FWO v Lufra Investments Pty Limited - [2010] FMCA 955

FEDERAL MAGISTRATES COURT OF AUSTRALIA

FWO v LUFRA INVESTMENTS PTY LIMITED & ANOR

[2010] FMCA 955

INDUSTRIAL LAW – Alleged contraventions of Workplace Relations Act 1996 (Cth) – failure to pay wages, annual leave and superannuation – alleged entitlement of employer to set off sums for board and lodging – failures to keep records and other ground breaches – denial of liability of second respondent considered.

Workplace Relations Act 1996, ss.182(1), 189(1), 235(2)

Poletti v Ecob (1989) 91 ALR 381
Yorke v Lucas (1985) 185 CLR 661
Quinlivan v ACCC (2004) 160 FCR 1

Applicant:

FAIR WORK OMBUDSMAN

First Respondent:

LUFRA INVESTMENTS PTY LIMITED (A.C.N. 107 791 104)

Second Respondent:

JOHN SHEPLEY

File Number:

LNG 44 of 2009

Judgment of:

Burchardt FM

Hearing dates:

13 & 14 October 2010

Date of Last Submission:

14 October 2010

Delivered at:

Melbourne

Delivered on:

14 December 2010 (Via Video Link to Hobart)

REPRESENTATION

Counsel for the Applicant:

Mr J. Zeeman

Solicitors for the Applicant:

Zeeman & Zeeman

Counsel for the Respondent:

Mr M. O’Farrell S.C.

Solicitors for the Respondent:

De Korte Lawyers

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT HOBART

LNG 44 of 2009

FAIR WORK OMBUDSMAN

Applicant

And

LUFRA INVESTMENTS PTY LIMITED (A.C.N. 107 791 104)

First Respondent

JOHN SHEPLEY

Second Respondent

REASONS FOR JUDGMENT

Introductory

The applicant seeks declaratory and other relief arising out of the employment of Marie and Stanley Adness by the first respondent and the alleged failure of the respondents both to comply with the law and to pay them their entitlements.
The respondents, in part, admit contravening the relevant industrial law and/or industrial instruments but deny that they are obliged to pay the Adnesses anything.
The second respondent, additionally, asserts that he was not involved in the unlawful actions of the first respondent in the manner proscribed by the relevant legislation.
For the reasons that follow I think the applicant has made out his case against both respondents and I will hear further from the parties as to what should follow from this conclusion.

The facts

This unusual case cannot be understood without a recitation of the relevant facts.
In 2004, Mr and Mrs Adness had some discussions with Judith Holland about the possibility of them moving from Queensland, where they then lived, to Hobart and working at the Lufra Hotel.
Further to those discussions, Mrs Holland suggested that Mr and Mrs Adness visit the Lufra Hotel and consider whether they would like to work there, which they did in about September/October 2004.
Following that meeting, Mr and Mrs Adness arranged to meet Mrs Holland in Brisbane to discuss working at the Lufra Hotel. Both Mr and Mrs Adness set out a relatively detailed history of the negotiations which was not traversed in any detail by Mrs Holland’s answering affidavit.
Both Mr and Mrs Adness were called to give evidence and were cross-examined. They were excellent witnesses who were clearly telling the truth.
Following the meeting in Brisbane to which I have referred, Mrs Holland wrote to the Adnesses on 26 October 2004 setting out some of the matters which had been agreed.
Relevantly, the letter said:
“So the offer as I understand at the moment is a money package of $80,000 per year with expenses of living in the hotel for 6 months all meals etc, use of the facilities to be included, plus SGC and 4 weeks annual leave.
I am not sure how days off etc would work out but I think it would be heaps of days off in the winter and hard work in the summer.
We would like as a family to have a weekend off once a month, and i see you would take care of the place then.”
It is clear from the uncontradicted evidence of Mr and Mrs Adness that additional to the matters recorded in that letter there had also been discussion of some sort of project whereby it was intended that a house would be built in Tasmania for Mr and Mrs Adness to live in. This was contemplated, it appears, as a sort of joint project, and took place in a framework where it was agreed, according to Mr and Mrs Adness, that the property to be built would be sold after some 3 years and the profits split equally between the parties.
Having seen Mr and Mrs Adness give their evidence (Mrs Holland was called but was not cross-examined), I suspect that the proposal about the property was more firmly fixed in their minds than it was in that of Mrs Holland.
Both and Mr and Mrs Adness commenced to work at the Lufra Hotel in December 2004, albeit that Mr Adness started slightly later.

Mrs Adness was a residential housekeeper and Mr Adness was employed as a performer and to otherwise assist. Mr Adness was to travel to and from Brisbane to adjust the Adnesses affairs for some months but it is clear to me that he commenced his employment in December 2004.
The letter appointing them had referred to the possibility of return to Brisbane at the end of three years but there was clearly no fixed-term contract. Although the defences pleaded a fixed term contract, that assertion was abandoned by a joint memorandum addressed to the Court from the parties dated 11 October 2010.
The circumstances in which Mr and Mrs Adness found themselves living were scarcely satisfactory. They had a small room only in the hotel itself. It is clear from their evidence that this caused them considerable strain.
The proposed development of the property did not progress and, scarcely surprisingly, Mr and Mrs Adness became concerned.
The six-month rent-free period referred to in the letter of October 2004 clearly expired without comment in the sense that they simply overheld. Mrs Adness has given evidence on affidavit, about which she was not challenged, that disagreements with Mrs Holland about where they were going to live started to become more frequent as 2005 went on. They had a significant argument in about mid 2005.
Mrs Adness says that not long after that argument Leonie Brooks, who worked as the hotel’s receptionist, approached her and told her that she had spoken to Mrs Holland and that on Mrs Holland’s instructions, Mr and Mrs Adness were to work two extra hours a day to cover their board and keep in the hotel. Mrs Adness deposed that she told Leonie that this arrangement would be acceptable to her husband and herself. Mrs Adness deposes that she told her husband of this arrangement and that they did in fact work the two extra hours per day. They continued to live at the hotel until they resigned from their employment in December 2007. This evidence was not the subject of challenge.

I will return to Ms Brooks’ evidence later.
Although it is not entirely clear on the materials, it seems that the hotel (ie, the first respondent) was run by Mrs Holland as a family affair initially. By December 2006, however, according to Mr Shepley’s materials, he had started to be an investor in the first respondent and by August 2007 he was managing director. According to unchallenged evidence in Mrs Adness’ affidavit (paragraph 43), Mr Shepley met her and her husband and told them he was the new managing director of the company that owned the Lufra Hotel.
Mr Shepley has asserted, both in his further amended defence and his affidavit material, that he is a member of the Queensland Bar with extensive experience in industrial relations matters.
In July 2006, the Adnesses were the subject of a 20 per cent reduction in salary for 3 months imposed by Colin Hoskey on behalf of the first respondent and scarcely surprisingly the Adnesses were not happy. They were living in very cramped and unsatisfactory accommodation, nothing had happened about their proposed joint property venture and they were working very long hours. They endeavoured to give notice of resignation on a number of occasions but did not follow through.
On 30 August 2007, Mr Shepley wrote to Mr and Mrs Adness stating that, amongst other things, there was no three-year term to their employment and that their employment could finish on 17 September 2007. For reasons undisclosed in the affidavits or oral evidence, that did not occur. Further discussion appears to have taken place between Mr Adness and Mr Shepley in November 2007 pursuant to which the Adnesses decided they would continue to work until February 2008.
Although the pattern of events is somewhat confusing, it is clear that Mr and Mrs Adness, on 29 December 2007, effectively walked off the job.
On 30 December 2007, the Adnesses agreed to meet Mr Shepley who asked them if they would be prepared to return to the Lufra Hotel for a bit longer, particularly to cover a New Year’s Eve function at which it was hoped that Mr Adness could perform. They refused and indicated that they wished to be paid their outstanding entitlements. They were living in a caravan park at the time.
On or about 1 January 2008, Mr Adness spoke with Mr Shepley and asked when his and his wife’s outstanding entitlements would be paid to which Mr Shepley responded by indicating he would write them a letter. That letter was dated 4 January 2008 and arrived no doubt shortly thereafter.
The letter accused Mr and Mrs Adness of abandoning their employment and went on to say, “in light of the above I would require you to treat this letter as one of demand for the breach of contract and ensuing foreseeable damages.”
Damages alleged included lack of agreed notice for two months in the total of $13,333 and a total of damages asserted to be $20,013. The letter, however, also indicated wages owing to 28 December 2007 were $6,666.66 and annual leave owing to the same date of $5.589.89.
The letter went on in effect to demand payment within 14 days.
Mr and Mrs Adness moved back to Brisbane in mid January 2008 as they could no longer afford to wait to be paid their entitlements. On

1 February 2008 both Mr and Mrs Adness wrote to Mrs Holland formally seeking payment of their entitlements. This was subject to a reply by Mr Shepley on 1 March 2008. This asserted an indebtedness of $21,000 on the part of Mr and Mrs Adness to the first respondent and asserted that they had been in a net position of $1,300 per month’s pay greater than what was provided by the relevant Award. (The letter appears to have referred to the wrong award but the defences now expressly concede that the award was the Hospitality Industry – Accommodation, Hotels, Resorts and Gaming Award 1988).
Given this impasse, it is no surprise that the matter was referred to the applicant. An extensive process of discussions took place between the parties, set out in some considerable detail in the defences and

Mr Shepley’s affidavit material, but that is not in my opinion of any great moment at this stage although it may have some part to play when the issue of penalty is visited. In the ultimate, the parties came to Court to try to resolve their difficulties.

The issues

The matters in dispute between the parties or otherwise raised by the proceeding, bearing in mind matters actually agitated at trial, are as follows.
a)The failure of the respondents to pay Mr and Mrs Adness each $3,333.33 for the work they performed from 1 to 29 December 2007 (breach of s.182(1) of the Workplace Relations Act 1996 (“the WR Act”).
b)Failure to pay the Adnesses on a fortnightly basis pursuant to the ACPS (breach of s.189(1) of the WR Act).
c)Failure to pay Mr and Mrs Adness for untaken accrued annual leave on termination (breach of s.235(2) of the WR Act.
d)Breaches of the award pre 27 March 2006 by failing to pay fortnightly (37 such breaches alleged).
e)Beaches of the award pre 27 March 2006 and the post – reform award thereafter by failing to keep daily record of hours worked (these are admitted).
f)Failure to pay superannuation contributions pursuant to clause 25(5) of the pre-reform award.
It should be noted that on 26 October 2009 the first respondent paid each of Mr and Mrs Adness all but about $300 of the outstanding pay and all of the outstanding superannuation.
The list of matters in dispute follows the format set out in the annexures to the applicant’s written submissions and it is convenient to take each matter raised in turn.

Failure to pay Mr and Mrs Adness for work they performed in December 2007 – breach of s.182 of the WR Act

The submissions made both orally and in writing on behalf of the respondents appear to have abandoned the pleaded defence that the cessation of the Adnesses employment was in breach of a contractual term.
Accordingly, prima facie, Mr and Mrs Adness are entitled to be paid for the time that they worked.
Were it necessary to do so, I would find that the behaviour of the first respondent to Mr and Mrs Adness over the period of their employment would well have justified their summary departure. The admissible materials filed describing various acts on behalf of the first respondent, predominantly but not universally engaged in by Mrs Holland, would reasonably have grounded a conclusion on the part of Mr and Mrs Adness that the first respondent was in fundamental breach of the contract between them, which breach they accepted by departing.
As I make clear, this pleaded line of argument was not pressed by the respondents before the Court.
What was pressed, not just in regards to this claim but all money claims made by the Adnesses, was the argument as to set-off. As the argument traverses all the areas of controversy I will return to it separately.

Frequency of payment post 27 March 2006 – breach of s.189 of the WR Act

Paragraphs 9 to 15 of the statement of claim set out the way in which the award, the pre-reform award and the preserved APCS, came into existence. These are all matters agreed expressly in the defences of the respondents. One of the matters pleaded is that the preserved APCS was derived from the award and at all times material included “frequency of payment provisions.”
The statement of claim goes on at paragraphs 21 to 23 to plead the breaches set out in schedule B to the written submissions of the applicant. The defences deny those paragraphs but effectively plead only the set-off.
It is not clear to me, given the very sketchy submissions made by both sides about this matter, quite why it is put that the guarantee contained in s.189 of the WR Act has been infringed. I will seek further submissions from the parties about this aspect of the matter.

Failure to pay employees untaken accrued leave on termination – breach of s.235(2) of the WR Act

I accept that the Adnesses were owed 268.92 hours of annual leave between them in respect of annual leave at the time their employment ended. This much was not contested. I accept that they were not paid that annual leave at the time that their employment came to an end. They were therefore owed $2,201.16 (Mr Adness) and $2,970.39

(Mrs Adness) respectively. I would wish to hear further submissions, however, as to whether this is taken to constitute a contravention of s.235(2) of the WR Act as the sums were ultimately paid.

Frequency of payment pre 27 March 2006 – breach of clause 21 of the award

Until 27 March 2006, the award undoubtedly applied and clause 21 of that award provided for a maximum periodicity of payment of two weeks. It is clear that this was contravened successively between December 2004 and 27 March 2006. The contraventions of the award are plainly made out. There will be a declaration to this effect.

Failure to keep daily records of hours worked – breach of clause 22 of the award and of the pre-reform award

This matter is not denied by the respondents and plainly there should be declarations in the terms that the applicant seeks.

Failure to pay superannuation contributions – breach of clause 25.5 of the pre-reform award

Here it is clear that the pre-reform award required the respondent to pay superannuation pursuant to the legislation and there is no dispute that at least until 26 October 2009, the moneys owing to Mr and Mrs Adness were not paid. That was plainly in contravention of the pre-reform award itself.
The real argument here, once again, as with annual leave, was the set-off arguments.

Set-off arguments

This, together with issues as to the extent of responsibility of the second respondent, was where the battle raged. In essence, the respondents’ position was that they were entitled to set-off, against each and every claim brought by Mr and Mrs Adness, deduction for their board and lodging after the first six months of their employment.
Clause 35 of the award reads relevantly as follows:
“35.1 Right to make deductions.
When an employer provides his or her employees with accommodation, meals or both then the employer may deduct an amount of money from the employee’s wages in accordance with this clause.”
The clause goes on to set out sums per week that may be deducted. It is clear that if the employer was entitled to make such deductions for any of the various periods of time with which we are concerned, then the amounts so engendered would indeed exceed the claims brought by Mr and Mrs Adness.
At this point it is necessary to return to what actually happened and determine the dispute as to what should be made of the evidence about Ms Brooks.
Both sides adopted the position, correct in my opinion, that if Ms Brooks told Mr and Mrs Adness to work two extra hours a day to pay for their board and lodging, the question that then arose was whether it was within her apparent or ostensible authority to do so.
Mrs Adness’ evidence has already been paraphrased in paragraph 19 above. She stuck to this evidence convincingly under cross-examination.
Ms Brooks was called, and although she could recall heated conversations between Mrs Adness and Mrs Holland she was unable to recall what it was about. In summary it is fair to say that Ms Brooks simply does not recall whether or not she spoke to Mrs Adness in terms to which Mrs Adness has deposed both in her affidavit and in her evidence given orally. Ms Brooks impressed me as a thoroughly honest witness as, I have already made clear, did Mrs Adness.
It is scarcely surprising that Mrs Adness should have a clearer recollection. From the point of view of Ms Brooks she was merely a go-between passing on a message on behalf of a third party. From the point of view of Mrs Adness, however, this impacted in a direct and significant way upon her circumstances. She has deposed without challenge that she and her husband worked an extra two hours a day for a considerable period of time thereafter as a result of it. I believe

Mrs Adness.
I find that Ms Brooks did indeed say what Mrs Adness says she said even though she did not remember it.
Given that Mrs Holland denied having said anything to that effect to Ms Brooks, and given that she was not cross-examined, the question is what authority Ms Brooks might have.
Ms Brooks was plainly in a subordinate position, at least to Mrs Adness and I would infer to Mr Adness also. Nonetheless, the evidence establishes, as indeed is conformal with commonsense, that during periods of time when relations between Mrs Holland and Mrs Adness were strained, it was Ms Brooks who acted as the go-between.
These acts could only have been undertaken with the authority of Mrs Holland. In the circumstances, the pattern revealed by Mrs Adness’ evidence, which I accept, plainly establishes in my view in the particular circumstances that Ms Brooks did have apparent or ostensible authority to say what I find she did say to Mr and Mrs Adness. Whether Ms Brooks misunderstood Mrs Holland, as is very probable, or whether she simply made it up herself for reasons unknown, the fact is Mr and Mrs Adness were told, by Ms Brooks, to work extra time to pay for their board and lodging and did so.
Given this factual finding, in one sense all the arguments about set-offs simply do not arise. It would not be open to the employer to rely upon clause 35 of the award in circumstances where an arrangement had been entered into pursuant to which the employees were already contributing to the cost of their keep in any event.

However, it is also appropriate to deal with the other arguments raised by the parties in this regard.
I should say straight away that as I construe clause 35, the employer’s right to deduct for accommodation expenses and the like is not one that can be kept in abeyance for years and then used in the fashion in which the respondents now seek to.
Where pay is accruing on a periodic basis, it is open to the employer to deduct amounts of money pursuant to clause 35 on a similar periodic basis. I note that payment can only be deducted “from the employee’s wages” and that payment can only be deducted “in accordance with this clause.”
It is quite clear that no moneys were ever deducted from time to time from the Adnesses’ wages and it is as a matter of first principles completely inappropriate to contemplate such deduction now.
Furthermore, in my view, the best that would ever have been open to the employer would have been to deduct or more accurately set-off against claims for wages owed.
I do not think that Poletti v Ecob (1989) 91 ALR 381 is of assistance to the respondents in this regard. Poletti v Ecob was, of course, a case dealing with circumstances where an employer seeks to bring in overall payments made and off-set them against award entitlements. Here it is not a question of moneys paid but rather of moneys allegedly open now to be deducted.
In any event, however, Poletti v Ecob found, relevantly, that:
“(iii) Where there is a private contract between parties for purposes outside an award, an employee cannot afterwards say that payments made pursuant to that contract were in satisfaction of award entitlements outside the agreed purpose of the payments.
Furthermore where outstanding award entitlements are owing to the employee and the employer pays a sum to the employee for purposes other than satisfaction of the award the employee cannot afterwards claim to have thereby met award obligations.”
What Poletti v Ecob seems to me to establish is that while an employer can off-set moneys paid, if undifferentiated, against any claim for wages, whether overtime or allowances and the like, an employer who has allocated a payment to a particular purpose cannot then rely on it to satisfy any other obligation.
Here, the moneys paid to Mr and Mrs Adness were clearly paid as wages and (inferentially) overtime. They were not intended to satisfy payments for annual leave, still less for superannuation.
In the circumstances I do not think it would be open to the respondents to set-off against any claims, save that for outstanding wages for time worked, and I have already found against them on this point in any event.
So far as superannuation is concerned, it would not in my opinion be open to an employer to set-off and entitle it to deduct board and lodging against the statutory obligation to pay superannuation. The two payments are of a fundamentally different character and I think that the respondents’ position in this regard is simply misconceived.

The responsibility of the second respondent

Mr Shepley is a practising barrister with wide experience in the industrial relations field (affidavit of Juanita Keenan paragraphs 9(ii) and (iv)). He has expressed in his defence embarrassment at some aspects of his conduct of the proceeding.
Counsel for Mr Shepley submitted that he should not be held to have been involved with the actions of the first respondent pursuant to s.182 and s.235 of the WR Act.
Both sides referred to Yorke v Lucas (1985) 185 CLR 661 in this regard. That case was further considered in Quinlivan v ACCC (2004) 160 FCR 1, a Trade Practices Act case.
I accept that in cases such as these, involving civil penalties, in order for accessorial liability to be established, the accessory must have had actual knowledge of the essential elements of the contravention (see Quinlivan at [8] and [10]). What Mr Shepley says is that although he admits doing the matters of which complaint is made, he had no intention to break the law because he thought he had a good defence on the set-off basis with which I have dealt.
In my view this position does not accord with the ambit of the decision of the High Court in Yorke v Lucas.
Mr Shepley well knew that he was not paying the Adnesses their pay for time worked and their annual leave. He expressly conceded this in his correspondence of 4 January 2008.
In any event the defences, including that of the second defendant, expressly admitted involvement in the terms pleaded and I accept counsel for the applicant’s submission that he was entitled to run his case on the basis of those admissions.
I reject the submission that the process of delay which occasioned an ultimate refusal to pay gives rise to any different conclusion.

Other matters

I have not dealt in these Reasons for Judgment with the controversy between the parties as to whether or not the provisions of clause 35 of the Award subsisted after the APCS came in. It is not necessary to do so given the conclusions I have reached. It further seems to me that if there was an entitlement to set-off the amounts generated prior to

27 March 2006, it would have been sufficient to defeat the Adnesses’ claims in any event as counsel for the respondents submits.
It should be noted further that I have not dealt with what might be described as formal matters such as the capacity of the applicant to bring the proceedings and the existence of the Award. The materials filed by the applicant deal with these matters in an appropriate way and there was, in truth, no challenge in respect of them in any event.

Conclusion

This has been a somewhat convoluted proceeding and it is not over yet. There remains the question of a penalty hearing. I have indicated a number of areas in respect of which I would wish to receive further submissions in any event. I will hear counsel as to an appropriate timetable.

I certify that the preceding eighty-two (82) paragraphs are a true copy of the reasons for judgment of Burchardt FM

Date: 14 December 2010