Australian Legislation Limiting Payment of Costs by Unsuccessful Applicants Incentivises Discrimination Litigation

Background

In Australian litigation, the unsuccessful litigant typically pays the legal costs of the successful litigant. This "loser pays" approach means that, generally, the outcome of the substantive proceedings guides which side is liable for costs. This approach to costs applied to federal discrimination law prior to the Australian Human Rights Commission Amendment (Costs Protection) Bill 2023 (Cth) ("Costs Protection Act"), which took effect on 2 October 2024.

The Australian Human Rights Commission's ("AHRC") Respect@Work Report recommended that, with respect to claims for sexual harassment in the workplace, the Australian Human Rights Commission Act 1986 (Cth) should be amended to insert a cost protection provision consistent with section 570 of the Fair Work Act 2009 (Cth) ("FW Act"). Under section 570 of the FW Act, the unsuccessful litigant does not bear the successful litigant's costs unless the Fair Work Commission is satisfied that the party's application or response to an application was made vexatiously or without reasonable cause, or it should have been reasonably apparent that the party's application or response to an application had no reasonable prospect of success. The reason for the AHRC's Respect@Work Report's recommendation is that the risk of adverse costs orders can deter applicants from pursuing litigation alleging discrimination and harassment. 

Costs Rules Altered

The Costs Protection Act amended the Australian Human Rights Commission Act 1986 (Cth) to add section 46PSA, which provides a cost protection regime for applicants in federal unlawful discrimination (including sexual harassment) court proceedings. The cost protection regime applies to all proceedings commenced under the federal anti-discrimination laws.

The Costs Protection Act provides that "the applicant must not be ordered by the court to pay costs incurred by another party to the proceedings" unless the applicant acted vexatiously or without reasonable cause, the applicant's unreasonable act or omission caused the respondent to incur costs, or all of the following criteria are satisfied: (a) the respondent was successful in the proceedings; (b) the respondent does not have a significant power advantage over the applicant; and (c) the respondent does not have significant financial or other resources relative to the applicant. Accordingly, even where the respondent is successful on all grounds, the parties will generally bear their own costs.

The Costs Protection Act then goes further than the AHRC recommendation and provides that "if the applicant is successful in proceedings on one or more grounds, the court must order each respondent against whom the applicant is successful to pay the applicant's costs." The court has significantly less discretion with regard to costs, but courts can order costs be paid on an ordinary or an indemnity basis and can refrain from ordering a respondent to pay costs where the applicant's unreasonable act or omission caused the applicant to incur costs. 

The Costs Protection Act therefore takes a different, more applicant-friendly approach than the AHRC Report's recommendation, as the respondent will generally pay the applicant's costs if the applicant is successful on one or more grounds moving forward. The Costs Protection Act also applies to all unlawful discrimination claims, while the Respect@Work Report's focus was sexual harassment.

The costs model also applies to federal class actions. 

More Claims

The Costs Protection Act was adopted to remove a perceived disincentive to pursuing discrimination and harassment litigation, so more claims likely will be brought moving forward. The change to the costs regime also applies to class actions, which could increase interest in this form of litigation as well.

The legislation requires that claims first be brought in the AHRC and conciliation attempted, so a non-litigation resolution remains possible. However, with a lower risk of paying a respondent's costs in litigation, it is possible applicants may commence more tenuous claims and seek larger compensation payments. Even though the risk of costs is now weighted in favour of applicants, respondents may still need to defend litigation to deter unmeritorious claims.

Prevention and Risk Management

The Costs Protection Act creates a further incentive for Australian companies to take proactive and meaningful action to eliminate sexual harassment in the workplace and otherwise comply with anti‑discrimination legislation.

To meet federal and state obligations and reduce the risk of successful court action and related costs orders, Australian companies should take the following steps:

• Ensure there are relevant and accessible anti-discrimination and anti-harassment policies in place;
• Maintain regular training programs;
• Ensure executives and HR managers are aware of changes to the law in this area; 
• Have an appropriate system in place to receive and record complaints in order to effectively respond to such complaints and identify and address any systemic concerns; and 

Investigate any complaints in accordance with relevant policies in a timely and thorough manner.