Textile Clothing Footwear Union of Australia v Icon Print Innovations Pty Ltd

[2018] FCCA 1135

FEDERAL CIRCUIT COURT OF AUSTRALIA

TEXTILE CLOTHING FOOTWEAR UNION OF AUSTRALIA v ICON PRINT INNOVATIONS PTY LTD & ORS [2018] FCCA 1135

Catchwords:
INDUSTRIAL LAW – Application for relief under s 539 of the Fair Work Act 2009 – whether the respondents contravened the Fair Work Act in respect of annual leave, redundancy and long-service leave in respect of all three employees – second respondent contravened s 44 of the Fair Work Act 2009 – penalty issue – cross-claimant entitled to recover damages due to the contraventions of the cross-respondent.

Legislation:

Competition and Consumer Act 2010 (Cth), s.18

Fair Work Act 2009 (Cth), ss.44, 45, 117, 517, 539, 546, 566

Cases cited:
Rojas v Esselte Australia Pty Limited (No.2) (2008) 177 IR 206

Applicant: TEXTILE CLOTHING AND FOOTWEAR UNION OF AUSTRALIA

First Respondent: ICON PRINT INNOVATIONS PTY LTD ACN 163 696 160

Second Respondent

And Cross-Claimant:

GARETH DAVIES

Cross-Respondent: ICON 21 PTY LTD

File Number: SYG 364 of 2016

Judgment of: Judge Street

Hearing date: 16 March 2018

Date of Last Submission: 16 March 2018

Delivered at: Sydney

Delivered on: 16 March 2018

REPRESENTATION

Counsel for the Applicant: Ms L Saunders

Solicitors for the Applicant: Slater and Gordon

Counsel for the Second Respondent and Cross-Claimant: Mr N Allan

Solicitors for the Second Respondent and Cross-Claimaint: Ziman and Ziman Solicitors

Counsel for the Cross-Respondent: Ms E Graham

Solicitors for the Cross-Respondent: Coyne Legal

THE COURT DECLARES THAT:

1. A declaration that the second respondent contravened s 44 of the Fair Work Act 2009 (Cth) on 9 December 2014 by being knowingly involved in for the purpose of s 550 of Fair Work Act 2009 (Cth) Icon Print Innovation Pty Ltd’s failure to pay its employee Mr Prem Chand, in lieu of notice of the termination of his employment in accordance with s 117 of the Fair Work Act 2009 (Cth).

2. A declaration that the second respondent contravened s 44 of the Fair Work Act 2009 (Cth) on 9 December 2014 by being knowingly involved in for the purpose of s 550 of Fair Work Act 2009 (Cth) Icon Print Innovation Pty Ltd’s failure to pay its employee, Mr Lolesio Tagaloa, in lieu of notice of the termination of his employment in accordance with s 117 of the Fair Work Act 2009 (Cth).

3. A declaration that the second respondent contravened s 44 of the Fair Work Act 2009 (Cth) on 9 December 2014 by being knowingly involved in for the purposes of s 550 of the Fair Work Act 2009 (Cth) Icon Print Innovation Pty Ltd’s failure to pay its employee Mr Van Binh Bui in lieu of notice of the termination of his employment in accordance with s 90(2) of the Fair Work Act 2009 (Cth).

4. A declaration that the second respondent is, by reason of the failure to pay long service leave, annual leave, notice of termination and redundancy, liable to pay compensation to Mr Prem in the amount of $27,676.28.

5. A declaration that the second respondent is, by reason of the failure to pay long service leave, annual leave, notice of termination and redundancy, liable to pay compensation to Mr Lolesio Tagaloa in the amount of $30,699.56.

6. A declaration that the second respondent is, by reason of the failure to pay long service leave, annual leave, notice of termination and redundancy, liable to pay compensation to Mr Van Binh Bui in the sum of $33,805.31.

7. A declaration in respect of the contravention of s 44 of the Fair Work Act 2009 (Cth) by reason of the failure to pay accrued but untaken annual leave to its employees on termination, a pecuniary penalty is payable by the second respondent to the applicant in the sum of $5,000.00.

8. A declaration in respect of the contravention of s 44 of the Fair Work Act 2009 (Cth), by reason of the failure to pay accrued but untaken long service leave to its employees on termination, a pecuniary penalty is payable by the second respondent to the applicant in the amount of $5,000.00.

9. A declaration in respect of the contravention of s 44 of the Fair Work Act 2009 (Cth) by reason of a failure to pay in lieu of notice to its employees on termination, a pecuniary penalty is payable by the second respondent to the applicant of $5,000.00.

10. A declaration in respect of the contravention of s 45 of the Fair Work Act 2009 (Cth) by reason of the failure to pay redundancy pay as required by clause 19 of the Textile, Clothing and Footwear Award 2009, a pecuniary penalty is payable by the second respondent to the applicant of $5,000.00.

11. A declaration that the cross-respondent engaged in misleading and deceptive conduct in respect of the sale of the business to Gareth Davies Holdings Pty Limited, which has caused loss to the second respondent in the sum of $32,000.00.

ORDERS

1. The second respondent to pay Mr Prem Chand the sum of $27,676.28 together with interest in accordance with the Federal Court of Australia scale from 9 December 2014 within 28 days.

2. The second respondent to pay Mr Lolesio Tagaloa the sum of $30,699.56 together with interest, in accordance with the scale of the Federal Court of Australia from 9 December 2014 to be paid within 28 days.

3. The second respondent to pay Mr Van Binh Bui $33,805.31 together with interest in accordance with the scale of the Federal Court of Australia calculated from 9 December 2014 within 28 days.

4. The second respondent pay the pecuniary penalty totalling $20,000.00 to the applicant within 28 days.

5. The cross-respondent pay the loss and damage caused by the misleading and deceptive conduct of the cross-respondent to the second respondent in the sum of $32,000.00 within 28 days together with interest in accordance with the Federal Court of Australia scale calculated from 5 July 2013.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 364 of 2016

TEXTILE CLOTHING AND FOOTWEAR UNION OF AUSTRALIA

Applicant

And

ICON PRINT INNOVATIONS PTY LTD
ACN 163 696 160

First Respondent

GARETH DAVIES

Second Respondent and Cross-Claimant

ICON 21 PTY LTD

Cross Respondent

REASONS FOR JUDGMENT

Background

1. This is an application within the Court’s jurisdiction under s 566 of the Fair Work Act 2009 (Cth) (“the Act”) for relief under s 539 of the Act in respect of union members for the applicant who, relevantly, work for the entity Icon Print Innovations Proprietary Limited which went into liquidation, in respect of which the second respondent was a director of the employer first respondent.

2. The proceedings were brought by the applicant as a result of alleged contraventions in respect of the non-payment of employee entitlements following termination of the three employees, Mr Van Binh Bui, Mr Prem Chand and Mr Lolesio Tagaloa on the basis of redundancy.

3. The proceedings also involve a cross-claim brought by Mr Gareth Davies, who was the director of an entity that purchased the business from the cross-respondent under an agreement for the sale of the business that took place on 10 May 2013, with completion occurring at a later date between the cross-respondent and Gareth Davies Holdings Pty Ltd.

The contraventions

1. The second respondent, to his significant credit, has ultimately not disputed the respective contraventions alleged by the applicant in respect of annual leave, redundancy and long-service leave in respect of all three employees.

2. There was a dispute raised in relation to the long-service leave, which gave rise to the cross-examination of Mr Tagaloa, but after the conclusion of that cross-examination, the second respondent accepted in the circumstances of the present case that the amount of long-service leave to which Mr Tagaloa should be entitled was that identified by the applicant, following the service of the second affidavit of Mr Tagaloa in the amount of $18,508.00. The sum of the long-service leave due to Mr Tagaloa was at the heart of the cross-claim, and the cross-respondent cross-examined Mr Tagaloa to suggest that records kept post-2000 in relation to alleged payments to Mr Tagaloa were to be preferred to Mr Tagaloa’s recollection.

3. Mr Tagaloa was a most impressive witness, and the Court accepts his evidence as correct and truthful. The Court prefers Mr Tagaloa’s evidence to that of the records that were kept by the cross-respondent and/or the first respondent. The Court notes that, in relation to the long-service entitlements of Mr Tagaloa, neither the first respondent nor the cross-respondent kept what could be called proper records in respect of the long-service leave entitlements and payments to Mr Tagaloa. In those circumstances, quite apart from the Court’s acceptance of Mr Tagaloa’s evidence, every adverse inference that is properly available should be drawn in favour of Mr Tagaloa, where proper records have not been kept by the employer.

4. The Court finds that Mr Tagaloa should have been paid long-service leave in the amount of $18,508.00. The Court finds that the records kept by the cross-respondent were inadequate and incomplete, and did not properly reflect what should have been maintained in respect of Mr Tagaloa’s important entitlement to long-service leave.

5. Substantial affidavit evidence has been read which it is not necessary for the Court to summarise and make findings upon, given the position taken by the second respondent in relation to the non-payment of the annual leave, redundancy and long-service leave for the three employees.

6. Suffice to say the Court finds that the amount outstanding to Mr Prem Chand is the sum of $27,676.28, upon which the Court will order interest to be paid in accordance with the interest rates applicable in the Federal Court of Australia from 9 December 2014.

7. In relation to Mr Van Binh Bui, the Court finds, as a result of the contraventions, that the total amount outstanding to Mr Bui is the sum of $33,805.31, which again, should be the subject of interest in accordance with the Federal Court of Australia scale from 9 December 2014.

8. In relation to the compensation payable to Mr Tagaloa, the Court finds that he is entitled to the sum of $30,699.56, again, in respect of which interest should be paid in accordance with the Federal Court of Australia scale from 9 December 2014.

9. There was an issue that had been raised but was not pursued in respect of an alleged notification requirement under s 517 of the Act. That issue, whilst raised in the context of identifying what might be a mitigating factor in terms of the second respondent’s knowledge of the requirements of s 117 of the Act for written notice, was properly then the subject of concession in respect of the contravention and the relevant knowing participation by the second respondent. That, again, is a matter that impacts favourably as I have said on the question of penalty, but absence of knowledge of the obligation to give written notice under s 117 of the Act does not give rise to circumstances in which a contravention could not be made out. A person who is aware of and knowingly involved in the termination of that employee that gave rise to circumstances of redundancy would not be entitled to avoid the consequence of knowing participation because of ignorance of the obligation to give the notice in writing.

The issue of penalty

1. The real issue between the applicant and the second respondent is that of penalty. Pursuant to s 546 of the Act and s 539 of the Act, the Court can impose a maximum penalty of 60 penalty units on an individual when it is satisfied an individual has contravened a certain penalty provision. At the time of contravention the penalty unit was worth $170.00, which means the maximum penalty that can be imposed in respect of each contravention on the second respondent is $10,200.00.

2. In the circumstances of the present case, the Court finds that the second respondent was knowingly involved in the three contraventions of s 44 of the Act and the one contravention of s 45 of the Act. The purpose of the penalty order is protective and secures compliance on a general and specific basis with the statutory regime prescribed by the Act. The penalty must be proportionate to the conduct and the Court must take into account the totality principle. The Court must determine where the conduct sits in respect of the seriousness of contravention, and the factors have been summarised helpfully in Rojas v Esselte Australia Pty Limited (No.2) (2008) 177 IR 206 at 65 as follows:

   a. the nature and extent of the conduct which lead to the breach;

   b. the circumstances in which the conduct took place;

   c. the nature and extent of any loss of damage suffered as a result of the breach;

   d. any antecedent conduct by the contravener;

   e. the seniority and authority of the persons engaging in the contravention;

   f. whether the contraventions were deliberate and premeditated;

   g. contrition on the part of the contravener;

   h. any corrective action taken by the contravener;

   i. the extent of any cooperation between the contravener and the Applicant seeking to enforce the law.

3. The first respondent has submitted that there must be weighted in relation to the penalties, the amount that has been found to be outstanding in respect of the contraventions, which is not insignificant for the respective employees. The Court has found the conduct is one in respect of which the second respondent has been knowingly involved and was committed in circumstances where there was an obligation on the corporate entity to pay the employees the entitlements to which they were due.

4. The applicant has advanced that there was no explanation for the failure to safeguard the employee entitlements in circumstances where the business might be said to have been alive to the viability issues. Be that as it may, this is a case where the second respondent has explained the unfortunate loss of a particular source of goods that materially affected the viability of the business, and the Court takes into account that explanation.

5. Reference was made by the applicant to the impact of the employee entitlements that were not paid on the purchase price. That is not a matter that the Court gives great weight in the circumstances where it is apparent the second respondent, through his corporate vehicle, expended substantial funds in the acquisition of what became an unviable business, has nonetheless the obligation of both the corporate entity and its directors to ensure that employees’ entitlements were able to be met. There is force in the proposition that proper safeguards should have been in place to ensure employees’ entitlements were able to be paid when they were due in accordance with the requirements of the Act.

6. Further, I accept the proposition that the applicant has raised that for these three individuals the amounts outstanding were significant and that they were at the vulnerable end of the impact of the contraventions and were long-term employees. The Court also takes into account that no earlier payment has been made of the amounts alleged to be outstanding by the applicant, albeit in that regard the Court does accept that in respect of the long service leave of Mr Tagaloa, this has only been provided shortly prior to the hearing today.

7. I do regard the second respondent, through his conduct in these proceedings, as expressing contrition in relation to the contraventions as he has not opposed the making of the relevant declarations and, as the Court indicated, that is to his credit and impacts on the level of penalty which should be imposed.

8. The Court also takes into account that these are employees in the textile, clothing and footwear industry and that there is a need for general deterrence. The Court accepts that there is no need for specific deterrents and that there is no antecedent conduct by the second respondent which, again, is to his credit. The Court also takes into account that the contraventions arose in the context of the collapse of the business, and the Court is particularly mindful of the fact that the second respondent has cooperated with the applicant by providing appropriate records and making appropriate concessions.

9. The second respondent has submitted that the penalties should be in the lower range in the circumstance of the present case, and in the order of approximately $2,000.00 each in respect of each contravention. The second respondent has in substance, raised the substantial cooperation by the second respondent in relation to the conduct of these proceedings. Whilst the Court does regard that conduct is of significant weight, nonetheless these amounts have been outstanding for what is a significant period to the respective employees. It is not appropriate in those circumstances to adopt the lower end of the range.

10. The applicant submitted that the respective penalties should be in the amount of $7,000.00 in respect of each contravention. Taking into account the factors to which the Court has referred and the principles to which the Court has referred, the Court is of the view that the appropriate penalty in respect of each of the alleged contraventions is the sum of $5,000.00, which makes a total amount of $20,000.00.

11. There is a discretion under the legislation as to whom the amount should be paid to in respect of a penalty. These are proceedings that were brought by the applicant to protect its members. That is an important part of the legislative scheme that permits those who are vulnerable to have proceedings brought. Whilst there may be circumstances in which the amount of the penalty involved requires consideration being given as to whether the whole or part of the penalty should be paid to the Commonwealth, this is not such a case. The Court accepts that it is appropriate in the circumstances of the present case where the applicant has pursued the interests of its members to ensure proper statutory entitlements were paid, that the payment be made to the applicant in respect of the penalty. Accordingly, in total the Court will order the second respondent to pay, by reason of the respective four contraventions, a total penalty sum of $20,000.00 to the applicant within 28 days.

The cross-claim

1. The remaining issue is that of the cross-claim. In relation to the cross‑claim it is of particular significance that Mr Wolfgang Mitterhuemer, in his affidavit dated 12 March 2018, identified that during negotiations the second respondent requested that in lieu of paying out the entitlements owed to the full-time employees of Icon Print Innovations Pty Ltd the subject of the business sale, an adjustment would be made to the sale price of the business and that this verbal request was reflected in the written contract for sale in clause 31.4.

2. Clause 31.4 provides as follows:

   31.4 The vendor must adjust under clause 18, as regards the employee on the list, an amount equal to:

   31.4.1 the value of any long service leave entitlement of each employee, varied by multiplying that value by the figures shown in column 2 of the Long Service Leave Adjustment Table which corresponds to the length of continuous service shown in column 1 of the Long Service Leave Adjustment Table; and

   31.4.2 the monetary value of any other secured employee entitlements as at completion.

3. It is apparent from what was said by Mr Wolfgang Mitterhuemer that the purchase price was reduced, effectively, by the employee entitlements. The contract also contained special conditions and relevantly in that regard, clause 33 provided as follows:

   33. Employees:

   In addition to the provisions of the general conditions specifically in clause 31 of this agreement:

   Attached to this Agreement is a list of schedule of employees

   The Purchaser warrants that prior to the date of this Agreement it has received and satisfied itself of the employee entitlements as disclosed by the Vendor.

   Subject to clause 31.8 of the general conditions, the Purchaser accepts responsibility for employee benefits for those employees to be employed by the Purchaser after completion and the Vendor warrants that those benefits shall not at the date of completion exceed $23,000 for Annual Leave and $49,000 for Long Service Leave and the Purchaser hereby indemnifies the Vendor against all claims, demands, editions, suits, causes of action, and sums of money which any such employee may bring at any time against the Vendor for such accrued employment benefits. The provisions of this Clause shall not merge on completion.

1. Annexed to the contract is a schedule as referred to in clause 33 that relevantly provided, in relation to Mr Tagaloa, that there was long service leave due only in an amount of $925.88. The Court finds that that amount was a material understatement of the long service leave to which Mr Tagaloa was then entitled. The Court finds that Mr Tagaloa was at that time entitled to long service leave in an amount in the order of $16,000.00

2. The sale of business contract identified a gap in relation to long service leave of $49,000.00 and it is apparent from the calculations in the attached schedule to the agreement that the purchaser was materially misled. The misleading conduct was conduct in the course of trade and commerce and was a contravention of s 18 of Schedule 2 to the Competition and Consumer Act 2010. By reason of that contravention, and as a result of the findings of the Court in the present case, Mr Gareth Davies has suffered loss and damage, firstly, in relation to the amount that has been found payable to Mr Tagaloa, less the sum identified in the schedule and allowance for his further employment up to the date of his termination. The Court finds that gives rise to an amount of $16,000.00 loss suffered by the second respondent as a result of the misleading and deceptive conduct by the cross-respondent in the representation made as to the cap on the non-service leave entitlement.

3. The Court also finds, in light of the evidence of Mr Wolfgang Mitterhuemer, that the purchase price paid by the entity of the second respondent was one that was $16,000.00 more than should have been the purchase price. There is no dispute that the purchase entity was the company of the second respondent. I find the second respondent suffered further loss by reason of the misleading and deceptive conduct being the reduced purchase price. I find that was inadequate and was not the true amount outstanding to employees. The second respondent would not have been in a position where the full entitlement to employees would not have been paid if the cross-respondent had not misled the cross-claimant as to the entitlements identified in the schedule to the sale agreement. The cross-claimant has suffered loss and damage by reason of the inadequately reduced purchase price being misleading conduct of the cross-respondent and is loss because of the conduct of the cross-respondent. I do not regard the separate corporate entity as preventing a finding of the necessary causal link given the breadth of meaning of the words suffers “loss or damage because of the conduct of another person” in s 236 of the Australian Consumer Law Act 2010. I find this causal link of loss to the cross-claimant is established in this case.

4. The cross-respondent has drawn the Court’s attention to the provisions of the contract, including the general conditions  1-12 and clause 31 as well as the special conditions, clause 33, 34(a), 41, 48, 51 and a conflict provision in relation to general and special provisions. Attention was also drawn to the attachment of the contract in relation to the long service leave. The Court has found that attachment was misleading and deceptive, as it falsely represented the amount of long service leave due to Mr Tagaloa.

5. It was submitted on behalf of the cross-respondent that the purchaser and the second respondent were aware that employees’ entitlements had not been signed off and that there were further steps that could be taken. That does not give rise to the representation contained in the schedule not being false or not being misleading and deceptive, nor is it one that gives rise to any relevant causative breach or gap in respect of the loss and damage that flows from the misleading and deceptive conduct in the circumstances of the present case to the second respondent.

6. It was reasonable for the second respondent to rely upon the schedule that was provided in the agreement identified in the sale contract. The Court has found that the second respondent relied upon the same both in relation to the entitlements to which employees would be entitled and that the second respondent as a result has suffered a loss, by reason of the entitlements which the Court has identified in the sum of $16,000.00, Further, that there has been a loss suffered by the second respondent by reason of the contravention in terms of the purchase price, being one that was $16,000.00 more than should have been paid. The Court does not regard the two losses as being the same loss. They are different and separate consequences of the misleading and deceptive conduct and the loss suffered by reason of the cross-respondent’s contraventions for which the cross-claimant is entitled to recover damages.

I certify that the preceding thirty-two (32) paragraphs are a true copy of the reasons for judgment of Judge Street

Date: 25 May 2018