The attached document replaces the document previously issued with the above code on 9 May 2013.

The document has been edited to correct an error in the reference in the preamble to the relevant matter numbers. This reference has been changed from "(U2011/14390; U2011/14390)" to "(U2011/14390; U2011/14391)".

[2013] FWC 2351

Fair Work Act 2009

s 394 - Application for unfair dismissal remedy

Unfair dismissal applications - applications dismissed - costs sought on an indemnity basis - applications vexatious - made with no reasonable cause - no reasonable prospects of success - costs orders appropriate.

[1] On 21 December 2012, I published a decision and made associated orders dismissing the applications made, pursuant to s 394 of the Fair Work Act 2009 (the 'Act'), by Mr David Eghlima and Mr Hamid Eghlima (the 'applicants') for remedies for unfair dismissal; See: David Eghlima and Hamid Eghlima v Winco Systems Pty Ltd [2012] FWA 10836 (the 'jurisdictional decision'). Shortly stated, I upheld the jurisdictional objection of Winco Systems Pty Ltd (the 'respondent') that the applicants had resigned. Consequently, there had been no dismissal at the initiative of the employer and, accordingly, Fair Work Australia (FWA) (as it then was) had no jurisdiction to determine the applications (ss 385(a) and 386(1)). During the course of proceedings, Mr R Moore, Counsel for the respondent, foreshadowed the making of a costs application in the event that FWA dismissed the applications (see para [132] of the jurisdictional decision).

[2] That submission was made good on 4 January 2013, when the respondent's solicitors made separate costs applications against each of the applicants for some, or all of the respondent's costs. The costs applications were made pursuant to ss 402 and 611 of the Act, which may be conveniently set out at this juncture as follows:

An application for an order for costs under section 611 in relation to a matter arising under this Part, or for costs under section 400A or 401, must be made within 14 days after:

(1) A person must bear the person's own costs in relation to a matter before the FWC.

(2) However, the FWC may order a person (the first person) to bear some or all of the costs of another person in relation to an application to the FWC if:

(a) the FWC is satisfied that the first person made the application, or the first person responded to the application, vexatiously or without reasonable cause; or

(b) the FWC is satisfied that it should have been reasonably apparent to the first person that the first person's application, or the first person's response to the application, had no reasonable prospect of success.

(3) A person to whom an order for costs applies must not contravene a term of the order.'

[3] For completeness, the costs applications were filed within 14 days of my determination of the matter (s 402(a)) and the applications are competently before the Fair Work Commission (FWC or the 'Commission').

[4] Each of the applications for costs was expressed to be made on the following grounds:

The Respondent seeks to recover the costs incurred by it in relation to the Matter and the applications made by the Applicant, including any interlocutory application.

The Respondent raised jurisdictional objection to the unfair dismissal application of the Applicant, [Name of individual applicant], in that the Respondent contended that the Applicant had not been dismissed by it within the meaning of the Fair Work Act 2009 (Cth) ("the Act").

The Respondent succeeded in its jurisdictional objection.

The Respondent refers to and relies upon the findings of fact and law contained within the Decision of Deputy President Sams dated 21 December 2012.

Further, the Respondent in terms of the preparation and presentation of its' response had to prepare in full, not only its case on the jurisdictional objection but further its defence to the merits of the application made by the Applicant and in respect of interlocutory application made in the Matter.

This costs application is made by the Respondent in accordance with s 402 and under s 611 of the Act.

The Respondent says that the Applicant is liable to pay some or all of the Respondent's costs in the Matter in that FWA would be satisfied to make such an order upon any or all of the following grounds and reasons having regard to the findings made in the Decision and otherwise, including correspondence forwarded to the Applicant's legal representative following upon the application made and during the course of the Matter, namely that the Applicant:

a) made his unfair dismissal application, vexatiously (section 611(2)(a)); or,

b) made his unfair dismissal application without reasonable cause (section 611(2)(a)); or,

c) where it should have been reasonably apparent to the Applicant that his unfair dismissal application had no reasonable prospect of success (section 611(2)(b)).

The Respondent says that any or all of the above grounds and reasons may equally be applied to the interlocutory applications made in the Matter by the Applicant.'

[5] On 24 January 2013, the applications were listed for mention and directions. The earlier representative of the applicants, Mr M Warren, Solicitor, had filed a notice of ceasing to act for the applicants, who were now represented Mr R Kouchoo of Counsel. The respondent continued to be represented by Mr R Moore of Counsel. Directions were issued requiring both parties to file and serve submissions and any evidence on which they relied. Both parties indicated in their submissions that they were content to have the matter determined 'on the papers'. Comprehensive submissions were filed by both parties and the respondent also relied on an affidavit of Ms Emma Grant, a Solicitor employed by Logie-Smith Lanyon Lawyers. I understand the respondent's submissions were prepared and/or approved jointly by Mr Moore and Logie-Smith Lanyon Lawyers.

[6] The respondent submitted that the applicants should be jointly and severally liable on an indemnity basis for all of the costs of the respondent. It accepted that the making of such an order was discretionary in nature, but that the Commission's discretion should be exercised in this case. The respondent drew my attention to Brazilian Butterfly Pty Ltd v Alissia Charambous [2006] AIRC 521, cited in Walker v Mittagong Sands Pty Limited T/A Cowra Quartz [2011] FWA 2225 ('Walker v Mittagong Sands').

[7] The respondent outlined the history of the applicants' employment and what led to their resignations. It noted that FWA had found it had no jurisdiction to deal with the matter. It was said that their applications were made 'vexatiously', 'without reasonable cause' or in circumstances where 'it should have been reasonably apparent' that they had 'no prospect of success'.

[8] In support of this submission, the respondent relied on the evidence and FWA's decision in the earlier proceedings, as well as correspondence between the parties annexed to the affidavit of Ms Grant. This correspondence related to 'without prejudice save as to costs' negotiations for settlement and an Order to Produce issued at the request of the applicants and subsequently set aside by the Tribunal on 31 October 2012. The correspondence revealed that while the respondent did not demur from its view that the applications were without merit, it had offered to settle both matters on 6 February 2012 by way of payment of $10,000 to David Eghlima, $4,000 to Hamid Eghlima and $1,783.99 for expenses and the provision of a statement of service. This offer was said to be in the context where both applicants had been overpaid $12,000 and $10,000 respectively for at least the year 2011 and where the applicants had made separate sizeable underpayment claims.

[9] Further offers were made by the respondent on 8 March 2012 to settle the matters by way of the payment of $12,500 to David Eghlima, $4,000 to Hamid Eghlima and the provision of statements of service. This offer was reaffirmed on 16 March 2012. On 17 April 2012, the respondent offered to settle the matters by the payment of $16,500 and $2,000 respectively and $2,000 each referable to the unfair dismissal matters. On 17 October 2012, the respondent offered to settle the matter by way of payment of the applicants' accrued annual leave entitlements and any expenses incurred by them during their employment, subject to the production of original invoices. All correspondence from the respondent's solicitors from March 2012 onwards in this regard made reference to the provisions of ss 401 and 611 of the Act.

[10] By letter dated 5 November 2012, the respondent's solicitors advised that the respondent had agreed to make a gross payment of $16,537.50 to David Eghlima and a gross payment of $1,846.25 to Hamid Eghlima for outstanding annual leave entitlements.

[11] The respondent identified those aspects of the jurisdictional decision which supported the submission that the applicants had no reasonable prospects of success and that this would have reasonably been apparent to them. Specifically, reference was made to my findings that:

● the language said to have been used by each of the parties would support that party's case that the applicants had, respectively, been dismissed or resigned;

● on balance, the Commission found the evidence of the respondent on this point to be more reliable; and

● discrepancies in the evidence relating to the timesheets of the applicants bolstered FWA's opinion that, in the event that the findings in relation to the jurisdictional issue were wrong, it was unlikely that FWA would find that the dismissals of the applicants had been unfair.

[12] The respondent referred to documents tendered in the earlier proceedings to support the submission that the applicants were aware of discrepancies with their timesheets. For example, one letter said, in part:

'In reviewing those documents, our client has been alarmed to discover a significant number of discrepancies between the events referred to in the Records, and the dates and the starting and finishing times for work listed on the timesheets provided by your clients to Winco.

In particular, and without any plausible explanation being provided by your clients, the Records suggest that there were a significant number of times and dates recorded by your clients in the timesheets for which they were paid, when they were not in fact at work.'

[13] The applicants had been served with these timesheet records and the RTA records as early as April 2012, as these were annexed to the first statement of Ms Cordula Hohnen-Behrens, a witness in the earlier proceedings.

[14] The respondent further submitted that the applicants had deliberately offered falsehoods in giving their evidence. It noted my findings in the jurisdictional decision that their evidence was unreliable. The respondent said that the characterisation of the applicants' evidence as unreliable was analogous to that in Walker v Mittagong Sands. It was further submitted that the giving of falsehood by a party is a basis upon which an order for indemnity costs may be made; See: Dye v Commonwealth Securities Limited (No 2) [2012] FCA 407 and ACI Operations Pty Ltd v Cook [2012] FWAFB 3292 ('ACI v Cook').

[15] The respondent noted that the provisions of s 611 of the Act modified the rule that generally applied in Courts that 'costs follow the event'. Under s 611, a person must bear their own costs in proceedings in the Commission, subject to certain exceptions (s 611(1)). The facts underlying the respondent's cost application fell within these exceptions. It was said that the applicants had made vexatious claims; See: Attorney-General v Wentworth (1988) 14 NSWLR 481. Where the applications were made in the knowledge that they had resigned from their employment with the respondent, the applicants had made them knowing that their claims were groundless and without merit. This was an abuse of process.

[16] The broad policy aim of the costs regime in the Commission was analogous to that under the Industrial Relations Act 1999 (Qld). This aim included an intention that no party whose case was reasonably arguable should fear costs being awarded against them 'unless some abnormal unfair aspect enters into the conduct of the proceedings'; See: Goldman v Data General Australia Pty Ltd (1993) 50 IR 242. The adoption of wilful falsehoods in the proceedings was said to constitute such an 'abnormal unfair aspect'.

[17] The respondent cited the decision of Wilcox J in Kanan v Australian Postal and Telecommunications Union [1992] FCA 539; (1992) 43 IR 257 as providing guidance on when an application had been made 'without reasonable cause'. This formulation sets out that where an applicant is aware, on their own version of the facts, that their application clearly had little prospects of success and does not turn on arguable points of law, then the application is made 'without reasonable cause'. It was noted that this formulation is predicated on the applicant being truthful. By relying on Walker v Mittagong Sands, the Commission should not be limited to the facts put forward by the applicants in the proceedings in making a finding as to whether the application had been made 'without reasonable cause'.

[18] The respondent also referred to the interlocutory application for an Order for the Production of Documents made by the applicants, which was subsequently set aside on 31 October 2012. The respondent also sought a costs order on an indemnity basis in relation to that application.

[19] Mr Kouchoo submitted that the applications for costs were without merit and should be dismissed. Mr Kouchoo set out the statutory framework under the Act and the principles governing an application for costs. He cited Mokomoko v Zennforce Protection Group Pty Ltd [2011] FWA 1217 ('Mokomoko') as authority for the proposition that costs orders are discretionary. However, the Commission is required to find that it has the discretion to make orders as to costs pursuant to s 611(1) before it could exercise that discretion. Should that discretion be enlivened, it would only be exercised in exceptional circumstances; See: McKenzie v Meran Rise Pty Ltd t/as Nu Force Security Services 275/00 M Print S4962 [2000] AIRC 1118 and Holland and another v Nude Pty Ltd t/a Nude Delicafe [2011] FWA 8012.

[20] Mr Kouchoo drew a distinction between what he described as 'general' and 'substantive' grounds relied on by the respondent (See para [4]). Specifically, he described grounds 3.1-3.5 as 'general grounds' and submitted that the legislative scheme for costs under the Act does not allow for these matters to be considered as grounds for awarding costs. Grounds 3.6-3.7 were said to be the substantive grounds and Ground 3.7 to be the particularisation of Ground 3.6. He restated that s 611 had the effect that the 'general rule' that costs follow the event cannot apply in the Commission. He emphasised that it followed from the inclusion of the words 'must not' in s 611(1) that the Commission is prohibited from ordering costs unless the 'substantive' grounds are made out. The mere fact that the respondents had made a successful jurisdictional objection and was put to costs in defending against the applicants' claims, did not enliven the discretion of the Tribunal to order costs, per se. Presumably for the sake of completeness, he submitted the 'general grounds' could not apply to interlocutory applications (Ground 3.8)

[21] Mr Kouchoo submitted that the discretion would be enlivened if any of the three 'substantive grounds' (see para [4]) were made out. In the event that this discretion was enlivened, s 611(2) should be seen as facultative; See: Re M [1924] WALawRp 4; (1924) 26 WALR 115, Derisi v Vaughan [1983] 3 NSWLR 17 and Taylor v Attorney-General for the State of South Australia (1991) 55 SASR 462. Mr Kouchoo addressed all three of these grounds in turn.

[22] Mr Kouchoo submitted that the test for 'vexatious proceedings' is primarily one of motive; See: Nilsen v Loyal Orange Trust IRCA Decision No: 267/97 and Attorney-General v Wentworth, although a number of other grounds are relevant. He noted that a test for 'vexatious proceedings' has been enshrined in legislation in NSW under the Vexatious Proceedings Act 2008 (NSW) and this formalised definition further emphasises the notion of motive.

[23] Mr Kouchoo submitted that no reference were made in the jurisdictional decision to attempts by the applicants to annoy or harass the respondent, to collateral purposes of the applicants or abuses of process. The claims of the applicants were not described as 'utterly hopeless litigation'. There was no evidentiary basis for finding that the applications were brought for the purpose of harassing or embarrassing the respondent. Their motivation was to be compensated for what they perceived was an unfair dismissal. Accordingly, the ground of 'vexatious proceedings' should fail.

[24] Mr Kouchoo also drew attention to Kanan as authority for the proposition that if, on the applicants' own version of the facts, it is clear that the proceedings must fail, then those proceedings have been brought 'without reasonable cause'. Because the evidence and submissions of the parties required that the Commission consider both versions of the facts before a conclusion was reached, this was not made out. Where a claim fails or is dismissed, it does not follow that the application is made 'without reasonable cause'; See: Lemoto v Able Technical Pty Ltd [2005] NSWCA 153.

[25] Mr Kouchoo cited Lewis v Wodonga City council PR956243 [2005] AIRC 187 as offering the test for determining where it is 'reasonably apparent' that an application has 'no reasonable prospects of success'. It was said that such a finding should be made in limited circumstances, with 'extreme caution and where the application is manifestly untenable or groundless'; See also: A Baker v Salva Resources Pty Ltd [2011] FWAFB 4014; Wright v Australian Customs Services PR926115 [2002] AIRC 1595, Deane v Paper Australia Pty Ltd PR932454 [2003] AIRC 623; A Smith v Barwon Region Water Authority [2009] AIRCFB 769; Maria Legaz v Northern Beaches Community Services Pty Ltd [2011] FWA 5656; Timmins v Compass Security t/a Compass Integrated Security Solutions [2012] FWAFB 1093. It was also said that such a finding should also be approached with caution where the facts and law have not been tested in a hearing; See: Darcy v Megan Fitzgerald & Associates Pty Ltd - re Application for costs [2009] FWA 1547.

[26] Mr Kouchoo submitted that the sum of these authorities made it clear that where there were matters of fact and law which were arguable before the Commission, a subsequent application for costs should be dismissed. He drew particular attention to paras [136] - [137] of the jurisdictional decision, in which I expressed the view that:

'I accept that the language said to have been used by both parties supports the propositions which they respectively advance; that is, the words alleged to have been used by Mr Behrens would constitute a dismissal at the initiative of the employer and alternatively, the words alleged to have been used by Hamid, and allegedly confirmed by David, would constitute a freely given resignation.'

Accordingly, it was necessary for the evidence to be tested by way of a formal hearing and it follows that there were issues of fact and law that were arguable in this case. Mr Kouchoo also drew attention to the definitions of 'arguable' and 'reasonable prospects' in the Legal Profession Act 2004 (NSW) as being 'not hopeless or entirely without merit'.

[27] Mr Kouchoo noted that the applicants had been legally represented throughout the proceedings and that it would therefore have been open to the Commission to find that the applicant's lawyer ought not to have presented a case, if it was of the view that it was 'plainly unarguable'.

[28] Accordingly, none of the three 'substantive grounds' relied on by the respondent in the applications for costs were made out. It follows that the discretion of the Commission is not enlivened.

[29] In the alternative, Mr Kouchoo submitted that should the Commission find that its discretion had been enlivened, the use of the word 'may' in s 611(2) is facultative. The provisions of the Act relating to costs should not be construed so as to mean that the making of costs orders follows 'automatically' from one or more of the substantive grounds above being made out; See: Newmarch v Atkinson [1918] HCA 53; (1918) 25 CLR 381 and Lamb v Moss & Brown [1983] FCA 254; (1983) 49 ALR 533. Mr Kouchoo distinguished the construction which should be applied to the Act from that which should be applied to legislative schemes under which it is clearly intended that the benefit of relief should move 'automatically' from the satisfaction of the Tribunal of certain matters; See: Lugg v Wright [1944] SASR 106; Owens v Australian Building Construction Employees' and Builders Labourers' Federation (1978) 19 ALR 569 and Ward v Williams [1955] HCA 4; (1955) 92 CLR 496. Mr Kouchoo relied on 'Mokomoko' to establish that such a construction should not be applied to the costs regime under the Fair Work Act 2009.

[30] Mr Kouchoo rejected the respondent's applications for indemnity costs and submitted that they should only be awarded where:

'a. there is no chance of success (Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited (No 2) [2009] NSWCA 12 at [4]);

b. where the claim is "without substance", "groundless", "fanciful or hopeless" or so weak as to be futile, for example, where a limitation period applies: Hillebrand v Penrith Council [2000] NSWSC 1058; or

c. where abuse of process has been clearly shown: Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359 at 362.'

[31] Mr Kouchoo submitted that the mere fact that the applicants were found to be 'incredible' is not sufficient to justify that the applicants should have costs awarded against them. He cited a number of cases dealing with specific types of conduct which would justify the awarding of costs; none of which were made out in this case. He emphasised that the weakness of a case was not determinative in the exercise of the discretion to award costs; See: Wentworth v Rogers (No 5) (1986) 6 NSWLR 534.

[32] Mr Kouchoo submitted that evidence of offers between the parties cannot be used by the Commission as a basis for the making of an order for costs under the Act. He contrasted the provisions of ss 570 and 611 of the Act and noted that s 570 provides that 'a court (including a court of a State or Territory)' may order costs if 'the court is satisfied that the party's unreasonable act or omission caused the other party to incur costs' (s 570(2)(b)). The same ground is not available to the Commission under the relevant provisions of s 611 and, accordingly, the Commission should reject the correspondence between the parties in relation to offers of settlement.

[33] The respondent submitted that the distinction drawn by Mr Kouchoo between 'general' and 'substantive' grounds in its applications constituted a 'straw man' argument. The respondent agreed that they seek to rely on the grounds that Mr Kouchoo described as 'substantive' grounds. It agreed with Mr Kouchoo that the Commission must be satisfied that one or more of the grounds under s 611(2) is made out, before its discretion to issue a costs order was within jurisdiction.

[34] The respondent highlighted that the applicants had made active efforts to disguise the facts as known to them. In this instance, it would be open to the Commission to find that their claims as to their dismissals were 'so obviously untenable or manifestly groundless as to be utterly hopeless'. Alternatively, being that the applicants had made false statements, their claims were made 'without reasonable cause'.

[35] The respondent put that the applicants had misunderstood or misrepresented the test in Kanan, in emphasising the 'applicant's own version of the facts' without addressing an earlier passage which uses the phrase 'upon the facts apparent to the applicant at the time of instituting the proceeding.' The applicants had also failed to understand the distinction between points of fact and points of law as addressed by Wilcox J in Kanan. Where an argument is based on agreed facts between the parties, but on different points of law, it is required that both of those points of law be arguable. Costs will not lie against an unsuccessful party, should this requirement be fulfilled. However, the applicants had sought to rely on falsehoods.

[36] The respondent further submitted that the decisions of Walker v Mittagong Sands and ACI v Cook were good authority as to how the tests under s 611 of the Act are to be applied by the Commission. Mr Kouchoo had placed undue reliance on authority external to the Commission's own jurisdiction. Mr Kouchoo had also failed to make submissions as to the findings in the decision that suggested dishonesty or falsification of records on the part of the applicants. In this circumstance, it was open to the Commission to make a finding that the applications were made 'without reasonable cause'. In the alternative, the respondent restated the submission that these facts would also support a finding that the applications 'had no reasonable prospects of success.'

[37] The respondent submitted that Mr Kouchoo had failed to demonstrate that the conduct of the applicants did not constitute 'an abuse of process'. It had earlier been made clear that this was the basis on which indemnity costs were sought.

[38] In relation to the evidence provided to the Commission in relation to negotiations and offers between the parties, the respondent noted there was no objection to the correspondence being submitted. It was tendered to support the submission that the applicants were on notice as to s 611 of the Act, the weaknesses in the applicants' evidentiary case and that the respondent intended to pursue costs. This was the basis on which the Commission could consider the material, rather than the nature and extent of the offers actually made.

[39] At the outset, I should say that Mr Kouchoo provided the Commission with a most interesting, comprehensive and analytical submission as to the law surrounding the awarding of costs. He cited numerous authorities of various Courts and Tribunals. With no disrespect intended, I do not intend to deal with the entirety of Mr Kouchoo's submissions or the authority/ies which he contended supported his analysis. Nevertheless, I will deal with some of his more creative submissions shortly.

[40] That said, it seems to me that the approach to be adopted by the Commission in this case is properly and logically referable to the authorities of this Commission and its predecessors, notwithstanding the general law principles found in other decisions of Courts and Tribunals which will obviously inform the Commission on the meaning of words and phrases which have common application and context.

[41] In this respect, I refer to a recent decision of the Commission in Qantas Airways Ltd v Paul Cater [2013] FWCFB 1811, in which the Full Bench said at paras [17]-[19]:

'[17] We refer to the approach we have taken to considering if the provisions of s.611(2)(a) or s.611(2)(b) are established. We first deal with the application made on the basis that Qantas has made its appeal vexatiously. The approach generally taken by members of the Commission as to the meaning to be ascribed to the word "vexatiously" in s.611(2)(a) is to adopt the comments of Justice North in Nilsen v Loyal Orange Trust (Nilsen). Nilsen was decided in 1997 when the then Workplace Relations Act 1996 applied however the relevant provision considered by his Honour was in terms similar to s.611(2)(a) being whether an applicant "instituted the proceeding vexatiously or without reasonable cause". About this provision his Honour said:

"The next question is whether the proceeding was instituted vexatiously. This looks to the motive of the applicant in instituting the proceeding. It is an alternative ground to the ground based on a lack of reasonable cause. It therefore may apply where there is a reasonable basis for instituting the proceeding. This context requires the concept to be narrowly construed. A proceeding will be instituted vexatiously where the predominant purpose in instituting the proceeding is to harass or embarrass the other party, or to gain a collateral advantage."

[18] The approach we have taken to whether Qantas instituted its appeal without reasonable cause, is to consider whether at the time of instituting the appeal there was no substantial prospect of success.

[19] We now turn to s.611(2)(b). The approach to be taken to considering whether such a finding should be made is summarised in the decision of the Full Bench in Baker v Salva Resources Pty Ltd (Baker). The relevant extract is as follows:

"The concepts within s.611(2)(b) "should have been reasonably apparent" and "had no reasonable prospect of success" have been well traversed:

• "should have been reasonably apparent" must be objectively determined. It imports an objective test, directed to a belief formed on an objective basis rather than a subjective test; and

• a conclusion that an application "had no reasonable prospect of success" should only be reached with extreme caution in circumstances where the application is manifestly untenable or groundless or so lacking in merit or substance to be not reasonably arguable."'

[42] In Hamilton James and Bruce Pty Ltd v Michelle Gray [2011] FWAFB 9235, a Full Bench of FWA said at paras [18]-[21]:

'[18] The phrase "without reasonable cause" was considered in Kanan v Australian Postal and Telecommunications Union. Section 347(1) of the then Industrial Relations Act 1988 (Cth) provided that:

"A party to a proceeding (including an appeal) in a matter arising under this Act shall not be ordered to pay costs incurred by any other party to the proceeding unless the first-mentioned party instituted the proceeding vexatiously or without reasonable cause." (Underlining added)

[19] In Kanan's case, Justice Wilcox said in respect of the phrase that:

"A proceeding is not to be classed as being launched 'without reasonable cause' simply because it fails. As Gibbs J said in R v Moore; Ex parte Federated Miscellaneous Workers' Union of Australia [1978] HCA 51; (1978) 140 CLR 470 at 473, speaking of the Conciliation and Arbitration Act equivalent of s 357 (s 197A):

'... a party cannot be said to have commenced a proceeding "without reasonable cause", within the meaning of that section, simply because his argument proves unsuccessful. In the present case the argument presented on behalf of the prosecutor was not unworthy of consideration and it found some support in the two decisions of this court to which I have referred. The fact that those decisions have been distinguished, and that the argument has failed, is no justification for ordering costs in the face of the prohibition contained in s.197A.'

In Standish v University of Tasmania [1989] FCA 166; (1989) 28 IR 129 at 139 Lockhart J applied the qualification in ordering costs against an applicant whose case he thought 'misconceived', rather than simply unsuccessful. But, as the Full Court pointed out in Thompson v Hodder (1989) 29 IR 339 at 342, 'there may be cases which could not be described properly as "misconceived" but which would nevertheless be held to have been instituted without reasonable cause'.

It seems to me that one way of testing whether a proceeding is instituted 'without reasonable cause' is to ask whether, upon the facts apparent to the applicant at the time of instituting the proceeding, there was no substantial prospect of success. If success depends upon the resolution in the applicant's favour of one or more arguable points of law, it is inappropriate to stigmatise the proceeding as being 'without reasonable cause'. But where it appears that, on the applicant's own version of the facts, it is clear that the proceeding must fail, it may properly be said that the proceeding lacks a reasonable cause."

[20] The phrase "no reasonable prospect of success" in the context of costs applications was considered by a Full Bench of the Australian Industrial Relations Commission (AIRC) in Deane v Paper Australia Pty Ltd. In that decision the Full Bench said:

"[5] It was not disputed that for the purposes of s.170CJ(1)(a)(ii) the appeal instituted by the applicant was a proceeding begun by him. The question is whether he did so in circumstances where it should have been reasonably apparent to him that there was no reasonable prospect of success. If that question is answered in the affirmative the Commission is able to make an order for costs against him. Whether it should do so is a separate although closely related question which requires a separate exercise of discretion.

[6] We were taken to a number of authorities which were said to bear upon the construction of s.170CJ. None of those authorities deals with the operative expression which now appears in s.170CJ(1)(b), namely: 'no reasonable prospect of success'.

[7] The expression 'no reasonable prospect of success' also appears in ss.170CF(2)(d), 170CF(3)(b) and 170CF(4). Section 170CF(4) provides for the summary dismissal of an application for relief pursuant to s.170CE, by the issue of an appropriate certificate, if the Commission concludes that the application has no reasonable prospect of success. The construction of the expression in that context was considered by a Full Bench of the Commission in Wright v Australian Customs Service. In that case the Full Bench, drawing upon relevant authority relating to summary dismissal of proceedings in various jurisdictions, held that a conclusion that an application had no reasonable prospect of success should only be reached with extreme caution and where the application is manifestly untenable or groundless.

[8] Making due allowance for the caution which must attend the exercise of a discretion to summarily dismiss an application, it appears to us that the approach in Wright is one we should follow. In other words, unless, upon the facts apparent to the applicant at the time of instituting the appeal, the proceeding in question was manifestly untenable or groundless, the relevant requirement in s.170CJ(1) is not fulfilled and the discretion to make an order for costs is not available." (Endnote omitted)

[21] In Smith v Barwon Region Water Authority, a Full Bench of the AIRC in considering the phrase "no reasonable prospect of success" in the context of s.650 of the Workplace Relations Act 1996 (Cth) (WR Act) concerning AIRC advice to the parties about an application for relief in respect of termination of employment said:

"[48] Having regard to the authorities ... it seems to us that an application will have no reasonable prospects of success if it is so lacking in merit or substance as to be not reasonably arguable."'

[43] For completeness, and as both parties relied on Kanan, I refer to the final two paragraphs of that decision:

'29. It seems to me that one way of testing whether a proceeding is instituted "without reasonable cause" is to ask whether, upon the facts apparent to the applicant at the time of instituting the proceeding, there was no substantial prospect of success. If success depends upon the resolution in the applicant's favour of one or more arguable points of law, it is inappropriate to stigmatise the proceeding as being "without reasonable cause". But where it appears that, on the applicant's own version of the facts, it is clear that the proceeding must fail, it may properly be said that the proceeding lacks a reasonable cause. That is the situation in the present case. The qualification of s.347 applies. The Court has power to order costs against the applicant.

30. I see no discretionary reason to withhold such an order. It is not a matter of the applicant's motives but, rather, that he has put the respondent to the expense of resisting a claim which was always doomed to failure. There is no question of punishing the applicant for his unreasonable course of action. The rationale for making a costs order is that a measure of indemnity should be conferred upon the respondent for the costs it has been obliged to incur in responding to the unreasonably instituted proceeding. I propose to order that the principal proceeding be dismissed with costs. The costs of the motion will be costs in the principal proceeding and so covered by that order.'

[44] A number of important propositions arise from s 611 of the Act and the authorities to which I have just referred:

1. Unlike the general courts, costs in FWC proceedings do not 'follow the event'.

2. The award of costs in industrial matters is to be approached with caution and with a strict application of the criteria expressed in subsection (2) of s 611 of the Act.

3. The three preconditions to the exercise of discretion in subsections (1) and (2) are disjunctive, meaning only one of either of the notions of 'vexatiously', 'without reasonable cause' or 'no reasonable prospects of success' need to be satisfied before the Commission may exercise its discretion to award costs.

4. Even if the Commission finds that the preconditions of subsection (2) are all, or either of them met, the Commission retains a discretion as to the extent or at all, of any costs order.

5. Nevertheless, the Commission's power to award costs is quintessentially an exercise of discretion.

[45] Mr Kouchoo's submissions were heavy on general principles, but light on the Commission's adverse findings against the applicants in the jurisdictional decision. These findings included, inter alia, the following:

'[141] After carefully assessing all of the surrounding circumstances and drawing conclusions on the balance of probabilities, I am satisfied that the truth of the matter lies with Mr and Mrs Behrens versions of the conversations on 30 November 2011.

[143] I am fortified to the above findings by the following observations and conclusions:

b) The evidence of the two applicants as to what was said in the various conversations was not just corroborative, but exactly 'word for word' as to what was said. Corroboration is one thing, but to have numerous detailed conversations recalled exactly 'word for word' by two persons, raises concerns as to collaboration of the evidence. I consider it highly implausible that two persons could remember, let alone recall exactly the same words used in a number of conversations, including conversations of at least 8 minutes.

c) The undisputed phone records of the respondent record the first conversation as lasting for 8 minutes. On the applicants' version of events, the conversation lasted for a considerably shorter period of time. In my view, a conversation of 8 minutes would be explicable in the context of Mr Behrens inquiry of the applicants about the Canberra job, where they were, how David had injured himself, Mr Behrens explaining the requirement for one of them to accompany him to Port Macquarie the next day, Hamid arguing as to why he couldn't drive for longer than 1 hour, Mr Behrens saying then they had a problem and Hamid indicating he would not work for Winco any more.

[145] Secondly, I have serious doubts that Hamid was even at his brother's apartment when the Behrens came for the van and tools. Was it necessary for him to corroborate what his brother said in another phone conversation in the apartment or what was said outside the apartment?

[146] It seems highly suspect that it wasn't until these proceedings that Hamid said he used a key to enter a friend's apartment on the third floor of the building and crouched down and heard and saw everything which was said. If true, this was an omission of some importance. Aside from the lateness of the introduction of this evidence, which on any view was significant, it seems extraordinary that:

a) Someone with serious back pain would have crouched down to hide behind the railing;

c) His brother does not record anything about this in his written statement and nor does he;

d) Hamid claims he overheard a third phone conversation between his brother and Mrs Behrens in his brother's apartment but, unlike all the other earlier calls, he didn't identify himself as being there; and

e) Hamid's friend lived below his brother and just happened to be away and had given Hamid his keys.

[147] Putting all the above matters aside, there is one issue which dominated these proceedings and it was one which I found particularly troubling. It may well account for the applicants' decision to cease working for the respondent.

[148] Despite the applicants' insistence of only performing minor handyman jobs at his apartment block outside of work time, which I found singularly unconvincing, there raises in my mind a distinct possibility that the discrepancies in their timesheets, when compared with other of the objective evidence, such as phone, site and toll records, may have been related to the establishment of, and ratcheting up of, their Company's activities. While I hasten to add, like Mr Moore, that I refrain from describing these discrepancies as 'fraudulent' or 'criminal', the evidence, to my mind, was most alarming and disconcerting.

[150] What I found particularly disturbing was the applicant's explanation for the discrepancies in their timesheets compared to the Multiplex site access records. Of 33 days claimed for work on the Multiplex job, site access records reveal access by David of 12 days and by Hamid of 6 days. The main explanation offered was that they would often gain access by a backdoor which was not security coded.

[151] I find this explanation utterly unbelievable. It means that the very important and fundamental Occupational Health and Safety purpose of ensuring that all employees who access building sites can be accounted for in an emergency, would be effectively nullified and made completely worthless. If the applicants had gained such access, it would obviously mean that unauthorised access would be available to many other employees or contractors. For a major building contractor, such as Multiplex, to condone such a practice would be unconscionable and untenable, and I daresay for them, vigorously contested.

[152] In my opinion, the applicants' explanations are so implausible as to be ridiculous. It is not supported by a skerrick of corroborative evidence. It is more likely that Multiplex's records are a true reflection of when the applicants were on the site. That being so, is it any wonder that the respondent had serious reservations with the applicants' conduct in light of the revelations it discovered after their resignations?

[154] Moreover, it seems plain enough that the Behrens had a high degree of trust in the applicants. While they might have discovered the occasional petrol purchase or toll charge on the weekend, the extent of the discrepancies only became apparent by a closer examination of the correlation between their submitted timesheets with other of the objective evidence.

[157] Against this background, even if I be wrong as to my conclusion that the applicants resigned and FWA has no jurisdiction to determine these applications, I think it highly unlikely, given the nature and scale of the incontrovertible evidence of the timesheet discrepancies, that their dismissals (if so found) would be found to be unfair by FWA. One might be able to give the benefit of the doubt if there were two of three discrepancies, with explicable explanation, but so many inconsistencies demonstrate a pattern of behaviour and conduct which would, in my opinion, constitute a valid reason for the applicants' dismissals. The applicants were in flagrant breach of their duty to ensure the trust and confidence of their employer.'

[46] A number of Mr Kouchoo's more creative submissions require comment. In my view, it is incorrect to submit that the primary decision must make reference to the tests of 'vexatiousness' in order to establish whether the proceedings were motivated by vexatious intent (designed to annoy or harass, for collateral purpose or abuse of process). This submission places a far too narrow limitation on the exercise of the Commission's discretion under this section. It seems to me that the findings made in respect to the applicants' conduct in the jurisdictional decision, when viewed within the prism of whether their applications were later said to have been vexatious, may be so obvious and unambiguous as making it unnecessary for the decision maker to make such findings. Indeed, it would be relatively unusual for the Commission to do so. In any event, the applicants were on clear notice from March 2012 - some six months before the hearing - that the respondent intended to pursue an application for costs under the express provisions of s 611 of the Act.

[47] Mr Kouchoo submitted that the 'without reasonable cause' test can only succeed, if it is obvious on the applicants' own case, without even considering the evidence of the other side. Put another way, a costs application based on the 'without reasonable cause' test can only succeed having taken into account the evidence of the applicant only. This submission is unrealistic and misconceived for the following reasons.

[48] Firstly, there may be some cases where an applicant admits to something which they know would mean their case was doomed from the outset. I understand the quote from Kanan highlighted by Mr Kouchoo was referring to such an example. However, Kanan does not stand for the wider proposition that the consideration of an applicant's case alone is the only basis upon which the Commission can assess the test of 'without reasonable cause'.

[49] Secondly, in most cases which are contested, how could the Commission possibly assess whether the applicant's case alone was unlikely to succeed, without testing it against the evidence of the other side?

[50] Thirdly, the submission begs the question as to what was known by the applicants to be untrue or misleading when they filed their applications, and whether this knowledge meant the applicants instigated a cause of action which they knew could not possibly succeed. Just because the issue of fact, namely who said what on 30 November 2011, was in argument in the hearing, it does not follow that this means the costs application must fail. It seems tantamount to submitting that if you know something materially relevant to be a lie and repeat it in the hearing, on oath and it is found to be a lie, then a costs application cannot succeed. That cannot be right.

[51] I reject such a proposition. Moreover, I do not see how the submission is consistent with the relevant authorities. My findings at paras [136]-[137] merely set out that the evidence was hopelessly conflicted, not that there was some residual or underlying basis for the truth of what was alleged to have been said by the applicants in the conversations of 30 November 2011.

[52] Mr Kouchoo submitted that because the applicants had been legally represented, a case would not have been presented which was 'plainly unarguable'. The absurdity of this proposition is no better demonstrated than by noting that if this was the case, no litigant represented by a lawyer would ever lose a costs application. In any event, it was apparent, at various points during the earlier proceedings, that Mr Warren was having some difficulty obtaining proper instructions from his clients.

[53] As to the submission that a costs application should not apply to interlocutory proceedings, I think no more need be said in rejecting that proposition than by referring to what the Full Court of the Federal Court said in Commonwealth of Australia v Construction, Forestry, Mining and Energy Union [2003] FCAFC 115 at 274:

'12 In an action brought to enforce a right given by the Act, it would be quite contrary to this object to read s 347(1) narrowly such that interlocutory proceedings about, for example, discovery were not seen as proceedings "in the matter" at the heart of the principal proceeding and were instead seen as proceedings in a separate matter, defined according to the narrower and subsidiary controversy about discovery. Viewed in that way, the policy choice that s 347(1) reflects would be undermined since the so-called ordinary rule as to costs would often, perhaps nearly always, prevail in interlocutory matters. Only the trial of the principal action would be unassailably a proceeding in a matter arising under the Act. Such a result could not have been intended.'

[54] Finally, Mr Kouchoo distinguished the respondent's grounds for the application between 'general' grounds and 'substantive' grounds. To the extent I agree with him that the 'general' grounds 3.1 - 3.5 do not, of themselves, establish a basis for the awarding of costs under s 611 of the Act, I do not otherwise understand what point he was seeking to make. It seems to me that the respondent's 'general' grounds merely set the scene for the costs applications. It does little to advance the applicants' case by adopting a technical dissection of the grounds for the applications when the relevant considerations are contained entirely within the terms of the statute itself, and it is to those terms which the Commission must assess in the context of the facts and circumstances of the case.

[55] In summary then, I am satisfied that each of the limbs under s 611 of the Act have been satisfied in this case. In particular, I find that the applicants knew that they had resigned, on or about 30 November 2011, and then proceeded to reconstruct a colluded story in an attempt to refute the respondent's claims that they had resigned. In bringing their applications, the applicants sought to gain a collateral advantage over the respondent, while at all times being aware that they had been misrepresenting their timesheets to claim for time not worked.

[56] In this respect, they concocted falsehoods, or gave misleading evidence to try to explain away or cover their behaviour. The adverse findings I made as to much of the applicants' evidence were not made lightly. It is in this context that one must examine whether the tests in s 611 of the Act or any one of them, have been met. With the full knowledge they had resigned and had said they would not work for the respondent again, the applicants chose to institute unfair dismissal proceedings with the obvious knowledge they had not been dismissed. To any reasonable bystander, it would have been profoundly clear that their applications had no prospects of success. Moreover, even with this knowledge being apparent to them, the applicants chose to reject numerous offers to settle the matters and to 'plough on' regardless to interlocutory hearings and a full three days merits case.

[57] The Commission is mindful of the principles to be applied to costs applications on an indemnity basis and the obvious caution the Commission must exercise in this regard. Such costs orders are rare and unusual.

[58] In Dye v Commonwealth Securities Limited (No 2) [2012] FCA 407, Buchanan J identified one of the foundations for an order of indemnity costs may be on the basis of the findings made in the earlier judgment that the applicant's case was, in all relevant aspects, based on a falsehood. His Honour said at para [5]:

'Each of these foundations appears to me to provide a sufficient basis for the award of indemnity costs from the dates specified. As to the first basis upon which indemnity costs have been sought, it is well-established that indemnity costs are not awarded as a punishment against an unsuccessful litigant. However, they will be awarded in appropriate cases to protect a respondent from the financial burden of proceedings which were unjustified and should not have been commenced. Each of the proceedings commenced by the applicant falls, in my view, into this category. In the present case, the lack of merit in each of the proceedings is so marked, and the claim for protection by the respondents against unwarranted financial burden is so well-founded, that there is a sufficient justification for the award of indemnity costs with respect to the whole of each of the proceedings, subject to an issue to which I will return concerning the basis on which the Supreme Court proceedings were transferred to this Court. It is not necessary for me to repeat here the findings which were made in the earlier judgment. The proceedings were, in each case, based on falsehood and were without any legal substance. The respondents are entitled to claim that they should be relieved, so far as an order for costs would achieve this, from the financial burden of defending them.'

[59] Mr Kouchoo opposed not only the order sought for costs, but also costs on an indemnity basis. He submitted that indemnity costs might only be awarded where:

b) where the claim is 'without substance', 'groundless', 'fanciful or hopeless' or so weak as to be futile, for example, where a limitation period applies; or

[60] Given my earlier conclusions, I consider that this is one of those rare cases in which the respondent is entitled to its costs on an indemnity basis. I am satisfied that the applications:

[61] Costs shall be as agreed or assessed in respect to the whole of the proceedings, including any associated interlocutory proceedings. I will make no formal orders at this point, and direct the parties to confer as to the orders which are appropriate in light of this decision. The respondent is directed to file such agreed orders within 14 days. Any dispute as to the terms of the orders may be referred to the Commission for final determination.

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