Chahwan & Anor v Sutherland Shire Montessori Society Incorporated t/a Sydney Montessori School

[2015] FWC 814

[2015] FWC 814

FAIR WORK COMMISSION

DECISION ON COSTS

Fair Work Act 2009
s.394 - Application for unfair dismissal remedy

Ms Susan Chahwan
v
Sutherland Shire Montessori Society Incorporated t/a Sydney Montessori School
(U2013/12694)

and

Ms Elizabeth Ghali

v

Sutherland Shire Montessori Society Incorporated t/a Sydney Montessori School
(U2013/12744)

COMMISSIONER CAMBRIDGE SYDNEY, 5 FEBRUARY 2015

Unfair dismissal claims - application for costs - application refused.

[1] This Decision is made in respect to an application for costs made pursuant to ss. 611 and 400A of the Fair Work Act 2009 (the Act). The costs application was initially made on 10 April 2014, by lawyers acting for the respondent employer who is Sutherland Shire Montessori Society Incorporated trading as Sydney Montessori School(the employer).

[2] The costs application was stood over pending an Appeal filed on behalf of the respective applicants in the substantive matters, Susan Chahwan and Elizabeth Ghali (the applicants). The applicants unsuccessfully Appealed a Decision [2014 FWC 2060] given in the substantive matters which dismissed their claims for unfair dismissal remedy. Following the Appeal Decision [2014 FWCFB 5390] the costs application was renewed and the Parties provided written submissions respectively dated 3 and 17 October 2014. The Parties confirmed that the costs application could be determined upon the material contained in the written submissions.

The Case for Costs

[3] The application for costs was advanced under sub-sections 611 (2) (a) and (b) and sub-section 400A (1) of the Act. Specifically it was asserted that the original unfair dismissal applications had been made without reasonable cause, s.611 (2) (a), and/or that it should have been reasonably apparent to the applicants that their s. 394 applications had no reasonable prospect of success, s.611 (2) (b), and/or the applicants caused the employer to incur costs because of an unreasonable act or omission in connection with the conduct or continuation of the matter, s.400A (1).

[4] According to the submissions made on behalf of the employer, the basis upon which the applications were taken, when assessed against the facts established in the primary Decision of the Commission, established that the claims were taken without reasonable cause and/or any reasonable prospects of success. It was submitted that, at the time of making their applications, the applicants must have known about the various issues which established valid reason for their dismissals. Thus, it was submitted that it should have been reasonably apparent to the applicants that proof of these issues would emerge and result in the failure of their unfair dismissal claims.

[5] Consequently, the employer submitted that both sub-sections 611 (2) (a) and (b) of the Act had been satisfied and its costs application should be granted.

[6] In respect to sub-section 400A (1) of the Act, the employer submitted that this provision involved consideration of conduct throughout the proceedings unlike s. 611 which was concerned with circumstances at the commencement of the proceedings. The submissions made by the employer referred to various Authorities which were said to establish that sub-section 400A (1) could apply in circumstances where a Party incurred costs because of the unreasonable refusal of the other Party to accept a reasonable settlement offer.

[7] The submissions made on behalf of the employer included attached copies of communications between the Parties dated 28 and 29 November 2013. These communications were, according to the employer’s submissions, confirmation of the applicants’ rejection of reasonable offers made by the employer to settle the matters. Therefore, the employer submitted that the rejection of the settlement offers and the continuation of the proceedings represented an unreasonable act or omission in satisfaction of sub-section 400A (1) of the Act.

[8] The employer made further submissions which asserted that in the circumstances where the legislative requirements had been met, the Commission should exercise the discretion to Order costs and there was basis to provide costs on an indemnity basis.

[9] In summary, the employer submitted that at the time of the making of the s. 394 applications, it should have been reasonably apparent that the applications had no reasonable prospect of success. The employer also asserted that the applications were made without reasonable cause and had been continued because of an unreasonable act or omission on the part of the applicants. Consequently, the employer submitted that as the relevant provisions of ss. 611 and 400A of the Act had been satisfied, it was appropriate that either indemnity or party-party costs Orders be made against the applicants.

The Case against Costs

[10] The submissions made on behalf of the applicants opposed the application for costs and asserted that the requirements of sub-sections 611 (2) and 400A (1) of the Act had not been satisfied in this instance. In particular, the submissions made by the applicants rejected that the s. 394 applications were made without reasonable cause, or that it should have been reasonably apparent to the applicants that their applications had no reasonable prospect of success.

[11] The applicants submitted that the evidentiary basis upon which the costs application was advanced did not consider the entirety of the applicants’ case but instead concentrated on two particular issues. It was conceded that these two issues where found against the applicants and contributed to the finding of there being valid reason for the dismissals. However, it was submitted that when all of the relevant facts and circumstances were considered the applicants had reasonable basis for commencing their unfair dismissal claims.

[12] In further submissions the applicants stated that their unfair dismissal claims had reasonable prospects for success. The eventual lack of success did not mean that there was no reasonable cause in bringing the action. The applicants submitted that their case was unsuccessful but not hopeless.

[13] The applicants also submitted that the employer’s offer to settle as set out in the letter of 28 November 2013, was not an offer at all but rather a “warning off”. The applicants’ rejection of the proposition contained in the employer’s letter of 28 November was, according to the submissions made on behalf of the applicants, not an act or omission which should be considered as unreasonable.

[14] In summary, the submissions made on behalf of the applicants asserted that at the time that the s. 394 applications were made there was sufficient basis to believe that the claims had reasonable prospect of success. Consequently, it could not be said that the applications were taken without reasonable cause or that it would have been reasonably apparent, at that time, that the applications had no reasonable prospect of success. Further, the applicants submitted that there was no unreasonable act or omission to continue the proceedings. Therefore, the applicants submitted that the relevant legislative provisions had not been satisfied and the Commission should reject the employer’s application for costs.

Consideration

[15] Although there are a number of different sections of the Act which deal with costs, the application for costs in this instance was, appropriately, pursued under ss. 611 and 400A which are in the following terms:

“611 Costs

(1) A person must bear the person’s own costs in relation to a matter before the FWC.

(2) However, the FWC may order a person (the first person) to bear some or all of the costs of another person in relation to an application to the FWC if:

(a) the FWC is satisfied that the first person made the application, or the first person responded to the application, vexatiously or without reasonable cause; or

(b) the FWC is satisfied that it should have been reasonably apparent to the first person that the first person’s application, or the first person’s response to the application, had no reasonable prospect of success.

Note: The FWC can also order costs under sections 376, 400A, 401 and 780.

(3) A person to whom an order for costs applies must not contravene a term of the order.

Note: This subsection is a civil remedy provision (see Part 4-1).”

and

“400A Costs orders against parties

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

(2) The FWC may make an order under subsection (1) only if the other party to the matter has applied for it in accordance with section 402.

(3) This section does not limit the FWC’s power to order costs under section 611.”

[16] The costs application made in this instance has sought to rely upon that part of sub-section 611 (2) (a) which involves an application taken without reasonable cause and further, it has also sought to rely upon sub-section 611 (2) (b) which involves the question of whether it should have been reasonably apparent that an application had no reasonable prospect of success. In addition, because the originating applications were unfair dismissal claims, the costs application has also been pursued under sub-section 400A (1) of the Act.

General Approach to Costs

[17] The approach to consideration of any application for costs made under the Act should, at the outset, recognise the significance of sub-section 611 (1) and the implications that have been established to flow from those particular provisions. In this regard it is relevant to refer to a Full Bench Decision in the matter of E. Church v Eastern Health t/as Eastern Health Great Health and Wellbeing 1 and the following extract from that Decision is relevant:

“[26] Section 611 sets out a general rule - that a person must bear their own costs in relation to a matter before the Commission (s.611(1)) - and then provides an exception to that general rule in certain limited circumstances. The Explanatory Memorandum confirms this interpretation of the section, it is in the following terms:

2353. Subclause 611(1) provides that generally a person must bear their own costs in relation to a matter before FWA.

2354. However, subclause 611(2) provides an exception to this general rule in certain limited circumstances. FWA may order a person to bear some or all of the costs of another person where FWA is satisfied that the person made an application vexatiously or without reasonable cause or the application or response to an application had no reasonable prospects of success.

2355. A note following subclause (2) alerts the reader that FWA also has the power to order costs against lawyers and paid agents under clauses 376, 401 and 780 which deal with termination and unfair dismissal matters.

2356. Subclause 611(3) provides that a person to whom a costs order applies must not contravene a term of the order.

[27] In the context of s.570 and its legislative antecedents courts have observed that an applicant who has the benefit of the protection of a provision such as s.570(1), (ie the general rule that parties bear their own costs), will only rarely be ordered to pay costs 5 and that the power should be exercised with caution and only in a clear case 6. In our view a similarly cautious approach is to be taken to the exercise of the Commissions powers in s.611 of the FW Act.” [emphasis added]

[18] Consequently, it has been well established that there should be a cautious approach taken in respect to any application for costs made under the Act. This caution operates to establish an underlying reluctance to grant any application for costs and to only do so in instances where a clear case has been made out to satisfy the exceptions to the general rule that each side bear its own costs. Those exceptions are specified in sub-sections 611 (2) (a) and (b) of the Act and in the case of a claim for unfair dismissal, also extend to circumstances identified in sub-section 400A (1).

[19] In this instance the employer has asserted that there were three aspects upon which the exceptions to the general rule that each side bear its own costs had been established. The employer asserted that the unfair dismissal claims made by the applicants were; (a), taken without reasonable cause and/or, (b), that they had no reasonable prospect of success, and/or (c), that they were conducted or continued by unreasonable act or omission of the applicants.

Without Reasonable Cause [s.611 (2) (a)]

[20] In respect to the first aspect advanced by the employer as basis for a costs Order to be made, namely, that the applicants had taken the s. 394 applications without reasonable cause, it is important to have regard for the established stringency of the test that must be met to satisfy that a case was taken without reasonable cause. In numerous Judgements and Decisions there have been various descriptions used to characterise the test required for a finding that a case was commenced without reasonable cause. Terminology such as “manifestly groundless” “obviously untenable” and “incapable of argument” has provided guidance.

[21] The relevant tests for finding that a matter was taken without reasonable cause, when translated into the context of an application for unfair dismissal remedy, require identification of some aspect of the application which would unquestionably defeat the claim. An unfair dismissal claim that was taken without reasonable cause would contain some aspect which was identifiable from the application document and which aspect of itself, would operate to strike the claim out. For example, an application which stated and provided verification that the period of employment was less than six months would be a claim that was taken without reasonable cause.

[22] In the present circumstances, there was no suggestion that the claims for unfair dismissal contained some defect(s) which meant that they should have been struck out or otherwise subject to interlocutory disposal. I cannot identify any aspect of the applications which could be capable of defeating the claims without any recourse to argument. Consequently, I am not satisfied that the applications were made without reasonable cause.

No Reasonable Prospect of Success [s.611 92) (b)]

[23] I now turn to the second aspect upon which the application for costs was advanced by the employer, namely, that it should have been reasonably apparent to the applicants that their applications had no reasonable prospect of success. It seems to be well settled that the test to establish that a case had no reasonable prospects for success is not as stringent as that required to find that a matter had been taken without reasonable cause.

[24] Consideration of this aspect of the application for costs involves a broad assessment of the merits of the case as should have been properly evaluated at the time of the making of the application. The subsequent findings made upon Hearing and which disclose an absence of merit can be introduced as basis to contend that the applicant agitated an entirely unmeritorious claim, that is, it had no reasonable prospect of success. However, caution must be exercised to carefully evaluate whether the absence of merit found at Hearing would have been reasonably apparent to an applicant at the time of making the claim.

[25] The submissions of the employer focused upon certain factual issues which would have been known to the applicants at the time they made their unfair dismissal claims and which at Hearing were found to represent valid reason for dismissal. Consequently it was extrapolated that the applications had no reasonable prospect of success.

[26] However, there are many unfair dismissal claims which succeed in circumstances where valid reason for the dismissal has been established. Consequently, the evaluation of the prospects for success or otherwise of an unfair dismissal claim should properly include all relevant facts and circumstances surrounding the dismissal. The entirety of the case advanced to support an unfair dismissal needs to be examined before any finding that it had no reasonable prospects for success could be made.

[27] Further, it is clear that the assessment of the merits (or lack thereof) of the case for the purposes of sub-section 611 (2) (b) of the Act, is to be made at the time of the making of the application. A Full Bench of the Commission in the matter of Qantas Airways Limited v Mr Paul Carter 2 interpreted the provisions of s. 611 of the Act and in respect to the particular point in time at which the exceptions to the general rule found in subsections 611 (2) (a) and (b) are to be contemplated stated:

“[20] It is clear from the terms of s.611 of the Act that the point at which the Commission must determine whether or not Qantas' application to appeal was vexatious, without reasonable cause or had no reasonable prospect of success, is when Qantas made the application to appeal.”

[28] Consequently, any determination as to whether it should have been reasonably apparent that an application had no reasonable prospect of success is confined to an assessment of the circumstances at the time that the application was made. Although in this instance, the applicants may have reasonably expected that some of the factual issues surrounding their dismissals which were known to them at the time of making the applications, might provide valid reason for dismissal, the totality of the basis for their claims does not reveal any clear absence of potential for success.

[29] Therefore, in this instance, the totality of the circumstances that existed and were known to the applicants when they made the s. 394 applications, could not be found to satisfy subsection 611 (2) (b) of the Act. Although they acted with knowledge of a potential for findings that valid reason existed for their dismissals, their claims had prospect for success even if that potential was realised. Consequently, at the time of making the applications it would not have been reasonably apparent to the applicants that there was no reasonable prospect of success of the applications.

Unreasonable Act or Omission [s.400A (1)]

[30] The basis upon which the third aspect of the costs application was pursued involved conduct that was recorded in a documentary exchange between the representatives of the Parties on 28 and 29 November 2013. It was asserted by the employer that the documentary exchange of 28 and 29 November 2013 established an unreasonable act or omission on the part of the applicants which involved a rejection of a settlement offer and the continuation of the proceedings.

[31] Sub-section 400A (1) of the Act introduces a further exception to the general rule established by sub-section 611 (1) that each side bear its own costs in relation to a matter before the Commission. This particular exception is confined to unfair dismissal proceedings and requires that the Commission be satisfied that a Party caused costs to be incurred by another Party because of an unreasonable act or omission. Unlike the exceptions to the general rule which are found in sub-sections 611 (2) (a) and (b), the exception provided by sub-section 400A includes examination of conduct and circumstances arising throughout the proceedings.

[32] An examination of the documentary exchange of 28 and 29 November 2013 can be summarised as the applicants’ blunt rejection of the employer’s offer to not pursue costs if the application(s) were withdrawn within less than 24 hours. Although the employer’s letter of 28 November made strong assertions as to the absence of merit of the applicants’ claims, these criticisms were broadly confined to the issue of valid reason for dismissal and were equated with there being no reasonable prospect for success. Other process issues and factors relevant to any finding that a dismissal was harsh, unjust or unreasonable appear to have escaped contemplation.

[33] The entirety of the facts and circumstances which surrounded the dismissals of the applicants should be considered so that a “complete picture” is formed in order to determine whether the applicants acted unreasonably when on 29 November 2013 they bluntly rejected the employer’s offer to withdraw their claims on the basis that they would not be pursued for costs. A consideration of the “complete picture” has revealed that the documentary exchange of 28 and 29 November 2013 was not conduct that went beyond the “hard bargaining” as was identified by the Full Bench in the Roy Morgan Research v K Baker 3 case.

[34] Consequently, I am not satisfied that the conduct of the applicants as evidenced in the documentary exchange of 28 and 29 November 2013, was an act or omission capable of enlivening the sub-section 400A (1) exception to the general rule that each side bear its own costs.

Conclusion

[35] This application for costs which has been made pursuant to ss. 611 and 400A of the Act has been advanced upon the assertion that the requirements of sub-sections 611 (2) (a) and (b) and 400A (1) were met and therefore costs should be Ordered in favour of the employer.

[36] In respect to sub-section 611 (2) (a) of the Act, an analysis of the circumstances at the time that the applications were made, has confirmed that the applications were not made without reasonable cause.

[37] Further, for the purposes of sub-section 611 (2) (b) of the Act, having regard for the plethora of factors which may establish that a dismissal was unfair, I am not satisfied that at the time that the applications were made, it should have been reasonably apparent to the applicants that the applications had no reasonable prospect of success.

[38] Finally, in respect to sub-section 400A (1) of the Act, I have not been satisfied that the conduct of the applicants in connection with the documentary exchange between the Parties on 28 and 29 November 2013, represented an act or omission capable of enlivening the exception to the general rule that each side bear its own costs.

[39] Consequently, the requirements of sub-sections 611 (2) (a) and (b) and 400A (1) of the Act have not been satisfied. Therefore the general rule established by sub-section 611 (1) of the Act, that each Party bear its own costs, is not disturbed by any one or more of the exceptions provided in sub-sections 611 (2) and 400A (1).

[40] The employer’s application for costs must be refused and an appropriate Order shall be issued.

COMMISSIONER

Final written submissions:

3 October 2014 - Mr S Meehan, Counsel for the Respondent

17 October 2014 - Mr C McArdle, Solicitor for the Applicants

 1   E. Church v Eastern Health t/as Eastern Health Great Health and Wellbeing [2014] FWCFB 810.

 2   Qantas Airways Limited v Mr Paul Carter[2013] FWCFB 1811.

 3   Roy Morgan Research Ltd v K Baker [2014] FWCFB1175.

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