Wanda Wadalowska v Chantron Pty Ltd t/as Zucci

CATCHWORDS: Unfair dismissal - Hearing - Decision that dismissal was harsh, unjust and unreasonable - Applicant's cost application against Respondent - cost application rejected

Industrial Relations Act 1996 LEGISLATION CITED: Long Service Leave Act 1955

Johnson Joseph v Westpath Services Pty Ltd (2003) NSWIRComm 1007 Weisser v Spur Group Pty Ltd (2003) NSWIRComm 70 Bankstown City Council v Paris (1999) 93 IR 209 CASES CITED: Orange Community Accommodation Service Inc. v Roddenby [2004] NSWIRComm 333 Copperart v Martin (1996) 68 IR 58 Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union, on behalf of Mark Harrison and Keith Donaldson, and Australian Co-Operative Foods Limited [2001] NSWIRComm 29 Miller v The Univeresity of New South Wales (2002) FCA 882

APPLICANT Mr Jaloussis, solicitor W G McNally & Co LEGAL REPRESENTATIVES: RESPONDENT Mr Magee, barrister Willis & Bowring, instructing solicitors

DECISION: INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES

Application by Wanda Wadalowska re unfair dismissal pursuant to section 84 of the Industrial Relations Act 1996

1 This Decision concerns an application for costs by an employee against a former employer.

The costs application is made in the context where it is asserted that the employer unreasonably failed to settle the unfair dismissal proceedings. The order for costs is sought pursuant to s. 181 (2) ( c ) of the Industrial Relations Act 1996 (" the Act "). BACKGROUND 2 Ms Wanda Wadalowska filed an unfair dismissal against Chantron Pty Ltd t/as Zucci. 3 The Hearing of that unfair dismissal application took place on 13 and 14 April 2004 and 17, 18 and 31 May 2004. The Applicant was represented by Mr Jaloussis' solicitor, and the Respondent was represented by Mr Magee of Counsel.

4 An application for costs was initiated by the Applicant's solicitors - following the Commission's Decision of 23 December 2004, in which the Commission held that the Applicant's dismissal was harsh, unjust and unreasonable. 5 The costs application was heard by the Commission on 11 May 2005. The parties were represented at the costs hearing by the same legal representatives as for the hearing of the unfair dismissal claim. THE PARTIES SUBMISSIONS AND EVIDENCE 6 An outline of submissions prepared by Mr Jaloussis, a chronology and Affidavit sworn by Michael Jaloussis, solicitor, were filed for the Applicant on 5 April 2005. An outline of submissions prepared by Mr Colin Magee of Counsel and an Affidavit sworn by Mr Brett Thomas, solicitor, were filed for the Respondent on 27 April and 29 April 2005 respectively. For the Applicant Written submissions 7 The Applicant submits that the Respondent failed to agree to a settlement of the matter in isolation from the Applicant's pro rata Long Service Leave claim, and that this failure amounts to an unreasonable failure to agree to a settlement of the unfair dismissal claim. 8 The Applicant submits that as a general principle, it should be held that a failure to consider the settlement of an unfair dismissal claim in isolation from any other matters of dispute between the parties constitutes an unreasonable failure to agree to a settlement of the claim. The Applicant relies on the decision in Johnson Joseph v Westpath Services Pty Ltd (2003) NSWIRComm 1007. 9 The Applicant submits that the Commission should have regard to the value of the long service leave and annual leave aspects of the offer incorporated in the Respondent's offer in determining the reasonableness of the offer made by the Respondent to settle the unfair dismissal proceedings. The Applicant relies on the decision of Weisser v Spur Group Pty Ltd (2003) NSWIRComm 70 at paragraph 45, in support. 10 The Applicant quantifies the highest offer of settlement made by the Respondent to settle the matter, $12000 as being 25% of the maximum compensation that the Applicant could have received when a deduction for the amount of $4,069 gross is deducted. 11 The Applicant also submits that the Applicant's legal costs were in excess of the amount of compensation that she was awarded by the Commission, even though that amount of compensation awarded was the maximum that the Commission could award. 12 The Applicant submits that in considering the conduct of the Respondent, the Commission should have regard to the Full Bench decision of Bankstown City Council v Paris (1999) 93 IR 209, in particular at page 219. Oral submissions 13 Mr Jaloussis submitted that the Decision that this Commission made as to whether the Applicant was guilty of wilful and serious misconduct would have no bearing on any subsequent proceedings that the Applicant may have taken in the Chief Industrial Magistrate's Court pursuant to the Long Service Leave Act 1955. (Tr.-p.4, lines 23 to 30) 14 Mr Jaloussis also made the submission that the Respondent at no time made any offer of settlement that went to the unfair dismissal proceedings only and that on one occasion the Applicant had in fact done so. That occasion was 12 May 2005. (Tr.-pp 5 & 6) 15 Mr Jaloussis submitted that he was no longer seeking indemnity costs as set out in his written outline of submissions but that the Commission had a broad discretion to award costs as assessed or in some other amount under s. 181 of the Act. (Tr.-p 13, lines 23 to 55) For the Respondent Written submissions 16 The Respondent opposes the application by the Applicant for an order for costs in these proceedings. The Respondent submits that when regard is had to a consideration of the whole of the conduct of the parties, it could not be said that the Respondent has "unreasonably failed to agree to a settlement of the claim". 17 The Respondent submits that there is no objective basis upon which it could be said that the conduct of the Respondent "amounted to conduct inconsistent with an intention to settle the proceedings on any basis that could be considered reasonable." The Respondent relies on the Commission's Full Bench decision in Bankstown City Council v Paris (1999) 93 IR 209 at 219-220 in this regard. 18 The Respondent submits that the Respondent made offers which, on an objective assessment, were reasonable. Further, there has been no failure on the part of the Respondent to properly conciliate the proceedings to the extent that they failed to reasonably facilitate the potential settlement of the claim. 19 The Respondent notes that the Applicant primarily bases its submissions on costs, on the purported failure of the Respondent to consider the unfair dismissal proceedings in isolation from the long service leave and annual leave dispute. However, it was submitted that the Commission must examine the Respondent's approach to settlement (including the alleged pro rata long service leave entitlement), in context. 20 The Respondent submits that the context is two fold.

Firstly, that it was the Applicant's solicitor who first raised the issue of alleged pro rata long service leave and annual leave within the context of these unfair dismissal proceedings, through their correspondence to the Respondent dated 24 November 2003 and so intertwined the unfair dismissal proceedings with these other matters.

Secondly, the question of whether the Applicant had an entitlement to pro rata long service leave was both factually and legally intertwined with the determination of matters for determination in these unfair dismissal proceedings. This is so because the Applicant was terminated based upon an allegation of serious and wilful misconduct, pursuant to the provisions of s. 4 (2) ( a ) (iii) of the Long Service Leave Act 1955 (NSW). The Applicant was not entitled to any pro rata long service leave given that her services were terminated by the employer on that basis. In order to be entitled to pro rata long service leave, the Applicant had to show that her services were terminated by the employer for a reason other than her serious and wilful misconduct. 21 The Respondent submits that the situation in this case is significantly different from the issues raised in Johnson Joseph v Westpath Services [2003] NSWIRComm 1007( "Johnson Joseph"), where there cannot be said to have been the same level of factual and legal interrelationship between the determination of the unfair dismissal and other matters in dispute between the parties in that case and in this case. Notwithstanding that, Commissioner Cambridge concluded in Johnson Joseph that it was not inappropriate for a respondent to seek to reach a comprehensive settlement, and that such an approach, when considered objectively, could be viewed as a reasonable approach to settlement. The Respondent submits that that conclusion is equally applicable to the approach to settlement adopted by the Respondent in this case. 22 The Respondent submits that it made reasonable offers to resolve the matter. 23 The Respondent's case was that the Applicant had been involved in serious and wilful misconduct. The Respondent, in preparation of it's defence to the claim, was in possession of evidence both in the form of a witness whose sworn statement was that she had held discussions with the Applicant and had observed the Applicant in the conduct alleged to be misconduct. That evidence was supported by other witness statements. The Respondent was entitled to have regard to those matters in assessing its prospects of successfully defending the proceedings and therefore in relation to its approach to settlement of the proceedings. 24 The Respondent's final offer in the proceedings was to settle the claim by the payment to the Applicant of the sum of $12,000. The Applicant's offer prior to that was an offer of $14,550. 25 The Respondent had regard to the fact that the Applicant had obtained other employment shortly after the termination, initially at a rate of pay lower than her pre-termination rate of pay and then at a rate of pay in excess of her pre termination rate of pay. The Applicant's loss of earning only amounted to $1595 and this was a matter that the Respondent was entitled to have regard to when assessing what were reasonable offers of settlement. 26 When the Commission has regard to all those matters, the Respondent's offers can be regarded as reasonable on an objective assessment. 27 The Commission is not entitled to have regard to what legal costs were incurred by the Applicant in the proceedings in determining whether the jurisdictional gateway under s.181 (2) ( c ) for an award of costs has been opened - see Orange Community Accommodation Service Inc. v Roddenby [2004] NSWIRComm 333. Oral submissions 28 Mr Magee submitted that the claim for long service leave by the Applicant was one that was actually and legally intertwined with the circumstances of the dismissal of the Applicant. He submitted that findings of this Commission could raise an issue of estoppel in respect to the matter to be determined by the Chief Industrial Magistrate. (Tr.-p17, lines 10 to 32) 29 Mr Magee said that the long service leave claim was only a potential claim and that the Applicant did not have an entitlement to the long service leave until a determination was made as regards to the unfair dismissal application and whether the dismissal could be upheld as being one of serious and wilful misconduct. Mr Magee put this submission in asking the Commission to look at the conduct of the Respondent during the settlement negotiation process. (Tr.-p.18 line 55 to p. 19 at line 26) 30 Mr Magee also made the submission that his client had been reasonable in an attempt to resolve the matter and cited the offer of settlement made by his client through him to Mr Jaloussis on 14 May 2004 as an example. Mr Magee submitted that what his client had done in putting that offer was to 'split the difference' between what his client had previously put and what Mr Jaloussis had previously put, and so the offer was a reasonable attempt to settle that matter. (Tr.-p.22 line 39 to p.23 line 3) 31 Mr Magee also made the submission that if the Commission is against the Respondent in this matter and decides to award costs to the Applicant, then those costs should be as agreed or assessed and not on an indemnity basis. (Tr.-p.25, lines 53 to 56) THE ISSUE 32 Does the fact that the Respondent did not make an offer of settlement for the unfair dismissal proceedings, in isolation from the outstanding leave claims that the Applicant had against the Respondent, open the jurisdictional gateway for the Commission to award costs against the Respondent pursuant to s. 181 (2) ( c ) ? THE STATUTORY POWER TO AWARD COSTS 33 The power to award costs in proceedings before the Commission is found in s. 181 of the Act. The relevant parts of that provision are:

" 181(1) Subject to the rules of the Commission and any other Act or law : (a) the Commission may award costs, and (b) costs are in the discretion of the Commission, and (c) the Commission may determine by whom and to what extent costs are to be paid, and (d) the Commission may order costs to be assessed on the basis set out in Division 6 of Part 11 of the Legal Profession Act 1987 or on any other basis.

181(2) However, the Commission when it is not in Court Session may award costs only in the following cases: (a) the Commission may award costs against an applicant if it considers that the application to it was frivolous or vexatious, or (b) the Commission may award costs against a party to proceedings who, in the opinion of the Commission, instituted proceedings without reasonable cause, or (c) the Commission may award costs against a party to proceedings under Part 6 of Chapter 2 (Unfair dismissals) who, in the opinion of the Commission, unreasonably failed to agree to a settlement of the claim or whose application was frivolous or vexatious, or (c1) ...

181(4) ..." 34 Paragraphs (a), (b) and (c) of s 181(2) are exhaustive as to the powers of the Commission when not in Court Session to order costs in unfair dismissal proceedings: Bankstown City Council v Paris (1999) 93 IR 209 at 218. The Ground of Unreasonably Failed to Settle 35 The employee sought costs against the employer on the ground that the employer had "unreasonably failed to agree to a settlement of the claim ...": s 181(2)(c).

36 An analysis of what constituted an unreasonable failure to settle was considered by a Full Bench of this Commission in Bankstown City Council v Paris. The relevant passage is found at page 219: "Construing the relevant part of s 181(2)(c) in its overall statutory context, we conclude that the evident purpose of the provision is to encourage the settlement of proceedings to which it applies. The criterion set out in the provision is to be applied objectively and requires a consideration of the whole of the conduct of the party against whom the order is sought, or some discrete part of the party's conduct, with a view to ascertaining whether it unreasonably failed to agree to a settlement of the claim. We also consider that on the proper construction of the provision, an affirmative conclusion may be reached on at least two bases. First, where there was a proposal put by a party which could be described as a reasonable settlement of the claim and that was not agreed by the other party. The second situation in which the criterion could be satisfied is where the course of conduct of the party over a relevant period could be said to amount to conduct inconsistent with an intention to settle the proceedings on any basis that could be considered reasonable. We emphasise that, although the legislature has clearly intended that there be strict limits on the power of the Commission to award costs in unfair dismissal proceedings, the legislature has also evinced a clear intention that costs orders be available in circumstances where there has been a failure on the part of a party to properly conciliate proceedings to the extent that they have failed reasonably to facilitate a potential settlement of them. Further, the Commission is obliged to consider all relevant circumstances in deciding whether such failure has occurred. Once the statutory criterion has been met, the Commission's broad powers and discretions under s 181(1) are available for exercise." 37 This Full Bench decision sets out authoritative guidelines on the approach to be adopted to the consideration of any alleged unreasonable failure to agree to a settlement. Those guidelines require the Commission to consider whether: (a) there was a rejection by a party of a reasonable offer to settle the claim; or (b) there was conduct by a party (over a relevant period) that is found to be inconsistent with an intention to settle the unfair dismissal claim. 38 It is also clear that the Commission is required to consider all relevant circumstances in deciding whether there has been an unreasonable failure to agree to a settlement. CONSIDERATION 39 Costs do not follow the event in unfair dismissal proceedings. This was made clear in the Full Bench decision in Copperart v Martin(1996) 68 IR 58 at 64: "It is clear, that in a scheme where costs are not the usual regime, the part of the Act contemplates and apprehends two distinct propositions: · that costs are not the automatic outcome of a refusal to settle; · that under certain circumstances costs are appropriate." 40 The fact that the amount of compensation ordered in the substantive proceedings is more than the amount that was put forward in the negotiation and settlement discussions does not automatically mean that a costs order should be made. 41 As to that point, the Commission relies on the following extract of a decision of Deputy President Sams in Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union, on behalf of Mark Harrison and Keith Donaldson, and Australian Co-Operative Foods Limited [2001] NSWIRComm 29: 15 "The Union submitted that the offers of settlement were unreasonable when tested against the orders made by the Commission. In considering this submission, I have had regard to the comments of the Full Court of the Federal Court in Blagojevch v Australian Industrial Relations Commission , 98 IR 32 at 42-43, where Marshall and Lehane JJ said: 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. 16 I have also had regard for the conclusions of Stanley J of the Industrial Commission of South Australia in Krajewska and University of Adelaide , 50 IR 63, where his Honour said: The question of whether a person clearly acts unreasonably in failing to discontinue or settle the matter before trial must be judged in the light of all the circumstances known, or which reasonably should have been known, before the trial commences." 42 It follows then that the amount of any offers of settlement when compared to the amount of compensation ultimately awarded by the Commission, should not be given primacy in deciding whether the offers made during settlement negotiations were reasonable and whether or not a costs order should be made against a party. It also follows that in determining what was a reasonable offer of settlement, the position of the parties at the time the offer was made should be examined rather than a mechanical comparison of the offers of settlement and the amount of compensation awarded by the Commission. Lastly, costs are not the automatic outcome of a failure to settle a matter. 43 Having considered the decision of Johnson Joseph (a decision that was referred to by both parties to these costs proceedings) I am of the view that there is no absolute requirement that an employer agree to negotiate the settlement of an unfair dismissal claim in isolation from other claims, especially when the 'other claims' are reliant to one degree or another on whether a case in the unfair dismissal proceedings is made out. 44 In Weisser's Case, the Full Bench of the Commission (Wright J President, Walton J Vice-President and Ritchie C) said that parties should not be discouraged from settling any or all claims with respect to the employment relationship. This, the Respondent sought to do. The Full Bench went on to say that where a comprehensive offer (to settle all claims, including the unfair dismissal) is made by a party, it is possible to consider the reasonableness of that offer as it pertains to the unfair dismissal component of that comprehensive offer, by deducting the value of the other component(s) to the comprehensive offer. In the circumstances before the Full Bench, it was said that the reasonableness of the amount offered by the respondent, could be assessed by deducting the leave components from the amount offered (paragraph 42 of the Full Bench Decision). In that case, one of the components in the comprehensive package was pro rata long service leave. 45 So, the approach then in considering the reasonableness of a comprehensive offer is to place a value on the components such as annual leave, long service leave, redundancy pay, shares etc and deduct those known values from the comprehensive offer, in order to assess the value of the unfair dismissal component itself - and hence the reasonableness of the comprehensive offer. 46 That approach of assessing the components of the Respondent's comprehensive offer in the case before myself, was not possible. The component that made up the comprehensive offer, apart from the unfair dismissal component, was a claim by the Applicant for pro rata long service leave. However, this long service component was not agreed between the parties as being an entitlement due to the Applicant. This was so, because the Respondent had summarily dismissed the Applicant and, as is the case for summary dismissals, the Applicant was not entitled, at law, to payment of her pro rata long service accrual. 47 Accordingly, it is not possible to deduct the long service leave component because it was not an entitlement, at law, due to the Applicant. By contrast, in Weisser's case, the dismissed employee had been dismissed with notice (as opposed to summary dismissal) and was entitled, at law, to pro rata long service leave - and hence, a dollar value could be put against that component of a comprehensive package. 48 As that long service leave component could not be deducted in the matter before myself, then the approach put by the Full Bench in Weisser's case for putting a value against the component(s) of a comprehensive offer, could not take place in the matter before myself. 49 That conclusion rejects the submission of Mr Jaloussis, that a comparison can be made between the Applicant's offer of $3000 to settle the long service leave component and the pro rata long service leave payout of $4000, eventually paid to the Applicant. True it is, that the Applicant was paid out pro rata long service leave (and that the payout was higher than that sought by the Applicant), but this payout only came about because of my Decision that the Respondent had not made out its onus to prove that the Applicant's conduct (for which she was dismissed), did indeed constitute serious and wilful misconduct. Mr Jaloussis' submission is rejected, because at the time of the negotiations to settle, the Commission had not yet made its Decision which found that the Respondent's onus of serious and wilful misconduct had not been made out and only then (because of that Decision) did the Applicant become entitled, at law, to claim pro rata long service leave. 50 The Commission's conclusion that the long service leave component cannot be given a value, leaves the Commission to consider the Applicant's lowest offer to settle (15 weeks at $770/week and $3000 for pro rata long service leave), against the Respondent's highest offer to settle ($12,000 as comprehensive package). The $12,000 approximates 15.5 weeks pay.

As the long service leave component of the Applicant's offer, was not a component to which she could make out a legal entitlement, then the Respondent was entitled to take the long service leave claim out of the settlement equation, in its consideration as to the quantum of its offer. That is the finding of this Commission on that point. Consequently, the true offers to settle between the parties were 15 weeks by the Applicant and 15.5 weeks by the Respondent. 51 The Commission is cognisant that the Respondent's comprehensive offer was based on settling all claims by the Applicant (including long service leave), but the Respondent's offers were predicated on a "without prejudice" basis and so the Respondent's offer to settle all claims can not be held to the detriment of the Respondent.

Given that the Respondent's offer to settle (15.5 weeks) was higher than the Applicant's offer to settle (15 weeks pay), then the Applicant's claim that the Respondent had unreasonably failed to settle, is not made out. 52 A second reason for rejecting the Applicant's claim for costs on the ground that the Respondent unreasonably settled, is based on the overall assessment of the parties in their approach to settlement.

Initially, the Applicant put 18 weeks to settle the unfair dismissal claim only. The Respondent countered with 2 weeks to settle (as a comprehensive settlement). The Respondent increased this offer to about 7 weeks ($5544) as a comprehensive offer.

The Applicant then increased its offer to settle: 20 weeks for the unfair dismissal, together with a further payment for the Applicant's pro rata long service leave. The Applicant had not only increased its offer to settle the unfair dismissal but added a new claim (pro rata long service leave). The Respondent renewed its offer of about 7 weeks to settle.

The matter then went to a Hearing over several days.

During the Hearing process, the Applicant put 15 weeks to settle the unfair dismissal only. The pro rata long service leave claim was not part of this offer to settle. The Respondent increased its offer to settle from about 7 weeks to 12 weeks (as a comprehensive offer).

The Applicant renewed its 15 weeks to settle and put back on the table the pro rata long service claim (priced at $3000). The Respondent increased its comprehensive offer to settle from 12 weeks to $12000 (about 15.5 weeks). Mr Magee for the Respondent submitted that this latest Respondent offer to settle was an offer to "split the difference" between the parties respective positions. That is, Mr Jaloussis for the Applicant had put on 14 May, an offer to settle of 15 weeks plus the pro rata long service leave - all up worth $14,550. The Respondent's offer had been at 12 weeks. Mr Magee telephoned Mr Jaloussis on 14 May and offered to "split the difference" between the Respondent's offer of 12 weeks and the Applicant's offer of $14,500. That "split the difference" offer was made by Mr Magee and so increasing the Respondent's offer from 12 weeks to $12,000 (about 15.5 weeks). This account of "split the difference" offer by Mr Magee was not challenged by Mr Jaloussis.

Having increased its offer per the above account, the Applicant responded by rejecting that increased offer but making no counter offer at all. 53 The forgoing account shows that the Respondent increased its offer to settle and did so substantially. The Respondent still engaged in negotiations to settle, even after the Hearing commenced. The Respondent's last offer ("split the difference") to settle ($12,000) was rejected by the Applicant and there was no counter offer to settle by the Applicant.

Given the forgoing, the Commission finds that the Respondent did not unreasonably fail to settle.

CONCLUSION 54 Having considered the matters as a whole, and for the reasons set out in my Decision on Costs, I find that the Respondent did not unreasonably fail to agree to a settlement of the matter. 55 Accordingly, I dismiss the application for costs in IRC 6279 of 2003.

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