Mrs Michelle McKerrow v Sarina Leagues Club Incorporated

[2012] FWA 7574

[2012] FWA 7574

FAIR WORK AUSTRALIA

DECISION

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

Mrs Michelle McKerrow
v
Sarina Leagues Club Incorporated
(U2010/14622)

COMMISSIONER ASBURY BRISBANE, 31 AUGUST 2012

Application for costs in relation to unfair dismissal remedy - Response to application without reasonable cause - Response to application had no reasonable prospects of success - Costs awarded to applicant.

BACKGROUND

[1] This is an application by Ms Michelle McKerrow seeking costs under s.611 of the Fair Work Act 2009 (the Act) in relation to an earlier application for an unfair dismissal remedy. The respondent employer is Sarina Leagues Club Inc. (the Club). In a Decision released on 21 February 2012 1, I determined that the dismissal of Ms McKerrow was harsh, unjust and unreasonable and in a further Decision released on 7 August 2012, Ms McKerrow was awarded compensation2.

[2] Ms McKerrow seeks now seeks an Order the Club bear her costs on the grounds that the Club’s response to her unfair dismissal application was vexatious and had no reasonable prospects of success.

LEGISLATION AND CASE LAW

[3] The power for the Tribunal to award costs in an application for an unfair dismissal remedy is found in s. 611 of the Act, which provides as follows:

“611 Costs

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

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

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

(b) FWA 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: FWA can also order costs under sections 376, 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).”

[4] The power to award costs under s.611 of the Act is discretionary, and involves determining whether the situation is one in which there is a power to award costs, and if so, whether an award of costs is appropriate in all of the circumstances. 3 The general statement in s.611(1) that a person must bear the person’s own costs in relation to a matter before FWA, reflects the longstanding principle that costs will not be awarded against parties in industrial proceedings, other than in exceptional circumstances.

[5] For the purposes of s.611(2)(a), litigation may be regarded as vexatious on objective or subjective grounds. 4 The question of whether an application is made vexatiously looks to motive of the party against whom the costs application is brought. An application will be made vexatiously where the predominant purpose is to harass or embarrass the other party or to gain a collateral advantage.5 Irrespective of motive, proceedings are also vexatious if they are “so obviously untenable or manifestly groundless as to be utterly hopeless.”6

[6] Conduct during the pre-hearing and the hearing stages of an application can shed light on the motive and intent of a party 7. There is no indication that the terms “responded to the application” or “response to the application” used in s. 611(2)(a) and (b) are limited to a formal response made pursuant to Rule 14A or 15 of the Fair Work Australia Rules 2010 and Form F3A. There may be numerous points throughout the course of an application at which various responses are made,8 including a response made pursuant to Rule 14A or 15 of the Fair Work Australia Rules 2009. A response at any point throughout the course of an application can also be the basis of a costs application on the grounds set out in s. 611(2)(a) or (b).

[7] The term “without reasonable cause” with respect to a proceeding is an additional ground upon which an order for costs can be made. A proceeding is not to be classed as being instituted without reasonable cause simply because it fails. 9 In Kanan v Australian Postal and Telecommunications Union10Justice Wilcox was considering s.347 of the Industrial Relations Act which set out a general rule that a party to a proceeding in a matter arising under that Act “shall not be ordered to pay costs incurred by any other party...unless the first-mentioned party instituted the proceeding vexatiously or without reasonable cause”. His Honour observed:

“It seems to me that one 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 on 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 reasonable cause.” 11

[8] The approach to be taken in relation to the concepts of “should have been reasonably apparent” and “had no reasonable prospects of success” in s.611(2)(b) of the Act was summarised by a Full Bench in Baker v Salva Resources Pty Ltd 12in the following terms:

• “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 prospects 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.” 13

[9] The case law in relation to applications made vexatiously or without reasonable cause or applications where it should have been reasonably apparent that the applicant had no reasonable prospects of success, is also apposite to responses. Circumstances in which costs can be awarded against a respondent in an unfair dismissal application are:

• where a person responded to the application vexatiously;



• where a person responded to the application without reasonable cause; or



• where it should have been reasonably apparent to a person that the person’s response to the application had no reasonable prospects of success.

SUBMISSIONS

Ms McKerrow’s Submission

[10] It is submitted for Ms McKerrow that the motive and intention of the Club in responding to the unfair dismissal application, was to make Ms McKerrow a scapegoat for missing money, and embarrass her professionally and personally. The Club also sought to gain a collateral advantage by creating an impression that it had dealt effectively with the issue of missing money.

[11] Reference was also made to the findings in the unfair dismissal Decision that assertions were made by the Club about Ms McKerrow’s conduct that were at odds with the evidence of its own witnesses at the hearing. It was submitted that these assertions were continued with “dogged persistence” after the unfair dismissal Decision was handed down and that the Club did more than put Ms McKerrow to proof, by mounting a positive case that she engaged in misappropriation and fraud. The Club also contended that Ms McKerrow was involved in the disappearance of $10,000.00 allegedly discovered after her dismissal.

[12] It is submitted that the Club did not establish that Ms McKerrow’s conduct was dishonest, and that the evidence was insufficient to support a finding, on the balance of probabilities, that Ms McKerrow stole the amounts alleged from the Club or was in any way responsible for their disappearance. Ms McKerrow also points to a finding in the unfair dismissal Decision that her assertion that she was made a scapegoat by the Club for missing money was reasonable and probably correct.

[13] It is submitted that the Club’s conduct should be separated into two limbs, based on two responses. The Club initially raised a jurisdictional objection in its Response to the application - Form F3, on the basis that it had complied with the Small Business Fair Dismissal Code, notwithstanding that the material it filed indicated that the Club had employees in excess of the limit provided in s.23 of the Act. This objection was persisted with up to the hearing of the matter, putting Ms McKerrow to the cost of meeting the jurisdictional challenge.

[14] The second response was the positive case run by the Club at trial. In this regard, it was submitted that given the findings made by the Tribunal, the facts are capable of objective specification and it should therefore have been apparent to the Club that it did not have sufficient evidence to make the allegations against Ms McKerrow. Accordingly, they were groundless and lacking in substance. This submission was said to be supported by the Decision of the Full Court of the Federal Court in Kangan Batman Institute v AIRC 14 where it was held that a decision as to whether a party had acted unreasonably in failing to agree to the terms of a settlement, required an objective assessment of the reasonableness of the party’s actions, but that in making such an assessment, the party’s perception of the circumstances at the time the offer of settlement was made, could be taken into account.15

[15] Reference was also made to the decision in Abbey v Daycare Management Pty Ltd where Vice President Lawler observed that that:

“...A distinction must be drawn between “facts reasonably susceptible to objective specification and facts which turn on matters of impression or interpretation. In relation to facts reasonably capable of objective specification, a costs application will be determined by reference to the facts as found. In the case of facts that turn on matters of impression or interpretation, the Commission ought proceed on the basis of the facts as reasonably perceived by the party against whom the application is made.” 16

[16] It was submitted that even if the case was found to turn on impression rather than objective facts, the findings Ms McKerrow had not engaged in the conduct alleged is fatal, because it was held that there was no reasonable basis for the interpretation the Club had contended. It was further submitted that the allegation of theft is one determinable by reference to objective facts, and it ought to have been reasonably apparent to the Club on an objective basis, that there was insufficient evidence to support the allegation, and that it was therefore groundless and lacked merit. The argument run at the hearing that the Club had discovered facts after Ms McKerrow’s dismissal was a further indication that the Club’s case was groundless, evidenced by the finding that the evidence was insufficient to support the allegation that Ms McKerrow was responsible for missing money.

[17] Accordingly the Club ought to pay Ms McKerrow’s costs of the proceedings whether under the first or second limb of s.611.

The Club’s Submission

[18] It was submitted for the Club that an order that it bear Ms McKerrow’s costs should not be made for the following reasons:

• Ms McKerrow’s representative has managed to cast doubt on the conclusions reached by the Club regarding Ms McKerrow’s sole responsibility for the “two incidents” but it has not been established that anyone else was responsible or that Ms McKerrow was definitely not responsible;



• The term “responded to the application” should be given its ordinary meaning and limited to the formal response filed by the Club and provided at trial through evidence and submissions;



• The Club did run a positive case because it was required to outline its reasons for reaching the conclusions and taking the action it took;



• Ms McKerrow’s original claim failed to mention that the discussion which occurred prior to her dismissal was in relation to the payment of $12,000 without permission on behalf of the Sarina Junior Rugby League Club “but did mention the misappropriation of about $10,000 of the Club’s money”.



• There was no evidence that the Club sought to make a scapegoat of Ms McKerrow and matters were investigated and conclusions reached on the basis of evidence considered by the Club management and Board.



• Ms McKerrow has sole responsibility for the transaction resulting in her dismissal and the recording of that transaction in the MYOB system and there was no evidence of a conspiracy as proposed by Ms McKerrow’s representative.



• The forensic accounting record was relevant evidence and not provided in the interests of some other hidden agenda, and was tabled for completeness although it did not assist the Club’s case.

[19] In relation to the small business jurisdictional objection, and the arguments that the Club’s case had no reasonable prospects of success, it was submitted that the membership records of Clubs Queensland show that the Club has 8 employees. Once the records were checked, and it was discovered that the argument “was not valid” it was withdrawn.

[20] The Commission’s conclusion that Ms McKerrow’s conduct was not dishonest was reached on the balance of probabilities in relation to the evidence available. Ms McKerrow has now been charged and the matter will be examined in a court where the standard of proof is “beyond a reasonable doubt”. The Club maintains that Ms McKerrow did not seek authorisation for the transfer of funds on behalf of the Sarina Junior Rugby League Club and that it has more than adequate reasons for taking the actions it did. While the Commission has reached different conclusions, this does not mean that the Club did not act reasonably in pursuing the matter in the way it did, or that it had reasonable expectation that it had an arguable case.

[21] In relation to the matters discovered after dismissal, notwithstanding the Commission’s findings, there was no firm evidence that anyone else was responsible for missing money or that Ms McKerrow was definitely not responsible. A party does not institute proceedings without reasonable cause merely because it fails in an argument. 17

[22] While the Club failed in its argument, it did not put that argument whilst holding any views that it had no reasonable prospects of success or that it was doomed to failure. Ms McKerrow has not demonstrated that such exceptional circumstances exist for the making of a costs order.

CONSIDERATION

The response to the application

[23] The Club responded to the application by:

• Raising a jurisdictional objection on the ground that it was a small business employer and pressing that objection up to the commencement of the hearing;



• Asserting that Ms McKerrow had engaged in misappropriation of funds and fraud; and



• Asserting at the hearing that Ms McKerrow was responsible for two missing amounts of money in addition to the misappropriation and fraud said to have justified her dismissal.

[24] The first two aspects of the Club’s response were set out in the Form F3 - Employer’s Response to Application for Unfair Dismissal Remedy made by Mr Hill and filed on 13 December 2010. The third aspect was raised during the hearing of the application. In my view all of these aspects of the Club’s response are relevant to whether an Order that the Club bear Ms McKerrow’s costs should be made.

Did the Club respond to the application vexatiously?

[25] I do not accept the submission that the Club responded vexatiously to Ms McKerrow’s unfair dismissal application. In particular, I do not accept that the motive and intention of the Club in responding to the application in the way it did, was to make Ms McKerrow a scapegoat for missing money and embarrass her professionally. In the decision in relation to Ms McKerrow’s unfair dismissal application I observed that Ms McKerrow’s assertion that the Club had made her a scapegoat for missing money and that members of the community would believe that she had some involvement, was reasonable and probably correct. I found that this was a further relevant matter to the question of whether Ms McKerrow had been unfairly dismissed.

[26] It does not follow that because this was a matter relevant to the question of whether Ms McKerrow was unfairly dismissed, that it also constituted a vexatious response on the part of the Club to the application.

[27] The finding relied on by Ms McKerrow does not establish that the Club responded to the application in the way that it did, for the ulterior purpose of making her a scapegoat for missing money and with the objective of causing members of the community to believe that she was responsible. While this may have resulted from the conduct of the Club, there is insufficient evidence upon which I could be satisfied that the response of the Club to the unfair dismissal application was made for the collateral purpose of achieving that result, or to embarrass or harass Ms McKerrow.

[28] The response of the Club was directed to defending Ms McKerrow’s unfair dismissal application and establishing that she had engaged in serious misconduct such that summary dismissal was justified. The response was misconceived and unreasonable rather than vexatious.

Did the Club respond to the application without reasonable cause?

The jurisdictional objection

[29] I am of the view that in making a jurisdictional objection on the grounds that it was a small business employer, the Club responded to the application without reasonable cause. The Employer’s Response to the Application for Unfair Dismissal Remedy - Form F3, filed on behalf of the Club by Mr Hill, stated that at the time of Ms McKerrow’s dismissal there were 8 employees including Mr Hill. It was further asserted that the Club believed on reasonable grounds that Ms McKerrow’s conduct justified immediate dismissal and that the matter was the subject of a police investigation. On those grounds the Club contended that s.385 of the Act had no application and Fair Work Australia had no jurisdiction to deal with the application.

[30] On the basis of those assertions, Directions were issued requiring the Club to file and serve material in relation to whether the Small Business Fair Dismissal Code was complied with, and Ms McKerrow to respond to the jurisdictional objection on that ground. The Directions also required the parties to file and serve material on the alternative question of whether the dismissal was unfair.

[31] The submissions filed by the Club in response to those Directions, stated that the Club had 17.11 employees and notwithstanding this, went on to fully articulate a submission that the Small Business Fair Dismissal Code applied. Clearly, if the club had 17.11 employees, it was not a small business employer as defined in s. 23 of the Act. The jurisdictional objection on this ground was not withdrawn until the day of the hearing, and in the meantime Ms McKerrow was put to the cost of responding to that submission.

[32] In defence of the submission that this aspect of the Club’s response was made in circumstances where it knew or should have known that it had no basis, the Club asserts that it was not unreasonable to pursue the “small business” issue because the records of Clubs Queensland showed that the Club had only 8 employees.

[33] This submission misses the point. The Form F3 setting out the response to the application raising the jurisdictional objection on the basis of the Small Business Fair Dismissal Code, was made by Mr Hill and not by Clubs Queensland. There is no indication that Clubs Queensland was representing the Club at the time the Form F3 was filed. Mr Hill asserts in that Response that he is the Manager of the Club and was employed by it at the time. In those circumstances, Mr Hill must have known, or should have known that the Club had more than 15 employees and was not a small business employer. Mr Hill must also have known, or should have known that in order to raise the jurisdictional objection, the Club was required to have fewer than 15 employees.

[34] If Mr Hill also prepared and filed the submission on behalf of the Club in which the Objection on the basis of compliance with the Small Business Fair Dismissal Code was further articulated, he must have known, or should have known that the facts set out in the submission did not support the Objection. If an employee or officer of Club’s Queensland prepared the submission in relation to the Small Business Fair Dismissal Code, then that employee or officer must have known or should have known, that on the factual material set out in the submission, the jurisdictional objection must fail. Accordingly the response was made without reasonable cause.

The allegations of fraud and misappropriation

[35] I am also of the view that in asserting fraud and misappropriation on the part of Ms McKerrow in its Form F3 Response to the application, and pressing that assertion at hearing, the Club responded to the application without reasonable cause.

[36] On the facts set out by Mr Hill in the Form F3 and the witness statements of Mr Hill and Mr Abdullah filed in Fair Work Australia on 25 February 2011, an assertion of fraud and misappropriation on the part of Ms McKerrow could not be sustained. Briefly stated, those facts were that:

• Ms McKerrow used $12,000 of the Club’s funds to pay an invoice on behalf of the Sarina Junior Rugby League Club for an end of year trip for an Under 16 team;



• Ms McKerrow did so in circumstances where she did not have the approval of the Manager or the Board for the transaction;



• Those funds were repaid by the Sarina Junior Rugby League Club on 9 September 2010;



• The date of the return of the money in the Club’s records was 31 August 2010; and



• Those records were maintained by Ms McKerrow.

[37] It is also the case that the constitutions of the Club and Sarina Junior Rugby League Club create a relationship between the two Clubs, and that in their respective positions, Mr Hill and Mr Abdullah knew, or should have known of that relationship. Notwithstanding that on its own version of the facts, an assertion of fraud and misappropriation could not succeed, the Club continued to press that assertion during the hearing of the unfair dismissal application and thereafter in its submissions.

[38] At the point when the matter was listed for hearing and Directions were issued, the Club was represented by Clubs Queensland, an employer organisation with considerable experience in dealing with applications of this kind. In my view, it should have been apparent prior to the commencement of the unfair dismissal hearing that the Club’s response to that Ms McKerrow was guilty of fraud and misappropriation, must fail. At worst Ms McKerrow’s conduct in relation to the disputed transfer of funds could have been described as unauthorised. Accordingly, I am satisfied in relation to this aspect of the Club’s response that it responded to the application without reasonable cause.

Responsibility for missing amounts of money

[39] I am also of the view that in asserting during the hearing into Ms McKerrow’s unfair dismissal application, that Ms McKerrow was responsible for two additional missing amounts of money, the Club responded unreasonably to the application. Essentially, on the day of the hearing, the Club sought to tender a forensic accounting report said to demonstrate that Ms McKerrow was responsible for money missing from the Club totalling almost $10,000.

[40] The Report was not put to Ms McKerrow in cross-examination, and when leave was given for her to be recalled and further cross-examined, the substance of the Report and what it was said to demonstrate was not put to Ms McKerrow. Further, the proposition that she was responsible for the missing money was not put to Ms McKerrow. Notwithstanding this, the allegation was pressed in submissions on behalf of the Club.

[41] Essentially the Report showed amounts of money that were identified as missing before Ms McKerrow was dismissed and did not provide any basis for the assertion that Ms McKerrow was responsible for the missing money. In my view, this aspect of the Club’s response to the application was without reasonable cause, and the time added to the hearing as a consequence of it, caused additional costs to be incurred by Ms McKerrow.

[42] The Club’s submission in relation to costs, to the effect that the matter of missing money was “mentioned” to Ms McKerrow in the meeting about her dismissal, is contrary to the evidence of its own witnesses in the unfair dismissal hearing. Further, the matters raised by the Club in its costs application relating to Ms McKerrow’s conduct, have already been determined in the unfair dismissal Decision contrary to the Club’s submissions. I do not intend to revisit those matters.

Was it reasonably apparent that the Club’s response had no reasonable prospects of success?

[43] For the reasons set out above, I am also of the view that it should have been reasonably apparent that the Club’s response to the unfair dismissal application had no reasonable prospects of success. If this is a case where the facts turn on matters of impression or interpretation, the Club could not reasonably have perceived that Ms McKerrow engaged in conduct that amounted to fraud and misappropriation.

[44] On any objective view of the facts set out in the witness statements and submissions made on behalf of the Club, it should have been reasonably apparent that the Club’s response to the application with respect to the jurisdictional objection and the substantive matters raised in the hearing, had no reasonable prospects of success.

[45] The Club had access to advice from an employer organisation with considerable experience in conducting these kinds of matters before Fair Work Australia. In my view, properly advised, the Club could not have held the view that its response had reasonable prospects of success.

CONCLUSION

[46] I am satisfied that the power to award costs is enlivened on the basis that the Club responded to Ms McKerrow’s unfair dismissal application without reasonable cause, and that it should have been reasonably apparent that the response had no reasonable prospects of success.

[47] I have decided that this is an appropriate case in which costs should be awarded and that the Club should bear some or all of Ms McKerrow’s costs in relation to her application for an unfair dismissal remedy.

[48] An itemised list of costs with reference to the Schedule of Costs in the Fair Work Regulations 2009 is to be provided to me and served on the Club by close of business on Tuesday 4 September 2012. The Club has until close of business on Tuesday 11 September 2012 to provide a response as to the reasonableness or otherwise of the costs sought by Ms McKerrow. Following the receipt of this material I will determine the amount of costs and issue an Order requiring that the Club pay to Ms McKerrow the amount determined.

COMMISSIONER

 1   [2012] FWA 1251

 2   [2012] FWA 6684

 3   McKenzie v Meran Rise Pty Ltd t/as Nu Force Security Services Dec 375/00 M Print S4962 Per Giudice J, Watson SDP and Whelan C at [7].

 4 (1988) 14 NSWLR 481.

 5   Nilsen v Loyal Orange Trust IRCA Decision No: 267/97; Attorney-General v Wentworth (1988) 14 NSWLR 481.

 6   Attorney-General v Wentworth ibid at 491.

 7   Fox v Wilderness Escape Outdoor Adventures Pty Ltd [2011] FWA 8803.

 8   Mokomoko v Zennforce Protection Group Pty Ltd [2011] FWA 1217 at [4].

 9   R v Moore; Ex parte Federated Miscellaneous Workers’ Union of Australia (1978) 140 CLR 470 at 473 per Gibbs J.

 10 (1992) 43 IR 257.

 11   Ibid at 264-5

 12   [2011] FWAFB 4014.

 13   Ibid at [10]

 14   Kangan Batman Institute v AIRC (2006) 156 FCR 275

 15   Ibid at 289

 16   Abbey v Daycare Management Pty Ltd AIRC PR946186 cited by the Federal Court in Kangan Batman Institute v AIRC (2006) 156 FCR 275 at 289.

 17   Fox v Wilderness Outdoor Adventures Pty Ltd [2011] FWA 8803.

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