FEDERAL COURT OF AUSTRALIA

Australian Building and Construction Commissioner v ADCO Constructions Pty Ltd (No 3) [2017] FCA 1090

ORDERS

THE COURT ORDERS THAT:

There be no order as to costs.

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

REASONS FOR JUDGMENT

COLLIER J:

1    In Director, Fair Work Building Industry Inspectorate v ADCO Constructions Pty Ltd (No 2) [2016] FCA 1463, I dismissed an originating application filed 1 July 2015 by the then Director, Fair Work Building Industry Inspectorate (now the Australian Building and Construction Commissioner (Commissioner)). In his application, the Commissioner sought orders under the Fair Work Act 2009 (Cth) (FW Act) against ADCO Constructions Pty Ltd (ADCO) in respect of ADCO’s alleged conduct on two building sites in south east Queensland. As I noted in the primary judgment, the Commissioner claimed that ADCO contravened s 354(1) of the FW Act by discriminating against a particular subcontractor, Surf City Cranes Pty Ltd (SCC), because alleged employees of SCC were not covered by an enterprise agreement which also covered the Construction, Forestry, Mining and Energy Union (CFMEU).

2    In the course of judgment, I found that:

    SCC was not the employer of the relevant employees for the purposes of s 354(1) of the FW Act; and

    in any event, actions of ADCO involving SCC were not for reasons which contravened s 354 of the FW Act as the Commissioner alleged.

3    After judgment, I gave the parties the opportunity to make submissions in relation to costs. Section 43(1) of the Federal Court of Australia Act 1976 (Cth) empowers the Court to award costs in all proceedings before the Court other than those in respect of which legislation provides that costs must not be awarded. The power is specifically subject to s 570 of the FW Act. Relevantly, s 570(2)(a) and (b) of the FW Act provides that a party may be ordered to pay 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

…

4    In summary, ADCO seeks costs against the Commissioner in this proceeding, because it claims that:

    the Commissioner instituted the proceeding without reasonable cause in circumstances where there was no reasonable prospect of establishing that SCC was the employer of the relevant employees; and

    further and alternatively – ADCO should have its costs thrown away by the disruption and adjournment of the June 2016 trial dates, because this was caused by the Commissioner’s unreasonable and sustained conduct in obscuring relevant evidence. That evidence was relevant to an issue in the proceeding – that is, the alleged loss of SCC – and would also have revealed to ADCO that SCC was not the employer of the relevant employees. ADCO seeks an order that its costs thrown away be awarded on an indemnity basis.

5    The matter is further complicated by the Commissioner’s obligation to act as a model litigant in accordance with the now superseded Legal Services Directions 2005 issued by the Commonwealth Attorney-General under s 55ZF of the Judiciary Act 1903 (Cth).

6    It is appropriate to examine these issues in turn.

Background

7    Paragraph 9 of the Commissioner’s statement of claim filed 1 July 2015 (repeated in an amended statement of claim filed on 11 September 2015 and a further amended statement of claim filed 26 May 2016) read:

9.    Surf City was at all material times:

(a)    a company supplying crane services in northern New South Wales and south east Queensland;

(b)    an employer of crane drivers, doggers and riggers;

(c)    an employer within the meaning of that term in sections 335 and 354 of the FW Act;

(d)    a company duly incorporated under law;

(e)    a constitutional corporation within the meaning of section 12 of the FW Act;

(f)    a building industry participant within the meaning of section 4(1) of the FWBI Act.

(Emphasis added.)

8    In its first defence filed 28 August 2015 and repeated in its amended defence filed 9 October 2015, ADCO admitted the facts claimed in paragraph 9.

9    On 11 May 2016, ADCO sought the issue of a subpoena requiring SCC and related entities to produce relevant documents. Material was produced at the return of subpoena hearing on 20 May 2016, and subsequently on 1 June 2016 and 2 June 2016, and included tax returns and financial statements for SCC, Crane Hire Pty Ltd (Crane Hire) and Morrish Investments Pty Ltd. It appears it was only at this point that ADCO realised that, since at least 2012, corporate records of Crane Hire referred to it as being the employer of the relevant employees, and conversely those employees no longer appeared on the books of SCC. On 1 June 2016, ADCO filed and served a further amended defence. Subsequently on 3 June 2016, ADCO filed and served an amended outline of submissions addressing the issue of the identity of the employer.

10    On 6 June 2016, I granted leave for the respondent to file a second further amended defence, in effect withdrawing the admission that SCC was the employer of the relevant employees. ADCO had submitted that its admission had been made circumstances where:

    paragraph 9(b) of the statement of claim was conclusory as to the existence of a particular legal relationship, and did not plead material facts as to when and how the offer of employment was made, by whom the offer was made, when the offer was accepted and the material terms of the contract;

    ADCO was not put on notice of the fact that the employer of the relevant workers was Crane Hire;

    the Commissioner discovered the interview transcripts of witnesses Jonathon Morrish, Sharon Morrish and James Dawson in November 2015; but in providing copies to ADCO, the Commissioner redacted those parts of the interviews which revealed the corporate structure of the Surf City Cranes business and identified Crane Hire as the employer;

    affidavits of witnesses obscured the fact that Crane Hire was nominated as the employer of relevant workers by obliquely referring to employment arrangements (for example, the statement by witness James Dawson in his affidavit affirmed 8 December 2015 that he “was previously employed as the Operations Manager for Surf City…”); and

    in response to a letter of 20 April 2016 from ADCO’s lawyers questioning the limited financial information about the loss suffered by SCC, the Commissioner responded on 26 April 2016 that such documentation did not appear to be directly relevant to an issue in the proceeding.

Section 570(2)(a): did the Commissioner institute the proceeding without reasonable cause?

11    In Australian Workers’ Union v Leighton Contractors Pty Ltd (No 2) [2013] FCAFC 23; (2013) 232 FCR 428 the Full Court referred to a number of authorities informing the meaning of the phrase “without reasonable cause” in s 570(2)(a) of the FW Act, and continued:

7    … In our view the authorities establish the following principles:

(1)    The purpose or policy of the section is to free parties from the risk of having to pay their opponents’ costs in matters arising under the Act, while at the same time protecting those parties who are forced to defend proceedings that have been instituted vexatiously or without reasonable cause.

(2)    It follows from the protection offered by s 570(2) that a person will rarely be ordered to pay the costs of a proceeding. But it is not necessary to prove that there are exceptional circumstances warranting the making of an order: Spotless Services Australia Ltd v Senior Deputy President Marsh [2004] FCAFC 155 (Spotless) at [12]-[13] (to the extent that the Full Court in Council of Kangan Batman Institute of Technology and Further Education v Australian Industrial Relations Commission (2006) 156 FCR 275 (Kangan) held otherwise, we would respectfully disagree).

(3)    The relevant question is whether the proceeding had reasonable prospects of success at the time it was instituted, not whether it ultimately failed: R v Moore; Ex parte Federated Miscellaneous Workers’ Union of Australia (1978) 140 CLR 470 at 473 per Gibbs J; Kangan at [60]. In Kanan v Australian Postal and Telecommunications Union (1992) 43 IR 257 at 264-265 (approved in Kangan) Wilcox J said:

    If success depends upon the resolution in the applicant’s favour of one or more arguable points of law, it is inappropriate to stigmatise the proceeding as being “without reasonable cause”. But where, on the applicant’s own version of the facts, it is clear that the proceeding must fail, it may properly be said that the proceeding lacks a reasonable cause.

8    We would emphasise, however, that these principles relate to the question of whether the jurisdiction to award costs is enlivened. Even if the Court has jurisdiction to make a costs order, it retains the discretion to refrain from exercising it in an appropriate case.

(see also Ryan v Primesafe [2015] FCA 8; (2015) 323 ALR 107 at [64]; Pettit v Evolution Mining Ltd [2016] FCA 1304 at [62]; Construction, Forestry, Mining and Energy Union v BHP Coal Pty Ltd (No 2) [2015] FCAFC 97; (2015) 230 FCR 337 at [14], [17]; Trustee for The MTGI Trust v Johnston (No 2) [2016] FCAFC 190 at [6]-[10]).

12    In this case, ADCO submits that, at the time the proceeding was commenced, it was reasonably apparent on the information obtained by the Commissioner that the real employer of the relevant employees was the labour hire company Crane Hire, and there was little or no realistic chance of the Commissioner establishing otherwise.

13    In particular, ADCO relies on the transcripts of the interviews conducted by the Commissioner’s legal representatives with witnesses in June and July 2014. In these interviews, Mr Morrish, Mrs Morrish and Mr Dawson identified the relevant employer as Crane Hire. ADCO submits that when the Commissioner discovered those interview transcripts in November 2015, in accordance with Court orders of 21 October 2015, the Commissioner redacted those parts of the interviews revealing the corporate structure of the Surf City Cranes business and the fact that Crane Hire was the employer, presumably on the basis that this information was not directly relevant to an issue in the proceeding. However, ADCO submits that, not only was it apparent from the material redacted that the claim stood no reasonable prospect of success, but that the Commissioner knew that that was the case at that time.

14    ADCO further submits that the Commissioner masked this particular weakness in his case by the drafting of affidavits sworn by witnesses, as well as pleading the issue of employment by SCC in a defective and conclusory manner.

15    Finally, ADCO points to company records of both SCC and Crane Hire demonstrating that the workforce of the Surf City Cranes business was employed by Crane Hire rather than SCC from 2012. This information was summarised in the primary judgment.

16    In my view, it cannot be said on the basis of these contentions that the Commissioner commenced the proceeding against ADCO without reasonable cause.

17    It is well settled that the purpose of pleadings is to define the issues with sufficient clarity to enable the parties to understand and meet the case against them: Dare v Pulham (1982) 148 CLR 658 at 664; Gould v Mount Oxide Mines Ltd (In Liq) (1916) 22 CLR 490 at 517; Banque Commerciale SA v Akhil Holdings Ltd (1990) 169 CLR 279 at 286. A statement of claim must identify the issues the applicant wants the Court to resolve (r 16.02(1)(c) of the Federal Court Rules 2011 (Cth) (Rules)). It must also plead the material facts on which the applicant relies, but not the evidence by which the material facts are to be proved: Kowalski v Mitsubishi Motors Australia Ltd [2010] FCAFC 73; Construction, Forestry, Mining and Energy Union v BHP Coal Pty Ltd [2017] FCAFC 50 at [36]; r 16.02(1)(d) of the Rules.

18    It may well be that witnesses, in interviews with the legal representatives of the Commissioner, opined that the employer of relevant employees was Crane Hire. However as I noted at [54] of the primary judgment, this was in circumstances where relevant witnesses also considered SCC and Crane Hire to be a single entity, where operationally there was no distinction between SCC and Crane Hire during the relevant period, and where historically SCC had been the employer of the employees in the business. To that extent, it was equally arguable that the evidence of those witnesses supported the Commissioner’s pleading identifying SCC as the employer.

19    Similarly, the corporate records of SCC and Crane Hire constituted evidence to be taken into account in determining the identity of the employer, rather than the inescapable conclusion the Commissioner should have reached that Crane Hire was the employer.

20    The Commissioner pleaded as a fact that SCC was “an employer” of the relevant employees in the circumstances of the case. Although ultimately the Commissioner was unsuccessful on this point, he was entitled to so plead. He was not obliged to qualify that pleading by referring to SCC as “the true employer” of the employees, as contended by ADCO. The language employed in paragraph 9 of the statement of claim was, in my view, neutral, and not defective as alleged by ADCO. If it was conclusory, ADCO was entitled to take issue with it before the pleadings closed, and ADCO did not.

21    I am also not satisfied that the Commissioner’s status as a model litigant required him to plead otherwise than he did. Certainly that status did not require the Commissioner to advise ADCO in respect of which aspects of the statement of claim it should, or should not, admit.

22    As I explained in the primary judgment, the question whether SCC or Crane Hire was the employer of the relevant employees raised complex issues of fact and law. These issues could not be conclusively determined by the opinions of those witnesses, or the corporate records of SCC or Crane Hire. While my conclusions in respect of this issue ultimately favoured ADCO, this was only following argument and extensive examination by the Court of relevant facts and principles. To paraphrase the observations of Wilcox J in Kanan v Australian Postal & Telecommunications Union [1992] FCA 539; (1992) 43 IR 257, identifying the employer of the relevant employees required consideration and determination of arguable points of law, and I am not satisfied that the material before the Commissioner at the time of commencement of proceedings pointed inexorably to the conclusion that his claim against ADCO must fail on the employer point.

Section 570(2)(b): did the Commissioner’s unreasonable act or omission cause ADCO to incur costs?

23    On 6 and 7 June 2016, I adjourned the trial to permit the Commissioner further time to prepare evidence in relation to the issue of the identity of the employer of the relevant employees. On 8 June 2016 I granted the Commissioner leave to file that evidence. I then vacated the remainder of the June trial dates and ordered the matter relisted in August 2016.

24    ADCO submits that conduct of the Commissioner was unreasonable and caused it to incur costs, insofar as:

    the Commissioner made unjustifiable and unreasonable redactions to the transcripts of interviews; and

    the Commissioner had engaged in unreasonable obfuscation in his letter of 26 April 2016 in seeking to evade production of documentation which not only was relevant to an issue in the proceeding (that is, loss of SCC), but which would have disclosed financial transactions and wages records of SCC.

25    In response, the Commissioner submits that, in summary:

    because ADCO had made the forensic choice of admitting that SCC was the employer of the relevant employees, the status of SCC as employer was not subsequently an issue in dispute;

    as a result, the categories of documents requiring discovery did not include those relating to the status of SCC as employer of the relevant workers;

    the Commissioner did however give discovery of documents relating to SCC that were relevant to the loss to SCC allegedly arising from ADCO’s conduct; and

    the matter was required to be adjourned until August 2016 as a result of the identity of the employer being put into dispute by ADCO only at an advanced stage of the proceeding, and leave to amend its defence not being sought by ADCO until the first scheduled day of the hearing.

26    ADCO acknowledges that the Commissioner’s conduct in pleading that SCC was an employer of the relevant employees did not, of itself, constitute an unreasonable act or omission carrying costs consequences. Indeed, as r 16.07 of the Rules provides, it was clearly open to ADCO to decline to admit that SCC was an employer of the relevant employees, or to state that it did not know and was unable to admit that fact. Potentially, ADCO could have sought particulars of this aspect of the Commissioner’s claim pursuant to r 16.45 of the Rules. However, as the Commissioner correctly identified, ADCO made the forensic choice of admitting the employer aspect of the Commissioner’s case. Once this occurred, it could reasonably be said that the identity of SCC as the employer of the relevant employees was not an issue in the proceeding.

27    To that extent, opinions of witnesses nominating Crane Hire as their employer were irrelevant, as was evidence relating to Crane Hire other than that which could impinge on losses to SCC for the alleged conduct of ADCO.

28    ADCO complains further that there was no justification for the Commissioner redacting the transcripts of interview insofar as evidence in those transcripts related to loss suffered by SCC, because that alleged loss was an issue in the proceeding. On the basis that that evidence was relevant to an issue in the proceeding, it may well be that such material should not have been redacted. However, I am unable to ascertain how this conduct, insofar as it concerned the alleged loss suffered by SCC, caused ADCO to incur costs in the proceeding. Contrary to ADCO’s submissions, extensive financial material was discovered by the Commissioner relating to the alleged loss to SCC as a result of conduct alleged in the pleadings, including:

    extracts from SCC’s accounting systems demonstrating the number of hours of work completed by relevant SCC cranes during the relevant period;

    financial documents prepared by Sharon Morrish indicating her calculations of loss;

    rate sheets showing applicable rates for crane services;

    emails about rates that would apply to work performed by SCC for ADCO; and

    tax invoices indicating work completed by SCC for ADCO and purchase orders indicating the work ADCO had engaged SCC to complete.

29    Documents discovered by the Commissioner also referred to Crane Hire and its enterprise agreement, clearly indicating that Crane Hire had employees.

30    While it is clearly neither desirable nor appropriate for a party to fail to disclose relevant material in the course of discovery, it is not clear to me that ADCO has incurred costs as a result.

31    ADCO’s real concern appears to be that the redacted material would have earlier alerted it to the employer issue and the apparent status of Crane Hire as employer. I repeat my earlier observations that in light of ADCO’s admission of this fact, the identity of the employer was not an issue in the proceeding. That ADCO only realised late in the proceeding that there was an arguable point concerning the identity of the employer of the relevant employees could squarely be attributed to its conduct of its defence.

32    I am not satisfied that, in redacting the transcripts of interviews of witnesses, the conduct of the Commissioner was such that is contemplated by s 570(2)(b) of the FW Act.

33    In relation to the letter of 20 April 2016, written by ADCO’s lawyers to the Commissioner’s legal representatives, I note that ADCO’s lawyers referred to what they described as the limited detail in profit and loss statements provided in the context of the Commissioner’s claim for loss and damage suffered by SCC. The letter continued:

We therefore request that you provide a full set of the financial accounts of Surf City Cranes Pty Ltd) and any other entities involved in the provision of cranage services or equipment by Surf City Cranes Pty Ltd), including balance sheets, for the financial years ending 30 June 2012, 30 June 2013, 30 June 2014 and 30 June 2015.

In addition, please provide us with the time and wages records for all crane operators and riggers/dogmen employed by Surf City Cranes Pty Ltd (or any other entities involved in the provision of cranage services or equipment by Surf City Cranes Pty Ltd) for the financial years ending 30 June 2012, 30 June 2013, 30 June 2014 and 30 June 2015.

34    In a letter dated 26 April 2016, the Commissioner’s lawyers responded, materially:

…

It is not apparent from your correspondence that the contents of each of the categories of requested documents are directly relevant to a matter in issue in the proceeding.

To enable us to obtain instructions in relation to your request we request that you provide details as to why your client considers each of the categories of documents sought are directly relevant to a matter in issue in the proceeding and should be disclosed, including for each of the periods sought.

35    I am not persuaded that the act of the Commissioner, through his lawyers, in so responding to the lawyers for ADCO constituted an unreasonable act or omission which caused ADCO to incur costs. A request for clarification as to specific categories of documents, in itself, is not unreasonable – indeed it could be said to be relatively routine. The letter of the Commissioner is not evasive or obfuscating. Persistent and unexplained refusal to provide material could be construed as an unreasonable omission depending on the facts of the case, however that was not the case in respect of the letter of 26 April 2016.

36    ADCO’s claim for costs referable to s 570(2)(b) of the FW Act is not substantiated.

Conclusion

37    In my view there should be no order as to costs.

Associate:

Dated:    15 September 2017