Federal Court of Australia

Scarati v Republic of Italy (No 3) [2024] FCA 55

ORDERS

THE COURT ORDERS THAT:

1.    The respondent is to pay to the applicant:

(a)    compensation of $6,493.45 plus interest thereon of $1,074.16; and

(b)    a pecuniary penalty of $94,000.

2.    The amounts in order (1) must be paid within 21 days.

3.    The respondent is to pay 70% of the applicant’s costs of the proceeding assessed on an indemnity basis.

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

REASONS FOR JUDGMENT

MCLEWAINE J:

1    Justice Thomas, for reasons published on 20 October 2023, determined the liability aspects of this proceeding (mostly in the applicant’s favour) and stood over for further hearing the consequential relief, including the applicant’s claims for pecuniary penalties pursuant to s 546(1) of the Fair Work Act 2009 (Cth) (FW Act): Scarati v Republic of Italy [2023] FCA 1264 (LJ). In these reasons, unless stated otherwise each reference to a statutory provision is to the FW Act. On 26 October 2023, his Honour made the following declarations, reflective of his earlier findings:

THE COURT DECLARES THAT:

Long Service Leave

1.    The Applicant, at all material times from the commencement of his employment in Perth, Western Australia with the Respondent, namely from 2 December 2002:

a)    was employed for a period of continuous service as that term is defined in s.22 of the Fair Work Act 2009 (Cth) (the FW Act);

b)    was continuously employed by the Respondent for the purposes of the Long Service Leave Act 2018 (Vic); and

c)    accrued long service leave (and continues to accrue long service leave) in accordance with the Long Service Leave Act 1992 (Vic) and, upon its repeal, the Long Service Leave Act 2018 (Vic).

Superannuation

2.    At all material times on and from June 2008, upon the Applicant’s commencement in the Respondent’s Melbourne consular offices:

a)    the Applicant was an ‘employee’ of the Respondent for the purposes of s 12(3) of the Superannuation Guarantee (Administration) Act 1992 (Cth) (the SGA Act);

b)    the Respondent, in its employment of the Applicant, was subject to the operation of the Superannuation Guarantee Charge Act 1992 (Cth) (the SGC Act);

c)    the Respondent was required, as an employer under each of the SGA and SGC Act and as an employer of the Applicant within Australia, to calculate the relevant superannuation charge in accordance with each Act and then pay such charge to a superannuation fund nominated by the Applicant; and

d)    at no time in the period 2 December 2002 to 31 December 2012 inclusive did the Respondent:

(i)    calculate the relevant superannuation charge in compliance with the SGC Act; and

(ii)    make payment of any charge sum to a superannuation fund nominated by the Applicant.

e)    pursuant to pursuant to s 49 of the SGA Act, the Respondent is liable to pay the general interest charge in respect of any and all unpaid employer superannuation contribution to a superannuation fund nominated by the Applicant.

Modern Award coverage: annual leave loading

3.    At all material times from 13 August 2014 until 31 December 2019, the Clerks Private Sector Award 2010 applied to the Applicant in his employment with the Respondent;

4.    On each occasion in the period 13 August 2014 until 31 December 2019 when the Applicant was authorised by the Respondent to be absent from the workplace on paid annual leave, the Respondent did not make any payment to the Applicant of annual leave loading of 17.5% as required by clause 32.3 of the Award; and

5.    Upon the matters described in Declarations 3 and 4 above, the Respondent has contravened s 45 of the FW Act.

Breach of the s 535 of the FW Act: documents

6.    On and after 21 February 2021 until 30 November 2021, the Respondent engaged in a continuing contravention of s 535(3) of the FW Act, by reference to reg 3.42(2) and 3.42(3) of the Fair Work Regulations 2009 (Cth) to the FW Act, by its failure to make available for inspection to the Applicant, as a current employee, the relevant employee records; and

7.    The Respondent contravened s 535(2)(a) of the FW Act, by reference to reg 3.31(2)(a) of the Fair Work Regulations 2009 (Cth) to the FW Act, by its failure to make and keep a record in a legible form and in English.

2    His Honour next made consequential orders for the filing of evidence and submissions by the parties concerning the relief sought by the applicant, including the imposition of civil penalties. Shortly thereafter, the proceeding was re-allocated to my docket and the hearing resumed on 4 December 2023, which, by reason of the considerable assistance of each counsel, proceeded efficiently.

3    These reasons are intended to be read with the LJ. However, to recap and in very short summary, Mr Scarati is a citizen of both the Republic of Italy and Australia employed since December 2002 in the Republic’s consular offices commencing in Perth and more recently in Melbourne. His employment category is Administrative Assistant, and he is a national system employee within the meaning of the FW Act. He was employed under two written contracts, commencing in August 2002 for his engagement in Perth and more recently in February 2008 for Melbourne. He claimed that the Republic in breach of contract underpaid his wages. That claim failed on the basis that Thomas J was not satisfied that on a correct construction the contracts incorporated as express terms certain Presidential and Legislative Decrees of the Republic nor the terms of the Department of Foreign Affairs and Trade Certified Agreement 2006-2009: LJ [56]-[121].

4    He succeeded on an alternative claim that his employment was covered by the Clerks – Private Sector Award 2010 (Clerks Award) as a level 3 employee: LJ [122]-[193]. He was not underpaid at that classification level but his success on that aspect of his claim conferred an entitlement to annual leave loading at the rate of 17.5% (which he had never received). In addition, he claimed, and succeeded, in his contention that the Republic was obliged to make employer superannuation contributions for his benefit in accordance with the Superannuation Guarantee Charge Act 1992 (Cth) (SGC Act), despite the Republic contending that he did not have standing to obtain declaratory relief on that issue: LJ [199]-[252].

5    He also claimed declaratory relief that he was entitled to long service leave benefits in accordance with the Long Service Leave Act 2018 (Vic). He succeeded on that claim despite the Republic contending that this Court did not have jurisdiction to determine it as a matter within federal jurisdiction: LJ [253]-[285]. Finally, he succeeded on claims that, in breach of s 535, the Republic failed to maintain, for a period of seven years, employee records in English and failed to provide his employment records upon request: LJ [286]-[306].

Consequential relief as sought by Mr Scarati

6    Mr Harrington for the applicant in his written submissions contends for relief as follows:

(1)    An award of compensation pursuant to s 545(2)(b) of the FW Act equivalent to 24 weeks annual leave loading calculated at 17.5% in accordance with cl 32.3 of the Clerks Award for the period 13 August 2014 to 12 August 2020.

(2)    Interest upon the amount awarded at (1) pursuant to s 547(2).

(3)    Pecuniary penalties pursuant to s 546 for contravention of s 45 by failing to pay the annual leave loading.

(4)    Pecuniary penalties pursuant to s 546 for contravention of s 535 when read with reg 3.42(1) of the Fair Work Regulations 2009 (Cth) for failing to make available for inspection employee records and separately for failure to comply with reg 3.31(2)(a) in that the employee records were not kept in English.

(5)    Compensation pursuant to s 545(2)(b) for pain and suffering between 2020 and publication of the LJ on 20 October 2023.

(6)    Costs pursuant to s 570(2)(b) by reason of unreasonable behaviour by the Republic, particularly contrary to ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth).

7    The Republic’s position in response to each of these claims (seriatim) is:

(1)    Liability to pay annual leave loading is accepted. The quantum of the calculation is disputed.

(2)    Liability to pay interest is accepted.

(3)    A pecuniary penalty is appropriate. The quantum is disputed.

(4)    A pecuniary penalty is appropriate. The quantum is disputed.

(5)    Compensation for pain and suffering is disputed.

(6)    The claim for costs is disputed.

8    I address the claims in that order.

Annual leave loading

9    At all material times Mr Scarati received wages in excess of the minimum amounts set out in the Clerks Award. The parties agree that if the leave loading is calculated on the minimum amounts payable under the Clerks Award, the entitlement for all annual leave taken between 13 August 2014 and 31 December 2019 is $6,493.45. They also agree that if the leave loading is calculated on the contractual amounts paid then, for the same period, the amount is $9,933.64. They differ upon the proper construction of the leave loading entitlement pursuant to cl 29.3(a) of the Clerks Award when read with ss 16, 55(1) and 90 of the FW Act. The Clerks Award has been superseded by the Clerks – Private Sector Award 2020 (Clerks Award 2020).

10    Clause 29 of the Clerks Award was contained in Pt 6, which dealt with annual leave, personal/carer’s leave and compassionate leave, public holidays, community service leave and leave to deal with family and domestic violence. Clause 29.1 recorded:

Annual leave is provided for in the NES.

11    Section 87 expresses the National Employment Standard (NES) for annual leave. For each year of service, an employee is (relevantly) entitled to four weeks of paid annual leave. Section 90 provides:

Payment for annual leave

(1)    If, in accordance with this Division, an employee takes a period of paid annual leave, the employer must pay the employee at the employee’s base rate of pay for the employee’s ordinary hours of work in the period.

(2)    If, when the employment of an employee ends, the employee has a period of untaken paid annual leave, the employer must pay the employee the amount that would have been payable to the employee had the employee taken that period of leave.

12    The term base rate of pay is defined in s 16(1) which relevantly provides:

General meaning

The base rate of pay of a national system employee is the rate of pay payable to the employee for his or her ordinary hours of work, but not including any of the following:

(a)    incentive‑based payments and bonuses;

(b)    loadings;

(c)    monetary allowances;

(d)    overtime or penalty rates;

(e)    any other separately identifiable amounts.

(Original emphasis.)

13    There is a difference for pieceworkers, which need not be addressed. This definition stands in contrast with full rate of pay at s 18(1) which provides:

General meaning

The full rate of pay of a national system employee is the rate of pay payable to the employee, including all the following:

(a)    incentive‑based payments and bonuses;

(b)    loadings;

(c)    monetary allowances;

(d)    overtime or penalty rates;

(e)    any other separately identifiable amounts.

(Original emphasis.)

14    In this statutory context, cl 29.3 of the Clerks Award provided:

Annual leave loading

(a)    During a period of annual leave an employee will receive a loading calculated on the rate of wage prescribed in clause 16 – Minimum weekly wages. Annual leave loading payment is payable on leave accrued.

(b)    The loading is as follows:

(i)    Day work

Employees who would have worked on day work only had they not been on leave—17.5% or the relevant weekend penalty rates, whichever is the greater but not both.

(ii)    Shiftwork

Employees who would have worked on shiftwork had they not been on leave—a loading of 17.5% or the shift loading (including relevant weekend penalty rates) whichever is the greater but not both.

15    Clause 16 expressed in tabular form minimum weekly wages for each classification level.

16    For Mr Scarati, Mr Harrington submits that the dispositive provision is s 16, which applies to the over Award contractual rate paid from time to time, annual leave in cl 29.3 must be read consistently with the NES entitlement and therefore the loading is applied to the actual rate of pay, excluding bonuses, loading and other allowances. More particularly the steps in the argument are:

a)    where clause 29 of the Clerks Award 2010 refers to ‘annual leave’, it is referring to ‘annual leave’ as defined in the FW Act, a specie of leave which forms part of the National Employment Standard (NES) as defined in the FW Act;

b)    as to the NES, s.90 of the FW Act provides that payment for annual leave is at the ‘base rate of pay’;

c)    ‘base rate of pay’ is defined at s.16 of the FW Act: it is not the ‘full rate of pay’ (s.18) but is more than the ‘rate of wage’ as that expression is used in clause 29.3(a) of the Clerks Award;

d)    s.55(1) of the FW Act provides that a modern award must not exclude the National Employment Standards; and

e)    Clause 32 of the 2020 Award, which replaced the 2010 Award, should be construed to have fixed an anomaly – the calculation of any ‘annual leave’ entitlement must have regard to the base rate of pay such that loading is to be paid on that gross sum.

(Footnote omitted.)

17    The equivalent clause in the Clerks Award 2020 is cl 32.3, which applies the leave loading at “17.5% of the minimum hourly rate for the employee’s ordinary hours of work in the period” which clause is introduced with:

NOTE: Where an employee is receiving over-award payments resulting in the employee’s base rate of pay being higher than the rate specified under this award, the employee is entitled to receive the higher rate while on a period of paid annual leave (see sections 16 and 90 of the Act).

18    In contrast, for the Republic, Mr Tierney submits that the ordinary grammatical meaning of the clause must be given effect: the calculation only applies to the rates specified in cl 16. If a broader meaning had been intended, the clause would have simply referred to wages or income. Attention is drawn to the general principles applicable to the construction of awards: King v Melbourne Vicentre Swimming Club Inc [2021] FCAFC 123 at [40]-[43] (Collier, Katzmann and Jackson JJ).

19    That the note to cl 32 of the Clerks Award 2020 should be construed as having addressed an earlier anomaly under the Clerks Award is not in my view to the point. The note to the equivalent provision in the latter Award does not assist in ascertaining the meaning of the earlier provision: Commissioner of State Revenue v Pioneer Concrete (Vic) Pty Ltd [2002] HCA 43; 209 CLR 651 at [54] (Callinan J); Allina Pty Ltd v Federal Commissioner of Taxation (1991) 28 FCR 203 at 212 (Lockhart, Burchett and Gummow JJ). In my view there was no ambiguity in cl 29.3 of the Clerks Award in that it expressly tied the calculation of the loading to minimum amounts prescribed at cl 16. The construction technique employed by Mr Harrington overlooks that the FW Act does not confer any entitlement to a leave loading and conflates the distinction between the statutory entitlement to be paid a base rate calculated upon the leave entitlement and the additional amount of leave loading conferred by the Award. So understood, there was no tension between the Award and the NES entitlements. The applicant’s argument is contrary to the plainly expressed meaning of the clause.

20    Accordingly, the leave loading entitlement is $6,493.45.

Interest

21    It follows that the interest entitlement on the amount of the unpaid leave loading entitlement is the agreed sum of $1,074.16.

Pecuniary penalty- annual leave loading

22    Section 546 permits the making of pecuniary penalty orders if considered appropriate and where the Court is satisfied that a person has contravened a civil remedy provision. Section 45 is relevant: a person must not contravene a term of a modern award. The Republic contravened the Clerks Award by failing to pay the annual leave loading to which Mr Scarati was entitled on each occasion when he took annual leave between 13 August 2014 and 31 December 2019.

23    The only evidence about the taking of annual leave is somewhat imprecise. Mr Scarati, in an affidavit made on 3 November 2023, states that “on average” he took four weeks annual leave each year between 2014 and 2020. A total of 24 weeks for that six-year period. I note there is an agreed hourly calculation for those years as an attachment to the submissions of Mr Harrington filed 6 December 2023, but unhelpfully the calculation does not identify the periods within each year when leave was taken, nor whether Mr Scarati took his leave in one entitlement or in several tranches. It also differs in the time periods during which leave was taken: the adopted period commences on 13 August 2014 and then proceeds in financial years to 31 December 2019. On this evidence the only finding that is open is that the Republic failed to pay the leave loading once in each of those six years.

24    By s 546(2), for a body corporate, the maximum pecuniary penalty is “5 times the maximum number of penalty units referred to in the relevant item in column 4 of the table at s 539(2)”, which for a contravention of s 45 is 600 penalty units for a serious contravention and 60 penalty units otherwise. No submission is made that the Republic’s conduct amounts to a serious contravention: s 557A.

25    The Republic admits that it is a National System Employer as defined in the FW Act, a Foreign State for the purposes of the Foreign States Immunity Act 1985 (Cth) (FSI Act) and may sue and be sued under Australian law. The effect of s 12 of the FSI Act is that, as an employer, the Republic is not immune in this employment proceeding. No argument was put to me that it is not a body corporate, for the purposes of the FW Act. Indeed, sub silentio counsel for each party have assumed that a Foreign State body politic is a body corporate within the meaning of s 546(2). There is authority that an Australian body politic is a body corporate within the meaning of the provision: Construction, Forestry, Mining and Energy Union v State of Victoria (No 2) [2013] FCA 1034 (Bromberg J). Although an appeal to the Full Court from that decision was upheld, his Honour’s reasoning on this point was confirmed, albeit in obiter reasoning, by Buchanan and Griffiths JJ (Kenny J agreed generally at [29]): Victoria v Construction, Forestry, Mining, and Energy Union [2013] FCAFC 160; 218 FCR 172, at [161]-[175]. I add that Rares J reasoned in PT Garuda Indonesia Ltd v Australian Competition and Consumer Commission [2011] FCAFC 52; 192 FCR 393 at [210]-[212], that a Foreign State is amenable to regulatory proceedings, including civil penalties, then sought pursuant to s 76 of the Trade Practices Act 1974 (Cth), although that case concerned a separate entity within the meaning of s 22 of the FSI Act. In any event, as I have noted, the Republic did not submit that civil penalties cannot be imposed on it: rather that the quantum should be more modest than Mr Scarati seeks.

26    Mr Scarati seeks imposition of the maximum civil penalty for this breach which he calculates at $63,000. That figure is derived by aggregating each breach and simply multiplying 60 penalty units by five at the rate of $210. That is not correct because it does not adjust for variations in the prescribed amount of a penalty unit over time. Also, it implicitly accepts that each failure to pay the annual leave loading arose out of the same course of conduct amounting to a single contravention: s 557.

27    Dealing first with the relevant amount of penalty units as notified pursuant to s 4AA of the Crimes Act 1914 (Cth), the rates were: 1 January 2014 to 30 July 2015- $170, 31 July 2015 to 30 June 2017- $180, 1 July 2017 to 30 June 2020- $210. The correct approach requires identification of each separate contravention, then a decision whether to deal with each contravention independently or by aggregation consistently with s 557, ensuring there is no overlap between separate contraventions, and finally determination of the appropriate penalty for each contravention or group: see generally the approach of Bromwich J in Fair Work Ombudsman v NSH North Pty Ltd [2017] FCA 1301.

28    As to the course of the Republic’s conduct, s 557 provides that two or more contraventions, relevantly of s 45, are taken to constitute a single contravention if committed by the same person and if they arose out of the same course of conduct. Identification of the course of conduct requires a focus on the legal and factual elements of multiple contraventions to avoid imposing multiple penalties for the same conduct: Construction, Forestry, Mining and Energy Union v Cahill [2010] FCAFC 39; 269 ALR 1 at [39] and [41] (Middleton and Gordon JJ); Fair Work Ombudsman v Construction, Forestry, Maritime, Mining and Energy Union (the Hutchinson Ports Appeal) [2019] FCAFC 69 at [179]-[183] (Rangiah J).

29    Justice Thomas in the LJ upheld the alternative contention of Mr Scarati that the Clerks Award applied to his employment pursuant to which he was entitled to be paid an annual leave loading of 17.5%. It was not paid because the Republic contended that the employment was not covered by the Award. It held to that position despite the decision of the Full Court in Republic of Italy (Minister of Foreign Affairs and International Cooperation – Adelaide Consulate) v Benvenuto [2018] FCAFC 64; 261 FCR 19, which was published on 24 April 2018, wherein White J held (Allsop CJ and Besanko J agreeing) that the Clerks Award applied to the employment of a consular official by the Republic in Australia. Somewhat perplexingly, before Thomas J, the Republic submitted that Benvenuto was wrongly decided and should not be followed, which submission his Honour swiftly dismissed for the obvious reason that Full Court decisions bind trial judges of this Court: LJ [137]-[152].

30    Whilst factually the course of conduct was non-payment of the same Award entitlement on each occasion that Mr Scarati took annual leave between 2014 and 2020, the legal complexion differs. I regard non-payment before 24 April 2018 as less serious to non-payment thereafter. In the latter period, no element of ignorance as to the content of the legal obligation may be relied upon. The appropriate course is to divide and separately consider the factual course of conduct before and after 24 April 2018.

31    Recently, I summarised the general principles applicable to the imposition of civil penalties in an analogous statutory context: Australian Competition and Consumer Commission v Airbnb Ireland UC [2023] FCA 1633 at [19]-[22]. Pecuniary penalties are imposed for the public purpose of promoting compliance with the relevant statutory regime. Deterrence, specific and general, is the objective, not retribution or rehabilitation: Australian Building and Construction Commissioner v Pattinson [2022] HCA 13; 274 CLR 450 at [14], [16], [39] [40], [43], [45] and [55] (Kiefel CJ, Gageler, Keane, Gordon, Steward and Gleeson JJ). The statutory maximum requires no more than a reasonable relationship with the ultimate penalty as one that is appropriate for the contravening conduct. The penalty should not be of such severity as to be oppressive.

32    In a frequently cited decision, French J listed factors to be considered in the overall assessment in Trade Practices Commission v CSR Ltd [1990] FCA 762 and which the Full Court (Allsop CJ, White and O’Callaghan JJ) synthesised as relevant to the FW Act in Construction, Forestry, Maritime, Mining and Energy Union v Australian Building and Construction Commissioner [2018] FCAFC 97; 264 FCR 155 at [20]:

[T]he nature, character and seriousness of the conduct; the loss and damage caused; the circumstances in which the conduct took place; the size of the contravener and its degree of power; the deliberateness of the conduct and the time over which it occurred; the degree of involvement of senior officials or management; the culture of the organisation as to compliance or contravention; and, any co-operation with the regulator and contrition.

33    This is not, however, a rigid or exhaustive checklist: Pattinson at [19].

34    Mr Harrington submits that the failure to pay the leave loading was conscious, deliberate and inconsistent with Benvenuto. Mr Tierney concedes that the conduct was “inherently serious”, accepts that Thomas J found the entitlement was not paid over an extended period and that the record-keeping of the Republic was inadequate to ensure compliance with the Clerks Award. In mitigation, however, it is submitted in favour of the Republic that the damage suffered by Mr Scarati was relatively modest, he was not otherwise underpaid in accordance with the Award, the contravention related to conduct against a single employee and there are no aggravating factors, such as an attempt to disguise the underpayment, fraud or dishonesty.

35    Whilst those matters put in favour of the Republic may be accepted, it cannot be gainsaid (as submitted for Mr Scarati) that: the contravention occurred over a six-year period, the letter of demand sent before commencement of the proceeding did not result in the making of the payments, the immunity defence relied on was untenable, no offer was made to simply pay the unpaid entitlements (even after the proceeding was commenced), the breach had not been remedied by the time of the penalty hearing, no apology has been provided to Mr Scarati and there is no evidence of contrition and remorse. The defence of this proceeding, particularly the maintenance of defences that Thomas J determined to be without merit is indicative of the culture within the Republic that compliance with the requirements of Australian employment law is not a matter which is taken seriously.

36    I accept Mr Scarati’s submission that specific deterrence is a critical consideration in this case in that the Republic is a sophisticated State that must understand its obligation to comply with local employment laws. I further accept that its conduct demonstrates indifference to the legal entitlements of Mr Scarati. In my view specific deterrence far outweighs the need for general deterrence.

37    Taking these matters into account, I determine that the appropriate pecuniary penalty for failure to pay the annual leave loading is:

(a)    For the period August 2014 to June 2018, approximately four years, calculated as a single course of conduct, and by applying a penalty of $80, as not exceeding the statutory maximum penalty unit that applied in those years: $24,000;

(b)    For the period July 2018 to December 2019, approximately two years, calculated as a single course of conduct but which was more serious after publication of the decision in Benvenuto in April 2018, and by applying a penalty of $150, as not exceeding the statutory maximum penalty unit that applied in those years: $45,000:

(c)    Resulting in a total penalty for these contraventions of $69,000.

38    Mr Scarati seeks a further order that the penalty be paid to him as provided for at s 546(3). The usual course is to order that any penalty imposed is to be paid to the successful applicant: Sayed v Construction, Forestry, Mining and Energy Union [2016] FCAFC 4 at [101] (Tracey, Barker and Katzmann JJ). The Republic did not submit to the contrary and I consider this to be appropriate.

Pecuniary penalty- employee records

39    Mr Scarati makes two claims, each calculated upon his submitted maximum of $63,000: 70% of that sum for failure to produce records and 50% for not maintaining the records in English.

40    As to the first, a request was made to produce the records on 25 May 2020. They were not ultimately produced (in Italian) until 30 November 2021, well after commencement of this proceeding on 12 August 2020. Justice Thomas found at LJ [302]-[303] that by 21 February 2021, it must have been clear to the Republic that the solicitors’ request for the records was made with authority and no sufficient explanation had been provided for the failure to produce. However, and balanced against this, his Honour was critical of the failure of Mr Scarati to “simply provide a written signed authority” for production of the records: LJ [305].

41    Mr Harrington describes this conduct in submissions as “egregious, long in its duration and tactical”. He further submits that it forms a component of a deliberately obstructive litigation strategy engaged in by the Republic. Specific and general deterrence warrant the imposition of a substantial penalty. In contrast, Mr Tierney submits for the Republic that the failure to produce records did not result in any loss suffered by Mr Scarati and that I should not conclude that it was engaged in to “disguise” an underpayment. Whilst I accept each of those propositions, they fail to answer why it is that the Republic engaged in obstructive behaviour in not complying with the simple request to produce the employee records.

42    The prescribed maximum penalty unit as of May 2020 was $210 and thereafter with effect from 1 July 2020 increased to $222. Balancing the considerations that I have set out above, in my view the appropriate penalty is $15,000, to specifically deter the Republic from engaging in this type of conduct in the future, and to act as an appropriate general deterrence to others who may consider engaging in similar conduct.

43    Next there is the failure to maintain the employee records in English. For Mr Scarati it is submitted that there are aggravating factors: failure by the Republic to comply with a consent order made on 6 April 2022 to produce the documents, a further application by Mr Scarati for production, no contrition, no apology and evidence of a systemic failure to maintain records in the English language. For the Republic, it is noted the records were provided to Mr Scarati in its native language and were well understood by Mr Scarati, who unsurprisingly is fluent in Italian. It is further submitted that this breach did not cause damage to Mr Scarati and should not be characterised as deliberate conduct in breach of the legislative requirements. For those reasons it is submitted that this conduct sits at the lower end of the scale.

44    In my view this was not a serious breach and the need for specific and general deterrence is not great. Once again, having regard to the factors that I have set out above, in my view the appropriate penalty is $10,000.

45    I will also order that each of these penalties be paid by the Republic to Mr Scarati.

General damages

46    Mr Scarati seeks compensation for “hurt, distress and suffering” that he claims to have endured by reason of the failure to pay his annual leave loading entitlement for a period of six years and the failure to make available his employee records on request. An amount of $20,000 is sought pursuant to s 545(2)(b). In support, Mr Scarati relies upon a report from his general practitioner and on his own evidence as contained in his affidavit of 3 November 2023. His general practitioner states that in 2020, Mr Scarati developed symptoms suggestive of adjustment disorder with depressive mood in the context of the stress that he experienced in prosecuting his claims against the Republic. There are examples of how this has impacted upon his physical and mental health.

47    Compensation may be awarded for non-economic loss, provided a causal link is established between each contravention of the FW Act and the damage suffered thereby: Australian Licensed Aircraft Engineers Association v International Aviation Service Assistance Pty Ltd [2011] FCAFC 333; 193 FCR 526 at [441]-[450] (Barker J). Although it is sufficient to establish the causal nexus by proving that the contravention was a cause of the damage, it is necessary to distinguish between it and the general stress that is very frequently caused to individual litigants when required to engage in formal proceedings to establish entitlements.

48    I am not satisfied on the evidence that Mr Scarati has established the claimed hurt, distress and suffering was caused by the failure to pay the annual leave loading entitlement and the failure to make available the employee records on request. The evidence is quite insufficient to disentangle those events from the impact of the litigation, for which no compensation may be awarded.

Costs

49    Mr Scarati claims costs pursuant to s 570(2)(b) and goes further by seeking an award of indemnity costs calculated at 70% of his entire costs of the proceeding. In short, he submits that I should conclude that the Republic caused him to incur costs by reason of its unreasonable acts or omissions in the entire course of this litigation and despite failure on the contractual entitlement claim.

50    In summary, he points to the following conduct by the Republic:

(1)    an initial denial that he was an employee;

(2)    a requirement that service must be effected in accordance with the FSI Act;

(3)    a requirement to provide a certified translation of the originating application and statement of claim;

(4)    failure to reach agreement to simply accept service;

(5)    refusal to waive the requirements for formal service pursuant to the FSI Act;

(6)    reliance, at least initially, on the immunity defence, despite Benvenuto;

(7)    resisting the award coverage claim, despite Benvenuto;

(8)    initially contending that it was not liable on the superannuation contributions claim as equivalent amounts had been paid to an Italian government pension scheme, which defence was later abandoned;

(9)    a contention without merit that Mr Scarati did not have standing to seek a declaration concerning his superannuation entitlements;

(10)    reliance upon an unmeritorious exclusive jurisdiction defence to the long service leave claims;

(11)    a failure to reasonably engage in an attempt to resolve the claims by adopting a commercially sensible approach; and

(12)    taken together, failure to comply with the overarching purpose of the civil practice and procedure of this Court at ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth).

51    The Republic denies that it engaged in unreasonable acts or omissions as contended. It successfully resisted the contractual claim together with the claim that Mr Scarati was properly classified as a level 5 employee pursuant to the Clerks Award. It further submits that I should not accept the applicant’s submission that it deliberately engaged in a litigation strategy designed to obstruct and delay the efficient prosecution of Mr Scarati’s claims, it made “substantial” factual admissions which narrowed the issues in dispute, made various concessions during the course of the proceeding, was entitled to submit that Benvenuto was wrongly decided, admitted that Mr Scarati was entitled to superannuation benefits which had not been paid but reasonably contended that Mr Scarati did not have standing to agitate this issue and admitted that Mr Scarati was entitled to long service leave, but reasonably contended that this Court was not the appropriate forum to agitate that question. Moreover, it did not unreasonably refuse to engage in commercial discussions to resolve the claims in that no offer put by Mr Scarati in the form of Calderbank proposals was more favourable than the ultimate outcome.

52    The Republic resists the indemnity aspect of the application on the basis that the conduct relied on by Mr Scarati falls short of the special or unusual matters which attract the exercise of the discretion to award indemnity costs.

53    The principles that apply to a claim for costs pursuant to s 570(2)(b) and to an award of indemnity costs are not in dispute, and the parties were content to proceed by reference to the summary of Thomas J, when separately awarding costs for failure by the Republic to constructively engage with the claims at a mediation: Scarati v Republic of Italy (No 2) [2023] FCA 1269. The summary at [2]-[11] includes:

Section 43 of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act) allows the Court a broad jurisdiction in awarding costs in all proceedings before the Court “other than proceedings in respect of which this or any other Act provides that costs must not be awarded”. The power is said to be subject to s 570 of the Fair Work Act 2009 (Cth) (the FW Act).

A party to proceedings in relation to a matter arising under the FW Act may be ordered by the Court to pay costs incurred by the other party only in accordance with the requirements of s 570(2).

Section 570(2) provides that a party may be ordered to pay costs only if:

(a)    ...

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

(c)    ...

The discretion conferred by s 570(2) must be exercised cautiously and the case for its exercise must be clear (Saxena v PPF Asset Management Ltd [2011] FCA 395 at [6] per Bromberg J). The policy behind s 570 of the FW Act is to free parties from the risk of having to pay the opponents’ costs so that those with a genuine grievance and an arguable basis for the grievance are not put off from commencing or continuing proceedings, while at the same time protecting parties from incurring costs as a result of the other party’s unreasonable acts or omissions or as a result of proceedings which have been instituted vexatiously or without cause (Australian Workers’ Union v Leighton Contractors Pty Ltd (No 2) (2013) 232 FCR 428; [2013] FCAFC 23 at [7] per Dowsett, McKerracher and Katzmann JJ).

Essentially, s 570 seeks to balance the access to justice aspect (costs can be ordered only in limited circumstances outlined in s 570(2)) against the expectation that the parties and their legal representatives will act in a responsible way (costs can be awarded if the party instituted the proceedings vexatiously or without reasonable cause, or the party’s unreasonable act or omission caused the other party to incur the costs or the party unreasonably refused to participate in a matter before the Fair Work Commission) (Ryan v Primesafe (2015) 323 ALR 107; [2015] FCA 8 (Ryan) at [65]-[67] per Mortimer J (as her Honour then was)).

Once an exception under s 570 is enlivened, it is within the Court’s general discretion to decide if any award for costs is made and, if so, upon what terms (Pal v Commonwealth of Australia (No 2) [2021] FCA 37 at [22] per Anderson J).

The most common order made in relation to costs is that costs be paid on a party and party basis. Principles relevant to an award of costs other than on a party and party basis, including an order that costs be paid on an indemnity basis, were summarised by Wigney J in Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd (No 5) (2021) 151 ACSR 26; [2021] FCA 246 at [6]- [12] (portions relevant to the current case extracted) as follows:

[6]    The Court’s discretionary power to award costs derives from s 43 of the Federal Court of Australia Act 1976 (Cth) (FCA Act). The usual rule is that an order for costs means costs “as between party and party”: r 40.01 of the Rules ... A party or person who is entitled to costs may, however, apply for an order that costs be awarded in their favour “other than as between party and party”: r 40.02(a) of the Rules. That includes an order that costs be awarded on an indemnity basis.

[7]    The discretion to award costs on a basis other than as between party and party, including on an indemnity basis, is “unfettered, save that it must be exercised judicially and not arbitrarily or capriciously”: Australian Competition and Consumer Commission v The Construction, Forestry, Mining and Energy Union (No 4) [2018] FCA 684 at [96]. The discretion must also be exercised in light of the requirement that the Court consider any failure by a party to comply with the overarching purpose of the civil practice and procedure provisions to facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible: see ss 37N(4), 37M(1) of the FCA Act; LFDB v SM (No 2) [2017] FCAFC 207 at [7].

[8]    The discretion to depart from an order for party and party costs will not be exercised unless there is some special or unusual feature or the justice of the case so requires …

[9]    The purpose of a costs order is to compensate the successful party, not to punish the unsuccessful one ... An award of indemnity costs is to “serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs”: Hamod v New South Wales (2002) 188 ALR 659; [2002] FCAFC 97 ...

[10]    The circumstances in which it may be found to be unreasonable for the successful party to be subjected to the expenditure of any costs are not fixed or closed ...

I agree with the observation made by Mortimer J in Ryan at [114] (in the context of an application under s 570(2)(b)) when her Honour observed that, in the authorities such as Colgate-Palmolive Company v Cussons Pty. Limited (1993) 46 FCR 225 (Colgate-Palmolive), a factor which appears to influence the decision “is a level of blameworthiness which involves conscious or deliberate choices to flout the norms by which litigation is usually conducted, and courts expect it to be conducted”. It must be at a higher level of disregard than, for example, a delay in taking steps in litigation. Sheppard J in Colgate-Palmolive referred to the decision of Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 400-401 where his Honour referred to “some special or unusual feature in the case to justify the court exercising its discretion in that way” and observed that, in all the cases he had considered, “there has been some further factor which has influenced the exercise of the court’s discretion”. Examples include a comparison between where charges of fraud have been made and not sustained as compared with “allegations of fraud hav[ing] been made knowing them to be false, or they have been irrelevant to the issues between the parties”. Reference was made to a position “where the applicant, properly advised, should have known that he had no chance of success” or where proceedings were commenced with some ulterior motive or, “because of some wilful disregard of the known facts or the clearly established law”.

This approach is consistent with the regime imposed with respect to matters to which s 570(2)(b) refers. In that case, to make any order as to costs, it is necessary that the Court be satisfied of a party’s unreasonable act or omission. In such a matter, the starting point after a finding of an unreasonable act or omission would be that the costs be paid on a party and party basis. It follows that conduct must be at a more serious level to bring an order for costs to be paid on an indemnity basis into play. The approach is illustrated in Ryan. In that case, Mortimer J found there was insufficient evidence of wilful disregard of the facts and law in pleading allegations. Whilst there had been some loss of court time, bearing in mind the magnitude of the loss, it was not such as to justify a departure from the usual form of costs orders. In Ryan, Mortimer J concluded that, without more, this did not justify “what would be, in substance, a second departure from the underlying policy and evidenced in s 570 by a costs order at the level of indemnity costs”.

Evidence of particular misconduct that causes loss of time to the Court or other parties has been thought to warrant the exercise of the discretion to order indemnity costs (Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (unreported, French J, 3 May 1991) and Colgate-Palmolive at 5).

54    There are three sequential steps: is the power at s 570(2) enlivened, if so, should some costs order be made and, if so, what type of order is appropriate?

55    In my view, the conduct of the Republic that is relied upon by Mr Scarati was objectively unreasonable in the particular circumstances of this case and which conduct caused Mr Scarati to incur costs which would not have been incurred if the Republic had acted differently, in particular consistently with the overarching purpose which required it to conduct the defence of the proceeding in order to achieve the objective of efficiency and disposal of the claims at a cost proportionate to the importance and complexity of the matters in dispute. I accept, without repeating, the force of the 12 matters relied upon by Mr Scarati in support of this submission that I should be satisfied that s 570(2)(b) is engaged in this case.

56    I am further satisfied that the conduct of the Republic warrants a costs order in favour of Mr Scarati, but not his entire costs of the proceeding. What is apparent from the primary reasons of Thomas J is that a significant portion of the time taken to prepare for and argue Mr Scarati’s case was occupied with the contractual claim on which he failed. Often it is not appropriate to make piecemeal orders for costs, determined on an issue and issue basis, but it is in this case because that issue was discrete and quite separate from the balance of Mr Scarati’s claims. The appropriate apportionment is in my view the 70% figure sought by Mr Scarati.

57    I am further satisfied that my discretion to make an indemnity costs order arises. There was, in the circumstances of this case, objectively a deliberate pattern of conduct engaged in by the Republic in clear defiance of the statutory imperative of the overarching purpose. That is manifested by what I regard as obstructionist conduct in insisting on formal service of the claims, by a person who was a long serving and loyal employee, reliance on defences that were of no merit whatsoever, particularly the baseless contention that Thomas J should conclude that Benvenuto was wrongly decided or should not be followed, the plain lack of merit in the absence of standing defence to the superannuation guarantee claim and the contention that somehow this Court did not have jurisdiction to grant declaratory relief in relation to the long service leave claim in its associated jurisdiction.

58    It follows that I am satisfied that the Republic should pay 70% of Mr Scarati’s costs assessed on an indemnity basis.

Conclusion

59    For these reasons I order as follows:

1.    The respondent is to pay to the applicant:

(a)    compensation of $6,493.45 plus interest thereon of $1,074.16; and

(b)    a pecuniary penalty of $94,000.

2.    The amounts in order (1) must be paid within 21 days.

3.    The respondent is to pay 70% of the applicant’s costs of the proceeding assessed on an indemnity basis.

Associate:

Dated:    8 February 2024