Indemnity costs in the Fair Work Commission

“In general, parties bear their own legal and other representational costs in any matter before the Commission. However, the Commission has the discretion to order one party in an unfair dismissal matter to pay the other party’s costs where it is satisfied that certain conditions mandated by the Act have been met. Orders that indemnity costs be paid are not usual. The ordinary rule in most jurisdictions is that costs are awarded on a party-party or standard basis. It is well-settled that indemnity costs should not be ordered unless there is some ‘special or unusual feature’ of the case that justifies departure from the ordinary practice. 14
Costs can usually be divided into party/party and solicitor/client costs. An ordinary costs order refers to party/party costs, which are those costs which naturally follow from the issue of and defence of proceedings. Solicitor/client costs are also incurred because of the issue of and defence of proceedings, but may be less directly connected with or arising from the court processes and are more focused on the service of a client. As a rule of thumb party/party costs can often be about two thirds of the total account to a client. Indemnity costs orders involve the payment of the total of both party/party and solicitor/client costs. However, the costs ordered to be paid as a result of an indemnity costs order must not be unreasonably incurred or be of an unreasonable amount. The High Court in Oshlack v Richmond River Council (Oshlack) stated,
“Indemnity Costs are all costs including fees, charges, disbursements, expenses and remuneration incurred by a party provided they have not been unreasonably incurred or are not of an unreasonable amount. They involve a larger proportion of the legal costs than that of party-party costs, which only involve legal costs that are deemed necessary and reasonable. Indemnity costs may be ordered when there has been an element of misconduct or delinquency on the part of the party being ordered to pay costs.” 15
Gray J, with whom Carr and Goldberg JJ agreed, in the Full Federal Court case of Hamod v New South Wales (Hamod) 16 explained the principles underlying an award of indemnity costs as follows:
‘Indemnity costs are not designed to punish a party for persisting with a case that turns out to fail. They are not awarded as means of deterring litigants from putting forward arguments that might be attended by uncertainty. Rather, they serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the Court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs.’
Gilmour J stated in D S Clarke Nominees Pty Ltd v Adder Holdings Pty Ltd 17:
‘Importantly, the court should only make an order for the payment of costs on some basis other than a party and party basis where the circumstances of the case warrant the court departing from the usual course, including where the justice of the case might require or where some special or unusual feature in the case justifies the court in departing from the ordinary practice.”
Davies J stated in TSG Franchise Management Pty Ltd v Cigarette & Gift Warehouse (Franchising) Pty Ltd (No 3) 18:
‘It is well-settled law that indemnity costs should not be ordered unless there is some special or unusual feature [emphasis added] of the case that justifies departure from the ordinary practice… The cases illustrate the appropriateness of awarding costs on an indemnity basis where there has been particular misconduct that caused a loss of time to the Court and to other parties, where proceedings were commenced or continued in wilful disregard of known facts or clearly established law, where allegations were made which ought never to have been made, or where the proceeding was unduly prolonged by groundless contentions.’
(Our emphasis)
A ‘special or unusual feature’ may include the following circumstances identified by Sheppard J in the leading case of Colgate-Palmolive Company and Colgate-Palmolive Pty Limited v Cussons Pty Limited 19. However, the categories in which discretion may be exercised are not closed:
● where a party makes allegations of fraud, knowing them to be false, or makes irrelevant allegations of fraud; 20
● where there is evidence of misconduct that causes a loss of time to the court and to the other parties; 21
● where proceedings were commenced for some ulterior motive; 22
● where proceedings were commenced or continued in wilful disregard of known facts or clearly established law; 23
● where allegations were made which ought never to have been made; 24
● where the proceeding was unduly prolonged by groundless contentions; 25
● where there was an imprudent refusal of an offer to compromise. 26
The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.
Costs Provisions in the Federal Court Rules
The Federal Court Rules 2011 (FCR) do not apply to proceedings in the Commission. The FCR provide, in certain prescribed circumstances, that a party must be awarded indemnity costs. Despite the use of the word ‘must’, these rules are discretionary. These include circumstances where there is a failure to meet a genuine offer made by an applicant, failure to beat a genuine offer made by a respondent, if a respondent makes an offer that is not accepted by an applicant and the applicant obtains a judgment that is less favourable than the terms of the offer or if a respondent makes an offer that an applicant unreasonably fails to accept and the applicant’s proceeding is dismissed. The jurisdiction of the Federal Court is one where costs normally follow the cause. This is in direct contrast to the usual situation before the Commission where parties, all things being equal, attend to the payment of their own costs. This distinction needs to be considered when considering orders issued for indemnity costs in jurisdictions where costs follow the cause.
Recent Case Law Examples
TSG Franchise Management Pty Ltd v Cigarette & Gift Warehouse (Franchising) Pty Ltd (No 3) 27
The failure to discover critical documents without proper explanation justified an award of indemnity costs as it affected the way the other party prepared and conducted its case, as well as caused a delay in the trial.
Kostov v YPOL Pty Ltd 28
Schmidt J ordered that the plaintiff pay the defendant’s costs on an indemnity basis as a result of her unreasonable conduct, being that she discontinued her claim against the defendant. Her Honour reasoned that that every litigant is aware that commencing proceedings will incur costs so that if plaintiffs no longer wish to pursue the proceedings or if the proceedings they bring fail, costs will follow.
Sargeant v He & Fe Campbell Agricultural Machinery (No 2) 29
Indemnity costs were not awarded in this case because the defendant did not warn the plaintiff that costs would be sought on an indemnity basis. Adamson J held that the omission to foreshadow an application for indemnity costs, whilst it is not an essential precondition, is a relevant factor.
Telfer v Fairfax (in his capacity as administrator of the estate of Telfer (No 2) 30
The plaintiff made an application for indemnity costs on the basis that the offers she made the defendant were rejected. The Court found that the offers did not involve any real element of compromise and therefore were not effective to justify an award of indemnity costs.
Boensch (as trustee of Boensch Trust) v Pascoe (No 2) 31
The plaintiff was ordered to pay indemnity costs from the date of the making of a Calderbank offer. In this case, the terms of the offer were clear and the offer also expressly stated to be made pursuant to the principles enunciated in Calderbank. There was a genuine offer of compromise and it was unreasonable for the plaintiff not to accept it.
CDW v LVE 32
This was a family law matter where the father appealed and had the appeal dismissed. The mother applied to obtain an indemnity costs award on the basis that the father’s appeal was based on an ulterior motive and had no chance of success on the merits. The Court acknowledged that the father’s case on appeal was weak but held that it was ‘not so weak as to support an inference of impropriety or unreasonableness.’
Mulhern v Bank of Queensland (No 2) 33
The plaintiffs in this case were ordered to pay the defendant’s costs on an indemnity basis. Gleeson J held that the plaintiffs must have known or should have realised from the incoherence of the statement of claim that their proceedings were foredoomed to failure. Further, the plaintiffs’ conduct in their inability to identify a viable cause of action and their persistence in seeking to reagitate issues determined adversely to them was an abuse of the court’s process.
Chen v Monash University (No 2) 34
The Court ordered that the plaintiff be awarded the indemnity costs order sought by the respondents as a result of her failure to accept a generous offer of settlement before any substantial costs had been incurred. This was regarded as unreasonable conduct, particularly since the plaintiff possessed independent legal advice highlighting the weakness of her case.
Legislative provisions
An appeal under s.604 of the Act is an appeal by way of rehearing and the Commission’s powers on appeal are only exercisable if there is error on the part of the primary decision maker. 35 There is no right to appeal and an appeal may only be made with the permission of the Commission.”
Post v NTI Limited T/A NTI (2016 FWCFB 6765 delivered 18 November 2016 per Drake SDP, Asbury DP and Saunders C