FEDERAL COURT OF AUSTRALIA

Fair Work Ombudsman v Foot & Thai Massage Pty Ltd [2018] FCA 1584

ORDERS

THE COURT ORDERS THAT:

1.    Paragraph 1 of the amended interlocutory application dated 10 September 2018 (Amended Interlocutory Application) be dismissed.

2.    Paragraphs 2 and 3 of the Amended Interlocutory Application be stood over to the final hearing for determination.

3.    There be no order as to costs.

4.    The matter be listed for a case management hearing before Griffiths J on 23 November 2018 at 9:30am.

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

REASONS FOR JUDGMENT

GRIFFITHS J:

1    By an amended interlocutory application dated 10 September 2018 (amended interlocutory application), the first respondent seeks, among other things, an order under r 30.01 of the Federal Court Rules 2011 (Cth) (2011 FCRs) that certain questions be heard and determined separately.

2    The amended interlocutory application is opposed by the applicant, the Fair Work Ombudsman. It is necessary to understand the background and context of the substantive proceeding within which this amended interlocutory application is made.

3    The first respondent operated a therapeutic massage business in Canberra. The applicant alleges that the second respondent was the sole director of the first respondent, and that the third respondent was an employee of the first respondent and was responsible for supervising other employees of the first respondent.

4    The applicant claims that the first respondent has contravened the Fair Work Act 2009 (Cth) (Fair Work Act) when it required a number of employees to make fortnightly cash-back payments to the first respondent in exchange for keeping their jobs and their overseas families from not being injured or killed.

5    The applicant further claims that the first respondent failed to pay the employees minimum hourly rates, public holiday rates, overtime rates and annual leave entitlements in contravention of the award under which the employees worked and in contravention of the Fair Work Act. In addition, the applicant claims that the first respondent failed to keep employee records, failed to issue payslips, and made false or misleading records in contravention of that legislation.

6    The applicant alleges that the second and third respondents were involved in the first respondent’s alleged contraventions of the Fair Work Act within the meaning of s 550 of that legislation, and various relief is sought against them, as well as against the first respondent.

7    The proposed separate questions essentially relate to whether the applicant is entitled to seek compensation and other civil penalty orders and other relief under the Fair Work Act in circumstances where there is in place a deed of company arrangement dated 11 April 2016 which is said to bind all creditors by operation of s 444D(1) of the Corporations Act 2001 (Cth). The proposed separate questions are identified in the amended interlocutory application and are as follows:

1.    That the following question be determined separately from the question of liability in this proceeding:

(i)    Does the Deed of Company Arrangement between the First Respondent and the creditors of the First Respondent [the DOCA] bind the Applicant as a creditor? and

(ii)    If the Applicant is a 'creditor', does the DOCA operate as a bar to the Court making compensation orders pursuant to s 545 of the Fair Work Act 2009 for the benefit of the employees the subject of the claim in relation to conduct prior to 15 December 2015; and

(iii)    If the Applicant is a 'creditor', does the DOCA operate as a bar to the Court making non-compensatory orders pursuant to s 545 of the Fair Work Act 2009 for the benefit of the employees the subject of the claim in relation to conduct prior to 15 December 2015; and

(iv)    If the Applicant is a 'creditor' does the DOCA operate as a bar to the Court making civil penalty orders pursuant to s 546 of the Fair Work Act 2009 in relation to conduct prior to 15 December 2015.

8    Turning now to the principles which guide the Court’s discretion under r 30.01, as might perhaps have been expected, the parties were in substantial agreement as to those relevant principles. They are to be found in cases such as Reading Australia Pty Ltd v Australian Mutual Provident Society [1999] FCA 718; 240 FCR 276 at [7]-[8] per Branson J; James Rainsford v State of Victoria & Anor [2005] FCAFC 163; 144 FCR 279 (James Rainsford) at [35]-[36] per Kenny J and Save the Ridge Inc v Commonwealth [2005] FCAFC 203; 147 FCR 97 (Save the Ridge Inc) at [15] per Black CJ and Moore J.

9    The trial process is designed so that all issues of fact and law in a proceeding are decided together. Separate determination of questions, as is authorised by r 30.01 of the 2011 FCRs, can be fraught with difficulties and, as the Full Court observed in Save the Ridge Inc, should be adopted with caution.

10    Relevantly, a matter is generally described as ripe for determination as a separate question if it involves a central issue in contention between the parties, the resolution of which will either obviate the necessity of litigation altogether, or substantially narrow the field of controversy. The case law indicates that the Court should have regard to what is just and convenient in the particular circumstances of the case and case management considerations will necessarily be important in this regard.

11    Turning now to the application of those guiding principles to the circumstances here, as the Full Court emphasised in James Rainsford, an important consideration is whether the parties have agreed the relevant facts.

12    Although the applicant here opposes the separate question application, the parties have agreed a statement of facts. But that is not determinative. There are other considerations which I consider weigh heavily against the course favoured by the first respondent. None of these factors is necessarily determinative in its own right, but their cumulative effect reveals that this is not an appropriate proceeding, in my respectful view, in which to order the preliminary separate determination of the proposed separate questions.

13    Before exploring those matters, it is convenient to set out some key relevant provisions in the deed of company arrangement.

Recital

…

B.     At a meeting of Creditors of the Company held on 18 March 2016, convened pursuant to section 439A of the Act (the Meeting), the Creditors resolved pursuant to section 439C of the Act that the Company execute a deed of company arrangement.

C.     This Deed binds all of the Creditors of the Company pursuant to section 444D of the Act and the Company's officers and members in accordance with section 444G of the Act.

…

1.    Specific Definitions

1.1    Unless the contrary intention appears:

…

(e)     Claims means all and any existing, or contingent claims, including Historical Employee Claims, and or causes of action, debts, or liability of whatever nature which exist as at the Appointment Date.

…

(g)    Company means the entity specified in Item 1 of Schedule 1.

…

(i)    Creditors means the creditors of the Company.

…

(r)    Historical Employee Claims means all current or contingent claims by current or former employees of the Company arising out of or in connection with the employees' employment relationship with the Company, including, but not limited to, outstanding employee entitlements, superannuation claims, unpaid overtime and unfair dismissal claims.

…

(u)    Participating Unsecured Creditors means any person or entity, including any body corporate, whose Claim against the Company would have been provable in the winding up of the Company, if the Company had been wound up on the Appointment Date, excluding any Excluded Creditors.

…

10.     Employees

10.1     The Deed Administrator will adjudicate on Historical Employee Claims like all other Claims in accordance with clauses 11 and 12 of this Deed.

…

11.     Claims

11.1     Subject to the provisions of this Deed, sub-divisions A, B, C and E of Division 6 of Part 5.6 of the Act apply to the proof or acceptance of debts or claims, of Participating Unsecured Creditors under this Deed as if references in those sub-divisions to "liquidator" and "relevant date" were, respectively, references to "Deed Administrator" and "Commencement Date" as defined in this Deed.

11.2     Every Creditor who is entitled to establish a Claim, against the Company who either:

(a)     fails to prove within the time prescribed by this Deed, or within any extension of time granted by the Deed Administrator: or

(b)     fails to institute proceedings to establish a claim against the Deed Administrator within two months of the Commencement Date;

shall be deemed to have abandoned their Claim and will be barred from instituting or continuing any legal action or other proceedings, or from otherwise maintaining an entitlement to claim (whether under this Deed or otherwise), to recover or to be paid the whole or any part of the debt or Claim by virtue of which the person claims to be a Creditor, and those debts or Claims shall be disregarded by the Deed Administrator calculating or making any distribution to Creditors under this Deed, unless the Deed Administrator in his absolute and controlled discretion otherwise determines.

…

12.     Moratorium and barring Creditors' debts or Claims

12.1     Subject to sections 445C, 445D and 445F of the Act and except as otherwise provided in this Deed:

(a)     from the date this Deed comes into effect, there is a moratorium on Creditors enforcing debts or claims;

(b)     from the date this Deed comes into effect, this Deed may be pleaded by the Company against any Creditor in bar of all debts or Claims;

(c)     a Creditor must not, before the termination of this Deed, or after termination of this Deed unless the Deed is terminated pursuant to a default on behalf of the Company in compliance with its obligations under this Deed:

(i)     take or concur in the taking of any step to wind up the Company;

(ii)     except for the purpose of and to the extent provided by this Deed, institute or prosecute any legal proceedings against the Company in relation to any debts or Claims;

(iii)     take any further steps (including any step by way of legal or equitable execution) in any proceedings against or in relation to the Company at the Commencement Date;

(iv)     exercise any right of set off or cross action to which the Creditor would not have been entitled had the Company been wound up on the Commencement Date;

(v)     commence or take any further step in any arbitration against the Company or to which the Company is a party; or

(vi)     take any other step whatsoever to recover any debt or Claim.

14    Returning now to explain why this is not an appropriate case in which to order that separate questions be determined in advance of the substantive hearing, I emphasise the following matters.

15    First, the application is opposed by the applicant, and, in my view, that opposition is for persuasive reasons.

16    Secondly, even if it be accepted that resolution of the separate questions would save time and cost insofar as the case against the first respondent is concerned (and that is not altogether clear to me at the moment), it is, in any event, unlikely that there would be any substantial saving when the proceeding is viewed as a whole. This is especially so with reference to those parts of the proceeding and the statement of claim which relate not just to the first respondent, but also to the second and third respondents.

17    Clauses 11.2 and 12 of the deed only relate to claims against the Company, which is defined in 1.1(g) and Item 1 of Schedule 1 of that instrument to mean the first respondent. It does not bar proceedings against the second respondent or the third respondent. I accept the applicant’s submission that, even if the separate questions were resolved in the first respondent’s favour, the Court would still need to determine all of the allegations against the first respondent in order to determine any accessorial liability of the second and third respondents under s 550 of the Fair Work Act.

18    It was evident from the hearing today that the parties dispute the relationship between the deed of company arrangement and the operation of relevant provisions in the Fair Work Act. The Ombudsman contends that the deed operates as a bar to specified persons commencing legal proceedings against the first respondent, referring to clauses 11.2 and 12.1 of the deed, but that the deed does not extinguish any underlying liability of the first respondent.

19    Secondly, the Fair Work Ombudsman contends that the deed of company arrangement doesn’t bind her or the first or second respondent. The Fair Work Ombudsman has drawn the Court’s attention to relevant passages in two cases which bear upon the nature of the Fair Work Ombudsman’s role and functions. Those cases are Tomlinson v Ramsey Food Processing Pty Ltd [2015] HCA 28; 256 CLR 507 and Atkins Freight Services Pty Ltd v Fair Work Ombudsman [2017] FCA 1134.

20    Both these matters are strongly contested by Mr Latham, who appeared for the first respondent. To my mind, it is unnecessary to resolve the dispute between the parties on these matters. Their significance lies in the fact that they highlight the uncertainty as to whether resolution of the separate questions would achieve the savings in terms of time and cost as contended by the first respondent. I doubt that this is so.

21    There are a number of other matters which are raised by the Fair Work Ombudsman in its outline of written submissions, particularly at paragraphs 15, 16 and 17 which I consider carry considerable force. Those matters, when coupled with the uncertainty which surrounds the question whether an order that separate questions be heard and determined here would save significant time is sufficient, to my mind, to dismiss that part of the amended interlocutory application.

22    The parties were agreed that the Court should not make an order as to costs in respect of the amended interlocutory application. The Court will make appropriate orders.

Associate:

Dated:    19 October 2018