Bannon v Nauru Phosphate Royalties Trust (No 1)
[2016] VSC 425
•4 AUGUST 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
EMPLOYMENT AND INDUSTRIAL LIST
S CI 2015 03354
| PAUL BANNON | Plaintiff |
| v | |
| NAURU PHOSPHATE ROYALTIES TRUST | Defendant |
| NAURU PHOSPHATE ROYALTIES TRUST | Plaintiff by Counterclaim |
| v | |
| PAUL BANNON | Defendant by Counterclaim |
| +and | |
| THE REPUBLIC OF NAURU | Third Party |
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JUDGE: | McDONALD J |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | 24 JUNE 2016 |
DATE OF JUDGMENT: | 4 AUGUST 2016 |
CASE MAY BE CITED AS: | Bannon v Nauru Phosphate Royalties Trust (No 1) |
MEDIUM NEUTRAL CITATION: | [2016] VSC 425 |
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PUBLIC INTERNATIONAL LAW – Foreign State immunity – Immunity from jurisdiction – Third party proceedings commenced against Republic of Nauru seeking indemnity in respect of claims made against plaintiff by way of counterclaim – Republic of Nauru immune from jurisdiction of the Supreme Court of Victoria by operation of Foreign States Immunities Act 1985 (Cth) – Foreign States Immunities Act 1985 (Cth) ss 9, 11, 32A; Fair Work Act 2009 (Cth) ss 44(1), 90(2), 117(3), 546(3), 570.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Rinaldi | Lander & Rogers |
| For the Defendant | Mr R Millar | SLC Law Pty Ltd Lawyers |
| For the Republic of Nauru | Ms W Harris QC with Mr S Ure | Ashurst |
HIS HONOUR:
Paul Bannon was employed by the Nauru Phosphate Royalties Trust (‘NPRT’) between October 1994 and 30 June 2014.[1] On 29 June 2015, Mr Bannon commenced proceedings against NPRT by writ and statement of claim. Among other things, he claims:
(a)Damages for breach of contract of employment in the amount of $4,235,801.12;
(b)Further and alternatively, the amount of $4,185,262.65 as a debt due;
(c)Further and alternatively, damages in the amount of $118,750.57 for breach of an alleged agreement with NPRT dated 22 May 2013; and
(d)Civil penalties equal to 60 penalty units for breaches of s 44(1) of the Fair Work Act 2009 (Cth) (‘the FWA claims’).[2]
[1]Statement of Claim dated 29 June 2015, [2], [21].
[2]Ibid [A]–[D].
The FWA claims relate to NPRT’s alleged failure to make payments of accrued annual leave as required by s 90(2), payment in lieu of notice of termination as required by s 117(3), and payments of redundancy pay as required by s 119(2) of the Fair Work Act 2009.[3] Mr Bannon seeks an order that the amount of any civil penalty ordered to be paid by NPRT be paid to him in accordance with s 546(3) of the Fair Work Act 2009.[4]
[3]Ibid [36].
[4]Ibid [E].
A significant proportion of Mr Bannon’s claims against NPRT relate to his appointment as the Secretary of NPRT as well as a number of its subsidiaries. Mr Bannon claims $3,422,100 pursuant to a term of his contract of employment which provided for a monthly entitlement of $1,500 during each period that he acted as a director or secretary of a subsidiary company.[5] This contractual term is admitted in the defence filed by NPRT.[6]
[5]Ibid [11](d) and [16].
[6]Defence and Counterclaim dated 13 November 2015, [11].
Mr Bannon claims an additional amount of $282,028.13 based on a contractual entitlement to superannuation contributions as prescribed by the Superannuation Guarantee (Administration) Act 1992 (Cth) in respect of his entitlement to director/secretarial fees.[7] NPRT admits Mr Bannon’s contractual entitlement to be paid superannuation in respect of director/secretarial fees.[8] However, it denies that Mr Bannon has any entitlement to be paid any of the claimed secretarial/director’s fees.[9]
[7]Statement of Claim dated 29 June 2015, [17]–[20].
[8]Defence and Counterclaim dated 13 November 2015, [17]-[19].
[9]Ibid [16].
By its counterclaim, NPRT alleges that if it is liable to pay the secretarial/director’s fees claimed by Mr Bannon, it will suffer loss.[10] It alleges that this loss arises out of breaches by Mr Bannon of fiduciary obligations which he owed to NPRT.[11] NPRT also alleges that Mr Bannon breached various express ‘integrity terms’ of his contract of employment.[12] NPRT alleges that Mr Bannon advanced unauthorised loans totalling $363,510.95 to himself and another employee of NPRT.[13] Further, NPRT has counterclaimed the damages equal to the fees and charges associated with the receivership of NPRT’s Australian subsidiaries incurred during the period 2004 to 2014.[14] NPRT alleges that these fees were incurred as a result of breaches by Mr Bannon of both his fiduciary obligations and the integrity terms of his contract of employment.[15]
[10]Ibid [41](b).
[11]Ibid [41](b)(i).
[12]Ibid [10] and [41](b)(ii).
[13]Ibid [28A]–[28B].
[14]Ibid [28C] and [43].
[15]Ibid [28C].
By his defence to counterclaim, Mr Bannon pleads that insofar as his acts and omissions were done or omitted to be done in the exercise or purported exercise of his powers and duties as a secretary or director of a corporation associated with NPRT, he is entitled to be indemnified by NPRT and the Republic of Nauru pursuant to s 32A of the Nauru Phosphate Royalties Trust Act 1968 (‘NPRT Act’).[16]
[16]Defence to Counterclaim dated 16 March 2016, [29](b)(iii).
Section 32A of the NPRT Act provides:
The members of the Trust shall not be personally liable for any act or omission done or omitted to be done in the bona fide exercise or purported exercise of their powers and duties as members or directors or as other office-bearers of corporations with which the Trust is associated, and they shall be indemnified by the Republic in respect of any liability howsoever incurred in connection with any such act or omission.
By a third party notice dated 29 March 2016, Mr Bannon has claimed indemnification from the Republic of Nauru (‘Nauru’) pursuant to s 32A of the NPRT Act from any and all liability, including costs liabilities arising from or in connection with NPRT’s counterclaim.[17]
[17]Third Party Notice dated 29 March 2016, [A].
By a summons dated 20 May 2016, Nauru seeks orders setting aside the third party notice as well as orders setting aside service of the notice. Nauru’s application for an order setting aside the third party notice is based upon the contention that it is immune from the jurisdiction of the Supreme Court of Victoria by operation of s 9 of the Foreign States Immunities Act 1985 (Cth) (‘Immunities Act’).[18] The claim for an order setting aside service of the third party notice assumes that the Court does have jurisdiction, but is based upon the contention that the service was not affected in accordance with the Immunities Act and/or the Supreme Court (General Civil Procedure) Rules 2015.[19]
[18]’Outline of Submissions of the Republic of Nauru’ dated 14 June 2016, [2].
[19]Ibid [3].
When the matter was listed for hearing on 24 June 2016 I advised the parties that I would in the first instance determine Nauru’s jurisdictional challenge.[20] If the jurisdictional challenge is successful there is no utility in the Court determining the application to set aside service of the third party notice.
[20]Transcript of Proceedings, Bannon v Nauru Phosphate Royalties Trust (No 1) (Supreme Court of Victoria, S CI 2015 03354, McDonald J, 24 June 2016) T22 LL1–6.
For the reasons set out below, I have concluded that Nauru is immune from the jurisdiction of the Supreme Court of Victoria in respect of the third party proceedings by operation of s 9 of the Immunities Act. The third party notice in which Nauru is named as third party will be set aside.
Nauru is immune from the jurisdiction of the Supreme Court of Victoria by operation of s 9 of the Immunities Act
Section 9 of the Immunities Act provides that a foreign State is immune from the jurisdiction of the courts of Australia (except as provided by or under the Immunities Act). There is no issue in the proceedings that, for the purposes of s 9, Nauru is ‘a foreign State’.[21]
[21]Ibid T67 LL22–25, T103 LL3–5.
Section 11(1) and (3) of the Immunities Act provides:
(1)A foreign State is not immune in a proceeding in so far as the proceeding concerns a commercial transaction.
…
(3)In this section, commercial transaction means a commercial, trading, business, professional or industrial or like transaction into which the foreign State has entered or a like activity in which the State has engaged and, without limiting the generality of the foregoing, includes:
(a) a contract for the supply of goods or services;
(b)an agreement for a loan or some other transaction for or in respect of the provision of finance; and
(c)a guarantee or indemnity in respect of a financial obligation; but does not include a contract of employment or a bill of exchange.
The onus rests with Mr Bannon, as the party invoking the Supreme Court’s jurisdiction, to establish that the commercial transaction exception prescribed by s 11(1) and (3) of the Immunities Act applies.[22]
[22]Wells Fargo Bank Northwest National Association v Victoria Aircraft Leasing Ltd (2004) 185 FLR 48, [61]; Australian International Islamic College Board Inc v Kingdom of Saudi Arabia [2014] 2 Qd R 1, [22].
Mr Rinaldi, who appeared on behalf of Mr Bannon, submitted that the third party claim against Nauru is a proceeding which concerns a commercial transaction.[23] He placed particular reliance upon that part of the definition of commercial transaction in s 11(3)(c) which refers to an ‘indemnity in respect of a financial obligation’.[24] He submitted that the indemnity prescribed by s 32A of the NPRT Act ‘gives rise to the commercial transaction’.[25] Mr Rinaldi submitted that it is not to the point that s 32A is a statutory rather than contractual indemnity.[26] He submitted that for the purposes of s 11(3) ‘indemnity’ is not qualified by a requirement that it be a particular type of indemnity.[27]
[23]Transcript of Proceedings, Bannon v Nauru Phosphate Royalties Trust (No 1) (Supreme Court of Victoria, S CI 2015 03354, McDonald J, 24 June 2016) T23 LL25–31.
[24]Ibid T67 LL1–7.
[25]‘Outline of Submissions of the Plaintiff/Defendant by Counterclaim’ dated 20 June 2016, [8].
[26]Ibid [10].
[27]Ibid.
Mr Rinaldi accepted that in order to enliven the exception prescribed by s 11(3), Mr Bannon had to identify a commercial transaction into which Nauru ‘has entered’.[28] Mr Rinaldi submitted that the relevant transaction is the ‘giving of the indemnity pursuant to statute to cover a liability for a personal financial obligation claimed against the officer, Mr Bannon in his capacity as a director or other office bearer of a corporation’[29] with which NPRT was associated. Mr Rinaldi expressly disavowed the contention that it is the enactment of s 32A of the NPRT Act which is the relevant transaction for the purposes of identifying a commercial transaction within the meaning of s 11(3).[30] Rather, he submitted that the relevant transaction is the invoking and enforcement, the operation of the indemnity, that is provided by s 32A.[31] Mr Rinaldi submitted that the relevant financial obligation for the purposes of s 11(3) is that which is claimed against Mr Bannon in the counterclaim of NPRT.[32]
[28]Transcript of Proceedings, Bannon v Nauru Phosphate Royalties Trust (No 1) (Supreme Court of Victoria, S CI 2015 03354, McDonald J, 24 June 2016) T67 LL11–14.
[29]Ibid T67 LL16–20.
[30]Ibid T66 LL12–14.
[31]Ibid T66 LL12–15, T68 LL24–28.
[32]Ibid T69 LL4–6.
Whether Nauru is immune from the jurisdiction of the Supreme Court of Victoria in respect of the third party proceedings turns upon the construction of s 11 of the Immunities Act. Section 11 of the Immunities Act has been the subject of judicial consideration. In Wells Fargo Bank Northwest National Association v Victoria Aircraft Leasing Ltd,[33] Dodds-Streeton J stated:
The term “commercial transaction” is widely defined in s 11 to bear a meaning beyond “commercial” proper, as it expressly includes not only a “commercial” transaction but extends to a “trading, business, professional or industrial or like” transaction. The ALRC Report stated that “the object of the definition of ‘commercial’ in the context of jurisdiction was to focus on the nature of a specific transaction”.
The term “commercial”, is used in distinction from “non-commercial”, and must be given content. The group of defining qualities in the “generality” of s 11(3) significantly omit criteria such as “political”, “diplomatic”, “governmental”, “intelligence”, “foreign policy” or “domestic”. No doubt other significant fields of human activity are omitted.
In my opinion, if a transaction is substantially, essentially or predominantly of a political, diplomatic, governmental or intelligence or like character, it is not a “commercial transaction” despite the fact that it incorporates, or possibly incorporates, some elements of the specified transactions in s 11(3)(a)-(c).
Whether or not the transactions in s 11(3)(a)-(b) are ipso facto commercial, the incorporation of only subsidiary or minor “commercial, trading, business, professional, industrial or like” elements in a transaction which is predominantly one of a political, diplomatic, governmental or intelligence character, or an admixture of those elements, in my view will not render it a “commercial transaction”. Immunity would not be lost pursuant to s 11 of the Act.[34]
[33](2004) 185 FLR 48 (‘Wells Fargo’).
[34]Ibid [106]–[109] (citations omitted).
Dodds-Streeton J’s reasoning as set out above is binding upon me unless I am of the view that it is plainly wrong.[35] Of particular relevance for the purposes of the present proceedings, her Honour cited with approval the statement at [125] of the ALRC Report No 24 on Foreign State Immunity 1984, that the object of ‘commercial’ in the context of jurisdiction is to focus on the nature of a specific transaction.[36] The use of the words ‘entered into’ in s 11(3) is consistent with the existence of a commercial transaction being co-extensive with a specific transaction. Support for this view is to be found in the judgment of the High Court in PT Garuda Indonesia Ltd v Australian Competition and Consumer Commission,[37] where the plurality stated that the definition of ‘commercial transaction’ in s 11 ‘fixes upon entry and engagement by the foreign State’.[38]
[35]Commissioner of State Revenue v Challenger Listed Investments (2011) 34 VR 617, [20]–[23].
[36]Wells Fargo Bank Northwest National Association v Victoria Aircraft Leasing Ltd (2004) 185 FLR 48, [106].
[37](2012) 247 CLR 240.
[38]Ibid [42].
Ms Harris QC, who appeared with Mr Ure for Nauru, contended that the source of the indemnity relied upon by Mr Bannon in his third party notice is the statutory prescription in s 32A of the NPRT Act.[39] Ms Harris submitted that the enactment of s 32A was a political and/or governmental act which fell squarely within the reasoning of Dodds-Streeton J in Wells Fargo as being outside the definition of commercial transaction. [40] I accept this submission.
[39]Transcript of Proceedings, Bannon v Nauru Phosphate Royalties Trust (No 1) (Supreme Court of Victoria, S CI 2015 03354, McDonald J, 24 June 2016) T27 LL5–10.
[40]Ibid T42 LL10–17.
Save for the enactment of s 32A, it is not possible to identify any specific transaction which Nauru has entered into with Mr Bannon, or any third party, pursuant to which Nauru has agreed to indemnify Mr Bannon in respect of a financial obligation. The reasoning of Dodds-Streeton J at [108] in Wells Fargo is directly on point. The enactment of s 32A by the Parliament of Nauru is essentially an act of a political or governmental character.
Mr Rinaldi submitted that s 32A incorporates an element of s 11(3)(c), namely an indemnity in respect of a financial obligation. Ms Harris took issue with this. It is not necessary to resolve this controversy. Even if it be accepted that s 32A does provide an indemnity in respect of a financial obligation this does not result in s 32A being, or giving rise to, a commercial transaction. This conclusion is not altered by Mr Rinaldi’s attempts to distinguish between on the one hand, the enactment of s 32A, and on the other, Mr Bannon invoking the operation of s 32A by way of his third party notice. Nauru did not enter into any transaction as a consequence of Mr Bannon filing a third party notice claiming an indemnity against it pursuant to s 32A of the NPRT Act.
Conclusion
For the reasons set out above, Nauru is immune from the jurisdiction of the Supreme Court of Victoria in respect of the third party notice dated 29 March 2016. Nauru is entitled to an order setting aside the third party notice.
I shall provide the parties with an opportunity to file submissions in respect of the question of costs. In the present proceedings, this issue is complicated by the existence in the statement of claim of various claims arising under the Fair Work Act 2009. An issue arises as to the operation of s 570 of the Fair Work Act 2009. Section 570 provides as follows:
(1)A party to proceedings (including an appeal) in a court (including a court of a State or Territory) in relation to a matter arising under this Act may be ordered by the court to pay costs incurred by another party to the proceedings only in accordance with subsection (2) or section 569 or 569A.
(2) The party may be ordered to pay the costs only if:
(a)the court is satisfied that the party instituted the proceedings vexatiously or without reasonable cause; or
(b)the court is satisfied that the party’s unreasonable act or omission caused the other party to incur the costs; or
(c) the court is satisfied of both of the following:
(i)the party unreasonably refused to participate in a matter before the FWC;
(ii)the matter arose from the same facts as the proceedings.
A number of issues, including those set out below, arise from the potential application of s 570 of the Fair Work Act 2009 to the current proceedings:
(a) Is the third party proceeding a proceeding ‘in relation to a matter arising under’ the Fair Work Act 2009?
(b) Does s 570 of the Fair Work Act2009 operate to the exclusion of s 24 of the Supreme Court Act 1986?
(c) If s 570 operates to the exclusion of s 24 of the Supreme Court Act 1986, have s 570(2)(a) or (b) any potential application?
(d) In the event that Nauru seeks an order for costs, is it necessary for notices to be served under s 78B of the Judiciary Act 1903 (Cth) given the potential inconsistency between s 570 of the Fair Work Act 2009 and s 24 of the Supreme Court Act 1986?
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