Mark O'Connell v Floor Grinding Services Pty Ltd
[2018] FWC 7675
•24 DECEMBER 2018
| [2018] FWC 7675 |
| FAIR WORK COMMISSION |
| DECISION |
Fair Work Act 2009
s.394—Unfair dismissal
Mark O’Connell
v
Floor Grinding Services Pty Ltd
(U2018/3854)
| Commissioner Johns | SYDNEY, 24 DECEMBER 2018 |
Application for costs – Fair Work Act 2009 ss.400A and 611.
On 12 April 2018 Mark O’Connell lodged an application under section 394 of the Fair Work Act 2009 (FW Act) for an unfair dismissal remedy against Floor Grinding Pty Ltd (Respondent).
On 10 May 2018 the Respondent objected to the Fair Work Commission (Commission) exercising jurisdiction in relation to the matter. It raised a number of jurisdictional objections (which, for present purposes, I will call defences). The Respondent contended that:
a)the Applicant was not dismissed, rather that he resigned on 31 January 2018 in order to pursue his own business, OCON Floor Prep Pty Ltd (OCON) (Resignation Defence).
b)from the period of 1 February 2018 to 23 March 2018, the Applicant was operating through OCON, invoicing the Respondent for work performed (IC Defence).
c)In the alternative, that if the termination occurred at the initiative of the Respondent, the application for an unfair dismissal remedy was out of time (Out of Time Defence).
On 27 August 2018 I issued a decision[1] (Jurisdictional Objections Decision) in which I held that the Applicant:
a)did not resign on 31 January 2018;
b)was not an independent contractor between 1 February 2018 and 23 March 2018;
c)the effective date of termination of the Applicant was 23 March 2018; and
d)the application for an unfair dismissal remedy was not out of time.
That is to say, I rejected all of the jurisdictional objections raised by the Respondent.
On 6 September 2018 the Applicant made an application for costs in relation to the need for him to answer the jurisdictional objections raised by the Respondent. In short, the Applicant contends that it was unreasonable for the Respondent to maintain the jurisdictional objections and that, consequently, he incurred unnecessary legal costs.
People who incur legal costs in a matter before the Commission generally pay their own costs.[2] However, 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:
a)vexatiously or without reasonable cause, or
b)with no reasonable prospect of success.[3]
Costs may be awarded to one party if the Commission is satisfied that costs were incurred as a result of an unreasonable act or omission of the other party.[4]
In the present matter the Applicant relies upon sections 400A and 611 of the FW Act.
On 12 September 2018 I issued Directions programming the application for costs for hearing on 18 October 2018. The parties complied with the Directions, but then agreed that liability in relation to the costs application (but not quantum) could be decided “on the papers” (without the need for a hearing).
In coming to this decision the Commission, as presently constituted, has had regard to the following materials:
a)Form F6 – Application for costs dated 6 September 2018,
b)Applicant’s Outline of Submissions Regarding Costs Application filed on 26 September 2018,
c)Respondent’s Outline of Submissions Regarding Costs Application filed on 10 October 2018, and
d)Applicant’s Outline of Submissions in Reply filed on 17 October 2018.
Background
The background and findings of fact in relation to the matter are set out in the Jurisdictional Objections Decision. I do not repeat them here.
However, for the purposes of the Costs Application I make the additional findings of fact:
a)On 11 April 2018 the Respondent first raised the Resignation Defence.
b)From the time that the Resignation Defence was raised the Applicant disputed it. He pointed to the continuing payments made to him as evidence of an ongoing employment relationship.
c)On 10 May 2018 the Respondent formalised its jurisdictional objection in the Commission.
d)The Commission required the Applicant to answer the Resignation Defence in writing. He did so on 23 May 2018.
e)At the 8 June 2018 hearing I invited the Respondent to reconsider the Resignation Defence in light of evidence that payments continued to be made to the Applicant and he continued to render personal service to the Respondent.
f)On 12 June 2018 the Applicant served a “Calderbank Letter” on the Respondent. The Respondent was put on notice about the possibility of a costs application being made in the future.
g)On 19 June 2018 (at the conclusion of the hearing) the Respondent asked for the opportunity to file written submissions (in circumstances where the Applicant indicated that written submissions were not necessary).
h)Written submissions were filed and served.
Legislation
Section 402 of the FW Act provides that an application for costs under s.611 and s.400A must be made within 14 days after the matter is determined by the Commission. Mr O’Connell’s Application for Costs was made on 6 September 2018 (i.e. 10 days after the filing of the Jurisdictional Objections Decision) and, therefore, within the specified time period. Accordingly s.402 of the FW Act is satisfied.
It is important to remember that the power to award costs is discretionary. It is a two stage process:
a)decide whether there is power to award costs, and
b)if there is power, consider whether the discretion to award costs is appropriate.[5]
Section 611 of the FW Act provides as follows:
“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).”
As stated above the Respondent raised a number of jurisdictional arguments against the Applicant’s unfair dismissal application. Essentially there were three defences as follows:
a)the Resignation Defence,
b)the IC Defence, and
c)the Out of Time Defence.
In the present matter the Applicant relies on sub-section 611(2)(a) and (b). That is to say, the Applicant contends that it should have been reasonably apparent to the Respondent that its Defences:
a)were without reasonable cause; and / or
b)had no reasonable prospects of success.
In order for the Respondent’s Defences to be characterised as having been made ‘without reasonable cause’ I must find that:
a)it was ‘so obviously untenable that [it could not] possibly succeed’,
b)it was ‘manifestly groundless’,
c)it was ‘so manifestly faulty that it [did] not admit of argument’,
d)it ‘disclose[d] a case which the [Commission] is satisfied [could not] succeed’, or
e)‘under no possibility [could] there be a good cause of action’.[6]
Because:
a) an application is not without reasonable cause just because the Commission rejects a person’s arguments,[7] and
b) a defence is not to be classed as being instituted without reasonable cause simply because it fails, but rather in circumstances where on the respondent’s own version of the facts, it is clear that the proceeding must fail,[8]
it must follow that a defence to an unfair dismissal application is not without reasonable cause or instituted without reasonable cause just because the respondent is unsuccessful.
In summary, a finding that a defence to an unfair dismissal application has no reasonable prospects of success should be reached with extreme caution and should only be reached when the defence is ‘manifestly untenable or groundless’.[9]
Section 400A of the FW Act provides as follows:
“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.”
Therefore s.400A sets out additional circumstances in which the Commission can make costs orders against parties in unfair dismissal matters. The Commission may order costs against a party to an unfair dismissal if the first party caused the second party to incur costs:
a) because of an unreasonable act or omission, or
b) in connection with the conduct or continuation of the matter.
What is unreasonable will depend on the circumstances.[10] It is intended that costs only be ordered where there is clear evidence of unreasonable conduct.[11]
Applicant’s Submissions
The Applicant submitted that,
“For the Commission’s convenience, the Applicant sets out a brief factual summary of the background of the matter below:
1. The Applicant’s employment with the Floor Grinding Services Pty Ltd (the Respondent) was terminated on 23 March 2018.
2. The Applicant lodged an application for an unfair dismissal remedy against the Respondent on 12 April 2018 (UFD Application) after, amongst other things:
a. being given no notice of the sudden termination;
b. not being paid any entitlements whatsoever (not even for the final day of work) – and as at the day of this document the Applicant has still not been paid anything; and
c. being forced to take a lower paying job due to a lack of funds.
Unreasonable jurisdictional objection
3. In response to the UFD Application, the Respondent made an unreasonable jurisdictional objection, asserting that the Applicant had resigned from his job on 31 January 2018 rather than being terminated on 23 March 2018. The apparent intended effect of the Respondent’s unreasonable jurisdictional objection was to cause the UFD Application to have been outside the 21-day time limit required by s.394 of the Fair Work Act 2009 (FWA) and dismissed.
4. The unreasonable jurisdictional objection was required to be resolved before the substantive application could be determined and added significant additional work and costs.
Work done and costs incurred due to unreasonable jurisdictional objection
5. The Respondent first raised the matter of the Applicant resigning and not being terminated in a letter to the Applicant’s solicitor on 11 April 2018.
6. In subsequent correspondence and discussions, the Respondent’s solicitor was made aware of clear evidence showing that the employment relationship continued to 23 March 2018. This included bank statements and earlier representations made by the Respondent.
7. The Respondent nonetheless persisted in its position and lodged an objection.
8. The Applicant was forced to prepare submissions and evidence and did so by letter dated 23 May 2018 to Deputy President Dean (23 May Letter). This included all the relevant evidence, including bank statements and superannuation payments.
9. The 23 May Letter was served on the Respondent and so the submissions and evidence were available for the Respondent to review and consider. A copy of the 23 May Letter is attached at Annexure A.
10. The first jurisdictional hearing to determine the above matter was held on 8 June 2018.
11. In the first jurisdictional hearing Commissioner Johns, having reviewed the 23 May Letter which included the bank statements, suggested the Respondent consider whether it wished to maintain its jurisdictional objection. This is recorded in the transcript at PN68:
Mr Leon, in circumstances where - as it seems readily apparent on the evidence - Mark O’Connell was rendering services and was being paid for those services personally right up until March, you might want to get some instructions about whether your client maintains the jurisdictional objection. I’ll leave that with you.
12. On 12 June 2018, the Applicant’s solicitor wrote to the Respondent’s solicitor and asked whether it was still necessary to proceed to the jurisdictional hearing (Calderbank Letter). A copy of this letter is attached at Annexure B. The Applicant’s solicitor advised the Respondent’s solicitor that the Applicant would be making an application for costs if the Respondent chose to proceed. The letter was written in accordance with the principles enunciated in the case of Calderbank v Calderbank 3 ALL ER 333.
13. By email dated 12 June 2018, the Respondent’s solicitor advised that the Respondent would be pressing its objection.
14. The Applicant was forced to prepare evidence and prepare for the second jurisdictional hearing.
15. The second jurisdictional hearing took place on 19 June 2018.
16. At the end of the second jurisdictional hearing, Commissioner Johns asked whether the parties wished to make further submissions. The Applicant’s solicitor said that further submissions were not necessary. The Respondent’s solicitor requested an opportunity to make further submissions. This is recorded in the transcript at PN 431 to PN 434:
THE COMMISSIONER: Yes. Gentlemen, how do you want to proceed from here? Do you want to make some final written submissions, not make any submissions at all and leave me now to decide the matter? What are your thoughts, Mr Ahmed?
MR AHMED: I am happy for you to decide the matter now.
THE COMMISSIONER: Yes. Mr Leon?
MR LEON: We would prefer to make some short written submissions if at all possible, Commissioner.
17. The parties were given the opportunity to make further submissions and the Applicant then made further submissions.
18. During the process, the Respondent regularly filed their evidence and other documentation after the deadline set in the orders.
19. On 27 August 2018, Commissioner Johns, based on the facts and evidence presented determined that;
a. The applicant did not resign on 31 January 2018
b. The applicant was not an independent contractor between 1 February 2018 and 23 March 2018.
c. The applicant’s effective date of termination was 23 March 2018
20. As a direct result of the unreasonable jurisdictional objection of the Respondent the Applicant incurred significant additional legal costs.
3. Application for cost under s.400A FWA
21. Section 400A of the FWA states as follows:
(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.
22. The Respondent was unreasonable in making and continuing with the unreasonable jurisdictional objection and has caused the Applicant to incur unnecessary legal costs.
23. During the initial hearing on 8 June 2018 Commissioner Johns drew the attention of the representative of the Respondent, Mr Leon, to the evidence which shows that, leading up to termination, the Respondent was paying the Applicant’s regularly weekly amount.
24. The Applicant, on 12 June 2018 sent the Calderbank Letter to the Respondent in writing, to settle the matter and not to proceed with the jurisdictional hearing and incur further unnecessary legal costs.
25. The Respondent rejected the Applicant’s Calderbank Letter and advised that it would persist in defending the proceedings.
26. At the conclusion of the 19 June 2018 proceedings, Commissioner Johns asked the parties if they wished to have the matter decided right there and then or if they wished to make further submissions. The Applicant was content to have the matter decided at the end of the hearing so he could focus on the substantive UFD Application but the Respondent requested for a time extension which further prolonged the matter and resulted in even further costs being incurred by the Applicant.
27. The submission produced by the Respondent was misleading in how it selectively represented the exchange that took place in the transcript.
28. Through the entire process the Respondent has consistently been filing its documents after the time set in the orders.
29. The Respondent has clearly acted unreasonably throughout the proceeding.
4. Application for cost under s.611 FWA, Without reasonable cause
30. Section 611 of the FWA states as follows:
(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).
31. In Kanan v Australian Postal and Telecommunications Union (1992) 43 IR 157 at 264-265,
Wilcox CJ: “‘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… 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.”
32. During their submissions, the Respondent claimed that the Applicant had ceased employment with the Respondent on January 2018 because the Applicant has submitted an ‘invoice’ to the Respondent.
33. Under cross examination in the jurisdictional hearing the Respondent admitted that:
a. He would not engage a subcontractor if he had not first confirmed and agreed pay rates (Please refer to PN360 of the Transcript of Proceeding 19 June 2019). We submit that no reasonable business person, experienced or otherwise, would engage in a contract without knowing the terms and the costs involved.
b. He had never come to a “fixed agreement” with the Applicant regarding pay rates, that there was never a “meeting of minds”. He also agreed that he would never hire a subcontractor that did not have the appropriate insurances, and that he would normally see what insurances the subcontractor had through an invoice, which the invoice supplied by the Applicant did not contain (Please refer to PN360 of the Transcript of Proceeding 19 June 2019).
c. When asked why he had in early 2018 offered multiple options to the Applicant regarding charge rates, he stated that it was because the Respondent could not afford the $75 an hour proposed by the Applicant (Please refer to PN388 and 389 of the Transcript of Proceeding 19 June 2019).
d. He had provided most of the equipment used by the Applicant. It is reasonable to expect a subcontractor would provide their own tools (Please refer to PN 414 of the Transcript of Proceeding 19 June 2019).
e. He had paid superannuation to the Applicant during his alleged time as a subcontractor, albeit he claimed it was paid in error (Please refer to PN415, PN416 and PN417 of the Transcript of Proceeding 19 June 2019).
34. Commissioner Johns clearly stated that for a contract to be legally binding it must contain four essential elements: namely, an offer, acceptance, intention to create a legal relationship and consideration (usually money). There is usually a mutuality of obligation and an agreement on the key terms of the contract (Please refer to paragraph 37 of the Decision of the Proceeding on 19 June 2019).
35. The evidence in this matter establishes that there was no legally binding contract as between the Respondent and the Applicant. For all of the relevant period the parties continued to be negotiating terms. The key term upon which there was no agreement was the rate of pay that the Applicant would receive in exchange for the work performed.
36. It is clear that based on the Respondent’s own admission and the facts that there was never a ‘meeting of the minds’, there was never an agreement, and therefore the Applicant was never engaged as an independent contractor with the Respondent.
37. The Respondent took it upon himself to declare that the Applicant was a subcontractor from 1 February 2018 without any merit.
38. With due respect, the Respondent clearly had the business and operational experience to know what constituted a contract with a subcontractor. The Respondent outlined in evidence what these requirements were. The Respondent then went on to admit that these requirements were not met by the Applicant. The Respondent also did not pay the ‘invoice’ issued by the Applicant.
39. The Applicant submits that this is not a case where the Respondent was ignorant of the law, or of commercial practice. The Respondent was fully aware of the correct position and notwithstanding this awareness made (and maintained) the jurisdictional objection.
5. Application for cost under s.611 FWA - No reasonable prospect of success
40. It should have been clearly apparent to the Respondent that the Jurisdictional objection had no reasonable prospect of success. The Respondent had legal representation.
41. In Baker v Salver [sic] Resources Pty Ltd [2012] FWAFB 4014 (Watson SDP, Drake SDP, Harrison C, 27 June 2011) at para. 10 stated that the test should be an objective one.
• “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 as to be not reasonably arguable.
42. It would have been apparent to a reasonable person based on the facts, evidence and the admissions of the Respondent that the Respondent has no reasonable prospect of success.
6. Application for cost under s.611 FWA -The response to the application was made vexatiously.
43. The Respondent’s assertions had no reasonable cause and had no reasonable prospect of success.
44. The effect of the Respondent’s assertions was to delay the hearing of the substantive issues and cause the Applicant to incur further costs. The Respondent is aware of the Applicant’s limited financial capacity
45. The behaviour of the Respondent in and following the determination of this proceeding has been vexatious as indicated by the fact that the Respondent has still made no payment to the Applicant at all, notwithstanding the decision at the jurisdictional objection. The Respondent appears to be putting the Applicant to proof on each and every aspect of his claim.
46. One of many examples of this related to whether the Applicant went to the home of the director of the Respondent for dinner. This is the exchange that took place (refer to PN 250 to PN 254 of the Transcript of Proceedings 19 June 2018):
Can I take you to paragraph 12?---Paragraph 12, yes.
That never happened, did it? You never went to their house for dinner on 4 February, did you?---Yes, I did.
You were away that weekend, weren’t you, Mr O’Connell?---I said I had plans, but I wasn’t away.
Right?---Hence I was in his house and there were plenty of witnesses, including his niece, his kids and his niece’s boyfriend. We called over for roughly two hours and then we went to the city to view a concert.
Who did, Mr O’Connell?---Me and my partner, Catherine.
47. Presumably the Respondent would have been aware that the Applicant was at this dinner and did not need to go into this granular level of detail. A copy of the Uber receipt confirming that the Applicant was at this dinner is attached at Annexure C.
7. Application for costs under section 401 FWA - The lawyer or paid agent caused costs to be incurred by the other party to the matter because of an unreasonable act
48. Section 401 of the FWA states as follows:
(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.
49. The Respondent first raised the unreasonable jurisdictional objection after engaging its lawyer.
50. The unreasonable jurisdictional objection was not supported by the evidence and did not have reasonable prospects of success. Even if the evidence was only made available to the lawyer after forming that position, then the position should have been changed once the evidence was made available.
51. The Applicant submits that if proper attention were given to the prospects of success, the conclusion would be that there was no arguable basis for the jurisdictional objection beyond the first hearing on 8 June 2018: Milu v Smith & Ors [2004] QSC 027.
8. Order sought
52. The Applicant seeks an order that either the Respondent or the Respondent’s lawyers pay his costs of and incidental to the entire proceedings forthwith as agreed or assessed.
Alternatively, the Applicant seeks an order that the Respondent or the Respondent’s lawyers pay his costs of and incidental to the unreasonable jurisdictional objection of the Respondent forthwith as agreed or assessed.”
The Respondent submitted that,
“1. On 6 September 2018, the Applicant lodged an application for costs. Pursuant to section 2.1 of the Form F6 application, the Applicant nominated his claim for costs as being:
1.1. against the Respondent employer pursuant to ss 400A and 611 of the Fair Work Act 2009 (FW Act); and
1.2. against Mr Nick Leon, solicitor, pursuant to s 401 of the FW Act.
2. The application follows a jurisdictional decision of the Commission on 27 August 2018, O’Connell v Floor Grinding Services Pty Ltd [2018] FWC 4065, where at [42], the Commission concluded (our emphasis):
For the reasons set out above, having considered all the circumstances, on balance, the Commission, as presently constituted, is satisfied that the Applicant,
a) did not resign on 31 January 2018;
b) was not an independent contractor between 1 February 2018 and 23 March 2018; and
c) the effective date of termination of the Applicant was 23 March 2018.
3. As the decision related solely to the issue of jurisdiction, items 1 to 3 in section 4 of the application are not claimable (relating to the substantive proceedings). Despite clear instructions on the application, items 4 and 5 have not been itemised in accordance with schedule 3.1 of the Fair Work Regulations 2009. As such, no fair chance to respond, or to assess the claim, has been given. It is not clear if the costs claimed are on an indemnity basis. There is no clear basis to claim item 6.
4. To the extent the Applicant’s submissions and attached documents filed 26 September 2018 contain without prejudice communications and material concerning alleged underpayment claims, this material is inadmissible (see also the Transcript for 8 June 2018 at PN 71-78).
The legal principles
5. As the Commission is aware, an employee and employer must bear their own costs in relation to an unfair dismissal claim before the Commission. This is a fundamental and important underlying feature of the FW Act. In Roberts v Ngaanyatjarra Health Service [2016] FWC 4875 it was relevantly said [24]:
As a general rule each party must bear their own costs in proceedings before the Commission … the power to order costs … should be exercised with caution and only in clear cases.
6. There are limited exceptions to that usual rule such as with ss 400A and 611 of the FW Act.
7. Section 400A provides:
(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.
8. Section 611 relevantly provides:
(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.
9. As is apparent by the use of the word “may”, even if the section is enlivened, the Commission retains a discretion to not award costs. It is in rare and exceptional circumstances that costs will be awarded.
10. Section 400A was inserted into the FW Act by the Fair Work Amendment Bill 2012.
The Explanatory Memorandum provides at [169] and [171] respectively (our emphasis in bold):
… 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.
…
However, the power to award costs is only available if the FWC is satisfied that the act or omission by the first party was unreasonable. What is an unreasonable act or omission will depend on the particular circumstances but it is intended that the power only be exercised where there is clear evidence of unreasonable conduct by the first party.
11. The Full Bench in Church v Eastern Health t/as Easter Health Great Health and Wellbeing[2014] FWCFB 810 held:
11.1. the power to order costs pursuant to s.611(2) should be exercised with caution and only in a clear case: at [27];
11.2. 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: at [30];
11.3. 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: at [30]; and
11.4. 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: at [33].
12. Consistent with the above, in Baker v Salva Resources Pty Ltd [2011] FWAFB 4014, the Full Bench said at [10]: 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 as to be not reasonably arguable Responding to grounds claimed for costs
13. Care needs to be taken that a successful outcome itself is not taken or used to be demonstrative of an ‘unreasonable act’, ‘no reasonable cause’ or ‘no reasonable prospects of success’.
14. For a statutory body, issues of jurisdiction are important issues to be determined and over which satisfaction must be attained.
15. The jurisdictional issue turned on whether the Applicant was a contractor or employee at the relevant time. The determination of who is or is not an employee or a contractor is notoriously difficult, and at common law there is no single definition or definitive test to determine who is an employee. Australian courts have resorted to using what has been characterised as an “impressionistic” test, based on a multifactorial approach: A Stewart, Stewart’s Guide to Employment Law (Sydney: The Federation Press, 2008), page 47. No one factor or matter is decisive. It cannot be said that the issue of status was unarguable, including due to:
15.1. the Applicant himself obtained advice from his accountant to be a contractor and took steps consistent with that advice;
15.2. the Applicant had told the Respondent in October/November 2017 he was advised to set up his own business and contract to the Respondent;
15.3. the Applicant established a company, OCON, in November 2017;
15.4. the Applicant obtained an ABN;
15.5. the Applicant asked for a “pty rate” from the Respondent in January 2018;
15.6. potentially consistent with a contractor relationship, the Applicant issued an invoice containing: his company name, company ABN, an amount for GST (i.e. for the provision of services) and OCON bank details for payment;
15.7. the Applicant later said “I’m willing to switch the last 7 weeks back to the original pay, not pty rate” suggesting there had been a change and they were operating as a contractor relationship;
15.8. a view could have been taken that the parties agreed to a contractor relationship, with a rate of not less than $60 an hour applying, but the Applicant was otherwise negotiating for higher rates or different billing/revenue sharing model; and
15.9. Courts have held parties to their intended relationship: Vella v Integral Energy [2011] FMCA 6 at [9]; Babsari Pty Ltd v Douglas Chee Yin Wong & Ors [1999] QSC 326 at [46].
16. As said above, the Commission formed a view that “on balance, the Commission, as presently constituted” was satisfied the Applicant was not a contractor: at [42].
17. It appears that a basis for the claim of costs under s 400A is comments made by Commissioner Johns on 8 June 2018 (at PN 68). In response it is said:
17.1. the hearing had not commenced on 8 June 2018 due to the Applicant not complying with earlier directions/orders of the Commission to file and serve his witness statement (PN 15-18);
17.2. the comments by the Commissioner should not be overstated. The comments, in the circumstances of the matter at that time – namely, the matter had not commenced hearing - were not concluded views so as to give rise to any issue of apprehended bias or pre-judgment. As such, it cannot be said that the comments mean there were no prospects of success etc. The Commissioner did not give any warning about consequences for the Respondent if it maintained its jurisdictional objection;
17.3. the Respondent had a response to the issue (PN 33, 37 and 43);
17.4. as said above, the determination of who is or is not an employee or a contractor is notoriously difficult, and at common law there is no single definition or definitive test to determine who is an employee and no one matter is decisive;
17.5. the decision ultimately made by the Commissioner, after hearing all evidence and argument, is an evaluative judgment over which minds may differ; and
17.6. the ultimate decision reached was “on balance, the Commission, as presently constituted” was satisfied the Applicant was not a contractor between 1 February 2018 and 23 March 2018: at [42].
18. Another basis for the claim of costs under s 400A is the rejection of a letter dated 12 June 2018. In response it is said:
18.1. the letter relies on what was said by the Commissioner at the listing on 8 June 2018 – to which we repeat our responses above;
18.2. the letter complains about having to prepare evidence noting that the evidence hadn’t been prepared by the Applicant in accordance with earlier orders of the Commission; and
18.3. further, the proposal in the letter was not reasonable to the extent it conditioned a withdrawal of the jurisdictional claim with a demand that the Respondent pay costs (undefined) in circumstances of the general rule that each party pay their own costs.
19. A further basis to claim costs under s 400A is that further submissions were filed in the proceedings after the hearing on 19 June 2018 on the basis that doing so was an unreasonable act. In response it is said:
19.1. the Commission itself offered the parties the opportunity to make some final written submissions;
19.2. the taking of that opportunity afforded by the Commission is not an occasion to award costs, let alone being capable of being viewed as an unreasonable act; and
19.3. submissions were to be exchanged simultaneously.
20. The allegation of the Respondent’s submissions being misleading at paragraph 27 of the submissions filed 26 September 2018 is a broad statement without any attempt to define. Such an allegation should not be made in that format and can be disregarded.
21. Finally, it is said that there is a basis to claim costs under s 400A on the basis “the Respondent has consistently been filing its documents after the time set in the orders”. In response it is said:
21.1. as noted above, the Applicant did not comply with orders in preparation for the hearing on 8 June 2018 (and therefore himself contributed to additional costs being incurred – namely, requiring an additional time for the hearing);
21.2. the Applicant has otherwise failed to particularise the allegation “the Respondent has consistently been filing its documents after the time set in the orders” let alone how any such act was “unreasonable” and “caused costs to be incurred”;
21.3. the Respondent acts in complying with orders of the Commission were as follows: [table not included]
22. As to the claim under s 611 of the FW Act that the jurisdictional objection was made without reasonable cause, or had no reasonable prospects of success, it is said:
22.1. the Applicant’s lawyer sought leave to represent the Applicant under s 596 of the FW Act on the basis the matter was of such “complexity” to justify lawyers (PN 9, transcript 8 June 2018);
22.2. as said above, the determination of who is or is not an employee or a contractor is notoriously difficult, and at common law there is no single definition or definitive test to determine who is an employee and no one matter is decisive;
22.3. there were a number of factors that favoured a contractor relationship, including those set out at paragraph 15 above;
22.4. there was an explanation for the payment of money in an interim period when the Applicant had not provided OCON’s bank details;
22.5. as in all matters, the Commission accepts one account of events over another, and forms views on the balance of probabilities;
22.6. the ultimate decision reached was “on balance, the Commission, as presently constituted” was satisfied the Applicant was not a contractor between 1 February 2018 and 23 March 2018: at [42]; and
22.7. a party cannot be said to have made an application ‘without reasonable cause’ within the meaning of s 611 simply because his or her argument proves unsuccessful: Church at [30]; R v Moore; Ex parte Federated Miscellaneous Workers Union of Australia (1978) 140 CLR 470 at 473.
23. As to the claim under s 611 that the jurisdictional objection was made vexatiously, it is said:
23.1. the submissions at paragraph [44] of the submissions filed 26 September 2018 are made without evidence;
23.2. the submission at paragraph [45] of the submissions filed 26 September 2018 is speculative and without any evidence or basis;
23.3. the proposition that the jurisdictional objection was made with some other purpose was not put to the witness of the Respondent;
23.4. issues of jurisdiction are important for statutory tribunals like the Commission; and
23.5. the issue was raised, the Respondent was ready for it to be determined on 8 June 2018 (except for the Applicant’s non-compliance) and the hearing was for about an hour.
24. Having addressed the basis for the claim for costs, it is respectfully submitted that:
24.1. the jurisdiction to consider a cost order is not enlivened; and
24.2. in the event ss 400A or 611 are enlivened (which is denied), the discretion to award costs should be exercised in favour of the Respondent.
Cost against Mr Leon
25. Section 401 of the FW Act provides:
(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.
26. The grounds for the application against Mr Leon appear to be based on the cross-examination and re-examination of Mr Leon.
27. Other than identify an occasion when the Commissioner asked a question to be clarified (PN 123) and when the Commissioner raised issue with a question (PN 141), no other examples are provided. On the first occasion, Mr Leon was allowed to rephrase it (PN 124) and on the second occasion, the Commissioner indicated it may be “a matter for submissions” (PN 141).
28. It is difficult to see how asking questions, even if disallowed, itself can be said to be an unreasonable act. This is an ordinary occurrence of examination. No cautions or warnings were issued by the Commissioner to Mr Leon. Mr Leon was entitled to re-examine. Mr Leon did not persist with questioning in re-examination after the Commission interjected (PN 426).
29. The jurisdictional hearing went for about an hour on 19 June 2018.
30. There is no unreasonable act by Mr Leon in connection with his examination of witnesses and that caused costs to be incurred.
31. It is notable that the Applicant’s lawyer did not, even as a matter of professional courtesy, place Mr Leon personally on notice of an application under s 401 of the FW Act (including in the letter of 12 June 2018).
32. There is no evidence that Mr Leon encouraged any jurisdictional objection. Though not ultimately accepted, there was evidence to support the jurisdictional objection in the evidence from Mr Sheehy (discussed above). The submissions above about the nature of these proceedings are repeated.
33. The application against Mr Leon ought to also be dismissed.”
The Applicant, in reply, submitted that,
“2. Whether to award costs
The Respondent has correctly identified that the power to award costs is intended to address the litigants who pursue or defend unfair dismissal claims in an unreasonable manner.
The Applicant makes the following submissions in response to the Respondent’s Outline of Submissions on Costs for the Commission’s consideration.
The Applicant refers to the following paragraphs of the decision of the Commission (emphasis added):
[38] The evidence in this matter establishes that there was no legally binding contract as between the Respondent and OCON. For all of the relevant period the parties continued to be negotiating terms. The key term upon which there was no agreement was the rate of pay that OCON would receive in exchange for the work performed by its principal, the Applicant.
[39] Further, during the relevant period the Applicant continued to render personal service to the Respondent. The Respondent continued to pay the Applicant as it always had right up to 23 March 2018. The Respondent continued to make superannuation payments on behalf of the Applicant’s period. While the Respondent says the payment of superannuation was an error, it is evidence of a continuing employment relationship in the period 1 February 2018 to 23 March 2018. There is simply no evidence that there was an agreement reached as between OCON and the Respondent such that monies paid personally to the Applicant would be deducted from an invoice that OCON was to provide to the Respondent later in time once there was an agreement on the rate to be paid to OCON. That did not happen. There was no such agreement. Such an arrangement would have been inconsistent with the independent contractor arrangements that the Respondent commonly put into practice.
…
[41] Consequently, the only conclusion that can be reached is that after 31 January 2018 the Applicant continued as an employee of the Respondent.
The fact of the matter is:
1. The Respondent did not have the requisite evidence to support their jurisdictional objection.
2. Prior to making their jurisdictional objection, the Respondent would have been aware of the evidence that they had.
3. The Respondent’s submissions have quoted case law extensively so it is clear that they would be aware of what the law requires.
4. Paragraph 11.3 of the Respondent’s submission observes that (emphasis added):
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.
If it can be assumed that the Respondent was aware of the same facts at the time of making its jurisdictional objection as at the time of the hearing, then it is clear that the facts were simply not there to support the Respondent’s objection.
5. The Respondent has continued to put the Applicant to proof or require the Applicant to enforce for minor details throughout this entire matter, such as:
a. The Applicant has still not been paid any entitlements following dismissal and there is no indication that even uncontentious amounts will be paid. It is noted that in paragraph 45 of the Respondent’s submissions it states that the Applicant’s assertion that the Applicant has not been paid anything since the dismissal date is “speculative and without any evidence or basis” which means that presumably the Applicant will be put to proof on this matter even though the Respondent would be aware of the fact that it has not paid the Applicant.
b. The Applicant was forced to file a complaint with the Australian Taxation Office to recover unpaid superannuation. The Respondent had paid superannuation for part of the period that the Respondent asserted that the Applicant was a contractor but not the whole period.
c. The Applicant has been sent a PAYG summary reflecting a dismissal date that is inconsistent with the Commission’s decision. This has not been corrected meaning the Applicant is unable to lodge his personal tax return. The Applicant will again need to file a complaint with the Australian Taxation Office to have this rectified.
6. The Respondent would reasonably have some awareness of the Applicant’s financial capacity having employed the Applicant since 14 March 2011 and being aware of what the Applicant has been paid during that time.
7. The treatment of the orders made by the Commission by filing documents late is relevant as it is indicative of the Respondent’s general attitude which can be inferred to be no better towards the Applicant than it is towards the Commission.
8. The Respondent continues to argue technicalities out of context. For example, on one hand it states in paragraph 22.5 of its submissions that “as in all matters, the Commission accepts one account of events over another, and forms view on the balance of probabilities”. On the other hand, in paragraph 16 of its submissions it appears to seek to draw an inference from application of this test, through the use of the words “on balance” to suggest that this somehow is a reflection on the strength of the evidence. Whilst it may seem minor, when an entire matter is run this way it results in the matter being protracted and time and costs being incurred on submissions that are largely academic and of little substance.
9. As far as the Respondent’s solicitor is concerned the contractor argument was first raised after the Respondent’s solicitor became involved. Despite being without prejudice, the offer made by the Respondent prior to involvement of his solicitor does not contemplate an independent contractor arrangement in any way. The Respondent’s solicitor would have been aware of this offer having made an objection to it prior to the first hearing.
3. Quantum of costs
The Applicant was initially seeking an order that costs be paid forthwith, as agreed or assessed.
This would mean that costs would either be agreed or determined at costs assessment. It would also allow costs to be paid now, rather than at a later date.
It would be at costs assessment that the Respondent would be given the opportunity to make any submissions it wishes to in relation to the time spent. It would also allow costs incurred by the Applicant in making any submissions to be claimed.
However, if the Commission is minded to make a cost order in favour of the Applicant but prefers to make a fixed costs order then the Applicant provides a sanitised version of the itemised costs for the Commission’s consideration at Annexure A.
The Applicant would support a fixed costs order as it would eliminate delays caused by the need for the costs assessment process to be completed. The order may also assist in ensuring the balance of proceedings are carried out expeditiously.”
Consideration – s.611
Were the Respondent’s Defences made without reasonable cause (s.611(2)(a))?
In order for me to find that the Respondent Defences were made without reasonable cause I must find that they were “obviously untenable” or “manifestly groundless”. I am not prepared to do so.
Just because I found against the Respondent does not mean that it Defences were without reasonable cause.
The Respondent’s Defences were substantially lost because of the evidence given by Mr Sheehy during the hearing. While the documentary evidence pointed towards a continuing employment relationship, the employment vis-a-vis independent contractor relationship is notoriously difficult to determine. It requires the application of a multifactorial test. It requires a consideration of all the evidence. While some indicia might point strongly in one direction, others may point equally strongly in the other.
Mr Sheehy genuinely held the belief that there has been some change in status of the Applicant as between him being an employee and then an independent contractor on 31 January 2018. However, the test to be applied is an objective one, not a subjective one. Consequently, when considering all of the evidence, on balance, I was not satisfied that, objectively, it could be said that, on and from 31 January 2018 the Applicant ceased to be an employee.
As in any hearing, the evidence could have gone the other way. I have seen many a case (even stronger ones) lost because the oral evidence does not reach the mark that is necessary to carry the day. That is what happened in this matter. Reasonable minds can differ. Two opposing interpretations can be equally respectable. However, in the Jurisdictional Objection Decision I was required to prefer one interpretation over the other. On this occasion I preferred that of the Applicant.
At the end of the day the continuing personal service and the continuing payment into the Applicant’s personal bank account were, on an objective basis, more suggestive of a continuing employment relationship. Under cross-examination the Applicant may have made concessions about the off-setting of those continuing payments into his personal bank account against fees to be rendered by OCON. Mr Leon made those attempts. He was, based on his instructions, entitled to do so. However, he failed to extract the necessary concessions. That led me to the conclusion that the interpretation of events advance by the Applicant was to be preferred.
For these reasons I am not satisfied that the Resignation Defence and the IC Defence (and consequently, the Out of Time Defence) were disclosed a case which could not succeed. Consequently, section 611(2)(a) is not enlivened.
Should it have been reasonably apparent to the Respondent that its Defences made had no reasonable prospects of success (s.611(2)(b))?
For the same reasons I am not satisfied that it should have been reasonably apparent to the Respondent that the Respondent’s Defences had not reasonable prospect of success. The Respondent’s Defences were not so obviously untenable that they could not have succeeded. It might have been that Mr Sheehy and Mr O’Connell did agree upon some interim arrangement for the part payment of moneys pending settlement of the terms upon which OCON was to be engaged. However, the evidence at the hearing did not come out that way.
Therefore, the fact that the Respondent’s Defences were not successful is not enough to enliven s.611(2)(b).
In the face of the documentary evidence the Respondent had a harder road to travel to convince me of its interpretation of the facts. But it was not until Mr Sheehy gave his evidence that the documentary evidence won out. Further, had the Applicant made the concessions sought of him in cross-examination, the Respondent’s Defences may well have been successful.
Consideration – s.400A
Did the Respondent cause the Applicant to incur legal costs because of an unreasonable act by the Respondent?
There is no doubt that the Respondent’s Defences have added to the work required to be undertaken by both parties in this matter and also to the costs of both sides. However, that is not the test to be applied in determining if a party has acted unreasonably.
What is unreasonable depends on the circumstances. However, one of those circumstances is not that a party lost an argument. With the benefit of the Jurisdictional Objections Decisions, it likely looks like the Respondent’s Defences were doomed to fail. But that is not how they looked at the beginning of the hearing. At all times I had an open mind that the documentary evidence (which was strongly against the Respondent) might be “trumped”[12] by the oral evidence of Mr Sheehy and concessions sought from the Applicant in cross-examination. However, the oral evidence did not meet the mark necessary to defeat the documentary evidence.
Consideration – s.401(1A)(b)
Because I have found that none of sections 611(2)(a), 611(2)(b) or 400A are enlivened it necessarily follows that s.401(1A)(b) is not enlivened.
Conclusion
In the decision of Meys v Sawtell Hotel, Vice President Catanzariti stated:
“[50] … It is not the role of this Commission to exercise its discretion to issue a costs order in lieu of the prima facie assumption that a party will bear its own costs – an assumption which the authorities require me to cautiously adhere to – when to do so would inflict additional financial and emotional hardship on an already vulnerable self-represented Applicant who has not acted vexatiously, unreasonably or in bad faith.” [13]
For the reasons set out above the Commission, as presently constituted, is not satisfied that the Respondent’s Defences were made without reasonable cause. Nor is the Commission, as presently constituted, satisfied that it should have been reasonably apparent to the Respondent that its Defences had no reasonable prospect of success. Therefore, the Commission has no jurisdiction pursuant to s.611 of the FW Act to order costs.
I accept that the Applicant incurred significant costs to prepare for, and to defeat the Respondent’s Defences. However, for the reasons above I am not satisfied that there is any jurisdiction to award costs.
In all the circumstances of this matter the Commission, as presently constituted, is also not satisfied that it the Respondent engaged in an unreasonable act. Consequently, the Commission, as presently constituted, is not persuaded that s.400A of the FW Act is enlivened and therefore the Commission has no jurisdiction to order costs pursuant to s.400A of the FW Act. Consequently, there is also no power to award costs against Mr Leon personally.
Having determined that the Commission does not have jurisdiction to order costs in this matter it is not necessary for me to say anything further about the exercise of the discretion. However, even if the jurisdiction to order costs pursuant of s.611 or 400A was enlivened, I would have declined to order costs in this case as a matter of discretion. This is because, as I have stated above, must of my reasoning in the Jurisdictional Objection Decision was based on what did (and did not) fall from the mouths of the witnesses in the hearing. I am not satisfied that the Respondent’s Defences were concocted or pursued as a means to drive up costs or frustrate the matters being pursued by the Applicant.
For the reasons given, Mr O’Connell’s application for costs pursuant to s.400A and s.611 of the FW Act is dismissed.
An Order to that effect will be issued with this Decision.
COMMISSIONER
<PR703261>
[1] [2018] FWC 4065.
[2] s.661(1) FW Act.
[3] s.661(2) FW Act.
[4] s.400A(1) FW Act.
[5] McKenzie v Meran Rise Pty Ltd (AIRCFB, Giudice J, Watson SDP, Whelan C, 7 April 2000) Print S4692 [7].
[6] General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125, 129; cited in Walker v Mittagong Sands Pty Limited T/A Cowra Quartz (2011) 210 IR 370 [17].
[7] R v Moore; Ex Parte Federated Miscellaneous Workers’ Union of Australia (1978) 140 CLR 470, 473; cited in Walker v Mittagong Sands Pty Limited T/A Cowra Quartz (2011) 210 IR 370 [20].
[8] Zornada v St John Ambulance Australia (Western Australia) Inc. (2013) 237 IR 48 [35].
[9] Baker v Salver Resources Pty Ltd [2012] FWAFB 4014 (Watson SDP, Drake SDP, Harrison C, 27 June 2011) [10]; citing Deane v Paper Australia Pty Ltd (AIRCFB, Giudice J, Williams SDP, Simmonds C, 6 June 2003) PR932454 [7].
[10] Explanatory Memorandum, Fair Work Amendment Bill 2012, 37 [171].
[11] Explanatory Memorandum, Fair Work Amendment Bill 2012, 37 [171].
[12] I mean that in the card game playing sense, not in the USA Presidential sense. If you “trump” another player's card, you beat it with a card that belongs to the group of cards that has been chosen to have the highest value in the game you are playing e.g. as played in five hundred, bridge or, the Bronsons’ favourite card game, euchre.
[13] [2016] FWC 5561.
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