Kelly v Atanaskovic Hartnell Corporate Services Pty Limited (No 2)
[2022] FedCFamC2G 112
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Kelly v Atanaskovic Hartnell Corporate Services Pty Limited (No 2) [2022] FedCFamC2G 112
File number: SYG 1194 of 2017 Judgment of: JUDGE DRIVER Date of judgment: 31 March 2022 Catchwords: EMPLOYMENT LAW – Fair Work – claim for unpaid entitlements and compensation for adverse action
CONTRACT – claim for damages for breach of an implied term to avoid exposure to risk of injury
CROSS-CLAIM – negligence – principles of equitable set‑off in the context of employment
Legislation: Acts Interpretation Act 1901 (Cth) s 15AA
Civil Procedure Act 2005 (NSW), s 21
Constitution of Australia (Cth)
Fair Work Act 2009 (Cth) ss 3, 12, 14, 44, 90, 323, 324, 340, 341, 342, 360, 361, 539, 545, 547, 550, 566
Industrial Relations Act 1988 (Cth) s 170EE
Industrial Relations Act 1996 (NSW) s 120
Judiciary Act 1903 (Cth) ss 79, 80
Long Service Leave Act 1955 (NSW) s 4
Work Health and Safety Act 2011 (NSW) ss 3, 19, 28
Workers Compensation Act 1987 (NSW) s 151H
Workplace Relations Act 1996 (Cth), ss 298K, 298L
Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)
Cases cited: Active Adult Management Pty Ltd v Milstern Retirement Living Pty Ltd [2017] NSWSC 1238
Adami v Maison de Luxe Ltd (1924) 35 CLR 143
Aerospace Publishing Ltd v Thames Water Utilities Ltd [2007] EWCA Civ 3
Aitken v Construction, Mining, Energy, Timberyards, Sawmills & Woodworkers Union of Australia (WA Branch) (1995) 63 IR 1
Amponsem v Laundy (Exhibition) Pty Limited [2014] FCCA 2206
Andrews v Australia and New Zealand Banking Group Limited (2012) 247 CLR 205
Astley v Austrust Ltd (1999) 197 CLR 1
Auimatagi v Australian Building and Construction Commissioner [2018] FCAFC 191
Australian Licensed Aircraft Engineers Association v International Aviation Service Assistance Pty Ltd [2011] FCA 333
Australian Municipal, Administrative, Clerical and Services Union v Greater Dandenong City Council [2000] FCA 1231
BHP Coal Pty Ltd v O&K Orenstein & Koppel AG [2008] QSC 141
Board of Bendigo Regional Institute of Technical and Further Education v Barclay (No 1) (2012) 248 CLR 500
Chamberlain Early Learning Centre Pty Limited v Precious 1 Pty Limited [2017] NSWSC 189
Commercial Union Assurance Company of Australia Limited v Ferrcom Pty Ltd (1991) 22 NSWLR 389
Community and Public Sector Union v Telstra Corporation Ltd [2001] FCA 267
Construction, Forestry, Mining & Energy Union v Pilbara Iron Company (Services) Pty Ltd (No 3) [2012] FCA 697
Construction, Forestry, Mining and Energy Union v BHP Coal Pty Ltd (2014) 253 CLR 243
Construction, Forestry, Mining and Energy Union v De Martin & Gasparini Pty Limited (No 2) [2017] FCA 1046
Construction, Forestry, Mining and Energy Union v Eco Recyclers Pty Ltd [2013] FCA 24
Construction, Forestry, Mining and Energy Union v State of Victoria & Ors [2013] FCA 445
Dafallah v Fair Work Commission (2014) 225 FCR 559
F.Y.D. Investments Pty Ltd v Promptair Pty Ltd (No 2) [2019] FCA 419
Fair Work Ombudsman v Australian WorkersUnion [2017] FCA 528
Fair Work Ombudsman v Maritime Union of Australia [2014] FCA 440
Fair Work Ombudsman v Toyota Material Handling (NSW) Pty Limited (2012) 209 FCR 428
Ferguson v John A Martin & Kevin Pendergast trading as Sharks Shire Plumbing [2021] FedCFamC2G 58
Fletcher v Neill [1958] AR (NSW) 322
Goldman Sachs JB Were Services Pty Ltd v Nikolich [2007] FCAFC 120
Greater Dandenong City Council v Australian Municipal, Administrations Clerical and Services Union [2001] FCA 349
Gutierrez v MUR Shipping Australia Pty Limited [2021] FedCFamC2G 56
Hawes v Dean [2014] NSWCA 380
Henry v Leighton Admin Services Pty Ltd (2015) 299 FLR 342
Jones v Dunkel (1959) 101 CLR 298
Kashemije Stud Pty Limited v Hawkes [1978] 1 NSWLR 143 at 147C
Kelly v Atanaskovic Hartnell Corporate Services Pty Limited [2021] FCCA 552
Manildra Flour Mills (Manufacturing) Pty Limited v NUW [2012] FCA 1010
Maritime Union of Australia v Fair Work Ombudsman [2016] FCAFC 102; 339 ALR 286
Mendonca v Chan & Naylor (Parramatta) Pty Limited [2014] FCCA 1042
O’Kane v Freelancer International Pty Ltd [2018] FCCA 933
O'Connor v Commissioner for Government Transport (1954) 100 CLR 225
Paciocco v Australia and New Zealand Banking Group Limited (2016) 258 CLR 525
Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1
Pezzimenti v Rotary International [2019] FCCA 1854
PIA Mortgage Services Pty Ltd v King [2020] FCAFC 15
Planet Fisheries Pty Ltd v La Rusa (1968) 119 CLR 118
R v Darling Island Stevedoring and Lighterage Company Limited; Ex parte Halliday and Sullivan (1938) 60 CLR 601
Rees v Worthington Services Pty Limited [2017] FCCA 2245
Rizeq v State of Western Australia (2017) 262 CLR 1
Rowell v Alexander Mackie College of Advanced Education (1988) 25 IR 87
Shea v TRUenergy Services Pty Ltd (No 6) [2014] FCA 271
Shurn v Southern Migrant and Refugee Centre Inc & Ors [2020] FCCA 214
Sim v Rotherham Metropolitan Borough Council [1987] Ch 216
Squires v Flight Stewards Association of Australia (1982) 2 IR 155
Stambolziovski v Nestorovic and Camanaro Prestige Properties Pty Ltd t/as Sydneyhome Real Estate [2015] NSWCA 332
Standard Chartered Bank v Pakistan National Shipping Corporation [2001] EWCA Civ 55
Tame v New South Wales (2002) 211 CLR 317
Turnbull v Symantec (Australia) Pty Ltd [2013] FCCA 1771
Walsh v Greater Metropolitan Cemeteries Trust (No 2) [2014] FCA 456
Wardley Australia Limited v Western Australia (1992) 175 CLR 514
Whelan v Cigarette & Gift Warehouse Pty Ltd [2017] FCA 1534
Division: Division 2 General Federal Law Number of paragraphs: 464 Dates of hearing: 18-21 November, 11 December 2019, 18, 22-24 September 2020, 23 June 2021 Place: Sydney Counsel for the Applicant: Mr J Willis Solicitors for the Applicant: Harmers Workplace Lawyers Counsel for the Respondents: Mr P Zappia QC
Mr A GottingSolicitors for the Respondents: Atanaskovic Hartnell ORDERS
SYG 1194 of 2017 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: ELIZABETH KELLY
Applicant
AND: ATANASKOVIC HARTNELL CORPORATE SERVICES PTY LIMITED
First Respondent
J L ATANASKOVIC & A G HARTNELL TRADING AS ATANASKOVIC HARTNELL
Second Respondent
JOHN ATANASKOVIC (and others named in the Schedule)
Third Respondent
ORDER MADE BY:
JUDGE DRIVER
DATE OF ORDER:
31 MARCH 2022
THE COURT DECLARES THAT:
1.The first and third respondents breached ss 90(2) and 323 of the Fair Work Act 2009 (Cth) by failing to pay the applicant her statutory and contractual entitlements.
THE COURT ORDERS THAT:
1.The first and third respondents shall pay the sum of $130,427.84 to the applicant within 21 days, plus interest up to judgment.
2.The first and third respondents shall pay general damages to the applicant in the sum of $30,000.
3.The application as amended is otherwise dismissed.
4.The cross-claim as amended is dismissed.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE DRIVER:
INTRODUCTION AND BACKGROUND
These proceedings were commenced by the applicant, Elizabeth Kelly (Mrs Kelly) by way of an application filed on 19 April 2017. The application was supported by a statement of claim filed on 27 June 2017. A defence by each of the respondents was filed on 25 July 2017. The matter proceeded somewhat slowly through various interlocutory stages. An amended statement of claim was filed on 15 November 2019. For their part, the respondents filed various iterations of cross‑claims. The matter ultimately proceeded on the basis of a further amended statement of claim filed on 16 September 2020. By way of an Application in a Case filed on 13 November 2020, Mrs Kelly sought leave to file a second further amended statement of claim. I refused that leave.[1]
[1] Kelly v Atanaskovic Hartnell Corporate Services Pty Limited [2021] FCCA 552
The respondents rely upon their amended defence filed on 10 May 2019 and an amended cross-claim by the first respondent, Atanaskovic Hartnell Corporate Services Pty Limited (ACN 062 993 159) (AHCS) filed on 10 May 2019. Mrs Kelly filed a reply and response to the cross‑claim on 7 June 2019.
The long procedural history of the matter was matched by the volume of evidentiary material filed (occupying five volumes of a 10-volume court book). The trial commenced on 18 November 2019 and continued over nine days, finally concluding with oral submissions on 23 June 2021. The exceptionally extended trial in part reflected the complexity of the matter and the large volume of evidence and in part reflected the disruption caused by the COVID-19 pandemic and the availability of witnesses.
The parties also provided extensive pre-trial and concluding submissions orally and in writing.
The background to this matter is as follows.
Mrs Kelly commenced employment with AHCS on 19 April 2004.[2] Mrs Kelly is a Certified Practicing Accountant[3] who was employed by AHCS as its General Manager. AHCS is the services entity for the second respondent, JL Atanaskovic & AG Hartnell (trading as Atanaskovic Hartnell) (AH), being an unincorporated partnership of which, at all relevant times, the third to seventh respondents were partners.[4] AH is engaged in the practice of law. AHCS provided services to AH including the provision of support staff, such as Mrs Kelly.[5] In her role as General Manager, Mrs Kelly was responsible for human resources, administration, information technology and finance. She reported directly to the Managing Partner of AH, being, at all relevant times, the third respondent, Mr John Atanaskovic.[6] Mrs Kelly gave notice of her resignation from her employment on 5 August 2016[7] and ceased her employment with AHCS on 4 November 2016.[8] Accordingly, Mrs Kelly was employed by AHCS for some 12 years.
[2] affidavit of Mrs Kelly made on 3 May 2018 (“Kelly”), [12]
[3] Kelly, [6]
[4] further amended statement of claim (FASOC), [5]-[7]; amended defence, [5]-[7]; Kelly, [13]
[5] Kelly, [13]
[6] Kelly, [17]
[7] Kelly, EK-1, page 84
[8] amended defence, [1]
The issues in dispute
By way of her further amended statement of claim, Mrs Kelly makes the following claims and seeks the following relief against the respondents:
(a)Mrs Kelly makes a claim for unpaid entitlements in respect of her employment with AHCS[9] (Entitlements Claim). This is a claim which alleges breaches of both contractual and statutory entitlements. It is understood that the parties are in agreement as to the nature and quantum of these entitlements. The only reason that these entitlements have not been paid to Mrs Kelly is that AHCS asserts that it is entitled to a set off. Mrs Kelly seeks orders for compensation (and in the case of long service leave and annual leave, an order directing that AHCS pay her entitlements), interest and the award of pecuniary penalties;
(b)Mrs Kelly makes a number of claims pursuant to s 340 of the Fair Work Act 2009 (Cth) (Fair Work Act) on the basis that the respondents took a number of adverse actions against her during the currency of her employment[10] (Adverse Action Claims). Mrs Kelly seeks, among other things, orders for compensation, interest and the award of pecuniary penalties; and
(c)Mrs Kelly makes a claim for breach of an implied term in her Employment Contract which required AHCS to avoid exposing her to any unnecessary risks of injury to her person or reputation[11] (Contract Claim). Mrs Kelly seek damages for breach of this term.
[9] FASOC, [8]-[30]
[10] FASOC, [31]-[78B]
[11] FASOC, [8]-[10], [79]
By way of its amended cross-claim, AHCS makes two cross-claims against Mrs Kelly which are premised on alleged negligent actions and breaches of contract by Mrs Kelly during the currency of her employment (cross-claims).
Each of the claims and cross-claims are considered in further detail below.
Failure to pay Entitlements
When Mrs Kelly resigned on 5 August 2016, she was owed $130,427.84 (gross) in statutory and contractual entitlements in respect of unused and accrued annual leave and long service leave entitlements and unpaid salary[12] (Entitlements). AHCS has not paid Mrs Kelly any amount in respect of her Entitlements.
[12] FASOC, [16], [22], [27]; amended defence, [16], [22], [27]
AHCS alleges that it is not required to pay the Entitlements because the quantum of the damages it seeks in its cross-claim is greater than the quantum of the Entitlements and it is purportedly entitled to a set-off. While AHCS is entitled to bring a cross-claim, the assertion that AHCS is entitled to set-off any alleged loss the subject of that cross-claim against statutory entitlements under the Fair Work Act is said to be misconceived as a matter of law.[13] By doing so, AHCS is said to have breached a civil remedy provision and, as such, is liable to pay penalties (together with interest).
[13] Fair Work Act, ss 90(2), 323, 324; and Long Service Leave Act 1955 (NSW) (Long Service Leave Act), s 4(5)
Adverse Action Claims and Contract Claim
Broadly, the Adverse Action Claims and the Contract Claim are mostly premised on the same conduct. In the period from 7 July 2014 to 1 August 2016, Mrs Kelly made a series of complaints and inquiries in relation to her employment and, in particular, in relation to a number of alleged threats made by Mr Atanaskovic to dismiss Mrs Kelly or employ her on less favourable terms (including by reducing her salary).
Of particular significance is that on 7 July 2015, Mrs Kelly made complaints about Mr Atanaskovic’s treatment of her in relation to her conduct in arranging for glass sliding doors at AH’s Sydney office to be removed and repaired.[14] These complaints were made to other partners of the firm, being Mr Michael Sophocles and Mr Anthony Hartnell. On the following day, being 8 July 2015, Mrs Kelly sent an email to various solicitors and Mr Sophocles advising them not to submit their timesheets until advised to do so as the relevant database was being rolled over to the new financial year. This email is said to have been innocuous in its terms and Mrs Kelly had a practice of sending an email in materially the same terms every year. In response to this email, Mr Atanaskovic sent a response that stated “Elizabeth, remember the AH accounts function is there to service AH and AH LLP not the other way around. If you fail to remember this we will get someone else who remembers the proper role of an accountant”.[15] This statement is said to have been a threat to dismiss Mrs Kelly from her employment with AHCS.[16] Although the respondents bear the onus of proof in relation to this allegation,[17] Mrs Kelly submits that a very strong inference can be drawn that the reason for Mr Atanaskovic’s response was unrelated to the content of Mrs Kelly’s email but rather, was sent as a direct result of the complaints she had made about him to his fellow partners the day before.
[14] Kelly, [75], [77]
[15] Kelly, EK-1, page 44
[16] which constitutes adverse action: Fair Work Act, s 342(1), (2)(a)
[17] Fair Work Act, s 361
Following this incident, it is said to be apparent that Mr Atanaskovic was motivated to seek retribution against Mrs Kelly for complaining about him to his fellow partners and on this basis, he sent a large number of emails to Mrs Kelly containing vitriolic comments and threats (many of which are said to amount to adverse action). These comments included (but are not limited to) the following:
(a)that “AH needs another face for itself at first interview of PAs, and in particular that AH needs someone younger, and significantly more approachable/sympathetic”;[18]
(b)that Mrs Kelly was “again being a maliciously intermeddling fool”, that she was “regularly simply a malign, or at least a foolish, intermeddler”, she was a “lazy incompetent” and that she needed to “get it through your dull head that many times invoices do not play any significant role at all, and are just a piece of paper less useful than waste paper blowing about in the wind on the road”;[19]
(c)that “Elizabeth, you are a fool”;[20] and
(d)that she suffered from “ineptitude and slothfulness”.[21]
[18] Kelly, EK-1, page 81
[19] Kelly, EK-1, page 117
[20] Kelly, EK-1, page 98
[21] Kelly, EK-1, page 97
Mrs Kelly asserts that despite the complaints she made to Messrs Sophocles and Hartnell about Mr Atanaskovic’s conduct towards her, no action was taken to investigate the complaints or protect her from such conduct. She asserts that Messrs Sophocles and Hartnell who were both directors of AHCS[22] decided not to investigate or take any action concerning the complaints because the complaints concerned Mr Atanaskovic (in circumstances where Mr Atanaskovic was the managing partner of a firm in which Messrs Sophocles and Hartnell were also partners). This decision not to investigate or take any action is said to have constituted both a breach of the implied term in Mrs Kelly’s Employment Contract which required AHCS to avoid exposing Ms Kelly to any unnecessary risks of injury to her person or reputation (being the subject of the Contract Claim) and adverse action. As a result of this conduct, Mrs Kelly claims she has developed a mental health disorder known as “Adjustment Disorder with Mixed Anxiety and Depressed Mood”. This resulted in Mrs Kelly resigning from her employment with AHCS and is said to have prevented her from obtaining alternative employment.
[22] Kelly, EK-1, pages 6-7
Mrs Kelly claims damages, compensation and interest and seeks the imposition of penalties as a result of this conduct.
The cross-claims
In general terms, the cross-claims concern conduct which, in the case of the second cross-claim, occurred in 2014 and in the case of the first cross-claim in 2016. Mrs Kelly was not terminated as a result of this conduct. Nor was Mrs Kelly given any official warnings. There was no suggestion at the time of the relevant conduct that AHCS would pursue any claim against Mrs Kelly. Rather, Mrs Kelly contends that these cross-claims have been raised well after the fact in an attempt to avoid having to pay her Entitlements. More generally, it is Mrs Kelly’s position that the cross-claims suffer for a number of fundamental errors which render them entirely unmeritorious.
The first cross-claim concerns Atanaskovic Hartnell LLP. On or about 19 May 2011, Atanaskovic Hartnell LLP was incorporated in England and Wales (AH LLP). Mr Atanaskovic and Mr Hartnell were the “designated members” (akin to partners) of AH LLP since its incorporation.[23] AH LLP is engaged in the practice of law in England and Wales. Between about March and June 2011, Mr Atanaskovic applied for, and subsequently obtained, a UK Tier 1 (Entrepreneur) Visa (visa) for the purpose of establishing and conducting AH LLP’s business.[24] On or about 20 May 2016, Mr Atanaskovic caused a visa renewal application to be submitted.[25] The visa application was refused on 14 July 2016.[26]
[23] Kelly, [19]
[24] affidavit of Mr Atanaskovic made on 3 March 2018 (Atanaskovic), [5]
[25] Atanaskovic, [26]
[26] Atanaskovic, [27]
It is alleged that the visa application was unsuccessful because Mrs Kelly failed to provide the correct supporting documentation for the application. This claim is resisted for a number of reasons which include the following. First, Mr Atanaskovic and Mr Carl Powlson (an employed solicitor of AH LLP) were managing the renewal process and were responsible for checking the adequacy of the supporting documentation and Mrs Kelly’s role is said to have been limited to providing documentation to them as and when sought. Any deficiency in the documentation is said to be attributable to Messrs Atanaskovic and Powlson’s failure to ensure the material was sufficient for the purposes of the application. Secondly, Mr Atanaskovic was aware that Mrs Kelly had no prior expertise or experience in relation to the carrying out and administration of payroll taxation functions in the United Kingdom. For that reason, Mrs Kelly had asked Mr Atanaskovic to engage a third party payroll provider and had even obtained a quote from such a provider. Accordingly, Mr Atanaskovic is said to have been aware that Mrs Kelly did not have the relevant expertise. Thirdly, the visa renewal process was inherently complex and it is said to have been incumbent on Mr Atanaskovic to engage third party professionals to complete the application in circumstances where neither he nor Mr Powlson were experts in this area. Fourthly, there is said to be documentary evidence which shows that even if the relevant documentation provided by Mrs Kelly had been sufficient, the application was deficient in other respects which necessarily means it would have been rejected. Accordingly, Mrs Kelly’s conduct could not have been causative of any loss. Fifthly, the relevant loss was made by AH LLP. AHCS is said to have constructed a contractual artifice in an attempt to shift this loss onto AHCS. Mrs Kelly submits that AHCS has, in fact, suffered no loss at all.
The second cross-claim concerns a contract between AH and LexisNexis. In general terms, the contract contained an automatic renewal provision which required AH to given written notice to LexisNexis, prior to the end of the term of the contract, if AH did not intend to renew the contract. AH did not give such written notice but Mrs Kelly claimed to have reached an oral agreement with a representative of LexisNexis to the effect that AH should “not worry” about LexisNexis’s automatic renewal terms and that LexisNexis would “not seek to hold” AH to those terms.[27] AHCS contends, among other things, that Mrs Kelly breached her contractual obligations by failing to provide written notice to LexisNexis to the effect that the contract would not be renewed. AH denied that the contract had been renewed and LexisNexis sued on the contract. Mrs Kelly asserts that this claim is also hopeless for a number of reasons which include the following. First, it is contended that Mrs Kelly did not breach any obligation she owed to AHCS. Secondly, AH is said to have failed to mitigate its loss by accepting a reasonable offer made by LexisNexis prior to LexisNexis commencing proceedings. If that offer had been accepted, AH would have suffered no loss. Thirdly, the relevant loss, if any, was made by AH. Again AHCS and AH are said to have constructed a contractual artifice in an attempt to shift this loss onto AHCS. Mrs Kelly submits that AHCS has, in fact, suffered no loss at all.
[27] Affidavit of Mrs Kelly made on 28 June 2018 (second Kelly affidavit), [68]
The respondents submit that the Court should:
(a)give judgment for AHCS on the first cross-claim and the second cross-claim (in the amount by which those claims exceed Mrs Kelly’s entitlements claim in the application by Mrs Kelly) as set out in amended Schedule B to the response filed on 10 May 2019; and
(b)otherwise dismiss the application by Mrs Kelly.
The respondents note that AH (an unincorporated partnership) is not a separate legal entity but accept that AH may be a convenient shorthand reference to the then partners that constituted that partnership.
Factual background bearing upon the amended defence and cross-claims
At all material times, an unincorporated partnership known as “Atanaskovic Hartnell” operated the business of a law firm and provided legal services in Australia.[28]
[28] see FASOC, [5], [6]; amended defence filed on 10 May 2019, [5(a)], [6]; see also applicant opening submissions, [1]
At all material times, AHCS provided corporate and general management services to AH.[29]
[29] see FASOC, [5], [6]; amended defence, [5], [6]; amended cross-claim filed 10 May 2019, [2]; reply to amended cross-claim filed 11 June 2019, [2]; Kelly, [13]; applicant opening submissions, [1]
As noted above, on 13 March 2004, AHCS entered into a written contract of employment with Mrs Kelly dated 9 March 2004 (Employment Contract) .[30]
[30] see FASOC, [8]; amended defence, [8]; amended cross-claim, [5]; reply to amended cross-claim, [5]; Kelly, [12]
On 19 April 2004, Mrs Kelly commenced employment with AHCS.[31]
[31] see FASOC, [1]; defence, [1]; amended cross-claim, [3]; reply to amended cross-claim, [3]; Kelly [12]; applicant opening submissions, [1]
From 19 April 2004, Mrs Kelly was the General Manager of the AHCS.[32]
[32] see amended cross-claim, [3]; reply to amended cross-claim, [3]; Kelly, [12]; applicant opening submissions, [1]
As General Manager, Mrs Kelly regarded herself as responsible for human resources, administration, information technology and finance at AHCS.[33]
[33] see Kelly, [17]; applicant opening submissions, [1]
Responsibilities for AH LLP
As noted earlier, on 19 May 2011, AHCS established AH LLP, a limited liability partnership to provide legal services in England and Wales.[34]
[34] see amended cross-claim, [8]; reply to amended cross-claim, [8]; Kelly, [19]; applicant opening submissions, [13]
From 19 May 2011, Mrs Kelly is said to have provided regular financial management assistance to AH LLP, including payroll and the preparation of accounts.[35]
[35] see Kelly, [30]
From 19 May 2011, Mrs Kelly is said to have regarded herself as responsible for the payroll of AH LLP.[36]
[36] see Kelly [123]
To that end, Mrs Kelly designed a payslip to provide to AH LLP employees, completed the payslips on a monthly basis and emailed the payslips to the AH LLP employees on a monthly basis.[37]
[37] See Kelly, [127], [128]; second Kelly affidavit, [13]
To that end, Mrs Kelly deducted pay as you earn (PAYE) tax and national insurance contribution (NIC) payments and remitted such tax and payments to Her Majesty’s Revenue and Customs (HMRC).[38]
[38] see amended cross-claim, [15(b)]; reply to amended cross-claim, [15(c)]
To that end, Mrs Kelly also handled (and was solely responsible for) the filing of monthly returns to HMRC for PAYE tax and NIC payments.[39]
[39] see amended cross-claim, [15(b)]; reply to amended cross-claim, [15(b)]; Kelly, [97]
LexisNexis Contract
From July 2014, Mrs Kelly was responsible (in her role as General Manager of AHCS) for negotiating a possible renewal of a contract between the Firm and Reed International Books Australia Pty Limited trading as LexisNexis relating to the provision of informational technology and “hard copy” books and loose leaf products and services to AHCS (the LexisNexis Contract) .[40]
[40] see second Kelly affidavit, [59], [60], [68], [69]
It was a term of the existing LexisNexis Contract that, in the absence of notice of non-renewal prior to 30 days before the expiry of its term, the LexisNexis Contract renewed for a further 12 month period at a fixed higher price.[41]
[41] see affidavit of Mr Sophocles made on 2 May 2018 (“Sophocles”), annexure A; second Kelly affidavit, [43]
During the course of re-negotiating the LexisNexis Contract, a representative of LexisNexis apparently indicated a preparedness to waive the automatic renewal of the LexisNexis Contract.[42]
[42] see second Kelly affidavit, [68]
AHCS contends that, due to a failure of Mrs Kelly to provide notice of non-renewal of the LexisNexis Contract and due to the failure of Mrs Kelly to document the waiver (or preparedness to waive) by LexisNexis of the automatic renewal of the LexisNexis Contract, LexisNexis claimed that the LexisNexis Contract automatically renewed for a further 12 month period.[43]
[43] Atanaskovic, exhibit JLA-1, p167, [10], [12]; second Kelly affidavit, annexures EK-F, EK-G, EK-H
From December 2014, AH (through the sixth respondent (Mr Sophocles)) is said to have been significantly diverted (and thus significantly disrupted) from its usual business (the generation of fees from advising and acting for clients) by, and spent considerable time in resisting, the claims of LexisNexis that the LexisNexis Contract had automatically renewed for a further 12 month period.[44]
[44] see Sophocles, [22] and annexure K
In June 2015, LexisNexis commenced proceedings in the NSW Local Court claiming that the LexisNexis Contract automatically renewed for a further 12 month period and claiming that the Firm was liable to pay the fees under the renewed LexisNexis Contract (the LexisNexis Litigation).[45]
[45] see amended cross-claim, [80]; reply to amended cross-claim, [80]; Sophocles, [11] and annexure H; see also Atanaskovic, exhibit JLA-1, page 167, [13]
By the time of the settlement of the Local Court proceedings, the quantum attributable to the significant disruption of the usual business of AH from the LexisNexis Litigation (in terms of lost revenue that would otherwise have been generated or the value of the time spent by Mr Sophocles dealing with the LexisNexis Litigation) was over $154,000 (recorded in the time system of AHCS relating to the LexisNexis Litigation).[46]
[46] see Sophocles, [22] and annexure K; Atanaskovic, exhibit JLA-1, page 167, [14]
Renewal of visa allegations
During January and February 2016, Mrs Kelly was requested (in her role as General Manager of AHCS) to compile and supply supporting documentation to form part of the application by Mr Atanaskovic to obtain a Tier 1 visa to enable him to practice law in the United Kingdom.[47]
[47] see Atanaskovic, [18]-[23]; Kelly, [133]-[149]
In January and February 2016, Mrs Kelly compiled and supplied some but not all of the requested supporting documentation.[48]
[48] see Atanaskovic, [23]
On 14 July 2016, the application for a visa was refused by the Home Office on the basis of a lack of supporting documentation, being the requested supporting documentation.[49]
[49] see amended cross-claim, [35]; reply to amended cross-claim, [35], [36(a)]
In August 2016, AH LLP retained Deloitte to obtain advice on the failure to renew the visa and (following the receipt of advice) to assist in making a second visa application.[50]
[50] see Atanaskovic, [34], [35]
In September 2016, as a result of making a second application, Mr Atanaskovic was granted the visa.[51]
[51] see Atanaskovic, [37]
In October 2016, AH LLP paid Deloitte $71,991.58 (GBP £48,494) for the advice obtained and the making of the second visa application.[52]
[52] see Atanaskovic, [37] and exhibit JLA-1, pages161-162
AHCS has agreed to reimburse AH LLP the amount of $71,991.58 (GBP 48,494) paid by AH LLP to Deloitte.
Resignation of employment
As noted above, on 5 August 2016, Mrs Kelly provided AHCS with a typewritten letter of resignation providing three months’ notice to take effect on 4 November 2016.
On 4 November 2016, the employment of Mrs Kelly ceased.
Overall position
The respondents deny that AHCS was or is obliged to make payments to Mrs Kelly in respect of the Entitlements Claim[53] as it is subject to the operation of the principles of set-off (including equitable set-off and a set-off of judgments) and also subject to an order under rule 24.09 of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) (FCFC Rules).[54]
[53] which is based in part on s 90(2) of the Fair Work Act or s 4(5) of the Long Service Leave Act
[54] formerly rule 28.09 of the Federal Circuit Court Rules 2001 (Cth) (FCC Rules)
The respondents deny all aspects of the Adverse Action Claims as they deny that Mrs Kelly made complaints or enquiries in relation to her employment, they deny that Mr Atanaskovic was notified of such complaints or inquiries, they deny that Mr Atanaskovic threatened her employment because Mrs Kelly had made complaints or inquiries, they deny that Mrs Kelly suffered an injury in employment or a prejudicial alteration of her position, they deny that Mr Atanaskovic acted because Mrs Kelly had made complaints or inquiries, they deny Mrs Kelly has suffered loss or damage due to the alleged adverse action, they deny that any alleged loss or damage was caused by the alleged adverse action and they deny that Mrs Kelly is entitled to compensation for the alleged adverse action.
The respondents deny that AHCS was or is obliged to make payments to Mrs Kelly in respect of the Contract Claim as they deny that there is an implied term of the Employment Contract relating to injury to reputation, they deny that AHCS breached the implied term of the Employment Contract relating to risk of injury to person, they deny that Mrs Kelly has suffered loss or damage due to the alleged breach, they deny that any alleged loss or damage was caused by the alleged breach and they deny that Mrs Kelly is permitted to recover any damages for the alleged breach.
The respondents deny that they were accessories to the alleged contraventions in respect of the Entitlements Claim or the Adverse Action Claims.
The respondents submit that the claims for compensation in respect of the Adverse Action Claims and the Contract Claim are hopeless, have no reasonable prospects of success and are doomed to failure (and that the Contract Claim in respect of injury to reputation was commenced without reasonable cause).
The respondents submit that Mrs Kelly has failed to mitigate her alleged loss and damage (in respect of the Adverse Action Claims and the Contract Claim).
The respondents oppose any claim for the payment of monies (whether as compensation or damages in respect of the Entitlements Claim, the Adverse Action Claims or the Contract Claim) to Mrs Kelly.
The respondents oppose any claim for the payment of interest.
The respondents oppose any claim for the imposition of pecuniary (civil) penalties (in respect of the Entitlements Claim or the Adverse Action Claims).
The respondents maintain that Mrs Kelly breached the express and implied terms of the Employment Contract[55] in her negligent performance of her duties in respect of the negotiation of a possible contract with LexisNexis and in respect of the renewal of the visa and that Mrs Kelly is liable to pay damages to AHCS for such breaches.
[55] see amended cross-claim, [6]-[7]
Factual disputes
There are significant factual disputes between the parties in respect of the Adverse Action Claims, including whether:
(a)Mrs Kelly made complaints to the fourth respondent (Mr Hartnell) and Mr Sophocles over the conduct of Mr Atanaskovic towards Mrs Kelly;
(b)Mrs Kelly was injured in her employment, or had her position prejudicially altered, by the failure to investigate the alleged complaints or protect her from the alleged conduct the subject of the alleged complaints;
(c)AHCS threatened to dismiss Mrs Kelly because of the alleged complaints;
(d)AHCS threatened to reduce the remuneration of Mrs Kelly because of the alleged complaints;
(e)Mrs Kelly was otherwise injured in her employment or had her position prejudicially altered;
(f)AHCS injured Mrs Kelly in employment or altered her position prejudicially because of the alleged complaints (including to allegedly seek retribution against her for making the alleged complaints);
(g)Mrs Kelly suffered any loss or damage as a result of the alleged injury in employment or alleged prejudicial alteration of position (including whether she suffered any loss of remuneration from the alleged adverse action and whether she suffered a mental health disorder at all or as a result of the alleged adverse action); and
(h)Mrs Kelly has mitigated her alleged loss and damage (including whether she has taken reasonable steps to obtain alternative employment or alternative work).
There are significant factual disputes between the parties in respect of the Contract Claim, including whether:
(a)the alleged conduct of Mr Atanaskovic amounted to a breach of the implied term;
(b)the failure to conduct an investigation into the alleged conduct of Mr Atanaskovic amounted to a breach of the implied term;
(c)Mrs Kelly suffered any loss or damage as a result of the breach of the implied term (including whether Mrs Kelly suffered any loss or remuneration and whether Mrs Kelly suffered a mental health disorder at all);
(d)Mrs Kelly has suffered permanent impairment exceeding 15 per cent (and thus permitting her to claim damages); and
(e)Mrs Kelly has mitigated her alleged loss and damage (including whether she has taken reasonable steps to obtain alternative employment or alternative work).
There are significant disputes between the parties over the drawing of inferences that are urged by Mrs Kelly in respect of the Adverse Action Claims and the Contractual Claim (especially over the effect of the email correspondence between Mr Atanaskovic and Mrs Kelly, the motivation of Mr Atanaskovic and the reasons for the absence of an investigation into the conduct of Mr Atanaskovic).
There are significant factual disputes between the parties over the cross-claims, including whether:
(a)AH LLP was obliged to engage third party professionals to complete the first visa application;
(b)the first visa application was deficient in other respects such that it was unlikely to be granted in any event;
(c)AHCS has constructed a contractual artifice in an attempt to shift loss onto it (in respect of both cross-claims); and
(d)AHCS failed to mitigate its loss in respect of the LexisNexis Contract by accepting a reasonable offer put by LexisNexis.
Legal disputes
There are a number of miscellaneous legal disputes between the parties, including whether:
(a)the claimed term of the Contract in respect of injury to reputation is a term at all;[56]
(b)the claimed term of the Contract in respect of injury to person is as broad as pleaded;[57] and
(c)Mrs Kelly is precluded from recovering any damages due to the operation of Division 3 of Part 5 of the Workers Compensation Act 1987 (NSW) (Workers Compensation Act), especially s 151H.
[56] see FASOC, [9(c)], [79]
[57] see FASOC, [9], [79]
Entitlements Claims
The respondents assert that this claim, comprising a statutory Entitlements Claim based on s 90(2) of the Fair Work Act or s 4(5) of the Long Service Leave Act and a contractual Entitlements Claim are made against AHCS only.
As noted above, the respondents submit that both the statutory Entitlements Claim and the contractual Entitlements Claim are subject to the operation of the principles of set-off (including equitable set-off and a set-off of judgments) and is also subject to an order under rule 24.09 of the FCFC Rules.[58]
[58] as noted, formerly rule 28.09 of the FCC Rules; see Amponsem v Laundy (Exhibition) Pty Limited [2014] FCCA 2206 at [151]-[152] per Judge Manousaridis; see generally defence, [17(b)]
Equitable set-off
An equitable set-off is available where a party (commonly a cross-claimant) can show that there is a recognised equitable ground to be protected from a claim.[59] An equitable set-off affects the conscience of the claimed creditor, even before judgment on the claim, to assert that a debt is due.[60] An equitable set-off is available in a range of circumstances, including where it is unconscionable for one party to insist on the first claim without accommodating the countervailing second claim.[61] An equitable set-off is said to be available in an employment context, including a claim for unpaid wages.[62]
[59] see for example, Chamberlain Early Learning Centre Pty Limited v Precious 1 Pty Limited [2017] NSWSC 189 at [68] per Emmett AJA
[60] see S R Derham, The Law of Set-off, Fourth Edition, (2010), [4.30], page 100
[61] see, for example, Hawes v Dean [2014] NSWCA 380 at [36], [63], [64], [65] per Barrett JA (with whom Bathurst CJ and McColl JA agreed); Chamberlain Early Learning Centre at [69], [70], [75] per Emmett AJA; Active Adult Management Pty Ltd v Milstern Retirement Living Pty Ltd [2017] NSWSC 1238 at [82]-[85] per Ward CJ in Eq
[62] see Sim v Rotherham Metropolitan Borough Council [1987] Ch 216 at 252H, 259G, 261C-D, 262G-H, 262C-D per Scott J; Derham, The Law of Set-off, Fourth Edition, (2010), [5.65], page 202
An equitable set-off is a substantive defence and not merely a procedural defence[63] such that it may be invoked independently of an order of a court[64] and may be an immediate answer to a claim to pay a debt due.[65] An equitable set-off may arise where one of the claims is for damages, as opposed to a liquidated debt.[66]
[63] see, for example, Chamberlain Early Learning Centre at [68] per Emmett AJA; Derham, page 77; [4.29], page 99
[64] see Derham, [4.29], page 99
[65] see Derham, [4.29], page 100
[66] see, for example, Chamberlain Early Learning Centre at [68] per Emmett AJA; Amponsem at [145]; Derham, page 77; [4.63], page 117
AHCS claims that there is no indicator in s 90(2), or the Fair Work Act more generally, that an equitable set-off is unavailable in respect of a claim based on s 90(2). Parliament is only likely to have intended to remove a substantive defence (such as equitable set-off) to a claim under s 90(2) by express words or necessary intendment and no such words or intendment exist. This Court has previously held that there is no such intendment when it considered the issue of whether the former equivalent to rule 24.09 was precluded from operating in respect of a claim based on s 90(2).[67]
[67] see Amponsem at [152]
The purpose of the obligation to pay “forthwith” in s 4(5) of the Long Service Leave Act is said not to remove a substantive defence (such as a set-off) but to preclude an employer from delaying or postponing the making of payment where no substantive defence is available (see, for example, the purpose identified in Fletcher v Neill[68] at 324 per McKeon J).
[68] [1958] AR (NSW) 322
The NSW Parliament has also addressed expressly the circumstances where a set-off is not permitted in respect of unpaid employment entitlements:
(a)section 120 of the Industrial Relations Act 1996 (NSW) (the Industrial Relations Act) precludes the set-off by an employer of claims for specific types of goods and services against a claim to recover unpaid remuneration. However, s 120 does not otherwise preclude a set-off by an employer of claims against an employee; and
(b)section 21(1) of the Civil Procedure Act 2005 (NSW) (Civil Procedure Act) provides for a defence of set-off for mutual debts. However, s 21(5) provides that the defence cannot be raised where s 120 of the Industrial Relations Act applies. Section 21 does not otherwise preclude a set-off by an employer of claims against an employee.
AHCS submits that the NSW Parliament has thus not legislated to preclude a set-off of the claims by AHCS against the accrued but untaken long service leave entitlements of Mrs Kelly.
AHCS submissions concerning set-off of judgments
A set-off of judgments is a practice of the courts that allows one judgment or order for the payment of money to be set-off against another judgment or order for the payment of money.[69] The set-off of judgments extends to a judgment for damages.[70]
[69] see, for example, Amponsem at [146] per Manousaridis J; see also Derham, [2.98], page 51
[70] see Derham, [2.98], page 51
The set-off of judgments does not depend upon, and is independent of, any statutory set-off, such as under s 21 of the Civil Procedure Act.[71] The set-off of judgments involves the inherent jurisdiction of a court[72] and its purpose is to prevent absurdity or injustice.[73]
[71] see Derham, page 52; see also Amponsem at [148]
[72] see Derham, [2.104], page 55; see also Amponsem at [146]
[73] see Amponsem at [147]; Derham, [2.104], page 55
There is said to be no indicator in s 90(2), or the Fair Work Act more generally, that a set-off of judgments is unavailable where one of the judgments is based on s 90(2). It is unlikely that, by enacting s 90(2), Parliament intended to remove the inherent jurisdiction to prevent absurdity or injustice.
Order under rule 24.09
Rule 24.09 provides:
If a respondent establishes a cross-claim against the applicant and there is a balance in favour of one of the parties, the Court may give judgment for the balance.
This Court has exercised the power in the former equivalent to rule 24.09 to make a single order in favour of an employer after recognising an entitlement to accrued but untaken annual leave.[74]
[74] see Amponsem at [153]
This Court has held that there is no inconsistency between s 90(2) and the former equivalent to rule 24.09 so as to preclude the use of the power in rule 24.09 in proceedings for accrued but untaken annual leave.[75]
[75] see Amponsem at [152]
Application to facts
The respondents submit that the amounts to be set off are:
(a)the damages payable by Mrs Kelly to AHCS in respect of the payment made by AHCS to AH LLP ($71,991.58) representing the costs incurred (and paid to Deloitte) from August to September 2016 for obtaining advice and submitting a second visa application in September 2016 following the negligent performance by Mrs Kelly of her duties (as General Manager of AHCS) relating to the first visa application;[76]
(b)the damages payable by Mrs Kelly to AHCS in relation to the diversion to and disruption of the business of AHCS[77] ($154,241) from late 2014 to July 2016 in defending and settling proceedings instituted against it by LexisNexis in relation to the automatic renewal of the LexisNexis Contract in circumstances where AH has required that AHCS compensate AH for its losses arising from the “negligent” performance by Mrs Kelly of her duties (as General Manager of AHCS) relating to the LexisNexis Contract;[78] and
(c)alternatively to (b), the damages payable by Mrs Kelly to AHCS (in circumstances where the value of Mr Sophocles’ time spent in defending and settling the LexisNexis Litigation is said to be the best estimate of the loss suffered by AH) flowing from Mrs Kelly’s breaches in relation to the LexisNexis Contract.
[76] see response, page 2, “Further Orders Sought by Respondents”, [1]; see also amended cross-claim, [48], [52], [53]; Kelly, [154] and exhibit EK-1, pages 79-80
[77] more accurately AH
[78] see response, page 2, “Further Orders Sought by Respondents”, [3]; see also cross-claim, [84], [87]
In opening reply submissions filed on 11 November 2019 Mrs Kelly joins issue with the respondents on the issue of equitable set-off.
Contrary to the respondents’ submissions, Mrs Kelly contends that there are two reasons why equitable set-off is not available to AHCS, being:
(a)as a matter of statutory construction, it is plain that the relevant obligations under the Fair Work Act to pay statutory entitlements ousts the operation of the principles of set‑off (including equitable set-off); and
(b)the principles of equitable set-off are not engaged in this case as the equity of AHCS does not impeach Mrs Kelly’s title to the legal demand for the payment of wages and other statutory entitlements.
Each of these reasons are discussed in detail in Mrs Kelly’s opening and closing submissions.
Ouster of the principles of set-off
Background
The relevant provisions of the Fair Work Act are as follows. Section 323 relevantly provides that:
An employer must pay an employee amounts payable to the employee in relation to the performance of work…in full (except as provided by section 324).
These amounts must be paid at least monthly under s 323(1)(c) of the Fair Work Act. AHCS was required to pay Mrs Kelly her unpaid salary (pursuant to her Employment Contract) and, at the cessation of her employment, her accrued but unused annual leave entitlement[79] and long service leave entitlement under s 4(5) of the Long Service Leave Act. It is plain that for the purpose of s 323 of the Fair Work Act, all of the unpaid entitlements were payable to Mrs Kelly in relation to the performance of work.
[79] Fair Work Act, s 90
Section 324 permits deductions in circumstances such as where the deduction is authorised in writing by the employee and it is principally for the employee’s benefit or the deduction is authorised by an employee in accordance with an enterprise agreement. Relevantly, Mrs Kelly contends that none of the circumstances prescribed in s 324 of the Fair Work Act permit AHCS to withhold her statutory entitlements under the guise of a purported set-off against any award of damages pursuant to the cross-claims.
Construction
The question that arises for consideration is whether, as a matter of construction, the Fair Work Act abrogates the right of an employer to seek an equitable set-off against entitlements which are otherwise due and payable under the Fair Work Act. Put another way, does s 324 of the Fair Work Act provide an exhaustive list of the circumstances in which an employer is entitled to deduct (or otherwise withhold) all or part of an employee’s entitlements?
Counsel for Mrs Kelly has not identified any authority in which this question of statutory construction has been definitely determined (nor has the respondents’ counsel in his submissions). In Amponsem, Judge Manousaridis at [151] identified the existence of the construction issue but ultimately found that he did not need to resolve it because of his finding that the respondent in that case did not have a right of set-off. In Whelan v Cigarette & Gift Warehouse Pty Ltd,[80] Collier J considered, albeit in obiter, the relevant issue. In that case, the applicant had accrued statutory entitlements which the respondent had not paid because the respondent had a cross-claim against the applicant and claimed to be entitled to a set-off. Although it appears from the face of the judgment that the respondent withdrew the allegation that it was entitled to a set-off at [160], Collier J stated at [156]-[160] that the respondent was right to have done so as the set-off claim had no merit. In coming to this view, Collier J appears to have proceeded at [153]-[160] on the basis that an employer is only entitled to withhold an employee’s wages and other entitlements if permitted to do so by s 324 of the Fair Work Act.
[80] [2017] FCA 1534
In construing the Fair Work Act, it is necessary to take into account s 15AA of the Acts Interpretation Act 1901 (Cth) which states:
In interpreting a provision of an Act, the interpretation that would best achieve the purpose or object of the Act (whether or not that purpose or object is expressly stated in the Act) is to be preferred to each other interpretation.
I am not attracted to the proposition that an employer could lawfully withhold wages and other entitlements simply by reason of a mere assertion that the employee had wronged them in some manner during the course of the employment relationship that allegedly amounted to a cause of action (and therefore they were entitled to a set-off). In those circumstances, an employee would be forced to litigate in order to receive their statutory entitlements. This is not consistent with the evident purpose and objects of the Fair Work Act.
One of the purposes of the Fair Work Act is the protection of employees’ rights through “ensuring a guaranteed safety net of fair, relevant and enforceable minimum terms and conditions” through, among other things, the National Employment Standards.[81] Implicit in this object is the recognition that employees need some level of statutory protection from unscrupulous employers. This is so because it is a matter of common experience that employers are often very well-funded and advised in comparison to their employees. This is particularly the case where an employee has had their wages withheld by an unscrupulous employer. In those circumstances, it may be unreasonable to force that employee to run costly and time consuming litigation to recover their wages and other statutory entitlements. With that object in mind, the exceptions to this rule in s 324 of the Fair Work Act are all crafted to ensure that the withholding of wages and other entitlements provides a material benefit to the employee.
[81] Fair Work Act, s 3(b)
Mrs Kelly submits that that purpose would be entirely undermined if the “unscrupulous” employer could “side-step” that statutory protection entirely and avoid the obligation to pay wages and entitlement on the back of a mere assertion of impropriety on the part of the employee. Accordingly, such a construction would defeat the evident purpose of the Fair Work Act and should not be accepted.
For those reasons, Mrs Kelly contends as a matter of construction, that the Court can be satisfied that s 324 of the Fair Work Act provides an exhaustive list of the circumstances in which an employer is entitled to deduct (or otherwise withhold) all or part of an employee’s entitlements and that the Fair Work Act abrogates the right of an employer to seek an equitable set-off against entitlements which are otherwise due and payable under the Fair Work Act. For reasons set out below in relation to the claimed set-off, it is unnecessary to resolve that issue of construction.
Are principles of equitable set-off are engaged?
There are various species of equitable set-off. Relevantly, it is apparent from the respondents’ submissions (and the circumstances of the case) that AHCS alleges that it is entitled to “true” or “substantive” equitable set-off. Substantive equitable set-off is not confined to mutual debts, but can arise when one or both of the demands made is for damages.
Importantly, a critical component of substantive equitable set-off is that the claim which is sought to be set-off “impeaches” the applicant’s claim. The scope of this requirement was considered in Chamberlain Early Learning Centre in which Emmett AJA stated relevantly at [69]-[72]:
[69]Equitable set-off is available where the party seeking it can show a recognised equitable ground for being, to the relevant extent, protected from its adversary's demand. The mere existence of a cross-claim is not sufficient. There must be some ground for equitable intervention, such that it can be said that the equity of the defendant impeaches the claimant's title to the legal demand being enforced. In general terms, “impeachment” requires, in the absence of some other equitable ground for being protected, such as fraud, that there be a sufficiently close connection between the demands. For there to be an equitable set-off, the set-off must essentially be bound up with and go to the root of, challenge, call in question, or impeach the title of the claimant.
[70]The cross-demand will go directly to “impeach” the demand that the claimant is attempting to enforce, if the existence of the claimant’s demand would not have come about but for, or was at least contributed to by, the claimant’s own conduct…
…
[72]The cross-demand must go to the very root of the demand by the claimant, or must call in question, impugn, disparage or impede, the claimant’s title to the demand, such that it is essentially bound up with the demand
[references omitted, applicant’s counsel’s emphasis retained]
Mrs Kelly contends that accordingly, put simply, in order for AHCS to be entitled to a substantive equitable set-off, it is necessary for AHCS to show that the subject matter of its cross-claims “impugn, disparage or impede” Mrs Kelly’s right to receive her statutory entitlements. The cross-claim is said not to do so.
Mrs Kelly’s entitlement to leave and wages is said to have existed independently of the manner in which she performed her duties. Put another way, even if it could be made out that Mrs Kelly performed her duties negligently, and that the negligence led to some loss which is recoverable by AHCS, it does not follow that Mrs Kelly is not entitled to be paid wages or other entitlements. Rather, it simply means that Mrs Kelly may be separately liable in respect of that negligence. Accordingly, AHCS is not attacking or impugning (that is, impeaching) Mrs Kelly’s right to receive payment of her wages and other entitlements. Mrs Kelly contends that all that AHCS is asserting is the mere existence of a cross-claim which is insufficient to give rise to a set-off.
Although less than clear, it appears that Judge Manousaridis may have reached a similar conclusion in Amponsem. In that case, after considering the requirement that the cross-claim “impeaches the legal title” of the claim at [145], Judge Manousaridis stated at [150]:
Nor is it apparent that the principles of equitable set-off are available to have entitled [the employer] to have set-off its claim for equitable compensation against [the employee’s] claim for unpaid accrued annual leave.
Mrs Kelly submits for those reasons, that equitable set-off is not available to AHCS.
The operation of rule 24.09 of the FCFC Rules
Rule 24.09 is a procedural rule which provides a discretion to the Court. The rule does not purport to create a substantive right of set-off. Further, it operates only once judgment has been delivered.
This is said to be critical for the following reasons. The making of a “balancing order” pursuant to rule 24.09 does not mean that AHCS were not required to pay Mrs Kelly her statutory entitlements within (at the latest) one month of the cessation of her employment.[82] Rather, the making of an order under rule 24.09 is predicated on the basis that both parties obtain judgment (that is, that Mrs Kelly makes out her claim that she was entitled to be paid statutory entitlements and AHCS makes out its cross-claims).
[82] Fair Work Act, s 323(1)(c)
In practical terms, this is of no significance in respect of any orders for compensation and damages. However, it is said to be of great significance on the topic of penalties. Any order made pursuant to rule 24.09 would necessarily be premised on a judgment in Mrs Kelly’s favour in which it was found that Mrs Kelly was entitled to be paid her statutory entitlements within one month of the cessation of her employment. AHCS failed to do so and accordingly, Mrs Kelly submits it would have breached a civil remedy provision (being s 323 of the Fair Work Act) and would be liable to pay penalties. Rule 24.09 does not disturb this position.
The operation of the Workers Compensation Act
The respondents assert that any damages payable by reason of the breach of the Safe Workplace Term (as defined in [9] of the Statement of Claim) are regulated by Part 5, Division 3 of the Workers Compensation Act. It is Mrs Kelly’s position that the Workers Compensation Act is of no application in the present case because on the facts, properly construed, and separately, on the respondents’ pleaded defence, the injuries occasioned by Mrs Kelly were not caused by the negligence or other tort of AHCS. I accept the construction of the Workers Compensation Act advanced on behalf of Mrs Kelly.
THE EVIDENCE
Mrs Kelly relies upon her affidavits made on 3 May 2018, 28 June 2018, 3 August 2018, 16 September 2019, 30 October 2019 and 13 November 2019. She was cross-examined at length on her affidavits. Mrs Kelly also relies upon the affidavits of her husband Mr Rodger Kelly and medical evidence from Dr Enrico Parmegiani, which was tested at the trial, and the affidavit of Mr Alan Clare made on 13 December 2018 annexing a report on Mrs Kelly’s employment prospects. Mr Clare was cross-examined on his affidavit.
The respondents rely upon seven affidavits by Mr Atanaskovic made on 3 May 2018, 25 June 2018, 2 August 2018, 12 November 2018, 8 February 2019, 5 July 2019, and 11 November 2019; three affidavits by Mr Michael Sophocles made on 2 May 2018, 20 June 2018 and 20 May 2019, and an affidavit by Mr Hartnell made on 19 June 2018. All those deponents were cross-examined. The respondents also rely upon medical evidence by Dr Doron Samuell contained in two reports made on 2 April 2019 and 1 May 2019 and an affidavit of Ms Rosemary Enderley made on 1 August 2018.
I also received a very substantial bundle of exhibits, including a volume of confidential material the subject of a suppression order I made on 18 November 2019. I also received the following documents tendered at the trial:
A1 AHCS Minutes and two letters, 18 May 2017;
A2 handwritten letter of resignation from Mr Hartnell;
A3 Historical company extract;
A4 Two folders of UK Immigration Rules as at 19 May 2016;
A5 Notice to produce, 8 November 2019;
A6 Mr Hartnell’s bank statements – 12 January 2016 – 12 February 2016;
A7 photo of Mr Atanaskovic’s passport;
R1 Mr Atanaskovic’s application for UK – Tier 1 visa;
R2 letter from UK Home Office, 11 June 2014;
R3 email exchange re lease renewal;
R4 UK Limited Liability Partnership Act.The parties filed exceptionally detailed closing submissions, which were augmented orally.
CONSIDERATION
Factual background
Atanaskovic Hartnell
The general factual background to this matter is set out above. Some facts are uncontroversial and some are disputed. The uncontroversial factual background bearing upon my decision is as follows.
At all material times, an unincorporated (common law) partnership known as “Atanaskovic Hartnell” (AH) operated the business of a law firm and provided legal services in Australia.[83]
[83] see amended statement of claim, [5], [6]; amended defence, [5(a)], [6]; see also Kelly, [13]; applicant opening submissions, [1]; affidavit of Mr Atanaskovic made on 25 June 2018 (second Atanaskovic affidavit), [6]
At all material times between 2014-2016:
(a)the managing partner of AH was Mr Atanaskovic;
(b)the deputy managing partner of AH was Mr Sophocles;
(c)Mr Hartnell was a partner of AH; and
(d)Mrs Kelly was the General Manager of AH.
AH until 1 September 2016 occupied two floors (Levels 9 and Level 10), and from 1 September 2016 one floor (Level 10), of the building situated at 75-85 Elizabeth Street, Sydney.
On 19 May 2011, AH established a London office by setting up Atanaskovic Hartnell LLP (AH LLP), a limited liability partnership, to provide legal services in England and Wales.[84]
[84] see amended cross-claim, [8]; amended reply to amended cross-claim, [8]; Atanaskovic, [4]; see also Kelly, [19]; applicant opening submissions, [13]; Mrs Kelly’s cross-examination, Transcript (“T”) T181.01–T181.07; T181.40–T181.44
The respondents use the term “AH” as a convenient shorthand reference to the various partners that constituted the Atanaskovic Hartnell partnership at relevant times during Mrs Kelly’s employment by AHCS. There were, however, two partnerships of relevance, those being AH and AH LLP.
AHCS
AHCS was incorporated on 31 December 1993.[85]
[85] see Exhibit A3
At all material times, AHCS provided corporate and general management services to AH.[86] The services provided by AHCS to AH through its employees comprised, among other things, general management services, financial services, administrative services, human resources services and secretarial services.
[86] see amended statement of claim, [5], [6]; amended defence, [5], [6]; amended cross-claim filed 10 May 2019 [2]; amended reply to cross-claim dated 6 November 2019, [2]; see also Kelly, [13]; applicant opening submissions, [1]; second Atanaskovic affidavit, [6], [14]; affidavit of Mr Atanaskovic made on 5 July 2019 (sixth Atanaskovic affidavit”), [4]; Mrs Kelly’s cross-examination, T180.31
During the period 2014 to 2016, AHCS charged AH a service fee and a management fee and AH paid those fees to AHCS.[87]
[87] second Atanaskovic affidavit, [9]; affidavit of Mr Atanaskovic made on 21 October 2019 (seventh Atanaskovic affidavit”), [4], [5]
The terms of the service contract between AH and AHCS are dealt with later in these reasons when the cross-claims are addressed.
During the period 2014 to 2016, the directors of AHCS were:[88]
(a)Mr Sophocles who was a director of AHCS from 28 September 2009 to 4 July 2018;
(b)Mr Hartnell who was a director of AHCS from 31 December 1993 to 4 July 2018; and
(c)Mrs Kelly who was a director of AHCS from 1 September 2014 to 16 November 2016.
[88] see Exhibit A3
Mr Atanaskovic was not a director of AHCS during 2014 to 2016. Having been appointed a director on 31 December 1993, he resigned from that position on 27 May 2011. He again was appointed a director on 4 July 2018.[89]
[89] see Exhibit A3
Mrs Kelly’s Employment Contract
On 13 March 2004, AHCS entered into the Employment Contract dated 9 March 2004.[90]
[90] see amended statement of claim, [8]; amended defence, [8]; amended cross-claim, [5]; amended reply to amended cross-claim, [5]; Kelly, [12]; acceptance page of Employment Contract (Kelly, exhibit EK-1, page 4); Atanaskovic, [7] and exhibit JLA-1, page 4
It was an express term of the Employment Contract that Mrs Kelly must perform such functions and duties (including in relation to administration and human resources) as may be assigned to her from time to time (see clause 1 of the Employment Contract).[91]
[91] Kelly, EK-1, page 1; Atanaskovic, exhibit JLA-1, page 1
The express terms of the Employment Contract included that Mrs Kelly would act in good faith and faithfully serve AHCS, and that Mrs Kelly would use her utmost endeavours to promote, develop and extend the interests, reputation and welfare of AHCS and AH (see clauses 1(a) and (b) respectively of the Employment Contract).[92]
[92] Kelly, EK-1, page 1; Atanaskovic exhibit JLA-1, page 1; see also amended cross-claim, [6]
The Employment Contract expressly contemplated that Mrs Kelly may be directed by AHCS to provide General Manager Services to AH.[93]
[93] clause 1 of the Employment Contract, Kelly, EK-1
It was an express term of the Employment Contract that the (initial) remuneration of Mrs Kelly was $140,000 per annum plus payment of compulsory superannuation (see clause 4 of the Employment Contract).[94]
[94] Kelly, EK-1, page 2; Atanaskovic, exhibit JLA-1, page 2
It was an express term of the Employment Contract that AHCS or Mrs Kelly could terminate the Employment Contract by three months’ prior written notice (see clause 11 of the Employment Contract).[95]
[95] Kelly, EK-1, page 1; Atanaskovic, exhibit JLA-1, page 3
The Employment Contract included:
(a)an implied term that Mrs Kelly would obey lawful and reasonable directions given to her by AHCS and also by AH insofar as Mrs Kelly provided General Management Services to AH as expressly contemplated by the Employment Contract. The term was implied by law and as a matter of business efficacy;[96] and
(b)an implied term that Mrs Kelly would perform her work duties with AHCS with reasonable care, skill and diligence and insofar as Mrs Kelly provided General Management Services to AH as expressly contemplated by the Employment Contract that she would perform her work duties with AH with reasonable care, skill and diligence. The term was implied by law and as a matter of business efficacy.[97]
[96] see R v Darling Island Stevedoring and Lighterage Company Limited; Ex parte Halliday and Sullivan (1938) 60 CLR 601 at 621-622 per Dixon J; Pezzimenti v Rotary International [2019] FCCA 1854 at [13]
[97] see, for example, Rowell v Alexander Mackie College of Advanced Education (1988) 25 IR 87 at 95, 99 per Mahoney JA; Kashemije Stud Pty Limited v Hawkes [1978] 1 NSWLR 143 at 147C per Ash J; Site Foreman Pty Limited v Brand [2011] NSWSC 821 at [32] per Black J; see further Astley v Austrust Limited (1999) 197 CLR 1 at [47] per Gleeson CJ, McHugh, Gummow and Hayne JJ
Mrs Kelly’s employment
On 19 April 2004, Mrs Kelly commenced employment with AHCS.[98]
[98] see amended statement of claim, [1]; amended defence, [1]; amended cross-claim, [3]; Kelly, [12]; applicant opening submissions, [1]; see also clause 2 of Employment Contract, Kelly, exhibit EK-1, page 2; Atanaskovic, exhibit JLA-1, page 2
From 19 April 2004, Mrs Kelly acted as the General Manager of AHCS and (as contemplated by the Employment Contract) as General Manager of AH.[99]
[99] see amended cross-claim, [3]; amended reply to amended cross-claim, [3]; Kelly, [12]; applicant opening submissions, [1]; see also second affidavit of Mr Sophocles made on 20 June 2018 (second Sophocles affidavit), [5]
As General Manager in each capacity, Mrs Kelly was responsible for, among other things, human resources, administration, information technology and finance.[100]
[100] see Kelly, [17]; applicant opening submissions, [1]; see also clause 1 of the Employment Contract
From 26 May 2009, Mrs Kelly became a national system employee of AHCS for the purposes of the Fair Work Act.[101]
[101] see amended statement of claim, [2]; amended defence, [2]
From 26 May 2009, AHCS became a national system employer for the purposes of the Fair Work Act.[102]
[102] see amended statement of claim, [4]; amended defence, [4]
On 19 May 2011, AH established AH LLP, a limited liability partnership, to provide legal services in England and Wales.[103]
[103] see amended cross-claim, [8]; amended reply to amended cross-claim, [8]; Atanaskovic, [4]; see also Kelly, [19]; applicant opening submissions, [13]; Mrs Kelly’s cross-examination, T181.01–T181.07; T181.40–T181.44
From 19 May 2011, Mrs Kelly provided certain regular financial management assistance to AH LLP, including payroll and the preparation of draft accounts.[104]
[104] See Kelly, [30]; Mrs Kelly’s cross-examination, T182.05–T182.07; T182.3538; T183.01-05; T183.13-14; T238.17-28; T246.40–T247.01; Mr Sophocles’ cross-examination, T371.43-44; T372.09-10; T404.33-37; Atanaskovic, [9]
From 19 May 2011, Mrs Kelly regarded herself as solely responsible for the payroll functions of AH LLP.[105]
[105] see Kelly, [123]; Mrs Kelly’s cross-examination, T182.38
To that end, Mrs Kelly designed a payslip to provide to AH LLP employees in the form of an Excel spreadsheet, completed the payslips on a monthly basis and emailed the payslips to the AH LLP employees on a monthly basis.[106]
[106] see Kelly, [127], [128]; second Kelly affidavit, [13]; Mrs Kelly’s cross-examination, T238.17–T239.21; T244.20-28; see also Atanaskovic, exhibit JLA-1, pages 116-117; second Atanaskovic affidavit, [41]
To that end, Mrs Kelly deducted PAYE tax and NIC payments on a monthly basis and remitted such tax and payments to HMRC on a monthly basis.[107]
[107] see amended cross-claim, [15(b)]; amended reply to cross-claim, [15(c)]; Mrs Kelly’s cross-examination, T239.25 – T240.26
Mrs Kelly also handled (and was solely responsible for) the filing of monthly returns to HMRC for PAYE tax and NIC payments.[108]
[108] see Kelly, [97]; see also amended cross-claim, [15(b)]; amended reply to amended cross-claim, [15(c)]
As already noted, on 1 September 2014 Mrs Kelly was appointed as a director of AHCS.[109]
[109] see Exhibit A3
As already noted, on 4 November 2016, the employment of Mrs Kelly ceased.[110]
[110] see applicant’s submissions, [15]
As at 4 November 2016, Mrs Kelly was paid at the annual rate of $237,315.59 including superannuation.[111]
[111] see amended statement of claim, [13]; amended defence, [13]
On 4 November 2016, Mrs Kelly had accrued but untaken annual leave totalling 100.5256 days[112] and constituting a gross (pre-tax) figure of $83,564.92[113] and a net (after tax) figure of $49,647.40.[114]
[112] see amended defence, [16(a)]
[113] see amended statement of claim, [16]; amended defence, [16(b)]
[114] see amended defence, [16(b)]
On 4 November 2016, Mrs Kelly had accrued but untaken long service leave totalling 10.875 weeks or 54.3744 days[115] and constituting a gross figure of $45,200.36[116] and a net figure of $26,854.34.[117]
[115] see amended defence, [20(a)], [21]
[116] see amended statement of claim, [20]; amended defence, [22(b)]
[117] see amended defence, [22(b)]
On 4 November 2016, Mrs Kelly had accrued but unpaid salary for two days (3 and 4 November 2016) constituting a gross amount of $1,662.56[118] and a net figure of $1,062.78.[119]
[118] see amended defence, [27(a)]
[119] see amended defence, [27(a)]
On 23 November 2016, Mrs Kelly made two demands for payment of the accrued but untaken annual leave and long service leave entitlements and the unpaid salary.[120]
[120] see Kelly, [244] and exhibit EK-1, pages 121-124
On 29 November 2016, AH outlined a breach of the Employment Contract in relation to the failure of Mrs Kelly to supply supporting documentation for an application to renew a UK visa required for the continued operation in the UK of AH and AH LLP and requested that Mrs Kelly respond to six queries relating to the failure before AHCS decided whether to pay the accrued but untaken annual leave and long service leave entitlements and the unpaid salary.[121]
[121] see Kelly, [245] and exhibit EK-1, pages 125-128
On 23 December 2016, the solicitors for Mrs Kelly made a demand for payment of the accrued but untaken annual leave and long service leave entitlements and the unpaid salary.[122]
[122] see Kelly, [246] and exhibit EK-1, page 129
On 6 and 7 January 2017, Mr Atanaskovic responded to the demand by sending an email expressly in the name of and on behalf of AH, and as solicitor on behalf of AHCS, stating expressly the reliance of AHCS on the principles of set-off in relation to the loss suffered in respect of Mrs Kelly failing to supply the supporting documentation for the visa.[123]
[123] see Kelly, [246] and exhibit EK-1, pages 130-132
Jurisdiction
The respondents accept that the Court has jurisdiction to hear the claimed contraventions of ss 44(1), 90(2), 323(1)(a) and 340 of the Fair Work Act.[124]
[124] see Fair Work Act, s 566; see also items 1 (including, by reference to s 44, s 90), 10 (including s 323) and 11 (including s 340) in the table in s 539 of the Fair Work Act
The respondents accept that the Court is exercising federal jurisdiction as the matter (the justiciable controversy between the parties) arises under a federal law (the Fair Work Act).[125]
[125] see also Leeming, The Statutory Foundations of Negligence, (2019), page 9
The respondents accept that, notwithstanding that the claim under the Long Service Leave Act arises under State law (and is thus a non-federal claim), the Court has accrued jurisdiction to hear and determine the claim.[126] (The respondents note the recent criticisms over the use of the phrase “accrued jurisdiction”).[127] However, given that the respondents seek to resist the claim by reference to (among other things) an order under rule 24.09 of the FCFC Rules,[128] the respondents are relying on federal law as a defence with the result that there is a matter that owes its existence in part to a federal law and thus the Court possesses original jurisdiction (and not merely accrued jurisdiction) to hear the claim.
[126] see, for example, Mendonca v Chan & Naylor (Parramatta) Pty Limited [2014] FCCA 1042 at [47] per Judge Cameron
[127] see Rizeq v State of Western Australia (2017) 262 CLR 1 at [55] per Bell, Gageler, Keane, Nettle and Gordon JJ
[128] see amended defence, [17(b)(iii)]
The respondents accept that the Court has accrued jurisdiction to hear and determine the breach of contract claims by Mrs Kelly as part of a single matter involving the claims of alleged contravention of the Fair Work Act. The judicial controversy between the parties, including the claims by Mrs Kelly for breach of contract, arises out of a single substratum of facts.
I accept that the Court has accrued jurisdiction to hear and determine the amended cross-claim, including the claims by the respondents for breach of contract by Mrs Kelly and for equitable set-off, as part of the single matter involving the claims of alleged contravention of the Fair Work Act.[129] The controversy between the parties includes the claimed ability of AHCS not to pay the accrued but untaken annual leave entitlements and unpaid salary entitlements (and thereby avoid a finding of contraventions of s 90(2) and s 323 of the Fair Work Act) (the federal claims) due to breaches of the Employment Contract by Mrs Kelly (the non-federal claims). I accept that the justicable controversy does arise out of a single substratum of facts. The non-federal claims are essential to determining the federal claims.
[129] see, for example, Amponsem at [9]-[14] per Judge Manousaridis; see also Rees v Worthington Services Pty Limited [2017] FCCA 2245 at [18] per Judge Barnes
Additionally, AHCS seeks in the amended cross-claim an order under rule 24.09 of the FCFC Rules for the balance of the damages for the breach of contract by Mrs Kelly after offsetting the amounts of accrued but untaken annual leave entitlements and unpaid salary entitlements. Given rule 24.09 of the FCFC Rules, the Court has jurisdiction and power to make such an order. The justiciable controversy between the parties includes the entitlement of AHCS to an order, or the appropriateness of the Court making an order, under rule 24.09.[130] This power also exists at general law, even where there is no express statutory provision.[131]
[130] see, for example, the position considered in Amponsem at [151]-[152]
[131] see eg Derham, [2.78]
Applicable law
Given that the Court is exercising federal jurisdiction, and given that the Constitution of Australia (Cth) (Constitution) and the laws of the Commonwealth do not otherwise provide, the statute law of NSW (including the statute law concerning civil liability and the assessment of damages) is picked up and is applicable.[132] The statute law of NSW applies as surrogate federal law.[133]
[132] see Judiciary Act 1903 (Cth) (Judiciary Act), s 79 of the; see also Fair Work Ombudsman v Toyota Material Handling (NSW) Pty Limited (2012) 209 FCR 428 at [43], [44], [47] per North and Flick JJ
[133] see Toyota Material Handling at [44] per North and Flick JJ
Additionally, given that the Court is exercising federal jurisdiction, and given that the Constitution and the laws of the Commonwealth do not otherwise provide or are not otherwise inconsistent, the common law of NSW (including the common law relating to set-off) is picked up and is applicable.[134]
[134] Judiciary Act, s 80
Credibility
Much of the parties’ closing submissions, both in writing and orally, dwelt upon the credibility of witnesses, in particular Mrs Kelly, Mr Atanaskovic and Mr Sophocles. Mrs Kelly presented as a quiet, thoughtful and honest witness. The demeanour of Mr Atanaskovic presented a stark contrast. He was affable, brash to the point at times of arrogance, highly intelligent (which he was keen to demonstrate) and resolute. Mr Sophocles presented as cautious and watchful and protective of the reputation of both himself and Mr Atanaskovic.
Mr Hartnell is an elderly man and his powers of recall were somewhat diminished by time. He presented, however, as a sincere and honest witness.
It is unnecessary to make any general observations concerning the other witnesses. Neither is it necessary to draw any general conclusions as to whether one witness’ evidence should be preferred over that of another except where necessary to resolve particular factual and legal disputes bearing upon the outcome of this case. In these reasons, I deal with credibility issues in that confined way.
Mrs Kelly’s claims
The Entitlements Claim
The parties are in agreement (on the pleadings) as to the nature and quantum of Mrs Kelly’s unpaid Entitlements. The position is as follows.
Mrs Kelly’s employment was governed by the terms of her Employment Contract. It was an express term of the Employment Contract that Mrs Kelly would be:
(a)initially paid a salary of $140,000 per annum plus compulsory superannuation entitlements paid in equal instalments fortnightly in arrears (clause 4);[135] and
(b)entitled to 20 days paid annual leave per annum (clause 5).[136]
[135] Kelly, EK-1, page 2
[136] Kelly, EK-1, page 2
Mrs Kelly’s salary under the Employment Contract was increased:
(a)on or about 1 July 2004 to $150,000 per annum (plus compulsory superannuation entitlements); and
(b)on or about 1 July 2008 to $216,132.73 per annum (plus compulsory superannuation entitlements),
being, according to the respondents in their defence (and which the applicant accepts), $237,315.59 per annum inclusive of compulsory superannuation entitlements.
Additionally, AHCS was obliged to comply with Part 2-2 of the Fair Work Act as AHCS was, at all material times since about 26 May 2009, a “National System Employer” within the meaning of s 14 of the Fair Work Act.[137]
[137] statement of claim, [4]; amended defence, [4]
Accordingly, Mrs Kelly’s statutory Entitlements are $130,427.84 (gross) calculated as follows:
(a)an unpaid annual leave entitlement equal to 100.5256 days salary, being in aggregate $83,564.92 on a gross basis and $49,647.40 on an after-tax basis;[138]
(b)an unpaid long service leave entitlement equal to 57.3744 days salary, being in aggregate $45,200.36 on a gross basis and $26,854.34 on an after-tax basis;[139] and
(c)unpaid wages in respect of Mrs Kelly’s employment on 3 and 4 November 2016, being in aggregate $1,662.56 on a gross basis and $1,062.78 on an after-tax basis.[140]
[138] statement of claim, [16]; amended defence, [16]
[139] statement of claim, [22]; amended defence, [22]
[140] statement of claim, [27]; amended defence, [27]
Mrs Kelly will be required to pay tax on any damages or compensation paid to her in relation to her Entitlements and therefore, she contends that the Court should award the “gross” amount and not the “net” amount of the Entitlements.
I accept that it ultimately does not matter if Mr Hartnell did not raise the complaints with Mr Atanaskovic because he did not want to be treated adversely himself or because he thought that it would not solve the problem. What matters is that Mr Hartnell took no action in relation to the complaints of which he was aware because the complaints concerned Mr Atanaskovic.
Whether the decision not to investigate Mrs Kelly’s complaints constituted adverse action
Section 340 of the Fair Work Act prohibits a person from taking adverse action against another person “because”, relevantly, the other person has, or has not, exercised a workplace right. The word “because” connotes the existence of a particular reason as an operative and immediate reason for taking adverse action. Where the adverse action taken is in consequence of a decision made by a responsible individual within a corporation, the existence or non-existence of a particular reason as an operative and immediate reason for taking that adverse action turns on an inquiry into the mental processes of that individual.
Accordingly, in simple terms, as a question of causation, the adverse action must be taken because of the exercise of the workplace right. In this case:
(a)the relevant workplace right that was exercised was the making of complaints by Mrs Kelly in relation to her employment the subject of which was the manner in which Mr Atanaskovic treated her; and
(b)the adverse action (being the decision not to investigate or take any action in relation to the complaints) was taken because the complaints concerned Mr Atanaskovic.
The framing of the applicant’s adverse action case in the above manner necessitates a close review of the manner in which ss 340 to 342 of the Fair Work Act operate.
There are two ways of construing ss 340 to 342 of the Fair Work Act. These sections could mean that either:
(a)all that is prohibited is adverse action wholly or partly motivated by the very fact that the employee concerned is entitled to exercise (or has exercised) a workplace right, whatever that right may be; or
(b)conduct is also prohibited if motivated by the level, degree or extent of the workplace right.
Put another way, the question is whether this section only prohibits conduct motivated by the fact of the making of a complaint or whether it also applies where the employer is motivated to engage in proscribed conduct because of the content of the complaint (which, in this case, was the fact that the complaint concerned Mr Atanaskovic). Mrs Kelly contends that the latter construction (which encompasses the content of the complaint) is the correct construction, which is consistent with the following superior Court authority.
This same issue was considered by the Full Federal Court in Greater Dandenong City Council v Australian Municipal, Administrative Clerical and Services Union,[332] albeit in the context of ss 298K and 298L of the Workplace Relations Act, being the predecessor provision to ss 340 to 342 of the Fair Work Act. Relevantly, s 298K(1) provided that:
(1)An employer must not, for a prohibited reason, or for reasons that include a prohibited reason, do or threaten to do any of the following:
(a) dismiss an employee;
(b) injure an employee in his or her employment;
(c) alter the position of an employee to the employee’s prejudice;
(d) refuse to employ another person;
(e)discriminate against another person in the terms or conditions on which the employer offers to employ the other person.
[332] [2001] FCA 349
Section 298L identified various items of conduct that constituted a “prohibited reason” for the purposes of s 298K of the Workplace Relations Act. One such item listed in s 298L was because an employee “is entitled to the benefit of an industrial instrument or an order of an industrial body”.[333]
[333] section 298L(1)(h)
In very general terms, Greater Dandenong concerned the following dispute. The local council was bound by an award. The council put a particular job out to tender in respect of which two tenders were received. One was an “in-house” tender and the other was a tender received from a third party. The tenders were comparable except that the in-house tender was not competitive in terms of price. The committee within the council formed the view that the in-house tender was not competitive because the third party tenderer had a price advantage which was accentuated by their belief that the in-house tender would generate greater penalty rate costs by reason of the award to which the council was subject. The council’s general manager told the council that if the third party tender was accepted, the relevant council employees would be made redundant and would likely be re-employed by the third party tenderer. Following the making of that statement, the council voted to approve the award of the contract to the third party tenderer.
Accordingly, the relevant impugned conduct in that case was not motivated by the existence of the “workplace right” (to use the Fair Work Act terminology) or its exercise under the award but rather, by the fact that the content of the award would (or at least it was perceived that it would) involve the employees being paid at higher rates.
At first instance,[334] Madgwick J found at [66]-[67] that:
There are arguably two ways of reading s 298L(1)(h). It may mean either:
(i)all that is prohibited is s 298K conduct wholly or partly motivated by the very fact that the employee concerned is entitled to something, whatever it may be, under an industrial instrument that could be called a benefit, or;
(ii)conduct is also prohibited if motivated by the level, degree or extent of the entitlement.
The first interpretation fixes upon the mere fact of entitlement, the second on the nature of the entitlement.
The express concept is not whether motivation for the s 298K conduct is simply regulation of the parties’ entitlements by award or agreement, but whether it is the employee’s ‘entitlement’ to ‘benefit’ thereunder. Moreover, if this is the correct meaning of the paragraph, its application is confined to the conduct of employers who ideologically object to the intrusion into their enterprises of any ‘award or agreement … made under or recognised by’ any Commonwealth or State (or Territory) statute: …. It is unlikely that, on such a crucial subject, Parliament would have concerned itself with such fringe eccentricities; employers (and employees) are concerned with the nature of entitlements, not the mere formality of their existence.
[334] Australian Municipal, Administrative, Clerical and Services Union v Greater Dandenong City Council [2000] FCA 1231
Madgwick J’s view was upheld on appeal. Relevantly, Wilcox J found at [80]:
In my opinion Madgwick J was correct in adopting the second of the two interpretative approaches identified by him. Section 298L(1)(h) does not apply only to conduct motivated by the fact that an industrial instrument or order applies to an employee. It applies, also, where the employer is motivated to engage in proscribed conduct because of the content of the instrument or order.
(emphasis in original)
Similarly, Merkel J made the following finding (at [128]-[131]):
It is clear from the above definitions that the ambit of an entitlement that can arise under an “industrial instrument or order” is so broad that it is almost impossible to conceive of any legislative purpose or policy that would be served by confining s 298L(1)(h) to the fact of an entitlement under an industrial instrument or order without regard to its content…. The fact of an entitlement to the benefit of an instrument or order is of little or no relevance to any particular employee until the entitlement is linked to the content of a particular entitlement arising under the provisions of the instrument or order…
… To contend, as the Council does, that the object of the Act is served by protecting only the fact of the employee’s entitlement, without regard to its content, would leave employees with a particular entitlement under an industrial instrument or order unprotected against discrimination by reason of that entitlement.
In the context of Pt XA and s 298K, the Council’s construction of s 298L(1)(h) is also not supported by the ordinary and natural meaning of the words used, nor by any discernible legislative policy or intention. Further, as has been demonstrated by Wilcox J and by Finkelstein J, it is also not supported by an historical analysis of the sub-section’s statutory predecessors and decisions of the courts concerning their operation.
Accordingly, the Council’s construction of s 298L(1)(h) is to be rejected.
Finally, Finkelstein J found that (at [212]):
I have a clear view about this aspect of the operation of s 298L(1)(h). My view does not depend upon any purposive or other modern principle of statutory construction. It does not depend upon the legislative history of the provision. It depends simply upon the meaning of the words used in the provision, taking into account the context in which those words are used. Once this would have been known as the “literal rule” (J Willis, “Statute Interpretation in a Nutshell” (1938) 16 Canadian Bar Review 1), or the “plain meaning” rule (Rodriguez v United States, 480 US 522 at 525-6 (1987)). In my opinion, the language of the provision covers both a situation where the relevant conduct is motivated by the mere fact that an employee is entitled to an industrial instrument as well as a situation where that conduct is motivated by the level, degree or extent of that entitlement.
Sections 298K and 298L of the Workplace Relations Act are not perfect analogues for ss 340 to 342 of the Fair Work Act, but the reasoning is still applicable. It is certainly the case that some of the Court’s reasoning in Greater Dandenong concerning the proper construction of the words “entitlement to benefit” which now appear in s 341(1)(a) of the Fair Work Act (concerning, among other things, the entitlement to the benefit of a workplace law) and do appear in s 341(1)(c) (concerning the making of complaints). However, this is of no moment for two reasons. First, the WH&S Act Workplace Rights (which were exercised through the making of complaints) are rights which arise under s 341(1)(a) of the Fair Work Act. Secondly, much of the reasoning concerned the purpose of the Workplace Relations Act and what is now called the “general protections” regime (to use the Fair Work Act terminology) and is equally applicable to complaints made under s 341(1)(c) of the Fair Work Act.
In further support of this construction, the Explanatory Memorandum to the Fair Work Bill 2008 (Cth), under the heading “Clause 341 – Meaning of workplace rights” states at [1362] that:
the use of the phrase ‘entitled to the benefit of’ in paragraph 341(1)(a) is intended to capture both the fact that a workplace law or instrument applies to a person, as well as the individual entitlements under the workplace law or instrument.
Similarly, in Construction, Forestry, Mining and Energy Union v Eco Recyclers Pty Ltd[335] the Federal Court:
(a)cited Dandenong City Council with approval (at [43] per Bromberg J), in referring to the fact of the existence of an industrial agreement and its content and stated, “it is not only the fact of the existence of an industrial agreement but also the content of that agreement that may constitute a ‘workplace right’ within the meaning of that expression in s 341(1) of the [Fair Work] Act”; and
(b)stated at [43] that “the proper approach to the words ‘entitled to the benefit of’ in s 341(1)(a) of the [Fair Work Act] is that they protect against conduct motivated by the fact that an industrial instrument or order applies to the person against whom ‘adverse action’ is taken, as well as where the motivation to engage in the ‘adverse action’ arises because of the content of the instrument or order”.
[335] [2013] FCA 24
I accept that ss 340 to 342 should not be constructed narrowly. The intended protection of a person from adverse action, taken because the person has in fact exercised his or her workplace right, would be largely illusory if the substance, content or effect of that right produced when the right is put into practice provides an innocent reason for the taking of adverse action. Such a narrow construction of a remedial statute is unduly restrictive and defeats the apparent purpose of the sections, being the protection of workers who are exercising workplace rights.
Accordingly, a deliberate decision by Messrs Sophocles and Hartnell not to investigate Mrs Kelly’s complaints because those complaints concerned Mr Atanaskovic is capable of constituting adverse action under s 340 of the Fair Work Act, if the decision not to take action caused, among other things, an injury to Mrs Kelly or altered her position to her prejudice.[336] Accordingly, the Court must take into account not merely the fact that the complaint was made, but also the content of the complaint when making an assessment of whether adverse action was taken in the circumstances prohibited by s 340 of the Fair Work Act.
[336] Fair Work Act, s 342
In this case, the decision by the directors of AHCS not to take any action in relation to the first to seventh complaints is said to have led to Mrs Kelly being injured, by reason of her psychological injury, loss of employment, and inability to obtain other employment (including because of her psychological injury).
It is asserted that Messrs Hartnell and Sophocles were involved in, and had actual knowledge of, the contraventions (pursuant to s 550 of the Fair Work Act) by reason of the fact that the relevant conduct was their own. Similarly, it is asserted that their accessorial liability has always been in issue. In that regard, Mrs Kelly relies on the submissions made by her counsel. As noted above, the respondents’ opening written submissions contained an express denial of accessorial liability.
Accordingly, AHCS is said to be liable in respect of the “second category” of adverse action and Messrs Sophocles and Hartnell are said to be liable as accessories as they were knowingly involved in the contravention.
In my view, Mrs Kelly has not established on the evidence that she was subjected to any unlawful adverse action because she complained about the conduct of Mr Atanaskovic. I accept that that conduct occurred and I find that it constituted bullying. The Fair Work Act provides a specific remedy to deal with bullying.[337] It does not appear that Mrs Kelly took advantage of those provisions.
[337] Fair Work Act, Part 6-4B
Mrs Kelly might hypothetically have initiated a Fair Work Act process against Mr Atanaskovic for bullying but she did not do so. Instead, she has asserted that, on the one hand, the failure to take action on her complaints constitutes adverse action and a breach of her Employment Contract but on the other hand, her complaints were the stimulus for further bullying by Mr Atanaskovic and, ultimately, the cross-claim as a device to defeat her Entitlements Claim.
The problem with this part of Mrs Kelly’s case is that, while it is readily apparent from the evidence that no action was taken in response to her complaints against Mr Atanaskovic, she was not harmed in her employment because of those complaints. Indeed, the complaints were a genuine and worthwhile attempt to set the record straight and maintain Mrs Kelly’s sense of self worth. It is tolerably clear that Mr Sophocles and Mr Hartnell were unwilling to challenge Mr Atanaskovic about his behaviour because of his dominating position in the firm and his dominating personality.
Mrs Kelly’s case assumes that she was injured in her employment because of the established failure to take any action on her complaints. That assumes that, if Mr Atanakovic had been confronted about his conduct by Mr Sophocles or Mr Hartnell, that would have done some good. That is by no means established.
Mr Hartnell’s assessment is probably the correct one, namely that confronting Mr Atanaskovic about his conduct was likely to have made things worse, at least for Mrs Kelly. That is a dismal conclusion to reach, but in my view it reflects the reality of the circumstances.
Notwithstanding the building storm of criticism of Mrs Kelly by Mr Atanaskovic, she remained a valued employee of AHCS. Notwithstanding Mr Atanaskovic’s repeated threats to her employment and to her salary, neither was she dismissed nor was her salary reduced. It appears to me that if she had not resigned, Mrs Kelly’s employment would have continued. Indeed, the evidence is clear that the resignation of Mrs Kelly caused some consternation to both AHCS and AH. They informally invited Mrs Kelly to remain in her position, at least on a limited part time basis, but she would have none of it.
Mrs Kelly was required by AHCS to work out the entirety of her notice period. If the opinion of Mr Atanaskovic about Mrs Kelly was shared by AHCS that would have been a bizarre decision. The conclusion I draw is that the negative opinion held by Mr Atanaskovic about Mrs Kelly was not shared by AHCS. Nor was it shared personally by Mr Sophocles and Mr Hartnell.
Mrs Kelly resigned because she could no longer bear the continuing denigration of her by Mr Atanaskovic. She asserts that she has suffered harm by reason of that conduct but she has not claimed under the Fair Work Act against by Mr Atanaskovic directly, for the consequences of his bullying conduct. Rather, she has pursued rather convoluted adverse action claims against various respondents. I find that the adverse action aspects of Mrs Kelly’s claims based on her complaints have not been established.
I have also found, however, that the Contract Claim has been established.
I have accepted that the Employment Contract contained an implied term that AHCS provide a safe workplace. The conduct of Mr Atanaskovic rendered the workplace unsafe for Mrs Kelly. AHCS did nothing about that conduct. It may well be right that there was nothing AHCS could have done to prevent the conduct of Mr Atanaskovic or protect Mrs Kelly from it. Any relevant action would have required the intervention of Mr Hartnell and/or Mr Sophocles, who felt unable or unwilling to act. As I have noted earlier, their inactivity was based on their incapacity to make a difference. The incapacity of its directors, however, does not absolve AHCS of liability for its breach. Both AHCS and Mr Atanaskovic are liable for the breach of contract. That breach was caused by the conduct of Mr Atanaskovic. Both he and AHCS should be held liable to compensate Mrs Kelly for any loss she has suffered in consequence of the breach.
There is little point in debating whether Mr Atanaskovic should be held liable as a non party to the Employment Contract. He was a director of AHCS when the Employment Contract was entered into. He became a director of AHCS again in 2018. It was his conduct which rendered the workplace unsafe and exposed Mrs Kelly to the risk of injury. Mr Atanaskovic controlled AH and AH LLP, the only clients of AHCS. For all practical purposes, he controlled AHCS. In the circumstances AHCS would probably be entitled to be indemnified by Mr Atanaskovic for the liability incurred by AHCS.
Loss and damage
Mrs Kelly claims damages for the breach of her Employment Contract. She contends that she has suffered a psychiatric illness. The expert evidence on that by Dr Parmegiani and Dr Samuell was contradictory. Mrs Kelly gave no outward indications in the witness box of suffering a psychiatric illness, and in my view it would be unsafe to conclude that she is so afflicted. It is, however, plain from her evidence, and that of her husband, which I accept, that Mrs Kelly was deeply upset and humiliated by the conduct of Mr Atanaskovic and the lack of support she obtained from her co-directors of AHCS. She should receive compensation for the pain and suffering inflicted upon her.
It is notoriously difficult to assess general damages for non economic loss. The award of damages should reflect the seriousness of the harm caused and the Court’s recognition of it. The award should neither be derisory nor extravagant. The range of damages in other cases in this Court and the Federal Court is at least $100,000. In Gutierrez v MUR Shipping Australia Pty Limited,[338] where the hurt feelings of the applicant were less severe than in this case (and where I ordered the provision of an apology), I awarded $20,000. In this case, there would be no point in ordering the provision of an apology, as it would be unlikely to be sincere. In Ferguson v John A Martin & Kevin Pendergast trading as Sharks Shire Plumbing[339] I awarded $50,000. In that case there were racial taunts over an extended period which had a significant impact on the applicant’s state of mind. This case falls between those two cases.
[338] [2021] FedCFamC2G 56
[339] [2021] FedCFamC2G 58
While case comparisons can provide some guidance, the Court must have regard to prevailing community standards, and general ideas of fairness and moderation. The unique circumstances of each case is the key determinant.[340] The difficulty in making an assessment in this case is that Mr Atanaskovic was entitled to criticise Mrs Kelly’s performance, provided that the criticism was appropriate to the circumstances. He did not have to remain silent. Further, Mrs Kelly proved herself capable of defending herself in her complaints to Mr Hartnell and Mr Sophocles. As I have already found, Mr Atanaskovic’s criticisms became, over time, a campaign of denigration which ultimately, Mrs Kelly found too much to bear. She suffered hurt and humiliation before she sensibly resigned. This calls for a moderate award of general damages. In the circumstances of this case I have come to the view that an award of $30,000 would be appropriate.
[340] Planet Fisheries Pty Ltd v La Rusa (1968) 119 CLR 118
Mrs Kelly also claims special damages for economic loss, based upon the premature end of her employment and her limited career prospects. Mr Clare gave evidence about that and I accept that it would be difficult for Mrs Kelly to find alternative and equivalent employment.
Mrs Kelly claims in excess of $1.5 million for past and future economic loss, based upon the supposition that she would have remained in her employment with AHCS until her assumed retirement in October 2023. I do not accept that claim. Mrs Kelly sensibly chose to resign her employment but she was not forced to do so. She may have been encouraged to do so by Mr Hartnell, who was concerned for her welfare, as well as his own, but this was not a constructive dismissal. On the contrary, as I have already found, AHCS was concerned about the resignation of Mrs Kelly and was at least open to a continuation of her employment. It was Mrs Kelly’s decision to go, albeit a sensible one.
The evidence of Mrs Kelly and her husband, including under cross-examination, is that they are settled and happy on their farm. I do not accept that Mrs Kelly is seeking or would seek to resume employment as an accountant.
I will not award any amount for economic loss.
CONCLUSION
Mrs Kelly should receive her entitlements and I will make orders that they be paid within 21 days. She should also receive interest on those entitlements up to judgment. The relevant rates of interest are set out in the Federal Court Interest on Judgment Practice Note.
Mrs Kelly should also receive compensation in the form of general damages for the hurt, humiliation and distress that Mr Atanaskovic caused her. I have assessed that compensation at $30,000. I will order that Mr Atanaskovic and AHCS be jointly and severally liable to pay it.
The parties have reserved their position on the question of costs after the Court has published its reasons on liability and damages. I will hear the parties as to costs in due course.
I certify that the preceding four hundred and sixty-four (464) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Driver. Associate:
Dated: 31 March 2022
SCHEDULE OF PARTIES
SYG 1194 of 2017 Respondents
Fourth Respondent:
ANTHONY HARTNELL
Fifth Respondent:
JEREMY KRIEWALDT
Sixth Respondent:
MICHAEL SOPHOCLES
Seventh Respondent:
JON SKENE
3
20
0