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18 May 2016 Proceedings under the Fair Work Act – Is the Fair Work Commission really a cost free jurisdiction?

By Richard Ottley, Partner and Simon Obee, Solicitor

Common questions asked by parties in unfair dismissal claims are "will I get my costs back if I win?" and "will I have to pay the other side's costs if I lose?" The default position is "no". Under the Fair Work Act (the Act) each party usually pays its own legal costs in unfair dismissal claims brought before the Fair Work Commission (the Commission).

A dismissed employee might therefore be tempted to bring a claim – even when the prospects of success are slim – on the assumption that there is no likely risk to their purse in doing so (beyond having to pay their own legal costs).

Similarly, applicants might assume that they can refuse, as they see fit, any offer of settlement put to them by their employer in the course of the proceedings, as there is little chance of being penalised financially as a result. However they would be mistaken, as is apparent from a recent decision of the Commission in Steven Post v NTI Limited [2016] FWC 1059. This decision serves as a useful reminder of the dangers of bringing unmeritorious claims and of refusing reasonable offers of settlement.

In this case, Mr Post was ordered to pay all his employer's legal costs from the date he commenced his unfair dismissal claim on an "indemnity basis" (being a costs order of a nature enabling recovery of essentially all legal costs and expenses incurred by the successful party). These should be distinguished from "party-party costs orders" which are of a more limited nature, and only cover costs reasonably incurred, usually by reference to fixed amounts prescribed in legislation.

Bearing in mind the employer engaged a leading law firm to represent it, and incurred costs including flying three witnesses to Perth for the main hearing, the costs the employee was ordered to pay are likely to be significant.

The legislation

The Act (s611) states, amongst other things, that a person must bear the person's own costs in relation to a matter, however the Commission may order a person (the first person) to bear some or all of the costs of another person if the Commission is satisfied that the first person made the application, vexatiously or without reasonable cause or it should have been reasonably apparent that the application had no reasonable prospect of success.

In addition, in unfair dismissal cases, pursuant to s 400A of the Act (with emphasis added):

"(1) The FWC may make an order for costs against a party… for costs incurred by the other party… if the FWC is satisfied that the first party caused those costs to be incurred because of an unreasonable act or omission… in connection with the conduct or continuation of the matter"

Background to the proceedings

Mr Post was dismissed without notice by his employer (NTI) on the grounds of serious misconduct on 23 October 2014. He subsequently brought a claim for unfair dismissal. As would become relevant on the question of costs, Mr Post claimed as his sole remedy, compensation, rather than seeking in the alternative, reinstatement to his former role.

NTI's decision to terminate Mr Post's employment was on the basis that Mr Post had failed to comply with a number of directions to cease using his work email and computer, to promote the interests of another company in which he had an interest, (Transafe).

The conduct complained of included the sending out of promotional materials about Transafe to NTI's confidential customer list from his work computer. Mr Post had also failed to follow NTI's directions to stop attending Transafe meetings during work hours.

In his claim, Mr Post claimed that the decision to dismiss him was unfair and that he had not been given an adequate opportunity to respond to the allegations against him.

During the course of the proceedings in the Commission, NTI made a number of settlement offers to Mr Post. This included (at the initial conciliation hearing) offering him 5 weeks' pay (which was equal to what he would have been entitled to as pay in lieu of notice, had he not been summarily dismissed).

Mr Post rejected this offer and indicated that he was considering various other claims against NTI including a claim in defamation (although he didn't explain on what basis).

NTI increased its offer throughout the course of the proceedings, ultimately offering Mr Post a payment of six months' wages in settlement of all potential claims he had against NTI. Six months' wages is essentially the maximum amount of damages that can be awarded in unfair dismissal claims.

Mr Post rejected every offer put to him on the basis that he was not prepared to compromise all the potential claims he had against NTI (including the claim in defamation).

The final hearing

At the final hearing, Mr Post's unfair dismissal claim was rejected. The Commission found that, over a lengthy period of time, Mr Post had failed to comply with repeated directions to stop carrying out work for Transafe using NTI's resources. This constituted a valid reason for dismissal.

Furthermore, the Commission found that NTI had undertaken a comprehensive show cause process which included providing Mr Post with a large amount of written evidence which supported the allegations against him, which Mr Post and his then lawyers had responded to.

Orders as to costs

In assessing whether to make an order as to costs against Mr Post the Commission considered its powers in relation to costs under three different limbs:

  1. Whether the claim was made by Mr Post "vexatiously or without reasonable cause" (s 611(2)(a) of the Act)
Commissioner Williams considered case law regarding the meaning of claims made "vexatiously" and noted a relevant test is whether "the predominant purpose in instituting the proceeding is to harass or embarrass the other party or to gain a collateral advantage."[1]

As the Commission found it was unclear as to what Mr Post's motives were when he made his application, it declined to make a finding that he had brought the claim vexatiously.

On the question of whether the claim was brought "without reasonable cause" the Commission discussed the following test approved by the Full Bench:

"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, 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.”[2]

On that basis, the Commission found that because:
  • NTI followed a thorough show cause process prior to Mr Post's dismissal; and
  • throughout the process Mr Post was represented by lawyers and had adequate opportunities to defend himself
Mr Post would (at the time of making the application) have had a full understanding of why he had been dismissed and that NTI had followed a process that afforded him natural justice. 

It followed therefore that Mr Post "should have appreciated his application was groundless, could not possibly succeed and must fail." In light of this, the Commission was satisfied that the application was made without reasonable cause. Accordingly a cost order was made against Mr Post under s 611(2)(a) to pay all of NTI's costs from the outset of the case.
  1. Whether "it should have been reasonably apparent…that the… application… had no reasonable prospect of success.' (s 611(2)(b) of the Act)
The Commission noted that the test of "no reasonable prospect of success" is an objective one and recorded that the Full Bench of the Commission had ruled that such a finding "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"[3].

On the same basis as the finding in relation to the application being made "without reasonable cause", the Commission found that it should have been apparent to Mr Post that he had no reasonable prospect of success. Accordingly the Commission considered it was also appropriate to make a costs order against Mr Post under s 611(2)(b) to pay all NTI's costs from the outset of the case.
  1. Whether Mr Post costs to be incurred "because of an unreasonable act or omission… in connection with the conduct or continuation of the matter" (s 400A(1) of the Act)
The Commission found that this section of the Act was concerned with costs incurred after a matter had commenced and therefore declined to make a finding that Mr Post's initial application was an unreasonable act within the meaning of the section (as NTI had argued).

However, the Commission agreed with NTI's alternative submission that s 400A entitled the Commission to make an order for costs against a party where it had unreasonably rejected an offer of settlement.

The Commission noted that when making his application, Mr Post had not sought reinstatement, but (just) compensation. In the circumstances it found it unreasonable for Mr Post to reject offers including one for the maximum pay that can be awarded in unfair dismissal cases.

The Commission was unconvinced by the argument that it was reasonable for Mr Post to refuse the various offers of settlement in circumstances where all the offers had sought a settlement of all potential actions arising out of his employment, whereas he did not wish to compromise his rights to bring claims in other jurisdictions (ie a defamation claim).

In reaching this conclusion the Commission said this:
"there is no evidence that Mr Post has ever initiated any other proceedings in any other jurisdiction as he had threatened. It seems these threats by Mr Post that he would initiate other proceedings were just that, they were idle threats which at best were a negotiating tactic. I do not accept that the reason Mr Post did not accept the respondent’s settlement offers was because he would be denied his right to initiate other unspecified proceedings in other jurisdictions. Mr Post did not counter offer at any time on the basis that he would accept an offer subject to the release being couched in more narrow terms. His failure to do so if this was the sole reason for rejecting those respective offers would have been an unreasonable omission……. Consequently I reject the submission put on behalf of Mr Post that he should not now be criticised for failing to agree to offers of settlement put by the respondent that would have resolved all claims arising out of his employment"

Given that the Commission found that Mr Post should have been aware that his case was "hopeless" from the outset, the Commissioner determined that Mr Post should be ordered to pay NTI's costs (pursuant to s 400A of the Act) from the date he refused their offer of settlement (of 5 weeks' pay at the conciliation hearing). To a large extent, the costs order made on this basis eclipsed the other costs orders which were made.

'Party/party costs' or 'indemnity costs'?

The Commission then went on to consider whether the costs order made against Mr Post should be on a "party and party" or "indemnity" basis.

The Commission referred to the review of relevant authorities in Stanley v QBE Management Services Pty Limited [2012] FWA 10164 and noted that for indemnity costs to be ordered there must have been some "delinquency" on the part of the unsuccessful party.

The Commission helpfully listed some circumstances that have been thought to warrant the making of indemnity costs orders:
  • "making allegations of fraud knowing them to be false"
  • "the fact that proceedings were commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law"
  • "the making of allegations which ought never to have been made"
  • "the undue prolongation of a case by groundless contentions"
  • "an imprudent refusal of an offer to compromise"
Having found that Mr Post commenced the current proceedings with "wilful disregard of facts known to him", the Commission deemed it was appropriate to order indemnity costs against him under s 611 of the Act.

The Commission also made clear (agreeing with the view expressed by the Commission previously[4]) that it would seem almost axiomatic that an unreasonable act or omission (referred to in section 400A of the Act) which causes the other party to incur costs, will provide a basis for an indemnity costs order. The Commission then made an order for indemnity costs pursuant to him under s 400A of the Act, having regard to Mr Post's imprudent refusals of offers of compromise.

Conclusion

Whilst Post v NTI Limited does not break new ground in terms of when costs will be ordered in proceedings before the Commission, it is a timely reminder to applicants that they are at risk of costs if they bring unmeritorious claims or unreasonably refuse offers of settlement. Applicants have been warned. 
 
 
[1] Attorney General v Wentworth (1988) 14 NSWLR 481 at 491
[2] E. Church v Eastern Health t/as Eastern Health Great Health and Wellbeing [2014] FWCFB 810 approving Wilcox J in Kanan v Australia Postal and Telecommunications Union [1992] FCA 539.
[3] A Baker v Salva Resources Pty Ltd [2011] FWAFB 4014.
[4] Justice Bolton, Senior Deputy President in  Johnston v The Trustee for The MTGI Trust [2015] FWC 996

Richard Ottley, Partner  |  Phone: +61 2 9233 5544  |  Email: rbo@swaab.com.au

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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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