Clayton Utz Insights
02 August 2012
By Joe Catanzariti.
Awarding costs in adverse action claims could deter employees from making them – and make successful claims more expensive for employers.
A recent decision which challenges the commonly held view that adverse action claims are effectively "no costs" matters under the Fair Work Act could have significant effects on future claims.
In Cugura v Frankston City Council (No.2) FMCA 530, Federal Magistrate O'Sullivan ordered an employee who unsuccessfully pursued an adverse action claim to pay his employer's costs. The costs ruling signifies a departure from the general judicial reluctance to award costs in such matters.
The costs application followed the dismissal of Mr Cugura's claim that his employment had been wrongfully terminated in September 2010 because of his disability.
Mr Cugura was required to drive a car in his role as a Senior Community Safety Officer, but scar tissue caused by cancer surgery meant he was unable to drive an unmodified car. He and the Council were working on finding a solution to this problem when he contacted the Victorian Police, raising allegations that were beyond the scope of his responsibilities.
While an investigation was undertaken, he was suspended on full pay. The investigation ultimately concluded that Mr Cugura was guilty of gross misconduct and breaches of Council employment policy, and subsequently his employment was terminated.
In the initial proceedings, the Council successfully argued that the decision to dismiss Mr Cugura was made solely on the basis of his gross misconduct and was completely unrelated to his disability.
Consequently, the Council sought an order for costs.
The Council's arguments for costs
In support of its application for an order for costs, the Council relied upon sections 570(2)(a) and (b) of the Fair Work Act.
First, the Council argued that Mr Cugura instituted the proceedings vexatiously or without reasonable cause. It said the relevant test to be applied by the Court in determining whether a proceeding has been instituted without reasonable cause is to ask whether, upon the facts apparent to an applicant at the time of instituting proceedings, there were no substantial prospects of success. It should have been apparent to Mr Cugura, or at least to his legal representatives, that his claim, in so far as it pertained to family responsibilities, 'could not possibly have succeeded' or was 'manifestly groundless' and should have been withdrawn.
Second, the Council submitted that unreasonable acts or omissions by Mr Cugura caused the Respondent to incur costs. For example, the Applicant's failure to accept an offer to withdraw the proceedings on the terms contained in the Respondent's offer was an unreasonable act or omission which resulted in the Respondent incurring costs of complying with the Court's further orders and preparing for and appearing at the trial of the matter.
Mr Cugura denied that the proceedings were instituted vexatiously or without reasonable cause, or that unreasonable acts or omissions caused the Council to incur costs. He pointed to the fact that the Court found that the action taken against him of termination was "adverse action" within the meaning of the Fair Work Act, and that he did have a disability which was known to the Council. Mr Cugura submitted that the proceedings were not 'manifestly groundless' as the findings of adverse action of termination and the proscribed reason of physical disability were sufficient for the onus of proof to then shift to the Respondent pursuant to section 361 of the Fair Work Act.
Why the Council got its costs order
Federal Magistrate O'Sullivan granted costs on the basis that the employee had rejected a settlement offer made several months prior to the trial and had caused the employer to incur significant legal expenses in requiring witnesses to be examined who ultimately had no bearing on his case.
Federal Magistrate O'Sullivan rejected the submission that the proceeding as a whole was one instituted without reasonable cause and instead turned to consider whether the Court could be satisfied that Mr Cugura's unreasonable act or omission caused the Respondent to incur costs.
Drawing on authority in Australian and International Pilots Association v Qantas Airways Ltd (No 3)  FCA 879, Federal Magistrate O'Sullivan suggested that whether a party has engaged in an unreasonable act or omission depends upon an objective analysis of the particular circumstances of the case.
Having regard to the present circumstances, Federal Magistrate O'Sullivan felt that the Applicant's failure to accept a settlement offer despite knowing that the Respondent had a significant volume of evidence in support of its case was unreasonable. He suggested that whilst refusal of the offer at the time it was made may not have been unreasonable, given that the evidential case of the Respondent as to the reason for the termination was not challenged by the Applicant and the way the trial was conducted on behalf of the Applicant, the refusal was unreasonable.
Further, Federal Magistrate O'Sullivan thought that in the circumstances, Mr Cugura was unreasonable to require all the Council's witnesses for cross-examination in the face of the Applicant abandoning certain parts of his claim prior to trial. A very large portion of evidence at trial was not relevant to the ultimate question the Court was required to consider in the context of whether the Applicant's disability was dissociated from the reason/s for his termination. Federal Magistrate O'Sullivan felt that this approach to Mr Cugura's conduct of the trial resulted in the Respondent incurring legal costs.
Ultimately, Federal Magistrate O'Sullivan was satisfied that the Council had established a basis upon which the Court could make an order for costs under section 570(2)(b) of the Fair Work Act.
The decision seems to suggest that adverse action claims may more commonly result in adverse cost orders. If this is the case, the decision will assist employers to obtain orders for costs in general protections matters and might also act as a deterrent to potential applicants considering bringing or pursuing a claim. Of course, such powers will also operate so as to enable recovery of costs by employees as well.
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