The Fair Work Commission (FWC) and the Fair Work Division of the federal courts are both ostensibly 'no costs' jurisdictions. This means that the default position regarding claims and litigation associated with employment (e.g., unfair dismissal and general protections claims) is that no claims for costs against the other party can be made and consequently each party will pay its own costs.
However, as we discuss below, there are exceptions to this default position.
Relevant legislation
FWC
Section 611 of the Fair Work Act 2009 (FW Act) provides the default position that parties to proceedings in the FWC must bear their own costs.
However, as per subsection 611(2) of the FW Act, the FWC may, at its discretion, order a party to bear some or all of the costs of another party if it is satisfied that the relevant party:
The FWC may also make an order for costs against a party's representative if it is satisfied that the representative:
- caused costs to be incurred by another party to the dispute because the representative encouraged a person to make an application and it should have been reasonably apparent that the application would have no reasonable prospect of success; or
- caused costs to be incurred by another party to the dispute because of an unreasonable act or omission of the representative in connection with the conduct or continuation of the dispute.
An application for costs must be made within 14 days after the FWC finishes dealing with the dispute. It is important to note that the FWC has no discretion to consider an application for costs that is out-of-time.
Federal courts
The FW Act provides (see section 570) that a party can be ordered to pay costs in relation to a proceeding in the Federal Court if:
- the court is satisfied that the party instituted the proceedings vexatiously or without reasonable cause;
- the court is satisfied that the party's unreasonable act or omission caused the other party to incur the costs; or
- the court is satisfied with the following:
- the party unreasonably refused to participate in a matter before the FWC; or
- the matter arose from the same facts as the proceedings.
If a costs order is made, it can be on a party-party or an indemnity basis.
As we discuss below, the FWC and the federal courts' powers to order costs will only be exercised in limited circumstances. This is on the primary rationale that the FWC and the courts do not want to discourage parties from pursuing litigation for fear of an adverse costs order.[1]
In what circumstances will the conditions for a costs order be fulfilled?
What is required for actions to be considered vexatious and for costs to be consequently awarded?
In the case of Mr Jeff Dickason v Endeavour Industries Pty Ltd & Ors (2012) [2012] FWA 4687, Mr Dickason brought an application seeking costs against Endeavour Industries Pty Ltd for failing to attend two conciliation conferences. The FWC was required to determine whether the failure to attend was a response to the application, vexatiously and without reasonable cause. On this point, Lewin C said:
However, in dismissing the application, Commissioner Lewin found that Endeavour Industries had not acted vexatiously because it did not, by its' absences from the conferences, display an 'intention' to harass, "embarrass or annoy Mr Dickason or gain a collateral advantage". Therefore, the intention and motive of the party who is alleged to have acted vexatiously in undertaking the relevant action will be paramount in deciding if costs will be awarded.
As the court said in Nilsen v Loyal Orange Trust (unreported, North J, IR Court of Australia, 11 September 1997), in considering whether a party has acted vexatiously it will:
Consequently, if an applicant has an honest but mistaken belief that he or she has a legitimate claim, then it is very unlikely that the application will have been found to have been commenced vexatiously.[2]
What conduct will be unreasonable enough to warrant costs being awarded?
In Cugura v Frankston City Council (No 2) (2012) 64 AILR [2012] FMCA 530, the court granted costs on the basis that the applicant had rejected an offer made by the respondent to withdraw the case with each side bearing its own costs. This offer was made when the applicant was legally represented (the applicant had initially been an unrepresented litigant) and the respondent had filed its evidence.
Federal Magistrate O'Sullivan also agreed with the respondent's contention that the applicant had caused it to incur significant legal expenses in requiring all witnesses for cross-examination even after abandoning aspects of his claim. As a result, costs were awarded on a party-party basis (despite an application that a costs order be made on an indemnity basis).
When will a claim be instituted 'without reasonable cause' or have no 'reasonable prospect of success'?
The generally accepted test for determining whether an application is instituted without reasonable cause was set out by Wilcox J in Kanan v Australian Postal and Telecommunications Union 1992 AILR, where he stated:
In Hill v Compass Ten Pty Ltd (No 3) [2012] FCA 993, costs were awarded against an applicant who made a breach of contract and adverse action claim in the Federal Court. The employee had lied about holding first aid qualifications at the time of commencing employment. The employee provided proof of the required qualification by attaching his son's first aid certificate to his application. The contract of employment provided for summary dismissal in the case of dishonesty. The employee failed in both the adverse action and breach of contract claim. The fraud was not discovered until after the termination occurred.
Justice Cowdroy awarded costs on the basis that the employee knew that he had lied to the employer and that the employer had grounds to bring the contract to an end as soon as the fraud was discovered, therefore, he had no reasonable prospect of success in his claim.
In Wayne Stuart Walker v Mittagong Sands Pty Limited T/A Cowra Quartz (2011) 63 AILR 101-333, Fair Work Australia, 14 April 2011, the FWC said that the test relating to whether a matter had "no reasonable prospect of success" was not about whether there was no 'real' prospect of success and did not necessarily require that the proceedings were hopeless or bound to fail. Rather, applying the test was a "matter of fine judgment, [taking into account].all the circumstances of a particular case".
Key takeaway
It is only in very limited circumstances that costs will be awarded in employment-related proceedings, and the FWC or court will consider each case on its own facts and merits.
There needs to be a degree of objective unreasonableness or vexatiousness in bringing the claim and/or the way the matter is run before the FWC or court considers exercising its discretionary power to award a costs order.
Importantly, there also needs to be an intention or evidenced motive for the relevant behaviour if the ground of vexatiousness is being relied on to seek the costs order.
If you have any questions, please contact us or send us your enquiry here.
Footnotes
1 See Thompson & Ors v Hodder & Ors 1990 AILR 59; (1989) 21 FCR 467, where the court said that, in circumstances where provisions such as those discussed in this article are in operation, a party "will only rarely be ordered to pay the costs of a proceeding in exceptional circumstances".
2 See, e.g., the rejection of an application for costs in Hanrahan v Wesfarmers Dalgety Limited (1996) 39 AILR 3-235.
