[2017] FWC 4967

FAIR WORK COMMISSION

DECISION

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

Mrs Tanya Versace
v
Fanissa Pty Ltd T/A PJ Pools & Spas
(U2014/10304)

COMMISSIONER JOHNS

SYDNEY, 22 SEPTEMBER 2017

Application for costs - Fair Work Act 2009 ss.400A, 401 and 611 - Whether it should have been reasonably apparent that the unfair dismissal application had no reasonable prospect of success – whether costs incurred because of unreasonable act – whether representative caused those costs to be incurred

Introduction

[1] People who incur legal costs in a matter before the Fair Work Commission (Commission) generally pay their own costs. 1 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:

a) vexatiously or without reasonable cause, or
b) with no reasonable prospect of success. 2

[2] Further, costs may be awarded to one party if the Commission is satisfied that the costs were incurred as a result of an unreasonable act or omission of the other party. 3
[3] Costs may also be awarded against a representative for costs incurred by the other party to the matter if the Commission 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 4 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.

[4] This decision is about whether:

a) Tanya Versace should be held liable for the costs of Fanissa Pty Ltd (t/a PJ Pools & Spas) (Fanissa) which it incurred in defending an unfair dismissal application brought against it by Ms Versace.

Ms Versace commenced her unfair dismissal application (UFD Application) on 24 June 2016, but discontinued it on 31 January 2017 (that being 6 days before the matter was listed to be heard on 6 February 2017), and / or

b) Defteros Lawyers Pty Ltd (Defteros), as the former representative of Ms Versace, should be liable for the costs of Fanissa.

[5] Fanissa maintains that Ms Versace should pay its costs as claimed because:

a) it should have been reasonably apparent to Ms Versace that the UFD Application had no reasonable prospect of success (s.611(2)(b) of the FW Act); and/or
b) Ms Versace caused costs to be incurred by Fanissa because of an unreasonable act or omission in connection with the conduct or continuation of the matter (s.400A(1) of the FW Act). Namely, Ms Versace’s failure to file a Notice of Discontinuance.

[6] By the time of its final submission, Fanissa did not press an earlier made submission that Ms Versace made the unfair dismissal application vexatiously or without reasonable cause (s.611(2)(a) of the FW Act). 5
[7] Fanissa maintains that Defteros should pay its costs as claimed because:

a) Defteros encouraged Ms Versace to start and continue the unfair dismissal application where it should have been reasonably apparent that Ms Versace had no reasonable prospect of success in the matter; and/or
b) Defteros failed to advise Ms Versace to discontinue the unfair dismissal application despite numerous requests (written and oral) by the Fanissa’s lawyers to discontinue and given the strength of the evidence and legal arguments against her. It is common ground that Defteros never advised Ms Versace to discontinue her UFD Application.

THE COSTS APPLICATION
[8] On 6 February 2017 Fanissa made an Application for Costs against:

a) Ms Versace pursuant to s.400A and s.611 of the Fair Work Act 2009 (Cth) (FW Act), and
b) Defteros pursuant to s.401 of the FW Act.

[9] Fanissa seeks costs on an indemnity basis (in the amount of $40,214.90) or, in the alternative, a party-party basis in accordance with Schedule 3.1 of the Fair Work Regulations 2009 (Cth).
[10] Costs are sought from:

a) the time the unfair dismissal application was commenced 6;
b) alternatively, 5 September 2014 being the date Ms Versace and Defteros were served with affidavit material filed in related Supreme Court of Victoria proceedings (SCV Proceedings);
c) further alternatively, 15 September 2014 being the date the SCV Proceedings were before his Honour Judge Judd for further hearing on the subsisting freezing order with a second tranche of affidavit material having been filed and served on Ms Versace and Defteros;
d) further alternatively, 13 October 2014 being the date that Fanissa’s lawyers wrote to Defteros stating that, inter alia, Fanissa would seek costs against Ms Versace and/or Defteros if the unfair dismissal application was not immediately discontinued;
e) further alternatively, 8 December 2014 being that date that of the telephone mention before Deputy President Gooley where Fanissa’s lawyers again put Ms Versace and Defteros on notice regarding Fanissa’s intention to seek recovery of costs including against Defteros;
f) further alternatively, 9 December 2014 being the date that Fanissa’s lawyers again wrote to Defteros to again put Ms Versace and Defteros on notice in relation to costs;
g) further alternatively, 23 January 2015 being the date that Ms Versace and Defteros were served with Fanissa’s outline of submissions in relation to jurisdictional objections and witness statements of Peter Charles Brien and Peter Jason Zukowski filed in the unfair dismissal application; or
h) further alternatively, 20 February 2015 being the date that Ms Versace and Defteros were served with Fanissa’s outline of submissions in relation to substantive merits and further witness statement of Peter Jason Zukowski filed in the unfair dismissal application.

THE COSTS HEARING
[11] The Application for Costs was listed for hearing on 24 May 2017. Thereafter the matter was programmed for further submissions concluding on 23 June 2017.
[12] At the beginning of the hearing:

a) permission was granted pursuant to section 596(2)(a) of the FW Act 7 for:

i. Fanissa to be represented by Mr A Galbraith of Counsel instructed by Mills Oakley solicitors. Mr Galbraith called Mr Peter Zukowski to give evidence
ii. Defteros to be represented by Ms A Golding of Counsel, instructed by Collins Biggers & Paisley solicitors. Ms Golding called Mr Kevin Dorey to give evidence. He was cross-examined.

b) Ms Versace represented herself. She gave evidence at the Costs Hearing and was cross-examined.

[13] In advance of the hearings the parties filed materials. Consequently, 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 February 2017,

b) Materials tendered during the Costs Hearing, as follows:

DESCRIPTION	EXHIBIT NO.
Tendered by Ms Versace
i. Witness Statement of Ms Versace dated 21/1/15 and filed 23/1/15 in relation to the UFD matter	R1
ii. Ms Versace’s Outline of Submissions filed by then lawyers Defteros on 23/1/15	R2
iii. F2 – Unfair Dismissal Application filed by Ms Versace on 24 June 2014.	R3
Tendered by Fanissa
iv. Fanissa’s Outline of Submissions in Support of the Costs Application filed 24 May 2017.	A1
v. F3 – Response to Unfair Dismissal filed by Fanissa filed on 16 July 2014	A2
vi. Witness Statement of Peter Zukowski filed 23 January 2015.	A3
vii. Further Witness Statement of Peter Zukowski filed on 20 February 2015.	A4
viii. Witness Statement of Peter Zukowski in support of Costs Application, with amendment at [4]A & B	A5
ix. Witness Statement of Peter Brien	A6
x. Witness Statement of James Tobin	A7
xi. Fanissa’s Outline of Submissions in support of jurisdictional objections filed on 23 January 2015	A8
xii. Fanissa’s Submissions in relation to substantive merits filed on 20 February 2015.	A9
xiii. Letter from Defteros dated 5 December 2014 to Ms Versace attaching Invoice 3272.	A10
Tendered by Defteros
xiv. Outline of Submissions filed by Defteros Lawyers Pty Ltd in opposition to the costs application on 28 March 2017.	D1
xv. Witness Statement of Kevin Dorey filed in opposition to the costs application on 28 March 2017.	D2
xvi. Supplementary Witness Statement of Kevin Dorey filed on 28 March 2017.	D3
xvii. Further Supplementary Witness Statement of Kevin Dorey filed on 27 April 2017.	D4
xviii. Witness Statement of Aaron Potter filed 24 May 2017.	D5
xix. Supplementary Outline of Submissions filed by Defteros on 28 April 2017.	D6

[14] Following the Costs Hearing the parties filed and served the following additional material that the Commission, as presently constituted, has had regard to in coming to this decision.

a) Fanissa’s Outline of Submissions in Support of the Application for Costs filed on 9 June 2017.

b) Defteros’ Closing Submissions dated 23 June 2017.

[15] On 7 July 2017 Fanissa advised that it did not intend to reply to the Closing Submissions filed by Defteros.
BACKGROUND
[16] The following matters were either agreed or otherwise not contested:

a) Fanissa is in the business of swimming pool construction and renovation. It primarily conducts its business under the names PJ Pools and Spas, PJ Pool Renovations and PJ Pool Plastering.
b) The business is family operated. It was commenced by Ms Versace’s father, George Zukowski. In around 1990 Peter Zukowski (Ms Versace’s brother) became a director of Fanissa. Mr Zukowski Jr has overall management and operation of the business.
c) Fanissa is a small business, employing no more than 11 people (including the applicant the relevant time, being the time that the employment relationship ended).
d) On 27 September 2015 Ms Versace commenced employment with Fanissa. She had previously worked for the respondent since 2000 as a contractor. Ms Versace was employed as the office manager. She was not a director of Fanissa.
e) Ms Versace’s responsibilities included Accounts Payable, bookkeeping and general clerical and administrative duties. She was also responsible for paying contractors and suppliers and recording those transactions in the Fanissa accounting software. Ms Versace was entrusted with the day-to-day running of Fanissa’s bank accounts.
f) Ms Versace was employed on a gross annual salary of between $45,000 - $50,000. She was also entitled to commission payments if she sold a new pool. Between 2011 and 2014 Ms Versace sold for new pools and received a commission of $11,254.18.
g) Ms Versace usually worked from 9:30 am or 10 am to about 4 pm five days per week.
h) In recent years the Fanissa business experience significant growth. However, it also started to experience financial strain.
i) In January 2014 Mr Zukowski Jr’s engaged a business advisor, Peter Brien.
j) In February 2014 Mr Brian informed Mr Zukowski Jr that he had discovered some discrepancies in Fanissa’s accounts. Mr Zukowski Jr spoke to Ms Versace about the allocation of creditors in the accounts.
k) On 24 March 2014 Mr Brien provided Mr Zukowski with a report into his investigations into the accounts of Fanissa.
l) In May 2014 Mr Zukowski Snr was required to deposit further monies into the business so that payments to staff and overheads for the month could be met. Mr Zukowski Jr could not reconcile the financial situation of Fanissa with the growth that the business had experienced in recent years.
m) In May 2014 Mr Zukowski Jr decided to conduct further investigations into the books and records of the business. Mr Zukowski Snr and Mr Zukowski Jr met with Ms Versace to discuss the same.
n) Mr Zukowski Jr then further investigated the payment of supplier accounts. He discovered a number of significant discrepancies. For example, he discovered that $83,047.35 had been spent on Ms Versace’s home (he says) without authorisation.
o) On 2 June 2014 Ms Versace commenced annual leave. She was due to return on 16 June 2014.
p) During the week beginning 2 June 2014 Mr Zukowski Jr tried to contact Ms Versace to obtain password access to the financial counts of Fanissa. He also sent text messages to her asking her to return his calls urgently. Ms Versace did not return his calls.
q) On 5 June 2014 Mr Zukowski Jr decided to suspend Ms Versace’s access to her work email account in the business server.

In resetting the passwords and access to the banking accounts of Fanissa, pre-scheduled payments were cancelled. This meant that Ms Versace’s salary stopped being paid.

r) On 9 June 2014 Mr Zukowski Jr (and his parents) reported Ms Versace’s conduct to police.
s) On 13 June 2014 Mr Zukowski Jr suspended Ms Versace’s mobile phone account. It was on this date that Ms Versace learned that her access to work emails and the business server had also been stopped. She also discovered her salary had stopped being paid.
t) Also on 13 June 2014 police executed a search warrant at the property of Ms Versace.
u) Also around this time Defteros advised Ms Versace that she should treat herself as having been constructively dismissed and to commence the UFD Application. Ms Versace said she was advised she “could not lose”. 8
v) On 16 June 2014 Ms Versace did not return to work from annual leave.
w) On 24 June 2014 Ms Versace made an UFD Application. She claimed she had been constructively dismissed when she was denied access to work emails and the terminal server on 5 June 2014 and her mobile phone on 13 June 2014. The UFD Application was signed by a solicitor working for Defteros.

It was the evidence of Mr Doley that,

“At all times during the course of acting for Ms Versace in relation to the Unfair Dismissal Claim, her instructions were that she had not improperly taken money from Fanissa and that the allegations that she had stolen from Fanissa were false.”

x) On 17 July 2014 Fanissa filed an Employer Response to the UFD Application. It objected to the Commission exercising jurisdiction in the matter on the basis that, it submitted,

i. Ms Versace was not dismissed,
ii. The dismissal was consistent with the Small Business Fair Dismissal Code (Code).

Fanissa explained the jurisdictional objections as follows:

iii. Ms Versace “was not dismissed, instead she abandoned her employment by refusing to answer telephone calls or text messages from her employer and latter failing to return from two weeks leave”
iv. Fanissa “is a small business with only eight employees and specifically denies dismissing the Applicant”,
v. “The Applicant is suspected of theft and fraud and is the subject of an ongoing Police investigation. In the circumstances the Respondent is entitled to summarily dismiss the Applicant for gross/serious misconduct.”

y) On 31 July 2014 a conciliation conference was conducted in the Commission. The matter did not settle.
z) On 4 September 2014 Fanissa commenced the SCV Proceedings.
aa) On 5 September 2014 the Supreme Court of Victoria ordered a freeze on Ms Versace’s assets.
bb) On 9 September 2014 Defteros confirmed service of the documents in the SCV Proceedings.
cc) On 12 September 2014 Ms Versace filed an affidavit in the SCV Proceedings claiming an entitlement to the moneys transferred to her.
dd) On 15 September 2014 the amount of the freezing order was increased. In deciding the same his Honour Justice Judd noted that,

“In my opinion the case advanced by [Fanissa] … paint[s] a compelling picture of misappropriation [by Ms Versace]”.

ee) On 22 September 2014 the parties agreed to stay the UFD Application pending the outcome of the SCV Proceedings.
ff) On 13 October 2014 Fanissa’s solicitors wrote to Defteros. They asserted that Fanissa had a “very strong defence” to the UFD Application because of the Code. It further asserted that Ms Versace had abandoned her employment and that the UFD Application was “destined to fail”. Ms Versace was invited to withdraw the UFD Application. Both Ms Versace and Defteros were put on notice about costs.

It was the evidence of Mr Dorey that he met with Ms Versace and discussed the 13 October 2014 correspondence with her. Ms Versace said she had never seen the letter. I note that Ms Versace was only charged for Defteros perusing the letter.

gg) On 24 October 2014 Ms Versace filed a defence in the SCV Proceedings. She continued to deny any wrong-doing.
hh) On 8 December 2014 during a telephone mention in the Commission Fanissa’s solicitors again put Ms Versace and Defteros were put on notice about costs.
ii) Also on 8 December 2014 Mr Dorey (from Defteros) spoke with Ms Versace. Ms Versace maintained she had “done nothing wrong”. Mr Dorey advised her that, if she can establish this (i.e. that she had done nothing wrong) there were no reasonable grounds to summarily dismiss her.
jj) On 9 December 2014 Fanissa’s solicitors again wrote to Ms Versace and Defteros in similar terms to the letter of 13 October 2014.
kk) On 17 December 2014 I issued Directions for the filing and service of submissions and evidence. The matter was listed for hearing on 5 March 2015.
ll) In January 2015 Ms Versace provided Defteros with instructions in relation to the preparation of her witness statement to be filed in the Commission. On 22 January 2015 Ms Versace instructed Defteros that the witness statement was “ok to submit”.
mm) On or about 23 January 2015 Ms Versace filed:

i. a witness statement in the Commission. She denied taking any money from Fanissa that she was not entitled to. Ms Versace accused Mr Zukowski Jr of making up the allegations in an attempt to “get [her] out of the business so that, when [their] father retires, it will all go to him”.
ii. Submissions claiming that she was entitled to treat her employment as having been terminated by Fanissa (because of its conduct between 5 – 13 June 2014). She submitted, amongst other things, there was no valid reason for the termination, that she was not given an opportunity to respond and that, in all the circumstances, the dismissal was unfair.

nn) On 23 January 2015 Fanissa filed its first witness statement.
oo) On 20 February 2015 Fanissa filed its second witness statement.
pp) On 3 March 2015 the parties agreed to vacate the hearing date pending further investigations by police.
qq) On 10 July 2015 charges were laid against Ms Versace.
rr) On 20 July 2015 Defteros received the Charge Sheets and Summons.
ss) On 3 August 2015 the SCV Proceedings were stayed pending hearing and determination of the criminal charges.
tt) On 23 January 2017 Ms Versace discontinued the UFD Application.

Ms Versace’s evidence was that she did not discontinue it whilst Defteros was her solicitors because they had advised her that “we were going to win.” 9 Mr Dorey denied giving this advice.10 Ms Versace’s evidence was that she never received advice from Defteros to discontinue the UFD Application.11 Mr Dorey confirmed this evidence.12

uu) On 10 April 2017 Ms Versace waived privilege in relation to her UFD Application with Defteros.

LEGISLATION

[17] 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 or discontinued. Fanissa’s Application for Costs was made on 6 February 2017 (i.e. 14 days after the filing of the Notice of Discontinuance) and, therefore, within the specified time period. Accordingly s.402 of the FW Act is satisfied.
[18] 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. 13

[19] 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).”

[20] By the time of its final submission, Fanissa did not press its initial submission that Ms Versace made the unfair dismissal application vexatiously or without reasonable cause (s.611(2)(a) of the FW Act). It was an appropriate concession to make because the evidence at the Costs Hearing did not establish that Ms Versace was motivated by an intention to harass or embarrass Fanissa or to gain a collateral advantage. Further, at the time that the UFD Application was made it was not so obviously untenable that it could not possibly succeed.
[21] Consequently, the issue to be determined is whether “it should have been reasonably apparent to [Ms Versace] that [her unfair dismissal application] … had no reasonable prospects of success” (s.611(2)(b) of the FW Act).
[22] Therefore it is necessary to consider whether, at the time the application was made, there was a ‘substantial prospect of success.’ 14 Importantly, it is inappropriate to find that an unfair dismissal application was without reasonable cause if success depends on the resolution of an arguable point of law.15
[23] Because:

a) an application is not without reasonable cause just because the Commission rejects a person’s arguments, 16 and
b) a proceeding is not to be classed as being instituted without reasonable cause simply because it fails, but rather in circumstances where on Ms Versace’s own version of the facts, it is clear that the proceeding must fail, 17

it must follow that an unfair dismissal application is not without reasonable cause or instituted without reasonable cause just because Ms Versace, later in time, decided to file a Notice of Discontinuance.

[24] A finding that it should have been reasonably apparent to Ms Versace that her unfair dismissal application had no reasonable prospects of success should only be reached with caution.
[25] 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.”

[26] 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.

[27] What is unreasonable will depend on the circumstances. 18 It is intended that costs only be ordered where there is clear evidence of unreasonable conduct.19
[28] In so far as costs are sought against Ms Versace’s previous representatives section 401 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

(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.

[29] In the present matter section 401(1) and section 402 have been satisfied. The issue to be determined arises under section 401(1A).
THE COSTS APPLICATION AGAINST MS VERSACE
Submissions of Fanissa concerning costs against Ms Versace under s611(2)(b) and 400A
[30] Fanissa submitted that,

“11. Sections 611 and 400A are provisions which provide the Commission with the discretion to order that a party pay some or all of another party’s costs.

….

13. The meaning of the terms “should have been reasonably apparent” and “had no reasonable prospect of success” were considered by a Full Bench in Baker v Salva Resources Pty Ltd[2011] FWAFB 4014 who said:

“[10] The concepts within s.611(2)(b) 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 as to be not reasonably arguable.”

14. In Green v Toll Holdings Ltd [2016] FWC 2790 Deputy President Gostencnik considered the meaning to be given to ‘reasonably apparent to a person’ and said:

[20] An assessment of whether the circumstance described in s.611(2)(b) existed is not limited to the time at which a person makes an application or response, although it may arise at that time. Knowledge gained by a person during the course of a proceeding and after making an application or response might lead to a conclusion that it should have been reasonably apparent to a person that the person’s application or response had no reasonable prospect of success. This knowledge could be gained, for example, at a time after the person has received an opposing party’s evidentiary material, or during the course of the hearing.
[21] Section 611(2)(b) directs attention to that which should have been “reasonably apparent to a person”. In this context, whether something should have been “reasonably apparent to a person”, is not to be determined by reference to the subjective views of the person. Rather, the question must be objectively determined.

….

15. Section 400A of the FW Act ….

16. The phrase ‘unreasonable acts or omissions’ was considered in Goffet v Recruitment National Pty Ltd [2009] AIRCFB 626. In that matter, the Full Bench characterised an unreasonable act or omission as one which was either deliberate or reckless.

17. The circumstances envisaged by the expression ‘unreasonable act or omission’ include unreasonably failing to discontinue an unfair dismissal application. 20

Submissions of Ms Versace

[31] Ms Versace attended the Costs Hearing. However, she had not filed any materials in advance of the same and did not file any submissions following the Costs Hearing. Notwithstanding her limited participation she did not consent to costs being awarded against her. 21
[32] In the course of the Costs Hearing Ms Versace adopted 22 the Statement that had been filed in the UFD Application on 23 January 2015 in which she denied any wrong doing. Ms Versace also gave evidence that she acted on the advice of her solicitors.

The UFD Application

[33] In the F2 UFD Application filed on 24 June 2014 Ms Versace indicated that her employment ceased on 13 June 2014 (having commenced “about 10 years ago”). She wrote that,

“no notification was provided. I was constructively dismissed after I was denied access to work email and terminal server on about 5 June 2014 and telephone on 13 June 2014.”

[34] In its F3 Employer Response to Unfair Dismissal Application filed on 17 July 2014 Fanissa objecting to the Commission exercising jurisdiction in relation to the matter for the reasons set out above.

Should it have been reasonably apparent to Ms Versace that her UFD Application had no reasonable prospect of success - s.611(2)(b)?

[35] Because the UFD Application was discontinued none of the contested issues were tested. On the materials before the Commission it is difficult to determine whether Ms Versace’s matter would have had a reasonable prospect of success. But for the purposes of s.611(2)(b) it is necessary to give consideration to what might have occurred had the UFD Application not been discontinued, but without deciding the UFD Application.

The “not dismissed” objection

[36] Fanissa submitted that,

23. Tanya Versace claims she was dismissed effective 13 June 2014.

24. In its Form F3 – Employers Response to Unfair Dismissal Application dated 16 July 2014 and later supporting evidentiary material and submissions, Fanissa raised two jurisdictional objections. Fanissa maintains that Tanya Versace was not dismissed within the meaning of s.386 of the FW Act and, if she was dismissed, that dismissal was consistent with the Small Business Fair Dismissal Code (Code) and it was therefore not unfair.

25. By virtue of s.385 of the FW Act, a person has been unfairly dismissed if the FWC is satisfied that:

a) the person has been dismissed; and

b) the dismissal was harsh, unjust or unreasonable; and

c) the dismissal was not consistent with the Small Business Fair Dismissal Code; and

d) the dismissal was not a case of genuine redundancy.

26. It is clear that the dismissal referenced in each of s.385(a) to s.385(d) of the FW Act is the same.

27. For the purposes of Part 3-2 of the FW Act ‘dismissed’ is exhaustively defined in s.386. Section 386 is bifurcated such that an employee has been dismissed for the purposes of the part where:

28. The person’s employment with his or her employer has been terminated on the employer’s initiative (s.386(1)(a)); or

29. The person has resigned from his or her employment, but was forced to do so because of conduct, or a course of conduct, engaged in by his or her employer (s.386(1)(b)).

30. It is plain that s.386(1)(b) of the FW Act has no application in the present case. Tanya Versace does not allege that she was forced to resign by reason of conduct of Fanissa or because of a course of conduct engaged in by Fanissa.

31. It follows that Tanya Versace had to prove that there was a termination at the initiative of Fanissa within the meaning of s.386(1)(a) of the FW Act.

32. Cases such as Mohazab v Dick Smith Electronics Pty Ltd (No. 2) (1995) 62 IR 200 (Mohazab) and O’Meara v Stanley Works Pty Ltd[2006] AIRC 496 (O’Meara) deal with s.386(1)(a). A termination is at the employer’s initiative when its action “directly and consequentially” results in the termination of employment, and the employee would have still been employed but for that action, and the employment relationship is not voluntarily left by the employee. An analysis of all the circumstances and not only the actions of the employer is required. The Full Bench states in O’Meara:

“[23] In our view the full statement of reasons in Mohazab which we have set out together with the further explanation by Moore J in Rheinberger and the decisions of Full Benches of this Commission in Pawel and ABB Engineering require that there to be some action on the part of the employer which is either intended to bring the employment to an end or has the probable result of bringing the employment relationship to an end. It is not simply a question of whether “the act of the employer [resulted] directly or consequentially in the termination of the employment.” Decisions which adopt the shorter formulation of the reasons for decision should be treated with some caution as they may not give full weight to the decision in Mohazab. In determining whether a termination was at the initiative of the employer an objective analysis of the employer’s conduct is required to determine whether it was of such a nature that resignation was the probable result or that the appellant had no effective or real choice but to resign.”

33. On 5 September 2014 Tanya Versace was personally served with the following documents from the related Supreme Court proceedings:

a) Writ dated 5 September 2014;

b) Affidavit sworn by Peter Zukowski on 4 September 2014;

c) Summons dated 4 September 2014 and returnable before the Court on 10 October 2014; and

d) Freezing order of Justice Judd made ex-parte on 5 September 2014.

34. The affidavit sworn by Peter Zukowski on 4 September 2014 included detailed evidence relevant to the jurisdictional objection:

a) Tanya Versace was entrusted with the day to day running of the Business’ bank accounts and she had authority to make all payments and had full access to all bank accounts;

b) As part of Tanya Versace’s role, she was responsible for paying the contractors and suppliers used by the Business, and to then record the payments in the Business’ accounting software. The procedure was that once Tanya Versace made an electronic transfer of funds, she would transpose that amount into the software, record an invoice or job number relevant to that amount, and assign the payment to the appropriate category;

c) In around February 2014 Fanissa became aware that a large number of payments to creditors were allocated to the Miscellaneous Category (“Miscellaneous Payments”);

d) Peter Zukowski spoke with Tanya Versace regarding the Miscellaneous Payments. Tanya Versace informed him that when she was unsure of where a payment would be best allocated, she would assign it to the Miscellaneous Category. Tanya Versace’s response to Peter Zukowski’s enquiries drew suspicion given Fanissa had invested approximately $15,000 to upgrade the accounting software to address this issue at the insistence of Tanya Versace;

e) Despite Fanissa’s growth, family members were required to deposit significant sums of money to finance its continued operation. Peter Zukowski was unable to reconcile the Business’ dire financial situation with the growth that had been experienced in recent years;

f) Having been alerted to the Miscellaneous Payments and having received an unsatisfactory answer from Tanya Versace, in May 2014 further investigations into the books and records of the Business were conducted;

g) During these investigations Fanissa discovered a large number of payments which did not have creditor invoices recorded against them and that many payments had been allocated to inappropriate categories by Tanya Versace;

h) In late May 2014 Peter Zukowski and George Zukowski met with Tanya Versace to discuss the issues concerning the accounting records. During this meeting, George Zukowski and Peter Zukowski told Tanya Versace that no further payments were to be made from the Business’ bank accounts without the direct authorisation from either of them;

i) Peter Zukowski reviewed the invoices from Draftwise Pty Ltd (“Draftwise”) which had been rendered to the Business in the period July 2013 to May 2014, and discovered that there were amounts recorded as paid in the accounting software which did not have a purchase order number recorded against them nor were the amounts allocated to particular jobs. On or about 28 May 2014, Peter Zukowski confronted Tanya Versace about the Draftwise discrepancies. Tanya Versace’s response was that the invoices must have been her personal invoices for works for her house and she must have included them with the Business’ Draftwise invoices by mistake. This did not make any sense because in that situation there would have been purchase order numbers and the invoices would have been allocated to a job;

j) On 29 May 2014 Peter Zukowski reviewed the VicMesh Pty Ltd (“Vicmesh”) invoices rendered to Fanissa for the period July 2013 to May 2014 in detail. He discovered that the amount of money the Business had spent with VicMesh did not appear to correlate with the number of pools the Business had built in that period;

k) On or about 2 June 2014 Peter Zukowski rang VicMesh and went through each invoice and payment for the financial year to date with them. The Business’ financial accounts showed that the Business had paid $184,402.75 to VicMesh since 1 July 2013. However, Vicmesh had only received payment of $111,000;

l) Tanya Versace took two weeks annual leave commencing 2 June 2014. While she was on leave, Fanissa continued to investigate the Business’ financial accounts;

m) As part of his investigations into Tanya Versace’s activities, Peter Zukowski obtained the Business’ Multipay transaction history from the ANZ Bank and unbundled the transactions between the dates of 6 February 2014 and 18 May 2014. In that period a total of $102,551.11 was transferred out of the Business’ ANZ Bank accounts into Tanya Versace’s bank account (Westpac Bank account in the name of T VERSACE account number BSB 733 070 No 597162 at the Westpac branch at 44 Atherton Road, Oakleigh, Victoria) without authorisation;

n) During his investigations into Tanya Versace’s activities, Peter Zukowski also identified that a number of suppliers/contractors had invoiced the Business for works carried out on Tanya Versace’s home. The running total of the amount paid by the Business for works done at Tanya Versace’s home is $83,047.35. These payments were not authorised by Fanissa;

o) While Tanya Versace was on leave, Peter Zukowski tried contacting her on multiple occasions by telephone. He also sent text messages to Tanya Versace’s mobile telephone;

p) Tanya Versace did not return any of Peter Zukowski’s telephone calls or respond to any of his text messages;

q) On 3 June 2014 Victoria Zukowski telephoned Tanya Versace and asked why Tanya Versace had been taking money from the Business. Tanya Versace denied the allegation and hung up;

r) On or about 9 June 2014 Fanissa reported Tanya Versace’s conduct to Victoria Police at the Dandenong Police Station;

s) Tanya Versace did not return to work from annual leave on 16 June 2014 and provided no explanation for her failure to do so;

t) The first occasion Fanissa heard from Tanya Versace was when it was served with a copy of her Form F2 – Unfair Dismissal Application filed 19 June 2014 alleging she had been dismissed.

35. The evidence outlined above makes plain that there was no termination at the initiative of Fanissa.

36. Objectively assessed, Fanissa implemented reasonable and appropriate measures to preserve the sanctity of an ongoing investigation into Tanya Versace’s serious misconduct and only after Tanya Versace failed to respond to lawful and reasonable requests for communication. Those measures were implemented at a time when Tanya Versace was away from the office on annual leave, was not performing or required to perform her usual duties and had no need to be utilising remote computer server access. At that time Tanya Versace was aware that Fanissa was investigating discrepancies in the Business’ accounting records maintained by Tanya Versace.

37. The reporting of Tanya Versace’s conduct to police was lawful and justified. It cannot be objectively considered conduct intended to bring the employment relationship to an end or which had that probable result.

38. Tanya Versace refused to communicate with Fanissa since commencing her leave on 2 June 2014 and before the abovementioned protective measures were implemented, and she failed to return from her annual leave without any excuse or explanation.

39. There was no letter of resignation or dismissal. Similarly, Fanissa did not express words of dismissal.

40. What did occur was that Tanya Versace voluntarily elected not to return to work after her period of annual leave ended on 16 June 2014 for personal reasons peculiar to her. The reasonable and definite inference is that she voluntarily left her employment to avoid further scrutiny in relation to the discrepancies identified in the Business’ financial accounts and associated misappropriations. It is the conduct of Tanya Versace in effectively abandoning her employment without notice which brought the employment relationship to an end and not any initiative of Fanissa.

41. It follows that there is no dismissal within the meaning of s.386(1) of the FW Act.

[37] It seems to me that Ms Versace’s argument that she was constructively dismissed was not without merit.
[38] It is to be remembered that while on annual leave Ms Versace’s employer, without notice and without providing any explanation for its conduct:

a) terminated her usual access to the termination server,
b) terminated her email access,
c) terminated her mobile phone; and
d) stop paying her.

[39] On any objective analysis, an employee faced with such a situation would likely (with reason) treat themselves as having been dismissed. It is perfectly understandable why Defteros gave Ms Versace advice to this effect.
[40] While I understand that from Fanissa’s perspective it was taking steps to protect its interests this was never explained to Ms Versace. It could have written to her to explain:

a) We are not terminating your employment
b) However, we have discovered discrepancies in the accounts which we need to further investigate.
c) When you return from annual leave you will have to meet with us to discuss these issues.

[41] However, Fanissa did not explain its position to Ms Versace. She was left in the dark as to why her terminal access, mobile phone and pay were all stopped.
[42] Objectively, on Ms Versace’s version of events she was entitled treat herself as having been dismissed by Fanissa. Accordingly, the criticism of her that she did not return from annual leave 3 days after discovering the actions taken against her by Fanissa is unwarranted. In any case, Fanissa took no action to clarify the situation. For example, it did not write to Ms Versace to ask why she had not returned from annual leave. It did not put her on notice that it would treat her as having abandoned her employment if she did not return to work.
[43] It is true that Fanissa never dismissed Ms Versace in writing. However, Fanissa “spoke” to Ms Versace through its actions. Those actions were not consistent with the continuation of an employment relationship.
[44] It is also to be noted that Fanissa had reported Ms Versace’s conduct to police and there had been a raid on her home. There could not have been any more clear statement directed to Ms Versace from Fanissa that her employer had lost trust and confidence in her. This is not a criticism of Fanissa’s actions, however, without an explanation of that conduct being provided to Ms Versace, a reasonable person her position would have concluded that the employment relationship had been brought to an end.
[45] Further, the complaint made against Ms Versace that she did not return calls or respond to text messages while she was on annual leave is also misplaced. An employee on annual leave is entitled to enjoy the same free from the demands of their employer.
[46] For these reasons I am not satisfied that if the UFD Application had been heard and determined that the Commission would have found that there was no dismissal. More likely than not the finding would have been that there was a dismissal (possibly justified). Consequently, I am not satisfied that in relation to the “no dismissal” point it ought to have been reasonably apparent to Ms Versace that her UFD Application had no reasonable prospects of success.
The “Small Business Fair Dismissal Code” objection
[47] Fanissa submitted that,

42. Even if Tanya Versace was dismissed, the parties agreed that Fanissa was a small business employer within the meaning of s.23 of the FW Act and the Code applied.

43. Section 396 of the FW Act requires that the application of the Code be considered before the merits of the application. If the Commission is satisfied that the requirements of the Code have been met, the application must be dismissed. If and only if, the dismissal was not consistent with the Code is the Tribunal to proceed to consider the merits of the application.

44. A dismissal is consistent with the Code if:

a) immediately before the time of the dismissal or at the time the person was given notice of the dismissal (whichever happened first), the person’s employer was a small business employer; and

b) the employer complied with the Code in relation to the dismissal.

45. At all relevant times it was uncontroversial that Fanissa was a small business employer within the meaning of s.23 of the FW Act.

46. Insofar as is relevant, the Code provides:

“Summary Dismissal

It is fair for an employer to dismiss an employee without notice or warning when the employer believes on reasonable grounds that the employee’s conduct is sufficiently serious to justify immediate dismissal. Serious misconduct includes theft, fraud, violence and serious breaches of occupational health and safety procedures. For a dismissal to be deemed fair it is sufficient, though not essential, that an allegation of theft, fraud or violence be reported to the police. Of course, the employer must have reasonable grounds for making the report.”

47. While there appears to be no definitive authority of the Commission (certainly not at Full Bench level) directly on point to this case, it seems apparent that the legislature intended to capture all small business dismissals, where the dismissal is brought about by the initiative of the employer, notwithstanding as has been observed by the Full Bench in Ryman v Thrash Pty Ltd[2015] FWCFB 5264 (Ryman v Thrash), that the Code is rather ‘poorly drafted’. It does not seem logical that the legislature would have contemplated denying a small business employer the less stringent unfair dismissal rules in the circumstances of a case such as this.

48. In this case, if there was a dismissal, it was without notice or warning on the ground that Tanya Versace had committed serious misconduct.

49. In explaining the application of the summary dismissal provisions in the Code, the Full Bench in Ryman v Thrash said at paragraph 41:

“In summary, drawing on the conclusions stated above and the ratio in Pinawin, we consider that the “Summary dismissal” section of the Code operates in the following way:

(1) If a small business employer has dismissed an employee without notice - that is, with immediate effect - on the ground that the employee has committed serious misconduct that falls within the definition in reg.1.07, then it is necessary for the Commission to consider whether the dismissal was consistent with the “Summary dismissal” section of the Code. All other types of dismissals by small business employers are to be considered under the “Other dismissal” section of the Code.

(2) In assessing whether the “Summary dismissal” section of the Code was complied with, it is necessary to determine first whether the employer genuinely held a belief that the employee’s conduct was sufficiently serious to justify immediate dismissal, and second whether the employer’s belief was, objectively speaking, based on reasonable grounds. Whether the employer has carried out a reasonable investigation into the matter will be relevant to the second element.”

50. The Full Bench decision in John Pinawin T/A RoseVi.Hair.Face.Body v Domingo as referred to in Ryman v Thrash sets out the approach to be taken to the summary dismissal section of the code:

“... There are two steps in the process of determining whether this aspect of the Small Business Fair Dismissal Code is satisfied. First, there needs to be a consideration whether, at the time of dismissal, the employer held a belief that the employee’s conduct was sufficiently serious to justify immediate dismissal. Secondly it is necessary to consider whether that belief was based on reasonable grounds. The second element incorporates the concept that the employer has carried out a reasonable investigation into the matter. It is not necessary to determine whether the employer was correct in the belief that it held.

Acting reasonably does not require a single course of action. Different employers may approach the matter differently and form different conclusions, perhaps giving more benefit of any doubt, but still be acting reasonably. The legislation requires a consideration of whether the particular employer, in determining its course of action in relation to the employee at the time of dismissal, carried out a reasonable investigation, and reached a reasonable conclusion in all the circumstances. Those circumstances include the experience and resources of the small business employer concerned.”

51. The Commission does not have to make a finding, on the evidence, whether the conduct occurred.

52. Tanya Versace and Defteros did not cavil with the above legal principles relevant to the Code.

53. The Affidavit sworn by Peter Zukowski on 4 September 2014 included detailed evidence disclosing extensive misappropriations by Tanya Versace.

54. The evidentiary material contained in the said affidavit shows that Fanissa undertook a reasonable investigation into the discrepancies that had been identified in the financial records and of the kind contemplated by the Full Bench in John Pinawin v Domingo. Those investigations involved reviewing, inter alia, numerous supplier invoices and ANZ bank account transaction histories. The investigations discovered what can only be described as significant misappropriations of funds by Tanya Versace who worked in a position of trust and responsibility in the business. The identified misappropriations involved unauthorised direct deposits into Tanya Versace’s personal bank account as well as the unauthorised payment of personal expenses associated with the renovation of her home. There was and is nothing to suggest that someone other than Tanya Versace misappropriated the funds or that the transactions comprising the misappropriations were authorised by Fanissa.

55. The identified misconduct clearly constitutes conduct sufficient to justify immediate dismissal. It would be disingenuous to suggest otherwise. Further, the definition of serious misconduct in the Code encompasses the misconduct complained of here.

56. The documents served on Tanya Versace clearly show that Fanissa had a reasonable and well-founded belief that she had engaged in misconduct by misappropriating large sums of money from Fanissa in the course of her employment and justifying immediate dismissal. Fanissa had reported her misconduct to Victoria Police resulting in the execution of a search warrant at her home and ultimately numerous criminal charges.

57. The commencement of the Supreme Court proceedings and successfully seeking an ex-parte freezing order against Tanya Versace further illustrated and communicated the existence of the requisite belief based on reasonable grounds.

58. Even if no decision to effect a dismissal had been made by Peter Zukowski, it does not mean that Fanissa could not have held a belief that the misconduct of Tanya Versace was sufficiently serious to justify immediate dismissal based on reasonable grounds.

59. Peter Zukowski confirmed that Fanissa believed Tanya Versace’s conduct as discovered by him warranted immediate dismissal.

60. Moreover, if Tanya Versace was dismissed at the initiative of Fanissa, it follows that it was the result of action on the part of Fanissa in early June 2014 after its investigations and which was intended to bring the employment to an end.

61. Accordingly, after Tanya Versace was served with the documents from the Supreme Court proceedings on 5 September 2014, objectively assessed, it should have been reasonably apparent to her that the unfair dismissal application had no reasonable prospect of success.

[48] The Code provides that,

“Summary dismissal

It is fair for an employer to dismiss an employee without notice or warning when the employer believes on reasonable grounds that the employee's conduct is sufficiently serious to justify immediate dismissal. Serious misconduct includes theft, fraud, violence and serious breaches of occupational health and safety procedures. For a dismissal to be deemed fair it is sufficient, though not essential, that an allegation of theft, fraud or violence be reported to the police. Of course, the employer must have reasonable grounds for making the report.”

[49] What is evident from the Code is that it requires a positive act of dismissal by the employer. It is headed “Summary dismissal”. It is not headed “Summary constructive dismissal”. No such concept exists in employment law. It provides that “It is fair for an employer to dismiss…” not that “It is fair for an employer to constructively dismiss…”
[50] For these reasons, the Code is not a defence to an unfair dismissal that can be argued in the alternative to there having been “no dismissal”. It is not possible for an employer to argue (as Fanissa has) “we did not dismiss, but, if we did dismiss (which we deny), we summarily dismissed in accordance with the Code.” It is an illogical argument. However, it is essentially what Fanissa was arguing in this matter. It was an argument in the alternative doomed to fail. Ms Versace was entitled to resist it.
[51] Had Fanissa decided to summarily dismiss Ms Versace, there is little doubt that, having regard to the investigations undertaken by Mr Zukowski, he could have reasonably formed the view that Ms Versace had engaged in theft. In those circumstances the Code would likely have come to the aid of Fanissa in defeating the Ms Versace’s UFD Application.
[52] However, that is not what occurred. Mr Zukowski never intended to terminate his sister’s employment. The following exchange 23 is illustrative of what was in Mr Zukowski’s mind at the time the employment relationship ended:

Commissioner:	Mr Zukowski, on what date did you sack your sister?
Mr Zukowski:	I did not sack her.
Commissioner:	Because it has always been your position, isn’t it, that you never terminated your sister’s employment?
Mr Zukowski:	That’s correct.
Commissioner:	And so on 5 June you took some action, I understand it, to suspend her access to her email and telephone and the like. Is that right?
Mr Zukowski:	Correct.
Commissioner:	And you did that to preserve your company’s interests. Is that right?
Mr Zukowski:	Correct.
Commissioner:	And it’s right, isn’t it, that you never made any conscious decision to terminate your sister’s employment. Isn’t that right?
Mr Zukowski:	Correct.

[53] In the face of Mr Zukowski’s refreshingly honest evidence, the assertion (in the alternative) that Fanissa summarily dismissed Ms Versace in conformance with the Code was always misplaced. It is simply not possible to argue (as Fanissa has attempted to do) that,

“We did not dismiss Ms Versace, but if we did (which we deny), at the time we did not dismiss her, we believed, on reasonable grounds, that Ms Versace’s conduct was sufficiently serious to justify the immediate dismissal (that we deny doing).”

Conclusion in relation to no reasonable prospect of success - s.611(2)(b).
[54] Having considered each of the objections raised by Fanissa, it is apparent that considered objectively, a reasonable person, would not have formed the view that an UFD Application (such as that lodged by Ms Versace) had not prospects of success.
[55] There existed:

a) Disputed facts, noting that Ms Versace maintained, at all times (and by adopting Exhibit R1) that she did not engage in any wrongdoing. To the extent that Fanissa criticised Ms Versace’s evidence, it is to be remembered that, in light of the criminal proceedings, she was entitled to a presumption of innocence and could not be required to incriminate herself.
b) Arguable points of law about:

i. Whether there was a dismissal, and
ii. The application of the Code.

[56] For these reasons, Ms Versace cannot be said to have made an application ‘without reasonable cause’ within the meaning of s.611(2)(a) or in circumstances where there was ‘no reasonable prospect of success’ within the meaning of s.611(2)(b). The fact that she filed a Notice of Discontinuance is not admission of the same. As previously stated the test is not whether the application might have been successful, but whether the application should not have been made. Objectively viewed, on Ms Versace’s own version of the facts, it was not clear that the proceedings would ultimately fail.
Did Ms Versace engage in an unreasonable act or omission? – s.400A
[57] What then of the fact that Ms Versace filed the Notice of Discontinuance so late in the proceedings and only 6 days before the hearing and did not do so earlier?
[58] Fanissa submitted that,

62. Moreover, Tanya Versace’s failure to discontinue after receiving those materials was either deliberate or reckless. It was an unreasonable act or omission within the meaning of s.400A(1) of the FW Act and which caused Fanissa to incur substantial legal costs. The detailed evidentiary material contained in the affidavit sworn by Peter Zukowski on 4 September 2014 made it clear that the alleged dismissal was consistent with the Code and Fanissa’s jurisdictional objection was bound to succeed.

63. There was no evidence filed by Tanya Versace in the unfair dismissal application which supported her bare denials of misappropriating money from Fanissa or backing up her claims that Peter Zukowski fabricated the allegations against her. She had an opportunity to file materials responding to the evidence of Fanissa, but she did not do so. The only explanation which was ever provided was rejected by His Honour Judd J on 15 September 2014. Tanya Versace did not seek to reagitate her earlier explanation in support of her unfair dismissal application. In those circumstances, it cannot be said that the unfair dismissal application had merit beyond the resolution of the jurisdictional objections. There was nothing to establish that she had not engaged in the very serious misconduct complained of. In the absence of any evidentiary material supporting her bare defence, it should have been reasonably apparent that the unfair dismissal application did not have reasonable prospects of success.

64. Furthermore, Tanya Versace’s ongoing failure to discontinue the unfair dismissal application after:

(a) the Supreme Court proceedings were before his Honour Judge Judd for further hearing on 15 September 2014 on the subsisting freezing order with a second tranche of affidavit material filed therein having been filed and served on Tanya Versace and Defteros;

b) Justice Judd handed down a decision on 15 September 2014 in which His Honour noted, inter alia:

“In my opinion the case advanced by the plaintiffs at this stage of the proceeding, augmented by more recent affidavits of Mr Zukowski, sworn 12 September 2014 and 15 September 2014, paint a compelling picture of misappropriation by Tanya, with systematic attempts to conceal transactions in the books and records of the company.”

c) The telephone mention before Deputy President Gooley on 8 December 2014 where Fanissa’s lawyers put Tanya Versace and Defteros on notice regarding Fanissa’s intention to seek recovery of costs including against Defteros;

d) Tanya Versace and Defteros were served with Fanissa’s outline of submissions in relation to jurisdictional objections and witness statements of Peter Charles Brien and Peter Jason Zukowski filed in the unfair dismissal application on 23 January 2015; and/or

e) Tanya Versace and Defteros were served with Fanissa’s outline of submissions in relation to substantive merits and further witness statement of Peter Jason Zukowski filed in the unfair dismissal application on 20 February 2015;

was, on each occasion, either deliberate or reckless and amounted to an unreasonable act or omission within the meaning of s.400A(1) of the FW Act which caused Fanissa to incur substantial legal costs. At all relevant times, the detailed evidentiary material and legal submissions provided to her by Fanissa made it increasingly clear that her unfair dismissal application had no reasonable prospects of success.

65. It appears from the evidence that Defteros did not provide copies of, or advise Tanya Versace about, the letters from Fanissa’s lawyers to Defteros dated 13 October 2014 and 9 December 2014 stating that, inter alia, Fanissa would seek costs against Tanya Versace and/or Defteros if the unfair dismissal application was not immediately discontinued.

66. If the Commission determines that she did receive those letters (or either of them), her failure to discontinue the unfair dismissal application after receiving them was, on each occasion, either deliberate or reckless and amounted to an unreasonable act or omission within the meaning of s.400A(1) of the FW Act which caused Fanissa to incur substantial legal costs.

67. It was imprudent for Tanya Versace not to discontinue the unfair dismissal application at a much earlier time then she did.

68. In the circumstances, Tanya Versace should be ordered to pay Fanissa’s costs as claimed.

[59] The considerations relevant to whether Ms Versace was unreasonable in continuing with the matter are the same as those addressed above in answer to Fanissa’s submission that,

“…the reference point for determining whether section 611(2)(b) of the FW Act is satisfied cannot be limited to the time at which the application is made but applies in the course of proceedings until the time at which the matter is determined by the Commission or discontinued.”

[60] Having considered the matter carefully, I am not satisfied that Ms Versace unreasonably continued with the UFD Application until she discontinued it.
[61] When Ms Versace commenced the UFD Application it would not have been reasonably apparent to her that it had not reasonable prospects of success. That did not change in the course of the litigation.
[62] I accept that, as time went on, the weight of evidence appeared to be against Ms Versace. I also accept that, Ms Versace had a difficult race to run in relation to the merits of the UFD Application, but not so (for the reasons explained above) in relation to the two jurisdictional objections raised by Fanissa. However, Fanissa’s case was not the “lay down misère” they seemed to think that it was.
[63] Consequently, I am not satisfied that Ms Versace engaged in an unreasonable act or omission by either continuing with the UFD Application and by not discontinuing it.
COSTS APPLICATION AGAINST DEFETEROS – s.401(1A)
Submissions of Fanissa concerning costs against Defteros under s.401 of the FW Act
[64] Fanissa submitted that,

69. … on 8 September 2014 when Defteros met with Tanya Versace, were provided with copies of the documents from the related Supreme Court proceedings which had been personally served on Tanya Versace on 5 September 2014, reviewed the documents including the affidavit sworn by Peter Zukowski on 4 September 2014 and gave advice in relation to the evidence contained therein and what it meant for her, objectively assessed, it should have been reasonably apparent to them the unfair dismissal application had no reasonable prospect of success.

70. Despite being on notice of the misappropriations by Tanya Versace and Fanissa’s reasonable belief that Tanya Versace had so acted as set out above, Defteros encouraged Tanya Versace to continue the unfair dismissal application where it should have been reasonably apparent that Tanya Versace had no reasonable prospect of success.

71. Defteros failed, refused and neglected to advise Tanya Versace to discontinue the unfair dismissal application despite the repeated requests by Fanissa’s lawyers to do so and in apparent disregard of the strong evidence against her which had been filed and served by Fanissa in the related Supreme Court proceedings.

72. In Livingstones Australia v ICF (Australia) Pty Ltd T/A IC Frith & Associates [2014] FWCFB 1276 (Appeal by Livingstones) at [74] – [80] a Full Bench of the Commission, in considering whether a case had ‘no reasonable prospect of success’ within the meaning of the FW Act, made pertinent observations with respect to instructions given to a lawyer by a client and associated legal professional privilege:

[74] When parties are represented, there is an inherent difficulty in finding that the party has behaved unreasonably in commencing or continuing an application. It is reasonable for a lay party to rely upon expert advice and assistance. The natural inference is that the party has relied upon the advice of the representative in commencing and continuing the proceeding. Of course, the advice given by the representative in relation to prospects is privileged.

[75] On the other hand, if an unmeritorious case sounds in a costs application against the representative, the representative will likely respond as the appellant has in this case. The appellant contends that the withdrawal of the proceedings was not something that it had no power to do because a representative must act on the instructions of the client and cannot withdraw a proceeding on their own initiative.

[76] That contention is strictly correct but it glosses over the responsibility and ethical duty of lawyers and paid agents not to conduct cases that have no reasonable prospects of success. In some jurisdictions there are specific statutory duties cast on legal practitioners not commence or continue proceedings that have no reasonable prospects of success (for example, ss.344-349 of Legal Profession Act 2004 (NSW)).

[77] A legal representative or paid agent can only ever act on instructions. If a case is to be discontinued because it is doomed to failure that will always require the instructions of the client. Legal advice given to the client on prospects will be privileged and cannot be disclosed by the representative without a waiver of the privilege. If a client refuses to accept advice that his or her application has poor prospects of success and should be discontinued, and instead gives instructions for the matter to proceed, the representative may decline to act further for the client.

[78] The line between cases with poor prospects of success and cases that have “no reasonable prospects of success” within the meaning of the FW Act is not always bright. Reasonable minds may differ on whether a particular case should be assessed as having no reasonable prospects of success.

[79] If a representative decides that the circumstances of the case permit them to continue acting notwithstanding the rejection of advice that the prospects of success are poor, it will not be open to a representative to volunteer that fact to the Commission on a costs application.

[80] While there is obvious force in the argument advanced by the appellant based on the obligation to act on instructions, its unqualified acceptance will result in a situation where it will rarely, if ever, be possible to establish that a representative has acted unreasonably in continuing an application that did not have reasonable prospects of success. That result is at odds with the clear legislative purposes of s.401, namely to enable representatives to be held accountable for the unreasonable conduct or pursuit of matters. From our own experience we can say that there is a certain incidence of unfair dismissal and similar applications filed in the Commission that are unmeritorious and appear to have been commenced in the expectation that a modest settlement can be achieved because it is cheaper for the employer to pay what is known as “go away” money than to defend and defeat the claim. Section 401 ought be available when the case being pursued by the representative has no reasonable prospects of success.

[81] It is open to a member of the Tribunal, in an appropriate case, to draw an inference from the particular circumstances, that the representative, if acting reasonably, must have appreciated that the case did not have reasonable prospects of success such that the representative was obliged to advise the client to withdraw his application and cease acting if that advice was not accepted.

….

73. It is open to the Commission, in the instant case, to draw an inference from the particular circumstances that Defteros, if acting reasonably, must have appreciated that the case did not have reasonable prospects of success such that the Defteros was obliged to advise Tanya Versace to withdrawn her application and cease acting if that advice was not accepted.

74. The relevant particular circumstances include:

a) Prior to 13 June 2014, Fanissa had reported Tanya Versace’s misconduct to Victoria Police and her home had been searched and documents seized as part of the investigation;

b) On 13 June 2014 Tanya Versace met with Defteros in relation to the criminal allegations and associated search warrant. Defteros was clearly on notice of the misappropriation allegations and Fanissa’s reasonable belief regarding same. During that meeting, Defteros advised Tanya Versace that her employment had been constructively terminated;

c) On 19 June 2014 Defteros completed, filed and served Tanya Versace’s Form F2 – Unfair Dismissal Application;

d) In its Form F3 – Employers Response to Unfair Dismissal Application dated 16 July 2014 and later supporting evidentiary material and submissions, Fanissa raised its jurisdictional objections including, if Tanya Versace was dismissed, that dismissal was consistent with the Small Business Fair Dismissal Code (Code) and it was therefore not unfair;

e) At all relevant times, Fanissa was a small business employer within the meaning of s.23 of the FW Act and the Code applied, and these matters were not in dispute;

f) On 8 September 2014 Defteros met with Tanya Versace and were provided with copies of the documents from the related Supreme Court proceedings which had been personally served on Tanya Versace on 5 September 2014. Defteros reviewed the documents including the affidavit sworn by Peter Zukowski on 4 September 2014 and gave advice in relation to the evidence contained therein and what it meant for her;

g) The Supreme Court proceedings were before his Honour Judge Judd for further hearing on 15 September 2014 on the subsisting freezing order with a second tranche of affidavit material filed therein having been filed and served on Tanya Versace and Defteros;

h) His Honour Justice Judd handed down a decision on 15 September 2014 in which His Honour noted:

“In my opinion the case advanced by the plaintiffs at this stage of the proceeding, augmented by more recent affidavits of Mr Zukowski, sworn 12 September 2014 and 15 September 2014, paint a compelling picture of misappropriation by Tanya, with systematic attempts to conceal transactions in the books and records of the company.”

i) Fanissa’s lawyers wrote to Defteros on 13 October 2014 stating that, inter alia, Fanissa would seek costs against Tanya Versace and/or Defteros if the unfair dismissal application was not immediately discontinued;

j) The telephone mention before Deputy President Gooley on 8 December 2014 where Fanissa’s lawyers again put Tanya Versace and Defteros on notice regarding Fanissa’s intention to seek recovery of costs including against Defteros;

k) Fanissa’s lawyers again wrote to Defteros on 9 December 2014 to put Tanya Versace and Defteros on notice in relation to costs;

l) Defteros prepared, filed and served Tanya Versace’s witness statement and outline of submissions in the unfair dismissal application;

m) Tanya Versace and Defteros were served with Fanissa’s outline of submissions in relation to jurisdictional objections and witness statements of Peter Charles Brien and Peter Jason Zukowski filed in the unfair dismissal application on 23 January 2015;

n) Tanya Versace and Defteros were served with Fanissa’s outline of submissions in relation to substantive merits and further witness statement of Peter Jason Zukowski filed in the unfair dismissal application on 20 February 2015;

o) Defteros never ceased acting; and

p) The unfair dismissal application was only discontinued after Defteros’s retainer was terminated.

75. If it wasn’t clear to Defteros once they received the materials filed in the related Supreme Court proceedings on 8 September 2014 that the application had no reasonable prospect of success, they should have realised at each of the times set out in paragraphs 6(c) to 6(h) above.

76. Moreover, the failure to advise in relation to and/or respond to the costs letters dated 13 October 2014 and 9 December 2014 were unreasonable omissions. This is particularly the case where those letters also effectively put Defteros on notice that it would be subject of an application for costs against it, the unfair dismissal application was ultimately discontinued and the outcome was no better than the offers made in the costs letters.

77. The fact that Defteros continued to fail, refuse and neglect to advise Tanya Versace to discontinue the unfair dismissal application after each of the events set out in paragraphs 6(c) to 6(h) above are aggravating factors, particularly given the matters set out at paragraph 63 above.

78. Defteros’ repeated failures, refusals and neglects plainly constitute unreasonable acts or omissions within the meaning of s.401(1A)(b) of the FW Act.

79. As a result of Defteros’ conduct and omissions, Fanissa incurred substantial legal costs in having to respond to the unfair dismissal application. Like Tanya Versace, it appears that Defteros acted in disregard of known facts and clearly established law.

80. Fanissa was a respondent to the unfair dismissal application. Costs incurred by Fanissa in continuing to have to respond to the unfair dismissal application would not have been incurred if the unfair dismissal application was discontinued at an earlier time. This is axiomatic. The statement of James Patrick Tobin in support of costs application dated 14 March 2017 sets out the costs incurred by Fanissa in responding to the unfair dismissal application.

81. Consequently, Defteros should be ordered to pay Fanissa’s costs as claimed.”

Submissions of Defteros

[65] Defteros submitted that,

2. The costs application now appears to concern the conduct of the matter from 5 September 2014 onwards and, as such, does not relate to the commencement of the matter…

3. An important, and somewhat unusual, factor in this costs application, is that Ms Versace has not waived legal professional privilege in respect of related criminal proceedings against her, nor in respect of the Supreme Court proceedings. Ms Versace also retains the right against self-incrimination.

Encouragement

4. There is no evidence of Defteros Lawyers “encouraging” Ms Versace to start or continue the matter.

5. The oral evidence at the hearing before the Commission on 24 May 2017 was as follows:

(a) Ms Versace agreed her instructions to Defteros Lawyers were that “she had done nothing wrong” and “Peter had fabricated the allegations against you and the invoices in his affidavits”;

(b) the advice to her from Defteros Lawyers was “we must fight very hard, we must take the front foot”;

(c) Mr Dorey’s belief was that if Ms Versace was able to establish that she had not taken money from Fanissa unlawfully, her Unfair Dismissal Claim had a reasonable prospect of success. He also stated that he acted in accordance with instructions provided by Ms Versace, and did not encourage Ms Versace to start and continue the Unfair Dismissal Claim and to his knowledge, nor did anyone else at Defteros Lawyers.

(d) It was not put to Mr Dorey in cross examination that he encouraged Ms Versace to commence or continue the application.

No Reasonable Prospects of Success

6. 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 as to be not reasonably arguable.

7. In support of its application for costs, Fanissa places reliance on the material filed in the Supreme Court proceedings and the decision of Judd J. The Supreme Court proceedings involved an application for a freezing order, the test for which is the lower standard of an “arguable case”. Care should be exercised by the Commission in basing its decision on material filed in another proceeding, which has itself been adjourned pending the outcome of the criminal proceedings.

8. Fanissa relies on the letters written by its lawyers to Defteros Lawyers dated 13 October 2014 and 8 December 2014 as demonstrating Ms Versace had no reasonable prospects of success. However, the main thrust of both of the letters was the assertion that the Commission had no jurisdiction to hear Ms Versace's claim due to the operation of the Small Business Fair Dismissal Code.

9. Mr Zukowski confirmed in answer to questioning from the Commissioner that he did not sack Ms Versace.

10. Fanissa has not referred to any authorities in its submissions that support the argument that the summary dismissal provisions of the Small Fair Dismissal Business Code can be relied upon as a defence to an unfair dismissal claim brought in relation to a constructive dismissal.

11. At its absolute highest, it might be arguable that the Small Fair Dismissal Business Code could apply to a constrictive dismissal, but that is a long way from an application having no real prospects of success on that jurisdictional basis.

12. What is apparent is that after Ms Versace went on leave in June 2015, her pay ceased, her work email and internet access were suspended and her mobile telephone was not operating. Her evidence was that it was not her choice not to return to work.

13. Ms Versace had reasonable grounds to consider she had been constructively dismissed. She maintains that she did not unlawfully take any money from Fanissa.

14. Both Ms Versace and Mr Dorey’s evidence was that the criminal, FWC and Supreme Court matters were all discussed when she consulted with Defteros Lawyers. The factual matrix and allegations against Ms Versace were common to all three proceedings. As Ms Versace herself noted “they all tied together”. This severely limited the evidence that could be lead in this costs application.

15. The parties were unable to cross examine Ms Versace on the substance of her claim, given privilege had not been waived in respect of the criminal and Supreme Court proceedings. No “mini-trial” could be held such as to satisfy the Commission to the requisite degree that Ms Versace’s claim had no reasonable prospects of success.

16. In these circumstances, inferences as to what occurred between Defteros Lawyers and Ms Versace should not be drawn. Where Defteros Lawyers are unable to fully explain the situation, due to the non -waiver of privilege by Ms Versace over the criminal and Supreme Court proceedings, full allowance must be made for that inability. “Where there is room for doubt, the respondent lawyers are entitled to the benefit of it.”

Unreasonable Act or Omission

17. For the reasons outlined above, Fanissa has not demonstrated to the requisite degree any unreasonable act or omission of Defteros Lawyers in connection with the conduct or continuation of the application.

[66] Having found that,

a) it would have been open for the Commission to find that Fanissa dismissed Ms Versace,
b) more likely than not the Code defence was doomed to fail (in circumstances were Fanissa denied any dismissal occurred),
c) consequently, objectively, it would not have been reasonably apparent to Ms Versace that her UFD Application had not reasonable prospects of success; and
d) Ms Versace did not engage in any unreasonable act or omission,

it necessarily follows that I am not satisfied that Defteros, acting as it was on the instructions of Ms Versace, encouraged Ms Versace to start or continue her UFD Application when it should have been reasonably apparent to Defteros that Ms Versace had not reasonable prospects of success.

[67] As the matter moved forward in various jurisdictions, Defteros would have had cause to question Ms Versace and her defence to the allegations made against her, but, in the face of her consistent denial of wrongdoing and in the absence of any of the evidence being tested, they were entitled to continue to act on the instructions that Ms Versace gave them.
CONCLUSION
[68] 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.” 24

[69] For the reasons set out above the Commission, as presently constituted, is not satisfied that, objectively viewed, it should have been reasonably apparent to Ms Versace that her application had no reasonable prospect of success. Therefore, the Commission has no jurisdiction pursuant to s.611 of the FW Act to order costs.
[70] I accept that Fanissa incurred significant costs to prepare for, and to defend proceedings in this matter. However, for the reasons above I am not satisfied that there is any jurisdiction to depart from the statutory scheme that provides for persons bearing their own costs.
[71] In all the circumstances of this matter the Commission, as presently constituted, is not satisfied that it was unreasonable for Ms Versace to instigate proceedings. Further, 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. Ms Versace did not engage in an unreasonable act or omission.
[72] Therefore, it necessarily follows that Defteros did not cause Fanissa to incur costs as contemplated by s.401 of the FW Act.
[73] 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.
[74] For the reasons given, Fanissa’s application for costs pursuant to s.400A, 401 and s.611 of the FW Act is dismissed.
[75] An Order to that effect will be issued with this Decision.

COMMISSIONER

Appearances:

Mr A Galbraith, for Fanissa

Ms Versace, for herself

Ms A Golding, for Defteros

Hearing details:

2017

Sydney

May 24

1 s.611(1) FW Act.

2 s.611(2) FW Act.

3 s.400A(1) FW Act.

4 This requires a positive act on the part of the lawyer or paid agent, not merely an absence of discouragement: Khammaneechan v Nanakhon Pty Ltd ATF Nanakhon Trading Trust T/A Banana Tree Cafe[2011] FWA 651 (Bartel DP, 31 January 2011) at para. 22.

5 Transcript PN541.

6 During the Costs Hearing Fanissa’s counsel submitted that “the earliest date we say that either party should be required to pay costs is 5 September 2014 for Ms Versace. That is the date she is served with the Supreme Court affidavit of material by Fanissa: Transcript PN576.

7 A determination of this issue was necessary to ensure that the manner in which the hearing was conducted was fair and just: Warrell v FWC [2013] FCA 291.

8 Transcript PN93.

9 Transcript PN128.

10 Transcript PN314.

11 Transcript PN134,

12 Transcript PN460.

13 McKenzie v Meran Rise Pty Ltd (AIRCFB, Giudice J, Watson SDP, Whelan C, 7 April 2000) Print S4692 [7].

14 Kanan v Australian Postal and Telecommunications Union (1992) 43 IR 257; cited in Dryden v Bethanie Group Inc [2013] FWC 224 (Williams C, 11 January 2013) [20].

15 Ibid.

16 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].

17 Zornada v St John Ambulance Australia (Western Australia) Inc. (2013) 237 IR 48 [35].

18 Explanatory Memorandum, Fair Work Amendment Bill 2012, 37 [171].

19 Explanatory Memorandum, Fair Work Amendment Bill 2012, 37 [171].

20 Kube v Dominelli Group Pty Ltd [2016] FWC 8933 at [15]; Nissan Casting Plant (Australia) Pty Ltd v Just Relations [2016] FWC 5099 at [28].

21 Transcript PN22.

22 Transcript PN82.

23 Transcript PN233 – 237.

24 [2016] FWC 5561

Printed by authority of the Commonwealth Government Printer

Mrs Tanya Versace v Fanissa Pty Ltd T/A PJ Pools & Spas

[2017] FWC 4967

22 SEPTEMBER 2017

DECISION

Introduction