Fair Work Ombudsman v Priority Matters Pty Ltd (No 5)
[2020] FCCA 901
•18 June 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
| FAIR WORK OMBUDSMAN v PRIORITY MATTERS PTY LTD & ANOR (No 5) FAIR WORK OMBUDSMAN v SUPERLATTICE SOLAR PTY LTD & ANOR (No 5) FAIR WORK OMBUDSMAN v GENEASYS PTY LTD (IN LIQ) & ANOR (No 5) FAIR WORK OMBUDSMAN v SILVERBROOK & ANOR (No 5) FAIR WORK OMBUDSMAN v MPOWA PTY LTD & ANOR (No 5) | [2020] FCCA 901 |
| Catchwords: INDUSTRIAL LAW – Fair Work – assessment of penalties for established breaches of the Fair Work Act 2009 (Cth) by corporations and directors as accessories. |
| Legislation: Fair Work Act 2009 (Cth), ss.23, 44, 45, 90, 99, 116, 117, 119, 293, 323, 328, 539, 542, 546, 550, 557, 570, 682 |
| Cases cited: ACCC v Birubi Art Pty Ltd (in liq) [2019] FCA 996 ACCC v Chaste Corporation Pty Ltd (in liquidation) [2005] FCA 1212 ACCC v High Adventure Pty Ltd [2006] ATPR 42-091 ACCC v Leahy Petroleum Pty Ltd (No 2) (2005) 215 ALR 281 ACCC v Reckitt Benckiser (Australia) Pty Ltd (2016) 340 ALR 25 ACCC v Sensaslim Australia Pty Ltd (in liq) (No 7) [2016] FCA 484 ACCC v The Vales Wine Co Pty Ltd [1996] ATPR 41-528 ACE Insurance Limited v Trifunovski (No 2) [2012] FCA 793 Australian Communications Media Authority v Mobilegate (No 4) (2009) 261 ALR 326 |
| 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 (IN LIQ) |
| 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 Driver |
| Hearing dates: | 20, 21 April 2020 |
| Delivered at: | Sydney |
| Delivered on: | 18 June 2020 |
REPRESENTATION
| Counsel for the Applicant: | Ms E Raper, with Ms V Brigden |
| Solicitors for the Applicant: | Fair Work Ombudsman |
| Solicitors for the Respondents: | Mr P Argy of Keypoint Law |
ORDERS
SYG3209/2013
By 31 December 2020, or such other date as may be agreed between the parties, Priority Matters Pty Ltd pay a pecuniary penalty of $51,000 to the Commonwealth pursuant to s.546 of the Fair Work Act 2009 (Cth) (Fair Work Act) for the contraventions set out in the declarations dated 22 February 2019.
By 31 December 2020, or such other date as may be agreed between the parties, Kia Silverbrook pay a pecuniary penalty of $10,200 to the Commonwealth pursuant to s.546 of the Fair Work Act for the contraventions set out in the declarations dated 22 February 2019.
Any amount paid personally by the second respondent in respect of the lability of the first respondent under Order 1 is to be credited against his liability in Order 2.
The Fair Work Ombudsman has liberty to apply for further directions or orders on three days notice.
SYG3210/2013
By 31 December 2020, or such other date as may be agreed between the parties, Superlattice Solar Pty Ltd pay a pecuniary penalty of $40,800 to the Commonwealth pursuant to s.546 of the Fair Work Act for the contraventions set out in the declarations dated 22 February 2019.
By 31 December 2020, or such other date as may be agreed between the parties, Kia Silverbrook pay a pecuniary penalty of $8,160 to the Commonwealth pursuant to s.546 of the Fair Work Act for the contraventions set out in the declarations dated 22 February 2019.
Any amount paid personally by the second respondent in respect of the lability of the first respondent under Order 1 is to be credited against his liability in Order 2.
The Fair Work Ombudsman has liberty to apply for further directions or orders on three days notice.
SYG3228/2013
By 31 December 2020, or such other date as may be agreed between the parties, Kia Silverbrook pay a pecuniary penalty of $11,730 to the Commonwealth pursuant to s.546 of the Fair Work Act for the contraventions set out in the declarations dated 22 February 2019.
Within 28 days of the payment of the pecuniary penalty referred to in Order 1 above to the Fair Work Ombudsman, the Fair Work Ombudsman will:
a)pay the penalty to the employees, referred to in the Statement of Claim and whose location the Fair Work Ombudsman is able to ascertain, in amounts proportionate to their outstanding underpayments; and
b)to the extent that the Fair Work Ombudsman is unable to locate the employees within 28 days, pay the pecuniary penalty to the Commonwealth in amounts proportionate to the outstanding underpayments of those employees whom it has been unable to locate.
The Fair Work Ombudsman has liberty to apply for further directions or orders on three days notice.
SYG1743/2014
By 31 December 2020, or such other date as may be agreed between the parties, Kia Silverbrook pay a pecuniary penalty of $13,260 to the Commonwealth pursuant to s.546 of the Fair Work Act for the contraventions set out in the declarations dated 22 February 2019.
By 31 December 2020, or such other date as may be agreed between the parties, Janette Lee pay a pecuniary penalty of $13,260 to the Commonwealth pursuant to s.546 of the Fair Work Act for the contraventions set out in the declarations dated 22 February 2019.
Within 28 days of the payment of the pecuniary penalties referred to in Order 1 and Order 2 above to the Fair Work Ombudsman, the Fair Work Ombudsman will:
c)pay the penalties to the employees, referred to in the Statement of Claim and whose location the Fair Work Ombudsman is able to ascertain, in amounts proportionate to their outstanding underpayments; and
d)to the extent that the Fair Work Ombudsman is unable to locate the employees within 28 days, pay the pecuniary penalties to the Commonwealth in amounts proportionate to the outstanding underpayments of those employees whom it has been unable to locate.
The Fair Work Ombudsman has liberty to apply for further directions or orders on three days notice.
SYG1780/2014
By 31 December 2020, or such other date as may be agreed between the parties, Mpowa Pty Ltd pay a pecuniary penalty of $96,900 to the Commonwealth pursuant to s.546 of the Fair Work Act for the contraventions set out in the declarations dated 22 February 2019.
By 31 December 2020, or such other date as may be agreed between the parties, Kia Silverbrook pay a pecuniary penalty of $19,380 to the Commonwealth pursuant to s.546 of the Fair Work Act for the contraventions set out in the declarations dated 22 February 2019.
Any amount paid by the second respondent personally in respect of the lability of the first respondent under Order 1 is to be credited against his liability in Order 2.
The Fair Work Ombudsman has liberty to apply for further directions or orders on three 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 (IN LIQ) |
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
Introduction and background
This judgment concerns the fifth act in an ongoing saga involving the Fair Work Ombudsman, four corporations and two individuals (Mr Silverbrook and Ms Lee). The procedural history in this matter has been unfortunate and the circumstances of the respondents leading to the proceedings (and since) have been even more unfortunate.
On 22 February 2019, I gave judgment in favour of the Fair Work Ombudsman (and against Mr Silverbrook and Ms Lee) concerning accessorial liability for established breaches of the Fair Work Act 2009 (Cth) (Fair Work Act) by the corporations. In short oral observations in handing down judgment, I invited the Fair Work Ombudsman to consider the detail of it and for its solicitors to take instructions on what it wished to do next in relation to penalties. I in particular invited the Fair Work Ombudsman to reflect on whether the case had been taken far enough.[1]
[1] Transcript 22.02.2019, page 2, lines 12-17.
As matters transpired, a penalty hearing was required. Given the history of the matter, and the surrounding circumstances, I would have preferred not to have to deal with it. Sometimes, however, judges have to deal with cases which they find unpalatable.
I dealt with the background in this matter in the Liability Judgment.[2] I do not need to repeat what was stated there.
[2] Fair Work Ombudsman v Priority Matters & Ors (No 4) [2019] FCCA 56 (Liability Judgment) at [1]-[25].
What is striking after such long running litigation is that the parties put forward completely different narratives said to bear upon the penalty issues for the Court to decide, to the extent (as I put to the representatives during argument) of speaking, in effect, different languages. The Fair Work Ombudsman emphasises that this case involves the self evidently serious conduct of the respondents in not paying 43 employees in excess of $1.9 million in salaries and other entitlements over a period extending in some cases for some 10 months. The case is unusual both in respect of the extent of the underpayments and the fact that the employees received no remuneration at all for a considerable period.
The Fair Work Ombudsman also stresses that, in accordance with the Liability Judgment, the directors of the corporate respondents (Mr Silverbrook and Ms Lee) knew that: the companies had run out of cash assets to pay wages, knew the employees were not being paid their wages and entitlements as and when they fell due; intended the companies to keep operating through their omission to take steps to wind them up when the employees were not paid; and required the employees to continue to attend for work despite not paying them their entitlements, rather than make them redundant or otherwise terminate their employment contracts. Indeed, Mr Silverbrook offered future bonuses in some instances as an incentive to employees to continue attending work without payment.
The extent of the underpayments to individual employees of each company is set out in the following table:
| No. | Company | Employee | Underpayment | Period |
| 1. | Priority Matters | Kenneth Bolton | $133,973.39 | 11/03/13 - 14/06/13 |
| 2. | Priority Matters | Tracey Dalton | $12,638.01 | 08/04/13 - 09/08/13 |
| 3. | Priority Matters | Christine Lee | $58,864.42 | 25/03/13 – 09/08/13 |
| 4. | Priority Matters | Donna Marsh | $436.70 | 25/03/13 – 05/04/13 |
| 5. | Priority Matters | Ana Nair | $13,527.28 | 25/03/13 – 09/08/13 |
| 6. | Priority Matters | Tanya Fitzgerald (nee Nair) | $10,647.92 | 25/03/13 – 09/08/13 |
| 7. | Priority Matters | Lisa Netana | $820.39 | 25/03/13 – 19/04/13 |
| 8. | Priority Matters | Leonie News | $23,583.73 | 08/04/13 – 09/08/13 |
| 9. | Priority Matters | Narith Nget | $3,434.30 | 25/03/13 – 19/04/13 |
| 10. | Priority Matters | Julie Pavlovski | $6,674.08 | 17/06/13 – 09/08/13 |
| 11. | Priority Matters | Hui Helen Tang | $14,825.76 | 25/03/13 – 09/08/13 |
| 12. | Priority Matters | Winnie Siew Kim The | $21,036.08 | 25/03/13 – 09/08/13 |
| 13. | Priority Matters | Gideon Van Rensburg | $110,746.08 | 11/03/13 – 28/06/13 |
| 14. | Priority Matters | Yinyin Zhang | $18,495.44 | 25/03/13 – 09/08/13 |
| 15. | Priority Matters | Annie Y-Guan Zou | $23,294.40 | 25/03/13 – 09/08/13 |
| 16. | Superlattice | Dr Wohlthat | $55,969.11 | 11/03/13- 23/08/13 |
| 17. | Geneasys | Dr M Azimi | $166,914.56 | 25/02/13 – 09/08/13 |
| 18. | Geneasys | Ms N Boulter | $13,081.04 | 25/02/13 – 05/04/13 |
| 19. | Geneasys | Geoffrey Facer | $62,392.05 | 11/03/13 – 12/07/13 |
| 20. | Geneasys | Alireza Moini | $56,045.64 | 11/03/13 – 12/07/13 |
| 21. | Geneasys | Matthew Worsman | $64,540.68 | 25/03/13 – 03/05/13 |
| 22. | SR | Swee Chieng Chan | $43,869.38 | 25/03/13 – 13/12/13 |
| 23. | SR | Glen Harrison | $48,746.21 | 11/03/13 – 26/07/13 |
| 24. | SR | John McCarthy | $78,826.87 | 28/01/13 – 03/05/13 |
| 25. | SR | Ishak Mohamad | $17,700.80 | 25/03/13 – 09/08/13 |
| 26. | SR | Vi Thuy Tuong Nguyen | $27,769.23 | 25/03/13 – 18/10/13 |
| 27. | Mpowa | Michael Shepanski | $137,388.31 | 25/03/13 – 13/12/13 |
| 28. | Mpowa | Jane Childs | $98,205.70 | 25/03/13 – 13/12/13 |
| 29. | Mpowa | Tim Long | $170,006.25 | 25/03/13 – 13/12/13 |
| 30. | Mpowa | Anthony Whitlock | $61,552.41 | 25/03/13 – 13/12/13 |
| 31. | Mpowa | Sunny Kaisi | $19,056.95 | 25/03/13 – 28/06/13 |
| 32. | Mpowa | Kong Yin Lai | $76,542.95 | 25/03/13 – 13/12/13 |
| 33. | Mpowa | Yogesh Ramani | $52,052.24 | 25/03/13 – 13/12/13 |
| 34. | Mpowa | Chris Jones | $67,622.12 | 25/03/13 – 13/12/13 |
| 35. | Mpowa | Greg Dumbrell | $76,501.96 | 25/03/13 – 13/12/13 |
| 36. | Mpowa | Malcolm Whittaker | $89,381.57 | 25/03/13 – 13/12/13 |
| 37. | Mpowa | Andy Newman | $111,280.15 | 25/03/13 – 13/12/13 |
| 38. | Mpowa | Bernie Maier | $27.392.45 | 25/03/13 – 13/12/13 |
| 39. | Mpowa | Gregg Kelly | $90,426.76 | 25/03/13 – 13/12/13 |
| 40. | Mpowa | Marija Herceg | $32,998.06 | 03/06/13 – 01/11/13 |
| 41. | Mpowa | Luke Tucker | $35,457.29 | 18/03/13 – 11/10/13 |
| 42. | Mpowa | Zoltan Toth | $40,389.03 | 25/03/13 – 13/12/13 |
| 43. | Mpowa | Zhenya Yourlo | $214,483.22 | 25/03/13 – 13/12/13 |
The narrative perfervidly advanced on behalf of the respondents is strikingly different. The respondents note that the proceedings commenced over six years ago and that the Fair Work Ombudsman is pursuing the imposition of penalties in circumstances where:
a)this Court has accepted that the non payment of employee entitlements was made good in October 2016, well over three years ago;[3]
b)Mr Silverbrook suffered a heart attack a short time after the liability hearing in 2016, and his health has deteriorated to such an extent he is now disabled with only limited ability to walk, sit and think clearly.[4] He suffers from serious and debilitating cardiac issues, spinal problems, sleep apnoea and major depression, and is frequently hospitalised;[5]
c)Mr Silverbrook has not been paid since 2012, and has been unemployed for more than five years.[6] Ms Lee is his full-time carer and is not in paid employment.[7] They have meagre assets and no income[8], having previously sold or mortgaged their personal holdings, donated $10,000,000 of their own funds and spent Mr Silverbrook’s superannuation to meet employee entitlements;[9]
d)Mr Silverbrook and Ms Lee owe a judgment debt of $10,281,534.67 plus interest to the Australian Tax Office (ATO);[10]
e)Mpowa and Superlattice are no longer trading, and Priority has ceased to provide patent administration services.[11]
[3] Liability Judgment at [52].
[4] Affidavit of Janette Lee affirmed 28 October 2019 (Second Lee Affidavit) at [67]-[68].
[5] Second Lee Affidavit at [9], [67]-[68].
[6] Affidavit of Kia Silverbrook affirmed 16 March 2018 (Third Silverbrook Affidavit) at [256].
[7] Second Lee Affidavit affirmed 28 October 2019 at [43].
[8] Second Lee Affidavit at [43]; Exhibit JL- 6 to Second Lee Affidavit, pages 77-78, 89-90.
[9] Fair Work Ombudsman v Priority Matters [2016] FCCA 1474 (Primary Judgment) (Judge Street) at [132]; Third Silverbrook Affidavit at [27];
[10] Second Lee Affidavit at [90].
[11] Second Lee Affidavit at [92], [97], [100].
The respondents contend that it would be excessively harsh for any penalties to be imposed on them and that the declarations and compensation orders and the terms of the judgments, both of this Court and in the Federal Court, are more than sufficient from a public interest and general deterrent standpoint. The respondents go to the extent of accusing the Fair Work Ombudsman of “vindictiveness”.
To be fair, the Fair Work Ombudsman has modified somewhat its general position on penalties in these proceedings. The question for the Court (in the event that the Court cannot accept the proposition that no penalties at all should be imposed) is whether the Fair Work Ombudsman’s position goes too far.
The evidence and submissions
The Fair Work Ombudsman relies upon the following affidavit material previously filed in the proceedings:
Fair Work Ombudsman v Priority Matters Pty Ltd & Kia Silverbrook – SYG3209/2013
a)affidavit of Ashley Hurrell affirmed 24 July 2015, excluding [37]-[39], [42]-[51] and tabs 6, 8, pages 87-102 and 110-174 of 9, 17, 18, 19, 21 and 22 of Exhibit-AKH-1;
b)affidavit of Kenneth Bolton affirmed 24 July 2015, excluding annexure KWB-1;
c)affidavit of Julie Pavlovski affirmed 24 July 2015, excluding annexures JP-1 to JP-4;
d)affidavit of Leonie News affirmed 24 July 2015, excluding annexure LN-1.
Fair Work Ombudsman v Superlattice Solar Pty Ltd & Kia Silverbrook – SYG3210/2013
a)affidavit of Ms Hurrell affirmed 24 July 2015, excluding [35]-[37], [40]-[49] and tabs 5, 7, 15, 16, 17, 19 and 20 of Exhibit-AKH-1;
b)affidavit of Soren Wohlthat affirmed 24 July 2015, excluding the words “signed by Kia” in [21] and annexures SW-1 to SW-3;
c)affidavit of Soren Wohlthat affirmed 15 January 2016, at [4] and annexure B only.
Fair Work Ombudsman v Kia Silverbrook – SYG3228/2013
a)affidavit of Ashley Hurrell affirmed 24 July 2015, excluding [25], [36]-[38], [41]-[52] and tabs 6, 8, 9 to 12, pages 178-197 and 205-219 of 13, 14, 20, 21, 22, 24 and 25 of Exhibit-AKH-1;
b)affidavit of Geoffrey Facer affirmed 25 July 2015, excluding [14] and tabs 1-4 and 6 and 10-13 of Exhibit GRF-1.
Fair Work Ombudsman v Kia Silverbrook & Janette Lee – SYG1743/2014
a)affidavit of Ashley Hurrell affirmed 19 October 2015, excluding [14]-[21], 24, 26, [28]-[31], [33]-[36], [38]-[40], [50]-[59], [71]-[97], and tabs 3-5, 6, 7, 8, 9, 11, pages 78-96 of 12, 13-14, 16-19, 21-24, pages 191-192 and 202-206 of 25, 27-29, 31, 34-37, 39-45 and 52 of Exhibit-AKH-1;
b)affidavit of John McCarthy affirmed 22 October 2015, excluding [5]-[9], [15]-[22], [36]-[44], and annexure JMM-2;
c)affidavit of Glenn Harrison affirmed 22 October 2015, excluding [6]-[15], [32]-[35], and annexures GAH-1 to GAH-8.
Fair Work Ombudsman v Mpowa Pty Ltd & Kia Silverbrook – SYG1780/2014
a)affidavit of Ashley Hurrell affirmed 30 July 2015, excluding [17]-[21], 24, [37]-[150], [154]–[179], tabs 4 to 6, 8, 18-70 and 72-74 of Exhibit-AKH-1;
b)affidavit of Jane Childs affirmed 16 July 2015, excluding [7]-[10], the final sentence of [38], the second and third sentences of [39], tabs 1 to 8 and 10 to 12 of Exhibit JLC-1;
c)affidavit of Christopher Wooldridge affirmed 30 July 2015, excluding [5]-[6], [9]-[25] and tab 1 of Exhibit CW-1;
d)affidavit of Michael Shepanski affirmed 17 November 2015, excluding [8]-[15], [24]-[29] and tabs 1-4, 6-7 of Exhibit MS-1;
e)affidavit of Anthony Whitlock affirmed 18 November 2015.
In addition, the Fair Work Ombudsman relies upon the affidavit of Joanne Cameron made on 3 May 2019. I dealt with the respondents’ objections to that evidence at the trial of this matter on 20 April 2020.
For their part, the respondents rely upon the following affidavit material previously filed in each of the proceedings:
a)first affidavit of Kia Silverbrook dated 5 February 2016 and Exhibit KS-1;
b)second affidavit of Kia Silverbrook dated 5 February 2016 and Exhibit KS-2;
c)affidavit of Janette Lee dated 5 February 2016 and Exhibit JL-1;
d)affidavit of Janette Lee dated 16 August 2016 and its Annexures;
e)affidavit of Janette Lee dated 23 September 2016 and Exhibit JL-1;
f)affidavit of Kia Silverbrook dated 16 March 2018 and Exhibit KS-4;
g)affidavit of Janette Lee dated 23 March 2018 and Exhibit JL-4;
h)affidavit of Janette Lee dated 28 October 2019 and Exhibit JL-6
Again, I dealt with objections to that evidence at the trial on 20 April 2020. To the extent that that evidence is objected to on the basis of relevance, I ruled that I would make any necessary findings of relevance having heard the parties’ submissions. The objections were largely resolved at the trial, and to the extent that they were left unresolved at the trial, I have treated the evidence of Mr Silverbrook and Ms Lee as relevant to issues of mitigation going to the assessment of appropriate penalties.
The parties provided extensive pre-hearing written submissions and also made extensive oral submissions through their representatives at the trial over two days. I have been assisted by those submissions.
Consideration
Principles on penalty
I accept the Fair Work Ombudsman’s submissions concerning the general principles to be applied.
The Court may impose penalties pursuant to s.546 of the Fair Work Act if satisfied that a person has contravened a civil remedy provision. The relevant sections of the Fair Work Act in issue in these proceedings are civil remedy provisions, with the exception of s.542 of the Fair Work Act. The Fair Work Act describes the maximum penalties that may be imposed by the Court for each contravention of the Fair Work Act.[12]
[12] By virtue of s.546(2) of the Fair Work Act, which limits the maximum penalty amounts to the penalty units referred to in s.539(2). Section 546(2)(b) provides that the maximum penalty payable by a body corporate will be five times the number of penalty units prescribed for an individual.
The Court has a broad discretion to assess the appropriate penalty, ultimately adopting an approach of an “instinctive synthesis”.[13] In Fair Work Ombudsman v NSH North Pty Ltd (t/as New Shanghai)[14] at [36], Bromwich J set out how the discretion is to be approached as follows:
(1) Identify the separate contraventions, with each breach of each obligation being a separate contravention, and each breach of a term of the Award being a separate contravention.
(2)Consider whether each separate contravention should be dealt with independently or with some degree of aggregation for those contraventions arising out of a course of conduct, noting that s 557 of the FW Act provides that two or more contraventions of a given civil remedy provision are to be taken to be a single contravention if committed by the same person and arising out of a course of conduct by that person.
(3)Consider whether there should be further adjustment to ensure that, to the extent of any overlap between groups of separate aggregated contraventions, there is no double penalty imposed, and that the penalty is an appropriate response to what each respondent did.
(4)Consider the appropriate penalty in respect of each final individual group of contraventions, taken in isolation.
(5)Consider the overall penalties arrived at, including by reference to those which may be proposed by the FWO (as permitted by Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; 258 CLR 482 (CFMEU Civil Penalties Case) at [64]) and what is proposed by the respondents, and apply the totality principle, to ensure that the penalties for each respondent are appropriate and proportionate to the conduct viewed as a whole, making such adjustments as are necessary: see Kelly v Fitzpatrick [2007] FCA 1080; 166 IR 14 at [30]; Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8; 165 FCR 560 at [23]. [71] and [102].
[13] Wong v R (2001) 207 CLR 584 at [75] per Gaudron, Gummow and Hayne JJ; Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith (Merringtons) (2008) 165 FCR 560 at [27]-[28], [55], [78].
[14] [2017] FCA 1301.
Identification of the contraventions
The declarations I made in the liability proceedings identify the contraventions. In respect of Priority Matters v Superlattice, there were multiple contraventions of six different provisions, multiple contraventions of eight different penalty provisions in respect of Geneasys, and multiple contraventions of ten different penalty provisions in respect of Silverbrook Research and Mpowa.
Statutory course of conduct
Section 557(1) of the Fair Work Act provides that, for specified contraventions of the Fair Work Act, two or more contraventions of a term of the same civil remedy provision will be treated as a single contravention where that contravention was committed by the same person and arose from the same course of conduct. Especially relevant is whether the contraventions arose out of separate acts or decisions of the person or out of a single act or decision. The latter case will constitute a course of conduct but the former will not.[15]
[15] Seymour v Stawell Timber Industries Pty Ltd (1985) 9 FCR 241 at [266]-[267] per Gray J, Northrop J agreeing at [245].
The Fair Work Ombudsman accepts that the respondents are entitled to the benefit of the course of conduct provisions in s.557(2) of the Fair Work Act in relation to repeated breaches of each separate obligation under the Award. Where a contravention relates to multiple employees, s.557 applies so that the conduct is taken to constitute a single contravention.
Accordingly, taking into account the operation of s.557(1) of the Fair Work Act, the Fair Work Ombudsman submits that the Court may be satisfied that Priority Matters and Superlattice engaged in a total of six contraventions giving rise to a penalty, Mpowa engaged in ten contraventions giving rise to a penalty, Mr Silverbrook was involved in 40 contraventions giving rise to a penalty and Ms Lee was involved in ten contraventions giving rise to a penalty.
The respondents take a different approach to the question of the course of conduct. The competing approaches of the parties on this question is set out at Attachment A to these reasons.
The respondents’ approach on the statutory course of conduct, while having some superficial attractions, is in my view, inconsistent with the statutory scheme as explained in binding authority.
The respondents’ proposed approach treats multiple contraventions of s.44 of the Fair Work Act, based on contraventions of different underlying provisions of the Fair Work Act, as constituting a single contravention. It likewise treats multiple contraventions of s.45 of the Fair Work Act based on breaches of different terms of modern awards as constituting a single contravention. I accept such an approach is contrary to Full Federal Court authority. As explained by the Full Federal Court in Rocky Holdings Pty Ltd v Fair Work Ombudsman at [13],[16] the multiple contraventions which are taken to constitute a single contravention by reason of s.557 are those with respect to the same underlying contravention, that is, multiple breaches of the same term of an award or provision of the National Employment Standards:
The reference in s 557(1) to “a civil remedy provision referred to in subs (2)” discloses that it is the provision which is relevant. Section 557(2) identifies each of ss 44(1) and 45 as a civil remedy provision. It is the substance of those provisions which create the proscriptions. Section 44(1) proscribes contraventions of a provision of the NES. Section 45 proscribes contravention of a term of a modern award. The appellants’ alternative contention treats the references to ss 44(1) and 45 (and every provision listed in s 557(2)) as a reference not to the substance but to the mere existence of the provision irrespective of the nature of the contravention the provision creates. Section 557(2) should be recognised to be a form of definitions provision. It defines civil remedy provisions for the purposes of s 557(1). The function of s 557(2) is to indicate that when a provision is identified, it is the substance of the provision found elsewhere in the Act (in this case, in ss 44(1) and 45) which is the civil penalty provision.
[16] (2014) 221 FCR 153.
The proper application of s.557(2) cannot, therefore, result in the reduced number of deemed contraventions contended for by the respondents. I therefore accept the Fair Work Ombudsman’s submission referred to at [22]-[23] above.
Common law course of conduct
In addition to the statutory course of conduct provision, it is open to the Court to consider the application of common law course of conduct principles where the contraventions contain common elements or can be said to overlap with each other.[17] The courts have confirmed a broad discretion in approach to ensuring that penalties applied are appropriate to the conduct in a particular case. Commonly this is achieved by grouping contraventions together for the purpose of determining penalty, although other approaches are available.[18] It may be appropriate for the Court to group contraventions where, if they were treated separately, this would potentially penalise a respondent twice for the same or substantially similar conduct.[19]
[17] Pearce v R (1998) 194 CLR 610 at [40] per McHugh, Hayne and Callinan JJ; Johnson v R (2004) 205 ALR 346 at [27]-[34] per Gummow, Callinan and Heydon JJ; Cousins v Merringtons Pty Ltd (No 2) [2008] VSC 340 at [46], [72] per Graham J and [93] per Buchanan J.
[18] Fair Work Ombudsman v Construction, Forestry, Maritime, Mining and Energy Union (the Hutchison Ports Appeal) [2019] FCAFC 69 at [90]-[92] per Ross J and [180] per Rangiah J; Parker v Australian Building and Construction Commissioner (2019) 286 IR 116 at [273]-[275] per Besanko and Bromwich JJ.
[19] Construction, Forestry, Mining and Energy Union v Cahill (2010) 194 IR 461 at [47] per Middleton and Gordon JJ.
The Fair Work Ombudsman submits as follows. In the Priority Matters proceeding, the following four groups of the six contraventions are said to be appropriate:
a)failure to pay minimum rates of pay, comprising:
i)section 323(1) of the Fair Work Act;
ii)section 45 of the Fair Work Act by virtue of a contravention of clause A.2.5 of the Clerks - Private Sector Award 2010 (Clerks Award); and
iii)section 293 of the Fair Work Act;
b)failure to pay casual loading (s.45 of the Fair Work Act by virtue of a contravention of clause A.5.4 of the Clerks Award);
c)failure to pay paid public holidays (s.44(1) of the Fair Work Act by virtue of a contravention of s.116 of the Fair Work Act); and
d)failure to pay annual leave on termination (s.44(1) of the Fair Work Act by virtue of a contravention of s.90(2) of the Fair Work Act).
In the Superlattice proceeding, the following four groups of the six contraventions are said to be appropriate:
a)failure to pay minimum rates of pay, comprising:
i)section 323(1) of the Fair Work Act;
ii)section 45 of the Fair Work Act by virtue of a contravention of clause A.2.5 of the Professional Employees Award 2010 (Professionals Award);
b)failure to pay paid public holidays (s.44(1) of the Fair Work Act by virtue of a contravention of s.116 of the Fair Work Act);
c)failure to make payments in lieu of termination, comprising:
i)section 45 of the Fair Work Act, for failing to give one month’s notice of termination in accordance with clause 12.2 of the Professionals Award;
ii)section 44 of the Fair Work Act, for failing to make a payment within lieu of notice of termination in accordance with s.117(2) of the Fair Work Act;
d)failure to pay annual leave on termination (s.44(1) of the Fair Work Act by virtue of a contravention of s.90(2) of the Fair Work Act).
In the Geneasys proceeding, the following five groups of the eight contraventions are said to be appropriate:
a)failure to pay minimum rates of pay, comprising:
i)section 323(1) of the Fair Work Act;
ii)section 293 of the Fair Work Act; and
iii)section 328 of the Fair Work Act;
b)failure to pay paid public holidays (s.44(1) of the Fair Work Act by virtue of a contravention of s.116 of the Fair Work Act); and
c)failure to make payments in lieu of termination, comprising:
i)section 45 of the Fair Work Act, for failing to give one month’s notice of termination in accordance with clause 12.2 of the Professionals Award ; and
ii)section 44 of the Fair Work Act, for failing to make a payment in lieu of notice of termination in accordance with s.117(2) of the Fair Work Act;
d)failure to pay an amount in respect of annual leave (s.44(1) of the Fair Work Act by virtue of a contravention of s.90(1) of the Fair Work Act); and
e)failure to pay annual leave on termination (s.44(1) of the Fair Work Act by virtue of a contravention of s.90(2) of the Fair Work Act).
In the Silverbrook Research proceeding, the following eight groups of the ten contraventions are said to be appropriate:
a)failure to pay minimum rates of pay, comprising:
i)section 323(1) of the Fair Work Act;
ii)section 293 of the Fair Work Act;
iii)section 45 of the Fair Work Act by virtue of a contravention of clause A.2.5 of the Clerks Award;
b)section 45 of the Fair Work Act by virtue of a contravention of clause 15 of the Professionals Award;
c)failure to pay paid public holidays (s.44(1) of the Fair Work Act by virtue of a contravention of s.116 of the Fair Work Act);
d)section 44 of the Fair Work Act, for failing to make a payment in lieu of notice of termination in accordance with s.117(2) of the Fair Work Act;
e)section 44 of the Fair Work Act, for failing to pay redundancy pay in accordance with s.119 of the Fair Work Act;
f)failure to pay an amount in respect of annual leave (s.44(1) of the Fair Work Act by virtue of a contravention of s.90(1) of the Fair Work Act);
g)failure to pay annual leave on termination (s.44(1) of the Fair Work Act by virtue of a contravention of s.90(2) of the Fair Work Act);
h)failure to pay an amount in respect of personal leave (s.44(1) of the Fair Work Act by virtue of a contravention of s.99 of the Fair Work Act).
In the Mpowa proceeding, the following seven groups of the ten contraventions are said to be appropriate:
a)failure to pay minimum rates of pay, comprising:
i)section 323(1) of the Fair Work Act;
ii)section 45 of the Fair Work Act by virtue of a contravention of clause 15 and A.3.6 of the Professionals Award;
iii)section 293 of the Fair Work Act;
b)failure to pay paid public holidays (s.44(1) of the Fair Work Act by virtue of a contravention of s.116 of the Fair Work Act);
c)section 44 of the Fair Work Act, for failing to make a payment in lieu of notice of termination in accordance with s.117(2) of the Fair Work Act;
d)failure to pay redundancy pay, comprising:
i)section 44 of the Fair Work Act, by virtue of a contravention of s.119 of the Fair Work Act;
ii)section 45 of the Fair Work Act, by virtue of a contravention of clause 13.5 of the Professionals Award;
e)failure to pay an amount in respect of annual leave (s.44(1) of the Fair Work Act by virtue of a contravention of s.90(1) of the Fair Work Act);
f)failure to pay annual leave on termination (s.44(1) of the Fair Work Act by virtue of a contravention of s.90(2) of the Fair Work Act); and
g)failure to pay an amount in respect of personal leave (s.44(1) of the Fair Work Act by virtue of a contravention of s.99 of the Fair Work Act).
In relation to the other contraventions the Fair Work Ombudsman submits that no further grouping should be applied. The contraventions arose in different points in time and/or from different decisions made by the respondents.
The respondents agree with the Fair Work Ombudsman that it is appropriate for the Court to group the contraventions but they submit that the contraventions should be grouped in a manner that differs to that proposed by the Fair Work Ombudsman.
The respondents submit that the s.550(1) deemed contraventions by Mr Silverbrook and the primary contraventions by Priority Matters, Mpowa and Superlattice should be grouped together because those entities were simply the corporate embodiments of Mr Silverbrook and Ms Lee.[20] If the Court does not do so, there is said to be a risk that it will impose a “double penalty” on Mr Silverbrook, because he is the only source of funds to pay any penalties imposed on those corporate respondents for contravening the Fair Work Act, as well as any penalties imposed on him personally for being an accessory to that same contravention.
[20] Primary Judgment at [99], [101]; Second Affidavit of Mr Silverbrook, affirmed 5 February 2016 (Second Silverbrook Affidavit); Second Lee Affidavit at [96]. They were to all intents and purposes merely repositories of Mr Silverbrook’s inventions in the form of discrete intellectual property portfolios.
The impact of this is made clear at [96] of Ms Lee’s final affidavit, where she deposes in relation to Superlattice that:
As at 21 October 2019, the sole shareholder, Kia has borne the cost of the conduct of the solar cell project, including guaranteeing borrowings taken by Superlattice required to pay the Court ordered payment of gross delayed wages, interest to Dr Wohlthat on the delayed wages and a $5,000 corporate penalty.
Grouping the contraventions together in the way proposed by the respondents would mean that Mr Silverbrook would be penalised for the contraventions of each of Geneasys and Silverbrook Research (which are in liquidation) but not for the same contraventions committed by the other corporate respondents. This would reduce his contraventions to eight.
This would mean that, if the Court decides that the imposition of penalties is required:
a)the maximum penalty which may be imposed on Priority Matters for its four contraventions is $204,000, which is the same amount as calculated by the Fair Work Ombudsman;[21]
b)the maximum penalty which may be imposed on Superlattice for its three contraventions is $153,000, which is less than the $204,000 calculated by the Fair Work Ombudsman;
c)the maximum penalty which may be imposed on Mpowa for its four contraventions is $204,000, which is less than the $357,000 calculated by the Fair Work Ombudsman;
d)the maximum penalty which may be imposed on Mr Silverbrook for his eight contraventions is $81,600, which is less than the $265,200 calculated by the Fair Work Ombudsman;
e)the maximum penalty which may be imposed on Ms Lee for her four contraventions is $40,800, which is less than the $61,200 calculated by the Fair Work Ombudsman.
[21] The Fair Work Ombudsman’s calculations of the maximum penalty which may be imposed on each of the respondents is behind Annexure B of her submissions.
The respondents plainly do not submit that the maximum penalty should be imposed. The above list of maximum penalties is provided solely to assist the Court if it decides to impose a penalty that is a percentage of the maximum. The respondents’ position remains[22] that no penalties at all should be imposed given the “unforeseeable and catastrophic fraud that was committed against them”.
[22] Transcript 06.08.2019, page 3, line 43 – page 4, line 1.
Again, despite whatever attraction might appear in the respondents’ approach (and it carries no more attraction than their proposals concerning the statutory course of conduct) it would lead to a result inconsistent with principle.
In Fair Work Ombudsman v Ramsey Food Processing Pty Ltd (No 2),[23] Buchanan J rejected the submission that the penalties imposed on one or other of the two respondents should be reduced to account for the connection between the actions of the two respondents. His Honour held at [8]:
The present legislative scheme fixes quite different (and much lower) penalties for individuals than for corporations. The culpability of each respondent must be assessed individually and in the context set by the maximum penalty prescribed in each case. I reject the suggestion, if this was what was intended, that either or both respondents might have the benefit of any reduction in penalty because they were jointly, as well as individually, culpable.
[23] [2012] FCA 408.
The decision has been applied in numerous subsequent decisions under the Fair Work Act in this Court such that penalties have been imposed on both directors and companies.[24]
[24] For example, Fair Work Ombudsman v Revolution Martial Arts Pty Ltd [2013] FMCA 125, Fair Work Ombudsman v Monochromatic Engineering Pty Ltd [2017] FCCA 533, Fair Work Ombudsman v Kleen Group Pty Ltd [2106] FCCA 278; Fair Work Ombudsman v Rainbow Paradise Preschool [2015] FCCA 1652; Fair Work Ombudsman v Ever Australia Pty Ltd [2015] FCCA 1999; Fair Work Ombudsman v EA Fuller & Sons Pty Ltd [2013] FCCA 5; Fair Work Ombudsman v Anahata Naturals [2014] FCCA 2954; Fair Work Ombudsman v Barry Scott Distributors [2014] FCCA 1587; Fair Work Ombudsman v Zillion Zenith International [2014] FCCA 433; Fair Work Ombudsman v The Hub @ Mermaid Pty Ltd [2015] FCCA 306; Fair Work Ombudsman v Jooine (Investment) Pty Ltd [2013] FCCA 2144; Fair Work Ombudsman v Palcoy Pty Ltd [2013] FCCA 1411; Fair Work Ombudsman v Quincolli Pty Ltd & Anor (No.2) [2013] FMCA 17; Fair Work Ombudsman v Bound for Glory Enterprises [2014] FCCA 432. Cf: Fair Work Ombudsman v Theravanish Investments Pty Ltd [2014] FCCA 1170.
In New Shanghai[25] Bromwich J rejected the argument that the individual director and shareholder should be ordered to pay no direct penalty at all by reason of the fact of his involvement with the company and that imposing penalties on both would lead to double punishment. His Honour held at [160] that if individuals:
…choose to avail themselves of the advantages of a corporate structure, which includes such things as limited liability, asset protection and tax advantages, there is a limit to which they can then seek to rely upon the disadvantages of that structure, in circumstances where it has been the primary vehicle by which they have engaged in serious contraventions of workplace laws.
[25] (2017) 275 IR 148.
The Court found that in all the circumstances of that case, the appropriate course was to take into account the relationship between the individual and the company, but for it to have a limited effect on the ultimate penalty to be imposed.[26] The same approach should be taken here, such that the groups of contraventions as proposed by the Fair Work Ombudsman are adopted. The respondents’ contentions in this regard assume that Mr Silverbrook will take personal responsibility for his companies’ debts (at least those which are not in liquidation). The orders that I will make will encompass that possibility, so that he will be credited against any personal liability for penalties, any payments that he may make personally in respect of corporate liability for penalties.
[26] New Shanghai at [160].
Determining the appropriate penalty
A non-exhaustive list of factors relevant to the imposition of penalty was set out in Plancor Pty Ltd v Liquor Hospitality and Miscellaneous Union[27] at [57] per Branson and Lander JJ:[28]
[27] (2008) 171 FCR 357.
[28] Citing a list that has been repeated in numerous cases, being the factors identified in Mason v Harrington Corporation Pty Ltd t/as Pangaea Restaurant & Bar [2007] FMCA 7 at [26]-[59] per Mowbray FM and adopted by Tracey J in Kelly v Fitzpatrick (2007) 166 IR 14 at [14].
a)the nature and extent of the conduct that led to the breach;
b)the circumstances in which the relevant conduct took place;
c)the nature and extent of any loss or damage sustained as a result of the breach;
d)previous contraventions of industrial legislation;
e)whether the breach was distinct or arose out of one course of conduct;
f)the size of the business enterprise involved;
g)whether the breach was deliberate;
h)whether senior management was involved in the breach;
i)whether the party committing the breach exhibited contrition;
j)whether the party committing the breach took corrective action;
k)whether the party committing the breach cooperated with enforcement authorities; and
l)the need for specific and general deterrence.
The summary is a convenient checklist but does not prescribe or restrict the matters which may be taken into account in the exercise of the Court’s discretion in imposing a penalty.[29] As affirmed by Buchanan J in Fair Work Ombudsman v Jetstar Airways Ltd[30] at [28], ultimately the Court’s task is to fix a penalty which pays appropriate regard to the circumstances in which the contraventions have occurred and the need to sustain public confidence in the statutory regime which imposes the obligations.[31]
[29] Merringtons at [89]-[91] per Buchanan J; Sharpe v Dogma Enterprises Pty Ltd [2007] FCA 1550 at [11] per Gyles J; see also New Shanghai at [91] per Bromwich J.
[30] [2014] FCA 33.
[31] Plancor at [58]; Merringtons at [91].
The respondents contend that an additional factor that the Court may consider is the nature and importance of the project in respect of which the conduct was undertaken.[32] The respondents make the following submissions bearing upon this factor.
[32] see Morton v Commonwealth Scientific and Industrial Research Organisation No 3 [2019] FCA 1943 at [12] per Rangiah J.
The corporate employers were engaged in projects with “an important humanitarian aspect”. Mr Silverbrook established the “Knowledge Industry Companies” (which include the corporate employers) for an explicit purpose, being to raise $1 billion dollars to fund ten humanitarian projects.[33] He reached over half of this target (US$547,000,000 in 2011) before the Knowledge Industry Companies were destroyed.[34]
[33] Third Silverbrook Affidavit at [59].
[34] Third Silverbrook Affidavit at [148].
In addition, two of the corporate respondents are said to have in themselves humanitarian projects. These were:
a)Superlattice Solar, that was engaged in solar power research and development, with the aim of creating low cost and economically viable solar power panels, in order to “change the world from fossil fuels to clean solar energy”[35]; and
b)Geneasys, that was a non-profit project to invent and develop technology to “transform medical diagnostics around the world”.[36]
[35] Third Silverbrook Affidavit at [142]-[143].
[36] Third Silverbrook Affidavit at [126].
At [94] of the Primary Judgment, Judge Street accepted that Geneasys had “humanitarian aspects to it”, although did not accept that Geneasys or Superlattice could be properly characterised as “not for profit humanitarian entities”.
The respondents submit that the Court should take into account the “important humanitarian motivations underlying the projects engaged in by the corporate respondents” when determining penalty, as well as Mr Silverbrook’s recognised status as the world’s most prolific inventor.[37] The complete obliteration of both was so tragic that it is submitted that the Court can properly take that into account as a strongly mitigating factor.
[37] Primary Judgment at [4].
On the assumption that it is open to the Court to take into account this factor, I give it minimal weight. In my view, it is of no particular significance that Mr Silverbrook has been a prolific inventor engaged in the “knowledge industry”. Neither is it of any particular importance that Superlattice Solar was engaged in research concerning alternative energy generation. As I pointed out to the representatives at the trial, it is perhaps ironic that if Geneasys had been trading now it may have been engaged in work serving the public interest in relation to the COVID-19 pandemic but the facts are that Geneasys is in liquidation and the intellectual property relating to those inventions has been lost.
Nature and extent of the conduct and of the loss sustained as a result
The bare facts, as previously found by me and as presented by the Fair Work Ombudsman, appear on their face to be telling.
Priority Matters
The conduct concerned the non payment of wages to 15 employees over five months, from 11 March 2013 to 9 August 2013. The underpayments were significant, totalling $452,997.98, and represented nearly all of the Priority Matters employees’ statutory entitlements. There is evidence that some of the employees were not paid prior to the audit period, [38] so the conduct was not isolated. The underpayments were not rectified in full until after orders were made by this Court, and even then only after the Court questioned whether payment had been made during the penalty hearing on 18 October 2016.[39]
[38] See, for example, Affidavit of Julie Pavlovski affirmed 24 July 2015 (Pavlovski Affidavit) at [14]-[17], [27]; Affidavit of Leonie News affirmed 24 July 2015 (News Affidavit) at [9]; Affidavit of Soren Wohlthat affirmed 15 January 2016 (Second Wohlthat Affidavit) at [4]; Affidavit of John McCarthy affirmed on 22 October 2015 (McCarthy Affidavit) at [29], [45]; Affidavit of Glenn Harrison affirmed on 22 October 2015 (Harrison Affidavit) at [37]; Affidavit of Michael Shepanski affirmed on 17 November 2015 (Shepanski Affidavit) at [22].
[39] Liability Judgment at [53]; cf Second Lee Affidavit at [106], which states that the date of rectification was 21 October 2016; Transcript, 18.10.2016, pages 19-26.
The non payment of wages and other entitlements has had a significant impact on the employees. By September 2013, Ms Pavlovski was struggling to make ends meet.[40] She had two children to support and constant education and living expenses. She was building a house with her partner and had to live off the building loan. Ms Pavlovski suffered a “great deal of anxiety” from Priority Matters’ failure to pay her wages on time or at all and consulted a doctor because of the stress.[41]
[40] Pavlovski Affidavit at [37].
[41] Pavlovski Affidavit at [40]-[41].
Mr Bolton’s evidence was that when his wages stopped being paid, his family had to sell small share parcels and he and his wife had to borrow money from their parents. They also had to stop paying their mortgage for a time. His family had to stop all non−essential spending and it was a very anxious and stressful time. Mr Bolton felt panicked looking for a new job and was scared to resign as he was worried that he would not be paid his entitlements.[42] Mr Bolton lost approximately six months of annual leave and long service leave that he was relying on as a buffer.[43]
[42] Affidavit of Kenneth Bolton 24 July 2015 (Bolton Affidavit) at [34]; Transcript, 10.03.2016, page 41, lines 1-27.
[43] Bolton Affidavit at [30]-[35].
Ms News was 62 years old when she stopped receiving her wages from Priority Matters and thought that it would be hard to find a new job. Because of her age, she was particularly vulnerable. She had to use her personal savings and access money from her superannuation fund to support herself and eventually in late October 2013 decided that she had no option but to resign. When Ms News found alternative employment it was initially only for two days per week so she had to continue supplementing her income with her superannuation for an eight month period until she picked up an extra day of work.[44]
[44] News Affidavit at [16]-[20].
Priority Matters’ employees were assured, through Mr Silverbrook, that they would be paid soon, including an email to his patent attorneys stating, “We’ll get you paid absolutely ASAP.”[45]
[45] Bolton Affidavit, Annexure KWB-2, page 9.
Priority Matters, through Mr Silverbrook, told Ms Pavlovski when she asked for confirmation about the company’s financial position and whether retrenchments would be offered in time, that “it is up to your personal position as to whether you are able to wait it out.”[46] This statement is indicative of the way in which Priority Matters, through Mr Silverbrook, viewed the issue of non payment. Additionally, Priority Matters was unresponsive in some cases in answering employees’ queries about their pay.[47] These matters have a significant bearing upon the consideration of an appropriate penalty.
[46] Pavloski Affidavit, Annexure JP-8.
[47] Bolton Affidavit at [22]; Pavlovski Affidavit at [30]; Exhibit AKH-1 to Affidavit of Ashley Hurrell affirmed 24 July 2015 (Hurrell Affidavit) at 107.
Superlattice
Superlattice’s contraventions concerned one employee, Dr Wohlthat. The total underpayment owing to Dr Wohlthat was $55,969.11 over a period of five months and one week, including accrued but untaken annual leave and (contractual) redundancy pay. Dr Wohlthat was not paid at all during that period. The underpayments were rectified in full on 18 October 2016.[48]
[48] Liability Judgment at [53]; cf Second Lee Affidavit at [106], which states that the date of rectification was 21 October 2016.
During the five-month period that Dr Wohlthat was not being paid, Superlattice, through Mr Silverbrook, made repeated representations to him that he would shortly be paid. For example, on 22 March 2013, Mr Silverbrook stated, “Don’t be surprised if no money comes in today, the money is in the account and needs to be cleared, it will be paid in the next two or three weeks”;[49] and on 11 June 2013, Mr Silverbrook stated, “payment is supposed to be coming in, in two to three weeks’ time and you should be paid then. I am expecting to receive payments after putting in the company tax returns in July”.[50]
[49] Affidavit of Soren Wohlthat affirmed on 24 July 2015 (Wohlthat Affidavit) at [13]; Liability Judgment at [90]–[94].
[50] Wohlthat Affidavit at [17]; affirmed under cross-examination at Transcript, 07.03.2016 at page 32, lines 17-27, page 38.
The promises made, while no doubt reflecting a genuinely held belief, were shown to be hopelessly optimistic. Despite these assurances, no payment was received for the remainder of Dr Wohlthat’s employment. Dr Wohlthat’s email requests for clarification of when his entitlements would be paid also did not result in any payment being made.[51]
[51] Wohlthat Affidavit at [15] and [19]; annexure “SW-4”.
These contraventions were particularly serious because they concerned the non payment of minimum wages and indeed any entitlements at all, and occurred in circumstances where Dr Wohlthat took Mr Silverbrook at his word and thought that he would soon be paid his outstanding pay.[52] He eventually was but the delay was very substantial.
[52] Wohlthat Affidavit at [28].
Understandably, the non payment of wages had a significant impact on Dr Wohlthat. He and his wife were reduced to her income only, so that his wife had to pay rent and bills from her wage, and they delayed some important life decisions, including the purchase of a house and plans to start a family.[53]
[53] Wohlthat Affidavit at [30].
Dr Wohlthat was unemployed for a year after being made redundant by Superlattice because he was unable to find work.[54] His evidence was that if he had known that he was not going to be paid, he would have started looking for alternative employment at a much earlier time.[55]
[54] Wohlthat Affidavit at [29].
[55] Wohlthat Affidavit at [29].
The non payment of any entitlements over five months, coupled with communications that payment would shortly be forthcoming, and the significant impact upon Dr Wohlthat are serious matters in the assessment of an appropriate penalty.
Geneasys
As set out above, the Fair Work Ombudsman seeks the imposition of a penalty upon Mr Silverbrook, as the only respondent to the Geneasys proceedings. The underpayments totaled $362,972.97 in respect of five employees over a period of five months. These were not rectified before the company went into liquidation, although Mr Facer received a payment of $43,790.20 from the Commonwealth following a Fair Entitlements Guarantee (FEG) claim.[56] This did not satisfy all of Mr Facer’s unpaid entitlements, leaving a gap of about $18,601.85. There is also evidence from Ms Lee that Dr Moini received a partial FEG payment, though the precise amount is unknown.[57]
[56] In respect of Mr Facer, see affidavit of Geoffrey Facer affirmed 25 July 2015 (Facer Affidavit) at [30]; Transcript 08.03.2016, page 142.
[57] Affidavit of Ms Lee affirmed 16 August 2016 (First Lee Affidavit) at [71].
With the exception of one payment on 23 May 2013, Mr Facer was paid nothing from 11 March 2013 until he resigned on 5 July 2013.[58] As with employees of other companies, Mr Silverbrook promised that pay would be forthcoming.[59]
[58] Facer Affidavit at [12].
[59] Liability Judgment at [98], Facer Affidavit at [18].
As a result of the failure to pay his wages, Mr Facer experienced significant stress, health problems and financial difficulties.[60] He and his wife had no income for four months, had to significantly reduce their discretionary spending, including deferring health procedures and long-term maintenance of their car and apartment, and had to redraw from their mortgage.[61] Mr Facer suffered from inability to sleep for extended periods, and was diagnosed with externally-induced asthma in 2013, the symptoms of which subsided as soon as he secured new employment in November 2013.[62]
[60] Facer Affidavit at [31].
[61] Facer Affidavit at [32] – [33].
[62] Facer Affidavit at [35] – [36].
As with Priority Matters and Superlattice, the circumstances of the contraventions and the loss suffered by employees warrant serious consideration in the assessment of a penalty.
Silverbrook Research
As set out above, the Fair Work Ombudsman seeks the imposition of a penalty upon Mr Silverbrook and Ms Lee, as the respondents to the Silverbrook Research proceedings. The underpayments totalled $390,894.62 over a period of ten months, in respect of five employees. These were not rectified before the company went into liquidation.
The impact of the contraventions on the Silverbrook Research employees was serious. Mr McCarthy was unpaid for four months, until he resigned on 29 April 2013.[63] He found the period when he was unpaid extremely stressful, and regarded it as the worst period of his life.[64] From about March 2013,[65] he could not afford the rent on his home, had to move to a cheaper one-bedroom apartment, and incurred significant credit card debt to meet his expenses.[66] He had to return to the United Kingdom as he did not have a sponsor to continue living in Australia,[67] which was very upsetting to him.[68] He did not secure employment again until June 2015, as he could not find employment.[69]
[63] McCarthy Affidavit at [70].
[64] McCarthy Affidavit at [70].
[65] Transcript 08.03.2016, page 136 at lines 30-35.
[66] McCarthy Affidavit at [70].
[67] McCarthy Affidavit at [71].
[68] McCarthy Affidavit at [75].
[69] McCarthy Affidavit at [73] – [74].
Mr Harrison was also unpaid for four months, until he resigned on 16 July 2013. He continued working for Silverbrook Research in the period March to July 2013 despite not being paid because he could not see any other option as he wanted to remain in Australia but was employed under a 457 visa so could not easily move to another job in Australia, despite his attempts to find alternative employment.[70] He was the family’s sole breadwinner, and could not afford to pay his rent and so applied for orders from the Consumer Trader and Tenancy Tribunal to terminate his lease due to financial hardship in May 2013.[71] He had to take his children out of school because he could not pay the school fees (and under the terms of his 457 visa, his children were not permitted to attend public schools in Australia).[72] He was forced to sell his car and other personal belongings in order to raise enough money to return to the UK in June 2013, and when his family returned, they had to stay with family because they could not afford a place of their own.[73] He sold his family home in the UK in order to pay debts, and had only just paid off those debts as at October 2015.[74]
[70] Harrison Affidavit at [67].
[71] Harrison Affidavit [62]–[63], Transcript 09.03.2016, page 6, line 9 – page 13, line 9.
[72] Harrison Affidavit CB volume 2 tab 35 at [65].
[73] Harrison Affidavit CB volume 2 tab 35 at [66].
[74] Harrison Affidavit CB volume 2 tab 35 at [69].
The length of the contraventions, spanning ten months, is particularly serious, as well as the impact of the non payments upon Silverbrook Research employees. These matters are said to warrant the imposition of a significant penalty.
Mpowa
The total underpayments by Mpowa were the most substantial, amounting to $608,433.26 over a period of just under ten months, in respect of 17 employees. The underpayments were rectified in full on 20 October 2016.[75] Prior to that point, some rectification occurred.[76]
[75] Liability Judgment at [53]; cf Second Lee Affidavit at [106], which states that the date of rectification was 21 October 2016.
[76] In respect of Mr Wooldridge, see transcript 10.03.2016, page 25 at lines 9-16.
Ms Childs did not receive her salary from Mpowa from March 2013 until February 2014, and had to rely on her husband’s income to make mortgage repayments and support two children, which caused financial strain.[77] She continued to work for Mpowa in late 2013 because she wanted to ensure that Mpowa had assets to sell so that wages could be paid to all Mpowa employees.[78]
[77] Affidavit of Jane Childs 16 July 2015 (Childs Affidavit) at [40].
[78] Childs Affidavit at [34].
Mr Shepanski had to sell assets in order to provide himself with an income and was deprived of redundancy pay to cover a gap between jobs, in circumstances where he had to leave Mpowa through no fault of his own.[79] His evidence was that had he known that he would not be paid in full for work he performed from March to December 2013, he would not have worked for Mpowa during that period but would have attempted to find new employment.[80]
[79] Shepanski Affidavit at [36]-[37].
[80] Shepanski Affidavit at [38].
Mr Whitlock continued to work for Mpowa throughout 2013 because he believed, based on statements made by Mr Silverbrook, that funds to pay employees would become available.[81]
[81] Affidavit of Anthony Whitlock 18 November 2015 at [8].
Like the employees of Priority Matters and Superlattice, the employees of Mpowa were repeatedly assured that the underpayments would soon be remedied.[82] Mpowa employees were offered $10,000 if they continued to work despite the underpayment, which Mr Silverbrook conceded had not been paid at the time of the liability hearing.[83] There is no evidence that these incentives have ever been paid. Mr Silverbrook sent an email to Mpowa employees on 4 June 2013 in which he acknowledged that he had not told employees that a patent sale had not yet closed and that wages would be delayed.[84] In that email, he stated, “…I had mentally ticked off that I had informed you, when in fact I hadn’t. I was actually as surprised as you were to find out that I had not informed you of the delay. For this lapse, I extend my sincere apologies.” Mr Silverbrook conceded that staff had probably complained to him that he had not told them what was going on, and that was probably the reason he wrote the email.[85]
[82] See for example Exhibit CW-1 to Affidavit of Chris Wooldridge 30 July 2015 (Wooldridge Affidavit) CB tab 56, tabs 3, 12, 13.
[83] Exhibit CW-1 to Wooldridge Affidavit CB tab 56, tab 27; Transcript 11.03.2016, page 448 at lines 22-46.
[84] Exhibit CW-1 to Wooldridge Affidavit CB tab 56 subtab 5.
[85] Transcript 11.03.2016, page 432 at lines 12-35.
The circumstances in which the relevant conduct took place
The respondents seek to mitigate the impact of the above circumstances by reference to alternative or additional facts. The respondents place emphasis upon a broader range of circumstances in which the conduct took place. I accept that there is some (albeit limited) force in this aspect of the respondents’ submissions.
The current proceedings concerned around 50 of the 500 employees of the corporate respondents in 2012.[86] The wages and entitlements of the balance of these employees, who were 90 per cent of the workforce of the corporate employers, were fully paid in 2012.[87]
[86] Third Affidavit of Mr Silverbrook at [27].
[87] Third Affidavit of Mr Silverbrook at [27].
The non payment of wages and entitlements is said to be mitigated by the fact that many employees were on such high salaries that the amounts they were paid before the audit period exceeded their award or statutory entitlements. I accepted this at [46] of the Liability Judgment, finding:
… On the other hand, and as the respondents are at pains to point out, the contracts of employment of the employees in this case entitled them to substantially more than their award or statutory entitlements. When they were paid before the contravention period, they were paid more than those entitlements and, as further discussed below, the non payment of those entitlements during the contravention period were ultimately made good.
I went on to say at [56] of the Liability Judgment that this “may bear on penalty”.
The Fair Work Ombudsman submitted that the conduct was “not isolated” and that there is evidence that employees were not paid prior to the audit period. The respondents submit that it is not appropriate for the Court to consider any such “prior offending” when determining penalty in this proceeding given that the only evidence of prior offending is untested allegations that were not the subject of any investigation. As the Fair Work Ombudsman elected not to take proceedings in respect of any such contraventions (which are in any event denied), it cannot now seek to use them to increase the penalty imposed for the contraventions in relation to which it chose to proceed. In any event, the respondents note that Mr Silverbrook has deposed that until March 2012, all of the corporate respondents “had been operating without missing a salary payment to employees”.[88] This was quoted by this Court at [75] of the Liability Judgment.
[88] First Affidavit of Mr Silverbrook at [46].
I accept that submission. There is no evidence of any previous findings of contraventions of Commonwealth workplace laws by any respondent. The Fair Work Ombudsman acknowledges this in its submissions.[89]
[89] but see [92] below.
The respondents’ submissions otherwise provide limited material by way of mitigating factors.
Subject to my observations below, I take into account nevertheless the respondents’ submission as set out at [82]-[83] above.
That employees were paid above-award amounts prior to the audit period is not necessarily a mitigating factor. The employees did not trade away their Award or statutory entitlements and I do not accept that they were better off overall as a result of the respondents’ conduct by reference to those entitlements. Neither were the employees paid regularly. The employees should not have suffered loss at any point as a result of the respondents’ conduct.[90] The amounts paid to the employees are one aspect of the context of the conduct in which the following aspects must also be weighed in consideration alongside it: the large monetary amounts of underpayment, the non payment of wages and entitlements in their entirety over several months, and the impact upon the employees.
[90] see Fair Work Ombudsman v Lovely Care (No 2) & Anor [2020] FCCA 257 at [33].
In any event, not all employees were on salaries which significantly exceeded Award entitlements.[91]
[91] see for example, Tracey Dalton’s contractual versus minimum entitlements at Schedule A of the statement of claim in the Priority Matters Pty Ltd (Priority Matters) matter at page 22 and Hui Helen Tang’s contractual versus minimum entitlements at Schedule A of the statement of claim in the Priority Matters matter at page 31.
Further, the penalties sought by the Fair Work Ombudsman are sought in circumstances where the underpayments to the Geneasys and Silverbrook Research Pty Ltd (in liquidation) employees were not rectified and, given both entities have been liquidated, those employees will never receive their full entitlements. It is in these circumstances that the Fair Work Ombudsman has sought for any penalties imposed on Mr Silverbrook and Ms Lee in those matters to be paid to the Fair Work Ombudsman and then remitted to those employees in amounts proportionate to the underpayments outstanding to them.[92]
[92] Fair Work Ombudsman’s Outline of Submissions dated 22 February 2016 (Geneays) (Court Book, Volume 3, Tab 45); Fair Work Ombudsman Outline of Submissions dated 22 February 2016 (Silverbrook Research) (Court Book, Volume 3, Tab 45).
Previous similar conduct
The Fair Work Ombudsman acknowledges that none of the respondents have been previously the subject of concluded court proceedings for contraventions of workplace laws. I accept that this does not operate as a mitigating factor, but is rather, the absence of an aggravating factor.
Non payment caused by circumstances beyond the respondents’ control
The respondents submit that when considering the circumstances in which the contravening conduct took place, the Court should consider that:
a)the non payment by the corporate employers was due to circumstances beyond the control of the respondents; and
b)Mr Silverbrook and Ms Lee took all reasonable steps to try and effect payment of the employees’ entitlements throughout the relevant period, including applying and exhausting their own personal funds in the process.
The respondents submit that, when deciding whether to impose any penalty, the Court should place weight on the fact that the contraventions were the consequence of circumstances well beyond their control, including “that they were the victims of fraud”.
First, the extraordinary circumstances of a “multi-billion dollar commercial fraud” committed against the respondents which led to the last cohort of employees not receiving their entitlements in full was common across all proceedings.
In particular, Mr Silverbrook and Ms Lee were owed in excess of $36 million in the form of repayment of personal loans to companies controlled by Mr George Kaiser.[93] Recovery proceedings which might have been anticipated to enable them comfortably to fund the payment of employee entitlements were suspended indefinitely as a result of a referral to arbitrations in London and the USA.[94] The respondents note that Judge Street accepted this in [135]-[136] of the Primary Judgment and draw the Court’s particular attention to [135]:
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.
[93] Primary Judgment at [9].
[94] Primary Judgment at [136].
The respondents note that I made a similar comment at [114] of the Liability Judgment, stating that Mr Silverbrook and Ms Lee “were hardworking and apparently honest people caught up in adverse events beyond their control.”
I accept that Mr Silverbrook and Ms Lee (and their companies) lost out in the legal struggle with Mr Kaiser (and his companies). The fact is, however, that there were legal proceedings over that dispute and the resulting arbitration outcome was adverse to the respondents. The arbitration was beyond their control but they were not helpless participants. There was a process in which they could have ventilated their grievances and they could have sought to challenge the outcome if it had been obtained by fraud.
Secondly, Mpowa held a tax credit at the relevant time of $3,815,730.45.[95] That these funds were reasonably expected by Mr Silverbrook to be available imminently to pay the employee entitlements (and thus avoid the contraventions being committed by the corporate respondents) was accepted by Judge Street at [173] of the Primary Judgment:
I find on the material before the Court that the tax credits are likely to be made available by the ATO and will in fact be available for the payment of employees of both Geneasys and Mpowa. I also find that there would have been sufficient funds generated by Mpowa from the tax credit being repaid to Mpowa for Mpowa to obtain legitimate funding to assist payment of the outstanding entitlements in respect of the other respondents. I find that Mr Silverbrook would have taken steps to obtain such funding and would have caused the other outstanding entitlements to be paid.
[95] Primary Judgment at [23].
At [54] of the Liability Judgment, I indicated that the above matter may be relevant to penalty:
The respondents contend that all underpayments would have been rectified earlier (and further that there would have been no underpayments at all) if a sum approaching $4 million had not been retained by the Australian Taxation Office for around three years after that sum had been assessed as due to Geneasys and Mpowa. That is, in my view, irrelevant. The relevant fact is that the Corporate Respondents had no funds to pay their employees for an extended period. The reasons they were without funds are only relevant, if at all, to the issue of penalties.
(emphasis added)
While an attempt was made at the penalty hearing to draw a link between the conduct of the Fair Work Ombudsman (limited to the despatch in May 2014 of a single anodyne letter to the ATO) and the retention of the tax credits by the ATO, that attempt was unsuccessful. As is now clear there was a real dispute with the ATO over director penalties arising out of the conduct of Silverbrook Research.[96] That decision is subject to an appeal and I will say no more about it.
[96] Deputy Commissioner of Taxation v Lee (No 2) [2019] NSWSC 954.
Personal contribution by Mr Silverbrook and Ms Lee
I accept that any penalty imposed on Mr Silverbrook and Ms Lee should be mitigated by the fact that they were found to have applied and exhausted over $10,000,000 of their own personal funds in an attempt to try and meet the outstanding entitlements.[97]
[97] Third Affidavit of Mr Silverbrook at [27].
This was accepted by this Court at [83] of the Liability Judgment, where I stated:
…The primary judgment at [132] records his Honour’s finding that the Directors took all reasonable steps to try and effect payment of the employees’ entitlements throughout the relevant period, and that they applied and exhausted their own personal funds in their endeavours to ensure that the entitlements of employees were paid. I adopt that finding”.
Size and financial circumstances
Courts have emphasised that the financial size of a business, in isolation, is of limited relevance to the Court’s consideration of the appropriate penalty and the primary objective is that of general deterrence.[98] Penalties should be imposed at a meaningful level, irrespective of the employer’s size or financial position.[99]
[98] ACCC v Leahy Petroleum Pty Ltd (No 2) (2005) 215 ALR 281 at [9]; [32]-[42]; Jordan v Mornington Inn Pty Ltd (2007) 166 IR 33 at [99] per Heerey J, upheld on appeal in Mornington Inn v Jordan [2008] FCAFC 70 at [69] as “unimpeachable”; see also Kelly at [28]; Rajagopalan v BM Sydney Building Materials Pty Ltd [2007] FMCA 1412 at [27].
[99] See for example, Fair Work Ombudsman v Touchpoint Media Pty Ltd [2018] FCCA 2615 at [13] per Young J.
I accept that, under s.682 of the Fair Work Act, the Fair Work Ombudsman’s functions include monitoring compliance with the Fair Work Act and fair work instruments, inquiring into and investigating any act or practice that may be contrary to the Fair Work Act, and commencing proceedings in court to enforce it. Its taking of appropriate enforcement measures cannot be blamed for the respondents’ inability to rectify its underpayments more promptly, and it would be contrary to public policy for the simple intervention of a regulator in respect of contraventions to result in a lower penalty.
Deterrence
This is probably the most substantial area of dispute between the parties.
The need for specific and general deterrence is central to the imposition of a penalty under the Fair Work Act.[191] The primary purpose of civil penalties is to promote the public interest in compliance and to attempt to put a price on a contravention that is sufficiently high to deter repetition by the contravener and others who might be tempted to contravene.
[191] Commonwealth v Director, Fair Work Building Industry Inspectorate at [55], [110].
Specific deterrence is directed to ensure a contravener is not prepared to embark on the risk of reoffending.[192] In assessing the relevance of specific deterrence to appropriate penalties the Court should examine any remorse expressed by a respondent and any steps that they have taken to ensure no future breaches will occur.[193]
[192] AJR Nominees Pty Ltd at [50] per Gilmour J.
[193] Plancor at [37].
I accept that general deterrence is of importance in these proceedings. It is directed at ensuring that the penalty will act as a deterrent to others who might be likely to offend.[194]
[194] Ponzio at [93] per Lander J.
I accept that two facts are relevant to the question of general deterrence in these proceedings.
First, these proceedings involve significant underpayment. Underpayment of employees can allow employers to avoid tax obligations, such as income tax, and can also allow unscrupulous employers to undercut other employers who are paying their employees correctly. This is particularly so in industries where the largest business cost is labour, and there is therefore an incentive to reduce those costs in order to achieve a profit, contrary to workplace laws. This practice may force some employers to become unprofitable as they are not able to compete with the undercutting, which may result in job losses and other economic impacts. These considerations underline the need to deter other employers from contravening provisions such as these.
Secondly, the employees were not paid at all, for many months, in circumstances where the respondents encouraged them to believe that payment was imminent. It is important to set a meaningful penalty which will deter other employers who find themselves in difficult financial circumstances from requiring employees to continue to attend work and perform work in the hope of improving the employer’s financial position so that funds will become available to pay the employees. Payment for work is fundamental to the employment relationship, and the Court’s disapproval of practices whereby a company’s workforce is maintained on an unpaid basis, in order to improve the company’s financial position, should result in a meaningful penalty.
The Fair Work Ombudsman submits that, thirdly, in this case, the respondents required (or at least) encouraged the employees to become their financiers and to take the associated risks on their behalf. A clear message needs to be sent to the public that employees’ entitlements are not negotiable regardless of insolvency or nearing insolvency of the company.[195] There is no justification for avoiding employee entitlements by arguably trading while insolvent or delaying administration or liquidation. The Fair Work Ombudsman submits that the Commonwealth safe harbour reforms bespeak the incorrectness of that position. While I accept the statement of principle, in this case I find that, at the relevant time, Mr Silverbrook and Ms Lee genuinely believed that the corporations were solvent.
[195] Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722 at 733 (Street CJ, with whom Hope and McHugh JJA agreed).
The need to ensure compliance with minimum standards
It is an important consideration in this case that the contraventions represent a failure to afford the employees their most fundamental entitlements under the Fair Work Act and the relevant Awards. The purpose of the Fair Work Act is to provide a safety net of minimum entitlements. Prolonged contraventions of these basic entitlements undermine the workplace regime as a whole and display a disregard for the respondents’ statutory obligations. It is important to ensure compliance with modern awards to create a level playing field and ensure all employees are appropriately remunerated for the work they perform.
The substantial penalties set by the legislature for breaches of such minimum entitlements reinforce the importance placed on compliance with minimum standards. Ordering penalties at a meaningful level encourages compliance with these standards and allows the Court to show that there are consequences for failing to comply with them.
Specific deterrence
The respondents submit that it is apparent from the respondents’ financial situation that there is no risk of them reoffending. In that regard, Mr Silverbrook deposed that “the absence of any employees in the future means that the unfortunate chain of events that has occurred since 2010 has no chance of recurring.”[196] Similarly, Mr Silverbrook has executed a deed committing never to be a director of another Australian company.[197]
[196] Third Silverbrook Affidavit at [260].
[197] Exhibit JL- 6 to Second Lee Affidavit, page 81.
Accordingly, it is said to be not necessary for the Court to set any penalties for the purpose of specific deterrence in this case. I accept that the issue of specific deterrence has minimal weight in this case.
General deterrence and publicity
The respondents also submit that the important principal of “general deterrence” has been satisfied in this case without need of pecuniary penalty. This is said to be because any “general deterrence” value that could be gained by imposing penalties on the respondents has already been achieved by the Fair Work Ombudsman publishing press releases referring to proceedings that were used as a basis for various online publications including: [198]
a)“More suits for inventor ‘owing workers $1.8m’” published in The Australian on 17 July 2014;
b)“Sydney businessman already in court accused of underpaying staff an additional $1.8 million’ published by Smart Company on 16 July 2014;
c)“Memjet Inventor facing court for wage underpayments” published by ProPrint on 15 April 2014;
d)“Businessman, Companies Face Court for Allegedly Underpaying Staff $870,000” published by the Fair Work Ombudsman on 3 April 2014; and
e)a tweet by Ewin Hannan on 16 July 2014 that “@NatJamesFWO says new court action against Kia Silverbrook, alleging he involved in underpaying 22 workers over $1.8m.”
[198] Annexure JL-7 (Page 21-29) of First Lee Affidavit.
These articles are said to be adverse to the respondents because they fail to mention that Mr Silverbrook and Ms Lee took all reasonable steps to effect payment of the employees’ entitlements throughout the relevant period, and that they applied and completely exhausted their own personal assets in their endeavours to ensure that the entitlements of employees were paid (as found by this Court). Additionally, the ProPrint article is said to incorrectly refer to a “successful application against another Silverbrook business, Precision Mechatronics”[199] when Mr Silverbrook was not involved in Precision Mechatronics.[200]
[199] Annexure JL-7 (page 26) to First Lee Affidavit.
[200] Third Silverbrook Affidavit at [201].
I accept that the impact of media coverage will operate to mitigate the penalty where the effect of the media coverage has been “adverse”.[201] As discussed below, I do not accept that the media coverage has been adverse in the relevant sense.
[201] Fair Work Ombudsman v QHA Foods Pty Ltd & Ors [2019] FCCA 3120; NSW Motel Management;Fair Work Ombudsman v ITAL One Holdings Pty Ltd & Anor [2019] FCCA 187.
Also in relation to general deterrence, the respondents submit that the Court has already made declarations sought by the Fair Work Ombudsman regarding the contraventions.
I accept the Fair Work Ombudsman’s submission that, while specific deterrence does not loom large as a consideration in determining penalty in the circumstances of this case, it does not follow that the need for general deterrence can be disregarded.[202]
[202] Kelly at [28].
Contrary to the respondents’ submission, general deterrence has not been achieved by the publication of press releases in the proceedings.[203] Two media releases published by the Fair Work Ombudsman in connection with the proceedings are in evidence, as follows:
a)release headed “Businessman, companies face court for allegedly underpaying staff $870,000” dated 3 April 2014;[204] and
b)release headed “Businessman faces further legal action for allegedly underpaying staff $1.8 million” dated 16 July 2014.[205]
[203] Respondents’ submissions at [63].
[204] Tab 11 to Exhibit KS-1 to the affidavit of Kia Silverbrook affirmed 5 February 2016; tab 66 of Exhibit JL-4 to the affidavit of Janette Lee affirmed on 23 March 2018, page 454.
[205] Tab 3 to Exhibit JL-1 to the affidavit of Ms Lee affirmed 5 February 2016; CB tab 62.
It is appropriate for the Fair Work Ombudsman to issue press releases upon the institution of legal proceedings. Media coverage from the issue of such press releases will not ordinarily operate as a mitigating factor, and ought not do so in the circumstances of this case.
In Fair Work Ombudsman v AJR Nominees Pty Ltd (No 2)[206] Gilmour J accepted that the media coverage which had taken place in that case would have had some negative impact upon the respondents both commercially and personally, but nevertheless did not regard that as a mitigating factor, citing it as “a common incident of the kind of unlawful conduct involved in this case”.[207] His Honour stated at [47]:
Indeed, the publication of information about compliance activities is an important part of the applicant’s role as a regulator of workplace laws. A statutory function of the applicant is to promote compliance with the Act. Publicity of penalty proceedings is intended to deter others from contravening workplace laws.
[206] [2014] FCA 128.
[207] At [46].
His Honour then cited with approval the following statement from me in Fair Work Ombudsman v Cleaners NSW Pty Ltd[208] at [25]:
…Actions taken by the Fair Work Ombudsman to enforce compliance with the Workplace Relations Act are taken in part to create publicity in order to achieve a normative effect upon the behaviour of employers. That is appropriate. That publicity is no doubt an embarrassment to the company and that embarrassment is a penalty in itself. The bringing of proceedings in the court, and the publicity attending those proceedings, are part of a general process for deterring contraventions of the Workplace Relations Act.
[208] (2009) 186 IR 467.
The above passages were cited with approval in Fair Work Ombudsman v NSW Motel Management Services Pty Ltd & Ors (No 2)[209] at [113]–[114], a decision relied upon by the respondents in their submissions. The impact of media coverage will only operate to mitigate the penalty where the effect of the media coverage has been “adverse” in the limited sense of being unfair or incorrect.[210] Media coverage which is not unfair, inaccurate or misleading should not be taken into account as a factor mitigating against the grant of relief the Court might otherwise order in the circumstances, as the publicity is the mere and foreseeable consequence of the conduct engaged in.[211]
[209] [2019] FCCA 2638.
[210] Merringtons at [59]-[61].
[211] Cousins at [65].
I accept the Fair Work Ombudsman’s submission that there is nothing adverse about the press releases, in the sense of being unfair or incorrect, and the only identified inaccuracy in the media articles cited was the reference to Precision Mechatronics being a Silverbrook business when, according to Mr Silverbrook’s evidence, Precision Mechatronics Pty Ltd was a supplier to his companies of which he was not a director, manager, officer or shareholder.[212] Nevertheless, Ms Lee, Mr Silverbrook’s wife, was a director of the company until 16 March 2012.[213] The article stated that: [214]
The wind-up application against Geneasys was supported by two of the company’s creditors, totalling $2m in statutory demands, and another successful application against another Silverbrook business, Precision Mechatronics, was supported by 46 creditors.
[212] Affidavit of Kia Silverbrook affirmed on 16 March 2018 at [201].
[213] Hurrell Affidavit at [5]; tab 1 of Exhibit AKH-2.
[214] First Lee Affidavit, Annexure JL-7, page 26.
There is no reference to Precision Mechatronics in the Fair Work Ombudsman’s press releases. In any event, the inaccuracy regarding Precision Mechatronics was with respect to a wind-up application rather than any alleged contraventions the subject of these proceedings, and so cannot be considered to contribute to a cumulative punishment.
Nor will declaratory relief of itself serve a general deterrent purpose.[215] As set out above, it is necessary to “put a price” on a contravention so that it is not viewed as a mere cost of doing business by others who may be tempted to contravene the Fair Work Act.
[215] Respondents’ submissions at [66].
Totality
This factor in my view has rather more work to do in the present case than would normally be the case.
After undertaking the assessment of a penalty for each contravention, the final step for the Court is to look at the aggregate penalty to determine whether it is a proportional response to the contravening conduct and that it is not crushing or oppressive,[216] although it must nevertheless bear relativity to the seriousness of the conduct engaged in by the respondents.
[216] Merringtons at [23] per Gray J, [71] per Graham J, [102] per Buchanan J. See also Kelly at [30].
Taking into account all of the above matters, the Fair Work Ombudsman submits that the penalties which are appropriate, are as set out in the tables at Annexure B.
The Fair Work Ombudsman submits that its proposed penalties strike an appropriate balance between the seriousness of the conduct and amounts which are not crushing or oppressive.
In contrast, the respondents submit that in the application of the totality principle there should be no penalty at all imposed.
In regards to totality of penalty, the respondents refer to Lander J’s comments at [93] in Ponzio that “the penalty should not be such as to crush the person upon whom the penalty is imposed or used to make that person a scapegoat”. The respondents submit that it is clear from the evidence that the imposition of monetary penalties on the respondents could “crush them” due to their perilous financial situation and be very unfair on account of Mr Silverbrook and Ms Lee already applying over $10,000,000 of their own personal funds towards meeting employee entitlements. Instead, the respondents submit that the making of declarations, together with the respondents having made good the non payment of employee entitlements in 2016, is sufficient in circumstances where, as I found at [114] of the Liability Judgment, Mr Silverbrook and Ms Lee were “hardworking and apparently honest people caught up in adverse events beyond their control”.
The Fair Work Ombudsman contests the submission that the penalties sought could “crush” them. While the totality principle demands consideration of whether the aggregate penalty is proportional to the contravening conduct and is not crushing or oppressive, it does not follow that a penalty that would cause respondents financial difficulty, or at the most extreme end of the spectrum, insolvency, flouts the totality principle. The Fair Work Ombudsman submits that, even though a penalty of sufficient magnitude to ensure general deterrence may in some cases be so great that the contravener will become insolvent, that possibility “must not prevent the Court from doing its duty for otherwise the important object of general deterrence will be undermined”.[217]
[217] ACCC v High Adventure Pty Ltd [2006] ATPR 42-091 at 44,564 [11]; see also Federal Commissioner of Taxation v Arnold (No 2) (2015) 100 ATR 529 at [200]-[204].
Provided a penalty is required in order to secure deterrence it will not be oppressive merely because it also imposes a significant burden, even a very significant burden, on the contravenor, as “a penalty that is no greater than is necessary to achieve the object of general deterrence will not be oppressive”.[218] It will only be oppressive when it goes beyond what could be seen as necessary and appropriate for deterrence purposes.
[218] see Leahy Petroleum at [9]; Arnold at [204]; Mobilegate at [36].
Secondly, the respondents’ submissions emphasise that they have made good the employee entitlements. The Fair Work Ombudsman submits that Geneasys and Silverbrook Research did not make good the entitlements owing to those employees, being in liquidation. In any event, the fact that the contravening conduct has now been rectified, years after it occurred, is said not to negate the need for the imposition of a penalty. Rectification of that nature does not have a general deterrent effect, as insufficient disincentive is offered to other employers by the possible commencement of proceedings against them culminating in declarations and orders that they make good the underpayments, years after the fact. Such a submission is said to ignore the fact that the very purpose of civil penalties is to secure deterrence.
I have formed the view that Mr Silverbrook is an entrepreneur with vision and determination and that he was ably assisted by his wife, Ms Lee. He failed in his business but this was despite his best efforts, not because of them. In the Liability Judgment I accepted that Mr Silverbrook and Ms Lee were honest and hardworking people. The business failed because of a cashflow crisis consequential upon the adverse outcome of the legal dispute between the respondents and the Kaiser group of companies.
The established breaches of the Fair Work Act came about because of the failure of Mr Silverbrook and, to a lesser extent Ms Lee, to recognise or accept that the business had failed. Mr Silverbrook in particular remained convinced that the business could be saved and sought the forbearance of his employees in attaining that objective. Mr Silverbrook and Ms Lee put that objective above their statutory and Award obligations to their employees. Some of those employees may have been willing participants in that quixotic quest, at least for a time. Others were certainly not. Whatever the case, the attempts by Mr Silverbrook and Ms Lee to save their business rather than pay their employees inevitably resulted in breaches of the Fair Work Act for which I have found they are liable. They did not set out to breach the Fair Work Act but they knew what they were doing and the breaches are the inevitable consequence of the choices they made. The breaches were numerous and serious and had severe consequences for the affected employees.
In these circumstances, it is impossible to avoid the imposition of penalties, both on the corporate respondents and on the individual respondents. The Fair Work Ombudsman seeks penalties in the mid range. In my view, having regard in particular to the totality principle, a mid range set of penalties is too high. The respondents’ business now lies in ruins. The imposition of penalties will only serve to make the rubble bounce. By that I mean that specific deterrence is not a factor of significance in this case and high to mid range penalties would have a crushing effect on all of the respondents, in circumstances where Mr Silverbrook and Ms Lee have ensured, as best as they are able, that the entitlements of the employees of the companies they control were paid. The largely successful efforts by Mr Silverbrook and Ms Lee to pay the employee entitlements which were outstanding at the time of the first liability hearing deserve recognition.
These considerations lead me to the view that penalties should be fixed at the lower range rather than at the mid range. I have decided to award penalties at half the rate sought by the Fair Work Ombudsman.
Conclusion
I have concluded that the companies not in external administration, Mr Silverbrook and Ms Lee should pay penalties at the lower end of the scale. Given the economic disruption cause by the COVID-19 pandemic the respondents should have an extended period of time in which to pay the required penalties. Further, as noted in these reasons, Mr Silverbrook should receive the benefit of any payments he makes personally in respect of the penalties owed by the companies he controls. I will make orders for the payment of penalties consistent with these reasons.
I certify that the preceding two hundred and eight (208) paragraphs are a true copy of the reasons for judgment of Judge Driver
Associate:
Date: 18 June 2020
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