Fair Work Ombudsman v Priority Matters Pty Ltd (No 3)
[2016] FCCA 2744
•21 October 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| FAIR WORK OMBUDSMAN v PRIORITY MATTERS PTY & 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 LIMITED & ANOR (No.3) | [2016] FCCA 2744 |
| Catchwords: PENALTY AND COSTS – Application for penalty and costs – the Court’s consideration of the factors relevant to penalty – whether the applicant’s failure to contact the ATO led to costs uncured by the directors – whether the Court can fix costs – appropriate costs ordered against the applicant. |
| Legislation: Fair Work Act 2009 ss.546, 570, 577. Federal Circuit Court of AustraliaAct 1999 s.14. Federal Circuit Court Rules 2001. r.16.05(2)(e) |
| Cases cited: Director of the Fair Work Building Industry Inspectorate v Cartledge [2014] FCA 1047. |
| Applicant: | FAIR WORK OMBUDSMAN |
| First Respondent: | PRIORITY MATTERS PTY LTD |
| Second Respondent: | KIA SILVERBROOK |
| Third Respondent: | FIONA INVERARITY |
| 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 |
| 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 LIMITED |
| Second Respondent: | KIA SILVERBROOK |
| File Number: | SYG 1780 of 2014 |
| Judgment of: | Judge Street |
| Hearing date: | 21 October 2016 |
| Date of Last Submission: | 21 October 2016 |
| Delivered at: | Sydney |
| Delivered on: | 21 October 2016 |
REPRESENTATION
| Counsel for the Applicant: | Mr A Moses and 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.546 of the Fair Work Act 2009 (Cth) the First Respondent pay to the Commonwealth of Australia a pecuniary penalty in the amount of $45,000.00 within 28 days.
Pursuant to s.570(2) of the Fair Work Act 2009 (Cth) the Applicant pay the costs of the Second Respondent in the proceedings as well as the costs ordered in SYG 3210 of 2013, SYG 3228 of 2013, SYG 1743 of 2014 and SYG 1780 of 2014, as one single set of costs in the fixed amount of $800,000.00.
SYG 3210 of 2013
Pursuant to s.546 of the Fair Work Act 2009 (Cth) the First Respondent pay to the Commonwealth of Australia a pecuniary penalty in the amount of $5,000.00 within 28 days.
Pursuant to s.570(2) of the Fair Work Act 2009 (Cth) the Applicant pay the costs of the Second Respondent as part of one single set of costs as fixed in matter number SYG 3209 of 2013.
SYG 3228 of 2013
Pursuant to s.570(2) of the Fair Work Act 2009 (Cth) the Applicant pay the costs of the Second Respondent as part of one single set of costs as fixed in matter number SYG 3209 of 2013.
SYG 1743 of 2014
Pursuant to s.570(2) of the Fair Work Act 2009 (Cth) the Applicant pay the costs of the First and Second Respondents as part of one single set of costs as fixed in matter number SYG 3209 of 2013.
SYG 1780 of 2014
Pursuant to r.16.05(2)(e) of the Federal Circuit Court Rules 2001 (Cth), the Orders entered on 17 June 2016 are amended by varying order 2 by deleting “20 December 2013” and inserting “27 June 2014”.
| 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
Background
This is an application for a penalty under s.546 of the Fair Work Act 2009 (“the Act”) in respect of three corporate entities as a result of findings and orders made by this Court on 17 June 2016.
This Court has also heard argument in relation to costs under s.570(2) of the Act in respect of the successful director and directors in the five proceedings.
At the time of delivery of reasons for judgment on 17 June 2016, this Court in order to assist the parties to try and resolve the remaining issues consensually, relevantly said:-
The Court notes that it has in the reasons for judgment without having made any final view. Giving the parties the benefit of a preliminary view in relation to the appropriate costs order but not quantified it and the parties no doubt can take into account what has been said in that regard. If they wish to have a hearing in relation to the costs or if they can resolve it.
In relation to penalty, again the Court in this regard hasn’t said anything in the judgment. But the parties filed written submissions and the Court has a preliminary view which is entirely open to persuasion and which is in not in any way fixed. But taking into account the maximum penalties in each of the matters that were carefully identified in the written submissions relating to penalty, this is an indication to assist the parties.
The preliminary view would be that in the matter of SYG 3209 of 2013 Priority matters, it is appropriate that the penalty would be $45,000.00. In the matter of SYG 3210 of 2013 the appropriate penalty would be $5,000.00. In the matter of SYG 1780 of 2014 the appropriate penalty would be $60,000.00.
The Court remains open to persuasion that no penalty should be imposed or that a greater penalty should be imposed. I make those observations for the assistance of the parties given the orders that have been made. To the extent that the parties wish to do so, the Court can hear any issue in relation to the matters that remain outstanding if the parties want next week. The evidence has been filed effectively on those issues, and the court has made findings in relation to all matters relating to costs except whether an order should be made and the amount and on the issue of penalty the court can make a determination of whether an order should be made and the amount at the same time as in the argument in relation to costs.
The parties put on their evidence and submissions effectively on penalty. If there is further material in this Court to be put on, the Court will correlate a timetable. But I indicate for the benefit of the parties in that the Court can hear any such argument, anytime next week. I do that in the context of the position being that until a penalty order is made, the amounts are not payable.
It is obviously in the interests of all parties, that that penalty matter be resolved and the parties are at liberty to apply to my associate.
The Court was in a position to hear the balance of the proceedings the following week. However, the parties did not seek a hearing date until 22 July 2016. On that date, both parties agreed to a timetable and asked for a hearing date in the period 18 October to 25 October 2016. Accordingly, the Court made an order on 22 July 2016 fixing the matter for hearing on 18 October 2016.
On 18 October 2016, the Court heard a recusal application by the applicant and then embarked on the penalty and costs hearing. During that hearing, it became apparent that the respondents were desirous of an opportunity to attend to payment of the principal amounts ordered by the Court to be paid and the proceedings were accordingly adjourned for further hearing on the issue of penalty and costs to 21 October 2016.
The Issue of Penalty
Dealing firstly with the issue of penalty, the principles have been usefully summarised by Mansfield J in Director of Fair Work Building Industry Inspectorate v Cartledge (2014) FCA 1047 at [50] - [59] and I take those principles into account. I also take into account what was said by Barker J in Director of the Fair Work Building Inspectorate v Construction, Forestry, Mining and Energy Union (2016) FCA 798 at [42] - [44].
Tables summarising maximum penalty, percentage ranges, proposed penalty range and combined totals for contraventions
In respect of the contraventions found by the Court, the applicant in its submissions has helpfully provided three separate tables, one for each corporate entity. Each table summarises the maximum penalty in respective of each contravention and usefully provides a percentage range in 10% increments, a proposed percentage range and combined totals for each percentage range:-
· For Priority Matters, the applicant’s recommended penalty was $117,300.00, being 57.5% of the maximum penalty.
· For Superlattice the applicant’s recommended penalty was $102,000.00, being 50% of the maximum penalty.
· For Mpowa, the applicant’s recommended penalty was $224,400.00, being 62.86%.
The applicant accepted that the respondent has established that the contravention for the respective corporate respondents arose out of a course of conduct giving rise to the benefit of s.577 of the Act. The considerations in support of the recommendations in the three tables were expanded upon in the applicant’s submissions, dated 6 September 2016 and orally.
Contrary to the substance of the findings of this Court, the applicant in each matter submitted that the conduct was deliberate. The applicant submitted that the senior management was involved in the contraventions. Both propositions are contrary to the findings of this Court.
The recommended penalty and the written submissions of the applicant did not take into account the rectification by the payment of the principal sums ordered by the Court which occurred shortly before this further hearing on 21 October 2016. In light of these matters, the applicant’s recommended penalty in the respective tables are manifestly excessive.
Further, the factors required to be considered in relation to penalty, including determination of the appropriate penalty and the totality principle, for what has been accepted as a single course of conduct for each corporate respondent in the applicant’s submissions, erroneously assumed deliberate breaches.
When asked to take into account the findings of the Court, which meant taking into account that the breaches were not deliberate and that payment of the principal amounts ordered by the Court had been made, the recommended penalty proposed by the applicant was still in the order of either 40% or 50%.
Again, that recommendation by the applicant, fails to properly take into account the findings of this Court, fails to adequately take into account corrective action and, fails to adequately recognise the contrition and remorse on the evidence before this Court. The revised penalty recommendations by the applicant remain manifestly excessive.
The Court has taken into account the maximum penalty for each contravention in relation to each corporate entity as identified in these tables and has taken into account the percentage ranges in increments of 10%, proposed percentage ranges and combined totals for each percentage range.
The Court has taken into account the applicant’s written and oral submissions in relation to penalty and the specific contraventions in respect of different employees/employee for the three different corporate entities. The applicant’s submissions addressed each of the penalty factors for each corporate entity separately and notwithstanding the combined factor structure of these reasons, the Court has considered the factors and penalty for each corporate entity separately. The Court has also taken into account the form of order proposed by the applicant. The Court is satisfied that the form of orders made in the present case is in all the circumstances appropriate and within the power conferred by the statutory penalty provision.
The table for Priority Matters is set out as follows:-
The Table for Mpowa Pty Limited is set out as follows:-
The Table for Superlattice Solar Pty Ltd is set out as follows:-
Factors Relevant to Penalty
The nature and extent of the Conduct which led to the breaches
In relation to factor (a), being the nature and extent of the conduct, with respect to the breaches of the Act, the conduct arose from the financial liquidity problems of the respective corporate entities as identified in my earlier judgment. The employees were deprived of payments to which they were entitled.
The periods were not insubstantial and the amounts outstanding to the respective employees/employee of the respective corporate entities were significant. The Court accepts that it is those employees who were not paid in respect of the contraventions found by the Court that are the focus of the penalty determination.
The Court found that these were circumstances in respect of which there was no deliberate conduct by the relevant corporate entity in relation to those breaches. The conduct did however, occur over reasonably substantial periods and the amounts involved, the subject of the orders made by this Court, are not insubstantial.
The circumstances in which the conduct took place
Dealing with factor (b), being the circumstances in which the relevant conduct took place, the respective employees as well as the directors anticipated payment was to be made throughout the period the subject of the relevant contraventions. This Court found that that expectation on behalf of the directors was reasonable.
The Court in its reasons identified the different sources from which payment was expected by the respective corporate entity. One of those sources was the ATO in respect of which being another emanation of the Commonwealth, there was a substantial amount outstanding. This was more than sufficient to meet the amounts found to be outstanding in respect of the contraventions taking into account the capacity of the corporate entities to obtain appropriate arrangements for inter-company lending if those funds had been forthcoming.
The Court made findings that the ATO would have paid the amount outstanding if the applicant had made contact with the ATO and that it was unreasonable of the applicant not to do so. Subsequent to the judgment of this Court on 17 June 2016, the ATO has in fact made substantial payment to one of the corporate entities.
The nature and extent of any loss or damage sustained as a result of the breaches
As to the nature and extent of any loss or damage sustained as a result of the breaches being factor (c), it is an agreed fact between the parties that the principal amount ordered by this Court, which was not payable until 28 days after the determination of these proceedings, has in fact been paid by the corporate entity to the applicant shortly before this adjourned hearing.
The evidence before the Court is that a very substantial ATO refund was made, with some withholding by the ATO in relation to Mpowa Pty Ltd. The interest the subject of orders in the three matters has not yet been paid.
There is not an insubstantial period in respect of which those wages have been outstanding to individual employees. Employees are entitled to expect to be paid on time and in accordance with the terms of their contractual entitlements. A substantial period has elapsed in relation to the respective employees and that delay has caused each employee real financial loss. I also accept that the contraventions caused anxiety and stress to the employees.
The applicant’s submission as to putting the companies into liquidation reflects the same line of reasoning as was pursued at the hearing. Solvent companies should not be wound up. Nor, is it in the interests of small business to have a temporary liquidity crisis used to destroy the value of information technology. To encourage winding up of viable entities is not in employees interests.
It is a pity there is not a capacity for employees to compromise entitlements in appropriate cases and enter into a court approved scheme of arrangement like other creditors which would provide on-going employment for at least some. However, that is not a policy consistent with either the Act or the Fair Entitlement Guarantee Act 2012. Allowing the employees to remain employed was at least in part in the interests of the employees and on the evidence employees were informed of the liquidity crisis. The applicant’s description of trading on the credit of the employees is not correct in the present case.
Whether there had been similar previous conduct by the respondent
As to factor (d), no previous convictions have been identified. However, the Court does take into account on the evidence that there were communications that had been earlier occurred between one or, other of the entities the subject of these contraventions relating to complaints about delayed payment. Those complaints did not give rise to any proceedings against the relevant corporate entities.
The complaints appear to have arisen in part as a result of temporary liquidity problems in the context of a commercial competitor breaching the obligations owed to the corporate entities in respect of substantial payments that should have been made by that corporate competitor.
I do take into account that there are three proceedings before the Court in which contraventions have been found with overlapping director/directors.
Whether the breaches were properly distinct or arose out of the one course of conduct
Factor (e) involves consideration as to whether the breaches were properly distinct or, arose out of one course of conduct. The Court finds that in substance, the breaches for the respective corporate entity arose out of one course of conduct. That course of conduct was what the Court found to be the reasonable belief of the director/directors that they were about to be able to make payment from funds that would be obtained.
In fact, in the course of the proceedings commenced against one of the corporate entities, an amount of approximately $1.6 million was earlier realised by that entity and paid to employees of that entity in part payment of some of the employees outstanding entitlements. The Court finds that the contraventions in the present case arose out of one course of conduct.
The size of the business enterprise involved
Factor (f) concerns the size of the enterprise involved. The entity Priority Matters Pty Limited was an entity carrying on a business of providing services to the other corporate entities. Those services were effectively in relation to the maintenance of patents that the inventor, Mr Silverbrook had created, or participated in the creation of that intellectual property.
At the time of the alleged contravention, the relevant enterprises were not substantial entities. The relevant enterprises were dependent upon the capacity to continue to keep the intellectual property registered in order to preserve the value and utility of that property or, to continue to work on the development of the same. The corporate entities were in substance inventive knowledge venture vehicles that were not trading in daily goods or services and were substantially dependent upon the knowledge and funding by Mr Silverbrook.
Whether or not the breaches were deliberate
In relation to factor (g), based on the findings made by the Court, the breaches in this case in respect of each of the three corporate entities were not deliberate.
Whether senior management was involved in the breaches
In relation to factor (h), senior management was not involved in the breaches.
Whether the party committed the breaches had exhibited contrition
In relation to factor (i), the evidence from the directors on behalf of the corporate entities, which the Court accepted, was that the corporate entities were taking all steps that they could to try and ensure the payment on time of employees’ entitlements. In the case of Mpowa Pty Limited, as indicated, an amount of $1.6 million was in fact paid. A very significant part of that amount was paid to Mpowa employees, the subject of the findings of contravention by Mpowa.
Further, notwithstanding the orders that were made by this Court, the amount of principal outstanding has been paid this week. They are matters to be taken into account in relation to penalty. Although, I appreciate that there still remains outstanding the relevant interest which I also take into account.
Whether the party committing the breach has taken corrective action
In relation to factor (j), for the reasons I have given, it is apparent that there were steps taken by the respective corporate entity to try and attend to payment. For one entity, Mpowa Pty Limited, that was substantially successful during the proceedings prior to the hearing before this Court. The three corporate entities have now paid the principal amount outstanding.
Whether the party committing the breach had cooperated with the enforcement authorities
In relation to factor (k), this was a case where the Court found there were steps taken by the applicant prior to the commencement of the proceedings were not in accordance with procedural fairness. In relation to the proceedings, it is apparent that the proceedings were brought in substance against the director or directors in respect of which the applicant was unsuccessful.
I take into account that the respondents did not plead guilty to the alleged contraventions and took issue with the alleged breaches as well as the calculation of the amounts involved in respect of which they were unsuccessful. In the present case, each of the issues raised by the corporate respondents were reasonable matters of contest.
The need to ensure compliance with minimum standards
In relation to factor (l), the Court takes into account that the employees were entitled to be paid on time and that investigation was warranted. The enforcement proceedings could however, have been avoided by contact with ATO by the applicant.
The need for specific and general deterrence
In relation to factor (m), the two most important features in relation to determining civil penalty for the purpose of protection of the community are both specific and general deterrence.
Specific Deterrence
Dealing firstly with specific deterrence, on the evidence before this Court, I find that the three corporate entities are unlikely to continue to carry on any activity.
The evidence before this Court is that Mr Silverbrook is in need of 24 hour care. On the evidence before the Court, I find it is unlikely Mr Silverbrook, who was not just a corporate mind, but was the source of the enterprise activity in respective corporate vehicles, is unlikely to be able to continue to carry on activities to permit the three corporate entities to continue their activity.
There are no other employees in respect of the three corporate entities for there to be a need for specific deterrence. This is a case where a need for specific deterrence does not loom large in the instinctive synthesis in the circumstances of this case for the determination of the appropriate penalty.
General Deterrence
The need for general deterrence is however, of considerable importance. The objects of the Act outlined in s.4 are as follows:-
The object of this Act is to provide a balanced framework for cooperative and productive workplace relations that promotes national economic prosperity and social inclusion for all Australians by:
(a) providing workplace relations laws that are fair to working Australians, are flexible for businesses, promote productivity and economic growth for Australia's future economic prosperity and take into account Australia's international labour obligations; and
(b) ensuring a guaranteed safety net of fair, relevant and enforceable minimum terms and conditions through the National Employment Standards,modern awards and national minimum wage orders; and
(c) ensuring that the guaranteed safety net of fair, relevant and enforceable minimum wages and conditions can no longer be undermined by the making of statutory individual employment agreements of any kind given that such agreements can never be part of a fair workplace relations system; and
(d) assisting employees to balance their work and family responsibilities by providing for flexible working arrangements; and
(e) enabling fairness and representation at work and the prevention of discrimination by recognising the right to freedom of association and the right to be represented, protecting against unfair treatment and discrimination, providing accessible and effective procedures to resolve grievances and disputes and providing effective compliance mechanisms; and
(f) achieving productivity and fairness through an emphasis on enterprise‑level collective bargaining underpinned by simple good faith bargaining obligations and clear rules governing industrial action.
It is of considerable importance that employers comply with their statutory obligations under the Act. Notwithstanding that these are provisions in respect of which there is a strict liability in respect of contravention, the legislation provides a power to order penalties in relation to those contraventions and a material purpose underlying that power is to deter others from committing similar contraventions. That is a significant factor to take into account in the present case notwithstanding, the findings that the Court made as to the want of deliberate conduct by the corporate respondents in the present case.
Principle of Totality
The Court is also mindful of the need to take into account the totality principle in respect of the combination of contraventions in the present case, albeit that the Court has found that there is one course of conduct in the contraventions by the respective corporate respondent.
Principle of Proportionality and Appropriate Penalties
The Court also takes into account for each corporate respondent the principle of proportionality in determining an appropriate penalty under s.546 of the Act.
In the circumstances of the present case, the Court is satisfied that in matter number:-
o SYG 3210 of 2013, the appropriate penalty in respect of the contraventions is a penalty in the amount of $5,000.00;
o SYG 1780 of 2014 in relation to the contraventions by the corporate entity, the Court is satisfied that the appropriate penalty is in the amount of $65,000; and
o SYG 3209 of 2013 the Court is satisfied in relation to the contraventions of the corporate entity that the appropriate penalty is an amount of $45,000.
Issue of Costs
The Court has also heard submissions in relation to costs. One of the submissions that was raised was the importance of not encouraging the inappropriate contest of proceedings by entities the subject of litigation. The contest by the respondents in the present case was reasonable and whilst penalties have been found against the corporate entities, the applicant has failed in the relief sought against the director/directors.
In the present case, the principles in relation to costs are identified in s.570 of the Act which is as follows:-
Costs only if proceedings instituted vexatiously etc.
(1) A party to proceedings (including an appeal) in a court (including a court of a State or Territory) in relation to a matter arising under this Act may be ordered by the court to pay costs incurred by another party to the proceedings only in accordance with subsection (2) or section 569 or 569A.
Note: The Commonwealth might be ordered to pay costs under section 569. A State or Territory might be ordered to pay costs under section 569A.
(2) The party may be ordered to pay the costs only if:
(a) the court is satisfied that the party instituted the proceedings vexatiously or without reasonable cause; or
(b) the court is satisfied that the party's unreasonable act or omission caused the other party to incur the costs; or
(c) the court is satisfied of both of the following:
(i) the party unreasonably refused to participate in a matter before the FWC;
(ii) the matter arose from the same facts as the proceedings.
It was submitted on behalf of the applicant, that a reference to an unreasonable act or omission that caused the other party to incur costs, must be an act or omission in the course of the proceedings. I reject that construction. It is the costs that are incurred that must be referrable to the proceedings. The unreasonable act or omission can arise prior to the commencement of the proceedings. That the proceedings are not vexatious, is not exhaustive of the scope of the unreasonable act or omission under s.570(2)(b) of the Act.
Applicant’s failure to contact the ATO
In the present case, the Court found that the applicant engaged in an unreasonable act or omission by failing to contact the ATO in relation to what was an obvious inquiry, in respect of the substantial amount that the applicant was aware was outstanding by the ATO. That was an unreasonable act or omission that caused the director/directors in the respective five proceedings to incur the costs of those proceedings within the meaning of s.570(2)(b) of the Act .
The conduct of the applicant in the present proceedings has been less than exemplary. However, on the issue of costs, the Court only takes into account in this regard, the unreasonable act or omission referred to in respect of the failure to contact the ATO. The Court is satisfied that this constitutes an unreasonable act or omission by the applicant in all five proceedings that gave rise to substantial costs which were caused to be incurred by the director/directors in the present five proceedings.
It is appropriate to record that the ATO has now paid a very substantial sum to one of the corporate entities consistent with the earlier findings of this Court.
The conduct of the Regulator
Notwithstanding the principles identified in s.570(1) of the Act, that ordinarily no order for costs should be made, and taking into account the object of the legislation and the importance of the role of the regulator, this is a case where the conduct of the regulator fell well short of the standard expected of a regulator.
It is the act or omission of the regulator in failing to contact the ATO which was unreasonable in respect of the failure to make obvious inquiries of another emanation of the Commonwealth. It was perfectly apparent to the regulator that what the employees were raising, was the explanation for why they had not been paid was a failure to obtain a refund due by the ATO and in respect of which it was apparent to the applicant that there was a substantial amount said to be outstanding. The Court made findings in relation to that matter in its earlier judgment.
The Court takes into account those findings in relation to finding that there was an unreasonable act or omission by the applicant in the present case, enlivening the Court’s powers under s.570(2) of the Act. The Court is satisfied that this is an appropriate case in which the applicant’s unreasonable act or omission has caused the director/directors in the five proceedings to incur the costs of those five proceedings and the Court finds that it is appropriate to order that the applicant pay those costs.
Fixed Costs
The almost invariable practice in this Court is to fix costs. One of the duties the Court has under s.14 of the Federal Circuit Court of AustraliaAct 1999 is to bring the controversies between the parties to a complete and final determination.
This is an unusual case as the applicant has announced and informed the Court that the applicant is pursuing an appeal against the principal decision of this Court. I regard that announcement as relevant to the fixing of costs. It is clearly in the interests of the purpose behind s.14 of the Federal Circuit Court of AustraliaAct 1999 that there be a fixing of the costs if the Court is able to do so, by taking into account the principles to which the applicant referred, in that there must be evidence as well as a logical, fair and reasonable basis upon which to determine the costs.
From the viewpoint of costs, these five proceedings can properly be described as complex cases within the principle identified by Von Doussa J in Beach Petroleum NLv Johnson (No. 2) (1995) 57 FCR 119 at 120F-G where His Honour said:-
‘The purpose of the rule is to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation. The power is inappropriate to be used in complex cases.’
I am satisfied that I can arrive at an appropriate costs sum, cf Giles JA in Harrison v Schip (2002) 54 NSWLR 738 at [22]; Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2011] NSWSC 11. I am satisfied that the factual basis for the exercise of my discretion to order fixed costs has been properly established and that the approach by Ms Lee in respect of the estimate of costs, subject to what is said below is logical, fair and reasonable, see Beach Petroleum NL v Johnson (No. 2) supra at [123].
I reject the respondent’s submission that there is insufficient evidence for the Court to fix costs. In the circumstances of the present case, I am satisfied that the interests in the administration of justice weigh in favour of the Court exercising its discretion and fixing a logical, fair and reasonable amount of costs. I am not satisfied that this is a case where evidence from an independent costs consultant is warranted, or would do anything other than add to the costs burden of the parties. I am satisfied that the amount of fixed costs is proportionate to the nature, complexity and importance of the litigation against the director/directors and which I find the director respondents are entitled under s.570(2) of the Act.
In the present case, the key director Mr Silverbrook, has had a heart attack and is unable to provide evidence to the Court. It is in those circumstances that more general and broader evidence has been adduced from Ms Lee, his partner. That evidence, nonetheless, is evidence before the Court that identifies that legal costs have been incurred in an amount of $1,213,039.05.
There is a detailed breakdown in support of the costs for Keypoint Law. There is a further bill of costs breaking up that amount in respect of Keypoint Law’s fees and disbursements and a detailed time schedule. The other sources of costs are estimated.
The nature of the proceedings
This is a case that was heard, taking into account this application over 11 days. There were more than 18 interlocutory hearings or direction hearings in the matter. Initially, there were five separate proceedings and they were not being conducted by the applicant before the same judge of the same court. Indeed, there were multiple directions in 2014 before different judges as a result of the conduct of the applicant.
It is not appropriate for the applicant to commence separate proceedings in relation to the same directors and have three of the five proceedings run separately before different judges of the same Court. The conduct of the concurrent hearing is one in which there was a nine day liability hearing where over 24 folders of exhibits were tendered. There was a substantial amount of evidence adduced and considerable solicitor and legal costs work was required in respect of the five proceedings against the director and directors.
Costs incurred by the Respondent’s previous solicitors Adams Wilson Lawyers
The Court is entirely satisfied that substantial costs were incurred by the director/directors engaging Mr Brett Wilson of Adam Wilson Lawyers who withdrew from acting for the respondents in relation to the conduct of the proceedings on or about 2 March 2015. The quantum of those fees have been estimated to be $300,000.00, being approximately $60,000.00 for between six to twelve months work for each of the five matters. Over that period, the Court file reveals the detailed steps to be taken by the parties to agree facts and issues as well as a mandatory Court ordered mediation. The Court file reveals steps taken by the applicant’s solicitor with Adams Wilson Lawyers in relation to those steps.
This Court is well familiar with the cost of the conduct of litigation in this Court and the assessment of solicitor’s fees. That experience is one of common sense and this Court is in as good of a position as a costs assessor in considering whether an appropriate amount of costs can be arrived at given the evidence before the Court and whether there is a logical, fair and reasonable basis for the same.
That the directors have incurred costs in the work undertaken by Adams Wilson Lawyers over the said periods is obvious and supported by the Court file, as well as the evidence of Ms Lee. The Court finds that the estimate of $60,000.00 legal costs in each matter by Adams Wilson Lawyers over the said periods is a logical, fair and reasonable estimate. The Court file in all five matters up to the time of withdrawal of the former solicitors, identifies the directors incurred party/party work undertaken by Mr Brett Wilson of Adams Wilson Lawyers.
The applicant has been on notice as to the quantum of costs claimed on behalf of the former solicitor, Adams Wilson Lawyers. The applicant has had ample opportunity to subpoena records in that regard and has done so in relation to Keypoint Law. The applicant had ample opportunity to subpoena Adams Wilson Lawyers to take issue with the estimated costs and did not do so. It is obvious that the director/directors have incurred costs in respect of the work done by Adams Wilson Lawyers which they are entitled to recover.
The absence of an actual bill of costs is not a reason in the present case for the Court to decline to allow recovery of costs obviously incurred. Where the evidence satisfies the Court that there is a logical, fair and reasonable basis for the estimate. The sworn evidence of Ms Lee as to the affidavit was not the subject of challenge or cross-examination. Accordingly, in this case it is logical, fair and reasonable on the face of the work done by the former solicitors as identified in the Court record of the five proceedings.
The Court is also satisfied that legal fees were incurred by Counsel as identified at the table by Ms Lee. The Court record reveals the attendance of Counsel at a number of directions hearings. Given the nature and complexity of these proceedings, the estimate for Counsel’s fees is logical, fair and reasonable.
The Court is not satisfied as to the quantum of the legal fees referred to on behalf of Ms Inverarity as costs incurred in the proceedings. The Court has taken into account that it is apparent from the Court record that Ms Inverarity was the initial solicitor on the record in three of the proceedings and did in fact appear at a first directions hearing in one matter.
Costs incurred by Keypoint Law
The Court accepts that the fees incurred by Keypoint Law were costs incurred in the conduct of these proceedings by the director/directors. Keypoint Law’s account summary is provided in table format as follows:-
The table was supported by a detailed fee schedule and narrative breakdown, as well as the signed costs agreement by both directors.
The Court is satisfied that the amount identified in the particular breakdown that was provided in the more detailed bill, reflects the reasonable costs properly incurred in relation to the conduct of these very substantial five proceedings on behalf of the director/directors.
Other Costs
The Court is not satisfied that there have been fees and disbursements incurred in the sum of $100,000.00. The Court is however, prepared to accept that there have been substantial costs incurred in relation to printing and transcripts, and accepts the amounts identified in the evidence of Ms Lee and the amount estimated in that regard of $26,000.00 are reasonable and proper costs incurred by the directors.
Quantification of costs order
This gives rise to costs incurred by the directors on the evidence before the Court, which the Court considers to be logical, fair and reasonable in these proceedings as a result of the unreasonable act or omission of the applicant in the order of $1.1 million.
The Court is satisfied that those costs were reasonably incurred. The Court is satisfied that for the said costs identified, albeit in part as an estimate, there is a logical, fair and reasonable basis to conclude that costs in the amount of $1.1 million were incurred by the director/directors in the conduct of these proceedings as a result of the unreasonable act or omission identified of the applicant. I find that the unreasonable act or omission of the applicant in failing to contact the ATO about the outstanding refund was an unreasonable act or omission that has caused the director/directors to incur costs in the amount of $1.1 million.
The Court however, finds that those costs of $1.1 million include solicitor/client costs and it is appropriate to reduce the same by approximately 20% to $900,000.00. The Court is also of the view that part of the costs of $900,000.00 on a party/party basis must have related to the corporate entities as opposed to the individual directors. I consider that a further discount should be made in relation to the party/party costs of $900,000.00 of approximately 10% so as to remove the costs incurred for the corporate respondents. I find that the director/directors have incurred costs in the sum of $800,000.00 for which there is a logical, fair and reasonable basis by reason of the unreasonable act or omission of the applicant.
I take into account, as found in the decision of this Court on 17 June 2016, that the principal focus of the proceedings was the director/directors. I find that the costs of $800,000.00 were party/party costs incurred on behalf of the director/directors in the respective proceedings as a result of the unreasonable act or omission of the applicant.
I find costs reasonably incurred by the director/directors that the applicant should be ordered to pay under s.570(2) of the Act because of the unreasonable act or omission of the applicant in failing to contact the ATO about the outstanding refund caused is the amount of $800,000.00.
Notwithstanding the general principle that there be no order as to costs, as found in s.570(1) of the Act, including the important public interest and the power to bring proceedings given to the regulator, I am satisfied that in the circumstances of this case, this is a proper matter in which to exercise the costs power enlivened under s.570(2)(b) of the Act I am satisfied that it is logical, fair and reasonable to order the applicant to pay the costs of the director/directors in the sum of $800,000.00.
Contempt Motion against Ms Inverarity
The Court adds that this is also a case where the Court regards the conduct of the applicant in relation to the bringing of this contempt motion against Ms Inverarity as an unreasonable act enlivening the Court’s power under s.570(2) of the Act.
If the Court had not made the orders it has already proposed in relation to the conduct of the applicant in respect of the failure to contact the ATO, it would have found that the conduct of the applicant in the bringing of the contempt proceedings in the present case was part of a strategy to prevent Ms Inverarity continuing to act, or commencing to act for the respondents in the proceedings. The applicant well knew that Ms Inverarity had initially acted for three of the respondents
Ms Inverarity had been a solicitor acting for the directors for approximately 10 years. She was involved in negotiations seeking to compromise claims of the employees. Some of those steps had been successful. The conduct of the applicant occurring at a point of time where the applicant was aware that the directors were about to be unrepresented. The bringing of the contempt application was an unreasonable act that caused the director/directors to incur costs by having to engage a new solicitor.
That adverse finding by the Court, is one in which the applicant failed to disclose until revealed in the current penalty costs hearing that the applicant had also made, contemporaneous to the contempt application, a professional complaint against Ms Inverarity. This was a fact that as a matter of candour, a model litigant should have disclosed to the Court. It was misleading conduct by the applicant not to disclose that fact to the Court and does not accord with the standards of a model litigant. That fact would have reinforced the adverse findings made by the Court against the applicant.
The Court finds, as a result of the unreasonable act of the applicant in the bringing of the contempt motion against Ms Inverarity, half the legal costs as identified in the Keypoint Law bill were incurred and caused by the unreasonable act of the applicant.
The Court is satisfied that it would have been appropriate under s.570(2)(b) of the Act to order the applicant to pay half the costs of Keypoint Law as costs incurred by the director/directors by reason of the unreasonable act of the applicant.
I certify that the preceding ninety-four (94) paragraphs are a true copy of the reasons for judgment of Judge Street
Date: 10 November 2016
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