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[2019] FWC 7324
General information, not legal advice.
Fair Work Commission
2019-10-23
Original judgment source is linked above.
s 394 - Unfair dismissal
Application for an unfair dismissal remedy - application for costs by successful applicant - indemnity costs for part of proceedings - 'party to party' costs - principles considered - indemnity costs - numerous offers and counter offers - hiatus in exchanges - unreasonable act - no reasonable prospects of success - indemnity costs refused - order for costs on 'party to party' basis - parties to confer as to consent orders.
[1] This decision will determine a costs application filed by Mr Jason Thomas, the successful applicant in an unfair dismissal application filed pursuant to s 394 of the Fair Work Act 2009 (Cth) (the 'Act'), and determined by me on 9 January 2019 in Thomas v MWS Pty Ltd [2019] FWC 62 (the 'Decision'). Shortly stated, I found that the dismissal of the applicant was not in compliance with the Small Business Fair Dismissal Code, he had been unfairly dismissed, and I ordered his reinstatement, the payment of lost remuneration and no break in his continuity of service. Mr Thomas seeks orders from the Fair Work Commission (the 'Commission') for indemnity costs against the respondent, Metwide Communications, from the date that an offer of settlement closed (10 May 2018), and 'party to party' costs in respect of the originating application, in accordance with s 400A of the Act.
[2] Both parties were legally represented in the substantive proceedings pursuant to s 596 of the Act, and continued to be legally represented in respect of preparing submissions on the costs application. Mr I Latham of Counsel represented Mr Thomas. Mr N Kirby, of Edwards Kirby Lawyers, continued his representation of the respondent.
[3] After setting out the relevant statutory provisions and the authorities from which the principles have been developed in respect of costs applications, Mr Latham's focus was on the behaviour of the parties in relation to offers of settlement and an alleged failure by the respondent to appropriately respond with counter offers; see: Department of Employment and Workplace Relations v Oakley [2005] AIRC 447 (PR958253); Brazilian Butterfly Pty Ltd v Charalambous (2006) 155 IR 36 and Roy Morgan Research Ltd v Baker [2014] FWCFB 1175 ('Roy Morgan').
[4] Mr Latham relied on a statement of Mr David Pink, Solicitor, Turner Freeman Lawyers, which detailed the history of the matter and set out the various offers and counter offers that were put by the parties, which commenced with an initial offer from the respondent of $9,930 and a counter offer made by the applicant of $28,450 on 10 August 2018. Mr Latham noted that it was not until over six months had elapsed, before the respondent made a substantially increased offer of $58,781.82 on 28 March 2019.
[5] Further offers and counter offers were made in April and May 2019, effectively placing the parties apart at $75,000 (applicant) and $67,500 (respondent). The applicant seeks indemnity costs of $27,625 from the date the earlier offers were made, and 'party to party' costs of less than $4,000 for this costs application. As to indemnity costs, Mr Latham relied on Goffett v Recruitment National Pty Ltd (2009) 187 IR 262 ('Goffett').
[6] Mr Kirby distinguished the facts and circumstances in Roy Morgan in that:
'a. The respondent was defending proceedings at first instance;
b. No such comment had been made by the Court at an interlocutory stage;
[7] Mr Kirby submitted that the respondent held a reasonable view during the conciliation process that its case was strong, or at least had prospects of success. Further, the hearing was relatively short (less than one day), which reflected on the likely cost of such a proceeding being lengthy. The respondent had adopted its view as a small business and in a context where the applicant had admitted his conduct. The issue then became what should be the severity of penalty.
[8] Mr Kirby noted that in early April 2018, after it appeared the matter had settled, there was an expectation that the parties would engage in 'hard bargaining'. This does not demonstrate unreasonable conduct. The notional settlement came unstuck when a condition on the applicant of returning a valuable fibre testing tool, was not accepted. This resulted in a position where the respondent would be out of pocket to the tune of around $15,000. In the context of the matter, this was a substantial amount.
[9] In rejecting the claim for indemnity costs, Mr Kirby submitted this case did not meet the test of delinquency on behalf of one party, as set out in Goffett. There is a high threshold to the award of indemnity costs; see: Stanley v QBE Management Services Pty Limited t/a QBE [2012] FWA 10164. In any event, as the applicant does not seek 'party to party' costs for the first period, as a failure to achieve indemnity costs, would result in no costs at all for this period.
[10] In any event, Mr Kirby highlighted a number of costs items which, it was said, are excessive:
'a. Items 1 - 24 (totalling $3,220.69) are attendances prior to the first offer made (16 April 2018).
[11] Mr Latham relied on my finding at [83] of the Decision that Mr Edwards (the 'respondent') did not have reasonable grounds for his belief that the applicant had been involved in a 'theft'. As this would have been well known to the respondent, it cannot now claim its case was strong or that it had reasonable prospects of success.
[12] Mr Latham rejected the submission that the respondent ceased making offers over the allegation about the fibre testing tool. The applicant had agreed to return the tool, but the respondent sought some other different tool. Then, when the applicant sought details of the said equipment, the respondent refused, and withdrew from the agreement.
[13] Mr Latham made clear that if an indemnity costs order is not made, then 'party to party' costs are sought for the entire period from 10 August 2018. Mr Latham acknowledged that attendances prior to the first offer made would not attract costs and that costs of preparing terms of settlement are usually borne by the parties. Mr Latham qualified the costs of the costs application as:
Professional costs $710 + GST
Counsel's fees $920 + GST
Commission's power to award costs and relevant principles
[14] This costs application is brought under both ss 400A and 611 of the Act. Section 400A expressly relates to unfair dismissal matters. It reads:
(1) The FWC may make an order for costs against a party to a matter arising under this Part (the first party) for costs incurred by the other party to the matter if the FWC is satisfied that the first party caused those costs to be incurred because of an unreasonable act or omission of the first party in connection with the conduct or continuation of the matter.
(2) The FWC may make an order under subsection (1) only if the other party to the matter has applied for it in accordance with section 402.
(3) This section does not limit the FWC's power to order costs under section 611.'
[15] The Commission's general powers to award costs are grounded in s 611 of the Act which reads:
(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.
Note: The FWC can also order costs under sections 376, 400A, 401 and 780.
(3) A person to whom an order for costs applies must not contravene a term of the order.
Note: This subsection is a civil remedy provision (see Part 4 1).
[16] The starting point in relation to costs of proceedings before the Commission is that each person involved in a matter, must bear their own costs; often known as the 'general rule'. This statutory imperative is derived from the policy intent that a person is entitled to make, or defend an application made under the Act, without the risk that a costs order may be made against them.
[17] As mentioned, s 611 of the Act sets out the general rule, but subsection (2) makes obvious that there are exceptions to that rule in certain circumstances; see: Explanatory Memorandum to the Fair Work Bill 2008 [2353]-[2356]. Those circumstances arise if the Commission is satisfied that:
(a) a person made an application, or responded to an application vexatiously or without reasonable cause; or
(b) it should have been reasonably apparent to a person that their application or a person who responded to an application had no reasonable prospects of success.
[18] There is no doubt that (a) above is directed to a consideration of the circumstances when an application is made, or responded to. Whereas satisfaction of (b) above may be established at various points of time during the progress of a matter before the Commission, when it becomes reasonably apparent that the person's application, or response to the application, has no reasonable prospects of success. It is important to note that even if one or both of the legs of s 611 are enlivened, the Commission retains an overall discretion as to whether an order of costs should follow.
[19] Sections 577 and 578 of the Act is also relevant and states:
The FWC must perform its functions and exercise its powers in a manner that:
(b) is quick, informal and avoids unnecessary technicalities; and
(d) promotes harmonious and cooperative workplace relations.
Note: The President also is responsible for ensuring that the FWC performs its functions and exercises its powers efficiently etc. (see section 581).
578 Matters the FWC 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), the FWC 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 orientation, age, physical or mental disability, marital status, family or carer's responsibilities, pregnancy, religion, political opinion, national extraction or social origin.'
[20] It follows from ss 577 and 578 that in exercising the discretion to order costs, the Commission must exercise its powers in a manner which is 'fair and just' and takes into account 'equity, good conscience and the merits of the matter'. The broad and generic nature of these considerations suggests that the factors which are relevant to the exercise of the discretion are not confined.
[21] Indeed, s 611 contains no positive indication of the considerations which the Commission must take into account in deciding how to exercise its discretion. The discretion conferred is expressed in general, unqualified, terms. As the High Court observed in O'Sullivan v Farrer [1989] HCA 61; (1989) 168 CLR 210 ('O'Sullivan') at [216]:
'Where a power to decide is conferred by statute, a general discretion, confined only by the scope and purposes of the legislation, will ordinarily be implied if the context (including the subject matter to be decided) provides no positive indication of the considerations by reference to which a decision is to be made.'
[22] But, of course, the discretion conferred by s 611(2) must be exercised judicially; that is to say not arbitrarily, capriciously or so as to frustrate the legislative purpose. Further, consistent with O'Sullivan, the discretion is also confined by the subject matter, legislative context and purpose.
Meaning of 'no reasonable prospects of success'
[23] The High Court in Spencer v Commonwealth of Australia [2010] HCA 28; (2010) 241 CLR 118 considered the meaning of the phrase 'no reasonable prospects of success', albeit in the context of s 31A of the Federal Circuit Court of Australia Act 1976. The plurality (Hayne, Crennan, Kiefel and Bell JJ) said:
'59 In many cases where a plaintiff has no reasonable prospect of prosecuting a proceeding, the proceeding could be described (with or without the addition of intensifying epithets like "clearly", "manifestly" or "obviously") as "frivolous", "untenable", "groundless" or "faulty". But none of those expressions (alone or in combination) should be understood as providing a sufficient chart of the metes and bounds of the power given by s 31A. Nor can the content of the word "reasonable", in the phrase "no reasonable prospect", be sufficiently, let alone completely, illuminated by drawing some contrast with what would be a "frivolous", "untenable", "groundless" or "faulty" claim.
60 Rather, full weight must be given to the expression as a whole. The Federal Court may exercise power under s 31A if, and only if, satisfied that there is "no reasonable prospect" of success. Of course, it may readily be accepted that the power to dismiss an action summarily is not to be exercised lightly. But the elucidation of what amounts to "no reasonable prospect" can best proceed in the same way as content has been given, through a succession of decided cases, to other generally expressed statutory phrases, such as the phrase "just and equitable" when it is used to identify a ground for winding up a company. At this point in the development of the understanding of the expression and its application, it is sufficient, but important, to emphasise that the evident legislative purpose revealed by the text of the provision will be defeated if its application is read as confined to cases of a kind which fell within earlier, different, procedural regimes.'
[24] In Baker v Salva Resources Pty Ltd [2011] FWAFB 4014, the Full Bench said at [10]:
'[10] The concepts within s.611(2)(b) "should have been reasonably apparent" and "had no reasonable prospect of success" have been well traversed:
See also: Qantas Airways Limited v Carter [2013] FWCFB 1811.
[25] In practical terms, a person may gain knowledge in the lead up to proceedings (when the opposing party's evidence is filed) or during the proceedings (e.g. after the cross examination of a crucial witness) which, when viewed objectively, would satisfy the test of the person's case having no reasonable prospects of success. In my opinion, it would be from that point that costs may be awarded, if the person did not take steps to recognise that their case was frivolous, untenable, groundless or faulty. For an applicant, this may mean discontinuing the matter and for a respondent it may mean making offers to settle a matter.
[38] It is trite to observe that the principles to be applied to costs applications on an indemnity basis, require that the Commission apply a considerable degree of caution. Such costs orders are rare and unusual.
[26] In Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, the High Court (Gaudron & Gummow JJ) spoke of 'some relevant delinquency on the part of an unsuccessful party' and said at [44]:
'It may be true in a general sense that costs orders are not made to punish an unsuccessful party. However, in the particular circumstance of a case involving some relevant delinquency on the part of the unsuccessful party, an order is made not for party and party costs but for costs on a "solicitor and client" basis or on an indemnity basis. The result is more fully or adequately to compensate the successful party to the disadvantage of what otherwise would have been the position of the unsuccessful party in the absence of such delinquency on its part.'
[27] In Goffett, the Full Bench of Australian Industrial Relations Commission (as the Commission was then styled) refers to this authority and picked up the notion of a relevant delinquency on the part of an unsuccessful party. At [52] the Full Bench said:
'We see no reason to limit the discretion to an award of indemnity costs in favour of a successful party only. Moreover, where there is a statutory power to award costs to an unsuccessful party, as there is in s.653 of the WR Act, there is no limit on the discretion in that way. It seems almost axiomatic that an unreasonable act or omission that causes a party to incur costs in a proceeding should be regarded as "some relevant delinquency". In any event we are satisfied that the act of the respondent in the conduct of the proceeding and, more particularly, in the period between 5 December 2008 and 20 February 2009 was high handed and reckless to the consequences for the Appellant. Accordingly the relevant costs will be awarded on an indemnity basis.' (endnote omitted) (my emphasis)
[28] 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 [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.' (my emphasis)
[29] In my opinion, this case does not fall in one of those rare and exceptional cases warranting indemnity costs. It is clear that there was more to the settlement negotiations than merely the offers of monetary amounts. I accept the respondent did not wilfully conduct itself dishonestly, or engage in conduct which might be described as reprehensible, based on a falsehood or some relevant delinquency. The application for indemnity costs is refused.
[30] That said, I have determined that the costs jurisdiction of the Commission has been enlivened by an act of unreasonable conduct as defined in s 400A of the Act, and that from that point it would have become reasonably apparent that the respondent's prospects of success were remote. The unreasonable conduct was when the respondent failed to make any revised offer to settle the matter from 10 August 2018 to 28 March 2019.
[31] While I accept that where monetary offers of settlement reach an impasse and parties are entitled to bargain hard and robustly, it is obvious that by the offer the respondent made on 28 March 2019, that it was having 'second thoughts' about its previously much lower settlement offer as being reasonable in the circumstances. This was after more than six months had passed and the parties were 'gearing up' for the hearing. This extended hiatus period and its manifestation constituted unreasonable conduct.
[32] In my view, the respondent's decision in dismissing the applicant in the context of what I set out in the decision, coupled with the settlement offers when the applicant sought reinstatement, should have meant that on an objective assessment, the respondent's prospects of success were remote. So much is apparent from some of my findings which I repeat:
'[81] It is unnecessary to consider Mr Young's submissions concerning the legal criminal definition of 'theft' and his reference to a rather macabre High Court authority in Doodeward v Spence and the principles of waiver when a person's property is discarded; save to observe that it is telling that there was no evidence, by way of a Police COP reference number and certainly no evidence of any Police follow up on Mr Edwards alleged Police complaint. I suspect because, in my view, the circumstances here could in no way be considered to be 'theft' in a strict legal sense, let alone as a matter of plain common-sense. I doubt that the Police received such a complaint (which I consider unlikely), they would have even bothered to take the matter any further.
[82] If this was a matter of such grand larcenic proportions, it beggars belief that the respondent did not demand recompense, or at the very least, return or replacement of the liquor. To suggest it was up to the applicant to do so, as a 'gesture of goodwill' is nonsense. Moreover, I suspect that even if he had, it would have made not a skerrick of difference to Mr Edwards' determination to dismiss him. It is possible, if not likely, that the real reason Mr Edwards wanted to dismiss the applicant was because he had refused to sign a new employment contract in December 2017 and the 'theft' allegation was a convenient opportunity to dismiss him; after all, why would there be any reference in the 'show cause' letter to his refusal to sign a new contract, if it did not figure at all in Mr Edwards thinking? However, it is unnecessary for me to express a concluded view on this matter, as the stated reason was not a valid one, as I explain shortly.
[83] It follows from the above, that I do not consider Mr Edwards had reasonable grounds for his belief that the applicant's conduct was sufficiently serious to justify his immediate dismissal (in the words of the Code).
[84] I am fortified to this conclusion by Mr Edwards' own admission that the applicant and Mr Rizwan had a reasonable belief that the contents of the esky should be discarded. In my judgment, there would have been very good reason to believe that the contents of an esky, which have been untouched for over three months, were mouldy and stunk, and their condition were such that there was nothing of value to salvage in the bottom of the esky. As the esky had seemingly sat unattended as a trash can, but had been moved around, with so many empty bottles in it, it is also reasonable to believe that the unopened bottles of liquor had also been discarded. It follows that I find that the Code was not complied with.'
[33] Accordingly, I find that the Commission's power to order costs is enlivened and costs should be payable by the respondent to the applicant on a 'party to party' basis from 10 August 2018 up to, and including this costs application. In view of the appropriate concessions made by Mr Latham; see: [13] above, I direct the parties to confer as to the relevant quantum of costs and their calculation according to the Act's Schedule of Costs set out in the Regulations. Consent orders should be filed with the Commission within 21 days of today. Should there be any disagreement about these amounts, I grant liberty to apply at short notice for final orders. Finally, I do not discount the possibility of the parties otherwise agreeing to settle the costs application on some other basis, in which case my Chambers can be advised accordingly.
Printed by authority of the Commonwealth Government Printer
Jason Thomas
MWS Pty Ltd [2019] FWC 7324
(2010) 241 CLR 118
(1998) 193 CLR 72
(2006) 155 IR 36
(2009) 187 IR 262
(1989) 168 CLR 210