FEDERAL COURT OF AUSTRALIA

Fair Work Ombudsman v Transpetrol TM AS (No 2) [2019] FCA 608

ORDERS

THE COURT ORDERS THAT:

1.    The applicant pay 50% of the respondent’s costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

RARES J:

1    On 26 March 2019, I dismissed the proceeding brought by the Fair Work Ombudsman against Transpetrol TM AS for civil pecuniary penalties and other relief under s 546(1) of the Fair Work Act 2009 (Cth): Fair Work Ombudsman v Transpetrol TM AS [2019] FCA 400 (the principal reasons). I have used the same defined expressions in these reasons as I did in the principal reasons. I gave the parties the opportunity to apply on or before 2 April 2019 for an order for costs in circumstances where I said that I was inclined, having regard to s 570(1) and the overall justice of the case, to make no order as to costs.

2    On 2 April 2019, Transpetrol applied for an order for costs on a party and party basis. Transpetrol contended that the Ombudsman’s commencement, and then maintenance, of the proceeding was not fair or reasonable, or was without reasonable cause, so as to result in Transpetrol having to incur costs in the circumstances described in the principal reasons.

The Ombudsman’s submissions

3    The Ombudsman argued that a substantial part of the proceeding she brought “did not fail” and that it concerned an unusual aspect of the extraterritorial application of the Fair Work Act and the Fair Work Regulations 2009 (Cth) that had not been the subject of prior judicial consideration. She relied on my finding that she had a prima facie case for some of the relief claimed within the meaning of r 10.43(4)(c) of the Federal Court Rules 2011 when, ex parte, I ordered that service could be effected on Transpetrol in Norway: Fair Work Ombudsman v Transpetrol TM As [2017] FCA 311.

4    She contended that her argument in support of her claim for relief, based on the role of general deterrence, could not have been characterised as foredoomed to fail. The Ombudsman called in aid what each of Mansfield J and Murphy J had said about the role of general deterrence in cases where there may not be a need for specific deterrence in, respectively, Fair Work Ombudsman v Lifestyle SA Pty Ltd [2014] FCA 1151 at [153]-[157] and Australian Securities and Investments Commission v Australian Property Custodian Holdings Ltd (recs and mgrs apptd) (in liq) (controllers appointed) (2014) 322 ALR 45 at 65-66 [89]-[92]. Here, the Ombudsman contended that general deterrence had a value in alerting international shipowners of the need to require a sub-charterer to inform them if the sub-charterer had applied for a temporary licence and intended to trade in Australian regulated waters. She submitted that, because of the publicity that the proceeding had attracted, as I found (Transpetrol [2019] FCA 400 at [130]), it had achieved this object in part.

5    The Ombudsman also argued that the proceeding could not be said to have been instituted or continued without reasonable cause because there was a reasonably arguable issue as to Transpetrol’s right to set off payments it had made to the affected crew members. She had claimed that those payments were made for other purposes and so were irrelevant to her assertions of Transpetrol’s non-compliance with the Seagoing Industry Award 2010 and National Minimum Wage Order 2014.

Consideration

6    The power to order a party to pay costs under s 570(2) is enlivened once a jurisdictional criterion in that provision has been met. Thus, the Court must be satisfied that:

    the party instituted the proceeding vexatiously or without reasonable cause (i.e. in circumstances where there was no substantial or reasonable prospect of success or cause) (s 570(2)(a): Construction, Forestry, Mining and Energy Union v BHP Coal Pty Ltd (No 2) (2015) 230 FCR 337 at 342-343 [13]-[14] per Logan, Bromberg and Katzmann JJ); or

    the party’s unreasonable act or omission caused the other party to incur costs, such as by propounding arguments or leading considerable evidence, for which there was no reasonable basis (s 570(2)(b): see e.g., Shea v EnergyAustralia Services Pty Ltd (No 2) [2015] FCAFC 14 at [6], [10]-[11] per Rares, Flick and Jagot JJ).

7    I reject the Ombudsman’s argument that relied on my findings in Transpetrol [2017] FCA 311. That decision was given ex parte on limited, unchallenged evidence and did not involve any reference to a crucial issue, which the Ombudsman’s submissions at the final hearing also failed to grasp, namely that a shipowner or a demise charterer (or Transpetrol as the employer of the crew as agent of the demise charterer) had nothing to do with, and no knowledge of, or, as I found, no way of knowing about, the fact that Turmoil was sailing any of the ten voyages under either temporary licence at the relevant time. Indeed, even by the time of the final hearing, the Ombudsman had not investigated, analysed or tried to understand how demise and time charters operated in commercial shipping and what the different roles and responsibilities of shipowners (or demise charterers), charterers and sub-charterers were in arranging where, under what contracts, and in what circumstances any particular voyage may occur: Transpetrol [2019] FCA 400 at [84]-[107]. That lack of analysis was the more unreasonable in circumstances where on 28 November 2016, a senior officer in the Ombudsman’s office circulated an email internally that stated that this was her “first matter to test the coverage provisions of the Fair Work Act in relation to temporary licenced ships engaged in coastal trading”.

8    At the commencement of the Ombudsman’s investigation, in an email dated 18 March 2015, Transpetrol had pointed out to the inspector that it had paid the crew under “proper” collective bargain agreements vetted by the International Transport Workers’ Federation and the major oil companies, that also complied with the Maritime Labour Convention when it came into force on 20 August 2013.

9    In a letter on behalf of the Ombudsman that James Robertson, the solicitor for the Ombudsman, wrote, dated 17 March 2016, she rejected the relevance of any of the sums which Transpetrol had sought to set off. She based that rejection on her view that Transpetrol’s specific allocations for those payments, as leave pay, subsistence pay, tanker allowance, owner’s allowance and company allowance, precluded Transpetrol conclusively from calling them in aid to reduce its liability under the Fair Work Act which the Ombudsman sought, doggedly, to enforce thereafter.

10    In his affidavit sworn on 2 May 2018, Mr Robertson said that, since Transpetrol had not responded after 17 March 2016 to reassert its right to set off and had accepted, in its solicitors’ letter of 7 April 2016, that it would pay the amounts of its underpayments in full, he thought that the set off issue was no longer relevant. He said that this remained his understanding until the parties were negotiating a statement of agreed facts to tender at the hearing. And Mr Robertson asserted that he only understood the “owner’s allowance” when he read Mr Hansen’s affidavit of 10 April 2018.

11    Even allowing for the effect of Mr Robertson’s lack of understanding about the significance of Transpetrol’s obligations under the collective bargaining agreements, including the owner’s allowance, before receiving Mr Hansen’s affidavit, the Ombudsman did not change course or moderate her position once Mr Hansen’s affidavit made the position pellucid.

12    Before the Ombudsman began the proceeding, first, Transpetrol had explained in its emails of 24 March 2015 and 8 April 2015 that, Caltex, not Transpetrol, had applied for the Caltex licence whilst Turmoil was sailing under the Chevron charterparty and that Transpetrol did not, and could not be expected to, know of the application for, or existence of, a temporary licence. Secondly, Transpetrol had paid in full what the Ombudsman demanded before she brought the proceeding as its solicitors had told the Ombudsman it would do in their letter of 7 April 2016. The solicitors said that, in those circumstances, there was no need to commence proceedings.

13    Again, the Ombudsman failed to give any reasonable consideration to the employment agreements, the differing relevant national laws under which Transpetrol had to engage and pay crew members or its bona fide use of the owner’s allowance to ensure the fair, equal and decent treatment of all crew members of the same seniority and rank who performed the same work to overcome their different entitlements under the various relevant national laws. Moreover, she had no regard to the impact of the Maritime Labour Convention in respect of the 2014/15 voyages.

14    Instead, the Ombudsman sought to characterise Transpetrol’s conduct in respect of performing its obligations under foreign industrial laws, collective bargaining and other crewing agreements and its decisions to pay its crews more than it had to under those contracts as a factor requiring general deterrence. The Ombudsman argued that this was necessary because in ten voyages of a few days each, in Australian regulated waters under three year and one year charterparties, unbeknownst to it, Transpetrol was not also paying the crew according to Australian law. She contended that by making an example of Transpetrol, other international shipowners would appreciate the need for compliance with Australian law and make commercial provision for sub-charterers to inform shipowners or demise charterers of a temporary licence. However, that argument had no regard to the facts here. Indeed, the Chevron charterparty was made in 2008, over four years before the enactment of the Coastal Trading (Revitalising Australian Shipping) Act 2012 (Cth) and, when making that charterparty, the parties to it could not have foreseen or provided for its impact.

15    Moreover, the Ombudsman’s argument against allowing the set off ignored the legislative purpose of the Coastal Trading Act’s application of the Fair Work Act to temporary licensed ships, namely to make the cost of employing crew on coastal trading voyages the same for general and temporary licensed ships: Transpetrol [2019] FCA 400 at [121]-[125]. There was no suggestion, in the facts known to the Ombudsman, that Transpetrol was engaged in any attempt to treat the crew members unfairly.

16    I found that the purpose of general deterrence would not have been advanced and it would not have been fair or just to impose a penalty on Transpetrol in the circumstances. I also found that the Ombudsman had not advanced any plausible argument, beyond mere assertion, as to how Transpetrol or Transpetrol Maritime (as the demise charterer) should have become aware of even the risk of contravening the Fair Work Act. Yet, she brought the proceeding and made those unsustainable assertions. First, she sought penalties of a high amount, despite accepting that Transpetrol had cooperated fully and had paid the affected crew members the total amounts she required. Secondly, she characterised Transpetrol’s unwitting and unintended contraventions as more serious than they reasonably could be found to be in order to support her claim based on some form of general deterrence.

17    As I found, the Ombudsman overreached in seeking the initial range of penalties she claimed. Transpetrol was forced to defend the penalty phase of the proceeding (it having, from the outset, admitted the contraventions) because the Ombudsman took too zealous a position. That position did not attempt to understand or accommodate the legal or commercial position. First, the sub-charterers, Caltex and BP Australia, obtained the temporary licences without informing Transpetrol or Transpetrol Maritime and then gave the sailing orders for each of the ten voyages leading to the contraventions. Secondly, Transpetrol was obliged to contract with crew members in accordance with the relevant national laws and to have in force at all times a blue certificate that reflected that it had so contracted and, for the 2014/15 voyages, also a maritime labour certificate, for Turmoil (including in Australia under the 2013 Marine Order when she sailed into Australian ports).

Conclusion

18    In my opinion, for the reasons above, the Ombudsman unreasonably sought far higher penalties than the circumstances of the case could have warranted and unreasonably caused Transpetrol to incur costs, first, in defending itself against their imposition and, secondly, establishing its right to set off in accordance with the established authorities that governed the question as I found: Transpetrol [2019] FCA 400 at [111]-[114].

19    The power to order costs under s 570(2), once enlivened, is discretionary and is not to be exercised punitively. The purpose is to compensate the other party for the costs caused by the relevant unreasonable act or omission: Shea (No 2) [2015] FCAFC 14 at [11].

20    Having regard to all of the circumstances, I consider that the justice of the case warrants an order that the Ombudsman pay 50% of Transpetrol’s costs.

Associate:

Dated:    3 May 2019