Georgia Sologinkin v Cosmetic Suppliers Pty Ltd t/a Coty

[2017] FWC 2633

[2017] FWC 2633

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.604—Costs

s.394—Unfair dismissal

Georgia Sologinkin
v
Cosmetic Suppliers Pty Ltd t/a Coty
(U2016/14529)

SENIOR DEPUTY PRESIDENT HAMBERGER SYDNEY, 23 MAY 2017

Costs application arising from application for an unfair dismissal remedy.

[1] On 6 December 2016, Mrs Georgia Sologinkin (the first costs respondent) applied for an unfair dismissal remedy in relation to the termination of her employment by Cosmetic Suppliers Pty Ltd t/a Coty (Coty or the costs applicant).

[2] On 31 March 2017, I issued a decision dismissing the first costs respondent’s application on the grounds that the termination of her employment was not harsh, unjust or unreasonable. 1

[3] In brief, I found that Coty had a valid reason for dismissing the first costs respondent. She had composed an email containing a number of derogatory and offensive comments about Coty’s clients. I noted that even if the email had not been sent to the clients themselves, these comments would have been entirely inappropriate – especially from someone in the first costs respondent’s position of Key Accounts Manager – and were in breach of Coty’s Code of Conduct and its IT User Conduct Policy, which specifically prohibited users of Coty’s email system from including statements in any email that would be embarrassing to either the user and/or Coty if they were disclosed to the public. The gravity of the misconduct had been greatly multiplied because the email ended up being sent to the clients about whom the derogatory comments had been made. While it was not in dispute that the email had been sent to the clients by mistake, I found that the ultimate responsibility still had to be borne by the first costs respondent.

[4] The decision noted that the impact of the dismissal had been significant for the first costs respondent, that she had had a long period of service with Coty and its predecessors, and had never been previously warned for misconduct. She had also apologised for her behaviour. However, I did not consider that those factors outweighed the gravity of the misconduct so as to render the dismissal harsh. I also noted that the first costs respondent had sent another intemperate email shortly before the one that triggered her dismissal – this time to some of her colleagues.

[5] On 12 April 2017, Coty applied to the Fair Work Commission (the Commission) for costs against the first costs respondent on the grounds that the application for an unfair dismissal remedy had been made without reasonable cause, that it should have been reasonably apparent to the first costs respondent that the application had no reasonable prospects of success, and that the first costs respondent had caused Coty to incur costs by her unreasonable continuation of the proceedings and unreasonable refusal of Coty’s genuine, without prejudice offer to settle the matter.

[6] Coty also applied for costs against the first costs respondent’s representative, Australian Dismissal Services Pty Ltd (the second costs respondent), on the grounds that the second costs respondent caused Coty to incur costs because of an unreasonable act or omission in connection with the conduct or continuation of the matter, being the failure to settle the matter on the basis of a genuine settlement offer and to advise the first costs respondent that her application did not have a reasonable prospect of success.

[7] I subsequently issued directions for both Coty and the costs respondents to make written submissions about both applications.

The relevant legislation

[8] Coty’s costs application against the first costs respondent is made under ss.400A and 611 of the Fair Work Act 2009 (Cth) (the FW Act). The application against the second costs respondent is made under s.401 of the FW Act.

[9] Section 400A of the FW Act provides:

‘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.’

[10] Section 401 of the FW Act provides:

‘401 Costs orders against lawyers and paid agents

(1) This section applies if:

(a) an application for an unfair dismissal remedy has been made under section 394; and
(b) a person who is a party to the matter has engaged a lawyer or paid agent (the representative) to represent the person in the matter; and
(c) under section 596, the person is required to seek the FWC’s permission to be represented by the representative.

(1A) The FWC may make an order for costs against the representative for costs incurred by the other party to the matter if the FWC is satisfied that the representative caused those costs to be incurred because:

(a) the representative encouraged the person to start, continue or respond to the matter and it should have been reasonably apparent that the person had no reasonable prospect of success in the matter; or
(b) of an unreasonable act or omission of the representative in connection with the conduct or continuation of the matter.

(2) The FWC may make an order under this section 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.’

[11] Section 611 provides:

‘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.’

[12] The starting point in relation to an unfair dismissal matter is that each party bears its own costs in proceedings before the Commission. Sections 400A, 401 and 611 of the FW Act then go on to provide that the Commission may order exceptions to that general rule in certain circumstances. In particular, the Commission has the discretion to order one party to an unfair dismissal matter to pay the other party’s legal or representational costs, but only where the Commission is satisfied the matter was commenced or responded to:

• vexatiously or without reasonable cause (s.611(2)(a)), or



• with no reasonable prospect of success (s.611(2)(b)).

[13] Costs may also be awarded to one party in an unfair dismissal proceeding if the Commission is satisfied that the costs were incurred as a result of an unreasonable act or omission of the other party (s.400A of the FW Act). Costs may also be ordered against legal representatives in such proceedings, if the representative had encouraged a person to start, continue or respond to the matter and it should have been reasonably apparent that the person had no reasonable prospect of success, or where an unreasonable act or omission of the representative caused costs to be incurred by the other party. However, even if the Commission is satisfied that the relevant circumstances exist, the Commission is not obliged to order costs. It is a discretionary decision. The power to award costs is to be exercised with caution and only in a clear case.

[14] In the recent decision in Keep v Performance Automobiles Pty Ltd (Keep), a Full Bench of the Commission summarised the principles relevant to when an application is made without reasonable cause:

‘[17] The proper construction of s.611(2)(a) was recently considered by a Full Bench in Church v Eastern Health t/as Easter Health Great Health and Wellbeing (Church). Church is authority for the following propositions:

(i) The power to order costs pursuant to s.611(2) should be exercised with caution and only in a clear case.

(ii) A party cannot be said to have made an application “without reasonable cause” within the meaning of s.611(2)(a), simply because his or her argument proves unsuccessful.

(iii) One way of testing whether a proceeding is instituted “without reasonable cause” is to ask whether upon the facts known to the applicant at the time of instituting the proceeding, there was no substantial prospect of success.

(iv) The test imposed by the expression “without reasonable cause” is similar to that adopted for summary judgment, that is, “so obviously untenable that it cannot possibly succeed”, “manifestly groundless” or “discloses a case which the Court is satisfied cannot succeed”.’ 2 [endnotes omitted]

[15] In Keep, the Full Bench also summarised the principles relevant to the second limb of s.611(2) of the Act:

‘[18] As to s.611(2)(b), the FWC may make a costs order against a person if satisfied that ‘it should have been reasonably apparent’ to that person that their application had ‘no reasonable prospect of success’. The expression ‘should have been reasonably apparent’ in s.611(2)(b) imports an objective test, directed to a belief formed on an objective basis as opposed to the applicant’s subjective belief.

[19] There is Full Bench authority for the proposition that the Commission should exercise caution before arriving at the conclusion that an application had ‘no reasonable prospects of success’. In Deane v Paper Australia Pty Ltd a Full Bench made the following observation about this expression in the context of enlivening a power to award costs under s.170CJ(1) of the Workplace Relations Act 1996;

“unless upon the facts apparent to the applicant at the time of instituting the [application], the proceeding in question was manifestly untenable or groundless, the relevant requirement in s.170CJ(1) is not fulfilled and the discretion to make an order for costs is not available”.’ [endnotes omitted]

[16] Similarly, the Full Bench in Baker v Salva Resources Pty Ltd stated:

‘The concepts within s.611(2)(b) “should have been reasonably apparent” and “had no reasonable prospect of success” have been well traversed:

● “should have been reasonably apparent” must be objectively determined. It imports an objective test, directed to a belief formed on an objective basis rather than a subjective test; and

● a conclusion that an application “had no reasonable prospect of success” should only be reached with extreme caution in circumstances where the application is manifestly untenable or groundless or so lacking in merit or substance to be not reasonably arguable.’ 3 [endnotes omitted]

[17] Section 400A of the FW Act was considered by Commissioner Bissett in Emma Sidney v Employsure Pty Ltd 4(Sidney). The Commissioner noted the following:

‘[26] A decision to award costs pursuant to section 400A of the Act requires a consideration of whether Employsure, by some unreasonable act or omission, caused Ms Sidney to incur costs.

[27] Section 400A was inserted into the Act by virtue of the Fair Work Amendment Act 2012. The Explanatory Memorandum to the Fair Work Bill 2012 states:

“168. Item 4 inserts a new section 400A to enable the FWC to order costs against a party to an unfair dismissal matter (the first party) if it is satisfied that the first party caused the other party to the matter to incur costs by an unreasonable act or omission in connection with the conduct or continuation of the matter.

169. As with the new power to dismiss applications under section 399A, the power to award costs under section 400A is not intended to prevent a party from robustly pursuing or defending an unfair dismissal claim. Rather, the power is intended to address the small proportion of litigants who pursue or defend unfair dismissal claims in an unreasonable manner. The power is only intended to apply where there is clear evidence of unreasonable conduct by the first party.

170. The FWC’s power to award costs under this provision is discretionary and is only exercisable where the first party (whether the applicant or respondent) causes the other party to incur costs because of an unreasonable act or omission. This is intended to capture a broad range of conduct, including a failure to discontinue an unfair dismissal application made under section 394 and a failure to agree to terms of settlement that could have led to the application being discontinued.”

[28] The authorities relevant to a consideration of the phrase ‘unreasonable act or omission’ were considered in the decision of the Full Bench in Roy Morgan Research v Baker. I do not repeat those provisions here but note the following can be taken from those authorities:

● A failure to inform another party of an inability to attend proceedings would be, if intentional, unreasonable and if accidental, an unreasonable omission;

● a failure to advise the other party of the first party’s intentions, if deliberate or reckless, would be unreasonable and if an omission could be equally unreasonable;

● very strong prospects of success will not always justify a failure to participate in settlement negotiations;

● a reasonable person will determine if and how to respond to an offer of settlement after considering all of the circumstances of the case including the terms of settlement in relation to the relief sought; the relative strength of the parties cases; the likely length and cost of proceeding to hearing if the matter does not settle; and adverse consequences of acceptance of a settlement rather than prosecuting or defending the primary application.’

[18] The Explanatory Memorandum said with regard to s.401:

‘1610. Subclause 401(1) allows FWA to make costs orders against lawyers and paid agents in two sets of circumstances. The first is where they have caused costs to be incurred by the other party to the matter because they encouraged a person to commence or continue a matter when it should have been reasonably apparent there were no reasonable prospects of success. The second circumstance is where they have caused costs to be incurred by the other party because of an unreasonable act or omission in conducting or continuing the matter.

1611. These provisions are designed to deter lawyers and paid agents from encouraging others to bring speculative unfair dismissal claims, particularly claims they know have no reasonable prospects of success, or to unreasonably encourage a party to defend a claim or make a jurisdictional argument where there is no prospect of the argument succeeding.

1612. Subclause 401(1) operates in addition to sub-clause 611(2). Subclause 611(2) provides FWA with a general power to make costs orders against a person in the following circumstances:

where a person made an application, or responded to an application, vexatiously or without reasonable cause; or

where a person made an application, or responded to an application, and it should have been reasonably apparent to the person that their application, or response to an application, had no reasonable prospects of success.’

Consideration

[19] Coty submitted that the first costs respondent had made an unfair dismissal application where it ought to have been apparent to her that the proceedings lacked reasonable cause (s.611(2)(a)).

[20] I do not agree. While there was no dispute that the first costs respondent had drafted the offensive email and it had been sent to some of Coty’s clients I am satisfied that there was at least an arguable case that the dismissal was unfair, on the grounds that the email had been sent to the clients inadvertently, that the first costs respondent had immediately apologised for what had occurred, and that she had a relatively long and unblemished service with Coty and its predecessors. The first costs respondent cannot be said to have made an application ‘without reasonable cause’ within the meaning of s.611(2)(a), simply because her arguments proved unsuccessful. I am satisfied that on the facts known to the first costs respondent at the time she made her application, her case was not ‘so obviously untenable that it could not possibly succeed’. Nor was it ‘manifestly groundless’.

[21] Coty also submitted that it should have been reasonably apparent to the first costs respondent that her application had no reasonable prospects of success (s.611(2)(b).) Coty submitted that it should have been reasonably apparent to the first costs respondent that her application had no chance of success at the time the substantive proceedings were initiated. Moreover, even if the Commission was not satisfied that that it should have been reasonably apparent to the first costs respondent that her application had no reasonable prospects of success at the time she filed her application, the Commission should be so satisfied at each of the following stages in the proceedings:

a) On 15 December 2016, when Coty filed and served its response to the application;

b) On 31 January 2017, when the parties attended a telephone conciliation conference during which Coty claims the first costs respondent was told her claim was hopeless;

c) On 2 March 2017 when Coty’s representative had a telephone discussion with the first costs respondent’s representative in the substantive proceedings, Ms Amanda Millar of the second costs respondent, during which Ms Millar was advised that the application was hopeless and that Coty would seek costs if the application was ultimately dismissed;

d) On 3 March when Coty sent a letter to the second costs respondent setting out the bases upon which Coty was of the opinion that the substantive proceedings were commenced without reasonable cause and had no reasonable prospects of success. The first costs respondent was invited to discontinue the matter and the letter again put the first costs respondent on notice that it would seek costs in the matter if the proceedings were continued;

e) On 17 March 2017, when Coty sent a further letter to the second costs respondent with an offer to settle the matter on a commercial basis before Coty incurred further costs in preparing the matter for hearing. Coty again stated that the first costs respondent commenced the proceedings without reasonable cause and that the application had no reasonable prospects of success. Coty again put the first costs respondent on notice that it would seek costs in the matter against the first and second costs respondents if the first costs respondent continued the proceedings;

f) On 22 March 2017, when Coty filed its outline of submissions and its witness evidence, at which point the first costs respondent had a full opportunity to consider Coty’s evidence.

[22] Coty submitted that at each of these occasions it was reasonably apparent to the first costs respondent that her application had no reasonable prospects of success and that she had acted unreasonably by not discontinuing the matter or accepting the settlement offer.

[23] Again, I do not agree that the first costs respondent’s application ‘had no reasonable prospect of success’. Such a conclusion should only be reached with extreme caution in circumstances where the application is manifestly untenable or groundless or so lacking in merit or substance to be not reasonably arguable. I consider that she had a ‘reasonably arguable’ (even if ultimately unsuccessful) case – especially that the dismissal was harsh – given her relatively lengthy and unblemished service, the apology she gave for sending the email and the fact that the email was sent to the clients by mistake.

[24] Coty also submitted that costs should be awarded against the first costs respondent because of the unreasonable act or omission of the first costs respondent in connection with the conduct or continuation of the matter (s.400A(1)). Coty drew attention to the payment it had made to the first costs respondent at the time of termination, namely:

a) An equivalent to one month’s salary in lieu of notice;

b) The amount remaining in respect of a sales commission payment earned for July, August and September 2016; and

c) A future amount to be determined in respect of the sales commission earned by the first costs respondent for the period October until termination of her employment on 16 November 2016.

[25] Coty submitted that in the circumstances it was wholly unreasonable of the first costs respondent to have rejected the settlement offer made to her on 17 March 2017.

[26] This offer was that Coty pay to the first costs respondent the amount of $4,000 less applicable taxation; the parties enter into a deed of release, with the usual terms as to confidentiality, non-disparagement and mutual releases and discontinuation of the proceedings. It was made clear that Coty was not willing as part of any settlement to withdraw the termination and allow the first costs respondent to resign. The first costs respondent’s representative wrote back on 20 March 2017 with a counter offer. The email included the following:

‘Noting my client’s very long period of service and contribution to the Respondent’s business over that time – we are instructed to advise that our client is willing to resolve this matter on either of the following alternative terms:

• Payment of 4 weeks’ salary plus resignation as the agreed reason for termination and a written statement of service; or in the alternative:



• Payment of 12 weeks’ salary (without resignation and a written statement of service).

As mentioned in our earlier discussion, our client is willing to resolve this matter but has indicated the importance of the written statement of service and the ability to end her employment by way of resignation. I note that a written statement of service was offered by the Respondent at conciliation in an effort to resolve this matter.’

[27] This counter-offer was rejected by Coty, and the original offer was restated.

[28] Given that that the first costs respondent had an arguable case, I do not consider that her actions in rejecting Coty’s settlement offer and proposing a counter offer were unreasonable. In particular, given her lengthy period of service with Coty (and its predecessors) it was understandable that she wished to convert her dismissal into a resignation. This was made clear by the first costs respondent and her representative, but was not acceptable to Coty.

[29] Coty also sought costs be awarded against the second costs respondent under s.401 of the FW Act, on the grounds that the second costs respondent caused Coty to incur costs because of an unreasonable act or omission in connection with the conduct or continuation of the matter, being the failure to settle the matter on the basis of Coty’s offer of settlement and to advise the first costs respondent that her application did not have a reasonable prospect of success.

[30] Given my previous findings that the first costs respondent had an arguable case, and that it was not unreasonable for her to reject Coty’s offer (especially as it did not include conversion of the dismissal to a resignation), I do not consider that there are any grounds to find that the second costs respondent acted unreasonably in connection with the conduct or continuation of the matter.

Conclusion

[31] The applications for the Commission to order that the first and second costs respondents pay Coty’s costs are dismissed.

SENIOR DEPUTY PRESIDENT

Written submissions:

Georgia Sologinkin: 27 April 2017.

Australian Dismissal Services: 27 April 2017.

Cosmetic Suppliers Pty Ltd T/A Coty: 10 May 2017.

 1   [2017] FWC 1838.

 2   Keep v Performance Automobiles Pty Ltd[2015] FWCFB 1956.

 3   Baker v Salva Resources Pty Ltd [2011] FWAFB 4014 [10].

 4   Emma Sidney v Employsure[2016] FWC 2659.

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