Workplace Ombudsman v Queensland Marine and General Insurance Management Pty Ltd
[2011] FMCA 261
•15 March 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| WORKPLACE OMBUDSMAN v QUEENSLAND MARINE AND GENERAL INSURANCE MANAGEMENT PTY LTD & ORS | [2011] FMCA 261 |
| INDUSTRIAL LAW – Costs – application for – no vexatious or unreasonable conduct demonstrated warranting costs order – penalty hearing – under payment of wages, long service leave and allowances – limited co-operation with investigating authority – bearing on penalty. |
| Crimes Act 1914 (Cth), s.4AA Workplace Relations Act 1996 (Cth), ss.3, 3(f), 4(1), 119(2), 719, 719(1), 720, 824 |
| Australian Ophthalmic Supplies Pty Ltd v McAlary‑Smith [2008] FCAFC 8 Blandy v Coverdale NT Pty Ltd [2008] FCA 1533 Construction, Forestry, Mining and Energy Union (CFMEU) v Clarke [2006] FCA 245 Cotis v Macpherson [2007] FMCA 2060 CPSU, The Community and Public Sector Union v Telstra Corporation Ltd [2001] FCA 1364 Dowling v Fairfax Media Publications Pty Ltd [2009] FCA 339 Heidt v Chrysler Australia Ltd (1976) 26 FLR 257 Kanan v Australian Postal & Telecommunications Union (1992) 43 IR 257 Kelly v Fitzpatrick [2007] FCA 1080 Mason v Harrington Corporation Pty Ltd trading as Pangaea Restaurant and Bar [2007] FMCA 7 Printing and Kindred Industries Union (PKIU) and Others v Vista Paper Products Pty Ltd & Another (1994) 127 ALR 673 Ponzio v B & P Caelli Constructions Pty Ltd (2007) 158 FCR 543 Rajagopalan v BM Sydney Building Materials Pty Ltd [2007] FMCA 1412 |
| Applicant: | WORKPLACE OMBUDSMAN |
| First Respondent: | QUEENSLAND MARINE AND GENERAL INSURANCE MANAGEMENT PTY LTD |
| Second Respondent: | PETER RALPH MARTINUZZI |
| Third Respondent: | QUEENSLAND MARINE AND GENERAL INSURANCE BROKERS PTY LTD |
| File Number: | BRG 147 of 2009 |
| Judgment of: | Burnett FM |
| Hearing date: | 14 March 2011 |
| Date of Last Submission: | 15 March 2011 |
| Delivered at: | Brisbane |
| Delivered on: | 15 March 2011 |
REPRESENTATION
| Counsel for the Applicant: | Mr Murdoch |
| Solicitors for the Applicant: | McCullough Robertson |
| Counsel for the Respondents: | Mr Sumner-Potts |
| Solicitors for the Respondents: | Myles Thompson Solicitor |
ORDERS
That pursuant to s.719(1) of the Act, the First Respondent pay a penalty of 50 penalty units ($5,500.00) for a contravention of a civil remedy provision being a breach of an “applicable provision” (s.718 of the Act) of the Insurance Industry Award 1998 relating to the failure to pay wages due to the employee David Stone in the sum of $1,002.93 and the failure to pay wages due to the employee Michael Lee in the sum of $9,203.45.
That pursuant to s.719(1) of the Act, the First Respondent pay a penalty of 50 penalty units ($5,500.00) for contravention of a civil remedy provision being a breach of an “applicable provision” (s.718 of the Act) of the Insurance Industry Award 1998 relating to the failure to pay leave loading due to the employee David Stone in the sum of $3,141.99.
That pursuant to s.719(1) of the Act, the First Respondent pay a penalty of 50 penalty units ($5,500.00) for contravention of a civil remedy provision being a breach of an “applicable provision” (s.718 of the Act) of the Insurance Industry Award 1998 relating to failure to make a payment of a “tropical allowance” due to the employee David Stone in the sum of $1,892.28 and the failure to make a payment of a “tropical allowance” due to the employee Michael Lee in the sum of $1,760.54.
That pursuant to s.719(1) of the Act, the First Respondent pay a penalty of 50 penalty units ($5,500.00) for contravention of a civil remedy provision being a breach of an “applicable provision” (s.718 of the Act) of the Insurance Industry Award 1998 relating to the failure to pay accrued long service leave entitlements due to the employee Michael Lee in the sum of $4,475.27.
That pursuant to s.719(1) of the Act, the Second Respondent pay a penalty of 24 penalty units ($2,640.00) for a contravention of a civil remedy provision being a breach of an “applicable provision” (s.718 of the Act) of the Insurance Industry Award 1998 relating to the failure to pay wages due to the employee David Stone in the sum of $1,002.93 and the failure to pay wages due to the employee Michael Lee in the sum of $9,203.45.
That pursuant to s.719(1) of the Act, the Second Respondent pay a penalty of 24 penalty units ($2,640.00) for contravention of a civil remedy provision being a breach of an “applicable provision” (s.718 of the Act) of the Insurance Industry Award 1998 relating to the failure to pay leave loading due to the employee David Stone in the sum of $3,141.99.
That pursuant to s.719(1) of the Act, the Second Respondent pay a penalty of 24 penalty units ($2,640.00) for contravention of a civil remedy provision being a breach of an “applicable provision” (s.718 of the Act) of the Insurance Industry Award 1998 relating to failure to make a payment of a “tropical allowance” due to the employee David Stone in the sum of $1,892.28 and failure to make a payment of a “tropical allowance” due to the employee Michael Lee in the sum of $1,760.54.
That pursuant to s.719(1) of the Act, the Second Respondent pay a penalty of 24 penalty units ($2,640.00) for a breach of an “applicable provision” (s.718 of the Act) of the Insurance Industry Award 1998 relating to the failure to pay accrued long service leave entitlements due to the employee Michael Lee in the sum of $4,475.27.
That pursuant to s.719(1) of the Act, the Third Respondent pay a penalty of 50 penalty units ($5,500.00) for a contravention of a civil remedy provision being a breach of an “applicable provision” (s.718 of the Act) of the Insurance Industry Award 1998 relating to the failure to pay wages due to the employee David Stone in the sum of $1,002.93 and the failure to pay wages due to the employee Michael Lee in the sum of $9,203.45.
That pursuant to s.719(1) of the Act, the Third Respondent pay a penalty of 50 penalty units ($5,500.00) for contravention of a civil remedy provision being a breach of an “applicable provision” (s.718 of the Act) of the Insurance Industry Award 1998 relating to the failure to pay leave loading due to the employee David Stone in the sum of $3,141.99.
That pursuant to s.719(1) of the Act, the Third Respondent pay a penalty of 50 penalty units ($5,500.00) for contravention of a civil remedy provision being a breach of an “applicable provision” (s.718 of the Act) of the Insurance Industry Award 1998 relating to failure to make a payment of a “tropical allowance” due to the employee David Stone in the sum of $1,892.28 and the failure to make a payment of a “tropical allowance” due to the employee Michael Lee in the sum of $1,760.54.
That pursuant to s.719(1) of the Act, the Third Respondent pay a penalty of 50 penalty units ($5,500.00) for contravention of a civil remedy provision being a breach of an “applicable provision” (s.718 of the Act) of the Insurance Industry Award 1998 relating to the failure to pay accrued long service leave entitlements due to the employee Michael Lee in the sum of $4,475.27.
That pursuant to s.841 of the Act, the penalties imposed under Orders 1 to 12 above inclusive be paid to the Commonwealth.
That pursuant to s.719(6) of the Act, the First Respondent pay David Stone the sum of $1,002.93 on account of unpaid wages.
That pursuant to s.719(6) of the Act, the First Respondent pay David Stone the sum of $3,141.99 on account of unpaid leave loading.
That pursuant to s.719(6) of the Act, the First Respondent pay David Stone the sum of $1,892.22 on account of unpaid “tropical allowance”.
That pursuant to s.719(6) of the Act, the First Respondent pay the legal representative of Michael Lee the sum of $9,203.45 on account of unpaid wages.
That pursuant to s.719(6) of the Act, the First Respondent pay the legal representative of Michael Lee the sum of $4,475.27 on account of unpaid long service leave.
That pursuant to s.719(6) of the Act, the First Respondent pay the legal representative of Michael Lee the sum of $1,760.54 on account of unpaid “tropical allowance”.
That pursuant to s.722 of the Act, the First Respondent pay interest on the amounts in Orders 14 to 19 above inclusive in the following amounts and to the following persons:
The sum of $4,564.03 to the legal representative of Michael Lee; and
The sum of $1,918.45 to David Stone.
That the Respondents must pay all amounts payable by each of them respectively as contained within Orders 1 to 20 above inclusive within three months of 15 March 2011.
That there be no order as to costs.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 147 of 2009
| WORKPLACE OMBUDSMAN |
Applicant
And
| QUEENSLAND MARINE AND GENERAL INSURANCE MANAGEMENT PTY LTD |
First Respondent
| PETER RALPH MARTINUZZI |
Second Respondent
| QUEENSLAND MARINE AND GENERAL INSURANCE BROKERS PTY LTD |
Third Respondent
REASONS FOR JUDGMENT
Following the trial that started before Wilson FM in 2009 findings of the fact were made in this matter. Principally His Honour found that the relevant employees were governed by an award, and employed by the respondents in respect of that award. Those findings gave rise to orders and declarations by his Honour that the first respondent breached the applicable provisions of the Insurance Industry Award 1998, in that:
a)it failed to employ or pay its employee, Michael Lee, wages of $9,203.45;
b)it failed to pay its employee, Michael Lee, accrued long service leave entitlements of $4,475.27;
c)it failed to pay its employee, Michael Lee, a tropical allowance of $1,760.54;
d)it failed to pay its employee, David Stone, wages of $1,002.93; and
e)it failed to pay its employee, David Stone, a tropical allowance of $1,892.28.
His Honour also made findings in respect of the underpayment of annual long leave entitlements, which have since been assessed at $3,141.99. Evidence has been placed before the court as to the quantum which has not been challenged, I proceed on the premise it is not in dispute. At the outset, it needs to be observed that there seems to have been some question about the court's power to make the orders, particularly by way of declaration. The matter seems plain to me. The Court’s powers are clearly provided for in s.15 of the Federal Magistrates Act 1999 (Cth) and require no further comment.
The other matter which was initially raised before me concerns directions issued to that effect. A question arose as to whether I could exercise the jurisdiction. The matter has been resolved and was determined by me last year against the respondents.[1] It follows that I am content to proceed to determine this application. As at 10 March 2010, when the matter first came before me, there were seven issues which required resolution. The first was the jurisdictional issue which I have earlier disposed of.
[1] Workplace Ombudsman v Queensland Marine and General Insurance Management Pty Ltd [2010] FMCA 441.
Of the remaining issues, issues 2, 3, 4, and 7 remain alive. Issue 2 concerns a determination of the question of the annual leave loading owed to David Stone. As I have noted, that matter has been addressed in evidence and has not been challenged. It has been resolved. The second is item 3, which is the making of an order for the payment of interest – again a matter which appears to have been addressed and which I will address shortly. The fourth is the matter of making orders for payments of relevant amounts to Mr Stone, and the legal personal representatives of Mr Lee respectively again a matter which will be addressed in due course. The final matter of the other matters identified in Exhibit 14 is the question of the identity of the applicant in the application.
To date, the application is formally prosecuted in the name of Workplace Ombudsman. There has been a change in the name and style of the Workplace Ombudsman by reason of the amendments to the Workplace RelationsAct 1996 (Cth), and the introduction of the Fair Work Act 2009 (Cth). The applicant is now properly known as the Fair Work Ombudsman. There is no objection to the amendment of the application and for the applicant to be formally noted as the Fair Work Ombudsman, and for the application to proceed under that style.
In respect of each of the matters in dispute before his Honour Federal Magistrate Wilson, his Honour set out, at paragraph 96 of his decision, the various findings. As I have noted, they were that in respect of Mr Lee, there was an underpayment of wages; there was an underpayment of accrued long service leave entitlements; there was a non-payment of tropical allowances; and in respect of Mr Stone, there was underpayment of wages and a non-payment of tropical allowances. The matter of annual leave loading was also to be calculated, which, as I have noted, has been addressed.
In particular, the calculations can be found in the letter addressed by the applicant to the respondents under the hand of their solicitors on
19 February 2010. In that letter, the author noted, in a table attached to the letter, the calculations in support of those matters. That letter also addressed matters pertaining to claims of interest concerning the findings made by his Honour as reflected at paragraph 96 of his judgment, and a further table can be found in Exhibit 23, where there are interest calculations discretely provided.
It is to be noted that in respect of the interest calculations relating to David Stone, there are two columns in the table. The first one is interest claimed based on average weekly earnings, Australia (male) for leave loading amounts; the other is based on average weekly earnings, Queensland (male) for leave loading amounts. I consider the appropriate rate to be the average weekly earnings Australia, not the average weekly earnings Queensland, for the purposes of interest calculations given their application to a Commonwealth Act.
It follows that in terms of final orders, orders ought be made in terms of those matters. That deals with what might be described as the procedural aspect of the application before progressing on to deal with the substantive arguments under a number of heads prior to the issue of penalty.
First, the respondents seek a costs order in their favour in the action. They contend, particularly that by reason of late amendments made during the course of the proceedings costs have been thrown away, and that they, by reason of the late amendments, were denied the ability to:
a)more economically conduct the proceeding; and
b)to negotiate a more commercially suitable outcome, having regard to the amended claim permitted by his Honour in the course of the trial.
Relevantly, s.824 of the Workplace Relations Act provides that:
“(1) A party to a proceeding (including an appeal) in a matter arising under this Act (other than an application under section 663) must not be ordered to pay costs incurred by any other party to the proceeding unless the first‑mentioned party instituted the proceeding vexatiously or without reasonable cause.
(2) Despite subsection (1), if a court hearing a proceeding (including an appeal) in a matter arising under this Act (other than an application under section 663) is satisfied that a party to the proceeding has, by an unreasonable act or omission, caused another party to the proceeding to incur costs in connection with the proceeding, the court may order the first‑mentioned party to pay some or all of those costs.
(3) In subsections (1) and (2):
"costs" includes all legal and professional costs and disbursements and expenses of witnesses.”
The respondents, in their submissions, identified two areas they contended support a complaint of vexatiousness unreasonable conduct. The first concerns the pleading, and the second, the process which followed by reason of the pleading. First, the respondent says that in the claim which initially it came to answer, the allegation was that the two relevant employees were entitled to be paid as a Grade 6 (specialist) category in the Insurance Industry Award 1998 "and no other." "No alternative position was pleaded or raised by the applicant."[2]
[2] Respondents’ written submissions on costs
The respondents contended that they prepared their entire case on the basis of that pleading, and incurred significant costs in preparing and contesting that case. They contended that his Honour in fact found for the respondents on the case pleaded, that is, that the employees were not Grade 6 specialist category under the Insurance Industry Award. They contend further that on the last three days of the trial, his Honour, despite objection, and after the evidence had been completed on the basis of the pleadings as they then stood, and with no evidence having been tested with respect to any alternative case, allowed the applicant to amend its pleading, and it was on that amended pleading that findings were made adverse to the respondents.
It contends that in the result the costs in preparing the case were thrown away. Before coming to examine the respondents' contentions closely, it is first necessary to consider the principles relevant to the exercise of this power. Subsection 1 has the mandatory effect of directing that a party to a proceeding must not be ordered to pay costs unless the proceeding is instituted vexatiously or without reasonable cause. In Dowling v Fairfax Media Publications Pty Ltd,[3] Moore J observed at [53] that:
“In considering whether a proceeding was instituted vexatiously or without reasonable cause for the purpose of section 824(1) it is necessary to distinguish between the situation where an applicant has merely been unsuccessful on the case he or she has sought to propound and the situation where the applicant's case was entirely misconceived. In relation to the former category, an application is not commenced without reasonable cause simply because the applicant's arguments are rejected by the Court. However, in relation to the latter category it is likely that it can be said that the proceeding was instituted without reasonable cause such that a costs award is appropriate.”
[3] [2009] FCA 339
His Honour referred to the comments of Wilcox J in Kanan v Australian Postal & Telecommunications Union[4] in ascertaining whether a proceeding was instituted without reasonable cause:
[4] (1992) 43 IR 257
“As his Honour said:
‘It seems to me that one way of testing whether a proceeding is instituted "without reasonable cause" is to ask whether, upon the facts apparent to the applicant at the time of instituting the proceeding, there was no substantial prospect of success. If success depends upon the resolution in the applicant's favour of one or more arguable points of law, it is inappropriate to stigmatise the proceeding as being "without reasonable cause". But where, on the applicant's own version of the facts, it is clear that the proceeding must fail, it may properly be said that the proceeding lacks a reasonable cause.’”
Continuing, his Honour noted in Heidt v Chrysler Australia Ltd:[5]
“Northrop J said the following in respect of section 197A of the then Conciliation and Arbitration Act, which was substantially in the same terms as section 824(1) of the Workplace Relations Act:
‘In considering this matter the court must have regard to all the material properly before it. The test is not subjective to the party instituting the proceedings as at the time of the institution of the proceedings. The conduct of the opposing party prior to the institution of the proceedings may be relevant in deciding whether the proceedings were instituted vexatiously or without reasonable cause. The conduct of the opposing party both prior and subsequent to the institution of proceedings may be relevant to the discretion remaining in the court.
It may be difficult to satisfy the test where disputed questions of fact arise and the proceedings eventually are dismissed because the court finds facts adverse to the party instituting the proceedings. Where the test is satisfied, having regard to the general policy of the section, the court may, nevertheless, in the exercise of its discretion, make no order as to costs.’”
[5] (1976) 26 FLR 257
On the basis of the principles applicable to the section, and the authorities explaining the section, the applicant contended that in circumstances where a party such as it succeeded in proving its case, it could not be said that there was no basis upon which it could be asserted the proceeding was commenced vexatiously or without reasonable cause. In that regard, the applicant had particular regard to the matter which was prosecuted on the pleadings.
If one goes to the pleadings, in particular the pleadings that were alive before the commencement of the trial, one can see that it was apparent, on the face of the pleadings, as his Honour identified in the early section of his judgment, that for instance, it was admitted that both the first and third respondents were bound by the award. However, other matters were in contest, such as whether the award applied to the employment of either or both of the two alleged employees; whether either or both of the employees was an employee for the purpose of the Insurance Industry Award, and if so, what classification of rate ought to be applied to each of them; and whether if the award applied, either of the alleged employees were underpaid, and if so by how much.
While the respondents challenge whether or not the issue of grade was in issue in the proceeding, I think the matter is plain by reference to the pleading. For instance one can see, by reference to paragraph 18 of the statement of claim, that it was alleged against the respondents that Mr Stone was within the grade six specialist classification contained in the Insurance Industry Award. Paragraph [49] makes a like pleading in respect of the employee, Stone.
In answer to those allegations, in the respondents' defence at paragraph 10(b), the respondents pleaded the employee, Stone:
“In relation to the allegation contained in paragraph 18 of the applicant's statement of claim, the respondents denied that the work performed by Mr Stone was within the grade six (specialist) classification contained in the Insurance Industry Award 1998 for the following reasons:
a)Mr Stone was not the respondents' employee. In this regard, the respondents repeat and rely upon the allegations set out in paragraphs 2, 2(a), 2(b), 2(c) of this defence.
b)Further, or in the alternative, if Mr Stone was the respondents' employee, which is denied, the award is not applicable to Mr Stone on the basis that his employment does not fit within the definition of employees defined in part 4 of the award.
c)Further, or in the alternative, if Mr Stone was the respondents’ employee, which is denied, and if Mr Stone's appointment did fit within the definition of employers defined in part 4 of this award, which is denied, the work performed by Mr Stone was within the grade four classification contained in the award.”
Concerning Mr Lee, the allegation made in response to the pleading of the statement of claim was in these terms:
“In relation to the allegation contained in paragraph 29 of the applicant's statement of claim, the respondents denied that Mr Lee was paid at a base salary at the rate of $30,000 per annum, paid as $596.92 per week gross, and so that (a) Mr Lee was paid a base salary of $36,000 per annum paid as $2500 gross per month for the months July to May inclusive, and $8500 gross per month for the month of June –
The respondents deny the allegations contained in paragraph 49, 50, 51, 56 and 59 of the applicant's statement of claim on the basis that the award was not applicable to Mr Lee as he was not an employee as defined in part 4 of the award.”
The effect of those allegations was to put in issue the very matters which were alleged in the statement of claim. They were, first, that they were employees, and secondly, they each being, employees, the facts relevant to the ascertaining of the relevant grade classification which applied to them. While it might be correct to say that the grade classification changed by reference to an amendment to the pleading, facts had to be established in order to enable the grade classification to be determined. It would follow, given the underlying issues which were alive in the trial being employment and grade classification generally, one being subject to a specific traverse, and one being subject to a general denial, evidence on these issues was necessary in any event. What was to be concluded from the evidence was a matter of law.
The amendment to the pleading to allege a different pay classification would simply have been a matter more directed to law than to fact, and it follows, in my view, it is difficult to conclude that any amendment to the pleading, irrespective of how it may have occurred, could possibly be said to demonstrate that the proceeding itself was one which was initially prosecuted vexatiously or without reasonable cause. On that basis, I consider the primary injunction provided for in s.824 ought apply.
The next matter which was asserted by the respondents in relation to the matter of costs addressed the issue of whether or not the respondents had been caused to incur costs by an unreasonable act or omission on the part of the applicant. In that regard, the provisions of s.824(2) have been helpfully explained by the Full Court in Construction, Forestry, Mining and Energy Union (CFMEU) v Clarke,[6] where the Full Court stated that:
“As the authorities indicated there is a distinction between a party who pursues arguments which are ultimately abandoned or rejected by the Court and a party who commences a proceeding which is misconceived in the sense of being unsupportable. Simply because a party does not conduct its litigation in the most efficient way does not mean that the court should exercise its discretion in section 824(2) of the Act to make a costs order. In our view, neither the late abandonment of some of its defence, nor the use of a notice of contention to advance a previously minor and ultimately unsuccessful argument, crosses the threshold of being "an unreasonable act or omission" for the purposes of section 824(2).
Indeed, while courts should use the discretion in section 824(2) to ensure that parties to litigation arising from the Workplace Relations Act do not engage in unreasonable acts and omissions which put the other party to undue expense, they should also be careful not to exercise the discretion with too much haste, given that such haste may discourage parties, for fear of an adverse costs order, from pursuing litigation under the Workplace Relations Act in the manner which they deem best.”
[6] [2006] FCA 245
In that regard, the principal contention advanced by the respondents is that the late amendments denied to it use of ADR processes. It contends they would have been engaged had it been aware of the applicant's intention to prosecute the claim in the manner in which it did. I assume they also mean to contend the outcome of that process would have been positive. Respectfully, I do not accept the argument. For reasons which will be expanded upon when examining the penalty issues in this case, it is apparent that there is and remains a significant degree of ill will between the applicant and the respondents in this case. In that context I am not satisfied ADR processes would have been fruitful.
First, the amendment did not, in my view, fundamentally impact upon the case the respondents had to meet. The respondents had, in respect of the employee, Stone, specifically traversed the allegations concerning his employment as a category six employee, and asserted he was a category four employee. Accordingly, the facts would have been adduced in the ordinary course leaving the matter for his Honour to determine having regard to the relevant provisions of the award.
In respect of the employee, Lee, there was simply a specific denial, again imposing upon the applicant a burden to satisfy the court, with the requisite evidence, of his employment classification. To my mind, the late amendment would not have had any significant impact, on the case the respondents had to meet. In having regard to that matter then, one has to consider whether that would have had any material bearing upon the preparation for case from the perspective of the respondent. In my view, the answer is no.
The respondent ought reasonably have considered these matters in the course of its preparation, and had it considered it appropriate, it could have embarked upon some discussion in respect of the appropriate classification of the awards if it thought that worthwhile. It would not have needed the amendment of the pleading to adopt the approach that it has taken. Ultimately, it was always open to the parties, and to the respondent in particular, to take it upon itself to engage in alternate dispute resolution processes, premised upon a matter either advanced at the initiative of the applicant, as ultimately occurred at trial, or a matter which it perceived, if it was to perceive anything at all, in the preliminary stages before trial, having regard to the evidence and instructions it held.
However, underlying the respondents' decision was, as I earlier noted, a degree of animosity between the applicant and the respondents. At no time, throughout the course of the trial, did the respondents ever concede any of the primary matters in relation to issues germane to this dispute. There was always alive between the parties a question of whether or not the award applied to the employment of the parties. There was always alive the question of whether or not the employees were employees as defined for the purpose of the Insurance Industry Award.
Without concession in respect of those two matters, the question of which grade or classification ought to have applied is, to a large extent, entirely academic. It was, in my view, the respondents' failure to make concessions in respect of the first two facts, which led to intransigence on its part to negotiation; not any view taken by the applicant at some later point through the course of the trial to seek to amend the statement of claim to more appropriately plead a case. That amendment, no doubt, was required to tailor the pleadings to suit the facts as most probably the evidence which had fallen from the lips of the witnesses through the course of the proceeding served to assist in their job classification.
It follows that in this case the conduct of the applicants has not been such as to cause the respondents to incur costs by any unreasonable act or omission on their part. While it might be that some criticism could be visited upon the applicants for not having raised the matter earlier, the facts do not fall within the observations made by the Full Court. What it seeks to enjoin is conduct on the part of a party to the litigation which is unreasonable, and which has the effect of putting a party to undue expense.
Unreasonable does not necessarily mean that it has to be negligent; it simply means it has to be measured against what a reasonable person would expect. In the context of the dispute which is before me, I expect a reasonable person would have taken the view that there was nothing unreasonable about the applicant's late amendment, and that, accordingly, there is no justification for costs in terms of the second limb of the section. It follows that I will not make any award for costs against the applicant as sought by the respondent. The applicant, of course, makes no application for costs as is appropriate in the case.
That leaves me to consider the matter of penalty. As I have earlier noted, this is a case that involves contraventions following failure to pay two employees' wages, long service leave, annual leave and tropical allowances. The matter was resolved after trial, and subject to some further calculations made following trial of the various underpayments the principal underpayments were assessed and calculated at trial. The applicant now seeks orders that the first respondent pay the sums assessed, including the annual leave loading, assessed in the sum of $3,149.99.
Although I understand the respondents' contention generally, there does not appear to be any question by them concerning the quantum of underpayments, and that orders be made as appropriate in respect of the underpayments.
So far as penalty is concerned, by way of general background, Mr Lee was employed by the first respondent from 23 June 1997 until
20 October 2006. Immediately prior to Mr Lee's employment, he was employed by the third respondent. He commenced employment with the third respondent on 3 April 1991. The penalties that are sought to be imposed relate to contraventions which occurred from February 2003 until 20 October 2006.
Counsel for the applicant helpfully noted that so far as Mr Lee was concerned, it would seem, having regard to the period involved, that the average weekly underpayment equated to $50 per week. So far as Mr David Stone is concerned, he was employed by the first respondent from 7 June 1999 until 9 February 2007, and the penalties imposed there relate to contraventions which occurred from 27 February 2003 until 9 February 2007. Again, by rough reckoning, it was estimated that the average weekly underpayment there, over the four years, was approximately $5.00 per week.
Generally, I note that the first respondent is a constitutional corporation and that from July 1997 it provided employees and other services to the third respondent, and then from July 1997 became the employer of the employees of the third respondent and employed those employees to perform the same work from the same premises, and it is an associated entity to the third respondent. I make those observations at this point because that matter is significant in terms of the overall penalty imposed, particularly given that we are dealing here with two closed corporations of which the second respondent appears to be a principal shareholder and company officer.
The second respondent, as I noted, is a director, manager and principal shareholder in both the first and third respondents, but critically he was also responsible for the day‑to‑day operation and management of those entities. The third respondent was the recipient of services and employees provided by the first respondent, and that was done through the second respondent. It was, as was the first respondent, aware through the second respondent of the terms and conditions of the employees' employment and the purported engagement on those terms.
So far as the legislative framework is concerned upon which the applicant relies, it applies to the court for the imposition of penalties under s.719(1) of the Workplace Relations Act. That Act relevantly provides that:
“An eligible court may impose a penalty in accordance with this Division on a person if:
(a) the person is bound by an applicable provision; and
(b) the person breaches the provision.”
There is no issue here that in this instance those respondents were bound by an applicable provision. So far as the involvement of the other respondents is concerned, that is the first and third respondents, they are entities which were involved in the contravention and are equally treated as having contravened the civil remedy provision. The maximum penalty which can be imposed in respect of a breach of s.719(1) is 300 penalty units for a body corporate or 60 penalty units for an individual. By reference to the Crimes Act1914 (Cth), s.4AA is picked up by s.4(1) of the Act; the penalty unit is $110, which gives, in this instance, a maximum penalty for each breach by a corporate body of $33,000 and an individual of $6,600.
So far as the court's approach to determining penalty is concerned, the process is well settled. The first step is for the court to identify the separate conventions involved. Each breach of each separate obligation found in the award in relation to each employee is a separate contravention of a term of an applicable provision for the purpose of s.719. Section 719 does provide for treating multiple breaches involved in the course of conduct as a single breach. Secondly, to the extent that two or more contraventions have common elements, this should be taken into account in considering what is an appropriate penalty in all the circumstances for each contravention.
The respondent should not be penalised more than once for the same conduct. The penalties imposed by the court should constitute an appropriate response to what the respondents did and this task is in addition to the final application of the totality principle which I will speak of later. Thirdly, the court will then consider an appropriate penalty to impose. Finally, having fixed upon an appropriate penalty for each group of contraventions, or course of conduct, the court should consider the aggregate penalty to determine whether it is an appropriate response to the conduct which led to the breaches.
In this sense, the court applies an instinctive synthesis, or what is commonly known as the totality principle. When the court considers two or more breaches of an applicable provision that arise out of a course of conduct, it is taken to be one single breach of the applicable provision. So far as this case is concerned, s.119(2) will have effect where breaches of a particular term arise out of the same course of conduct. Even if they involve different employees, they must be treated as a single breach, or where there are breaches of two distinct terms of an industrial instrument, they are not be treated as a single breach, even if they arise from the one course of conduct.
It follows, having regard to those principles, the contraventions that are to be assessed for penalties in this instance give rise to four distinct and separate breaches of the applicable provisions. They are:
a)A contravention of clause 14.5 of the award: that is failing to pay Mr Lee and Mr Stone wages in accordance with the appropriate pay grade;
b)A contravention of clause 16.1 of the award: that is failing to pay Mr Lee and Mr Stone a tropical allowance;
c)A contravention of clause 22.8 of the award: that is failing to pay Mr Stone his annual leave loading; and
d)A contravention of clause 25.2.3 of the award: that is failing to pay Mr Lee accrued long service leave on termination.
Coming then to the factors relevant to penalty. The applicant, in its submission, helpfully identified the relevant sentencing principles which apply to cases under the Workplace Relations Act. In particular, counsel for the applicant referred to the observations made by courts in Mason v Harrington Corporation Pty Ltd trading as Pangaea Restaurant and Bar[7]; Kelly v Fitzpatrick[8]; Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith[9]; and Blandy v Coverdale NT Pty Ltd[10], which cases have outlined in some detail the relevant principles. In my view they are not controversial. The starting point is to look to the relevant objects set out in s.3 of the Act.
[7] [2007] FMCA 7
[8] [2007] FCA 1080
[9] [2008] FCAFC 8
[10][2008] FCA 1533
Of particular moment in the context of this application are the objects provided which include providing an economically sustainable safety net of minimum wages and conditions for those whose employment is regulated by the Act, and ensuring compliance with minimum standards by providing effective means for the investigation and enforcement of employee entitlements. In particular, the applicant submits that in this case, that part of s.3(f) which refers to the enforcement of employee entitlements under industrial instruments, has significance in terms of the penalty imposition process in this application.
It has been stated that the object provisions emphasise the importance of minimum standards, including minimum wages and enforcement of those standards. This is further reflected in the magnitude of other penalties which have been fixed for breaches. In the case of a body corporate, there is a set and a minimum of 300 penalty units or $33,000 for each breach; Mason v Harrington Corporation Pty Ltd (supra). The provisions emphasise the importance of employees complying with their obligations and affording rights to employees under industrial instruments.
A number of factors are commonly addressed as factors that ought be taken into consideration. Those factors are non-exhaustive and provide a convenient checklist, but do not, to any extent, prescribe or restrict the matters which ought to be taken into account. Addressing those matters, so far as they have been identified here, I will address them in the course of these reasons.
Dealing first then with the nature and the extent of the conduct: it is contended for, on behalf of the applicants, that the respondents’ conduct in relation to the employees occurred over a lengthy period of time; so much does not appear to be in dispute. The contraventions occurred throughout the claim period, spending three years and seven months in relation to Mr Lee, and three years and eleven months in relation to Mr Stone. A number of the contraventions appear to have occurred over the entirety of the employees' employment. However, by reason of the limitation contained in s.720 of the Act, the applicant is unable to pursue the recovery of wages beyond a six year period after the entitlements fell due. The applicant contends that there is nothing in the material to indicate that the contraventions would not have continued, had the employees not ceased their employment, and furthermore, that the nature of the contraventions reveal the respondent's disregard for the statutory obligations imposed by the Act and that there is no evidence that the respondents have ever sought to understand their obligations under the Workplace Relations Act.
There is, in my view, some merit in those submissions. If you examine the respondents' submissions on penalty, it can be seen that the respondents are still largely in denial concerning the decision made by the court in respect of culpability. It is plain that there has been some ill-will between not only the Workplace Ombudsman and his representatives and the respondent, but also between the respondents and the employees involved, in particular Mr Stone, who appears to have left his employment under a cloud related to his honesty.
The fact remains, this particular proceeding was not directed to those issues. The proceeding was one directed to questions of compliance with workplace legislation, which includes compliance with the awards. It might be the case, as was contended for by the respondents, that the employees were happily engaged on individual contracts in terms which are outlined in its evidence, but the fact remains that the employees were indeed entitled to the minimum protection provided for by the award and those minimum requirements were not met. That matter is still not accepted by the respondents. So much also impacts upon the circumstances in which the conduct took place.
It is acknowledged that on the commencement of their employment, the first respondent agreed to pay the employees an annual base salary of $30,000. It is noted that this salary had not increased over the entirety of Mr Stone's employment, a period of seven years, and only increased in relation to Mr Lee one month prior to his resignation, that is after a period of 15 years. It is submitted, therefore, that the contraventions occurred in a context in which over the period of the claim, the respondents had determined the amounts that would be paid to the employees with no regard to its obligations under the award under the Workplace Relations Act.
The circumstances do lend some support to the contention made that the employees were left in a take it or leave it position so far as their remuneration entitlements were concerned. It is noted that once the formal proceedings were commenced, the respondents continued to refuse to accept that the award applied. So much is entirely consistent again with the conduct of the proceeding and the matters that were in issue before his Honour bear evidence to that. Furthermore, the respondents refused to acknowledge that there had been any contravention. Again, with all respect to the respondents' position today, so much was expressed in exchanges between myself and counsel for the respondent in the course of penalty submissions most recently as yesterday.
While I respect the fact that the respondents are entitled to their rights on appeal, the fact remains that the court has made a determination, and until such time as the determination is reversed, the position is that there has been a contravention. The extent of the contravention was also subject to the various off-setting claims which were found against the respondents. That included the provision of the motor vehicle and the occasional cash bonuses. There was also a finding against the respondents related to a refusal to provide long service leave entitlements on termination. It is noted that the respondent fought hard and took all these points at trial, but unsuccessfully so.
So far as the nature and extent of the loss or damage is concerned, the total underpayment, before allowance for the annual leave loading, was $18,334.47. To that sum must be added a further $3,141.99 by way of annual leave loading which was due to Mr Stone. The sums are clearly not insignificant, particularly having regard to the time over which they accrued. It is unquestionable, in my view, that having regard to the sums involved, that the employees would not have experienced some disadvantage by reason of the respondents' ongoing failure to pay the correct wages and entitlements under the award. Albeit that the sums may not be seen to be significant on a week to week basis, they had a significant cumulative effect.
There is no evidence of any similar conduct on the part of the respondent beforehand, and that matter stands in its favour. Concerning whether or not the breaches arose out of a course of conduct or constitute one distinct event, there are four contraventions which relate to four distinct applicable provisions and as such four penalties ought to be imposed. Concerning the size of the respondents' business, there is no evidence before me to assist in precise quantification of that matter; however, I accept that the business is not large. It does not appear to have a significant number of employees, something in the order of six or seven appeared from at least one part of the material.
That fact alone, however, does not absolve the respondent of its legal obligation to comply with the law in relation to the employment of its employees. In Kelly v Fitzpatrick (supra), Tracey J noted that:
“No less than large corporate employers, small businesses have an obligation to meet minimum employment standards and their employees, rightly, have an expectation that this will occur. When it does not, it will normally be necessary to mark the failure by imposing an appropriate monetary sanction. Such a sanction "must be imposed at a meaningful level.”
Likewise, in Rajagopalan v BM Sydney Building Materials Pty Ltd,[11] it was said:
“Employers must not be left under the impression that because of their size or financial difficulty that they are able to breach an award. Obligations by employers for adherence to industrial instruments arise regardless of their size. Such a factor should be of limited relevance to the Court’s consideration of penalty.”
[11] [2007] FMCA 1412
It follows that the size of the undertaking provides no excuse for non‑compliance. I note that in the course of submissions there was a complaint concerning the failure to inform the second respondent, particularly when inquiry was made after the dispute arose, but the unsatisfactory provision of information of itself was no answer. Further, the applicant submits that the respondents' financial situation should have no impact on the assessment on penalty, and correctly identifies the observation of Wilcox CJ in Printing and Kindred Industries Union (PKIU) and Ors v Vista Paper Products Pty Ltd & Anor,[12] where his Honour noted:
“While this evidence suggests that both Vista and Mr McNamee may have difficulty in paying penalties, I do not think I should allow it to deflect me from imposing whatever penalties are otherwise appropriate.”
[12] (1994) 127 ALR 673
And again, in Cotis v Macpherson,[13] where it was observed:
“It is, in my view, important to make the point that employers should not and cannot regard insolvency, either personal or corporate, as a refuge from their responsibilities under the Workplace Relations Act.”
I accept each of those observations as apposite.
[13] [2007] FMCA 2060
Concerning deliberateness: it does seem apparent from the facts that the respondents settled on the amount that they would pay the employees. So much appears apparent as the base wage which was paid, did not appear to vary at all during the period of employment, except in respect of Mr Lee for a short time preceding his termination. Even in that regard, it is noted that the second respondent's view was that he was used by Mr Lee to renegotiate salary in order for Mr Lee to in turn negotiate a better deal with the prospective employer, who the second respondent believed Mr Lee was negotiating with at the time.
It is, in my view, therefore, apparent that during the claim period, the respondents did give no consideration to their statutory obligations to the employees and in particular to their obligations under the award to properly calculate wages, pay, allowances and entitlements on termination. This was particularly so, given that the respondents ought to have been alert to the prospect of underpayment from at least March 2007 when the workplace inspector brought the obligations to the attention of the respondents by way of its first and final notice of
13 March, and its show cause letter of 20 March 2007.
For reasons which I have earlier expressed, there was considerable ill-will between representatives of the applicant, and in particular the second respondent, which reflected in the dealings of the first respondent. Those matters had their genesis in part made out because of the poor chemistry between those parties, but also because of the second respondent's views, particularly concerning Mr Stone, by reason of his conduct as an employee. Also perhaps because of his views of Mr Lee, occasioned by reason of his departure. In any event, the fact remains those matters ought not have to have influenced the respondents' attitude to its obligations under the Workplace Relations Act and its obligations to address the prospective ongoing breach as appears to have been the case, at least in respect of the period following March 2007.
So far as involvement of senior management is concerned, there is no dispute that the second respondent was the person who was the living body and sole of the corporate entities, they being the first and third respondents. He was responsible for setting the terms and conditions of the employees' employment, and was, accordingly, the driving force behind the conduct of the first and third respondents, so far as is relevant to this application.
The facts of this case do not afford the court a great deal of opportunity to afford the respondents any discount on penalty in respect of demonstrated contrition, corrective action and cooperation with the enforcement authorities.
While it is acknowledged that at the outset the first respondent did cooperate with the investigation being conducted by the applicant by providing documents in response to a notice to produce documents, those documents did not contain relevant employment documents, such as pay slips and records of time worked. It seems, from the commencement of the investigation, the respondents did resist any attempts by the applicant to resolve the employees' claim with the first respondent.
The basis of that resistance need not be further explained. I have earlier addressed it. It was examined in the course of the trial which took place before his Honour, Wilson FM, and requires no further elaboration. But the fact remains that that was the attitude of the respondents, and the respondents did not resile from that position. They went to trial and were unsuccessful at trial, and, accordingly, their conduct in that regard does not, of itself, indicate any contrition or corrective action as being appropriate. It follows it cannot receive any beneficial consideration of any discount in the imposition of penalty by reason of those matters.
So far as conduct following the trial is concerned, it would seem that there was still limited cooperation. As I have earlier noted, there continues clear resistance by the respondents to the views of the court expressed by his Honour, Wilson FM. Although I respect the entitlement of the respondents to exercise their rights, as they no doubt will on appeal, the fact remains the court has determined the matter, and until the judgment be set aside, if it be set aside, the position of the court remains as is expressed by his Honour.
In addition the fact the respondents have failed to repay the outstanding sums further illustrates their failure on this matter.
So far as ensuring compliance with the awards are concerned, one of the principal objects of the Act includes the maintenance of a safety net of minimum terms and conditions of employment, and the effective enforcement of those terms and conditions. Compliance at part 14 of the Act is one of the ways that the Workplace Relations Act seeks to give effect to this principal object. Ultimately that is, by imposition of penalty, which I will address in a short time. Needless to say, the attitude of the court, as demonstrated by numerous decisions of the court, is that these breaches are regarded seriously and considerable penalties can be imposed in accordance with the limits prescribed by statute.
So far as deterrence is concerned, the penalties imposed must reflect the need for both general and specific deterrence. The matter was perhaps best summarised by his Honour Finkelstein J in CPSU, The Community and Public Sector Union v Telstra Corporation Ltd[14] where his Honour observed at [8]:
“In another context I observed that the object of imposing pecuniary penalties may be either to punish, to deter, to rehabilitate or some combination of the three. In that case I also referred to the problems associated with determining the appropriate basis for imposing penalties on a corporation. Laws are made for the protection of society. In the case of an offending corporation in breach of legislation such as the Workplace Relations Act, the notion of retribution or punishment does not seem to have a significant role.
First, a contravention of this type of legislation does not excite notions of moral responsibility when compared with contraventions of the criminal law where the community has a just expectation that an offender should receive some measure of punishment so that there will be no loss of respect for the law. Put differently, there will not be any real sense of grievance in the community at large if a corporation has not been dealt with in the same way as an offender who attacks individual liberties or freedoms.
On the other hand, the basic objective of punishment should be to enhance social welfare by minimising the net social cost of wrongdoing. This is achieved by deterrence. Here I speak not only of specific deterrence but also general deterrence. In a case such as the present, that may be of some importance. The reason is that Telstra submits that there is no need to impose any penalty because it will not offend again. That may be true. But even if there be no need for specific deterrence, there will be occasions when general deterrence must take priority, and in that case a penalty should be imposed to mark the law's disapproval of the conduct in question, and to act as a warning to others not to engage in similar conduct.
It is also important to remember that proscribed conduct is often engaged in because it is profitable, or will enhance the profitability of the company. To deter conduct engaged in with that purpose, any penalty imposed must have the potential to render the conduct unprofitable. The achievement of that object is subject to the limitations placed upon the court's power by the legislation in question.”
[14] [2001] FCA 1364
To like effect, I also have particular regard to the observations of Lander J in Ponzio v B & P Caelli Constructions Pty Ltd[15] where his Honour noted:
“There are three purposes at least for imposing a penalty: Punishment; deterrence; and rehabilitation. The punishment must be proportionate to the offence and in accordance with the prevailing standards of punishment. Therefore the circumstances of the offence or contravention are especially important. The penalty must recognise the need for deterrence, both personal and general. In regard to personal deterrence, an assessment must be made of the risk of re-offending.
In regard to general deterrence, it is assumed that an appropriate penalty will act as a deterrent to others who might be likely to offend. The penalty therefore should be of a kind that it would be likely to act as a deterrent in preventing similar contraventions by like minded persons or organisations. If the penalty does not demonstrate an appropriate assessment of the seriousness of the offending, the penalty will not operate to deter others from contravening the section. However, the penalty should not be such as to crush the person upon whom the penalty is imposed or used to make that person a scapegoat. In some cases, general deterrence will be the paramount factor in fixing the penalty. In some cases, although hardly in this type of contravention, rehabilitation is an important factor.”
[15] (2007) 158 FCR 543
In this instance, a number of matters require express comment. First, in respect of the specific deterrence, the respondents particularly continue to conduct their operations. It would seem to me, having regard to these matters, and particularly its view that its conduct was not in contravention, and its continued view to that effect, that there is a greater prospect in this instance of a re-contravention. Accordingly, the matter of specific deterrence has some significance in the penalty imposition.
So far as general deterrence is concerned, I think it is important to note that it is necessary to again affirm to the commercial community at large that this sort of conduct is not acceptable and is subject to the imposition of significant penalties. Employers, particularly, need to appreciate that they cannot engage in conduct which involves breaches of obligations to pay statutory minimum rates of pay, and that they should be more conscious to more actively engage in the taking of advice from appropriate authorities if they have any question or any doubt as to whether or not their particular circumstances give rise to a contravention of an award.
The message that the court ought send, and which I think ought be absorbed by the respondents on this occasion, is that the underpayment of wages will not be tolerated. Turning then to the penalties which ought to be imposed, the maximum penalty which could be imposed in respect of each of the contraventions which I have earlier identified is 300 penalty units for the corporate entities and 60 penalty units for the individual second respondent.
Having regard to the each of the matters which I have earlier noted, and having afforded what latitude I can to the mitigating factors available to the respondents, I have come to the view that appropriate penalties are as follows:
a)In respect of the contravention of clause 14.5, that is the failing to pay Mr Lee and Mr Stone wages in accordance with the pay grade, there should be an imposition of 50 penalty units for each of the corporate entities and 24 penalty units for the second respondent.
b)Concerning the contravention of 16.1, that is failing to pay Mr Lee and Mr Stone the tropical allowance, I consider there should be an imposition of 50 penalty units for each of the corporate entities and 24 penalty units for the second respondent.
c)In respect of the contravention of clause 22.8 of the award, that is failing to pay Mr Stone the annual leave loading, there should be the imposition of 50 penalty units in respect of each of the corporate respondents and 24 penalty unit for the second respondent; and
d)In respect of the contravention of clause 25.2.3 of the award, that is failing to pay Mr Lee the accrued long service leave on termination, I consider there should be a penalty of 50 penalty units in respect each of the corporate respondents and 24 penalty units in respect of the individual respondent, the second respondent.
That would, in monetary terms, give rise to an imposition of a penalty of $22,000.00 for the first respondent, $10,560.00 for the second respondent, and $22,000.00 for the third respondent.
I want to make some additional observations in relation to the penalties that I have imposed, having regard to the relationship of the three respondents. Whilst a more significant penalty was sought by the applicant, that is something that approached 40 per cent of the maximum award that could be imposed in respect of each of the respondents, for reasons which I will address in terms of the totality principle, it appeared to me adopting that approach would have been unduly crushing and oppressive.
In particular, I have taken into account the fact that the second respondent initially operated through the third respondent and subsequently the first respondent. The conduct, in effect, is the conduct the second respondent alone acting through the two corporate entities at various times, and in those circumstances, although each entity bears its own particular legal obligations, when one has regard to the totality principle, it would have been unduly oppressive and crushing to treat each distinct legal entity each individually responsible in the sense that each had within its power the capacity to individually determine whether or not to engage upon the conduct which led to the contraventions.
In this instance, although there are three distinct legal entities, each individually culpable in a strict legal sense, the source of culpability lay solely within the power of the second respondent who simply through his actions caused the contraventions by the corporate entities. Accordingly, there would be an unnecessary multiplication of penalty by applying a rate across the two corporate entities at a level which would usually apply in instances where an individual engaged in contravention by medium of a corporation. In these circumstances given the involvement of two corporations in the conduct of the individual the corporations should share equally the penalty that otherwise would be imposed. One will see, having regard to the overall penalty, which is something approaching $50,000.00 which after allowance for underpayment leaves a balance which is a little under two thirds of the quantum of the underpayment and reflects the net penalty. I will make orders for the repayment of underpayments to the employees from the gross penalties awarded.
There will be a directional order that the underpayments be paid from the penalties, with the balance going to Commonwealth. I will allow three months to pay.
I certify that the preceding eighty (80) paragraphs are a true copy of the reasons for judgment of Burnett FM
Associate:
Date: 14 April 2011
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