DECISION NO: 433/96

CATCHWORDS

INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - claim of UNLAWFUL TERMINATION - sex worker - whether an "employee” for purposes of the Act - whether relationship "illegal" - whether illegality or immorality of employment relationship denies JURISDICTION to the applicant - whether VALID REASON FOR TERMINATION - COMPENSATION   

Industrial Relations Act 1988 (C'th) ss 170DB, 170DC, 170DE,170EA, 170EDA, 170EE

Criminal Code of Western Australia

Aitken v CMETSWUA - WA Branch (1995) 63 IR 1.

Allan JM (Merchandising) Ltd v Cloke [1963] 2 QB 340.

Bainham v Manning (1691) 23 ER 756.

Barac v Farnell (1994) 53 FCR 193.   

B v AA McM (1987) 8 SR (WA) 36.

Ceroda Enterprises Pty Ltd T/as Rollini's Ceramic Service v Building Trades Association of Unions of Western Australia (1984) 26 AILR 1.

Chambers v James Cook University of North Queensland, IRCA 460/95, 25 August 1995, unreported.

Climaze v Dyson (1995) 58 IR 260 (Supreme Court of WA).

Coral Leisure Group Ltd v Barnett [1981] ICR 503.

Davies v Davies (1995) FLC 92-646.

Fisher v Edith Cowan University, AIRC, 1061/96, Ritter JR, 23 August 1996, unreported.

Fitt & HSUA v Department of Community Services, IRCA 613/95, Murphy JR, 17 November 1995, unreported.

Fitzgerald v Leonhardt Pty Ltd [1996] 3 LEG REP SL4a.

Fox v Dalby (1874) LR 10 CP 285.

Garbutt v Stothers, IRCA 2452/95, Ritter JR, 27 August 1996, unreported.

Garth v Innerspace Wardrobes, IRCA 495/95, Murphy JR, 22 September 1995:7, unreported.

Hewcastle Catering Ltd v Ahmed [1992] ICR 626, CAE.

Kenney v Loveland, IRCA 26/96, Ritter JR, 30 January 1996, unreported.

Kings-Brooks v Roberts & Ors (1991) 5 WAR 500.

Markulin v Drew (1993) DFC 95-140.

Nelson v Nelson (1995) 132 ALR 133.

Nicolson v Heaven & Earth Gallery (1994) 1 IRCR 199.

Pearce v Brooks (1866) LR 1 EX 213.

Purvis v Chieftain Management Pty Ltd T/as Brookes Maintenance Service,  IRCA 527/95, Marshall J, 29 September 1995, unreported.

Re Porter: TWU (1989) 34 IR 179.

Stagecraft Ltd v Minister of National Insurance [1952] SC 288.

Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16.

Tinsley v Milligan [1994] 1 AC 340.

Warner Pty Ltd v Williams (1946) 73 CLR 421.

Yango Pastoral Co Pty Ltd v First Chicago Australian Ltd (1978) 139 CLR 410.

Zuijs v Wirth Bros Pty Ltd (1955) 93 CLR 4561.

Carter JW and Highland DJ, Contract Law in Australia, 2nd Ed, 1991.

Greig, DW and Davis, JLR, The Law of Contract, Law Book Company, 1987.

Halsbury's Laws of England, 4th Ed, Reissue 1992, Vol 16, Employment.

Report on Police Act (WA)  Project No. 85, Law Reform Commission, August 1992.

Discussion Paper - Report on Police Act Offences, Law Reform Commission of WA, Project 85, May 1989.

Macken, McCarrie and Sappideen, The Law of Employment, 3rd Ed, Law Book Company, 1990.

Riordan, JA (Ed), The Laws of Australia, Volume 7, Contract, General Principles, Chapter 4, Illegality and Public Policy.

PHILLIPA V CARMEL, WI 2523 OF 1995.

Before:                      RITTER JR

Place:                         PERTH

Date:                          10 September 1996

IN THE INDUSTRIAL RELATIONS COURT

OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY     

            WI 2523 of 1995

B E T W E E N:                                                       

            PHILLIPA

            Applicant

A N D:                                                                       

CARMEL

Respondent

MINUTE OF ORDERS

10 SEPTEMBER 1996                                                                         RITTER JR

THE COURT ORDERS AND DECLARES THAT:

1.      The respondent terminated the employment of the applicant in contravention of sections 170DB, 17DC and 170DE(1) of the Industrial Relations Act, 1988 (C'th) ("the Act").

2.      The respondent is to pay damages to the applicant in the sum of $1,075.00 for the contravention of section 170DB of the Act within 21 days of the date of this order.

3.      The respondent is to pay compensation to the applicant in the sum of $4,300.00 for the contravention of sections 170DC and 170DE(1) of the Act within 21 days of the date of this order.

NOTE:  Settlement and entry of orders is dealt with by Order 36 of the Industrial Relations                             Court Rules

IN THE INDUSTRIAL RELATIONS COURT                                    

OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY     

            WI 2523 of 1995

B E T W E E N:                                                       

            PHILLIPA

            Applicant

A N D:                                                                       

CARMEL

Respondent

REASONS FOR JUDGMENT

10 SEPTEMBER 1996                                                                         RITTER JR

INTRODUCTION

This application, brought pursuant to section 170EA of the Industrial Relations Act, 1988 (C'th) ("the Act"), is a claim for a remedy in respect of the alleged unlawful termination of employment of the applicant.  The remedy sought is compensation.

The applicant was a sex industry worker ("sex worker") who worked in Kalgoorlie.  She alleged that she was employed by the respondent from 23 March 1993 until the respondent terminated her employment on 7 November 1995.  The applicant performed the service of providing sex for men who paid her a sum of money for her time and service.   The respondent is the madam of the brothel Questa Casa, which has operated for a number of years at 133 Hay Street, Kalgoorlie.  It is one of three brothels operating in Hay Street, Kalgoorlie at the present time.  The applicant used a room at Questa Casa to perform the services for which she was paid.

The applicant was represented by her solicitor, Ms Gaunt.  The respondent represented herself.  The respondent presented her case in a clear and non-demonstrative fashion and was well-acquainted with the relevant issues.

At the commencement of the hearing, I acceded to an application, which was made by both parties, that the applicant, the respondent and the witness who  was to be called on behalf of the applicant, have their names suppressed, and that the only publication of their names be of their working names, being Phillipa - the applicant, Carmel - the respondent and Vanda - the witness.  Vanda was also a sex worker at Questa Casa.

Generally, I have some misgivings about making suppression orders for the sorts of reasons outlined by Spender J in Chambers v James Cook University of North Queensland, unreported, IRCA 460/95, 25 August 1995.  However, in this case, for reasons including the order being sought by all parties and there being no application on behalf of the media opposing the application, I acceded to it.

The applicant, Vanda and the respondent were the only witnesses called.  Although the evidence only took one day to be heard, the application raises some difficult questions of law and fact.

THE ISSUES

The respondent submitted that:

1.      There was no relationship of employment between the respondent and the applicant;

2.      If there was a relationship of employment, then the applicant could not claim a remedy in respect of any termination of the employment because any contract of employment was illegal;

3.      In the alternative, there was a valid reason for the termination of the applicant's employment, being her drunkenness and oppressive behaviour to the other women working at the brothel;

4.      If I were to find that there was an unlawful termination of employment, reinstatement was impracticable and therefore compensation would be the appropriate remedy to consider.  On this point, the parties were in agreement.

At the conclusion of the hearing, I discussed with the parties whether the Court ought to invite the Attorney General of Western Australia to intervene and provide submissions on issue 2 above, given the "containment" policy that exists in Western Australia and in Kalgoorlie in particular.  The parties agreed with this course.

District Registrar Richardson wrote to the Attorney General of Western Australia, The Hon Mr Foss QC MLC, on 3 May 1996, inviting him to apply for leave to intervene pursuant to section 470 of the Act.  By letter dated 23 May 1996, Mr Foss QC said, "As the issues raised focus upon the application of the Industrial Relations Act 1988 (C'th), I do not intend to apply for leave to intervene."   In my view, this was a pity.  The issues raised focus upon the state of the law in Western Australia about the relationship between a brothel madam and a sex worker, and whether the latter can enforce legal rights arising out of the relationship, given the contractual doctrines of illegality and public policy, and the containment policy in Western Australia.  I think the views of the Attorney General would have been helpful in understanding the law on these issues in Western Australia.  It is therefore, as I have said, a pity that the Attorney took the restrictive view of the Court's request that he did.

EMPLOYMENT RELATIONSHIP?

As stated, the respondent submitted that the applicant was not the employee of the respondent.  She submitted the applicant was a boarder who rented a room for the purpose of being self-employed. Carmel said in evidence that the individual women need not earn anything, as long as their rent is paid for the room.  The respondent said in evidence that what she does is, "I sell the girls the right to work from the room . . . I rent them the room."

In her evidence, the applicant agreed that the respondent did not pay the women who worked at the brothel.  They paid the respondent rent for the rooms they used.  The rent did not vary according to what the sex workers earned.  The workers keep what they earn, as long as they pay the room rental.

Ms Gaunt submitted that whether the respondent was an employer was a question of fact to be determined in light of all the circumstances.  She referred to the "control" test and cited Performing Right Society v Mitchell & Brooker [1924] 1 KB 762; Zuijs v Wirth Bros Pty Ltd (1955) 93 CLR 4561 and Ceroda Enterprises Pty Ltd T/as Rollini's Ceramic Service v Building Trades Association of Unions of Western Australia (1984) 26 AILR 1.  I will later return to the relevant authorities.  However, the central submission of Ms Gaunt was that, given the "control test", the issue was whether the respondent controlled the applicant in the sense of being able to make commands which were to be followed by the applicant. 

Ms Gaunt submitted that there was a detailed control of the work that Phillipa did at the brothel, by the respondent.  It was submitted that, despite the fact that the applicant was not paid by the respondent, there was a sufficient degree of control of the applicant's activities by the respondent and there was a sufficient integration of the applicant's work within the business of the respondent, to constitute an employer/employee relationship.  The relevant evidence about the relationship between the respondent and the applicant is set out below.

EVIDENCE RELEVANT TO THE RELATIONSHIP

1.      The respondent was the madam of a brothel, Questa Casa, situated at 133 Hay Street.  The brothel had nine rooms where women could work as sex workers, provided they paid rent to the respondent.  The respondent and the sex workers lived on the premises.  The respondent did not perform sexual services herself for clients.

2.      The respondent did not directly pay the sex workers for the work they did.

3.      The rental was a fixed amount and did not vary according to the amount earned by the individual worker.

4.      The brothel operated free from any interference or prosecution by the police, as long as certain conditions were met.  This was described in the evidence as the "containment policy".

          The containment policy imposed conditions on a sex worker living at the brothel; there was a curfew from 6 pm to 6 am, during which time the worker was not allowed to go out into public places; there was registration of the brothel and the individual sex workers with the Kalgoorlie CIB; there were regular health checks for the workers; and no drugs were permitted to be on the premises.  The respondent maintained Questa Casa in accordance with the containment policy.   As a result of the containment policy, neither the sex workers nor the respondent were prosecuted by the police.

5.      There was evidence that the containment policy was relaxed somewhat in January 1995, although the respondent still operated Questa Casa under the previous containment rules.

6.      The applicant had three different rooms while she was working at 133 Hay Street.

7.      During the working evening and early morning, the respondent generally remained in a lounge room at the brothel to, according to the applicant's evidence, supervise the activities of the workers.

8.      In all, the applicant worked at 133 Hay Street for about three years.  She said that in that time, the respondent had rules and gave directions.  She said that the respondent "always let it be known that she was the boss, and we had to live under her regulations, do exactly what she told us to do, but for taxation purposes she preferred to call herself a landlady".

9.      The applicant said that apart from the containment policy rules, the respondent's "rules" included the sex workers eating their meals as a group with the respondent, and taking turns cooking dinner for everybody, in the kitchen at the brothel.

10.    The applicant said that if one of the sex workers did not keep to the rules, the respondent would give them a dressing down in front of the other workers.  The applicant said that if such disciplining "did not work", then the respondent "used to sack them, say that was it, they could pack, they'd go, they could no longer work there".

11.    Another of the rules of the respondent that the applicant spoke of was that if there was trouble with a client, the worker involved was to wake the respondent, if necessary, so that she could mediate the dispute.  It was said that "quite often" the respondent would refund the money of the client.  Related to this rule was another rule that the respondent was the only person who could call the police about any difficulty that occurred at the brothel.  Vanda, in her evidence, agreed that these rules were in existence. The respondent did not dispute them in her evidence.

12.    Carmel said in evidence that whilst she issued Australian Taxation Office group certificates to the sex workers, this did not make her an employer and that she, as an employer, never paid any superannuation for the sex workers at the brothel.

          Carmel tendered a page of her accounts books, which showed the income earned by the individual, the tax to be submitted, superannuation contributed by the sex workers and the weekly rent.

          Tax was collected by the respondent from the sex workers and submitted to the Australian Taxation Office.  As stated, the respondent issued group certificates, which were tendered as exhibits.  The respondent said in her evidence that she collected the tax as a voluntary tax collector for the Australian Taxation Office and by agreement with the ATO.  She said that she was collecting the tax to be paid by the sex workers for the convenience of the sex workers and the Australian Taxation Office.

13.    The respondent also collected contributions from individual employees for superannuation each week, to be paid into individual superannuation funds.  She did not, however, contribute to a superannuation scheme as an employer.

14.    The applicant said that the termination of employment occurred on 7 November 1995 when, after discussions that had gone on for some months, the applicant advised the respondent that she did not want to take up a lease of the business from her.  She said that the respondent said that the applicant had wrecked her future plans, "she could not bear to have me on the premises any longer, and I was to pack and leave immediately".  This version of events was disputed by the respondent.

15.    After the alleged termination of employment, the respondent signed a separation certificate for the Department of Social Security dated 8 November 1995, tendered as Exhibit 5.  The certificate included questions on the reason for termination of employment, the payment of annual leave upon termination and claims for worker's compensation.  However, Carmel had crossed out a number of parts of the certificate that referred to her as an employer or Phillipa as an employee.  Carmel said she signed this document out of goodwill, not as an acknowledgment that she was an employer.

16.    The applicant gave evidence that at times she managed the premises when the respondent was absent interstate or overseas.  She stated that during this time, the amount of rent that she had to pay was reduced to reward her for the management role.  The applicant referred to one occasion when $100 per week was taken off her rent, to recompense her for the management.  Carmel disputed this evidence; she said that Phillipa had simply acted as a spokeswoman for the workers with the CIB, in Carmel's absence.  Phillips's evidence was, however, supported by Vanda's testimony, in that she said that Carmel had said on occasions that she needed Phillipa to manage the premises when she, Carmel, was absent.

17.    When Carmel came back from periods of absence, Phillipa said that Carmel always felt the need to re-assert her authority and if there were any problems she would say that she was the boss.  The applicant said that this "was constantly drummed into everybody". 

18.    The applicant tendered as an exhibit a videotape of a television interview that the respondent had with a reporter from the ABC's 7.30 Report, in which the respondent acknowledged that 133 Hay Street was her business and in which she emphasised the controls over brothels that the containment policy provided, such as health checks for the individual women.

19.    The applicant said that she had to furnish her rooms at Questa Casa.  The applicant said that when she moved into the first room, this was in a bad state of disrepair, and she fixed up the furniture.  However, when she moved into another room, she was not allowed to move the furniture so that she had to fix the furniture up again.  When she was in her final room, she said that she was not prepared to "go through that again", so she bought her own furniture.  She said that the rest of the rooms in the other parts of the brothel were furnished.  Phillipa also said that she organised for the painting of her room herself.

20.    The rent that was paid for the rooms was taken into account in assessing the income taxation of the sex workers.  The applicant said that from the money earned each week, she paid her rent and used the balance to calculate her taxable income.

21.    In determining the amount to be charged to clients, there were "house prices" which were set after consultation between the respondent and the sex workers.  There remained, however, a discretion in the sex workers not to charge in accordance with these prices, and to agree prices outside the "house prices" for particular services.  Sometimes clients first telephoned the brothel and spoke to Carmel about a quote for services.  Phillipa said that where Carmel had given a client a quote, the sex worker generally stuck to the quoted figure, for obvious reasons.

22.    When cross-examined by the respondent, the applicant agreed that she decided her own hours when working at Questa Casa and decided which days she would work.

23.    The applicant gave evidence that on an occasion when she had a recurrent back problem for a period of about six weeks and was unable to work, she was not required to pay rent but still lived at the house and ate meals with the other women.  Carmel agreed that this occurred, and said it was because she was a benevolent landlady.

24.    The respondent had the facility for clients to pay by EFTPOS credit and by credit card.  The respondent owned the machines necessary for such transactions to take place.

25.    Vanda said that the respondent had a set of rules for her house which the sex workers had to abide by.  

          Vanda said that the rules of the respondent included that the sex workers were not allowed to have "girl friends" visit their rooms; they were not allowed to mix with other "girls" at other "parlours"; and they were not allowed to have a boyfriend or husband in the town.  However, those rules had been relaxed a little bit in more recent times.

26.    Vanda said that since the application had been made by Phillipa, Carmel had "told" the women working at Questa Casa that they were working independently of her.  Subsequent to this, Vanda had a dispute with a client who did not want to pay the agreed amount, $40, after Vanda had performed services for him.  Carmel attended upon the dispute and offered to the client that he could pay half of the amount that he had been quoted for the service.  Vanda said that she told the client in front of Carmel, "This lady is not the boss", having in mind the time when Carmel told the workers they were now working independently of her.   Vanda said that the respondent then "went really mental".   Vanda said that Carmel said, "I am the boss of this house and don't you dare tell any customer I am not the boss of this house."  This evidence was not disputed by Carmel in her evidence and I accept that the incident occurred.

27.    Vanda also said that it had "been drilled into me that many times from Carmel" that she was the boss of the house. Vanda also spoke of occasions when she had been "sacked" by Carmel and asked to leave the brothel, including a time close to the hearing of the application.

28.    Vanda also gave evidence of business cards that Carmel had printed and paid for and had given to the sex workers to give to clients.  Although the cards did not have the sex workers' names on them, they had written on them, "We are simply the best", a picture of a barely clothed woman, the name "Questa Casa" and its address, telephone and facsimile number.

29.    In her evidence, Carmel said that when somebody wanted to join the house, it was a matter of whether a room was available.  She would tell such a person which rooms were available and "in the main, they will take anything that comes up because they know that it is a good place for them to be."  She said that "they come because they can work from 133 on the basis that they don't have to give a percentage of the money to me.  They merely pay rent."

30.    Carmel agreed that on 7 November 1995, she asked Phillipa to leave the premises.  She said Phillipa was drunk.  Carmel said in evidence that she said to Phillipa that she had had enough, and to "Please pack and go."  She said that this followed previous occasions of drunkenness and Phillipa behaving in an oppressive manner towards the other women.  It is clear from this that although the respondent did not concede that she was the employer of the sex workers, she claimed the right to summarily ask them to leave the premises and to stop working at the premises, if the circumstances required it. 

31.    Mention should also be made of Phillipa's evidence of the commencement of her employment.  She said she was working at 143 Hay Street ("the red house") and knew one of the girls at 133 Hay Street, who said it was a better place to work.   She then asked Carmel "about a job", and Carmel said,"no problem . . . I could have a room within a week."

The legal question is whether, given this factual matrix, there was a relationship of employer and employee between the respondent and applicant.

EMPLOYMENT RELATIONSHIP - THE LAW

Section 4(1) of the Act states that an "employee includes any person whose usual occupation is that of employee.  It defines the word "employer"
to include a person who is usually an employer.  Neither of these definitions are very helpful in determining whether somebody is an employer or employee, or not.

The respondent submitted that the Industrial Relations Act was not applicable, as the applicant was not an employee of the respondent.  She submitted that the applicant was a boarder who rented a room for the purpose of being self-employed. 

This submission raises two questions, albeit they are intermingled.  The first is the distinction between a boarder or a tenant, and an employee; and the second is the distinction between an employee and someone who is self-employed.  The latter distinction is often referred to as the distinction between an employee and an independent contractor.

It can be said at the outset that the relationship between a madam and a sex worker who lives and works at the brothel of the madam is not a relationship which neatly fits within the sorts of analyses which have been used in the past to distinguish between an independent contractor and an employee, or tenant and employee.  It could perhaps be confidently said that the relationship between the madam and the sex worker is sui generis. 

Nevertheless, the traditional tests and distinctions between the relationship of employer and employee as against independent contractor, and employer and employee as against tenant, remain of assistance in highlighting the issues relevant to a determination of the question.

In Kenney v Loveland, unreported, IRCA 26/96, 30 January 1996, I considered some of the factors relevant to a determination of whether a person is an employee or independent contractor, and referred to the authorities of Re Porter: TWU (1989) 34 IR 179; Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16; Fitt & HSUA v Department of Community Services, unreported, IRCA 613/95, Murphy JR, 17 November 1995; Purvis v Chieftain Management Pty Ltd, unreported, IRCA 527/95, Marshall J, 29 September 1995, and Garth v Innerspace Wardrobes, unreported, IRCA 495/95, Murphy JR, 22 September 1995 at page 7. 

It appears that the Stevens case was the last opportunity that the High Court took to examine the distinction between an employee and an independent contractor.  That case involved a sawmiller who engaged sniggers to move felled trees to a loading zone, and truckers to carry the trees to a mill.  The sniggers and truckers used their own vehicles, set their own hours of work, and were paid according to the volume of timber delivered to the mill.  The sawmiller did not deduct income tax instalments from payments.  The sniggers and truckers were not guaranteed work and were free to seek other work, if weather or other circumstances prevented their working for the sawmiller.  An employee of the sawmiller had general supervision over operations, but exercised no control over the manner in which sniggers and truckers carried out their tasks.  While a log was being manoeuvred on to a truck, a trucker was injured by the negligence of a snigger.

The High Court had to determine whether the snigger and trucker were employees or independent contractors of the sawmiller, so as to determine whether the sawmiller was vicariously liable for the negligence of the snigger.  The High Court unanimously held that the snigger and the trucker were independent contractors. 

The reasons for judgment of Mason J were, on this issue, agreed to by of Brennan J and Deane J.  Wilson J and Dawson J wrote a separate judgment.

The judgment of Mason J on this issue commences with the statement that:

"a prominent factor in determining the nature of the relationship between a person who engages another to perform work, and the person so engaged, is the degree of control which the former can exercise over the latter.  It has been held, however, that the importance of control lies not so much in its actual exercise, although clearly that is relevant, as in the right of the employer to exercise it".

Mason J then continued:

"But the existence of control, whilst significant, is not the sole criterion by which to gauge whether a relationship is one of employment.  The approach of this Court has been to regard it merely as one of a number of indicia which must be considered in the determination of the question."

His Honour then said that:

"other relevant matters include, but are not limited to, the mode of remuneration, the provision of maintenance of equipment, the obligation to work, the hours of work and provision for holidays, the deduction of income tax and the delegation of work by the putative employer".

His Honour then reviewed the facts and said that, in his opinion, neither the snigger nor the trucker were employees of the sawmiller.  In coming to this conclusion, his Honour said that:

"they provided and maintained their own equipment, set their own hours of work and received payments, not in the form of fixed salary or wages but in amounts determined by reference to the volume of timber which they had been involved in delivering, through the use of their equipment, to the sawmill.  The authority of [the sawmiller's] bush boss seems to have been confined to the organisation of activities in the forest, determining the location of roads and ramps, selecting the logs to be snigged, monitoring the volume and quality of production, and deciding whether work would take place in bad weather". 

In the course of this discussion, his Honour referred to the Humberstone decision and the observation by Dixon J that "the essence of a contract of service is the supply of the work and skill of a man" (page 404).  The same, of course, applies to the supply of work and skill of a woman.

At page 26, Mason J commented that the power to delegate is an important factor in deciding whether a worker is an employee or an independent contractor, and cited in this regard Australian Mutual Provident Society v Chaplin (1978) 18 ALR 385 at 391. 

Mason J then referred to the so-called "organisation test" in determining whether a worker was an employee or independent contractor.  His Honour said that "legal authority to control is the more relevant and the more cogent in determining the nature of the relationship" (page 27). 

At page 29, his Honour concluded this aspect of his judgment by the observation that "control is not now regarded as the only relevant factor.  Rather, it is the totality of the relationship between the parties which must be considered". 

In their joint judgment, Wilson and Dawson JJ, at page 35, said that "the classic test for determining whether the relationship of master and servant exists has been one of control, the answer depending upon whether the engagement subjects a person engaged to the command of the person engaging him, not only as to what he shall do in the course of his employment, but as to how he shall do it".  Their Honours cited the decision of Performing Right Society v Mitchell & Booker (Palais De Danse Ltd) [1924] 1 KB 762. 

Their Honours then said "the modern approach is, however, to have regard to a variety of criteria.  This approach is not without its difficulties because not all of the accepted criteria provide a relevant test in all circumstances, and none is conclusive.  Moreover, the relationship itself remains largely undefined as a legal concept, except in terms of the various criteria, the relevance of which may vary according to circumstances".

On pages 35 and 36, their Honours referred to other dicta on the relevant distinction and said that such tests really posed the ultimate question in different ways, rather than offering a definition which could be applied for the purpose of providing an answer.  At page 36, their Honours said:

 "We would be doing no more ourselves if we were to suggest that the question is whether the degree of independence overall is sufficient to establish that a person is working on his own behalf, rather than acting as the servant of another; but putting it that way does at least indicate that the question is one of degree, for which there is no exclusive measure. 

"In many, if not most cases, it is still appropriate to apply the control test in the first instance because it remains the surest guide as to whether a person is contracting independently or serving as an employee.  That is not now a sufficient or even an appropriate test in its traditional form in all cases because, in modern conditions, a person may exercise personal skills so as to prevent control over the manner of doing his work and yet nevertheless be a servant: Montreal v Montreal Locomotive Works [1947] 1 DLR 161 at 169.  This has led to the observation that it is the right to control, rather than its actual exercise, which is the important thing (Zuijs v Wirth Bros Pty Ltd) when in some circumstances, it may even be a mistake to treat as decisive a reservation of control over the manner in which work is performed for another. 

That was made clear in Queensland Stations Pty Ltd v Federal Commissioner of Taxation (1945) 70 CLR 539 at 552, a case involving a droving contract in which Dixon J observed that 'the reservation of a right to direct or superintend the performance of the task cannot transform into a contract of service what, in essence, is an independent contract.'  The other indicia of the nature of the relationship have been variously stated and have been added to, from time to time, though suggesting a contract of service, rather than a contract for services includes the right to have a particular person do the work, the right to suspend or dismiss the person engaged, the right to the exclusive services of the person engaged, and the right to dictate the place of work, hours of work and the like.  Those which indicate a contract for services include work involving a profession, trade or distinct calling on the part of the person engaged, the provision by him of his own place of work or his own equipment, the creation by him of goodwill or saleable assets in the course of his work, the payment by him from his remuneration of business expenses of any significant proportion, and the payment to him of remuneration without deduction of income tax.  None of these leads to any necessary inference, however, and the actual terms and terminology of the contract will always be of considerable importance.  Having said that, we should point out that any attempt to list the relevant matters, however incompletely, may mislead because they can be no more than a guide to the question of the relationship of master and servant.  The ultimate question will always be whether a person is acting as the servant of another, or on his own behalf and the answer to that question may be indicated in ways which are not always the same and which do not always have the same significance".

Their Honours then considered the facts, and determined that there was no employer/employee relationship.

Deane J, in his judgment at page 49, agreed with the reasons of Mason J for the conclusion that both the snigger and trucker were independent contractors.  His Honour then said that "the distinction between 'employee' and 'independent contractor' has become an increasingly amorphous one, as the single test of the presence or absence of control has been submerged in a circumfluence of competing criteria and indicia".

In Re Porter: re TWU (1989) 34 IR 179, Gray J, at page 184, said that :

"A court determining whether a particular relationship is that of employment or of some other kind can therefore only resort to the process of balancing all of the factors, or as they are called in Stevens and other cases, the "indicia".  In truth, the result may be a matter of impression.  It is unfortunate that this is so.  It should not be necessary for people to obtain a decision of a court, in order to know the true nature of their relationship.  Unfortunate or not, that is the case.  Although the parties are free, as a matter of law, to choose the nature of the contract which they will make between themselves, their own characterisation of that contract will not be conclusive.  A court will always look at all of the terms of the contract, to determine its true essence, and will not be bound by the express choice of the parties as to the label to be attached to it.  As Mr Black put it in the present case, the parties cannot create something which has every feature of a rooster, but call it a duck and insist that everybody else recognise it as a duck.

As indicated by the passages in Stevens to which I have referred, there is no prescribed list of factors which will be examined in determining whether a contract is one of employment.   Any circumstance which may shed light on the nature of the contract will be taken into account."

Part of these paragraphs was cited with approval by Ryan J in Bennett v EZ Rizdon Golf Club Inc, unreported, IRCA 391/95, 28 August 1995 and by Marshall J in Purvis v Chieftain Management Pty Ltd T/as Brookes Maintenance Services, unreported, IRCA 527/95, 29 September 1995 at pages 8 and 10.

In Connolly v Wells, Gleeson CJ, at page 73, said of the distinction between an employee and independent contractor:

"The most recent authoritative statements on the subject in this country are to be found in the judgments of the High Court in Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16, (Mason J at 23-29, Wilson and Dawson JJ at 36-39 and Deane J at 49).  As Deane J observed, the distinction between an employee and an independent contractor has become increasingly amorphous as what used to be called the control test has given way to the application of competing criteria and indicia.  The degree of control to which the person performing the work is subject is still described as a prominent factor, but is now not regarded as determinative.  Other relevant matters are said to include the way in which the work is remunerated, the provision and maintenance of equipment, the arrangements that are made about hours of work and provision for holidays, the obligation to work, the arrangements that are made about taxation, and the capacity to delegate the work."

Kirby P discusses the relevant principles in that case at pp 82-84; and see also the judgment of Clarke JA at pp 93-94.

One thing that the authorities have clearly rejected is the contention that a person is not an employee where the work they perform is sufficiently specialised, skilled or of a personal nature so that it is difficult for the employer to impose much actual control over the work performed by the putative employee.  For example, in Zuijs v Wirth Bros Pty Ltd, the majority, at page 570, said that "a false criterion is involved in the view that if, because the work to be done involves the exercise of a particular art or special skill or individual judgment or action, the other party could not in fact control or interfere in its performance, that shows that it is not a contract of service but an independent contract".  In Zuijs, the High Court found that a circus trapeze artist was an employee of the circus owners.  At page 571, the majority said:

"What matters is lawful authority to command, so far as there is scope for it, and there must always be some room for it, if only in incidental or collateral matters.  Even if Mr Phillip Wirth [the circus owner] could not interfere in the actual technique of the acrobats and the character of the act, no reason appears why the appellant should not be subject to his directions in all other respects."

At page 573, their Honours cited with approval part of the judgment of Lord Thomson, in Stagecraft Ltd v Minister of National Insurance [1952] SC 288 where, at page 297, his Lordship said that "the nature of the task is not conclusive.  An artisan may be an independent contractor, while the most highly skilled technician is a servant.  A skilled craftsman may have highly individual gifts, and yet be under a contract of service.  His value as a servant lies in his individuality and is frequently employed just because he can exercise special skills which the employer does not possess.  The employer of such a servant can direct the objective to which the servant's skill is to be addressed, but he is powerless to control the manner in which the servant's skill is exercised.  It seems to me therefore to be beside the point to argue that an artiste, because he gives a unique, individualist performance which expresses his own personality, cannot be under such control by his employer as to make him a servant."

In this case, it could not be suggested that because the work that Phillipa did was largely unsupervised, up to the discretion of herself and the individual client, individualistic and subject to her own skills, that she was not the employee of the respondent.

THE DISTINCTION BETWEEN EMPLOYMENT AND TENANCY

In "The Law of Employment", 3rd Ed, Law Book Company, 1990 by Macken, McCarrie and Sappideen, the authors consider the distinction between tenancy and employment at pp 40-42.  At page 40 there is reference to many classes of employment which virtually require employees to reside in premises owned by or provided by the employer.  Examples stated are isolated mining leases, rural workers, workers on railway and construction sites, and residential watch persons and caretakers, as well as domestic employees of various classes.  The authors state that the "control" test is applied to determine whether or not an employer/employee relationship has arisen, although it is possible for a person to be both an employee and a tenant.  However, the authors state that "usually, if an employee is required to live in the employer's accommodation, the employee will have the status of a licensee". 

At page 41, the authors quote from the judgment of Dixon J in Warner Pty Ltd v Williams (1946) 73 CLR 421 at 429 where his Honour said that "where the purpose of placing the employee in occupation of the premises is to give him the benefit of a dwelling place, whether as a concession or as a part of his recompense for his services, or in consideration of a deduction from his wages, he is regarded as having an independent occupation of the premises and the relation is construed as landlord and tenant . . . but if the occupation of the premises is subservient to, and necessary to, the service then it is that of the master".  This passage seems to consider the situation where there is a person who is admittedly an employee and where the Court is considering whether, in addition to that, they are also a tenant, rather than determining the dividing line between tenant and employee. 

More useful in this context is the quotation on page 42 of Macken et al from the case of Fox v Dalby (1874) LR 10 CP 285, where it was stated that "where a person is allowed to occupy premises by way of reward for services, or part-payment, his occupation is that of a tenant, but where he is required to occupy them for the best performance of his duties, though his residence there is not necessary for that purpose, or if his residence there be necessary for the performance of his duties though not specifically required, his occupation is not that of a tenant". 

Macken et al then state that "the worker will, in that situation, occupy the premises as a licensee, for where premises are occupied by an employee as a term (express or implied) of the contract of employment, that person will have a 'service occupancy', rather than a leasehold".  In support of this proposition, the learned authors cite Dover v Prosser [1904] 1 KB 84 and Street v Mountford [1985] 2 WLR 877 (House of Lords). 

These observations do not, however, resolve the issue in this case.  As stated, the respondent submits that the applicant was a boarder who rented a room for the purpose of being self-employed.  That is, the issue to be determined was whether Phillipa was self-employed or an employee?

EMPLOYMENT RELATIONSHIP - ANALYSIS OF FACTS, AND CONCLUSION

As Stevens v Brodribb and the cases decided subsequent to it establish and apply, it is necessary to consider the totality of the relationship, to see whether, on balance, the relationship is one of employer and employee.

Set out below is a table of those factors in this case which I consider to be indicative of an employment relationship, those which are neutral factors, and those which are indicative of something other than an employment relationship.  The numbers in each section of the table correspond with the numbers of the relevant factual issues set out above.  To determine the nature of the relationship, I need to consider not only the number of indicia in one section or the other of the table, but the collective weight of the indicia in each section of the table.

Indicative of Employment Relationship

4-5  The sex workers were subject to the containment policy,  as applied by the respondent.

7    The respondent's location and role at 133 Hay Street.

8-10  The rules imposed by the respondent on the sex workers, and her disciplining of individual workers who did not comply with those rules.

11  The respondent's role as a mediator of disputes between sex workers and clients.

18  The interview of the respondent on the 7.30 Report, in which she emphasised the controls that she had over the individual sex workers, due to the containment policy.

21-22 The system of determining prices, involving consultation between the applicant and the respondent

25-27  The evidence by Vanda of the rules of the respondent, the reaction of the respondent when Vanda suggested to a client that Carmel was not "the boss" and the evidence of Vanda of Carmel dismissing her and asking her to leave the brothel on occasions.

28  The printing, content and distribution of the Questa Casa business cards.

30  The purported exercise by Carmel of the right to ask Phillipa to leave the premises because she was drunk and was oppressive to the other workers.

31. Phillipa's evidence of the commencement of her relationship with Carmel.

Neutral Factors

1    The set-up of the brothel, including individual rooms.

6    The applicant had three different rooms whilst working at 133 Hay Street

12  Given all of the circumstances, I consider that the issuing of group certificates and the collection of tax by the respondent to the Australian Taxation Office to be a neutral factor.

13  The respondent collected contributions from individual employees for superannuation each week.

14  The applicant's allegation that a reason for termination of employment was that she had "wrecked the plans" of the respondent by failing to take up a lease of the business from the respondent.

15  The separation certificate, given that Carmel crossed out a number of parts of the certificate that referred to herself or the applicant as an employer/employee respectively.

16  The management of the premises by the applicant in the absence of the respondent.

17  The respondent reasserting her authority after periods of absence.

19  The applicant's furnishing of her own room at Questa Casa.

23  The applicant was not required to pay rent when she was recovering from her back injury.

24  The respondent's EFTPOS credit and credit card facilities.

Indicative of Other than Employment Relationship

2    The respondent did not pay the sex workers for the work that they did (Item 22 is linked to this).

3    The rental was a fixed amount and did not vary according to the amount earned by the individual.

20  The fact that the rental on the room was deducted by the individual sex worker as a business expense before determining their assessable income is an indicator of a relationship of independence, rather than employment.

22  The applicant decided her own hours of work and decided which days she would work.

29  There was no evidence about whether holidays or sick leave were paid for by the respondent, although I assume they were not, consistent with 22 above.

The question of the relationship between the applicant and the respondent has been a difficult one to decide.  It is clear from the above table that the respondent maintained much actual or potential control over the sex workers, including the applicant.  Further, I consider that such control went beyond the control that the respondent could exercise over a boarder who was renting a room for the purpose of their self-employment.  On the other hand, the indicators in the right-hand column of the table are strong indicators towards there not being an employment relationship.  In particular, I regard as weighty factors the non-payment of salary or wages, the rental of the rooms not being dependent upon the amount earned, the rental being regarded as a business deduction from the assessable income of the individual worker, and the individual worker largely setting the days and hours of their work. 

The issue is finely balanced. I am satisfied, however, on the balance of probabilities, that there was an employment relationship.  Although the factors against this are weighty as I have indicated, I regard the nature and extent of the control exercised by the respondent over the applicant as significant and sufficient to prove a relationship of employment.

Therefore, the first issue is determined in favour of the applicant.  I accept that the applicant was the employee of the respondent from 23 March 1993 until her employment was terminated on 7 November 1995.

THE QUESTION OF ILLEGALITY

In her closing submissions, Carmel stated that "any contract that has claimed to have been entered into would be null and void due to illegality of the situation. Even though it is tolerated, and even though it is contained, it is nonetheless illegal."

Before considering this issue in detail, I think it is important to understand what it is that the applicant is endeavouring to do.  She applies to the Court under s 170EA of the Act for "a remedy in respect of termination of her employment".

The cases decided by this Court have established that, where there is a distinction, it is the termination of the employment relationship at the initiative of the employer, as opposed to the termination of the contract of employment, that is the relevant thing to consider for the purposes of determining whether a remedy lies under the Act: see Fisher v Edith Cowan University, WI1061/96, Ritter JR, 23 August 1996, unreported.

In this case, there was no formal contract of employment, either oral or written.  There is probably no meaningful distinction in this case between the employment relationship and the contract of employment.  It was a case where the determination of the terms and conditions of the contract would to some extent need to be determined after consideration of the conduct of the parties: see Connelly v Wells per Gleeson CJ, p 74.

The remedy that the applicant seeks from the Court is that of compensation for the allegedly unlawful termination of the employment relationship.  She does not, as such, ask the Court to enforce a contract of employment.  She asks the Court to recognise the employment relationship, decide that the termination of the relation was contrary to the Act, and therefore award her compensation.  It is not a case where the applicant seeks to either enforce the performance, or seek damages for the breach of a contract which is alleged to be illegal or contrary to public policy.  This may, however, not be a material distinction: see Hewcastle v Ahmed [1992] I CR 627, 635-6, citing Saunders v Edwards [1987]  1 WLR 1116 per Nicholls LJ at 1131-1132.

 As later references to the texts and cases will show, there are two issues of what is sometimes called "illegality" to consider in this case.

The first is whether the employment contract or relationship between the applicant and respondent involved illegality as it contravenes the Police Act (WA), and therefore the applicant should be denied a right to seek a remedy under the Act.

The second is whether the employment contract or relationship was of an "immoral" kind and therefore should not be able to be relied upon by the applicant to found a remedy for reasons of public policy.

THE LEGAL STATUS OF THE CONTRACT OR RELATIONSHIP OF EMPLOYMENT

The respondent's submission was supported by ss 76F and 76G of the Police Act (WA).  These sections state as follows:

"Summary proceedings against keepers, etc, of premises for purposes of prostitution

76F       Any person who -

(1) keeps or manages, or acts, or assists in the management of any premises for purposes of prostitution; or

(2) being the tenant, lessee, or occupier of any premises, knowingly permits such premises, or any part thereof, to be used for purposes of prostitution; or

(3) being the lessor or landlord of any premises, or the agent of such lessor or landlord, lets the same, or any part thereof, or collects the rent with the knowledge that such premises, or some part thereof, are or is to be used for purposes of prostitution, or is a party to the continued use of such premises, or any part thereof, for purposes of prostitution, is liable, on summary conviction -

(a) to a fine not exceeding $100, or imprisonment, not exceeding 6 months; and

(b) on a second or subsequent conviction, to a fine not exceeding $200, or to imprisonment, not exceeding 12 months.

It is immaterial whether the premises kept or occupied for prostitution are kept or occupied by one person or more than one person.

76G  Summary proceedings against persons connected with prostitution

(1)    Every person who -

(a)    knowingly lives wholly or in part on the earnings of prostitution; or

(b)    in any public place persistently solicits or importunes for immoral purposes, shall be deemed to have committed an offence against section 66 of this Act, and may be dealt with accordingly."

Section 76G makes it an offence for a person to, in part, knowingly live off the earnings of prostitution.

The respondent fits this description.  By receiving the rental from the sex workers each week, knowing that they have earned this money from "prostitution", the respondent is living, in part, on the earnings of prostitution.  Further, the sex worker would be an accessory to such an offence under section 7 of the Criminal Code of Western Australia.  This section makes a person liable for the commission of an offence, amongst other things, if they have done an act for the purpose of enabling a person to commit an offence, or aids another person to commit an offence.  The sex worker fits this description by knowingly permitting the respondent to live off their earnings: see Giorgianni v R. (1985)156 CLR 473. Therefore, both the applicant and the respondent have contravened section 76G by their employment relationship.

In addition, it could be argued that the individual sex worker is the aider of a contravention by the respondent of section 76F(1) of the Police Act (WA) in that she has aided the keeping by the respondent of the premises at 133 Hay Street for the purposes of prostitution.

These conclusions are supported by the WA Law Reform Commission Discussion Paper on Police Act (WA) Offences, Project No. 85, May 1989.  At paragraph 9.39, the Law Reform Commission, after referring to and discussing sections 76F and 76G of the Police Act (WA), says:

"The effect of the two offences discussed above is that though the act of prostitution itself is not illegal, it is difficult for a prostitute to remain within the law unless she sees clients in her own home.  She cannot work with other prostitutes or maintain a separate place of business.  Nor can she employ other staff, such as receptionists or minders, to assist her.  If she lives with a partner, the partner may run the risk of conviction for living on the earnings of prostitution."

The Report on Police Act (WA) Offences of the Law Reform Commission, Project No. 85, August 1992 did not depart from this earlier statement of the law: see paragraph 9.15.

I therefore proceed on the basis that the applicant and the respondent, by virtue of their relationship, contravened the letter of sections 76F and 76G of the Police Act (WA).

There was, however, no evidence that the applicant or the respondent had been prosecuted for breaching these sections of the Police Act (WA).  Indeed, the evidence was that they would not be prosecuted.  This was because of the containment policy.  The containment policy, as described in the evidence, meant that certain brothels and prostitutes who are registered with the CIB in Kalgoorlie, will not be prosecuted under the criminal law of the State.  The evidence, as set out above, revealed that there were certain rules established by the containment policy.  They included the sex workers being registered, residing at registered brothels, having regular health checks, etc. 

At paragraph 9.4 of the Law Reform Commission Report on Police Act (WA) Offences, the Law Reform Commission said that "at present, the police regulate prostitution by a policy of 'containment and control', under which a limited amount of prostitution - related activity is tolerated and regulated without prosecution under the Police Act (WA)".

The containment policy was referred to by the Supreme Court in Kings-Brooks v Roberts & Ors (1991) 5 WAR 500.  In that case, the applicants had been charged with keeping premises for prostitution and living wholly off the earnings of prostitution under the Police Act (WA).  Writs of prohibition were sought against a Kalgoorlie magistrate on the grounds that the charges were an abuse of process on the basis, amongst other things, that the decision to prosecute was an arbitrary or capricious exercise, in the application of a containment policy run by the police.  Writs of mandamus were also sought against the Police Commissioner on the basis that he was under a duty to order every officer to desist from the application of the containment policy, and to enforce sections 76F and 76G of the Police Act (WA).  Malcolm CJ at page 510 said that "the evidence establishes the existence of such a policy, referred to as 'the policy of containment and control', in the affidavit of Detective-Sergeant Hett.  The evidence regarding the content of the policy is vague, ambiguous and sketchy".  On page 514, the Chief Justice said that "while it may be inferred from all the evidence that there is a containment policy, it would appear to operate in relation to premises in circumstances which would otherwise involve someone keeping them for the purposes of prostitution.  In other words, the policy would tolerate some premises kept for the purposes of prostitution but not others.  As I have already remarked, the evidence before us of the content and rationale of the policy is vague, ambiguous and sketchy".  At page 517, the Chief Justice said that "there is no admissible evidence that the containment policy is a policy adopted, endorsed or pursued by the Commissioner of Police, although the existence as distinct from the contents of the policy, is a notorious fact."  Pidgeon J agreed with the reasons of the Chief Justice. 

In a separate judgment, Rowland J, at page 519 said that:

"There is some evidence before us that there are others in Kalgoorlie who are conducting similar businesses in a similar way to the applicant but they are not the subject of any prosecutions because they come within the guidelines of what is said to be a containment policy, administered by some police officers.  There is, of course, no hard evidence that others are so operating, and the evidence as to the containment policy is rather sketchy.  There is no doubt that it exists, but its origins and the legal basis (if any) upon which it operates is not disclosed."

At page 520, his Honour said:

"The extent, if any, of the Commissioner's involvement in the formulation of, or the application of, the policy, is unknown.  It is difficult to believe that the Commissioner is not aware of its existence and its precise terms.  The newspapers have quite consistently over the last 15 years or so repeatedly made reference to its existence.  The Commissioner has not filed an affidavit in relation to the facts.  On the evidence before us, there is, in my view, a reasonable inference that there are some persons, not identified, who are openly breaching the provisions of sections 76F and 76G of the Police Act (WA), and are not prosecuted because they comply with some sort of policy. . . the difficulty is, as I have mentioned earlier, to identify the terms of the policy and its legal status (if any).  I am left, however, with a strong feeling of disquiet that at some level within the respondent's administrative responsibility, there exists a practice of doubtful legality, and although it is said to be based on matters of high public interest, the respondent has not been prepared to have that matter tested. . . I would not wish to give the impression, however, that this Court, in a properly constituted action, is not able or willing to grant relief if after full disclosure and argument, it is found that there is in force a policy of containment which is not sustainable at law, or in the proper exercise of a discretion which is undoubtedly held by members of the Police Force."        

Both applications on behalf of the applicant were dismissed.  I have referred to the passages above from Kings-Brooks v Roberts to illustrate the uncertain legal status of the containment policy in Western Australia.

The report on Police Act (WA) Offences of the Law Reform Commission, in Chapter 9 and in particular at paragraph 9.4, has listed a number of reports dealing with the practice of prostitution in Western Australia between 1976 and 1990. It is probably not unfair to say that governments on both sides of the political fence have regarded the legal status of sex workers working in brothels, and the containment policy, as too difficult a political issue to endeavour to solve; hence, the status quo, with all its uncertainties, contradictions and scope for police abuse and corruption, has remained.

 In B v McM (1987) 8 SR (WA) 36, HH Jackson DCJ of the District Court of Western Australia (to be considered again below) did not comment upon the containment policy in the context of a personal injuries claim in which a sex worker sought, in part, damages for future economic loss because she argued that injuries sustained in a motor vehicle accident prevented her from obtaining an income from sex work.

The position therefore seems to be that whilst it is clear that the relationship of employment between the applicant and the respondent involved a breach of the Police Act (WA), due to the containment policy, which a Judge of the Supreme Court of Western Australia has described as being of doubtful legality, neither the applicant nor the respondent were prosecuted.  Indeed, the activities of the applicant and the respondent were not only known to the Kalgoorlie CIB but were given positive endorsement by the police, so long as the containment policy rules were observed.

Furthermore, the Australian Taxation Office received income tax from the respondent as a voluntary tax agent on behalf of the applicant, knowing the source of the earnings of the applicant.  The respondent said in her evidence that there was a particular section of the Australian Taxation Office which dealt with such income tax.  There is an income tax ruling, TR93/25, on the assessability of proceeds of illegal activities and treatment of amounts recovered, handed down on 12 August 1993.  The ruling is about "any activities not permitted by law, such as those relating to drug dealings, insider trading, misappropriation, prostitution, SP bookmaking, etc".  The effect of the ruling is that the test for determining whether an amount is assessable income remains the same whether the amount is received from legal or illegal activities.  This ruling highlights, in my opinion, the difficulty in trying to categorise the status of the conduct of the applicant and the respondent under Western Australian law.  This is because, while the conduct may be contrary to the letter of the Police Act (WA) in Western Australia, the Australian Taxation Office is quite happy to receive tax on the incomes earned from such illegal activities; presumably for the benefit of the wider public in increasing the amount of public revenue available for governmental expenditure; and happy to leave the (non) prosecution of the offenders to the executive in Western Australia.  None of this is a satisfactory state for the law to be in, in my opinion.

ILLEGALITY AND THE LAW

As stated earlier, this is not a case where the applicant seeks to enforce an illegal contract.  Rather, it is a case that involves the applicant seeking a remedy in relation to the allegedly unlawful termination of an employment relationship, where the employment relationship: (a) necessarily involves a contravention of section 76F and/or 76G of the Police Act (WA), but (b) the applicant and the respondent were protected from prosecution under such laws because of the containment policy applied by the Kalgoorlie CIB.  There is also the question, as I have mentioned, of the immorality of the employment contract or relationship.

The law, in relation to illegality, in the context of contractual relations, is complex.  In The Laws of Australia, Volume 7, Contract, General Principles, Chapter 4, Illegality and Public Policy, it is said that "this is a complex area in which great uncertainty exists, both as to the present state of the law and its future development".  There is then quoted a passage from Carter JW and Harland DJ, Contract Law in Australia, 2nd Ed, 1991 at page 478, where the learned authors state that it ". . . seems to be generally accepted that it is impossible to reconcile all the cases on illegality".

In Riordan's The Laws of Australia, the various meanings of "illegality" are considered.  The conduct of the applicant and the respondent would seem to fit within what is described as behaviour which is unlawful in itself and therefore considered to be contrary to public policy: see paragraph [86], page 91; and also what may be argued to be "immoral" conduct.

At paragraph [87], page 92, it is said that "conduct unlawful in itself, such as crime, tort or breaking of statute, is necessarily objectionable for the purpose of public policy considerations.  However, this does not mean that it will automatically be used as a ground for the denial of an action.  Much depends upon the way the conduct is associated with the contract in question.  Thus, a contract that involves the commission of a minor offence or statutory breach may still be enforceable if the Court believes that public policy does not require the refusal of an action brought under it: see [95]."  At paragraph [95], page 99, it is said that "it may be, for instance, that the illegality is so trivial that the Court will not take the severe step of denying a claim brought under the contract."  In this context, there is reference to and quotation from Vita Food Products Inc v Unus Shipping Co Ltd [1939] AC 277 at 293.

In paragraph [92], page 97, there is a discussion of conduct inconsistent with "prevailing sexual mores" which may be contrary to public policy. 

The authors comment on the "classic example" of Pearce v Brooks (1866) LR 1 EX 213, where a contract to let a carriage to a prostitute for use in pursuing her trade was held to be unenforceable.  The comment is then made that "despite the liberalisation evident in the approach of modern courts to extramarital cohabitation agreements (see [86]), it remains likely that efficacy will be denied to an agreement involving or promoting prostitution or, indeed, any form of sexual activity considered immoral by the judiciary".  The footnote at the end of this quotation refers to H v H (1983) 13 Fam Law 180 and B v McM, cited above.

In H v H, a Family Court in England was faced with an appeal in a "wife swapping case".  The wife, Mrs H, had been formerly married to Mr W, and Mr H had previously been married to Mrs W.  Both marriages had lasted for some years and there were children of both marriages.  The marriages were dissolved in 1977 and there was a division of assets.  During discussions before the divorces, it was agreed that there would be remarriages and that each man would support and provide a home for his new wife.  The marriage between Mr and Mrs H was a failure. Ewbank J said that "the agreement between the four people had been an agreement which involved the breaking up of two marriages.  It was clearly unenforceable in law, and the Court ought not to encourage such agreements by giving any effect at all to their terms".

I have referred earlier to B v McM.  In that case, HH Jackson DCJ accepted a proposition that for a plaintiff to be able to claim damages for financial loss, the loss must be capable of arising in a legally acceptable way and that "participation in prostitution does not so qualify".  By upholding the submission, his Honour acknowledged that prostitution is not, of itself, an offence in Western Australia.  At page 53, his Honour said that "prostitution carried out over lengthy periods in a brothel or brothels, and involving also wilful and clear evasion of revenue laws, must be so intimately connected with illegality and immorality as, in my opinion, to invoke the doctrine," that his Honour referred to on page 52 - that public policy required his Honour not to take into account losses not arising in a legally acceptably way.  His Honour referred to Meadows v Ferguson [1961] VR 594 and Hickey v Kaminatos, unreported, Supreme Court, NSW, Begg J, 30 July 1971, noted in [1971] ALMD 3175, both cases involving illegal SP betting.

In Greig, DW and Davis, JLR, The Law of Contract, Law Book Company, 1987, page 1135, the learned authors state:-

"Although it has been suggested above (p.1128) that sexual immorality, of itself, is no longer a ground for rendering a contract illegal, 'there is no doubt that a contract to provide meretricious sexual services is and has long been regarded as contrary to public policy and illegal'." (The quotation is from the judgment of Hope JA in Seidler v Schallhofer [1982] 2 NSWLR 80 at 88.  This was a de facto relationships case.)

The learned authors then say that there is little doubt that Pearce v Brooks is still good law.  They also state, at page 1136, that in Allan JM (Merchandising) Ltd v Cloke [1963] 2 QB 340 at 348, Lord Denning MR referred to the facts of that case as an example to support his proposition that it is the common intention of the parties to use the subject matter of a contract for an improper purpose which renders the contract illegal.  In that context, the authors also referred to H v H, referred to above.

There was no addition to these parts of pages 1135 and 1136 of Greig and Davis in the 5th Cumulative Supplement in 1993.

In Markulin v Drew (1993) DFC 95-140, 76721, a decision of Young J of the New South Wales Supreme Court, Equity Division, the Court considered a situation where an elderly man agreed to pay a woman $40,000 per year in his business, but where it was clear that her duties involved sexual services.  From 1980 to 1990, the relationship continued and included occasional sexual relations, the staying by the man at the house of the woman and her husband where she "attended to his needs to the detriment of her own husband and children".  After the man's death, there was a claim by the woman for breach of contract or, alternatively, for provision under the Family Provision Ac (NSW).  The Court held that the contract was too uncertain to enforce and also said that the defence of illegality would have succeeded.

At 76,722-76,724, Young J considered the illegality issue.  His Honour referred to Trietal on Contracts, 8th Ed, pp 390-392, where the learned author distinguishes cases of contracts "with purely meretricious purposes and those intended to regulate stable extra-marital relationships".

His Honour considered the definition of "meretricious" ("of, pertaining to, befitting, or of the character of a harlot") and indicated that this referred to "a man and a woman who are living independent lives but the man is rewarding the woman for sexual services she provides from time to time" (page 76,723).

His Honour said the suggested contract in the case before him was "meretricious" and the defence of "illegality" would succeed.

Young J, in considering the issue, referred to a case as old as Bainham v Manning (1691) 23 ER 756, where the expression "common strumpet or prostitute" is used.  Whilst I understand that His Honour was considering this case to determine the meaning of "meretricious" as used in Trietal, by reference to the "traditional" cases, in my opinion and with the very greatest of respect to his Honour, the reference to such an old case and an expression like the one quoted seems at odds with a contemporary understanding of sex work in the context of a decision based on public policy.

A different approach is implicit in Davies v Davies (1995) FLC 92-646.  In this decision of the Full Court of the Family Court at Perth, involving the division of a married couple's assets upon separation, the Court had to consider the future needs of the husband, who had suffered severe head injuries in a hang gliding accident.  The trial judge allowed an amount for the future services of sex workers.  Whilst the Full Court disallowed this amount, it was on the basis of lack of reliable evidence as to the frequency of the husband's needs, the cost of such needs and whether the frequency would alter over time: see page 82,532.  There was no suggestion that such amounts would not be allowed because the services provided were "immoral", "illegal" or against "public policy".  This can be contrasted to the determination against the sex worker in B v McM.

The Full Court of the Federal Court considered some relevant issues in Barac v Farnell (1994) 53 FCR 193.  In this case, the respondent worked for the appellant as a receptionist in a brothel.  The duties of the receptionist included opening the premises each morning, keeping work sheets of the sex workers, making appointments for clients, keeping financial records and cleaning the bedrooms in the brothel.  The respondent fell whilst working and suffered injuries.  The respondent applied for worker's compensation pursuant to the Workers Compensation Act 1951 (ACT) but her application was refused at first instance on the basis that because of the nature of the contract of employment, she did not fit the definition of a "worker" under the Workers Compensation Act.  She successfully appealed to the Supreme Court of the Australian Capital Territory.  The appellant then appealed to the Full Court of the Federal Court.  The Court dismissed the appeal.  A majority of the Court (Higgins and Carr JJ, as opposed to Beaumont J) held that the appellant might have been lawfully convicted of an offence against section 18(b) of the Police Offences Act 1930 (ACT) as being knowingly concerned in the management or conduct of a brothel.  However, the Court held that neither statute nor public policy made the contract of employment between the appellant and the respondent void for  illegality, and therefore it was cognisable, for the purposes of the Workers' Compensation Act (ACT).  The majority also considered that the respondent was potentially in breach of the common law offence of aiding and abetting her employer, the brothel keeper, in the common law offence of keeping a brothel.

In his dissent on this issue, Beaumont J considered that, on the facts, the respondent had not committed either offence.

At page 207, Beaumont J referred to the judgment of Young J in Markulin v Drew (1993) DFC 95-140, where at 76, 723, his Honour referred to the distinction in public policy terms, between contracts with "purely meretricious purposes" and those which are "intended to regulate stable extramarital relationships".  Beaumont J was of the view that "it would be an unjust outcome if, by shooting the messenger, as it were, those who conducted the business should be able to set up a defence of their own immoral purposes, carried on for their own profit, and may be relied on to avoid liability to a worker performing routine duties when the worker is injured in the course of her duties".

Higgins J, at page 212 under the heading "Consequences of Illegality", said:

"I assume, therefore, that in carrying out her duties as receptionist in the appellant's brothel, the respondent was, at the date of her injury, aiding and abetting the appellant in the keeping of the brothel or was "knowingly concerned" in the management of it.  The commission of these offences did not necessarily have the effect that the respondent's contract of employment was void ab initio.  Of course, the contract of employment, in so far as it required the respondent to perform services constituting any such offence, would not have been capable of enforcement by either party."

At line D on the same page, his Honour said that "a contract, even though unenforceable, still exists in law".

His Honour continued at the bottom page 212 and the top of page 213 as follows:

"Illegality does not necessarily affect the enforceability, in any relevant sense, of an agreement which involves the commission of an offence.  In Archbolds (Freightage) Ltd v S Spanglett Ltd [1961] 1 QB 374, the use of an unlicensed van to carry goods not only was considered not to render the contract of carriage void, it was held that it did not render that contract unenforceable.  As Lord Wright said in Vita Food Products Inc v Unus Shipping Co Ltd [1939] AC 277 at 293:

'. . . the rule by which contracts not expressly forbidden by statute or declared to be void are in proper cases nullified for disobedience to a statute is a rule of public policy only, and public policy understood in a wider sense may at times be better served by refusing to nullify a bargain, save on serious and sufficient grounds.'

More recently, in Yango Pastoral Co Ltd Pty Ltd v First Chicago Australia Ltd [1978] 139 CLR 410, the High Court, per Mason J, with whom Aitken J agreed, said (at 429):

'There is much to be said for the view that once a statutory penalty has been provided for an offence the rule of the common law in determining the legal consequences of the commission of the offence is thereby diminished . . .'

A statute will not usually be regarded as showing by implication an intention to interfere with the rights, remedies and ordinary incidents of the law of contract.  Nor is the common law to be regarded as intending such a consequence unless public policy demands it.

It was submitted that there was also a common law prohibition on contracts such as the present.  This was said to derive from public policy.  It was submitted that contracts which promote sexual immorality are contrary to public policy.

There has, however, been some shift in opinion in relation to that aspect of public policy.  For example, in the early case of Upfill v Wright [1911] 1 KH 506, a lease of a flat for the purposes of furthering an illicit sexual relationship was held illegal and unenforceable.  That case may be compared with the more recent case of Seidler v Schallhofer [1982] 2 NSWLR 80, in which a purchase of property jointly by a de facto couple for the purposes of use in furthering their 'illicit' sexual relationship was held to be untainted by any illegality to be derived from public policy.

It is unlikely that contracts to hire x-rated erotic videos would now be held void or unenforceable for illegality, based on such a rule of public policy.  Particularly is this so, having regard to the legislative recognition of that trade for revenue purposes in the Taxation (X-Rated Videos) Act 1990 (ACT).

For an agreement involving illegal conduct to be regarded as void or unenforceable, that illegal conduct needs to be characterised as sufficiently serious for public policy to require that result.  Otherwise, it will be essentially unaffected by that illegality: see Electric Acceptance Pty Ltd v Doug Thorley Caravans (Aust) Pty Ltd [1981] VR 799 at 810 per Brooking J."

His Honour concluded that he agreed with Beaumont J and Carr J that no public policy reason existed to deny the respondent's claim for compensation.  His Honour therefore said that the expression "contract of service" in the Workers Compensation Act could include contracts which are merely unenforceable or voidable for illegality, even though it does not include those which are wholly void for illegality.

Carr J, at page 215, said:

          "In essence, the appellant's argument is as follows:

1.      The appellant and the respondent entered into a contract of employment;

2.      The performance of that contract involved the respondent in committing an offence (aiding the appellant to manage, conduct or keep the brothel);

3.      By reason of the above, the contract is void; and

4.      Being void, that contract cannot for the purposes of the Workers' Compensation Act 1951 (ACT) be regarded as a contract.

In my view, there is a flaw in that reasoning.  There is no question in this matter of seeking to enforce the contract in any manner whatsoever.  The question is whether it is not permissible to characterise the arrangements between the appellant and the respondent as a contract for the purposes of the definition of a 'worker' within the meaning of section 6(1) of the Workers' Compensation Act?

The respondent's rights do not arise from the contract but are granted by statute provided that the respondent falls within the definition of a 'worker'.  In my view, the word 'contract' in the phrase '. . . contract of service or apprenticeship with an employer . . .' was used only as part of a mechanism to distinguish between an employee and a person providing services, pursuant to a contract for services."

At page 216, his Honour said that there was justification for "applying the underlying principles reflected in the decision of the High Court of Australia in Yango Pastoral Co Pty Ltd v First Chicago Australian Ltd (1978) 139 CLR 410.  In that case, documents securing a loan were held to be enforceable, even though the lender, at the time when the loan was made, was carrying on the business of banking contrary to certain provisions of the Banking Act (1959) Commonwealth".  Carr J found that the contract of employment was not illegal to the extent that it should be characterised as not being a contract for the purposes of the relevant definition in the Workers Compensation Act. 

NELSON V NELSON (1995) 132 ALR 133

In this case, decided on 9 November 1995, the High Court had to consider the law relating to illegality, although in a context quite different from that before the Court.  One of the issues before the Court was whether a plaintiff could obtain equitable relief when that plaintiff had engaged in illegal conduct.  A son and daughter were the legal owners of a house purchased with monies advanced by their mother.  There was a dispute over the entitlement to the proceeds of sale of the house.  The house was held in the name of the children to enable the mother to falsely receive a subsidised advance under the Defence Services Homes Act (1918) (C'th) to finance the purchase of another property.  The question was whether the daughter was able to resist, by reason of the illegality, the assertion of the mother to beneficial title arising from a resulting trust in favour of the mother.  The Court considered the question of illegality at common law and in equity.  In a unanimous decision, the Court held that there was no justification for disallowing the mother's claim, even though there was an illegal purpose in the activities of the mother.  The mother was entitled to the beneficial interest in the house, under the resulting trust.  The Court ordered, however, that the balance of proceeds of the sale of the house be held upon resulting trust for the mother, provided that payment be made by the mother to the Commonwealth of an amount equivalent to the benefit sum received by her under the Defence Services Homes Act.

In the joint judgment of Deane and Gummow JJ at page 143, their Honours commented that:

"Authorities in contract law such as Vita Food Products, Inc v Unus Shipping Co and Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd suggest the drawing of a distinction between (i) an express statutory provision against the making of a contract or creation or implication of a trust by fastening upon some act which is essential to its formation, whether or not the prohibition be absolute or subject to some qualification such as the issue of a licence; (ii) an express statutory prohibition, not of the formation of a contract or creation or implication of a trust, but of the doing of a particular act; an agreement that the act be done is treated as impliedly prohibited by the statute and illegal; and (iii) contracts and trusts not directly contrary to the provisions of the statute by reason of any express or implied prohibition in the statute but which are 'associated with or in furtherance of illegal purposes".  The phrase is that of Jacobs J in Yango.

Examples in the third category include cases where the mode of performance adopted by the party carrying out the contract contravenes statute, although the contract was capable of performance without such contravention" (footnotes omitted).

At page 145, their Honours referred to the "fundamental principle of the common law . . . that a Court will not lend its aid to a plaintiff who founds a cause of action upon an immoral or illegal act, particularly where both parties are equally in fault.  These propositions are generally treated as following from the judgment of Lord Mansfield in Holman v Johnson (1775) 1 Cowp 341; 98 ER 1120". 

Further, Deane and Gummow JJ, at page 149, said that:

"Two factors are of paramount importance.  First, as the appellants submit and we would accept, the question of illegality is bound up with the view taken of the underlying policy of the Act.  To quote a United States scholar, 'if illegality consists in the violation of a statute, courts will give or refuse relief, depending upon the fundamental purpose of the statute.'  Secondly, what is sought are equitable remedies in aid of an alleged trust and equity is equipped to attain a result which eschews harsh extremes." 

At page 158, Deane and Gummow JJ referred to the Commonwealth Crimes Act, section 29B, which creates an offence of imposing upon the Commonwealth or any public authority under the Commonwealth by any untrue representation, made in any manner whatsoever, with a view to obtaining money or any other benefit or advantage.  The offence has a maximum penalty of imprisonment for two years.  Their Honours then said that "counsel for the appellants points to these provisions in support of the proposition that the purpose of the Act is sufficiently served by such penalties, and that the denial of the resulting trust would cause prejudice to a person in the position of [the mother], without furthering the objects of the legislation.  Reference is made to the statement in Archbolds (Freightage) Ltd v S Spanglett (Ltd) [1961] 1 QB 374 at 390, adopted by Jacobs J in Yango (1978) 139 CLR 410 at 432-3, that the purpose of a statute may sufficiently be served by the penalties prescribed for the offender.  It then is submitted that the imposition of the additional sanction, the inability of the first appellant to enjoy the proceeds of what otherwise is her beneficial ownership of the [house], would not be an appropriate adjunct to the scheme for which the Act provides.  That submission should be accepted".

In his judgment, Dawson J at page 163, said that "the attitude of the common law towards illegality is contained in the principle that a Court will not lend its aid enforcing a cause of action which is founded upon an immoral or illegal act".  His Honour then cites Holman v Johnson.

His Honour referred to Tinsley v Milligan, where the Court of Appeal which had held by majority that "even if there were in the past a rule of equity requiring a Court to refuse relief where it appeared that property was transferred for an illegal purpose - a rule that the estate should lie where it fell - by analogy with cases at common law involving the maxim ex turpi causa, a more flexible approach should now be adopted.  In several cases, there had evolved what became known as 'the public conscience' test, which required a court in the application of the maxim to balance the adverse consequences of granting relief against the adverse consequences of refusing relief.  Applying that test in the case before them, the Court of Appeal held that there was no bar to a declaration of a resulting trust, notwithstanding the revelation of the illegal purpose of the arrangement between the plaintiff and the defendant."

The "several cases" of the Court of Appeal that his Honour referred to include Saunders v Edwards [1987] 1 WLR 1116, Euro-Diam Ltd v Bathurst [1990] 1 QB 1 and Pitts v Hunt [1991] 1 QB 24.  Both Saunders v Edwards  and Euro-Diam Ltd v Bathurst were considered in another decision of the Court of Appeal of England, Hewcastle Catering Ltd v Ahmed [1992] ICR 626, which involved a claim for unfair dismissal by two waiters against a company which was the owner and proprietor of a London club.  The club devised a scheme to fraudulently evade the payment of value added tax on the services provided to customers who paid their bills by cash, by directing the cashier to issue bills in a different form to those issued to customers who paid by credit card.  The Court of Appeal had to consider whether the fact that the performance of the contract of employment by the waiters involved illegality, meant that they were not entitled to bring a claim to the Industrial Tribunal for unfair dismissal.  The Court of Appeal found in favour of the waiters.  The decision will be further considered below.

In his judgment, Toohey J, at page 177, said that "a statute may contain an express prohibition against the making of a contract, or it may prohibit the doing of a particular act.  An agreement that the act be done may, in the circumstances, be impliedly prohibited.  On the other hand, a contract in furtherence of an illegal purpose may not be directly contrary to the provisions of the statute by reason of any prohibition, express or implied".

His Honour then considered that there was no statutory bar to the transaction whereby the mother acquired the beneficial ownership of the house in that there was nothing in that transaction which offended any provision of the relevant Commonwealth Act.

At page 178, his Honour said that:

"When a contract is not itself the subject of an express or implied statutory prohibition but is associated with or is in furtherance of an illegal purpose, the 'refusal of the courts to regard such contracts as enforceable, stems not from a legislative prohibition but from the policy of the law, commonly called public policy'.  Even then it is necessary to ask what public policy of the law would be served by declining to enforce the contract.  The rule of law expressed in the maxim ex turpi causa nor oritur actio is one of public policy to discourage breaking the law.  The underlying policy is that 'no court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act'.  But a universal application of this rigid rule will often lead to unjust and capricious results.  As was said by Nicholls LJ in Saunders v Edwards, 'public policy is not a blunt, inflexible instrument'. 

Once we are in the realm of public policy, we are in a rather shadowy world.  It is perhaps the more shadowy here, because Mrs Nelson [the mother] is not asking the court to enforce a contract, but rather to give effect to the resulting trust which would ordinarily arise, once the presumption of advancement has been rebutted.  The rule of law expressed in the Latin maxim is, as Diplock LJ said in Hardy v Motor Insurers' Bureau 'concerned not specifically with the lawfulness of contracts, but generally with the enforcement of rights by the courts, whether or not such rights arise under contract.  All that the rule means is that the courts will not enforce a right which would otherwise be enforceable if the right arises out of an act committed by the person asserting the right . . . which is regarded by the court as sufficiently antisocial, to justify the court's refusing to enforce that right'. 

From this formulation of the rule, certain consequences follow.  Relevantly, in the view of his Lordship, 'the court's refusal to assert a right, even against the person who has committed the antisocial act, will depend not only on the nature of the antisocial act, but also on the nature of the right asserted.  The court has to weigh the gravity of the antisocial act and the extent to which it will be encouraged by enforcing the right sought to be asserted against the social harm which will be caused if the right is not enforced'.

This in effect was the approach taken by Nicholls LJ in the Court of Appeal in Tinsley v Milligan.  Nicholls LJ and Lloyd LJ were in the majority; Ralph Gibson LJ dissented.  It was an approach which did not find favour with the minority in the House of Lords or indeed with the majority.

Referring to recent decisions of the Court of Appeal, Nicholls LJ said that these authorities established that 'the underlying principle is the so-called public conscience test'.  That test required the court to weigh the adverse consequences of granting relief against the adverse consequences of refusing relief.  It called for a value judgment.  In answer to the contention that the public conscience test had no place where property was conveyed into the name of one party for a fraudulent purpose, Nicholls LJ examined a line of authority that begins with the decision of Lord Eldon LC in Cottington v Fletcher.  But, as he observed, these cases lie uneasily with the notion of public policy which eschews an inflexible approach.  And as has been pointed out in Bowmakers, the Court of Appeal allowed the plaintiff's claim only because it was 'satisfied that no rule of law, and no considerations of public policy, compel the court to dismiss the plaintiffs' claim in the case before us'.

To inquire into the circumstances in which the illegality occurred is not at odds with the courts' approach to questions of public policy.  In Vita Food Products Inc v Unus Shipping Co, Lord Wright, delivering the judgment of the Privy Council, said, 'Nor must it be forgotten that the rule by which contracts not expressly forbidden by statute or declared to be void are in proper cases nullified for disobedience to a statute is a rule of public policy only, and public policy understood in a wider sense may at times be better served by refusing to nullify a bargain, save on serious and sufficient grounds.'"

At page 180, his Honour said:

"Although the public policy in discouraging unlawful acts and refusing them judicial approval is important, it is not the only relevant policy consideration.  There is also the consideration of preventing injustice and the enrichment of one party at the expense of the other" (footnote omitted).

In allowing the appeal, his Honour said that in so far as there has been a breach of the Defence Services Act, the remedy was in the hands of the Commonwealth.

In his judgment, McHugh J, at page 191, said:

"The doctrine of illegality expounded in Holman was formulated in a society that was vastly different from that which exists today.  It was a society that was much less regulated.  With the rapid expansion of regulation, it is undeniable that the legal environment in which the doctrine of illegality operates has changed.  The underlying policy of Holman is still valid today - the courts must not condone or assist a breach of statute, nor must they help to frustrate the operation of a statute.  As Mason J put it in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd, the courts must not 'be instrumental in offering an inducement to crime or removing a restraint to crime'.  However, the Holman rule, stated in the bald dictum, 'No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act' is too extreme and inflexible to represent sound legal policy in the late twentieth century, even when account is taken of the recognised exceptions to this dictum.

One of the most significant reasons for adopting a less rigid approach to illegality than the bald dictum in Holman or, for that matter, the Bowmakers rule adopted in Tinsley is that statutory illegality can arise in a number of different ways.  First, the statute may directly prohibit the contract or trust.  Secondly, while the statute may not prohibit making the contract or trust, it may prohibit the doing of some particular act that is essential for carrying it out.  Thirdly, the statute may not expressly prohibit the contract or trust but the contract or trust may be associated with or made in furtherance of a purpose of frustrating the operation of the statute.  Fourthly, the statute may make unlawful the manner in which an otherwise lawful contract or trust is carried out.  It would be surprising if sound legal policy required each of these forms of illegality to be treated in the same way.  There is, for example, a vast difference between the performance of a contract for carriage of goods by ship that is overloaded in breach of the law  and the making of a contract for the carriage of goods where the making of the contract is specifically prohibited.

It is worth noting the approach in the cases in the English Court of Appeal which preceded, and were rejected by, the decision in Tinsley v Milligan and which sought a less rigid and dogmatic approach to illegality than is found in the Holman dictum.  Those cases included cases in equity, contract and tort.

The effect of the approach developed by the Court of Appeal in those cases was summarised in the decision of that court in Tinsley by Nicholls LJ, who said,

'These authorities seem to me to establish that when applying the ex turpi causa maxim in a case in which a defence of illegality has been raised, the court should keep in mind that the underlying principle is the so-called public conscience test.  The court must weigh, or balance, the adverse consequences of granting relief against the adverse consequences of refusing relief.  The ultimate decision calls for a value judgment.  The detailed principles summarised by Kerr LJ in the Euro-Diam case, and distinctions such as that between causes of action which arise directly ex turpi causa and causes of action to which the unlawful conduct is incidental, are valuable as guidelines.  But they are no more than guidelines.  Their value and justification lie in the practical assistance they give to the courts by focusing attention on particular features which are material in carrying out the balancing exercise in different types of cases."

This approach confers a broad judicial discretion upon the judge to determine whether the grant of relief would affront 'the public conscience'.  While it provides a ready means for a judge to do what he or she thinks is just in the circumstances of the particular case, it does so by means of an unstructured discretion.  The so-called "public conscience" test, although providing a flexible approach, leaves the matter at large.  Greater certainty in the application of the illegality doctrine will be achieved if the courts apply principles instead of a vague standard such as the "public conscience".  But what principles, consistent with the public policy underpinnings of the doctrine of illegality, should the courts apply?

If courts withhold relief because of an illegal transaction, they necessarily impose a sanction on one of the parties to that transaction, a sanction that will deprive one party of his or her property rights and effectively vest them in another person who will almost always be a willing participant in the illegality.  Leaving aside cases where the statute makes rights arising out of the transaction unenforceable in all circumstances, such a sanction can only be justified if two conditions are met.

First, the sanction imposed should be proportionate to the seriousness of the illegality involved.  It is not in accord with contemporaneous notions of justice that the penalty for breaching a law or frustrating its policy should be disproportionate to the seriousness of the breach.  The seriousness of the illegality must be judged by reference to the statute, whose terms or policy is contravened.  It cannot be assessed in a vacuum.  The statute must always be the reference point for determining the seriousness of the illegality; otherwise, the courts would embark on an assessment of moral turpitude independently of and potentially in conflict with the assessment made by the legislature.

Secondly, the imposition of the civil sanction must further the purpose of the statute and must not impose a further sanction for the unlawful conduct if parliament has indicated that the sanctions imposed by the statute are sufficient to deal with conduct that breaches or evades the operation of the statute, and its policies.  In most cases, the statute will provide some guidance, express or inferred, as to the policy of the legislature in respect of a transaction that contravenes the statute or its purpose.  It is this policy that must guide the courts in determining, consistent with their duty not to condone or encourage breaches of the statute, what the consequences of the illegality will be.  Thus, the statute may disclose an intention, explicitly or implicitly, that a transaction contrary to its terms or its policy should be unenforceable.  On the other hand, the statute may inferentially disclose an intention that the only sanctions for breach of the statute or its policy are to be those specifically provided for in the legislation.

Accordingly, in my opinion, even if a case does not come within one of the four exceptions to the Holman dictum to which I have referred, courts should not refuse to enforce legal or equitable rights, simply because they arose out of or were associated with an unlawful purpose unless (a) the statute discloses an intention that those rights should be unenforceable in all circumstances; or (b)(i) the sanction of refusing to enforce those rights is not disproportionate to the seriousness of the unlawful conduct; (ii) the imposition of the sanction is necessary, having regard to the terms of the statute, to protect its objects or policies; and (iii) the statute does not disclose an intention that the sanctions and remedies contained in the statute are to be the only legal consequences of a breach of the statute or the frustration of its policies.

The adoption of these principles accords with the approach of this court in the leading case of Yango, particularly the judgment of Mason J."

I have quoted from the judgment of McHugh J at length because the judgment contains a number of issues, some of which are emphasised below, which are of relevance to this case.

At pages 194 and 195, his Honour referred to the scheme of the Defence Service Homes Act and, at page 195, also referred to section 29B of the Commonwealth Crimes Act (1914), to which reference has been made above.

At page 196, his Honour said that he could see no justification for the court imposing a further sanction by refusing to enforce the legal or equitable rights of the applicant under the Defence Service Homes Act, particularly when such a refusal could result, as his Honour found, in a penalty out of all proportion to the seriousness of the applicant's conduct.

I have referred to this judgment at length because it is the most recent judgment from the High Court, dealing with the question of illegality.  I note that the Court has, in Fitzgerald v Leonhardt Pty Ltd [1996] 3 Leg Rep SL4a, granted special leave to appeal in a case which will raise the issue of illegality again.  However, as it stands, Nelson v Nelson is recent and direct High Court authority on the question of illegality.

From the various parts of the judgment that I have referred to, it can be seen that it can be of importance to identify the precise grounds of illegality involved.  In this case, the employment relationship involved the respondent, in part, living off the earnings of prostitution.  She did this by knowingly receiving from the applicant and the other sex workers rental which she knew came from sex work.  As stated earlier, by their participation in such an arrangement, the applicant and the other sex workers were breaching the letter of the Police Act (WA).  Therefore, the employment relationship directly contravened the Police Act (WA).  It was not a case where the employment relationship could have been carried out either in accordance with or contrary to the Police Act (WA) and, as it turned out, was contrary to the Police Act (WA).

In Hewcastle Catering Ltd v Ahmed, cited above, this was an important distinction.  For example, Beldham LJ, at page 637, in a judgment which was agreed to by Balcombe LJ and Neill LJ, set out the factors which he took into account in concluding that public policy did not, in the circumstances, preclude the claim of the applicants.  Of the six factors mentioned by Beldham LJ, the first two, being the obligation to make returns for value added tax and to ensure that proper records were kept, were those of the employer, and the contract of employment in the case was not one by which the employee was engaged on the basis that he would assist in the fraud on the Customs and Excise Commissioners.  

In analysing this case and other earlier cases, Halsbury's Laws of England, 4th Ed, Re-Issue 1992, Vol 16, Employment, at paragraph 16, says that:

"A contract of employment will not be enforced if it is based on a consideration which is wholly illegal, and the ordinary law of contract will apply.  A finding of illegality means, however, not only that no common law action may be maintained on the contract, but also that the employee subject to the contract loses his statutory employment rights which rely on his having been an employee under a contract of employment, in particular the right to claim unfair dismissal.

A contract may generally be illegal because it is contrary to a statute or is an immoral contract.  A contract which is illegal in inception - that is to say, in its purpose - is void, regardless of the state of mind of the parties; but where a contract is initially lawful but is later performed in an illegal manner, it is not necessarily void.  If both parties know of the illegality, it may be void; but if one party did not know of the illegality, that party may still rely on the contract."

The 1996 Cumulative Supplement of Halsbury makes no addition to the commentary in this paragraph.

In Chitty On Contracts, Vol 2, 27 Ed, Street and Maxwell, 1994, at paragraph 37-030, it is said:

"An apparent contract of employment may be unenforceable by reason of its illegality, with the result that the worker may lack the status of an employee for statutory purposes.  This may arise where the purported contract involves, for instance, sexually immoral purposes.  It might possibly occur where the worker is a non-patrial and the purported contract contravenes restrictions placed upon his freedom to work under the Immigration Act 1971.  It has frequently arisen where the purported contract involves a fraud on the Revenue. 

But while unprepared to offer a forum where tainted contracts can be relied upon, the courts have been reluctant to let employees easily lose their statutory rights by reason of illegalities of which their employers were the prime movers, and have accordingly required that the illegality should be part of the contract or of the employee's purpose in entering into the contract or, if not ex facie part of the contract, then subjectively known to the employee as being integral to its performance.  In Hewcastle Catering Ltd v Ahmed, it was held that where the employees had not benefited from and were not essential parties to the fraud, it would be contrary to public policy for them to be deprived of compensation for being unfairly dismissed because they had assisted in the investigation of the fraud."

To the extent that there is a tension between the law as stated in Halsbury and Chitty, and Nelson v Nelson, obviously Nelson v Nelson is binding upon me.

In the reference in Chitty to "sexually immoral purposes" and the illegality being part of the contract or of the employee's purpose in entering into the contract, Coral Leisure Group Ltd v Barnett [1981] ICR 503, is cited.  

In Coral Leisure Group, the employee was employed by a casino.  He made an application to an industrial tribunal that he had been unfairly dismissed.  The employers contended that the dismissal was justified.  The employee also alleged that although he had not realised it when he was first employed, his job involved finding "prostitutes" for gamblers, and paying for them out of funds provided by the employers. 

There was an application by the employer to determine whether, in view of this claim, the contract of employment was for an "immoral purpose", and so the applicant disentitled to enforce the contract by claiming unfair dismissal.  The tribunal held that they had to examine the facts of the case, to assess whether or not, as a matter of public policy, the employee was entitled to a remedy and that they had jurisdiction to hear the claim.  The employer appealed against the decision on the preliminary issue to the Employment Appeal Tribunal, constituted by Browne-Wilkinson J, Mr Clement-Jones and Mr Hughes.  The judgment of the appeal tribunal was given by Browne-Wilkinson J.  At page 506 of the report, the Court considered the enforcement of illegal contracts in the sense of  "immoral" contracts.  The appeal tribunal said that "immoral" connoted "sexual immorality".

The appeal tribunal said that there was "no real dispute that if the contract of employment had been entered into for the sole purpose of procuring and paying prostitutes, that would have been a contract to achieve an immoral purpose which would accordingly have been illegal and unenforceable.  It would follow that since the contract of employment was itself illegal and unenforceable, the employee could not claim for unfair dismissal under the Employment Protection (Consolidation) Act 1978: see Tomlinson v Dick Evans 'U' Drive Ltd [1978] ICR 639".

However, on the facts as pleaded, the appeal tribunal found that the procuring of prostitutes was not part of the employee's contract of employment.  In addition, it was not part of his purpose in entering into the contract and an illegal or immoral act done in the course of performing an otherwise lawful contract, was not sufficient to prevent its enforcement.  The employee was entitled to rely on his contract of employment for the purpose of bringing a claim for unfair dismissal and the Industrial Tribunal had correctly held that they had jurisdiction to hear the complaint.

The contract and relationship of employment in the case before the Court, however, directly involves a sex worker being employed for the purpose of sex work and the relationship is contrary to the Police Act (WA).  Therefore, if Hewcastle and Coral Leisure Group are an authoritative statement of the law in Western Australia, the Court should deny jurisdiction to the applicant.  In my opinion, on the facts of the case before the Court, these authorities do not mean the Court should deny jurisdiction.

In considering this issue, I have had regard to the statement of the law of illegality in Nelson v Nelson by the High Court, and also the attitude of the Full Court of the Federal Court in Barac v Farnell.

In my opinion, the following factors are important in determining this case:-

1.      By analogy from, for example, the judgment of Deane and Gummow JJ in Nelson v Nelson at page 158, the Police Act (WA) has its own sanctions for a contravention of that Act.  Further, due to the policy of containment as exercised by the Police in Kalgoorlie at the time, neither the applicant nor the respondent were going to be prosecuted for their conduct.  Whilst the policy of containment may be, as stated by Rowland J in Kings-Brooks, of doubtful legality, it has remained the "state of play", with respect to the enforcement of sections 76F and 76G of the Police Act in Perth and, in particular, in Kalgoorlie for a number of years. Successive governments have been aware of the containment policy and have not done anything to either ensure the enforcement of sections 76F and 76G of the Police Act (WA), or change the containment policy.

2.      At page 179 of Nelson v Nelson, Toohey J quoted from the judgment of Lord Wright in Vita Food Products Inc v Unus Shipping Co, as set out above.  As that passage of Lord Wright's judgment states, the rules by which contracts not expressly forbidden by statute or declared to be void are, in proper cases, nullified for disobedience to a statute is a rule of public policy only, and public policy understood in a wider sense may at times be better served by refusing to nullify a bargain, save on serious and sufficient grounds.  As set out earlier, this passage is also quoted with approval by the authors of Laws of Australia.

3.      As stated by Toohey J at page 180 of Nelson, although the public policy in discouraging unlawful acts and refusing them judicial approval is important, it is not the only relevant policy consideration.  There is also the consideration of preventing injustice and the enrichment of one party at the expense of the other.  To deny the applicant jurisdiction in this case would be such a situation, in my opinion.  The respondent is quite aware of the legal status of her relationship with the applicant and the other sex workers.  She derives a benefit from the employment relationship by the payment to her of the rental by the sex workers.  Yet, she comes before the Court and asks the Court to deny the applicant jurisdiction because the employment relationship is tainted by illegality.  To allow this argument to succeed, particularly in light of the containment policy in Kalgoorlie, could rightly be described as the respondent unjustly enriching herself at the expense of the applicant and the other sex workers.  The respondent would be entitled to the benefit of the employment relationship, the payment of the rental, the protection from prosecution that the containment policy allows, yet be immune from the unlawful termination of employment provisions of the Industrial Relations Act because the employment relationship infringes the letter of the law.  Such a result cannot, in my opinion, be just.  I refer in this regard, also, to the part of the judgment of Beaumont J in Barac v Farnell, quoted above.

4.      As stated by McHugh J at page 191 of Nelson, the underlying policy of the Holman case is that the courts must not condone or assist a breach of statute, nor help frustrate the operation of the statute.  To allow the applicant in this case to come before this Court does not, in my opinion, offend these objectives.  The Court is not, to quote the phrase of Mason J in Yango, as quoted by McHugh J at page 191, "being instrumental in offering an inducement to crime or removing a restraint to crime."  This is because the "crime", such as it is, is already condoned by the policy of containment permitted by the Kalgoorlie CIB.  A succession of parliaments have not intermeddled with this policy.  Therefore, it could hardly be said that this Court, in allowing the applicant to proceed with this claim, was offering an inducement to "crime".  If there is such an inducement, it is already offered by the containment policy.

5.      As stated by McHugh J at page 192 of Nelson, the sanction imposed by the Courts should be proportionate to the seriousness of the illegality involved.  In the particular circumstances of this case, given the fact that the employment relationship took place in Kalgoorlie where the containment policy operates, it would be too great a sanction to impose on the applicant to deny her the jurisdiction of the Court.  To do so would be to impose a penalty "disproportionate to the seriousness of the breach", to use the words of McHugh J at page 192.

6.      In looking at the second issue mentioned by McHugh J at page 192 of Nelson, the imposition of the civil sanction of denial of jurisdiction would not, in this case, further the purpose of the Police Act (WA), given that the purpose of the statute is already being affected by the containment policy.  Whilst this is not a policy of the statute but a policy of the executive, given that the containment policy is so widely known in Western Australia and that the public, through the parliament or otherwise, has not demanded a change of the containment policy to ensure a "crackdown" on sex workers working at brothels within the containment policy, it is difficult to see that the policy of the statute, as applied in Western Australia, would be furthered by denying the jurisdiction sought by the applicant.

7.      With respect to the argument that the employment relationship in this case ought not be relied on in this Court because it is "immoral" in the sense referred to by the Court of Appeal in Hewcastle, or "meretricious" as stated by Young J in Markulin, I do not think that such a public policy ought to be upheld by this Court on the particular facts of this case.  Again, I place emphasis upon the long-standing acceptance of the containment policy in Western Australia, and in Kalgoorlie in particular.  In this opinion, I also rely on the implicit attitude of the Family Court from Davies v Davies, and the comments and attitude of the judges in the Federal Court in Barac v Farnell, quoted above.

In all the circumstances, therefore, I do not think that the illegality of the employment relationship or any suggested "immorality" of the employment relationship means that the applicant cannot pursue her claim in this Court.

THE TERMINATION OF EMPLOYMENT

Pursuant to section 170EDA(1) of the Act, the employer has the onus of proving that there was a valid reason or reasons for the termination of an employee's employment related to their capacity or conduct of the employer's operational requirements.  In this case, the respondent gave two reasons for termination, being the applicant's alleged drunkenness and oppressive conduct towards the other sex workers at the brothel.

The applicant disputed that these were the reasons for termination.  She suggested that the true reasons were a combination of the applicant deciding not to go ahead with leasing the business from the respondent, the "wrecking of plans" referred to earlier, and because the applicant was making enquiries about whether all of the moneys paid by the sex workers to Carmel to deposit into superannuation funds were actually being deposited by her.  The applicant alleged that she had found out that Carmel had not deposited the full amount that she had contributed for superannuation into the relevant fund.

With respect to the issue of drunkenness, Carmel said in her evidence that over a period of time, she considered that Phillipa drank more than was good for her, and that on one occasion, Phillipa spoke to Carmel in front of the other girls in such a way that Carmel asked her to come outside, and told her not to speak to them like that again because it was "not on".  Carmel relayed another situation where something unpleasant was said by Phillipa under the influence of alcohol and that Carmel had told her that she wanted her to find another place to live and to leave.   Carmel said that Phillipa apologised, and she agreed to forget about the matter.  However, Carmel said that Phillipa continued to consume alcohol which she thought was excessive.  Carmel said that Phillipa drank more than the other sex workers.  She said that on possibly four or five occasions, Phillipa returned to the house later than usual and extremely drunk.  She said that the problem was exacerbated by the fact that Phillipa would "go to the front and talk to the girls and be a nuisance to them, and I had complaints from many of the girls about it".

Carmel said that it reached a point where she decided that "things had to finish".  On the day of the termination of employment, at about five in the afternoon, the applicant got out of a taxi drunk.  She made no attempt to come into the house.  The respondent spoke to the applicant on the pathway between the house and her room and said to her that she had had enough, and to "please pack and go".  Although the applicant attempted some reconciliation of the situation, this was not agreed to by Carmel and the applicant left 133 Hay Street the following day.

The applicant's version of the termination of her employment was different.  She said she was in her room when she had the conversation with Carmel about Phillipa wrecking Carmel's future plans and it was in that conversation that Carmel told her to pack and leave immediately, although the applicant agreed that she remained at 133 Hay Street until 8 November 1995.

When asked about the consumption of alcohol at 133 Hay Street, the applicant said that the majority of the workers would have "a couple of drinks".  She said that the respondent always drank wine with dinner, and encouraged the others to do so with her.  The applicant said that it is "sort of a stressful job, and so were the living conditions, and it made working easier if you had a couple of drinks, just for the simple fact that by 2 or 3 o'clock in the morning the gentlemen coming along were normally pretty full [meaning intoxicated] and it was easier to relate to them, it was easier to relax, and it is better to have a drink than to take drugs."

The applicant denied that she had a problem with alcohol and said she had seen Dr Austin, her general practitioner, on 16 April 1996, as a consequence of it being suggested in the respondent's summary of facts that she suffered from alcoholism.  However, Dr Austin was not called to give evidence, and therefore a report prepared by him was not admitted into evidence on the ground of hearsay.  The applicant said that she did not consider her drinking whilst at the house as being any different from anybody else.

Vanda also gave evidence about the consumption of alcohol at the brothel.  Vanda said in her evidence that she and Phillipa were not friends, and it does not seem to be suggested by the respondent that they were, or that Vanda's evidence was manufactured because of a friendship with Phillipa.  However, it was suggested by Carmel that Vanda also had reasons to give evidence contrary to the respondent's position, to further Vanda's own interests.  In general, I do not accept this categorisation of Vanda's evidence.  I think that Vanda gave evidence, generally, quite frankly.

Vanda said that Phillipa did not drink any more than she did.  Vanda said that all of the sex workers drank in their rooms but generally did not give alcohol to clients.  When asked whether she had seen Phillipa badly intoxicated at work, Vanda answered that she had never seen her "staggering and falling over".

In cross-examination, Carmel showed to Vanda a document which had been written by the latter.  The document was tendered as Exhibit C.  This document contains the statement that "every time I saw [Phillipa], she was drunk".  The statement also included the sentence that "She would get drunk and very nasty".  It also said that "Phillipa would always walk up the footpath with a glass of wine or vodka in her hand . . . it is my belief that Phillipa had an alcohol problem which made her very nasty."  The document was signed by Vanda in her real name.  However, in her evidence, Vanda said that these parts of the document were false.  She said that she wrote the document about four weeks prior to the trial because Carmel was asking a few of the workers to write statements, and Vanda wanted to keep her job.

In re-examination, she said that the document was "less than worthless", because a lot of things in it were incorrect and written on the spur of the moment, in the circumstances I have described. 

During her cross-examination, Vanda said,

"I agree Phillipa has got no more drinking problem than you say I have.  You can't work with customers, Carmel, unless you have a drink.  You are dealing with sex.  You cannot take your clothes off in front of a guy and pretend you are all lovey-dovey without a drink.  You can't do it.  Sometimes I have got to - quite a few drinks under my belt before I can handle a customer".

In my opinion, this evidence was open and honest.

Although Carmel said that "one of the rules that the CIB has about the house, too, that is very strict is that there be no drunkenness in the house and the girls are not supposed to be drinking at their doors, and they are certainly not to give liquor to any clients", I do not think the evidence establishes a strict rule of no drunkenness which was to be complied with at all times by the sex workers.  Again, I accept Vanda's evidence when she said of Phillipa, "so, she's no more than an alcoholic than I am because we've all got to drink to work.  If you can't drink, you just can't work.  You can't relax, to relate to the guys. Some girls take drugs, but there're no drugs in that house".  I do not accept that there was a strict banning of alcohol consumption by the sex workers due to the containment policy.

In considering the evidence as a whole, I am satisfied from the evidence of Carmel and Vanda that Phillipa did consume alcohol reasonably regularly.  I am also satisfied from the evidence of Carmel that on occasions she drank to excess.  I am also satisfied that on these occasions she could be disruptive.  Overall, however, I think the termination of employment occurred in the context of something of a power struggle between Carmel and Phillipa, and that Phillipa's drunkenness on the particular day in question was simply a final catalyst which caused Carmel to dismiss her.

CONTRAVENTION OF THE ACT

I am not satisfied that, given the particular circumstances of the employment relationship, and despite Carmel's version of what occurred on 7 November 1995, that drunkenness was a valid reason for the termination of employment, particularly summarily.  I accept, as stated in the CCH Labour Law Reporter, Vol 1 at paragraph 2-060, that drunkenness can justify summary dismissal.  However, as stated in the commentary, "it is difficult to generalise under what circumstances drunkenness will justify summary dismissal.  It is clear that it must have an effect on the discharge of the employee's duties, either through an isolated instance or consisting of habitual drunken behaviour."  However, given the factors peculiar to the work done by Phillipa, as explained by Vanda, I am not satisfied that the drunkenness was to an extent that it constituted a valid reason for the termination of employment.

In addition, I am not satisfied that Phillipa was so disruptive or oppressive of the other workers that it was necessary to terminate her employment for the proper running of the respondent's business.  There was no evidence from Vanda, who admittedly did not like Phillipa, which suggested this.  As stated, I think the termination occurred more as a way to solve a power tussle between Carmel and Phillipa, and to enable Carmel to maintain her authority at the brothel.

I am therefore satisfied that there has been a contravention of section 170DE(1) of the Act, in that there was a termination of employment without valid reason.

In making this finding, I should say that I am not satisfied that the true reasons for the termination of employment were those mentioned by Phillipa.  This is not to say that I disbelieve her, in particular, about Carmel's reaction to the non-leasing of the business, but simply to say that the evidence is insufficient to support the allegations that the termination of employment was either due to a failure by her to take up the lease of the business, or the superannuation issue.  In general, though, I prefer Carmel's evidence about how the termination occurred and was effected.

There was, in addition, a contravention of section 170DC of the Act.  This section provides that an employer must not terminate an employee's employment for reasons related to their conduct or performance unless they have been given the opportunity to defend themselves against the allegations made.  There is an exception to this, in section 170DC(b) of the Act, where the employer could not reasonably be expected to give the employee that opportunity.  I am not satisfied that the factual circumstances were such that this exception applied. Before terminating her employment on the grounds of drunkenness or her behaviour, Carmel ought to have given Phillipa the opportunity to defend herself against the allegations made.  Although, to some extent, this was unnecessary, given that Carmel was aware of Phillipa's drunkenness and her behaviour to the other girls by direct observation rather than hearsay, in my opinion, she ought to have advised Phillipa that she was considering the termination of employment on these grounds and asked Phillipa for her comment, before effecting the termination of her employment.

One of the purposes of section 170DC is to ensure that the employee gets a "fair go", to use the expression of Wilcox CJ in Nicolson v Heaven & Earth Gallery (1994) 1 IRCR 199.  Another purpose of the section is that an employee may be able to give explanations of conduct, although seen by their employer, which could alter whether it was appropriate or not to terminate employment.  The employee could also remind the employer of mitigating factors, such as length and quality of service for the employer which could change the mind of the employer in making the decision to terminate.  Phillipa was denied this opportunity by Carmel effecting a summary dismissal of employment.  Therefore, in my opinion, there was a breach of section 170DC of the Act.

Finally, there was a contravention of section 170DB of the Act.  By section 170DB(1), an employer must not terminate an employee's employment unless the employee has been given either the period of notice required by subsection 170DB(2) or compensation instead of notice, or the employee is guilty of serious misconduct; that is, misconduct of a kind such that it would be unreasonable to require the employer to continue the employment during the notice period.  In this case, there was no such misconduct.

The applicant's employment with the respondent was from 23 March 1993 to 7 September 1995; in terms of the table in section 170DB(2), more than 1 year but not more than three years.  According to the table, Phillipa had to be given two weeks' notice or compensation in lieu of notice.  She was not given either, and so there has been a breach of the section.

REMEDIES

The remedy for the breach of section 170DB of the Act is set out in section 170EE(5).  This provides that:

"[Payment for damages]

In respect of a contravention of section 170DB constituted by the termination of employment of an employee, the Court may make an order requiring the employer to pay to the employee an amount of damages equal to the amount of the compensation which, if it had been given by the employer to the employee when the employment was terminated, would have resulted in the employer not contravening that section."

The amount of compensation referred to is set out in section 170DB(4).  This states that:

"[Amount of compensation instead of notice]

The amount of compensation instead of notice must equal or exceed the total of all amounts that, if the employee's employment had continued until the end of the required period of notice, the employer would have become liable to pay to the employee because of the employment continuing during that period."

There is a practical difficulty in applying section 170DB(4) in this case because the applicant was not paid directly by her employer but by the individual clients whom she saw.  Therefore, the amount of compensation that she ought to be paid under section 170DB(4) is the amount that she could have expected to have earned in the two weeks following her dismissal. 

In her evidence, the applicant said that for the 12 months prior to her dismissal, she worked for 40 weeks of that period because of injuries and, "on her books", she made $21,500 for that period.  Her group certificate from 1 September 1994 to 27 June 1995 showed a gross income of $15,665 with $3,317.20 tax instalments deducted.

The annual figure of $21,500 for the 12 months prior to termination was not challenged by the respondent.  This equates to a weekly amount of $537.50, given that the money was earned over 40 weeks, rather than 52.  Therefore, the respondent should be ordered to pay to the applicant $1,075 for the breach of section 170DB of the Act; ie, 2 weeks at $537.50.

With respect to the contravention of sections 170DC and 170DE of the Act, section 170EE(2) provides that if the Court thinks, in respect of a contravention of a provision of the relevant division of the Act, constituted by the termination of employment of an employee, that the reinstatement of the employee is impracticable, the Court may, if it considers it appropriate in all the circumstances of the case, make an order requiring the employer to pay to the employee compensation of such amount as the Court thinks appropriate.  As stated at the outset, it was agreed that reinstatement was impracticable.

Section 170EE(3) states, in respect of calculation of compensation, the following:

"[Calculation of compensation]

In working out the amount of the compensation for the purposes of subsection (2), the Court is to have regard to the remuneration that the employee would have received, or would have been likely to have received, if the employer had not terminated the employment, but the amount of compensation:

(a)     must not exceed, in respect of any employee, the amount of the remuneration that would have been received by the employee in respect of the period of 6 months that immediately followed the day on which the termination took effect if the employer had not terminated the employment and the employee had continued to receive remuneration in respect of the employment at the rate at which he or she received remuneration immediately before the termination took effect; and

(b)    must not exceed, in respect of an employee who is not employed under award conditions, the applicable amount on the day on which the termination took effect."

Lee J, in Aitken v CMETSWUA - WA Branch (1995) 63 IR 1, said:

"In assessing the compensation that is appropriate, the Court will have regard to what is reasonable in the circumstances and look at what would have been likely to occur, had the Act not been contravened . . . the Court will consider the detriment occasioned to the employee by the employer's contravention of the Act, and the extent to which it is reasonable to compensate the employee for such consequences" (page 9).

Wilcox CJ in Nicolson v Heaven & Earth Gallery commented that it was appropriate to consider what would be likely to occur if the contravention of the Act had not occurred, in the context of a contravention of section 170DC (page 212).  In that case, his Honour considered the question of compensation for a contravention of section 170DC "on the basis that the procedural irregularity deprived Mr Nicolson of a chance of retaining his employment.  However, I would not have awarded him a large sum.  If the directors had brought his difficulties with the shop staff into the open and ensured that everyone approached them in an open, constructive manner, there would have been a possibility of overcoming that problem".  However, his Honour also considered that this was unlikely to have occurred and that, because of lack of capacity of the employee, the employers would have been later entitled to dispense with his services.

In my opinion, a similar approach needs to be taken with respect to section 170DE of the Act, in that one needs to take into account whether conduct, although not providing a valid reason for termination of employment at the time of the actual termination, could well have done so in the future: see Garbutt v Stothers, IRCA 2452/95, Ritter JR, 27 August 1996, unreported.  This is the case here, with respect to Phillipa's drunkenness and behaviour.

Furthermore, one needs to take into account the distinct possibility that the applicant would not have continued in the employ of the respondent for her own reasons.  In her evidence, she said that she could not go back to sex work because of the "general two-facedness" of most people in the industry.  I accept that she took this view, in particular, because of the lack of people who were prepared to give evidence in support of her case but, nevertheless, it is reflective, I think, of an earlier and wider dissatisfaction with the industry which could well have influenced her to resign her employment with the respondent.

In addition, the applicant was, from about two to three weeks after the cessation of her employment, on sickness benefits due to her having injuries and not being able to be employed.  She explained that she had arthritis in her spine.  She said that when she moved her furniture, this disturbed her arthritis "quite badly" and so she had been on sickness benefits.  Again I accept that the moving of her furniture was associated with the termination of employment and so, to an extent, the exacerbation of arthritis relates to the termination of employment, rather than anything else.  Nevertheless, this was a pre-existing condition; she had had up to 12 weeks off in the previous year due to injury and therefore she may not have been able to continue to be employed by the respondent for all that much longer.

In terms of her future employability, the applicant said that she was trying to obtain a B class driver's licence so she could "go work in the mines out bush".  There was no evidence as to the likelihood of obtaining such employment or the amount that she could have earned, had she gained this employment.  Nevertheless, I should take into account that there is a prospect for future employment.

In all of the circumstances, I think it appropriate to award the applicant compensation, for the contravention of sections 170DC and 170DE of the Act, of the amount that Phillipa would have been likely to have earned in eight weeks.  Using the average weekly figure of $537.50 referred to above, this equals an amount of $4,300.   I will also make an order that each of the amounts ordered to be paid to the applicant be paid within 21 days of the date of the order.

I certify that this and the preceding 67 pages are a true copy of the reasons for decision of Judicial Registrar Ritter.

Associate :

Dated : 10 September 1996

APPEARANCES

Counsel for the Applicant:          Ms S Gaunt                              

Solicitor for the Applicant:         S Gaunt    

The Respondent appeared on her own behalf.

Dates of Hearing :                         22 April 1996

Date of Judgment :                        10  September 1996