Director of the Fair Work Building Industry Inspectorate v Bavco Pty Ltd and Ors (No.3)
[2015] FCCA 697
•26 March 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| DIRECTOR OF THE FAIR WORK BUILDING INDUSTRY INSPECTORATE v BAVCO PTY LTD & ORS (No.3) | [2015] FCCA 697 |
| Catchwords: COSTS – Application by employer against applicant (Director) for an order for costs under s.570 of the Fair Work Act 2009 (Cth) (FW Act) in relation to proceedings the Director unsuccessfully brought against the employer for contraventions of s.357(1) of the FW Act – whether the Director acted vexatiously or unreasonably in commencing proceedings against the employer in circumstances where after an audit of the employer’s contractual arrangements with its employees the employer was advised by the regulator that no specific breaches of the FW Act sham contracting provisions had been identified – whether the Director otherwise acted unreasonably in conducting the proceedings against the employer for contraventions of s.357 of the FW Act – no unreasonable conduct or vexation by Director – no unreasonable act or omission by the Director – application for costs dismissed. |
| Legislation: Conciliation and Arbitration Act 1904 (Cth) s.197A Industrial Relations Act 1988 (Cth) s.347 |
| Director Of The Fair Work Building Industry Inspectorate v Bavco Pty Ltd ACN 132 010 201 & Ors(No.2) [2014] FCCA 2712 Construction, Forestry, Mining and Energy Union v Clarke (2008) 170 FCR 574 Kanan v Australian Postal and Telecommunications Union (1992) 43 IR 257 R v Moore; Ex parte Federated Miscellaneous Workers’ Union of Australia (1978) 140 CLR 470 Standish v University of Tasmania (1989) 28 IR 129 |
| Applicant: | DIRECTOR OF THE FAIR WORK BUILDING INDUSTRY INSPECTORATE |
| First Respondent: | BAVCO PTY LTD ACN 132 010 201 |
| Second Respondent: | ELIZABETH PESCHLER |
| Third Respondent: | WOLFGANG ADOLF PESCHLER |
| File Number: | CAG 24 of 2012 |
| Judgment of: | Judge Manousaridis |
| Hearing date: | Decided on the papers |
| Date of Last Submission: | 16 December 2014 |
| Delivered at: | Sydney |
| Delivered on: | 26 March 2015 |
REPRESENTATION
| Counsel for the Applicant: | Mr E W Young |
| Solicitors for the Applicant: | Australian Government Solicitor |
| Solicitors for the Respondents: | Mr D Dudderidge of Nevile & Co Lawyers |
ORDERS
The respondents’ application for costs is dismissed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT CANBERRA |
CAG 24 of 2012
| DIRECTOR OF THE FAIR WORK BUILDING INDUSTRY INSPECTORATE |
Applicant
And
| BAVCO PTY LTD ACN 132 010 201 |
First Respondent
| ELIZABETH PESCHLER |
Second Respondent
WOLFGANG ADOLF PESCHLER
Third Respondent
REASONS FOR JUDGMENT
Introduction
On 21 November 2014 I dismissed an application brought by the applicant (Director) claiming that the first respondent (Bavco) contravened s.357(1) of the Fair Work Act 2009 (Cth) (FWAct) by representing that its workers were engaged as independent contractors instead of employees (earlier reasons).[1] I dismissed the application because I was satisfied Bavco had proved, on the balance of probabilities, it “did not know” and was “not reckless as to whether” each of the contracts it represented to be a contract for services “was a contract of employment rather than a contract for services”.[2]
[1] Director Of The Fair Work Building Industry Inspectorate v Bavco Pty Ltd ACN 132 010 201 & Ors (No.2) [2014] FCCA 2712
[2] Section 357(2) of the Fair Work Act 2009 (Cth)
Pursuant to a liberty to apply, by email dated 25 November 2014 the solicitor for Bavco and Mr and Mrs Peschler (respondents) notified my Associate that the respondents wished to apply for an order for costs. On 8 December 2014 I directed the respondents file and serve any evidence and submissions on which they intended to rely, and I directed the Director to file submissions on which he intended to rely. The parties agreed that I determine the application for costs without any oral hearing.
The respondents seek an order for costs under s.570(2)(a) or s.570(2)(b) of the FW Act. They submit the Director instituted the proceedings “without reasonable cause”, or in the alternative, the Director’s “unreasonable act or omission” caused the respondents to incur costs.
Court’s power to award costs
The Court’s power to award costs in matters arising under the FW Act is governed by s.570 of the FW Act, which states:
(1)A party to a proceeding (including an appeal) in a court (including a court of a State or Territory) in relation to a matter arising under this Act may be ordered by the court to pay costs incurred by another party to the proceedings only in accordance with subsection (2) or section 569 or 569A.
(2)The party may be ordered to pay the costs only if:
(a)the court is satisfied that the party instituted the proceedings vexatiously or without reasonable cause; or
(b)the court is satisfied that the party’s unreasonable act or omission caused the other party to incur the costs; or
(c)the court is satisfied of both of the following:
(i)the party unreasonably refused to participate in a matter before the FWC;
(ii)the matter arose from the same facts as the proceedings.
The section limits the Court’s power to award costs “in relation to a matter arising under” the FW Act to circumstances where the proceedings have been instituted “vexatiously or without reasonable cause” by a party, or a party’s “unreasonable act or omission has caused the other party to incur costs”. The limit imposed on the Court’s power by s.570(2) is similar to the provisions in predecessor legislation such as s.197A of the Conciliation and Arbitration Act 1904 (Cth) and s.824(2) of the Workplace Relations Act 1996 (Cth).
In determining what amounts to “without reasonable cause”, Gibbs J in R v Moore; Ex parte Federated Miscellaneous Workers’ Union of Australia[3] stated that “a party cannot be said to have commenced a proceeding “without reasonable cause” within the meaning of [s.197A of the Conciliation and Arbitration Act 1904 (Cth)], simply because his argument proves unsuccessful”.[4]The phrase “without reasonable cause” was also considered by Wilcox J in Kanan v Australian Postal and Telecommunications Union,[5] this time in the context of s.347 of the Industrial Relations Act 1988 (Cth). His Honour there stated:[6]
It seems to me that one way of testing whether a proceeding is instituted “without reasonable cause” is to ask whether, upon the facts apparent to the applicant at the time of instituting the proceeding, there was no substantial prospect of success. If success depends upon the resolution in the applicant’s favour of one or more arguable points of law, it is inappropriate to stigmatise the proceeding as being “without reasonable cause”. But where, on the applicant’s own version of the facts, it is clear that the proceeding must fail, it may properly be said that the proceeding lacks a reasonable cause.
[3] (1978) 140 CLR 470
[4] (1978) 140 CLR 470, at page 473
[5] (1992) 43 IR 257
[6] (1992) 43 IR 257, at pages 264-265
The courts have similarly considered what constitutes an “unreasonable act or omission”. In Construction, Forestry, Mining and Energy Union v Clarke[7] the Full Federal Court noted that a distinction exists “between a party who pursues arguments which are ultimately abandoned or rejected by the Court” and “a party who commences a proceeding which is misconceived in the sense of being incompetent or unsupportable”[8]. It is the latter which would constitute an “unreasonable act or omission”. And in considering whether to exercise the discretion conferred to the courts by s.570(2), it is not sufficient if a party has not conducted its “litigation in the most efficient way” or that a party could have taken a step in the proceeding in a “different or timelier fashion”. The Full Federal Court also said:[9]
Indeed, while courts should use the discretion in s 824(2) [of the Workplace Relations Act 1996 (Cth)] to ensure that parties to litigation arising from the WR Act do not engage in unreasonable acts and omissions which put the other party to undue expense, they should also be careful not to exercise the discretion with too much haste, given that such haste may discourage parties, for fear of an adverse costs order, from pursuing litigation under the WR Act in the manner which they deem best.
[7] (2008) 170 FCR 574
[8] (2008) 170 FCR 574, at page 582 ([29]), citing Standish v University of Tasmania (1989) 28 IR 129.
[9] (2008) 170 FCR 574, at page 582 ([29])
In order for costs to be awarded under s.570(2)(b) the respondents must establish two things: first, they need to establish that the Director committed an “unreasonable act or omission”; second, they need to show that the Director’s unreasonable act or omission caused the respondents to incur costs.
I will now turn to consider the respondents’ application for costs under s.570(2)(a) and s.570(2)(b) of the FW Act.
Parties’ submissions
The respondents submit the Director commenced the proceedings without reasonable cause because he commenced the proceedings on what appear to be technical grounds, and in circumstances where there was no party that required the protection of s.357(1) of the FW Act. The respondents rely on the following matters:
a)The respondents were audited twice by the Director and after the second audit the Director confirmed that Bavco was not in breach of Part 3 of the FW Act.
b)The findings of the third audit, which led the Director to initiate the substantive proceedings, were based on the same information or the same type of information obtained by the Director from the previous two audits. Any errors in the findings of the previous two audits were those of the Director, not the respondents.
c)The Director has not suggested the respondents were uncooperative, or provided false information, or withheld information.
d)The Director knew or ought to have known the respondents did not know, and were not reckless in not knowing the true nature of the contracts.
e)On an objective view, and based on the matters known to the Director, it was unreasonable for the Director to commence proceedings regardless of whether the defence was available to the respondents.
f)The respondents were reasonably entitled to believe that Bavco’s contracts were not in breach of the Act based on the findings of the previous two audits and the time taken by the Director in notifying the respondents of the findings of the third audit.
g)The Director, as a regulatory body, holds a position of power or advantage over the respondents.
h)The Director is not in a position of vulnerability, as would be the case of an employee seeking a remedy or protection under the Act. It is the respondents that are in a position of vulnerability.
i)The Director should not be permitted to hide behind the public policy of a “no cost” jurisdiction at the expense of the respondents.
As for the respondents’ reliance on s.570(2)(b) of the FW Act, they submit the threshold for “unreasonable act or omission” in s.570(2)(b) is lower than the test under s.570(2)(a) of the FW Act. The “unreasonable act or omission” the respondents submit the Director took and which caused the respondents to incur costs was the institution of the proceedings that were bound to fail. In addition to the acts and omissions set out in subparagraphs 10(a) and (f) of these reasons, the respondents submit the following acts and omissions of the Director were unreasonable:
a)Instituting and continuing proceedings in circumstances where none of the workers sought the protection of the Act.
b)Continuing proceedings after 16 January 2012 when Bavco notified its workers they were converted to employees.
c)Continuing proceedings after Court-ordered mediation in December 2012.
d)Continuing proceedings after the respondents’ evidence was filed and served.
e)Seeking the respondents to pay costs thrown away following the adjournment of the hearing set down on 24 and 25 October 2013, and forcing the respondents to incur further costs.
f)Not adhering to the Commonwealth Model Litigant guidelines.
g)The Court dismissing the Director’s interlocutory and substantive applications.
The Director, on the other hand, submits he did not institute the proceedings vexatiously or without reasonable cause. The Director had a prima facie case because the respondents admitted Bavco had engaged in conduct caught by s.357(1) of the FW Act. The Director further submits that his commencing the proceedings was not unreasonable. The only issue in the case was whether Bavco could affirmatively prove the matters identified in s.357(2). That depended on whether the Court would accept the evidence of the respondents. The Director submits it was far from obvious the Court would accept the evidence and, in certain respects, the Court did not accept the evidence of Mrs Peschler.
Were the proceedings commenced vexatiously or without reasonable cause?
That an applicant commences proceedings under the FW Act on a claim the applicant is likely to establish, subject to the respondent’s establishing an affirmative defence, does not necessarily mean that the proceedings cannot ever be characterised as having been brought vexatiously or without reasonable cause. Circumstances can readily be imagined where an applicant who is certain to establish a prima facie case is nevertheless aware, or ought reasonably to be aware, that the respondent is likely to establish an affirmative defence such as to render the commencement of proceedings vexatious or without reasonable cause.
However, an applicant’s knowing the proposed respondent asserts a defence which, if accepted by a court, will afford the respondent a defence will rarely, if ever, by itself be sufficient to render it unreasonable for the applicant not to accept the assertion, and instead commence proceedings under the FW Act. For it is only in the context of a court case, where rights to compel production of documents and to cross-examine witnesses are available, that assertions can properly be tested. The question that arises is whether there was anything of which the Director was aware before he commenced proceedings, or of which he ought to have been aware, other than the respondents’ assertions, that ought reasonably to have suggested to him that the Court was likely, or very likely to accept the respondents’ assertions that they did not know Bavco’s contracts with its employees were contracts of employment, or that the respondents were not reckless in not knowing those contracts were contracts of employment.
Of the matters on which the respondents rely for claiming the Director commenced the proceedings vexatiously or without reasonable cause, only two can conceivably be relevant to the question of whether the Director was aware or ought reasonably to have been aware the respondents were likely to succeed in their defence. These two matters are Bavco’s having been audited by the Australian Building and Construction Commission (ABCC) on two occasions before the third audit found Bavco not to have complied with s.357 of the Act, and the representations the ABCC made to the respondents about the outcome of those audits. Presumably this is a reference to the audits the ABCC conducted on 27 November 2008 and 13 August 2009 to which I refer in my earlier reasons.[10]
[10] Director Of The Fair Work Building Industry Inspectorate v Bavco Pty Ltd ACN 132 010 201 & Ors (No.2) [2014] FCCA 2712 at [15], [27]
The result of the first audit could not reasonably be interpreted as confirming that Bavco’s contract arrangements complied with the FW Act. ABCC conducted that audit to assess compliance with the National Code of Practice.[11] As for the second audit, although, as I found in my earlier reasons, the letter dated 29 September 2009 the ABCC sent to Bavco in relation to the audit it conducted could reasonably be interpreted as representing Bavco complied with the sham contracting provisions of the FW Act,[12] that letter cannot reasonably have been interpreted as addressing the question of the respondents’ knowledge or state of mind concerning Bavco’s contracts with its employees. Further, although I found that the recommendation made in the ABCC’s letter dated 29 September 2009 that Bavco seek further advice on its employment relationships did not prevent Mrs Peschler from reasonably reading the ABCC’s letter as affirming that what Bavco was doing in relation to the engagement of its workers was correct,[13] that finding was far from inevitable.
[11] Director Of The Fair Work Building Industry Inspectorate v Bavco Pty Ltd ACN 132 010 201 & Ors (No.2) [2014] FCCA 2712 at [14]
[12] Director Of The Fair Work Building Industry Inspectorate v Bavco Pty Ltd ACN 132 010 201 & Ors (No.2) [2014] FCCA 2712 at [79]
[13] Director Of The Fair Work Building Industry Inspectorate v Bavco Pty Ltd ACN 132 010 201 & Ors (No.2) [2014] FCCA 2712 at [79]
Further, the audits, and what the ABCC represented to the respondents about its audits, cannot be considered on their own. Also relevant is the evidence of the interview Mrs Peschler had with an ABCC inspector on 16 August 2011.[14] The answers Mrs Peschler gave to the inspector about the “Subcontractor Agreement” were answers that it would have been reasonable for the Director not to regard as believable or, if believable, sufficiently capable of establishing the absence of knowledge or recklessness. Relevant, too, is Bavco’s having sent to its employees on or about 11 April 2011 letters offering them the choice of remaining as subcontractors or being engaged as employees.[15] Presumably the ABCC obtained access to these letters in the course of its third audit. The letters indicate knowledge by Bavco of the possibility that workers whom Bavco had previously engaged as subcontractors had in fact been engaged as workers. That could reasonably have afforded evidence that Bavco continued to act recklessly, at least after April 2011, in continuing to engage its workers as subcontractors knowing there was at least a possibility that its workers were in fact employees. In the event, I found that, although Mrs Peschler was aware there was a distinction between engaging a person as an employee and engaging a person as a subcontractor, Mrs Peschler was unaware these were mutually exclusive possibilities.[16] Again, there was nothing inevitable about this finding.
[14] Director Of The Fair Work Building Industry Inspectorate v Bavco Pty Ltd ACN 132 010 201 & Ors (No.2) [2014] FCCA 2712 at [17]-[19]
[15] Director Of The Fair Work Building Industry Inspectorate v Bavco Pty Ltd ACN 132 010 201 & Ors (No.2) [2014] FCCA 2712 at [32]
[16] Director Of The Fair Work Building Industry Inspectorate v Bavco Pty Ltd ACN 132 010 201 & Ors (No.2) [2014] FCCA 2712 at [84]
Quite apart from what Mrs Peschler said to the ABCC inspector, and the letters of 11 April 2011, my reasons for judgment by themselves demonstrate that it was far from obvious that the respondents would succeed in their defence. They show there was a real prospect the respondents would not succeed.
In truth, the real complaint the respondents make of the Director’s having commenced proceedings against them is not that there was no legal merit to the Director’s claim. The complaint is that the Director should not have exercised his discretion in favour of commencing the proceedings in the first place.
It may well be asked why the Director saw it as a proper exercise of his discretion to commence and maintain proceedings against Bavco, a very small business, in circumstances where:
a)on the evidence before me, Bavco co-operated with the ABCC in the audits the ABCC conducted of Bavco’s compliance with the FW Act;
b)the ABCC issued a letter dated 29 September 2009 in which, although it stated it would be advisable for Bavco to seek further advice, the ABCC stated that “on the basis of the information supplied to ABC [sic] Inspectors, no specific breaches of Part 3 of the Fair Work Act 2009 – Sham Contracting, were identified”, it not being alleged that Bavco did not provide to the ABCC all documents in its possession which the ABCC required Bavco make available;
c)there is no suggestion any of the employees whom Bavco had engaged as subcontractors suffered any financial or other disadvantage as a result of the arrangements Bavco entered with them and, if anything, the evidence suggested the employees were in a better financial position than they would have been had they been engaged as employees;
d)Bavco altered its practices concerning the engagement of its workers before the ABCC informed Bavco its practices had contravened s.357(1) of the Act; and
e)the Director commenced proceedings after Bavco had altered its arrangements with its employees in a manner that ensured compliance with s.357 of the FW Act.
These questions, however, are not relevant to whether the Director brought the proceedings without reasonable cause. As is made clear in the authorities to which I refer earlier in these reasons, whether or not proceedings have been brought without reasonable cause are to be assessed by reference to the legal merits of the claims made. The Director’s claims did have legal merit and, for that reason, I cannot be satisfied the Director commenced the proceedings without reasonable cause.
The use of the word “vexatiously” in s.570(2)(a) of the FW Act suggests that in certain circumstances matters that are not relevant to the legal merits of proceedings that have been brought may be relevant to the Court exercising the power to award costs. But it would be in rare circumstances that a proceeding that has legal merit will nevertheless be held to have been commenced vexatiously. In any event, the respondents do not contend the Director brought the proceedings against them vexatiously.
Unreasonable act or omission?
In support of their claim that the Director engaged in unreasonable acts or omissions, the respondents also rely on the matters for claiming the Director commenced the proceedings without reasonable cause. For the reasons I have already given, none of those matters ought reasonably to have suggested to the Director that the respondents were likely to succeed in their defence. Nor are any of the additional matters on which the respondents rely matters that ought reasonably to have suggested to the Director that the respondents would succeed in their defence. Further, I do not accept the Director acted unreasonably in seeking costs for the hearing that had been vacated or in making any other application in the proceedings. And I am not satisfied the Director breached any model litigant obligations.
Conclusion and disposition
I am not satisfied the Director commenced the proceedings vexatiously or without reasonable cause. I am also not satisfied that the respondents incurred any costs as a result of any unreasonable act or omission of the Director. The respondents’ application for costs, therefore, will be dismissed.
I certify that the preceding twenty-four (24) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Associate:
Date: 26 March 2015
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