El Souki v Macushla Pty Ltd (No.2)
[2020] FCCA 1986
•22 July 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
| EL SOUKI v MACUSHLA PTY LTD (No.2) | [2020] FCCA 1986 |
| Catchwords: INDUSTRIAL LAW – Costs – general rule that no order as to costs – whether costs should be awarded against the respondent – whether threshold reached – no order as to costs. |
| Legislation: Fair Work Act 2009 (Cth), ss.3, 12, 345, 357, 535(1), 536(1), 539(2), 546, 557, 570 Federal Circuit Court of Australia Act 1999 (Cth), s.81(1)(b) Federal Circuit Court Rules 2001 (Cth), r.21.07 |
| Cases cited: Australian and International Pilots Association v Qantas Airways Ltd (No.3) (2007) 162 FCR 392 |
| Applicant: | JIHAD EL SOUKI |
| Respondent: | MACUSHLA PTY LTD (TRADING AS SUNNYTOP BAKERY CIABATTA DELLA NONNA) |
| File Number: | MLG 1972 of 2015 |
| Judgment of: | Judge C. E. Kirton QC |
| Hearing date: | On the papers |
| Date of Last Submission: | 14 April 2020 |
| Delivered at: | Melbourne |
| Delivered on: | 22 July 2020 |
REPRESENTATION
| Solicitors for the Applicant: | Madinah Legal |
| Solicitors for the Respondent: | Destra Law |
ORDERS
Pursuant to s.546 of the Fair Work Act 2009 (Cth), the Respondent pay to the Applicant penalties in the sum of $123,750 within 3 months of the date of these orders.
There be no order as to costs.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 1972 of 2015
| JIHAD EL SOUKI |
Applicant
And
| MACUSHLA PTY LTD (TRADING AS SUNNYTOP BAKERY CIABATTA DELLA NONNA) |
Respondent
REASONS FOR JUDGMENT
Introduction
The Applicant, Mr Jihad El Souki (Applicant) seeks the imposition of pecuniary penalties on the Respondent, Machushla Pty Ltd (Trading as Sunnytop Bakery Ciabatta Della Nonna) (Respondent) in relation to contraventions of the Fair Work Act 2009 (Cth) (FW Act) as ordered by this Court on 16 June 2017 (collectively, the Contraventions).
The Applicant also seeks an order for costs against both the Respondent and its solicitor, Mr Pajic.
Background and the Contraventions
On 27 March 2017 Judge Harnett, formerly of this Court, determined that the Respondent had failed to pay the Applicant his minimum entitlements under the Bread Trade (Victoria) Award 1999 (Bread Award) and the Food, Beverage and Tobacco Manufacturing Award 2010 (Food and Beverage Award) (together the Awards): El Souki v Macushla Pty Ltd [2017] FCCA 591 (El Souki v Macushla (No.1)).
On 16 June 2017, the parties agreed to the making of orders concerning the Contraventions and the compensation to be paid to the Applicant. The Court made orders in the following terms (Contravention Orders):
THE COURT ORDERS THAT:
(1)The Respondent contravened s.45 of Fair Work Act 2009 (Cth) (‘the Act’) by:-
(a) failing to pay the Applicant the minimum wages prescribed by cl.15.1 of the Bread Trade (Victoria) Award (‘the Bread Award’) from 27 August 2009 to 22 July 2011;
(b) failing to pay the Applicant the minimum wages prescribed by cl.20.1 of the Food, Beverage and Tobacco Manufacturing Award 2010 (‘the Food and Beverage Award’) from 23 July 2011 to 21 October 2013;
(c) failing to provide meal breaks to the Applicant of at least 30 minutes after the completion of two and a half hours of work and not more than five hours work in contravention of cl.21.1 of the Bread Award from 27 August 2009 to 22 July 2011;
(d) failing to provide meal breaks to the Applicant in contravention of cl.32 of the Food and Beverage Award from 23 July 2011 to 21 October 2013;
(e) failing to pay casual loadings to the Applicant for hours of work performed on a Saturday as required by cl.23.2.3 of the Bread Award from 27 August 2009 to 22 July 2011;
(f) failing to pay casual loadings to the Applicant for hours of work performed on a Sunday as required by cl.23.2.4 of the Bread Award from 27 August 2009 to 22 July 2011;
(g) failing to pay casual loadings to the Applicant for hours of work performed between the hours of 6.00pm and 6.00am as required by cl.24.2 of the Bread Award from 27 August 2009 to 22 July 2011;
(h) failing to pay casual loadings to the Applicant for hours of work performed outside of the ordinary hours of work as required by cl.30.2(d) of the Food and Beverage Award from 23 July 2011 to 21 October 2013;
(i) failing to pay casual loadings to the Applicant for hours of work performed between midnight on a Friday and midnight on a Sunday as required by cl.30.2(e) of the Food and Beverage Award from 23 July 2011 to 21 October 2013;
(j) failing to pay casual loadings to the Applicant for hours of work performed on public holidays as required by cl.29.4 of the Bread Award from 27 August 2009 to 22 July 2011;
(k) failing to pay casual loadings to the Applicant for hours of work performed on public holidays as required by cl.30.2(f) of the Food and Beverage Award from 23 July 2011 to 21 October 2013;
(l) failing to make any superannuation contributions to a superannuation fund for the benefit of the Applicant in contravention of cl.19.1 of the Bread Award from late January 2004 to 22 July 2011; and
(m) failing to make any superannuation contributions to a superannuation fund for the benefit of the Applicant in contravention of cl.29.2 of the Food and Beverage Award from 22 July 2011 to 21 October 2013.
(2) The Respondent contravened s.535(1) of the Act by failing to make and keep employee records as prescribed by ch.3, pt.3-6, div.3, sub-div.1 of the Fair Work Regulations 2009 (Cth).
(3) The Respondent contravened s.536(1) of the Act by failing to provide the Applicant with pay slips.
(4) The Respondent contravened s.345 of the Act by knowingly or recklessly making false or misleading representations about the workplace rights of the Applicant.
(5) The Respondent contravened s.357(1) of the Act by representing to the Applicant that the contract of employment under which he was employed was a contract for services under which he would perform work as an independent contractor.
THE COURT ORDERS THAT:
(1) With respect to the contraventions declared in paragraphs (1)(a)-(k), the Respondent pay the Applicant compensation pursuant to s.545(2)(b) of the Act in the sum of $138,513.71 together with pre-judgment interest in the sum of $11,353.95 being pursuant to s.547(3) of the Act making a total sum of $149,867.66 payable within 30 days of this order.
(2) Pursuant to s.545(2)(b) of the Act, the Respondent pay the sum of $50,718.89 to a fund nominated by the Applicant within 14 days of this order providing that the fund complies with the Superannuation Industry (Supervision) Act 1993 (Cth) to the benefit of the Applicant.
(3) Otherwise the proceedings are adjourned for penalty hearing on 12 October 2017 wherein the issue of costs will also be considered, the question of costs being contained in submissions already filed with the Court by each of the parties.
(4) The Applicant file and serve submissions as to the imposition of pecuniary penalties on or before 31 August 2017.
(5) The Respondent file and serve submissions as to the imposition of pecuniary penalties in reply within 28 days of service upon the Respondent of the Applicant's submissions
Proceedings before the Court
On 5 March 2020, Judge O’Sullivan of this Court made Orders for a hearing as to liability, penalty and costs to be dealt with on the papers. Both parties were ordered to file any affidavits and submissions that they wished to rely on.
The Court notes as per the Contravention Orders, liability in this matter has been determined and the parties’ submissions appropriately addressed the outstanding issues of penalty and costs.
The following affidavits were filed by the Applicant:
a)Affidavit of Tariq Ibrahim filed on 2 April 2020; and
b)Affidavit of Tariq Ibrahim filed 14 April 2020.
The Respondent filed the following affidavits:
a)Affidavit of Ferdiano Iaconis filed 20 March 2020; and
b)Affidavit of Fernando Iaconis filed 14 April 2020.
The Court also has before it written submissions filed by the Respondent on 19 March 2020, submissions filed by the Applicant on 2 April 2020 and submissions in reply filed by the Respondent on 14 April 2020. The Applicant filed submissions on costs on 18 May 2017 pursuant to orders that had previously been made. Those submissions are substantially repeated in the submissions filed by the Applicant on 14 April 2020. It is also noted that the Respondent made reference to submissions it had previously filed on 14 June 2017 in relation to costs and the Court also has had regard to those submissions.
Issues before the Court
The Respondent has acknowledged that the Contraventions involve breaches of the “civil remedy provisions” of the FW Act and that, as such, the Court has power to make orders for the payment of pecuniary penalties: s.546(1) of the FW Act.
The issue that the Court must determine is the quantum of the penalty that is appropriate in the circumstances of this case.
In line with Sayed v Construction, Forestry, Mining and Energy Union [2016] FCAFC 4 at [106]-[121], any penalty that is awarded should be paid to the Applicant. This is the approach that was submitted by the Respondent and no submission was made otherwise.
The Applicant also seeks an order for costs against both the Respondent and its solicitor, Mr Pajic. The Court will address the issues of penalty and costs in turn.
Principles of Penalty
The Court has the power to impose pecuniary penalties pursuant to s.546 of the FW Act. Section 539(2) of the FW Act provides a table which indicates the maximum “penalty units” for contraventions of the sort agreed in this matter. As the Respondent is a body corporate, it is liable to pay five times the penalty units provided in s.539(2)[1].
[1] FW Act, s.546(2)(b).
A penalty unit is defined in s.12 of the FW Act to have the same meaning as found in the Crimes Act 1914 (Cth). The relevant time for determining the sum of the penalty unit is the time the contravention arose, not the time of the Court’s orders or findings. On that basis, as the contraventions in this matter occurred over the course of a number of years, the relevant “penalty unit” for the course of the Applicant’s employment differ as follows:
a)for contraventions that occurred prior to 27 December 2012, a penalty unit is $110;
b)for contraventions that occurred from 28 December 2012, a penalty unit is $170.
In circumstances where there is an increase in the penalty unit amount while a contravention is ongoing (for example, the failure to pay the required wage for a significant period), it is appropriate to apply the lesser penalty: Murrihy v Betezy.com.au Pty Ltd (No.2) [2013] FCA 1146 at [6]-[28].
Therefore, for each contravention the Court will consider in this matter (noting that the latest contraventions occurred or commenced no later than 2011), the appropriate penalty amount is $110. To the extent that the Applicant’s statement of claim referred to a penalty unit being $180 or $170, for the reasons given above this is incorrect.
The Court cannot impose a penalty that exceeds the maximum penalty amount. When determining the appropriate amount, the Court may take into account a number of factors that can reduce or mitigate this maximum amount. The factors to be considered in regard to penalty are often those referred to in Kelly v Fitzpatrick (2007) 166 IR 14 (Kelly) at [14] as follows:
a)The nature and extent of the conduct which led to the breaches;
b)The circumstances in which that conduct took place;
c)The nature and extent of any loss or damage sustained as a result;
d)Whether there had been similar previous conduct by the respondent;
e)Whether the breaches were distinct or arose out of the 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 cooperated with enforcement authorities;
l)The need to ensure compliance with minimum standards by provision of an effective means for investigation and enforcement of employee entitlements;
m)The need for specific and general deterrence.
There are, however, no fixed factors and the Court should not adopt a checklist approach: Australian Building & Construction Commissioner v Construction, Forestry, Mining and Energy Union (No.2) [2010] FCA 977 at [10]. Not all of these factors are relevant and, indeed, the submissions in this matter did not address all of these. Each case must be determined on its own facts and circumstances and the Court must bear in mind the objects and purpose of the FW Act[2].
[2] FW Act, s.3.
It is also important to bear in mind that civil penalties are not intended to serve a retributive function: Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate [2015] HCA 46 at [59]. It is against this background that the Court has approached its consideration of the appropriate penalty in this matter.
Grouping
The Contravention Orders found that the Respondent had committed 17 contraventions of the FW Act. In Fair Work Ombudsman v NSH North Pty Ltd trading as New Shanghai Charlestown [2017] FCA 1301 at [36] (NSH North), the next “step” for the Court to take is to:
2. Consider whether each separate contravention should be dealt with independently with some degree of aggregation for those contraventions arising out of a course of conduct, noting that section 557 of the Fair Work Act 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.
The course of conduct consideration was also a factor referred to in Kelly.
Neither party made any substantive submissions as to whether any contraventions should be grouped. While the Respondent’s submissions indicated that “grouping” contraventions was a part of the Court’s task in determining the appropriate penalty, the submissions did not indicate how, or if, s.557 is applicable to this matter. Rather, the Respondent’s submissions stated that the contraventions arose out of a “course of conduct” and this should be considered in the context of the “totality” principle. Further, the Respondent’s submissions did not explain or expand upon how the contraventions were part of a “course of conduct”.
Section 557 of the FW Act allows for the grouping of multiple contraventions into a single contravention where they arise from the same “course of conduct” such that there is an overlap of the factual and legal elements of the contraventions: Construction, Forestry, Mining and Energy Union v Cahill [2010] FCAFC 39 at [39]. However, where the contraventions concern differing obligations under the FW Act, these contraventions cannot be grouped: Rocky Holdings Pty Limited v Fair Work Ombudsman [2014] FCAFC 62 at [17]-[18].
The contraventions arising under the two different Awards attract separate and distinct legal obligations which arose under different instruments and the Court considers that these contraventions should be considered separately notwithstanding that the breaches, in essence, mirror one another.
Consistent with Fair Work Ombudsman v Lohr [2018] FCA 5 (Lohr), each of the casual loading contraventions are also to be treated distinctly. That is, while they are of similar character (i.e., a failure to pay casual loading), they each arose under different circumstances and attracted additional obligations. The Court, however, is not precluded from adjusting the penalty when considering the totality principle if necessary. It appears that the Respondent is of the same view having regard to its submissions that the “totality” principle is particularly significant in light of the alleged single “course of conduct” that the Respondent contends.
Contraventions of ss.535 and 536 of the FW Act are discrete obligations that are regularly treated by the courts as independent and are not grouped. There is no reason to do otherwise here.
Finally, the contraventions of ss.345 and 357 of the FW Act do not fall within the ambit of s.557 and therefore are to be treated as separate and distinct.
Bearing in mind that much of the Court’s assessment will be made when addressing the totality principle, the maximum penalties which can be imposed on the Respondent for each contravention are as follows:
Contravention Maximum Penalty Failing to pay the Applicant the minimum wages prescribed by cl.15.1 of the Bread Award from 27 August 2009 to 22 July 2011 $33,000 Failing to pay the Applicant the minimum wages prescribed by cl.20.1 of the Food and Beverage Award from 23 July 2011 to 21 October 2013 $33,000 Failing to provide meal breaks to the Applicant of at least 30 minutes after the completion of two and a half hours of work and not more than five hours work in contravention of cl.21.1 of the Bread Award from 27 August 2009 to 22 July 2011 $33,000 Failing to provide meal breaks to the Applicant in contravention of cl.32 of the Food and Beverage Award from 23 July 2011 to 21 October 2013 $33,000 Failing to pay casual loadings to the Applicant for hours of work performed on a Saturday as required by cl.23.2.3 of the Bread Award from 27 August 2009 to 22 July 2011 $33,000 Failing to pay casual loadings to the Applicant for hours of work performed on a Sunday as required by cl.23.2.4 of the Bread Award from 27 August 2009 to 22 July 2011 $33,000 Failing to pay casual loadings to the Applicant for hours of work performed between the hours of 6.00pm and 6.00am as required by cl.24.2 of the Bread Award from 27 August 2009 to 22 July 2011 $33,000 Failing to pay casual loadings to the Applicant for hours of work performed outside of the ordinary hours of work as required by cl.30.2(d) of the Food and Beverage Award from 23 July 2011 to 21 October 2013 $33,000 Failing to pay casual loadings to the Applicant for hours of work performed between midnight on a Friday and midnight on a Sunday as required by cl.30.2(e) of the Food and Beverage Award from 23 July 2011 to 21 October 2013 $33,000 Failing to pay casual loadings to the Applicant for hours of work performed on public holidays as required by cl.29.4 of the Bread Award from 27 August 2009 to 22 July 2011 $33,000 Failing to pay casual loadings to the Applicant for hours of work performed on public holidays as required by cl.30.2(f) of the Food and Beverage Award from 23 July 2011 to 21 October 2013 $33,000 Failing to make any superannuation contributions to a superannuation fund for the benefit of the Applicant in contravention of cl.19.1 of the Bread Award from late January 2004 to 22 July 2011 $33,000 Failing to make any superannuation contributions to a superannuation fund for the benefit of the Applicant in contravention of cl.29.2 of the Food and Beverage Award from 22 July 2011 to 21 October 2013 $33,000 Failing to make and keep employee records in contravention of s.535(1) of the FW Act $16,500 Failing to provide the Applicant with pay slips in contravention of s.536(1) of the FW Act $16,500 Contravention of s.345 of the FW Act by knowingly or recklessly making false or misleading representations about the workplace rights of the Applicant. $33,000 Contravention of s.357(1) of the Act by representing to the Applicant that the contract of employment under which he was employed was a contract for services under which he would perform work as an independent contractor $33,000
Relevant factors
As indicated, there is no exhaustive list of factors to consider in determining the appropriate penalty. The Court has, therefore, considered those factors which the parties have referred to and addressed in their submissions.
The nature, extent and circumstances in which the contraventions occurred (including deliberateness)
The Respondent submits that the contraventions were not calculated, planned or deliberate. They were honest but mistaken beliefs held by Mr Iaconis. Upon receiving advice what remained in issue for the Court was the appropriate level of the Applicant pursuant to the Awards. Such a question, it was submitted, is a difficult question for both lay and legal minds and in this case it is apparent from the fact that neither party was entirely successful (or correct) in that regard.
The Applicant’s submissions are somewhat difficult to follow. However, the substance of the submissions appears to be that the Respondent, via Mr Iaconis, from the outset engaged in conduct designed to persuade the Applicant that he was a contractor and exploit the Applicant. It was submitted:
The Respondent exploited and violated the Applicant in a such a gross manner unprecedented or reported that can only be likened to slavery […]
To the extent that the Applicant’s submissions seek to refer to “slavery” and “organised crime” such allegations are serious and entirely unfounded. It is not appropriate for the Court to address these submissions save as to say that they are not accepted and are of no assistance. They are, with respect, “scandalous”.
As for the Applicant’s submission that the Respondent would have been aware of the obligations (regarding wage entitlements and superannuation) as it had previously hired workplace relations lawyers, for the reasons the Respondent submits, this cannot be accepted. There is no evidence to show that the Respondent received advice from “workplace relations lawyers”. The evidence shows that the Respondent received advice from “accountants and business advisers”[3]. What that advice was is also unknown (for example, the advice may have been that they were doing the correct thing). No weight can be placed on the purported advice.
[3] Affidavit of Tariq Ibrahim, affirmed 3 December 2019, Annexure A3.
However, that is not to say that the Respondent was not somewhat aware of obligations that were owed to employees. The following outline of Mr Iaconis’ evidence in El Souki v Macushla (No.1) is relevant to refer to:
18. Mr Iaconis’ evidence was that he was unaware of the payment of penalty rates for Saturday and Sunday working hours. This was despite the Fair Work Ombudsman earlier having investigated record keeping of the Respondent in a complaint by Mr Altobelli. The Respondent, in 2008, undertook to pay correct wages, superannuation and to maintain contents of payslips and also the contents of time and wage records.
Clearly, a previous experience ought to have enlightened the Respondent to its obligations and this is given some weight.
There were 17 contraventions in total. These contraventions included breaches of the National Employment Standards, record keeping requirements and the general protections provisions. They were wide ranging and ongoing.
The Court is prepared to accept there was no malice or fraudulence in Mr Iaconis’ (and therefore the Respondent’s) conduct. Rather, it appears that Mr Iaconis’ was nonchalant and, as stated in an earlier affidavit, preferred to operate the business without “formalities”. Nonetheless, in the Court’s view, there was some element of deliberate indifference and ignorance in Mr Iaconis’ conduct and the manner in which the Contraventions were allowed to occur. This is because he was, at least, aware of previous issues with another employee and ought to have taken more care and assessed whether other employees were likewise affected.
The Court accepts that the interpretation of awards and classifications can be complex. However, as noted in [17] of El Souki v Macushla (No.1), the basis upon which Mr Iaconis believed that the Applicant was a “level 2” employee was not genuinely held. This demonstrates a complete indifference to the obligations owed to the Applicant and the requirements of the Awards generally.
Overall, the Court considers that only a small reduction in the penalty is warranted in circumstances such as these. The conduct was not malicious, but it was deliberately indifferent in the Court’s view and it was ongoing.
Turning to the nature and extent of the loss, as a result of the contraventions, the Applicant was underpaid $138,513.71 (excluding interest). The Applicant was also not paid $50,718.89 in superannuation. On any view, the nature and extent of the contraventions caused a significant loss to the Applicant. As such, a penalty in the higher range in relation to the underpayments and casual loading is appropriate.
To the extent the Respondent submits that, in mitigation, the amount of superannuation that was said to be owed ($50,718.89) was miscalculated (and, impliedly, the extent of loss is not as significant), the Court notes that this amount was agreed by the Respondent. The Court also notes that the case to which the Respondent refers in their written submissions, Bluescope Steel (AIS) Pty Ltd v Australian Workers’ Union [2019] FCAFC 84 (Bluescope)(an appeal from Australian Workers’ Union v BlueScope Steel (AIS) Pty Ltd [2018] FCA 80) was decided long after the orders for superannuation had been made. The submissions state that Bluescope “clarified” that ordinary time earnings did not include overtime and penalty rates. This suggests that, legally, the position was unclear previously which would perhaps explain why the Respondent raised no issue with the amount of superannuation sought.
In the absence of any specific calculation of the amount that was overpaid, the Court is not of the view that any substantive reduction in the penalty can appropriately be applied.
Overall, the nature, extent and circumstances in which the contraventions occurred (including deliberateness) warrant a penalty in the mid to high range.
Similar previous conduct
As noted above, El Souki v Macushla (No.1) makes reference to the Respondent previously being subject to an investigation and giving certain undertakings in relation to wage entitlements and superannuation.
The Applicant provided evidence that the Respondent had previously breached the FW Act[4]. This evidence was a breach notice from the Fair Work Ombudsman, an acceptance of those breaches by the Respondent and an undertaking from the Respondent not to commit similar breaches.
[4] Affidavit of Tariq Ibrahim, affirmed 3 December 2019.
The Respondent submits that this evidence is not admissible on the basis of hearsay. Alternatively, the Respondent submits that there was no admission of guilt by the Respondent in relation to these alleged breaches and that allegations of contraventions that are not the subject of the current proceeding and which have not been thoroughly explored by a Court should be disregarded. The Respondent submits that it is judgments entered against an employer that is relevant to “similar previous conduct”.
In Williams v Construction, Forestry, Mining and Energy Union (No 2) [2009] FCA 548 at [28], the Court noted that where a finding or “conviction” had been made for a prior contravention this would be “more cogent” and add a “significant dimension” as opposed to a contravention that had not been the subject of a “conviction”. It was accepted that where a conviction had not been made, less weight should be afforded. Relevantly, it was not said that no weight should be afforded.
The Court finds that the Respondent has not previously contravened the FW Act and is, therefore, a first time offender. This warrants a small reduction in penalty.
However, there has been, as demonstrated in El Souki v Macushla (No.1) (and not just the alleged hearsay evidence in the affidavit) an indication that similar conduct has occurred previously and that the Respondent had acknowledged and undertook to correct that conduct. While accepting there may have been “commercial reasons” for the Respondent entering into the undertaking, at the very least the undertaking referred to record keeping requirements which Mr Iaconis’ own affidavit admits were entirely lacking as he preferred to operate the business without “formalities”. There is no “commercial reason” for the failure to maintain records. It cannot be said that no weight should be given to the matters that were highlighted by the Fair Work Ombudsman.
Overall, the Court considers that the similar previous conduct of the Respondent warrants a penalty in the low range.
Size of the Business
The Respondent has filed an affidavit relevant to the financial position of the business[5]. That evidence revealed that the Respondent’s current financial position was ailing. Evidence filed in response by the Applicant does not contradict the evidence filed by the Respondent[6]. The affidavit, rather, reveals that the Respondent does not hold significant assets and can be considered as a “man of straw”.
[5] Affidavit of Fernando Iaconis, dated 14 April 2020.
[6] Affidavit of Tariq Ibrahim, affirmed 12 October 2018.
It is accepted that mere difficulty in paying a pecuniary penalty should not deter the Court from imposing a penalty: Australian Competition & Consumer Commission v ACN 135 183 372 (in liquidation) (formerly known as Energy Watch Pty Ltd) [2012] FCA 749. In Jordan v Mornington Inn Pty Ltd [2007] FCA 1384 at [99] it was stated:
As to the respondent's own financial position, however, in considering the size of a penalty, capacity to pay is of less relevance than the objective of general deterrence: Leahy (No 2) at [9]. In any event, to the extent that financial hardship might mitigate what would otherwise be an appropriate penalty, such an argument would need to be based on evidence. Apart from the income figures mentioned above, which were advanced from the Bar table, no such evidence was forthcoming.
The Court has before it more than mere statements from the Bar table about the Respondent’s financial position. It has the profit and loss statement for the business in 2018/2019. It also has the profit and loss statement for the period of July 2019 to March 2020. These statements indicate that the Respondent is, like many businesses at the moment, struggling. At present, the Respondent stands to record a loss of close to $140,000 in the current financial year. Mr Iaconis indicates that he is not sure how long the business can continue to operate, if at all.
The affidavit of Mr Iaconis also reveals that while a small profit was recorded in the 2018/2019 financial year, Mr Iaconis did not himself receive a salary as the business could not afford such. Mr Iaconis recorded that there are 12 employees whom, at present, he is struggling to maintain and the future of the business is unclear.
In light of the above, which was unchallenged by the Applicant, the Court considers that a penalty in the low to mid-range is appropriate given the financial hardship that the Respondent is encountering and its priority of ensuring that current employees are appropriately paid.
Contrition and Cooperation
The parties significantly disagree on whether the Respondent has showed contrition and has cooperated in these proceedings. The Applicant submits, in summary, that the Respondent has been anything but cooperative. He submits that the Respondent has delayed and frustrated the proceedings, and no contrition has been shown as demonstrated by the denial of any wrongdoing despite the “undeniable evidence and undisputed statutory entitlements” that the Applicant was owed.
In contrast, the Respondent submits that it made appropriate concessions which purported to reduce the matters in issue for the Court. The Respondent also filed an affidavit of Mr Iaconis which stated as follows:
4. I accept the Court’s finding that my company breached s 45 of the Fair Work Act 2009 (Cth) (hereafter, the “FW Act”) which stipulates that a person must not contravene a term of a modern award.
5. This matter has been a learning experience for me, and I will make sure that I don't become involved in another one in the future.
6. In order to achieve that I will seek thorough professional advice from professional advisors before making employment related decisions.
7. Sunnytop’s breaches of the FW Act were not planned or deliberate. At the time, I did not have a clear understanding of the FW Act and I mistakenly believed that the Applicant was a contractor instead of an employee. Once I received advice from my solicitors that the Applicant was indeed an employee, I instructed my solicitors to contest the proceedings on the basis of the Applicant's classification under the award.
8. I acknowledge that the Court is considering awards of compensation and penalties in relation to Sunnytop.
9. Any amounts of penalty do not need to be calculated so as to deter me from breaching s 45 or any other part of the FW Act. I have learned from this matter and will ensure that I comply with the FW Act in the future.
In Mornington Inn Pty Ltd v Jordan [2008] FCAFC 70 at [74] (“Mornington Inn Pty Ltd”), the Court stated:
It is important to note that it is not a sufficient basis for a discount that the plea has saved the cost of a contested hearing – that would discriminate against a person who exercised a right to contest the allegations. A discount may be justified, however, if the plea is properly to be seen as willingness to facilitate the course of justice. Remorse and an acceptance of responsibility also merit consideration where they are shown.
The Court accepts that the admissions made by the Respondent had the effect of narrowing the issues in dispute and to facilitate the course of justice. This warrants some reduction.
Insofar as the Applicant makes reference to the fact that the Respondent chose to defend the proceedings (after making concessions) or pursued an appeal, this should not result in the imposition of a penalty at the higher range: Australian Competition and Consumer Commission v ACM Group Limited (No 3) [2018] FCA 2059 at [104]. As Mornington Inn Pty Ltd states above, the Court ought not to discriminate against a party who exercises their right to defend themselves against allegations.
The Court’s finding in El Souki v Macushla (No.1) were that the Applicant was a level 3 employee under the Awards (and not a level 2 employee as contended by the Respondent and a level 4 employee as primarily contended by the Applicant). Therefore, the fact that the Respondent continued with the proceedings after conceding a number of earlier points does not weigh against a reduction in the penalty. Any contention that continuing to defend the proceedings was unmeritorious ought to be raised in the context of costs in the Court’s view (and will be discussed below).
Finally, as to the degree of contrition shown by the Respondent, it is difficult for the Court to determine the sincerity of Mr Iaconis. While Mr Iaconis’ affidavit expresses regret, Mr Iaconis nonetheless suggests that it was his ignorance and lack of understanding that resulted in the breaches. While the Court accepts this, it nevertheless remains that this is no excuse and as noted above some of that ignorance was deliberate.
Mr Iaconis has indicated that he will seek professional advice from professional advisors before making any employment related decisions. The Respondent’s own submissions refer to the Respondent having received advice from “business advisors” previously. The breaches still occurred notwithstanding this previous advice. The ambiguity in Mr Iaconis’ statement is also troubling. What is meant by “employment related decisions” is less than clear and the Court is not confident in Mr Iaconis’ statement noting, again, the previous matters that occurred with the Fair Work Ombudsman notice.
Taking all of the above into account, the Court considers that in circumstances where the Respondent has accepted the Court’s finding about the breaches, expressed regret for these and made admissions during the course of the proceeding with a willingness to facilitate the course of justice, yet has not apologised to the Applicant and has not demonstrated any processes to ensure future compliance and eradicate non-compliance, a penalty in the mid-range is appropriate.
Deterrence
In Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2017] FCAFC 113 at [98] it was stated:
Whereas criminal penalties import notions of retribution and rehabilitation, the purpose of a civil penalty is primarily, if not wholly, protective in promoting the public interest in compliance: Trade Practices Commission v CSR Ltd [1990] FCA 521; (1991) ATPR 41-076 at 52,152 [42]; Commonwealth v Director, FWBII at [55] (per French CJ, Kiefel, Bell, Nettle and Gordon JJ). The principal object of a pecuniary penalty is to attempt to put a price on contravention that is sufficiently high to deter repetition by the contravenor and by others who might be tempted to contravene; both specific and general deterrence are important: Chemeq at [90]; Ponzio at [93]. A pecuniary penalty for a contravention of the law must be fixed with a view to ensuring that the penalty is not to be regarded by the offender or others as an acceptable cost of doing business: Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640 at 659 [66]; Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20; (2012) 287 ALR 249 at 265 [62]-[63]. In relation to general deterrence, it is important to send a message that contraventions of the sort under consideration are serious and not acceptable: Australian Securities and Investments Commission v Southcorp Ltd (No 2) (2003) 130 FCR 406 at 418 [32].
In terms of general deterrence, the Court is conscious of the need to ensure that other businesses like the Respondent, and employers generally, are deterred from engaging in similar conduct. There has been no evidence advanced by the Applicant as to any chronic underpayment issues in the bakery industry so as to suggest that general deterrence is of significant public interest.
In this matter, the penalty imposed will be no more than is sufficient to deter repetition by the Respondent and other similar businesses who might consider engaging in the same conduct in future and ensure that the public can be confident that the courts do not regard ignorance as an excuse for not complying with award requirements. Therefore, a penalty in the mid-range is appropriate to achieve general deterrence.
In terms of specific deterrence, Mr Iaconis’ stated in his affidavit that any penalty did not need to act so as to deter any future contraventions of the FW Act. The Court does not accept that specific deterrence is wholly irrelevant in these proceedings.
The Respondent is still trading and, on its own evidence, employs 12 people. While the Applicant’s submissions on this matter are, again, inappropriate, it nevertheless remains that there is material to indicate similar alleged conduct, and an undertaking given previously about such alleged contraventions, before the Court. Such did not deter the Respondent from its conduct here. As such, specific deterrence also warrants a penalty in the mid-range.
Determining the quantum of the penalty
The Respondent submits that in light of all of the circumstances, the appropriate penalty is 15% of the maximum. This would amount to (without considering totality), a penalty in the sum of $79,200. The Applicant did not propose an appropriate penalty in any of his written submissions. Rather the Applicant “refuted” that the contraventions could fairly be described as both “moderate and mitigated”. In the statement of claims, the Applicant did state that the penalty imposed should be the “maximum”.
Here, the nature and extent of the Contraventions was significant. However, as discussed above a number of factors mitigate against a high penalty and the conduct overall, on balance, warrants a penalty in the mid-range. This is particularly so where the Court is not satisfied that appropriate compliance processes will be adopted and that to impose a lower penalty could suggest that mere ignorance (ongoing over a substantive period of time and resulting in a significant loss) is acceptable to militate against a penalty to some significant degree.
In the Court’s view, for the reasons given above the following penalty for the Contraventions is appropriate:
a)For the failure to provide minimum wages, pay the respective casual loading amounts and non-payment of superannuation, a penalty of 50% of the maximum is to be imposed for each contravention;
b)For the failure to provide meal breaks in accordance with the Awards, as there was no substantive detriment that appeared to arise from this breach and it is, in the Court’s view, not as significant as other matters, a penalty of 15% of the maximum should be imposed;
c)For the failure to keep records and provide payslips, a penalty of 50% of the maximum is to be imposed; and
d)For the breaches of ss.345 and 357 of the FW Act, a penalty of 50% should be imposed. The Court bears in mind that Mr Iaconis’ belief that the Applicant was an independent contractor purportedly arose from an “agreement” between him and the Applicant and this evidence was never, on the materials before the Court, challenged.
The Court also bears in mind the remarks in Gibbs v The Mayor, Councillors and Citizens of City of Altona (1992) 37 FCR 216 (Gibbs) at [223] where it was stated:
If the different terms impose cumulative obligations or obligations that substantially overlap, it is possible to take into account the substance of the matter by imposing no penalty, or a nominal penalty, in respect of breaches of some terms, but a substantial penalty in respect of others.
On that basis, and noting that a party should not be penalised for the same “criminality” twice, the Court is of the view that the similar breaches of the Bread Award and the Fast Food and Beverage Award should adopt the approach of Gibbs. The Court is also of the view that the breaches of ss.345 and 357 of the FW Act arose from the same factual stratum and should also adopt the approach of Gibbs. As such, the Court consider the appropriate penalties are as follows:
Contravention Penalty Failing to pay the Applicant the minimum wages prescribed by cl.15.1 of the Bread Award from 27 August 2009 to 22 July 2011 Nil Failing to pay the Applicant the minimum wages prescribed by cl.20.1 of the Food and Beverage Award from 23 July 2011 to 21 October 2013 $16,500 Failing to provide meal breaks to the Applicant of at least 30 minutes after the completion of two and a half hours of work and not more than five hours work in contravention of cl.21.1 of the Bread Award from 27 August 2009 to 22 July 2011 Nil Failing to provide meal breaks to the Applicant in contravention of cl.32 of the Food and Beverage Award from 23 July 2011 to 21 October 2013 $4,950 Failing to pay casual loadings to the Applicant for hours of work performed on a Saturday as required by cl.23.2.3 of the Bread Award from 27 August 2009 to 22 July 2011 $16,500 Failing to pay casual loadings to the Applicant for hours of work performed on a Sunday as required by cl.23.2.4 of the Bread Award from 27 August 2009 to 22 July 2011 $16,500 Failing to pay casual loadings to the Applicant for hours of work performed between the hours of 6.00pm and 6.00am as required by cl.24.2 of the Bread Award from 27 August 2009 to 22 July 2011 Nil Failing to pay casual loadings to the Applicant for hours of work performed outside of the ordinary hours of work as required by cl.30.2(d) of the Food and Beverage Award from 23 July 2011 to 21 October 2013 $16,500 Failing to pay casual loadings to the Applicant for hours of work performed between midnight on a Friday and midnight on a Sunday as required by cl.30.2(e) of the Food and Beverage Award from 23 July 2011 to 21 October 2013 $16,500 Failing to pay casual loadings to the Applicant for hours of work performed on public holidays as required by cl.29.4 of the Bread Award from 27 August 2009 to 22 July 2011 Nil Failing to pay casual loadings to the Applicant for hours of work performed on public holidays as required by cl.30.2(f) of the Food and Beverage Award from 23 July 2011 to 21 October 2013 $16,500 Failing to make any superannuation contributions to a superannuation fund for the benefit of the Applicant in contravention of cl.19.1 of the Bread Award from late January 2004 to 22 July 2011 Nil Failing to make any superannuation contributions to a superannuation fund for the benefit of the Applicant in contravention of cl.29.2 of the Food and Beverage Award from 22 July 2011 to 21 October 2013 $16,500 Failing to make and keep employee records in contravention of s.535(1) of the FW Act $8,250 Failing to provide the Applicant with pay slips in contravention of s.536(1) of the FW Act $8,250 Contravention of s.345 of the FW Act by knowingly or recklessly making false or misleading representations about the workplace rights of the Applicant. $16,500 Contravention of s.357(1) of the FW Act by representing to the Applicant that the contract of employment under which he was employed was a contract for services under which he would perform work as an independent contractor $3,300
The Court has opted to reduce the penalty imposed for the breach of s.357 of the FW Act to only 10% of the maximum penalty. While the same facts that comprised the breach of s.345 of the FW Act established the breach of s.357 of the FW Act, given they are distinct obligations it is still appropriate for a small penalty to be imposed.
As such, the total penalty to be imposed against the Respondent amounts to $156,750. This amounts to approximately 30 per cent of the maximum penalty.
Totality
As eluded to above, when considering the grouping of the contraventions the totality principle will be particularly relevant in the circumstances of this case. This is particularly so in relation to the casual loading provisions (as indicated in Lohr). Five of the contraventions relate to failures to pay casual loading. In the Court’s view, while the particular breaches are individual obligations, it is appropriate for a reduction of $33,000 to be made. The Court has considered that the failure to pay casual loading under the Bread Award on Saturdays and Sundays should be reduced to a single penalty amount and the failure to pay casual loadings for hours worked outside of ordinary hours (including on Friday to Sunday) should attract a single penalty amount.
The total penalty amount, therefore, would be reduced to $123,750.
As noted above, the Court does not consider there is sufficient material before it to warrant any reduction on the basis of an overpayment of superannuation.
To the extent that submissions were made that the allegations of slavery and organised crime have subjected the Respondent to humiliation and ought to be taken into account in diminution of penalties, there is no evidence to sustain or found any finding of humiliation. While the Court agrees that such statements should not have been made, it does not serve to diminish the totality of the penalty imposed.
The total penalty ought not to be oppressive and crushing on the Respondent: Kelly. The penalty must be proportionate to the seriousness of the conduct. Here, the Court considers that the final penalty is proportionate to the seriousness of the conduct. This was an ongoing breach that resulted in a significant underpayment of an employee.
No further reduction should be imposed.
The Court finds that a penalty of $123,750 is to be paid to the Applicant for the Contraventions.
Costs
As has been noted, the Applicant also seeks costs against the Respondent as well as the Respondent’s solicitor, Mr Pajic. Costs are sought on the basis of a number of acts and omissions of the Respondent, being:
a)A letter of Mr Pajic dated 26 March 2015 (Letter) in response to the Applicant’s initial letter of claim, which the Applicant describes as a “false and diversionary blanket denial” and argues is contemptuous, scandalous, misleading, and which advanced propositions without a legal basis.
b)The Applicant argues that the Respondent’s response and the Letter were inconsistent with the affidavit of its director, Mr Iaconis, dated 12 May 2016. Specifically, the Defence and Letter are said to deny the Applicant’s work duties, days of work, and his status as an employee. The Applicant argues that the affidavit of Mr Iaconis “demonstrates that a substantial part of the Respondent’s response had no proper basis and therefore ought not to have been denied”.
c)The Applicant submits that the Respondent failed to make any reasonable offers of compromise and that its Calderbank offer was too low. The Applicant also raised issue with the Respondent’s failure to respond to a Calderbank offer that the Applicant made to the Respondent.
d)The Applicant contends that the Respondent’s defence was based on misconceived case theories or was otherwise hopeless or bound to fail.
The Court will consider each of these acts and omissions in turn.
Proceedings under the FW Act – generally, a no costs jurisdiction
The Court’s power to make an order for costs in these proceedings arises under the terms of s.570 of the FW Act.
Relevant to this Costs Application are the following subsections:
(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)...
(2) The party may be ordered to pay the costs only if:
…
(b) the court is satisfied that the party’s unreasonable act or omission caused the other party to incur the costs; or
…
It is well accepted that proceedings under the FW Act are generally no costs proceedings, with costs very much the exception to the no costs rule: Construction, Forestry, Mining and Energy Union & Others v Clarke (2008) 170 FCR 574 at [28]-[30] per Tamberlin, Gyles and Gilmour JJ (Clarke).
That a party has conducted litigation inefficiently, made late concessions, or adopted a misguided approach will be relevant to, but not determinative of, unreasonableness in a sense relevant to s.570(2)(b): Clarke at [29] per Tamberlin, Gyles and Gilmour JJ.
What is required in the context of s.570 of the FW Act was explained in Celand v Skycity Adelaide Pty Ltd [2017] FCAFC 222 at [74] per Logan J as follows:
So I respectfully agree with the statement made by the Full Court in Australian Workers Union v Leighton Contractors (No 2) that it is not necessary to establish “exceptional circumstances” in order to award costs in a matter arising under the FWA. What it is necessary to do is to engender satisfaction that a pre-condition for the enlivening of the costs power exists and, even then, the exercise of a judicial discretion is required; there is no as of right entitlement to costs. Each of the pre-conditions for which s 570 of the FWA provides entails the reaching of satisfaction as to a pejorative. Materially in this case, that is satisfaction as to an unreasonable act by Ms Celand causing another party, Skycity to incur costs. As to its proof, satisfaction of this type is but a species in a class to which s 140(2) of the Evidence Act 1995 (Cth) has application. And what must be engendered is not just satisfaction as to an unreasonable act but also that it had a causative sequel. As a norm in our public and private law, unreasonableness in act or decision is not confined to the bizarre or irrational but entails rather more than a supervisor of that act or decision substituting his own view for that of the actor or decision-maker: Minister for Immigration and Citizenship v Li (2013) 249 CLR 332 at [65] to [73] per Hayne, Kiefel and Bell JJ.
The Court notes that, even where the statutory preconditions in s.570 of the FW Act have been satisfied, costs do not automatically follow. Awarding costs is a discretionary decision based upon the particular conduct and circumstances of the case, and bearing in mind the purpose of s.570 of the FW Act being to ensure that fear of a costs order does not discourage genuine litigants from pursuing cases with reasonable cause: Qantas Airways Ltd v Transport Workers Union of Australia (No 2) (2011) 211 IR 119 at [208] per Moore J.
In relation to the Court’s power to award costs against a party’s lawyer, this arises from its implied incidental power to regulate the conduct of legal practitioners who appear before the Court[7] and r.21.07 of the Federal Circuit Court Rules 2001 (Cth) (Rules)[8].
[7] Federal Circuit Court of Australia Act 1999 (Cth), s.81(1)(b).
[8] Robinson v Blackheart Industries Pty Ltd & Ors (2014) 286 FLR 277 at [125]-[128].
Rule 21.07(1) of the Rules provides that a Court may make an order for costs against a lawyer if the lawyer, or an employee or agent of the lawyer, has caused costs:
a)to be incurred by another person; or
b)to be thrown away because of undue delay, negligence, improper conduct or other misconduct or default.
Rule 21.07(2)(b) of the Rules provides:
(2) A lawyer may be in default if a hearing may not proceed conveniently because the lawyer has unreasonably failed:
(a) to attend, or send another person to attend, the hearing; or
(b) to file, lodge or deliver a document as required; or
(c) to prepare any proper evidence or information; or
(d) to do any other act necessary for the hearing to proceed.
The power to award costs against a lawyer must be exercised with care and discretion and only in clear cases. In Mitry Lawyers v Barnden [2014] FCA 918 the relevant principles applicable to r.21.07 of the Rules were summarised as follows[9]:
[9] Mitry Lawyers v Barnden [2014] FCA 918 at [42].
The relevant principles emerge from three decisions of this Court: the judgment of Goldberg J in White Industries (Qld) Pty Ltd v Flower & Hart (1998) 156 ALR 169; and two Full Court decisions; Levick; and Macteldir v Roskov [2007] FCAFC 49. The principles may be summarised as follows:
1. Instituting or maintaining a proceeding on behalf of a client which has no, or substantially no, prospect of success will not, without more, invoke the jurisdiction to make a costs order against a lawyer.
2. Something which involves “unreasonable conduct” is required.
3. What constitutes unreasonable conduct will depend on the circumstances of the particular case.
4. The element of acting unreasonably involves some deliberate or conscious decision taken by reference to circumstances unrelated to the prospects of success, with either a recognition that there is no chance of success, or an intention to use the proceeding for an ulterior purpose, or to abuse the processes of the court, or with a disregard of any proper consideration of the prospects of success.
5. The circumstances must involve or result in a serious dereliction of duty owed to the court, or serious misconduct in promoting the course of, and the proper administration of, justice.
6. An ulterior purpose or an abuse of process cannot be assumed simply because the case is hopeless.
7. The reason that the mere pursuit of an unmeritorious case is not so sufficient to invoke the jurisdiction to make a costs order against a lawyer is that a party is entitled to have a practitioner act for him or her in an unmeritorious case. The court is concerned to avoid the risks of a practice developing whereby lawyers endeavour to browbeat their opponents into abandoning clients, or particular issues or arguments, for fear of personal costs orders being made against them.
There is a large amount of authority to suggest, and it does not appear to be disputed by the Respondent or Mr Pajic, that s.570 of the FW Act can extend to Mr Pajic’s conduct (or, indeed, to any solicitor who appears on behalf of a party) and costs can be personally awarded against a solicitor[10].
[10] Molony v ATM Logistics Pty Ltd [2018] FCA 640; Ryan v Primesafe [2015] FCA 8 at [66]-[67].
Consideration – should there be an award of costs?
For the purposes of s.570(2)(b) of the FW Act, two criteria must be fulfilled:
a)a party must have engaged in an unreasonable act or omission; and
b)that unreasonable act or omission must have caused another party to incur costs in connection with the proceeding.
(Clarke at [28] per Tamberlin, Gyles and Gilmour JJ)
The Court now must undertake an objective analysis of the particular circumstances of the case to determine whether the Respondent, itself or through Mr Pajic, has engaged in an unreasonable act or omission: Australian and International Pilots Association v Qantas Airways Ltd (No.3) (2007) 162 FCR 392 at [32] per Tracey J (Qantas).
The Letter
The Applicant takes issue with the Letter which was sent in response to the Respondent’s initial letter of claim. The Applicant takes particular issue with the following passage of the Letter:
In order to mitigate our client’s costs exposure, we do not propose to address each of the allegations contained therein individually save for, and in summation:
1.Your client provided services to our client on an irregular, sporadic, informal and ad hoc basis. At all material times, your client was paid all entitlements due to him.
2. On 19 October 2013 your client’s services were terminated because he had engaged in theft and misappropriation of money.
3. Your client had previously agitated a similar claim before the Fair Work Ombudsman which was deemed as devoid of merit.
4. Your client’s allegations are otherwise wholly rejected and our client will vigorously defend against any proceedings your client proposes to initiate.
The Applicant argues that:
The Respondent via Mr. Pajic wholly denied, dismissed and only demonstrated contempt for the Applicant’s claim upon his receipt of it and did so on: non-genuine and false grounds in regards to point 1; by scandalous and/or misconceived reasoning in regards to point 2; by misrepresentation with regards to point 3 in view of the fact that the FWO merely ceased its investigation as opposed to finding that the Applicant did not have a genuine claim; and in the absence of any proper legal basis for doing so with regards to his point 4.
In response, the Respondent argues that the Applicant’s descriptions of the Letter are entirely hyperbolic and that the Letter is brief and merely relayed instructions, referred to an unsuccessful ombudsman enquiry, and indicated that the claim would be defended. The Respondent argues that the Letter is, in every respect, orthodox and unremarkable and that regardless, sending a letter is not an act capable of causing a party to incur costs.
The Court does not accept that the Letter provides any basis for the Court to award costs against the Respondent nor its lawyer, Mr Pajic.
The Applicant has not provided any evidence nor submissions to this Court to explain these assertions. That is all that they are. Bare assertions. Specifically:
a)The Applicant does not state how the statement that the Applicant provided services to the Respondent on an irregular, sporadic, informal and ad hoc basis and at all material times was paid all entitlements due to him is non-genuine or raises false grounds. It is difficult to see how the statement that the services were provided on an irregular, sporadic, informal and ad hoc basis was non-genuine when the Applicant himself accepted he was a casual worker. As for the statement that “at all material times” the Applicant was paid all entitlements, there is no evidence to demonstrate that at the time of the statement the Respondent did not genuinely hold this view. It is noted that Mr Iaconis was of the view (as stated in his affidavit) that he did not have to pay certain entitlements as he believed the Applicant was an independent contractor. Albeit incorrect, there is no evidence to suggest that the view was not genuinely held until corrected by his solicitor.
b)The Applicant does not explain how the statement that the Applicant was terminated because he had engaged in theft and misappropriation of money was scandalous or misconceived. In the Court’s view, it was merely the Respondent correcting the Applicant’s letter dated 16 March 2015 where the Applicant stated that he “ceased” employment on 21 October 2013. The Respondent simply indicated that he was terminated from his employment on 19 October 2013. Further, the Applicant’s own submissions refer to Counsel for the Respondent cross-examining on the issue of the Applicant’s termination and, therefore, it was part of a line of inquiry and not “scandalous” or “misconceived”.
c)There is simply no evidence before the Court about the unfair dismissal claim such that it can be said that the Respondent had engaged in misrepresentation in stating that the Fair Work Ombudsman had ceased investigating a similar claim because it was devoid of merit.
d)The statement that the Respondent wholly rejected the claims and would vigorously defend any proceeding was not absent of any proper legal basis. As demonstrated by the fact that this matter went to hearing, there was a legal basis for defending the proceedings notwithstanding that the Respondent conceded certain points and issues.
It is simply not enough for the Applicant to refer to a principle and say that it applies to the circumstances without providing any proper explanation of how that is so. That is all that the Applicant has done here.
The Court does not consider that the Letter caused the Applicant to incur any costs and that the Letter was an “unreasonable act” by the Respondent or Mr Pajic. It was, by all accounts, a run of the mill response to correspondence that is received that forewarns of legal action.
Inconsistencies in the Letter, Response and Affidavit of Mr Iaconis
The Applicant argues that the Respondent’s response and the Letter were inconsistent with the affidavit of its director, Mr Iaconis, dated 12 May 2016. Specifically, the Response and Letter are said to deny the Applicant’s work duties, days of work, and his status as an employee. The Applicant argues that:
By his own affidavit, not only does Mr. Iaconis demonstrate the untenable position of Mr. Pajic’s response letter to the Applicant’s initial claim letter, but it also demonstrates a significant and material departure from the Respondent’s pleadings with regards to its contents in denying: the duties performed by the Applicant; the days and therefore hours worked by the Applicant; as well as the that the Applicant was engaged as a contractor. The affidavit of Mr. Iaconis, as the director of the Respondent, demonstrates that a substantial part of the Respondent’s response had no proper basis and therefore ought not to have been denied.
The Respondent argues that the submissions of the Applicant are inaccurate and that:
a)Neither the Response nor the Letter denied the Applicant was an employee. The Response alleged that the Applicant was employed on a casual basis and the Letter did not define the Applicant’s employment status; and
b)The Response pleaded that the Applicant was rostered to work 28 hours each week, from 2AM to 6AM. This was consistent with the Affidavit and the position taken at trial.
The Respondent acknowledges that it resiled from its initial denial of the Applicant’s work duties, however, claims that this concession was not unreasonable, particularly when viewed in context. The Respondent argues that the initial denial was pleaded in response to a vague and generic description of work duties within the Applicant’s statement of claim. Upon the Applicant providing a detailed and specific description of his work duties the Respondent then made concessions. The Respondent argues that it is far from unreasonable for a party to, when confronted with clear and detailed allegations, to make further enquiries and appropriate concessions.
In any event, the Respondent argues that if its actions were unreasonable in any respect, those actions did not cause the Applicant to incur further costs. Rather, the concessions within Mr Iaconis’ affidavit served to narrow the issues in dispute and reduce the length of the trial, thereby reducing the parties’ respective costs.
First and foremost, the Court notes that [24(ii)(c)] of the Applicant’s submissions overstates the “contrary” evidence that is said to have been given by Mr Iaconis in his affidavit[11]. It is simply not the case that Mr Iaconis conceded in his affidavit that the Applicant worked public holidays. Mr Iaconis did not concede these matters at hearing either. Rather, the Court made a finding that it preferred other evidence to that of Mr Iaconis. On that basis, it cannot be said to have had no proper basis given the Court was required to find as a matter of fact between conflicting evidence on this point. Nor is there any concession by Mr Iaconis that he had represented to the Applicant that he was engaged as a contractor as opposed to an employee. The Applicant’s submissions somewhat exaggerate certain points.
[11] Affidavit of Ferdinando Iaconis, dated 12 May 2016.
The Letter was silent on whether the Applicant was an employee or an independent contractor. While it could be inferred (by reference to providing “services”) that the Letter was suggesting that the Applicant was an independent contractor, given the Letter was not part of the pleadings, this has limited weight. Further, Mr Iaconis’ affidavit[12] at [31] states that he and the Applicant agreed that the Applicant would work on an independent contractor basis. It can be inferred that at the time that he provided the instructions which informed the Letter, he was still of this view. As such no weight can be placed on any implication of an independent contractor arrangement arising from the Letter.
[12] Affidavit of Ferdinando Iaconis, dated 12 May 2016.
As for an inconsistency between Mr Iaconis’ affidavit and the Response in relation to the Applicant being an independent contractor, none exists. The Response accepts that the Applicant was employed on a casual basis. Mr Iaconis’ affidavit, as indicated above, impliedly conceded that there was an employment relationship, given Mr Iaconis acknowledged he was incorrectly of the view he did not have to pay superannuation.
Turning to the “denial” of working hours. There is no inconsistency between the hours of work pleaded in the response and Mr Iaconis’ affidavit. In both documents it was maintained that the Applicant worked 28 hours.
If the Applicant is referring to the Response indicating that he rarely worked 7 days per week, yet in the affidavit Mr Iaconis says that he did, this hardly can be said as critical or an unreasonable omission to have been made given that the Response stated that the Applicant was rostered to work 28 hours per week and that his shifts were four hours each. By all accounts, even with the denial in the Response that the Applicant worked seven days per week and the later concession that he did, this did not alter the pleading that the Applicant was rostered for 28 hours per week.
Finally, as to the alleged inconsistency between the duties that the Applicant carried out, with respect, the duties referred to in the Applicant’s statement of claim were hardly descriptive. The Response was equally broad. In the Court’s view, Mr Iaconis’ agreement with the duties that the Applicant described in his affidavit was not inconsistent with the Response, it was a consequence of, with respect, imprecise pleadings to begin with.
Individually, none of the matters that the Applicant says had no proper basis to have been denied are established. The Response was not incompetent or unsupportable: Clarke. The matters raised in the Response and the evidence that Mr Iaconis gave were made in the pursuit of a contentious, and ultimately unsuccessful, matter of fact (namely hours of work) and turned on the Court’s interpretation of what the “classification” was: Qantas.
Further, the Court agrees with the Respondent’s submissions that any discrepancies between the Response and Mr Iaconis’ affidavit could not have seen further costs be incurred. In that regard, the Court refers to Clarke at [29]:
[…] True it is that the concession ultimately given by the respondent that it regarded the decision of the primary judge as erroneous could have been given earlier. However, it was a concession which was, in light of the decision of this Court on the substantive appeal, properly made and beneficial to the appellants. Although it is arguable that the lateness of the concession may have put the appellants to some extra costs, we are of the view that it cannot be characterised as ‘unreasonable’ in the circumstances of this case […]
In the circumstances of this case, the late concession arose from the imprecise pleadings the parties had engaged in, in relation to the duties of the Applicant (for which both bore some blame) and the agreement by Mr Iaconis in his affidavit to the duties the Applicant did, as submitted, narrow the issues in dispute and thereby reduced costs and resources.
The alleged inconsistencies in the Letter, Response and Affidavit of Mr Iaconis do not engage s.570 of the FW Act.
Failure to Compromise
The Applicant also submits that the absence of any genuine offers of compromise from the Respondent are also grounds for costs being awarded. The Applicant submitted as follows:
a. Despite the admissions of Mr. Iaconis, the only offer of compromise made to the Applicant was received on 22 September 2016 and was for the amount of $12,334.92 for wages and $15,786.40 for super. This amount actually constitutes less than 10% of what the Applicant has actually been awarded for non-payment of wages and superannuation.
b. On the 6 October 2016 the Applicant responded to the Respondent’s offer advising it of the inadequacy of the offer in that it did not sufficiently meet the requirements of being a Calderbank offer and that even on a calculation of the Respondent’s own accepted version of the facts, the offer made was still $50,000 below that.
c. In its response to the so-called Calderbank offer received from the Respondent, the Applicant proposed that the Respondent pay it $100,000 as full and final settlement of all aspects of its claim and provided described why that amount was justified. No reply was received by the Respondent in response.
In Conclusion
d. Based on the extremely low and unjustified offer of compromise made by the Respondent and also considering that it was not willing to offer any settlement which remotely reflected even its own accepted version of the facts and law, it must be said that Mr.Iaconis or the legal representative of the Respondent had no genuine willingness to settle this matter.
The Applicant provided a number of authorities in relation to a party’s failure to accept a reasonable offer of compromise.
The Respondent argues that the authorities which the Applicant refers, concern an unreasonable refusal to accept an offer, however, the Respondent contends that this argument was not advanced in the submissions. Rather, the submissions focussed on the inadequacy of the offer by the Respondent. The Respondent submits that:
It is doubtful that the positive act of making a Calderbank offer – whether low, high or otherwise - is capable of exciting the Court’s costs discretion. This idea is incompatible with the principles that a respondent is entitled to pursue a robust defence, advance arguable claims, and only bear costs in exceptional and clear cases. Imposing an obligation to not only make an offer of compromise, but to ensure that the sum of the offer meets a threshold, would impose a remarkable burden in ordinary commercial matters, let alone matters defended in a no-costs jurisdiction. The Respondent is not aware of any authority that would support such a novel proposition. That the Respondent did indeed make a Calderbank offer for approximately $28,000 is a matter that demonstrates a reasonable approach and a willingness to attempt to resolve the proceeding.
The Respondent’s submissions are not without merit. However, the Court is not minded to descend into a detailed consideration of those submissions. Here, the Applicant’s argument goes no further than suggesting that the costs discretion is enlivened because the offer did not demonstrate a genuine attempt to compromise.
The Court disagrees. The offer made on 22 September 2016 set out why it was a “reasonable offer” as follows:
The offer to settle the Proceeding is reasonable because, in summary, it reflects the:
a) factors set out in in Fair Work Act 2009 and Workplace Relations Act 1996 ("the Acts")
b) common law principles which have given force in applying the Act, in particular in factual scenarios analogous to those in the Proceeding;
c) risk to your client of adverse costs consequences pursuant to 570(2)(b) of the Fair Work Act of pressing on with the Proceeding;
d) Provisions of s545(5) of the Fair Work Act; and
e) likelihood of your client's legal costs exceeding any value of compensation he would receive in the Proceeding;
f) Risk to your client's claim being dismissed in entirety noting your client's implausible evidence about the amount of hours that he worked which contains various internal inconsistencies and is likely to lead to adverse credibility findings; and
g) The likelihood of the amount of compensation awarded being reduced due to your client's failure to pay tax on income received.
It is apparent from the offer that (albeit incorrectly), the Respondent regarded its case a strong one or, at the very least, one which would be contestable. The exact amount offered is not, in the Court’s view, critical. Rather, it was the fact of a comprise being offered and the detailed reasons that were advanced by the Respondent for settling the matter (at least two of which were framed for the benefit of the Applicant). This demonstrates that the Respondent was willing to compromise. It had undertaken an examination of what it perceived were critical factors that suggested that the matter should not proceed to hearing and derived an amount that it proposed would mitigate against these factors.
It is further noted that in an exchange with Her Honour Judge Hartnett at the conclusion of the hearing on 16 May 2016, in response to a statement that the evidence of the Applicant had been completed, Counsel for the Respondent stated that they were “Always thinking about settlement”. Again this indicates a genuine intention and open mind to comprise.
The Court rejects the submission that there was no genuine willingness to settle the matter.
While not advanced in any significant way, the Court has addressed whether it was unreasonable for the Respondent to have rejected the offer of the Applicant to settle the matter for $100,000. The Applicant’s correspondence was as follows:
My client has instructed me to reject your offer and instead counter propose an all in settlement for the amount of $100,000 on a Calderbank Offer basis.
The basis of the counter offer is as follows:
- Evidence provided from independent witness statements confirm the spread of hours as well as days worked by my client as referred in his claim
- At the lowest level of our claim being at a level 3 based on a mandatory 4 hours per day my client is entitled to just under $70,000; so even if we were to entertain my client as being at a level 2 as per your own witnesses affidavit then this may reduce this aspect of my client's claim to approximately $50,000
- We consider a further $50,000 is a reasonable commercial offer encompassing all other claimed entitlements of my client's claim such as superannuation, allowances etc...
In Veda Advantage Ltd v Malouf Group Enterprises Pty Ltd(No 2) [2016] FCA 470 at [31], the following matters were considered relevant when determining whether it was reasonable to reject a Calderbank offer:
In deciding whether it is unreasonable for an offer to be rejected, the following matters should ordinarily be considered:
• the stage of the proceeding when the offer was made;
• the time afforded to the offeree to consider the offer;
• the extent of compromise involved;
• the offeree’s prospects of success, assessed as at the date of the offer;
• the clarity with which the terms of the offer were expressed;
• whether the offer foreshadowed an application for indemnity costs in the event of refusal.
Here:
a)The offer was made on 6 October 2016. This was five days prior to the matter resuming for the hearing of the Respondent’s evidence. In effect, the offer was made half way through the trial. At this stage, no doubt a significant amount of costs had already been incurred. It is also relevant that the offer was made to “counter” the offer of the Respondent and, importantly, on the last day within which the Respondent’s offer was open for acceptance. The fact that the Applicant waited until the expiry of the offer to make a counter-offer, on one view indicates that his offer was not a genuine offer of compromise and opportunistic.
b)The Applicant had reduced the sum of his initial offer of compromise by $50,000. When considered in the context of the ultimate compensation awarded, the offer by the Applicant was significantly less than what the Court later awarded. This has some weight against the Respondent.
c)It is apparent from the letter of compromise from the Respondent dated 22 September 2016 that the Respondent assessed its prospects of success favourably. At that stage in time, the Applicant had presented all of the evidence (that is, there had been cross-examination of the Applicant’s witnesses) upon which he relied and the Respondent was of the view that that evidence would not be considered favourably or succeed in proving the Applicant’s case. The Respondent had not presented its own case yet, and, seemingly, believed that its evidence would be well received. The Court takes no issue with the Respondent having formed this view, the credibility of a witness and the acceptance of evidence is a highly contentious matter. That the Respondent had confidence is not something they can be criticised for.
d)The clarity of the offer was less than precise. In fact, the only precise part of the offer was the amount – being $100,000. There is no clear reference to where costs lie nor how long the offer was open for. While the lack of clarity is not significant, it does indicate that, in circumstances where there was only a short time before the recommencement of the trial, the Respondent was not in a proper position to assess the counter-offer.
e)The offer dated 6 October 2016 was said to have been made on “Calderbank basis”. It did not foreshadow that an application for indemnity costs (which reference was made to in the submissions) would be sought.
In light of the above, the Respondent’s refusal (by its silence) to accept what (in hindsight) was a favourable and generous settlement offer was not an unreasonable act or failure to act. It was, in the particular circumstances, a considered choice which had been informed by its assessment of the strength of the Applicant’s case having already seen it. While that assessment of the prospects of success may have been incorrect, it was not unreasonable as, for the reasons given in the Respondent’s own letter of compromise, it considered there to be a number of matters which were of concern in the Applicant’s case.
The Respondent took a risk to proceed with the hearing in circumstances where the compensation that would be awarded largely hinged upon the credibility of the witnesses and, ultimately, came down to whose evidence could be preferred and a concession made by the Respondent in the course of the trial that the basis on which he believed the Applicant was a level 2 employee (a lack of qualification) was not relevant. Such were not matters that were known at the time of the rejection of the offer.
Accordingly, the alleged failure to compromise and the reasonableness of rejecting the offer do not attract the operation of s.570 in the circumstances of this case.
The Respondent’s Defence
The Applicant contends that the Respondent’s defence was based on misconceived case theories or was otherwise hopeless or bound to fail.
In relation to this ground the Applicant submits:
i. The question concerning the hours worked by the Applicant as well as when he commenced working for the Respondent in the context of s.570 is not whether the Respondent lost in judgement on its version of the facts, but rather the question is: was the Respondent’s version of the facts supported by any objective evidence?; was its version of the facts arguable on a legal basis?; was its argument brought with a proper legal foundation?; or was it’s allegations merely an unmeritorious denial of fact?
j. Unlike the Applicant’s evidence which involved objective evidence of an early start and late finish time, the Respondent did not produce any such evidence, notwithstanding what limited credence might be given to the comments of Mr. Fadoul who claimed that the Applicant attended his milk bar just after 6am in the morning every day despite this being proven in evidence as not being the case. The provision and effectiveness of such evidence was flagged to the Respondent in the correspondence sent to its representative 9 December 2015.
k. Furthermore, the legal principles established by Scotto v Scala Bros Pty Ltd & Anor [2014] FCCA, Watts v Rake (1960) 108 CLR 158, Armory v Delamirie [1722] EWHC KB J94, as well as the legal principles of Commodum Ex Injuria Sua Nemo Habere Debet and Ex Turpi Causa Non Oritur Actio mean that the Respondent’s legal position with regards to its denials have and had no arguable legal basis.
l. The Respondent’s assertions against the Applicant with regards to his hours worked sought to rely on scandalous evidence that he attended work late, did not attend work at all, and slept while he should have been working or that he simply slept while at work. However, for the reasons abovementioned as well as those expressed in the Applicant’s closing submissions, such assertions were not and are not merited, nor did they or do they invoke any tenable propositions of law that could challenge the hours claimed to be worked by the Applicant - which judgement in this matter actually found to be more.
In response, the Respondent argues that the Applicant’s contention that its defence was based on misconceived case theories or was otherwise hopeless or bound to fail is itself misconceived. The Respondent argues:
Plainly, it cannot be said that a defence is hopeless where it successfully defeats allegations. Here, a number of the Applicant’s allegations were defeated at trial:
i. The Court found that the Applicant had exaggerated his hours of work.
ii. The Applicant claimed to be employed at level 4 under the Bread Award and level 5 under the Food and Beverage Award. The court rejected both allegations and found that the Applicant fell within a lower classification.
The Court does not accept that the Applicant’s contentions give rise to a basis for the Court to make a costs order against the Respondent or Mr Pajic.
Ultimately, the Applicant’s commencement date with the Respondent and his hours of work were questions of fact. The hearing before this Court was largely focused on those issues. That Mr Iaconis or the Respondent were not believed was a matter for the trial Judge.
It cannot be argued that the Respondent’s defence was misconceived on the grounds the Applicant claims. The Respondent was entitled to defend its position.
It is hardly uncommon in matters such as this that parties would present the Court with competing factual assertions. The fact that the Court preferred the Applicant’s claims to those of the Respondent does not form a basis upon which it could be claimed that the Respondent’s defence was based on misconceived case theories or was otherwise hopeless or bound to fail. Ultimately, as the Respondent has argued, some of the Applicant’s assertions were defeated at trial. It does not then follow that it was unreasonable or misconceived for the Applicant to have advanced those contentions.
The Court does not agree that the Respondent’s Defence was unreasonable or that it caused the Applicant to incur further costs as a result.
The Respondent’s Appeal to the Federal Court
To the extent that the Applicant relies on matters that arose in the Respondent’s appeal of El Souki (No.1) to the Federal Court as an unreasonable act or omission that attracted costs, those matters were determined by Justice Snaden in Macushla Pty Ltd (Trading as Sunnytop Bakery Ciabatta Della Nonna) v El Souki [2019] FCA 643 (Federal Court Judgment). They are of no relevance to the costs in this matter.
To the extent that the Applicant relies on the appeal being issued as a matter or example of improper conduct, this cannot be accepted. The Court refers to the Federal Court Judgment again which found such was not unreasonable.
Conclusion – Costs
Having determined that s.570 of the FW Act is not enlivened, it is unnecessary to consider whether costs should be awarded against Mr Pajic. Rather, the usual position is adopted that each party is to pay their own costs.
Further, the Court notes that while it is not satisfied that s.570 has been enlivened in the circumstances of this case, had it done so there are compelling reasons why the Court would be minded not to exercise the discretion to award costs.
The conduct of this matter has been less than satisfactory. While the Court has some responsibility for this (however this was largely due to the limited availability for hearings), the parties’ conduct was the ultimate reason for the issues experienced. These issues were not restricted to the Respondent. There are a number concerns that the Court had with the way the Applicant conducted this case and the way in which his arguments were advanced.
As an example only, the Applicant’s submissions as to costs and penalty contain arguments and assertions that are entirely unfounded and unwarranted. To submit that the contraventions in this case are akin to slavery and organised crime is, with respect, scandalous itself. Further, to state that the Court failing to award maximum penalties would “legitimise organised crime and endorse slavery” is disrespectful. It is also the case that, as the Court noted above, the Applicant stated in submissions that Mr Iaconis’ affidavit had accepted or conceded matters when, plainly, they did not. The Court has not considered whether the arguments advanced by the Applicant in the substantive claim were similarly flawed. It is noted that, ultimately, El Souki v Macushla (No.1) was determined on the basis of credibility and factual matters, not legal principles or argument. To the extent the classification of the Applicant was a question of law, it cannot be said that the Court’s findings were aided by the parties submissions given the Court rejected the principal arguments of both parties on that issue. That is, neither was truly successful.
However, given the Court is not satisfied s.570 is enlivened, it is unnecessary to ultimately determine whether the discretion should be exercised. Rather, the ordinary rule is to apply and there will be an order that there is to be no order as to costs.
Conclusion
The Court finds that a penalty of $123,750 is to be paid to the Applicant for the Contraventions.
As no submission was made regarding the time for the payment of penalties, the Court will order the Respondent pay the pecuniary penalties to the Applicant within three months of the date of the Court’s orders.
There is no reason for costs to be awarded against either party. On that basis there is to be no order as to costs. Each party shall bear their own legal costs.
I certify that the preceding one hundred and fifty-two (152) paragraphs are a true copy of the reasons for judgment of Judge C. E. Kirton QC
Associate:
Date: 22 July 2020
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