sprigg's case and I adopt those steps for determining compensation. On the issue of the length of employment which the applicant could have expected had she remained in employment with Australia Post, I agree with Mr McKeown that such a determination is difficult to determine. On the one hand, Mrs Ellawala had shown that she understood the operating requirements in relation to the processing of mail articles, tallying of moneys and cross referencing of sales but that she failed to comply with them. On the other hand, her errors had in the main, been confined to the period of December 1997/January 1998 and in 1995 where she was counselled over abiding by correct procedures. The applicant may have expected her employment to continue for some years but for that to occur she would have needed to make a commitment to more effectively follow the operating procedures of her employer."

[61] While the above extract sets out the contentions put by the parties at first instance we do not regard it as going as far as estimating future remuneration. It is not an assessment of a loss over time which, in our view, s.170CH(7)(c) requires. As s.170CH(7)(c) requires that the circumstances of estimated contingent lost remuneration must be considered, an omission to do so is a failure to properly exercise the discretion conferred by s.170CH(6).[41]

[62] The decision subject to appeal does not disclose the steps in the reasoning process which led the Commissioner to make the order subject to appeal. A failure to give adequate reasons can be an error of law if the decision-maker is under a duty to give reasons.[42] The extent of the duty to give reasons in the context of a s.170CG arbitration was dealt with by Moore J in Edwards v Giudice in the following terms:

"In my opinion the subject matter of the power to arbitrate under s.170CG, when taken together with the conditional right of an appeal conferred by s.45 and the ground of appeal in s.170JF, point to the conclusion that the Commission is, when determining an application under s.170CE by arbitration, obliged to give reasons for its determination which deal with the material legal and factual issues presented for determination and which deal with the matters the Commission must consider because of s.170CG(3) and the relevant provisions of s.170CH."[43]

[63] In the same case Marshall J expressed the obligation in these terms:

"In a seriously contested case before a tribunal which is required to afford procedural fairness and act judicially, an arbitrator is obliged to disclose the steps involved in the reasoning which leads to a particular result."[44]

[64] In our view Edwards v Giudice is authority for the proposition that in determining an application under s.170CE by arbitration the Commission is obliged to give reasons for its determination which:

* disclose the steps involved in the reasoning which leads to a particular result; and

* deal with the material legal and factual issues presented for determination and which deal with the matters the Commission must consider because of s.170CG(3) and s.170CH.

[65] We are satisfied that the failure to make a finding in respect of lost remuneration and to disclose the steps in the reasoning process which led to the making of the order subject to appeal constitute errors of principle of sufficient magnitude to lead us to grant leave to appeal. In the circumstances it is now necessary for us to consider whether we should confirm, quash or vary the order subject to appeal.

[66] In relation to the steps in Sprigg the appellant contended that Ms Ellawala's employment would have continued for "some years", i.e. at least two years. On this basis it was said that the appellant's lost remuneration was $59,124 plus superannuation contributions and payments received in respect of overtime and other allowances. The appellant conceded that monies earned since the termination of her employment should be deducted but argued that there should be no deduction for contingencies or any of the matters set out in s.170CH(7). As the provisional amount under the first four steps in Sprigg is greater than the legislative cap it was argued that the amount to be ordered should be reduced to the total amount of remuneration received by the employee during the six months immediately before the termination of her employment.

[67] The respondent contended that the appellant was not held in high regard by her employer in terms of her work performance and having regard to the Commissioner's finding that there was a valid reason for the termination of Ms Ellawala's employment, the future of the employment relationship was limited. It was submitted that, at best, the appellant would only have remained in employment for a further month, representing the notice period to which the appellant was entitled. No deduction for monies earned since termination is

necessary as the amount in question was earned after the period which it is said that the employment would have continued. In relation to contingencies it was argued that a greater than usual deduction should be made due to the uncertainty of the ongoing employment relationship. In this context the respondent relied on the decision in J. Le Good v Stork Electrical Pty Ltd (Le Good).[45]

[68] We now turn to apply the principles applicable to the determination of the amount to be ordered in lieu of reinstatement which we have set out earlier in our decision.

[69] In relation to the first step - the assessment of remuneration lost - we are of the view that Ms Ellawala's employment would only have continued for a further six months. We have reached that conclusion having regard to the fact that Ms Ellawala has now been the subject of two internal inquiries about her handling of EMS documentation. The procedure for such transactions is not complicated, yet Ms Ellawala has made a number of mistakes in relation to its implementation, despite being previously counselled to take more care in her work. Given the limited financial information before us we are not able to quantify the amount equivalent to six months remuneration at this stage. That can be done in the process of settling the order arising from our decision.

[70] As to the second step, we would deduct the amount earned by the appellant between 30 January and 29 July 1998. We note that we are satisfied that the appellant made a sufficient effort to mitigate her losses.

[71] As the third step, we have decided to deduct 15 per cent for contingencies. We have already taken into account the uncertainty surrounding Ms Ellawala's ongoing employment, as a result of her past performance, in our assessment of lost remuneration. The circumstances here are distinguishable from those in Le Good. In that case the Commission deducted one third for contingencies reflecting the greater than usual uncertainty associated with the fact that the applicant's employer was in the process of restructuring its business.

[72] As the fourth step, we have considered the impact of taxation but we elect to settle a gross amount and leave taxation for determination.

[73] Because the provisional amount resulting from the first four steps is under the legislative cap, no adjustment is required for that reason.

[74] We can summarise the considerations we are required to have regard to, on the basis of the following findings:

(i) There is no firm basis on which it can be concluded that an order for the amount determined to be paid in lieu of reinstatement would affect the viability of the respondent [s.170CH(7)(a)];

(ii) The length of the appellant's service with the respondent is a circumstance which weighs in favour of there being compensation. Certainly no diminution of any amount that might otherwise be determined is warranted because of that circumstance [s.170CH(7)(b)];

(iii) The remuneration lost because of the termination is assessed at six months remuneration [s.170CH(7)(c)];

(iv) The efforts at mitigation by the appellant have resulted in income that has been taken into account in assessing the amount to be paid in lieu of reinstatement. The applicant's effort is sufficient to exclude any further deduction [s.170CH(7)(d)];

(v) The provisional amount determined to this point should be reduced by 15 percent for contingencies.

(vi) We see no reason to add to, or to detract from, the amount based on total remuneration lost for any other matter.

[75] We have taken into account all of the circumstances of this case. There are no other factors or circumstances that we consider should, or must be taken into consideration. For that reason, among others, we are also satisfied that a fair go all round is achieved in the arbitral consideration of the application. Accordingly we determine that the order made by Commissioner Foggo should be varied by substituting for the order set out in Print S0711 compensation be paid, an order determined in accordance with the process and findings we have set out above.

[76] The amount we intend to award is six months remuneration less:

* the amount earned by the appellant between 30 January and 29 July 1998;

[77] We note, however, that the respondent has already paid to the appellant an amount pursuant to Commissioner Foggo's order.[46] It is not our intention that the amount awarded by us be in addition to the amount already paid pursuant to that order. The amount so paid may be regarded as partial payment of the amount to be specified in the order we intend to make. As the amount paid included a deduction for taxation, the gross amount should be deducted from the amount of the order and the balance paid to the appellant.

[78] Senior Deputy President Williams will settle the terms of our order.

G. McKeown for the Australian Postal Corporation.

Termination of employment - unfair dismissal - reinstatement - compensation - appeal - full bench - appeal against decision that compensation ordered in lieu of reinstatement and, should that ground fail, against quantum of compensation - Commissioner's conclusion that reinstatement not appropriate was reasonably open to her with evidence and material to support finding that respondent could have little or no confidence that it could rely on applicant to effectively carry out her responsibilities - assessment of compensation in lieu of reinstatement considered - not apparent that lost remuneration considered - decision does not disclose steps in reasoning process which led to order made - errors of principle of sufficient magnitude to grant leave to appeal - bench of view that applicant's employment would only have continued for further six months due to uncertainty surrounding her ongoing employment as result of past performance - appellant made sufficient effort to mitigate losses - amount earned 30 January - 29 July 1998 deducted - 15% deducted for contingencies - impact of taxation considered - no firm basis to conclude that amount determined would affect viability of respondent - length of appellant's service weighs in favour of compensation - determination made that order be varied to award six months remuneration less amount earned by appellant and 15% discount for contingencies.

Appeal by Ellawala against decision and order of Foggo C of 5 November 1999 [Prints S0691 and S0711

Printed by authority of the Commonwealth Government Printer

[1] Transcript, 7 June 1999, p.18 at lines 18-21 and p.38 at lines 14-24.

[5] See Appendix B to Exhibit MC5 at p.7.

[11] (1998) 88 IR 21.

[12] Queensland Medical Laboratories v Blewett [1988] FCA 423; (1988) 84 ALR 615 at 623 per Gummow J; R v Hunt; Ex parte Seas Investment Pty Ltd [1979] HCA 32; (1979) 25 ALR 497 at 504 per Mason J; Sprigg v Paul's Licensed Festival Supermarket (1998) 88 IR 21.

[13] See Australian Meat Holdings Pty Ltd v McLauchlan (1998) 84 IR 1; Neutronics Pty Ltd v Salenga, Print R4305, 29 April 1999; Wark v Melbourne City Toyota, Print R4864, 20 May 1999.

[14] Australian Meat Holdings Pty Ltd v McLauchlan (1998) 84 IR 1.

[16] (1997) 72 IR 186 at 191-192.

[17] Australian Meat Holdings Pty Ltd v McLauchlan (1998) 84 IR 1 at 18.

[18] See Wark v Melbourne City Toyota, Print R4864, 20 May 1999.

[19] (1998) 88 IR 21 at 32.

[20] Re Appeal by C Knevitt, C No. 39050 of 1999 decision in transcript on 25 February 2000 per Polites SDP, Acton SDP and Hingley C.

[21] [1995] HCA 53; (1995) 133 ALR 154 at 161-162.

[22] (1978) 19 ALR 501 at 506.

[23] (1995) 67 IR 316.

[24] (1995) 67 IR 316 at 328.

[25] See Wynn v NSW Insurance Ministerial Council [1995] HCA 53; (1995) 133 ALR 154 at 161-162; J Le Good v Stork Electrical Pty Ltd, Print R6813, 12 July 1999 per Giudice J, Watson SDP and Holmes C.

[26] [1995] HCA 53; (1995) 133 ALR 154 at 162.

[27] For example see Smith v Capral Aluminium Print P1054, 19 November 1999.

[28] Edwards v Giudice [1999] FCA 1836 per Moore J.

[29] [1936] HCA 40; (1936) 55 CLR 499 at 504-5; see Construction, Forestry, Mining and Energy Union v Giudice at pp 28-9.

[30] [1936] HCA 40; (1936) 55 CLR 499 at pp 504-5.

[31] [1986] HCA 17; (1986) 161 CLR 513 at pp 518-9.

[32] (1988) 159 ALR 1 at 28-29.

[34] Transcript, 7 June 1999, p.69 at line 18.

[35] Transcript, 7 June 1999 at pp 2-27.

[36] Transcript, 7 June 1999, p.56 at lines 18-21.

[38] Transcript, 7 June 1999, p.47 at line 30 and p.48 at lines 1-3.

[40] See generally Chubbs Security Australia Pty Ltd v John Thomas, Print S2679, 2 February 2000; King v Freshmores (Vic)Pty Ltd, Print S4213, 17 March 2000.

[41] (1998) 88 IR 21.

[42] E.g. see Dornan v Riordan (1990) 95 ALR 451.

[43] [1999] FCA 1836; (1999) 169 ALR 89 at 93.

[44] [1999] FCA 1836; (1999) 169 ALR 89 at 99.

[45] Print R6813, 12 July 1999 per Giudice J, Watson SDP and Holmes C.