Ms Toni Potter v Darwin City Council

[2010] FWA 6129

[2010] FWA 6129

FAIR WORK AUSTRALIA

DECISION

Fair Work Act 2009
s.394 - Application for unfair dismissal remedy

Ms Toni Potter
v
Darwin City Council
(U2010/5937)

COMMISSIONER HAMPTON ADELAIDE, 25 AUGUST 2010

Unfair dismissal application - preliminary point - alleged agreement to settle - dispute about terms - whether binding settlement agreement made between the parties - whether power to dismiss application.

Background

[1] This matter concerns an application for an unfair dismissal remedy by Ms Toni Potter (the applicant) as made pursuant to s.394 of the Fair Work Act 2009 (the Act). The respondent in this matter is the Darwin City Council (the respondent).

[2] The application was assigned to me to hear and determine and following a telephone directions conference conducted on 17 May 2010, the matter was subsequently set down to be heard on 13, 14 and 15 July 2010 in Darwin. Directions were issued requiring the filing of evidence and outline submissions in the lead up to that time.

[3] On 30 June 2010, solicitors for the applicant advised Fair Work Australia that settlement negotiations had been undertaken however these had broken down and in effect, that neither party was then in a position to proceed on the hearing dates set aside.

[4] During the course of a further telephone directions conference conducted on 13 July 2010, I was informed that both parties considered that the matter had been settled in mid June and had apparently not prepared their cases beyond that point. However, a difference of view had subsequently emerged as to the meaning of one of its terms, and in particular, whether the sum as apparently agreed to be paid by the respondent as part of the settlement was gross or net of taxation.

[5] On 13 July 2010, the respondent filed a notice in effect seeking that the application be dismissed on the grounds that a binding settlement had been reached and the matter should not now be heard. Both parties have now filed evidence in the form of affidavits and comprehensive written submissions. Given the nature of the issue and the fact that the key facts are common in each case, I have decided that it is appropriate to determine the matter based upon that material. 1

The facts surrounding the alleged settlement of the matter

[6] At all material times, both parties have been represented by solicitors who have conducted the negotiations on behalf of their respective clients.

[7] On 17 June 2010, Mr Mariotto, solicitor for the applicant, communicated to Mr Sweet, solicitor for the respondent, a without prejudice proposal to settle the matter on the following basis: 2

“...

1. DCC pay our client the sum of $22,000.00;

2. Our client be permitted to tender her resignation;

3. A statement of service be provided; and

4. A point of contact (reference) be nominated within DCC to our clients mutual satisfaction.

Naturally a suitable deed would need to be entered into by the parties.

...”

[8] Later that day, Mr Sweet communicated the rejection of that offer and made a counter offer of “$15,000 in addition to items 2-4 inclusive”. 3 In the course of a subsequent telephone discussion on that same day, the parties agreed to settle the difference and a revised offer was made by the respondent to that end.

[9] An email from Mr Mariotto to Mr Sweet confirmed that “Further to our telephone conversation and your client’s revised offer to $17,5000 in additions (sic) to items 2-4 inclusive, I confirm my client’s instructions to accept that offer to settle the matter. I will be in touch shortly vis-a-vis notifying FWA of the settlement.” 4

[10] Mr Sweet then immediately forwarded a draft deed of settlement and release document to Mr Mariotto reflecting the terms as understood by the respondent. The payment was stated to be “$11,987.50 (being $17,500 less tax of $5,512.50 (on the basis that this is an Employment Termination Payment and taxable at a rate of 31.5%) ...” 5 The email accompanying the draft deed stated “Draft deed for comment and execution is attached.”6

[11] On the evening of 17 June 2010, Mr Mariotto rang Mr Sweet and indicted that he thought the agreed settlement figure of $17,500 was net (of tax). Mr Sweet indicated that the respondent was legally obliged to deduct tax from the agreed amount and referred to relevant Australian Taxation Office information.

[12] On 18 June 2010, Mr Mariotto advised Mr Sweet by email that in relation to clause 2.1 of the draft deed “... it appears that there is a typo or miscalculation therein. We believed that the offer and acceptance countenanced the receipt by her of $17,500 net”  7

[13] I interpose that there is no evidence that anything else in the draft deed was inconsistent with the alleged settlement as made earlier in the day.

[14] On 22 June 2010, a discussion took place between Ms Savvas (then acting for the applicant in lieu of Mr Mariotto who was on leave) and Ms Hourdas (who was then acting for the respondent in lieu of Mr Sweet for the same reason). Ms Savvas indicated in effect that that if the settlement figure was not net of taxation, there was no agreement. This was later confirmed by Ms Savvas to Ms Houradas following further instructions from the applicant.

[15] On 23 June 2010, Ms Hourdas emailed Ms Savvas and indicated in part that the amount to achieve a net payment of $17,500 would need to be $25,500 which was alleged to be more than the maximum amount of compensation that could be awarded by Fair Work Australia. The respondent contended that a settlement had already been reached and urged the applicant to reconsider her position. The respondent also indicated that if the substantive application was to proceed, it would rely upon the settlement offered and argue for the recovery of costs 8.

[16] On 28 June 2010, Ms Savvas advised Ms Hourdas that the applicant did not accept the $17,500 gross and would seek to proceed with the hearing. There was also some discussion at that point as to a joint approach to advise Fair Work Australia.

[17] On 30 June 2010, Fair Work Australia was advised by Ms Savvas of the break down in negotiations and the request, with the consent of the respondent, to adjourn the scheduled hearing.

[18] I note that the email exchanges up until the supply of the deed by Mr Sweet on the afternoon of 17 June 2010 included “without prejudice” in the title of the email.

[19] I accept that Mr Mariotto’s instructions to accept the offer were based upon the assumption of the settlement figure being net of taxation, however this was not communicated to Mr Sweet until after the supply of the draft deed. I also accept that the basis of the offer as understood by the respondent was that the figure was a gross payment but this was also not expressly stated.

The submissions of the parties

[20] I leave aside for the moment the submissions as to whether Fair Work Australia has the power to dismiss the application. I do so on the basis that it was not in issue that that power existed provided certain conditions were found to exist.

[21] The respondent contends that an agreement arose when the respondent’s revised offer on the afternoon of 17 June 2010 was accepted by the applicant. The acceptance of the offer was said to demonstrate an intention to be immediately bound by the settlement agreement (Masters v Cameron [1994] 91 CLR 353 at 360). That is, it was no contingent upon any subsequent conditions.

[22] The respondent also argues that there was offer and acceptance in which consideration was involved for both parties in the alleged agreement. Further, it was contended by the respondent that it was clear that the parties intended to enter into legal relations and that the applicant had the legal capacity to instruct her solicitor to accept the settlement agreement.

[23] In relation to the taxation treatment of the settlement amount, the respondent contends that in the absence of any alternative agreement, the intention should be construed as being in accordance with the usual rule applicable to such matters. This, it was said, was for taxation to be deducted as required by the relevant taxation legislation.

[24] In the view of the respondent, the fact that the applicant may have been under a misconception as to the taxation implications did not provide a basis to enliven a rescission in equity or mean that there was no a binding agreement (Taylor & Ors v Johnson (1983) 151 CLR 422 and 432). Further, the agreement should be construed on the basis that the parties in this matter had a knowledge of the facts of the matter and the law, being that awards and settlements under the Act attracted taxation (Maggbury Pty Ltd v Hafele Australia Pty ltd and Anor (2002) 185 ALR 152 per Gleeson CJ).

[25] Finally, the respondent contends that this is not a case of common mistake, but rather a unilateral mistake and this was no basis to set aside the settlement agreement or to prejudice the respondent. In that same context, the respondent argued that the extent of the payment necessary to achieve the net result as now contended by the applicant was more than the maximum amount that could be awarded (as compensation) under the Act and that the applicant may in any event be entitled to a refund of the taxation deducted depending upon her annual income in the relevant taxation year.

[26] The applicant contends that awards of particular sums expressed in dollar terms would normally be considered to be net of taxation. Agreements to settle matters may be specified as either being in gross or net terms. In that context, it was contended that a reasonable person in similar circumstances to the parties, would have understood the agreed amount to be net of taxation.

[27] The applicant concedes that, absent considerations of adequate offer and acceptance and/or vitiation of any agreement, all necessary elements for the formation of an agreement compromising the application existed between the parties in this matter. However, in this case the basis of the “agreed” amount was not stated and the applicant’s instructions to accept the proposal were based upon her solicitor’s understanding that the payment was a net amount.

[28] Although the parties may not have been ad idem in terms of the basis of the agreed sum, the applicant accepted that it would be open to Fair Work Australia to find that a compromise of the application had been effected. It may do so, if it was satisfied on an objective view that its terms were unambiguous.

[29] In order to be binding, the applicant contends that it must be objectively and unambiguously construed as requiring payment of the sum of $17,500 net of taxation. If that is so, the respondent has not met the obligations and the motion to dismiss should be rejected.

[30] The applicant accepted that there was no basis upon which the doctrine of unilateral mistake could be relied upon to justify rescission of any agreement. However, it was open for Fair Work Australia to find that the compromise was vitiated by mutual mistake where the terms of the settlement were ambiguous. That is, the agreement would be void ab initio. 9 In these circumstances there was no binding settlement agreement.

Was there a binding agreement to settle the matter?

[31] As will become clear, the decision to dismiss the unfair dismissal application without conducting a hearing or determinative conference on the merits is a matter of discretion. The major consideration in the present context is whether the matter was settled as a result of the negotiations and exchanges between the parties’ representatives. 10

[32] It has not been contended that the process of seeking a deed, or the terms of that deed (with the possible exception of the agreed settlement amount) meant that there was not a binding agreement to settle this matter as reached on 17 June 2010. Rather, the issue is whether the terms of the agreement as construed from the various telephone conversations and emails prior to that point, represent a binding and enforceable agreement for present purposes.

[33] I have found that the meaning of the agreed settlement sum was not expressly stated in either the offer or the acceptance. I have also found that its meaning was understood differently by each party.

[34] I therefore need to consider whether the terms of the alleged agreement were uncertain so as to lead to a finding that the agreement was void or such that it should not be relied upon on any basis. Further, whether there are grounds related to a relevant mistake that would make the agreement unenforceable for present purposes.

[35] It is clear that an agreement, in order to be binding, must have sufficient certainty at least to its essential terms. 11 There would be little doubt that the settlement amount in this case was an essential term. The other such elements are those as set out in the original offer made on behalf of the applicant and incorporated into the respondent’s revised proposal which was then accepted. These elements are not in doubt.

[36] As outlined earlier, it has not been contended that the agreement is void because it was incomplete. Rather, it is a question as to whether the agreement is unclear as to its essential terms so as to be void. Unclear in this context must mean more than that it is capable of more than one meaning. 12

[37] In this case, the original offer on behalf of the applicant was relevantly expressed as being “to pay our client the sum of $22,000.00”. This then formed the basis of the subsequent counter-proposals. Is this statement sufficient to mean that the basis of the proposal was unclear and the subsequent agreement then void? Alternatively, does this produce the result that the agreement means that the respondent is actually obliged to pay the applicant sufficient so that she receives in her hand the agreed amount - net of taxation?

[38] A monetary offer, or indeed a settlement, may be expressed in any manner as adopted by the parties. It is clear that whilst taxation may be taken into account by Fair Work Australia in making orders of compensation under the Act, the sums awarded will be gross figures with taxation as applicable to be deducted (see the approach of the Full Bench of the AIRC in T Sprigg v Pauls Licensed Festival Supermarket 13where the impact of taxation is considered but the sum as awarded was clearly intended to be in gross terms.) Indeed, any payments that are obliged to be paid by the employer as a result of an employment relationship will be subject to the deduction of taxation where such is required by taxation laws.

[39] In the same way, taxation as required by the relevant taxation laws will need to be deducted and paid on any settlement amounts, however the amount of taxation that will ultimately be paid on behalf of the employee will depend upon the nature of the payments and the circumstances of that individual employee. Accordingly, it is reasonable and appropriate to approach this matter on the basis that unless stated to the contrary, settlement proposals and agreements in relation to unfair dismissal applications will be expressed in gross terms.

[40] I do accept that where the nature of the payment is itself in doubt, such as when it may be considered to be a redundancy payment, the absence of an understanding as the taxation treatment could mean that the terms of a settlement agreement were not resolved with sufficient certainty unless that aspect were also agreed. However in this case, the basis of the payment was set out in the terms as already agreed and the taxation consequences flowed directly from the agreement. That is, it has not been suggested that taxation deductions were not required or that the basis of taxation as applied in the deed was itself wrong.

[41] Although the agreed settlement amount was stated in the deed as being, “$11,987.50 (being $17,500 less tax of $5,512.50 ...)”, this is a fair reflection of the amount given that the taxation as deducted is to be paid to the ATO for and on behalf of the applicant.

[42] In my view, the agreement to settle was not relevantly uncertain so as to make it void.

[43] I turn now to the issues associated with the difference of views as to the meaning of the agreed sum at the time of making the agreement and whether this involves a mistake of such a nature as to allow a party to void the settlement agreement.

[44] In this matter if there was a mistake it was a mutual mistake on the applicant’s case or a unilateral mistake on the respondent’s case. 14

[45] There is no suggestion that either party misled the other or that the apparent assumptions being made by each were known. It would also not be apparent that the other party had made the “wrong” assumption as to the basis of the agreed settlement figure. That is, the final amount was a significant amount of money capable of settling the matter (whether net or gross) given the respective risks to the parties of proceeding with the application and the parameters in which Fair Work Australia would be determining the application. On that basis, there would also be no basis to consider that the agreement is void due to it being unconscionable, even in the case of a unilateral mistake. 15

[46] In that light, and as the objective intention of the agreement is discernable, the subjective beliefs of the parties and the mistake(s) made in that context are not relevant. The fact that one of the parties has made a mistake is in this context, not sufficient to vitiate the agreement. 16

[47] I am therefore satisfied that there was a binding agreement to settle the unfair dismissal application between the parties and that this agreement was reflected in the deed as provided by the respondent.

Is there power for Fair Work Australia to dismiss an application in these circumstances?

[48] The respondent contended that Fair Work Australia had both specific and general powers to dismiss an application in these circumstances. The specific power was said to arise from s.587 of the Act which provides the capacity to dismiss an application in circumstances including where it was found to be frivolous or vexatious or had no reasonable prospects of success. The general power was said to arise from those provision in the Act which are akin to that used by Kaufman SDP, sitting as a member of the Australian Industrial Relations Commission when dismissing an application pursuant to the Workplace Relations Act 1996 (the WR Act) in Australian Taxation Office v A Zoiti-Licastro). 17

[49] Section 399 was also proposed by the respondent as being the equivalent to s.111(t)(i) of the WR Act, albeit providing a broader discretion to Fair Work Australia.

[50] The applicant accepted that Fair Work Australia might utilise the provisions of s.587 of the Act to dismiss the application where it finds that the application had no reasonable prospects of success. Alternatively, if a binding agreement to settle was found but the respondent had not performed its terms, Fair Work Australia might not hold a hearing but not dismiss the application pending the outcome of recovery proceedings.

[51] The applicant also acknowledged that should Fair Work Australia find that there was a binding agreement to settle and that it required the agreed sum to be paid in gross terms, it would be appropriate to grant the respondent’s application and for the unfair dismissal application to be dismissed without a hearing being conducted. 18

[52] Section 587 of the Act provides as follows:

“587 Dismissing applications

(1) Without limiting when FWA may dismiss an application, FWA may dismiss an application if:

(a) the application is not made in accordance with this Act; or

(b) the application is frivolous or vexatious; or

(c) the application has no reasonable prospects of success.

(2) Despite paragraphs (1)(b) and (c), FWA must not dismiss an application under section 365 or 773 on the ground that the application:

(a) is frivolous or vexatious; or

(b) has no reasonable prospects of success.

(3) FWA may dismiss an application:

(a) on its own initiative; or

(b) on application.”

[53] The substantive application in this matter has not been made under either s.365 or s.733 of the Act.

[54] Section 399 of the Act provides as follows:

“399 Hearings

(1) FWA must not hold a hearing in relation to a matter arising under this Part unless FWA considers it appropriate to do so, taking into account:

(a) the views of the parties to the matter; and

(b) whether a hearing would be the most effective and efficient way to resolve the matter.

(2) If FWA holds a hearing in relation to a matter arising under this Part, it may decide not to hold the hearing in relation to parts of the matter.

(3) FWA may decide at any time (including before, during or after conducting a conference in relation to a matter) to hold a hearing in relation to the matter.”

[55] Section 399 is primarily concerned with the manner in which unfair dismissal application are dealt by Fair Work Australia. This is reinforced by s.397 which provides as follows:

“397 Matters involving contested facts

FWA must conduct a conference or hold a hearing in relation to a matter arising under this Part if, and to the extent that, the matter involves facts the existence of which is in dispute.”

[56] On that basis, I have doubts as to whether s.397 of the Act is directed to circumstances whereby there may be grounds to dismiss an application on some basis. Rather, it appears to me that s.587 of the Act provides the necessary power to dismiss an unfair dismissal application in circumstances where it should not be heard as a result of it being vexatious or having no reasonable prospects of success.

[57] The concepts of vexatious and having no reasonable prospects of success in this context must extend to circumstances where the continuation of the application would be an abuse of process. 19

[58] Further, ss.577 and 578 of the Act provide as follows:

“577 Performance of functions etc. by FWA

FWA must perform its functions and exercise its powers in a manner that:

(a) is fair and just; and

(b) is quick, informal and avoids unnecessary technicalities; and

(c) is open and transparent; and

(d) promotes harmonious and cooperative workplace relations.

Note: The President also is responsible for ensuring that FWA performs its functions and exercises its powers efficiently etc. (see section 581).

578 Matters FWA must take into account in performing functions etc.

In performing functions or exercising powers, in relation to a matter, under a part of this Act (including this Part), FWA must take into account:

(a) the objects of this Act, and any objects of the part of this Act; and

(b) equity, good conscience and the merits of the matter; and

(c) the need to respect and value the diversity of the work force by helping to prevent and eliminate discrimination on the basis of race, colour, sex, sexual preference, age, physical or mental disability, marital status, family or carer’s responsibilities, pregnancy, religion, political opinion, national extraction or social origin.”

[59] In my view, these provisions provide further context in which Fair Work Australia should consider the potential dismissal of an application in the circumstances applying in this case.

[60] Where the matter has been settled, in most circumstances the continuation of the application becomes an abuse of process. This may or may not however flow should the party seeking the dismissal of the application not consider itself bound to meet the terms of the settlement. In any event, this is not the case in this matter.

Is it appropriate to dismiss this application?

[61] The respondent has argued this matter on the basis that it considers itself bound to meet the terms of settlement as agreed on 17 June 2010 and reflected in the deed.

[62] Given my findings as above, it is appropriate that I dismiss the substantive application in this matter. It is not appropriate that an application which has been settled now be heard and determined as if that settlement had not been reached. Such an approach would not be consistent with the statutory charter of Fair Work Australia in relation to this jurisdiction. 20

[63] An order to that end [PR500943] has been issued in conjunction with this decision.

Written submissions:

2010

22 July

3, 6 August

 1   Liberty was granted to both parties to seek that a hearing be conducted. No request has been made.

 2   Document DLS2.

 3   Document DLS3.

 4   Document DLS4.

 5   Document DLS5.

 6   Document PXM1.

 7   Document DLS6.

 8   Annexure A to the affidavit of Ms Savvas.

 9   Carter on Contracts, Butterworths paras 22-22010, 22-22020 and 22-090.

 10   See the discussion of the role of the tribunal in A Zoiti-Licastro v Australian Taxation Office PR967544 (Zioti), 25 January 2006 per Giudice J, O’Callaghan SDP and Gay C at par [28].

 11   See generally Cheshire and Fifoot’s law of Contract, 7th Edition at Chapter 6.

 12   Upper Hunter County District Council v Australian Chilling and Freezing Co (1968) 118 CLR 429 at 436-7 per Barwick CJ.

 13   Print R0235 - PN26, 24 December 1998 per Munro J, Duncan DP, Jones C.

 14   See Cheshire at chapter 12 4.

 15   Taylor v Johnson (1983) 151 CLR 422.

 16   This is very much akin to the circumstances considered by the High Court in Goldsborough Mort and Co Ltd v Quinn (1910) 10 CLR 6744.

 17   PR960411, 20 July 2005 as upheld on appeal in Zoiti.

 18   Paragraphs 14 and 15 of written submissions filed on behalf of the applicant.

 19   See the discussion of these and the related concepts by McCarthy DP in A v R[2010] FWA 1765, 4 March 2010 at pars [11] to [15].

 20   This includes the objects in s.381 of the Act and ss.577 and 578 as discussed. See also Zoiti at par [20].

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