Fair Work Act 2009

s.394 - Application for unfair dismissal remedy

Application for costs - order under section 400A of the Fair Work Act 2009 against Respondent - jurisdictional objection without reasonable cause or vexatiously not made - no costs order against Respondent.

• [1] This decision concerns an application for costs made by Mr Eric Rossi on 10 November 2021. Mr Rossi seeks orders for the payment of $1,995.00 in costs against Low Latency Media T/A Frameplay (LLM). LLM filed a jurisdictional objection to the unfair dismissal application on the grounds that Mr Rossi was award free and paid in excess of the high income threshold at the date of dismissal, and was not protected from unfair dismissal. My decision of 28 October 2021 [[[2021] FWC 6152]] dismissed the Respondent's jurisdictional objection on the grounds of the evidence before the Commission.

• [2] Low Latency Media Pty Ltd was a start-up company cofounded by Mr Rossi based in Australia and Mr Troughton who resides in the United States. The company's shareholding was transferred to Frameplay Corporation in 2019 and LLM is now the Australian subsidiary. Mr Rossi was employed in the position of Chief Technology Officer from December 2018 until his dismissal on 2 July 2021. He lodged his unfair dismissal application on 20 July 2021. The Respondent first raised the jurisdictional objection when it filed its Form F3 Response to the Application. On 11 October 2021 a hearing was held to determine the jurisdictional objection.

• [3] Mr Rossi is seeking orders to recover $1,995.00 in legal fees (inclusive of GST) incurred in the unfair dismissal jurisdictional objection filed by LLM. In support of the application for costs, Mr Rossi provided a schedule of legal costs incurred with Harrick Lawyers.

• [4] The costs application is made pursuant to section 400A-Cost orders against parties of the Fair Work Act 2009 (the Act) and was filed thirteen days after the decision issued on 28 October 2021.

• [5] The following are the grounds on which costs are sought:

1. The Respondent brought a jurisdictional threshold issue before the Commission alleging that Mr Rossi was not protected from unfair dismissal due to exceeding the high income threshold.

• 2. The Commission found in accordance with the Act and the authority of Zappia v Universal Music,[1] that the rate of pay at the time of dismissal is relevant.

3. The Applicant submitted and tendered evidence of communications in support of a decision at the January 2021 Board meeting where the Directors discussed reducing Mr Rossi's salary to $140,00:00 per annum. Mr Rossi also tendered in evidence payslips which confirm the reduced annual salary.

4. The Respondent provided no evidence in relation to the email exchange or Board minutes which challenged Mr Rossi's evidence. Witness statements also failed to challenge Mr Rossi's evidence.

5. The Commission found no evidence that the Respondent "was in the dark" in relation to financial records and that the Respondent failed to demonstrate that the Applicant's earnings exceeded the high income threshold.

6. Mr Rossi contends that the Respondent acted without reasonable cause and vexatiously in pursuing the jurisdictional objection and forced the Applicant to incur legal costs in defending the objection.

• [6] Legal representation is not necessary and where a party seeks representation they can do so with leave from the Commission. In this matter both parties sought to be legally represented at the hearing and leave was granted.

• [7] Both parties agreed that the matter of costs be considered on the papers and the hearing date was vacated.

• [8] Mr Rossi submits that his submissions of 29 September 2021 outlined that the January 2021 Board decision reduced his salary and he tendered evidence of email communications between the Chief Financial Officer and the in house accountant which confirmed the decision.

• [9] Mr Rossi also submits that the witness statement of Mr Troughton contained unreasonable statements and unreasonable omissions to the Commission. These statements relate to his attendance at the January 2021 Board meeting and knowledge of the decision which affected the two founding Directors being himself and Mr Rossi. Further Mr Troughton's witness statement states that Mr Rossi unilaterally adjusted his salary and that while the Board did consider adjusting salaries, it did not ratify the decision.

• [10] In relation to the witness statement of Mr Blake, Director of Frameplay, Mr Rossi submits that it contains unreasonable statements, namely that the Board never considered anything about a change in salaries, yet as the Chairman of the Board, he was on the list of email recipients in the email exchange between the Chief Financial Officer and the in-house accountant. No further evidence was submitted by Mr Blake challenging the evidence of the Applicant.

• [11] Mr Rossi submits that the Respondent failed to adequately address his evidence and failed to produce evidence of the Board minutes or evidence from the CFO. In knowing that the salary was reduced, it acted without reasonable cause in pursuing the jurisdictional objection, forced the Applicant to expend costs and acted vexatiously in pursuing the objection for the purpose of delaying the substantive matter of the unfair dismissal.

• [12] The Respondent submits that its jurisdictional objection was based on the Applicant's income report as submitted to the Australian Taxation Office (ATO) and its evidence that Mr Rossi was sole Director and fully responsible for payroll and his own payment of salary. The Respondent again referred to its evidence before the Commission and made the point that its witnesses were not subject to cross examination. However, during cross examination of the Applicant, Mr Rossi conceded that he implemented all payroll payments, his salary for year ending 30 June 2021 included back payments for earning in the previous financial year and explained additional payments made to himself including falsified payments and tax deductions.

• [13] In responding to the costs application, the Respondent refers to section 611 of the Act and relies on Nilsen v Loyal Orange Trust[2] with respect to the term vexatious, and General Steel Industries Inc v Commissioner for Railways [3] in terms of reasonable cause. It submits that the Commission must be satisfied against an objectively high threshold that the Respondent's jurisdictional objection was without reasonable cause,[4] and not because the objection failed.

• [14] The Respondent submits it was entitled to contest the jurisdiction of the unfair dismissal application on the face of the ATO income report and that the extent of the Applicant's payroll transactions only became clear during cross examination. It further submits that the Commission in exercising its functions should not award costs to benefit the Applicant given the evidence of his falsification of financial accounts to mislead the Respondent and the ATO.[5] It submits that the Applicant failed to demonstrate that the Respondent acted vexatiously or without proper cause.

• [15] Mr Rossi makes the application pursuant to section 400A of the Act which provides:

(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.

• [16] Section 402 provides that an application for an order for costs must be made within 14 days after the Commission determines the matter. Mr Rossi's application was made within the time frame stipulated by section 402.

• [17] Section 611 has general application in relation to costs matters before the Commission. Section 611 provides as follows:

(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).

• [18] Section 400A was inserted into the Act by the Fair Work Amendment Act 2012. The Explanatory Memorandum to the Fair Work Amendment Bill 2012 states:

168. Item 4 inserts a new section 400A to enable the FWC to order costs against a party to an unfair dismissal matter (the first party) if it is satisfied that the first party caused the other party to the matter to incur costs by an unreasonable act or omission in connection with the conduct or continuation of the matter.

169. As with the new power to dismiss applications under section 399A, the power to award costs under section 400A is not intended to prevent a party from robustly pursuing or defending an unfair dismissal claim. Rather, the power is intended to address the small proportion of litigants who pursue or defend unfair dismissal claims in an unreasonable manner. The power is only intended to apply where there is clear evidence of unreasonable conduct by the first party.

170. The FWC's power to award costs under this provision is discretionary and is only exercisable where the first party (whether the applicant or respondent) causes the other party to incur costs because of an unreasonable act or omission. This is intended to capture a broad range of conduct, including a failure to discontinue an unfair dismissal application made under section 394 and a failure to agree to terms of settlement that could have led to the application being discontinued.

171. However, the power to award costs is only available if the FWC is satisfied that the act or omission by the first party was unreasonable. What is an unreasonable act or omission will depend on the particular circumstances but it is intended that the power only be exercised where there is clear evidence of unreasonable conduct by the first party.

• [19] Where a party chooses to incur legal expenses, they bear their own costs in a matter before the Commission.[6] Section 400A sets out additional circumstances where a party may apply for costs where the other party caused the party to incur costs because of unreasonable conduct or manner by which the party defends or pursues an unfair dismissal claim.

• [20] The Explanatory Memorandum makes clear that section 400A of the Act is not intended to prevent an applicant from "robustly" pursuing their position, rather it is intended to address the conduct of those that unreasonably pursue a position and there is clear evidence of unreasonable conduct.

• [21] The general provision when the Commission can award costs is in section 611 of the Act.

• [22] Awarding costs is discretionary in an unfair dismissal case where the Commission is satisfied that the costs were incurred as a result of the other party making the application or responding vexatiously or without reasonable cause. In this matter, Mr Rossi must satisfy the Commission that LLM responded in a way that is vexatious or without reasonable cause or that the matter had no reasonable prospect of success.[7] Further, costs may be awarded should the evidence show that the Applicant incurred costs because LLM acted unreasonably.

• [23] On the matter of Mr Rossi's salary, the evidence was contested including whether the contract of employment was amended to reflect a lower salary, whether the discussion at the Board to reduce salaries was implemented by agreement, whether the salary paid by Mr Rossi to himself was authorised and whether the payments reflected in the ATO income report accurately reflected actual income. Importantly this matter is unusual, in that ordinarily, payments captured by section 332 of the Act relate to amounts applied or dealt with, whereas payments made which cannot be determined in advance are excluded from the section.[8] However, Mr Rossi was a co-founder and director and controlled the payroll function for the Australian business as well as his own. Evidence was led by the Respondent that Mr Rossi defiantly controlled the payroll function, refusing to rescind the responsibility despite the parent company efforts. The evidence was clear that Mr Rossi was not at arm's length from the payroll function and while LLM had access to the financial records, the control over payroll was in his hands. LLM gave evidence that it was difficult for the parent company to extract the payroll function from Mr Rossi because he avoided contact or made it difficult to be managed. Mr Rossi did not contest this evidence.

• [24] While the evidence concerning Mr Rossi's salary was strongly contested, I found that LLM failed to provide evidence of weight to contest Mr Rossi's evidence concerning the Board meeting decision on reducing salaries and the supporting emails tendered.

• [25] In seeking costs, Mr Rossi contends that LLM made unreasonable statements, failed to address his evidence and it knew his salary was reduced. He contends that this conduct amounted to acting without reasonable cause and vexatiously in pursuing the jurisdictional objection which resulted in delay to the substantive matter and his incurring of legal expenses.

• [26] The Commission may make a costs order if it is satisfied that LLM caused the costs to be incurred by Mr Rossi because of LLM's unreasonable act or omission in pursuing the jurisdictional objection.[9]

• [27] Relevant to this consideration is whether the proceedings were brought without reasonable cause is the whether the proceeding had reasonable prospect of success at the time they were instituted and not whether the proceedings failed.[10]

• [28] The criticism of LLM by Mr Rossi appears to pertain to LLM's failure to substantiate with evidence its submissions. LLM had expected that its witness would be required to be cross examined but this did not occur. It did however fail to tender Board minutes or other correspondence that it says was excluded from the body of emails tendered by Mr Rossi. To argue that this failure is indicative of unreasonable action that caused costs to be incurred when LLM relied on its cross examination of Mr Rossi, falls short in my view of unreasonable action. Perhaps with hindsight LLM may concede it was unwise to primarily rely on the financial records and Mr Rossi's witness evidence.

• [29] Nevertheless, I am mindful that a Full Bench of this Commission in Baker v Salver Resources Pty Ltd determined that any "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 as to be not reasonably arguable."[11]

• [30] As I observed in my decision, the facts were strongly contested, and my decision depended on determining those disputed facts. I do not agree that it was reasonably apparent that the application had no prospect of success.

• [31] In response to Mr Rossi's assertion that the Respondent's actions were vexatious, I have considered its meaning in the context of this matter. The meaning of vexatious was considered by Justice North in Nilsen v Loyal Orange Trust [12] as follows:

"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: see Attorney-General v Wentworth (1988) 14 NSWLR 481 at 491."

• [32] In view of Justice North's consideration, Mr Rossi's claim that the application was vexatious must establish that the Respondent's predominant motive was to embarrass, harass the Applicant, or to gain collateral advantage. Mr Rossi submits the motive of the jurisdictional objection was to delay the substantive matter, however, no clear evidence was advanced to support this contention.

• [33] It cannot be objectively inferred from the facts that the Respondent anticipated that its jurisdictional objection would be dismissed, nor was it obvious that the Respondent was guided by an underhanded motive. Mr Rossi controlled his payment of salary and LLM relied on the ATO income report and other financial statements, while also contesting Mr Rossi's witness evidence that there was a Board agreement, and it also argued that the salary was irrefutably $140,000:00 per annum at the time of the dismissal as shown in the payslips. There is no evidence of an ulterior and improper motive by LLM. While LLM evidently disputes the application and argues that Mr Rossi created improper financial records, it is not sufficient to find that the jurisdictional objection is vexatious within the meaning of section 611(2)(a).

• [34] I am not satisfied that Mr Rossi has substantiated that LLM had raised the jurisdictional objection vexatiously or that its case was without reasonable cause. Having considered the submissions of the parties and the evidence, Mr Rossi has not satisfied the Commission to use its discretion in respect to the provisions of sections 400A or 611 of the Act to make an order against LLM. The application is dismissed.

[1] Francesco Zappia v Universal Music Australia Pty Limited T/A Universal Music Australia [2012] FWAFB 6108.

[2] [1997] IRCA 267; (1997) 76 IR 180,181.

[3] [1964] HCA 69; (1964) 112 CLR 125,129.

[5] Respondent's submissions at 4.15 - 4.17.

[8] S.332(1) and s.332(2)(a) of the Act.

[10] R v Moore; Ex Parte Federated Miscellaneous Workers' Union of Australia (1978) 140 CLR 470; 53 ALJR 116; 22 ALR 347; [1978] HCA 51 at 473 (CLR) per Gibbs J.

[11] Baker v Salver Resources Pty Ltd [2012] FWAFB 4014 (Watson SDP, Drake SDP, Harrison C, 27 June 2011) at [10], citing Wodonga Rural City Council v Lewis, PR956243, at [6] and Deane v Paper Australia Pty Ltd, PR932454, at [7] and [8].

[12] [1997] IRCA 267; (1997) 76 IR 180,181.

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