Fair Work Ombudsman v Northcoast Security Services Group Pty Ltd & Ors (No.2)
[2019] FCCA 1198
•10 May 2019
FEDERAL CIRCUIT COURT OF AUSTRALIA
| FAIR WORK OMBUDSMAN v NORTHCOAST SECURITY SERVICES GROUP PTY LTD & ORS (No.2) | [2019] FCCA 1198 |
| Catchwords: INDUSTRIAL LAW – Application for pecuniary penalties against second and third respondents on the ground they were each involved in the first respondent’s contraventions of terms of an award in relation to a number of alleged employees, such contraventions consisting of the failure to pay amounts owing under the award – whether the first respondent was the employer of the alleged employees – the first respondent held to be the employer of the alleged employees – whether second and third respondents knew of the facts that constituted the first respondent’s failure to pay to the employees amounts owing under the award – whether the second and third respondents were aware that an award applied to the employees – second and third respondents each had knowledge of the facts – second and third respondents also had knowledge an award applied to the employees – each of the second and third respondents involved in first respondent’s contraventions of the award – whether Court has power to order compensation to any of the employees in circumstances where the employees are not parties to the proceeding – leave reserved to hear argument on that question. |
| Legislation: Fair Work Act 2009 (Cth), ss. 13, 14, 45, 323(1)(a), 535 Federal Court Rules 2011 (Cth), rr.1.05(3)(b), 16.02(1), 16.07 |
| Cases cited: Al-Hakim v Toyoor Al Jannah Pty Ltd & Ors [2018] FCCA 3184 |
| Applicant: | FAIR WORK OMBUDSMAN |
| First Respondent: | NORTHCOAST SECURITY SERVICES GROUP PTY LTD ACN 145 984 032 |
| Second Respondent: | KULDEEP CHOUHAN |
| Third Respondent: | RICKY JOHN NELSON |
| File Number: | SYG 3576 of 2014 |
| Judgment of: | Judge Manousaridis |
| Hearing date: | 26, 27 & 28 February 2018 26, 27 & 28 March 2018 |
| Date of Last Submission: | 11 April 2018 |
| Delivered at: | Sydney |
| Delivered on: | 10 May 2019 |
REPRESENTATION
| Counsel for the Applicant: | Ms E Raper appearing with Ms V Bulut |
| Solicitors for the Applicant: | Fair Work Ombudsman |
| Solicitors for the Second Respondent: | Mr F Gutierrez and Mr M Elnajjar of Avondale Lawyers |
| Counsel for the Third Respondent: | Mr A Duc |
| Solicitors for the Third Respondent: | Williamson Legal |
DECLARATIONS
The first respondent (Northcoast) contravened:
(a)s.45 of the Fair Work Act 2009 (Cth) (FW Act) by failing to pay two employees of Northcoast the minimum rates of pay prescribed by cl.14.1 of the Security Services Industry Award 2010 (Award);
(b)s.45 of the FW Act by failing to pay ten employees of Northcoast their Casual Loading prescribed by cl.A.5.4 of Schedule A to the Award;
(c)s.45 of the FW Act by failing to pay fourteen employees of Northcoast their Saturday Span Penalty prescribed by cl.A.7.3 of Schedule A to the Award;
(d)s.45 of the FW Act by failing to pay thirteen employees of Northcoast their Sunday Span Penalty prescribed by cl.A.7.3 of Schedule A to the Award;
(e)s.45 of the FW Act by failing to pay fourteen employees of Northcoast their Night Span Penalty prescribed by cl.A.7.3 of Schedule A to the Award;
(f)s.45 of the FW Act by failing to pay ten employees of Northcoast their Public Holiday Span Penalty prescribed by cl.A.7.3 of Schedule A to the Award;
(g)s.45 of the FW Act by failing to pay five employees of Northcoast their Broken Shift Allowance prescribed by cl.15.1(a) of the Award;
(h)s.45 of the FW Act by failing to pay eight employees of Northcoast their Overtime Rates prescribed by cl.23.3 of the Award;
(i)s.323(1)(a) of the FW Act by failing to pay nine employees the amounts payable to them in relation to their performance of work in full.
The second respondent was involved in each of the first respondent’s contraventions identified in paragraph 1 of these orders.
The third respondent was involved in the first respondent’s contraventions identified in paragraphs 1(a) to 1(h) of these orders.
The applicant has liberty to make further submissions about whether the applicant is authorised to seek compensation orders under s.545(1) of the FW Act on behalf of persons who are not parties to the proceeding.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 3576 of 2014
| FAIR WORK OMBUDSMAN |
Applicant
And
| NORTHCOAST SECURITY SERVICES GROUP PTY LTD |
First Respondent
| KULDEEP CHOUHAN |
Second Respondent
| RICKY JOHN NELSON |
Third Respondent
REASONS FOR JUDGMENT
(Corrected)
Introduction
The applicant (FWO) claims that the second and third respondents, Mr Chouhan and Mr Nelson, were involved in contraventions by the first respondent, Northcoast Security Services Group Pty Ltd (Northcoast), of s.45 of the Fair Work Act 2009 (Cth) (FW Act) and that Mr Chouhan was also involved in contraventions by Northcoast of s.323(1)(a) of the FW Act. The FWO claims those contraventions consisted of Northcoast failing to pay to fourteen persons whom the FWO alleges were employees of Northcoast (Workers) amounts to which they became entitled under the Security Services Industry Award 2010 (Award), and Northcoast making unauthorised deductions from amounts it owed the Workers for work they performed. The FWO alleges the contraventions occurred during the period commencing 3 February 2012 and ending on 25 August 2013 (Relevant Period).[1]
[1] The amended statement of claim also alleges that Northcoast contravened s.535 of the FW Act, but it does not allege that Mr Nelson or Mr Chouhan were involved in those contraventions. The FWO does not press the amended statement of claim to the extent is alleges contraventions of s.535 of the FW Act because Northcoast is in administration – see Applicant’s Outline of Submissions on Liability [107]
It is common ground, or at least there is no real dispute, that during the Relevant Period:
a)Mr Chouhan and Mr Nelson were the only directors and shareholders of Northcoast;
b)Northcoast was in the business of providing to entities with whom it entered into contracts (Northcoast customers) security guards to carry on security activities at premises controlled by Northcoast customers;
c)Northcoast periodically issued to each Northcoast customer invoices claiming amounts for the security activities security guards it provided carried on at the premises controlled by the Northcoast customer, those amounts being calculated by applying an hourly rate agreed between Northcoast and the Northcoast customer to the time for which each security guard carried on security activities;
d)Northcoast provided to Northcoast customers the Workers to carry on security activities, and the Workers carried on the security activities;
e)Northcoast did not directly pay the Workers for the security activities they carried on at the premises controlled by Northcoast customers; instead they were directly paid out of funds in a bank account held by a company called Marsters Entourage Pty Ltd (Marsters Entourage) of which neither Mr Chouhan nor Mr Nelson was a director or shareholder;
f)the amounts each Worker was paid was calculated by reference to a fixed hourly rate, the hourly rate differing according to whether the security activity was “static” or “crowd control”; and
g)to the extent the Workers were provided with payslips in relation to the payment for the work they performed, the payslips represented it was Marsters Entourage who paid for the work the Workers performed.
There were two principal issues at the trial before me. One was whether, as the FWO contends, Northcoast was the “true employer” of the Workers. Mr Nelson contends that Northcoast was not the employer of the Workers because Northcoast “had a commercial arrangement with Marsters Entourage, a labour hire company that employed and paid the security guards and provided the labour of the security guards to Northcoast so that Northcoast could meet its services obligations to its clients”.[2] The second principal issue at the trial was whether, assuming Northcoast was the true employer of the Workers and it did contravene provisions of the FW Act, Mr Chouhan and Mr Nelson (who I will collectively refer to as “the respondents”) were involved in any contravening conduct by Northcoast.
[2] Affidavit of R J Nelson 15.09.2017, [17]
My saying that these were the two principal issues at the trial implies the respondents did not dispute the FWO’s allegations that, assuming Northcoast was the true employer, it contravened s.45 and s.323(1)(a) of the FW Act. That implication is based on three matters. First, in his written submissions, counsel for Mr Nelson said that, if the Court decides that Northcoast was the true employer, Mr Nelson would not contest the “Underpayments Question”.[3] The “Underpayments Question” is the second of the three questions counsel for the FWO identified in her written submissions on liability, namely, “the quantum of any underpayments”.[4] The second matter is the responses the respondents made in their defences to those parts of the amended statement of claim (ASC) that allege contraventions of s.45 and s.323(1)(a) of the FW Act. Each of the respondents states he does not plead to the allegations of fact made in those parts of the ASC. Third, neither Mr Chouhan nor Mr Nelson submitted that, assuming Northcoast was the true employer, Northcoast did not contravene s.45 or s.323(1)(a) of the FW Act in the manner alleged in the ASC.
[3] Third Respondent’s Outline of Submissions on Liability, [2]
[4] Applicant’s Outline of Submissions on Liability, [11]
It may not matter whether the respondents accept that, if Northcoast employed the Workers, it contravened the FW Act in the manner alleged in the ASC. The FWO submits the evidence substantiates the allegations made in the ASC that the Workers were covered by the Award, and that, based on that evidence, the Workers were underpaid in the amounts alleged in the ASC.
I will proceed as follows. I will first identify the evidence that is relevant to the activities of Northcoast, the extent to which the respondents conducted those activities on Northcoast’s behalf or on behalf of another entity; and the engagement of the Workers to perform work, the performance of work by them, and the payment for the work they performed. Much of the evidence is contained in contemporaneous documents, but there is substantial testimony from the Workers, and from Ms Chadban-Smith (formerly known as Ms Reyes) who during the Relevant Period provided administrative and bookkeeping services to Northcoast. Unless I state otherwise, my setting out the effect of the contents of a document should be taken to represent a finding of fact of what I state. I will also make findings of fact in relation to conflicts of the testimonial evidence I identify.
I will then set out in summary form my principal findings of fact, after which I will consider the following questions:
a)Was Northcoast the employer of the Workers during the Relevant Period?
b)Assuming (a) is answered in the affirmative, did Northcoast contravene s.45 or s.323(1)(a) of the FW Act in the manner the FWO alleges in the ASC?
c)To the extent (b) is answered in the affirmative, was either or both of the respondents involved in Northcoast’s contraventions of the FW Act?
Evidence and some findings of fact
The respondents - Mr Nelson
Mr Nelson commenced working in the security industry in around 2000.[5] In the early years Mr Nelson worked with a number of persons or companies. According to a letter from a Mr Jeffrey O’Rourke dated 26 May 2003, Goldbest Pty Ltd employed Mr Nelson from 5 August 2002;[6] according to a letter dated 21 May 2007 from a Mr Cohen, Mr Nelson had worked for Mr Cohen as a security officer for three years;[7] and in a letter dated 28 May 2007 signed by a Mr Brock Hamilton, it was said Mr Nelson had been working for Mr Hamilton for 2 years.[8]
[5] Affidavit of R J Nelson 15.09.2017, [3]
[6] Exhibit C, page 80
[7] Exhibit C, page 34
[8] Exhibit C, page 35. The letterhead is “Brock Hamilton and Ricky Nelson Trading as H & N SECURITY”.
From at least around 2007 Mr Nelson conducted his own business or businesses as the provider of persons to carry on security activities, either on his own account, or through a company or companies. The nature of the business Mr Nelson conducted is suggested by the Security Industry Act 1997 (NSW) (SI Act) which regulates the carrying on of security activities in New South Wales. That Act prohibits a person from undertaking without a licence two broad classes of activities, one being “security activities”,[9] and the other being “providing persons” to carry on “security activities”.[10] Under s.4(1) of the SI Act a person carries on a “security activity” if the person, “in the course of conducting a business or in the course of the person’s employment,” carries out one or more of the activities specified in s.4(1). Those activities include “acting as a crowd controller or in a similar capacity by physical or electronic means”, “patrolling, protecting or guarding property”, and “selling the services of persons to carry on any security activity referred to in this section”. The expression “providing persons” is defined in s.3(1) of the SI Act to include “employing or subcontracting another person (or arranging by contract, franchise or otherwise with another person) for the purpose of that other person employing or providing persons”.
[9] SI Act, s.7(2)
[10] SI Act, s.7(1)
The SI Act provides for two broad classes of licences, one to cover the carrying on of security activities, and one to cover the providing of persons to carry on security activities. The licences that permit the carrying on of security services are described as “Class 1” or “Class 2” licences, and the class of licences for providing others to carry on security activities are known as “master licences”. Subsection 10(1) of the SI Act provides that master licences are to be classified into the five subclasses identified in the subsection. The basis of the classification is the number of persons each subclass of master licence authorises the holder to provide to carry on security activities. It ranges from a holder who is self-employed and does not provide any other person to carry on security activities (described as “Class MA”) to a holder authorised to provide 50 or more persons to carry on security activities (described as “Class ME”). The basis of classification of Class 1 and Class 2 licences is the type of security activities that each licence permits. The security activities Class 1 licences permit are specified in s.11(1) of the SI Act, and the activities covered by Class 2 licences are specified in s.12(1) of the SI Act.
On 1 May 2007 Mr Nelson registered with the Australian Business Register the name “Independent Security”, [11] and recorded “Nelson, Ricky” as the entity name, and “Individual/Sole Trader” as the “Entity Type”. On 3 May 2007 “Independent Security” was registered in New South Wales under the Business Name Act, 2002 (NSW);[12] and on 16 August 2007 Mr Nelson applied for a Master Licence to permit Mr Nelson, as a sole trader trading under the name of “Independent Security” to provide “1-10 employees”.[13] By 3 August 2009 Mr Nelson was granted a Master Licence authorising him to provide 11-50 employees.[14]
[11] Exhibit FWO-1, page 2541
[12] Exhibit C, page 304
[13] Exhibit C, page 302. In answer 3 to the application form, Mr Nelson indicated that he previously held a Master Licence.
[14] Exhibit C, page 338
In addition to applying for a Master Licence in his own name, on 29 May 2009 Mr Nelson applied for a Master Licence on behalf of Independent Security Pty Ltd;[15] and it appears that by 3 August 2009 a Master Licence had been granted to Independent Security Pty Ltd.[16] On 28 January 2010 Independent Security Pty Ltd changed its name to North Coast Security Services Pty Ltd (NCSS). Mr Nelson was a director and secretary of NCSS from 23 April 2009 to 6 September 2010.[17]
[15] Exhibit C, page 347. Mr Nelson made an earlier application on 19 May
[16] Exhibit C, page 338
[17] Exhibit FWO-1, page 2535 (Exhibit C, page 371), but it has been rejected (Exhibit C, page 366
At around the time he commenced the business of providing persons to carry on security activities, Mr Nelson engaged a company called “Security Administration and Management Solutions Pty Ltd” (SAMS) to provide administrative support, and payroll and accounting services to NCSS.[18]
[18] T O Chadban-Smith affidavit, 14.06.2017, [13]
The respondents – Mr Chouhan
Mr Chouhan had worked in the security industry in Coffs Harbour since around 2004.[19] He began working as a part-time security guard in the local shopping centre at the Plantation Hotel, and at the Catholic Club. In around 2007 Mr Chouhan was appointed security manager at the Plantation Hotel. His employer was a Sydney based company called “Security Industry Broker” (SIB).[20] In that position Mr Chouhan performed tasks that included rostering, general compliance, overseeing nightly procedures, dealing with local police, maintaining levels of responsible service of alcohol, and making sure everything ran smoothly. In about 2010 to 2011 Mr Chouhan was promoted to the position of Assistant Manager at the Plantation hotel. In that position, Mr Chouhan was involved with administrative tasks, which included assisting the manager with rostering, general compliance, and organising the kitchen. Mr Chouhan remained in that role for approximately ten months.[21] Mr Chouhan first met Mr Nelson in around 2004 or 2005 when he and Mr Nelson both worked at the Plantation Hotel. In addition to holding a contract for the provision of security services to the Plantation Hotel, SIB held contracts for the provision of security services to hotels in Sydney. SIB used Mr Nelson to provide security staff to the Plantation hotel.
[19] K Chouhan affidavit 23.08.2017, [6]
[20] K Chouhan affidavit 23.08.2017, [14]
[21] K Chouhan affidavit 23.08.2017, [7]-[12]; see also exhibit C, page 163
Mr Chouhan has been a director and shareholder of a number of companies. These are as follows:
Company
Positions
Dates positions acquired and held
Security Industry Brokers Pty Ltd
Director; secretary
9 December 2009 to 19 January 2010[22]
E.P. One Security Group Pty Ltd
Director; secretary
9 December 2009 to 19 January 2010[23]
Green Corporation (Aust) Pty Ltd
Director
18 January 2010 to 19 January 2010[24]
North Coast Security Services Pty Ltd (originally known as Independent Security Pty Ltd)
Director; secretary
23 April 2009 to 6 September 2010[25]
Northcoast Security Services Group Pty Ltd
Director
22 February 2011 to 1 October 2014.[26]
Marsters Entourage Security Solutions Pty Ltd
Shareholder[27]
N/A
[22] Exhibit FWO-1, page 2601
[23] Exhibit FWO-1, page 2607
[24] Exhibit FWO-1, page 2612
[25] Exhibit FWO-1, page 2635
[26] Exhibit FWO-1, page 2561
[27] Exhibit FWO-1, page 2584
Establishment of Northcoast
On 25 August 2010 Northcoast was incorporated, and Mr Nelson was appointed a director and secretary.[28] On 6 December 2010 Mr Nelson applied for a Master Licence on behalf of Northcoast.[29] In the form of application Mr Nelson nominated himself as a “close associate” of Northcoast. That is an expression defined in s.5(1) of the SI Act as follows:
a person is a close associate of an applicant for, or the holder of, a licence if the person:
(a)holds or will hold any relevant financial interest, or is or will be entitled to exercise any relevant power (whether in his or her own right or on behalf of any other person), in the business of the licence applicant or holder, and by virtue of that interest or power is or will be able (in the opinion of the Commissioner) to exercise a significant influence over or with respect to the conduct of that business, or
(b)holds or will hold any relevant position, whether in his or her own right or on behalf of any other person, in the business or the licence applicant or holder.
[28] Exhibit FWO-1, page 2561
[29] Exhibit C, page 203
Mr Nelson also placed a tick in the box that is contained in the form of application that followed the printed words “MC- 11-50 employees”, thus indicating that Northcoast applied for a Master Licence that would authorise it to provide between 11-50 employees to carry on security activities. On 5 February 2011 Northcoast was issued with a Master Licence, noting Mr Nelson as the only “close associate”.[30]
[30] Exhibit C, page 225
According to Mr Chouhan,[31] in early 2011 Mr Nelson approached him saying that he wanted Mr Chouhan to work for him because he could use someone who had a security background, and who knew the Coffs Harbour clubs and venues. Mr Chouhan said that he wanted to think about it because he held a pretty good position as assistant manager. Mr Nelson said he was sure Mr Chouhan was not earning much and that if Mr Chouhan worked with Mr Nelson he would come in as a director and a shareholder, which meant he would get paid a weekly salary, and he would receive a share of the profits. Mr Nelson offered Mr Chouhan a salary of $52,000 and a 20% share of the profits.[32] A few days later, Mr Chouhan telephoned Mr Nelson and said he was interested in the job. Mr Nelson told Mr Chouhan that the head office is in Sydney which is where Mr Nelson would be; the head office would look after the important stuff; Mr Nelson had already secured “a lot of clients down here”, that he had “agreements with contractors who provide the actual guards”, and that what Mr Nelson needed “is someone who knows the lay of the land, and basically you’ll be my point man here”. Mr Nelson confirmed that Mr Chouhan would be paid $52,000 a year and have a 20% share of the profits. Mr Nelson also said, however, that Mr Chouhan would need to buy into the business. Mr Nelson said that “[p]ay is all sorted out at the Head Office”.[33] Mr Chouhan accepted Mr Nelson’s offer and, on 22 February 2011, he was appointed a director of NCSS.[34]
[31] K Chouhan affidavit 23.08.2017, [16]. Mr Chouhan’s affidavit gives “2012” as the year, but that is clearly an error.
[32] K Chouhan affidavit 23.08.2017, [16]
[33] K Chouhan affidavit 23.08.2017, [18]
[34] Exhibit FWO-1, page 2561
Mr Nelson gives a different account of the circumstances in which Mr Chouhan became a director and shareholder of Northcoast. According to Mr Nelson, in about 2011 or 2012 Mr Chouhan was working for SIB which had security services contracts in the north coast of New South Wales, and that “Northcoast was a subcontractor to SIB at the time”. Mr Nelson says he recalls Mr Chouhan was a director of SIB and that SIB operated from the same premises as SAMS that had a number of clients in the security industry. Mr Nelson says Mr Chouhan approached him stating that he would “like to come into the business of Northcoast with you”. Mr Chouhan said that he has completed a business degree, his partner is an accountant who wants to do her “CPA”, and that “[w]e can generate more profit for the company”. Mr Chouhan also said that he knew all of the guards in the town, and that he would manage Northcoast and thus allow Mr Nelson to focus on getting new clients. Mr Chouhan then said he could put in $50,000 on the condition he is paid $800 to $1,000.[35]
[35] Affidavit of R J Nelson 15.09.2017, [27], [28]
I do not accept Mr Nelson’s account of the circumstances in which Mr Chouhan agreed to become a director and shareholder of Northcoast. It is not plausible that Mr Chouhan would simply offer to put $50,000 into a business in circumstances where there is no evidence Mr Chouhan knew anything about Northcoast’s business. Also, there is no evidence that Mr Chouhan did invest $50,000 into Northcoast. I accept Mr Chouhan’s account of the circumstances in which he agreed to join Northcoast, except for one aspect. I do not accept Mr Nelson said to Mr Chouhan words to the effect that Mr Nelson had “agreements with contractors who provide the actual guards”. First, although there is in evidence a written agreement between Northcoast and Marsters Entourage dated 30 June 2012, there is no evidence that, at the time Mr Nelson approached Mr Chouhan, Northcoast had entered or had purported to enter into any agreement with any company for the provision of security guards. Second, as I set out later in these reasons, there is evidence, which I accept, that Mr Chouhan was responsible for interviewing prospective security guards and offering them positions to perform security activities at premises controlled by Northcoast customers, and that he did so without reference to any subcontractor or labour hire company. That renders unlikely that Mr Nelson said to Mr Chouhan words to the effect that the security guards would be hired in a manner that did not occur in the course of Mr Chouhan’s involvement with Northcoast.
On about 11 March 2011 an enquiry was made of New South Wales Police Force about the fee for the issue of a replacement master licence held by Northcoast that would list Mr Chouhan as a close associate.[36] On 28 March 2011 Mr Nelson applied on behalf of Northcoast to amend the licence that had been issued on 7 February 2011.[37] On 9 May 2011 the New South Wales Police Force issued to Northcoast the master licence showing Mr Nelson and Mr Chouhan as “close associates”, with Mr Nelson also being shown as the “Nominated Person”.[38] In the covering letter by which Northcoast was provided with the master licence, it is stated that the licence is governed by the Security Industry Regulation 2007 (NSW). Relevant to the matters I am required to decide is reg.36(e), which is as follows:
[36] Exhibit C, page 218
[37] Exhibit C, page227
[38] Exhibit C, pages 222-223
It is a condition of a master licence that the licensee must keep a register in the approved form containing the following records:
(e)in relation to each occasion on which the holder of the master licence is engaged to provide security services to be performed by a class 1 licensee employed by the holder of the master licence:
(i)the name and address of the person engaging those services, and
(ii)the address of the location at which the services are provided, and
(iii)the date on which the services are provided, and
(iv)details of the services provided, and
(v)the name of the class 1 licensee who provided the services.
Commencement and nature of Northcoast’s business
According to Ms Chadban-Smith, in around March 2011 a Ms Gray sent an email to customers of NCSS informing them that NCSS was changing to Northcoast, and that Northcoast would take over NCSS’s contracts to supply security guards.[39] Ms Gray was then employed as office manager by SAMS.[40] Mr Nelson does not in his affidavit dispute this aspect of Ms Chadban-Smith’s evidence, and there is no reason why I should not accept her evidence.
[39] T O Chadban-Smith affidavit, 14.06.2017, [16]
[40] T O Chadban-Smith affidavit, 14.06.2017, [13]
After Ms Gray had sent the email to the customers of NCSS, Northcoast commenced issuing to its customers invoices claiming payment of amounts for security activities that security guards Northcoast provided to them carried on at premises controlled by the customers. Many of these invoices are in evidence.[41] They show that Northcoast and, before it, NCSS, issued to each customer each week or fortnight an invoice, and each invoice identified the names of the persons who carried on security activities on premises controlled by the customers, the date on which, and the hours for which on each day each person carried on security activities, the hourly rates for the work performed by each person, and the total amount payable for the security activities that had been carried on.
[41] Exhibit FWO-1, behind tabs 23-29
It may readily be inferred that Northcoast and, before it commenced business, NCSS, issued these invoices under agreements NCSS and Northcoast made with each of the entities to whom NCSS and Northcoast issued invoices. Some of the agreements are in writing and in evidence. In an agreement made with Wilson Parking Australia 1992 Pty Ltd, for example, Northcoast agreed it would provide “Security Services as are requested from time to time by Wilson Security of the Contractor in relation to Customers”. The expression “Security Services” is defined to include “patrol services, alarm response services, crowd control, event staff, security officers in uniform, covert security officers, loss prevention officers in uniform, covert prevention officers, traffic controllers, armed guards, alarm monitoring, mobile patrols, canine handlers, private investigators and CPP”.[42] In an agreement made with The Coast Hotel, NCSS agreed to provide “licensed security personnel to ensure the safety and security of persons and property and deter anti-social behavior [sic]” at the venue to which the agreement applies.[43]
The administration of Northcoast’s business up to the end of January 2012 – Ms Chadban-Smith’s evidence
[42] Exhibit FWO-1, page 2002
[43] Exhibit FWO-1, page 2106
There is evidence about the manner in which Northcoast operated its business; and Ms Chadban-Smith principally gives this evidence. Ms Chadban-Smith commenced her employment with SAMS as an accounts clerk in February 2011, and she assisted Ms Gray (who, as I have already noted, was employed by SAMS as office manager) to provide bookkeeping services for NCSS.[44]
[44] T O Chadban-Smith affidavit, 14.06.2017, [15]
In around March or April 2011 Ms Chadban-Smith became primarily responsible for providing bookkeeping services to Northcoast under the supervision of Ms Gray.[45] Ms Chadban-Smith ceased her employment with SAMS in about the end of January 2012, but in about February 2012 Northcoast employed her as an accounts administrator. She remained in that position until November 2013.[46]
[45] T O Chadban-Smith affidavit, 14.06.2017, [18]
[46] T O Chadban-Smith affidavit, 14.06.2017, [4], [5]
According to Ms Chadban-Smith, she performed a number of tasks for Northcoast. First, she maintained a record of the rates of pay for, and other information concerning, persons whom Northcoast provided to Northcoast customers to carry on security activities.[47] There is in evidence an example of the documents on which the information was required to be recorded. The example is a document headed “SHIRTS Employee Details Form”. (“SHIRTS” is the acronym of the name of a company called “Security and Hospitality Industry Recruitment and Training Specialist Pty Ltd”, which I discuss later in these reasons.) The document required there be recorded on it the name of the employee, the emergency contact, superannuation details, the financial institution to which money should be paid, security licensing details, and details of the employee’s driver’s licence.
[47] T O Chadban-Smith affidavit, 14.06.2017, [24(b)]; Exhibit TOC-1, pages 20-22
A second task or group of tasks Ms Chadban-Smith performed concerned invoicing the Northcoast customers. The activities included the following:
a)Compiling timesheets each security guard completed. The timesheets were in a standard printed form. They required each security guard to state his or her name and security licence number, the place and date at which the security guard carried on security activities, and the nature of the security activities he or she carried on. The timesheets were completed by the employees at the premises at which they carried on their activities, and the Northcoast customer sent the completed timesheets to SAMS. Each timesheet identified the name of the company who provided the security guard who completed the timesheet.[48] There is no dispute that during the Relevant Period the company was recorded as “Northcoast Security Services Group Pty Ltd”.[49] In addition, Mr Nelson or Mr Chouhan informed SAMS by email whether a particular employee was an “EFT” or “EFTPOS” employee (EFTPOS Employee), or whether the employee was a “cash” employee (Non-EFTPOS Employee).[50]
b)Corresponding with Mr Nelson and Mr Chouhan if timesheets were missing or had not been provided.[51] Ms Chadban-Smith gives as an example an email from her to Mr Chouhan sent on 4 July 2011 in which Ms Chadban-Smith says she is missing timesheets from three venues, and that a timesheet had the venue cut off, assuming that the timesheet was “Zebu’s”. Mr Chouhan responded on the same day stating that Mr Nelson could be contacted about two of the venues, that the other venue was responsible for the timesheets and can be contacted directly, and confirmed that the timesheet that had been cut off “is Zebu’s”.
c)Creating what Ms Chadban-Smith describes as a “payroll spreadsheet”.[52] There is in evidence a number of such sheets, one of which is headed “Payroll Calculation Sheet – Coffs – Week Ending 25/12/2011”.[53] That spreadsheet has one column that identifies a number of matters, these being the venues at which security guards carried on activities, allowances, deductions, and travel. It also includes at the bottom “Payment type”, and provides for two possibilities, “EFT” (presumably electronic funds transfer), and “Pick Up for Cash”. The last item is “Total Pay”. All but the last two of the remaining columns are headed “SHIRTS Gross” under which there is specified the name of the person who carried on security services, the week over which the activities were carried on (the period is the same in each column), the amounts payable to each security guard for the work performed at the venue identified in the first column, any allowances or deductions, and the total amount payable to the security guard. The last two columns are headed “Northcoast”, and under this heading appear in separate columns the names of Mr Nelson and Mr Chouhan.
d)Creating invoices to Northcoast customers.[54] Ms Chadban-Smith gives as an example an invoice dated 5 December 2011 issued by Northcoast to Moonee Beach Shopping Centre.
[48] T O Chadban-Smith affidavit, 14.06.2017, [24(c)(i)]; Exhibit TOC-1, pages 23-36
[49] See, for example, Affidavit of U T Taurua 16.06.2017, Exhibit UTT-1, pages 64-238
[50] T O Chadban-Smith affidavit, 14.06.2017, [28]
[51] T O Chadban-Smith affidavit, 14.06.2017, [24(c)(ii)]; Exhibit TOC-1, pages 37-39
[52] T O Chadban-Smith affidavit, 14.06.2017, [24(c)(iii)]; Exhibit TOC-1, pages 40-45
[53] T O Chadban-Smith affidavit, 14.06.2017, [24(c)(iii)]; Exhibit TOC-1, pages 41-42
[54] T O Chadban-Smith affidavit, 14.06.2017, [24(c)(iv)]; Exhibit TOC-1, page 5
The third group of tasks Ms Chadban-Smith carried on related to payroll. According to Ms Chadban-Smith she arranged payments to the security guards whom Northcoast provided to the Customers to carry on security activities. She did so through two companies. The first was New South Wales Guard Force Pty Ltd (NSW Guard Force). That company was incorporated on 8 February 2010.[55] Mr Nelson was a director from 21 April 2010 to 22 April 2010, Mr James Nelson, apparently Mr Nelson’s father, was a director from 22 April 2010 to 1 April 2011, and, during the Relevant Period, Mr Nelson was one of 5 shareholders holding 51 of 351 ordinary shares.[56] (In evidence given under cross-examination, Mr Nelson said that he was recorded as a shareholder through error.[57]) After 1 April 2011, and during the Relevant Period, the only director of NSW Guard Force was a Mr Feliciano Di Natale.[58] Ms Chadban-Smith commenced to arrange for NSW Guard Force to pay employees after she had a conversation with Mr Nelson at around the end of March 2011 when Mr Nelson said to her words to the effect: “you need to change the payroll so that all employees of Northcoast will be paid by NSW Guard Force”.[59] Mr Nelson also told Ms Chadban-Smith that Mr Chouhan and Mr Nelson would continue to be paid by Northcoast.[60]
[55] Exhibit FWO-1, pages 2626-2631
[56] Exhibit FWO-1, page 2629
[57] T188.30: “That was when it was done through SAMS, and it was an error on their end. If you actually have a look, I was on there – it wasn’t meant to be me at all, and I was there only for one day. It was information that was I guess from their point of view put incorrectly.”
[58] Exhibit FWO-1, page 262
[59] T O Chadban-Smith affidavit, 14.06.2017, [35]
[60] T O Chadban-Smith affidavit, 14.06.2017, [35]
The second company through which Ms Chadban-Smith paid employees was Security and Hospitality Industry Recruitment and Training Specialist Pty Ltd (SHIRTS). That occurred after around 7 November 2011 when Mr Nelson told Ms Chadban-Smith that he wanted her “to pay the employees from SHIRTS”.[61] That company was incorporated on 11 December 2008, and its shareholders and directors during the Relevant Period were Ms Margaret Henry and Mr Craig Wheeler.[62] Mr Wheeler was the manager of SAMS,[63] and Ms Henry worked at the office of SAMS at the time Ms Chadban-Smith worked there.[64] It also appears that by January 2012 Mr Nelson and Ms Henry had entered into a personal relationship.[65]
[61] T O Chadban-Smith affidavit, 14.06.2017, [37]
[62] Exhibit FWO-1, page 2617
[63] T O Chadban-Smith affidavit, 14.06.2017, [9]
[64] T O Chadban-Smith affidavit, 14.06.2017, [22]
[65] T O Chadban-Smith affidavit, 14.06.2017, [46]
According to Ms Chadban-Smith the tasks she performed in relation to payroll up to the end of January 2012 were as follows:
a)She emailed to each of Mr Nelson and Mr Chouhan the payroll spreadsheets and draft Northcoast customer invoices for their review and approval;[66] and she corresponded with Mr Nelson and Mr Chouhan regarding the correcting and approval of payroll spreadsheets and invoices, the employees rates of pay, and the rates to be paid by Northcoast customers.[67]
[66] T O Chadban-Smith affidavit, 14.06.2017, [24(c)(v)]; Exhibit TOC-1, pages 47-105
[67] T O Chadban-Smith affidavit, 14.06.2017, [24(c)(vi)]
b)After Mr Nelson or Mr Chouhan approved the payroll sheet, Ms Chadban-Smith created an invoice addressed to Northcoast (payroll invoices) containing subtotals of the amounts the payroll spreadsheets record as having become payable to the security guards who had carried on security activities at particular venues. The subtotals were arranged according to the areas in which the security guards carried out security activities and according to whether the security activity was crowd control or static. Until around 7 November 2011 Ms Chadban-Smith issued the payroll invoices in the name of NSW Guard Force. Ms Chadban-Smith exhibits as an example a payroll invoice dated 27 September 2011 which contains the following:[68]
[68] Exhibit TOC-1, page 109
Date
Hours
Description of services
Rate
Amount
25/09/2011
282
Crowd Control Guard Port Macquarie
$27.00
$7,614.00
25/09/2011
128.25
Crowd Control Guard Coffs Harbour
$27.00
$3,462.75
25/09/2011
142.5
Static Security Guard Coffs harbour [sic]
$19.00
$2,707.50
25/09/2011
5
Lock Up Guard Port Macquarie
$40.00
$200.00
After around 7 November 2011 Ms Chadban-Smith prepared payroll invoices in the name of SHIRTS. Ms Chadban-Smith refers to an invoice dated 13 December 2011.[69]
c)Ms Chadban-Smith sent the payroll invoices she prepared to Mr Nelson for his authorisation that they be paid by Northcoast from its bank account. Ms Chadban-Smith also provided to Mr Nelson what she describes as “cashflow spreadsheets”. These documents identified the invoices that were required to be paid, and the expected cash inflow.[70] Ms Chadban-Smith and Ms Gray both had access to the bank accounts maintained by NCSS, Northcoast, NSW Guard Force, and SHIRTS.[71]
d)After Mr Nelson or Mr Chouhan approved the payment of the payroll invoices, Ms Chadban-Smith arranged to pay the security guards.[72] Mr Chadban-Smith “processed the EFTPOS Employees’ wages” through NSW Guard Force’s “MYOB account”, and paid each EFTPOS Employee by bank transfer from NSW Guard Force’s bank account.[73] As for non-EFTPOS Employees, Ms Chadban-Smith or Ms Gray arranged for separate cash withdrawals from NSW Guard Force’s account from banks in Port Macquarie and Coffs Harbour.[74]
[69] Exhibit TOC-1, page 111
[70] T O Chadban-Smith affidavit, 14.06.2017, [24(c)(viii)]
[71] T O Chadban-Smith affidavit, 14.06.2017, [27]
[72] T O Chadban-Smith affidavit, 14.06.2017, [24(c)(ix)]
[73] T O Chadban-Smith affidavit, 14.06.2017, [29]
[74] T O Chadban-Smith affidavit, 14.06.2017, [30], Exhibit TOC-1 pages 144-165
Because it is relevant to assessing the evidence Mr Nelson gave under cross-examination (which I set out later in these reasons), it would be useful to set out here a chain of emails that illustrates the nature of the communications between Mr Nelson, Mr Chouhan, and Ms Chadban-Smith in relation to paying persons who carried on security activities, and invoicing Northcoast customers.
a)At 9:07 pm on 26 December 2011 Mr Nelson sent an email to Ms Gray, Ms Torane (who I infer worked at SAMS), and Ms Chadban-Smith stating the charge rates for the public holidays, and noting that “I have only put in the ones that need to be changed or new Venues, you guys should have the charge rate for all the other Venues”.[75]
b)At 11:08 pm on 26 December 2011 Mr Chouhan sent an email to Mr Nelson and to Ms Gray, Ms Torane, and Ms Chadban-Smith, stating the rates at which guards at Coffs Harbour and Port Macquarie were to be paid.[76]
c)At 11:31 am on 27 December 2011 Mr Nelson sent an email to Mr Chouhan (copied to Ms Chadban-Smith, Ms Gray, and Ms Torane) stating that all shopping centre guards are to be paid $30 for public holidays.[77]
d)At 5:01 pm Ms Chadban-Smith sent to Mr Nelson and to Mr Chouhan “[p]ayroll for the week ending 25/12/2011”.
e)At 2:37 pm on 28 December 2011 Ms Chadban-Smith sent to Mr Nelson a number of Northcoast customer invoices. The email begins: “This is what I charged the following venues for Christmas Eve”, and concludes: “Please let me know if I have charged the correct amounts, also let me know if I have to charge the public holiday rate from 12:00 AM on Saturday morning”.[78]
f)At 8:36 pm on 28 December 2011 Mr Chouhan sent an email to Ms Chadban-Smith, Ms Gray and Ms Torane, and copied to Mr Nelson, stating “Me and Rick never received any Invoices or payroll today”.[79]
g)At 10:01 pm on 28 December 2011 Mr Nelson sent an email to Mr Chouhan, Ms Chadban-Smith, Ms Gray, and Ms Torane stating (errors in original): “We need payroll ASAP if Guards don’t get their money on time we will be a problem, as they will not work over the weekend this will costs NCSSG big time as Saturday night being NYE and the biggest night of the year for security”. [80]
[75] T O Chadban-Smith affidavit, 14.06.2017, Exhibit TOC-1, pages 48-49
[76] T O Chadban-Smith affidavit, 14.06.2017, Exhibit TOC-1, page 49
[77] T O Chadban-Smith affidavit, 14.06.2017, Exhibit TOC-1, page 48
[78] T O Chadban-Smith affidavit, 14.06.2017, Exhibit TOC-1, page 66
[79] T O Chadban-Smith affidavit, 14.06.2017, Exhibit TOC-1, page 52
[80] T O Chadban-Smith affidavit, 14.06.2017, Exhibit TOC-1, page 52
Again because it is useful to assess evidence Mr Nelson gave under cross-examination, it would be useful to set out a chain of emails that relate to the system of cash withdrawals Ms Chadban-Smith describes. The chain was initiated by Mr Nelson sending an email to Ms Chadban-Smith on 13 January 2012.[81] He asked whether Ms Chadban-Smith added “Mick Ussher Commission to the Coffs payroll for Phoebe”. Ms Chadban-Smith responded by email on 13 January 2012 stating “yes”, and also suggesting that if Mr Nelson looks at the spreadsheet he will see that Mr Ussher had been allocated $1,092.35 for commission; and that when one looked at the “cash denomination sheet”, the second amount is allocated to Mr Ussher.[82] Mr Nelson then sent an email to Ms Chadban-Smith on 13 January 2012 instructing her that “from now on when the payroll is done and [sic] forward on to Phoebe and Mark”; that “Phoebe is only to get the Coffs payroll not Port as well” and that “Mark is only to get the Port payroll not Coffs as well”. Mr Nelson concluded by stating that “[i]t was meant to be set up like this from the start”, and he did not know “why they have been getting each other’s payrolls”.[83] Ms Chadban-Smith responded by stating that she was following “what has been happening before I started on [sic] North coast”, and requested that “[i]n future please address me in what you expect in the beginning so that no misunderstandings occur”.[84] Mr Nelson then sent an email in which he said: “I will be down next week so will run over everything with you”, and stated that “[j]ust from now on work it that way thanks”.[85] After Ms Chadban-Smith confirmed she will do so, Mr Nelson requested that Ms Chadban-Smith “Cc me all emails to Phoebe and Mark so we don’t run into problems again”, and noted that “the office manager Sarah she should have pick [sic] that up”.[86]
[81] T O Chadban-Smith affidavit, 14.06.2017, Exhibit TOC-1, page 163
[82] T O Chadban-Smith affidavit, 14.06.2017, Exhibit TOC-1, page 163
[83] T O Chadban-Smith affidavit, 14.06.2017, Exhibit TOC-1, page 162
[84] T O Chadban-Smith affidavit, 14.06.2017, Exhibit TOC-1, page 159
[85] T O Chadban-Smith affidavit, 14.06.2017, Exhibit TOC-1, page 159
[86] T O Chadban-Smith affidavit, 14.06.2017, Exhibit TOC-1, page 158
Northcoast’s operations during and after Relevant Period – Ms Chadban-Smith’s evidence
According to Ms Chadban-Smith, in about late January 2012 she met with Mr Nelson and Ms Henry at a café in Castle Hill. Ms Henry offered Ms Chadban-Smith a job doing bookkeeping duties for Northcoast and for “Marsters Entourage”, and that Ms Chadban-Smith would be paid $300 gross by each of Northcoast and Marsters Entourage.[87] Mr Nelson said that “Marsters Entourage will function as SHIRTS”. “Marsters Entourage” is a reference to a company called Marsters Entourage Pty Ltd. That company was incorporated on 15 September 2009. The shareholders are “Henry, Margaret”, that is, Ms Henry, and another person, “Henry, Louise”. Ms Henry was a director from 15 September 2009 until 28 August 2013.[88] Ms Chadban-Smith discussed with Mr Nelson and Ms Henry the things she needed to get started. These included obtaining a fax machine, a laptop, MYOB software, and access to the bank accounts of Northcoast and Marsters Entourage.[89]
[87] T O Chadban-Smith affidavit, 14.06.2017, [43]
[88] Exhibit FWO-1, page 2575
[89] T O Chadban-Smith affidavit, 14.06.2017,
In around February 2012, after Ms Chadban-Smith had commenced her employment with Northcoast, Mr Nelson had a meeting with Ms Chadban-Smith at her home. Mr Nelson told Ms Chadban-Smith that he wanted to “keep Northcoast clean”.[90] At a later meeting at her home with Mr Nelson and, on this occasion, Ms Henry, Mr Nelson told Ms Chadban-Smith that she should pay Mr Nelson and Mr Chouhan from Northcoast’s bank accounts, and that different rates are to be invoiced by Marsters Entourage to Northcoast for the “static” and the “crowd control” hours worked by employees.[91] In another meeting at the home of Ms Chadban-Smith with Mr Nelson and Ms Henry, Mr Nelson said words to the effect that “we are going to pay the employees from master’s bank account instead of through SHIRTS. I want to avoid using any company owned by Craig”. Mr Nelson said “yeah” in response to Ms Chadban-Smith’s question that “[s]o that means all guards except you, Kul [Chouhan] and Phoebe”.[92]
[90] T O Chadban-Smith affidavit, 14.06.2017, [47]
[91] T O Chadban-Smith affidavit, 14.06.2017, [48]
[92] T O Chadban-Smith affidavit, 14.06.2017, [49]
According to Ms Chadban-Smith, after she accepted employment from Northcoast, she performed the same bookkeeping duties she had performed while she was employed by SAMS, except for the following:
a)Ms Chadban-Smith alone was responsible for providing bookkeeping services to Northcoast.[93]
b)Ms Chadban-Smith received by email from Mr Chouhan and, on one or two occasions, by email from Mr Nelson, details of new security guards.[94]
c)Ms Chadban-Smith received timesheets by email sent by either Mr Nelson, or by Mr Chouhan, or by the security guard who had completed the timesheet.[95]
d)Ms Chadban-Smith met Mr Nelson about once a week, either at her home or at the home of Mr Nelson and Ms Henry in Kellyville. During those meetings Mr Nelson discussed contracts Northcoast held with new clients, and the rates that would be charged to those clients.[96]
[93] T O Chadban-Smith affidavit, 14.06.2017, [52(a)]
[94] T O Chadban-Smith affidavit, 14.06.2017, [52(b)]
[95] T O Chadban-Smith affidavit, 14.06.2017, [52(c)]
[96] T O Chadban-Smith affidavit, 14.06.2017, [52(d)]
Ms Chadban-Smith provided examples of the tasks she continued to perform after Northcoast employed her. These included the following:
a)In relation to maintaining a record of the rates of pay for, and other information concerning, persons whom Northcoast provided to customers to carry on security activities, there is an email Mr Chouhan sent to Ms Chadban-Smith on 30 March 2012 attaching an “Employee Details Form” in relation to a “New Employee Tweed Heads”. Mr Chouhan also states the following “EFT. $18 + $2 for hospital shifts. Application form attached”.[97] There is also an email Mr Chouhan sent to Ms Chadban-Smith (copied to Mr Nelson) on 25 March 2012 specifying a name and stating “Employment form faxed. Crowd Control Rate: $23.00 P/H -----$18 + $5 Static Rate: $18:00 P.H Hospital Rate: $18 + $2 = $20.00”.[98] Ms Chadban-Smith identified further examples in her second affidavit.[99]
b)In relation to receiving timesheets, Ms Chadban-Smith referred to an email she sent to Mr Chouhan on 7 May 2012 identifying the one missing timesheet, and the assumption that she will be getting it at around lunchtime to which Mr Chouhan responded “Correct!!”[100]
c)As for continuing to create payroll spreadsheets, Ms Chadban-Smith refers to payroll calculation sheets she produced for the weeks ending 8 April 2012, 14 July 2013, 15 September 2013, and 22 September 2013.[101] These are in a similar form to the spreadsheets Ms Chadban-Smith had prepared when SHIRTS paid except that “Marsters Entourage” is recorded in all but the last two columns. The last two columns are headed “Northcoast”, and these record payments due to Mr Chouhan and Mr Nelson. Some of the payroll spreadsheets record payment of $300 to Mr Chouhan by Marsters Entourage.
d)As for preparing Northcoast customer invoices, Ms Chadban-Smith gives the example of an invoice dated 9 April 2012 issued to Park Beach Hotel Motel.[102]
e)As for the approval of payroll spreadsheets, Ms Chadban-Smith refers to an exchange of emails between her and Mr Chouhan. It begins with an email Ms Chadban-Smith sent to Mr Chouhan at 2:19 pm on 9 April 2012 attaching a spreadsheet, and a response from Mr Chouhan on the same day stating: “Payroll looks ok, just need to amend . . . for the Plantation hour on Sat”.[103] Ms Chadban-Smith also refers to an email exchange with Mr Nelson on 24 April 2012 in which she asked Mr Nelson where she should send the “Coffs Payroll”.[104]
f)As for the preparation and approval for payment of payroll invoices, Ms Chadban-Smith refers to an invoice dated 20 February 2012 from Marsters Entourage,[105] and an email exchange on the same day where Ms Chadban-Smith asked Mr Nelson whether she could pay the amount claimed in the invoice and which Mr Nelson said she could.[106]
[97] Exhibit TOC-1, pages 167-173
[98] Exhibit TOC-1, page 166
[99] T O Chadban-Smith affidavit, 06.10.2017, [10]; exhibit TOC3, pages 1-24
[100] Exhibit TOC-1, page 176
[101] Exhibit TOC-1, page 178-198
[102] Exhibit TOC-1, page 198
[103] Exhibit TOC-1, page 199-204
[104] Exhibit TOC-1, page 205
[105] Exhibit TOC-1, page 216
[106] Exhibit TOC-1, page 217-220
Change in payroll arrangements August 2013 – Ms Chadban-Smith’s evidence
According to Ms Chadban-Smith, in about August 2013 she had a conversation with Mr Nelson and Ms Henry in which Mr Nelson said words to the effect that Ms Chadban-Smith should from “now on process the payroll to the employees through Collateral Damage instead of Marsters Entourage”.[107] Ms Chadban-Smith proceeded to do so about one week after Mr Nelson asked her to do so.[108] Collateral Damage was incorporated in 14 September 2012. Ms Henry was a director from 20 September 2009 to 28 August 2013. The other directors were a Ms Louisa Henry and a Ms Louise Pine Henry (who may be the same person, given they have the same address).[109]
[107] T O Chadban-Smith affidavit, 14.06.2017, [74]
[108] T O Chadban-Smith affidavit, 14.06.2017, [75]
[109] Exhibit FWO-1, page 2579
Payment of non-EFTPOS Employees payroll – Ms Chadban-Smith’s evidence
According to Ms Chadban-Smith, in a meeting in September 2013 at the home of Mr Nelson and Ms Henry, Mr Nelson said that Pers&Lis Protections Pty Ltd (P&L) would now be “doing the cash function and cash denominations to pay the ‘cash employee”. Sometime later, Mr Nelson or Ms Henry gave to Ms Chadban-Smith an email address and said: “we are not the Directors of Pers&Lis . . . you need to email Pers&Lis at this address and tell them the cash hours worked and they will invoice us”.[110] Ms Chadban-Smith says she then sent an email to P&L for the “static” and the “crowd-control” hours worked by non-EFTPOS Employees that week, she received by email an invoice from P&L for the hours worked by the non-EFTPOS Employees for that week, and paid the invoice by bank transfer to P&L’s account when the invoice was approved by Mr Nelson.[111]
[110] T O Chadban-Smith affidavit, 14.06.2017, [83]
[111] T O Chadban-Smith affidavit, 14.06.2017, [84]
Mr Nelson’s response to Ms Chadban-Smith’s evidence
In his affidavit Mr Nelson gives evidence or makes submissions about a number of matters. One relates to the nature of Northcoast’s operations. Mr Nelson claims that during the Relevant Period Northcoast “had a commercial arrangement with Marsters Entourage, a labour hire company that employed and paid the security guards and provided the labour of the security guards to Northcoast so that Northcoast could meet its services obligations to its clients”.[112] He supports that claim by referring to a written agreement dated 30 June 2012 between Northcoast and Marsters Entourage.[113] The agreement states that Northcoast, as part of its business, provides security services, Marsters Entourage (which is described as “the Subcontractor”) has represented that it is experienced in the supply of security and related services “at liquor-licensed venues/all Northcoast Security Services Group Sites”, that Northcoast has agreed to engage Marsters Entourage to provide the services identified in cl 3.1, and Marsters Entourage agreed to enter into the agreement.
[112] Affidavit of R J Nelson 15.09.2017, [17]
[113] Affidavit of R J Nelson 15.09.2017, [17]; annexure “RJN-1”
Under cl.3.1 Marsters Entourage agreed “to be engaged as an independent contractor and agrees to provide Workers”, and “Security Services”, being the activities described in cl.3.1. The word “Worker” is defined in cl.1.1 as “the employees, agents or servants of the Subcontractor, who will be assigned to provide the Services at the Premises”, these being the premises identified in the definition of “Premises” contained in cl.1.1. Under cl.4.1, Northcoast agreed it would pay Marsters Entourage “in accordance with the rates referred to in Schedule 1”. The schedule provides for hourly rates for different classes of guards. The agreement identified in some detail the obligations of Marsters Entourage. These included the obligations to provide the Services, and to cause its employees, contractors, and agents, the “Services” “in accordance with all directions given by [Northcoast] or any representative of” Northcoast. Another obligation was that Marsters Entourage ensure “its Workers sign an induction form to state that they understand and agree with the conditions set out in the Standard Operating Procedure of the Head Contractor [being the owner or manager of the “Premises” with whom Marsters Entourage is contractually engaged], Security Plan and perform duties as specified in the manual”. Marsters Entourage was also required to ensure that uniforms branded “NCSSG” would be worn by its Workers while performing security duties.
Another matter with which Mr Nelson deals in his affidavit is Ms Chadban-Smith’s first affidavit; and here Mr Nelson addresses only a few paragraphs of her affidavit. First, Mr Nelson deposes to a conversation with Ms Chadban-Smith in which it is Ms Chadban-Smith who sought to be employed by Northcoast, not Mr Nelson or Ms Henry who sought that Ms Chadban-Smith be employed by Northcoast.[114] Ms Chadban-Smith denies this account.[115] Nothing turns on whose account of the circumstances in which Ms Chadban-Smith came to be employed by Northcoast is correct. For reasons that will become apparent below, however, I do not find Mr Nelson to be a reliable witness.
[114] Affidavit of R J Nelson 15.09.2017, [31]
[115] T O Chadban-Smith affidavit, 06.10.2017, [32]
The second aspect of Ms Chadban-Smith’s evidence that Mr Nelson addresses in his affidavit relates to the circumstances in which Northcoast ceased using SHIRTS to pay the persons who carried on security activities. Mr Nelson deposes that he ceased using SHIRTS for that purpose because Ms Chadban-Smith advised Mr Nelson “not to have anything to do with SHIRTS” because it had been previously owned by Mr Craig Wheeler, and Ms Chadban-Smith said: “I know and have seen things you are unaware of so stay clear of it (SHIRTS)”.[116] Ms Chadban-Smith denies she said words to that effect. She recalls that in around January 2012 Ms Henry said words to the effect that she did not know about using SHIRTS because it was one of Mr Wheeler’s companies.[117] Again, nothing turns on whose account I accept. I find, however, that Mr Nelson’s account is implausible in light of Mr Nelson’s not having addressed, let alone disagreed with, that part of Ms Chadban-Smith’s evidence that on around 7 November 2011 Mr Nelson informed Ms Chadban-Smith that he wanted her “to pay the employees from SHIRTS”.[118] If, as Mr Nelson’s recollection would have it, Ms Chadban-Smith advised Mr Nelson in January 2012 to cease using SHIRTS because she knew and had seen things concerning SHIRTS of which Mr Nelson was unaware, it is likely she would have said this in November 2011 when Mr Nelson had directed Ms Chadban-Smith to pay employees from SHIRTS.
[116] Affidavit of R J Nelson 15.09.2017, [32]
[117] T O Chadban-Smith affidavit, 06.10.2017, [37]
[118] T O Chadban-Smith affidavit, 14.06.2017, [37]
The third aspect of Ms Chadban-Smith’s affidavit that Mr Nelson addresses in his affidavit is the matter to which Ms Chadban-Smith refers in paragraph 50 of her first affidavit.[119] Ms Chadban-Smith there deposes that on more than two occasions she attended the Baulkham Hills branch of ANZ Bank with Mr Nelson, or separately with Ms Henry, or with both Mr Nelson and Ms Henry, to be given access by Mr Nelson or by Ms Henry through use of a customer number to the ANZ Bank accounts of companies that included Northcoast, Marsters and “later” Collateral Damage. In his affidavit, Mr Nelson denies he “was involved with the company called Collateral Damage”, further deposing that he was unaware of its existence.[120]
[119] T O Chadban-Smith affidavit, 14.06.2017, [50]
[120] Affidavit of R J Nelson 15.09.2017, [33]
Ms Chadban-Smith responded to this part of Mr Nelson’s affidavit by deposing to having emailed both Mr Chouhan and Mr Nelson payroll spreadsheets including payslips for the Non-EFTPOS Employees, for the week ending 15 September 2013.[121] Although Ms Chadban-Smith identifies the payroll spreadsheets she says she emailed to Mr Nelson and to Mr Chouhan, a copy of the emails has not been adduced into evidence. Given there is documentary evidence that Ms Chadban-Smith had communicated to Mr Nelson and to Mr Chouhan payroll spreadsheets for the purpose of being authorised to arrange for Marsters Entourage to pay, it is probable that she did so also in relation to the payment by Collateral Damage. And I so find.
[121] T O Chadban-Smith affidavit, 06.10.2017, [63]; exhibit TOC3, pages 79-84
The fourth aspect of Ms Chadban-Smith’s affidavit Mr Nelson in his affidavit addresses is her evidence that during her employment with Northcoast she received timesheets by email from both Mr Nelson and Mr Chouhan. In his affidavit, Mr Nelson says that it would have been rare for him to send timesheets to Ms Chadban-Smith. Mr Nelson says it may have happened if he were at a client site, and Mr Nelson were aware that the timesheets needed to be sent in, in which case he might take the timesheets from the client, or photograph the timesheet, and sent the timesheets to Ms Chadban-Smith.[122] There is no reason to doubt this evidence.
[122] Affidavit of R J Nelson 15.09.2017, [35]
There are a number of other matters to which Ms Chadban-Smith deposes that Mr Nelson did not address in his affidavit but which, in cross-examination, he disputed.
a)Mr Nelson disagreed that at the end of March 2011 he had a conversation with Ms Chadban-Smith in which he told her she needed to change the payroll so that NSW Guard Force would pay employees of Northcoast.[123] Mr Nelson also said he could not answer whether the security guards were paid by Marsters Entourage.[124]
b)While accepting that he received what Ms Chadban-Smith described as a payroll spreadsheet, Mr Nelson called these documents “pre-claim sheets”. He said these formed part of a system that SAMS had put in place where SAMS “tweaked it a bit by putting in the rates and that, by originally it was just the hours, so then that way the primary contractor can see what hours were being done, what hours were being sent to the client, and also making sure the primary contractors are not getting overcharged”. Mr Nelson also said that Ms Chadban-Smith “decided to put the rates in to make life easier for her because she was working for Marsters Entourage as well, so it just calculated the payroll so that it made it easier for her when she was doing everything”.[125]
c)Mr Nelson said he never directed Ms Chadban-Smith “in any way”, stating that all would “have been set up through SAMS, whoever they employed, or whoever New South Wales Guard Force employed it was up to them, not up to me”.[126]
[123] T189.5
[124] T189.45
[125] T190.25
[126] T191.20
Mr Nelson’s evidence is not credible; it is directly contradicted by the documents to which Ms Chadban-Smith refers, a particular strong example of which is the chain of emails sent on 13 January 2012 to which I have already referred in paragraph 33 of these reasons. In his emails Mr Nelson referred to “payroll”, which I find is a reference to “the spreadsheet” to which Ms Chadban-Smith referred. Mr Nelson did not describe the spreadsheet as a “pre-claim sheet”. Mr Nelson gave firm directions to Ms Chadban-Smith about the persons to whom the payrolls were to be provided – “the Coffs payroll” to “Phoebe”, and the “Port payroll” to “Mark”; Mr Nelson told Ms Chadban-Smith that he – not SAMS – “will run everything with” Ms Chadban-Smith; and Mr Nelson instructed Ms Chadban-Smith to copy him in on emails “to Phoebe and Mark so we don’t run into problems again”. Mr Nelson’s evidence is also contradicted by the chain of emails of 26, 27, and 28 December 2011 that I have already set out in pargraph 32 of these reasons which show that Mr Nelson determined the rates that would be paid to the Workers who worked on public holidays, and that Mr Nelson required that he be provided with the payroll details.
I therefore do not accept Mr Nelson’s evidence, and, because of the clear inconsistency between the contemporaneous documents and Mr Nelson’s evidence, I find Mr Nelson is an unreliable witness. I therefore accept the evidence of Ms Chadban-Smith; and on the basis of her evidence, and the documents to which she refers, I find that:
a)Ms Chadban-Smith undertook the tasks which she says she undertook; and that she did so under the general supervision and direction of Mr Nelson;
b)Mr Nelson was aware of the tasks Ms Chadban-Smith says she undertook;
c)Mr Nelson was aware of the system by which Northcoast prepared and issued invoices to Northcoast customers for security activities the persons identified in the invoices carried on at premises controlled by the Northcoast customers;
d)Mr Nelson was aware of the system by which the persons identified in the invoices were paid for the security activities the Northcoast customer invoices recorded the persons carried on, namely:
i)NSW Guard Force, then SHIRTS, then Marsters Entourage, and then Collateral Damage issued payroll invoices addressed to Northcoast;
ii)Northcoast’s paid the payroll invoices; and
iii)the payment out of the money NSW Guard Force, then SHIRTS, then Marsters Entourage, and then Collateral Damage received from Northcoast the amounts due do each of the security guards who had carried on security services,
and Mr Nelson was responsible for authorising on behalf of Northcoast the payment of the amounts claimed in the payroll invoices; and
e)Mr Nelson was aware of the basis on which each person who was paid for the security activities described in the invoices issued to the Customers was paid for the security activities that person carried on.
Evidence of Workers who have made affidavits
Six of the Workers have made affidavits that have been read; and some of these Workers have been cross-examined. In this part of my reasons I will set out the evidence of each of the Workers who provided an affidavit. First, there is Mr Timothy Hunter, whose evidence is as follows:[127]
a)Mr Hunter worked as a security guard from about June to July 2013. Mr Hunter believed he was carrying out work for “Northcoast Security Services Group Pty Ltd” because he wore a uniform that had the letters “NCSSG” on his shirt, his colleagues wore the same shirt, and he signed timesheets that had the name “Northcoast Security Services Group” written on them.
b)In around March 2013 Mr Hunter applied for a Security Licence. At around the same time he met Mr Chouhan with whom he played in the same hockey team. Mr Hunter asked Mr Chouhan how he could get a job in the security industry. Mr Chouhan told Mr Hunter to let him know when he gets his licence.
c)In early June 2013, after he received his Security Licence, Mr Hunter contacted Mr Chouhan and told him he had his licence, and asked if Mr Chouhan had any work. Mr Chouhan said he should have some work, and suggested Mr Hunter meet with him. Later than week Mr Hunter met with Mr Chouhan who told him he could give Mr Hunter “a couple of shifts at the pubs and on the weekends at the shopping centre whilst renovations are going on”. Mr Hunter met Mr Chouhan again when Mr Hunter “filled in some paperwork, including an employment form which included my name, address, phone number, bank account details, superannuation details”, and Mr Chouhan wrote down details of Mr Hunter’s licence. Mr Hunter also filled out a tax declaration form, but he could not recall the name listed as his employer. Mr Hunter asked what his rate of pay would be, and Mr Chouhan said: “I think the pubs are about $22 to $23 per hour and the Coffs Central shopping centre starts around $18 per hour”. Mr Chouhan handed to Mr Hunter two uniform shirts. One was black, and one was white, and both shirts had the Northcoast” logo embroidered on the left chest of each shirt.
d)During his employment Mr Hunter worked shifts at the Coffs Central Shopping Centre, the Coast Hotel, and the Plantation Hotel. He carried out crowd control and static patrol duties; and he worked irregular shifts across the week, including on Saturdays and Sundays. Mr Hunter’s duties at Coffs Central Shopping Central consisted of patrolling the shopping centre, checking the doors and external exists were locked, patrolling the carpark including stairwell, and recording in a log book the results of checks. At the beginning of each shift Mr Hunter was required to report to the security office and sign the timesheets. Mr Hunter also signed the timesheet at the end of each shift. Mr Hunter’s duties at the Coast Hotel and the Plantation Hotel consisted of crowd control in specified areas, asking people to leave if they were intoxicated, and closing and locking the door.
e)Mr Hunter completed timesheets. A copy of three sets of timesheets is annexed to Mr Hunter’s affidavit. Two sets are each headed “North Coast Security Services Group Pty Ltd”;[128] and one set contains no heading.[129]
f)On or about 23 June 2013 Mr Hunter received his first payslip. It was emailed from a company called “Marsters Entourage”; that and the following payslips had the words “Marsters Entourage” printed on the top.[130]
g)Sometime in early July 2013 Mr Hunter had a conversation with Mr Chouhan in which he said that his pay is wrong, and that he was not being paid correctly. Mr Chouhan said that had nothing to do with him, and that Mr Hunter needed to speak with Mr Nelson.[131] Mr Hunter then called Mr Nelson and told him he was not being paid correctly. Mr Nelson said that he had to discuss the rate with Mr Chouhan.[132] A few days later, Mr Hunter met Mr Chouhan at a café and said he was “getting paid wrong. It’s not even the award rate of pay”, to which Mr Chouhan said: “That’s all we can afford to pay you”.[133] Mr Chouhan then produced a document which Mr Chouhan asked Mr Hunter sign, which he did. The document was one titled “Employee Modern Award Waiver Form” and provided that the person signing it waive “to the fullest extent permitted by law” all of the person’s entitlements to overtime rates, penalty rates, and leave loading.[134]
h)On the day following this conversation, Mr Chouhan sent Mr Hunter a text specifying Mr Hunter’s shifts for the next seven days. The following day, however, Mr Hunter received a text message from Mr Chouhan stating that Mr Hunter was no longer required to work, and that his shifts had been cancelled.[135]
[127] T W Hunter affidavit 09.06.2017
[128] T W Hunter affidavit 09.06.2017, annexures “TWH-2” and “TWH-6”, pages 15-19, 31-41
[129] T W Hunter affidavit 09.06.2017, annexure “TWH-7”, pages 43-58
[130] T W Hunter affidavit 09.06.2017, pages 23-27
[131] T W Hunter affidavit 09.06.2017, [37]
[132] T W Hunter affidavit 09.06.2017, [40]
[133] T W Hunter affidavit 09.06.2017, [45]
[134] T W Hunter affidavit 09.06.2017, [47], annexure “TWH-8”, page59
[135] T W Hunter affidavit 09.06.2017, [48], [49]
Mr Chouhan did not address in his affidavit the evidence Mr Hunter gave in his affidavit. Mr Nelson, however, addressed two matters. One is the conversation Mr Hunter says he had with Mr Nelson about his not being paid correctly. Mr Nelson denies “that those conversations occurred”, and states that if “a guard were to contact me about pay rates, I would have directed the guard to contact his employer, which was not me or Northcoast”.[136] I do not accept Mr Nelson’s denial. First, the denial is based on an asserted practice; but there is no evidence that supports that asserted practice other than Mr Nelson’s assertion. Mr Nelson gives no evidence of any particular conversation he had with any particular security guard where Mr Nelson said to the security guard that enquiries should be directed to the security guard’s “employer”. Second, it is apparent from Mr Nelson’s own affidavit that it was not his practice to refer enquiries from the Workers about their employment to their “employer”. In his response to a conversation another worker, Mr Taurua, says he had with Mr Nelson about his wanting to go permanent because he wanted holidays and sick pay, Mr Nelson says he would have told Mr Taurua “to contact Kul [Chouhan] or [Mr Taurua’s] employer because my role was client management and setting up site contacts”. Third, given that Mr Nelson knew the names of the so-called labour hire companies, it is unlikely that he would have responded to an enquiry from a security guard about his terms of employment simply by referring the security guard to his “employer”. The probability is that Mr Nelson referred the security guard’s enquiries to Mr Chouhan, which is what Mr Hunter in his evidence says Mr Nelson told him to do.
[136] Affidavit of R J Nelson 15.09.2017, [50]
The solicitor for Mr Chouhan did not cross-examine Mr Hunter; but counsel for Mr Nelson did cross-examine him. Some exploratory questions were asked of Mr Hunter, but nothing in the answers he gave or in the manner in which he gave his answers lead me to doubt the evidence Mr Hunter has given in his affidavit.
Counsel for the FWO cross-examined Mr Chouhan. Mr Chouhan agreed he interviewed Mr Hunter; he does not recall whether Mr Hunter discussed rates with him, although he accepted that, at the time Mr Chouhan interviewed Mr Hunter, an hourly rate of $18 was applied for the carrying on of security services in shopping centres, and that the rates for pubs were about $22 or $23 per hour.[137] Mr Chouhan could not recall whether in July 2013 Mr Hunter spoke to him about his pay, and said that his pay was wrong.[138]
[137] T337.35-338.10
[138] T376.45
Nothing Mr Chouhan said in cross-examination leads me to doubt the veracity and cogency of the evidence Mr Hunter gave. I therefore accept without any qualification the evidence Mr Hunter has given.
A second Worker who made an affidavit is Mr Uhlan Tietuku Taurua. His evidence is as follows:[139]
[139] Affidavit of U T Taurua 16.06.2017. I do not set out all of the matters to which Mr Taurua deposed because they relate to matters which in my opinion are not sufficiently relevant to the issues I am required to decide.
a)In about 2010 Mr Taurua handed in his resume to the Park Beach Hotel Motel seeking security guard work. Shortly afterwards he received a telephone call from Mr Nelson who told Mr Taurua he could give him a couple of shifts per week pub work as a crowd controller. Mr Taurua and Mr Nelson agreed to meet.[140]
[140] Affidavit of U T Taurua 16.06.2017, [5], [6]
b)In about late 2010 Mr Taurua met with Mr Nelson. He offered Mr Taurua work at the pubs and clubs around Coffs Harbour for “Northcoast Security Services”, and Mr Nelson handed to Mr Taurua “an employment form”.[141]
[141] Affidavit of U T Taurua 16.06.2017, [7]
c)From around late 2010 to the middle of 2011 Mr Taurua worked shifts as a security guard at the pubs and clubs around Coffs Harbour, as well as working shifts at special events. He wore a uniform with the “Northcoast” logo on it.[142] Mr Taurua worked under the general supervision of a head guard who wore the same shirt as Mr Taurua. On occasions Mr Nelson or Mr Chouhan worked as head guards.[143] Mr Taurua’s duties included working at the door to check licences and to restrict access to people who were intoxicated, and crowd control of patrons within the pub or club.[144]
[142] Affidavit of U T Taurua 16.06.2017, [11]
[143] Affidavit of U T Taurua 16.06.2017, [12]
[144] Affidavit of U T Taurua 16.06.2017, [13]
d)In around 2011, after completing a shift at the Hoey Moey, Mr Nelson called Mr Taurua to a meeting with other security guards. At the meeting Mr Nelson said that Mr Chouhan “will be coming on officially as my partner of Northcoast and helping me run things around Coffs Harbour”.[145] Mr Taurua reported to Mr Chouhan when he performed shifts after this meeting.[146]
[145] Affidavit of U T Taurua 16.06.2017, [16]
[146] Affidavit of U T Taurua 16.06.2017, [18]
e)From the middle of May 2011 until about May 2015 Mr Taurua worked at shopping centres with occasional shifts at pubs and clubs. In 2011 Mr Chouhan offered Mr Taurua to work as head guard at the Moonee Beach Shopping Centre. Mr Chouhan told Mr Taurua that his duties “will include rostering for Northcoast security guards and liaising with Moonee Centre management”. Mr Taurua then worked at Moonee Marketplace as a head guard.[147] In October 2012 Mr Chouhan offered Mr Taurua to work as a head guard at Palms Shopping Centre, and Mr Taurua accepted the offer.[148]
f)During the period he worked shifts at pubs and clubs, Mr Taurua had about three conversations with Mr Nelson, either by telephone or by text, in which he asked Mr Nelson about going full-time or permanent, in response to which Mr Nelson said he would look into it; Mr Taurua worked shifts with Mr Nelson and Mr Chouhan on average about once a month, and he also worked with Mr Nelson on new year’s eve, including the morning of new year’s day.[149] Also during the period Mr Taurua worked shifts at pubs and clubs, he saw Mr Nelson or Mr Chouhan talking to the head guard or other Northcoast security guards; on at least twelve occasions Mr Nelson directed Mr Taurua to remove a patron; on at least twelve occasions Mr Chouhan directed Mr Taurua to remove a patron; and on more than one occasion Mr Taurua heard Mr Chouhan direct another guard where to stand.[150] In some of the emails Mr Chouhan sent, he described himself as “Director North Coast Security Group” or “Company Director North Coast Security Group Pty Ltd”.[151] Mr Nelson described himself as “Company Director” which appeared above a footer that included “NCSSG North Coast Security Services Group”.[152]
g)During the period Mr Taurua worked at shopping centres, Mr Chouhan attended a shopping centre about once a month during which he talked to Mr Taurua about his work, or just dropped off a logbook. Mr Nelson attended shopping centres about once every three or four months.[153] Mr Taurua communicated with both Mr Chouhan and Mr Nelson in relation to the rostering of Workers at the shopping centres.
h)While working shifts at pubs and clubs, Mr Taurua was paid at the flat rate of $20 per hour or sometimes higher depending on the event or the pub at which he worked. He was paid in cash by Mr Nelson giving him an envelope that contained the cash.[154] Mr Taurua asked Mr Nelson whether he could “go on the books”, to which Mr Nelson responded he would look into it. Mr Taurua was placed “on the books” in about the middle of 2011.[155]
i)After Mr Taurua was put “on the books” he was initially paid about $23 an hour at the pubs and as head guard. These hourly rates were split into an hourly rate of $18 plus allowances.[156]
j)Mr Taurua received payslips which, at different times, had the names of “Security Guard Employment”, “Marsters Entourage Pty Ltd”, and then “Collateral Damages Pty Ltd”.[157]
k)While he was working on shifts for pubs and clubs, Mr Taurua noticed that the cost of his shirt had been deducted from his wages. He asked Mr Chouhan why he was being charged in response to which Mr Chouhan said: “If you get more than two you have to pay for it”.[158]
l)While he was working on shifts for pubs and clubs, Mr Taurua received rosters by text message every week from Mr Nelson’s mobile number. After Mr Chouhan became involved Mr Taurua received rosters via text messages from either Mr Chouhan or Mr Nelson.[159]
m)While Mr Taurua worked as a head guard, he prepared a monthly roster for each of the shopping centres. Each month he sent a draft of it to Mr Nelson at “[email protected]” and to Mr Chouhan at “[email protected]”.[160]
n)When working at pubs Mr Taurua completed timesheets, each of which had the heading “North Coast Security Services Group Pty Ltd”.[161]
[147] Affidavit of U T Taurua 16.06.2017, [20]
[148] Affidavit of U T Taurua 16.06.2017, [23], [24]
[149] Affidavit of U T Taurua 16.06.2017, [26]-[29]
[150] Affidavit of U T Taurua 16.06.2017, [30]
[151] Exhibit UTT-1, pages 17, 21
[152] Exhibit UTT-1, pages 30
[153] Affidavit of U T Taurua 16.06.2017, [31]
[154] Affidavit of U T Taurua 16.06.2017, [34]
[155] Affidavit of U T Taurua 16.06.2017, [35]
[156] Affidavit of U T Taurua 16.06.2017, [36]-[39]
[157] Affidavit of U T Taurua 16.06.2017, [51]
[158] Affidavit of U T Taurua 16.06.2017, [55]
[159] Affidavit of U T Taurua 16.06.2017, [57], [58]
[160] Affidavit of U T Taurua 16.06.2017, [55]
[161] Affidavit of U T Taurua 16.06.2017, [60], [67]
Nevertheless, given the differences of opinion in the Federal Court I will also consider whether Mr Chouhan and Mr Nelson knew that the Award applied to the Workers.
The position of Mr Chouhan in relation to underpayments
I have found that during the Relevant Period:
a)Mr Chouhan was involved in engaging at least some of the Workers, and that he directed the times for which, and the places at which the Workers would carry on security activities;
b)Mr Chouhan (with Mr Nelson) was provided with the payroll spreadsheets where, as I have already noted, each spreadsheet specified the names of the persons who carried on security services, the week over which the activities were carried on, the amounts payable to each security guard for the work performed at the venue identified in the spreadsheet, any allowances or deductions, and the total amount payable to the security guard;
c)Mr Chouhan himself has given evidence that he received payroll invoices and examined the invoices for the purpose of determining whether “the claimed invoice from Labour Hire company” matched the “actual timesheets recorded on site for NCSSG”;[362] and
d)Mr Chouhan was aware of the system by which Northcoast arranged payment of persons whom Mr Chouhan had directed to carry on security activities at premises controlled by Northcoast customers.
[362] Chouhan affidavit, [87.a.]
Given these findings, I find that Mr Chouhan was sufficiently linked to Northcoast’s failing to pay the Workers amounts to which they were entitled under the Award.
The next question is whether Mr Chouhan had knowledge of the facts that constituted Northcoast’s not paying to the Workers the amounts to which they were entitled under the Award. I find Mr Chouhan did have knowledge. Mr Chouhan directed the Workers to perform the work for which they had not been paid the amounts; Mr Chouhan periodically received the payroll spreadsheets that recorded the amounts that were to be paid to the Workers for the hours of work the payroll spreadsheets recorded they performed during the period covered by the payroll spreadsheets; and Mr Chouhan was aware of the system by which persons who carried on activities at premises controlled by Northcoast customers were paid. These findings are reinforced by Mr Chouhan’s acknowledgment in his second affidavit that he “had an understanding on the amount the guards were receiving”.[363] On these findings alone, therefore, it follows that Mr Chouhan was a person involved in Northcoast’s contraventions of the Award and, therefore, of s.45 of the FW Act.
[363] Chouhan affidavit 27.08.2017, [90]
Mr Chouhan submits he “was not aware of the award applicable to the guards”. I have already noted that the better view is that expressed by Katzmann J in Grouped Property Services, so that it is unnecessary to show that a person had knowledge that an award applied to an employee before that person could be found liable as a person involved in a contravention of s.45 of the FW Act based on an employer’s failure to comply with the terms of an award. Nevertheless, I will consider whether on the evidence before me Mr Chouhan was aware that the Award applied to the Workers.
The FWO submits that Mr Chouhan was aware the Award applied to each of the Workers. The FWO relies on a number of items of evidence in support of this submission. I propose to refer to three of those items. The most direct evidence relates to a complaint the office of the FWO received on 27 March 2012 from a Mr Alan Sinclair. According to Ms Psalti, a Fair Work Inspector, on 10 April 2012 she made a telephone call to the number provided by Mr Sinclair and left a message. Later on the same day Mr Chouhan telephoned Ms Psalti. Ms Psalti informed Mr Chouhan that Mr Sinclair claimed he was receiving $18 per hour and $2 per hour for travelling, but the Fair Work Info Line informed Mr Sinclair that the rate should have been $20.74. Mr Chouhan said he would talk with payroll. Ms Psalti sent Mr Chouhan an email repeating the claim Mr Sinclair had made, noting that Mr Sinclair claimed “the casual security guard should have been $20.74”.[364] On 11 April 2012 Mr Chouhan telephoned Ms Psalti and told her that Mr Sinclair was receiving a $2 per hour travel allowance. Ms Psalti told Mr Chouhan that any allowance must be paid on top of the base rate. On 17 April 2012 Mr Chouhan telephoned Ms Psalti and told her he agreed “to 248 hours worked as per the payslips. I will pay $679.52 to resolve the matter” with the FWO. [365] On 18 April 2012 Ms Psalti sent a letter to the “Owner/Manager Marsters Entourage”.[366] It began with “Dear Kul”, and then confirmed the undertaking that Mr Chouhan had given to resolve the complaint lodged by Mr Sinclair, that undertaking being:
Agreed amount of $679.52 gross is to be paid into Mr Alan Sinclair’s nominated bank account via Electronic Funds Transfer by Friday 27 April 2012.
[364] K M Psalti affidavit 08.06.2017, annexure KP-4
[365] K M Psalti affidavit 08.06.2017, [13]
[366] K M Psalti affidavit 08.06.2017, annexure KP-5
In his second affidavit Mr Chouhan gives evidence about the complaint from Mr Sinclair. He says that in about March 2012 Mr Nelson informed him that a “lady called from Fair Work”. Mr Chouhan says he then called a woman whose name he does not recall, and he had a conversation, but cannot recall what was said during the conversation. Mr Chouhan says he recalls relaying to Mr Nelson the contents of his conversation with the “lady”. The basis of Mr Chouhan’s saying he recalled doing this is “it was the practice for me to check everything with Rick and get his instructions”.[367] Mr Chouhan also recalls that Mr Nelson said to him the “[c]all the lady from Fair Work, tell her the matter will be resolved. I’ve spoken to the labour hirer and they’re going to pay him the difference”.[368]
[367] Chouhan affidavit 23.08.2017, [71]
[368] Chouhan affidavit 23.08.2017, [72]
Mr Chouhan does not refer in his affidavit to the email Ms Psalti sent him on 11 April 2012. Counsel for the FWO, however, in cross-examination did draw Mr Chouhan’s attention to the email. It would be useful to set out the evidence Mr Chouhan gave:[369]
[369] T362.25-T363.30
. . . And you accept that you were informed by the Fair Work Ombudsman that you were not paying Mr Sinclair correctly. You accept that, don’t you?‑‑‑That I was not paying?
Well, your company was paying?‑‑‑I – I don’t recall that ‑ ‑ ‑
Well, you knew – didn’t you – as a result of your communications with the Fair Work Ombudsman in April 2012 that he wasn’t receiving the casual security guard rate of $20.74?‑‑‑Yes.
And you knew that was a reference to the award rate?‑‑‑Yes.
And you – and what you then did was you then worked out what were the hours that he worked to work out, to the extent there was a shortfall, what amount he should be paid?‑‑‑I don’t remember working it out myself, but it could have been information passed down to me that I had sent to her.
Well, you said to the Fair Work representative:
I have looked into the hours worked and I agree to 248 hours worked, as per the pay slips [sic].
You ‑ ‑ ‑?‑‑‑Where am I reading that, sorry? Or you’ve got that ‑ ‑ ‑
So that’s what Ms ‑ ‑ ‑?‑‑‑Okay.
So you can see paragraph 13 of what Ms Psalti records in her conversation with you? She recalls you saying – rather than you receiving it from someone else – that you had looked into the hours worked and that you agreed to 248 hours worked, as per the pay slips [sic]?‑‑‑Sorry. I’m just trying to find it.
. . .
Yes. And you don’t dispute that you told her that?‑‑‑I – I don’t dispute that I did tell her that, but how I got this information I – I don’t know.
And it’s the case, isn’t it, that ultimately it was agreed – you undertook to pay the agreed amount, you will see in the correspondence that’s sent to you of 18 April 2012. That’s the last document annexed to Ms Psalti’s affidavit?‑‑‑Are you talking about the last page?
So 18 April 2012, you recall ‑ ‑ ‑?‑‑‑Are you talking about the last ‑ ‑ ‑
You recall ‑ ‑ ‑?‑‑‑The last page?
That’s right?‑‑‑Yes.
You recall receiving a copy of that letter?‑‑‑I don’t recall, but yes.
Well, you knew ultimately that it was agreed that you had to pay $679.52 gross by Friday, 27 April?‑‑‑Yes. That’s what it says, yes.
Now you knew, didn’t you, when you were dealing with the Fair Work Ombudsman that this was a serious matter? - I didn’t even know who Fair Work Ombudsman were at that time.
I accept the evidence of Ms Psalti. I do not accept that Mr Chouhan did not know who the FWO was at the time. It is highly improbable that Mr Chouhan would have engaged in communications about a complaint said to have been made by an employee about their rate of pay without Mr Chouhan knowing who the FWO was. Further, Mr Chouhan’s evidence given in his affidavit is inconsistent with a chain of email communications concerning the payment of the agreed amount of $679.52 to Mr Sinclair to which I have already referred.[370]
[370] T O Chadban-Smith affidavit, 14.06.2017, [67]; exhibit TOC-1, pages 237-239
On the basis of Ms Psalti’s evidence, I find that Mr Chouhan was aware that the rate at which Ms Psalti said Mr Sinclair was alleging he ought to have paid, namely, $20.74, was a rate payable under an award that applied to Mr Sinclair; Mr Chouhan accepted in cross-examination that he knew Mr Sinclair complained he was not receiving the casual guard rate of $20.74, and “that was a reference to the award rate”. In those circumstances I find that, as at April 2012, Mr Chouhan was aware there was an award that applied to security guards whom he or Mr Nelson engaged to carry on security activities at premises controlled by Northcoast customers.
A second item of evidence that is relevant to Mr Chouhan having knowledge that an award applied to the Workers is a statutory declaration Mr Chouhan made on behalf of Northcoast on 1 January 2012.[371] A cross is contained in the box next to the printed words: “All security personnel employed by the company are paid in accordance with the relevant Industrial Award/Agreement” Under cross-examination, Mr Chouhan did not deny he signed the document, but he said he could not recall the document.[372] Whether or not Mr Chouhan now recalls signing the declaration, I am not prepared to find Mr Chouhan simply signed a document without acquainting himself with its contents. I find that Mr Chouhan acquainted himself with the contents of the document, and his attention was drawn to that part of the declaration that referred to awards or industrial agreements.
[371] Exhibit FWO1, page 2019
[372] T359.20
The third item of evidence is Mr Chouhan’s employment history. As I set out earlier in these reasons, Mr Chouhan had been in the security industry since 2004. It is implausible that by the time he became a director of Northcoast in March 2011, seven years later, Mr Chouhan was ignorant of the existence of an award that covered persons employed to carry on security activities.
I find, therefore, that Mr Chouhan was a person involved in Northcoast’s contraventions of the Award and, therefore, of s.45 of the FW Act.
The position of Mr Nelson in relation to underpayments
I have found that during the Relevant Period:
a)Mr Nelson was involved in engaging at least some of the Workers;
b)during the Relevant Period Mr Nelson was provided with the payroll spreadsheets where, as I have already noted, each spreadsheet specified the names of the persons who carried on security services, the period over which the activities were carried on, the amounts payable to each security guard for the work performed at the venue identified in the spreadsheet, any allowances or deductions, and the total amount payable to the security guard;
c)Mr Nelson received payroll invoices issued in the name of the so-called labour hire companies, and he approved Northcoast paying the amounts claimed by those invoices; and
d)Mr Nelson was aware of the system by which Northcoast arranged the payment of persons who carried on security activities at premises controlled by Northcoast customers.
Given these findings, I find that Mr Nelson was sufficiently linked to Northcoast’s failing to pay the Workers amounts to which they were entitled under the Award. It also follows that Mr Nelson knew the facts that constituted Northcoast’s contraventions of the Award. He knew – because that is what the payroll spreadsheets represented – that the persons identified in the payroll spreadsheets were persons who had carried on security activities at premises controlled by Northcoast customers, and that those persons were being paid the amounts specified in the spreadsheets. On these findings alone, therefore, it also follows that Mr Nelson was a person involved in Northcoast’s contraventions of the Award and, therefore, of s.45 of the FW Act.
Under cross-examination, Mr Nelson said that as at 2012 Mr Nelson was not aware that employees who were engaged to provide security activities were entitled to basic entitlements under an award.[373] The FWO, however, has identified considerable evidence that points to Mr Nelson being aware that an award applied to persons that had been engaged to carry on security activities at premises controlled by Northcoast customers.[374] That evidence includes the following:
a)On 23 April 2003 Mr Nelson signed a “Hospitality Crowd Control Australian Workplace Agreement”.[375] It states that the agreement “shall replace the Security Industry (State) Consolidated Award.”
b)In a form of application to become a member of the Building Service Contractors Association of Australia (BSCAA) made in October 2010 Mr Nelson ticked a box next to the printed words “operate under the State award”.[376]
c)By letter dated 12 November 2010 Ms Barbara Connolly, the executive director of the New South Wales Division of the BSCCA, provided to Mr Nelson a “membership kit”.[377] Ms Connolly gave evidence that the membership kit included a copy of the Award.[378] And Ms Thurtnell, who was a former executive assistant employed by BSCCA, gave evidence that a membership kit the BSCCA issued to its members included a copy of the Award.[379]
d)On 28 June 2011 Mr Nelson received an email from BSCCA referring to “your membership with the BSCCA” having been “suspended on the 16th July 2011 [sic] due to non-compliance”.[380] The email stated that “you are still required by legislation, as a company in the security industry, to be a member of an approved association”. The email stated that should Mr Nelson wish to be reinstated as a BSCCA member he would be required to provide documents identified in the email, one of which was a “Self Completed Compliance Inspection Form (attached)”. Mr Nelson responded by email stating that he “will forward you all details today as I want to keep the BSCCA Membership going”.
e)There is a completed “Compliance Inspection Form” in evidence. It does not bear any signature, and there is no suggestion that the handwriting that appears on the form is that of Mr Nelson. It appears the form was completed by Ms Gray of SAMS. Given that SAMS provided support services for Northcoast, Mr Nelson was a director of Northcoast, and Mr Nelson informed BSCCA that he would provide “all the details”, the probabilities are that the information contained in the completed “Compliance Inspection Form” was included on the basis of instructions Mr Nelson gave to Ms Gray; and I so find. Question 6(b) of the “Compliance Inspection Form” requests that there be listed the “name . . . of the State or federal Award . . . . used by the Group Member to comply with the NSW Security Industry Code of Practice”. The response to that question is: “MA000016 – Security Services Industry Award 2010”.[381]
f)On 19 December 2012 Ms Thurtell sent to all members an email attaching an update reporting on “Shift Work Penalties”.[382]
g)In an email he sent to the FWO on 17 February 2014 Mr Nelson stated that “we have definitely sought advice to ensure that the pay and conditions that the employer provides to its employees are meeting the minimums prescribed by the Fair Work Act 2009 and the Security Services Industries Award”.[383]
[373] T298.25
[374] Applicant’s Further Outline of Submissions on Liability, [36]
[375] Exhibit FWO-2693-2705
[376] Exhibit FWO-3, page 9
[377] Exhibit FWO-3, page 15.
[378] T32.45-T33.10
[379] H L Thurtell affidavit 13.06.2017, [13]; exhibit HTL1
[380] Exhibit FWO-3, page 64
[381] Exhibit FWO-3, page 72
[382] H L Thurtell affidavit 13.06.2017, [35]; exhibit FWO-3, page 436
[383] Exhibit FWO-1, page 1469
Even in the absence of this evidence, I would have been satisfied that Mr Nelson was aware that an award applied to the Northcoast security guards solely because Mr Nelson had been in the security industry since 2000, which included his operating a business or businesses in that industry since around 2007.
I also find, therefore, that Mr Nelson was a person involved in Northcoast’s contraventions of the Award and, therefore, of s.45 of the FW Act.
Involvement in relation to deductions
Two of the Workers, Mr Griffiths and Mr Taurua, have given evidence of conversations with Mr Chouhan about the deduction from amounts owing to them for the cost of the shirts they were required to wear. That evidence, which I have accepted, satisfies me that in relation to at least Mr Griffiths and Mr Taurua, Mr Chouhan was aware that amounts had been deducted from payments due to them.
Three of the Workers – Mr Kavgas, Mr McCormack, and Mr Allen – noticed that the payslips they received recorded deductions. That affords a rational basis for inferring that all deductions were recorded in the payslips that were issued to the Workers. Given the findings I have made and the evidence I have otherwise accepted that:
a)payments to Northcoast security guards, including the Workers, were made under a system that involved the preparation of payroll spreadsheets that provided for the recording of the amounts to which each security guard would be entitled based on the rates at which Northcoast had engaged the security guards to carry on security activities, and also provided for the recording of amounts that were to be deducted from amounts otherwise payable to the security guards; and
b)the payroll spreadsheets were provided to both Mr Chouhan and to Mr Nelson for their approval, and, on their approval, payments were arranged to be made to the Northcoast security guard, including the Workers,
Mr Chouhan was aware that the deductions referred to in the ASC had been made out of amounts to which the Workers were otherwise entitled to be paid for the work they performed.
For these reasons, I find that Mr Chouhan was involved in Northcoast’s contraventions of s.323(1)(a) of the FW Act.
Relief
The FWO submits that, to the extent I find that Northcoast contravened s.45 and s.323(1)(a) of the FW Act, and that Mr Chouhan and Mr Nelson are persons who were involved in those contraventions, I should make declarations that reflect these findings. I propose to make declarations to that effect.
Counsel for FWO also submits that I should make an order that Mr Nelson and Mr Chouhan pay compensation to the Workers to the extent the Workers have been underpaid. Counsel for the FWO submits that s.545 of the FW Act confers such power, and she relies on the judgment of Jarret J in Fair Work Ombudsman v Step Ahead Security Services Pty Ltd.[384] I have no doubt that s.545 of the FW Act is sufficiently broad to empower this Court to make an order requiring an accessory to pay compensation for the loss suffered by a person as a result of a contravention of a provision of the FW Act. The question that arises, however, is whether s.545(1) of the FW Act is broad enough to authorise the making of an order that an accessory pay compensation to a person who suffers loss as a consequence of a contravention of the FW Act if that person is not a party to the proceeding. The FW Act does not contain any provision that authorises the FWO to seek compensation orders on behalf of persons who have suffered loss or damage. That is to be contrasted with the position under other regulatory regimes.[385] This may suggest that the Court cannot make an order under s.545 of the FW Act for compensation of a person who is not a party to a proceeding commenced by the FWO in the absence of a provision that specifically authorises the FWO to claim compensation on behalf of persons who have suffered loss or damage because of a contravention of the FW Act. I propose to reserve liberty to the FWO to make further submissions about whether the FWO is authorised to seek compensation orders on behalf of persons who are not parties to the proceeding.
[384] [2016] FCCA 1482
[385] See, for example, s.87(1B) of the Competition and Consumer Act 2010 (Cth); s.1325(3) of the Corporations Act 2001 (Cth)
At the time I pronounce the declarations I will set the matter down for a directions hearing to consider what directions should be made in relation to the FWO’s claims for pecuniary penalties, and whether the FWO wishes to make further submissions in relation to ordering compensation in favour of the Workers, given that none of the Workers is a party to the proceeding.
I certify that the preceding one hundred and eighty (180) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Date: 23 May 2019
CORRECTIONS
The reasons for judgment published on 10 May 2019 are varied as follows:
a)in paragraph 1, by deleting “and s.323(1)(a)” after “of s.45” and adding “and that Mr Chouhan was also involved in contraventions by Northcoast of s.323(1)(a) of the FW Act” after “(FW Act)”; and
b)in paragraph 176, by replacing “each of Mr nelson and Mr Chouhan were” with “Mr Chouhan was”; and
c)in paragraph 177, by replacing “both Mr Chouhan and Mr Nelson were persons” with “Mr Chouhan was”.
1
1
6