Fair Work Ombudsman v McGrath and Anor (No.2) - [2010] FMCA 646

FEDERAL MAGISTRATES COURT OF AUSTRALIA

FAIR WORK OMBUDSMAN v MCGRATH & ANOR (No.2)

[2010] FMCA 646

INDUSTRIAL – Costs – unsuccessful civil prosecution by Fair Work Ombudsman – whether proceedings instituted without reasonable cause – costs application refused.

Workplace Relations Act 1996 (Cth), s.824

Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union v Nestlé Australia Ltd [2005] FCA 717
Fair Work Ombudsman v McGrath & Anor [2010] FMCA 315
Geneff v Peterson (1986) 19 IR 40
Matthews v Australian Postal Corporation [2007] FMCA 1174
Olsen v Wellard Feeds Pty Ltd (No.2) [2008] FMCA 447
Ross; Ex parte Crozier [2001] FCA 1665

Applicant:

FAIR WORK OMBUDSMAN

First Respondent:

MATTHEW MCGRATH

Second Respondent:

GARY CARPENTER

File Number:

SYG 1554 of 2009

Judgment of:

Smith FM

Date of Last Submission:

12 August 2010

Delivered at:

Sydney

Delivered on:

3 September 2010

REPRESENTATION

Counsel for the Applicant:

Mr L Innes

Solicitors for the Applicant:

Sparke Helmore

Counsel for the Respondents:

Ms A Perigo

Solicitors for the Respondents:

Beverley Foster & Associates

ORDERS

The respondents’ application for costs is refused.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 1554 of 2009

FAIR WORK OMBUDSMAN

Applicant

And

MATTHEW MCGRATH

First Respondent

GARY CARPENTER

Second Respondent

REASONS FOR JUDGMENT

(Revised from transcript)

On 21 May 2010, I delivered judgment dismissing the Fair Work Ombudsman’s application for the imposition of penalties on the respondents, for their alleged involvement in the failure of their company, McCarvis Pty Ltd, to lodge three AWAs within 14 days after they were made (see Fair Work Ombudsman v McGrath & Anor [2010] FMCA 315). The respondents subsequently applied for an order that the Fair Work Ombudsman pay their legal costs. The parties have agreed that I should decide this application on their written submissions.
It is unnecessary again to explain the nature of the proceedings, the evidence which was presented by the parties, and my reasons for judgment.
The respondents accept that the Court’s discretion to award costs in the proceedings is subject to s.824 of the Workplace Relations Act 1996 (Cth), which provides:
824 Costs only where proceeding instituted vexatiously etc.
(1)A party to a proceeding (including an appeal) in a matter arising under this Act (other than an application under section 663) must not be ordered to pay costs incurred by any other party to the proceeding unless the first‑mentioned party instituted the proceeding vexatiously or without reasonable cause.
(2)Despite subsection (1), if a court hearing a proceeding (including an appeal) in a matter arising under this Act (other than an application under section 663) is satisfied that a party to the proceeding has, by an unreasonable act or omission, caused another party to the proceeding to incur costs in connection with the proceeding, the court may order the first‑mentioned party to pay some or all of those costs.
(3)In subsections (1) and (2):
costs includes all legal and professional costs and disbursements and expenses of witnesses.
The respondents seek to characterise the proceedings as being brought “without reasonable cause” within s.824(1), and make no submissions that they incurred costs in connection with the proceedings, or any aspect of them, by reason of “an unreasonable act or omission” on the part of the Fair Work Ombudsman within s.824(2).
The effect of a bar on costs orders in terms of s.824(1) was explained by the Full Court in Ross; Ex parte Crozier [2001] FCA 1665 (“Crozier”):
[8] Accordingly, the second respondent is not entitled to an order for costs unless the proceeding was instituted vexatiously or without reasonable cause. The second respondent did not contend that Mr Crozier had instituted the proceeding "vexatiously" within the meaning of s347 of the Act.
[9] As to the meaning of "without reasonable cause", both Mr Crozier and the second respondent relied on the observations of Wilcox J in Kanan v Australian Postal and Telecommunications Union (1992) 43 IR 257. His Honour said at 264-265:
[O]ne 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.
[10] In this regard, it may also be relevant to bear in mind the purpose of s347 of the Act. In Heidt v Chrysler Australia Ltd (1976) 26 FLR 257 at 272, Northrop J said of s197A of the Conciliation and Arbitration Act 1904 (Cth) (which was a predecessor provision to s347):
The policy of s197A of the Act is clear. It is designed to free parties from the risk of having to pay the costs of an opposing party. At the same time the section provides a protection to parties defending proceedings which have been instituted vexatiously or without reasonable cause. This protection is in the form of conferring a power in the court to order costs against a party who, in substance, institutes proceedings which in other jurisdictions may constitute an abuse of the process of a court.
[11] After referring to the observations of Gibbs J in R v Moore; Ex parte Federated Miscellaneous Workers' Union of Australia (1978) 140 CLR 470 cited Northrop J in Heidt, the Full Court of this Court said in Thompson v Hodder (1989) 21 FCR 467 at 470:
It is apparent from these authorities that an applicant who has the benefit of the protection of s347 will only rarely be ordered to pay the costs of a proceeding in exceptional circumstances.
See also Hatchett v Bowater Tutt Industries Pty Ltd (No 2) (1991) 28 FCR 324 at 325 per von Doussa J.
[12] The test imposed by the expression "without reasonable cause" is similar to that adopted in an application for summary judgment: see Heidt at 272-273; Geneff v Peterson (1986) 19 IR 40 at 87-88; and Hatchett at 327.
The analogy with tests applied when summarily dismissing a proceeding prior to trial due to its lack of merit or prospects, was explained by Gray J in Geneff v Peterson (1986) 19 IR 40 at 87:
The choice of the expressions "vexatiously" and "without reasonable cause", with the disjunctive "or" between them is of some interest. The word "vexatious" is often found in rules of court in company with expressions such as "frivolous" and "an abuse of the process of the court". The authorities do not normally distinguish between these expressions. See, for instance Dey v. Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62, especially at page 91 per Dixon J. (as he then was), and General Steel Industries Inc. v. Commissioner for Railways (N.S.W.) [1964] HCA 69; (1964) 112 CLR 125, especially at pages 128-130 per Barwick C.J. The tests which were applied in those cases are usually applied at an early stage of a proceeding, with reference to the case as disclosed by the initiating process. In such cases, the initiating process is simply that filed by the initiating party, without any intervention on the part of the court concerned. The tests prescribed by s. 197A of the Act will often be applied at the conclusion of a proceeding, when the Court comes to consider the question of costs. In many cases, as must have been recognized by Parliament when s. 197A was enacted, the tests will have to be applied in proceedings which were commenced by Rule to Show Cause granted by a judge of the Court, after considering whether an arguable case was shown. Nevertheless, the focus of the section is on the institution of the proceedings, and the Court should not allow itself to be influenced unduly by the actual result. Further, the use of a word such as "vexatiously" must have been with the intention that the Court should take a view similar to that taken by courts considering whether to strike out proceedings on the ground that they are frivolous, vexatious, or an abuse of the process of the court concerned. For this reason, it must be doubted whether the phrase "without reasonable cause" has a meaning significantly different from the word "vexatiously"
The above jurisprudence has been explained and applied in many subsequent cases, including by Marshall J in Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union v Nestlé Australia Ltd [2005] FCA 717 and the cases cited by him. It has been applied in this Court by myself in Matthews v Australian Postal Corporation [2007] FMCA 1174, and by Lucev FM in Olsen v Wellard Feeds Pty Ltd (No.2) [2008] FMCA 447, which both parties before me cited.
The parties’ written submissions thoroughly examined whether the Fair Work Ombudsman’s present case could be characterised at its commencement in terms suggested by the above authorities. Due to the circumstance, noted by Gray J, that this characterisation is being performed after the proceedings have run their full course through a trial and judgment, many of their submissions sought to make points from my factual findings which explained my order.
However, in the present case, I do not consider that even hindsight allows the proceedings to be characterised as having been commenced or pursued to trial “without reasonable cause”.
The situation discovered by the Fair Work Ombudsman in relation to McCarvis’ records, which I explained in my judgment at [4] and [43], undoubtedly presented circumstantial evidence that the company had failed to lodge these three AWAs at any time, and possibly also many others. This was denied by its directors in interview, but ultimately I made findings that the three AWAs probably had never been posted as claimed by the directors.
In my opinion, the circumstantial evidence located by the Fair Work Ombudsman was capable, depending upon how the trial proceeded, of pointing towards a knowing and intentional participation by one or both of the company’s directors in its alleged breaches of the Act (see, [95] of my judgment). The inspectors’ interviews with the directors did not exclude a prospect of success on a circumstantial case of intentional participation, particularly since the directors appeared to maintain that they could prove that the AWAs were posted.
Assessing the Fair Work Ombudsman’s case at its inception in the light of subsequent events, it is now apparent that its success largely turned upon how the two directors were assessed as witnesses, in particular as to their state of mind at relevant times. At inception there was, in my opinion, a strong possibility that, if the directors elected not to enter the witness box, the suspicions engendered by the state of the company’s records might be sufficient to establish the director’s intentional participation on the balance of probabilities. Particularly, if the Court were persuaded not to accept the explanations they had offered in interview with workplace inspectors. The case presented to the Court on inception and at trial in support of the application was, in my opinion, a ‘case to be answered’, and no submission to the contrary was ever made prior to or at the conclusion of the Fair Work Ombudsman’s case at trial.
I therefore am not satisfied that the bar on costs under s. 824(1) has been lifted. It is unnecessary for me to examine whether, once the respondents elected to enter the witness box, a different outcome might have been achieved if the Fair Work Ombudsman’s case had been differently presented in cross-examination and submissions. My short opinion, for reasons which should be apparent from my earlier judgment, is that at no time prior to that point in the trial could the Fair Work Ombudsman’s case be characterised as obviously doomed to fail. I would therefore not characterise it as “instituted … without reasonable cause”.
I therefore refuse the respondents’ costs application.
The parties’ written submissions concerning costs show that this was a reasonably debateable question, and I also consider that s.824 bars any award of costs in relation to the costs application.

I certify that the preceding fifteen (15) paragraphs are a true copy of the reasons for judgment of Smith FM

Associate:

Date: 3 September 2010