Fair Work Ombudsman v Priority Matters Pty Ltd and Anor and; Fair Work Ombudsman v Superlattice Solar Pty Ltd and Anor and; Fair Work Ombudsman v Geneasys Pty Ltd and Anor and; Fair Work Ombudsman v Kia Silverbrook...
[2016] FCCA 1474
•17 June 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| FAIR WORK OMBUDSMAN v PRIORITY MATTERS PTY LTD & ANOR and FAIR WORK OMBUDSMAN v SUPERLATTICE SOLAR PTY LTD & ANOR and FAIR WORK OMBUDSMAN v GENEASYS PTY LTD & ANOR and FAIR WORK OMBUDSMAN v KIA SILVERBROOK & ANOR and FAIR WORK OMBUDSMAN v MPOWA PTY LTD & ANOR | [2016] FCCA 1474 |
| Catchwords: INDUSTRIAL LAW – Fair Work Ombudsman – contravention of the Fair Work Act 2009 – whether corporations national system employers – whether the alleged contraventions by the corporate entity employer in respect of the alleged employee entitlements are proven – construction of awards – failure to pay entitlements owing to employees – notice to produce – whether accessorial liability by the director/directors in the alleged contraventions is proven – no accessorial liability. |
| Legislation: Fair Work Act 2009 (Cth), ss.3, 12, 23, 44(1), 45, 60, 61(3), 90(1), 90(2), 99, 116, 117, 119, 121, 123, 293, 323, 328, 539(2), 542, 545(1), 545(2)(b), 546(3)(a), 547(2), 550(1), 550(2), 570, 681, 682(1), 712. Taxation Administration Act 1953 (Cth), Sch.1, cls.355-25, 355-65. |
| Cases cited: Commissioner of Police v Tenos (1958) 98 CLR 383 Murray v Legal Services Commissioner (1999) 46 NSWLR 224 Briginshaw v Briginshaw (1938) 60 CLR 336 Fair Work Ombudsman v Finetune Holdings Pty Limited & Anor(No 2) [2012] FMCA 349 Potter v Fair Work Ombudsman [2014] FCA 187 Fair Work Ombudsman v Devine Marine Group Pty Ltd [2013] FCA 1135 ACCC v Midland Brick Co Pty Ltd (2004) 207 ALR 329 Fair Work Ombudsman v Kentwood Industries Pty Ltd (No 2) 2010 FCA 1156 Fair Work Ombudsman v Al Hilfi (2015) FCA 313 |
| Applicant: | FAIR WORK OMBUDSMAN |
| First Respondent: | PRIORITY MATTERS PTY LTD |
| Second Respondent: | KIA SILVERBROOK |
| File Number: | SYG 3209 of 2013 |
| Applicant: | FAIR WORK OMBUDSMAN |
| First Respondent: | SUPERLATTICE SOLAR PTY LTD |
| Second Respondent: | KIA SILVERBROOK |
| File Number: | SYG 3210 of 2013 |
| Applicant: | FAIR WORK OMBUDSMAN |
| First Respondent: | GENEASYS PTY LTD |
| Second Respondent: | KIA SILVERBROOK |
| File Number: | SYG 3228 of 2013 |
| Applicant: | FAIR WORK OMBUDSMAN |
| First Respondent: | KIA SILVERBROOK |
| Second Respondent: | JANETTE LEE |
| File Number: | SYG 1743 of 2014 |
| Applicant: | FAIR WORK OMBUDSMAN |
| First Respondent: | MPOWA PTY LTD |
| Second Respondent: | KIA SILVERBROOK |
| File Number: | SYG 1780 of 2014 |
| Judgment of: | Judge Street |
| Hearing date: | 7 - 11, 14 -15 and 17 - 18 March 2016 |
| Date of Last Submission: | 11 April 2016 |
| Delivered at: | Sydney |
| Delivered on: | 17 June 2016 |
REPRESENTATION
| Counsel for the Applicant: | Ms V McWilliam |
| Solicitors for the Applicant: | Office of the Fair Work Ombudsman |
| Solicitors for the Respondents: | Mr P Argy Keypoint Law |
ORDERS
SYG 3209 of 2013
Pursuant to s.545(2)(b) of the Fair Work Act 2009 Priority Matters Pty Ltd being the first respondent pay the total of $452,997.98 to the applicant, comprising:
(a)Kenneth Bolton $133,973.39
(b)Tracey Dalton $12,638.01
(c)Christine Lee $58,864.42
(d)Donna Marsh $436.70
(e)Ana Nair $13,527.28
(f)Tanya Fitzgerald (née Nair) $10,647.92
(g)Lisa Netana $820.39
(h)Leonie News $23,583.73
(i)Narith Nget $3,434.30
(j)Julie Pavlovski $6,674.08
(k)Hui Helen Tang $14,825.76
(l)Winnie Siew Kim The $21,036.08
(m)Gideon Van Rensburg $110,746.08
(n)Yinyin Zhang $18,495.44
(o)Annie Y-Guan Zou $23,294.40
being the amounts owed to the said former employees as a result of the contraventions by the first respondent, within 28 days of the date of the final order disposing of any penalty hearing.
Pursuant to s.547(2) of the Fair Work Act 2009, the first respondent pay interest on the amounts owed to the employees calculated from 20 December 2013 within 28 days of the date of the final order disposing of any penalty hearing.
The penalty hearing, unless the application for a penalty is disposed of by a consent order, be fixed on a date to be agreed.
Judgment for the second respondent against the applicant.
Further directions are to be made for hearing as to penalty and costs.
Liberty granted to apply in relation to the subject matter of the further directions on 2 days’ notice.
SYG 3210 of 2013
Pursuant to s.545(2)(b) and s.545(1) of the Fair Work Act 2009 Superlattice Solar Pty Ltd being the first respondent pay $55,969.11 to the applicant, being the amount owed to Soren Wohlthat, as a result of the contraventions by the first respondent, within 28 days of the date of the final order disposing of any penalty hearing.
Pursuant to s.547(2) of the Fair Work Act 2009, the first respondent pay interest on the said amount owed to the employee calculated from 20 December 2013 within 28 days of the date of the final order disposing of any penalty hearing.
The penalty hearing, unless the application for a penalty is disposed of by a consent order, be fixed on a date to be agreed.
Judgment for the second respondent against the applicant.
Further directions are to be made for hearing as to penalty and costs
Liberty granted to apply in relation to the subject matter of the further directions on 2 days’ notice.
SYG 3228 of 2013
Judgment for the second respondent against the applicant.
Further directions are to be made as for hearing as to costs.
Liberty granted to apply in relation to the subject matter of the further directions on 2 days’ notice.
SYG 1743 of 2014
Judgment for the first respondent and second respondent against the applicant.
Further directions are to be made for hearing as to costs.
Liberty granted to apply in relation to the subject matter of the further directions on 2 days’ notice.
SYG 1780 of 2014
Pursuant to s.545(2)(b) of the Fair Work Act 2009 Mpowa Pty Ltd being the first respondent pay the total of $608,433.26 to the applicant, comprising:
(a)Michael Shepanski $62,393.66
(b)Jane Childs $54,398.82
(c)Tim Long $116,564.03
(d)Anthony Whitlock $20,026.94
(e)Kong Yin Lai $32,568.61
(f)Yogesh Ramani $20,922.06
(g)Chris Jones $26,271.93
(h)Greg Dumbrell $32,201.34
(i)Malcolm Whittaker $47,176.30
(j)Andy Newman $53,167.98
(k)Gregg Kelly $47,558.77
(l)Luke Tucker $6,296.19
(m)Zoltan Toth $37,384.78
(n)Zhenya Yourlo $51,501.85
being the amounts owed to the said employees as a result of the contraventions by the first respondent, within 28 days of the date of the final order disposing of any penalty hearing.
Pursuant to s.547(2) of the Fair Work Act 2009, the first respondent pay interest on the amounts owed to the employees calculated from 20 December 2013 within 28 days of the date of the final order disposing of any penalty hearing.
The penalty hearing, unless the application for a penalty is disposed of by a consent order, be fixed on a date to be agreed.
Judgment for the second respondent against the applicant.
Further directions are to be made for hearing as to penalty and costs.
Liberty granted to apply in relation to the subject matter of the further directions on 2 days’ notice.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 3209 of 2013
| FAIR WORK OMBUDSMAN |
Applicant
And
| PRIORITY MATTERS PTY LTD |
First Respondent
| KIA SILVERBROOK |
Second Respondent
SYG 3210 of 2013
| FAIR WORK OMBUDSMAN |
Applicant
And
| SUPERLATTICE SOLAR PTY LTD |
First Respondent
| KIA SILVERBROOK |
Second Respondent
SYG 3228 of 2013
| FAIR WORK OMBUDSMAN |
Applicant
And
| GENEASYS PTY LTD |
First Respondent
| KIA SILVERBROOK |
Second Respondent
SYG 1743 of 2014
| FAIR WORK OMBUDSMAN |
Applicant
And
| KIA SILVERBROOK |
First Respondent
| JANETTE LEE |
Second Respondent
SYG 1780 of 2014
| FAIR WORK OMBUDSMAN |
Applicant
And
| MPOWA PTY LTD |
First Respondent
| KIA SILVERBROOK |
Second Respondent
REASONS FOR JUDGMENT
INDEX
Introduction
Background Priority Matters
Background Superlattice
Background Geneasys
Background Silverbrook Research
Background Mpowa
Priority Matters Proceedings
Superlattice Proceedings
Geneasys Proceedings
Silverbrook Research Proceedings
Mpowa Proceedings
The Evidence
Findings in respect of Corporate Entities – National System Employers
Construction of Awards
Findings in respect of Inspector Hurrell and the applicant’s other witnesses9
Findings in respect of Mr Silverbrook and Ms Lee
No Contravention – Redundancy by Superlattice or Geneasys6
No Contravention – Section 712 notice to produce
Contraventions by Priority Matters200
Contraventions by Superlattice14
Contraventions by Geneasys6
Contraventions by Silverbrook Research8
Contraventions by Mpowa5
Relief Priority Matters9
Relief Superlattice3
Relief Geneasys6
Relief Silverbrook Research8
Relief Mpowa80
The application in a case for contempt3
Conclusion9
Introduction
Mr Kia Silverbrook, in his role as a director, is a party to five separate proceedings brought by the applicant, being the Fair Work Ombudsman, for alleged contraventions of the Fair Work Act 2009 (Cth) by the corporate employer in respect of alleged employee entitlements.
The five proceedings have been heard concurrently pursuant to orders made on 4 December 2015, on the noted issue of “alleged contraventions including the making of any orders in respect of underpayments”. The orders made for the concurrent hearing also noted the intention of a future concurrent hearing in any matter in which penalty arises.
The two key issues in each of the five proceeding are:
(i)whether the alleged contraventions by the relevant corporate entity employer in respect of the alleged employee entitlements are proven;
(ii)whether accessorial liability by the director/directors in the alleged contraventions are proven.
Mr Silverbrook is an exceptionally brilliant inventor who has been extremely productive in the invention, creation and registration of patents in Australia and around the world. Each of the proceedings involves one of five companies of which Mr Silverbrook was either a director or the sole director. The five companies were controlled by Mr Silverbrook at the time of the alleged contraventions.
Ms Lee is the partner of Mr Silverbrook and has a deep knowledge of the intellectual property created by Mr Silverbrook and the requirements for protection of those intangible property rights, as well as the opportunities for commercial realisation of those rights. Ms Lee was joined in one of the proceedings in her role as a director.
In all five proceedings, commenced by statement of claim, declarations are sought as to knowing involvement by Mr Silverbrook in alleged contraventions by the corporate employer under s.550(1) of the Fair Work Act 2009. In each of the five proceedings penalties are sought against Mr Silverbrook under s.539(2) of the Fair Work Act 2009 as well as an order for the time within which the penalties are to be paid under s.546(3)(a) of the Fair Work Act 2009.
In three of the five proceedings the applicant seeks relief against a corporate entity, as the employer of specified employees, in the form of declarations of contravention, monetary orders and penalties against those companies. This relief is in addition to the declarations of knowing involvement and penalties sought by the applicant against Mr Silverbrook.
In two of the five proceedings the respective corporate entity, being the former employer of specified employees, is in liquidation. Ms Lee, together with Mr Silverbrook, was a director of both companies placed into liquidation. Ms Lee has only been joined in one proceeding and is the subject of identical claims to relief in respect of penalties as claimed against Mr Silverbrook. In those two proceedings with the entities now in liquidation, no relief is sought against the corporate employer. The only relief claimed is declarations as to knowing involvement by the joined director/directors, no monetary order is sought other than penalties and the time within which the penalties against the joined director/ directors are to be paid.
Background Priority Matters
Priority Matters Pty Ltd was incorporated in 1994 and around 2010 took over the patent management that had formerly been performed by Silverbrook Research. Priority Matters intellectual property management services were in principal provided to the Memjet Group and effectively the Kaiser Entities, which at this time includes the Memjet Group, ceased paying Priority Matters in May 2012. This gave rise to on-going legal disputation and in particular the failure to pay a US$36 million loan to Priority Matters.
The US$36 million loan became the subject of litigation in Ireland and a costly London Court of International Arbitration dispute which drained the resources of Mr Silverbrook. That arbitration imposed what appears to have been draconian discovery obligations on Mr Silverbrook during part of the period of the alleged contraventions in these proceedings. That drawn out arbitration process and discovery effectively depleted the ability of Mr Silverbrook to pursue the arbitration.
At the time of the alleged contraventions Priority Matters had 15 employees.
Background Superlattice
Superlattice Pty Ltd was formed on 20 April 2011 as a similar funded entity to Geneasys with the intention of advancing solar photovoltaic energy cells in respect of solar cells first invented by Mr Silverbrook in 1991 and then refined with the idea of plasma chemical vapour deposition systems. Superlattice as such was a research arm intended to advance the next generation thin-film solar photovoltaic programme.
At the time of the alleged contraventions Superlattice had 1 employee.
Background Geneasys
Geneasys Pty Ltd (In Liq) was first registered on 20 April 2011, with Mr Silverbrook and his partner Ms Lee as directors. This company was the subject of a winding up order made on 4 February 2014.
The name Geneasys is an abbreviation of Genetic Analysis Systems and the company derived intellectual property from Keylab which was a miniature advanced pathology lab invented by Mr Silverbrook in 1994. The company had not commenced trading and was being funded by Mr Silverbrook in its prototype development. The Keylab techonology had a potential significant humanitarian as well as commercial benefit and Geneasys had developed an extensive patent portfolio.
Geneasys was about 9 months away from a crucial working model stage when placed in liquidation by two employees at the encouragement of FWO so as to obtain Fair Entitlements Guarantee payments. The placement into liquidation of Geneasys adversely affected the tax credit of $748,281.60 that was listed and shown as a tax credit from the research and development incentive claim that had been lodged on 2 July 2013. The liquidation also effectively destroyed the commercial value of the intellectual property of Geneasys.
At the time of the alleged contraventions Geneasys had 5 employees.
Background Silverbrook Research
Silverbrook Research (In Liq) was started in 1994 and from around 2009-2012 had around 450 employees. This company was the subject of a name chance and winding up order on 16 April 2014. Most of these employees were taken over by the Memjet Group which was formed in 2000 and became internationally established in 2002. Research and development of the Memjet technology was being undertaken by Silverbrook Research. Memjet involved a page-wide ink-jet technology.
George Kaiser became an investor through Argonaut Private Equity in the Memjet Group. Eventually a 15.0186% shareholding interest by Mr Silverbrook, and the substantial loan repayment to Priority Matters of US$36 million were lost due to pressure and tactics of George Kaiser. Argonaut Private Equity was the investment arm of the George Kaiser Family Foundation. Through the majority control that George Kaiser acquired in Memjet Group in 2009 George Kaiser was able to implement a strategy to deplete the resources of Mr Silverbrook, avoid repayment of the US$36 million loan and to acquire Mr Silverbrook’s interest for less than its full value. After 2009 George Kaiser, his corporate entities and the Memjet Group are collectively referred to as the Kaiser Entities.
The pressure and tactics of the Kaiser Entities included an undisclosed funding agreement by George Kaiser Family Foundation and the Memjet Group with Loretta Craig dated 15 September 2012. This was funding of a meritless lawsuit by Lorretta Craig, started in October 2010, that alleged a partnership interest in the intellectual property created by Mr Silverbrook, which was heard over 13 days in August and September 2013. These Craig proceedings also tied up Silverbrook Research in that litigation and further depleted Mr Silverbrook’s resources.
At the time of the alleged contraventions by Silverbrook Research there were 5 employees.
Background Mpowa
Mpowa Pty Ltd was incorporated on 7 September 2011 with the intention of continuing an interactive paper project known as Netpage. Mr Silverbrook and Ms Lee held directly 5% of the shares each and 20% of the shares were held for them through a trust. The technology was co-invented by Mr Silverbrook with Paul Papstun. This technology was purchased by Mpowa from Silverbrook Research having been part of an autonomous division within Silverbrook Research and the staff of this division were also transferred to Mpowa. The technology involved a Netpage Pen being a digital pen and a Netpage Viewer being an interactive paper viewer using a smartphone.
Mpowa applied for a substantial research and development tax incentive in 2012 having incurred expenses of $8,479,410. This resulted in a tax credit as at 22 May 2013 with the ATO in the sum of $3,815,730.45. This very substantial tax credit has thereafter remained on the ATO Business portal in favour of Mpowa albeit as at 23 December 2015 after tax offsets the amount of the credit balance was $2,874,572.32.
At the time of the alleged contraventions Mpowa had 17 employees.
Priority Matters Proceedings
On 20 December 2013 proceedings were commenced by the applicant against Priority Matters Pty Ltd as the employer the subject of alleged contraventions involving 15 employees. The second respondent to these proceedings is Mr Silverbrook.
The alleged first contravention by Priority Matters is of s.323 of the Fair Work Act 2009 over the period 11 March 2013 to 9 August 2013 for the failure to pay employees amounts payable in relation to the performance of work. The alleged contravention of s.323 specifies a particular amount of wages for 15 employees that it is alleged Priority Matters failed to pay.
The next alleged contravention by Priority Matters is of s.44(1) of the Fair Work Act 2009 over the period 11 March 2013 to 9 August 2013 for the failure to pay employees amounts payable in respect of public holidays under s.116 being a National Employment Standard as defined by s.61(3) of the Fair Work Act 2009. The alleged contravention of s.44(1) in respect of public holidays specifies a particular amount of public holidays for 12 employees that it is alleged Priority Matters failed to pay.
The next alleged contravention by Priority Matters is of s.45 of the Fair Work Act 2009 over the period 25 March to 9 August 2013, in respect of a failure to pay the minimum rates of pay to the Patent Assistants pursuant to the requirements of cl.A2.5 of an alleged modern award being the Clerks Private Sector Award 2010. A schedule to the pleading specified the alleged minimum hourly rate applicable to 8 employees under the Clerks Private Sector Award 2010.
The next alleged contravention by Priority Matters is also of s.45 of the Fair Work Act 2009 over the period 25 March to 5 April 2013, in respect of a failure to pay a causal loading to an employee pursuant to the requirements of cl.A5.4 of the Clerks Private Sector Award 2010. A schedule to the pleading specified the alleged wages owing to the employee.
The next alleged contravention by Priority Matters is of s.293 of the Fair Work Act 2009 over the period 11 March 2013 to 9 August 2013 in respect of a failure to pay the national minimum wage in respect of certain employees being Patent Attorneys and Patent Design Assistants in accordance with the national minimum wage order. A schedule to the pleading identified the minimum hourly rates for the particular employees.
The next alleged contravention by Priority Matters is of s.542 of the Fair Work Act 2009 over the period 11 March 2013 to 9 August 2013 in respect of a failure to pay the employees their safety net contractual entitlements. The pleading repeats the wages and public holiday entitlements earlier pleaded as being the particularisation of the failure.
The next alleged contravention by Priority Matters is of s.44(1) of the Fair Work Act 2009 in respect of a failure to pay out three employees annual leave on termination of their employment in accordance with s.90(2) being a National Employment Standard as defined by s.61(3) of the Fair Work Act 2009. A schedule to the pleading set out the alleged amount of accrued annual leave and the payment allegedly owed to the 3 employees on termination of their employment.
The accessorial alleged contravention of s.550 of the Fair Work Act 2009 by Mr Silverbrook alleged that he had actual knowledge of the factual matters which comprise each contravention alleged against the Priority Matters and materially alleged “was an intentional participant in the factual matters which comprise the contraventions alleged against the respondent”. The pleaded involvement was particularised in a manner that requires the applicant to prove:
i. The Second Respondent was aware of the requirement to pay minimum wages and entitlements to the Employees.
ii. The second Respondent had knowledge of the wages and entitlements owed to the Employees and their entitlement to be paid in full.
iii. The Second Respondent was aware of, and responsible for, the on-going failure to pay the wages and statutory entitlements owed to the Employees.
iv. The Second Respondent participated and intended to participate in the on-going failure to pay the wages and statutory entitlements of the Employees.
Superlattice Proceedings
On 20 December 2013 proceedings were commenced by the applicant against Superlattice Solar Pty Ltd as the employer the subject of alleged contraventions involving 1 employee. The second respondent to these proceedings is Mr Silverbrook.
The alleged first contravention by Superlattice is of s.323 of the Fair Work Act 2009 over the period 11 March 2013 to 19 August 2013 is for the failure to pay an employee amounts payable in relation to the performance of work. The alleged contravention of s.323 specifies a particular amount of wages for the employee that it is alleged Superlattice failed to pay.
The next alleged contravention by Superlattice is of s.44(1) of the Fair Work Act 2009 over the period 11 March 2013 to 19 August 2013 for the failure to pay the employee amounts payable in respect of public holidays under s.116 being a National Employment Standard as defined by s.61(3) of the Fair Work Act 2009. The alleged contravention of s.44(1) in respect of public holidays specifies a particular amount of public holidays for the employee that it is alleged Superlattice failed to pay.
The next alleged contravention by Superlattice is of s.45 of the Fair Work Act 2009 over the period 25 March 2013 to 19 August 2013, in respect of a failure to pay the minimum rates of pay to the employee pursuant to the requirements of cl.A2.5 of an alleged modern award being the Professional Employees Award 2010. A schedule to the pleading specified the alleged minimum hourly rate applicable to the employee under the Professional Employees Award 2010.
The next alleged contravention by Superlattice is of s.44(1) of the Fair Work Act 2009 in respect of the failure to provide the minimum period of notice of termination to the employee under s.117(2) in accordance with s.117(3) or payment in lieu of notice, being defined as National Employment Standards provision. The allegation pleads an entitlement to one month’s notice under s.12.2 of the Professional Employees Award and that the employee was terminated on 19 August effective immediately. The breach alleged of s.44(1) is the failure to provide payment in lieu of notice in accordance with s.117(2).
The next alleged contravention by Superlattice is of s.44(1) of the Fair Work Act 2009 in respect of a failure to pay out annual leave on termination of the employment in accordance with s.90(2) being a National Employment Standard as defined by s.61(3) of the Fair Work Act 2009.
The next alleged contravention by Superlattice is of s.44(1) of the Fair Work Act 2009 in respect of an alleged requirement to pay the employee redundancy under s.119(1). That provision is a defined National Employment Standard within s.61 of the Fair Work Act 2009. Critical to this entitlement were particulars that Superlattice was part of a group of associated entities which together had in excess of 15 employees at the time of the alleged redundancy.
The next alleged contravention by Superlattice is of s.542 of the Fair Work Act 2009 over the period 11 March 2013 to 19 August 2013 in respect of a failure to pay the employee the safety net contractual entitlements. The pleading repeats the wages and redundancy sum as being the particularisation of the failure.
The alleged accessorial liability of Mr Silverbrook under s.550 of the Fair Work Act 2009 in relation to Superlattice alleges in substance the identical particulars of involvement as referred to above for Priority Matters.
Geneasys Pty Ltd (In Liq) Proceedings
On 23 December 2013 proceedings were commenced by the applicant against Geneasys Pty Ltd as the employer the subject of alleged contraventions involving 5 employees. The second respondent to these proceedings is Mr Silverbrook.
The alleged first contravention by Geneasys is of s.323 of the Fair Work Act 2009 over the period 25 February 2013 to 9 August 2013 is for the failure to pay five employee amounts payable in relation to the performance of work. The alleged contravention of s.323 specifies a particular amount of wages for the five employees that it is alleged Geneasys failed to pay.
The next alleged contravention by Geneasys is of s.44(1) of the Fair Work Act 2009 over the period 25 February 2013 to 9 August 2013 for the failure to pay five employees amounts payable in respect of public holidays under s.116 being a National Employment Standard as defined by s.61(3) of the Fair Work Act 2009. The alleged contravention of s.44(1) in respect of public holidays specifies a particular amount of public holidays for five employees that it is alleged Geneasys failed to pay.
The next alleged contravention by Geneasys is of s.45 of the Fair Work Act 2009 over the period 25 March to 19 August 2013, in respect of a failure to pay the minimum rates of pay to two employees pursuant to the requirements of cl.15 of an alleged modern award being the Professional Employees Award 2010. A schedule to the pleading specified the alleged minimum hourly rate applicable to the two employees under the Professional Employees Award 2010.
The next alleged contravention by Geneasys is of s.542 of the Fair Work Act 2009 over the period 25 February 2013 to 2 May 2013 in respect of a failure to pay two employees their safety net contractual entitlements. The pleading repeats the wages and public holiday entitlements earlier pleaded as being the particularisation of the failure.
The next alleged contravention by Geneasys is of s.293 of the Fair Work Act 2009 over the period 25 February 2013 to 9 August 2013 in respect of the failure to pay three employees described as High Income Employees the national minimum wage for work performed in respect of specified pay periods set out in a schedule to the pleading.
The next alleged contravention by Geneasys is of s.328 of the Fair Work Act 2009 over the period 25 February 2013 to 9 August 2013 in respect of a failure to comply with the guarantee of annual earnings for three employees described as High Income Employees. A schedule to the pleading identified the alleged entitlements owed to the three employees. The pleading refers to the High Income Employees being covered by the National Minimum Wage Order.
The next alleged contravention by Geneasys is of s.44(1) of the Fair Work Act 2009 over the period 25 to 28 March 2013 in respect of the failure to pay an employee for her period of annual leave in accordance with s.90(1) of the Fair Work Act 2009. Section 90(1) of the Fair Work Act 2009 is a National Employment Standard as defined by s.61 of the Act. A schedule to the pleading specifies the amount Geneasys is alleged to have failed to pay the employee.
The next alleged contravention by Geneasys is of s.44(1) of the Fair Work Act 2009 in respect of a failure to pay out five employees annual leave on termination of their employment in accordance with s.90(2) being a National Employment Standard as defined by s.61(3) of the Fair Work Act 2009. The pleading specified the amount of annual leave on termination that Geneasys failed to pay for each of the 5 employees.
The next alleged contravention by Geneasys is of s.44(1) of the Fair Work Act 2009 in respect of the failure to provide the minimum period of notice of termination under s.117(2) to an employee in accordance with s.117(3) or payment in lieu of notice, being defined as National Employment Standards provision. The employment contract was allegedly terminated effective immediately by letter dated 2 May 2013. The allegation pleads an entitlement to one month’s notice under s.12.2 of the Professional Employees Award. The breach alleged of s.44(1) is the failure to provide payment in lieu of notice in accordance with s.117(2).
The next alleged contravention by Geneasys is of s.44(1) of the Fair Work Act 2009 in respect of an alleged requirement to pay the employee terminated on 2 May 2013 redundancy under s.119(1). That provision is a defined National Employment Standard within s.61 of the Fair Work Act 2009. The particulars allege that Geneasys appeared to have more than 15 employees and also was part of a group of associated entities which together had in excess of 15 employees at the time of the alleged redundancy.
The pleading also alleged in the alternative that the employee had a contractual right to 12 weeks redundancy pay which was a safety net contractual entitlement in accordance with s.12 and s.542 of the Fair Work Act 2009. The pleading alleged the failure by Geneasys to pay redundancy to the employee was a breach of s.542 of the Fair Work Act 2009.
The alleged accessorial liability of Mr Silverbrook under s.550 of the Fair Work Act 2009 in relation to Geneasys alleges in substance the identical particulars of involvement as referred to above for Priority Matters.
Silverbrook Research Proceedings
On 25 June 2014 the applicant commenced proceedings against the directors, being Mr Silverbrook and Ms Lee in respect of the entity Silverbrook Research Pty Ltd (in Liq).
The alleged first contravention by Silverbrook Research is of s.323 of the Fair Work Act 2009 over various periods from 7 February 2013 to 12 December 2013 for the failure to pay 5 employees amounts payable in relation to the performance of work. The alleged contravention of s.323 specifies a particular amount of wages for each of the five employees that it is alleged Silverbrook Research failed to pay over the specified pay periods.
The next alleged contravention by Silverbrook Research is of s.44(1) of the Fair Work Act 2009 over two periods in 2013 in respect of the failure to pay two employees for their period of annual leave in accordance with s.90 (1) of the Fair Work Act 2009. Section 90(1) of the Fair Work Act 2009 is a National Employment Standard as defined by s.61 of the Act. The pleading specifies the amount Silverbrook is alleged to have failed to pay the employees for annual leave.
The next alleged contravention by Silverbrook Research is of s.44(1) of the Fair Work Act 2009 in respect of a failure to pay out four employees annual leave on termination of their employment in accordance with s.90(2) being a National Employment Standard as defined by s.61(3) of the Fair Work Act 2009. The pleading sets out the alleged amount of the payment allegedly owed to the 4 employees for annual leave on termination of their employment.
The next alleged contravention by Silverbrook Reseach is of s.44(1) of the Fair Work Act 2009 in respect of a failure to pay an employee for a period of paid personal leave in accordance with s.99 of the Fair Work Act 2009. The pleading specifies the amount not paid in personal leave.
The next alleged contravention by Silverbrook Research is of s.44(1) of the Fair Work Act 2009 over different periods from 7 February 2013 to 17 October 2013 for the failure to pay five employees amounts payable in respect of public holidays under s.116 being a National Employment Standard as defined by s.61(3) of the Fair Work Act 2009. The alleged contravention of s.44(1) in respect of public holidays specifies a particular amount of public holidays for five employees that it is alleged Silverbrook Research failed to pay.
The next alleged contravention by Silverbrook is of s.44(1) of the Fair Work Act 2009 in respect of the failure to provide the minimum period of notice of termination under s.117(2) to an employee in accordance with s.117(3) or payment in lieu of notice, being defined as National Employment Standards provision. The employment contract was allegedly terminated effective immediately on 29 April 2013. The allegation pleads an entitlement to four weeks’ wages. The breach alleged of s.44(1) is the failure to provide payment in lieu of notice in accordance with s.117 (2).
The next alleged contravention by Silverbrook Research is of s.44(1) of the Fair Work Act 2009 in respect of an alleged requirement to pay the employee terminated on 29 April 2013 redundancy under s.119(1). That provision is a defined National Employment Standard within s.61 of the Fair Work Act 2009. The particulars allege that Silverbrook Research had more than 15 employees and also was part of a group of associated entities which together had in excess of 15 employees at the time of the alleged redundancy.
The pleading also alleged in the alternative that the employee had a contractual right to 12 weeks redundancy pay which was a safety net contractual entitlement in accordance with s.12 and s.542 of the Fair Work Act 2009. The pleading alleged the failure by Silverbrook Research to pay redundancy to the employee was a breach of s.542 of the Fair Work Act 2009.
The next alleged contravention by Silverbrook Research is of s.45 of the Fair Work Act 2009 over the period 25 March 2013 to 9 August 2013, in respect of a failure to pay the minimum rates of pay to two employees pursuant to the requirements of cl.A2.5 of an alleged modern award being the Clerks Private Sector Award 2010. A schedule to the pleading specified the alleged minimum hourly rate applicable to the two employees under the Clerks Private Sector Award 2010 in each pay period.
The next alleged contravention by Silverbrook Research is of s.45 of the Fair Work Act 2009 in respect of a failure to pay the minimum rates of pay to an employee pursuant to the requirements of cl.A3.6 of an alleged modern award being the Professional Employees Award 2010. A schedule to the pleading specified the alleged minimum hourly rate applicable to the employee under the Professional Employees Award 2010 in each pay period.
The next alleged contravention by Silverbrook Research is of s.293 of the Fair Work Act 2009 over the period 7 February 2013 to 12 December 2013 in respect of the failure to pay two employees the national minimum wage for all work performed. A schedule to the pleading specified the minimum payments owed in each pay period.
The next alleged contravention by Silverbrook Research is of s.542 of the Fair Work Act 2009 over the period 7 February 2013 to 12 December 2013 in respect of the failure to pay the safety net contractual entitlements in respect of 5 employees. The pleading referred to the pay periods earlier identified in the alleged contravention of s.323 of the Fair Work Act 2009.
The pleading then alleges that the respondents, being Mr Silverbrook and Ms Lee have an accessorial liability and were involved in the contraventions of s. 44(1), s.45, s.293, s.323(1) and s.542 of the Fair Work Act 2009. The pleading alleges that the respondents were responsible for ensuring that wages and entitlements were paid in a timely manner and were aware of the failure to pay wages and statutory entitlements of the employees. The pleading alleges a failure to ensure that the wages and statutory entitlements were paid in a timely manner. There is a reference to inferring conduct from communications that Silverbrook Research did not have the necessary funds for wages. The pleading then alleges at large the substance of each of the paragraphs of s.550(2) of the Fair Work Act 2009 against Mr Silverbrook and Ms Lee as each being a person being involved in a contravention. It is alleged in the premises that Mr Silverbrook and Ms Lee by operation of s.550(1) of the Fair Work Act 2009 are taken to have contravened the provisions alleged.
Mpowa Proceedings
On 27 June 2014 proceedings were commenced by the applicant against Mpowa Pty Ltd as the employer of 17 employees. The second respondent to these proceedings is Mr Silverbrook. The proceedings were the subject of minor amendment on 25 September 2015 by the filing of an amended Statement of Claim.
The alleged first contravention by Mpowa is of s.323 of the Fair Work Act 2009 over the period from 5 April 2013 to 13 December 2013 for the failure to pay 17 employees amounts payable in relation to the performance of work. A schedule to the pleading specifies a particular amount of wages for each of the 17 employees that it is alleged Mpowa failed to pay.
The next alleged contravention by Mpowa is of s.44(1) of the Fair Work Act 2009 over the period 5 April 2013 to 13 December 2013 in respect of the failure to pay 11 employees for their periods of annual leave in accordance with s.90(1) of the Fair Work Act 2009. Section 90(1) of the Fair Work Act 2009 is a National Employment Standard as defined by s.61 of the Act. A schedule to the pleading specifies the amount Mpowa is alleged to have failed to pay the 11 employees.
The next alleged contravention by Mpowa is of s.44(1) of the Fair Work Act 2009 in respect of a failure to pay out three employees annual leave on termination of their employment in accordance with s.90(2) being a National Employment Standard as defined by s.61(3) of the Fair Work Act 2009. The pleading identifies the date of the alleged termination for the three employees without notice. A schedule to the pleading sets out the alleged amounts owed to the three employees for annual leave on termination of their employment.
The next alleged contravention by Mpowa is of s.44(1) of the Fair Work Act 2009 in respect of a failure to pay 7 employees for their periods of paid personal leave in accordance with s.99 of the Fair Work Act 2009. A schedule to the pleading specifies the amount not paid in personal leave.
The next alleged contravention by Mpowa is of s.44(1) of the Fair Work Act 2009 over different periods from 5 April 2013 to 13 December 2013 for the failure to pay 15 employees amounts payable in respect of public holidays under s.116 being a National Employment Standard as defined by s.61(3) of the Fair Work Act 2009. A schedule to the pleading in relation to the alleged contravention of s.44(1) in respect of public holidays specifies the particular public holidays for the 15 employees that it is alleged Mpowa failed to pay.
The next alleged contravention by Mpowa is of s. 44(1) of the Fair Work Act 2009 in respect of the failure to provide the minimum period of notice of termination under s.117(2) to an employee in accordance with s.117(3) or payment in lieu of notice, being defined as National Employment Standards provision. The employment contract was allegedly terminated on 27 November 2013 without notice. The allegation pleads an entitlement to four weeks wages. The breach alleged of s.44(1) is the failure to provide payment in lieu of notice in accordance with s.117(2).
The next alleged contravention by Mpowa is of s.44(1) and s.45 of the Fair Work Act 2009 in respect of the alleged failure to pay redundancy to an employee terminated on 27 November 2013 in accordance with s.119 of the Fair Work Act 2009. The pleading refers to cl.13.5 of the NSW Professional Engineers and Professional Scientists (Private Industry) State Award and that under cl.11.5.1.1 the employee was entitled to 16 weeks’ redundancy pay. The amount that Mpowa failed to pay by way of redundancy pay is specified in the pleading.
The next alleged contravention by Mpowa is of s.45 of the Fair Work Act 2009 in respect of a failure to pay the minimum rates of pay to 9 employees pursuant to the requirements of cl.15 and cl.A3.6 of an alleged modern award being the Professional Employees Award 2010. A schedule to the pleading specified the alleged minimum hourly rates applicable to the 9 employees under the Professional Employees Award 2010 in each pay period.
The next alleged contravention by Mpowa is of s.293 of the Fair Work over the period 5 April 2013 to 13 December 2013 in respect of the failure to pay an employee the national minimum wage for all work performed. A schedule to the pleading specified the minimum payments owed in each pay period for the employee.
The next alleged contravention by Mpowa is of s.542 of the Fair Work Act 2009 over the period 7 February 2013 to 12 December 2013 in respect of the failure to pay the safety net contractual entitlements in respect of 17 employees. A schedule to the pleading specifies the sums that Mpowa is alleged to have failed to pay the 17 employees.
The next alleged contravention is of s.712(3) of the Fair Work Act 2009 in respect of a notice to produce dated 20 November 2013. The particulars allege the notice required “the specified records or documents” to be provided no later than 20 December 2013 and the particulars of contravention make reference to a receipt for documents provided on 14 January 2014 that noted Mpowa had failed to provide all the records and/or documents as requested.
The pleading then alleges accessorial liability of Mr Silverbrook by reason of being involved in each of the contraventions. The pleading alleges that Mr Silverbrook had actual knowledge of the factual matters pleaded which comprised each of the contraventions and was an intentional participant in the factual matters which comprise the contraventions alleged against Mpowa. The pleading then alleges at large the substance of each of the paragraphs of s.550(2) of the Fair Work Act 2009 against Mr Silverbrook as being a person being involved in a contravention. It is alleged in the premises that Mr Silverbrook by operation of s.550(1) of the Fair Work Act 2009 is taken to have contravened the provisions alleged.
The Evidence
The evidence and submissions on liability involved the calling of 13 witnesses and occupied 9 days of hearing and more than 22 large folders of affidavits and exhibits.
Evidence in chief in relation to the investigation, alleged contraventions and calculation of employee entitlements was adduced by the applicant by affidavit together with substantial exhibits. There were six affidavits by Inspector Hurrell as well as oral evidence from Inspector Hurrell. That evidence of Inspector Hurrell explained the making of complaints by different employees to the Fair Work Ombudsman relating to the five companies the subject of these proceedings as well as another entity called Precision Mechtronics related to Mr Silverbrook. Those five companies were referred to in some of the evidence as the Knowledge Industry Companies (KIC). Inspector Hurrell explained the steps taken to investigate alleged outstanding entitlements, a contravention determination and notification process, production of documents and calculations of the outstanding employee entitlements. Eleven employees also gave affidavit evidence as to their attempts to obtain outstanding entitlements. The inspector was cross examined in principal about the investigation, the calculation of entitlements and underlying assumptions including grounds for application of particular awards.
There was cross examination of the former employees who had provided affidavit evidence. These witnesses’ explanation as to attempts to obtain outstanding entitlements was, in general, consistent albeit that the Mpowa former employees each failed to properly disclose in their affidavit evidence payments made after commencement of the proceedings. Those former employees substantially corroborated the genuineness of the belief by Mr Silverbrook and Ms Lee that employees were about to be paid because of the ATO tax credits. Most of the former employees said to be covered by specific awards were unaware of the alleged applicable award in respect of their employment.
It is appropriate to refer to the evidence of Dr Wohlthat in more detail because of the contest about his termination and award coverage. Dr Wohlthat holds a PhD in theoretical chemistry from Sydney University and a diploma in Physics for the University of Karshrule in Germany. Dr Wohlthat signed a contract of employment with Superlattice on 21 December 2010 and under which he was to be paid fortnightly. Dr Wohlthat was working on two projects which required computing. The projects were solar cell simulations and later simulated batteries. In relation to solar cells this involved the electrical structure of semiconductors and the interface, the flow electrons through it, the absorption of light and the optical properties. The simulation of solar cells involved building up of thin layers of materials up to single atom thin and calculating the electronic structure which involved chemical calculations and in relation to which the optical properties are quite different for very thin layers compared to what is usually done in solar cell simulations. This work was described by Mr Silverbrook as writing software to perform quantum mechanical simulations of the proposed solar cells for a next generation thin-film solar photovoltaic programmed. Dr Wohlthat said that this work involved using his qualifications to perform the calculations and simulations.
Dr Wohlthat explained his contact with the FWO after the end of his holidays in May 2013 having not been paid his wages since 8 March 2013. Dr Wohlthat gave evidence that he understood payments were expected that would permit payment of wages from the ATO and as a result of selling off intellectual property. There was a communication between Dr Wohlthat and Mr Silverbrook in March about the absence of payment but there was not any termination of his employment at that time.
The applicant also adduced oral evidence from Mr J McCarthy, Mr G Facer, Mr G Harrison, Ms J Childs, Ms L News, Mr M Shepanski, Ms J Pavlovski, Mr C Wooldridge, Mr A Whitlock and Mr K Bolton. It is not necessary to further summarise the evidence of these witnesses. Suffice to say that I accept that each witness was truthful in describing their employment, work performed and their concerns in relation to payment of outstanding entitlements.
Two overlapping affidavits by Mr Silverbrook were read in the defence case as well as three affidavits by Ms Lee. Both deponents were cross examined as to their knowledge of the outstanding entitlements and failure of the respective corporate employer to make payments to employees. Part of the thrust of the cross examination was that the corporate entities should have been placed in liquidation so as to permit the receipt by employees of Fair Entitlement Guarantee payments. Almost no cross examination was advanced beyond the failure to pay employees to establish the financial position and performance of the respective companies. The incentive created by the Fair Entitlement Guarantee Act 2012 to rapidly liquidate companies and the inability to create a scheme of arrangement or compromised entitlement involving equity sharing with employees was the subject of understandable criticism by Mr Silverbrook. Both Mr Silverbrook and Ms Lee explained the significant attempts they made to pay employees entitlements and the difficulties encountered in their efforts to do so as well as the partial success in that regard. Neither Mr Silverbrook nor Ms Lee were aware of the alleged applicable award to particular employees.
In making these findings and the findings that follow, I have taken into account the whole of the evidence, the pre and post written submissions and the oral submissions.
Findings in respect of Corporate Entities – National System Employers
The gist of the respondents’ submissions as to the corporate entities not being constitutional corporations was because they did not trade and did not carry on a business during the periods with which the proceedings were concerned. It was submitted that Superlattice, Geneasys and Mpowa were established to be simple repositories of discrete subject matter intellectual property, so that instead of assigning individual patents in due course if they proved to be of value, all the shares of the entity could be transferred so as to effect a transfer of a partial parcel of patents in a convenient way.
The respondents did not explain why this intention did not give rise to the three entities being a trading corporation. In relation to Superlattice, it was submitted that it was a not for profit humanitarian entity and never traded. That proposition is contrary to the intention to utilise the intellectual property if a patent was able to be created. Whilst the rationale behind creating Superlattice may have involved considerations concerning the Kaiser Entities, that does not give rise to the corporate entity not being a trading corporation.
I accept the proposition that at no stage did Superlattice have any income and I accept that there was no return to the shareholders that occurred or was expected in the immediate future. I accept that Superlattice had no customers, no revenue and had not at that stage created any real assets. I do not accept that Dr Wohlthat was the corporate mind of Superlattice. I find Mr Silverbrook was at all times in control of and the corporate mind of Superlattice.
In relation to Geneasys I accept that this was not an entity that had customers or revenue. I accept that the entity was conducted as the private research and development project of Mr Silverbrook and Ms Lee. I accept that the project had humanitarian aspects to it. I do not accept that the entity could be properly characterised as a not for profit humanitarian entity.
I also accept that the intention was in part to assist developing countries; leveraging a buy one, donate one strategy and that no return was obtained by shareholders. I find as a matter of fact and degree Geneasys was a trading corporation.
In relation to Silverbrook Research, I accept that the company did not trade during the audit period and that most of the staff had been transferred to Memjet pursuant to the Memjet restructuring agreement.
I accept that the trading activities of Memjet had ceased on 8 May 2012. I do not accept that it was the intention not to continue trading if further projects being conducted by Silverbrook Research were successful. I accept that during the relevant time the sole source of funding for Silverbrook Research was Mr Silverbrook and Ms Lee, and that it had no customers and no revenue. I also accept that the intellectual property never matured beyond pre-commercialisation stage.
I find it was the intention of Mr Silverbrook to achieve a commercial realisation in relation to the intellectual property of Silverbrook Research. I find as a matter of fact and degree that Silverbrook Research was a trading corporation.
In relation to Priority Matters, I find that it provided patent administration services to some of the corporate entities on a cost recovery basis. I accept that the capital needs of Priority Matters were intended to be met by Mr Silverbrook and Ms Lee.
I accept that it did not trade during the contravention period with external parties. I do not accept that the internal activity of providing administrative services to the other corporate respondents was not trading within the meaning of the concept as used in determining whether the entity was a trading corporation under s.51(xx). As a matter of fact and degree I find Priority Matters to be a trading corporation.
In relation to Mpowa, I accept that was a corporate entity conducting private research and development on a fully funded basis by Mr Silverbrook and Ms Lee. I accept that the entity had no customers and no revenue apart from nascent stages of commercialisation of the Netpage technology. That realisation of the Netpage technology was a trading activity. Mpowa’s sole assets were intellectual property which I accept ultimately did not mature beyond pre-commercialisation stage.
I find that it was the intention to achieve commercial realisation of that intellectual property. As a matter of fact and degree I find Mpowa was a trading corporation.
I do not accept the respondent’s submission that the activities test should be given more weight than the purpose test. The determination of whether an entity is a trading corporation is a matter of fact and degree, taking into account both the activities test and the purpose test.
In relation to the purpose test, I find that the intention of the controlling corporate mind is a matter that can also be taken into account in determining the character of the corporate entity. In relation to the contraventions I accept that under s.61(3) of the Act, division 3 to 12 of part 2.2 of the Act are designated as the, “National Employment Standards.” Section 60 references to employer and employee in those standards mean, “National system employer and national system employee,” respectively.
I find that each of the corporate entities, the subject of these proceedings, were a national system employer. I find that each of the employees, the subject of these proceedings, was a national system employee.
Construction of Awards
I accept that a narrow and pedantic approach is not to be adopted in the construction of an award and that a beneficial construction should be adopted that gives meaning to the intention of the framers. I accept that the language used must be understood in light of the industrial context and must be read as a whole. Where an employee may be covered by more than one award, it is the award classification that is most appropriate to the work of that employee and the environment in which the work is performed, as well as giving effect to the more specific coverage of tasks, that determines which award applies.
I also accept that, in determining whether an award applies to the particular employee, consideration must be given to the nature of the work and the circumstances in which the person was employed to do the work so as to ascertain the principal purpose for which the employee was employed.
The industrial background to the Professional Employees Award was identified by the AIRC in 2009 AIRCFB 450 at [190] - [196]. The industrial background to the Clerks – Private Sector Award was identified in 2008 AIRCFB 1000 at [221]-[222]. I have taken that background into account.
Findings in respect of Inspector Hurrell and the applicant’s other witnesses
Inspector Hurrell explained how the schedules to the pleadings in each case had been prepared from records produced by the accountant for the corporate entities and information obtained directly from the relevant employees. There was some cross examination directed to establishing gaps or errors in the basis of the calculations by Inspector Hurrell for the respective employees.
I accept Inspector Hurrell’s evidence that the accounting records for the employees were not complete. In these circumstances I more readily draw the inference that employee entitlements as identified in the records produced by the corporate respondents, used by Inspector Hurrell in the calculations set out in the schedules to the pleadings are correct insofar as favourable to the employee. Further in light of the incomplete record keeping as to employee entitlements by the corporate respondents I accept that the additional entitlement information provided by the employees to Inspector Hurrell used in the calculations by Inspector Hurrell are correct.
Whilst I understand the respondents’ concerns that some employees might not have performed the hours claimed or may have taken other leave, the incomplete records as to employee entitlements warrant drawing the most favourable inference available to the employee on the records produced. This includes drawing the most favourable inference as to the reliability of the supplementary information as to entitlements from the employee to Inspector Hurrell that should have been in the records produced.
Inspector Hurrell was a careful witness and candidly made certain concessions. I do not accept Inspector Hurrell’s explanation for the failure to properly address the substantial payments by the respondent in the Mpowa case as correct for reasons explained below. I also do not accept the evidence of Inspector Hurrell as correct in relation to whether there was encouragement of employees in relation to the winding up of Geneasys, for reasons explained below. Further, I do not accept Inspector Hurrell’s evidence and explanation for the failure to contact the ATO in respect of the tax credits for the reasons given below. However, overall I find Inspector Hurrell to be a witness of truth.
Inspector Hurrell explained the investigation process undertaken in relation to each corporate entity. This included a determination of contravention letter. That letter in each case purported to make findings in relation to unpaid wages for particular employees for a particular period and purported to find that the corporate employer had contravened certain identified provisions of the Fair Work Act 2009, assessed the amounts owing to each employee and made a demand for the rectification of the outstanding amounts “as a result of the contraventions” within a time period of about 3 weeks. That demand was not an invitation to be heard on the question of whether there should be a determination of contravention. Further the letters of determination of contravention did not explain the basis for the findings in relation to application of alleged awards and two of the letters identified different awards in respect of certain employees from those advanced in the pleadings by the applicant.
The letters of contravention determination do not establish in this case any proper foundation for findings as to the intention or knowledge of the respondents in relation to the allegations of accessorial liability. The letters were not the subject of a fair process for input prior to the determination. I accept that Mr Silverbrook did receive the letters of determination of contravention but I find he gave them little regard due to other matters that Mr Silverbrook perceived to be of a more critical importance. I find that the letters of determination of contravention did not change the state of mind of Mr Silverbrook or affect his intention as to payment of employees. I find that at the time of receipt of the respective letter of determination it was reasonable for Mr Silverbrook to remain of the same state of mind and intention as to payment of employees. I make the same findings in relation to the letter of contravention in respect of Silverbrook Research received by Ms Lee.
There is no statutory foundation for this process of determination of contravention and its purpose is no doubt in part to inform the recipient of the alleged contravention. The determination process that has been adopted in the sending of these letters is not one which reflects compliance with principles of procedural fairness. Given the absence of a statutory foundation for this process it is regrettable that the determination process is not one that accords a fair opportunity to the recipient to respond to possible allegations of contravention prior to the decision making by the Inspector.
It is preferable that if a decision is to be made as to the existence of a contravention by the Inspector that the decision only be made after a fair opportunity to a recipient to respond to the allegations, see Commissioner of Police v Tenos (1958) 98 CLR383 at 395-396; Murray v Legal Services Commissioner (1999) 46 NSWLR 224 at [66-88]. There is no material consequence in these cases that arises out of this procedurally unfair determination of contravention letter other than being ineffectual in advancing the accessorial liability case of the applicant. I find that the following of the unfair practice of the applicant in relation to the making of this type of determination by the Inspector and sending of a letter of contravention does not adversely affect the credibility of the Inspector in this case.
Some endeavour was made by the solicitor for the respondent to explore whether there was properly enlivened the investigatory powers prior to the taking of certain steps by the Inspector. I find that the Inspector was endeavouring to properly perform her statutory investigatory functions. I find that the Inspector’s investigatory powers were enlivened by the circumstances and substance of the complaints made by employees to the applicant in relation to the respective corporate employer.
In each proceeding the Inspector summarised the communications with the relevant identified employees, identified the employment records relied upon, identified at a high level the nature of the employed duties for the respective employee and identified fortnightly salary from those records, and explained in detail the calculation of alleged unpaid salary entitlements. That explanation included the calculation of the hours of work performed per fortnight, as well as a daily salary and an hourly rate, calculation of annual leave, leave, termination notice and redundancy entitlements and public holiday calculations. Apart from the issues as to application of relevant awards, redundancy and post proceeding payments in the Mpowa proceeding I accept the underlying assumptions for those calculations as being correct and, subject to the issues mentioned, I accept that the calculations made by Inspector Hurrell correctly reflects entitlements due to the respective employees.
Given the deficiency in the record keeping of the corporate entities, except in relation to redundancy entitlements and award issues the subject of findings below, I accept the evidence and calculations of Inspector Hurrell as to the entitlements as to outstanding wages for the identified employees, public holiday entitlements, personal leave, annual leave entitlements and calculations as to the hours worked. I find that the identified assumptions in particular schedules were reasonable inferences to draw upon the material identified by Inspector Hurrell in support of the calculations in the schedules. I find that the contractual entitlement of the employees in the respective schedule is correct. I find that the calculations undertaken by Inspector Hurrell as to the amount outstanding for the respective employee are on the balance of probabilities correctly identified in the schedules to the respective pleading, subject to the issues of redundancy and applicable award and in the case of Mpowa the further payments made by the respondents.
In relation to Mpowa subsequent to the calculations performed by Inspector Hurrell in the schedules to the pleadings for the Mpowa employees substantial payments were made by the respondents to those employees. I find that the respondents raised funding of $1.5m by Mr Silverbrook transferring his shareholding interest in Mpowa and entered into agreements with the 24 former employees of Mpowa in August 2014 that provided in substance the equivalent benefit they would have received under the Fair Entitlement Guarantee. The failure to properly bring to account those payments in the applicant’s case in chief was said to be due to the lack of information concerning those payments provided by the respondents. I do not accept that as an adequate explanation by the applicant.
The applicant had the benefit of information from the employees as to what had been paid and how it was to be allocated and I regard the failure to properly address this matter in the applicant’s case in chief as a material deficiency in the conduct of the applicant’s case. The applicant was propounding in its case in chief on liability an entitlement to orders for payment of amounts due to identified employees. For the applicant not to bring to account the very substantial payments made by the respondents was unreasonable and unsatisfactory.
The limited reference to the payments made by the respondent in the affidavit of Inspector Hurrell in the Mpowa proceedings failed to properly address and explain the impact of those payments upon the entitlements of the respective employees. The assertion of an inability to allocate entitlements by Inspector Hurrell was not correct. It was apparent from Inspector Hurrell’s evidence in cross examination that there were calculations that could have been undertaken in relation to the payments made by the respondent to the employees of Mpowa on the material available to the Inspector. I find that it was unreasonable of the applicant not to address the impact of the substantial payments made to the employees of Mpowa in its case in chief.
Whilst I accept that there was some partial disclosure of the payments made to some of the employees this was not done in a full and candid way in the evidence in chief of the applicant. I do not accept the explanation that the substantial payments were only relevant to any issue of penalty. It was obvious that the substantial payments made impacted on the primary case on liability and the orders being sought in that liability case for payments to employees of Mpowa. The applicant’s failure to bring to account the substantial payments was unreasonable conduct by the applicant but I am not satisfied that of itself it caused any costs to be incurred by the respondents.
Further I accept the applicant’s submissions that the respondents admitted that there were amounts still owing to employees of Mpowa notwithstanding the substantial payments made. The concession as to amounts still owing to employees of Mpowa is entirely consistent with the terms of certain deeds tendered in evidence that identified a moratorium rather than a complete release. Competing schedules as to the impact of the payments made by the respondents to employees in the Mpowa case have been submitted in closing submissions by both parties.
On the evidence I find that there are still outstanding entitlements to the employees of Mpowa notwithstanding the substantial payments made by the respondents. The failure of the respondents to maintain complete records in relation to employees of Mpowa also impacts on the determination of the balance of entitlements after allowing for the payments made. I accept that the allocation of the payments made by the respondents was not clearly appropriated to specific entitlements by the respondents. I accept that some of the payments made by the respondents are not referrable to the amounts claimed on behalf of the employees as identified in the schedules to the pleadings. In these circumstances I accept that the allocations identified in the submission schedules of the applicant are consistent with a proper apportionment of the payments made in respect of the entitlements of the employees of Mpowa which I find were correctly identified in the schedules to the pleading.
Findings in respect of Mr Silverbrook and Ms Lee
I find that Mr Silverbrook was an honest, credible and impressive witness. Although on some occasions Mr Silverbrook gave a rambling answer, I find that he was doing his best to tell the truth.
Mr Silverbrook candidly acknowledged at the outset, that his recollection was not perfect. I accept that on some occasions Mr Silverbrook’s answers might be characterised as argumentative, but having observed him in the witness box, those responses I find were due to his genuine Socratic approach to providing truthful and complete information to the Court. In some answers Mr Silverbrook revealed his critical thinking approach to the question asked that was not, I find either evasive or reconstruction, but rather a reflection of his best endeavours to tell the truth and to provide complete information to the Court.
I find Mr Silverbrook to be a witness of truth.
Where Mr Silverbrook’s evidence might be said to conflict with that of the other oral witnesses about the source and expectation of monies to pay entitlements, I prefer the evidence of Mr Silverbrook. I reject the submission that Mr Silverbrook’s beliefs as to the imminent source of payment were unreasonable. I have taken into account the ATO tax credits and possible source of funds explained by Mr Silverbrook and Ms Lee in this regard, including the successful raising of funds from sale of their Mpowa shares.
I find that Mr Silverbrook, at all times, reasonably believed that payment of the employees was imminent and that his state of mind at all relevant times was that payment of outstanding entitlements to employees was about to be made.
I found Ms Jeanette Lee to also be an impressive witness who I find was credible and whose evidence I accept. I find that Ms Lee at all times reasonably believed that payment of the employees of their entitlements was about to occur.
I find that both Ms Lee and Mr Silverbrook took all reasonable steps to try and effect payment of the employees’ entitlements throughout the relevant period. I find that both Mr Silverbrook and Ms Lee applied and exhausted their own personal funds in their endeavours to ensure that the entitlements of employees were paid. I find that Mr Silverbrook and Ms Lee were, in part, successful in achieving payment from certain sources using their own personal property for the benefit of employees.
I find that the state of mind of Mr Silverbrook and Ms Lee, at all relevant times, was that the employees were about to be paid their wages and statutory entitlements owed to the employees, and that that belief was held on reasonable grounds and honestly held. I find that neither Mr Silverbrook nor Ms Lee intended to participate in the ongoing failure to pay wages and statutory entitlements to the employees. I find that the state of mind and knowledge of Mr Silverbrook and Ms Lee was contrary to any inference being drawn that either intended to participate in the ongoing failure to pay the wages and statutory entitlements of the employees.
The applicant carries the onus on a Briginshaw standard of persuading the Court as to the knowledge of the relevant alleged accessorial respondent of the award the subject of the contravention; see Briginshaw v Briginshaw (1938) 60 CLR 336 at [361]–[362]. It was conceded by counsel for the applicant that it was common ground that neither Mr Silverbrook nor Ms Lee were aware of the award applicable to any employee in respect of the alleged accessorial liability case. It was also common ground and conceded by the applicant that neither Mr Silverbrook nor Ms Lee were aware of the national minimum wage order.
The respondents argue that the circumstances in which the contraventions occurred were in part attributable to circumstances beyond their control. I accept the first respondent’s submission that the respondent’s liquidity crisis was in part due to the conduct of the Kaiser Entities by the diversion of committed contract work in relation to Silverbrook Research during and after 2012. I accept that the loss to Silverbrook Research in that regard caused by the Kaiser Entities was in the tens of millions of dollars.
I also accept the respondents’ submission that the refusal of the Kaiser Entities to reimburse a US$36 million loan to Silverbrook Research was a material contributing cause to the respondents’ protracted temporary liquidity problem. I also accept the first respondent’s submission that the refusal to recognise superannuation as a component of gross salary for Silverbrook Research staff who were transferred to the Memjet Group after it came under George Kaiser’s control was a breach of the representations made by the Kaiser Entities as to the transfer of the Silverbrook Research staff. This left Silverbrook Research with an unexpected and substantial statutory liability to the ATO which gave rise to the winding up of Silverbrook Research.
I accept the respondents’ submissions that the statutory liability for the superannuation component of the gross salary for the Silverbrook Research staff that were transferred, was not a liability of which the directors were aware until the claim was advanced by the ATO. It is a material matter to the credit of Mr Silverbrook and Ms Lee that within a short period after the making of this demand by the ATO, Silverbrook Research was placed in liquidation.
I find that the conduct of the directors in placing Silverbrook Research into liquidation in circumstances where it became apparent that there was more than a protracted temporary liquidity crisis is entirely consistent with the genuine belief of the directors at the time of the alleged contraventions that the temporary liquidity crisis was imminently about to be resolved and that the employees’ entitlements would all be paid.
I find that the s.550 case against Mr Silverbrook and Ms Lee has not been proved. I note that counsel for the applicant sought to argue that the requisite intent might be made out in relation to particular contraventions concerning awards on the grounds of wilful blindness. No such allegation of wilful blindness was pleaded. Insofar as the requirements of s.550 are concerned, I accept the submissions of the first respondent that for those contraventions in which an award is referred to, the award is an element of the contravention.
I also accept that the London Court of International Arbitration proceedings that were taken against Silverbrook Research and Mr Silverbrook and Ms Lee were a strategic step by the Kaiser Entities to prevent payment to Silverbrook Research and to deplete the financial capacity of the respondents to recover their entitlements from the Kaiser Entities. I find that strategy worked and was the primary cause of the settlement whereby Mr Silverbrook and Ms Lee relinquished their shareholding in the Memjet Group to the Kaiser Entities. It is not necessary in this Court to determine whether that settlement was caused by duress or other misleading and deceptive conduct by the Kaiser Entities.
I find that the London Court of International Arbitration proceedings imposed a draconian and substantial discovery burden upon the respondents entirely consistent with the strategy of exhausting the financial capacity of the respondents to continue the London arbitration and to prevent recovery of the US$36 million. As indicated that strategy of the Kaiser Entities worked. I also accept the respondents’ submissions that the effect of the agreement by the Kaiser Entities with Lorretta Craig and others constituted an undisclosed funding by the Kaiser Entities of the Craig litigation against the respondents.
That conduct by the Kaiser Entities I find was part of the same strategy as involved in the institution of the London Court of International Arbitration proceedings to deplete the financial resources of the respondents so that Mr Silverbrook could not pursue the proper entitlements due to his companies against the Kaiser Entities and a strategy to acquire his shareholding in the Memjet Group for less than its true value. I accept the first respondent’s submission that a further contributing circumstance to the protracted liquidity crisis was the withholding of the tax credit by the ATO which is further addressed below in these reasons.
The applicant submitted that determination of the issues being the pleaded contraventions do not require consideration of why the pleaded contravention occurred or what led up to the alleged contraventions. This masked the live issue of whether the alleged contraventions occurred. The context is relevant to the determination of contravention. Further, a failure to have regard to the context erroneously contracts the determination of any accessorial liability in which the issue of alleged intention is material.
It was also submitted by the applicant that how the investigations were conducted or the conduct of any party since the contraventions did not require consideration. I do not accept these propositions either. The investigation overlaps the periods of the alleged contraventions and impacts on the determination of accessorial liability. The investigation and conduct subsequent to the contraventions also impacts on considerations under s.570 as to possible costs issues.
The suggestion that the subsequent conduct of the parties after the contraventions is not a matter of significance for consideration also reflects a fundamental flaw in the approach of the applicant, specifically in the Mpowa case. In the Mpowa case, the applicant is seeking monetary orders which were a principal part of the determination of liability. The conduct that had occurred after the contraventions in relation to payments made to Mpowa staff and the conduct of the applicant in the failure to bring to account those payments are relevant to the Mpowa proceedings.
In the context of the research and development tax credits allegedly owed to Mpowa and Geneasys from the ATO, the applicant submitted that the FWO could not have obtained information about the alleged research and development tax credits pursuant to the memorandum of understanding between the ATO and the Fair Work Ombudsman. Further, the applicant submitted that the memorandum cannot rise higher than the exceptions listed in table 7 of cl.355-65 and the provision in cl.355-25 in Schedule 1 of the Taxation Administration Act 1953.
It was submitted that the inquiries of the ATO as to tax credits available to an employer were entirely outside the scope of the Fair Work Ombudsman was wrong and that no power was given under the Fair Work Act 2009 to the Ombudsman in that regard. The applicant drew attention to the establishment of the Ombudsman’s office under s.681 and the functions of the Ombudsman under s.682(1) including:
(a) to promote:
(i) harmonious, productive and cooperative workplace relations; and
(ii) compliance with this Act and fair work instruments; including by providing education, assistance and advice to employees, employers, outworkers, outworker entities and organisations and producing best practice guides to workplace relations or workplace practices;
(b) to monitor compliance with this Act and fair work instruments;
(c) to inquire into, and investigate, any act or practice that may be contrary to this Act, a fair work instrument or a safety net contractual entitlement;
(d) to commence proceedings in a court, or to make applications to the FWC, to enforce this Act, fair work instruments and safety net contractual entitlements;
(e) to refer matters to relevant authorities;
(f) to represent employees or outworkers who are, or may become, a party to proceedings in a court, or a party to a matter before the FWC, under this Act or a fair work instrument, if the Fair Work Ombudsman considers that representing the employees or outworkers will promote compliance with this Act or the fair work instrument;
(g) any other functions conferred on the Fair Work Ombudsman by any Act.
The applicant also drew attention to the objects of the Fair Work Act 2009 and made reference to Fair Work Ombudsman v Finetune Holdings Pty Limited & Anor(No 2) [2012] FMCA 349 at 42. That paragraph refers to what was said to be one of the most important objects under the Act being ensuring a guaranteed safety net of fair and enforceable minimum terms and conditions through the National Employment Standards and modern awards, as well as the guaranteed safety net being a most important object.
I find that there was no contravention of s.712 of the Fair Work Act 2009.
There is no dispute that the second respondent is and was a director of the first respondent. I find that the second respondent was not an intentional participant in the contraventions. I find that the second respondent did not intend to participate in the on-going failure to pay wages or other statutory entitlements. I find that the second respondent was not an intentional participant in the matters which comprise the contraventions. I find the second respondent was not involved in the contraventions. I find that the second respondent did not aid abet counsel or procure the contraventions. I find that the second respondent did not induce the contraventions. I find that the second respondent did not directly or indirectly knowingly participate in the contraventions. I find that the second respondent did not conspire with others to bring about the contraventions. I find that the second respondent has no accessorial liability in relation to the said contraventions by the first respondent.
Relief Priority Matters
The Court has a discretion to be exercised judicially in respect of the making of declarations of contravention. I have taken into account the principles identified in ACCC v Midland Brick Co Pty Ltd (2004) 207 ALR 329 at [20]-[22]; Fair Work Ombudsman v Kentwood Industries Pty Ltd (No 2) 2010 FCA 1156 at [210]; Fair Work Ombudsman v Al Hilfi (2015) FCA313 at [21]-[22]. The Court does propose to make the orders sought under s.545(2)(b) of the Fair Work Act 2009 as to payment by the first respondent to the employees the amounts specified together with interest within 28 days of the making of final orders in these proceedings in respect of any penalty issue. The Court will order interest to be paid under s.547(1) of the Fair Work Act 2009 on each of the amounts found due calculated in accordance with the court scale from 20 December 2013 being the date of the filing of the statement of claim.
Those monetary orders are an adequate public vindication of the applicant’s partial success in these proceedings and are in principle a proper and sufficient remedy for the conduct the subject of these proceedings. Those monetary orders in the present case make clear the importance of compliance with statutory standards and the importance of the case both generally and to the employees. I take into account that the applicant has not succeeded in the proceedings as against the second respondent which would have been a material consideration in support of the making of declarations.
I also take into account that the applicant has sought a penalty hearing for orders under s.539(2) of the Fair Work Act 2009 and for penalties to be paid to the Commonwealth under s.546(3) (a) of the Fair Work Act 2009. In this case declarations are not necessary to explain the basis for any penalty application as it is sufficiently identified in the reasons and this Court has not decided if any penalty at all is appropriate. The public interest does not require the granting of declarations in these regulatory proceedings. If a penalty hearing is successful the relief then granted would be a further public vindication of the applicant’s proceedings. For these reasons the declarations sought by the applicant are not appropriate and as a matter of discretion I decline to make any declarations.
Ordinarily there should be no order as to costs in this matter. For reasons expressed in this judgment the parties should be given a further opportunity to put submissions as to what if any costs order should be made in this matter in light of the findings in this judgment.
Relief Superlattice
The Court has a discretion to be exercised judicially in respect of the making of declarations of contravention. The Court does propose to make the orders sought under s.545(2)(b) of the Fair Work Act 2009 as to payment by the first respondent to the employee the amount specified together with interest within 28 days of the making of final orders in these proceedings in respect of any penalty issue. The Court will order interest to be paid under s.547(1) of the Fair Work Act 2009 on the amount found due calculated in accordance with the court scale from 20 December 2013 being the date of the filing of the statement of claim.
The monetary order and interest order are an adequate vindication of the applicant’s partial success in these proceedings and are in principle a proper and sufficient remedy for the conduct the subject of these proceedings. I take into account that the applicant has not succeeded in the proceedings as against the second respondent which would have been a material consideration in support of the making of declarations. I also take into account that the applicant has sought a penalty hearing for orders under s.539(2) of the Fair Work Act 2009 and for penalties to be paid to the Commonwealth under s.546(3)(a) of the Fair Work Act 2009. If a penalty hearing is successful the relief then granted would be a further vindication of the applicant’s proceedings.
Ordinarily there should be no order as to costs in this matter. For reasons expressed in this judgment the parties should be given a further opportunity to put submissions as to what if any costs order should be made in this matter in light of the findings in this judgment.
Relief Geneasys
The applicant has failed in the proceedings against the respondent. There will be judgment entered for the second respondent against the applicant.
Ordinarily there should be no order as to costs in this matter. For reasons expressed in this judgment the parties should be given a further opportunity to put submissions as to what if any costs order should be made in this matter in light of the findings in this judgment.
Relief Silverbrook Research
The applicant has failed in the proceedings against the respondents. There will be judgment entered for the first and second respondent against the applicant.
Ordinarily there should be no order as to costs in this matter. For reasons expressed in this judgment the parties should be given a further opportunity to put submissions as to what if any costs order should be made in this matter in light of the findings in this judgment.
Relief Mpowa
The Court has a discretion to be exercised judicially in respect of the making of declarations of contravention. The Court does propose to make the orders sought under s.545(2)(b) of the Fair Work Act 2009 as to payment by the first respondent to the employees the amounts specified together with interest within 28 days of the making of final orders in these proceedings in respect of any penalty issue. The Court will order interest to be paid under s.547(1) of the Fair Work Act 2009 on each of the amounts found due calculated in accordance with the Court scale from 27 June 2014 being the date of the filing of the statement of claim.
Those monetary orders are an adequate vindication of the applicant’s partial success in these proceedings and are in principle a proper and sufficient remedy for the conduct the subject of these proceedings. I take into account that the applicant has not succeeded in the proceedings as against the second respondent which would have been a material consideration in support of the making of declarations. I also take into account that the applicant has sought a penalty hearing for orders under s.539(2) of the Fair Work Act 2009 and for penalties to be paid to the Commonwealth under s.546(3)(a) of the Fair Work Act 2009. If a penalty hearing is successful the relief then granted would be a further vindication of the applicant’s proceedings.
Ordinarily there should be no order as to costs in this matter. For reasons expressed in this judgment the parties should be given a further opportunity to put submissions as to what if any costs order should be made in this matter in light of the findings in this judgment.
The application in a case for contempt and costs
In Priority Matters the applicant filed an application in a case served upon the company as well as Mr Silverbrook and materially his solicitor who was assisting in the resolution of employee claims in the various companies. The application in a case sought to have Ms Inverarity, the solicitor helping Mr Silverbrook resolve disputes with employees, dealt with for contempt. This was extremely heavy handed conduct by the applicant and is a troubling matter in the conduct of these proceedings. Of even greater concern is the perpetuation of the application in a case until the close of the respondents’ evidence.
The affidavit in support of the application discloses no arguable case of contempt and the use of this type of process by the applicant is hard to justify under the Model Litigant Policy that applies to the Commonwealth. The interlocutory application in this case appears to have been strategic and its practical effect was to prevent Mr Silverbrook having the benefit of a legal adviser being Ms Inverarity who had been acting for him for quite some time. That likely practical effect must have been known at the time that this application in a case was filed. The open letter by Ms Inverarity did not give rise to any proper basis for the sweeping complaints made by the FWO in its letter dated 9 January 2015.
The FWO should have been well alive to the fact that there is no property in a witness and the heavy handed letter dated 9 January 2015 was clearly intended to have the effect of preventing Mr Silverbrook’s legal representative further advancing amicable resolution of complaints directly with employees or further acting for Mr Silverbrook. The proposition advanced in the letter by the FWO that the conduct of Ms Inverarity amounted to “criminal contempt” was outrageous and baseless.
The assertions by the FWO as to the improper effect of the open letter by Ms Inverarity were factitious. Ms Inverarity was entitled to communicate with the employees by open letter and to put her clients’ version of the circumstances and to raise and explore resolution of the employees’ complaints and withdrawal of their complaint. Indeed I find the employees’ best interests were not advanced by conduct of the FWO which I find was a real cause of two employers causing the winding up of Geneasys so that they could recover Fair Entitlements Guarantee payments. That conduct was pursued by those employees I find with the encouragement of the FWO. That conduct by the FWO was a cause of a company that was otherwise solvent being placed in liquidation and the intellectual property that was of real and substantial commercial value was thereby destroyed. I find that it was not in the best interests of the employees of the respondent companies to pursue winding up proceedings and whether the pursuit of the proceedings by the FWO was in the interests of the employees in these companies is highly debateable. It was perfectly apparent that Ms Inverarity was acting on instructions and putting her clients’ position. There was no proper basis for the allegations advanced by the FWO against Ms Inverarity.
The assertion in the letter by the FWO that Ms Inverarity had engaged in unsatisfactory professional conduct or professional misconduct were patently designed to have the effect of preventing her further representation or future representation of Mr Silverbrook. That was an improper allegation to make by the FWO and was arguably engagement by the FWO of conduct that might be the subject of professional complaint. The invocation of provisions of the Fair Work Act 2009 suggesting there may have been a contravention of that Act for which civil remedies might be sought was again utterly lacking in substance and was inappropriate conduct by the FWO.
The further letter sent on 15 January 2015 by the FWO to Ms Inverarity on this interlocutory application was again entirely over the top and was I find an improper interference by the FWO in the legal representation of Mr Silverbrook and the companies. It is most unfortunate that the FWO engaged in what the Court concludes was a tactic to remove the representation of Mr Silverbrook in resolving employee complaints. The application in a case had no prospect of success and was an inappropriate strategic attempt by the FWO to remove Mr Silverbrook’s legal representation by Ms Inverarity. That improper strategy by the FWO worked. Contrary to the tenor of the letters from the FWO Ms Inverarity had not engaged in any contempt of Court, nor any inappropriate professional conduct and had not engaged in any conduct enlivening contraventions or civil remedy provisions against her under the Fair Work Act 2009. The allegations advanced by the FWO in this application in a case were improper conduct by the FWO.
I accept Ms Lee’s evidence that the contempt proceedings effectively prevented the respondents from being able to resolve complaints with employees. I accept Ms Lee’s evidence that the issuing of the contempt application effectively caused Ms Inverarity to cease acting for the respondents. I infer that Ms Inverarity would otherwise have continued to represent the respondents in their endeavours to resolving complaints with employees. Given Ms Inverarity’s extensive knowledge of Mr Silverbrook’s companies, her history of acting for him and her current acting up until service of the contempt motion I infer that Ms Inverarity would have acted in the future for the respondents in the proceedings as the solicitor on the record when the respondents’ legal representation prior to Mr Argy ceased.
It is not appropriate for the FWO to depart from the Model Litigant standards that apply to the Commonwealth. The strategy of the FWO, the correspondence sent, the filing of the application in a case and pursuit of this application in a case until the close of the defence case, were not conduct that complies with the obligation to act fairly in litigation. The correspondence to Ms Inverarity, the filing of the application in a case and the keeping of that application alive until the close of evidence from the respondents was all conduct by the FWO contrary to the Model Litigant standards.
An even more troubling feature of this conduct is that the legal representation of Mr Silverbrook in the actual proceedings at this point in time was in a known state of flux. This was a matter of which the FWO was well alive given the directions that had not been complied with. On 23 February the then solicitor on the record Mr Brett Wilson of Adams Wilson Lawyers gave notice of intention to withdraw as lawyer and on 2 March 2015, Mr Wilson ceased acting for the respondents. While Ms Inverarity was not at that point acting for Mr Silverbrook in these proceedings the effect of the correspondence from the FWO and the filing of the application in a case had the obvious likely effect of preventing Ms Inverarity taking over the legal representation for Mr Silverbrook and the other respondents in these proceedings. I draw the inference that this was the intentional strategy of the FWO. That strategy by the FWO was improper.
The effect of this strategy was one where Mr Silverbrook lost the potential representation by Ms Inverarity in these proceedings and but for the taking over of the matters by Mr Argy the position is that Mr Silverbrook and the companies may have been unrepresented. I regard the conduct of the FWO in relation to this strategy in the filing of the contempt application and the keeping of it alive until the close of the respondents’ case as unreasonable conduct that has caused the respondent companies, Mr Silverbrook and Ms Lee to incur costs within the meaning of s.570 of the Fair Work Act 2009.
I regard this inappropriate conduct by the FWO as enlivening the Court’s powers in relation to costs under s.570 of the Fair Work Act 2009. I regard the departure by the FWO from the Model Litigant Policy of the Commonwealth as unreasonable conduct that in all the circumstances of this case has caused the companies, Mr Silverbrook and Ms Lee to incur costs as parties that would not otherwise have been incurred. I infer that Ms Inverarity would have continued to represent Mr Silverbrook but for this application in a case and the inappropriate correspondence from the FWO relating to this alleged contempt by Ms Inverarity. I infer that Ms Inverarity would have taken over the representation of Mr Silverbrook in these proceedings and because of her deep background knowledge of these companies and the issues that confronted Mr Silverbrook very substantial time would have been required by Mr Argy to glean that background. I find that the FWO has caused the other parties in each of the five matters to incur costs by its unreasonable conduct
Although the Court has already received submissions as to costs it is in my opinion necessary in the interests of procedural fairness to give the parties an opportunity to put further submissions as to costs taking into account all of the above findings. Accordingly I will hear the parties as to whether in all the circumstances of these cases it is appropriate to order the FWO to pay the additional costs that have been incurred due to the said unreasonable conduct of the FWO.
I note that the Court has a judicial discretion as to the nature of the costs order that should be made. In exercising the discretion that has been enlivened the Court will have to take into account the partial success by the FWO in the findings as to contraventions and the orders for payment made against three of the corporate respondents. That partial success may not however reflect the overall substance of the proceedings which I find were the pursuit of the penalties against the directors. On that substantive issue the FWO has failed.
If a costs order is to be made the Court will have to determine a fair and accurate estimate of the additional costs incurred by the conduct of the FWO in preventing representation by Ms Inverarity or in relation to the conduct concerning the ATO credits. My preliminary view taking into account the whole of the above findings, although open to persuasion to the contrary, is that a fair and reasonable estimate may reflect half the party/party legal costs incurred by the respondents in these five proceedings after filing the interlocutory application for contempt on 2 March 2015.
The Court will also have to take into account that ordinarily under s.570(1) of the Fair Work Act 2009, notwithstanding the above findings, no order should be made as to costs including the caution that should be used in exercising this power including the duties of the FWO and the objects of the Fair Work Act 2009.
However it may be that having heard the parties further on costs the ordinary rule should apply and it remains open to the Court to find that no costs order should be made. At the further hearing on costs that the Court may make such costs order as the Court is satisfied is proper under s570 of the Fair Work Act 2009 and in accordance with the interests of the administration of justice.
Conclusion
In respect of the first key issue, the applicant, excluding the alleged contravention of s.712 of the Fair Work Act 2009 and excluding certain alleged contraventions of s.119 of the Fair Work Act 2009 and certain alleged contraventions of s.542 of the Fair Work Act 2009, has proven the contraventions by the respective corporate employer as identified in these reasons.
In respect of the second key issue, the applicant has failed to prove any accessorial liability by the director/directors.
In respect of the two corporate employers in liquidation, being Geneasys and Silverbrook Research, no relief is sought by the applicant against the entities in liquidation. In those two proceedings the applicant only sought relief against the director/directors. The Court will further hear the parties as to what costs order if any should be made in these two proceedings.
In the other three proceedings there will be orders made against the corporate employer for payment of the amounts owing to the former employees by reason of the contraventions and an order for payment of interest. For reasons given above the Court declines to make declarations. The applicant having failed to establish any accessorial liability there will be judgment for the second respondent against the applicant.
Mr Silverbrook and/or Ms Lee have been vindicated by judgment against the applicant in each of the relevant proceedings
A further date will be fixed for the final hearing of any penalty hearing unless disposed of by consent and for further hearing of the parties as to the costs orders, if any, that should be made.
I certify that the preceding three hundred and four (304) paragraphs are a true copy of the reasons for judgment of Judge Street
Date: 17 June 2016
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