[2013] FWC 8795



Fair Work Act 2009

s.402 - Application for costs orders against lawyers and paid agents under s.401

Alexander M Pty Ltd
Gregory Lloyd; McDonald Murholme Solicitors



Application for costs against lawyers and paid agents.

[1] On 24 April 2013 Mr. Gregory Lloyd made an application under s.394 of the Fair Work Act 2009 for an unfair dismissal remedy. The employer, Alexander M. Pty Ltd, submitted that Mr.Lloyd was not dismissed within ss.385, 386 and 394(1).

[2] The matter was conciliated and then heard on 2 September 2013.

[3] On 18 September 2013 I dismissed the application on the basis that Mr.Lloyd abandoned his employment, and had not been dismissed 1.

[4] On 1 October 2013 Alexander made an application for costs against Mr.Lloyd under s.611, or in the alternative, against his legal representative, McDonald Murholme, under s.401.

[5] The requirement in s.402 that the application must be made within 14 days of the decision is met.


[6] McDonald Murholme raised a number of procedural issues. On 10 October 2013 the applicant was directed to provide a written submission and any other evidentiary material by 31 October, and McDonald Murholme the same by 21 November. The Commission indicated that the matter would be determined on the basis of written submissions, ‘on the papers’, unless the parties objected no later than 17 October. No objection to the matter being determined on the papers was received.

[7] On 24 October 2013 McDonald Murholme wrote to Mr.Lloyd advising him that they can no longer act for him unless he contacted them by 30 October.

[8] On 13 November McDonald Murholme sought an extension of time in which to lodge submissions on the basis of alleged difficulties in contacting Mr.Lloyd and because Mr.McDonald would be on leave overseas from 14 November until 25 November.

[9] In order to assist McDonald Murholme I extended time in which it could lodge submissions to 29 November.

[10] On 28 November McDonald Murholme sought a further extension of time in which to lodge its application on the basis that its ‘interest is reasonably expected to be possibly in conflict with our client in responding to the application, we should be grateful if we could seek advice from the Ethics Committee of the Law Institute of Victoria as to what we are entitled to do in response to the application when we have not been able to contact our client notwithstanding our numerous attempts to do so.’

[11] On 29 November the applicant opposed the extension of time sought on the basis that it should have been plain to McDonald Murholme that they have had difficulties in contacting their client, and that prejudice to the employer would occur. I refused the application for an extension of time.

[12] On 29 November McDonald Murholme provided a written submission and affidavit of Mr.Alan McDonald. In the affidavit but not the submission McDonald Murholme said: ‘I ... crave leave of the Tribunal to make a lengthier affidavit in opposition to the Application by the Costs Applicant’. No submission in support was made.

[13] On 4 December the Costs Applicant submitted that the directions were issued on 10 October, and that the Commission is entitled to take the view that both Cost Respondents have had more than adequate time and opportunity to clarify their position and that any information not currently before the Commission, ought to be disregarded.

[14] McDonald Murholme was aware from early on that it would have difficulty contacting its client, Mr.Lloyd. Mr.McDonald chose to go on leave, notifying this Commission only the day before he left, which is very short notice. Mr.McDonald could have made an approach to the Law Institute before he left. I have already extended time in which McDonald Murholme was to put submissions. Other staff at McDonald Murholme could and apparently did work on submissions. Mr.McDonald could have directed work to be done in his absence. There is the danger of prejudice to the Costs Applicant. The submission of McDonald Murholme on a further opportunity to put submissions is very brief and does not raise issues which could not have been addressed by it at an earlier date.

[15] I am satisfied that both Mr.Lloyd and McDonald Murholme have had adequate time in which to prepare submissions. Leave to put further material is refused.

[16] No submissions were received from Mr.Lloyd notwithstanding directions and service effected in accordance with the Fair Work Rules.

Application against Mr.Lloyd

[17] In these matters costs do not follow the result, but may only be ordered in a limited range of circumstances set out in s.611 of the Act and elsewhere.

[18] Section 611 provides:

[19] The concept of vexatious in the context of similar costs provisions was discussed in Holland v Nude Pty Ltd T/A Nude Delicafe 2:

[20] In Read v Gordon Square Child Care Centre Inc T/A Gordon Square Early Learning Centre 3 a Full Bench of the FWC considered the phrase "without reasonable cause" as it appears in s.611. That Full Bench stated:

[21] In Deane v. Paper Australia 4 a Full Bench of the Commission said:

[22] In Hart v. Kangan Batman TAFE 5 a Full Bench of the Commission said that:

[23] In Baker v. Salva Resources 6 a Full Bench of the Commission followed Deane in relation to the new s.611 of the Act and said:

Decision on Costs Application Against Mr.Lloyd

[24] I have had regard to the submissions and material put by Alexander M. No submissions were put by or on behalf of Mr.Lloyd. McDonald Murholme has not expressly withdrawn its appearance on behalf of Mr.Lloyd. From the context it may be inferred that it has done so, although this is not entirely clear.

[25] In this matter all the facts which formed the basis of my decision were known to the applicant before he instituted his application for an unfair dismissal remedy. I summarised those facts in my decision and reached a conclusion with respect to them:

[26] In my view on the facts known to the applicant it was obvious that his application would not succeed because there were no grounds for a claim that there was a dismissal. His application was not reasonably arguable, specifically his claim that he had been dismissed.

[27] An order for costs will be made against him pursuant to s.611.

Application against McDonald Murholme

[28] Section 400A states:

[29] Section 400A relates only to costs which may be awarded against parties.

[30] Section 401 provides:

[31] This section incorporates the same concept of an unreasonable act or omission referred to in s.400A but with application to the actions taken or not taken by the legal representative of a party.

[32] Section 400A took effect in January 2013. The Explanatory Memorandum refers to this section and to s.401 in the following terms:

[33] The phrase "unreasonable act or omission" used in s.170CJ(3) of the Workplace Relations Act 1996 (the WR Act). Sections 170CJ(1), (2) and (3) as they applied in March 2006 provided:

[34] The unreasonable act or omission phrase in s.170CJ(3) was considered in Goffet v Recruitment National Pty Ltd 7, which concerned a failure to attend conciliation proceedings. In that matter the Full Bench stated:

[35] The Bench continued:

[36] A Full Bench considered the former s.170CJ(2) and (3) in Brazilian Butterfly Pty Ltd and Charalambous. 8 It addressed the authorities relevant to these provisions before stating:

[37] The Full Bench continued:

[38] A Full Bench said in Stagno v Frews Wholesale Meats 9:

[39] In Blagojevch v Australian Industrial Relations Commission 10 the Court said:

[40] In Veal v. Sundance 11 a Full Bench of the Commission said:


[41] Alexander M applies for costs against McDonald Murholme.

[42] McDonald Murholme submits that:

. nothing said in evidence at the hearing or in the relevant material would entitle Alexander M to costs;

. Alexander M seeks to rely on confidential communications at a Fair Work conference which cannot be relied on. In any event McDonald Murholme denies that it said that the case requires a four day hearing;

. the Commission’s decision was on jurisdiction not merits;

. the Commission’s decision was based on the credibility of Mr.Lloyd;

. there was no reason for McDonald Murholme not to believe its client;

. McDonald Murholme relied on the written instructions of Mr.Lloyd;

. Alexander M was delinquent in making statutory payments;

. it was not possible for McDonald Murholme to advise Mr.Lloyd that he should not proceed with the application because it does not have reasonable prospect of success or that he should accept any particular offer of settlement;

. Alexander M’s case was confusingly put and the costs claim is excessive.

[43] Mr.Alan McDonald claims in his affidavit that:

. he found Mr.Lloyd to be a credible person;

. he was instructed to make reasonable offers of settlement and did so, while Alexander M did not;

. Alexander M did not provide comply with his obligations to provide payslips and other records and employment obligations;

. the failure of the application on jurisdictional grounds could not be foreshadowed because it was a matter of Mr.Lloyd’s instructions as to what happened on that day, and the rejection of his evidence could not be predicted.

[44] Alexander M in reply submits that:

. the request by the Conciliator for McDonald Murholme to estimate the length of hearing and likely number of witnesses, and their answer, is not privileged but can be had regard to in costs applications;

. McDonald Murholme clearly indicated that it considered that the case would go for four days and did so as late as 31 July 2013, (Exhibit JSF7 to the Affidavit of Jonathan Flannery dated 1 October 2013), and Mr.McDonald has never sworn on oath to the contrary;

. the cost impact on Alexander M of preparing for a four day case was considerable. It was an interstate employer because it closed its Melbourne office because it was unprofitable under Mr.Lloyd’s management;

. Alexander M always clearly disputed that it had dismissed Mr.Lloyd;

. Alexander M disputes the claim that McDonald Murholme was entitled not to investigate overpayments made to Mr.Lloyd;

. Mr.McDonald’s reference in paragraph 8 of this affidavit to a belated Alexander M claim for overpayment of wages made in the proceedings ignores the plain raising of the issue on 10 May 2013 in the Alexander M response to the application. Mr.McDonald’s statement is ‘of course utter and arrant nonsense’;

. Mr.McDonald’s claim that Alexander M made belated settlement offers is also nonsense as the evidence reveals;

. there is no documentation of any alleged reasonable offers of settlement made by Mr.Lloyd, and indeed there were no such offers as indicated by the chronological history of the matter tendered by Alexander M. The only offer made by Mr.Lloyd was on 29 August, one clear business day before trial, at which time all the costs of Alexander M had been incurred including solicitor’s professional fees, barrister’s fees, witness expenses, airfares and accommodation costs. The offer made was totally unacceptable to Alexander M;

. by comparison, Alexander M attempted to negotiate and minimise costs. It acted reasonably;

. Alexander M rejects the claims made with respect to payslips and similar records, which are in any event irrelevant;

. McDonald Murholme is not simply entitled to reply on the written instructions of its client Mr.Lloyd regardless;

. the costs incurred by Alexander M are not excessive, and Mr.Bailey’s witness statement should be relied on;

. Alexander M seeks nothing more than a ‘fair go all round’, and McDonald Murholme and Mr.Lloyd’s actions were ‘deliberate, cynical and denied the Cost Applicant that ‘fair go’’.

Consideration of the Issues

[45] In relation to offers of settlement, according to Mr.Flannery’s sworn statement of 1 October 2013, Alexander M made an offer of settlement to McDonald Murholme on 27 May 2013 12 (payment of entitlements and one weeks’ additional pay), 8 August 201313 (4 weeks’ pay), and on 9 August 2013 further and in addition offered not to pursue the alleged overpayment14. There were apparently unsatisfactory telephone conversation(s) which led Mr.Flannery to request McDonald Murholme to respond in writing, as conversations by telephone ‘are of little value to the potential resolution of this matter’15.

[46] While Alexander M made an offer of settlement on 27 May, no offer to settle was made by McDonald Murholme until 29 August, some three months later. Mr.Flannery provided a sworn statement on 31 October 2013 that:

[47] Alexander M further offered and sought in letters to McDonald Murholme to make arrangements for the payment of entitlements to Mr.Lloyd on 27 May 16, and 8 July17.

[48] McDonald Murholme’s claim that the overpayment issue was raised belatedly is curious. It was raised by Alexander M in its first response to the application, on 10 May (‘Apparent significant overpayments of wages/salary made to the applicant’). Mr.Flannery for Alexander M again raised the issue of alleged overpayments by Alexander M to Mr.Lloyd on 8 July 2013 18, and at greater length on 31 July 201319. McDonald Murholme did not at any stage provide any substantive response to the 31 July explanation, although it discussed the alleged overpayments on 15 July 201320. In any event the issue had already been raised by Alexander M with Mr.Lloyd on 8 April.

[49] In particular, On 15 July 2013 McDonald Murholme requested Mr.Flannery for Alexander M to provide details of the ‘progress and steps undertaken by your client with respect of the alleged overpayments given that our client’s [sic] was dismissed on 8 April 2013 and investigations of this nature are commonly expeditious when paperwork and accounts are in order’. It sought other details so that it could take instructions. Mr.Flannery responded on 31 July by providing such specific details. He claimed that ANZ had verified that certain payments were made to Mr.Lloyd, the amounts, the dates of the alleged payments, the alleged sum of net overpayments, and requested repayment.

[50] Despite seeking such details, McDonald Murholme never responded to this material, either by letter or email or in the proceedings. In my decision I drew attention to the failure of Mr.Lloyd to clarify the facts about the alleged overpayments 21.

[51] McDonald Murholme and Mr.Lloyd were put on notice as early as possible about the issue. The issue was important because it was arguably relevant to the amount of compensation that might be ordered by the Commission if Mr.Lloyd was successful in his application.

[52] Mr.Flannery has provided a sworn statement that during a conciliation conference McDonald Murholme provided an estimate to the Commission and himself that the matter would take four days 22. However, the estimate was provided during a conciliation conference, and McDonald Murholme has objected to the material being taken into account on that basis. In McKenzie v. McDonald Murholme23 a Full Bench of the Australian Industrial Relations Commission considered an appeal against a decision ordering costs against McDonald Murholme. The Bench considered that an offer made during conciliation should not be taken into account in determining a costs application under s.170CJ. I adopt the reasoning of the Full Bench. The four day estimate made during a conciliation proceeding cannot be taken into account for the purposes of these proceedings.

[53] A contemporaneous letter of 31 July 2013 from Mr.Flannery supports his version of events, namely that McDonald Murholme continued to estimate that a four day hearing was required:

[54] He expressed his concern about the ‘enormous cost’ therefore involved. McDonald Murholme did not contradict this claim by letter at the time. If it was inaccurate it was allowed to remain inaccurate without correction. Mr.McDonald has provided only an unsworn statement to the contrary for the purposes of the costs proceedings.

[55] On 8 August 2013 Mr.Flannery again complained about the cost implications of a four day hearing that McDonald Murholme apparently continued to recommend, support or require:

[56] Mr.Flannery referred to a number of other issues including costs applications under s.401. McDonald Murholme responded in writing on 14 August 2013 but did not deal with the contents of the offer or respond to the offer, or contradict or change the estimate of a four day hearing which Alexander M said had adverse cost implications.

[57] The matter was initially listed for a four day hearing on 5 July, and this continued until it was reduced to a more accurate one day on 21 August. McDonald Murholme was advised by Mr.Flannery on 31 July and 8 August about his concerns about the cost impact, and McDonald Murholme on the material before me did not reply by reviewing its estimate or taking other action to change the four day hearing which was on the material supported by it. McDonald Murholme in so doing it appears caused Alexander M to incur additional costs. The four day hearing was not necessary and the hearing was one day or less.

[58] The costs incurred by Alexander M are stated in a sworn statement of Mr.Gordon Bailey, Accountant, made on 30 October 2013, to be $27,284.71. He provides a breakdown of those costs. McDonald Murholme described these costs as ‘excessive’ in a submission without specifying which and why payments were allegedly excessive.

[59] In relation to the merits of the matter, I have stated above that on the facts known to Mr.Lloyd his application had no substantial prospects of success. McDonald Murholme submits that on the facts stated to the firm this was not apparent, and that it was entitled to rely on what was put to it by its client. Mr.McDonald said that he was not impressed with the employer because it had failed to meet payroll and other requirements regarding documentation, and because Mr.Lloyd ‘provided me with plausible explanations of matters which were in his knowledge. He was not able to answer questions about monies paid into his account which were not accompanied by any documentation and which were not from his employer’s account’ 26. A number of other matters were raised in the McDonald Murholme submissions27.

[60] However, in this matter there was clearly a difference of opinion about the facts of the matter which McDonald Murholme, a highly experienced firm, was aware about from the earliest possible time. Alexander M had provided specific details of the alleged overpayments to McDonald Murholme on 31 July, in response to a request for those details made by McDonald Murholme on 15 July. Alexander M claimed that ANZ had verified that certain payments were made to Mr.Lloyd, the amounts, the dates, the alleged sum of net overpayments, and requested repayment.

[61] McDonald Murholme must have known that there was a possibility that another version of events would be preferred if these details were true and correct. It could not simply rely on what Mr.McDonald calls in his statement ‘matters which were in [Mr.Lloyd’s] knowledge’. Any reasonable person would have investigated to ascertain if the claims made by Alexander M with such specificity were true. Even if I assume that the instructions given by Mr.Lloyd to McDonald Murholme on the issue of alleged overpayments were consistent with the evidence given by Mr.Lloyd to the Commission, namely that he did not know and did not investigate to ascertain the truth, then McDonald Murholme must have known that there was a real danger that the Commission might not find this to be an appropriate response after so many occasions when the issue was raised with him.

Decision on Costs Order Against McDonald Murholme

[62] The requirements of s.401(1) are met. Mr.Lloyd made an application for an unfair dismissal remedy, engaged a lawyer to represent him in the matter, and the lawyer was required and did seek the Commission’s permission to be represented by the representative. The permission was granted.

[63] Turning to deal with the requirements of s.401(1A), I find the submissions and evidence provided by Alexander M generally persuasive. I have not been able to place much weight on the material provided by McDonald Murholme.

[64] Beginning on at least 27 May Alexander M made at least three attempts to settle the matter by making offers of money, to pay entitlements, and to forego substantial alleged overpayments. McDonald Murholme refers to these offers as being made ‘belatedly’ 28. However it is difficult to see how such a claim can reasonably be made. Alexander M made its first offer on 27 May, and sought shortly after to address settlement issues such as the alleged overpayments and entitlements.

[65] McDonald Murholme did not make an offer of settlement until the last minute, on 29 August shortly before a 2 September hearing, at which point considerable costs had already been incurred by Alexander M, which was an interstate company. Mr.Flannery has given uncontradicted sworn evidence that all of the relevant costs and outlays incurred up to that point in time had already been incurred and could not be ameliorated 29. Unlike Alexander M, McDonald Murholme never substantively addressed before that late stage the various settlement issues between the parties namely the alleged overpayments and the additional payments offered. The course of conduct engaged in by McDonald Murholme maximised costs to Alexander M and minimised the possibility of any negotiated settlement on a basis other than complete accession to their claims, regardless of the merits of those claims. Complete accession to their claims was not likely given the merits of the case and the overall circumstances in which the employer had legitimate concerns about the conduct of an employee, which the employee never sought to address.

[66] As noted in my decision, McDonald Murholme did not satisfactorily address in submissions or evidence the issue of alleged overpayments, even though this might affect any resulting compensation. It now says that this overpayments claim was made ‘belatedly’ 30. Again, it is difficult to see how such a claim can reasonably be made. The employer first raised the issue on 8 April, and then 10 May, and then consistently raised it. Such a failure is relevant to an assessment of whether or not the conduct of McDonald Murholme was reasonable, having regard to the observations on merits issues in for example Brazilian Butterfly.

[67] On the information before me, I am satisfied that Mr.Lloyd followed advice from McDonald Murholme over the duration of this matter. No submission to the contrary was put. Directions were issued on 10 October, and McDonald Murholme had ample opportunity to raise the issue with the Law Institute or other body if it wished and has not done so. It quickly became apparent that there would be difficulties in contacting Mr.Lloyd.

[68] Section 381 provides the object of the unfair dismissal part of the Act:

[69] As noted in Veal 31, McDonald Murholme is entitled to recommend hard bargaining. However, the conduct before me goes beyond hard bargaining and into the realm of disadvantaging both the employer and employee concerned. The result of the conduct of the case is that Mr.Lloyd has achieved no compensation, has expended moneys on litigation, and is now liable for an action for the repayment of alleged overpayments, and for the payment of Alexander M’s costs. Alexander M has expended $27,284.71 in legal costs to date, and will need to engage in further litigation if it wishes to recover alleged overpayments. Both employer and former employee have been left in an unsatisfactory position. It may not be too strong a description to describe the outcome of the case as a calamity for both sides.

[70] It should have been reasonably apparent to any participant in the negotiations that a settlement on something similar to the terms offered by Alexander M on 8-9 August would have comparatively benefited both Mr.Lloyd and Alexander M. Mr.Lloyd would have received at least four weeks’ additional pay and possibly more, and been released from any claim for recovery of alleged overpayments, and presumably costs. Alexander M would have avoided the expenditure of considerable funds in litigation, and would have achieved finality in these proceedings.

[71] The conduct of negotiations by McDonald Murholme made a settlement beneficial to both sides extremely difficult, led to costs being incurred which could have been avoided, and led to possibly unnecessary proceedings. The only possible net beneficiary of the conduct of the case to date is McDonald Murholme, through legal costs.

[72] There were cumulative unreasonable acts by McDonald Murholme within s.401(1A)(b) in the circumstances of this case.

[73] The four day hearing estimate made by McDonald Murholme during a conciliation conference cannot be taken account of. However, McDonald Murholme outside the conciliation conference continued to support a four day hearing which caused Alexander M to incur additional costs, and which on the material before me was not a well founded estimate. On one view this is also the result of the conciliation conference and cannot be taken account of. In the alternative, although this is not necessary to my decision, it was an estimate that McDonald Murholme supported or advocated outside the conference and is relevant as another in a series of cumulative unreasonable acts. It would be curious result if the mention of an estimate of hearing time in a conciliation conference is enough to absolve a party which continues to support outside the conference an unfounded estimate which causes costs to the other side.

[74] An order for costs will be made against McDonald Murholme pursuant to s.401(1A).

Shared Costs

[75] In my view the costs should be paid equally by both Mr.Lloyd and McDonald Murholme. The costs are those incurred by Alexander M arising from the initial proceedings arising out of Mr.Lloyd’s application for an unfair dismissal remedy, and the costs proceedings.


[76] An order [PR545796] has been issued giving effect to my decision.


Hearing details: on the papers

Final written submissions:


31 October

21 November

28 November

 1   [2013] FWC 7026

 2   [2012] FWAFB 6508

 3   [2013] FWCFB 4056

 4   PR932454

 5   PR958003 at paragraph 21

 6   [2011] FWAFB 4014

 7   [2009] AIRCFB 626

 8   PR968915, 25 August 2006

 9   1998 84 IR 270

 10   98 IR 32

 11   [2013] FWCFB 8960

 12   Attachment JSF1

 13   Attachment JSF8

 14   Attachment JSF9

 15   Attachment JSF10

 16   JSF1

 17   JSF4

 18   JSF4

 19   JSF7

 20   JSF5

 21   Paragraph 9

 22   1 October 2013

 23   Print S4692, 7 APRIL, 2000, Giudice J, President, Watson SDP, Whelan C

 24   JSF7

 25   JSF8

 26   Statement of Alan McDonald, paragraphs 2-4

 27   McDonald Murholme submissions paragraphs 7-13

 28   Witness statement of Alan McDonald, paragraph 3

 29   Witness statement 30 October 2013, paragraph 6

 30   McDonald Murholme submissions, 29 November, paragraph 8

 31   [2013] FWCFB 8960 at 67

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