A new legal hunting ground?
The Federal Government has passed the Australian Human Rights Commission Amendment (Costs Protections) Bill 2023 which introduces a radical new costs regime into Australia’s federal anti-discrimination laws.
Kingston Reid Partners Duncan Fletcher and Beth Robinson outline the nature of these changes and what we might expect to occur once they take effect.
The New Costs Provisions
One of the issues identified in the landmark 2020 Respect@Work report into sexual harassment in Australia was a perception that individuals who experienced discrimination and sexual harassment were deterred from commencing legal proceedings under anti-discrimination law due to the risk of being ordered to pay the other parties’ legal costs if a claim was unsuccessful. To address this, a recommendation was made to introduce costs neutrality provisions into anti-discrimination laws, like those provided for in the Fair Work Act 2009 (Cth) (FW Act), where each party to a proceeding is responsible for their own legal costs[1].
The government has now acted on this recommendation, introducing new costs protections for applicants in court proceedings that relate to an application made under anti-discrimination laws.
However, the changes go beyond the costs neutrality position recommended by the Australian Human Rights Commission (AHRC)[2] and the Respect@Work report, introducing instead a ‘modified equal access model’.
The new provisions provide:
- If the applicant succeeds on one or more grounds, the court must order each respondent to pay the applicant’s costs on an indemnity or other basis. The only exception is if the applicant’s unreasonable act caused costs to be incurred, in which case only those costs are excluded.
- If the respondent succeeds, the applicant must not be ordered to pay costs, unless the applicant acted vexatiously or unreasonably, and then the costs are limited to costs flowing from the unreasonable act.
The outcome of these changes is a respondent now effectively underwrites the legal costs of a claim brought against them under anti-discrimination law, and applicants are largely insulated from costs exposure, other than in very limited circumstances.
This significantly shifts the risk in proceedings under anti-discrimination laws to a respondent and creates strategic and legal advantages for individuals commencing claims in that forum.
Notably, the regime is broadly drafted and captures court proceedings “that relate to” a discrimination application. This means that the benefit of costs protection for applicants will not be limited only to a discrimination aspect of a claim but will likely extend to all aspects of claims where any anti-discrimination law is used as a vehicle to commence the application (which may include, for example, breach of contract). This is already a common practice under the FW Act.
In practice, we expect that similar to the Fair Work Commission (FWC), claims will be commenced with the AHRC to enliven this jurisdiction and protection. If a claim is not resolved in the conference process within the AHRC, and the complaint is terminated, an applicant is then able to proceed with a claim in the federal court jurisdiction. The costs protections will then apply to the entirety of that claim, irrespective of what other allegations or claims are included in the application.
The likely consequences of this change are:
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A new legal hunting ground
The FW Act costs neutrality regime has several demonstrable positive impacts, reflected in the effectiveness of the Fair Work Commission in dealing with disputes. The provisions:
- Effectively incentivise settlement at an early stage: Over 90% of claims in the FWC settle at conciliation[3], with costs implications used as a lever to promote compromise by both parties. This is supported by a system within the Fair Work jurisdiction which schedules facilitated conferences and conciliation within weeks of a claim being commenced.
- Promote efficiency and objective assessment of claim prospects: Parties are generally motivated to run claims efficiently, as they are more aware that the costs they are incurring are usually not recoverable. This promotes objective assessment of claim prospects by both parties on an ongoing basis.
- Encourage commercial settlements: Settlement proposals are generally reflective of reasonable loss and not blown out with claims for unrecoverable or excessive legal costs, again providing an incentive for compromise and resolution. This results in commercial settlements being achieved in most matters.
By contrast, claims brought through the AHRC under federal anti-discrimination laws are currently far less common. This reflects that:
- discrimination laws are historically highly technical resulting in expensive and prolonged proceedings where cost neutrality protections did not exist;
- the process within the AHRC is not currently as efficient as that offered by the FWC; and
- recourse if a matter does not resolve is to the federal court system with its attendant complexity and cost.
To the extent that discrimination claims are currently pursued, they usually form part of a claim commenced under the FW Act’s general protections provisions, in order to obtain the benefits of the FWC processes as well as the costs neutrality protections, a reverse onus of proof and civil remedy provisions.
The changes introduced to change the costs arrangements under the Australian Human Rights Commission Act 1986 (Cth) mean that costs burdens of a discrimination claim now sit heavily with respondents.
This beneficial change for applicants, combined with the wide ranging and foundational changes particularly to the Sex Discrimination Act 1984 (Cth) (SD Act) over the last 18 months, (including new provisions intended to guard against a “hostile work environment” and the positive duty to prevent sexual harassment) makes the AHRC a much more attractive forum for an applicant commencing a claim. It also means that discrimination claims are now attractive as a vehicle for commencing more expansive applications of which discrimination is only a part, in order to obtain the costs benefits. This is an approach that is already common with general protections provisions under the FW Act.
As the default costs liability extends to each respondent, it would also be reasonable to anticipate an increase in the use of accessorial liability provisions to ensure senior managers and officers are named as parties to claims, particularly where they are able to influence settlement, or activate protective insurance policies, noting of course that an insurer will assess all risks, including costs exposure in determining potential settlement parameters.
“Representative” or class action claims also benefit from this default costs protection, again incentivising the funding and making of large-scale claims. While individual applicants are protected, respondents must assume that they will carry a greater proportion of the legal costs incurred. This is recognised in the new provisions expressly referencing representative actions and providing express protections against costs being ordered against individual applicants in these claims. This will have the consequent effect of increasing the attractiveness of this type of claim for litigation funders whose risk profile has now been reduced.
Exceptions to the rule?
For employers or individuals responding to a discrimination claim, having a clear legal strategy, from the beginning of the proceedings, will now become more critical than ever to not just understand the potential legal risk on the merits of a claim, but to establish a basis to meet an exception to the costs regime and mitigate the potential for costs exposure.
The limited exceptions to the default costs position in terms of the respondent’s exposure are where:
- the respondent wholly succeeds, meaning all claims against them are dismissed; and/or
- the applicant has engaged in an unreasonable act or omission that has caused the applicant to incur costs.
It is this second limb with should be closely considered remembering that this is the criteria for a move from the default outcome that the respondent be ordered to pay the applicant’s costs.
This assessment considers not whether the applicant’s unreasonable act caused the respondent to incur costs, but whether the applicant’s own unreasonable act or omission caused the applicant to incur costs. If this can be established, the respondent will not be ordered to pay those unreasonably incurred costs, this is a limited protection.
An ‘unreasonable act or omission’ for the purposes of a costs provision will always be contextual but well accepted “unreasonable acts” include a failure to accept a reasonable offer of compromise, especially where it provides for a better outcome than that ultimately achieved, or a failure to participate in a process such as a conciliation.
However, the Explanatory Memorandum[4] to the Bill seeks again to remove this incentive for compromise and genuine assessment of prospects and outcomes. The Explanatory Memorandum instead adopts a submission of the ACTU[5], and states that for the purposes of this provision an ‘applicant’s unreasonable act or omission” which caused the applicant to incur costs is ‘intended to be a high threshold and reserved for rare cases. For example, a mere refusal of a settlement offer, (or) refusal to participate in a conciliation… are not intended to amount to an unreasonable act or omission…” (our emphasis).
This is inherently problematic. If this explanation informs the application of these new provisions, the outcome is effectively that a respondent remains liable for an applicant’s costs, even in circumstances where those costs could or should have been reasonably avoided. It removes the imperative for genuine consideration of reasonable settlements, or participation in alternative resolution mechanisms.
Of course, how the courts choose to exercise its discretion in each matter will be determined by the facts in each case and context remains critical.
When is an applicant liable for costs?
The basis for an applicant being ordered to pay the respondent’s costs are even narrower. An applicant may only be ordered to pay costs :
- If the proceeding was commenced vexatiously or without reasonable cause.
- When the applicant’s unreasonable act or omission caused the other party to incur costs.
- When the respondent is wholly successful but does not have a significant power or financial advantage over the applicant. This is intended to protect true small businesses and individual respondents where there is no power differential with an applicant.
Proving an application to be vexatious is a very high bar and one that is not commonly met. For a matter to be commenced without reasonable cause, this requires there to be evidence that, on the facts objectively known at the commencement of proceedings, there was no reasonable cause of action or prospect of success. Again, this is a high bar.
Interestingly, the ‘unreasonable act’ provision in this subsection adopts similar wording to section 570 of the FW Act, as it considers where the applicant has caused the other party to incur costs through an unreasonable act or omission. This provision is not addressed in the explanatory memorandum to the Bill, but it must be assumed that ‘unreasonable act or omission’ will be given the same meaning throughout this new provision.
This leads to an outcome where, if it can be shown that an applicant engaged in an unreasonable act or omission resulting in costs for either party, that this becomes a basis firstly for the respondent to obtain protection against costs arising from that act or omission, and secondly, becomes a basis for the ordering of costs against the applicant in relation to that same act. This costs provisions will accordingly become a key issue within legal proceedings and strategy.
Impact for Respondents
When assessing a legal claim and how to approach it, consideration is usually given to the merits of the claim and potential outcomes, the likely legal costs and the time and disruption required to participate in legal proceedings.
As outlined above, these changes impact this assessment.
To best protect itself against potential costs exposure, a respondent to discrimination proceedings should, as early as possible, and throughout proceedings:
- Consider the merits of each aspect of a claim, including any which should not proceed due to legal or factual deficiencies, and making this clear in writing in a response and any settlement communications with the applicant. By necessity, this involves investigating the claims made, an often intensive and costly process.
- Determine what a reasonable offer of compromise would be, based on the circumstances of the case and its merits. The offer should be made in writing and make clear that failing to accept the offer of compromise is unreasonable. Relevantly, being prepared to factor in these new costs risks as part of whether an offer is reasonable will be necessary and may require higher offers to be made to meet this threshold. Our expectation is settlement proposals will now routinely include claims for applicant legal fees.
- Act on unreasonable acts or omissions during proceedings by raising them in writing. This may include deficiencies in compliance with technical legal rules around pleadings and compliance, or the introduction of irrelevant materials, such as large volumes of evidence that are not relevant to the matter.
The necessity for these additional steps means that time and costs, which may previously have been deferred in the interests of obtaining an early commercial settlement are now incurred earlier. Respondents are likely to need to engage with their lawyers to properly understand and respond to discrimination-based claims and the increased settlement expectations that they will bring.
Where to now?
Discrimination claims are likely to significantly increase over the next few years as these changes come into effect. This is an intended outcome of this change, and other recent legislative changes.
This will be driven by the cumulative effect of the changes to the SD Act which have lowered the threshold for providing sexual harassment and discrimination and now the beneficial costs protections for claims brought under anti-discrimination laws which make this an attractive jurisdiction to commence claims.
For employers, these changes represent a significant shift and will require reassessment of where discrimination issues are classified in the organisational risk matrix. The focus as always should be ensuring that the workplace is as compliant as possible, including having proactive and practical strategies to prevent discrimination, or to identify and de-escalate potential claims early.
If a complaint is made or a claim is received, organisational response becomes much more important right from the inception of the claim. Given the higher costs stakes, respondents can limit their exposure by seeking early legal advice to avoid prejudicing their position. A strategic response, which responds quickly to mitigate against potential costs implications, is critical in this new hunting ground for applicant litigation.
[1] Australian Human Rights Commission (AHRC), Respect@Work: National Inquiry into Sexual Harassment in Australian Workplaces (2020) Recommendation 24 at p 45
[2] AHRC Submission to the Senate Legal and Constitutional Affairs Legislation Committee, 19 December 2023
[3] Taken from statistics in the FWC Quarterly Reports which show the number of applications made and the number that settle at private conference, here: https://www.fwc.gov.au/about-us/reporting-and-publications/quarterly-reports
[4] Australian Human Rights Commission Amendment (Costs Protection) Bill 2023 Explanatory Memorandum
[5] Cost Model for Commonwealth Anti-Discrimination Laws. ACTU submission to the Attorney-General’s Department on the Review into an appropriate cost model for Commonwealth anti-discrimination 2022 at p 20
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The views expressed in this article are general in nature only and do not constitute legal advice.
Please do not hesitate to contact us if you require specific advice tailored to the needs of your organisation in relation to the implications of these changes for your organisation.