When are costs orders available in proceedings under the Fair Work Act 2009 (Cth)
Cheng v Western Pursuits Trust (No. 2)  FCCA 659
Cross v Harbour City Ferries Pty Ltd t/as Harbour City Ferries & Ors (no.2)  FCCA 1713
Court proceedings under the Fair Work Act 2009 (Cth) (FW Act) invariably leave even a party bearing its own costs, even if successful.
The recent decisions of Cheng v Western Pursuits Trust (No. 2) (Cheng) and Cross v Harbour City Ferries Pty Ltd t/as Harbour City Ferries & Ors (no.2) (Cross) provide useful overviews of the relevant principles a Court will apply in exercising its discretion to order costs in such proceedings.
These issues have significant implications for employers when defending such proceedings, which are most commonly general protections (“adverse action”) claims, and their insurers as to drafting policy terms, setting premiums as well as reserving and setting defence strategy in EPL claims.
Section 79(1) of the Federal Circuit Court of Australia Act 1999 (Cth) (FCCA Act) excludes the power to award costs under in respect of matters arising under the FW Act. Similarly, section 43 of the Federal Court of Australia Act 1976 (Cth) (FCA Act) makes the Court’s power to award costs subject to the limitations found in section 570 of the FW Act.
The Court’s power to award costs in Fair Work proceedings does not arise from section 570 of the FW Act, rather, from the original statutory power of the Court (section 79 of the FCCA Act or section 43 of the FCA Act).
Sections 570(1) and (2) of the FW Act provide that a Court may only make an adverse costs order against a party if the Court is satisfied that:
- the party instituted the proceedings vexatiously or without reasonable cause; or
- the party’s unreasonable act or omission caused the other party to incur the costs (section 570(2)(b)); or
- the Court is satisfied that both a party unreasonably refused to participate in a matter before the FWC and the matter arose from the same facts as the proceedings
We focus on the second of these issues, due to its particular relevance to defence and settlement strategy.
The costs application in Cheng
Ms Cheng brought a general protections Court application against Western Pursuits Trust trading as Vauxhall Inn (WPT).
The Court’s primary judgment was delivered in December 2016 and WPT was entirely successful on every point. WPT then sought its costs the proceedings, pursuant to section 570(2) of the FW Act.
WPT relied on section 570(2)(b), arguing that Ms Cheng’s failure to accept its Calderbank walkaway offer of settlement amounted to an “unreasonable act or omission” that caused it to incur costs.
The costs application in Cross
Mr Cross was employed by Sydney Ferries as a casual general purpose hand from 2008. He was then employed on a casual basis by Harbour City Ferries. His manager was the third respondent to the proceedings.
Mr Cross commenced proceedings, claiming that each of Sydney Ferries, Harbour City Ferries and his manager had contravened a number of general protection provisions in the FW Act, by not offering him shifts from October 2012. He sought compensation from Sydney Ferries and Harbour City Ferries.
On 24 March 2017, the Court delivered its primary decision, rejecting all of Mr Cross’ claims and dismissing his application. Sydney Ferries, Harbour City Ferries and the manager sought costs against Mr Cross pursuant to, amongst other things, section 570(2)(b).
When rejecting of settlement offer unreasonable
For the purposes of section 570(2)(b), the Court must be satisfied that:
- a party’s act or omission was unreasonable; and
- such unreasonable act or omission caused another party to incur costs.
As usual, those questions are to be determined having regard to the particular circumstances of each case.
The Court in both Cheng and in Cross noted the well-established principle that a failure to accept a reasonable offer of compromise may constitute an “unreasonable act” for the purposes of section 570(2)(b).
The Courts have previously awarded costs on this basis in:
- McDonald v Parnell Laboratories (No 2). Costs were awarded (under the predecessor legislation to the FW Act) against an applicant who rejected a settlement offer comprising eight weeks’ salary, interest and standard costs. The Court held the refusal of the “very reasonable offer” was “imprudent” in circumstances where the majority of the applicant’s claims were “ambitious”.
- Clifford v The Trustee for Healthy Hearing & Balance Care. Costs were awarded against an employer that conducted what the Court described as being a “totally unnecessary and protracted case”. The Court found the employer’s failure to make concessions in its case and accept settlement offers that were significantly less than the amounts awarded to the applicant at trial were unreasonable, and caused the applicant to incur costs.
Outcome in Cheng: costs not awarded
In Cheng, Justice Driver declined to award costs in WPT’s favour. An important factor as to why WPT’s Calderbank offer failed to persuade his Honour to award costs was because the offer was a “walkaway” offer, that is, for Ms Cheng to discontinue her application and for each party to bear their own costs.
In the Court’s view, having regard to the criteria in section 570(2)(b), Ms Cheng’s rejection of the offer did not constitute an unreasonable act or omission. As the Fair Work jurisdiction is, in principle, a “no costs” jurisdiction, the Court found that the rejection of the “walkaway” offer was not of itself unreasonable However, the Court did note there are cases in which a “walkaway” offer may be reasonable in the context of applications pursuant to s 570(2)(b) of the FW Act.
Further, none of Ms Cheng’s acts or omissions had caused WPT to incur costs. The Court considered procedural matters, including the delay of the proceedings by Ms Cheng and her failure to properly prepare her own case, though these were held referable to her being self-represented. The Court instead found that WPT’s costs were incurred by reason of its own preparation for and attendance at the trial. Those steps were in response to procedural orders made by the Court, and were not caused by Ms Cheng’s inadequate evidence.
Judge Driver also placed significance on the fact that Ms Cheng appeared to be a “vulnerable and troubled young woman”, who had been unable to obtain legal assistance, and who had not been in a fit and emotional state to prepare and run her case.
Outcome in Cross: costs awarded
Conversely, in Cross, the Court made adverse costs orders against Mr Cross, including indemnity costs from the date on which the settlement offers had expired.
In its primary decision, the Court had found Mr Cross had failed to establish even the basic facts to found his action, and had fabricated a claim in order to have some purported legal basis to bring an action against Sydney Ferries. His claims against Sydney Ferries and his manager were made without a reasonable basis.
In the Court’s view, Mr Cross’ failure to accept the settlement offers was not only an unreasonable act that caused the respondents to incur costs in defending the proceedings, but also sufficient to warrant a costs order to be made on an indemnity basis against him..
The Court’s also considered it as significant that each of the settlement offers was for the equivalent of many weeks work for Mr Cross in circumstances where, on his own evidence, his case had no reasonable prospects of succeeding.
Issue for insurers
The decisions in Cheng and Cross are a timely reminder of both the rarity of costs orders and the necessary considerations of establishing costs protection in the Fair Work jurisdiction.
Unlike in most other civil litigation, offers of compromise in proceedings under the FW Act will not provide guaranteed costs protection to respondents. In particular, “walkaway”’ offers will rarely provide such protection and should therefore not be relied upon other than in exceptional circumstances.
Claims managers should always consider the difficulty of recovering costs in the Fair Work jurisdiction when reserving for EPL matters. Further, when setting strategy, careful consideration should be given to the timing of any offer, the amount of the offer, the applicant’s opportunity to consider the offer and whether there is particular conduct by the claimant that can be identified early on in a proceeding as causing an insured respondent to incur specific costs. The question must be asked as to whether the offer realistically provides any cost protection.
Underwriters can take note of the rarity of costs orders in the Fair Work jurisdiction when assessing risk on EPL policies, particularly when offering defence costs only cover. Consideration should also be given to whether the dispute settlement clauses of insurance policies are sufficient to deal with disputes as to reasonable settlement offers in EPL claims, when costs orders are so unlikely.
Additionally, as there is minimal disincentive to stop claimants making unmeritorious claims or to consider reasonable and early settlement offers, defence costs can significantly outweigh the payments ultimately made to claimants. Such issues may need to be factored into the pricing of premiums.
Date: 9 August 2017