Ms Mei Chan v Advanced Health Invest Pty Ltd T/A Mastery Dental Clinic

[2020] FWC 2712

[2020] FWC 2712

FAIR WORK COMMISSION

DECISION

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

Ms Mei Chan
v
Advanced Health Invest Pty Ltd T/A Mastery Dental Clinic
(U2018/10383)

DEPUTY PRESIDENT CROSS SYDNEY, 22 MAY 2020

Application for an unfair dismissal remedy.

[1] An application was filed on 8 October 2018, by Ms Mei Kuen Chan (the “Applicant”) pursuant to s.394 of the Fair Work Act 2009(Cth) (the “Act”). The Applicant sought an unfair dismissal remedy in accordance with Part 3-2 of the Fair Work Act 2009 (Cth) (the “Act”) in relation to the termination of her employment by Advanced Health Invest Pty Ltd T/A Mastery Dental Clinic (the “Respondent”) with effect from 21 September 2018.

The Course of Proceedings

[2] This matter has been the subject of two single member decisions regarding whether the dismissal was unfair, and two decisions of the Full Bench arising from each of the two single member decisions. Those decisions were:

(a) The decision of Senior Deputy President Hamberger dated 8 April 2019 1, in which the Senior Deputy President found the Respondent was not a small business as defined by the Act, determined that the Applicant was unfairly dismissed, and determined that compensation of $40,000 plus superannuation should be paid to the Applicant by the Respondent (the “First Decision”);

(b) The decision of the Full Bench dated 23 July 2019 2, wherein the Full Bench determined that Senior Deputy President Hamberger had wrongly concluded that the Respondent was not a small business employer, and required a more detailed examination of that issue (the “First Full Bench Decision”);

(c) The decision of the Commission as currently constituted 3, where I found that the Respondent was not a small business employer, and there were no grounds to disturb the conclusions of the Senior Deputy President at paragraphs [19] to [75] of the First Decision (the “Second Decision”); and

(d) The decision of the Full Bench dated 17 February 2020 4, wherein the Full Bench determined primarily that there was no error in the Second Decision in its reliance upon the conclusions of the Senior Deputy President of the First Decision (the “Second Full Bench Decision”);

The Costs Application

[3] On 13 December 2019, the Applicant filed a Form F6 Application for Costs (the “Costs Application”). The Costs Application specifically stated that the decisions the subject of the Application were the First Decision and the Second Decision. The Costs Application pre-dated the Second Full Bench Decision and did not seek costs in relation to the First Full Bench Decision, though there was a submission advanced by the Applicant that the Respondent’s decision to appeal the First Decision was vexatious and/or without reasonable cause.

[4] Section 402 of the Act provides that applications for costs must be made within 14 days after the Commission “determines the matter”. The Costs Application was made within time, being made on the fourteenth day after the Second Decision. As to whether costs can be considered in relation to the First Decision, I note that the Full Bench of the Commission in Kylie Jeffrey v IBM Australia Limited  5 observed:

[12] Section 402 of the Act provides that an application for an order for costs under s. 611 in relation to a matter arising under Part 3-2 must be made within 14 days after the Commission determines the matter or the matter is discontinued. We will assume that where an appeal is brought successfully against an unfair dismissal decision, the rehearing conducted by the Full Bench involves the Commission determining the matter afresh, such that a costs application in relation to the first instance hearing can be made within 14 days of a Full Bench decision on a rehearing of the originating application.

[5] In the absence of any authority to the contrary, I adopt the assumption of the Full Bench above, and consider that, as the Second Decision involved a rehearing of an issue from the First Decision, that the Costs Application insofar as it deals with the First Decision is made within the 14 day limitation period.

[6] The Applicant brought the costs application against the Respondent pursuant to s.611 and s.400A of the Act. The Applicant asserted that the Respondent’s response to the unfair dismissal application (the “Application”) was made:

(a) vexatiously; or

(b) without reasonable cause; or

(c) had no reasonable prospect of success

within the meaning contained in section 611(2) of the Act.

[7] Further, and in the alternative, the Applicant submitted that the Respondent’s conduct and/or continuation of the matter on and after 19 December 2018, was unreasonable and caused the Applicant to incur costs within the meaning set out in section 400A of the Act.

[8] The Applicant provided an Outline of Submissions with eleven attachments (the “Applicant’s Submission”) as an Annexure to the Costs Application. The Respondent was given an opportunity to respond to the Applicant’s Submission but declined the opportunity to respond.

The Applicant’s Submissions

[9] The Applicant noted that throughout the proceedings, the Respondent had had the benefit of advice from legal representatives, including in the early stages experienced Senior Counsel, and had the resources available to obtain legal advice. As such, the Applicant submitted that Respondent should have known, or should have been made aware, that their response was vexatious and without reasonable cause, and/or, in the alternative, had no reasonable prospects of success as and from 19 December 2018, being the date of filing their evidence and materials.

[10] The Applicant submitted that the allegations against the Applicant in the proceedings were based almost entirely on the evidence from Dr Zhang and Mr Guan, whose evidence SPD Hamberger had found to be “clearly contradicted either by documentary evidence or indeed, in some cases, their own written witness statements” 6.

[11] In relation to an allegation of no agreement on a performance bonus, SDP Hamberger found the “evidence was hotly contested by the Respondent” 7, and found further that8:

“Despite the protestations of the respondent’s witnesses (including Dr Zhang), I prefer the applicant’s evidence on this point. This is primarily because of written documentation included in both Dr Zhang’s and Mr Guan’s evidence. In particular, both those witnesses attached to their statements company records, including monthly cash balance reports and tax invoices, clearly indicating the payment to the applicant of the performance bonus, together with the revenue figures on which it was based. It beggars belief that these records were never seen by Dr Zhang and Mr Guan, which means the respondent must have known about and accepted them – at least, at the time they were made.”

[12] The Applicant noted that in relation to an allegation of taking paid extended leave without permission, SDP Hamberger found that “[t]here is no evidence that Dr Zhang objected to the applicant taking time off” 9 and “there is no evidence that Dr Zhang took any objection to [taking time off in December 2017], or asked for any medical certificates.”

[13] In relation the totality of the Allegations, SDP Hamberger concluded 10:

“I do not consider there is sufficient evidence to sustain any of the allegations the respondent made against the applicant. In particular, I am not persuaded that there are any significant, unexplained discrepancies in the cash accounts the applicant had prepared.”

(a) No Reasonable Prospects of Success/Vexatious

[14] The Applicant submitted that on its own evidence, the Respondent had no reasonable prospects of success. The Respondent has been unable to establish a valid reason for dismissal, let alone grounds for summary dismissal, which should have been apparent to the Respondent based on its initial investigations prior to termination or, at the very least, on its own evidence and submissions filed on 19 December 2018.

[15] In fact, an email from the Respondent’s Solicitor to the Respondent on 1 November 2018, which attached the cash balance report evidencing the existence of the Performance Bonus, should have alerted the Respondent, acting reasonably, to give serious consideration to the weaknesses in its case. It failed to do so, and on the Applicant’s submissions, that decision was either vexatious or unreasonable. It also led to considerable costs being incurred by the Applicant in progressing the matter.

[16] The Applicant submitted that the Respondent’s case on summary dismissal was doomed to fail. It was not arguable or reasonable on the evidence of its own witnesses that the Applicant’s serious misconduct could be established to any standard, let alone when applying the Briginshaw test. 11

(b) Respondent’s conduct and/or continuation of the matter was unreasonable

[17] The Applicant further submitted that the Respondent’s insistence that any settlement offer include all claims, including long service leave, paid parental leave and alleged underpayments, was unreasonable, and meant the Applicant incurred additional costs in having to quantify her underpayments. This task was exacerbated by the Respondent’s unreasonable act in not producing the employee documents and information required to quantify this claim, in contravention of Regulation 3.42 of the Fair Work Regulations..

[18] In accordance with the principle in Calderbank v Calderbank [1975] 3 All ER 333, the Applicant submitted that the Respondent should be liable to the Applicant’s legal costs, to the extent that the Proceedings were unnecessarily prolonged by the Respondent after service of their own evidence on 19 December 2019.

[19] Not only was the final settlement offer of the Applicant on 12 February 2019, of $25,000.00 less taxation to settle the unfair dismissal proceedings only (the “Final Settlement Offer”), lower than the amount of compensation ultimately awarded by SDP Hamberger, but the extraordinary rapidity of the Respondent’s rejection, in under 24 hours of the offer being communicated, suggested a vexatious determination to proceed with their response with a callous disregard to the evidence before the Commission. This vexatious determination to proceed with the Proceedings is further evidenced by the fact that at no stage did the Respondent make a genuine offer to settle afterthe substantive hearing was conducted on 29 January 2019.

[20] Alternatively, in light of SDP Hamberger’s decision, the Applicant submitted that the Respondent’s act in not only rejecting the Final Settlement Offer, but in making no genuine offer to settle the Proceedings after the substantive hearing was conducted was unreasonable. The Applicant incurred further costs in having to engage legal representation for the hearing on 22 March 2019.

[21] Further, and in the alternative, the Applicant submitted that it was open to the Respondent to obtain expert legal advice on its prospects of success in defending the Application and on the reasonableness of the Applicant’s Final Settlement Offer. The Respondent’s failure to obtain (or act upon) expert legal advice in relation to both the Settlement Offer and the strength of its defence was unreasonable.

(c) Respondent’s Decision to Appeal the First Decision

[22] The Appellant advanced a further submission that, following the First Full Bench Decision, the Respondent eventually and grudgingly provided unredacted copies of its contracts with dentists, and thereafter called no further evidence.

[23] The Applicant submitted that the evidence of independent contracting contained in the contracts was limited and fell far short of the weight of factors pointing to employment. The Respondent acted unreasonably and was doomed to fail in suggesting that any dentist was conducting their own business at any time they were performing work at the Respondent's premises. As the Respondent had chosen not to rely on any additional or further material for the re-hearing, it acted vexatiously, without reasonable cause, and was doomed to fail in resisting the Applicant's claim once it was compelled to produce the contracts in their entirety.

Consideration

[24] Cost orders in proceedings under the Act are rare. In Australian Workers Union v Leighton Contractors Pty Ltd (No 2) 12, the Full Court of the Federal Court observed in relation to s.570 of the Act, but with such observation being equally opposite to the costs provisions the subject of consideration in these proceedings, as follows:

“In our view the authorities establish the following principles:

(1) The purpose or policy of the section is to free parties from the risk of having to pay their opponents’ costs in matters arising under the Act, while at the same time protecting those parties who are forced to defend proceedings that have been instituted vexatiously or without reasonable cause.

(2) It follows from the protection offered by s 570(2) that a person will rarely be ordered to pay the costs of a proceeding. But it is not necessary to prove that there are exceptional circumstances warranting the making of an order: Spotless Services Australia Ltd v Senior Deputy President Jeanette Marsh [2004] FCAFC 155 (Spotless) at [12]–[13] (to the extent that the Full Court in Council of Kangan Batman Institute of Technology and Further Education v Australian Industrial Relations Commission (2006) 156 FCR 275 (Kangan) held otherwise, we would respectfully disagree).”

[25] In Eghlima and another v Winco Systems Pty Ltd 13, after considering a distillation of previous authorities of this Commission and its predecessors, Deputy President Sams highlighted the discretionary nature of the costs jurisdiction, and observed:

“A number of important propositions arise from s 611 of the Act and the authorities to which I have just referred:

1. Unlike the general courts, costs in FWC proceedings do not ‘follow the event’.

2. The award of costs in industrial matters is to be approached with caution and with a strict application of the criteria expressed in subsection (2) of s 611 of the Act.

3. The three preconditions to the exercise of discretion in subsections (1) and (2) are disjunctive, meaning only one of either of the notions of ‘vexatiously’, ‘without reasonable cause’ or ‘no reasonable prospects of success’ need to be satisfied before the Commission may exercise its discretion to award costs.

4. Even if the Commission finds that the preconditions of subsection (2) are all, or either of them met, the Commission retains a discretion as to the extent or at all, of any costs order.

5. Nevertheless, the Commission’s power to award costs is quintessentially an exercise of discretion.”

(a) Vexatious/Without Reasonable Cause

[26] A proceeding will be instituted vexatiously where the predominant purpose in instituting the proceeding is to harass or embarrass the other party, or to gain a collateral advantage. In Qantas Airways Ltd v Paul Carter 14, the Full Bench found:

We refer to the approach we have taken to considering if the provisions of s.611(2)(a) or s.611(2)(b) are established. We first deal with the application made on the basis that Qantas has made its appeal vexatiously. The approach generally taken by members of the Commission as to the meaning to be ascribed to the word “vexatiously” in s.611(2)(a) is to adopt the comments of Justice North in Nilsen v Loyal Orange Trust (Nilsen). Nilsen was decided in 1997 when the then Workplace Relations Act 1996 applied however the relevant provision considered by his Honour was in terms similar to s.611(2)(a) being whether an applicant “instituted the proceeding vexatiously or without reasonable cause”. About this provision his Honour said:

“The next question is whether the proceeding was instituted vexatiously. This looks to the motive of the applicant in instituting the proceeding. It is an alternative ground to the ground based on a lack of reasonable cause. It therefore may apply where there is a reasonable basis for instituting the proceeding. This context requires the concept to be narrowly construed. A proceeding will be instituted vexatiously where the predominant purpose in instituting the proceeding is to harass or embarrass the other party, or to gain a collateral advantage.”

[27] Regarding claims advanced without reasonable cause, in Keep v Performance Automobiles Pty Ltd[2015] FWCFB 1956, the Full Bench of the Commission observed:

“[17] The proper construction of s.611(2)(a) was recently considered by a Full Bench in Church v Eastern Health t/as Easter Health Great Health and Wellbeing (Church). 4 Church is authority for the following propositions:

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

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

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

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

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

[28] I am unable to conclude that the Respondent responded to the Applicant’s unfair dismissal application vexatiously or without reasonable cause in either the First Decision or the Second Decision.

[29] Regarding vexation, I discern nothing in the motive of the Respondent that could be seen to constitute pursuit of its defence of the claim merely to harass or frustrate the Applicant. The Respondent forcefully advanced its position in each of the proceedings resulting in the First Decision and the Second Decision.

[30] As to without reasonable cause, it could also not be put that it should have been reasonably apparent that its defence was manifestly untenable, groundless or so lacking in merit as to be not reasonably arguable. Insofar as the Applicant relies on passages from the First Decision in its case, there are other parts of the First Decision that clearly indicate the decision was the result of a balance of the evidence, and not the absence of evidence in the Respondent’s case.

[31] Indeed, SDP Hamberger found “None of the witnesses was particularly convincing when giving their oral evidence” 15. Nonetheless, the Senior Deputy President preferred the Applicant’s evidence, and “…generally accept[ed] the applicant’s version of events”16. Crucially, SDP Hamberger concluded17:

“I do not consider there is sufficient evidence to sustain any of the allegations the respondent made against the applicant. In particular, I am not persuaded that there are any significant, unexplained discrepancies in the cash accounts the applicant had prepared.

Moreover, I accept on the balance of probabilities that Dr Zhang had verbally agreed to pay the applicant a $200 performance bonus for every $12,000 of revenue received per week.” (Emphasis added)

[32] Far from baseless response, the First Decision discloses a reasonably arguable case decided on the sufficiency of evidence and balance of probabilities.

[33] The Second Decision also resulted from a balance of two countervailing cases and consideration of various indicia of employment, which would have disposed of the small business objection, and indicia of independent contracting, which would have supported the small business objection. That the balance fell in the Applicant’s favour was again the result of the balance of the evidence, and not the absence of evidence in, or an arguable basis to, the Respondent’s case.

(b) S.400A Unreasonable Act or Omission

[34] In Matthew Gugiatti v SolarisCare Foundation Ltd 18, the Full Bench of the Commission held:

“Section 400A(1) establishes two pre-conditions for the making of an order for costs under the subsection (in addition to the requirement in s.400A(2)). The first is that the Commission must be satisfied that a party engaged in an unreasonable act or omission in relation to the conduct or continuation of a matter. The second is that such act or omission caused the other party to the matter to incur costs. Once these preconditions are satisfied, a discretionary power to order the payment of such costs is enlivened.”

[35] By referring to a party who “unreasonably” fails to agree to terms of settlement, the legislature has adopted the standard of the reasonable person. Regarding a similar provision in predecessor legislation to the Act, a Full Bench of the Australian Industrial Relations Commission found 19:

“A reasonable person, who is a party to proceedings pursuant to s.170CE, when confronted with an offer of settlement from the other party, will determine whether, and if so, how to respond to such an offer after considering all the circumstances of the case, including:

•  the terms of the settlement offered in relation to the relief sought;

•  the relative strengths of the parties’ cases (and thus their relative prospects of success) in relation to both ‘liability’ and the relief sought;

•  any assessment of the merits in the certificate issued by the Commission pursuant to s.170CF(2);

•  the likely length and cost of proceeding to a hearing if the matter does not settle; and

•  any adverse consequences that will accrue to a party if they accept a settlement on particular terms rather than successfully prosecute or defend the primary application, as the case may be.

This list is not intended to be exhaustive. All of the circumstances are relevant and, as is made clear in the joint judgment in Blagojevch, there is no basis in the Act for giving primacy to any particular factor in every case.”

[36] The Explanatory Memorandum to the Fair Work Amendment Bill 2012 stated in respect of the provision that became section 400A:

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

[37] The Applicant’s focus in their argument regarding unreasonable act or omission is the Final Settlement Offer. Previous offers had been made encompassing both all claims between the parties, and offers specific to the unfair dismissal proceedings only. I do not consider it unreasonable, as the Applicant submits, that the Respondent sought to resolve all claims in some settlement proposals. It will be the case though that such combined settlement offers are difficult to assess for reasonableness under s.400A.

[38] The Final Settlement Offer was in the following terms:

“Without prejudice save as to costs

Dear Mr Shen,

I refer to our telephone conversation and more broadly, the proceedings before SDP Hamberger in the Fair Work Commission – U2018/10383 (“the Proceedings”).

Since our last offer was made our client has incurred additional costs and all the evidence and transcript is available. Having reviewed the evidence and transcript is it clear your client has no prospects of success in defending its decision to summarily dismiss our client and your continued defence of this matter is unreasonable. This is particularly so given the unconvincing evidence by Dr Zhang. In that regard we attach a recent decision of SDP Hamberger involving summary dismissal where the employers evidence was equally unconvincing. Accordingly, we are instructed to make a further offer, in accordance with the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333, as follows:

1. Your client pay to our client an amount of $25,000 less applicable tax;

2. Your client provides our client with a statement of service; and

3. The parties enter into a deed incorporating mutual obligations as to confidentiality and non‐disparagement, and a mutual release pertaining to the Proceedings only.

(together, “the Offer”)

We consider the Offer to be reasonable given the strong prospects of success in our client’s claim. Since further submissions are due on Friday, the Offer will remain open until close of business Thursday, 14 February 2019. This is because our client will be forced to incur further legal expenses in continuing the matter if the Offer is not accepted prior to this time.

Assuming your client is unsuccessful and our client receives an amount more than the Offer above, you are on notice that we are likely to receive instructions to:

1. Make an application against your client for an order for costs under section 611(2) of the Act on the basis that your client’s response to the application had no reasonable prospects of success; and/or

2. Make an application against your client for an order for costs under section 400A of the Act on the basis that it caused costs to be incurred because of an unreasonable act or omission in connection with the conduct or continuation of the matter by continuing the matter.

This letter will be produced in support of any application on the question of costs.”

[39] The Final Settlement Offer was remarkable in a number of ways:

(a) It was made 14 days after the Hearing before SDP Hamberger;

(b) It correctly estimated the Applicant’s prospects of success; and

(c) It provided the Respondent with a significantly better result than that eventually achieved.

[40] The response by the Respondent to the Final Settlement Offer was to reject it in the following terms (Original text retained):

“Dear Vasili

I am instructed to reply your mail as following:

1. Our client rejects your made the offer on behalf of your client;

Basis of the hearing before Fair work commissioner, the evidence shows that your client had admitted that she stolen about $7000.00 from the former employer; took $200, or $400 or $600 in each week without legal grounds; which it constitutes serious misconduct.

However, we are looking forward to receiving the submission from your firm today.

Further, we are instructed to advise you that your client must return all documents or confidential information she possessed ( no matter in the formality of hardcopy or soft‐copy) which it belongs to Mastery Dental, to this firm with 14 days from this mail. If we do not receive the documents which contained all company confidential information in due time, we are instructed to take further action to against your client with the claim all costs caused.

Thank you

Your faithfully,

Wilson Shen Solicitor & Barrister”

[41] A reasonable person, when confronted with the Final Settlement Offer at the time it was made, would have been faced with the following conundrum. While the matter had already proceeded to Hearing, and the only further costs related to written submissions by the parties, the relative strength of the parties cases regarding liability and relief was in sharp focus as the evidence had been rigorously tested. That latter knowledge of the relative strength of the parties cases would have, to a reasonable person, overwhelmingly compelled the acceptance of the Final Settlement Offer, thereby avoiding at least the further cost of submissions and the likely award of compensation at the higher end of the jurisdictional limit.

[42] A reasonable person would certainly not have rejected the Final Settlement Offer and maintained the allegation of serious misconduct that was eventually easily disposed of in the First Decision. The failure by the Respondent to accept the Final Settlement Offer was an unreasonable act in relation to the conduct or continuation of a matter that such act caused the Applicant to incur costs.

Conclusion

[43] I reject the claims in the Costs Application that the Respondent acted vexatiously and/or without reasonable cause. I uphold the claim in the Costs Application that the Respondent engaged in an unreasonable act in relation to the conduct or continuation of a matter by rejecting the Final Settlement Offer, and that such act caused the Applicant to incur costs.

[44] The Applicant provided a detailed schedule of the costs she incurred in the proceedings. I exercise my discretion to order that those costs identified in that schedule as having been incurred from 12 February 2019 (inclusive), being the date of the Final Settlement Offer, to 25 September 2019 (inclusive), including those identified as “at the discretion of the FWC”, be paid by the Respondent.

[45] I direct the parties to confer as to the orders which are appropriate in light of this decision. The Applicant is directed to file such agreed orders within 14 days. Any dispute as to the terms of the orders may be referred to the Commission for final determination.

DEPUTY PRESIDENT

Printed by authority of the Commonwealth Government Printer

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 1   [2019] FWC 2315.

 2   [2019] FWCFB 5104.

 3   [2019] FWC 7824.

 4   [2020] FWCFB 585.

 5   [2015] FWCFB 5226.

 6 First Decision at [19].

 7 First Decision at [26].

 8 First Decision at [27].

 9 First Decision at [30].

 10 First Decision at [53].

 11   Briginshaw v Briginshaw (1938) 60 CLR 336.

 12 (2013) 232 FCR 428 at 430-431.

 13   [2013] FWC 2351, at [44].

 14   [2013] FWCFB 1811, at [17].

 15 First Decision at [19].

 16 First Decision at [52].

 17   First Decision at [53] and [54].

 18   [2016] FWCFB 2478, at [43].

 19   Brazilian Butterfly Pty Ltd v Alissia Charalambous (2006) 155 IR 36 at [43] and [44].