What happened
The underlying dispute began when Senior Deputy President Boulton of the Fair Work Commission found that Mr David Johnston had been unfairly dismissed by the Trustee for The MTGI Trust (trading as Macquarie Technology Group International) and awarded him compensation equivalent to 20 weeks' pay together with a costs order. The Trustee sought permission to appeal to the Full Bench of the Commission on two occasions; both applications were refused. The Trustee then commenced judicial review proceedings in the Federal Court, pleading eleven grounds. On the eve of the Full Court hearing five of those grounds were abandoned. The Full Court dismissed the judicial review application in The Trustee for The MTGI Trust v Johnston [2016] FCAFC 140, finding it had no merit.
Mr Johnston then applied for his costs of the judicial review on an indemnity basis, seeking orders against both the corporate applicant and its sole director and shareholder, Mr Paul Desmond Wallace, who was not a party to the proceeding. The application relied on s 570(2)(a) and (b) of the Fair Work Act 2009 (Cth) and the general costs power in s 43 of the Federal Court of Australia Act 1976 (Cth). Mr Johnston pointed to a Calderbank letter sent on 5 July 2016 offering that the judicial review be discontinued on the basis that each party bear its own costs. That offer was rejected. The costs application was heard on the papers. In the judgment now under analysis the Full Court (Siopis, Collier and Katzmann JJ) ordered that the Trustee and Mr Wallace be jointly and severally liable for Mr Johnston's costs fixed in the lump sum of $48,387.18 on an indemnity basis, payable within 28 days.
The Court was satisfied that the judicial review had been instituted without reasonable cause because it had no real prospects of success from the outset. Specific deficiencies included lack of particularisation of jurisdictional error claims ([97]-[99]), misunderstanding of the procedural fairness obligations owed to self-represented litigants ([102]-[109]), failure to identify overlooked grounds of appeal ([113]), and unsupported credit allegations ([116]). The challenge to the costs decision was characterised as an impermissible attempt to run an appeal where statute provided none ([117]). The litigation was the fifth round between the parties and the third after the original merits determination.
Mr Wallace's personal exposure rested on evidence that the Trustee had paid-up capital of only $1, that Mr Wallace had previously told the Commission the Trust had no cash and could not afford representation, and that he had written to the Commission stating that any judgment against the Trustee would be "fundamentally erroneous & is incapable of being enforced". He had conducted the case at every level, instructed counsel, and sent aggressive personal correspondence demonstrating a direct interest in the outcome. The Court fixed costs as a lump sum in accordance with the Costs Practice Note, noting that approximately 80% of the costs were incurred after rejection of the Calderbank offer and that further costs after the filing of the costs application were minimal.
Why the court decided this way
The Court began by acknowledging the exceptional nature of any costs order in Fair Work litigation. Section 570(1) establishes a general no-costs rule; subsection (2) creates narrow gateways. The judgment expressly adopts Mortimer J's explanation in Ryan v Primesafe [2015] FCA 8 at [64] (quoted at [8]) that the provision is an access-to-justice measure. Nevertheless, the Court found the statutory thresholds clearly met.
On s 570(2)(a), the Full Court distinguished between "vexatiously" and "without reasonable cause". It accepted Pagone J's description in Garrett v Commissioner of Taxation [2015] FCA 117 at [4] but was not satisfied the proceeding was scandalous, oppressive or an abuse of process. It was, however, satisfied the proceeding lacked reasonable cause. Drawing on the Full Court's earlier reasoning in Australian Workers Union v Leighton Contractors Pty Limited (No 2) [2013] FCAFC 23 at [7] and the approved passage from Wilcox J in Kanan v Australian Postal and Telecommunications Union (1992) 43 IR 257, the Court asked whether the application had reasonable prospects at the date it was filed. It concluded it did not: the grounds were either abandoned, unparticularised, legally misconceived or unsupported by evidence. The public-interest argument advanced by the Trustee (that the Court should examine how the Full Bench had dealt with four unfair-dismissal cases) was rejected because the arguments themselves lacked merit ([15]).
Indemnity costs against the Trustee were justified on two independent bases. First, the Colgate-Palmolive criteria were met: the proceeding had been commenced and continued in wilful disregard of known facts and law, unsupported allegations had been made, and groundless contentions had unduly prolonged the case from the Fair Work Commission through to the Full Court. Second, the rejection of the 5 July 2016 Calderbank offer was an unreasonable omission within s 570(2)(b). The Court applied the principles articulated in Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2011] FCAFC 141 and Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53: the offer contained a genuine compromise (walk-away), was made at a time when the applicant faced a "real likelihood" of failure, and its rejection caused the first respondent to incur further costs. Although the usual practice is to award indemnity costs only from the date of the offer, the complete absence of merit from the institution of the proceeding justified indemnity costs for the entire proceeding.
The non-party order against Mr Wallace rested on s 43 of the Federal Court Act. The Court cited Dunghutti Elders Council and re Hughes for the proposition that the power extends to indemnity costs against non-parties. Applying the principles extracted from Knight v FP Special Assets Ltd (1992) 174 CLR 178 and restated in Selig v Wealthsure Pty Ltd [2015] HCA 18 at [43], the Court found that Mr Wallace had an interest in the subject matter, had played an active part at every stage, and that the Trustee was a person of straw. ASIC data showed $1 paid-up capital; Mr Wallace had himself told the Commission the Trust had no cash; and his correspondence revealed an intention to resist enforcement. The interests of justice therefore required a personal order on the indemnity basis. The lump-sum fixing was justified by the Costs Practice Note, the bitter history of the litigation, the absence of dispute as to quantum, and the minimal costs incurred after the costs application itself.
Before and after state of the law
Prior to this judgment the law on costs in Fair Work matters was settled but required repeated emphasis on caution. Australian Workers Union v Leighton Contractors (No 2) had clarified that it is not necessary to show exceptional circumstances and that the test is prospects of success at commencement, not ultimate failure. Spotless Services Australia Ltd v The Honourable Senior Deputy President Jeanette Marsh [2004] FCAFC 155 and Kanan supplied the operative test for "without reasonable cause". Indemnity costs principles were long governed by Colgate-Palmolive and its catalogue of special or unusual features. Calderbank principles had been applied in the Fair Work context in Ashby v Slipper (No 2) [2014] FCAFC 67. Non-party costs were available under s 43 following Knight, but their intersection with the s 570 restraint was less frequently litigated.
This judgment did not change the legal rules. It applied them to a stark set of facts and illustrated that a proceeding which is "misconceived and without prospects of success from the time it was instituted" ([15]) can attract indemnity costs from day one even in a no-costs jurisdiction. It reinforced that a Calderbank walk-away offer can be reasonable where the offeree's case is hopeless. Most importantly, it demonstrated a willingness to pierce the corporate veil for costs purposes where the sole director and shareholder treats the corporate trustee as a "mere device" and the entity has no substance. The lump-sum costs order also illustrated the growing preference, reflected in the Costs Practice Note issued two months earlier, for fixed sums to achieve finality in bitter, protracted litigation.
The judgment therefore sits comfortably within the pre-existing framework while supplying a concrete example of when the cautionary principle yields to the protective purpose of s 570(2). Subsequent practitioners have a clear template showing that repeated unmeritorious litigation, abandonment of grounds on the eve of hearing, and refusal of a genuine compromise offer can combine to displace the default no-costs position.
Key passages with plain-English translation
Paragraph [8] quotes Mortimer J in Ryan v Primesafe: the caution required by s 570 exists because "the spectre of costs being awarded if a claim is unsuccessful does not loom so large in the mind of potential applicants... that those with genuine grievances and an arguable evidentiary and legal basis for them are put off". In plain English, Parliament does not want employees or small applicants to be frightened out of court by the risk of paying the other side's lawyers if they lose a reasonable case.
At [10] the Court repeats Wilcox J's Kanan test: if the applicant's own facts show the case must fail, it lacks reasonable cause; arguable points of law do not trigger costs. Translation: the Court looks at the case the applicant chose to bring, not the evidence that later emerged. Hopeless on your own story means costs are on the table.
Paragraph [17] cites Sheppard J in Colgate-Palmolive: indemnity costs need a "special or unusual feature". The Court finds that feature in groundless contentions that prolonged the case from the Commission to the Full Court. Plain English: running a case you know (or should know) is hopeless, then dropping half your arguments at the last minute, is the kind of conduct that can turn ordinary costs into the higher indemnity scale.
On non-party liability, [30] quotes the High Court in Selig (itself quoting Knight): an order is made "if the interests of justice require that it be made". The Court then lists the $1 share capital, Mr Wallace's own statements to the Commission, and his vitriolic correspondence. Translation: when the company is a $1 shell, the director runs the show for his own purposes and has signalled he will not pay, the Court will make him personally liable so the successful party is not left out of pocket.
Paragraph [36] justifies the lump-sum order by reference to the "protracted and bitter history" and the Costs Practice Note. Plain English: enough is enough; after years of litigation the Court will fix the figure itself rather than send the parties back to a taxation that would generate yet more costs.
What fact patterns trigger this precedent
This precedent is triggered when an applicant under the Fair Work Act commences or maintains a proceeding that, on its own pleaded case, has no real prospects of success at the date of filing. Classic indicators include: multiple prior proceedings on the same subject matter; abandonment of a substantial proportion of grounds on the eve of hearing; jurisdictional error claims that are unparticularised; procedural fairness complaints that ignore the settled law concerning self-represented litigants; and attempts to appeal costs decisions where statute precludes an appeal.
A Calderbank offer that proposes a genuine compromise (commonly a walk-away) made after the applicant has been put on notice that its case is regarded as vexatious or hopeless will engage s 570(2)(b) if rejected unreasonably. The longer the applicant persists after such a letter, the stronger the indemnity costs case.
Non-party costs against a director or shareholder arise where the corporate entity has nominal capital (here $1), the director has conducted the litigation at every level, the director has a personal interest evidenced by direct correspondence or prior statements that the entity cannot or will not meet orders, and the director appears to be using the corporate structure to shield himself while pursuing a personal vendetta. The combination of a "person of straw" company and an active, interested controller who has been warned in correspondence that personal costs will be sought is the paradigm fact pattern.
The judgment also shows that where approximately 80% of costs are incurred after rejection of the Calderbank letter, yet the case was hopeless from the beginning, the Court may award indemnity costs for the whole proceeding rather than only from the offer date. Finally, the willingness to fix a lump sum under the Costs Practice Note is likely where the litigation has been protracted and bitter and further disputation over quantum would be disproportionate.
How later courts have treated it
Although the present judgment post-dates many of the authorities it cites, its treatment of those authorities has been orthodox. It applied Knight and Selig without expansion, confirming that the interests-of-justice test remains the touchstone. Its recitation of the Australian Workers Union v Leighton Contractors (No 2) principles at [10]-[11] has reinforced the proposition that "without reasonable cause" is assessed at commencement and does not require exceptional circumstances. The Calderbank analysis at [19]-[24] faithfully follows Sagacious Legal and Kooee, confirming that a walk-away offer can be reasonable where the offeree's prospects are negligible.
Subsequent Full Court and single-judge decisions in the Fair Work Division have continued to cite the cautionary passage from Ryan v Primesafe (adopted at [8]) when refusing costs applications brought on weaker facts. The emphasis on lack of particularisation and abandoned grounds as indicators of absence of reasonable cause has been picked up in later strike-out and costs decisions. The non-party costs aspect has been applied in other matters where directors have used corporate vehicles with nominal assets to pursue serial unmeritorious claims; courts have cited the combination of $1 capital, prior statements of impecuniosity, and personal correspondence as sufficient to engage the Knight discretion.
The lump-sum fixing approach has been followed in employment and industrial matters where the parties' history suggests further costs disputes would be counterproductive. Overall the decision is treated as a straightforward application of established principle to particularly egregious facts rather than a boundary-pushing development. It stands as a high-water mark for indemnity costs and non-party exposure in a jurisdiction that remains protective of genuine litigants.
Still-open questions
The judgment leaves open precisely how much evidence of asset insufficiency is required before a court will treat a corporate applicant as a person of straw. Here ASIC data plus Mr Wallace's own statements sufficed, but the Court noted that the Trustee led no contradictory evidence. Whether a bare ASIC search is enough in contested cases remains unsettled.
The Court did not need to decide whether the proceedings were instituted for the ulterior purpose of delaying Fair Work Ombudsman enforcement action. It observed that the evidence was not conclusive and that it was unnecessary to make a finding. The boundary between a proceeding brought "to avoid" enforcement and one that merely has that incidental effect is therefore still to be drawn in a future case.
It is unclear whether the combination of factors that justified indemnity costs from commencement (total absence of merit plus Calderbank rejection) would still produce that result if only some grounds were hopeless or if the Calderbank offer had been made later. The judgment's broadening of the indemnity order beyond the usual "from the date of the offer" rule appears tied to the exceptional facts; its application to less extreme cases is open.
Finally, the interaction between s 570 and the Court's power to fix lump-sum costs under the Costs Practice Note in non-party situations is not exhaustively explored. Whether a non-party who has not had the benefit of full discovery on quantum can successfully challenge a fixed sum remains to be tested in a contested taxation or set-aside application. These questions will no doubt be answered in future matters where the facts are less stark but the principles articulated in this judgment are pressed again.