Dwight v Merrimans Local Aboriginal Land Council (No 2)
[2024] FedCFamC2G 957
•3 October 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Dwight v Merrimans Local Aboriginal Land Council (No 2) [2024] FedCFamC2G 957
File number: SYG 1559 of 2022 Judgment of: JUDGE D HUMPHREYS Date of judgment: 3 October 2024 Catchwords: INDUSTRIAL LAW - compensation payable – assessment of pecuniary penalties – promoting public interest in compliance – relevant factors in assessing pecuniary penalty – nature and extent of loss – specific and general deterrence – costs – stay of proceedings – payment of compensation and penalty to be made. Legislation: Fair Work Act 2009 (Cth) ss 44, 45, 87(1), 87(2), 90(2), 116, 293, 323, 536, 536(2), 545(2)(b), 546(3)(c), 547(2), 557, 570(2)(b)
Superannuation Guarantee (Administration) Act 1992 (Cth)
Federal Court Rules 2011 (Cth) r 25.05(3)
Long Service Leave Act 1995 (NSW) s 4(2)
Cases cited: Australian and International Pilots Association v Qantas Airways (No 3) [2007] FCA 879
Australian Building and Construction Commissioner v Pattinson [2022] HCA 13
Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8; (2008) 165 FCR 560
Australian Workers Union v Leighton Contractors Pty Ltd (No 2) [2013] FCAFC 23
Baker v Patrick Projects Pty Ltd (No2) [2014] FCAFC 166
Canturi v Sita Coaches Pty Ltd (2002) 116 FCR 276; [2002] FCA 349
Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; 258 CLR 482
Construction, Forestry, Mining and Energy Union (CFMEU) v Clarke [2008] FCAFC 143
Construction, Forestry, Mining and Energy Union (CFMEU) v Corinthian Industries (Australia) Pty Ltd (No 2) [2014] FCA 351
Cross v Harbour City Ferries Pty Ltd (t/a Harbour City Ferries) (No 2) [2017] FCCA 1713
Dwight v Merrimans Local Aboriginal Land Council [2024] FedCFamC2G 440
Fair Work Ombudsman v NSH North Pty Ltd t/as New Shanghai Charlestown [2017] FCA 1301
Fair Work Ombudsman v NoBrace Centre Pty Ltd (in liq) [2019] FCCA 2970
Hamrod v New South Wales (2002) 188 ALR 659
Health Services Union v Jackson (No 5) [2015] FCA 1467
Kelly v Fitzpatrick [2007] FCA 1080; 166 IR 14
Mason v Harrington Corporation Pty Ltd t/as Pangaea Restaurant & Bar [2007] FMCA 7
McDonald v Parnell Laboratories (Aust) (No 2) (2007) 164 FCR 591
McLoughlin v Randstad Pty Ltd (No 2) [2021] FCAFC 177
Melbourne Stadiums Ltd v Sautner [2015] FCAFC 20
Mornington Inn Pty Ltd v Jordan (2008) 168 FCR 383; [2008] FCAFC 70
Pezzimenti v Rotary International (No 2) [2020] FCCA 95
Saxena v PPF Asset Management Ltd [2011] FCA 395
Seven Network (Operations) Pty Ltd v Communications, Electrical, Electronic, Energy Information, Postal, Plumbing and Allied Services Union of Australia (CEPU) (2001) 110 IR 372
Shea v EnergyAustralia Services Pty Ltd (No 2) [2015] FCAFC 14
Torpia v Zarfati [2009] FMCA 166
Trustee for the MTGI Trust v Johnson (No 2) [2016] FCAFC 190
Veda Advantage Ltd v Malouf Group Enterprises Pty Ltd (No 2) [2016] FCA 470
Division: Division 2 General Federal Law Number of paragraphs: 72 Date of hearing: 16 August 2024 Place: Parramatta Solicitor for the Applicant: Mr Aslanian (Connect Legal) Counsel for the Respondent: Mr Meagher Solicitor for the Respondent: Mr Peterson (Hall & Wilcox) ORDERS
SYG 1559 of 2022 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: KEVIN DWIGHT
Applicant
AND: MERRIMANS LOCAL ABORIGINAL LAND COUNCIL
Respondent
ORDER MADE BY:
JUDGE D HUMPHREYS
DATE OF ORDER:
3 OCTOBER2024
THE COURT ORDERS THAT:
1.Pursuant to s 545 of the Fair Work Act 2009 (Cth) the Respondent is to pay the following amounts as compensation to the Applicant:
(a)$94,493.66 as compensation in respect of unpaid wages;
(b)$10,571.60 as compensation in respect of the unpaid annual leave; and
(c)$2,642.65 as compensation in respect of long service leave.
2.The parties are to confer and agree, if possible, on any amount payable for the purposes of the Superannuation Guarantee (Administration) Act1992 (Cth).
3.The parties are also to confer and agree, if possible, on the amount of interest to be paid on the amounts set out at Orders 1 and 2 above, in accordance with the applicable pre-judgment interest rate prescribed by the Federal Court of Australia (‘the Federal Court’).
4.The applicant’s costs are to be paid on a party / party basis as and from 14 November 2023, as assessed or agreed.
THE COURT FURTHER ORDERS THAT:
5.Pursuant to s 546(3) of the Fair Work Act 2009 (Cth) the Respondent is to pay the Applicant a penalty of $65,000.00 imposed in respect of:
(a)The failure to pay the minimum wage;
(b)The non-provision of payslips (noting no payments were made) ;
(c)The non-provision and failure to pay annual leave; and
(d)The non-provision of and payment of long service leave on termination.
6.A 28 day stay of proceedings be granted to allow the Respondent to file any application with the Federal Court. Payment of the compensation and penalty amounts is to be made within 28 days after the expiration of the stay or such further time as may be agreed between the parties or ordered by the Federal Court.
7.The parties have liberty to apply on 3 days' notice.
THE COURT NOTES THAT:
A.As set out at paragraph 13 in the applicant’s written submissions dated 18 July 2024, that the applicant does not seek any order in respect of public holiday pay. The above amounts are to be paid within 28 days of the orders of the Court or such other time as may be agreed between the parties.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE D HUMPHREYS
INTRODUCTION
In Dwight v Merrimans Local Aboriginal Land Council [2024] FedCFamC2G 440, the Court made various declarations that the applicant was a part time employee of the respondent.
The Court found, inter alia, that the respondent contravened s 45 of the Fair Work Act 2009 (Cth) (“FW Act”) by failing to pay the applicant a minimum wage and;
(a)contravened s 536(2) of the FW Act by failing to provide the applicant with pay slips;
(b)was in breach of sections 87(1), (2) and s 90(2) of the FW Act in that it did not accrue or pay the applicant any annual leave loading, and on termination of his employment;
(c)was in breach of s 116 of the FW Act and did not pay the applicant any holiday pay;
(d)contravened s 323 of the FW Act by not paying the applicant in full including his applicable minimum wage, overtime rates, long service leave and leading
(e)contravened s 4(2) of the Long Service Leave Act 1995 (NSW) by terminating the applicant’s employment and not attending to the payment of the applicant’s statutory long service leave.
Declarations were made pursuant to s 545(2)(b) and s 547(2) of the FW Act that the respondent was to pay the applicant compensation for loss and damage together with interest on that amount.
This judgement deals with the applicable compensation to be paid and the appropriate pecuniary penalties that should be imposed on the respondent for the breaches of the FW Act found to have been proven.
COMPENSATION PAYABLE
In accordance with Court orders made in the liability judgement, the parties have conferred and agree that the correct amount of compensation payable in respect of unpaid wages is $94,493.66. In relation to unpaid annual leave, the agreed amount is $10,571.60. The agreed amount in relation to long service leave on termination is $2,642.65.
Based on the above amounts agreed between the parties as payable, the parties are to confer and to agree, if possible, on any amount payable for the purposes of the Superannuation Guarantee (Administration) Act 1992 (Cth) (“Superannuation Act”). The parties are also to confer and agree, if possible, on the amount of interest to be paid on the amounts set out above, at the applicable Federal Court rate of interest.
The Court notes, as set out at paragraph 13 in the applicant’s written submissions dated 18 July 2024, that the applicant does not seek any order in respect of public holiday pay. The above amounts are to be paid within 28 days of the orders of the Court or such other time as may be agreed between the parties.
THE APPROPRIATE PECUNIARY PENALTIES TO BE IMPOSED
The Court has a broad discretion as to penalty. It is asserted in Australian Building and Construction Commissioner v Pattinson [2022] HCA 13 at [71] that the Court should fix a penalty “it considers fairly and reasonably to be appropriate to protect the public interest from future contraventions of the FW Act.” Further at [10] and [12], the High Court stated that the penalty must not exceed what is “reasonably necessary to achieve the purpose of section 546: the deterrence of future contraventions of a like kind by the contravenor and by others.”
In Fair Work Ombudsman v NSH North Pty Ltd t/as New Shanghai Charlestown [2017] FCA 1301 Bromwich J summarised how the discretion is to be approached at [36], as follows:
(1)Identify the separate contraventions, with each breach of each obligation being a separate contravention, and each breach of a term of the Award being a separate contravention.
(2)Consider whether each separate contravention should be dealt with independently or with some degree of aggregation for those contraventions arising out of a course of conduct, noting that s 557 of the FWAct provides that two or more contraventions of a given civil remedy provision are to be taken to be a single contravention if committed by the same person and arising out of a course of conduct by that person.
(3)Consider whether there should be further adjustment to ensure that, to the extent of any overlap between groups of separate aggregated contraventions, there is no double penalty imposed, and that the penalty is an appropriate response to what each respondent did.
(4)Consider the appropriate penalty in respect of each final individual group of contraventions, taken in isolation.
(5)Consider the overall penalties arrived at, including by reference to those which may be proposed by the FWO (as permitted by Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; 258 CLR 482 (CFMEU Civil Penalties Case) at [64]) and what is proposed by the respondents, and apply the totality principle, to ensure that the penalties for each respondent are appropriate and proportionate to the conduct viewed as a whole, making such adjustments as are necessary: see Kelly v Fitzpatrick [2007] FCA 1080; 166 IR 14 at [30]; Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8; 165 FCR 560 at [23],[71] and [102].
The purpose of a civil penalty is primarily, if not wholly, promoting the public interest in compliance with the laws that have been contravened, and it does not engage principles of retribution or rehabilitation;( see Fair Work Ombudsman v NoBrace Centre Pty Ltd (in liq) [2019] FCCA 2970 (“NoBrace”) per Kelly J at [65]). As these principles of retribution or rehabilitation are not involved in the determination of a civil penalty, this intensifies the focus of a civil penalty determination on issues of specific and general deterrence;(see: NoBrace at [66]).
The FW ACT does not set out any mandatory criteria, inclusive or exclusive, that the Court must consider when determining whether to impose a penalty or the amount of any penalty;(see: Canturi v Sita Coaches Pty Ltd (2002) 116 FCR 276; [2002] FCA 349 at [88]). The choice of penalty must be guided by the “individual circumstances of a case, not by a line by line comparison with another case” ;(see: Australian Ophthalmic Supplies Pty Ltd v McAlary‑Smith (2008) 165 FCR 560 at [12]). The process is an intuitive one by the Court and not an application of a scientific process; (see: Mornington Inn Pty Ltd v Jordan (2008) 168 FCR 383; [2008] FCAFC 70 at [60]‑[63]).
In Mason v Harrington Corporation Pty Ltd t/as Pangaea Restaurant & Bar [2007] FMCA 7 (“Mason v Harrington Corporation Pty Ltd”), Mobray FM set out what is a now well accepted set of factors relevant in assessing a pecuniary penalty. They are as follows:
(a)the nature and extent of the conduct which led to the breaches;
(b)the circumstances in which the conduct took place;
(c)the nature and extent of any loss sustained as a result of the breaches;
(d)whether there has been similar previous conduct by the Respondents;
(e)whether the breaches were properly distinct or arose out of one course of conduct;
(f)the size of the business enterprise involved;
(g)whether or not the breaches were deliberate;
(h)whether senior management was involved in the breaches;
(i)whether the party committing the breach had exhibited contrition;
(j)whether the party committing the breach had taken corrective action;
(k)whether the party committing the breach had cooperated with enforcement authorities;
(l)the need to ensure compliance with minimum standards by provision of an effective means for the investigation and enforcement of employee entitlements; and
(m)the need for specific and general deterrence.
Merkel J in Seven Network (Operations) Pty Ltd v Communications, Electrical, Electronic, Energy Information, Postal, Plumbing and Allied Services Union of Australia (CEPU) (2001) 110 IR 372 set out some guiding considerations for the Court at [374]:
matters to be taken into account in determining the appropriate penalty include the cost of the contravention, deterrence, the flagrancy and deliberateness of the breach, the offender’s past record of behaviour and any contrition displayed by the offender.
The separate contraventions are as follows:
(a)First, in respect of s 293 of the FW Act (the Court notes the previous orders incorrectly referred to s 45) in respect of the failure to pay the minimum wage on a weekly pay cycle and maximum monthly cycle;
(b)Second, in respect of s 536(2) of the FW Act in the failure to provide pay slips;
(c)Third, in respect of s 44 and s 87(1) and (2) of the FW Act in respect of the failure to accrue progressively annual leave entitlements for the applicant;
(d)Fourth, in respect of s 44 and s 90(2) of the FW Act, a failure to pay the applicant outstanding accrued annual leave on termination of employment;
(e)Fifth, in respect of s 4(2) of the Long Service Leave Act 1995 (NSW) by terminating the applicant’s employment and not attending to the payment of the applicant’s statutory long service leave.
(f)Sixth, in respect of a contravention of s 323 of the FW Act as it applies to the failure to pay the applicable minimum wage; and
(g)Seventh, in respect of a contravention of s 323 of the FW Act as it applies to the failure to pay long service leave payable on termination.
The parties jointly submit, and the Court agrees, that the contraventions should be grouped for the assessment of penalty as follows:
(a)The failure to pay the minimum wage (s 293 and s 323);
(b)The non-provision of payslips (s 536);
(c)The non-provision and payment of annual leave (ss 44, 87 and 90(2)); and
(d)The non-provision of long service leave on termination (s 323).
The Court notes that the applicant properly submits that a pecuniary penalty cannot be imposed by the Court in respect of the contravention of the Long Service Leave Act 1995 (NSW) and the breach of the Superannuation Act, as they are not civil remedy provisions as defined in s 539 of the FW Act.
The relevant maximum penalty for each contravention is 300 penalty units. As at the time of the last contravention, a penalty unit was set at $222.00 (as applicable from 1 July 2020 to 31 December 2022) or $66,600.00 per contravention.
The applicant submits that the appropriate penalties the Court should impose are as follows:
(a)In respect of the failure to pay the minimum wage $63,000.00;
(b)In respect of the failure to provide payslips $25,000.00;
(c)In respect of the non-provision and failure to pay annual leave $55,000.00; and
(d)In respect of the non-provision and payment of long service leave on termination $25,000.00.
The above would amount to a total penalty of $168,000.00.
The respondent submits the penalties should be as follows:
(a)In respect of the failure to pay the minimum wage $10,000.00 - $14,000.00;
(b)In respect of the non-provision of payslips (noting no payments were made) $2,000.00;
(c)In respect of the non-provision and failure to pay annual leave $10,000.00 - $12,500.00; and
(d)In respect of the non-provision of and payment of long service leave on termination $10,000.00 - $12,500.00.
If the maximum penalties suggested by the respondent were imposed this would total $41,000.00.
In terms of the factors set out in Mason v Harrington Corporation Pty Ltd, the Court finds as follows below.
In relation to the nature and extent of the conduct and circumstances in which led to the breaches; the matter is unusual in that the applicant was seeking a live in caretaker for its premises on the South Coast. The applicant was looking for a place to live. The agreement, which the Court has found was an employment agreement, envisaged the applicant would be allowed to live on the premises rent free in exchange for undertaking certain duties as set out in the agreement.
The applicant lived in the premises and performed duties to an acceptable standard for some years as directed by the respondent. The relationship soured after the applicant’s motor vehicle was maliciously damaged by unknown persons. The respondent refused to accept liability for the damage and the applicant left the premises abandoning his employment. After seeking legal advice, it was determined he had a cause of action against the respondent.
The nature and extent of the loss sustained as a result of the breaches is considerable, with unpaid wages totalling approximately $94,500.00 plus annual leave of approximately $10,500.00 and long service leave of $2,500,00. This is a significant amount of money to any employee. The Court gives this factor significant weight.
The applicant submits that he repeatedly made complaints to the respondent that were either ignored or not investigated and/or the respondent did not seek legal advice.
No evidence has been led of any previous contraventions of the FW Act by the respondent. The respondent is entitled to be dealt with as a first offender and granted some mitigation in any penalties as a result. The Court accepts that there is little risk of reoffending.
The Court is satisfied that the contraventions comprise four distinct and separate breaches, although there is a degree of interrelationship between each of the contraventions.
The respondent is a not-for-profit organisation that provides housing and other services to the local Indigenous population within Bermagui and adjoining areas. Based on the affidavit evidence of the current CEO of the respondent, Mr Blaan Davies, the respondent currently has seven members of staff. Sources of funding for the respondent include annual grants from the New South Wales State Government and the Federal Government. It is asserted these grants are tied to specific purposes and not available for use in this litigation.
Another source of income is rent derived from members of the respondent. While this is asserted to be an unreliable source of income, the respondent’s financial accounts, that were tendered in evidence, show rental income from residential properties in the financial year 2023/24 totalling $396,927.00 and commercial rent as $43,013.00. Although the respondent recorded a loss in 2024 of $211,911.00 it recorded a surplus of $1,350,539.00 in 2022/23 and a surplus of $320,020.00 in 2021/22.
The Court considers the respondent to fall within the category of a small to medium sized organisation. Although it may be financially painful, the Court is satisfied the respondent has the capacity to pay both the compensation ordered and any pecuniary penalty that may be fixed.
The Court is satisfied that the breaches were not a deliberate or intentional course of action by the respondent, rather they occurred through a complete lack of appreciation by the then CEO as to the legal ramifications of the arrangement that was reached with the applicant. The Court is satisfied that the respondent had the resources to seek professional advice that would have alerted the respondent to the legal issues of what was proposed and the documentation created to support the arrangement. The failure to seek such advice is perplexing, and in my view bespeaks a degree of negligence. The Court gives this factor some weight in favour of the respondent.
The Court is satisfied that senior management, in the form of the CEO, was involved in the contravention. It is concerning that the potential for contraventions was not picked up by either subsequent CEO’s or in any internal audit process that should have been in place given the size of the respondent. This weighs against the respondent.
In terms of contrition, the available evidence is very limited. The current CEO has expressed sorrow for not implementing better practices which could have avoided the litigation and the personal anguish and consequences this has caused the applicant.
Against this, the proceedings were defended. Further the Court has been advised it is the intention of the respondent to appeal the liability decision. In these circumstances, of more concern, is a previous representation to the Court, that the respondent has the ability and may wind itself up if a substantial judgement and penalty were to be awarded against it. The Court gives this factor little weight in favour of the respondent.
While the Court accepts that the litigation has caused the respondent to review their employment practices, no corrective action has been taken in relation to the applicant. The Court gives this factor little weight in favour of the respondent.
The final relevant factor is the need for specific and general deterrence. This is the primary focus in a regime of pecuniary penalties. Retribution or rehabilitation play no part on the process of determining the appropriate penalties.
Notwithstanding the nature of the respondent and the role it plays within the local indigenous community, proper governance and compliance with employment laws are essential. Any penalty must ensure the respondent ensures there will be no further breaches in the future. Further, any penalty must send a clear message to other like organisations and the not for profit sector that breaches of relevant employment laws will not be tolerated by the courts. There must be sufficient ‘sting in the tail’ to ensure that proper systems are in place to ensure breaches do not occur, including early access to legal advice and proper regular audit processes to pick up irregularities.
On an individual basis, noting the maximum penalty in each case is $66,600.00, the Court is satisfied that the proper penalties for each of the breaches is as follows:
(a)In respect of the failure to pay the minimum wage $33,000.00.
(b)In respect of the non-provision of payslips (noting no payments were made) $5,000.00.
(c)In respect of the non-provision and failure to pay annual leave $15,000.00.
(d)In respect of the non-provision of and payment of long service leave on termination $15,000.00.
The above totals an amount of $68,000.00. Applying the totality principle, the Court is prepared to make a further small adjustment in favour of the respondent and reduce the total to $65,000.00. Pursuant to s 546(3)(c) of the FW Act, the respondent is to pay the penalty imposed to the applicant.
COSTS
The applicant submits that an open offer to settle the proceedings in the sum of $30,000.00, inclusive of legal fees, was made by the applicant on 31 October 2023. That offer was rejected. The applicant submits that the rejection of that offer was an unreasonable act within the meaning of s 570(2)(b) of the FW Act. The applicant seeks an order that the respondent pay the legal fees of the applicant as and from 14 November 2023, being the date when the offer expired.
Section 570 of the FWAct relevantly states as follows:
Costs only if proceedings instituted vexatiously etc.
(1) A party to proceedings (including an appeal) in a court (including a court of a State or Territory) in relation to a matter arising under this Act may be ordered by the court to pay costs incurred by another party to the proceedings only in accordance with subsection (2) or section 569 or 569A.
Note: The Commonwealth might be ordered to pay costs under section 569. A State or Territory might be ordered to pay costs under section 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.
This Court operates under Rules contained within Federal Circuit and Family Court of Australia (Division2) (General Federal Law) Rules 2021 (“the Rules”). Rule 1.04 states as follows:
1.04 Overarching Purpose.
(1) The overarching purpose of these Rules, as provided in section 190 of the Act, is to facilitate the just resolution of disputes according to law and as quickly, inexpensively (my emphasis) and efficiently as possible.
…..
(2) To assist the Court, the parties must:
(a) Avoid undue delay, expense and technicality; an
(b) Consider options for primary dispute as early as possible
And r 22.03 of the Rules states as follows:
Determination of maximum costs
(1) The Court may specify the maximum costs that may be recovered on a party and party basis:
(a) by order at the first court date; and
(b) on its own initiative or on the application of a party.
(2) However, an amount specified must not include an amount that a party is ordered to pay because the party:
(a) has failed to comply with, or has sought an extension of time for complying with, an order or any of these Rules; or
(b) has sought leave to amend a document; or
(c) has otherwise caused another party to incur costs that were not necessary for the economic and efficient progress of the proceeding or hearing of the proceeding.
(3) The Court may vary the maximum costs specified if, in the Court’s opinion, there are special reasons and it is in the interests of justice to do so.
Where an order is made for the payment of costs, the manner in which the amount of those costs may be set is a discretionary matter for the Court. In this case 3 methods are available. The first being an amount fixed by reference to the relevant Scales of Costs contained within the Rules. The second method would be to refer to matter for as assessment/taxation of costs on a party-party basis. The third method would be to allow costs on an indemnity basis.
The discretion to award costs pursuant to s 570 of the FW Act should be exercised with some caution. In Trustee for the MTGI Trust v Johnson (No 2) [2016] FCAFC 190 at [8] the following was said:
Section 570 of the FW Act confers discretion on the Court to order costs in Fair Work matters where the proceedings were instituted vexatiously or without reasonable cause. Not only must this discretion be exercised judicially according to the terms defining it, it must be exercised with caution because of the exceptional nature of the power in an otherwise no-costs jurisdiction. The case for its exercise should be clearly demonstrated: Saxena v PPF Asset Management Ltd [2011] FCA 395 at [6].
The relevant principles were summarised in Australian Workers Union v Leighton Contractors Pty Ltd (No 2) [2013] FCAFC 23 at [7] (“Australian Workers Union v Leighton Contractors”):
(1)The purpose or policy of the section is to free parties from the risk of having to pay their opponent’s costs in matters arising under the Act, while at the same time protecting parties who are forced to defend proceedings that have been instituted vexatiously or without reasonable cause.
(2)It follows from the protection offered by s 570(2) that a person will rarely be ordered to pay costs of a proceeding. But it is not necessary to prove there are exceptional circumstances warranting the making of an order.
(3)The relevant question is whether the proceeding had any reasonable prospect of success at the time it was instituted, not whether it ultimately failed.
That can be tested by asking whether the party bringing the action, on the facts apparent to the party and its’ lawyers, properly advised, should have known the claim had no reasonable prospects of success; (see: Baker v Patrick Projects Pty Ltd (No2) [2014] FCAFC 166 at [9]-[10]).
In relation to s 570(2)(b), whether a party engaged in an ‘unreasonable act or omission’ will depend upon the particular circumstances of the case. In Australian and International Pilots Association v Qantas Airways (No 3) [2007] FCA 879 at [36] it was held that:
“prosecution of any incompetent or hopeless case can be regarded as ‘an unreasonable act’…. Conversely…. the pursuit of a contentious, and ultimately unsuccessful, argument is not an unreasonable act”.
In Construction, Forestry, Mining and Energy Union (CFMEU) v Clarke [2008] FCAFC 143 at [29] the following was said:
In our view, the respondent has not engaged in an “unreasonable act or omission”. As the authorities indicate, there is a distinction 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.
In Construction, Forestry, Mining and Energy Union (CFMEU) v Corinthian Industries (Australia) Pty Ltd (No 2) [2014] FCA 351 (“Corinthian”), Pagone J refused to award costs against a union for bringing unsuccessful adverse action claims where the claims were abandoned at the trial after witness evidence in circumstances where s 361 of the FW Act imposed a reverse onus on the respondent. At [6] and [11] the following was said:
[6] It was not until the second day of the hearing, and after the conclusion of the witness evidence, that the union informed the Court that it did decided not to press the Union membership claim or the allegation that Corinthian had contravened the Fair Work Act 2009 (Cth) in relation to the Canning Vale and Regency Park strikers. Concessions of that kind are generally to be encouraged for the efficient and prompt determination of disputes, to promote the efficient use of court time and reduce costs and unnecessary inconvenience to other parties.
…
[11] Corinthian also relied upon s 570(2)(b) to seek costs in respect of the claim in relation to the Canning Vale and Regency Park employees, contending that after discovery on 31 January 2014 the Union unreasonably acted or omitted to act by not abandoning the claim promptly after discovery…. The late abandonment of a claim does not establish that it was unreasonable to have maintained it until then…. The relevant decision by Corinthian which was challenged by the Union was not that made by the general managers at those sites, but had been made by Mr Bruce in consultation with, amongst others, Messrs Grundy and Webster. That emerged from the oral testimony at trial and, until then, it was not clear who had been the relevant decision-maker.
In McLoughlin v Randstad Pty Ltd (No 2) [2021] FCAFC 177 at [4] the Full Federal Court cited Australian Workers Union v Leighton Contractors with approval adding:
Importantly, the Court went on to emphasise that such circumstances enlivened the jurisdiction and that: “[e]ven if the Court has jurisdiction to make a costs order, it retains the discretion to refrain from exercising it in an appropriate case”.
In Melbourne Stadiums Ltd v Sautner [2015] FCAFC 20, the Full Federal Court stated at [166] that:
It is well established that a failure to accept a reasonable offer of compromise may constitute an unreasonable act for the purposes of s 570(2) and its predecessors: see, for example, McDonald v Parnell Laboratories (Aust) (No 2) (2007) 164 FCR 591 at 598-9 (Buchanan J).
In relation to offers of compromise, the reasonableness of the refusal or non-acceptance must be determined in the light of the circumstances that existed at the time that the rejection or failure to accept occurred. The party seeking a costs order bears the onus of establishing that the refusal was unreasonable; (see: Health Services Union v Jackson (No 5) [2015] FCA 1467 (“Health Services Union v Jackson”) at [46]).
In Cross v Harbour City Ferries Pty Ltd(t/a Harbour City Ferries) (No 2) [2017] FCCA 1713 (“Cross v City Ferries”), Smith J adopted at [61] the reasoning of Katzmann J in Veda Advantage Ltd v Malouf Group Enterprises Pty Ltd(No 2) [2016] FCA 470 (“Veda”) in holding that:
In deciding whether it is unreasonable for an offer to be rejected, the following matters should ordinarily be considered:
(a) the stage of proceeding when the offer was made;
(b) the time afforded to the offeree to consider the offer;
(c) the extent of the compromise involved;
(d) the offeree’s prospects of success, assessed as at the date of the offer;
(e) the clarity with which the terms of the offer were expressed; and
(f) whether the offer foreshadowed an application for indemnity costs in the event of refusal.
Once the power to award costs is enlivened under s 570(2), the Court can make an order for costs to be paid on an indemnity basis, as it could, and often would, in litigation with the general law principles as to the award of such costs applied; see Shea v EnergyAustralia Services Pty Ltd (No 2) [2015] FCAFC 14 at [10]. In Torpia v Zarfati [2009] FMCA 166, Barnes FM noted at [14] that:
There is also authority … that indemnity costs should not be ordered in the absence of a presumption that the action was commenced for some ulterior motive or because of a wilful (as distinct from inadvertent) disregard of known facts or established law.
The test as to whether indemnity costs should be awarded is whether the justice of the case might so require or whether there exists some special or unusual feature of the case to justice for the Court in departing from the ordinary practice; (see: Australian and International Pilots Association v Qantas Airways Ltd (No 3) [2007] FCA 879).
The applicant submits that the offer of compromise of $30,000.00 inclusive of legal fees, was made one year after the proceedings were commenced in this Court, prior to the applicant filing his evidence on 20 December 2023, and the respondent filing its evidence on 14 February 2024. It is submitted the offer was made at an appropriate time to avoid the costs to both parties of putting on evidence. It was an all inclusive offer.
The offer was for a 14-day period, consistent with r 25.05(3) of the Federal Court Rules 2011.
The offer was a significant compromise, in circumstances where the applicant alleged an underpayment in his Statement of Claim of $376,453.13, plus interest and penalties. The offer of compromise was significantly less than the underpayment found by the Court being in excess of $110,000.00, not including interest and superannuation guarantee payments. Penalties have now been assessed at $65,000.00.
It is submitted that the applicant’s prospects of success as of 31 October 2023, when the offer was made, were more than just reasonable. The applicant was in possession of a document, that the Court has correctly found, categorised the applicant as an employee, noting the primacy of any written agreement in determining the nature of the employment relationship between the parties.
The respondent on the other hand pleaded that the document should not be interpreted as a contract of employment and rather should be interpreted as a tenancy agreement.
The offer of settlement clearly foreshadowed that a rejection of the offer would result in an application under s 570(2)(b) of the FW Act and that the rejection of the offer would be an unreasonable act.
By the respondent acting unreasonably, it was submitted that it is open to the Court to award costs on an indemnity basis: Pezzimenti v Rotary International (No 2) [2020] FCCA 95 at [42]; Health Services Union v Jackson at [47].
On behalf of the respondent, it was submitted that the respondent was being represented by pro-bono legal representatives and is predominately funded by grants.
The offer of $ 30,000.00 open for 14 days was made at a time when the respondent was without a CEO and the lines of communication made instructions cumbersome. On 27 November a counteroffer of $10,000.00 was made by the respondents. This, it is submitted, was money that was being diverted from a grant that was for a particular purpose. The respondent sought funds from an external body for a settlement but was unsuccessful.
It was further submitted that the respondent had a reasonable defence and was reluctant to use its funds to pay the applicant in the light if its defence. In these circumstances indemnity costs would be especially inappropriate: Hamrod v New South Wales (2002) 188 ALR 659 at [665].
Using the test at Cross v City Ferries the Court finds as follows:
(a)The offer was made at an early stage of the proceedings, prior to evidence being filed but after an unsuccessful mediation and at a time when legal expenses for both parties would have been modest. I do not consider the fact that the respondent was represented by pro-bono representation to be a relevant consideration, as the respondent and its actions must be considered in the light of what a reasonable person would do, not this particular respondent, with all of its apparent attendant difficulties in governance and decision making.
(b)The time afforded to the respondent was a standard 14 days in accordance with the Federal Court Rules. I do not consider that the respondent and its legal advisors had difficulties in communicating to be of relevance. The respondent, it is conceded, was able to make a counteroffer, after the close of the 14 day period but limited to an amount of $10,000.00.
(c)The extent of the compromise involved was very significant. It involved an all up offer of $30,000, in circumstances where the amount claimed was $376,453.12. The Court has awarded compensation in excess of $110,000.00 to which must be added interest and superannuation contributions. Penalties have now been set at $65,000.00. The respondent’s legal fees, had they not had pro-bono representation, would have likely exceeded that amount for the preparation and filing of affidavit evidence, preparation for a 1 day trial and written closing submissions at commercial legal rates.
(d)I consider the respondent’s prospects of success, assessed as at the date of the offer, to be no more than arguable. The document upon which both parties relied included the express term ‘employer’ and other words which pointed towards an employment contract. To have found that the applicant was not an employee would have required a considerable reading down of the terms used within the document and instead a reliance on what the relevant CEO thought she was creating in terms of a contract between the parties. Any suggestion that the document was a simple tenancy agreement had no prospects of success.
(e)An examination of the letter of compromise of 23 October 2023, shows it was entirely clear as to the terms of the offer were expressed. This included an offer for payment of the settlement amount over time.
(f)Finally, the applicant clearly foreshadowed an application for indemnity costs in the event of refusal and the matter resolving in the applicant’s favour, as it has done.
While conscious that the Fair Work jurisdiction is generally a no costs jurisdiction, I consider the rejection of what was, in my view, a very generous offer of compromise that effectively amounted to no more than the reasonable commercial legal costs of running the matter to a conclusion to be unreasonable. In these circumstances the respondent should pay the applicant’s legal costs as and from 14 November 2023.
Having determined that costs should be payable, the Court notes that no evidence has been provided as to the amount of indemnity costs sought on the basis upon which they are calculated. In this circumstance, I use my discretion and decline to order costs on an indemnity basis. Instead, the applicant’s costs are to be paid on a party / party basis as and from 14 November 2023, as assessed or agreed.
SHOULD THERE BE A STAY OF THE ORDERS?
The respondent has foreshadowed that it intends to appeal the liability decision. In these circumstances, it is reasonable that a 28 day stay of proceedings be granted to allow the respondent to file any application with the Federal Court.
Payment of the compensation and penalty amounts is to be made within 28 days after the expiration of the stay or such further time as may be agreed between the parties or ordered by the Federal Court.
I certify that the preceding seventy-two (72) numbered paragraphs are a true copy of the Reasons for Judgment of Judge D Humphreys. Associate:
Dated: 3 October 2024
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