In this matter, the ex-employer (respondent) applied for a $10,000 security of costs order against the former employee (applicant). According the FWC’s Unfair Dismissal Benchbook:
“…the Commission should award security for costs only in the rarest of circumstances, once the Commission has balanced the merits of the application, the financial position of the parties, and what is just in the circumstances”.
The respondent applied for order on the grounds that the applicant refused to participate in a conciliation conference in respect of the unfair dismissal application; failed to respond to ‘without prejudice” correspondence from the respondent aimed at resolving the unfair dismissal application; and the unfair dismissal application has no reasonable prospect of success.
In this matter, the Commissioner considered:
The financial position of the party against whom the order is sought.
- The applicant has no income stream, and therefore has no capacity to pay. But this was a “neutral consideration”.
- The prospects of success of the case of the party resisting the order. The respondent in this matter (an education provider) required that all its teachers have the appropriate teaching registration. The applicant failed to produce the registration. The applicant argued, whilst this was a requirement under his first contract of employment, it was not required under his second contract of employment.
- The Commissioner finding
“In considering the overall prospects of success [the] case, I do not consider them to be particularly strong, however, at this stage I am not persuaded that they are so weak as not to be tenable or able to proceed to a hearing”.
- Proof of the Applicant’s registration was not sought until after the applicant’s employment commenced, and even then, the request made took a rather long time to come to a head.
- Despite not providing the registration, the applicant was not stood down from his duties:
“A relevant question for the merits hearing would be why it took so long for [the respondent] to insist on proof or registration or why [the applicant] was permitted to start employment without the registration, if in fact it was such a mandatory obligation”.
“The relevance of pointing to those matters is that there may be some difficulties in [the applicant] establishing his case even on his own material Nonetheless, the issues to which I have referred about the time taken by [the respondent] to ascertain from [the applicant] whether he, in fact, was registered and then to ultimately stand him down from teaching duties, is such that one has to say there is, at least, an arguable case that there is an unfair dismissal”. [My emphasis].
The circumstances in which costs may be recovered under the FW Act:
- Only the applicant would be aware of the strengths and weaknesses of his case.
- The respondent has advised the applicant of the weaknesses in his case.
- The respondent has made an offer of settlement.
“If it is the case that there is a statutory obligation for [the respondent] to require its teachers to be registered and if the evidence demonstrates the requirement was put to [the applicant] cogently and repeatedly during the period of his employment and if it is also the case that there has been a communication to the Applicant about those matters together with a proposal for settlement, it may well be that the continuation of his application falls into the category envisaged by the sections 400A or 611 of the Act both dealing with the matters of costs and with it following there may well then be an order for costs against the Applicant”.
The risk that a costs order will not be satisfied
Whether the risks that a costs order would not be satisfied. The Commissioner found this to be of a neutral consideration.
The Commissioner rejected the application, stating:
“…I am not inclined to grant an order in the manner sought by the Respondent. In summary, while ultimately there is a low prospect of success on the part of the Applicant, I do not consider those prospects to be so low as to be not manifestly tenable. In the absence of cogent evidence on the subjects, [the applicant’s] financial circumstances of likelihood of compliance with a merits costs order. Further, to the extent that there is a discretion for me to make an order for security of costs, I consider it not appropriate to do so in the circumstances”.
The Legal Bits
Section 404 of the Act and Rule 55 of the Fair Work Commission’s Rules 2013 (the Rules) provides the Commission’s powers to order security of costs:
“404 Security for costs
The procedural rules may provide for the furnishing of security for the payment of costs in relation to matters arising under this Part.”
“55 Order for security for payment of unfair dismissal matter costs
(1) A respondent or applicant in a matter before the Commission arising under Part 3-2 of the Act (unfair dismissal) may apply to the Commission for an order that a person provide security for the payment of costs in respect of the matter or part of the matter.
Note 1: The application must be in the approved form—see subrule 8(2).
Note 2: The Commission will not ordinarily make such an order before the conclusion of conciliation.
(2) The person to whom an order made under subrule (1) applies must pay the amount of security at the time, and in the manner and form, required by the order.
(3) If the Commission orders that security for the payment of costs be given in respect of a matter or part of a matter arising under Part 3-2 of the Act, a respondent or applicant in the matter may apply to the Commission to:
(a) reduce or increase the amount of security to be provided; or
(b) vary the time at which, or manner or form in which, the security is to be provided.
(4) Without limiting any other power which the Commission may exercise, if the Commission directs a person to provide security for costs in relation to a matter or part of a matter arising under Part 3-2 of the Act, the Commission may order that the matter be:
(a) adjourned until security is provided; or
(b) adjourned indefinitely.”
Whether to make a security for costs order (and the quantum and conditions attached thereto) is a discretionary matter. The principles governing the exercise of the discretion were discussed in Harris v Home Theatre Group Pty Ltd by Deputy President Asbury as follows:
“Principles relevant to the making of orders for security of costs can be summarised as follows. There is no absolute rule to control the exercise of the discretion to order security for costs, and what should be done in each case depends on the circumstances of the case with the governing consideration being what is required by the justice of the matter. The making of an order for security for costs should not be oppressive in that it would stifle a reasonably arguable claim.
The financial position of the party against whom the order is sought, will be relevant in a number of circumstances. There is no absolute rule that impecuniosity of a party will entitle its opponent to an order for security for costs. There is also a general rule that poverty should not be a bar to a person prosecuting a claim at first instance. On appeal, the question of security is to be determined differently on the basis that the appellant has had his or her day in court, and should not be given a “free hit”, particularly in circumstances where the costs of a proceeding below had not been paid by the appellant.
In cases where the impecuniosity of the party against whom the order for security for costs is sought, it is relevant that the impecuniosity is itself a matter which the litigation may help to cure or arises from the conduct the party is complaining of. In such circumstances the party against whom the order is sought should not be shut out of litigation.
The prospects of success and the strength of the case of the party resisting the order is relevant. In Merribee (Supra) Kirby J said (citations omitted):
“Another consideration that has sometimes been judged to be relevant is the strength of the case of the party resisting an order that it provide security for costs and evaluation (necessarily tentative) of its prospects of success. Thus, the fact that a party has secured special leave to argue its case on appeal has been thought a relevant consideration in some circumstances. Similarly, if a proceeding appeared hopeless and such as was bound to fail, the lack of apparent merit in a party’s case might be a reason for ordering it to provide security for the costs to which, it appears, it is needlessly putting its opponent. Such a consideration would need to be exercised with care, given that the real merits of a case might not emerge until the final hearing or might not sufficiently emerge in the necessarily brief proceedings typically involved in an application for security of costs. Furthermore, if a party asserts that its opponent’s proceedings are manifestly lacking in legal merit, other remedies are available to it to protect it from needless vexation.”
In relation to costs, it is relevant that the nature of a proceeding is such that, even if successful, an order for costs might not be made or might be limited. The inability of a party to meet the costs of an unsuccessful proceeding, or the risk that a cost order will not be satisfied is also relevant to the exercise of the discretion. Other related considerations are that a party is, or is likely to be absent from the jurisdiction when a decision is made and has no, or few assets within the jurisdiction.
There may also be aspects of public interest which are relevant to the exercise of the discretion to make an order for security for costs, such as an application raising matters of general public importance, quite apart from the interests of the parties. Other matters that have been considered relevant are that a hearing of the proceedings is close at hand, or the party seeking the order has delayed its application for such an order. It may also be relevant that the parties, or some of them, are legally aided.”
These principles have been subsequently adopted by the Full Benches in Zornada v St John Ambulance Australia Western Australia) Inc and Velasquez v Cabrini Health Limited.
It is apparent from these principles that security for costs orders, given the statutory scheme applicable to the unfair dismissal jurisdiction, are extremely rare. A party seeking such an order carries a considerable burden of persuasion:
“We further note that costs orders in this jurisdiction are extraordinary, and security for costs orders even more so. This is because the Act reflects the longstanding principle that costs will not be awarded against parties in industrial proceedings, other than in exceptional circumstances.”
“The Full Bench is mindful that costs applications in the Commission are extraordinary and security of costs applications, even more so.”
The approach to be adopted was summarised by the Commission in the following terms:
“In short, there is no absolute rule that controls the exercise of the discretion to order security for costs, and the outcome will depend on the circumstances of the case with the governing consideration being what is required by the justice of the matter. Matters relevant to the consideration will include the financial position of the party against whom the order is sought, the prospects of success and strength of the case of the party resisting the order, the prospects of a costs order being made even if the party seeking the order for security for costs is successful, whether a costs order will be satisfied if made, whether a party will be or will be likely to be absent from the jurisdiction when a decision is made and has no or few assets in the jurisdiction, whether the proceedings raise matters of general importance and whether the hearing of the proceedings is close at hand.”