Bartlett v Signostics Ltd (in Liquidation)
[2019] FCCA 2989
•21 October 2019
FEDERAL CIRCUIT COURT OF AUSTRALIA
| BARTLETT v SIGNOSTICS LTD (IN LIQUIDATION) | [2019] FCCA 2989 |
| Catchwords: INDUSTRIAL LAW – ACCRUED JURISDICTION – Contractual claims arising from applicants employment – common substratum of facts – orders for payment of amounts owed pursuant to contracts. INDUSTRIAL LAW – PECUNIARY PENALTY – Where senior management involved in contravention – where forged document relied on by respondent – where sustained and deliberate conduct by respondent amounted to serious contravention. INDUSTRIAL LAW – COSTS – Indemnity costs. |
| Legislation: Corporations Act 2001 (Cth), ss.471B & 533 |
| Cases cited: Fencott v Muller (O’Connors Winebar case) (1983) 152 CLR 570 Wakim, Re; Ex parte McNally (1999) 198 CLR 511 |
| Applicant: | STEWART GAVIN BARTLETT |
| Respondent: | SIGNOSTICS LTD (IN LIQUIDATION) |
| File Number: | ADG 524 of 2017 |
| Judgment of: | Judge Heffernan |
| Hearing date: | 4 July 2019 |
| Date of Last Submission: | 4 July 2019 |
| Delivered at: | Adelaide |
| Delivered on: | 21 October 2019 |
REPRESENTATION
| Solicitors for the Applicant: | Mr G Bartlett of Bartlett Workplace Lawyers & Consultants |
| The Respondent: | No appearance |
DECLARATIONS
THE COURT DECLARES THAT:
The respondent contravened a provision of the National Employment Standards contrary to s.44(1) of the Fair Work Act 2009 (Cth) (‘the FW Act’) by breaching section 90(2) of the FW Act by failing to pay Stewart Gavin Bartlett the full amount owing to him by way of untaken annual leave that would have been payable to him had he taken that leave during the period of his employment.
The unpaid amount referred to in 1(a) of this declaration was $33,627.91.
The unpaid amount referred to in 1(a) and (b) of this declaration should have been paid to the applicant Stewart Gavin Bartlett when his employment ended on 11 August 2017.
The monetary amounts payable to the applicant by the respondent pursuant to these orders, being amounts the liability for which arose before the appointment of the liquidator of the respondent are amounts due for the purposes of s.556(1)(g) of the Corporations Act 2001 (Cth).
ORDERS
Pursuant to s.546 of the FW Act, the respondent pay a pecuniary penalty in the amount of $110,000 to the applicant by 22 November 2019.
The respondent pay to the applicant the amount of $250,112.67 (TWO HUNDRED AND FIFTY THOUSAND, ONE HUNDRED AND TWELVE DOLLARS AND SIXTY SEVEN CENTS) comprised as follows:
(a)$7,000 pursuant to s.545 of the FW Act;
(b)$40,000 together with interest in the amount of $17,287 in satisfaction of the applicant’s contractual entitlements to the Manufacturer Incentive Payment;
(c)$20,000 together with $7,490 in interest in satisfaction of the applicant’s contractual entitlement to the Regulatory Approval Incentive Payment; and
(d)$40,126.67 together with interest in the amount of $8,209 in satisfaction of his contractual entitlement to the Salary Compensation Agreement payment.
The respondent to pay the costs of the applicant from 28 November 2017 on an indemnity basis as agreed or assessed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT ADELAIDE |
ADG 524 of 2017
| STEWART GAVIN BARTLETT |
Applicant
And
| SIGNOSTICS LTD (IN LIQUIDATION) |
Respondent
REASONS FOR JUDGMENT
This is an application under the Fair Work Act 2009 (Cth) (‘FW Act’) alleging contravention of a civil remedy provision on the basis of unpaid annual leave entitlements and by virtue of the Court’s accrued jurisdiction at common law for unpaid contractual entitlements. In the alternative to the contractual claims, the applicant alleges claims of debt based on promissory estoppel. For reasons that will become apparent, it is not necessary for me to consider those alternative allegations. The applicant seeks relief, including compensation, in the following amounts, plus interest:
a)$33,627.91 for unpaid annual leave;
b)$40,000 for an upaid incentive payment;
c)$20,000 for a further unpaid incentive payment;
d)$40,126.67 for unpaid salary; and
e)$10,000 for loss of reputation, pain and suffering.
He also asks the Court to impose civil pecuniary penalties on the respondent for a contravention of ss.44(1) and 90(2) of the FW Act.
On 28 February 2018, after the commencement of proceedings by the applicant, the respondent was placed into voluntary liquidation by resolution of the sole shareholder, an American entity, Echonous Inc (‘Echonous’). Accordingly, it was necessary for the applicant to obtain leave to proceed in this Court against the respondent pursuant to s.471B of the Corporations Act 2001 (Cth) (‘the Corporations Act’). Leave was granted in the Federal Court by Middleton J on 13 June 2019. No particular terms were imposed on the grant of leave. The terms of the order were as follows:
“The Plaintiff be given leave to continue proceedings in the Federal Circuit Court against Signostics Pty Ltd (in Liquidation) (ACN 081 578 378) for unpaid accrued annual leave and unpaid contractual entitlements also alleging contraventions of the Fair Work Act 2009 (Cth) being proceedings ADG524/17 and ADG525/17.”
The liquidator of the respondent is Mr Anthony Phillips who has indicated that he did not intend to defend these proceedings. As a result, the matter proceeded before me on an undefended basis.
The applicant relies on his affidavits of 28 November 2018 (‘applicant’s first affidavit’) and 1 July 2019 (‘applicant’s second affidavit’), together with the exhibits tendered at the hearing.
Background
The applicant was employed by the respondent between 1 January 2005 and 11 August 2017. At the time of his separation from employment he was the Chief Operating Officer of the respondent. The respondent is a corporation registered under the Corporations Act capable of being sued in its own name, is a “constitutionally covered entity”[1] and a “national system employer”.[2] It is an employer for the purposes of Part 2-2 of the FW Act and hence bound by the National Employment Standards and, relevantly for these purposes, Division 6 of that Part dealing with annual leave entitlements.
[1] Section 338(2) of the FW Act.
[2] Section 14 of the FW Act.
The applicant is an engineer. The respondent is a company that since 2004 has been engaged in research and development to design and produce a multi-function hand held medical device with capacity for auscultation, in other words, detecting sounds from various organs of the body to assist with medical diagnosis.[3]
[3] Applicant’s first affidavit at paras [10] - [38].
Accrued jurisdiction
The applicant seeks to invoke the accrued jurisdiction of the Court with respect to unpaid contractual entitlements arising from his contract of employment with the respondent. That requires me to make a preliminary finding.
As a starting point, it is necessary to consider whether the contractual claims are a part of the same matter, controversary or justiciable issue under the FW Act that is before this Court. That assessment turns on practical and pragmatic considerations. The question was considered by the High Court in Fencott v Muller[4] as follows:
“The classification of a claim as ‘non-severable’ does not necessarily mean that it is, or must be, united to the federal claim by a single claim for relief, though this is a common illustration of a non-severable claim. The non-severable character of the attached claim may emerge from other aspects of the relationship between the federal and the attached claim. For example, it may appear that the resolution of the attached claim is essential to a determination of the federal question. Likewise, it may appear that the attached claim and the federal claim so depend on common transactions and facts that they arise out of a common substratum of facts. In instances of this kind a court which exercises federal jurisdiction will have jurisdiction to determine the attached claim as an element in the exercise of its federal jurisdiction.”[5]
[4] Fencott v Muller (‘O’Connors Winebar case) (1983) 152 CLR 570.
[5] Ibid at p 512; See also Wakim, Re; Ex parte McNally (1999) 198 CLR 511.
The breadth of non-federal jurisdiction accrued in any case will depend on the nature of the single justiciable issue. I am satisfied that the non-federal aspects of the applicant’s claim arise from the same justiciable issue, namely, the employment of the applicant by the respondent and the respondent’s compliance or otherwise with conditions of employment either as agreed and/or as provided for by virtue of the FW Act. Further, there is a common substratum of facts given the nature of the allegations. The respondent’s actions in not paying him his annual leave are clearly related to, and on the applicant’s case, in part, motivated by the contractual issues and the discussions he had with the respondent following its decision to shut down almost its entire Australian operation. Where jurisdiction accrues to a Court there is ordinarily no general discretion not to exercise it.[6] I am, accordingly, satisfied that I have jurisdiction with respect to the contractual claims and that I am bound to exercise it. If I am wrong about that matter, then, I am satisfied that the contractual claims amount to ‘an associated matter’ and are justiciable in this Court.[7]
[6] Houghton v Arms [2006] HCA 59 at [27].
[7] Section 18 of the Federal Circuit Court Act 1999 (Cth).
Contractual claims
The contractual claims raised by the applicant are as follows:
i)The failure to make repayment of salary as agreed between the parties; and
ii)A failure to make incentive payments.
As a result of the impact of the Global Financial Crisis on the respondent’s prospects, in or about October 2008, the respondent proposed to the applicant, and the applicant agreed, to accept a reduction in his gross annual salary from $150,000 to a rate of $120,000 between November 2008 and March 2009 and a rate of $100,000 per annum between April 2009 and September 2009 (‘the agreed salary reduction’). That occurred. By 3 September 2009 economic conditions had improved and the Board of the respondent determined to return the applicant’s gross annual salary to $150,000 as of 1 October 2009. In addition to this, the applicant and the respondent entered into an agreement that he would be paid the amount of salary which he had foregone, pursuant to the agreed salary reduction, in the event that either of two events occurred (‘the salary compensation agreement’).
The first event was a mergers and acquisitions transaction, which was agreed to be a transaction in which the respondent’s business was purchased by another entity or merged with another entity.
The second event was described as a “Series C funding event of $10m or greater”. This referred to the respondent’s next capital raising event being one in which $10 million or more capital was extended to it. The applicant accepted both of the above proposals on 3 September 2009.
The incentive payments arose in the following way: on 25 August 2011, the Board of the respondent determined to make provision for the applicant to be paid two separate incentive payments on the occurrence of two events. He was to receive $40,000 in the event that a contract was made with a manufacturer for the production and distribution of the respondent’s product on terms acceptable to the Board (‘the manufacturer incentive payment’). In addition, he was to receive a further $20,000 upon regulatory approval being obtained in Australia and the United States for the distribution of the respondent’s second-generation product (‘the regulator approval incentive payment’).
The applicant says that as a result, he assiduously pursued those two commercial outcomes in the course of his employment and that he made an agreement with his employer that the incentive payments would be paid to him if the stipulated conditions for the payments were met.[8]
[8] Applicant’s first affidavit at paras [157] to [165].
The applicant alleges that his entitlement to the above payments crystallised in the following way.
Manufacturer incentive payment
On about 21 June 2012, the respondent entered into a contract with Konica Minolta for the production and distribution of the respondent’s product. It is alleged by the applicant that this satisfied the preconditions for the manufacturer incentive payment of $40,000.
Regulator incentive payment
In February 2013, it is alleged that the respondent obtained authority to distribute its second generation product in Australia from the Therapeutic Goods Administration. In April 2013, it is alleged that the respondent received regulatory clearance to distribute its second-generation product in the United States from the United States Food and Drug Administration. It is alleged that these regulatory approvals, having been obtained, the precondition for the regulatory approval incentive payment had been met and that the applicant was, accordingly, entitled to an incentive payment of $20,000.
Neither incentive payment has been paid to the applicant by the respondents.
Salary compensation agreement
The applicant alleges that the salary compensation agreement crystallised in or around November 2015, when the respondent entered into a mergers and acquisitions transaction and/or a Series C funding event by virtue of an agreement whereby an investment firm provided $10 million finance to Echonous. Echonous acquired all of the shares issued in the respondent and the shareholders of the respondent received shares in Echonous in exchange for their shares in the respondent. Those events having occurred, the applicant alleges that the preconditions had been met for the salary compensation agreement to be activated. The applicant says pursuant to that agreement the respondent was obliged to pay him the amount of salary he had foregone during the period that the salary reduction agreement was in force. That was an amount of $40,126.67. The respondent has not paid that amount to the applicant. It has been owing since about November 2015.
Fair Work Act civil remedy allegations
The applicant alleges that the respondent failed to pay him an amount that would have been payable to him if he had taken his accrued annual leave.[9] Failure to do so is alleged to be a breach of the National Employment Standards and the requirement that he be paid such an accrued amount when his employment ended.[10]
[9] Applicant’s first affidavit at paras [39] - [90].
[10] FW Act, Chapter 2, Part 2-2, Division 6, ss.44(1) and 90(2).
The accrued amount is alleged to have been an entitlement to 431.5 hours of untaken annual leave between the period from when he commenced employment until 11 August 2017. This amounted to $41,498.25 gross. Instead, the respondent paid him only $7,870.34 gross or $33,627.91 short of his entitlement.
The contravention of a National Employment Standard is a civil remedy provision.
On the applicant’s case, the respondent’s refusal to pay the accrued annual leave occurred in aggravated circumstances as a result of disagreements between himself and officers of the respondent from late 2016.
In December 2016, Mr Bartlett was party to a conference call with the respondent’s CEO, Kevin Goodwin, and Chief Innovation Officer, Niko Pagoulatos.
They told him about some major changes in the way the respondent would be conducting business in South Australia. He was advised that the Adelaide factory would be closed and the Adelaide-based satellite software office would remain as its only place of business in Australia. This meant that all other roles would be transferred to the United States of America. This included the finance, quality, regulatory and customer support divisions.
They told Mr Bartlett that they would inform the Australian staff that they were to be retrenched as soon as a final date for the factory shutdown was set. Mr Bartlett was asked by Mr Goodwin and Mr Pagoulatos to provide an estimate of the quantity of surplus inventory the Adelaide manufacturing team could produce by 31 March 2017.
On being informed of the above, the applicant says that he informed Mr Goodwin and Mr Pagoulatos that the respondent had a legal obligation to inform its staff as soon as possible that they would be retrenched in light of the fact that a definite decision had been made to retrench them.
Shortly after the conversation referred to above, Mr Bartlett took paid annual leave over the Christmas period between 20 December 2016 and 7 January 2017. He received an email from the American solicitors of the respondent during that period of time. He was asked to provide them with the contracts of employment for all manufacturing staff, the Engineering Manager, and the Quality and Customer Support Manager.
After he had returned from annual leave, Mr Bartlett alleges that he telephoned Mr Pagoulatos. The purpose of that call was to ask Mr Pagoulatos why the contract details for the Engineering Manager had been requested. The applicant says that he was told that the respondent did not require both a Chief Operating Officer (the applicant’s position) as well as an Engineering Manager in its Australian operations.
The applicant alleges that Mr Pagoulatos told him that because they no longer required an Engineering Manager’s position, those functions were to be performed by the applicant. Mr Bartlett pointed out to Mr Pagoulatos that given the manufacturing, quality, regulatory and customer support functions were being transferred to America, it was actually his position as Chief Operating Officer which was being made redundant.
He further pointed out that he did not have the technical skills to manage the software staff who were to remain in Australia. In other words, the technical skills to perform the Engineering Manager’s position. For that reason, the applicant says that he pointed out to Mr Pagoulatos that it would be in the best interests of the respondent to retrench his position and not the Engineering Manager’s position given the nature of the changes to be made. He asked whether the respondent would be prepared to consider retrenching his position. He told Mr Pagoulatos that he would be prepared to consider less than the 12 months wages on redundancy to which he was entitled under his contract of employment.
Mr Pagoulatos appeared to be unaware that the applicant was entitled to that redundancy payment in the event of retrenchment but, in any event, the applicant was informed that the respondent would not consider retrenching him.
The applicant alleges that he, again, told Mr Pagoulatos that the respondent had a legal obligation arising from the FW Act to tell its staff as soon as possible that a definite decision had been made to retrench them.
After the conversation with Mr Pagoulatos, the applicant telephoned Mr Goodwin and, having summarised his understanding of what he had been told by Mr Pagoulatos, repeated the matters that he had raised with him as to his technical skills, the status of his position, the best interests of the respondent, and his proposals for his own retrenchment. He says that Mr Goodwin told him that the respondent wanted to retain his services and that there would be opportunities arising for him even if he did not have the technical skills to manage the software team.
The applicant told Mr Goodwin that he would consider a new role with the respondent on the proviso that the Engineering Manager was not retrenched. He also asked whether any suitable positions might become available in the United States. Mr Goodwin indicated that a position in the United States might be an option in the future but not at the present time. Once again, the applicant says that he reiterated his belief as to the obligation of the respondent to inform its staff about the impending retrenchments. He was informed that the respondent was in the process of obtaining legal advice about that matter.
The applicant alleges that between 10 and 27 January 2017 he sent multiple emails to the Chief Financial Officer of the respondent seeking clarification of the legal advice it had received about notifying employees of an impending retrenchment. He was told that the respondent was in the process of obtaining legal advice to the effect that there was no requirement for the respondent to consult employees about impending redundancy. The applicant alleges that he received no responses to any of his emails about that matter. He was never provided with a copy of the advice from the respondent’s Australian solicitor.
The applicant says that he did not let the matter lie. On 27 January 2017, he participated in a further teleconference this time with Mr Pagoulatos and Mr Markwood (the Chief Financial Officer) to ask why he had not been provided with that advice. Mr Goodwin did not attend. The applicant advised Mr Pagoulatos and Mr Markwood that his own independent advice confirmed his belief that the respondent was required to consult with employees where a decision had been made to retrench them.
Mr Markwood and Mr Pagoulatos rebuffed him in relation to that matter. At his request, the applicant says he was assured that the relevant legal advice would be sent to him following the teleconference. The applicant says that he pointed out to Mr Markwood that he had obligations as a Director, Officer and employee of the respondent to ensure that the process they followed, as a result of the decisions that had been made with respect to redundancies and the restructure of the business, was consistent with legal advice.
On or about 10 February 2017, the applicant asserts that he engaged in a series of email exchanges with Mr Goodwin in which he once again put his position in relation to accepting a redundancy payment less than that to which he would be entitled under his contract, that the respondent’s proposals were not of its own best interests, and that he would be left with responsibilities for duties to which he did not have the technical skills.
The applicant alleges that Mr Goodwin again told him that they would not consider retrenching him and that it was necessary for the applicant to consider whether he was committing to staying with the respondent or whether he wished to resign.
On 13 February 2017, the applicant resigned from his employment with the respondent and gave six months’ notice. On 11 August 2017, the applicant’s resignation took effect and his employment with the respondent ceased. The applicant alleges that after that time he experienced difficulties with his final payment of entitlements. He says that a series of email exchanges occurred between 16 and 17 August between himself, Mr Zinkov and Mr Goodwin.
The correspondence was initiated by him when he wrote to Mr Zinkov asking for details of the final payment he was to receive with respect his employment. Mr Zinkov responded by saying that they did not have information as to the applicant’s leave entitlements prior to 28 May 2009. He asserted that, as of 28 May 2009, the applicant had 55 days accrued in untaken leave but he requested assistance from the applicant to verify that calculation. Mr Zinkov told the applicant that he was looking for a report from the external payroll service providers. The applicant asked Mr Zinkov to provide him with a copy of the report once it was received.
On 22 August 2017, the applicant alleges that Mr Zinkov provided him with a letter which informed him that the respondent intended to pay only 81.85 hours with respect to accrued but untaken annual leave. Mr Zinkov indicated that he had reviewed the payroll provider’s records and confirmed that the applicant had accrued only 55 days untaken leave as at 28 May 2009. In Mr Zinkov’s view, that included both annual leave and personal/carer’s leave.
The applicant did not accept the respondent’s position as articulated in that letter. He responded by asserting that he was aware that the external payroll provider accounted for annual leave separately from other forms of leave. In response, Mr Zinkov provided the applicant with a letter from the external payroll provider which he said demonstrated the applicant’s annual leave entitlement was only 81.85 hours.
As a result, the applicant told Mr Zinkov that he believed Mr Zinkov must have instructed the external provider to change their records to remove/alter the accrued balance of his annual leave prior to 28 May 2009. The applicant told Mr Zinkov that he believed his conduct had been unlawful. I will explain the basis for this allegation later in these reasons.
During the course of these emails the applicant repeated his view that his accrued annual leave, as at 14 May 2009, was 426.4 hours. He suggested that Mr Zinkov consult information recorded in a system operated by the respondent known as ‘QuickBooks’. Mr Goodwin then became involved in the email chain, informing the applicant that the respondent had a right to insist on information from him verifying his annual leave and denying that it had taken any illegal action.
The applicant maintained his position with respect to the quantum of his accrued annual leave. He referred the respondent to emails that had been sent to him by the external payroll provider and reiterated that a failure to pay him the full amount would be unlawful. Mr Goodwin did not accept the applicant’s position.
Consideration
I have considered the affidavit material read by the applicant, the annexures to those affidavits, and the various exhibits tendered by him at trial. In the absence of a respondent, the applicant understandably did not give evidence. I accept the evidence of the applicant as set out in his affidavits. I accept the underlying thesis of his submissions. In other words, I accept that once the respondent realised that the applicant was, from its perspective, less co-operative than it would have liked, having been told of the respondent’s decision to drastically reduce the size of its Australian operations and retrench most of its local work force, it determined to make his position with it untenable and made a series of decisions aimed at avoiding its obligation to pay the applicant his full entitlements when his employment ceased. It clearly took the view that the applicant had become a thorn in its side. Those inferences are open on the evidence and I am prepared to draw them. The respondent’s actions were clearly motivated by the issues raised by the applicant in the discussions and correspondence referred to in his evidence.
As to the contravention of ss.90(2) and 44(1), I am satisfied on the balance of probabilities of the following matters:
a)That the applicant was entitled to be paid the amount of untaken annual leave when his period of employment with the respondent ended;
b)That the amount of annual leave accrued was, as he alleged, 431.5 hours in the total amount of $41,498.25;
c)That the respondent paid the applicant $7,870.34 on account of untaken annual leave;
d)That the applicant is entitled to be paid $33,627.91 on account of unpaid accrued annual leave; and
e)That the respondent’s failure to pay the applicant for unpaid annual leave contravened a civil remedy provision.
In addition to the above, I am satisfied that it is appropriate to order that the respondent pay a pecuniary penalty for the contravention.[11]
[11] Section 546(1).
Finding as to forged pay-slip
I turn now to an aspect of the post contravention conduct of the respondent closely related to the dispute as to untaken leave described at length in the applicant’s affidavit of 28 November 2018. I am satisfied that the chronology in that affidavit strongly suggests that Echonous, the respondent, and the external payroll provider, ADP, colluded to confect the adjusted figure for annual leave entitlement on which the respondent relied at the time of the applicant’s termination. On 11 May 2018, after proceedings were issued in this matter, the respondent disclosed to the applicant through its solicitor a pay slip that purported to be his April 2009 pay slip which, if genuine, had the effect of proving that as of that date he was only owed 13.2 hours of accrued leave.[12] The purpose of this disclosure was to support its claim that document ‘RD87’,[13] which it had previously disclosed and which supported the applicant’s claim that his accrued annual leave at that time was approximately 426 hours, was incorrect.
[12] Applicant’s Affidavit dated 28 November 2018, Exhibit ‘SB1’.
[13] See Booklet of Documentary Exhibits.
I accept the evidence of the applicant that his postal address as set out on ‘SB1’, the disclosed purported payslip for April 2009, is wrong. That address was not his address for payslip purposes until after April 2009. That document, notably, also records the date in the American format. The sole shareholder of the respondent at the relevant time was as I have noted, Echonous, an American company. I accept the evidence of the applicant that a true copy of his payslip for April 2009 is annexed to his affidavit as ‘SB2’, that it records the date in the local format, shows his correct address as at April 2009, and correctly shows his accrued leave as 426.4 hours. The document disclosed by the respondent during the course of these proceedings is a forgery. No other reasonable inference is open. The evidence as to the incorrect address of the applicant on that document considered alone would make that so. I infer that it was uttered by an agent or servant of the respondent to its then solicitor who, I infer, it duped into making the representations I have referred to on its behalf with a view to defeating the applicant’s claim. I also accept the evidence of the applicant that he disclosed a copy of ‘SB2’ to the respondent during the course of the proceedings and that he had done so some months prior to the respondent’s disclosure of ‘SB1’.
To what extent does the fraudulent conduct of the respondent after the contravention impact on the gravity of that breach? In my view, it serves to confirm the true nature of the respondent’s motives towards the applicant in committing the breach itself. Through its servants and agents it conducted itself with a malign intent towards the applicant aimed at deliberately short changing him on his entitlements. Further, its willingness to rely on ‘SB1’ in these proceedings shows a complete lack of co-operation and remorse. It suggests that a significant element of specific deterrence is warranted even though the respondent does not appear to have committed other contraventions prior to this course of conduct. I am satisfied that it is still the case notwithstanding the fact that the respondent is now in liquidation. The conduct of the respondent with respect to ‘SB1’ also weighs heavily in favour of the applicant’s application for costs on an indemnity basis.
As far as the contractual claims for unpaid incentive payments are concerned, I am satisfied that it has been demonstrated on the balance of probabilities that, firstly, there was an agreement between the applicant and the respondent that he be paid a manufacturers incentive payment if a contract was made with a manufacturer for production and distribution of the respondent’s product, and that, secondly, the signing of the Konica Minolta contract satisfied the terms of the agreement between the applicant and the respondent. As a result, the applicant was entitled to be paid this incentive payment in the amount claimed. I am satisfied on the balance of probabilities that the parties entered an agreement for the applicant to be paid a regulator incentive payment on regulatory approval being obtained in Australia and the United States and that such approval was obtained entitling the applicant to be paid pursuant to the agreement. I am satisfied that the applicant is entitled to this amount as claimed.
Further, I am satisfied that it has been demonstrated that the parties agreed to the salary compensation agreement as alleged, that the pre-conditions for the payment were met as alleged, and that as a result the applicant was entitled to be paid the amount of previously foregone salary.
I accept that none of those amounts has been previously paid to the applicant.
Penalty
The applicant has submitted that the failure to pay him untaken annual leave entitlements amounts to a “serious contravention”.[14] I accept that submission. The respondent knowingly contravened the civil remedy provision in that it expressly authorised the contravention. The respondent’s conduct was a systematic pattern of conduct with respect to the applicant. Mr Bartlett brought the correct entitlements owing to him for untaken annual leave to the attention of the respondent’s officers repeatedly. Further, the respondent’s actions in relying on the purported payslip once proceedings had been initiated, in my view, confirmed the wilfulness of the conduct in not paying the applicant his untaken leave. I accept the submission of the applicant that the only appropriate inference to draw is that the respondent, in combination with officers and agents of Echonous and ADP, combined to deliberately present a position to the applicant about the extent of his unpaid annual leave entitlements which was false.
[14] Sections 557A and 557B.
Further, the respondent was, as I have already found, motivated in its actions by bad faith towards the applicant. It appears to have been motivated by malice towards him as a result of his forthright behaviour after he learned that the respondent was to shut down most of its local operations. Whilst the conduct of the respondent only amounted to a single contravention, that contravention involved a concerted course of conduct with a high degree of deliberation, completely ignoring the complaints made by the applicant.
The power of the Court to make pecuniary penalty orders is found in s.546 of the FW Act.
“(1)The Federal Court, the Federal Circuit Court or an eligible State or Territory court may, on application, order a person to pay a pecuniary penalty that the court considers is appropriate if the court is satisfied that the person has contravened a civil remedy provision.
Note: Pecuniary penalty orders cannot be made in relation to conduct that contravenes a term of a modern award, a national minimum wage order or an enterprise agreement only because of the retrospective effect of a determination (see subsections 167(3) and 298(2)).
Determining amount of pecuniary penalty
(2)The pecuniary penalty must not be more than:
(a)if the person is an individual—the maximum number of penalty units referred to in the relevant item in column 4 of the table in subsection 539(2); or
(b)if the person is a body corporate—5 times the maximum number of penalty units referred to in the relevant item in column 4 of the table in subsection 539(2).
Payment of penalty
(3)The court may order that the pecuniary penalty, or a part of the penalty, be paid to:
(a)the Commonwealth; or
(b)a particular organisation; or
(c)a particular person.
Recovery of penalty
(4)The pecuniary penalty may be recovered as a debt due to the person to whom the penalty is payable.
No limitation on orders
(5)To avoid doubt, a court may make a pecuniary penalty order in addition to one or more orders under section 545.”
The maximum penalty for a serious contravention of s.44(1) of the FW Act is 600 penalty units.[15] The penalty unit is set at $210.[16] With respect to a corporation, the maximum penalty is x5 the maximum of the penalty units in column 4 of the relevant table under s.539. Accordingly, the maximum penalty for a single serious contravention is 600 penalty units at $210 per unit multiplied by 5 which totals $630,000.
[15] Section 539(2) of the FW Act.
[16] Section 4AA of the Crimes Act 1914 (Cth).
The applicant submits that the Court should impose the maximum penalty for the respondent’s failure to pay his annual leave entitlements. I reject that submission. Even allowing for the aggravating features of the respondent’s conduct, it is difficult to see how a proportionate penalty would be anywhere near the maximum. In considering where in the range of penalties a matter should sit, the Court must be guided, inter alia, by the size of the maximum penalty itself[17] balanced against the objective gravity of the contravening conduct.
[17] Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (CFMEU) (2017) 271 IR 321.
Consideration must also be given to the practical effect of s.557 of the FW Act which deals with courses of conduct. That section provides:
“(1)For the purposes of this Part, 2 or more contraventions of a civil remedy provision referred to in subsection (2) are, subject to subsection (3), taken to constitute a single contravention if:
(a)the contraventions are committed by the same person; and
(b)the contraventions arose out of a course of conduct by the person.”
The above applies to s.44(1) of the FW Act.[18]
[18] Section 557(2) FW Act.
Noting the effect of that section, the submission that I impose the maximum penalty can be demonstrated as misconceived. If a body corporate engaged in a course of conduct identical to the contravention in this matter, but effecting 10 employees, what penalty should the Court then impose, if it concluded that a concurrent penalty was appropriate? What then if the Court was called upon to impose penalties for contraventions which effected 100 employees? It is not an answer to observe that penalties are not a matter of precedent and that every case should be determined on its individual circumstances. Whilst that is correct, the maximum penalty is Parliament’s expression of policy as to the seriousness of the proscribed conduct[19] and provides a yard stick with which to calibrate the weight to be given to other relevant factors. It represents the penalty that should be imposed for the worst possible offence of its kind. That is hardly the case here. I am comfortably satisfied that to impose a penalty of $630,000 for this contravention would be utterly disproportionate to the gravity of the conduct in all the circumstances, serious though they are. The primary purpose of a civil penalty is deterrence directed towards promoting compliance, not retribution[20] and requires the Court to fix a penalty at a level where it cannot be regarded by the contravenor as simply the acceptable cost of doing business.[21]
[19] Australian Building and Construction Commission v CFMEU, op cit at para [106].
[20] Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate (2015) 326 ALR 476.
[21] Singtel Optus Pty Ltd v Australian Competition and Consumer Commission (ACCC) (2012) 287 ALR 249 at para [62].
The penalty I impose must act as a real deterrent.[22] I take into account that there has been no suggestion that the respondent has previously engaged in a similar breach. Against that, I give considerable weight to the fact that senior management of the respondent were involved in the contravention. There is no evidence on which I could conclude that the respondent, now in liquidation, has at any stage accepted responsibility or expressed remorse for the breach. As I have observed, the disclosure of an apparently forged payslip strongly suggests otherwise.
[22] Australian Competition and Consumer Commission (ACCC) v TPG Internet Pty Ltd (2013) 304 ALR 186 at para [66].
There is no science to the setting of a penalty and the Full Court has observed that the fixing of penalty is essentially a process of instinctive synthesis[23] as described by the High Court in the criminal matter of Markarian v R.[24]
[23] Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith (2008) 165 FCR 560.
[24] (2005) 228 CLR 357.
With those principles in mind, and applied to the circumstances of this matter, I am satisfied that it is appropriate to impose a penalty on the respondent for the contravention in the amount of $110,000. In all of the circumstances and in keeping with established principle, I am satisfied that it is appropriate that the penalty sum should be paid to the applicant.[25]
[25] Section 546(3)(c); Seven Network (Operations) Ltd v CEPU (2001) 110 IR 372.
Claim for loss of reputation, pain and suffering
The Court has power to make any order it considers appropriate if satisfied that a person has contravened a civil remedy provision,[26] this includes orders awarding compensation for loss that a person has suffered because of the contraventions.[27]
[26] Section 545(1).
[27] Section 545(2)(b).
The onus is on the applicant to establish a loss that they have suffered because of the contravention. A causal connection is required.[28] It is open to the Court to award an amount for “hurt and humiliation” suffered because of a contravention.[29]
[28] Australian Licenced Aircraft Engineers Association v International Aviation Service Assistance Pty Ltd (2011) 193 FCR 526 at para [423].
[29] Transport Workers’ Union of Australia, NSW Branch v No Fuss Liquid Waste Pty Ltd [2011] FCA 982.
The applicant alleges he has been caused significant stress and anxiety as a result of the actions of the respondent’s conduct in dealing with his annual leave entitlements. That has been the case for a protracted period since his employment ceased. He does not allege psychiatric injury or give evidence of having required treatment as a result of the stress and anxiety that he suffered. The applicant submits that an amount should also be awarded on account of loss of reputation because of the actions of the respondent, but there is no evidence to establish that he suffered such loss. In any event, the amount sought by the applicant for pain and suffering and loss of reputation is modestly set at $10,000. I am satisfied that it is appropriate to make an order for compensation for pain and suffering, or in other words, distress, hurt and humiliation, as claimed by the applicant. Whilst his affidavit evidence addresses this matter briefly, I accept his evidence. I am not satisfied that there is any evidentiary basis to order a component of compensation for loss of reputation. I fix the amount of compensation at $7,000.
Interest
Section 547 of the FW Act provides that I must on application include an amount of interest in the sum ordered in the absence of good cause to the contrary. The section applies to any order other than a pecuniary penalty order in relation to an amount that a person is required to pay. As I have indicated, I am satisfied that it is appropriate that the respondent be ordered to pay the outstanding annual leave entitlement in the amount of $33,627.91. That debt became due as at 11 August 2017 on termination of the applicant’s employment. The appropriate amount of interest is $3,489.
I am satisfied that it is also appropriate to award interest from the date on which the payments became due for the manufacturers incentive payment, the regulatory approval incentive payment, and the salary compensation agreement. The manufacturers incentive payment became due on 1 June 2012 which was the date upon which the agreement was made with Konica Minolta. The amount of the payment was agreed as $40,000. I accept as submitted that interest on that amount comes to a total of $17,287. The regulatory approval payment became due as at 3 April 2013 when the product was given regulatory approval in the United States. The agreed amount of the incentive payments was $20,000 and I accept the submission that interest from that time amounts to $7,490. With respect to the salary compensation agreement, that debt became due in November 2015, the time at which the Series C funding event occurred. The amount of foregone salary was $40,126.67 and I accept that interest on that amount comes to $8,209.
Costs
Mr Bartlett has sought his costs in this matter on an indemnity basis, from 28 November 2017, or alternatively 16 January 2018. As a general rule, proceedings out of the FW Act do not carry costs implications irrespective of whether a party is successful or not. There is a discretion to award costs, in the context of this matter, in the event that I am satisfied that a party’s unreasonable act or omission has caused the applicant to incur costs.[30] Within the context of this matter, I am satisfied that the conduct of the respondent has been unreasonable. In particular, the respondent, in addition to disclosing the forged pay slip, swore an affidavit which disclosed that document. The respondent knew that there was no basis to maintain its asserted calculation of unpaid annual leave and had in its possession information which suggested otherwise. In particular, it had a copy of the applicant’s actual payslip from April 2009. It is clear that the pursuit of a contentious and ultimately unsuccessful argument is not an unreasonable act.[31] However, the actions of the respondent went further than that. The respondent’s actions were clearly more than failing to conduct this litigation in the most efficient way possible.
[30] Section 570(2).
[31] McAleer v University of Western Australia (No.2) (2007) 161 IR 151.
I accept that the power under s.570(2) must be exercised carefully.[32] Of course, the safeguard is provided within the terms of the section. I must be satisfied that the unreasonable act or omission caused the applicant to incur costs. I am satisfied. I am mindful of the fact that the power to award costs under this section must not be exercised as a way of imposing a penalty on the respondent. It is directed towards providing appropriate compensation to the applicant having been successful in all the circumstances.[33] Further, I am satisfied that in the circumstances of this matter, the justice of the case requires, because of the conduct of the respondent which amounts to a special or unusual feature of this case, the Court to depart from the ordinary practice with respect to costs and make an order on an indemnity basis.[34]
[32] Adamczak v Alsco Pty Ltd (No.4) [2019] FCCA 7.
[33] Shea v Energy Australia Services Pty Ltd (No.2) [2015] FCAFC 14 at para [10]-[11].
[34] Australian and International Pilots Association v Qantas Airways Ltd (No.3) (2007) 162 FCR 392.
I accept that the applicant made two offers to settle this matter, neither of which were responded to. The first offer was on 28 November 2017, and the second was on 16 January 2018. It was clearly unreasonable for the respondent to fail to respond to those offers.[35]
[35] McDonald v Parnell Laboratories (Aust) (No.2) (2007) 164 FCR 591.
Application for ‘ancillary’ orders
Finally, the applicant sought what are described as ancillary orders from the Court. The background to those proposed ancillary orders requires some explanation. During the course of proceedings, the applicant tendered a copy of the Liquidators Statutory Report to Creditors.[36] That report identifies a series of transactions by which the respondent sold its assets prior to the appointment of the liquidator. The liquidator was of the preliminary view that if the applicant in this matter had a claim against the respondent, there might be an appropriate basis at law to claim against the shareholder of the respondent, Echonous, under the Corporations Act. The liquidator was of the preliminary view that potential recovery actions may exist with respect to the identified pre-appointment transactions if it was determined that liability existed with respect to external creditors such as Mr Bartlett.
[36] Exhibit A5.
Against that background, the applicant alleges that it has been advised that Echonous, the sole shareholder of the respondent, has instructed the liquidator not to proceed with the respondent’s 2018 tax return and instructed that it will not provide resources to assist. The applicant states that it has been advised that a number of transactions were made by the respondent that may give rise to a claim against Echonous. In its submission, the applicant asserts that the conduct of the respondent in the year prior to appointment of the liquidator, potentially breaches a number of sections of the Corporations Act. It asserts that the liquidator’s duty to file a report with the Australian Securities Investment Commission[37] is accordingly activated.
[37] Section 533 Corporations Act.
The applicant seeks ‘ancillary orders’ from the Court, firstly ordering the respondent’s liquidator to complete the 2018 tax return, in particular with respect to research and development tax rebates, and an order that any proceeds returned to the respondent’s liquidator as a result of the 2018 tax return be used to satisfy judgment debts owed as a result of judgments in these proceedings and the related proceedings, ADG 525 of 2017, and then secondly in relation to pecuniary penalties arising from the proceedings with any balance to the paid to Echonous.
The applicant submits that the power to make the ancillary orders is found in s.545 of the FW Act which empowers the Court to “make any order the Court considers appropriate if the Court is satisfied that a person has contravened, or proposes to contravene, a civil remedy provision.”
Whilst it is clear that the power conferred by the s.545 is broad, I do not regard the proposed order as being ancillary to these proceedings. Subsection (2) of the section does not limit the power conferred by subsection (1), but it does bring some focus to the nature of the power conferred by s.545. It is to be accepted that the Court has power to order compensation arising from a contravention. It must also be accepted that the power conferred by s.545 is not unlimited. I am restricted to making orders that are appropriate within the exercise of my jurisdiction under the FW Act. Even though the power is wide, it is subject to jurisdictional and contextual limits. I am not satisfied that the terms of s.545 empower me to make orders with respect to the actions of a liquidator of the respondent. The powers and duties of a liquidator are created and conferred by the Corporations Act, an act under which I would ordinarily have no jurisdiction. In my view, s.545 does not confer any jurisdiction on this Court beyond that necessary for implementing orders within the albeit broad contemplation of the FW Act. Further, the second of the ancillary orders sought would have the effect of usurping any discretion reposed in the liquidator under the Corporations Act and may interfere with the proper administration of the liquidation. Finally, it is not apparent to me that the liquidator, who elected not to defend these proceedings, was on notice of the application for ancillary orders, which was not specifically pleaded. I decline to make the proposed ancillary orders.
For the above reasons, I make the orders to be found at the beginning of these reasons.
I certify that the preceding eighty-three (83) paragraphs are a true copy of the reasons for judgment of Judge Heffernan
Associate:
Date: 21 October 2019
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