The Fair Work Commission (FWC) and the Fair Work Division of the federal courts are both ostensibly ‘no costs’ jurisdictions. This means that the default position regarding claims and litigation associated with employment (e.g., unfair dismissal and general protections claims) is that no claims for costs against the other party can be made and consequently each party will pay its own costs.
However, as we discuss below, there are exceptions to this default position.
Section 611 of the Fair Work Act 2009 (FW Act) provides the default position that parties to proceedings in the FWC must bear their own costs.
However, as per subsection 611(2) of the FW Act, the FWC may, at its discretion, order a party to bear some or all of the costs of another party if it is satisfied that the relevant party:
“….responded to the application, vexatiously or without reasonable cause; or the FWC is satisfied that it should have been reasonably apparent…that the application, or the…response to the application, had no reasonable prospect of success.”
The FWC may also make an order for costs against a party’s representative if it is satisfied that the representative:
An application for costs must be made within 14 days after the FWC finishes dealing with the dispute. It is important to note that the FWC has no discretion to consider an application for costs that is out-of-time.
The FW Act provides (see section 570) that a party can be ordered to pay costs in relation to a proceeding in the Federal Court if:
If a costs order is made, it can be on a party-party or an indemnity basis.
As we discuss below, the FWC and the federal courts’ powers to order costs will only be exercised in limited circumstances. This is on the primary rationale that the FWC and the courts do not want to discourage parties from pursuing litigation for fear of an adverse costs order.
What is required for actions to be considered vexatious and for costs to be consequently awarded?
In the case of Mr Jeff Dickason v Endeavour Industries Pty Ltd & Ors (2012)  FWA 4687, Mr Dickason brought an application seeking costs against Endeavour Industries Pty Ltd for failing to attend two conciliation conferences. The FWC was required to determine whether the failure to attend was a response to the application, vexatiously and without reasonable cause. On this point, Lewin C said:
“… a respondent who deliberately failed to attend a conference held as a result of an application under s 365 and who announced a contemptuous and obdurate refusal to participate in proceedings under the Act would, in my view, be behaving in a manner worthy of characterisation as a response to such an application. In my view, such conduct may be viewed as vexatious”. (at )
However, in dismissing the application, Commissioner Lewin found that Endeavour Industries had not acted vexatiously because it did not, by its’ absences from the conferences, display an ‘intention’ to harass, “embarrass or annoy Mr Dickason or gain a collateral advantage”. Therefore, the intention and motive of the party who is alleged to have acted vexatiously in undertaking the relevant action will be paramount in deciding if costs will be awarded.
As the court said in Nilsen v Loyal Orange Trust (unreported, North J, IR Court of Australia, 11 September 1997), in considering whether a party has acted vexatiously it will:
“look…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 collateral advantage.”
Consequently, if an applicant has an honest but mistaken belief that he or she has a legitimate claim, then it is very unlikely that the application will have been found to have been commenced vexatiously.
What conduct will be unreasonable enough to warrant costs being awarded?
In Cugura v Frankston City Council (No 2) (2012) 64 AILR  FMCA 530, the court granted costs on the basis that the applicant had rejected an offer made by the respondent to withdraw the case with each side bearing its own costs. This offer was made when the applicant was legally represented (the applicant had initially been an unrepresented litigant) and the respondent had filed its evidence.
Federal Magistrate O’Sullivan also agreed with the respondent’s contention that the applicant had caused it to incur significant legal expenses in requiring all witnesses for cross-examination even after abandoning aspects of his claim. As a result, costs were awarded on a party-party basis (despite an application that a costs order be made on an indemnity basis).
When will a claim be instituted ‘without reasonable cause’ or have no ‘reasonable prospect of success’?
The generally accepted test for determining whether an application is instituted without reasonable cause was set out by Wilcox J in Kanan v Australian Postal and Telecommunications Union 1992 AILR, where he stated:
“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 reasonable cause.”
In Hill v Compass Ten Pty Ltd (No 3)  FCA 993, costs were awarded against an applicant who made a breach of contract and adverse action claim in the Federal Court. The employee had lied about holding first aid qualifications at the time of commencing employment. The employee provided proof of the required qualification by attaching his son’s first aid certificate to his application. The contract of employment provided for summary dismissal in the case of dishonesty. The employee failed in both the adverse action and breach of contract claim. The fraud was not discovered until after the termination occurred.
Justice Cowdroy awarded costs on the basis that the employee knew that he had lied to the employer and that the employer had grounds to bring the contract to an end as soon as the fraud was discovered, therefore, he had no reasonable prospect of success in his claim.
In Wayne Stuart Walker v Mittagong Sands Pty Limited T/A Cowra Quartz (2011) 63 AILR 101-333, Fair Work Australia, 14 April 2011, the FWC said that the test relating to whether a matter had “no reasonable prospect of success” was not about whether there was no ‘real’ prospect of success and did not necessarily require that the proceedings were hopeless or bound to fail. Rather, applying the test was a “matter of fine judgment, [taking into account]…all the circumstances of a particular case”.
It is only in very limited circumstances that costs will be awarded in employment-related proceedings, and the FWC or court will consider each case on its own facts and merits.
There needs to be a degree of objective unreasonableness or vexatiousness in bringing the claim and/or the way the matter is run before the FWC or court considers exercising its discretionary power to award a costs order.
Importantly, there also needs to be an intention or evidenced motive for the relevant behaviour if the ground of vexatiousness is being relied on to seek the costs order.
If you have any questions, please contact us or send us your enquiry here.
Author: Andrew Klein
 See Thompson & Ors v Hodder & Ors 1990 AILR 59; (1989) 21 FCR 467, where the court said that, in circumstances where provisions such as those discussed in this article are in operation, a party “will only rarely be ordered to pay the costs of a proceeding in exceptional circumstances”.
 See, e.g., the rejection of an application for costs in Hanrahan v Wesfarmers Dalgety Limited (1996) 39 AILR 3-235.
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.