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Costs Orders: Continuing Unreasonable Cases

Section 611 of the Fair Work Act 2009 (Cth) (“FW Act”) states that parties in a matter before the Fair Work Commission (“FWC”) must bear their own costs.

However, the general rule allows for various exceptions (see our article of 3 November 2016 [insert hyperlink: http://www.williamsonbarwick.com/costs-orders-employee-ordered-to-pay-employers-legal-costs/]).

In a recent costs ruling (Applicant v Respondent [2017] FWC 52 (10 January 2017)), Senior Deputy O’Callaghan considered a costs order arising from an unfair dismissal case.  In doing so, the FWC has clarified one of the exceptions relating to unreasonable continuation of claims.

Relevantly, the FWC may award costs, under ss.611(2)(b) and 400A(1) of the FW Act respectively, if:

    • it “should have been reasonably apparent” that a case had “no reasonable prospect of success”; or
    • costs are “incurred because of an unreasonable act or omission … in connection with the conduct or continuation of the matter”.

The Original Case

The Applicant was a former cabin crew supervisor who was terminated summarily by his airline for alleged sexual harassment of other staff members.

In September 2016, the Applicant rejected an offer settlement of $20,000, plus being permitted to resign and the provision of a Letter of Service.

As a result, the matter was heard by the FWC in October 2016. Commissioner Danny Cloghan ruled that the airline was justified in dismissing the Applicant due to the substantial evidence of six witnesses.  He left the Respondent’s costs application to be determined at a later date.

The Costs Decision

In Deputy President O’Callaghan’s judgement on the question of the costs order, he referred to four points in time when the Applicant could have withdrawn the matter. These were:

  1. The time when the Unfair Dismissal Application was made;
  2. April 2016, when a conciliation occurred and an initial offer of four weeks’ pay was made;
  3. 17 June 2016, when the Applicant received the Respondent’s witness statements; and
  4. 9 September 2016, when the Applicant rejected the final offer of $20,000 plus the opportunity to resign and receive a Certificate of Service.

Despite the Deputy President agreeing with Commissioner Cloghan’s findings that that Applicant had not been telling the truth, he did not find the entire Application to be unreasonable. In particular, at times 1 and 2, he opined that the Applicant was not made fully aware of the evidence against him.  Therefore, it would not have been unreasonable to pursue the matter further.

However, at time 3, the Applicant was aware that there were six compelling witnesses confronting him. On any objective assessment of his prospects and knowing that the Applicant was not telling the truth, he should have realised that there was no real prospect of success in the Application.  Nevertheless, the Deputy President gave the Applicant “the benefit of the substantial doubt” as there was a serious question as to the hearing date and the availability of witnesses.

By time 4, the evidence of the Respondent’s witnesses was clear and the Deputy President found that by this time “the case against the Applicant was absolutely compelling”.

Given the weight of the case against the Applicant and the substantial settlement offer that was made, the Deputy President found against the Applicant on costs. The Application had “no reasonable prospect of success” per s.611(2(b) of the FW Act and the continuation of the case was “an unreasonable act or omission” for the purposes of s.400A(1) of the FW Act.

Accordingly, costs were awarded against the Applicant on a party-party basis from 9 September 2016, the Respondent’s claim for indemnity costs being rejected.

Message for Employers

When one party to a matter has an overwhelming case against them and they reject a reasonable offer of settlement, they may be exposing themselves to a weighty costs order.

Therefore, employers should make the strength of their evidence clear in negotiations when there is no basis to the claim made against them. This allows for claims of unreasonable continuation of the Application as well as encourages early settlement.

We also recommend that employers seek legal advice before pursuing claims where there are questions as to the strength of their evidence. Any settlement negotiation will require consideration of the potential for costs orders unlike regular matters before the FWC.