Clarke v Elite Systems Australia Pty Ltd (No 2)
[2018] FCCA 2864
•5 October 2018
FEDERAL CIRCUIT COURT OF AUSTRALIA
| CLARKE v ELITE SYSTEMS AUSTRALIA PTY LTD & ORS (No.2) | [2018] FCCA 2864 |
| Catchwords: INDUSTRIAL LAW – Civil penalty proceedings – breach of terms of modern award and national employment standards arising under the Fair Work Act – termination of employment – failure to provide appropriate notice – failure to pay leave accrued leave entitlements – proceedings undefended – corporate employer under management – company’s directors subsequently joined as parties – accessorial liability – application for breach of employment contract –assessment of damages – damages for pain and distress – quantum of penalty to be imposed – to whom should penalty imposed be paid – matters to be considered. |
| Legislation: Fair Work Act 2009, ss.44; 90; 117; 539; 545; 546; 550 Federal Circuit Court Rules, r.13.03. |
| Cases cited: Clarke v Elite Systems Pty Ltd & ANOR [2017] FCCA 488 |
| Applicant: | MICHAEL CLARKE |
| First Respondent: | ELITE SYSTEMS AUSTRALIA PTY LTD |
| Second Respondent: | LEA ADAMS |
| Third Respondent: | ALAN ASTLE |
| File Number: | ADG 380 of 2015 |
| Judgment of: | Judge Brown |
| Hearing date: | 2 May 2018 |
| Date of Last Submission: | 14 June 2018 |
| Delivered at: | Adelaide |
| Delivered on: | 5 October 2018 |
REPRESENTATION
| Counsel for the Applicant: | Mr Duggan |
| Solicitors for the Applicant: | DW Fox Tucker Lawyers |
| Counsel for the First Respondent: | No appearance |
| Counsel for the Second Respondent: | No appearance |
| Counsel for the Third Respondent: | No appearance |
ORDERS
The Court Declares That:
The First, Second and Third Respondents have contravened the following provision of the Fair Work Act 2009 (Cth) hereinafter referred to as “the Act):
(a)section 117 of the Act, by failing to pay the Applicant with the required payment in lieu of notice, as a consequence of the First Respondent, in concert with the Second and Third Respondents terminating the Applicant’s employment;
(b)section 90 of the Act by failing to pay the Applicant his accrued by untaken annual leave due as a consequence of the termination of his employment.
The Second and Third Respondent was each involved, within the meaning if subsection 550(2)(c) of the Act, in the First Respondent's contraventions as set out at (a) to (b) in Declaration 1 above, and therefore each is taken to have committed those contraventions pursuant to subsection 550(1) of the FW Act.
The First Respondent has breached the terms of the contract of employment between it and the Applicant by failing to pay to him bonus payments due to him as consequence of the employment agreement entered into between the Applicant and the First Respondent on 6 November 2012.
The Court Orders That
Pursuant to subsection 545(1) of the Act within 28 days the First, Second and Third Respondent jointly and severally pay the following amounts totalling $25,396.50 to the Applicant:
(a)Pay in lieu of notice in an amount of $10,769.20;
(b)Accrued leave in an amount of $4,627.30;
(c)Compensation in an amount of $10,000.00.
Pursuant to subsection 546(1) of the Act the First Respondent pay a total pecuniary penalty fixed in the sum of $43,200.00.
Pursuant to subsection 546(1) of the Act the Second Respondent pay a total pecuniary penalty fixed in the sum of $8,640.00.
Pursuant to subsection 546(1) of the Act the Third Respondent pay a total pecuniary penalty fixed in the sum of $8,640.00.
Pursuant to subsection 546(3)(a) of the Act that the penalties imposed on each of the Respondents pursuant to orders (5), (6) & (7) hereof be paid to the Applicant within 28 days of these orders being made.
The First Respondent pay damages for breach of contract fixed in the amount of $129,205.79 within 28 days.
The application be otherwise dismissed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT ADELAIDE |
ADG 380 of 2015
| MICHAEL CLARKE |
Applicant
And
| ELITE SYSTEMS AUSTRALIA PTY LTD |
First Respondent
| LEA ADAMS |
Second Respondent
| ALAN ASTLE |
Third Respondent
REASONS FOR JUDGMENT
Introduction
These proceedings arise pursuant to the provisions of the Fair Work Act 2009 (Cth)[1]. They also include a claim for breach of contract. The applicant in the proceedings is Michael Clarke. The respondents are firstly, Elite Systems Australia Pty Ltd,[2] secondly, Lea Mark Adams; and thirdly, Alan Jon Astle.
[1] Hereinafter referred to as “the FWA” or “the Act”
[2] Hereinafter referred to as “Elite”
Elite was incorporated on 18 July 2012. Its directors were Mr Astle and Mr Adams. Its sole shareholder was Mr Astle.[3] As will become apparent, Elite is no longer in a position to take part in these proceedings as it is under management and it is anticipated it will go into liquidation.
[3] See annexure BJD1 to the affidavit of Ben Duggan filed 27 October 2016
In these circumstances, it is Mr Clarke’s contention that Mr Astle and Mr Adams have accessorial liability, arising under the Act, for various breaches of the Act committed by Elite and for the breach of its contract of employment with him.
In addition, neither Mr Astle nor Mr Clarke have chosen to take part in these proceedings. In these circumstances, the court must consider the legal principles applicable to undefended proceedings, including, if penalties are imposed under the Act, to whom they should be paid and secondly, if it is ordered that compensation is due to Mr Clarke, who should pay it.
Background
In early November of 2012, Mr Clarke entered into a contract of employment with Elite. He was employed to be Elite’s sales manager, on a salary of $70,000.00 per annum. Elite was in the business of providing contract labour for the construction and hire of scaffolding, staging and seating facilities. It also hired scaffolding and seating to those who engaged its services.
Mr Clarke obtained his position, with Elite, as a consequence of answering a newspaper advertisement. He was interviewed for the position by Mr Adams. Mr Clarke had experience of working in the scaffolding industry previously but in the field of sales rather than technical areas.
Initially, it was proposed that he would receive a base salary of $50,000.00, per annum, as Elite’s sales manager. However, he would be entitled to receive a commission based on any sales made by him.
From Mr Clarke’s position, the salary offered was inadequate, given his previous level of remuneration. In these circumstances, he proposed a salary of at least $70,000.00, together with some commission on sales.
In an affidavit of his evidence, Mr Clarke has deposed as follows, in respect of what was agreed, between him and Mr Adams, regarding the sales commissions to be made to him:
“[Mr Adams] and myself further negotiated the terms and conditions of my proposed employment at Elite Systems after the meeting. Adams indicated that the sales commission structure (or bonus scheme) was to commence from the start of my employment in the role of Sales Manager of Elite Systems. He explained that the bonus scheme enabled me to earn a performance based payment of up to 8% of the gross profit of my sales (that is sales revenue which included sales generated by way of hiring to customers) for each month. Adams further explained that the amount of the performance based payment was to be calculated on a monthly basis with payment being two months in arrears to enable for payment by the customer before the obligation arose to pay me the performance based payment under the bonus scheme. Other terms and conditions of my proposed employment at Elite Systems, including the regulation of the notice period required by either party to terminate the employment relationship (being 2 months) and the provision of a motor vehicle, were negotiated after the meeting. The negotiations between Adams and myself regarding the terms and conditions of my proposed employment at Elite Systems included emails between us during early November 2012.”
Ultimately, the contract of employment between Mr Clarke and Elite was formalised by means of an offer of employment, dated 3 November 2012, which was forwarded by Mr Adams to Mr Clarke and which Mr Clarke executed in acceptance on 6 November 2012.[4]
[4] See ibid annexure MC2
The offer of employment defines Elite’s business as being the “sales of scaffolding components and cashflow dependant the dry hire of the same”. It specifies a salary of $70,000.00 per annum, to be paid monthly, together with 9% superannuation.
The arrangements for the payment of commission to Mr Clarke is contained under the heading “bonus scheme”, which reads as follows:
“Year 1
$0-$1M
Gross profit over 40%
5%
Gross Profit 25%-40%
3%
$1M +
Gross profit over 40%
8%
Gross Profit 25%-40%
3%
Year 2
$0-$2M
Gross profit over 40%
5%
Gross Profit 25%-40%
3%
$2M +
Gross profit over 40%
8%
Gross Profit 25%-40%
3%
Year 3
$0-$4M
Gross profit over 40%
5%
Gross Profit 25%-40%
3%
$4M +
Gross profit over 40%
8%
Gross Profit 25%-40%
3%
Sales target
year 1 $1,000,000
Year 2 - $2,000,000
Year 3 - $4,000,000
You are responsible for providing a spreadsheet of your sales and margin report by the 15th of each month and your figures will be checked and bonuses will be paid monthly and 2 months in arrears to ensure payment is received by the customer before the bonus is paid to you. You will not be paid bonus on bad debts.”[5]
[5] See Affidavit of Mr Clarke filed 27 October 2016 at Annexure MC 2
The offer of employment also envisaged that Mr Clarke would be provided with a company motor vehicle; a mobile telephone; a laptop computer; and access to a company credit card. A notice period of two months was stipulated.
It is Mr Clarke’s position that Elite failed to pay him any of the bonuses earnt by him as a consequence of the sales made by him on the company’s behalf. It is his position that he is due the sum of $129,205.79, from Elite, which has breached its contract of employment with him.
Mr Clarke was employed by Elite from November of 2012 until August of 2015. It is his evidence that, during this period, he raised the issue of his unpaid bonuses, with both Mr Adams and Mr Astle, on numerous occasions.
In addition, he asserts that spreadsheets of his sales history, for Elite, were regularly compiled by him, in consultation with Herman Wessels, the company’s accountant, which he submitted for processing by Elite but which remained unpaid.
Mr Clarke was required to provide his spreadsheets, by means of which his bonuses were to be calculated, on the 15th day of each month. Mr Clarke has provided the relevant spreadsheets together with his sales history, at Elite, between January 2013 and August 2015.[6] In addition, he has given evidence as to how the sums recorded on these documents have been calculated.
[6] See exhibit MC3 to Mr Clarke’s affidavit filed 27 October 2016
The calculations involved are complicated and require interpretation by a person who is familiar with their methodology. I accept that Mr Clarke has the requisite understanding of the necessary calculations involved. I found him to be an honest and decent person.
As a consequence, I accept that the veracity of the calculations he has provided and therefore, more significantly, accept his evidence as to the amount due to him by way of bonus payment. A more difficult issue arises as to whether he can be recompenses for this amount in the context of these proceedings, which arise in the context of a statutorily based scheme designed to protect the industrial rights of employees as distinct from their contractual entitlements.
Although Mr Clarke was not subject to any cross-examination, his evidence was compelling in respect of the psychological consequence for him of having to leave his employment at Elite prematurely under conflicted circumstances. His sense of grievance at having been so grievously mistreated seem to have been a major factor in him bringing these proceedings.
In these circumstances, I accept that he felt hurt and humiliated at his treatment. This had implications for his personal circumstances, as his relationship with his partner could not withstand these stresses. It is his evidence that it took him about three months to get back on his feet, during which period he had no wage coming in.
Mr Clarke’s job involved both the hire and the actual sale of scaffolding equipment and the labour services required to erect it. His commission was based on the difference between the sum expended by Elite on purchasing equipment and or services and the cost of the goods sold “COGS” by him.
This differential created a figure entitled gross profit. If the gross profit was between 25% and 40% of Mr Clarke’s yearly sales target, he was entitled to a commission of 3%; if the profit was over 40%, the commission was 5%. The relevant sales targets were contained in his contract of employment and commenced with the figure of $1,000,000.00 per annum.
During the course of his oral evidence, before the court, Mr Clarke took me through the calculations in question. I appreciate that there was no one available from Elite to question his calculations. However, they accorded with my own. On this basis, I accept that the sum due to Mr Clarke, by way of bonus payments, on his resignation from the company, was $129,205.79.
I also accept Mr Clarke’s evidence that the calculations leading to this sum had been approved by Mr Wessells. As such, the sum was well known to the management of Elite, particularly Mr Adams and Mr Astle. One of the central issues in this case is whether Mr Adams or Mr Astle have any personal liability to pay the sum due to Mr Clarke or is it the case the liability resides solely with Elite.
During 2015, Mr Clarke became increasingly perturbed that, although he was making regular sales for Elite and tendering his regular spreadsheets, he was not being paid his bonuses. It is his evidence that he had accepted a reduction in pay to take up the position with Elite and was reliant on the regular payment of bonuses to support himself financially.
Mr Clarke further deposes that relations between him and Mr Adams and Mr Astle became increasingly tense because of his perception that they were fobbing him off in respect of his queries about when he would be paid his bonuses. It is also Mr Clarke’s position that he was troubled about some of the managerial decisions made by the company.
In these circumstances, Mr Clarke believed that he had no viable option other than to tender his resignation, which he did in writing on 31 August 2015. His letter of resignation included the following paragraph:
“The contract provided for me to be paid bonuses as calculated under the subheading “Bonus Scheme” on page 2. As you are aware, I have never been paid any bonuses. Based on figures provided to me by the company accountant, Herman Wessels, the total bonus owing to me is $129,205.79. Attached is a spreadsheet prepared by Mr Wessels calculating the bonus due to me for each year of my employment with Elite Systems.”
It is Mr Clarke’s position that he also indicated his willingness to work out the notice period provided in his contract of employment, which he asserts was two months. Accordingly, on this basis, Mr Clarke indicated his expectation that he would be paid his bonuses due to him, in this amount, on 1 November 2015, which was the date he expected to leave to the employ of Elite. In addition, Mr Clarke foreshadowed his view that he would be entitled to his other entitlement, particularly in respect of annual leave, on this date.
Mr Adams responded to Mr Clarke’s letter of resignation on 3 September 2015. He accepted the resignation. He wrote as follows:
“I propose we pay you one month’s salary and you leave with immediate effect.
…
I am not prepared to discuss your bonus until I look into the matter and the figures and the history with the company accountant and any other relevant information. This will be done by the end of the [sic] September.”[7]
[7] See MC5
On 14 August 2015, Mr Clarke received a payslip from Elite, in respect of the payment period from 1 August to 31 August 2015. This payslip indicated a gross monthly salary of $5,833.33, which equates to $70,000.00 per annum. Significantly, the payslip also indicates that Mr Clarke had accrued 120.83 hours of annual leave as at the date of this document.[8]
[8] See Exhibit C
Accordingly, on this basis, Mr Clarke claims that he is entitled to the following compensation, as a result of his resignation:
Item
Method of calculation
Amount
Notice
2 months as per contract ($70K @ weekly rate of $1,346.15 x 8 weeks)
$10,769.20
Annual Leave
120.83 hours (38 hour week = 3.17 weeks ($70K @ weekly rate of $1,346.15
$4,627.30
Bonus
Spreadsheet
$129,205.79
History of the proceedings
On 9 October 2015, Mr Clarke commenced proceedings, in this court, against Elite, alleging Elite had breached a number of civil remedy provisions of the FWA. These include a failure to pay him in lieu of notice [section 117 FWA]; and a failure to pay him annual leave [section 90 FWA].
In addition, in his statement of claim, filed in support of his application, Mr Clarke alleged that elite had breached its contract of employment with him, by failing to pay him bonuses stipulated under it. Mr Clarke also alleged that he was due payment in respect of an employee’s share allocation arrangement entered into between him and Elite. However, he is no longer pursuing this aspect of the case.
Mr Clarke’s claim against Elite and its directors can be summarised as follows:
· Compensation in respect of:
oAccrued monthly bonus payments in an amount of $129,205.79;
oTwo months’ salary in lieu of notice in an amount of $10,769.20;
oAccrued but untaken annual leave entitlements in an amount of $4,267.30.
·The imposition of penalties arising under the FWA in respect of the following matters:
oSection 117 of the FWA in respect of the failure to make payment in lieu of notice;
oSection 90 of the FWA for failing to pay accrued and untaken leave;
oIn addition, Mr Clarke sought compensation, pursuant to section 545(2) of the Act, for the distress pain and suffering occasioned to him, as a consequence of Elite’s breaches of its industrial safety net obligations towards him, as provided by the FWA.
Pursuant to section 44(1) an employer must not contravene a provision of the National Employment Standards. Section 44 is designated a civil remedy provision.
The National Employment Standards are contained in Part 2-2 of the Act. They include provisions relating to the payment for annual leave and the requirement to make a payment in lieu of notice.
In particular, section 90(2) of the FWA provides as follows:
“(2) If, when the employment of an employee ends, the employee has a period of untaken paid annual leave, the employer must pay the employee the amount that would have been payable to the employee had the employee taken that period of leave.”
Section 117(1) provides as follows:
“(1) An employer must not terminate an employee's employment unless the employer has given the employee written notice of the day of the termination (which cannot be before the day the notice is given).
It is Mr Clarke’s position that Mr Adams effectively terminated his employment without notice and failed to pay him his contractual entitlements in respect of being able to work out a period of two months’ notice. Accordingly, it was Mr Clarke’s position that Elite had breached two of the core provisions of the National Employment Standards.
Pursuant to section 539 of the Act any breach of a core provision, captured by section 44(1), is subject to a maximum penalty of 60 penalty units. At relevant times, a penalty unit amounted to $180.00.
However, as a consequence of the provisions contained in section 546(2) if the individual who has contravened the relevant civil penalty provision is a body corporate, the maximum applicable penalty is five times the amount in the table attached to section 539.
Accordingly, the maximum penalty potentially applicable to Elite, for each of the relevant civil remedy provisions was $54,000.00. In contrast, individuals such as Mr Adams and Mr Astle would be subject to a maximum penalty of $10,800.00 for each such breach.
In addition, pursuant to section 545(1) of the Act, the court is authorised to make any other order, which it considers appropriate, if satisfied that a civil remedy provision, arising under the Act, has been breached. Pursuant to section 545(2)(b) the court is authorised to also make an order awarding compensation for any loss of a person, who has suffered because of such a contravention.
On 23 November 2015, solicitors acting on behalf of Elite filed a response and defence. It opposed the making of any order, in Mr Clarke’s favour, in the form of damages, penalty and interest. It admitted that there had been a contract of employment between it and Mr Clarke, from 3 November 2012 onwards. In respect of the bonus scheme it asserted that any payment, pursuant to the scheme was at the discretion of Elite.
Elite further asserted that either Mr Clarke had waived his entitlement to bonus scheme payments or had received benefits in lieu of payment in the form of use of a motor vehicle, payment of his rent in a property in suburban Adelaide; and flights to London.
Mr Clarke’s solicitor, Mr Duggan has deposed that his client’s statement of claim was served on Elite, at its registered office, in Melbourne. Given the filing of a response and defence, I am satisfied that Elite has been properly served with the application.
On 6 July 2016, Mr Clarke sought to join Mr Adams and Mr Astle, as respondents to the proceedings. An order was made to this effect on 6 July 2016. Thereafter, Mr Duggan became aware that Elite had been placed into receivership and it was anticipated that it would be wound up.
The receiver subsequently appointed for Elite indicated to Mr Duggan that he did not intend to take part in these proceedings and it was his understanding Elite had no significant assets. I have been provided with no evidence regarding either Mr Clarke or Mr Astle’s intention in regards to the company and the payment of its debts.
On 7 July 2016, Mr Clarke filed an amended statement of claim, joining Mr Adams and Mr Astle. This statement of claim alleged that Mr Adams and Mr Astle were the directors of Elite and both were liable as accessories to the contraventions of the FWA pleaded against Elite pursuant to the provisions of section 550 of the Act.
Section 550(1) reads as follows:
“1) A person who is involved in a contravention of a civil remedy provision is taken to have contravened that provision.”
The concept of involvement is defined by section 550(2) of the Act. It reads as follows:
“(2) A person is involved in a contravention of a civil remedy provision if, and only if, the person:
(a)has aided, abetted, counselled or procured the contravention; or
(b)has induced the contravention, whether by threats or promises or otherwise; or
(c)has been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or
(d)has conspired with others to effect the contravention.”
On 7 October 2016 solicitors filed a Notice of Address for Service on behalf of both Mr Adams and Mr Astle. Concurrently with the filing of these notices, the solicitors concerned filed a defence to the amended statement of claim.
In the defence, Mr Adams indicated that he had been appointed a director of Elite in late January 2015. Mr Astle asserted that he had been appointed a director of Elite in mid-December 2013. They each denied having any personal liability to Mr Clarke.
On 23 August 2016, Mr Adams and Mr Astle sent a joint email to Mr Duggan in which they indicated that they were intending to defend the proceedings. They indicated that one of them was overseas, whilst the other was in hospital fighting cancer. Mr Duggan brought this email to my attention on 24 August 2016, when the case returned for mention.
Notwithstanding this letter on 24 August 2016, following the filing of the amended statement of claim on behalf of Mr Clarke, in default of any appearance by the respondents, on application made by Mr Duggan, I fixed the application for summary judgment, on the basis that the respondents had failed to appear or otherwise properly defend the proceedings, pursuant to the provisions of rule 13.03B of the Federal Circuit Court Rules 2001, on 1 November 2016.
On 29 March 2017, I declined to enter summary judgment against Elite Systems Pty Ltd. I provided written reasons in support of this decision.[9] In addition, I gave Mr Adams and Mr Astle an opportunity to take part in the proceedings, as they had indicated that they had intended to do. I directed that they file affidavit material on or before 28 March 2018 and fixed for final hearing on 2 May 2018.
[9] See Clarke v Elite Systems Pty Ltd & ANOR [2017] FCCA 488
Neither Mr Adams or Mr Astle took up the opportunity to take part in the proceedings and, on 20 March 2018, Mr Cripps, their previous solicitor withdrew from the proceedings. In these circumstances, the case before me proceeded on undefended basis in the absence of any of the respondents. As previously indicated, this hearing involved oral evidence from Mr Clarke and submissions from his legal advisor, Mr Duggan
Mr Duggan concedes that, given Elite is under management and is not trading, it is highly improbably that it will be in a position to pay any compensation to Mr Clarke. However, it is his submission that the court should make an order, pursuant to section 545(2)(b) of the Act, against Mr Adams and Mr Astle, in an amount of $129,205.79, by way of compensation for the bonuses due to him but which were not paid. I will return to this issue in due course.
Significantly, it was also Mr Duggan’s submission that the court can make orders for compensation jointly and severally against Mr Adams and Mr Astle, in addition to Elite, in respect of the failure to pay him his accrued annual leave and salary in lieu of notice.
He relies on a decision of Judge Jarrett, of this court, FWO v Step Ahead Security Services Pty Ltd & Jennings,[10] in which it was held that the court had authority to award compensation to be paid by an accessory to a breach of a civil contravention provision of the FWA.
[10] FWO v Step Ahead Security Services Pty Ltd & ANOR [2016] FCCA 1482
In the case, Judge Jarrett considered that section 454(1) provided the court with a broad power to make an award for compensation, particularly given the objects of the Act contained in section 3(b), which included ensuring a guaranteed safety net of fair, relevant and enforceable minimum terms and conditions.
In Step Ahead Security Services Judge Jarrett said as follows:
“By its terms, s.545(1) provides a broad power to “make any order the court considers appropriate” where the court is satisfied that a person has contravened a civil remedy provision. The only jurisdictional requirement is the need for the Court to be satisfied that a person has contravened, or proposes to contravene, a civil remedy provision.
In a case where the Court has found that a person is involved in a contravention for the purposes of s.550(1) of the Act and is therefore to be taken to have committed the contravention, the necessary satisfaction will always be achieved.
Subsection 550(1) requires the court to treat the accessory as having contravened the relevant civil remedy provision. Subsection 545(2)(b) makes it clear that the power in s.545(1) includes the power to make an order awarding compensation for loss that a person has suffered “because of the contravention”. It follows that where it is established that the accessory was “involved in” the contravention of the civil remedy provision the only jurisdictional requirement for making an order to pay compensation will always be met.”[11]
[11] Ibid [49] – [51]
Finally, Mr Duggan seeks the imposition of pecuniary penalties, against both Mr Adams and Mr Astle, for their accessorial breaches of section 117 & section 90 of the FWA.
The principles applicable to summary judgment
It is a significant thing for proceedings to be determined in the absence of one of the parties, particularly proceedings which potentially include the imposition of a pecuniary penalty on the absent party. The court has an obligation to ensure that the parties to proceedings before it have an opportunity to participate in those proceedings. Before a person can be adversely affected by judicial order, he or she must be afforded an adequate opportunity to be heard.[12]
[12] See Taylor v Taylor (1970) 143 CLR 1
The court cannot compel a respondent to engage in litigation. It is however obliged to give a respondent the opportunity to put evidence before the court and, if he or she wishes to do so, contest any evidence relied upon by the applicant. In this particular case, the respondents has not chosen to attend court or contest any of the evidence put forward by Mr Clarke.
A respondent, whether by intransigence, disinterest or manipulation cannot succeed in denying an applicant a just resolution, according to law, of his or her application, by choosing not to take part in a proceeding. In these circumstances, the court has mechanisms to resolve applications in the absence of a party, if it is satisfied it is appropriate to do so.
In this particular matter, I am satisfied that both Mr Adams and Mr Astle are aware of the nature of Mr Clarke’s application, particularly in respect of the central evidentiary issues which arise in it, namely the non-payment of Mr Clarke’s bonus and the circumstances surrounding his resignation from Elite. Neither Mr Adams nor Mr Astle has elected to formally put their position in respect of those issues.
On the other hand, Mr Clarke, has carefully and exhaustively put his position in respect of the matter. In addition, he gave sworn evidence to the court, particular in respect of the circumstances surrounding the non-payment of his bonuses and his difficult circumstances following his resignation from Elite.
In particular, Mr Clarke deposed that it took him a significant period of time to regain employment, during which period, his relationship came under stress leading to him separating from his partner of many years. More recently, he has been able to return to employment in his area of expertise.
In his oral evidence, I formed the view that Mr Clarke was an honest and decent person. Although he was not subject to the rigours of any cross examination, I have no reason to think anything other than he is a person of credit. It was obvious to me that he remains deeply shocked and upset by what occurred to him during the period of his employment with Elite.
Rule 13.03A(2) of the Federal Circuit Court Rules 2001 “the Rules” sets out the circumstances in which a respondent is taken to be in default. It includes the following:
·the respondent has not satisfied the applicant’s claim;
·has not complied with an order in the proceedings;
·has not produced a document;
·has not defended the proceedings with due diligence.
The powers of the court, when a respondent is found to be in default, are set out in Rule 13.03B(2) as follows:
“(2) If a respondent is in default, the Court may:
(a)order that a step in the proceeding be taken within the time limited in the order; or
(b)if the claim against the respondent is for a debt or liquidated damages—grant leave to the applicant to enter judgment against the respondent for:
(i) the debt or liquidated damages; and
(ii) if appropriate—costs; or
(c)if the proceeding was commenced by an application supported by a statement of claim or the Court has ordered that the proceeding continue on pleadings—give judgment against the respondent for the relief that:
(i) the applicant appears entitled to on the statement of claim; and
(ii) the Court is satisfied it has power to grant; or
(d)give judgment or make any other order against the respondent; or
(e)make an order mentioned in paragraph (b), (c) or (d) to take effect if the respondent does not take a step ordered by the Court in the proceeding in the time limited in the order.”
In Speedo Holdings BV v Evans (No 2)[13] Flick J identified some principles which are to be applied by the court when considering whether to enter a judgment against a defaulting respondent. They can be summarised as follows: the power is discretionary; and it must necessarily be utilised cautiously.
[13] Speedo Holdings BV v Evans (No 2) [2011] FCA 1227 at [20] – [21]
In all the circumstances of the case, I am satisfied that Elite, Mr Adams and Mr Astle have failed to defend the proceedings with due diligence. In addition, each has failed to comply with orders requiring them to file affidavit evidence.
In all these circumstances, I am satisfied that it is appropriate to proceed with determining Mr Clarke’s claim, notwithstanding the absence of each of the respondents. The more difficult aspect of the case concerns how any penalties and compensation, due to Mr Clarke, are to be allocated between the respondents concerned.
This will require an analysis of the case pleaded by Mr Clarke, in his amended statement of claim filed on 29 July 2016, which has been provided to each of the respondents concerned. Its pleadings are as follows:
·Mr Clarke was an employee of Elite [1];[14]
·Mr Clarke entered into a contract of employment with Elite [8];
·It was an express term of the employment contract that Elite would pay bonuses to Mr Clarke [16];
·Elite has not paid any bonus payments to Mr Clarke and has breached its employment contract with him [18];
·Accordingly, the breaches of contract are alleged against Elite not against either Mr Adams or Mr Astle.
[14] References in [] are to paragraphs of the amended statement of claim
This difficulty arises because Mr Clarke was employed by Elite not directly by either Mr Adams or Mr Astle and this is the way in which his case for breach of contract is framed. The case for accessorial liability, under the FWA, is couched against both Mr Adams and Mr Astle. Mr Duggan, counsel for Mr Clarke has sought compensation in very broad terms and submits it is open to the court to make an order which would have the effect of reimbursing Mr Clarke the totality of his bonuses due under the FWA with the compensation to be the joint and several liability of all the nominated respondents.
These issues are to be resolved by reference to sections 545 and 550 of the Act, particularly whether an order for compensation may be made against a person who is found to have accessorial liability for breaching a civil remedy provision arising under the Act and what causal connection the specific ground of such breach has to the actual compensation sought.
Accessorial Responsibility
Section 550(2) provides the circumstances in which a person is taken to have been involved in a contravention of a civil remedy provision. The circumstances can be summarised as follows:
·the person has aided, abetted, counselled or procured the contravention;
·has induced the contravention;
·has been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or
·has conspired to bring the contravention about.
In Buckingham v KSN Engineering [15] Lucev FM (as His Honour then was) summarised the legal test for sheeting liability to a potential accessory in the following terms. Before such a person could be considered an accessory under the Act, could it be established that:
·did he or she have knowledge of the essential facts constituting the contravention;
·was he or she knowingly concerned in the contraventions;
·was he or she an intentional participant in the contravention based on actual not constructive knowledge of the essential facts constituting the contravention – although constructive knowledge may be sufficient in cases of wilful blindness; and
·however, such an individual did not need to know that the matters in question constituted a contravention.
[15] Buckingham v KSN Engineering Pty Ltd [2008] FMCA 546 at [40]
In this case, at relevant times, I am satisfied that Mr Adams and Mr Astle were the guiding hands and brain of Elite. They were the company’s sole directors and were involved, on a day to day basis, in what the company did. They were each instrumental in determining how Mr Clarke was to be renumerated. Significantly, I accept Mr Clarke’s evidence that he broached with each of them his concerns about the continued lack of payment of the bonuses due to him.
As such, each of them was involved in the breaches in question as each had knowledge of them. The company acted through Mr Adams and Mr Astle. As such I am satisfied that Mr Clarke has made out a prima facie case that the corporate respondent acted through the personal respondents at relevant times.[16]
[16] See Cotis v Oggy Pty Ltd & Ors [2009] FMCA 21 at [66] – [67]
The evidence is clear that it was Mr Adams made the decisions as to what payment in lieu of notice Mr Clarke was to be provided and what was to be done about his leave entitlements. No other servants of Elite are implicated in these decisions. It is also clear, I consider, that Elite’s directors – Mr Adams and Mr Astle made the necessary contractual decisions regarding how Mr Clarke was to be remunerated, including in respect of his bonus entitlements. As such, both of them must be regarded as being privy to the decision to renege on how it had earlier be agreed Mr Clarke was to be remunerated.
The principles applicable to the calculation of civil penalties
The fundamental task, for the court, in its determination of what is the appropriate penalty to apply, is to examine the gravity or seriousness of the offending, which it is called upon to penalise. The considerations relevant to this task have been delineated in a number of decisions of both this court and the Federal Court.[17]
[17] See Mason v Harrington Corporation Pty Ltd [2007] FMCA 7; Kelly v Fitzpatrick [2007] 166 IR 14 at [14]; Blandy v Coverdale NT Pty Ltd [2008] FCA 1533 at [23]
The considerations are as follows:
·The nature and extent of the conduct which led to the breaches;
·The circumstances in which the conduct took place;
·The nature and extent of any loss or damage sustained as a result of the breaches;
·Whether there has been similar previous conduct by the respondent;
·Whether the breaches were properly distinct or arose out of the one course of conduct;
·The size of the business enterprise involved;
·Whether or not the breaches were deliberate;
·Whether senior management was involved in the breaches;
·Whether the party committing the breaches has exhibited contrition;
·Whether the party committing the breaches has taken corrective action;
·Whether the party committing the breaches has cooperated with the enforcement authorities;
·The need to ensure compliance with minimum standards by provision of an effective means for investigation and enforcement of employee entitlements; and
·The need for specific and general deterrence.
The court needs to be careful not to apply a formulaic approach to the imposition of penalties or attempt to extrapolate the penalties imposed in one case to the circumstances of another. Each case involving the imposition of a civil penalty warrants an idiosyncratic approach and a careful analysis of all relevant circumstances. As was stated in Australian Opthalmic Supplies Pty Ltd v McAlary-Smith (2008) 165 FCR 560:
“Penalties are not a matter of precedent. The choice of penalty must be dictated by the individual circumstances of a case, not by a line by line comparison with another case.”[18]
[18] Australian Opthalmic Supplies Pty Ltd v McAlary-Smith (2008) 165 FCR 560 at [12]
Clearly the check-list, as enumerated above, is useful. It is not to be regarded as an exhaustive list of factors to be considered. The ultimate control on any sentence is that it must be proportionate to the offence committed. A court is not permitted to impose a sentence greater than is warranted by the objective circumstances of the offending.[19]
[19] See Veen v R (No 2) (1988) 164 CLR 465 at 472
Calculation of penalties
In my view, the failure to pay Mr Clarke his annual leave and notice entitlement was a serious breach of the FWA. The evidence available to me indicates that Mr Adams was the person who elected not to pay Mr Clarke his annual leave and notice entitlements. Together with Mr Astle, he was a director of the company concerned.
For the reasons outlined above, I accept that the conduct of all of the respondents concerned has had a significant impact upon Mr Clarke. He works for a period of approximately two and a half years, during which he received none of the bonuses to which he was entitled.
In my view, the evidence indicates that these payments were analogous to his wages. I accept that he took a reduced salary on the basis that if he worked hard and sold Elite’s services and products, he would be recompensed in due course. This has not occurred. In my view, he has been to subject to serious exploitation by Elite and its directors.
None of the respondents concerned has demonstrated any contrition in respect of their conduct. Rather, they have delayed the proceedings as much as possible and then withdrawn from them. This has had the consequence of intensifying Mr Clarke’s distress and adding to the costs incurred by him in instituting these proceedings.
I have little evidence regarding the size of the business operated by Elite at relevant times. It employed an accountant and other employees besides Mr Clarke. It provided services of some value to its various customers. As such, it cannot be regarded as a one person operation.
There is no evidence to indicate that any of the respondents concerned has previously breached any provisions relating to the industrial safety net. However, in my view, there still remains a need for some level of specific and general deterrence.
In this context, in my view, it is relevant that Elite has been placed into administration. The administrator concerned indicated that there are not likely to be any funds available to pay any of the company’s liabilities.
Accordingly, in my view, it is open to me to infer that both Mr Adams and Mr Astle are of the view that they are able to rely on the company’s existence to shield them from any personal liability for their actions.
In all the circumstances of this case, I am satisfied that it is the intent of the legislature, as a consequence of the provisions contained in section 550 of the Act that this not be the case. I am satisfied that both and Mr Adams and Mr Astle should share accessorial liability for the actions of the company of which they were directors and which they managed on a day to day basis.
In all these circumstances, I am of the view that it is appropriate that a penalty of 40% of the maximum available under the FWA be applied in respect of each of the section 117 and section 90 offences. This amounts to a penalty of $8640.00 for both Mr Adams and Mr Astle; and a penalty of $43,200.00 for Elite.
Pursuant to section 546(3) of the Act, the court may order the payment of any penalty imposed be paid to the Commonwealth; a particular organisation; or a particular person. In this case, Mr Clarke commenced these proceedings and, in these circumstances, he seeks the payment of any penalty, to be paid to him personally.
In Plancor Pty Ltd v Liquor Hospitality & Miscellaneous Union the Full Court of the Federal Court (Gray, Branson and Lander JJ) discussed the principles to be applied in respect of the appropriate recipient of any penalty imposed by the court in respect of a violation of an industrial law provision.
In his separate judgment Gray J said as follows:
“The correct view is that the initiating party is normally the proper recipient of the penalty as part of a system of recognising particular interests in certain classes of persons (now specified in s 718 of the WR Act) in upholding the integrity of awards and agreements the subject of penal proceedings. Where a public official vindicates the law by suing for and obtaining a penalty, it is appropriate that the penalty be paid to the Consolidated Revenue Fund. Otherwise, the general rule remains appropriate, that the penalty is to be paid to the party initiating the proceeding, with the Gibbs exception that the penalty may be ordered to be paid to the organisation on whose behalf the initiating party has acted.”[20]
[20] See Plancor Pty Ltd v Liquor Hospitality & Miscellaneous Union (2008) 171 FCR 357 at 44 per Gray J
The Gibbs exception arises when an industrial organisation, such as a union, commences proceedings on behalf of one of its members, in respect of a breach of an industrial provision or award. The proper prosecution of any such breach has the potential to benefit not only the individual directly affected by it, but also members of the union concerned generally.
In such circumstances, it is appropriate that such an organisation be recompensed, in some way, for the costs incurred in bringing the action, rather than consolidated revenue or the individual concerned. Gray J rejected any notion that for an applicant to receive a penalty imposed, in circumstances not involving a representative group, could potentially be characterised as a windfall and that it was therefore inappropriate for a penalty to be paid to an applicant, who had personally brought an application.
The majority (Branson and Lander JJ) took a different view but did not specifically rule that a penalty should never be paid to an applicant, in circumstance in which that applicant was not represented by an industrial organisation. In this context, they characterised the concept of the windfall represented by the payment of a penalty to involve an unexpected and relatively large financial benefit.
These proceedings have has a somewhat tortuous path towards finalisation. Necessarily, this has added to Mr Clarke’s costs. I have not been advised what those costs have been. It is however clear, that Mr Clarke is not legally aided and has not had the assistance of a union or industrial advocate in preparing or running his case.
In these circumstances, I accept that he is likely to have incurred significant legal costs in bringing his action. Accordingly, I do not consider that the payment to him of any penalty to be imposed in this matter can be characterised as a windfall and so antithetical to public policy reasons.
The amount received to be received by Mr Clarke will not be significant, given the likely extent of the cost incurred by him and accordingly, in my view, there is little to differentiate his situation to that which arises in cases falling within the rubric of Gibbs.
In all the circumstances of this case, particularly the fact that Mr Clarke has pursued it personally and at some cost to himself, I am of the view that any penalties imposed should be paid to Mr Clarke personally.[21]
[21] See McIlwain v Ramsay Food Packaging No 4 [2006] FCA 1302 per Greenwood J approved in Plancor Pty Ltd v Liquor Hospitality & Miscellaneous Union (supra) at [70] per Branson and Lander JJ
Other compensation
The most difficult aspect of this case is what level of compensation should be ordered to be paid to Mr Clark and by whom. I acknowledge that it is likely to Pyrrhic victory, for Mr Clarke, if compensation orders are made only against Elite, which is subject to management and is now nothing more than a shell. It is also the major source of his grievance that there has been a total failure for him to be paid his agreed level of remuneration, which was calculated by reference to what he sold for Elite. However, this condition of his contract of employment is not referrable to any modern award protected by the FWA.
The contract of employment, pursuant to which Mr Clarke was to be paid bonuses, was entered into between him and Elite. The court’s authority in these rests primarily as a consequence of federal legislation which regulates the conduct of employers towards their employees and which is designed to ensure that employees are provided with an industrial safety net guaranteeing minimum standards in respect of remuneration and conditions.
There is no doubt that Mr Clarke is entitled to pursue both his action arising under the FWA and his application for breach of contract in these proceedings. The court has jurisdiction to determine each of the aspects of the claim of a federal matter, irrespective of the ultimate fate of the substantive federal and non-federal aspects of the matter. Once a matter is within federal jurisdiction, the entire matter is within federal jurisdiction.[22]
[22] See Burgundy Royale Investments Pty Ltd & Ors v Westpac Banking Corporation & Ors (1987) 18 FCR 212 at 219
Upon the existence of federal jurisdiction, the matter remains in federal jurisdiction regardless of how the federal issue or issues within it are ultimately resolved.[23] However, it is not clear to me that he is able to recover damages for breach of contract under the accessorial principle contained in section 550 of the Act within the purview of the orders open to the court under section 545.
[23] See Rana v Google Inc [2017] FCAFC 156 at [21]
The expression compensation, appearing in section 545, is not specifically defined in the FWA. Its ordinary meaning includes recompense, in financial terms, for injury sustained and the making of amends. Fundamentally, in my view, it is a concept directed towards redress for wrong in financial terms.
In Maritime Union of Australia v Fair Work Ombudsman,[24] the Full Court described the exercise that has to be undertaken in assessing an award of compensation under section 545(2), as follows:
“The task of the primary judge, having found the relevant contraventions, was to assess the compensation, if any, that was causally related to those contraventions.”
[24] Maritime Union of Australia v Fair Work Ombudsman[2015] FCAFC 120 at [28]
The difficulty with applying this rationale to a case such as the present one is that it was concerned with the assessment of wages and other entitlements directly attributable to a contravention of an industrial provision. It is however clear that compensation, as envisaged by section 545(1), can include damages for non-economic loss representing hurt and humiliation suffered by reason of the contravention.
This follows because of the broad nature of the power conferred by section 545(1) once a contravention is established. The court is provided with a discretion to make any order it considers appropriate once it is established a civil penalty provision under the Act has been contravened.
In Australian Licence Aircraft Engineers Association v International Aviation Service Assistance Pty Ltd[25] Barker J noted that this power was wide and the ambit of it were not limited by the terms of section 545(2). He went on to say:
“In accordance with usual principle, an order awarding compensation must be assessed on the basis that a person has suffered because of the contravention and that this requires an appropriate causal connection between the contravention and the loss claimed.”[26]
[25] Australian Licence Aircraft Engineers Association v International Aviation Service Assistance Pty Ltd (2011) 193 FCR 526 at [421]
[26] Ibid at [423]
In particular, in Transport Workers’ Union of Australia (NSW Branch) v No Fuss Liquid Waste Pty Limited[27] Flick J said as follows:
“…it may therefore be accepted that the power conferred by section 545(2)(b) extends to the making of an order awarding “compensation” to a person both by reason of (for example) any loss of salary or income that may have followed from the contravention together with an amount representing “hurt and humiliation”.
[27] Transport Workers’ Union of Australia (NSW Branch) v No Fuss Liquid Waste Pty Limited [2011] FCA 982 at
Clearly, in my view, there is the necessary causal connection between the monies due to Mr Clarke in respect of his notice entitlements and leave entitlements, which were established by the provision of the FWA and which I am satisfied both Mr Astle and Mr Adams have an accessorial liability in respect of the failure of Elite to provide them. Therefore orders should be made requiring them jointly and severally to make good these monies owed to Mr Clarke, if Elite is unable to do so.
I am concerned that there is no such causal connection between the civil breach provisions and Mr Clarke’s claim for reimbursement of the bonuses due to him by Elite. In my view, these are matters relating to breach of contract and have not been specifically pleaded as such against either Mr Astle or Mr Adams the two directors of Elite.
The breach of contract does not arise as a consequence of any industrial provision contained in the FWA. In these circumstances, I am not persuade that liability for the breach of contract pleaded against Elite can be sheeted home personally to either Mr Adams or Mr Astle under the accessorial provisions of the Act.
In Australian Building & Construction Commissioner v Construction, Forestry, Mining & Energy Union[28] the High Court discussed the limits inherent on the discretion created by section 545(2) by virtue of its legislative context. In particular, the case turned on whether a court, in the context of civil penalty proceedings under the FWA, could order that an industrial association be restrained from indemnifying one of its officials from personal liability for payment of a civil penalty imposed on that person.
[28] ABCC v CFMEU (2018) 351 ALR 190
In the case, Kiefel CJ said as follows:
“Section 545(1) is not directed to the subject of penalties. By its terms, its sphere of operation is circumscribed. The express terms of s 545(1) permit the Federal Court only to make orders which it considers to be "appropriate" in the circumstance where it is satisfied that a person has contravened or proposes to contravene a civil remedy provision. The Court is therefore restricted to making the kinds of orders which are capable of properly being seen as appropriate to be made by the Court in the exercise of its jurisdiction. The ABCC's reliance on the principle that a power conferred on a court should not be construed by reference to unexpressed limitations is misplaced.”
Accordingly, in my view, although the power arising under section 545(1) to make an appropriate order is wide in its terms, it is not unlimited. Rather, it is constrained by the context in which it appears, namely in a statute directed towards the enforcement of industrial standards and penalising breaches of such standards.
In these circumstances, in my view, the use of the section to make an award of damages, for a breach of contract, would be beyond power and such an order would not be appropriate given the limitations placed on section 545(1).
In addition, it is also my opinion that it would be equally invalid for the court to use the accessorial liability provisions, which essentially relate to civil liability provisions created by the FWA, to create contractual liability for Mr Adams and Mr Astle in respect of a contract to which they are not direct parties, namely the contract of employment between Elite and Mr Clarke.
However, as indicate above, I accept that this court has jurisdiction to deal with any ancillary cause of action arising from its exercise of its specifically conferred federal jurisdiction. In these circumstances, I propose to make an order that the first respondent, Elite pay Mr Clarke the sum of $129,205.79 as damages in respect of its breach of contract of employment with him.
Notwithstanding this finding in respect of breach of contract, I am satisfied that the court has jurisdiction to make an award of compensation against each of the respondents for general damages pursuant to the provisions of section 545(1).
The task of assessing general damages, in the context of the FWA, is a difficult one, given that the facts and circumstances of each case and the applicant concerned are necessarily idiosyncratic. In Ewin v Vergara (No3)[29] Bromberg J said as follows:
“The assessment of general damages in compensation for pain and suffering, for loss of amenity or enjoyment of life and other intangibles, is not a science and by its nature is not readily capable of arithmetic calculation. … The award of compensation should be neither restrained nor excessive. Each case will be determined by its own particular facts. …”
[29] See Ewin v Vergara (No3) [2013] FCA 1311 at [658]
A compensatory order for distress, hurt and humiliation is available under section 545 of the Act only if the applicant concerned has in fact suffered distress, hurt and humiliation, as a result of the contravention.[30] On the basis of the evidence of the applicant himself, I am satisfied that the applicant has suffered distress, hurt and humiliation as a consequence of the circumstances surrounding the end of his employment with Elite and its failure to pay him his proper entitlements.
[30] See Australian Licenced Aircraft Engineers Association v International Aviation Service Assistance Pty Ltd [2011] FCA 333 per Barker J
I am further satisfied that, as the second and third respondent have accessorial responsibility for the relevant breaches, they are jointly and severally liable, with Elite for such general damages, which I assess to amount to $10,000.00. I reach this figure on the basis that Mr Clarke has already been awarded the pay in lieu of notice to which he was entitled.
The sum is awarded to compensate him for the hurt and distress which he suffered as a consequence of being ill-used, in an industrial setting, by his employer. However, after some emotional dislocation, he has now been able to re-group and has returned to the workforce.
For all these reasons, the orders of the court will be as set out at the commencement of these reasons for judgment.
I certify that the preceding one hundred and thirty-three (133) paragraphs are a true copy of the reasons for judgment of Judge Brown
Date: 5 October 2018
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