DECISION

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

Ms Kellie Smith
v
Melissa Eileen Horvat T/A Palena Fresh
(U2020/880)

Application for costs pursuant to s.611 and s.400A of the Fair Work Act 2009 – costs incurred but not yet paid – post-termination misappropriation of funds – no reasonable prospect of success of applicant at first instance – unreasonable act to continue application while costs were being incurred by the other party.

Introduction

[1] This decision concerns an application by Melissa Eileen Horvat T/A Palena Fresh (Palena Fresh or the Costs Applicant) made on 5 May 2020 seeking an order for costs against Ms Kellie Smith (Ms Smith or the Costs Respondent) pursuant to s.611 and s.400A of the Fair Work Act 2009 (the Act).

[2] The application is made in the context of an application for a remedy for unfair dismissal under s.394 of the Act made on 26 January 2020 by Ms Smith. On 4 February 2020, Palena Fresh filed a Form F3 - Employer Response in response to the application. The matter was listed for hearing before me on 26 May 2020. On 22 April 2020, Ms Smith discontinued the unfair dismissal application.

[3] Directions were issued on 8 May 2020 with respect to the costs application, requiring Palena Fresh to file written submissions in support of the costs application and Ms Smith to file written submissions in response to the costs application. A hearing for the purposes of oral argument was conducted on 15 June 2020.

Background

[4] Ms Smith commenced performing work for Palena Fresh on 18 April 2018. It is agreed between the parties that Ms Smith was notified on 11 January 2020 that she was not required to perform any further work for Palena Fresh.

[5] On 26 January 2020, Ms Smith lodged an application for remedy for an unfair dismissal application under s.394 of the Act. The remedy sought was compensation for alleged underpayment of wages and superannuation.

[6] In the Form F3 - Employer Response, Palena Fresh stated it employed three employees at the time of Ms Smith’s dismissal and raised a number of jurisdictional objections in relation to the application. The first was that Ms Smith was not an employee as she was engaged as an independent contractor. Secondly, Ms Smith did not meet the minimum employment period as defined under s.383 of the Act. Finally, Palena Fresh was a small business employer as defined by s.23 of the Act and that the dismissal was consistent with the Small Business Fair Dismissal Code pursuant to s.388 of the Act.

[7] The matter was listed for conciliation before a Fair Work Commission Staff Conciliator on 25 February 2020, however, it could not be resolved.

[8] The matter was allocated to me on 5 March 2020. Upon allocation, I determined that the jurisdictional objections and the merits application should be heard at the same time.

[9] Directions were issued on 10 March 2020, requiring Palena Fresh to file material in response to Ms Smith’s application and in relation to its jurisdictional objections by 7 April 2020. Ms Smith was required to file material in support of her application and in response to the jurisdictional objections by 4 May 2020. A notice of listing was issued on 10 March 2020, listing the matter for a preliminary conference on 26 March 2020. Ms Smith attended the conference on her own behalf. Palena Fresh was represented by Ms Christie Jones of Counsel, with Ms Horvat, Owner. The conference did not resolve the issues between the parties.

[10] A notice of listing was issued on 30 March 2020, listing the matter for hearing on 25 May 2020 and 26 May 2020. In correspondence sent from my chambers on 30 March 2020, the parties were advised that the Directions issued on 10 March 2020 remained afoot.

[11] At 4:20pm on 7 April 2020, Ms Hovart, on behalf of Palena Fresh, sent correspondence to my chambers requesting an extension of time to file its material on the grounds that it had experienced a ‘number of business and other interruptions as a consequence of Covid-19’. The material had been directed to be filed by no later 4:00pm that day.

[12] At 4:38pm on 7 April 2020, Ms Smith emailed Ms Hovart, copying in my chambers the following:

“Sorry but I don’t know how there is a delay when you are on Facebook playing games with Palena Fresh of charades and saying you were bored and spent most the day Thursday at the hairdressers but cant file on time. Surely that’s not professional blaming covid just because it’s the latest issues unsure how that impacts on how you don’t file response in time 

[13] At 5:16pm on 7 April 2020, correspondence was sent from my chambers granting Palena Fresh’s request for an extension of time and directing that the material be filed by no later than 10:00am, 8 April 2020. This direction was met, and the following material was received:

•  Respondent’s Submissions;

•  Witness statement of Ms Melissa Horvat including annexures; and

•  Witness statement of Mr Martin Narel including annexures.

[14] Shortly thereafter an additional witness statement of Mr Stephen Boyd, together with annexures was filed.

[15] At 8:47am on 22 April 2020, Ms Smith sent the following email to my chambers, copying in Palena Fresh:

“Dear associate,

Unfortunately I’m going to have to cancel and withdraw my application. Due to my current situation I’m dealing with a lot of police issues and medical appointments are taking a lot of my time and my anxiety mental health this is not something that I can cope with at current. I’m aware that I cannot reapply and this is a loss that I’m willing to take to assist with my current mental health and physical health. 

I Thankyou for your time in this matter. 

Kellie smith”

[16] At 9:30am, Ms Horvat responded to Ms Smith’s email, requesting that the matter be listed for hearing for costs. On the same day, my chambers sent correspondence to the parties, acknowledging that Ms Smith’s application had been withdrawn and noting that to make an application for cost, Palena Fresh was to file a Form F6 – Application for costs within 14 days. My chambers then cancelled the listing of the matter and proceeded to close the file.

The costs application proceedings

[17] On 5 May 2020, Ms Horvat lodged a Form F6 applying for costs in the amount of $14,150.

[18] On 8 May 2020, directions were issued requiring Palena Fresh to file an outline of submissions and evidence in support of the costs application by 21 May 2020 and Ms Smith to file an outline of submissions and evidence in response to the application by 4 June 2020. Material in reply was required to be filed by Palena Fresh by 11 June 2020.

[19] Palena Fresh complied with the directions, filing submissions in support of the cost application and the witness statement of Ms Horvat on 21 May 2020. On the same day, Ms Smith sent correspondence to my chambers as follows:

“Dear associate,

I would ask for proof of payment of these amounts as her legal representation was a friend and a customer and I have high suspicions that these amounts have not actually been “paid” for legal fees or even bookkeeping fees and I would like to see payments made of costs that date earlier than when they put in submission for costs. I believe they would be maki an invoice to try get fees under false pretences….” 

[20] On 28 May 2020, my chambers sent correspondence to the parties, setting out s.400A of the Act and Schedule 3.1 – Schedule of costs of the Fair Work Regulations 2009 (the Regulations). Ms Smith was also advised that if she had concerns about Palena Fresh’s submissions, such concerns are appropriate to be raised as submissions in accordance with the directions issued on 8 May 2020.

[21] Ms Smith did not comply with the directions by filing her material by 4 June 2020. Ms Smith did not seek an extension to file her statement as required by the directions. On 8 June 2020, at my request, my Associate sent the following correspondence to Ms Smith, with a copy to Palena Fresh:

“Dear parties,

Reference is made to attached directions issued by Commissioner Hunt on 8 May 2020.  It is noted that no materials have been received from the Costs Respondent by 4 June 2020 in accordance with direction [3].

Chambers asks the Costs Respondent to advise whether she seeks an extension of time to file materials in accordance with the attached directions.”

[22] At 9:38am on 10 June 2020, my Associate sent further correspondence to Ms Smith, with a copy to Palena Fresh, nothing that no correspondence had been received from Ms Smith and requesting that she advise as soon as possible whether she was intending to file material in accordance with the directions issued.

[23] At 10:33am on the same day, Ms Smith sent correspondence to my chambers stating that she had been preoccupied with hospital, doctors and other appointments and she had not had time to bring everything together due to moving and not having everything on her person.

[24] At 12:29pm, Palena Fresh objected to Ms Smith being granted an extension of time beyond 9:00am on 11 June 2020 on the following grounds:

“In circumstances where she brought this proceeding, she has now missed two deadlines for filing responsive submissions and where she has not put on any evidence to justify her failure to comply with the Commission’s written directions.”

[25] I determined to grant an extension of time, requiring Ms Smith to file her material by 4:00pm on 11 June 2020. Palena Fresh was granted an extension of time to file any material in reply until 4:00pm 12 June 2020. Despite again not meeting the directions, at 10:19am on 12 June 2020, Ms Smith sent correspondence to Chambers as follows:

“Commissioner,

Aplomogies but I won’t be able to submit a response. I am very well aware how it looks for myself but as stated I’ve been through a lot of trauma mentally I’ve had many appointments and have not had the ability to do a response fit to my severe anxiety and depression struggles at present. I pulled out of this due to not being able to mentally cope. I had every intention on fighting for my rights. I have attached invoice paid that I used a solicitor to do up a submission and get it sorted but my mental health comes priority.

I request that the filing party for costs provide proof of actual payment as stated as Christie was a customer and friend of Melissa Horvat’s. I do not believe her fees are what they say they are. I do believe that I was a employee and keep coming across lots. I originally put this application in as I believed I was in the right of being owed money but I withdrew as my mental state was Bad. I am happy to provide a doctors letter if needed for evidence as to why. Please in the meantime see evidence of injuries and rehabilitation letter.

Thanks for your time

Kellie”

[26] The correspondence included a medical practitioner’s referral noting the various conditions Ms Smith was experiencing. She also included an email she had sent to her legal representatives at the time, dated 17 April 2020 where she notified her legal representatives that she was going to withdraw her claim for unfair dismissal. I note that she did not withdraw her application until 22 April 2020.

Costs hearing

[27] The matter was listed for hearing on 15 June 2020. Ms Smith attended on her own behalf. I granted leave for Ms Jones of Counsel to represent Palena Fresh. Ms Horvat also attended.

[28] During the hearing Ms Smith stated that she had not read the submissions of Palena Fresh. She stated that she had been unwell with anxiety and had attended many appointments relevant to her injuries and for her son who has autism.

[29] I noted that Ms Horvat’s witness statement was only 1.5 pages long and the submissions only five pages long. I referred Ms Smith to the email sent to her on 21 May 2020. Ms Smith initially said she had not seen that email, however I noted that she had, in fact, replied to it. Ms Smith agreed, but stated that she had not read it in detail. I pointed out that she must have opened it up because when she had replied she referred to bookkeeping fees incurred by Palena Fresh. She then agreed that she had seen it. She repeated that her anxiety is a reason she could not sufficiently deal with the matter before her.

[30] Ms Smith stated that she had paid a lawyer $880 to assist with her unfair dismissal claim, and she would not have done so if she had commenced the action vexatiously. She stated that at the time the lawyer had been engaged she was unable to take the lawyer’s phone calls due to her anxiety. She likened it to not having wanted to take the phone call from the Commission to deal with the hearing on 15 June 2020.

[31] During a submission Ms Smith stated the following, “If you happen to award her the costs, that’s fine.”

[32] Given Ms Smith stated that she had not had the opportunity to thoroughly read the submissions of Palena Fresh, and she regularly raised her anxiety as an issue preventing her competently dealing with the costs application, I summarised for Ms Smith the submissions made by Palena Fresh.

[33] Ms Smith stated that she rejected the assertion that she had always wanted to be a contractor as opposed to an employee. She declared that she never considered herself to be a contractor. She stated that she did have a lot of evidence that she had been putting together but had been overwhelmed and was unable to continue with her application.

[34] She stated that she ceased contact with Ms Horvat when they had a falling out, and Ms Horvat was still continuing to make disparaging Facebook posts about her which was causing her distress.

[35] I informed Ms Smith that I would provide to her one further week if she wished to make any further submissions. Ms Smith stated that it was “very kind” of me to do so, but she did not know what to put into a submission. She stated that she was shaking. I informed her the application before the Commission was a serious matter.

[36] Ms Jones stated that she thought it unlikely Palena Fresh would wish to respond to any further submissions of Ms Smith, however it reserved the right to do so. I advised the parties that I would allow Palena Fresh a short period of time to respond to any submissions made by Ms Smith.

[37] Ms Smith repeated that she had not planned on making any submissions because she did not know what to put, and further stated that she was not in a mental state to do so.

[38] Ms Smith questioned the legitimacy of the legal fees invoiced to Palena Fresh, questioning whether they had been paid by Palena Fresh? Ms Jones confirmed that she had not rendered her final invoice and she will not do so until the conclusion of the matter. Ms Jones stated that she is instructed that Ms Horvat has paid the bookkeeping fees.

[39] In answering questions from me as to Ms Jones’ relationship with Ms Horvat, she stated that the relationship only exists as she has been a customer of Palena Fresh. Deliveries have been made to her chambers in Victoria, and that is how she understands Ms Horvat sourced her and directly briefed her. Ms Jones stated that she has never met Ms Horvat and has no personal relationship with her. Ms Horvat resides in Sydney.

[40] Ms Smith asserted that Ms Jones and Ms Horvat are friendly on Facebook. She suggested that Ms Horvat might provide goods to Ms Smith in exchange for the legal services rendered.

[41] Ms Jones stated she had never come across a matter where the costs needed to have been confirmed as paid before costs could be ordered by a court. She said the costs claimed are more than fair and reasonable given the work that has been performed in all of the circumstances.

[42] I afforded Ms Smith until 22 June 2020 to file any further material she wished. I stated that if she did not file any further material my decision would be reserved.

Submissions and Evidence of Ms Smith

[43] Following the hearing, on 22 June 2020, Ms Smith made extensive written submissions. The submissions are summarised below, noting that I have not included submissions relevant to alleged missing product of Palena Fresh, delivered to Ms Smith’s home:

•  Ms Smith paid a fee to a lawyer to commence the proceedings;

•  Ms Smith was victim to a serious assault on her resulting in a neck fracture and other significant injuries;

•  Ms Smith has had severe anxiety and depression and did not wish to continue to pursue the unfair dismissal application;

•  Ms Smith maintains she was an employee, and this is supported by Ms Horvat’s social media comments where she has stated so;

•  Ms Smith considers that any purported legal fees charged to Ms Horvat might be inflated and Ms Horvat is a small business owner and not able to afford legal fees;

•  Ms Smith considers that Ms Horvat continues to defame her on social media and customers of Palena Fresh have contacted Ms Smith and made threats against her;

•  Ms Smith is a single mother and she does not have finances to be able to pay legal costs. Her income is a single parent pension from Centrelink which is approximately $1,200 per fortnight, including a payment for her Level 2 autistic son;

•  Ms Smith’s medical expenses include physiotherapy, remedial massage and a counsellor.

[44] Ms Smith provided screenshots of various social media posts made by Palena Fresh and Ms Horvat, together with commentary purportedly disparaging Ms Smith.

[45] I afforded the opportunity to Palena Fresh to file any submissions in reply by 26 June 2020, following which my decision would be reserved. No reply submissions were received.

Submissions and Evidence of Palena Fresh

[46] Palena Fresh submitted three grounds for the costs application. The first being that Ms Smith’s unfair dismissal application was made vexatiously and without reasonable cause. The second ground was that Ms Smith’s unfair dismissal application was made with no reasonable prospect of success and thirdly, the costs incurred by Palena Fresh were as a result of Ms Smith’s unreasonable acts and omission.

[47] In advancing its position, Palena Fresh made broad submissions that can be summarised as follows and relied on Ms Horvat’s witness statement dated 8 April 2020 prepared for the unfair dismissal proceedings commenced by Ms Smith.

[48] Palena Fresh contended that at all times throughout the course of proceedings, Ms Smith was aware that she was not an employee of Palena Fresh, and that she was engaged as an independent contractor. Further, Palena Fresh submitted that Ms Smith was aware that Palena Fresh was a small business employer as defined by s.23 of the Act, and that she had not met the minimum employment period of 12 months as required by s.383 of the Act.

[49] Palena Fresh posited that Ms Smith was also aware at all times that Palena Fresh had a reasonable basis to terminate her services given her conduct, which included, amongst other things:

•  Ms Smith’s inappropriate posts and comment on Palena Fresh’s Facebook page, which gave rise to customer complaints and inappropriate comments to a staff member;

•  Ms Smith having misappropriated approximately $1,000 worth of Palena Fresh bakery product; and

•  Ms Smith having made inappropriate sexual advances and suggestive comments to a long-term Palena fresh supplier.

[50] Ms Horvat’s evidence included the termination of Ms Smith’s services at 5:30pm on 11 January 2020. At 7:04pm on the same day, Ms Horvat received an email from Ms Smith which included a receipt for $8,000, addressed to “Mel BOSSLADY”.

[51] Ms Horvat immediately logged on to her internet banking account with ANZ and discovered that Ms Smith had made an unauthorised transaction by making a payment to herself of $8,000. As a result of this transaction the account showed a balance of only $840.61.

[52] It is Ms Horvat’s evidence that another eight or so unauthorised transactions were made by Ms Smith, using the ANZ account to pay for purchases through Groupon and Afterpay.

[53] At approximately 8:00pm on 11 January 2020, within an hour of noticing the unauthorised transaction of $8,000, Ms Horvat attended Sutherland Police Station and reported Ms Smith’s actions. Ms Horvat understands that a criminal investigation is on foot.

[54] Further, it is Ms Horvat’s evidence that around this time Ms Smith hacked in to the Palena Fresh website and made changes, including to the bank account details, ensuring that any payments made to Palena Fresh would be redirected to Ms Smiths’ bank account. Ms Horvat was required to shut down the payment on the Palena Fresh site for approximately one week. This caused a significant loss to the business.

[55] Palena Fresh submitted Ms Smith brought her application for an unfair dismissal remedy for an improper purpose of harassing, annoying and embarrassing Palena Fresh and Ms Horvat. Palena Fresh also submitted that the relief sought by Ms Smith indicates she brought her application for an improper purpose. Ms Smith sought to recover compensation for unpaid wages, as stated in her Form F2, and also compensation for what she claimed to be a percentage of Palena Fresh she alleged to have owned and compensation for an alleged breach for privacy.

[56] Palena Fresh further submitted that Ms Smith knew that Palena Fresh was legally represented, incurring legal costs, and that Palena Fresh was required to file written submissions in relation to the unfair dismissal application by 7 April 2020 pursuant to the directions.

[57] Palena Fresh seeks the following amount on a scale as per the Regulations in the sum of $14,150 for the entire proceeding, not including this costs application. The following table is an itemised scheduled of costs:

Legislative Framework

[58] Section 400A of the 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.”

[59] Relevantly, s.400A was inserted into the Act by of the Fair Work Amendment Act 2012. The Explanatory Memorandum to the Fair Work Bill 2012 provides;

“168. Item 4 inserts a new section 400A to enable the FWC to order costs against a party to an unfair dismissal matter (the first party) if it is satisfied that the first party caused the other party to the matter to incur costs by an unreasonable act or omission in connection with the conduct or continuation of the matter.

169. As with the new power to dismiss applications under section 399A, the power to award costs under section 400A is not intended to prevent a party from robustly pursuing or defending an unfair dismissal claim. Rather, the power is intended to address the small proportion of litigants who pursue or defend unfair dismissal claims in an unreasonable manner. The power is only intended to apply where there is clear evidence of unreasonable conduct by the first party.

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.

171. However, the power to award costs is only available if the FWC is satisfied that the act or omission by the first party was unreasonable. What is an unreasonable act or omission will depend on the particular circumstances but it is intended that the power only be exercised where there is clear evidence of unreasonable conduct by the first party.”

[60] Section 611 of the 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).”

Applicable case law

[61] Cost orders in proceedings under the Act are rare. In Australian Workers Union v Leighton Contractors Pty Ltd (No 2), 1 the Full Court of the Federal Court observed in relation to s.570 of the Act, but with such observation being equally apposite 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).”

[62] In Eghlima and another v Winco Systems Pty Ltd, 2 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.”

[63] Section 611(2)(a) of the Act prescribes that a costs order can be made if the Commission is satisfied that the applicant made the application vexatiously or without reasonable cause. The meanings of the terms ‘vexatiously’ and ‘without reasonable cause’ were discussed in Church v Eastern Health t/as Eastern Health Great Health and Wellbeing (Church). 3 The Full Bench in that decision said the question of whether an application was made vexatiously looks to the motive of the applicant in making the application. An application is made vexatiously where the predominant purpose is to harass or embarrass the other party or to gain collateral advantage.

[64] The Full Bench referred to the decision in Hamilton v Oades where Deane and Gaudron JJ stated: 4

“The terms ‘oppressive’ and ‘vexatious’ are often used to signify those considerations which justify the exercise of the power to control proceedings to prevent injustice, those terms respectively conveying, in appropriate context, the meaning that the proceedings are ‘seriously or unfairly burdensome, prejudicial or damaging’ and ‘productive of serious and unjustified trouble and harassment’.”

[65] The words “without reasonable cause” was also considered by the Full Bench. The Full Bench stated:

“… 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. 5 The test is not whether the application might have been successful, but whether the application should not have been made.6 In Kanan v Australian Postal and Telecommunications Union,7 Wilcox J put it this way:

“It seems to me that one way of testing whether a proceeding is instituted ‘without reasonable cause’ is to ask whether, upon the facts apparent to the applicant at the time of instituting the proceeding, there was no substantial prospect of success. If success depends upon the resolution in the applicant’s favour of one or more arguable points of law, it is inappropriate to stigmatise the proceeding as being ‘without reasonable cause’. But where, on the applicant’s own version of the facts, it is clear that the proceeding must fail, it may properly be said that the proceeding lacks a reasonable cause.”

[66] In the decision of Keep v Performance Automobiles, 8 the Full Bench said the following:

“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). Church is authority for the following propositions:

(i) The power to order costs pursuant to s.611(2)(a) should be exercised with caution and only in a clear case 9.

(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 10.

(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 11.

(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.’’ 12

[67] Section 611(2)(b) of the Act prescribes that a cost order can be made if the Commission satisfied that it should have been reasonably apparent to the applicant that the application had no reasonable prospect of success.

[68] In Clothier v Ngaanyatjarra Media, 13 the Full Bench considered the meaning of the phrases “should have been reasonably apparent” and “had no reasonable prospect of success.” The Full Bench in that case cited Baker v Salva Resources Pty Ltd (Baker) with approval. In Baker it was said:

“[10] The concepts within s.611(2)(b) “should have been reasonably apparent” and “had no reasonable prospect of success” 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

Consideration

Have costs been incurred?

[69] Ms Smith urges the Commission to make inquiries and findings relevant to whether Palena Fresh has incurred legal costs as claimed. Ms Smith made various suggestions that because of a purported relationship between Ms Horvat and Ms Jones, something she says that she has evidenced on social media, Ms Horvat won’t be required to actually pay to Ms Jones some or all of the costs. Alternatively, she suggests that Ms Horvat may provide goods in-kind to Ms Jones.

[70] Ms Smith suggested it was an impossibility for Ms Horvat to have incurred such legal costs because Ms Horvat runs a small business and cannot afford this expense.

[71] I have had regard to a decision of Commissioner Johns in King v Patrick Projects Pty Ltd [2020] FWC 2758 where the Commissioner said the following:

“[52] Having particular regard to s.400A of the FW Act, I accept the argument of the Respondent that in order for the Commission to have jurisdiction in relation to the discretion whether to make an order for costs against a party, costs must have been “incurred”. It is a jurisdictional fact. “Incurred” is the past tense of the verb “incur”. Applying its ordinary meaning it is necessary that a person becomes “liable or subject to [something] through one's own action’. 15 

[53] That does not mean that, in order for the Commission to be satisfied that it has jurisdiction, in relation to the matter:

a) Mr Strauss must have rendered an account or invoice to Mr King; nor that

b) Mr King had paid a bill or account rendered by Mr Strauss.

[54] But in order for Mr King to have incurred costs he must have some liability to Mr Strauss to pay for the work that Mr Strauss has done. There must be an obligation on Mr King to pay Mr Strauss if Mr Strauss ever demands payment. There must be an agreement between them that gives rise to that liability or obligation. That agreement between them must have all of the usual requirements of a contract enforceable at law. However, an enquiry into the nature of the agreement between Mr King and Mr Strauss demonstrates that their agreement lacks the basic elements of enforceable agreement.”

[72] In answering questions from me on 15 June 2020, Ms Jones stated that she was contacted by Ms Horvat to represent her and the only relationship that had existed prior to this contact is by way of Palena Fresh making deliveries to Ms Jones’ chambers upon Ms Jones having placed an order. Ms Jones stated that she has never met Ms Horvat.

[73] I accept Ms Jones’ statements to the Commission, noting her duty to the Court (including the Commission). Further, I accept Ms Horvat’s evidence in her statement of 21 May 2020 that she has incurred significant legal costs which were $13,550 at the time. Whether Ms Horvat has paid the legal costs or not, I accept the costs have been incurred and can be called upon by Ms Jones for payment. A liability exists between Ms Horvat (trading as Palena Fresh) and Ms Jones for professional services provided by Ms Jones.

Was the application made vexatiously or without reasonable cause?

[74] 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, 16 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.” ”

[75] Having regard to the F2 filed by Ms Smith and the remedy she was seeking, I cannot be satisfied that the predominant purpose in instituting the proceedings was to harass or embarrass Ms Horvat. I accept that Ms Smith did have a reasonable belief that she was an employee and not a contractor. Ms Horvat’s own statements during the period in which the services were provided, when the arrangement ended and even during these proceedings have made numerous references to Ms Smith being an employee.

[76] Further, Ms Smith considered and stated that she had been advised that bringing an unfair dismissal claim would assist her in recovering what she considered to be an alleged underpayment of wages. Clearly this is not a matter the Commission can order, but as is often the case, many parties do often resolve alleged underpayment of wages claims when they settle between themselves an unfair dismissal application.

[77] I am not satisfied that Ms Smith made the application vexatiously or without reasonable cause relevant to what she was trying to achieve; an order of compensation for alleged underpayment of wages.

No reasonable prospect of success

[78] I accept that when making the application, Ms Smith would not have foreseen that a number of jurisdictional issues would arise; namely that Ms Horvat would contest her assertions that she was an employee, had not met the minimum employment period, and if Ms Smith was found to be an employee, the dismissal was in accordance with the Small Business Fair Dismissal Code (the Code).

[79] The Code can be somewhat confusing to employees, and employers for that matter. There is no doubt that the Code applied to Palena Fresh. It is very likely that Ms Smith would not have been across the fact that there exists a reasonably low threshold relevant to immediate dismissals. That is, could the Commission be satisfied that Ms Horvat believed on reasonable grounds that Ms Smith’s conduct is sufficiently serious to justify immediate dismissal?

[80] There was a substantial number of reasons given for the termination, raised and discussed in Ms Smith’s application to the Commission. Ms Smith, no doubt would have evidence to give relevant to each of the various incidents. The decision as to whether the termination was in accordance with the Code could only be determined on proper examination of the evidence, largely to how Ms Horvat perceived those incidents and whether the Commission was with her as to did she believe on reasonable grounds that Ms Smith’s conduct was sufficiently serious to justify immediate dismissal.

[81] The facts of the matter are that if the Commission is not satisfied that the Code has been complied with, consideration then turns to s.387 of the Act as to whether there was a valid reason for the dismissal, whether there was an opportunity to respond to the reasons and various other considerations.

[82] I expect that it would have been unbeknownst to Ms Smith when she commenced her application, that it is available to the Commission, when having regard to s.387 considerations, to look into post-dismissal conduct when determining if a dismissal is harsh, unjust or unreasonable. 17

[83] The evidence before the Commission is that in less than two hours after being dismissed, Ms Smith took it upon herself to log into the Palena Fresh ANZ account and substantially drain it of its funds, leaving only $840.61. Ms Smith took $8,000 and paid herself. She has never denied this and in fact has confirmed it during the conference of 26 March 2020, attempting to explain her actions as recovering wages that she considers were owed to her. It is fair to say that when this was discussed before me, I informed Ms Smith that her conduct was unacceptable, and it might be up to the Courts to determine if it constituted a criminal act.

[84] In addition to the behaviour above, the evidence before the Commission is that Ms Smith diverted banking funds made in customers’ orders to her own bank account, conduct that was discovered by Ms Horvat and then remedied after some time and loss to the business.

[85] Ms Smith’s conduct is clearly unconscionable and deceitful. It cannot be excused. In the event the Commission did have jurisdiction to hear Ms Smith’s unfair dismissal claim, and found that the Code had not been complied with, I have no doubt that I would have dismissed Ms Smith’s claim having regard to her disgraceful post-dismissal conduct.

[86] Where I have said earlier that I expect it would have been unbeknownst to Ms Smith that the Commission can consider her post-dismissal conduct in determining her application, she ought to have known that the conduct she engaged in (not at all disputed) within such close proximity to her dismissal could weigh heavily on the Commission’s consideration of her application and in particular any remedy (if any) that could be awarded. How Ms Smith considered that the application would fall her way when she had engaged in such deceitful conduct, whether post-dismissal or not beggars belief.

[87] I am satisfied that it should have been reasonably apparent to Ms Smith that the application had no reasonable prospect of success.

Did Ms Smith cause costs to be incurred because of an unreasonable act or omission in connection with the conduct or continuation of the matter?

[88] Following a preliminary teleconference before me on 26 March 2020, I issued directions requiring Palena Fresh to file material relevant to its numerous jurisdictional objections. Of course, once received, Ms Smith needed to file her material. She did not do so as she withdrew her application, but only after Palena Fresh had been put to the trouble of filing its material.

[89] As is evident throughout this Decision, Ms Smith decided against pursuing the application on 17 April 2020, notifying her lawyer, but not informing the Commission until 22 April 2020.

[90] During the conference of 26 March 2020, after learning more about Ms Smith’s misappropriation of $8,000 into her account following the dismissal, and her redirection of online order payments to her own bank account, I foreshadowed that these were matters that I could certainly have regard to in determining her application. Ms Smith was on notice that these were significant considerations the Commission would need to have if she pursued her application.

[91] Ms Smith did pursue her application, troubling herself on 7 April 2020, reporting to the Commission of Ms Horvat’s activities and criticising Ms Horvat’s request for a short extension to file materials. Ms Smith only withdrew her application after Palena Fresh had gone to significant trouble of putting numerous witness statements before the Commission, settled by Ms Jones.

[92] I am satisfied that Ms Smith caused costs to be incurred because of an unreasonable act in connection with the continuation of the matter beyond the conference of 26 March 2020.

Conclusion

[93] The considerations above require a satisfaction to be met before I may exercise my discretion to make an order of costs. As stated, I am satisfied that:

•  The costs were incurred;

•  There was no reasonable prospect of success; and

•  Ms Smith caused costs to be incurred because of an unreasonable act in connection with the continuation of the matter beyond the conference of 26 March 2020.

[94] Section 611(2) provides that the Commission may order a person to bear some or all of the costs of the other person.

[95] I have had regard to the costs incurred by Palena Fresh at [57], and note that the bulk of the costs incurred relate to legal services provided to Palena Fresh following the 26 March 2020 conference. As I have earlier said, Ms Smith ought to have discontinued her application following this conference and not put Palena Fresh to the task of preparing and filing its material.

[96] I have had regard to Schedule 3.1 within the Fair Work Regulations. The amount that I will order is what I consider to be fair and reasonable according to the circumstances of the case and the seniority of counsel.

[97] I have had regard to Ms Smith’s personal circumstances, noting that currently her only source of income is Centrelink payments at the rate of $1,200 per fortnight. Further, I note that Ms Smith has a number of physical injuries which she states are a result of a domestic violence assault. I also note that Ms Smith has ongoing medical bills as a result of these injuries, and that she has medical appointments to attend to and pay for her son who has autism. I also note Ms Smith’s mental health issues.

[98] In exercising my discretion, I have had regard to Palena Fresh being a small business significantly impacted by Ms Smith’s actions, noting that Ms Horvat is a sole trader. The unfair dismissal application made by Ms Smith has been, I accept, a heavy burden on Ms Horvat for which she reasonably engaged counsel to assist and represent her. I conclude that the application should never have been made by Ms Smith, and indeed, if she had a concern regarding an alleged underpayment of wages, she could have commenced proceedings in a court of competent jurisdiction.

[99] I have decided to make an order that Ms Smith pay to Ms Horvat t/a Palena Fresh the amount of $4,000 to be paid in weekly instalments of $100.00. The first payment will be ordered to be paid on Tuesday, 1 December 2020, with weekly payments of $100.00 to continue Tuesday of each week until the amount of $4,000 is paid. An Order [PR724073] to that effect will be issued with this Decision.

COMMISSIONER

Printed by authority of the Commonwealth Government Printer

<PR724072>

 1   (2013) 232 FCR 428 at 430-431.

 2    [2013] FWC 2351, at [44].

 3   [2014] FWCFB 810

 4   (1989) 166 CLR 486 at 502

 5   R v Moore; Ex Parte Miscellaneous Workers Union of Australia (1978) 140 CLR 470 at 473; Nilsen v Loyal Orange Trust (1997) 76 IR 180 at 181 per North J

 6   J-Corp Pty Limited v Australian Builders Labourers Federated Union of Workers (WA Branch) (1993) 46 IR 301 per French J

 7   (1992) 43 IR 257

 8   [2015] FWCFB 1956

 9   [2014] FWCFB 810 at [27]

 10   Ibid at [30]

 11   see Kanan v Australian Postal and Telecommunications Union (1992) 43 IR 257, cited with approval in Church at [30]

 12   Heidt v Chrysler Australia Limited (1976) 26 FLR 257 at [272 - 273]; Geneff v Peterson (1986) 19 IR 40 at [87-88]; Hatchett v Bowater Tutt Industries Pty Ltd (1991) 28 FCR 324 at 327; Re Ross and others, Ex Parte Crozier (2001) 111 IR 282 at [12]; Re Australian Education Union (NT Branch) (No.2) [2011] FCA 728 at [30]. Also see Wright v Australian Customs Service, PR926115, 23 December 2002 per Giudice J, Williams SDP and Foggo C and Church at [33]

 13   [2012] FWAFB 6323 at paragraph [15]

 14   [2012] FWAFB 4014

 15   Macquarie Dictionary Publishers, 2020.

 16   [2013] FWCFB 1811, at [17].

 17   Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359 at 373, 377-378.