Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Registered Organisations Commission (ROC)

[2018] FWCFB 16

[2018] FWCFB 16

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.604 - Appeal of decisions

Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia
v
Registered Organisations Commission (ROC)
(C2017/5116)

VICE PRESIDENT HATCHER
DEPUTY PRESIDENT BINET
COMMISSIONER CAMBRIDGE SYDNEY, 3 JANUARY 2018

Appeal against decision [2017] ROCD 87 of Mr Enright at Melbourne 2017 on 24 August 2017 matter number FR2017/26.

Introduction, factual background and statutory framework

[1] The Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia (CEPU) has lodged an appeal pursuant to s 604 of the Fair Work Act 2009 (FW Act), for which permission to appeal is required, against what it characterised as a “decision” issued by a delegate of the Registered Organisations Commissioner, Mr Enright (delegate) on 24 August 2017 1 (Decision). The Decision related to the CEPU’s obligations under the Fair Work (Registered Organisations) Act 2009 (RO Act) to prepare, provide to its members and lodge a financial report and an operating report after the end of its financial year.

[2] In respect of the financial report, s 253(1) of the RO Act provides:

(1)  As soon as practicable after the end of each financial year, a reporting unit must cause a general purpose financial report to be prepared, in accordance with the Australian Accounting Standards, from the financial records kept under subsection 252(1) in relation to the financial year.

[3] A “reporting unit” is defined in s 242 of the RO Act and may be constituted by the whole of a registered organisation or part of it. In this case, the reporting unit was the CEPU in its entirety.

[4] In respect of the operating report, s 254(1) provides:

(1)  As soon as practicable after the end of each financial year, the committee of management of a reporting unit must cause an operating report to be prepared in relation to the financial year.

[5] Reporting units are required not to contravene these provisions referred to, and may be subject to the imposition of a civil penalty for any such contravention. 2

[6] Section 265(1) requires copies of a “full report” (which is made up of the financial report, the operating report and the auditor’s report) to be provided by the reporting unit free of charge to members. Section 265(5) then provides:

(5)  The copies referred to in subsection (1) must be provided within:

(a)  if a general meeting of members of the reporting unit to consider the reports is held within 6 months after the end of the financial year--the period starting at the end of the financial year and ending 21 days before that meeting; or

(b)  in any other case--the period of 5 months starting at the end of the financial year.

The Commissioner may, upon application by the reporting unit, extend the period during which the meeting referred to in paragraph (a) may be held, or the period set out in paragraph (b), by no more than one month.

Civil penalty:          100 penalty units.

[7] Section 266(1) requires that the full report be presented at a general meeting of members within the period of six months starting at the end of the financial year or such longer period as allowed under s 265(5). However s 266(3) provides that if the rules of a reporting unit provide for a specified percentage (not exceeding 5%) of members to be able to call a general meeting to consider the auditor’s report, the financial report and the operating report, the full report may instead be presented to a meeting of the committee of management of the reporting unit that is held within the period mentioned in s 266(1). Rules 20.4.1 and 20.4.2 of the CEPU’s rules contain a provision of this nature, with the result that the CEPU is required to provide the full report to its members within five months from the end of its financial year, or six months if an extension is granted by the Commissioner pursuant to s 265(5).

[8] Section 268 relevantly requires that the full report be lodged with the Commissioner within 14 days after the general meeting or meeting of the committee of management referred to in s 266.

[9] Prior to 6 March 2017, rule 20.2 of the CEPU’s rules provided that its financial year terminated on 31 March 2017 of each year. An alteration to rule 20.2 was certified by the General Manager of the Fair Work Commission, and took effect, on 6 March 2017. The altered rule 20.2 provides:

“20.2 Financial Year and Audit

The financial year of National Council shall terminate on 31 December each year and an audited financial report, prepared in accordance with the Fair Work (Registered Organisations) Act 2009 or its successor, shall be approved by and presented to a meeting of the National Council in accordance with the Act.”

[10] No provision was made in the CEPU’s rules for the transition from the old to the new financial year. However s 240 of the RO Act deals with this situation as follows:

240 Financial years - change in financial year

Where the rules of an organisation change the period constituting the financial year of the organisation, the period between:

(a)  the commencement of the first financial year after the change; and

(b)  the end of the preceding financial year;

is to be taken, for the purposes of this Part, to be a financial year.

[11] On 12 April 2017 the CEPU lodged a financial report for the period 1 April 2016 to 31 December 2016 in purported discharge of its obligations under the RO Act, on the basis that the effect of s 240 was to provide for a transitional financial year for that period. It is now accepted by the CEPU that there was no financial reporting requirement applicable to this period. On 5 June 2017 the delegate sent correspondence to the CEPU advising that his interpretation of s 240 was that it provided for a transitional financial year from 1 April 2017 to 31 December 2017, so that the CEPU was required to lodge a financial report for each of the periods 1 April 2016 to 31 March 2017 and 1 April 2017 to 31 December 2017.

[12] On 17 July 2017 the CEPU sent correspondence to the delegate which stated, omitting formal parts:

“I refer to your letter dated 5 June 2017. Your letter is a response to the CEPU’s letter dated 3 May 2017, in which we outlined our interpretation of section 240 of the Fair Work (Registered Organisations) Act 2009 (“the FWRO Act”).

In effect, we contend that with respect to your correspondence of 5 June 2017, you advise that you disagree on this contention and intend to interpret section 240 to mean that the former financial year commenced on 1 April 2016 and finished on 31 March 2017 and that the CEPU must therefore lodge a financial report for this former financial year.

We note that there was no disagreement that the new financial year for reporting purposes will commence on 1 January 2018.

We have considered your response, we submit that our reading of the text of the provision is the preferred reading. This, together with the fact that we also have also gone to the trouble and expense of undertaking an audit (which given our view of the provision we were not obliged to do) and provided an interim financial report from 1 April 2016 to 31 December 2016, is why we have resolved to press for our interpretation and will not be undertaking an audit up to 31 March 2017.

If you remain of the view that we are still required under section 240 to provide a financial report from 1 April 2016 to 31 March 2017, we request that you provide your reasons for insisting compliance with that requirement in the form of a formal decision. The CEPU will then consider its options.

As an alternative, we ask that in your capacity as Delegate to the Registered Organisations Commissioner, you consider the following proposition.

What we are proposing is that for the financial report due after 31 December 2017 will have a separate column to indicate the audited financial figures for the period 1 April 2016 to 31 March 2017, a second column for the period 1 April 2017 to 31 December 2017 and a third column for the period 1 January 2017 to 31 December 2017. That is to say, we would ultimately report on both interpretations of s.240.

Of course, to enable this to occur would, accepting the correctness of your interpretation of s.240, require an extension to the lodgement date of financial report for 1 April 2016 and finished on 31 March 2017. We respectfully request this extension.

We make this request noting that, if the proposition was accepted, there would be no gap in reporting and the CEPU would be put to less financial expense. Further, this approach satisfies the underpinning imperatives of ensuring the CEPU is managed efficiently and maintains a standard of accountability to its members.

I look forward to your response.”

The Decision

[13] The Decision was issued in response to this correspondence. The Delegate confirmed the view expressed in his 5 June 2017 correspondence, and gave the following reasons:

“[18] First, I note that s. 240 provides that that ‘the period between the commencement of the first financial year after the change’ and the end of the preceding financial year ‘is to be taken, for the purposes of this Part, to be a financial year’. I interpret these phrases based on their ordinary meaning.

[19] In this instance, the rule change was effected on 6 March 2017. At this stage the

financial year had already commenced on 1 April 2016 and was not due to end until 31 March 2017. The alterations did not operate retrospectively to truncate this financial year.

[20] The ordinary meaning of the phrase ‘commencement of the first financial year after the change’ must be read in the context of the rule alterations. Rule 20.2 was altered so that ‘the financial year of National Council shall terminate on 31 December each year’. It follows that the commencement of the new financial year must be 1 January 2018. The first 1 January after 6 March 2017 (the date of certification) is 1 January 2018.

[21] The ordinary meaning of the phrase ‘the end of the preceding financial year’ in this instance means 31 March 2017. The financial year 1 April 2016 to 31 March 2017 remained on foot notwithstanding the rule alteration. Consequently, the end of the preceding financial year is 31 March 2017.

[22] In this instance, s. 240 provides that the period between 1 April 2017 and 31

December 2017 constitutes a financial year because that is the period between ‘the

commencement of the first full financial year after the change and the end of the preceding financial year’.

[23] I conclude therefore that the operation of s. 240 requires the reporting unit to lodge a financial report for the period 1 April 2017 to 31 December 2017. I am unable to discern anything in the language of the section that negates the reporting unit’s obligation to lodge a report for this period.”

[14] The delegate also referred to the objects of the RO Act as supportive of his position, and expressed the view that the CEPU’s proposal would breach s 265(5) of the RO Act. The delegate then responded to the CEPU’s request (in the alternative) for an extension of the lodgment date for the financial report for 1 April 2016 to 31 March 2017 as follows:

“[28] In its correspondence dated 17 July 2017, the reporting unit requested an extension for the lodgement date of the financial report for 1 April 2016 to 31 March 2017. I note that Rule 20.1 of the rules of the reporting unit provide that financial reports are to be presented to meetings of National Council. In such circumstances, subsection 265(5)(b) of the RO Act requires that copies of the full or concise report be provided to members within 5 months of the end of the financial year.

[29]Due to the ongoing discussion relating to this matter and the bona fides of the reporting unit acting in accordance with its understanding of the requirements of the RO Act, I grant the reporting unit one months’ extension to provide members with the financial report ending 31 March 2017 by 30 September 2017; and one months’ extension to hold a committee of management meeting to consider the full report by 31 October 2017.

[30] In granting this extension, I strongly urge the reporting unit to lodge a financial report FR2017/26 for the reporting period 1 April 2016 to 31 March 2017. In doing so, I remind the reporting unit that failure to comply with its obligations exposes the reporting unit to civil penalty provisions under Part 3 of Chapter 8 of the RO Act. The content of this decision will, in these circumstances, leave the reporting unit in no doubt that a failure to comply with the provisions of the RO Act to which I have referred above will be met with a proportionate regulatory response.”

Appeal grounds and submissions

[15] In its notice of appeal, the ASU identified the decision under appeal as being:

“Decision of the delegate which requires the National Council of the Appellant to provide to members and present to a meeting full financial reports for the periods:

(a) 1 April 2016 to 31 March 2017; and

(b) 1 April 2017 to 31 December 2017.

The Appellant appeals the whole of the decision.”

[16] In its submissions, the CEPU modified its identification of the decision under appeal somewhat, and emphasised that the “whole of the decision” included the Delegate’s exercise of the power in s 265(5) to extend time. It submitted this was undoubtedly a decision that was appealable under s 604 of the FW Act. The Delegate’s decision at paragraph [29] that he had the power to grant an extension of time until 30 September 2017 and 31 October 2017 respectively was premised on an error of law concerning the interpretation of s 240 of the RO Act. In this respect, the CEPU submitted:

•  s 159(3) of the RO Act provided that an alteration of rules that has been certified takes effect on the day of certification;

•  the new rule 20.2 therefore took effect on 6 March 2017 and operated to change the financial year of the CEPU from that date;

•  the purpose of s 240 was to ensure that there was no gap in financial reporting obligations and that each period of time was accounted for;

•  once a rule change was certified which altered the financial year, s 240 had the effect of freezing that period of time as a financial year for the purpose of the RO Act;

•  s 240 was enlivened at the time the rule alteration was certified;

•  the “end of the preceding financial year” was the end of the year ending on 31 March 2016, so that “31 March 2016” could be read in place of paragraph (b) of s 240;

•  the commencement of the first financial year under the new rule 20.2 was 1 January 2018, so that “1 January 2018” could be read in place of paragraph (a) of s 240; and

•  consequently the period from 1 April 2016 to 31 December 2017 was the financial year established by s 240, and the delegate had no power to grant an extension which operated before the end of that financial year and outside of the parameters of s 265(5).

[17] The CEPU submitted that permission to appeal should be granted because the appeal raised a novel question about the interpretation of s 240 of the RO Act and the Decision was attended with sufficient doubt to warrant its reconsideration. If permission was not granted, the CEPU would be put to the expense of lodging two separate reports for a period of time in which the CEPU believed it was only required to lodge one report or, alternatively, if the CEPU did not lodge the full report in the timeframe stipulated in the Decision it would risk being the subject of proceedings being initiated against it by the Commissioner for contravention of its reporting obligations under the RO Act as foreshadowed in paragraph [30] of the Decision. The CEPU sought that the Decision be quashed, and that we make a further decision pursuant to s 607(3)(b) that the transitional financial year of the CEPU for the purpose of Pt 3 Ch 8 of the RO Act is taken to be the period from 1 April 2016 to 31 December 2017.

[18] The Commissioner submitted that the Decision was not a “decision” appealable under 604 of the FW Act but merely a written explanation of the delegate’s view about the legal effect of s 240 of the RO Act upon the change to rule 20.2. Neither the delegate, the Commissioner or the Fair Work Commission could declare the true effect of s 240, since this would constitute an impermissible exercise of judicial power. The substance of the appeal was merely to challenge the correctness of the delegate’s view, but because the expression of that view was not, properly speaking, a decision, the appeal was incompetent.

[19] In the alternative, the Commissioner submitted that the Decision was correct. Section 240 was to be interpreted on the basis that its purpose was to avoid there being any gap, where there is a rule change which alters the financial year, between the conclusion of the financial year that is already underway at the time the rule change is certified and the commencement of the first new financial year under the new rule after certification. That meant that the transitional financial year established by s 240 ran from the end of the last financial year operating under the previous rule, 31 March 2017, until the commencement of the first financial year after the change, which it was agreed was 1 January 2018.

[20] The Commissioner also made submissions concerning his proper role in appeals heard by a Full Bench of the Fair Work Commission against a decision of him or his delegate. Given that this issue was dealt with in the recent Full Bench decision in Australian Municipal, Administrative, Clerical and Services Union v Registered Organisations Commission 3, it is not necessary for us to consider those submissions.

Consideration

[21] We are not satisfied that permission to appeal should be granted, either in the public interest or on a discretionary basis, for two reasons. Firstly, even though it is correct that the delegate’s exercise of the power to extend time pursuant to s 265(5) of the RO Act constituted a decision that was appealable under s 604 of the FW Act, and the formation and expression of a view concerning the temporal boundaries of the financial year to which the extension was to apply was the necessary precursor to that exercise of power, we do not consider that the purpose of the CEPU’s appeal was genuinely to challenge that decision. Rather, it is entirely clear that the real purpose of the appeal was to obtain a determination from us that the delegate’s opinion that the financial reporting obligation under the RO Act applied to a financial year starting on 1 April 2016 and ending on 31 March 2017 was incorrect irrespective of any extension of time under s 265(5), so that any exposure to civil penalties for any failure to comply with those obligations might be avoided. Any challenge to the decision to extend time was purely nominal and did not engage the actual interests of the CEPU.

[22] An appeal brought for the purpose described is misconceived. The Fair Work Commission cannot make a binding determination concerning the start and end dates of any financial year in the period in question. The “decision” which the CEPU wishes us to make pursuant to s 607(3)(b) of the FW Act in substitution for the decision made by the delegate, namely that the transitional financial year of the CEPU for the purpose of Pt 3 Ch 8 of the RO Act is taken to be the period from 1 April 2016 to 31 December 2017, is not one which is empowered to be made under the RO Act or the FW Act. To the extent that any question arises concerning compliance by the CEPU with its financial reporting obligations in the relevant period, and any potential liability to a civil penalty in that respect, that can only be determined by a court.

[23] Secondly, we consider in any event that the delegate’s interpretation and application of the amended rule 20.2 of the CEPU’s rules and s 240 of the RO Act was plainly correct. There was no dispute that, for the purpose of s 240(a), the first financial year after the rule change commenced on 1 January 2018. The different positions of the CEPU and the Commissioner arose from their competing interpretations of the meaning of the expression “the preceding financial year” in s 240(b). The CEPU’s submissions appear to be based on the expression being read as referring to the financial year which preceded the rule change. On that basis, it identified the financial year ending on 31 March 2016 as being the last financial year which completed prior to the rule change taking effect. However, this interpretation does not properly read paragraph (b) in the context of s 240 as a whole. Paragraphs (a) and (b) form part of one conjoint sentence, and paragraph (b) must be read together with paragraph (a) in order to identify what it is that the financial year referred to in (b) must precede. In our view, the ordinary and natural reading of s 240 is that the financial year referred to in (b) precedes that which is described in (a), namely “the commencement of the first financial year after the change”. That is, for the purpose of the application of s 240, it is necessary to identify when the financial year preceding the commencement of the first financial year after the change ended.

[24] A financial year undoubtedly commenced on 1 April 2016. Under rule 20.2 as it was before its alteration, that financial year would have ended on 31 March 2017. The question is whether the rule change which came into effect on 6 March 2016 operated to alter the end date of that financial year. Section 159(3) provides that a rules alteration takes effect on the day of certification. However that only means that a rules alteration takes effect according to its terms on that day, not necessarily that it has an operational effect from that day. The new rule 20.2, as earlier observed, contains no express provision for a transition to the new financial year. There is nothing in the language of the new rule which indicates it was intended to have retrospective effect or to shorten or lengthen the term of a financial year which had already commenced. In any event, we do not consider that a union rule could validly operate to establish a financial year that lasted for a period that was less or more than 12 months. Section 6 of the RO Act defines the expression “financial year” as follows:

"financial year " , in relation to an organisation, means:

(a)  the period of 12 months commencing on 1 July in any year; or

(b)  if the rules of the organisation provide for another period of 12 months as the financial year of the organisation--the other period of 12 months.

Note: Section 240 provides for a different financial year in special circumstances.

[25] It is clear that, other than by the operation of s 240, the RO Act does not contemplate that an organisation’s rules could provide for a financial year that was for a period other than 12 months. The provision in the CEPU’s rules (both before and after 6 March 2017) for a financial year that ends on a date other than 1 July in each year are effective under the scheme of the RO Act only on the basis that they provide for a financial year consisting of a 12 month period. Therefore the rule change of 6 March 2017 could not have the effect of, and should not be read as providing for, either the shortening of the financial year which began on 1 April 2016 so that it ended on 31 December 2016 or its extension so that it ended on 31 December 2017. That necessarily results in the position being that the financial year which commenced on 1 April 2016 ended on 31 March 2017 in accordance with the pre-existing rule. The following financial year under the new rule commenced on 1 January 2018, as earlier discussed. The period in between (1 April 2017 to 31 December 2017) is the transitional financial year that is deemed to exist by s 240.

[26] The CEPU submissions are somewhat inchoate as to the period 1 April 2016 to 31 December 2017. On the one hand, the CEPU appears to submit that the financial year starting on 1 April 2016 was extended to 31 December 2017 once the new rule 20.2 came into effect on 6 March 2017. If so, s 240 would have no work to do, since there is no lacuna under the rules which is required to be filled by the statute. That proposition however cannot be correct because, as explained, the rules could not validly provide for a financial year that was longer than a 12 month period. On the other hand, it submitted that the effect of s 240 was to deem the whole of the period a financial year, apparently irrespective of any financial year established by rule 20.2 in that period. For the reasons given, that is not correct either since it is based upon a misinterpretation of s 240 and does not give proper effect to rule 20.2

Conclusion

[27] We order that permission to appeal is refused.

VICE PRESIDENT

Appearances:

J. Stedman on behalf of theCommunications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia.

W. Steenson and C. Rawson on behalf of the Registered Organisations Commission.

Hearing details:

2017.

Sydney:

18 October.

 1   [2017] ROCD 87

 2   See ss 253(4) and 254(4)

 3   [2017] FWCFB 6249 at [37]-[41]

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