FEDERAL COURT OF AUSTRALIA

Fair Work Ombudsman v Priority Matters Pty Ltd [2017] FCA 833

ORDERS

THE COURT ORDERS THAT:

1.    The parties are to bring in Short Minutes of Orders to give effect to these reasons within 14 days.

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

REASONS FOR JUDGMENT

1    The facts giving rise to the present appeals can be simply stated.

2    Between February and December 2013 a number of employees were not paid what they were entitled to be paid. Some of those employees were not paid for the entire 10 month period; other employees were not paid for a more limited period. Mr Silverbrook was either a director or the sole director of each of the corporate employers. He maintained that he was doing everything he reasonably could to ensure that the employees were paid as soon as practicable.

3    But the fact remained that the employees were not being paid their salaries, their other entitlements or both. Collectively, the five employers failed to pay wages and entitlements to 43 employees totalling in excess of $1.9 million.

4    The Fair Work Ombudsman (the “FWO” or “Ombudsman”) commenced proceedings in the Federal Circuit Court of Australia alleging contraventions of the Fair Work Act 2009 (Cth) (the “Fair Work Act”). That Court delivered three judgments, namely:

    Fair Work Ombudsman v Priority Matters Pty Ltd [2016] FCCA 1474 (the “primary judgment”);

    Fair Work Ombudsman v Priority Matters Pty Ltd (No 2) [2016] FCCA 2696 (the “recusal judgment”); and

    Fair Work Ombudsman v Priority Matters Pty Ltd (No 3) [2016] FCCA 2744 (the “penalty and costs judgment”).

5    The corporate employers were held to have contravened the Fair Work Act; the Individual Respondents were held not to be liable. An order for costs in a lump sum of $800,000 was also made against the Fair Work Ombudsman in favour of the Individual Respondents.

6    The Federal Circuit Court Judge concluded that the Fair Work Ombudsman should have pursued inquiries of the Australian Taxation Office (the “ATO”) as part of its investigation. The failure to do so was characterised as “unreasonable”: [2016] FCCA 1474 at [172].

7    Two of the many issues pursued before this Court by the Fair Work Ombudsman were the basis upon which the Individual Respondents were held not to be liable for the corporate contraventions and the liability to pay the costs awarded in the sum of $800,000. Also of concern is the existence of any duty to make inquiries of the Australian Taxation Office.

8    It is concluded that all three judgments should be set aside and the proceedings remitted to the Federal Circuit Court for rehearing and that such rehearing should be before that Court differently constituted.

THE PROCEEDINGS BEFORE THIS COURT

9    The proceedings before the Federal Circuit Court were each commenced by the Fair Work Ombudsman. The proceedings involved the following corporate employers:

    Priority Matters Pty Ltd (“Priority Matters”);

    Superlattice Solar Pty Ltd (“Superlattice”);

    Geneasys Pty Ltd (“Geneasys”);

    Silverbrook Research Pty Ltd (“Silverbrook Research”); and

    Mpowa Pty Ltd (“Mpowa”).

Geneasys and Silverbrook Research have since gone into liquidation. All of the corporate employers except for Silverbrook Research were also named as Respondents in the Federal Circuit Court Proceedings. Geneasys was initially named as a Respondent, but proceedings against that corporate employer were discontinued. Priority Matters, Superlattice and Mpowa are the Corporate Respondents in the current appeal.

10    The Individual Respondents to the proceedings before the Federal Circuit Court were:

    Mr Kia Silverbrook; and

    Ms Janette Lee.

The Federal Circuit Court found that Mr Silverbrook “controlled” each of the corporate employers; Ms Lee was the partner of Mr Silverbrook and a director of at least one of the corporate employers: [2016] FCCA 1474 at [4] to [5].

11    Mr Silverbrook was described by the primary Judge as “an exceptionally brilliant inventor”: [2016] FCCA 1474 at [4]. The only relevance of this description is that he secured the “registration of patents in Australia and around the world” ([2016] FCCA 1474 at [4]) and each of the corporate employers became the repository of patents.

12    The principal issue posed for resolution before the Federal Circuit Court was the liability of the corporate employers and their directors for an alleged failure to pay wages and entitlements under the Fair Work Act over a ten month period from February to December 2013. Contraventions of ss 44(1), 45, 293, 323(1), 328, 542 and 712(3) of the Fair Work Act were alleged; the individuals were said to assume accessorial liability by reason of s 550.

13    The Fair Work Ombudsman filed in this Court on 9 November 2016 Notices of Appeal in each proceeding. The Notices of Appeal were amended with respect to each proceeding in December 2016 and further amended with respect to three of the proceedings in January 2017. The grounds of appeal and orders sought are the same in each of the five proceedings. As originally filed, and as amended, the Fair Work Ombudsman appeals from:

    those parts of the primary judgment in which the proceedings as against the Individual Respondents were dismissed;

    the whole of the recusal judgment; and

    the whole of the penalty and costs judgment.

14    There have also been filed in this Court on behalf of the Respondents in each proceeding:

    Notices of Objection to Competency;

    Notices of Cross Appeal; and

    Notices of Contention.

The Notices of Cross Appeal sought (inter alia) to challenge the conclusion that the corporate employers were “trading corporations” within the meaning of the Fair Work Act, which is defined by reference to s 51(xx) of the Constitution. Accordingly, a Notice of a Constitutional Matter was served in accordance with s 78B of the Judiciary Act 1903 (Cth). No Attorney has sought to intervene.

15    It has not proved necessary to resolve each of the various submissions sought to be advanced by the parties. Indeed, much of the case advanced by the Respondents to the appeals in their Notices of Objection to Competency and Notices of Cross Appeal seemed to shun the fact that this Court was exercising its appellate jurisdiction; the course pursued by the Respondents was in many ways one which ignored the need to identify appellable error on the part of the primary Judge and treated the appeal as a mere opportunity to re-agitate the same arguments as proved unsuccessful before the primary Judge. Any course which reduces a hearing at first instance to a mere “preliminary skirmish” (Coulton v Holcombe (1986) 162 CLR 1 at 7 per Gibbs CJ, Wilson, Brennan, and Dawson JJ) and which treats an appeal as an opportunity to have a “repeat performance” of the hearing at first instance is to be discouraged. The course pursued by the Respondents before this Court also (with respect) seemed to shun the obligation imposed upon practitioners by ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth) to conduct proceedings “as quickly, inexpensively and efficiently as possible”.

16    Although each of the submissions advanced by the parties have not been resolved, each of the submissions advanced both orally and in the detailed written Outlines of Submissions have been considered.

17    In very summary form, it has been concluded that:

(i)    the objections to competency of the present appeals should be rejected.

It has been further concluded that:

(ii)    the conclusion of the primary Judge that the corporate employers were “constitutional corporations” was correct;

(iii)    the findings as to contraventions of the Fair Work Act by the corporate employers should be upheld;

(iv)    the assessment as to the penalties to be imposed upon the Corporate Respondents should be set aside;

(v)    the conclusion that Mr Silverbrook and Ms Lee did not assume liability pursuant to s 550 of the Fair Work Act should be set aside; and

(vi)    the conclusion that the Fair Work Ombudsman should pay costs in a lump sum of $800,000 should be set aside.

It has also been concluded that:

(vii)    the proceedings should be remitted to the Federal Circuit Court of Australia, differently constituted, for re-hearing.

THE OBJECTIONS TO COMPETENCY

18    The Respondents to the appeals in this Court have filed Notices of Objection to Competency.

19    The objections to competency centred upon two principal questions, namely:

    whether the Notices of Appeal complied with r 36.01 of the Federal Court Rules 2011 (Cth) (the “Federal Court Rules”); and

    whether the Notices of Appeal were filed within the time prescribed by r 36.03 of the Federal Court Rules.

If either of these arguments prevailed, it was then submitted that the Notices of Appeal should be dismissed and the various orders made by the primary Judge should not be set aside.

20    Each of the grounds relied upon in the Notices of Objection to Competency and otherwise put in submissions are rejected.

Rule 36.01

21    The argument that the Notices of Appeal were incompetent by reason of a failure to comply with r 36.01 of the Federal Court Rules has little merit.

22    Rule 36.01 provides (in its entirety) as follows:

Form of notice of appeal

(1)    A party who wants to appeal to the Court must file a notice of appeal in accordance with:

(a)    for an appeal from the Federal Circuit Court of Australia—Form 121; or

(b)    for an appeal from any other court—Form 122; or

(c)    for an appeal from a single Judge of the Court—Form 122.

(2)    The notice of appeal must state:

(a)    whether the whole judgment or all of the orders, or only part of the judgment or some of the orders, are appealed from; and

(b)    if only part of the judgment, or some of the orders, is appealed from—the part of the judgment or the particular orders appealed from; and

(c)    briefly but specifically, the grounds relied on in support of the appeal; and

(d)    the judgment or orders the appellant wants instead of the judgment or orders appealed from.

(3)    If an appeal is brought by leave of the Court:

(a)    the notice of appeal must include a statement to that effect; and

(b)    a copy of the order giving leave must be attached to the notice of appeal.

(4)    The notice of appeal must include the appellant’s address for service.

23    The argument advanced on behalf of the Respondents was founded upon the form in which the Notices of Appeal were expressed and, in particular, two statements. The first statement was as follows:

The Appellant appeals from the judgment as set out in this notice of appeal.

The second statement was that contained in the “Orders sought”, namely:

That the Appeal be allowed.

Some reliance was placed upon the use of the singular identification of “the judgment”. Despite these references to “judgment” in the singular, the Notices of Appeal went on to state:

The Appellant appeals from:

1.    Those parts of the judgment on liability … in the Federal Circuit Court of Australia given … on 17 June 2016;

2.    The whole of the judgment given … on 18 October 2016; and

3.    The whole of the judgment and orders on penalty and costs delivered on 21 October 2016 …

24    The argument was that r 36.01 required a separate Notice of Appeal in respect to each of the three judgments the subject of appeal. To accede to such an argument in the circumstances of the present proceedings would truly be to make Rules of Court the master and not the servant of the administration of justice: Fernance v Nominal Defendant (1989) 17 NSWLR 710 at 729 per Kirby P.

25    The argument is rejected in the circumstances of the present proceedings because:

    rule 36.01 did not require separate Notices of Appeal in respect to each of the three judgments sought to be appealed; and/or

    even in the event of non-compliance with r 36.01, any such non-compliance in the present circumstances would not render the appeals incompetent: cf. Zegarac v Dellios [2007] FCAFC 58 at [7] per North J (Weinberg and Jessup JJ agreeing); SZLQW v Minister for Immigration and Citizenship [2008] FCA 1279 at [6] per Flick J.

26    Had it been necessary to do so, an order would have been made either:

    dispensing with compliance with r 36.01 pursuant to r 1.34; or

    granting leave to file amended Notices of Appeal and granting such extensions of time as may have been necessary to permit their filing.

Rules of Court, it has constantly been recognised, should not become an “instrument of tyranny”: Outboard Marine Australia Pty Ltd v Byrnes [1974] 1 NSWLR 27 at 30 per Reynolds, Hutley and Bowen JJA; Jackamarra v Krakouer [1998] HCA 27 at [66], (1998) 195 CLR 516 at 541 per Kirby J.

Rule 36.03

27    A separate argument advanced on behalf of the Respondents in search of a result that would render the appeal incompetent was that they were all filed out of the time prescribed by r 36.03 of the Federal Court Rules.

28    Rule 36.03 provides (in relevant part) as follows:

Time for filing and serving notice of appeal

An appellant must file a notice of appeal:

(a)    within 21 days after:

(i)    the date on which the judgment appealed from was pronounced or the order was made; or

(ii)    the date on which leave to appeal was granted; or

(b)    on or before a date fixed for that purpose by the court appealed from.

…

29    The central argument advanced was that the judgment which dismissed the proceedings against the Individual Respondents for liability (the primary judgment) was a final judgment and that any appeal from that decision was thereafter filed outside the time prescribed by r 36.03.

30    The relevant timeline was as follows:

31    The present argument as to the incompetency of the appeal challenging the judgment that the Individual Respondents were not to be held liable hinges upon:

    the judgment on 17 June 2016 being characterised as a final judgment and not an interlocutory judgment; and

    the filing of the Notice of Appeal being filed outside the 21 day period prescribed by r 36.03 by reference to the 17 June 2016 judgment in circumstances where there had been no extension of time granted under r 36.05.

32    The objection to the competency of the appeal should be rejected because:

    even though the Individual Respondents had been held to assume no liability pursuant to s 550 of the Fair Work Act, the judgment remained interlocutory because there remained outstanding the resolution of the question as to the costs;

33    Irrespective of the correctness of this conclusion, this Court discourages the fragmentation of the appeal process such that it is only when all issues between the parties have been finally resolved – including orders as to both liability and costs – that an appeal should be brought: cf. Quincolli Pty Ltd v Fair Work Ombudsman [2012] FCA 373 at [7] to [8] per Jagot J; Australian Postal Corp v Stephens (No 2) [2011] FCA 992 at [16], (2011) 207 IR 454 at 458 per Rares J. Had it been necessary to approach the objections to competency in this manner, an order would have been made extending the time for the filing of an appeal.

34    The only prejudice that was claimed on behalf of the Individual Respondents occasioned by any non-compliance with r 36.03 was that they were placed in the position that they confronted the hearing as to the imposition of penalties without knowing whether it was only the Corporate Respondents that faced the prospect of penalties being imposed or whether the Individual Respondents could also at some future date face the imposition of penalties should an appeal be allowed.

35    No application for an adjournment was made.

CONSTITUTIONAL CORPORATIONS

36    The first Ground of Appeal as set forth in the Notices of Cross-Appeal contends that the Federal Circuit Court Judge erred in concluding that each of the corporate employers was a National System Employer within the meaning of s 12 of the Fair Work Act despite them not being, so it was contended, “constitutional corporations”.

37    The principal argument advanced on behalf of the Corporate Respondents was that a corporation established for the sole purpose of being the repository of a discrete subject matter of intellectual property could not fall within the definition of a “constitutional corporation” as defined in s 12 of the Fair Work Act if it did not trade or carry on business.

38    The argument, however, confronted at least two difficulties, namely:

    the fact that the Defences as filed contained admissions to the effect that each corporate employer was a “constitutional corporation”; and

    the fact that findings had been made by the primary Judge that each was a “constitutional corporation”.

39    It is concluded that the primary Judge was correct in rejecting the present argument.

The Fair Work Act

40    The relevance of the definition of a “constitutional corporation” sufficiently emerges if reference is made to s 323 of the Fair Work Act.

41    Section 323(1) provides as follows:

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.

Sections 44 and 293 similarly refer to an “employer”.

42    The terms “employee” and “employer” are defined in s 322 as follows:

Meanings of employee and employer

In this Part, employee means a national system employee, and employer means a national system employer.

Section 12, being the Dictionary to the Fair Work Act, defines a “national system employee” by reference to s 13; and defines a “national system employer” by reference to s 14. Section 14(1)(a) in turn provides that a “national system employer” includes “a constitutional corporation, so far as it employs, or usually employs, an individual”. Section 12 relevantly provides as follows:

The Dictionary

In this Act:

…

constitutional corporation means a corporation to which paragraph 51(xx) of the Constitution applies.

…

Section 51(xx) & corporations

43    Section 51(xx) of the Constitution provides as follows:

The Parliament shall, subject to this Constitution, have power to make laws for the peace, order, and good government of the Commonwealth with respect to:

…

(xx)    foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth;

…

44    For the purposes of s 51(xx), it has been said that the phrase “trading corporation” is not a term of art: The Queen v Judges of the Federal Court of Australia; Ex parte Western Australian National Football League (Incorporated) (1979) 143 CLR 190 at 233. Mason J (as his Honour then was) there observed:

“Trading corporation” is not and never has been a term of art or one having a special legal meaning. … Essentially it is a description or label given to a corporation when its trading activities form a sufficiently significant proportion of its overall activities as to merit its description as a trading corporation.

See also: (1979) 143 CLR at 219 per Stephen J.

45    The description of “trading corporation” applies to those corporations which engage in substantial corporate activity: R v Federal Court of Australia; Ex parte WA National Football League (1979) 143 CLR 190. It was there concluded that incorporated football clubs were trading corporations. Although their central activity was the promotion of Australian Rules Football, the clubs also carried on essentially commercial activities. “Trading” remained a “substantial corporate activity”. Chief Justice Barwick relevantly concluded (at 208):

I remain of the firm conviction that for constitutional purposes a corporation formed within the limits of Australia will satisfy the description “trading corporation” if trading is a substantial corporate activity. Its activities rather than the purpose of its incorporation will designate its relevant character. But so to say assumes that such trading activities are within its corporate powers, actual or imputed. It is the corporation which satisfies the description which is the subject matter of the power. Thus its corporate capacity or incapacity cannot be ignored. But once it is found that trading is a substantial and not a merely peripheral activity not forbidden by the organic rules of the corporation, the conclusion that the corporation is a trading corporation is open.

In rejecting an argument that they were merely conducting a sport and therefore could not be regarded as engaging in trading activities, Barwick CJ further concluded (at 211):

In my opinion, the presentation of a football match as a commercial venture for profit to the promoting body is an activity of trade …

Here, however, the commercial activity of the Club is not limited to the promotion of football matches. A diverse range of advertising rights, television rights and sundry other rights are sold in connexion with the presentation of the matches. … Further, large sums are at times demanded by the Club for the release of players by clearance to play with other clubs: in general, no part of these moneys is paid to the player concerned.

These activities, essentially commercial in nature, emphasize the trading quality of the manner in which the Club and the League promote Australian Rules Football.

Justice Mason similarly observed at (235):

The prosecutors’ case is that the trading activities of the two Leagues are incidental to their main objects which are the promotion and encouragement of the sport as a recreation. This to my mind is an inversion of the true position. To me it seems that the sport is promoted and encouraged as a means of ensuring the receipt of the large financial returns which are associated with it. The financial revenue of the Leagues is so great and the commercial means by which it is achieved so varied that I have no hesitation in concluding that trading constitutes their principal activity. In saying this I treat all their activities which I have listed and which produce revenue as trading activities. I do not limit the concept of trading to buying and selling at a profit; it extends to business activities carried on with a view to earning revenue.

Justice Jacobs agreed with Mason J. “A trading corporation may also be a sporting, religious or governmental body”: (1979) 143 CLR 190 at 239. Murphy J there went on to say that “[a]s long as the trading is not insubstantial, the fact that trading is incidental to other activities does not prevent it being a trading corporation”.

46    But the concept of a trading corporation extends also to those corporations which are not only presently trading but those established for that purpose: R v Judges of the Federal Court of Australia; Ex parte WA National Football League (1979) 143 CLR 190 at 239. Murphy J there observed:

The constitutional description of trading corporations includes those bodies incorporated for the purpose of trading; and also those corporations which trade.

In reliance upon these observations, Gageler J in Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Queensland Rail [2015] HCA 11, (2015) 256 CLR 171 at 200 observed:

[70]    The basic point that the constitutional description of trading is capable of being applied to a corporation either by reference to its substantial trading purpose (irrespective of activity) or by reference to its substantial trading activity (irrespective of purpose) is sound in principle and is supported by authority. I would reject on both of those bases the submission made on behalf of the Attorney-General for Victoria which attempts to introduce as a substitute an inquiry into a corporation’s “true character”, to be evaluated by reference to that corporation’s “characteristic activity”.

The pleadings & the admissions made

47    The initial difficulty confronting the corporate employers in now seeking to mount an argument that they did not fall within the Fair Work Act are the admissions made in the pleadings.

48    Paragraph [2] of the Statement of Claim as filed in the Federal Circuit Court with respect to (for example) Superlattice provided as follows:

[Superlattice] is and was at all relevant times:

(a)    a body corporate for the purposes of the Corporations Act 2001 (Cth);

(b)    capable of being sued in its corporate name and style;

(c)    an employer within the meaning of sections 12, 15(2), 42, 283 and 322 of the [Fair Work Act];

(d)    a national system employer within the meaning of section 14 of the [Fair Work Act];

(e)    carrying on the business of solar cell research in the State of New South Wales; and

(f)    the employer or former employer of Mr Soren Wohlthat from 4 January 2011 until 19 August 2013.

Paragraph [2] of the Defence as filed in that proceeding provided as follows (without alteration):

In answer to paragraph 2 of the statement of claim, [Superlattice]:

a.    admits paragraph 2(a);

b.    admits paragraph 2(b);

c.    admits paragraph 2(c)

d.    admits paragraph 2(d);

e.    admits that [Superlattice] carried out altruistic non-commercial solar cell research majority-funded by [Mr Silverbrook], and otherwise denies paragraph 2(e).

f.    denies paragraph 2(f) in respect of any time subsequent to 8 March 2013.

49    The pleading in para 2(d) of the Statement of Claim that Superlattice was a “national system employer within the meaning of section 14 of the [Fair Work Act]”, it is respectfully considered, was an unambiguous pleading that that corporation was a “constitutional corporation” as that term is employed in s 14(1)(a) and as defined in s 12 of the Fair Work Act. It is also respectfully considered that the admission in the Defence was equally unequivocal. The fact that the solicitor appearing for the Corporate Respondents in the proceedings in this Court maintained that that was not his “intention” when filing the Defence in that form is beside the point.

50    Assuming, however, that it was open to this Court to set aside the findings of fact as made by the primary Judge and to conduct a “rehearing” on the appeal, this Court would remain bound by the pleadings as filed. The admission in the Defence would remain.

51    Confronting this difficulty, leave was sought on behalf of the corporate employers to withdraw the admission and (presumably) file a proposed Amended Defence. No proposed Amended Defence was forthcoming.

52    There is “no principle that admissions might or might not be withdrawn” but rather the Court has a “broad discretion to weigh up all matters with the overall question being to ensure that there was a fair trial”: Jeans v Commonwealth Bank of Australia Ltd [2003] FCAFC 309 at [18] per Hill, Madgwick and Conti JJ. In Optical 88 Ltd v Optical 88 Pty Ltd [2010] FCA 310 at [31], Yates J observed as follows:

[31] In Australian Competition and Consumer Commission v Construction, Forestry, Mining and Energy Union [2007] FCA 1390, Finn J at [4] adopted the following observations of Debelle J in Centrestate Exports Pty Ltd v Amarantos Shipping Co Ltd [2005] SASC 158 at [32], which are consistent with the acceptance by the Full Court in Jeans of the existence of a broad discretion that is to be exercised having regard to all the circumstances of the case:

The overriding consideration is the interests of justice. The Court will not lightly permit a party to withdraw an admission where the other party has acted to its detriment on the admission or is otherwise prejudiced by the withdrawal. It is plainly necessary to have regard to all relevant factors including the nature and importance of the admission, the circumstances in which the admission was made, whether the admission was made deliberately or inadvertently, the reason given for the application to withdraw, the detriment or prejudice which might be caused to the other party and the stage which the proceedings have reached, and whether the admission is contrary to the facts. The list of relevant factors affecting the Court’s decision will plainly vary from case to case.

53    The grant of leave to withdraw the admission was opposed by Senior Counsel on behalf of the Fair Work Ombudsman upon the bases (inter alia) that:

    the question as to the significance to be attached to the admissions in the Defences was not a mere oversight on the part of the draftsman of that pleading – it was the subject of submissions made before the Federal Circuit Court; and

    the Fair Work Ombudsman would be exposed to the prospect of prejudice by reason of the fact that it would have conducted the proceedings at first instance differently had it known that it was necessary to prove that each Corporate Respondent was a “trading corporation”. But one instance of such possible prejudice would be the prospect that greater evidence may have been adduced as to the purpose and activities or proposed activities of each of the corporate employers and the cross-examination of Mr Silverbrook may well have pursued a different course.

The Respondents, it is concluded, should be bound by the manner in which they formulated the issues to be resolved by the Federal Circuit Court: Metwally v University of Wollongong (1985) 60 ALR 68 at 71 per Gibbs CJ, Mason, Wilson, Brennan Deane and Dawson JJ.

54    Leave to withdraw the admissions is refused.

55    That leaves for consideration the correctness of the findings of fact made by the Federal Circuit Court Judge.

The findings of the Federal Circuit Court Judge

56    The Federal Circuit Court rejected the same argument as was advanced in this Court, namely that each of the corporate employers were not a “constitutional corporation” as defined by s 12 of the Fair Work Act.

57    In doing so, and recognising that had the admissions not been made there may well have been more extensive evidence as to the commercial activities or purposes of each corporate employer, the primary Judge nevertheless made findings of fact based upon the evidence as was before that Court.

58    Those findings were expressed as follows:

Findings in respect of Corporate Entities – National System Employers

[91]    The gist of the respondents’ submissions as to the corporate entities not being constitutional corporations was because they did not trade and did not carry on a business during the periods with which the proceedings were concerned. It was submitted that Superlattice, Geneasys and Mpowa were established to be simple repositories of discrete subject matter intellectual property, so that instead of assigning individual patents in due course if they proved to be of value, all the shares of the entity could be transferred so as to effect a transfer of a partial parcel of patents in a convenient way.

[92]    The respondents did not explain why this intention did not give rise to the three entities being a trading corporation. In relation to Superlattice, it was submitted that it was a not for profit humanitarian entity and never traded. That proposition is contrary to the intention to utilise the intellectual property if a patent was able to be created. Whilst the rationale behind creating Superlattice may have involved considerations concerning the Kaiser Entities, that does not give rise to the corporate entity not being a trading corporation.

[93]    I accept the proposition that at no stage did Superlattice have any income and I accept that there was no return to the shareholders that occurred or was expected in the immediate future. I accept that Superlattice had no customers, no revenue and had not at that stage created any real assets. I do not accept that Dr Wohlthat was the corporate mind of Superlattice. I find Mr Silverbrook was at all times in control of and the corporate mind of Superlattice.

[94]    In relation to Geneasys I accept that this was not an entity that had customers or revenue. I accept that the entity was conducted as the private research and development project of Mr Silverbrook and Ms Lee. I accept that the project had humanitarian aspects to it. I do not accept that the entity could be properly characterised as a not for profit humanitarian entity.

[95]    I also accept that the intention was in part to assist developing countries; leveraging a buy one, donate one strategy and that no return was obtained by shareholders. I find as a matter of fact and degree Geneasys was a trading corporation.

[96]    In relation to Silverbrook Research, I accept that the company did not trade during the audit period and that most of the staff had been transferred to Memjet pursuant to the Memjet restructuring agreement.

[97]    I accept that the trading activities of Memjet had ceased on 8 May 2012. I do not accept that it was the intention not to continue trading if further projects being conducted by Silverbrook Research were successful. I accept that during the relevant time the sole source of funding for Silverbrook Research was Mr Silverbrook and Ms Lee, and that it had no customers and no revenue. I also accept that the intellectual property never matured beyond pre-commercialisation stage.

[98]    I find it was the intention of Mr Silverbrook to achieve a commercial realisation in relation to the intellectual property of Silverbrook Research. I find as a matter of fact and degree that Silverbrook Research was a trading corporation.

[99]    In relation to Priority Matters, I find that it provided patent administration services to some of the corporate entities on a cost recovery basis. I accept that the capital needs of Priority Matters were intended to be met by Mr Silverbrook and Ms Lee.

[100]    I accept that it did not trade during the contravention period with external parties. I do not accept that the internal activity of providing administrative services to the other corporate respondents was not trading within the meaning of the concept as used in determining whether the entity was a trading corporation under s.51(xx). As a matter of fact and degree I find Priority Matters to be a trading corporation.

[101]    In relation to Mpowa, I accept that was a corporate entity conducting private research and development on a fully funded basis by Mr Silverbrook and Ms Lee. I accept that the entity had no customers and no revenue apart from nascent stages of commercialisation of the Netpage technology. That realisation of the Netpage technology was a trading activity. Mpowa’s sole assets were intellectual property which I accept ultimately did not mature beyond pre-commercialisation stage.

[102]    I find that it was the intention to achieve commercial realisation of that intellectual property. As a matter of fact and degree I find Mpowa was a trading corporation.

[103]    I do not accept the respondent’s submission that the activities test should be given more weight than the purpose test. The determination of whether an entity is a trading corporation is a matter of fact and degree, taking into account both the activities test and the purpose test.

[104]    In relation to the purpose test, I find that the intention of the controlling corporate mind is a matter that can also be taken into account in determining the character of the corporate entity. In relation to the contraventions I accept that under s.61(3) of the [Fair Work Act], division 3 to 12 of part 2.2 of the Act are designated as the, “National Employment Standards.” Section 60 references to employer and employee in those standards mean, “National system employer and national system employee,” respectively.

[105]    I find that each of the corporate entities, the subject of these proceedings, were a national system employer. I find that each of the employees, the subject of these proceedings, was a national system employee.

Each Corporate Respondent was a constitutional corporation

59    Although not all of the corporate employers in the present proceedings were presently trading, the facts as found were that each was established with the intention that each could so trade in the future. Each was established for that purpose.

60    What is of immediate relevance to the conclusion reached in the primary judgment by the Federal Circuit Court Judge is not only the purpose for which:

    Superlattice, Geneasys and Mpowa were established (at para [91])

but also (inter alia) the primary Judge’s findings:

    that Priority Matters was providing “patent administration services to some of the corporate entities on a costs recovery basis” (at para [99]) and was providing “administrative services” to the other corporate employers (at para [100]);

    that in respect to Superlattice “the intention [was] to utilise the intellectual property if a patent was able to be created” (at para [92]);

    that in respect to Geneasys “the intention was in part to assist developing countries; leveraging a buy one, donate one strategy” (at para [95]);

    that Mr Silverbrook’s intention was “to achieve a commercial realisation in relation to the intellectual property of Silverbrook Research” (at para [98]); and

    that in respect to Mpowa it was “the intention to achieve commercial realisation of that intellectual property” (at para [102]).

61    These findings of fact as made by the primary Judge, it is concluded, should not be set aside – especially in circumstances where admissions had been made that each Corporate Respondent was a “constitutional corporation”.

62    No error is exposed on the part of the primary Judge in finding that each of the corporate employers was a “constitutional corporation”.

THE LIABILITY OF THE CORPORATE EMPLOYERS

63    In addition to seeking to impugn the conclusions with respect to the corporate employers on the basis that each was not a “constitutional corporation”, it was further submitted by the Respondents that those conclusions should be set aside for other errors.

64    Error was submitted to have been made by the primary Judge (in very summary form) in:

    not concluding that some matters were “excluded subject matter” within the meaning of s 30K(1) of the Fair Work Act;

    not concluding that the employees of one or other of the corporate employers were not covered by the Clerks - Private Sector Award 2010 or the Professional Employees Award 2010; and

    concluding that there had been contraventions of the Fair Work Act.

The Notices of Cross-Appeal more specifically identified the positions held by specified employees with one or other of the specified Awards and which Award was said to apply to those employees. As each of the challenges is to be rejected, it is unnecessary for present purposes to descend to this level of specificity.

Excluded subject matter

65    The submission advanced was that the Federal Circuit Court Judge had erred “by making findings on issues that are ‘excluded subject matter’ within the meaning of paragraphs (k), (p) and (q) of section 30K(1) of the [Fair Work Act]”.

66    The genesis of the argument is to be found in s 30N of the Fair Work Act, which provides as follows:

Extended meaning of national system employer

(1)    A national system employer includes:

(a)     any person in a State that is a referring State because of this Division so far as the person employs, or usually employs, an individual; and

(b)     a holder of an office to whom subsection 30P(2) applies.

(2)    This section does not limit the operation of section 14 (which defines a national system employer).

The argument was that each of the corporate employers was not a “national systems employer” and that the State of New South Wales had not referred sufficient legislative power to the Commonwealth legislature to support the application of all of the provisions of the Fair Work Act to non-trading corporations.

67    The following provisions of the Fair Work Act, so it was submitted, did not bind the corporate employers because they were “excluded subject matter”, namely:

    section 44(1) (i.e., contraventions of the National Employment Standards);

    section 542 (i.e., the Safety Net Contractual Entitlements); and

    section 323(1) (i.e., methods and frequency of payments requirements).

68    Section 30K provides, in relevant part, as follows:

Meaning of terms used in this Division

(1)    In this Division:

…

excluded subject matter means any of the following matters:

…

(k)    declaration, prescription or substitution of public holidays;

…

(p)    claims for enforcement of contracts of employment, except so far as a law of a State provides for the variation or setting aside of rights and obligations arising under a contract of employment, or another arrangement for employment, that a court or tribunal finds is unfair;

(q)    rights or remedies incidental to a matter referred to in a preceding paragraph of this definition;

except to the extent that this Act as originally enacted deals with the matter (directly or indirectly), or requires or permits instruments made or given effect under this Act so to deal with the matter.

69    But the argument fails at the outset. The conclusion of the primary Judge that each of the corporate employers was a “trading corporation” has been found to be correct. The argument advanced on behalf of the Respondents erroneously asserted that these Respondents could only be a “national system employer” by reason of s 30N(1)(a).

70    A further difficulty confronting the Respondents is that each of the Defences filed in the Court below admitted that each of the corporate employers was “a national system employer within the meaning of section 14 of the [Fair Work Act]” and leave to withdraw that admission has been refused.

71    Given these conclusions, it is thereafter unnecessary to descend into the submissions advanced on behalf of the Respondents as to why sufficient legislative power has not been referred by the State to embrace a finding of contravention of the Fair Work Act. Had it been necessary to do so, it is sufficient to note that reservation would have been expressed in so concluding. The argument (for example) that a finding as to a contravention of s 323 of the Fair Work Act was a claim for the “enforcement of contracts of employment” and thus within para (p) of the definition of “excluded subject matter” in s 30K(1) was not an argument which was self-evidently correct. Had it been necessary to pursue this argument further, it would have been necessary to explore whether a proceeding seeking a penalty as to a contravention of s 323 by reason of the non-payment of “amounts payable to … employees” was a means of “enforcement”. What was being “enforced” by the Fair Work Ombudsman instituting and pursuing the present proceedings may perhaps be better characterised as the “enforcement” of the Fair Work Act rather than any “contracts of employment”: cf. Tomlinson v Ramsey Food Processing Pty Ltd [2015] HCA 28 at [114], (2015) 256 CLR 507 at 544 per Nettle J. Rather than seeking an imposition of a penalty, any enforcement of a contract would more likely take the form of an order that the monies outstanding to employees be paid in one or other of the “methods” set forth in s 323(2). But it is unnecessary to express any view as to the fate of such an argument. Other than asserting that s 323 was a means of “enforcement”, the proposition was not further pursued on behalf of the Corporate Respondents. Nor was there any exploration of the question as to whether orders pursuant to s 545(2)(b) of the Fair Work Act for the payment of “compensation for loss”, as were made in the present case, were a claim for “enforcement of contracts of employment” within the meaning of para (p) of the definition of “excluded subject matter”.

The Awards

72    This argument advanced on behalf of the Corporate Respondents (again, in very summary form) sought to contend that:

    the relevant awards did not cover Superlattice, Geneasys and Mpowa because each was incorporated after 1 January 2010, the date upon which the relevant awards commenced. Transitional provisions, it was contended, did not apply; and

    the pleadings in the Court below occasioned prejudice.

Neither limb of the argument prevails.

73    The former limb to the argument proceeded from a misreading of the terms of the awards. The argument seized upon (for example) the following phrase employed in cl A.2.1 in Schedule A to the Professional Employees Award 2010, namely “apply to an employer which, immediately prior to 1 January 2010”. But the clause, when read in its entirety, provides as follows:

“A.2.1 The following transitional arrangements apply to an employer which, immediately prior to 1 January 2010:

(a)    was obliged,

(b)    but for the operation of an agreement-based transitional instrument or an enterprise agreement would have been obliged, or

(c)    if it had been an employer in the industry or of the occupations covered by this award would have been obliged by a transitional minimum wage instrument and/or an award-based transitional instrument to pay a minimum wage lower than that in this award for any classification of employee.”

Why each of the corporate employers did not fall within cl 4.2.1(c) was not adequately explained.

74    The second limb to the argument fairs no better. Any claim as to the inadequacy of the pleadings and such particulars as were provided was a matter to be pursued before the Federal Circuit Court and resolved by that Court.

75    Further to the submission founded upon an inadequacy in the pleadings, specific reference was made to the pleading as to Dr Wohlthat, an employee of Superlattice. The Statement of Claim in part provided as follows:

B.    EMPLOYMENT

4.    From 4 January 2011 to 19 August 2013, Mr Wohlthat was employed by the First Respondent as a simulation scientist.

Particulars

i.    Signed Service Agreement between Mr Wohlthat and the First Respondent, the commencement date of which was 4 January 2011 (Employment Contract).

ii.    Mr Wohlthat was made redundant by way of letter of termination from the First Respondent dated 19 August 2013.

…

6.    Mr Wohlthat’s duties included performing quantum mechanical calculations of solar cells, simulation work and other duties as directed.

Particulars

i.    Annexure A to the Employment Contract.

…

C.    STATUTORY WAGE ENTITLEMENTS AS EMPLOYEE OF THE FIRST RESPONDENT

8.    Over the course of Mr Wohlthat’s employment, the Professional Employees Award 2010 (Award) applied in respect of his employment with the First Respondent.

Particulars

i.    Clause 4.1 of the Award and Clause B1 of Schedule B to the Award.

ii.    The Applicant further relies on paragraph 5 above.

Clause 3.4 of that Award stated in part as follows:

Scientist Stream

Experienced scientist means a Professional scientist possessing the following qualifications and engaged in any particular employment, the adequate discharge of any portion of the duties of which, requires the possession of such qualifications.

The Defence as filed relevantly denied these allegations.

76    There is no self-evident inadequacy in the manner in which such paragraphs of the Statement of Claim are pleaded.

77    To the extent that the argument trespassed beyond a challenge to the adequacy of the pleadings and challenged the findings of fact made by the primary Judge, no appellable error is exposed.

78    Not sufficiently explained or explained at all, with respect, were such factual matters as:

    whether Dr Wohlthat “require[d] the possession of … qualifications”; and/or

    why the role that he performed did not fall within s 143(7) of the Fair Work Act, being a “role … traditionally not … covered by awards”.

It was thus submitted (for example) that “Dr Wohlthat has not been shown to have ‘required’ the academic qualifications specified … in clause 3.4”. But there the submission was left. It was similarly submitted that s 143(7)(a) “precludes the application of the [Professional Employees Award]” to Dr Wohlthat and a number of other employees and that s 143(b) “precludes the application of the [Professional Employees Award]” to the “employees generally” of Superlattice, Geneasys and Mpowa. But again, these submissions were not further expanded upon.

79    If appellable error is to be exposed, more is required.

80    Submissions were also directed to the primary Judge’s findings that the Clerks Private Sector Award 2010 applied to the patent assistants of Priority and employees of Silverbrook Research. But those submissions are also rejected.

81    The arguments founded upon the non-application of Awards is rejected.

82    Also rejected are arguments challenging findings made by the primary Judge in respect to (for example):

    whether Dr Wohlthat was made redundant;

    the termination of another employee, Dr Azimi;

    non-payment of minimum statutory entitlements.

The course pursued by the solicitor appearing for the Cross-Appellants was to re-agitate the submissions made before the primary Judge and to re-agitate the evidential basis upon which those submissions proceeded. But that course, with respect to each of the factual errors said to have been made by the primary Judge, failed to expose appellable error. It is simply not a course open to an appellant to invite an appellate court to reach a contrary finding of fact without first identifying appellable error on the part of the primary Judge.

Set-offs and compensation

83    The next argument advanced by the Corporate Respondents (and Mr Silverbrook and Ms Lee) asserted error on the part of the Federal Circuit Court Judge when calculating the underpayment of wages and other entitlements. The error alleged is the failure to bring to account (for example) an overpayment of wages and entitlements for one period when calculating an underpayment for a different period.

84    The argument confronts a number of difficulties.

85    First, there was no analysis on the part of those who advanced this argument as to the circumstances in which compliance with a statutory obligation of an employer to pay wages and entitlements as required by s 323 of the Fair Work Act could be met by payments made at a future point of time by some person or entity other than the employer. Nor was there any analysis as to those circumstances in which a past overpayment could be “set-off” against a statutory requirement to currently pay wages and entitlements.

86    There is, however, “a body of jurisprudence … which explains how payments made to employees are to be taken into account in claims for amounts due under industrial awards or instruments”: Linkhill Pty Ltd v Director, Office of the Fair Work Building Industry Inspectorate [2015] FCAFC 99 at [39] to [67], (2015) 240 FCR 578 at 585 to 595 per North and Bromberg JJ.

87    Part of that body of jurisprudence supports the conclusion that an over-award payment cannot later be used to offset subsequent underpayments: Lynch v Buckley Sawmills Pty Ltd (1984) 3 FCR 503. Keely J there accepted as correct (at 509) the following concession that:

… an employer who has paid, by agreement with an employee, an over-award payment cannot later use that over-award payment to offset a subsequent payment of an amount less than that prescribed by the award.

88    In the absence of greater assistance being provided, the preferable course is to leave open for future consideration any question as to the relevance of any overpayments in the circumstances of the present case.

89    Second, and even if it were to be assumed that it were permissible to set-off overpayments in a period of payment against the periods of non-payment in issue in the present proceedings, further difficulties would be encountered. One of the submissions advanced in support of the argument was that:

… by selecting a time period which is unrepresentative of the employer’s history and conduct, the [Fair Work Ombudsman] is able to paint a picture more prejudicial to the Corporate Respondents than if a financial year or calendar year or employment year were selected.

90    Even though it may be accepted that the selection of the “time period” may affect the comparison undertaken, it was left unexplained why the Fair Work Ombudsman should have undertaken an audit of a period of time which was not the subject of complaint by the employees and thereafter compare that period to the period when the employees were not in fact being paid. The period of time during which employees of each of the corporate employers remained unpaid was largely uncontroversial.

91    The submissions with respect to set-off and compensation are rejected.

Interest

92    The submission in respect to interest was Delphic. It was simply submitted by the Respondents that “the primary judge erred in the exercise of his discretion to award interest on the compensation ordered to be paid” in the Priority Matters, Superlattice and Mpowa proceedings.

93    The nature of the error is not further expanded upon.

94    If reference is made to the reasons provided in respect to Priority Matters, by way of example, the primary Judge relevantly concluded in the primary judgement as follows:

[269]    … The Court does propose to make the orders sought under s.545(2)(b) of the Fair Work Act 2009 as to payment by the first respondent to the employees the amounts specified together with interest within 28 days of the making of final orders in these proceedings in respect of any penalty issue. The Court will order interest to be paid under s.547(1) of the Fair Work Act 2009 on each of the amounts found due calculated in accordance with the court scale from 20 December 2013 being the date of the filing of the statement of claim.

Thereafter two orders were made, being:

    an order expressed to be pursuant to s 545(2)(b) of the Fair Work Act for the payment of $452,997.98, comprising the payment of specified amounts to specified persons; and

    a second order expressed to be pursuant to s 547(2) of the Fair Work Act to “pay interest on the amounts owed to the employees calculated from 20 December 2013 within 28 days of the date of the final order disposing of any penalty hearing”.

Like reasons and orders were made with respect to the Superlattice and Mpowa proceedings.

95    Section 545(1) and (2) of the Fair Work Act provides as follows:

Orders that can be made by particular courts

Federal Court and Federal Circuit Court

(1)    The Federal Court or the Federal Circuit Court may make any order the court considers appropriate if the court is satisfied that a person has contravened, or proposes to contravene, a civil remedy provision.

(2)    Without limiting subsection (1), orders the Federal Court or Federal Circuit Court may make include the following:

(a)    an order granting an injunction, or interim injunction, to prevent, stop or remedy the effects of a contravention;

(b)    an order awarding compensation for loss that a person has suffered because of the contravention;

(c)    an order for reinstatement of a person.

96    Section 547 provides as follows:

Interest up to judgment

(1)    This section applies to an order (other than a pecuniary penalty order) under this Division in relation to an amount that a person was required to pay to, or on behalf of, another person under this Act or a fair work instrument.

(2)    In making the order the court must, on application, include an amount of interest in the sum ordered, unless good cause is shown to the contrary.

(3)    Without limiting subsection (2), in determining the amount of interest, the court must take into account the period between the day the relevant cause of action arose and the day the order is made.

97    The orders made provided for the payment of compensation pursuant to s 545(2)(b) for “loss”; the orders requiring the payment of interest was interest upon the “loss … suffered because of the contravention”.

98    No error is exposed.

THE LIABILITY OF THE INDIVIDUALS – SECTION 550

99    Although the corporate employers were found to have contravened provisions of the Fair Work Act, the Individual Respondents – Mr Silverbrook and Ms Lee – were found to assume no liability. Mr Silverbrook was alleged to have been “involved in” the corporate contraventions pursuant to s 550 of the Fair Work Act. Ms Lee was named as a Respondent in the Silverbrook Research proceeding in the Federal Circuit Court in her role as a director of Silverbrook Research; Ms Lee was similarly alleged to have been “involved in” the contraventions of that corporate employer.

100    If reference is made (by way of example) to the Priority Matters proceeding, the Federal Circuit Court Judge concluded that that corporate employer had contravened ss 44(1), 45, 293, 323(1) and 542 of the Fair Work Act. The allegations of accessorial liability as against Mr Silverbrook were, however, rejected: [2016] FCCA 1474 at [200] to [212].

101    In each of the five proceedings, it was concluded by the primary Judge that the conduct of Mr Silverbrook (and in the Silverbrook Research proceeding, Ms Lee) did not fall within the reach of s 550 of the Fair Work Act: [2016] FCCA 1474 at [212], [225], [237], [254] and [268].

102    The conclusion of the primary Judge as to the application of s 550 to Mr Silverbrook and Ms Lee is to be set aside.

Section 550 & the pleadings

103    Section 550 provides as follows:

Involvement in contravention treated in same way as actual contravention

(1)    A person who is involved in a contravention of a civil remedy provision is taken to have contravened that provision.

(2)    A person is involved in a contravention of a civil remedy provision if, and only if, the person:

(a)    has aided, abetted, counselled or procured the contravention; or

(b)    has induced the contravention, whether by threats or promises or otherwise; or

(c)    has been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or

(d)    has conspired with others to effect the contravention.

104    If reference is made to the proceeding instituted against Priority Matters, the Statement of Claim filed in the Federal Circuit Court set forth the material facts and proceeded to advance the following claim as against Mr Silverbrook:

44.    By reason of the matters pleaded in paragraphs 3 and 41 to 43 above, the Second Respondent:

(a)    had actual knowledge of the factual matters which comprise each of the contraventions alleged against the First Respondent; and

(b)    was an intentional participant in the factual matters which comprise the contraventions alleged against the First Respondent.

Paragraph [45] goes on to plead that Mr Silverbrook was “involved in each of the contraventions” and pleads the terms of s 550(2). The following Particulars are then provided:

Particulars

i.    The Second Respondent was aware of the requirement to pay minimum wages and entitlements to the Employees.

ii.    The Second Respondent had knowledge of the wages and entitlements owed to the Employees and their entitlement to be paid in full.

iii.    The Second Respondent was aware of, and responsible for, the on-going failure to pay the wages and statutory entitlements of the Employees.

iv.    The Second Respondent participated and intended to participate in the on-going failure to pay the wages and statutory entitlements of the Employees.

Paragraph [46] then pleads that:

by operation of section 550(1) of the [Fair Work Act], the Second Respondent is taken to have himself personally contravened each of the provisions alleged to have been contravened by the First Respondent herein.

The arguments advanced

105    In seeking to support the conclusion that Mr Silverbrook and Ms Lee assumed no liability for the contraventions of the corporate employers, reliance was placed upon the finding of fact made by the primary Judge that “neither Mr Silverbrook nor Ms Lee intended to participate in the ongoing failure to pay wages and statutory entitlements to the employees” and that their “state of mind and knowledge … was contrary to any inference being drawn that either intended to participate in the ongoing failure to pay the wages and statutory entitlements of the employees”: [2016] FCCA 1474 at [133].

106    Founded upon this finding it was thereafter submitted during the course of the hearing that:

    the decided cases drew a distinction between the knowledge of an individual and their intention and knowledge could not be equated with intention; and that

    in the absence of the requisite intent, neither Mr Silverbrook nor Ms Lee could be found to fall within the reach of s 550 of the Fair Work Act.

As expressed in the Outline of Submissions filed in respect to the Respondent’s Notice of Contention (without alteration):

    the “section 550 case was not made out because [the Individual Respondents] did not ‘participate’ in any contraventions- they did everything in their power to prevent the contraventions from occurring”. Irrespective of “how [the case] was pleaded” it was submitted that it would have failed because of the failure to make out that the Individual Respondents “intended” to commit the alleged contraventions.

The submission as ultimately advanced at the hearing was that:

    in those circumstances where action or conduct is beyond an individual’s control the individual cannot be found to have intended the outcome of that action or conduct when the individual is doing everything possible to avoid that outcome.

That submission as ultimately formulated is rejected. It is concluded that the primary Judge erred in concluding that Mr Silverbrook and Ms Lee did not fall within the reach of s 550 of the Fair Work Act.

107    Any conclusion that Mr Silverbrook and Ms Lee did not fall within the reach of s 550 because they did not intend the inevitable and known outcome of their conduct is rejected.

The findings of the primary Judge

108    The findings made by the Federal Circuit Court Judge as to the knowledge of Mr Silverbrook and Ms Lee is to be found in the following paragraphs of the primary judgment:

[130]    I find that Mr Silverbrook, at all times, reasonably believed that payment of the employees was imminent and that his state of mind at all relevant times was that payment of outstanding entitlements to employees was about to be made.

[131]    I found Ms Jeanette Lee to also be an impressive witness who I find was credible and whose evidence I accept. I find that Ms Lee at all times reasonably believed that payment of the employees of their entitlements was about to occur.

[132]    I find that both Ms Lee and Mr Silverbrook took all reasonable steps to try and effect payment of the employees’ entitlements throughout the relevant period. I find that both Mr Silverbrook and Ms Lee applied and exhausted their own personal funds in their endeavours to ensure that the entitlements of employees were paid. I find that Mr Silverbrook and Ms Lee were, in part, successful in achieving payment from certain sources using their own personal property for the benefit of employees.

[133]    I find that the state of mind of Mr Silverbrook and Ms Lee, at all relevant times, was that the employees were about to be paid their wages and statutory entitlements owed to the employees, and that that belief was held on reasonable grounds and honestly held. I find that neither Mr Silverbrook nor Ms Lee intended to participate in the ongoing failure to pay wages and statutory entitlements to the employees. I find that the state of mind and knowledge of Mr Silverbrook and Ms Lee was contrary to any inference being drawn that either intended to participate in the ongoing failure to pay the wages and statutory entitlements of the employees.

[134]    The applicant carries the onus on a Briginshaw standard of persuading the Court as to the knowledge of the relevant alleged accessorial respondent of the award the subject of the contravention; see Briginshaw v Briginshaw (1938) 60 CLR 336 at [361]–[362]. It was conceded by counsel for the applicant that it was common ground that neither Mr Silverbrook nor Ms Lee were aware of the award applicable to any employee in respect of the alleged accessorial liability case. It was also common ground and conceded by the applicant that neither Mr Silverbrook nor Ms Lee were aware of the national minimum wage order.

The primary Judge continued as follows (with respect to the Silverbrook Research proceedings):

[250]    There is no dispute that the [Individual Respondents] were at the relevant time directors of the corporate employer. I find that the [Individual Respondents] were not aware of the awards relied upon by the applicant and were not aware of the application of those awards to any employee. I note that a number of the witnesses called were not aware of the existence or application of an award to that witness as an employee. I find that the [Individual Respondents] were not aware of the national minimum wage order. I reject the submission that the [Individual Respondents] deliberately refrained from ascertaining any facts as to the application of an award to an employee or as to the national minimum wage order. I reject the respondent’s submission of wilful blindness as to the knowledge of the [Individual Respondents] as to the existence of any award applicable to an employee or as to the national minimum wage order. I reject the submission that the absence of payment to employees meant that the [Fair Work Ombudsman] did not have to prove knowledge of a specific award applying to an employee. I regard Potter v Fair Work Ombudsman [2014] FCA 187 and Fair Work Ombudsman v Devine Marine Group Pty Ltd [2013] FCA 1135 as supporting a requirement for knowledge of the existence of the alleged award or the national minimum wage order in respect of any finding of accessorial liability for contraventions based on a specific award or based on the national minimum wage order. Further for the reasons I have given I find that neither [Mr Silverbrook] nor [Ms Lee] had knowledge of the facts upon which liability under s.550 of the Fair Work Act 2009 depends. The [Individual Respondent’s] lack of knowledge was as to the existence of facts that the applicant relied upon to establish contraventions. The [Individual Respondent’s] lack of knowledge is not properly characterised as a want of knowledge of the law or legal consequence of essential facts. The [Individual Respondent’s] lacked knowledge of essential facts being the existence of the particular award or the national minimum wage order.

The reliance placed by the Federal Circuit Court Judge upon the reasonableness of the steps being taken to secure payment to the employees was expressed as follows (again with respect to Silverbrook Research particularly):

[251]    … I find that there was sound reason why the contravention letters were not given attention by the respondents. I find that the contravention letters failed to identify the facts to support application of a specific award to any particular employee and in two of the letters the award referred to was, it is conceded, erroneous. In light of the findings I have made above those contravention letters reflected an unfair process and do not advance the [Fair Work Ombudsman’s] case as to knowledge by the director/directors from which the requisite intent should be inferred. I reject the submission that there was any deliberate failure to open correspondence by reason of which knowledge of some kind should be inferred. The [Individual Respondent’s] in all the circumstances acted reasonably in the steps taken in relation to the FWO and were appropriately giving priority to obtaining funds and realise assets to pay employees.

[252]    Further, this is not a case of false representations being made by either [Mr Silverbrook] or [Ms Lee] to employees. The [Individual Respondents] reasonably believed that payment was imminent. Whilst in the relevant period of contravention no payment was made that was due to causes beyond the control of the [Individual Respondents] and I find that they were taking every reasonable step including utilizing their own funds to make payment. I find that the very substantial payment made after the commencement of proceedings in relation to the Mpowa employees is consistent with and also supports the reasonableness of the belief of the [Individual Respondents] at the relevant time.

109    The three challenges advanced on behalf of the Fair Work Ombudsman centred upon submissions that the Federal Circuit Court Judge erred because:

    the findings at paras [130] to [133] as to the directors not having the requisite intention to participate “conflated ‘intention’ as discussed in the authorities with regret as to the consequences of a contravention or malice”;

    the reasonableness of the director’s “beliefs as to the long term value of the companies and what was in the interests of the employees [was] not the correct approach under s 550 of the Act”; and

    at paras [89] and [252] of the primary judgment, the primary Judge took into account “the financial position of the company as being relevant to liability, including the accessorial liability of the Directors”.

110    Of present concern is whether the Federal Circuit Court Judge was correct in concluding that the Individual Respondents could not fall within the reach of s 550.

The authorities

111    The phrase “involved in” is a phrase commonly employed in both Commonwealth and State legislation. The boundaries of the phrase have been fairly carefully canvassed in the authorities.

112    For the purposes of s 550 of the Fair Work Act, Senior Counsel on behalf of the Fair Work Ombudsman submitted (inter alia), in accordance with well-established principle, that a person could only be “involved in” a contravention if that person intentionally participated in the contravention which involves actual – not constructive – knowledge of the essential matters that made up the contravention.

113    But “actual knowledge”, it should be noted, may be inferred from “suspicious circumstances”: Compaq Computer Australia Pty Ltd v Merry (1998) 157 ALR 1 at 4 to 5. When discussing the comparable term formerly employed in the Trade Practices Act 1974 (Cth), Finkelstein J there observed:

A contravention of s 52(1) of the Trade Practices Act can occur regardless of whether the corporation is acting honestly or reasonably. But where it is sought to make a person liable as an accessory to a contravention of s 52(1) based on s 75B it is necessary to establish that the person has intentionally participated in the contravention. To establish intentional participation it must be proved that the person has knowledge of the essential matters that make up a contravention of s 52(1): see generally Yorke v Lucas (1985) 158 CLR 661. In this regard “knowledge” means actual and not constructive knowledge. For example, it would not be sufficient merely to show that the person charged with accessorial liability had shut his eyes to the obvious if that is intended to be a substitute for actual knowledge: Giorganni v R (1985) 156 CLR 473. Of course, where there is a combination of suspicious circumstances and a failure to make an inquiry it may be possible to infer knowledge of the relevant essential matters: Pereira v Director of Public Prosecutions (1988) 82 ALR 217.

(Some citations omitted)

“Suspicious circumstances” of course are not the only factual foundation from which an inference of “actual knowledge” could be drawn.

114    Assistance as to the meaning to be given to accessorial liability provisions was also provided in Gore v Australian Securities and Investments Commission [2017] FCAFC 13, (2017) 341 ALR 189. There in question were the terms of s 1324(1) of the Corporations Act 2001 (Cth). That sub-section provides as follows:

Where a person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute:

(a)    a contravention of this Act; or

(b)    attempting to contravene this Act; or

(c)    aiding, abetting, counselling or procuring a person to contravene this Act; or

(d)    inducing or attempting to induce, whether by threats, promises or otherwise, a person to contravene this Act; or

(e)    being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of this Act; or

(f)    conspiring with others to contravene this Act;

the Court may, on the application of ASIC, or of a person whose interests have been, are or would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate, restraining the first mentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing.

In respect to this provision, Dowsett and Gleeson JJ observed (at 192):

ACCESSORIAL LIABILITY, APART FROM THE CRIMINAL CODE

[6]    There is, in our view, a distinction between being concerned in, or party to a contravention and being knowingly concerned in, or party to that contravention. Neither participation in the alleged contravention, nor knowledge of the elements of the contravention is sufficient in itself to attract accessorial liability under s 1324(1)(e). Rares J has demonstrated that Ms Gore so participated. We need say nothing further about that aspect. The remaining question concerns the state of Ms Gore’s knowledge at the times at which she participated.

[7]    In Yorke v Lucas (1985) 158 CLR 661 Mason ACJ and Wilson, Deane and Dawson JJ held that in order to establish, in civil proceedings, that a person is liable as an accessory to a statutory contravention, all of the elements of that contravention must be proven, as must be the alleged accessory’s knowledge of the essential facts constituting the contravention. At 661, their Honours said, concerning a legislative provision similar to s 79 and paras (c) to (f) of s 1324(1):

In our view, the proper construction of par. (c) requires a party to a contravention to be an intentional participant, the necessary intent being based upon knowledge of the essential elements of the contravention.

See also: Rares J at 219 to 220 [135] and 235 [209].

115    More recently, and for the purposes of s 550 itself, Greenwood, Flick and Rangiah JJ in Construction, Forestry, Mining and Energy Union v BHP Coal Pty Ltd [2017] FCAFC 50 have concluded:

[59]    … To be knowingly involved, those respondents must have intentionally participated in the contravening conduct, with actual knowledge of the essential facts which constituted the contravention: see Yorke v Lucas (1985) 158 CLR 661 at 667. It may be that s 361(1) of the [Fair Work Act] has application to the question of whether the respondents intentionally participated in the contravening conduct, but the point was not argued before the primary judge or in the appeal and it is unnecessary to decide it.

116    Underlying the authorities is the proposition that a person cannot become “involved in” an act merely by reason of his knowledge of the conduct being pursued; to be “involved in” conduct, there has to be some conduct which “implicates” a person in the offending conduct such that they become “involved in” or “associated with” that conduct.

117    Thus, for example, when considering whether a person could be “knowingly concerned in” the importation of goods into Australia contrary to the Customs Act 1901 (Cth), in R v Tannous (1987) 10 NSWLR 303 at 307 to 308, Lee J reviewed some of the authorities and concluded as follows:

The meaning of the expression “knowingly concerned in” has been considered in a number of cases … but it is sufficient in my view to make brief reference to only two of these cases. In R v Goldie the charge was that P had been knowingly concerned in the commission of an offence by W, in that W, being a prohibited immigrant, was, contrary to the Immigration Act 1901-1935 (Cth), found in the Commonwealth in contravention or evasion of the Act. Latham CJ said (at 260):

“… In order that a person may be concerned in an immigrant being found within the Commonwealth it is necessary to show that he had something to do with him being in the Commonwealth instead of being in some place outside the Commonwealth.”

In Ashbury v Reid [[1961] WAR 49], a case involving a true aiding and abetting section in much the same terms as the Crimes Act (Cth), s 5, Virtue J delivering the judgment of the court gave the words the meaning taken from the Oxford Dictionary, namely “to have to do with”, “to have a part in”, “to be implicated or involved in” and “to have to do with something, especially something culpable”. His Honour went on (at 51):

“… The question which a court should ask itself in determining whether an act or omission on the part of the individual comes within the terms of s 54 is whether on the facts it can reasonably be said that the act or omission shown to have been done or neglected to be done by the defendant does in truth implicate or involve him in the offence, whether it does show a practical connexion between him and the offence.”

In my view the above quotation correctly establishes the meaning of the expression “knowingly concerned in” and is wholly in accordance with the common law that a person cannot become criminally involved in an act made unlawful by mere knowledge or inaction on his part — some act or conduct on his part is necessary.

With respect to the application of this principle to the facts of that case, his Honour continued (at 308):

In the present case the appellant has been shown to have agreed with at least two of the persons arranging the importation that the money owing to him by Lahood could be used, as Doe told him it had been, in funding the importation and to have made an agreement with Lahood and Doe that he should become a partner in the venture involving the importation and sale of the cannabis; he would thus not only receive his money back, but also whatever extra the profits would provide. It is not to the point that he was deceived by Lahood and Doe, and that none of the money was in fact used in the enterprise. Nor is it to the point that the appellant did not, in a sense, actively, that is, physically, do anything to further the importation. What is of importance is that by his conduct, that is by what he said and agreed to, he did in fact become associated with and thus involved, in the relevant sense, in the importation of the cannabis. He was in fact making, as he believed, a contribution to the furtherance of the importation by his agreement to allow the money Lahood owed to him to be used (as he thought) as a source of funds for the importation and, further, he was to share in the profits. It is not for the court to speculate as to what might have happened if he had refused to concur in the arrangement being suggested.

Chief Justice Street and Finlay J agreed with the reasons of Lee J.

118    In Leighton Contractors Pty Ltd v Construction, Forestry, Mining and Energy Union [2006] WASC 144, (2006) 154 IR 228 at 235, Le Miere J cited with approval the observations in Tannous and referred as follows to the need for a “practical connection”:

[29]    A person is not involved in a contravention unless he assents to or concurs in the conduct which constitutes the contravention. To be involved in a contravention requires that the person have a practical connection with the contravention. However, it is not necessary that the person physically do anything to further the contravention. It is sufficient if the person, by what he said and agreed to do, in fact became associated with and thus involved, in the relevant sense, in the conduct constituting the contravention: see R v Tannous (1987) 10 NSWLR 303 at 308.

In applying that approach to the facts, his Honour went on to conclude in the context of determining whether there was a serious question to be tried (at 236):

[36]    On that evidence, McDonald did more than merely attend a meeting and recommend to the Employees that they return to work. It is open to the tribunal of fact to infer that McDonald convened the meeting and presided over it. McDonald acted as the spokesman for the striking Employees in presenting its response to the Joint Venture representative and in speaking about the matter on the radio. It is open to infer that McDonald associated himself with the unlawful industrial action.

And these observations were in turn cited with approval by Moore J in Qantas Airways Ltd v Transport Workers’ Union of Australia [2011] FCA 470 at [324] to [325], (2011) 280 ALR 503 at 567.

119    The observations in Ashbury v Reid, relied upon by the New South Wales Court of Appeal in Tannous, have also been cited with approval in Australian Securities and Investments Commission v ActiveSuper Pty Ltd (in liq) [2015] FCA 342 at [407], (2015) 235 FCR 181 at 258 per White J. The approach set forth in Ashbury v Reid and Tannous, with respect, is clearly correct.

120    It was the application of these principles to the facts which divided the parties to the present appeals.

The involvement of the Individual Respondents

121    It was common ground that decisions such as York v Lucas and Gore accurately set forth the reach of s 550 of the Fair Work Act. That which divided the parties was whether the facts fell within the reach of s 550 and whether the findings of fact made by the primary Judge were sustainable.

122    For the purposes of testing the case being advanced on behalf of Mr Silverbrook and Ms Lee, it was accepted that the following admissions could be made in respect to the Individual Respondent’s potential liability pursuant to s 550 for the corporate contraventions of (for example) s 323 of the Fair Fork Act:

    prior to the relevant period of non-payment, Mr Silverbrook and Ms Lee had knowledge – or knew – that persons were receiving wages and other entitlements due to them from one or other of the corporate employers;

    that those persons were “employees” of the corporate employers and were being paid wages and other entitlements monthly;

    that during a period of 10 months from February to December 2014, there were a number of employees who were not receiving monthly payment in the normal course into their bank accounts for wages and entitlements as they had previously been receiving them; and

    that during that period of time, there were some employees who had not received any wages and entitlements for some months and some employees who had not received any wages and entitlements for the entire 10 month period.

Such admissions, it may be observed, were correctly made and were consistent with the evidence. Notwithstanding those admissions, it was maintained on behalf of Mr Silverbrook and Ms Lee that their conduct could not fall within the reach of s 550 by reason of:

    their having taken all such reasonable steps as were open to them to secure payment of wages and entitlements in circumstances where the consequences of their conduct was beyond their control; and

    their reasonable expectation that the payment of wages and entitlements would be secured sooner rather than later.

123    These admissions have to be considered against the following findings of fact as made by the primary Judge in the primary judgment ([2016] FCCA 1474):

    “The five companies were controlled by Mr Silverbrook at the time of the alleged contraventions” (at para [4]);

    “Mr Silverbrook was at all times in control of and the corporate mind of Superlattice” (at para [93]); and

    “In the present case the applicant has proved at the time of the alleged contravention of s.119 that Mr Silverbrook was a third entity that controls each of the five corporate entities” (at para [182]).

124    Given the admissions made, it is respectfully considered that it is difficult to resist a conclusion (for example) that Mr Silverbrook and Ms Lee by their “act[s] or omission[s] [were] … directly or indirectly, knowingly concerned in” the contraventions of the corporate employers arising from the non-payment of wages and entitlements. Such was the like conclusion reached by Buchanan J in Fair Work Ombudsman v Ramsey Food Processing Pty Ltd [2011] FCA 1176, (2011) 198 FCR 174 at 205, where his Honour concluded:

[126]    Not only was Mr Ramsey involved in any contravention committed by Ramsey Food Processing, he was its guiding mind. He is wholly concerned in and responsible for the contraventions by Ramsey Food Processing. He is liable in his own right as an accessory.

Even if it be accepted that the non-payment by the corporate employers was due to circumstances beyond the control of Mr Silverbrook and (where relevant) Ms Lee and that they were taking reasonable steps to secure payment, the fact of non-payment remains. Employees were not being paid their wages and entitlements in the normal monthly manner for a considerable period of time. And Mr Silverbrook and Ms Lee knew that the employees were not being paid. So much is inherent in the finding at para [132] of the primary judgment that “both Mr Silverbrook and Ms Lees applied and exhausted their own personal funds in their endeavours to ensure that the entitlements of employees were paid”. They were actively involved in continuing the payments owing to the employees of one or other of the corporate employers for as long as possible.

125    Just as Mr Silverbrook and Ms Lee were “actively involved” in the continuation of payments for as long as possible, they were equally “involved” in the non-payments when that occurred.

126    It may well be assumed that non-payment was regretted and certainly not what Mr Silverbrook or Ms Lee desired.

127    The conclusions reached by the Federal Circuit Court Judge seem to focus attention upon the “reasonableness” of the “belief” on the part of Mr Silverbrook and Ms Lee that wages and entitlements would soon be paid and fail to focus any real attention upon whether either were “in truth implicate[d] or involve[d]” (cf. Ashbury v Reid [1961] WAR 49 at 51) in the corporate contraventions. The degree of “control” exercised by Mr Silverbrook over the corporate employers would tend to suggest that he was in fact “implicate[d]” in the corporate non-payments. The role played by Ms Lee would also tend to suggested that she is “implicate[d]” in the contraventions by Silverbrook Research. The findings of the primary Judge tend to suggest a “practical connection” (cf. Leighton Contractors v CFMEU [2006] WASC 144, (2006) 154 IR 228; Qantas Airways v TWU [2011] FCA 470, (2011) 280 ALR 503) between the corporate non-payments and the Individual Respondents, even if it were to be accepted that the particular outcome was unavoidable. Such focus as was placed upon “knowledge” was also impermissibly poisoned, with respect, by the consideration given by the primary Judge to the “reasonableness” of the conduct being pursued.

128    The conclusion that neither Mr Silverbrook nor Ms Lee were “involved in” the corporate contraventions within the meaning of s 550 of the Fair Work Act should be set aside. As frequently is the case, it should be noted that this Court would appear to have been given greater assistance than was provided to the Federal Circuit Court Judge as to the relevant legal principles to be applied.

129    As the matter is to be remitted to the Federal Circuit Court for re-hearing, the preferable course is to refrain from making any finding of fact as to whether either Mr Silverbrook or Ms Lee did in fact fall within the reach of s 550. Findings of fact should be made on re-hearing and a fresh determination made as to their accessorial liability. It may well be the case that Mr Silverbrook and Ms Lee may be attributed with “actual knowledge” for the purposes of s 550(2)(c) (cf. Compaq Computers v Merry (1998) 157 ALR 1). It may well be the case, in addition, that Mr Silverbrook and Ms Lee had a “practical connection” to the non-payments (cf. Leighton Contractors v CFMEU [2006] WASC 144, (2006) 154 IR 228; Qantas Airways v TWU [2011] FCA 470, (2011) 280 ALR 503). But all such future findings of fact are, it is stressed, matters best left to the Court to which the matter is to be remitted.

130    It is sufficient for present purposes to conclude that the primary Judge erred in his construction and application of s 550 to the facts.

The financial difficulties confronting the corporate employers

131    Of relevance to the conclusions that Mr Silverbrook (and Ms Lee) did not assume liability there were, it would seem, at least two strands to the reasoning of the Federal Circuit Court Judge, namely:

    a lack of intention to participate in any contravention; and

    the reasonableness of a belief that the financial circumstances of the corporate employers could soon be addressed and that all employees would be paid their wages and entitlements.

With reference to the latter strand of reasoning, the Fair Work Ombudsman contended that the financial circumstances of the corporate employers and any belief that payment would be imminent were irrelevant considerations. This further submission should also be accepted.

132    A contravention, for example, of s 323 of the Fair Work Act is made out by proof that wages and entitlements have not been paid as required. The reasonableness of a belief that wages and entitlements may soon be paid, and the steps taken to ensure prompt payment, may be relevant to penalty, but assume no relevance to proof of the contravention: cf. Lynch v Buckley Sawmills Pty Ltd (1984) 3 FCR 503. In the context of considering breaches of an award, Keely J there concluded (at 508):

I also have borne in mind the evidence as to the financial difficulties of the respondent at the material times. … In this connection it is important that the respondent – and other employers bound by the award or by other awards under the Act – understand the importance of complying with an award and it follows that any decision taken by them which is regarded as affecting their obligations to comply with particular provisions of an award or the award generally should only be taken after careful consideration. They must not be left under the impression that in times of financial difficulty they can breach an award made under the Act either with impunity or in the belief that no substantial penalty will be imposed in respect of a breach found by a court to have been committed.

133    Financial difficulty, it has long been recognised, “is not a justification for an employer to fail to comply with its statutory and award obligations”: Fair Work Ombudsman v South Jin Pty Ltd (No 2) [2016] FCA 832 at [50] per White J.

INQUIRIES OF THE AUSTRALIAN TAXATION OFFICE

134    Other than the argument that the corporate employers were not “constitutional corporations”, the liability of the corporate employers for contraventions of the Fair Work Act was not substantially put in issue in the appeal to this Court.

135    The conclusion of the primary Judge that Mr Silverbrook and Ms Lee did not fall within s 550 of the Fair Work Act is to be set aside.

136    The quantum of the penalties imposed upon the corporate employers was, however, a matter contested before this Court. So, too, were the consequences of a conclusion that the Individual Respondents fell within s 550 – and, in particular, the manner in which the primary Judge approached the exercise of the discretion as to costs.

137    Underlying both the conclusions of the primary Judge in respect to penalties and the order as to costs was the relevance of inquiries that the primary Judge found should have been made by the Fair Work Ombudsman of the Australian Taxation Office.

138    The factual background that gave rise to this as an issue in the proceedings was that Mpowa apparently had tax credits available to it. This background was briefly described by the Federal Circuit Court Judge in the primary judgment as follows:

[23]    Mpowa applied for a substantial research and development tax incentive in 2012 having incurred expenses of $8,479,410. This resulted in a tax credit as at 22 May 2013 with the ATO in the sum of $3,815,730.45. This very substantial tax credit has thereafter remained on the ATO Business portal in favour of Mpowa albeit as at 23 December 2015 after tax offsets the amount of the credit balance was $2,874,572.32.

If this tax credit was made available, the financial circumstances in which Mr Silverbrook found himself would have been considerably ameliorated, or so the argument ran. Whether that was so or not, perhaps matters not.

139    Of immediate concern are the findings made by the primary Judge in the primary judgment that:

    the existence of the tax credits was “an obvious matter for the [Fair Work Ombudsman] inspector to inquire into” (at [152]);

    the Fair Work Ombudsman should have “take[n] steps to assist the employer in the present case to recover moneys from another emanation of the Commonwealth to pay the employer’s employees” (at [153]);

    “[t]aking such steps would be entirely within the function identified under s.682(1)(a) of the Fair Work Act 2009” (at [153]); and that

    “failing” to contact the Australian Taxation Office amounted to “unreasonable conduct” (at [172]).

This “failure” to make “obvious inquiries” was characterised by the Federal Circuit Court Judge as falling “well short of the standard expected of a regulator”: [2016] FCCA 2744 at [60] to [61].

140    These findings, it is submitted on behalf of the Fair Work Ombudsman, expose error. That submission is accepted.

The findings of the primary Judge

141    The findings of the Federal Circuit Court Judge relied upon emerge from the primary judgment and the penalty and costs judgment.

142    In the primary judgment, when making his “[f]indings in respect of Mr Silverbrook and Ms Lee” ([2016] FCCA 1474 at [126] to [175]), the Federal Circuit Court Judge stated in part as follows:

[151]    Section 682(1)(a) where reference is made to compliance with the [Fair Work Act]:

Including by providing education, assistance and advice to employees, employers –

manifestly identifies a broader role than the Fair Work Ombudsman asserted in the present case. Of material significance in the circumstances of this case is that in the course of the investigation by the Fair Work Ombudsman with the employees concerning compliance with the Act, the employees raised with the inspector the explanation being given by the employer in relation to the allegations of non-compliance that there were substantial tax credits due and payable by the ATO.

[152]    The substance of the applicant’s submissions in the present case is that it is no role of the ATO to assist employees being paid by their employer. That is not a proposition that is supported by the objects of the Act. More significantly, the existence of substantial tax credits in another department of the Commonwealth of Australia which might facilitate the payment of employees was an obvious matter for the inspector to inquire into once raised by employees in the context of the employees information as to outstanding entitlements.

[153]    In the circumstances of the overlap between the Fair Work Ombudsman being an emanation of the Commonwealth, and the ATO being an emanation of the Commonwealth, there is no merit or substance in the proposition that it was no role or function of the Fair Work Ombudsman to take steps to assist the employer in the present case to recover moneys from another emanation of the Commonwealth to pay the employer’s employees. Taking such steps would be entirely within the function identified under s 682(1)(a) of the Fair Work Act 2009.

A little later appear the following paragraphs:

[161]    I find that Inspector Hurrell was provided information about the existence of tax credits that would have permitted payment of the outstanding employee entitlements. I find that in the circumstances of the present case it was unreasonable not to attempt to make an inquiry of the other emanation of the Commonwealth about the potentially available funds to pay employees’ entitlements. I do not accept that if the issue had been raised by the inspector, that the view would have been taken that there was no power to make an inquiry of the ATO in the present case, nor do I accept that the view would have been taken that the MOU did not permit the making of such an inquiry.

[162]    I also take into account that the Fair Work Ombudsman, prior to proceedings in September 2013 contacted the ATO about both Mpowa and Silverbrook Research but only to raise the possible failure to pay superannuation. I find that contact by the FWO with the ATO was due to steps taken by Inspector Hurrell in the investigation.

[163]    Further, I infer in the circumstances of the present case that if the other emanation of the Commonwealth, being the ATO, had been informed of an inquiry by the Fair Work Ombudsman about the existence of outstanding credits in circumstances of substantial outstanding entitlements to employees, it is likely that the ATO would have accelerated its attention to releasing those tax credits.

…

[170]    I find conduct of the FWO in the service of the notices to produce, the investigation and the commencement of proceedings by the FWO, publication of those proceedings and the encouragement by the FWO of proceedings by the employees to wind up the companies to obtain benefits under the Fair Entitlements Guarantee Act 2012 did impede both directors in the steps they were taking to try and obtain funds to pay out employee entitlements in circumstances of a continuing, but I find temporary liquidity crisis.

[171]    Further, the existence of the tax credits was an obvious matter that could impact on any alleged accessorial liability and this was a further factor that any reasonable inspector should have taken into account in considering whether or not steps should be taken to contact another arm of the Commonwealth of Australia that was alleged to be holding substantial credits that if made available would permit payment of outstanding employee entitlements.

[172]    I find that the conduct of the applicant in failing to contact the ATO as to the potential availability of tax credits in the context of the substantial outstanding employee entitlements was unreasonable conduct by the applicant. I infer that if the applicant had contacted the ATO about the outstanding tax credits in the context of substantial outstanding employee entitlements, there would have been a likely acceleration of the release of those funds by the ATO to both Geneasys and to Mpowa.

[173]    I find on the material before the Court that the tax credits are likely to be made available by the ATO and will in fact be available for the payment of employees of both Geneasys and Mpowa. I also find that there would have been sufficient funds generated by Mpowa from the tax credit being repaid to Mpowa for Mpowa to obtain legitimate funding to assist payment of the outstanding entitlements in respect of the other respondents. I find that Mr Silverbrook would have taken steps to obtain such funding and would have caused the other outstanding entitlements to be paid.

[174]    I find that if the applicant had contacted the ATO in relation to the potentially available funds being tax credits, those tax credits would have been paid within a matter of months and that the employees, the subject of these proceedings would not have had outstanding entitlements at the time the proceedings were commenced. Further I find that if there had been no outstanding entitlements, that the applicant would have been unlikely to commence proceedings and that the costs that have been incurred by the respondents in defending these proceedings would not have been incurred.

143    In the penalty and costs judgment, the third of the judgments the subject of this appeal ([2016] FCCA 2744), these findings were not surprisingly carried forward when considering the quantum of penalties and the question as to costs. When considering “Factors Relevant to Penalty” in the third of his judgments, the Federal Circuit Court Judge thus wrote:

The circumstances in which the conduct took place

[22]    Dealing with factor (b), being the circumstances in which the relevant conduct took place, the respective employees as well as the directors anticipated payment was to be made throughout the period the subject of the relevant contraventions. This Court found that that expectation on behalf of the directors was reasonable.

[23]    The Court in its reasons identified the different sources from which payment was expected by the respective corporate entity. One of those sources was the ATO in respect of which being another emanation of the Commonwealth, there was a substantial amount outstanding. This was more than sufficient to meet the amounts found to be outstanding in respect of the contraventions taking into account the capacity of the corporate entities to obtain appropriate arrangements for inter-company lending if those funds had been forthcoming.

[24]    The Court made findings that the ATO would have paid the amount outstanding if the applicant had made contact with the ATO and that it was unreasonable of the applicant not to do so. Subsequent to the judgment of this Court on 17 June 2016, the ATO has in fact made substantial payment to one of the corporate entities.

And when dealing with the question of costs, the primary Judge introduced that part of his reasoning as follows:

Issue of Costs

[54]    The Court has also heard submissions in relation to costs. One of the submissions that was raised was the importance of not encouraging the inappropriate contest of proceedings by entities the subject of litigation. The contest by the respondents in the present case was reasonable and whilst penalties have been found against the corporate entities, the applicant has failed in the relief sought against the director/directors.

[55]    In the present case, the principles in relation to costs are identified in s.570 of the [Fair Work Act] …

The primary Judge then addressed the failure to contact the Australian Taxation Office as follows:

Applicant’s failure to contact the ATO

[57]    In the present case, the Court found that the applicant engaged in an unreasonable act or omission by failing to contact the ATO in relation to what was an obvious inquiry, in respect of the substantial amount that the applicant was aware was outstanding by the ATO. That was an unreasonable act or omission that caused the director/directors in the respective five proceedings to incur the costs of those proceedings within the meaning of s.570(2)(b) of the [Fair Work Act].

[58]    The conduct of the applicant in the present proceedings has been less than exemplary. However, on the issue of costs, the Court only takes into account in this regard, the unreasonable act or omission referred to in respect of the failure to contact the ATO. The Court is satisfied that this constitutes an unreasonable act or omission by the applicant in all five proceedings that gave rise to substantial costs which were caused to be incurred by the director/directors in the present five proceedings.

[59]    It is appropriate to record that the ATO has now paid a very substantial sum to one of the corporate entities consistent with the earlier findings of this Court.

The conduct of the Regulator

[60]    Notwithstanding the principles identified in s.570(1) of the Act, that ordinarily no order for costs should be made, and taking into account the object of the legislation and the importance of the role of the regulator, this is a case where the conduct of the regulator fell well short of the standard expected of a regulator.

[61]    It is the act or omission of the regulator in failing to contact the ATO which was unreasonable in respect of the failure to make obvious inquiries of another emanation of the Commonwealth. It was perfectly apparent to the regulator that what the employees were raising, was the explanation for why they had not been paid was a failure to obtain a refund due by the ATO and in respect of which it was apparent to the applicant that there was a substantial amount said to be outstanding. The Court made findings in relation to that matter in its earlier judgment.

[62]    The Court takes into account those findings in relation to finding that there was an unreasonable act or omission by the applicant in the present case, enlivening the Court’s powers under s.570(2) of the Act. The Court is satisfied that this is an appropriate case in which the applicant’s unreasonable act or omission has caused the director/directors in the five proceedings to incur the costs of those five proceedings and the Court finds that it is appropriate to order that the applicant pay those costs.

144    On the separate question as to the quantification of the lump sum costs order, the primary Judge concluded as follows:

Quantification of costs order

[83]    This gives rise to costs incurred by the directors on the evidence before the Court, which the Court considers to be logical, fair and reasonable in these proceedings as a result of the unreasonable act or omission of the applicant in the order of $1.1 million.

[84]    The Court is satisfied that those costs were reasonably incurred. The Court is satisfied that for the said costs identified, albeit in part as an estimate, there is a logical, fair and reasonable basis to conclude that costs in the amount of $1.1 million were incurred by the director/directors in the conduct of these proceedings as a result of the unreasonable act or omission identified of the applicant. I find that the unreasonable act or omission of the applicant in failing to contact the ATO about the outstanding refund was an unreasonable act or omission that has caused the director/directors to incur costs in the amount of $1.1 million.

[85]    The Court however, finds that those costs of $1.1 million include solicitor/client costs and it is appropriate to reduce the same by approximately 20% to $900,000.00. The Court is also of the view that part of the costs of $900,000.00 on a party/party basis must have related to the corporate entities as opposed to the individual directors. I consider that a further discount should be made in relation to the party/party costs of $900,000.00 of approximately 10% so as to remove the costs incurred for the corporate respondents. I find that the director/directors have incurred costs in the sum of $800,000.00 for which there is a logical, fair and reasonable basis by reason of the unreasonable act or omission of the applicant.

[86]    I take into account, as found in the decision of this Court on 17 June 2016, that the principal focus of the proceedings was the director/directors. I find that the costs of $800,000.00 were party/party costs incurred on behalf of the director/directors in the respective proceedings as a result of the unreasonable act or omission of the applicant.

[87]    I find costs reasonably incurred by the director/directors that the applicant should be ordered to pay under s.570(2) of the [Fair Work Act] because of the unreasonable act or omission of the applicant in failing to contact the ATO about the outstanding refund caused is the amount of $800,000.00.

[88]    Notwithstanding the general principle that there be no order as to costs, as found in s.570(1) of the [Fair Work Act], including the important public interest and the power to bring proceedings given to the regulator, I am satisfied that in the circumstances of this case, this is a proper matter in which to exercise the costs power enlivened under s.570(2)(b) of the Act I am satisfied that it is logical, fair and reasonable to order the applicant to pay the costs of the director/directors in the sum of $800,000.00.

Section 682 & the role of the Fair Work Ombudsman

145    The source of the “role” to be undertaken by the Fair Work Ombudsman in this case was said by the primary Judge to be found in s 682(1)(a) of the Fair Work Act.

146    No reliance could be placed, or was placed, upon any non-statutory source of such a “role”. This was presumably because of the very real constraints imposed upon any administrative decision-maker to undertake “inquiries”: cf. Minister for Immigration and Citizenship v SZIAI [2009] HCA 39, (2009) 111 ALD 15.

147    The source of the “role or function” which was said not to have been properly discharged and which led to the finding that the Fair Work Ombudsman had fallen “well short of the standard expected of a regulator” was, accordingly, to be found (if at all) in s 682.

148    Although reliance was placed by the primary Judge upon s 682(1)(a) alone, s 682(1) in its entirety should be noted. That sub-section provides as follows:

The Fair Work Ombudsman has the following functions:

(a)    to promote:

(i)    harmonious, productive and cooperative workplace relations; and

(ii)    compliance with this Act and fair work instruments;

including by providing education, assistance and advice to employees, employers, outworkers, outworker entities and organisations and producing best practice guides to workplace relations or workplace practices;

(b)    to monitor compliance with this Act and fair work instruments;

(c)    to inquire into, and investigate, any act or practice that may be contrary to this Act, a fair work instrument or a safety net contractual entitlement;

(d)    to commence proceedings in a court, or to make applications to the FWC, to enforce this Act, fair work instruments and safety net contractual entitlements;

(e)    to refer matters to relevant authorities;

(f)    to represent employees or outworkers who are, or may become, a party to proceedings in a court, or a party to a matter before the FWC, under this Act or a fair work instrument, if the Fair Work Ombudsman considers that representing the employees or outworkers will promote compliance with this Act or the fair work instrument;

(g)    any other functions conferred on the Fair Work Ombudsman by any Act.

The phrase “relevant authorities” is not defined.

149    Also of relevance is the “object” of the Fair Work Act as set forth as follows in s 3:

Object of this Act

The object of this Act is to provide a balanced framework for cooperative and productive workplace relations that promotes national economic prosperity and social inclusion for all Australians by:

(a)    providing workplace relations laws that are fair to working Australians, are flexible for businesses, promote productivity and economic growth for Australia’s future economic prosperity and take into account Australia’s international labour obligations; and

(b)    ensuring a guaranteed safety net of fair, relevant and enforceable minimum terms and conditions through the National Employment Standards, modern awards and national minimum wage orders; and

(c)    ensuring that the guaranteed safety net of fair, relevant and enforceable minimum wages and conditions can no longer be undermined by the making of statutory individual employment agreements of any kind given that such agreements can never be part of a fair workplace relations system; and

(d)    assisting employees to balance their work and family responsibilities by providing for flexible working arrangements; and

(e)    enabling fairness and representation at work and the prevention of discrimination by recognising the right to freedom of association and the right to be represented, protecting against unfair treatment and discrimination, providing accessible and effective procedures to resolve grievances and disputes and providing effective compliance mechanisms; and

(f)    achieving productivity and fairness through an emphasis on enterprise-level collective bargaining underpinned by simple good faith bargaining obligations and clear rules governing industrial action; and

(g)    acknowledging the special circumstances of small and medium-sized businesses.

150    Neither s 3 nor s 682 are provisions to be narrowly construed.

151    It is nevertheless concluded that s 682(1)(a) does not confer upon the Fair Work Ombudsman any “role or function” to contact the Australian Taxation Office or, perhaps more specifically, any “role or function … to take steps to assist the employer … to recover moneys” as concluded by the primary Judge: [2016] FCCA 1474 at [153]. The failure on the part of the Fair Work Ombudsman to make an “obvious inquiry” of the Australian Taxation Office, accordingly, provides no basis upon which the conclusion could be reached that the conduct of the Fair Work Ombudsman “fell well short of the standard expected of a regulator”: [2016] FCCA 2744 at [60].

152    But such a conclusion stops short of further concluding that the Fair Work Ombudsman may not defer commencing a proceeding (s 682(1)(d)) pending the resolution of a claim by an employer to an entitlement to moneys that would thereafter be used to pay employees. The time at which and the circumstances in which the Fair Work Ombudsman may commence a proceeding would be as multifarious as the myriad of circumstances confronting an employer in many different workplaces. The Fair Work Ombudsman may thus defer commencing a proceeding where a claimed entitlement is said to be owing from a statutory authority (such as the Australian Taxation Office) or a private corporation. The reliance placed by the Federal Circuit Court Judge upon the Australian Taxation Office as “being an emanation of the Commonwealth” ([2016] FCCA 1474 at [153]) is perhaps distracting; the prudence of deferring the commencement of proceedings may extend beyond an alleged debt owing from an “emanation of the Commonwealth” to a debt owing from some other debtor. The circumstances in which the deferring of the commencement of proceedings may, however, transgress into unacceptable delay and an abdication of a proper discharge by the Fair Work Ombudsman of the statutory functions conferred by s 682 need not be explored.

153    It is, with respect, unhelpful to seek to characterise the conduct of the Fair Work Ombudsman as that of a “debt collector”. But such a characterisation may provide a colourful description which seeks to advance the more fundamental proposition that the “role or function” sought to be ascribed to the Fair Work Ombudsman does not fall within any of the functions set forth in s 682(1). Left to one side for present purposes is whether acting as a “debt collector” would have had the result anticipated by the Federal Circuit Court Judge, namely of “accelerat[ing]” the release of the “tax credits” ([2016] FCCA 1474 at [163]).

154    The role of the Ombudsman in discharging the statutory functions conferred by s 682(1), with respect, cannot be seen as involving any responsibility to reclaim moneys owed to a corporate employer or any responsibility to advance the payment of monies potentially owing: cf. Tomlinson v Ramsey Food Processing Pty Ltd [2015] HCA 28, (2015) 256 CLR 507. There in question was whether the Fair Work Ombudsman could be regarded as having acting “on behalf of” an employee (Mr Tomlinson) in commencing a proceeding under s 682(1)(d). In rejecting the argument, Nettle J concluded (at 544 to 545):

[114]    Since the proceeding was brought under s 682(1)(d) of the Fair Work Act and s 719 of the [Workplace Relations Act 1996 (Cth)], it logically cannot be that the Ombudsman’s claim in relation to the appellant was made by the Ombudsman as representative of the appellant or otherwise “on behalf of” the appellant. The Ombudsman was not representing the appellant in a claim under s 719 but acting in exercise of the Ombudsman’s own statutory right of action to enforce the Fair Work Act. The Ombudsman was not making the appellant’s claim “on behalf of” the appellant but making the Ombudsman’s own claim pursuant to s 682(1)(d) of the Fair Work Act under s 719 of the Workplace Relations Act for an order to compel the enforcement of the Fair Work Act.

[115]    Nor is the claim by the Ombudsman under s 719 otherwise of such a nature that it should be regarded as made “on behalf of” the appellant. The relationship between the appellant and the Ombudsman did not fall into one of the established categories of legal and equitable relationships earlier described. The appellant did not engage the Ombudsman as his agent to litigate the question of whether Ramsey Food was his employer and as such had failed to pay his entitlements.

[116]    As far as can be told, the appellant did not have any control over the conduct of the Ombudsman’s claim. The highest the evidence went in that regard was that the appellant placed the facts of his predicament before the Ombudsman and asked the Ombudsman if there was anything which the Ombudsman could do to procure for the appellant his entitlements.

[117]    There is nothing about the power conferred on the Ombudsman by s 682(1)(d) of the Fair Work Act or on the court by s 719 which could be viewed as imposing anything in the nature of a fiduciary duty on the Ombudsman in favour of the appellant.

[118]    The Ombudsman could not realistically be regarded as the corporate embodiment of the appellant – even for just the purposes of recovery of the appellant’s unpaid entitlements – in the sense of the appellant being the person who made decisions and gave instructions on behalf of the Ombudsman as to how the Fair Work proceeding should be conducted. On the evidence, the scope of the appellant’s involvement was limited to being a witness.

[119]    Further, because of the Ombudsman’s statutory responsibilities to enforce the Act generally, it is not possible to exclude the potential for at least some conflict of interest between the Ombudsman’s objectives in and manner of conducting the Fair Work proceeding and the appellant’s interests in recovering his entitlements.

155    The reasons for concluding that the Fair Work Ombudsman has no such “role or function” as that described by the primary Judge, accordingly, are as follows:

    such a “role or function” stands outside the objects of the Act as set forth in s 3;

    the promotion of “workplace relations” as referred to in s 682(1)(a) is the promotion of such “workplace relations” within the framework of the Fair Work Act;

    the text of s 682(1) expresses a focus upon the enforcement of the provisions of the Fair Work Act and the promotion of the objects of that Act;

    section 682(1)(e) suggests that any “role or function” which the Fair Work Ombudsman may have vis-a-vis other statutory authorities is the power to “refer matters to relevant authorities” such that those authorities may then discharge such statutory functions as may be vested in them; and

    in commencing a proceeding seeking the enforcement of the Fair Work Act, the Fair Work Ombudsman is not acting “on behalf of” any other party to that proceeding and is potentially discharging functions which may be in conflict with the interests of another party (cf. Tomlinson v Ramsey Food Processing Pty Ltd [2015] HCA 28, (2015) 256 CLR 507).

The reference in s 682(1)(a) to the term “including” obviously enough provides that the examples thereafter set forth are not an exhaustive description of the manner in which the Fair Work Ombudsman discharges the “function” of promoting workplace relations and compliance with the Act. But the term “including” cannot be construed as expanding upon the “function” of promoting “workplace relations” within the structure of the Fair Work Act itself.

156    If the contrary proposition be accepted such that the Fair Work Ombudsman has a “role or function” in making inquiries of the Australian Taxation Office, difficulty is expressed in identifying why such a “role or function” is confined to making inquiries of a statutory authority.

The consequences

157    These conclusions necessarily have the consequence that the finding as to the conduct of the Fair Work Ombudsman falling “well short of the standard expected of a regulator” is a finding which should be set aside.

158    The consequences of this finding being set aside impact upon both the Corporate Respondents and the Individual Respondents.

159    In respect to the Corporate Respondents, one consequence is that:

    the assessment of the corporate penalties should, for this reason alone, be set aside.

160    With respect to the Individual Respondents, one consequence is that:

    it provides a reason in itself for setting aside the lump sum costs order.

It would also appear that:

    a basis upon which the primary Judge concluded that the Individual Respondents should assume no liability was erroneous such that a further reason exists for also setting aside that conclusion.

THE assessment of corporate penalties

161    Even though the findings of the Federal Circuit Court Judge as to corporate liability are not to be set aside, left open for consideration is the question as to the quantum of penalties imposed.

162    It was the third of the judgments delivered by the Federal Circuit Court Judge (the penalty and costs judgment) in which penalties pursuant to s 546 of the Fair Work Act were imposed upon the Corporate Respondents.

163    The maximum penalty that could have been imposed upon each of the Corporate Respondents, the penalty sought by the Fair Work Ombudsman and the penalty in fact imposed by the primary Judge may be summarised, in very broad terms, as follows:

More detailed submissions filed in the Federal Circuit Court and included in the Appeal Book in this Court set forth the maximum penalty and recommended penalty in respect to the separate contraventions of ss 44, 45, 293 and 323 of the Fair Work Act. The primary Judge had previously concluded in the primary judgment that the Fair Work Ombudsman had failed in the proceedings as against Geneasys: [2016] FCCA 1474 at [276]. Silverbrook Research was never a Respondent in these proceedings. Mr Silverbrook and Ms Lee were found not to have assumed liability and thus no penalties were imposed upon the Individual Respondents.

164    Perhaps not surprisingly, the Fair Work Ombudsman submitted that the penalties were unreasonable because they were manifestly inadequate. The Corporate Respondents (by way of cross-appeal) sought to contend the reverse, namely that the exercise of the discretion as to the quantification of penalties miscarried and that the penalties imposed were excessive.

165    More specifically, the Corporate Respondents contended that the discretion miscarried by reason of the failure of the Federal Circuit Court Judge to take into account:

    the financial circumstances of the Corporate Respondents; and/or

    the legal costs of the Corporate Respondents.

The Fair Work Ombudsman, in addition to contending that the penalties imposed were manifestly inadequate, also contended that:

    the primary Judge erred in taking into account the failure of the Fair Work Ombudsman to make inquiries of the Australian Taxation Office; and

    there had been a denial of procedural fairness on the part of the primary Judge and that the Fair Work Ombudsman had been denied an opportunity to be heard.

166    Both arguments advanced on behalf of the Fair Work Ombudsman, it is respectfully concluded, should prevail.

The findings of the primary Judge – the need for contact between the FWO & the ATO

167    As is apparent from the primary judgment ([2016] FCCA 1474 at [161] to [174]), the primary Judge took into account what was said to be the failure on the part of the Fair Work Ombudsman to make contact with the Australian Taxation Office when quantifying the penalties to be imposed upon the relevant corporate employers. The findings made in the primary judgment were carried forward to the penalty and costs judgment in which penalties were assessed: [2016] FCCA 2744 at [22] to [24].

168    A central plank of the reasoning of the primary Judge when giving consideration in the primary judgment to the question of contraventions by both the Corporate Respondents and Mr Silverbrook and Ms Lee was that the Fair Work Ombudsman should have made inquiries of the Australian Taxation Office as to “the potential availability of tax credits”. Had these “tax credits” been paid by the Australian Taxation Office, so the reasoning proceeded, the corporate employers would have been placed in funds and the employees would have been paid. The primary Judge found that “there would have been sufficient funds generated by Mpowa from the tax credit being repaid to Mpowa for Mpowa to obtain legitimate funding to assist payment of the outstanding entitlements in respect of the other respondents”: [2016] FCCA 1474 at [173]. The relevance of the “unreasonable conduct” on the part of the Fair Work Ombudsman to the question of costs was raised but deferred for future consideration: [2016] FCCA 1474 at [175].

169    But it has been concluded that it was no part of the functions of the Fair Work Ombudsman to make any such inquiries.

170    This central plank in the reasoning of the Federal Circuit Court Judge thus falls away and his ultimate conclusion as to penalties should be set aside.

An absence of procedural fairness

171    There remains, however, a further reason why the conclusion as to corporate penalties should be set aside.

172    This separate reason focuses upon the primary Judge’s finding in the primary judgment that had the Fair Work Ombudsman contacted the Australian Taxation Office:

    there would have been a “likely acceleration of the release of … funds by the ATO to both Geneasys and to Mpowa” (at para [172]); and that

    the “tax credits would have been paid within a matter of months” (at para [174]).

Presently left to one side are those circumstances in which the Fair Work Ombudsman may prudently make inquiries of the Australian Taxation Office or to at least inform them of the subject-matter of an investigation it is undertaking and the potential for future proceedings to be rendered unnecessary if prompt action is undertaken by the Australian Taxation Office.

173    It is unnecessary to venture into that area because it has been concluded that the findings made by the Federal Circuit Court Judge as to the “likely acceleration of the release of … funds by the ATO to both Geneasys and to Mpowa” and that the “tax credits would have been paid within a matter of months” should be set aside.

174    Of potential relevance to those findings was a bundle of documents which were admitted into evidence in the Federal Circuit Court and marked as Exhibit 40. Of present concern are at least two considerations, namely:

    the fact that the contents of those documents do not sit comfortably with the findings of fact as made by the primary Judge;

and more disturbingly:

    the primary Judge precluded submissions being advanced on behalf of the Fair Work Ombudsman as to their contents and potential relevance to the findings to be made.

Exhibit 40

175    Exhibit 40 comprised (in part):

    a letter from the ATO dated 8 August 2014 to Mr Silverbrook stating that the ATO had “now finalised the comprehensive risk review of your income tax affairs and those of your controlled entities regarding the R&D tax incentive for the 2012 income year” and attaching a table of “identified risks … that we need to examine through an audit process”;

    a letter from the ATO dated 3 September 2014 to Mr Silverbrook confirming “an audit of your tax return for the 2012 income year” and the statement that “[w]e expect to complete the audit by 8 May 2015”;

    a letter from the ATO dated 23 September 2014 to Mr Silverbrook requiring the production of information and documents; and

    a letter from the ATO to Mpowa and marked to the attention of Mr Silverbrook dated 29 July 2016 advising as to the outcome of the audit.

There is also included in Exhibit 40 a letter dated 20 November 2015 in which Mr Silverbrook seeks the release of “the credit balance” so that payments may be made to the ATO and “[a]ny entitlements to Mpowa staff shown to still be outstanding”.

176    There is unquestionably a tension between a finding that an approach from the Fair Work Ombudsman to the ATO “would have” led to a “likely acceleration of the release of … funds by the ATO” and the fact that the ATO was undertaking an audit that continued throughout 2014 through to 2016. The period of concern to the Fair Work Ombudsman and the period of time during which it was being alleged that employees were not being paid was between February and December 2013. The proceedings were instituted by the Fair Work Ombudsman in the Federal Circuit Court between December 2013 and June 2014.

177    Whether Exhibit 40 would be sufficient to strip the findings made by the primary Judge of evidential support may be left to one side. So, too, may be left to one side the relevance of the steps which could have been undertaken by the Fair Work Ombudsman to facilitate an “early release” of funds.

178    The submissions which the Fair Work Ombudsman sought to advance in respect to Exhibit 40 occurred in the following chronological sequence:

    the primary judgment in which the findings of contraventions were made was delivered on 17 June 2016;

    Exhibit 40 was admitted as an exhibit at the hearing on 18 October 2016;

    the submissions were sought to be advanced during the course of the hearing on 21 October 2016; and

    the decision quantifying corporate penalties and ordering the payment of costs, being the penalty and costs judgment, was delivered on 21 October 2016.

179    Of disturbing concern is the fact that the primary Judge denied the Fair Work Ombudsman the opportunity to make submissions in respect to the potential significance of Exhibit 40 to any decision to be made in respect to penalties and/or costs. Such a denial emerges from the following exchange between Senior Counsel for the Fair Work Ombudsman and the primary Judge:

MR MOSES:    Your Honour, I’m duty-bound to draw to your Honour’s attention documents that were produced under subpoena which form part of exhibit 40 which do impact upon the prism through which your Honour would see the conduct of the corporate respondents, and there are a number of points to be made, if I can, in broad form. In the position of Mpowa, which your Honour will recall consistently denied that there had been contravention of the Act in the proceedings before your Honour and as part of that argument put forward in essence five arguments, each of which your Honour rejected, we say correctly, in relation to their liability, at the very time when they were asserting that they had not contravened the Act there were representations being made to the ATO by that very same entity – and this is in the bundle of documents – that the failure of the ATO to make payments to Mpowa were causing it to contravene the Fair Work Act.

HIS HONOUR:    And that is entirely consistent with a finding I made about unreasonable conduct of your client in failing to take steps to contact the ATO. So I don’t see how that can assist.

MR MOSES:    Can I – with all due respect to your Honour. That is not consistent, because there is other material, which I will take your Honour to in the folder, which demonstrates that the respondents well knew that there was a risk assessment review being undertaken by the ATO in respect of the claim that had been made by the respondents, which was being actively undertaken during the very period, being 2014, which they were in breach of the Act. And …

HIS HONOUR:    Yes ..... I’m not going to revisit my findings of fact. So you can assume that the [C]ourt is not minded to weigh that as a factor. What’s the next factor?

MR MOSES:    If I can just be clear on this, your Honour. The documents which form part of exhibit 40 were documents that your Honour did not have in – brought to your attention during the course of the hearing.

HIS HONOUR:    I understand, and I understand what you’re saying, but I don’t propose to revisit my findings in relation to the conduct of the applicant in relation to the ATO. I understand what you’ve said. It doesn’t impact in my view in relation to penalty.

MR MOSES:    Your Honour, just to be clear. Your Honour, there are a number of material issues which, if your Honour looked at the documents in exhibit 40, your Honour would conclude, we would say, that the failure of the respondent to pay the money had nothing to do with the applicant’s failure to contact the ATO but to do with the processes which were being undertaken by the ATO and in some respects including delays in the provision of information to the ATO by the respondents.

HIS HONOUR:    Mr Moses, I understand what you’ve said. That’s for another forum. What’s your next factor?

180    The denial of an opportunity to advance submissions is sufficient of itself to warrant the decision as to penalties being set aside. The same conclusion is also reached in respect to the denial of an opportunity to advance submissions as to the significance sought to be ascribed to Exhibit 40 in respect to the question of costs.

Unreasonableness: manifestly excessive or inadequate?

181    Given the conclusion that the penalties imposed should be set aside, left unresolved are the competing submissions advanced on behalf of both the Corporate Respondents and the Fair Work Ombudsman as to the adequacy or otherwise of the penalties in fact imposed.

182    Also left to one side are the submissions of the Fair Work Ombudsman as to whether the Federal Circuit Court Judge erred in his application of well-established principles when assessing the penalties imposed.

183    All such matters are best left to be re-agitated before the reconstituted Federal Circuit Court, which may ultimately re-determine the matter.

184    It is sufficient to note that the penalties imposed do not self-evidently reflect the seriousness of a considerable number of employees not being paid a total in excess of $1.9 million in salaries and other entitlements over a period extending in some cases for some 10 months.

COSTS

185    In the penalty and costs judgment delivered on 21 October 2016 the Federal Circuit Court Judge ordered the Fair Work Ombudsman to pay the costs of Mr Silverbrook and Ms Lee assessed in the fixed amount of $800,000.

186    The power to award costs in the proceedings before that Court were constrained by s 570 of the Fair Work Act which provides as follows:

Costs only if proceedings instituted vexatiously etc.

(1)    A party to proceedings (including an appeal) in a court (including a court of a State or Territory) in relation to a matter arising under this Act may be ordered by the court to pay costs incurred by another party to the proceedings only in accordance with subsection (2) or section 569 or 569A.

Note: The Commonwealth might be ordered to pay costs under section 569. A State or Territory might be ordered to pay costs under section 569A.

(2)    The party may be ordered to pay the costs only if:

(a)    the court is satisfied that the party instituted the proceedings vexatiously or without reasonable cause; or

(b)    the court is satisfied that the party’s unreasonable act or omission caused the other party to incur the costs; or

(c)    the court is satisfied of both of the following:

(i)    the party unreasonably refused to participate in a matter before the FWC;

(ii)    the matter arose from the same facts as the proceedings.

The findings of the primary Judge & the challenges made

187    The conclusions of the primary Judge in respect to the order as to the payment of costs in the fixed amount of $800,000 proceeded (at least in part) from the findings that:

    the Fair Work Ombudsman had “engaged in an unreasonable act or omission by failing to contact the ATO” ([2016] FCCA 2744 at [57]); and

    the “unreasonable act or omission … enliven[ed] the Court’s powers under s.570(2)” of the Fair Work Act ([2016] FCCA 2744 at [62]).

The primary Judge further concluded that:

    “costs in the amount of $1.1 million were incurred by the director/directors in the conduct of these proceedings as a result of the unreasonable act or omission” ([2016] FCCA 2744 at [84]) and thereafter proceeded to discount that amount to reach the figure of $800,000 ([2016] FCCA 2744 at [85]).

188    The challenge mounted on behalf of the Fair Work Ombudsman to these conclusions cascaded from first contending that the entire costs order should be set aside if this Court were to set aside:

    the factual findings made by the Federal Circuit Court Judge as to the costs of the proceedings not having to be incurred had the Fair Work Ombudsman contacted the Australian Taxation Office.

If this challenge to these findings were to fail, it was thereafter contended (inter alia) that:

    the conduct of the Fair Work Ombudsman prior to the commencement of the proceedings was irrelevant to both liability and penalty and “did not enliven” s 570;

    there was a lack of evidence to support the findings made which formed the basis of the fixed amount costs order;

    there was the taking into account of irrelevant considerations, including the action taken by the Fair Work Ombudsman in bringing a motion for contempt against a former legal representative of the Respondents, Ms Inverarity; and

    there had been a denial of procedural fairness in the making of findings relevant to the cost order.

189    Although it is again unnecessary to resolve each of the arguments advanced on behalf of the Fair Work Ombudsman, reservation is expressed in respect to any conclusion that conduct prior to the commencement of proceedings may not be relied upon to “enliven” the discretionary power to award costs. Indeed, the requirement for the Court to be “satisfied that the party instituted the proceedings vexatiously or without reasonable cause” seems very much directed to the reasons why the proceeding was instituted, including those facts prior to the commencement of the proceeding.

190    But the submission advanced on behalf of the Fair Work Ombudsman was not understood to be so broadly expressed. The submission was more confined such that, in the circumstances of the present case, it was said that the “causal link” between the Ombudsman’s conduct prior to the proceedings and the costs incurred in the proceedings was “entirely missing”.

191    Reservation is also expressed as to the observations made by the Federal Circuit Court Judge in respect to the conduct of the Fair Work Ombudsman bringing the contempt motion against Ms Inverarity. Without more, it is difficult to see how proceedings brought separately against a third party would be of relevance when forming any conclusion that the conduct of the Fair Work Ombudsman was “unreasonable” in respect to the institution of the present proceedings brought against the Corporate Respondents and Mr Silverbrook and Ms Lee. It is the conduct of the Fair Work Ombudsman in the institution of the present proceedings against the present Respondents that assumes relevance for the purposes of s 570.

192    But nothing more need presently be said in respect to such matters.

193    The order as to costs should be set aside.

An unreasonable act or omission

194    One basis upon which the costs order should be set aside is the conclusion that it was no part of the functions entrusted to the Fair Work Ombudsman to contact the Australian Taxation Office.

195    Fundamental to the order as to costs made by the primary Judge was that the Fair Work Ombudsman had “engaged in an unreasonable act or omission by failing to contact the ATO”: [2016] FCCA 2744 at [57].

196    Once that finding is set aside, the order as to costs should also be set aside.

The denial of procedural fairness – Exhibit 40

197    A further basis upon which the costs order should be set aside is because of a denial of procedural fairness.

198    The conclusion previously reached in respect to the argument advanced by the Fair Work Ombudsman as to the denial of procedural fairness surrounding Exhibit 40 not only vitiates the orders made by the Federal Circuit Court Judge as to the imposition of penalties – that conclusion also vitiates the order made as to costs. The manner in which the quantum of the fixed sum costs orders was approached included a finding that there was a “logical fair and reasonable basis” for the Individual Respondent’s to have incurred $800,000 in costs “by reason of” the failure to contact the ATO: [2016] FCCA 2744 at [84] to [85]. The failure to permit the Fair Work Ombudsman an opportunity to be heard as to why Exhibit 40 may have impacted upon the assessment of the costs incurred poisons at least some of the reasoning upon which the costs order was made.

The lack of an adequate evidentiary foundation

199    There is a further reason as to why the costs order should be set aside separate from any reliance upon the denial of procedural fairness, being the lack of any satisfactory evidential foundation upon which such an order could be made.

200    It may be assumed for present purposes that there was available to the Federal Circuit Court Judge the discretionary powers conferred by s 570 and that the discretion had been “enlivened”.

201    That Judge set forth the basis upon which he quantified the order for the payment of costs in a fixed sum of $800,000 at paras [83] to [88] of the penalty and costs judgment.

202    There are, with respect, a number of disturbing features of the manner in which that Judge proceeded.

203    The “costs identified, albeit in part as an estimate” to which that Judge referred at para [84] of those reasons may safely be assumed to be the “estimate” as set forth in an affidavit of Ms Lee where she maintained that the following table set forth an “estimate” of “legal costs” and that “a final accounting of the legal costs” would be provided “as soon as possible”.

There was no “final accounting of the legal costs” as referred to in Ms Lee’s affidavit.

204    As that table exposes, some parts of the “estimate” provided were the subject of further evidence. There were, accordingly, memoranda of fees provided by Mr White which totalled $47,850. There was also said to be a memorandum in respect to the legal fees of InLegal totalling $5,280, although that does not appear to have been included in the material before this Court. There was also a series of tax invoices, email receipts and requests for further payment from Auscript totalling $24,146.07. Of greater concern was the evidence in respect to the sum of $728,762.98. The evidence supporting that sum may potentially be sourced in an invoice dated 15 August 2016 from Keypoint Law, which was another exhibit to Ms Lee’s affidavit. That invoice provided the following account summary:

ACCOUNT SUMMARY

That invoice appears to have formed part of a letter from Keypoint Law dated 15 August 2016 which was produced under a subpoena and tendered by the Fair Work Ombudsman in the Federal Circuit Court. That letter again set forth the “Account Summary” and proceeded to annex a detailed “Fee Schedule”. There was also tendered a letter from Keypoint Law dated 17 July 2015 which addressed (inter alia) the “[u]plift fee”. That “[u]plift fee”, apparently, was a 25% premium on the “professional fees” which became payable upon obtaining a “successful outcome”.

205    No additional evidence was identified with respect to the other line items in the table in Ms Lee’s affidavit as forming the basis upon which Ms Lee estimated those costs.

206    It may safely be assumed that the table in Ms Lee’s affidavit forms the basis upon which the Federal Circuit Court Judge proceeded when reference is made to the “estimate” of costs incurred.

207    But there remained uncertainty as to what constituted the “Court files” to which the Federal Circuit Court Judge referred in considering the costs incurred by Adams Wilson Lawyers: [2016] FCCA 2744 at [72] to [74]. There was in evidence available to the Federal Circuit Court Judge:

    a documents summarising “Court Events and Orders”; and

    a document listing “Documents Filed” in the proceedings.

But whether these documents set forth the information available in the “Court files” relied upon by the Federal Circuit Court Judge was unknown.

208    If such be nevertheless accepted as the evidential basis upon which the Federal Circuit Court Judge proceeded to make his order as to costs in a fixed sum, there was a notable absence from that evidential basis any evidence from a solicitor within Keypoint Law verifying, for example, that:

    the costs had been reasonably incurred;

    the costs claimed were in accordance with the scale of costs set out in the Federal Circuit Court Rules 2001 (Cth) or, alternatively, the basis upon which costs had been claimed and why there was a departure from the scale of costs;

    the amount that could be expected to be recovered should the matter proceed to taxation of costs; and/or

    any estimate as to the proportion of such costs as were incurred as could reasonably be attributable to the costs incurred by Mr Silverbrook and Ms Lee as opposed to the costs of the Corporate Respondents.

209    The appropriateness of a significant “[u]plift fee”, or the appropriateness of the quantum of such a fee, was also left substantially unaddressed.

210    In questioning the manner in which the primary Judge proceeded in the present case, it must forever be borne in mind that:

    the decision being questioned is an exercise of discretion.

But it must also be remembered that:

    the decision must nevertheless have some rational factual foundation; and

    the discretion to order costs in a lump sum involves a degree of “pragmatism” on the part of the primary Judge.

The last two of these matters should be briefly explored.

211    Although any decision as to costs is necessarily the product of the facts and circumstances in which the decision has been made, including the legal and factual complexity of the issues resolved, some guidance as to the factual matters upon which the Court may well require assistance was provided in the following observations of Barrett J in Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2011] NSWSC 11 when considering a fixed costs order:

[47]    Although the court is not expected to act as a costs assessor would act, it must, of necessity, pay attention to certain fundamental matters. For example, on what basis were solicitors’ costs and counsel’s fees calculated and charged? Was a time-based system adopted; and, if so, what were the hourly rates for the several professionals who spent time on the matter? Was there, in any of the bills, an additional item for “care, skill and responsibility”; and, if so, on what basis was that calculated? What were the terms of the respective retainers and costs agreements? These are important considerations in any decision about amounts that should be regarded as reasonable remuneration of legal practitioners.

…

[49]    I am not satisfied that the material upon which NGC bases its application for a gross sum costs order is sufficient to permit any reliable quantification to be made. All that is proved as to NGC’s costs burden is that certain sums were actually charged by and paid to solicitors, barristers, experts and other service providers and that, according to Mr  Tassell’s view of matters, all such outlays were relevantly connected to these proceedings. There is nothing before the court that permits the court to confirm the correctness of that view; and it is significant that, in cross-examination, Mr Tassell was prepared to accept that the view might not be reliable in certain respects.

212    Reference was also made in the Tim Barr case (at para [12]) to the following summary of principles provided by Einstein J in Idoport Pty Ltd v National Australia Bank Ltd [2005] NSWSC 1273:

[9]    … I note that there are authorities which arguably support the following propositions:

•    The purpose of a gross sum costs award is to avoid the expense, delay and aggravation involved in protracted litigation arising out of a taxation (and by an1alogy [sic] an assessment.

•    The discretion to award a gross sum is not confined and may be exercised whenever the circumstances warrant its exercise.

•    It may appropriately be exercised where an assessment of costs would be protracted and expensive, and in particular if it appears that the party obliged to pay the costs would not be able to meet a liability of the order likely to result from an assessment.

•    The discretion is particularly suited to complex litigation where the costs of assessing or taxing a bill would be considerable, and the delay and inconvenience involved would also be considerable.

•    Specification of a gross sum is not the result of a taxation or assessment of costs. The rule contemplates application of a much broader brush approach than would be applied on taxation. It is to be fixed broadly having regard to the information before the Court. To descend into the level of detail required on taxation or assessment defeats the purpose of a gross sum order.

•    Nevertheless the power to award a gross sum should only be exercised when the Court considers that it can do so fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available.

•    The approach taken to estimate costs must be logical, fair and reasonable. On the one hand the Court must be astute to prevent prejudice to the unsuccessful party by overestimating the costs, and on the other hand must be astute not to cause an injustice to the successful party by an arbitrary “fail safe” discount on the costs estimate submitted to the Court.

•    The assessment of any lump sum to be awarded must represent a review of the successful party’s costs by reference to the pleadings and complexity of the issues raised on the pleadings; the interlocutory processes; the preparation for final hearing and the final hearing.

•    Expert evidence from a legal costs consultant has been accepted as appropriate to support an application of this kind.

•    The expert’s evidence will commonly canvass the following matters:

i.     that the preparation of an assessment/taxation is likely to be protracted and expensive;

ii.     the manner in which an assessment or taxation is ordinarily undertaken by a costs assessor. For example, the expert might depose as to the discount ordinarily imposed by a costs assessor; and

iii.     the complexity and novelty of the proceedings.

(Citations omitted)

These observations were endorsed by Barrett J in the Tim Barr case.

213    Measured against the guidance provided by these decisions, the approach of the primary Judge in the present case falls (with respect) well short of that which was called for.

214    In reaching that conclusion it must be recognised that the primary Judge himself recognised that he was proceeding from what was “in part … an estimate” and proceeding from an evidential basis which had previously been canvassed – albeit briefly and obliquely – during the hearing of submissions previously entertained on 4 December 2015. On that occasion, the primary Judge expressed the following observations:

The court would ordinarily accept a statement from the solicitor or practitioner from – on behalf of the parties in respect of the underlying foundation for such costs, so it isn’t one where I expect hours to be spent preparing affidavits. I would deal with the matter on the basis of what … informed is the circumstances in the particular case, if it arises.

215    The fact remains, however, that the primary Judge proceeded from the basis of an “estimate” included in the affidavit of a party. The estimate as to costs incurred was not verified by the very person from whom such evidence would normally have been expected, namely Mr Argy (or some other person who could provide an independent opinion as to the reasonableness of the costs being claimed). And the primary Judge gave no consideration to matters of central relevance to the order made.

216    Although a very important part of the discretionary power to make an order as to costs in a lump sum is to avoid the further costs and delays that may be incurred in a formal taxation, the basis upon which the power is exercised must remain rational and comprehensible. There must be some assurance to litigants that a costs order in a fixed amount is an order having some rational relationship to the costs reasonably incurred, judged – albeit however loosely – upon what would otherwise be recoverable on taxation.

217    Perhaps a degree of pragmatism may be more readily accepted where the quantum of costs is comparatively small; but greater scrutiny is called for where – as in the present proceeding – the quantum of a costs order assumes greater magnitude.

218    The order as to costs should also be set aside upon this basis.

The motion for contempt – a further denial of procedural fairness

219    A further denial of procedural fairness is relied upon by the Fair Work Ombudsman in the findings made by the Federal Circuit Court Judge with respect to the fixed sum costs order.

220    These further findings focus upon the primary Judge’s assessment as to the course pursued by the Fair Work Ombudsman in filing an application for contempt as against a former legal representative of the Respondents, Ms Inverarity.

221    The findings made by the primary Judge in the penalty and costs judgments, being that delivered on 21 October 2016 ([2016] FCCA 2744), were as follows:

Contempt Motion against Ms Inverarity

[89]    The Court adds that this is also a case where the Court regards the conduct of the applicant in relation to the bringing of this contempt motion against Ms Inverarity as an unreasonable act enlivening the Court’s power under s.570(2) of the [Fair Work Act].

[90]    If the Court had not made the orders it has already proposed in relation to the conduct of the applicant in respect of the failure to contact the ATO, it would have found that the conduct of the applicant in the bringing of the contempt proceedings in the present case was part of a strategy to prevent Ms Inverarity continuing to act, or commencing to act for the respondents in the proceedings. The applicant well knew that Ms Inverarity had initially acted for three of the respondents

…

[93]    The Court finds, as a result of the unreasonable act of the applicant in the bringing of the contempt motion against Ms Inverarity, half the legal costs as identified in the Keypoint Law bill were incurred and caused by the unreasonable act of the applicant.

[94]    The Court is satisfied that it would have been appropriate under s.570(2)(b) of the Act to order the applicant to pay half the costs of Keypoint Law as costs incurred by the director/directors by reason of the unreasonable act of the applicant.

222    The relevance of these findings may presently be left to one side.

223    Of present concern is that these findings were made without prior notice being given to the Fair Work Ombudsman that the motion brought against Ms Inverarity was an issue to be pursued in the proceedings and without notice as to the potential relevance of that motion to an order for the payment of costs.

224    The denial of an opportunity to be heard on an issue assuming relevance to the exercise of the discretion as to costs is a further reason for setting aside the orders as to costs.

RE-HEARING BEFORE A COURT DIFFERENTLY CONSTITUTED

225    The Notices of Appeal filed by the Fair Work Ombudsman sought to appeal from the whole of the second judgment given by the Federal Circuit Court Judge, namely the judgment in which that Judge refused to disqualify himself.

226    If that aspect of the appeals by the Fair Work Ombudsman were to prevail, it would have followed that the orders subsequently made for the imposition of penalties against the Corporate Respondents and the order for costs should not have been made – at least by the Federal Circuit Court as previously constituted.

227    The conclusion separately reached as to why the penalty and costs orders should be set aside make it unnecessary to reach any firm conclusion as to whether an appeal should be allowed in respect to the decision of the primary Judge declining to disqualify himself from further participation in the proceedings before that Court.

228    But something should be said as to the basis upon which that part of the Fair Work Ombudsman’s appeal proceeded because it forms the basis upon which it is concluded that the Federal Circuit Court which rehears the present proceedings should be differently constituted.

229    For the purposes of challenging the continued participation by the primary Judge in the future hearing of these proceedings, and in support of an order that any re-hearing should be before the Court differently constituted, the Fair Work Ombudsman relied upon the findings made by the primary Judge in the primary judgment.

230    Those findings were:

    the findings as to the conduct of the Fair Work Ombudsman in failing to contact the Australian Taxation Office being “unreasonable conduct” ([2016] FCCA 1474 at [172] to [174]); and

    the finding that the conduct of the Fair Work Ombudsman in bringing the application for contempt was a “strategy” to deprive the Respondents of representation and cause them to incur additional costs ([2016] FCCA 1474 at [292] to [294]).

Reliance was also placed upon:

    the statements made as to the future need to consider the manner in which costs may be ordered ([2016] FCCA 1474 at [297] to [298]).

Nothing turns, with respect, upon the statements made by the primary Judge in respect to the future need to consider s 570 of the Fair Work Act and the need to hear the parties on the question of costs.

231    Nor, of itself, would be findings made by the primary Judge as to the conduct of the Fair Work Ombudsman being “unreasonable”. Albeit made in advance of resolving the question of costs, it is respectfully considered that such observations do no more than reflect the primary Judge’s assessment – rightly or wrongly – of the way in which the proceedings unfolded. Such comments, of themselves, may well have fallen short of making out a case that the primary Judge was approaching the subsequent task of assessing penalties and costs with a mind not open to persuasion.

232    But such comments, when taken together with the conclusions reached as to the Fair Work Ombudsman’s conduct being part of a “strategy”, take on a different complexion. Those paragraphs of the primary judgment should be recounted in full. They state as follows:

[287]    The assertion in the letter by the FWO that Ms Inverarity had engaged in unsatisfactory professional conduct or professional misconduct were patently designed to have the effect of preventing her further representation or future representation of Mr Silverbrook. That was an improper allegation to make by the FWO and was arguably engagement by the FWO of conduct that might be the subject of professional complaint. The invocation of provisions of the Fair Work Act 2009 suggesting there may have been a contravention of that Act for which civil remedies might be sought was again utterly lacking in substance and was inappropriate conduct by the FWO.

[288]    The further letter sent on 15 January 2015 by the FWO to Ms Inverarity on this interlocutory application was again entirely over the top and was I find an improper interference by the FWO in the legal representation of Mr Silverbrook and the companies. It is most unfortunate that the FWO engaged in what the Court concludes was a tactic to remove the representation of Mr Silverbrook in resolving employee complaints. The application in a case had no prospect of success and was an inappropriate strategic attempt by the FWO to remove Mr Silverbrook’s legal representation by Ms Inverarity. That improper strategy by the FWO worked. Contrary to the tenor of the letters from the FWO Ms Inverarity had not engaged in any contempt of Court, nor any inappropriate professional conduct and had not engaged in any conduct enlivening contraventions or civil remedy provisions against her under the Fair Work Act 2009. The allegations advanced by the FWO in this application in a case were improper conduct by the FWO.

[289]    I accept Ms Lee’s evidence that the contempt proceedings effectively prevented the respondents from being able to resolve complaints with employees. I accept Ms Lee’s evidence that the issuing of the contempt application effectively caused Ms Inverarity to cease acting for the respondents. I infer that Ms Inverarity would otherwise have continued to represent the respondents in their endeavours to resolving complaints with employees. Given Ms Inverarity’s extensive knowledge of Mr Silverbrook’s companies, her history of acting for him and her current acting up until service of the contempt motion I infer that Ms Inverarity would have acted in the future for the respondents in the proceedings as the solicitor on the record when the respondents’ legal representation prior to Mr Argy ceased.

[290]    It is not appropriate for the FWO to depart from the Model Litigant standards that apply to the Commonwealth. The strategy of the FWO, the correspondence sent, the filing of the application in a case and pursuit of this application in a case until the close of the defence case, were not conduct that complies with the obligation to act fairly in litigation. The correspondence to Ms Inverarity, the filing of the application in a case and the keeping of that application alive until the close of evidence from the respondents was all conduct by the FWO contrary to the Model Litigant standards.

[291]    An even more troubling feature of this conduct is that the legal representation of Mr Silverbrook in the actual proceedings at this point in time was in a known state of flux. This was a matter of which the FWO was well alive given the directions that had not been complied with. On 23 February the then solicitor on the record Mr Brett Wilson of Adams Wilson Lawyers gave notice of intention to withdraw as lawyer and on 2 March 2015, Mr Wilson ceased acting for the respondents. While Ms Inverarity was not at that point acting for Mr Silverbrook in these proceedings the effect of the correspondence from the FWO and the filing of the application in a case had the obvious likely effect of preventing Ms Inverarity taking over the legal representation for Mr Silverbrook and the other respondents in these proceedings. I draw the inference that this was the intentional strategy of the FWO. That strategy by the FWO was improper.

[292]    The effect of this strategy was one where Mr Silverbrook lost the potential representation by Ms Inverarity in these proceedings and but for the taking over of the matters by Mr Argy the position is that Mr Silverbrook and the companies may have been unrepresented. I regard the conduct of the FWO in relation to this strategy in the filing of the contempt application and the keeping of it alive until the close of the respondents’ case as unreasonable conduct that has caused the respondent companies, Mr Silverbrook and Ms Lee to incur costs within the meaning of s.570 of the Fair Work Act 2009.

233    The characterisation of the conduct as a “strategy” may, on one view, be but part of the reasoning process whereby the ultimate conclusion as to the conduct being “unreasonable” was reached; on another view, it may be understood as an unnecessarily pejorative characterisation of the conduct. On either view, however, the characterisation of the conduct as part of a “strategy” renders it prudent that the Court be differently constituted upon rehearing.

CONCLUSIONS

234    The principal conclusions in these proceedings are that:

    the findings as to the liability of the Corporate Respondents are not to be set aside – that being, perhaps, a not unexpected result in circumstances where it was previously admitted that each was a “national system employer” and hence a “constitutional corporation” and where it was common ground that employees were not being paid wages and entitlements;

    the findings of the primary Judge that the Individual Respondents did not assume any liability pursuant to s 550 of the Fair Work Act are to be set aside – that, too, perhaps not being an unexpected result in circumstances where Mr Silverbrook “controlled” the corporate employers;

    the quantification of penalties imposed upon the Corporate Respondents are set aside; and

    the order as to the payment of costs by the Fair Work Ombudsman is to be set aside.

235    But the conclusions reached necessarily means that the entirety of the decision is not to be set aside and that the proceedings should be remitted to the Federal Circuit Court for re-consideration of such matters as remain to be resolved. The further conclusion that each of the proceedings is to be remitted to the Federal Circuit Court for re-hearing before that Court, differently constituted, follows from the terms in which the primary Judge characterised the conduct of the Fair Work Ombudsman as part of a “strategy” which was “unreasonable”. Upon reconsideration, it remains a matter for the Federal Circuit Court to determine whether (for example) it is appropriate to grant declaratory relief and the quantum of penalties to be imposed upon the Corporate Respondents, Mr Silverbrook and Ms Lee.

THE ORDER OF THE COURT IS:

The parties are to bring in Short Minutes of Orders to give effect to these reasons within 14 days.

Associate:    

Dated:    25 July 2017