Pro­ceed­ings under the Fair Work Act Is the Fair Work Com­mis­sion real­ly a cost free jurisdiction?

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.

2. 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.

3. 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.