Appco Group Australia has succeeded in having an award of costs made in its favour under s 570(2)(b) of the Fair Work Act for costs incurred because of the unreasonable act or omission of the other party to a class action proceeding. The decision delivered by his Honour Justice Lee serves as a reminder that, while there are sound public policy grounds associated with access to justice which generally render the Fair Work jurisdiction a "no costs" jurisdiction, those public policy grounds may be diluted where a third party funder, who stands to profit from litigation, is involved.

By way of representative proceeding under Part IVA of the Federal Court of Australia Act 1976 (FCA Act) currently on foot against Appco Group Australia (Appco),1 it is alleged that Appco breached various provisions of the Fair Work Act 2009 (FWA), including by allegedly falsely representing to group members that they were independent contractors and not employees. The proceeding is funded by a third party litigation funder, Harbour Fund III L.P. (Funder).

Appco denies the allegations made against it.

The proceeding was commenced in October 2016, with amended pleadings filed by the Applicant in December 2016 (December 2016 Pleadings). In April 2017, Appco filed an interlocutory application seeking a declaration that the proceeding had not been properly commenced as a representative proceeding on the basis that the common questions2 articulated by the Applicant were not truly common to all group members.

Pleadings lacking in consistency and clarity

In an interlocutory judgment3 handed down in May 2018 by Wigney J (May 2018 Interlocutory Judgment), his Honour found that while the December 2016 Pleadings did contain at least some common questions, they also bore, in parts, a "certain lack of consistency and clarity" and pleaded the Applicant's claims in a way which was "rather unusual for a pleading in a representative proceeding".4

Delay in amending pleadings

Following the May 2018 Interlocutory Judgment, Appco sought confirmation from the Applicant as to whether he intended to amend the December 2016 Pleadings in light of the criticisms levelled at them by Wigney J. The Applicant declined, and sought directions requiring Appco to put on a Defence to the December 2016 Pleadings. Appco filed its Defence to the December 2016 Pleadings in July 2018 (July 2018 Defence). In the meantime, Appco also filed an application for leave to appeal from the May 2018 Interlocutory Judgment (Application for Leave to Appeal).

Applicant's decision to amend pleadings

In October 2018, the parties obtained orders by consent granting leave to the Applicant to file further amended pleadings and for Appco to discontinue its Application for Leave to Appeal. The Applicant ultimately filed further amended pleadings in December 2018, which resulted in Appco preparing and filing a further Defence in March 2019.

The Fair Work jurisdiction is a "no costs jurisdiction", subject only to limited exceptions, meaning that each party will generally pay their own costs. s 570(2) of the FWA provides that a "party" to proceedings in the Fair Work jurisdiction may be ordered to pay costs only if:

a) proceedings are instituted vexatiously or without reasonable cause;

b) the party's unreasonable act or omission caused the other party to incur the costs; or

c) the party unreasonably refused to participate in a matter before the Fair Work Commission.

By way of interlocutory application filed on 15 February 2019, Appco sought its costs thrown away under s 570(2) by reason of the Applicant's election not to amend his December 2016 Pleadings until late 2018, notwithstanding the criticisms made of them by Wigney J in May 2018. The basis of the application was that this election by the Applicant was unreasonable and had caused Appco to incur costs which it would not otherwise have incurred, had the Applicant elected to amend the December 2016 Pleadings at an earlier date (which had been expressly invited by Appco).

Overarching purpose considerations

In considering the operation of the discretion available under s 570 of the FWA, his Honour referred to observations recently made by the Full Federal Court in Liu v Stephen Grubits and Associates5 that s 570 operates as an express limitation on the broad discretion conferred on the Court to award costs under s 43 of the FCA Act.

In particular, his Honour noted that in considering whether to exercise the discretion available under s 570, the Court must take account of its overarching purpose in facilitating the resolution of disputes according to law and as quickly, inexpensively and efficiently as possible.6

Discretion to be carefully exercised: public policy considerations

His Honour observed that it is clear that the legislative intent behind the Fair Work jurisdiction being a no costs jurisdiction (subject only to limited exceptions) is to ensure access to justice.

In referring to comments made by the Full Federal Court in CFMEU v Clark,7 his Honour noted that the discretion under s 570(2) should not be exercised "with too much haste", given that such haste may discourage parties, for fear of an adverse costs order, from pursuing litigation in the manner which they deem best. His Honour emphasised that a Court ought be very careful to exercise the discretion provided by s 570(2), so as to avoid rendering the provision the basis of an adverse costs order in respect of any transgression in the conduct of a Fair Work proceeding.8

Role of third party funder

Notwithstanding the significance of the public policy considerations outlined above, his Honour found that such policy considerations bear less force in the context of Part IVA proceedings where they are funded by a third party funder who stands to derive profit from that litigation. His Honour observed that, as part of the "bargain" for funding proceedings, a litigation funder also undertakes to pay any adverse costs orders made against the party whose proceeding it is funding.

In considering other issues, his Honour also observed that s 570 of the FWA is a restriction on an order for costs being made against a party, not a restriction on costs being awarded against non-parties, including persons who are funding litigation.

Applicant's unreasonable act or omission

His Honour held that the "unreasonable" threshold under s 570(2) of the FWA had been established by Appco and made an order ordering the Applicant to pay Appco's costs of preparing and filing its Defence to the 2016 Proceedings.

In particular, his Honour questioned why the "nettle was not grasped" by the Applicant soon after the May 2018 Interlocutory Judgment, when Appco had expressly invited the Applicant to amend the December 2016 Pleadings. His Honour found that this decision had caused Appco to unnecessarily incur the costs of the preparation of its July 2018 Defence, and that such costs had been incurred because of the unreasonable conduct of the Applicant in pressing for the July 2018 Defence to be filed, in circumstances where the pleadings to which that Defence were responsive had been expressly criticised by Wigney J in the May 2018 Interlocutory Judgment.

This decision serves as a reminder of the significant public policy grounds around access to justice which are at the heart of the Fair Work jurisdiction being a no costs jurisdiction, subject only to a limited discretion which, as his Honour observed, should not be exercised "with haste".

Notwithstanding this, his Honour's decision is significant in highlighting that:

  • the overarching purpose of the Court, in facilitating the resolution of disputes according to law and as quickly, inexpensively and efficiently as possible, will be a similarly weighty consideration in determining whether a party's conduct has been unreasonable so as to warrant an award of costs;
  • the public policy grounds associated with access to justice, which underpin the status of the Fair Work jurisdiction as (generally) a no costs jurisdiction, will be less compelling where a third party funder, who stands to profit from the litigation, is involved; and
  • s 570 of the FWA operates as a restriction on an order for costs being made against a party to a proceeding in the Fair Work jurisdiction, but not against non-parties including litigation funders.

Finally, this decision is also a compelling reminder to parties that forensic choices around conduct of a proceeding, including in relation to amendment of pleadings or change in strategy, must be grounded by sound and rational decision-making so as to minimise the risk of an adverse costs order which may be enlivened even in exceptional circumstances in the Fair Work jurisdiction.

In a separate development, his Honour has raised concerns with the litigation funding agreement in respect of this proceeding. In particular, his Honour has described the commission proposed to be recouped by the Funder (being the higher of 40% of any proceeds or four times the Funder's investment, plus legal costs) as "intuitively surprising" and capable of raising "real issues" as to fairness and reasonableness in respect of group members.

Baker McKenzie acted for Appco Group Australia in the interlocutory application brought under s 570(2)(b) of the FWA and continues to act for Appco Group Australia in the representative proceedings on foot.