FEDERAL COURT OF AUSTRALIA

Fair Work Ombudsman v Grouped Property Services Pty Ltd (No 3)

[2017] FCA 810

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 570(2)(b) of the Fair Work Act 2009 (Cth) (FW Act), the first respondent pay 95% of the applicant’s costs of the first hearing on 8, 9 and 10 December 2015, excluding the costs of preparing the affidavits filed for that hearing.

2.    Pursuant to s 570(2)(b) of the FW Act, the first respondent pay 75% of the applicant’s costs incurred after 5 December 2016 in preparing for and appearing at the second hearing on 31 January 2017 and 1, 2 and 3 February 2017.

3.    Pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth), the costs in orders 1 and 2 above be paid in a lump sum.

4.    If the parties cannot agree within 14 days of these orders on the amount of the lump sum, the matter be referred to a Registrar of the Court to fix those costs.

THE COURT DIRECTS THAT:

5.    Pursuant to r 1.37, the Registrar determine the amount of the applicant’s costs in such manner as he or she deems fit including, if thought appropriate, on the papers.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    The Fair Work Ombudsman brought proceedings against the respondents for numerous contraventions of the Fair Work Act 2009 (Cth) (FW Act). Two hearings were conducted, culminating in a judgment on liability delivered on 26 August 2016 (Fair Work Ombudsman v Grouped Property Services Pty Ltd [2016] FCA 1034) and a judgment on compensation and penalties delivered on 24 May 2017 (Fair Work Ombudsman v Grouped Property Services Pty Ltd (No 2) [2017] FCA 557). The Ombudsman was substantially successful. She now seeks an order that the first respondent, Grouped Property Services Pty Ltd (GPS), pay a proportion of her costs. Since the proceedings arise under the FW Act, costs do not generally follow the event. The Court may only order a respondent to pay an applicant’s costs if the costs were incurred because of an unreasonable act or omission on the part of the respondent. The primary questions for determination here, then, are whether GPS behaved unreasonably in any relevant respect and, if so, whether that behaviour caused the Ombudsman to incur costs.

The orders sought

2    By an amended interlocutory application filed on 26 May 2017, the Ombudsman seeks the following orders:

(1)    Pursuant to subsection 570(2)(b) of the FW Act, GPS pay the Ombudsman’s costs of preparing for the first hearing on liability (including the costs of the hearing on 8, 9 and 10 December 2015 and the costs of preparing the written submissions excluding the costs of preparing affidavits for that hearing).

(2)    Pursuant to subsection 570(2)(b) of the FW Act, GPS pay:

(a)    75% of the Ombudsman’s costs incurred after 5 December 2015 in preparing for the second hearing on 31 January 2017 and 1, 2 and 3 February 2017; and

(b)    75% of the Ombudsman’s costs of appearing at that hearing.

(3)    If the parties cannot agree on the amount of the costs payable to the Ombudsman as claimed in orders 1 and 2 above within fourteen (14) days of the Court’s orders, the matter be referred to a Registrar of the Court to fix those costs in a lump sum pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth) (the Rules).

(4)    Such further or other orders as the Court deems fit or appropriate.

3    For the reasons that follow, I am satisfied that the Court has the power to make these orders and that, for the most part, the orders are appropriate.

Background facts

4    The Ombudsman’s application was supported by an affidavit sworn by Eric David Leahy on 2 December 2016. The following summary is drawn in part from that affidavit. In other respects it is derived from the Court record.

5    The Ombudsman commenced the proceeding on 1 July 2014. In her statement of claim, filed the same day, she alleged that GPS contravened 38 provisions of the FW Act, in relation to 51 alleged employees. In the alternative, the Ombudsman alleged that National Contractors Pty Ltd, the second respondent, contravened 36 provisions of the FW Act. The Ombudsman alleged that Rosario Pucci, the third respondent, was involved in each of the contraventions of GPS or National Contractors, and Enrico Pucci, the fourth respondent, was involved in one of the contraventions.

6    The Ombudsman also applied to the Court for interim freezing orders to preserve the assets of GPS and National Contractors. Interim orders in accordance with that application were made on 3 July 2014.

7    On 18 July 2014, the Court made orders requiring the respondents to file and serve their defences by 12 August 2014. No defence was filed in accordance with these orders and on 5 September 2014, at a further directions hearing, the Court ordered that GPS, Rosario and Enrico file their defences by 19 September 2014, and that National Contractors file its defence by 30 September 2014.

8    In a joint defence filed on 19 September 2014, GPS and Enrico denied liability and put in issue the FWO’s allegations that all of the 51 alleged employees were employees and that they were employed by GPS.

9    On 10 December 2014, pursuant to orders made on 13 October 2014, the Ombudsman sent a draft Statement of Agreed Facts and Issues to the respondents for the purposes of mediation set down on 23 December 2014. No substantive response was received until GPS wrote to the Ombudsman on 9 March 2015 following Court orders made on 2 March 2015.

10    On 23 December 2014 a mediation was held before Registrar Segal. The mediation was unsuccessful.

11    On 24 February 2015 Bernard O’Donnell, purportedly acting on behalf of all respondents, contacted the Ombudsman’s office and left a message in which he indicated that a without prejudice settlement offer would be made. No such offer was ever received.

12    At the directions hearing on 2 March 2015, the Ombudsman proposed that she file short outlines of evidence, rather than full affidavits, from the 51 putative employees, some of whom were non-English speakers and required an interpreter qualified by the National Accreditation Authority for Translators and Interpreters. GPS opposed the order on the basis that there would be credit issues.

13    As a result, I made orders requiring, among other things, that the Ombudsman file and serve her affidavits (in relation to all of the 51 employees, or as many as possible) by 15 May 2015, and the respondents file and serve their affidavits by 15 June 2015.

14    On 17 April 2015, the Ombudsman sent a letter to the solicitor for GPS and Enrico, the company’s sole director. In that letter, the Ombudsman drew attention to conduct of GPS and Enrico, which the Ombudsman considered to be unreasonable. In particular, she stated that GPS:

(1)    continued to assert, over the course of the proceedings, that it was not the true employer of the 51 alleged employees despite all the facts known to GPS, which in the Ombudsman’s view made the maintenance of this assertion by GPS an unreasonable act;

(2)    failed to engage with and/or agree upon proposals by the Ombudsman which would narrow the dispute (including putting on a sample of witnesses or the witnesses giving their evidence at any hearing viva voce with an outline provided in advance); and

(3)    insisted at the directions hearing on 2 March 2015 that each of the Ombudsman’s 51 witnesses be available for cross-examination at the first hearing on the basis that issues of credit arose (despite not having seen the evidence).

15    By the letter dated 17 April 2015, the Ombudsman also put GPS and Enrico on notice:

(1)    of the obligations of practitioners and parties pursuant to ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth) (FCA Act) to ensure that proceedings are conducted as quickly, inexpensively and efficiently as possible;

(2)    that the Ombudsman had embarked on the costly and lengthy process of preparing affidavits, including for three overseas witnesses, and that the costs of doing so would be approximately $200,000; and

(3)    that the Ombudsman reserved its right to make an application for costs pursuant to section 570 of the FW Act.

16    The Ombudsman received no reply to this letter.

17    By 15 May 2015, the Ombudsman had filed and served 36 affidavits, served a further three unsworn affidavits, and advised that an additional four, including from a Fair Work Inspector, would be filed and served in due course (41 affidavits in total, including affidavits for 40 employees). 21 folders of exhibits accompanied these affidavits.

18    At a further directions hearing on 1 June 2015 I ordered that the respondents file and serve their evidence by 7 August 2015.

19    On 9 June 2015, the Ombudsman filed and served the affidavit of Fair Work Inspector Fleur Millington, together with an eight-volume exhibit (Exhibit FM-1) and a compact disc (Exhibit FM-2). On 7 December 2015 she filed a 126 page affidavit (including annexures) of Fair Work Inspector Ashley Hurrell explaining the methodology for the calculation of underpayments.

20    None of the respondents filed any evidence in accordance with the order I made on 1 June 2015 and, on 6 July 2015, the solicitors on the record for GPS filed a notice of ceasing to act. Since then, GPS has not been represented and did not file any evidence. Neither did the other respondents.

21    The Ombudsman filed lengthy written submissions which went unanswered.

22    On 8, 9 and 10 December 2015, the first hearing on liability took place. None of the respondents appeared. After judgment on liability was pronounced, orders were made for the filing and exchange of additional evidence and submissions on the outstanding issues. The Ombudsman filed her evidence and submissions on 2 December 2016. The respondents filed none.

23    A second hearing took place over four days in late January to early February 2017. This time Rosario and Enrico appeared but there was still no appearance for GPS. On the first day of the hearing an application for an adjournment was made for the stated purpose of enabling the respondents to obtain legal representation. It was refused. At the hearing, submissions were made on compensation, penalties and costs. During oral argument the Ombudsman modified her position on costs and ultimately asked the Court to reserve the question of costs until after judgment was pronounced.

24    After the publication of the judgment on compensation and penalties and upon the application of the Ombudsman, I made orders that by close of business on 26 May 2017 the Ombudsman file and serve any amended interlocutory application in relation to the question of costs and any further submissions in support and that GPS file and serve any submissions in response by 22 June 2017. The Ombudsman filed her amended interlocutory application and submissions in support in accordance with the Court order. GPS filed no submissions.

The Court’s powers

25    The Court’s powers to award costs in an application of this kind are constrained by the terms of s 570 of the FW Act. That section relevantly provides that a party to proceedings relating to a matter arising under the Act may only be ordered to pay the costs incurred by another party if the court is satisfied that the first mentioned party’s “unreasonable act or omission” caused the other party to incur the costs: s 570(2)(b). In the present case that means that the Court only has the power to make the orders the Ombudsman seeks if two conditions are established. First, the Court must be satisfied that GPS, by its action(s) or omission(s), behaved unreasonably. That question is to be determined objectively: Australian and International Pilots Association v Qantas Airways Ltd (No 3) (2007) 162 FCR 392 at [32]. Secondly, the Court must be satisfied that GPS’s unreasonable act(s) or omission(s) caused the Ombudsman to incur costs. If those two conditions are established, the Court has a discretion to make a costs order against GPS and in the Ombudsman’s favour: Construction, Forestry, Mining and Energy Union v Clarke (2008) 170 FCR 574 at [28].

26    Importantly, the touchstone for the exercise of the power is unreasonableness, not negligence or inefficiency. That said, once the power is enlivened and the Court is considering whether or not to exercise its discretion to make an order, the Court is bound to exercise that discretion in the way that best promotes the overarching purpose of any statutory provision on a matter of practice and procedure referred to in s 37M of the FCA Act: s 37M(3). At this point questions of inefficiency are very relevant, for the overarching purpose of the civil practice and procedure provisions includes the efficient resolution of disputes.

27    Section 37M provides:

37M The overarching purpose of civil practice and procedure provisions

(1)    The overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes:

(a)    according to law; and

(b)    as quickly, inexpensively and efficiently as possible.

(2)    Without limiting the generality of subsection (1), the overarching purpose includes the following objectives:

(a)    the just determination of all proceedings before the Court;

(b)    the efficient use of the judicial and administrative resources available for the purposes of the Court;

(c)    the efficient disposal of the Court’s overall caseload;

(d)    the disposal of all proceedings in a timely manner;

(e)    the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute.

(3)    The civil practice and procedure provisions must be interpreted and applied, and any power conferred or duty imposed by them (including the power to make Rules of Court) must be exercised or carried out, in the way that best promotes the overarching purpose.

(4)    The civil practice and procedure provisions are the following, so far as they apply in relation to civil proceedings:

(a)    the Rules of Court made under this Act;

(b)    any other provision made by or under this Act or any other Act with respect to the practice and procedure of the Court.

28    Furthermore, the parties have a duty to conduct the proceeding in a way that is consistent with the overarching purpose: FCA Act, s 37N(1). In exercising the discretion to award costs in any civil proceeding the Court must take account of any failure to comply with that duty.

29    The Court also has the power to make a costs order in a specified sum: see s 43(3)(d) of the FCA Act, and r 40.02(b) of the Rules. The purpose or object of such an order is “to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation”: Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 120 citing Leary v Leary [1987] 1 WLR 72; [1987] 1 All ER 261.

Power of a Registrar to fix the costs in a lump sum

30    Order 3 of the amended application envisages that, should the parties not come to an agreement on the question of the quantum of costs, the matter be referred to a Registrar of the Court to fix the costs in a lump sum.

31    In Clipsal Australia Pty Ltd v Clipso Electrical Pty Ltd (No 4) [2017] FCA 436 Perram J ordered that costs be paid in a lump sum and directed the Registrar, pursuant to r 1.37 of the Rules to determine the quantum of the applicant’s costs in such manner as he or she deems fit including, “if thought appropriate”, on the papers. There is no good reason why a similar order should not be made in the present case.

32    Section 35A(1) of the FCA Act provides that, subject to subs (2), a number of powers of the Court may, if the Court or a judge so directs, be exercised by a registrar. One of those powers is the power to make an order as to costs: s 35A(1)(f). Another is a power of the Court prescribed by the Rules: s 35A(1)(h).

33    Rule 3.01(1) prescribes, for the purposes of s 35A(l)(h), the relevant powers of the Court, including relevantly a power of the Court under a provision of the Rules mentioned in column 2 of an item in Schedule 2 to the Rules. Item 221 of Schedule 2 is the power under r 40.02 to make an order about the amount of costs.

34    As the Ombudsman submitted, this means that, if the Court considers that the Ombudsman should be awarded costs, a Registrar of the Court has the delegated power to fix the costs amount in a lump sum, pursuant to r 40.02(b).

The Ombudsman’s argument

35    The Ombudsman relied on two sets of submissions, the first filed on 2 December 2016 together with the affidavit of Mr Leahy, and the second filed on 26 May 2017 together with the amended application.

36    In relation to the first hearing, the Ombudsman submitted that GPS’s conduct was “objectively unreasonable” for the following reasons.

37    First, GPS disputed the Ombudsman’s claim including by insisting that the alleged employees were not employees of GPS when the Court found that they were and that the arrangement that GPS had with National Contractors did not have any apparent legitimate business objective.

38    Secondly, GPS put the Ombudsman to significant costs by submitting that she not be permitted to file outlines of evidence (rather than affidavits) from each of the 51 employees named in the statement of claim (costs the Ombudsman no longer seeks to recover) on the basis that they wished to cross-examine them despite not having seen the evidence. Yet, GPS failed to file and serve any evidence after the Ombudsman had incurred those costs and failed to attend the hearing, challenge any of the Ombudsman’s evidence or cross-examine her witnesses.

39    Thirdly, GPS’s failure to attend the first hearing meant that it provided no assistance to the Court and the Court was “not in a position to seek appropriate clarification” from it “as to various matters that were clearly within [its] knowledge”.

40    Fourthly, GPS denied that certain persons were employees when the Court found that GPS had put in place a scheme designed to disguise the true nature of the relationship.

41    Fifthly, GPS failed to make reasonable admissions as to facts or contraventions “that were plain”.

42    Sixthly, GPS put the Ombudsman to proof in respect of all aspects of her claim, “without intending properly to defend the proceedings at the first hearing, in circumstances where the respondents knew that the [Ombudsman]’s case was reliant on some non-English speaking witnesses and persons who were otherwise working in low paid jobs”. The Ombudsman submitted that it was open to the Court to infer that, objectively viewed, GPS had no intention of ever defending the proceedings, other than by way of bare denials.

43    In relation to the second hearing, the Ombudsman only seeks 75% of the costs she incurred, taking into account that approximately 25% of her costs were incurred in relation to “matters such as penalty”. The Ombudsman acknowledges that in this respect she would have incurred these costs regardless of the allegedly unreasonable conduct of GPS. The Ombudsman also only seeks costs incurred after 5 December 2016 (when the Ombudsman served GPS with her additional evidence, details of the compensation she was claiming, and all relevant calculations), on the basis that the costs incurred beforehand involved quantifying the amount of compensation payable to each employee, which would have been required in any event. The Ombudsman submitted that, since this date, GPS’s acts or omissions were unreasonable for the following reasons.

44    First, GPS put the Ombudsman to the significant costs of having to consider and take the Court through the calculations and evidence relating to all employees and for each contravention.

45    Secondly, GPS failed to file and serve any evidence or submissions, yet insisted that the Ombudsman prove every item of her claim.

46    Thirdly, GPS failed to appear at the hearing.

47    Fourthly, GPS failed to admit or agree to “calculations that were plain” when ultimately it failed to challenge the Ombudsman’s calculations in any significant respect.

Disposition

48    In the absence of any submissions from or on behalf of GPS I take it that the Ombudsman’s application is not contested. As I indicated at the outset, I am satisfied that I not only have the power to make the orders but also that I should exercise my discretion in the Ombudsman’s favour.

49    The fact that the Court found that the alleged independent contractors were employees and that GPS was the employer of all 51 of the individuals in question would not necessarily demonstrate that GPS was unreasonable to put the matter in dispute. There is a distinction between a party who pursues arguments which are ultimately abandoned or rejected by the Court and a party who propounds an unsupportable case: Clarke at [29]. Here, however, where the evidence was all one way and the legal principles not in dispute, only one conclusion was reasonably open. That was the conclusion I reached. In these circumstances, it was unreasonable for GPS to deny that any of the 51 was an employee and that it was the employer. There was no foundation in fact or law for GPS’s position. I am satisfied that GPS’s unreasonable denials caused the Ombudsman to incur the costs of proving these matters and of persuading the Court to make the findings.

50    In view of its failure to challenge the Ombudsman’s evidence or offer any evidence of its own, it was also unreasonable of GPS to put the Ombudsman to the costs of preparing for and conducting a trial.

51    It seems to me, therefore, that, save for the costs incurred in preparing the affidavits, GPS should pay the costs of the Ombudsman in preparing for, and attending, the first hearing. There should be a modest reduction, however, in the amount of costs she should recover to take into account the fact that she failed to prove four contraventions (11, 15, 20 and 21) in their entirety and a number of them with respect to some employees. I would therefore allow the Ombudsman 95% of those costs. With this qualification, I accept the Ombudsman’s submission that order 1 of the amended interlocutory application appropriately reflects the costs she incurred by reason of GPS’s unreasonable acts or omissions and only those costs.

52    As for the second hearing, in circumstances in which it offered no evidence of its own and made no submissions to counter those filed by the Ombudsman, GPS’s failure to assist the Court by agreeing on the arithmetic or pointing out any errors in the Ombudsman’s calculations was unreasonable and it was productive of increased costs and inefficiencies. GPS’s omissions undoubtedly contributed to the Ombudsman’s costs. Moreover, they meant that the Court was also put to an excessive amount of time and effort, intruding into both its available judicial and administrative resources and interfering with the efficient and timely disposition of this and other cases.

53    The discount of 25% which the Ombudsman proposed in order to reflect the fact that approximately one quarter of the costs she incurred were dedicated to matters such as penalty which would have been incurred in any event, is an appropriate one. Certainly in the absence of any argument to the contrary I see no reason to apply a further discount.

54    In order to avoid the costs and delays associated with taxation, a fixed costs order should be made. That application should be quantified in accordance with these reasons and, as envisaged in the proposed orders, in the event of a dispute the question of the amount will be determined by a Registrar.

Associate:

Dated:    20 July 2017

SCHEDULE OF PARTIES