FEDERAL COURT OF AUSTRALIA

Stratton Finance Pty Limited v Webb [2014] FCAFC 110

THE COURT ORDERS THAT:

1.    Within 14 days the parties file a comprehensive draft set of orders in the following form and structure:

   (1)    The cross-appeal be allowed.

   (2)    The appeal be allowed in part.

   (3)    Order 1 made by the Federal Circuit Court on 2 April 2014 and orders 1 and 3 made by the Federal Circuit Court on 9 May 2014 be set aside, and, in lieu thereof, in addition to the subsisting declarations 1-8 made by the Federal Circuit Court on 2 April 2014, and in addition to order 2 made by the Federal Circuit Court on 9 May 2014, it be ordered that:

      (a)    [an order providing for judgment on the contractual claim]

      (b)    [an order providing for penalties in accordance with these reasons]

      (c)    [an order providing for costs in the manner discussed in the reasons for judgment]

      (d)    [an order providing for the costs of the appeal]

2.    Proceedings be set down on a date to be fixed in consultation with the Associate of the Chief Justice for the making of orders.

3.    The parties should be heard on the costs of the appeal if they do not agree on an order.

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

REASONS FOR JUDGMENT

THE COURT

1    The appeal concerns (a) the construction and interpretation of an employment agreement and the extent to which, if at all, the respondent, Mr Webb, was underpaid remuneration by way of commission and (b) the proper penalties to be imposed on the appellant, Stratton Finance Pty Limited (Stratton) for various breaches of the Fair Work Act 2009 (Cth) (FW Act) and the Workplace Relations Act 1996 (Cth) (WR Act).

2    Mr Webb was employed by Stratton as a finance consultant in the Brisbane office of its finance broking business. Mr Webb was involved in arranging “auto finance” for customers. He was employed under an agreement dated 10 May 2006 entitled “employment agreement” on the front page of which he was referred to as the “employee”. His position was described as a “Finance Consultant”. The contract identified the person to whom he reported. It also identified his “place of employment” as the “Queensland Branch” at a business address. The “hours of work” were regulated by cl 2 of the agreement and were stated to be 8.30 am to 5.30 pm Monday to Friday. Remuneration was set under cl 4 which was in the following terms:

Remuneration Package

An agreed amount 40% gross commission on all deals settled by the Contractor, to be paid by way of gross amount of $650.00 per week less income tax and balance of agreed amount payable monthly after reconciliation, less any applicable income tax. If a shortfall occurs next month’s commission will be adjusted accordingly.

Any agreed change to the Contractor’s remuneration package (or to components thereof) will be fully documented and signed by Stratton Finance and the Contractor, and such document will be deemed to form part of this agreement, and thereby supersede this agreement to the extent of any inconsistency.

3    The first part of the appeal and the cross-appeal concern the proper construction of this clause.

4    Clause 5 described this remuneration as “salary”, and was in the following terms:

Payment of Salary

Salary as outlined in section 4 will be paid by direct bank deposit into an account of the Employee’s choice on a weekly basis. Balance of agreed Commission will be paid monthly upon receipt of commission statements from all financiers.

5    Clauses 6 to 10 dealt with annual leave, long service leave, parental leave, sick leave and work cover by reference to the “Human Resources Manual” that was referred to in cl 1 of the agreement, and by reference to Stratton’s “work-cover policy”. All these provisions stated explicitly the existence of these rights.

6    Clause 11 dealt with “Termination of Employment”.

7    Clause 13 expressed Mr Webb as owing duties “of fidelity and confidentiality” and also contained a restraint of trade clause (cl 13(c)) couched in terms of the period after the “employment”.

8    Clause 14 dealt with grievances or disputes in relation to the “employment”.

9    At the conclusion of the agreement, under the heading “Declaration”, Mr Webb signed the document as the agreed “terms and conditions of employment”.

10    Apart from the use from time to time in the agreement of the word “Contractor” to refer to Mr Webb, there was no real attempt reflected in the document to construct a relationship other than that of employment. There was no term that sought to characterise the relationship as one of independent contractor or agent. Rather, it is clear that the agreement saw Mr Webb as an employee whose salary was determined by commission in accordance with cl 4.

11    We have set all this out at the outset because the penalties imposed on Stratton by the primary judge concerned the failure to do various things concerning Mr Webb’s employment: to pay sick leave (cl 9), to pay salary for public holidays, to pay annual leave (cl 6), to pay leave loading, to pay the proper amount of superannuation (which turned on whether Mr Webb had been paid the correct salary by way of commission), to keep proper records and to issue pay slips over two years, other than on six occasions.

The contractual dispute over cl 4

12    The proceedings before the Federal Circuit Court judge in December 2013 sought penalties for breach of provisions of the FW Act and WR Act and, as part of the matter (in the Circuit Court’s accrued jurisdiction), contained a claim for breach of contract in respect of the asserted underpayment of commission salary pursuant to cl 4 of the agreement. Shortly before the hearing, Stratton accepted the various breaches of penal provisions. Thus the first judgment of the primary judge delivered on 20 December 2013 concerned only the proper construction of cl 4.

13    Consequent upon the acceptance by Stratton of its breaches and after deciding upon the contractual issue, the primary judge made the following declarations and orders:

THE COURT DECLARES THAT:

1.    The respondent contravened sections 323(1) of the Fair Work Act 2009 (Cth) (FWA) and 247 of the Workplace Relations Act 1996 (Cth) (WRA) by failing to pay the applicant for sick leave taken.

2.    The respondent contravened sections 323(1) and 116 of the FWA and section 612 of the WRA for failing to pay the applicant wages on public holidays.

3.    The respondent contravened section 323(1) of the FWA and section 235 of the WRA for failing to pay the applicant $2,148.69 on annual leave days taken.

4.    The respondent contravened section 323(1) of the FWA for failing to pay the applicant $12,418.56 accrued but untaken annual leave on termination of the employment.

5.    The respondent contravened section 45 of the FWA for failing to pay the applicant $1,133.35 in leave loading in accordance with clause 31.2 of the modern award.

6.    The respondent contravened section 45 of the FWA in breach of clause 21 of the modern award and breached section 719(7) of the WRA in failing to pay the applicant the proper amount of superannuation.

7.    The respondent contravened section 535(1) of the FWA by failing to keep employee records of the applicant in accordance with Sub Regulation, Chapter 3, Part 3-6, Division 3, regulations 3.32(d)-(e), 3.33(1) & (3), 3.36(1) and 3.37 of the Fair Work Regulations.

8.    The respondent contravened section 536(1) of the FWA by failing to issue pay slips on more than 6 occasions.

THE COURT ORDERS THAT:

1.    Judgment for the applicant in the sum of $146,291.64 be paid within 14 days.

THE COURT RESERVES ITS DECISIONS ON:

1.    Costs

2.    Penalties

3.    The identity of the recipient of any penalties.

14    The sum of $146,291.64 was constituted by the following amounts:

$25,564.39    Employment entitlements conceded by the Appellant.

$ 2,300.00    Superannuation calculated on the conceded entitlements

$36,063.23    Monies wrongly deducted from commission as claw-backs

$ 3,733.91    Unpaid commission

$39,662.11    Monies wrongly deducted from commission for superannuation

$ 2,393.04    Superannuation payable in light of reinstatement of above amounts

$36,733.00    Agreed interest to judgment

$146,291.64

15    There were two disputed categories of money that Stratton had deducted from Mr Webb’s salary: (a) amounts paid by Stratton to third parties by way of introduction fees in respect of deals settled by Mr Webb and in respect of which he was entitled to commission; and (b) so-called “claw back” amounts claimed by financiers from Stratton in circumstances such as if the loan did not last for more than a short time or if default took place.

16    The primary judge found that the amounts in [15(a)] above were properly deducted from Mr Webb’s salary; but that the amounts in [15(b)] were not. The former finding is the subject of the cross-appeal, the latter is the subject of the first part of the appeal. It is convenient to address these matters together.

17    For the reasons below, we are of the view that, subject to one qualification, the primary judge’s conclusion as to claw-back payments was correct; but that his conclusion as to third party payments was wrong. Our views will require the parties to recalculate the sums to which Mr Webb is entitled.

18    We will deal first with the third party payments.

19    During his cross-examination, Mr Webb conceded (and his case was presented to the primary judge accordingly) that, to the extent of any third parties who were his leads or contacts, he was required to pay such amounts. The evidence revealed that these payments were deducted in full, after his 40% was calculated. The primary judge recognised this concession at [12] of his first reasons. However, the primary judge went further, saying at [12] of the first reasons:

12.    In the light of the concessions made by the respondent the substantive issue in the case became the proper interpretation of clause 4 of the Employment Contract.

…

When one considers the surrounding circumstances known to the parties one must do this at the time the contract was entered into and not subsequently. So, whilst it is clear that Mr Webb was aware within a reasonably short space of time after he commenced work that Strattons intended to deduct from his commission amounts paid to third parties and, slightly later, clawbacks, that is not necessarily the situation that applied when the contract was being negotiated. Very little evidence of those negotiations has been produced. The Court is thus unable to say that Mr Webb was made aware at that time that these items would constitute deductions. It is therefore necessary to look at the conduct of the parties once the contract became operable to see if that sheds any light on the parties’ intention. Mr Webb filled in parts of the spread sheet but he did not admit to filling in column B which was the third party commission deduction. On the other hand, he did agree that when the third party introducer came through him and a fee was payable that would represent a deduction from his commission. Mr Webb also gave evidence that he raised the question of the deductions with Mr Wardell but there is no documentary evidence of this. On the other hand Mr Wardell gave evidence that Mr Webb put the figure in Column B although it was the company which made the deduction. The Court accepts this evidence. Mr Webb is an experienced finance consultant who had been doing this type of work for some time prior to his employment with Strattons. It is the Court’s view that if he had not expected to come across this type of deduction in the spread sheets which he completed he would have queried this with Mr Wardell or Mr Kunkel his direct superior. There is no evidence of such a query and as Mr Wardell was in Melbourne and Mr Webb in Brisbane the Court would have expected an email record to have existed if the enquiry or complaint had actually occurred. Insofar as the surrounding circumstances might assist in defining the meaning of gross commission in clause 4 in regard to these deductions the Court is of the view that they would tend to indicate a mutual understanding that third party commissions were a deductible.

20    Both Mr Webb and Stratton accepted on appeal that this reasoning impermissibly sought to use later conduct in the interpretation of the agreement.

21    On the cross-appeal, Stratton sought to uphold the conclusion of the primary judge about third party payments by submitting that the evidence of post-contractual conduct could be used to infer a fact known to both parties before the contract that third party fees of this kind were generally deducted from commissions before payment. That is the context, so the appellant submitted, in which cl 4 should be construed.

22    The difficulty for the appellant is at least twofold. First, the findings of the primary judge in [12] only amount to a lack of protest or query. Stratton, to a degree, recognised this on the appeal and submitted that Mr Webb had conceded in evidence that all third party payments were properly deductable. So, it was submitted, there was a mutual understanding between the parties from which the above fact could be inferred. The evidence, however, does not go so far and does not support the asserted clear mutual understanding. The primary judge did not go so far; and rightly so. A reading of Mr Webb’s transcript does not support it. Secondly, the concession that Mr Webb made as it was reflected in contemporaneous business records was that he (Mr Webb) paid the full cost of his leads, not that it was deducted from the gross commission before his 40% was calculated.

23    There was otherwise no evidence of context, aim or purpose of the contract in relation to third party payments.

24    On any view, the third party payments are not part of the commission or the gross commission. Rather, they are a direct cost in the gaining of the commission.

25    Stratton submitted that the third party payments should be taken into account within the word “reconciliation”. Without clear contextual circumstantial evidence, we see no reason to read so much into the word. Its position before the deduction of applicable income tax in cl 4 is not decisive. Further, there is a basic commercial symmetry in the cost of Mr Webb’s own contacts being borne by him, and the cost of Stratton’s contacts being borne by it. There was no evidence of context, market practice or other objective material which would provide a basis upon which one could conclude that all third party payments fell within necessary reconciliation under cl 4.

26    The primary judge was, in our respectful view, in error in concluding that the agreement required the deduction of third party payments before the striking of the 40% commission.

27    For these reasons, the cross-appeal should be allowed.

28    As to the so-called “claw-back” amounts, the primary judge approached the problem on the assumption that the claw-back was a deduction for which cl 4 did not provide. The reasoning of the primary judge, in particular, in [12]-[15], contrasted “gross commission” before the claw-back, with “net commission” after the claw-back. We do not think that this is the correct way to look at the problem. The so-called “claw-back” system was described in an affidavit of Mr Seale, the Chief Operating Officer of Stratton. His affidavit (upon which there was no cross-examination) contained evidence that, from his 12 years’ experience as a broker, a claw-back provision was normal in broker agreements (that is between finance broker and financier). He described the nature of these provisions by way of example of Alphera Finance. The claw-back provision is one that requires, in certain circumstances, the commission already paid to be refunded, in whole or in part. This may be seen, not as a deduction, but as the refund of the commission that had been paid provisionally or conditionally after the settlement of the deal. Mr Webb said in evidence (which was not the subject of cross-examination) that he had not (in his 30 years of experience) heard of claw-back provisions. Also, Mr Seale came to Stratton in 2008 and his evidence, or some of it, was expressed in the present tense. Nevertheless, his evidence is sufficient to found a conclusion that the arrangements between Stratton and its lenders had provisions which called for the refund of commissions provisionally or conditionally paid.

29    Mr Seale described those conditions in paras 13 and 14 of his affidavit as follows:

13    From my experience, the circumstances that usually give rise to a claw back include, but are not limited to:

(a)    A loan being paid out early, namely before the maturity of the loan;

(b)    A loan becoming a bad debt, namely, the individual or company defaults on the loan; and

(c)    A loan being subject to fraud or similar misconduct.

14    It is difficult to categorise with consistency the exact circumstances and variables within each agreement that will give rise to a claw back. This is because our lenders periodically send out variations to the terms regarding claw backs.

30    Clause 4 speaks of 40% gross commission. That is, the gross commission of Stratton. The agreement between Mr Webb and Stratton works on, or picks up, whatever Stratton’s commission arrangements are with financiers.

31    The claw-back amounts can thus be seen as the refund of commissions provisionally paid. That, in our view, is the better view. Nevertheless, it does not answer the question as to the meaning of “gross commission” in cl 4. The real question is whether it is the gross commission evident at monthly reconciliation; or whether it is the gross commission as calculated from time to time over the life of the loan.

32    In our view, it is the former. A refund may be required to be paid at any point of time, potentially extending from shortly after a loan has been entered into until shortly before a loan has been completely repaid. This is an employment contract. It is unlikely, in that context, for the parties to agree to a salary that might be subject to variable adjustment over years, as would be the case with the kind of claw-back provisions discussed by Mr Seale. The reconciliation is monthly. If a claw-back has happened inside that month, it would be taken into account in calculating gross commission, not otherwise. This construction lends certainty to an employee who, after all, must pay regular tax on his salary income. No salary earner would expect to be subject to changes to his salary years after the relevant tax year for reasons that operate in his employer’s contracts with third parties.

33    The primary judge rejected claw-backs as a deduction unprovided for by cl 4. In fact, they are part of the calculation of what is commission, and commission that is “gross”. The employment context of the contract, the monthly payment of salary after reconciliation, the inconvenience of a long “tail” of adjustment to salary of someone who may not still be an employee and the availability of the contra proferentem rule are all factors that lead to the conclusion that the quantum of the monthly “salary” payable pursuant to clauses 4 and 5 is the stated 40% of the commission less such amounts as may be required to be refunded during that month in relation to “deals settled by the Contractor.” That is the reconciliation required by cl 4. Clauses 4 and 5 do not yield to a construction which contemplates the refund of monies from a non-existent “salary” perhaps years after an employee has ceased employment, albeit a refund of monies in respect to commission previously paid in respect to “deals settled by the Contractor.”

34    It is not clear whether there are any such claw-backs. It is perhaps unlikely that there would be. Unless there are, grounds 2-5 of the amended notice of appeal would be rejected. If there are, the appeal on those grounds may be allowed in part.

35    The appellant abandoned grounds 1 and 6-8 of the amended notice of appeal.

36    The above reasons are presupposed upon legitimate contextual surrounding circumstances being available for consideration in the process of contractual construction and interpretation before ambiguity is demonstrated from the words of the agreement alone. That proposition was denied as legally permissible by three justices of the High Court in remarks in the disposition of an application for special leave in Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; 86 ALJR 1. In those remarks, criticism was made of the reasons in Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603, and in particular the reasons at [14]-[18] concerning the lack of need for ambiguity before resort to legitimate surrounding circumstances in the above-mentioned task. The articulated criticism was that the Court in Franklins (and the courts in the other intermediate appellate decisions referred to at [16] in Franklins) had failed to follow the judgment of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; 149 CLR 337, especially at 352.

37    As the reasons in Franklins stated, the conclusion that ambiguity need not be discovered before any resort to legitimate surrounding circumstances in the relevant task was drawn only from existing High Court authority: Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; 210 CLR 181 at 188 [11]; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 at 461 [22]; Zhu v Treasurer of the State of New South Wales [2004] HCA 56; 218 CLR 530 at 559 [82]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 at 179 [40] and International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; 234 CLR 151 at 160 [8] and 174 [53]. The Court’s view was reached in the light of the totality of Sir Anthony Mason’s judgment in Codelfa, and considering the clear words of those later binding High Court authorities.

38    After Jireh, and until this year and the publishing by the High Court of reasons in Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 306 ALR 25; 88 ALJR 447, there was a degree of uncertainty as to whether courts (trial courts and intermediate appellate courts) should follow a clearly articulated position expressed by a number of intermediate courts of appeal around the country as to the proper content and significance of binding High Court authorities, or the view of three justices of the High Court in remarks on a special leave application. In 2013, McLure P called it a “heated controversy” in Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66; 298 ALR 666 at [107]; and see also the remarks of Pullin JA in McCourt v Cranston [2012] WASCA 60 at [14]-[22], and the article by the Hon K Lindgren: “The ambiguity of ‘ambiguity’ in the construction of contracts” (2014) 38 Australian Bar Review 153.

39    In the notice of appeal, Stratton relied, in effect, on the essential proposition from Jireh: see para 3. This was confirmed at a directions hearing. Jireh however, played no substantive part of the argument, because the question, by the time of submissions being filed, had been settled by the High Court in Woodside. This most recent statement by French CJ, Hayne, Crennan and Kiefel JJ of the principles of contractual construction and interpretation was as follows at [35]:

Both Verve and the Sellers recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties … intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience".

(Footnotes omitted)

40    Recently, in Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184, the New South Wales Court of Appeal (Leeming JA, with whom Ward JA and Emmett JA agreed) expressed the view (at [71]) that [35] of Woodside was inconsistent with Jireh. We agree with that conclusion, and with the reasons in elaboration at [72]-[86], and in particular with the comments concerning Codelfa at [78]-[80].

41    The resolution of this issue, in the terms of [35] of Woodside, may not, however, resolve all issues as to what are legitimate surrounding circumstances: see, for example, the argument dealt with in QBE Insurance Australia Ltd v Vasic [2010] NSWCA 166 at [20]-[35]; and the comments in Kimberley Securities Ltd v Esber [2008] NSWCA 301 at [4]-[5].

The appeal on penalty

42    In a second judgment handed down on 9 May 2014, the primary judge made orders for the payment of penalties and costs as follows:

(1)    The Respondent pay the penalties set out in the table found at [24] of these reasons, a total sum of $123,760.00, for the breaches of the Workplace Relations Act 1996 and Fair Work Act 2009 therein referred to within 56 days.

(2)    The Respondent pay the said penalties to the Applicant pursuant to s.546(3)(c) of the Fair Work Act 2009.

(3)    The Respondent pay the Applicant’s costs on an indemnity basis.

43    The table in [24] of his Honour’s reasons was as follows:

44    We will make reference to the primary judge’s reasons in due course. It was agreed, however, that the primary judge erred in one important respect: the incorrect value of the penalty unit as $170, instead of $110. The increase in value only occurred from 28 November 2012 with the coming into effect of the Crimes Legislation Amendment (Serious Drugs, Identity Crime and Other Measures) Act 2012 (Cth). If one were to recalibrate the penalties imposed by the primary judge by reducing them by reference to a fraction of 11/17, the primary judge’s assessment would reduce the total of the penalties to $80,080.

45    In address, counsel for Stratton accepted that such a total penalty ($80,000) was not manifestly excessive. Nevertheless, the task of the Court must be to undertake an assessment of the proper penalties afresh given the error of the primary judge. In this task, we have been assisted by the reasons of the primary judge and the submissions on penalty put below, as well as by counsel’s submissions on appeal.

46    It is first necessary to consider one argument put by Stratton about the terms and proper construction of s 323(1) of the FW Act, which is in the following terms:

323 Method and frequency of payment

(1)    An employer must pay an employee amounts payable to the employee in relation to the performance of work:

    (a)    in full (except as provided by section 324); and

    (b)    in money by one, or a combination, of the methods referred to in subsection (2); and

    (c)    at least monthly.

Note 1:    This subsection is a civil remedy provision (see Part 4-1).

Note 2:    Amounts referred to in this subsection include the following if they become payable during a relevant period:

(a)    incentive-based payments and bonuses;

(b)    loadings;

(c)    monetary allowances;

(d)    overtime or penalty rates;

(e)    leave payments.

47    The proposition contended for by the applicant was that the plural in the word “amounts” meant that it was necessary in any case to group all breaches of the section as one breach. We reject this, if only because it does not take account of the Acts Interpretation Act 1901 (Cth), s 23(b) and the evident intention of the section. The simple and common sense reading of the provision is that the employer must pay any amount or amounts payable to the employee.

48    The requirement in the Court to re-exercise the discretion does not mean that the findings of fact and the evaluations made by the primary judge that are not otherwise criticised are not to be seen as of assistance, and influential.

49    The first question dealt with by the primary judge (at [6] of the second judgment) was his refusal to view all breaches as part of one course of conduct for the purposes of s 557 of the FW Act. Stratton’s argument hinged on the assertion that there had been one misinterpretation of the contractual provisions which led to all the breaches. The primary judge was correct to reject that argument. There was no real evidence of one misinterpretation. The evidence of the bookkeeper, Mr Wardle, was inferential only; and no director or officer of the company gave evidence. Contrary to the basis upon which the appeal was conducted in Rocky Holdings Pty Ltd v Fair Work Ombudsman [2014] FCAFC 62 at [8], namely that the contraventions arose from the same course of conduct, the evidence in the present proceeding fell well short of satisfying the requirements of s 557(1)(b) of the FW Act. The extent to which there should nevertheless still be consideration of the totality of the quantum of all penalties to be imposed in respect to all contraventions is dealt with below.

50    The primary judge then considered the breaches by reference to 14 factors taken from an earlier decision of the Circuit Court. No criticism was made of that approach. The factors considered were relevant. We will approach the matter likewise, since it is conformable with the approach of the parties.

The nature and extent of the conduct

51    The argument was that this was a simple misinterpretation of legal rights. This can be accepted, objectively, about the contractual interpretation, which is a question not without its difficulty. As to the other breaches, however, there was no real evidence as to why rights of such a basic kind were ignored. The agreement was plainly an employment contract. No evidence was given by those in control of Stratton who had personal knowledge of the matter. The primary judge’s conclusion that the “interpretation” of the contract was “naive and unacceptable” was perhaps generous. We would conclude that, in the absence of explanation, the failure to pay these was wilful. The agreement admitted of no other conclusion.

The circumstances in which the conduct took place

52    The primary judge took into account the fact that Mr Webb did not “make a fuss”. That is a factor of limited weight. Employees may, for many reasons, reveal acceptance or docility in the face of a wrong by an employer. It is likely to be of little assistance to enquire why that was so. Further, there was an investigation by the Fair Work Ombudsman who told Stratton to pay the entitlement. This recommendation was refused. The entitlement to payment was not conceded until the very beginning of the case. This shows recalcitrance on the part of Stratton to the vindication of the employment rights of Mr Webb.

The relationship of the record keeping breaches to the vindication of rights

53    Only five pay slips were issued over a period of six years. This made the task of Mr Webb in vindicating his rights very difficult. This was rightly viewed by the primary judge as a serious matter warranting the breach to be viewed as serious.

The nature and extent of loss

54    Mr Webb was underpaid $27,000 over six years. The loss was significant to one person. The default continued for an extended time.

Similar conduct otherwise

55    No previous similar conduct was reported.

Distinct or arising out of one course of conduct

56    The primary judge found the breaches distinct. The substantial challenge to that on appeal was the construction of s 323(1) which we have rejected.

57    It is unclear from the totality of his Honour’s reasons what degree of what might be called “grouping” took place by reference to individual provisions in accordance with what was said in Rocky Holdings; on one view, there was none. Given that this Court must re-sentence the appellant, we will deal with this question below.

The size of the business enterprise

58    Stratton had 100 employees. The firm was of sufficient size to have well-trained staff responsible for recognising the firm’s obligations.

Deliberateness

59    The primary judge considered that the breaches were not capable of explanation by a misinterpretation of the contract. For the reasons set out above, we agree. His Honour said that the failure suggests “almost a wilful blindness to reality”. No complaint was made about that finding. In the absence of proper explanation of the failures over six years, and in the face of the Fair Work Ombudsman’s recommendation, the finding may be seen as generous.

The involvement of senior management

60    The two witnesses from the respondent were senior middle management. As the primary judge said it can be assumed that the failure to pay the moneys upon the Ombudsman’s recommendation was the decision of at least senior management. No explanation of the breaches was put forward. The involvement of senior management in the course of conduct must be assumed.

Contrition

61    There was no evidence of contrition.

Corrective action

62    The evidence reveals that this type of contract was not typical in the company. Thus, the consideration was of little relevance.

Co-operation or not with enforcement authorities

63    There was some co-operation, but later, a refusal to follow the Ombudsman’s recommendations.

Deterrence

64    The primary judge rightly, in our view, took both general and specific deterrence into account. Employers should understand the seriousness with which wilful non-payment of statutory (and here contractual) entitlements is viewed by the Court.

Re-sentencing

65    Recently, the Court in Rocky Holdings examined s 557. It is unnecessary to enter any detailed discussion of the principles of application of s 557 beyond reference to that case and the reiteration of some fundamental issues. The object and purpose of provisions such as s 557 is to ensure there is not double punishment for the same offending. It is necessary to recognise that if there is an interrelationship between the legal and factual elements of two or more offences, care must be taken to avoid double punishment.

66    Here, the primary judge collected the breaches by reference to the provisions contravened, but appears to have treated them individually. Subject to the “one breach argument” arising from the construction of s 323(1), the substantive submission was that the primary judge failed to consider the legal and factual interrelationship between all the offending referable to each provision contravened, and to the principle of totality.

67    In our view, in the absence of explanation as to the failure to pay amounts provided for by statute and contract for over six years, it is not possible to deal with this extensive body of conduct otherwise than as grouped only by reference to the type of provisions contravened. Regard, however, must be paid to the fact that there is a repetition of the same legal and factual elements over time, and time and again.

68    Turning then to the contravention set out in the table at [24] of the primary judge’s reasons, recognising the error as to the maximum penalty, and taking into account all the matters referred to above, we would resentence Stratton as follows:

(a)    the underpayment of the contractual commission

69    Whilst there is no proper explanation for the failure to pay the statutory amounts, the contractual claim (with which we have dealt in the first part of these reasons) was objectively arguable and not without its difficulty. We do not think that in these circumstances the penalty should be more than nominal. The kinds of consideration to which we refer below as to the statutory breaches do not apply. We would impose a penalty of 5 units: $550.

(b)    the non-payment of sick leave

70    These breaches, unexplained, and in contravention of both statute and contract, were sustained and should be taken as wilful. Though there was no explanation of the failure to pay, it is unlikely to have been provoked by disparate considerations. We think that the breaches should be seen as one serious and unexplained course of conduct, known to senior management, in respect of which deterrence, especially general deterrence, is an important consideration, and in respect of which there was no contrition and a degree of recalcitrance. We would impose a penalty of 100 units: $11,000.

(c)    the non-payment of public holiday leave

71    For the same reasons, we would impose the same penalty, $11,000.

(d)     the non-payment of annual leave taken and accrued and non-payment of leave loading

72    These contraventions were closely related though formally legally distinct. Looking at them as one group by reference to their legal foundation and for the reasons as to sick leave we would impose a penalty of 200 units: $22,000.

(e)    the non-payment of superannuation on entitlements conceded and commission

73    For the reasons set out above in relation to the payment of commission, the penalty for the consequential non-payment of superannuation should be nominal. The non-payment of superannuation, otherwise, for the reasons given above, was serious. We would impose a penalty of 100 units: $11,000.

(f)    failure to keep proper employee records

74    On the evidence, this breach was serious and impeded Mr Webb in the vindication of his rights. Given the maximum penalty, the lack of contrition, the sustained breach and the need for deterrence, we would impose a penalty of 18 units: $1,980.

(g)    failure to issue pay slips

75    The sustained, unexplained body of conduct requires both general and specific deterrence. In our view, a penalty approaching the maximum would be required. The primary judge, however, only imposed 10 units. In the absence of specific argument to increase the penalty for this breach, we would not give effect to our view. We thus impose 10 units: $1,100.

76    Adding these together, one reaches a total of $58,630. Applying the principle of overall totality, we consider that this adequately reflects the degree of unexplained offending and is just and appropriate in all the circumstances.

Costs

77    The primary judge awarded costs on an indemnity basis for the whole proceeding. The reasoning was based on the refusal of Stratton to accept an offer of compromise by way of “Calderbank letter” sent on Monday, 8 April 2013, to be accepted by Friday, 12 April 2013. The offer was $60,000 (less any tax), a comprehensive deed of release, a “no adverse comment clause”, with each party to bear its own costs.

78    At [29]-[34] of the second judgment, the primary judge expressed a number of reasons why he thought that it was unreasonable for Stratton to reject the offer.

79    The question must be examined from the perspective that there was a contract claim for unpaid salary by way of commission and statutory claims. The statutory claims were subject to the FW Act, s 570(2) that relevantly provided that a party may only be ordered to pay costs if the Court is satisfied that the party’s unreasonable act or omission caused the other party to incur the costs.

80    Caution should be exercised as to how a Calderbank offer, even a generous one, is viewed in such circumstances. Calderbank letters presuppose what might be called a “costs jurisdiction”, in contrast to the usual rule in FW Act claims. To group together contractual and FW Act claims in an offer may permit the conclusion that the refusal of the offer was unwise, even unreasonable, but it does not follow that such is an unreasonable act or omission, for the purposes of s 570(2).

81    Looking at the FW Act claims here, we are of the view that the conduct of Stratton (leaving to one side the Calderbank letter of Mr Webb to settle) was unreasonable in the sense intended by s 570(2). There was no attempt to explain the failure to pay what the statute required; the agreement on its face was for a relationship of employment; the failure to keep records exacerbated the costs and difficulties of proof; the position of Stratton was recalcitrant to the last minute and contrary to the views of the Fair Work Ombudsman. Mr Webb was put to significant cost to enforce basic rights. In these circumstances, it is proper to award indemnity costs on the FW Act claims.

82    There are difficulties in awarding indemnity costs in respect of the contract claim. The letter did not differentiate between claims. Given the broad release sought it would necessarily have to take account of the value of the claim by Stratton against Mr Webb in the Local Court which was in prosecution. When one considers the claimed amount for that action which was based upon Mr Webb wrongfully witnessing the signature of a person not present before him, and the objective strengths of Stratton’s arguments on the construction of cl 4 (although not ultimately successful), we do not think it appropriate to award indemnity costs on the contract claim.

Orders

83    There is a need for the parties to recalculate the sums due under the contractual claim. The parties should bring in a comprehensive draft set of orders in the following form and structure:

(1)    The cross-appeal be allowed.

(2)    The appeal be allowed in part.

(3)    Order 1 made by the Federal Circuit Court on 2 April 2014 and orders 1 and 3 made by the Federal Circuit Court on 9 May 2014 be set aside, and, in lieu thereof, in addition to the subsisting declarations 1-8 made by the Federal Circuit Court on 2 April 2014, and in addition to order 2 made by the Federal Circuit Court on 9 May 2014, it be ordered that:

(a)    [an order providing for judgment on the contractual claim]

(b)    [an order providing for penalties in accordance with these reasons]

(c)    [an order providing for costs in the manner discussed above]

(d)    [an order providing for the costs of the appeal]

84    Proceedings be set down on a date to be fixed in consultation with the Associate of the Chief Justice for the making of orders.

85    The parties should be heard on the costs of the appeal if they do not agree on an order.

Associate:

Dated:    2 September 2014