Allan & Ashmore Brown Chait Pty Ltd [2004] NSWIRComm 1028 (7 November 2003)

Last Updated: 24 June 2004

INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES

Industrial Relations Act 1996

LIANA ALLAN

(applicant)

-V-

ASHMORE BROWN CHAIT PTY LTD

(respondent)

7 NOVEMBER 2003

COMMISSIONER MACDONALD

Matter No. IRC 02/3288

Application by Liana Allan re unfair dismissal pursuant to section 84 of the Industrial Relations Act 1996

D E C I S I O N O N C O S T S

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

The costs application is made in the context where the employee withdrew her unfair dismissal application prior to a Hearing of her application.

The grounds for costs are twofold:

•	the employee’s application was frivolous or vexatious; and

•	the employee unreasonably failed to agree to a settlement.

BACKGROUND

2. Ms Liana Allan filed an unfair dismissal application on 7 June 2002. Her employer named in that application is Ashmore Brown Chait Pty Ltd.

3. The unfair dismissal application came before the Industrial Relations Commission of New South Wales ("the Commission") on 8 July 2002.

The dismissed employee was represented by Mr P Beazley, solicitor.

The employer was represented by Mr G Woolley, solicitor.

Arising out of that Preliminary Hearing, the parties were directed to confer.

4. The matter next came before the Commission on 24 July.

The parties failed to settle the application and conciliation was at an end. An agreed hearing program was put in place - the dismissed employee to file and serve by 21 August; the employer to file and serve by 18 September; and the employee in reply by 9 October. Two days of Hearing were set aside for 29 and 30 October, 2002.

5. An email message was received by my office on 29 August from the Industrial Registry of New South Wales advising that the proceedings were listed for a return of summons before the Deputy Registrar on that day.

The email also advised that Mr Beazley sought a two week extension for return of summons sought by Mr Woolley on behalf of the employer. The email further advised that Mr Woolley did not consent to the extension. And

Mr Beazley had advised that no one from his firm would be able to appear before the Deputy Registrar that day. A Mr Eter appeared for the employer and raised the issue of costs. The matter was adjourned to 19 September.

6. The matter came before the Deputy Registrar on 19 September. Mr Beazley for the employee advised he was instructed to formally withdraw the application for “wrongful dismissal”.

Mr Eter appeared for the employer and raised the issue of costs but without putting a position on costs.

The Deputy Registrar advised that the issue of costs was a matter for

Macdonald C.

7. By letter dated 24 September 2002, the Commission was advised that the employee was withdrawing her application for “wrongful dismissal”.

Mr Beazley also sought the vacating of the Hearing dates.

A Notice of Discontinuance signed by Mr Beazley on behalf of the employee was attached.

8. The following day, 25 September, my office was advised of the costs issue by Mr Eter.

9. By letter of 4 October, Mr Eter advised that his client did not consent to the filing of the Notice of Discontinuance on the basis that there was no order as to costs. The letter further advised that the employee's application was seen as "false, frivolous or vexatious."

10. The matter came on before the Commission on 1 November. Mr Beazley stated the employee had made an application to withdraw.

Mr Woolley accepted the foregoing but raised the issue of costs pursuant to

s 181 of the Industrial Relations Act 1996 ("the Act") on the ground that the proceedings were either vexatious or commenced without reasonable cause. He advised of a $6,480 cost to have a forensic examiner carry out an examination of the dismissed employee's computer.

After discussions off record, the parties concurred to address the issue of costs by way of written submissions. A filing program was put in place. The need for a formal hearing was undecided by the parties at that time.

11. The matter was relisted on 25 March 2003, given the absence of written submissions from Mr Beazley.

Mr Beazley was unable to appear but a Mr Fernie advised that the written submissions had been served on that day.

Mr Fernie and Mr Woolley concurred that the issue of costs would be determined on the written submissions.

Mr Woolley noted there was no witness statement from the dismissed employee herself. Mr Woolley was to file his right of reply on behalf of the employer by 15 April. He did so by 16 April 2003.

THE WRITTEN "SUBMISSIONS"

12. Mr Woolley filed with the Industrial Registry a document comprising a witness statement of his client (Mr Ray Brown), plus annexures and a covering letter addressed to Commissioner Macdonald. There was no outline of contentions or case law attached.

13. Mr Beazley responded with documentation comprising a two page rebuttal and annexures. There was no outline of contentions or case law attached.

14. Mr Woolley put in a right of reply comprising submissions (including case law), chronology and annexures.

CONSIDERATION

15. This Decision concerns an application for costs by the employer against the former employee.

The costs application is made in the context where the employee withdrew her unfair dismissal application prior to a Hearing of her application.

16. The employer has applied for an order that the employee pay its costs pursuant to s 181(2)(c) of the Act. The grounds for its claim of costs is based on the following:

•	the employee’s application was frivolous or vexatious; and

•	the employee unreasonably failed to agree to a settlement.

The Statutory Power to Award Costs

17. 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) ...

(d) ...

181(3) ...

181(4) ..."

18. 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 Frivolous or Vexatious

19. The power to award costs on the ground of frivolous or vexatious, arises under s181(2)(a) or the second limb of s 181(2)(c). These sub-sections are concerned with the initiation of the proceedings and the circumstances surrounding the institution of the proceedings. Thus in Bankstown City Council v Paris (at 218), a Full Bench of the Commission said (in relation to (a) and (b) of s181(2)):

"... they are designed to operate where the Commission considers either the application itself, or the institution of the proceedings, was affected by considerations which made it manifestly inappropriate for the proceedings to have been commenced."

These comments would logically extend to the second limb of s 181(2)(c), which is in very similar to terms to s 181(2)(a). (The employer relies upon s181(2)(c)).

20. The tests for what is a frivolous or vexatious application focus upon the motive for the institution of the proceeding or its inherent lack of prospects of success. Thus in Attorney-General v Wentworth (1988) 14 NSWLR 481, the Supreme Court (Roden J) held (at 491) that a proceeding was vexatious if it was instituted with the intention of annoying or embarrassing the respondent, if it was brought for a collateral purpose and not for having the court adjudicate on the issues, or, irrespective of motive, if it was so obviously untenable or manifestly groundless as to be utterly hopeless.

21. Accordingly, if the initiating process in a proceeding is filed with the proper motive of having the Commission determine the issues to which it gives rise, and is not inherently without any hope of success, then it is not frivolous or vexatious, and subsequent events in the proceedings cannot make it so. The relevant test in s 181(2)(a) and (c) goes to the intrinsic nature of the application at the time of its filing, not to subsequent eventualities occurring in the course of the litigation.

22. Mr Woolley for the employer submitted, in his Submissions in Reply, that in order to determine whether or not the application was frivolous or vexatious, then certain emails must be examined in detail to decide the employee's bona fides.

These emails allegedly supported Mr Woolley's claim that the employee was engaged in a business on her own account whilst employed by the employer.

These emails are attachments to the witness statement of Mr Ray Brown, director. This witness statement addresses the costs application.

23. The witness statement of Mr Brown addresses the reason for the termination of the employee. He states:

•	the employer is an Australian Visa specialist company providing advice on obtaining residency in Australia;

•	the employee was employed as a registered migration agent;

•	the employee's emails (along with others) were habitually monitored;

•	during such monitoring whilst the employee was on annual leave, the employer became aware of correspondence which caused the employer to be: "... seriously concerned about the applicant's conduct as it appeared that she was working for her own benefit in competition with the respondent."

•	The above concern was brought to the attention of the employee on 16 April 2002 and she was suspended on that day and given time to respond;

•	the employer carried out further analysis of the employee's emails and came to the same conclusion that she was working for her own benefit in competition with the employer;

•	these further concerns were put to the employee who responded through her solicitor;

•	the employer could not accept her explanations and after further correspondence passing between the parties' respective solicitors, the employer terminated her employment.

24. Mr Woolley for the employer submitted that the Commission would be satisfied on the balance of probabilities, after examining the emails in question, that the employee was in business on her own account, whilst employed by the employer, contrary to her contract of employment.

In making this submission, Mr Woolley is seeking that the Commission draw a conclusion from an examination of the emails in question.

25. The fact is, the emails and any other material relied upon by the employer to support its conclusion to summarily dismiss the employee, has not been tested in adversarial proceedings because the unfair dismissal application never reached the stage of a Hearing.

Further to that, the conclusion drawn by the employer to summarily dismiss, was challenged by the employee through her legal representative. The chronology of events provided by Mr Woolley, show that, by letter of 24 April 2002, Mr Woolley wrote to Mr Beazley (the employee's solicitor) enclosing emails for Mr Beazley's consideration and asserting in that letter as follows:

"From the evidence disclosed in those emails, any reasonable person would properly conclude that your client has been engaged in a business competing with our client in the migration industry."

Mr Beazley, by letter of 1 May 2002, responded with a four page rebuttal, giving an explanation/rebuttal of the some twenty-seven emails supplied by Mr Woolley. In other words, the facts relied upon by the employer to support its case for a summary dismissal, are in dispute.

26. The Commission is then being asked to draw a conclusion, based on the balance of probabilities, that the employer had the facts to justify a summary dismissal, but in circumstances where the facts are in dispute. Indeed, the facts were put in dispute by the employee’s solicitor prior to the decision to dismiss the employee and hence prior to the unfair dismissal application being made.

27. In that circumstance, the Commission forms the view that it cannot reach a conclusion, as to whether the application was frivolous or vexatious, given that the facts were in dispute and about which there was no evidence derived from adversarial proceedings. In Saddington v Oliver and Others (No.2) (1993) 49 IR 412 at 414, the Federal Court of Australia (Gray J), held that:

“In a case involving disputed questions of fact, it is simply not possible to determine whether the proceeding was instituted vexatiously or without reasonable cause unless the matter is tried.”

The Ground of Unreasonably Failed to Settle

28. The employer also sought costs against the employee on the alternate ground that the employee had "unreasonably failed to agree to a settlement of the claim ...": s 181(2)(c).

29. 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."

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.

30. As to the issue of unreasonably failed to settle, Mr Woolley for the employer, had filed a document comprising a witness statement of his client (Mr Ray Brown, director), plus annexures and a covering letter addressed to Commissioner Macdonald. There was no outline of contentions.

The witness statement of Mr Ray Brown makes no reference to settlement negotiations - let alone an assertion the employee had unreasonably failed to settle.

As to the annexures to this witness statement, annexure D (letter of 30 July 2002), states, inter alia, the employer is prepared to settle upon the basis that the employee retains monies that have been paid to her and that she discontinue the proceedings with each party bearing its own costs.

Apart from the foregoing, there is no direct submission from Mr Woolley as to how the employee had unreasonably failed to settle.

31. Mr Beazley, for the employee, responded on the issue of costs with a two page rebuttal and annexures attached. The two page document contains eleven points. The last point explains why the employee discontinued the proceedings. He asserts that the discontinuance was because of threats made in a letter from the Migration Agents Registration Authority ("MARA") against a John Glover (who is allegedly a business partner of the employee and who is named in the emails extracted from the employee's computer and relied upon by the employer as evidence that the employee was engaged in business of her own account). He further states that Mr Ray Brown, director of the employer was a member of MARA. The employee believed that the letter was designed to bring pressure to bear on herself to withdraw her unfair dismissal application and accordingly, she discontinued for no other reason.

32. Mr Woolley in his Right of Reply relied upon the above extract from Bankstown City Council as authority that the employee had unreasonably failed to agree to a settlement.

As to the facts of the case, he conceded that the employee had entered into negotiations with a view to settlement on or about 18 July 2002 at a conciliation conference. However he said, the employee had failed to actively pursue a settlement under later circumstances where she knew she could not succeed with her unfair dismissal application. These later circumstances refer to a time when it became abundantly clear that the employee had been "caught out". That is, he said, when the emails had been recovered from her computer and which showed she was engaged in business on her own account.

In summary, Mr Woolley said the failure of the employee to participate further in settlement negotiations "after available evidence showed the Applicant (the employee) could not succeed", demonstrated the employee's disregard for the procedures of the Commission.

Mr Woolley did not address the claim of Mr Beazley that the unfair dismissal application was withdrawn because of alleged pressure by the employer to do so.

33. The Commission makes this observation so far on the filed materials.

The employer is seeking costs and accordingly the employer has to set out its case to support its claim for costs. This needs to be carried out so that the other side (the employee in this instance) can know what case is to be met.

In the present proceedings, however, the employer's initial filed material seeking costs did not set out any contentions and case law in support. There is no reference to a claim for costs in the witness statement of Mr Ray Brown, director.

In any event, Mr Beazley for the employee filed material in response.

Subsequently, Mr Woolley filed his Right of Reply wherein he clearly sets out the two statutory grounds for claiming costs, the facts he relies upon for doing so and his case law. The Commission observes that this approach of Mr Woolley's should have been the approach at first instance so that Mr Beazley clearly knew what case he had to meet.

34. The basis of the employer’s case for costs on the ground of unreasonably failed to settle is that the employee failed to participate further in settlement negotiations after emails had been recovered from her computer and which showed she was engaged in business on her own account.

This argument does not assist Mr Wolley. This is the same argument used to ground the employer’s claim for costs under the heading of frivolous or vexatious. The Commission was not able then to adjudicate on that claim because the facts were in dispute. The same conclusion must follow again under the present cost heading given that the Respondent's argument is no different.

Accordingly, the Commission rejects this particular argument for costs by the employer under this heading.

35. Mr Woolley provided a chronology of events as part of his costs argument documentation and it is reproduced below:

DATE EVENT

16/04/02 Applicant stood down from work on full pay pending investigation.

24/04/02 Gibsons Lawyers write to Beazley Singleton providing copies of Applicant's emails (annexure "A") and setting out settlement offer (Annexure "B").

01/05/02 Beazley Singleton respond, denying the allegations (Annexure "C").

16/05/02 Applicant terminated, paid 2 weeks in lieu of notice (despite termination being summary in nature). This is confirmed in letter from Gibsons to Beazley Singleton dated 16/05/02 (Annexure "D").

07/06/02 Applicant filed claim for unfair dismissal.

18/07/02 Conciliation conference. Negotiations to settle unsuccessful. Stood over.

24/07/02 Negotiations to settle unsuccessful. Matter listed for hearing 29/10/02. Applicant to file statements by 21/08/02.

30/07/02 Respondent makes final offer of settlement to Applicant (Annexure "E").

30/08/02 Return of Subpoena addressed to the Applicant. No appearance, stood over to 19/09/02.

19/09/02 No compliance with subpoena. Applicant's solicitor advise they are instructed to agree to application being dismissed, no order as to costs.

30/10/02 Commission orders: Respondent to file statements by 06/12/02, Applicant to file statements in reply by 20/12/02. Applicant files no statements but does file and serve submissions on 25/03/03.

Mr. Woolley did not take the Commission to the history of the settlement negotiations to argue that the employee had unreasonably failed to settle. His chronology of events state that there were unsuccessful settlement negotiations on 18 and 24 July but no particulars were provided for the Commission’s consideration.

36. The Commission notes that the transcript of proceedings of 24 July 2002 record that the employer had withdrawn from making any further offers to settle. This position was being taken because of the employer’s forensic investigation into the employee’s hard disc on her computer in an effort to have further alleged evidence of the employee engaging in business on her own account.

Then on 30 July, Mr. Woolley wrote to Mr. Beazley putting a final offer to settle: the employee could retain monies already paid to her, the proceedings were to be discontinued and each party was to bear their own costs. She was also put on notice that if she did not discontinue the proceedings then the employer would pursue indemnity costs.

Given the lack of details and clarity about the process of the settlement negotiations the Commission is unable to consider this aspect of the costs issue - albeit that Mr Woolley did not pursue the same.

SUMMARY

37. The employer has made a costs application on both grounds available under s.181(2)(c) of the Act:

•	the employee's application was frivolous or vexatious; and

•	the employee unreasonably failed to settle.

The Commission has rejected both grounds as a basis for a costs application, given the circumstances of this case.

The employer relied upon the same argument for both grounds: the employee had engaged in business on her own account. This assertion was rejected by the employee before her dismissal took place, through her solicitor. As such the facts were in dispute between the parties and the Commission could not therefore determine the employer assertion, unless the issues were tried in adversarial proceedings. This adversarial outcome did not eventuate because the employee withdrew her unfair dismissal application.

38. As well, as to the second costs ground, the employee had asserted through her solicitor in her written submissions, that her unfair dismissal application had been withdrawn because of threats made in a letter from MARA against a certain John Glover (who is named in the emails extracted from the employee's computer and which emails are relied upon by the employer as evidence that the employee was engaged in business on her own account).

This claim by the employee as to why she withdrew her unfair dismissal application was not rebutted by the employer in its reply submissions.

A view can be formed that settlement negotiations between the parties was thwarted by this alleged threatening letter. It was also stated by the employee, without demur from the employer, that Mr Brown (director of the employer) was a member of MARA, and this contributed to the perceived threat.

If this perceived threat is correct (and it was not rebutted by the employer in reply) and in consequence the employee withdrew her application, then how can the employer be entitled to bring a claim for costs against the employee?

39. Within the employer's submissions is a claim that some $6,480 was expended by the employer in having a forensic examiner, carry out an examination of the employee's engagement in business on her own account.

40. This forensic examination may have been carried out whilst the employee was under suspension and hence prior to the employee's summary dismissal which occurred by way of a letter dated 16 May 2002.

Prior to the dismissal is a letter dated 24 April, from Mr. Woolley, (the employer’s solicitor) to Mr. Beazley (the employee’s solicitor) stating: “A forensic analysis of the hard disc on her computer is being undertaken......”. Thus this cost to the employer may have had its genesis in an enquiry as to the further employment of an employee and not had its genesis in the preparation of litigation arising out of the filing of an unfair dismissal application. If that is so, then, even if the Commission found favour with the employer's cost application, the employer could not succeed in its claim for the $6,480 forensic cost, because it was not a cost to the employer arising out of the unfair dismissal application.

41. The Commission, accordingly, dismisses the costs application sought by the employer.

A Macdonald

Commissioner