Victorian Civil and Administrative Tribunal|2004-07-05

ADI Limited (Exemption) [2004] VCAT 1963 (5 July 2004)

Anti-Discrimination - Exemption - conduct required by the United States Laws and Associated contractual provisions involving consideration of nationality and nation origin - exemption granted subject to conditions - Equal Opportunity Act 1995 s83

The Victorian Civil and Administrative Tribunal, has considered an application pursuant to Section 83 of the Equal Opportunity Act 1995 by ADI Limited, ADI Munitions Pty Limited, ADI Advanced Systems Pty Limited, Thales Underwater Systems Pty Limited, and Thales Training and Simulation Pty Limited (the ADI Companies) for exemption from Sections 13, 14, 15, 100 and 195 of that Act. The application for exemption is to enable the applicant to engage in the specified conduct.

In this Exemption "the specified conduct" means to discriminate on the ground of nationality or national origin against any member of the ADI company's workforce or anyone who applies to join that workforce in relation to defence-related projects undertaken or to be undertaken by those companies and to the extent required to enable those companies to comply with the law of the United States of America or their related contractual obligations. That conduct includes but is not limited to-

a) Requiring members or potential members of that workforce to give to an ADI company details of there place of birth, nationality or national origin to enable the company to determine whether those people are permitted by United States law to work on defence-related projects or to access technology, materials or information relating to those projects;

b) Identifying (by means of a badge, inclusion in a list or otherwise) those in that workforce whose nationality or national origin is included in those who are permitted, under the United States law, to work on defence related projects or have access to related technology, materials or information, so as to distinguish them from those not so permitted;

c) Restricting access to information connected with defence related projects that is regulated by United States law to particular members of that workforce, based on their nationality or national origin;

d) Rejecting applications to join that workforce in positions relating to defence-related projects regulated by United States law based on nationality or national origin;

e) Transferring members of that workforce from defence-related projects regulated by the United States law on the basis that, because of their nationality or national origin, that law does not permit them to work on those projects, whether that transfer takes into account existing or changed nationality or national origin;

f) Providing to companies that transfer technology or materials regulated by United States law to an ADI company details of the nationality or national origin of those in the ADI companies' workforce who will have access to that material;

g) Providing to companies who use defence related material regulated by United States law at their facilities details of the nationality or national origin of those in the ADI companies' workforce who will attend those facilities.

UPON READING the material submitted in support of the application and upon hearing submissions from Mr Julian Riekert, Solicitor and Mr Andrew McKibbin, Commercial Manager, and for the Reasons for Decision given by the Tribunal on 5 July 2004, the Tribunal is satisfied that it is appropriate to grant an exemption from Sections 13, 14, 15, 100 and 195 of the Act to enable the Applicant to engage in the specified conduct.

The Tribunal hereby grants an exemption to the applicant from the operation of Sections 13, 14, 15, 100 and 195 of the Equal Opportunity Act 1995 to enable the applicant to engage in the specified conduct.

The Exemption is subject to the following conditions-

(1) If an ADI Company to enable it to comply with a United States law or related contractual obligation concerning a defence-related project, moves a member of its workforce from one project to another, it must take reasonable steps to explain to that person why the transfer has occurred and to avoid any race-based hostility that might result from the transfer.

(2) Before rejecting an application to join a workforce of an ADI company to work on a defence-related project regulated by United States law on the basis of the persons nationality or national origin, and in circumstances where, but for the provisions of the United States law, the company would have accepted the application, the company must consider other reasonable and practicable alternatives to rejection such as the feasibility of employing the person in other work or of obtaining the necessary United States regulatory approvals.

(3) Each ADI company must rely on this Exemption only to the extent necessary to enable it to comply with its obligations under the United States law and its related contractual obligations, as in force from time to time.

This exemption is to remain in force from the day on which notice of the exemption is published in the Government Gazette until 7 July 2007.

(1) This is the day on which I said I would hand down my decision on this exemption application and my decision is that the exemption is granted subject to certain conditions. The exemption will last for the maximum period for which this Tribunal can grant exemptions and that period is three years from the date of its publication in the Government Gazette. We would anticipate that that publication would occur next Thursday. I now give my reasons.

(2) This is an exemption application made by a number of companies. They are ADI Limited, ADI Munitions Pty Limited, ADI Advanced Systems Pty Limited, Thales Underwater Systems Pty Limited, and Thales Training and Simulation Pty Limited. I call this group of companies the "ADI companies". The companies have asked the Tribunal to grant them exemption under s.83 of the Equal Opportunity Act 1995 ("The Equal Opportunity Act"). Exemption is sought from ss.13 to 15 of the Equal Opportunity Act insofar as those sections relate to race.

(3) It is clear on a reading of the application that exemption is also sought from those provisions of the Act that deal with the requesting of information and also the making of the exemption public if that is necessary and I have included those sections in the exemption which I have granted.

(4) Sections 13 to 15 of the Equal Opportunity Act prohibit various kinds of discrimination in connection with pre-employment matters, matters occurring during employment and the termination of employment. They also prohibit discrimination of various kinds against workers whose employer has contracted to perform work for another person.

(5) "Employment" under s.4 of the Equal Opportunity Act has a wide meaning and includes employees under contracts of service, those working under contracts for services (in other words independent contractors) and commission agents. I call this group of employees and workers the companies' workforce.

(6) Race is an attribute listed in s.6 of the Equal Opportunity Act and discrimination on among other things the ground of race is prohibited by ss.13 to 15 in particular. Under s.4 of the Equal Opportunity Act "race" is defined to include among other things nationality and national origin.

(7) The exemption is sought to enable the ADI companies to discriminate on the grounds of nationality or national origin against any member of the ADI companies' workforce or anyone who applies to join that workforce in relation to defence related projects undertaken or to be undertaken by the ADI companies and to enable them to do what is required to comply with United States of America law which I call "US law".

(8) The conduct which is sought to be exempted includes, by way of illustration, the following:

a) requiring members or potential members of the companies' workforce to give to it details of their place of birth, nationality or national origin to enable the companies to determine whether those people are permitted by US law to work on defence related projects which are regulated by that law and to access technology, materials or information relating to those projects which are regulated by that law;

b) identifying (by means of a badge, inclusion in a list, or otherwise) those in the ADI companies' workforce whose nationality or national origin is among those permitted under US law regulating those projects to work on those projects or to have access to related technology, materials or information so as to distinguish them from those not so permitted;

c) restricting access to information regulated by US law in relation to defence related projects to particular members of the ADI companies' workforce based on their nationality or national origin;

d) rejecting applications to join ADI companies' workforce in positions related to defence related projects which are regulated by US law**,** based on nationality or national origin;

e) transferring members of the ADI companies' workforce from defence related projects regulated by US law to other work on the basis that they are not permitted under US law because of their nationality or national origin to work on those projects, whether that transfer takes into account their existing nationality or national origin or a change in that nationality or national origin;

f) providing to companies that transfer technology or materials regulated by US law in relation to defence related projects to the ADI companies details of the nationality or national origin of those in the ADI companies' workforce who will have access to that material;

g) providing to companies who use materials regulated by US law in relation to defence related projects at their facilities details of the nationality or national origin of those in the ADI companies' workforce who will attend those facilities.

(9) I first deal briefly with the law. I then make findings on the material before me. Finally I consider whether the exemption should be granted.

(10) I note before commencing that this application has already been subject to a directions hearing at which the question of whether or not the application should be advertised was considered and that the date of this hearing was set at that directions hearing.

(11) I first deal with the law. Under s.83 of the Equal Opportunity Act the Tribunal has broad power to exempt classes of activities or people from the operation of the provisions of the Equal Opportunity Act. It's predecessor, the Anti-Discrimination Tribunal, discussed the principles to be applied in considering exemption applications in Stephens v. Fernwood (1996) EOC 92-782. Briefly, the principles which it set down in that case and which have been followed in many subsequent cases are these.

(12) Where there is no question of possible discrimination or breach of the Equal Opportunity Act involved there is no need to consider the exemption application further. However, where this does not apply the Tribunal will look at the application and will consider among other things, first, whether the conduct sought to be exempted falls broadly within the spirit of one of the express exception provisions in the Act, although not within the letter of such a provision. Second, the Tribunal will consider the scheme of the objectives of the Equal Opportunity Act. Finally, the Tribunal will consider what interests might be pointed to in the application which would justify the granting of the exemption. The Tribunal has pointed out on many occasions that the effect of an exemption is to make lawful what would be otherwise prohibited by the Equal Opportunity Act.

(13) I now come to my findings. I have before me a detailed affidavit from Mr McKibbin, the Commercial Manager of ADI Limited. He supplemented what he said in that affidavit with oral submissions at the hearing of the exemption application. I also have written submissions on behalf of the ADI companies and further extensive oral submissions from the companies' solicitor, Mr Riekert.

(14) The ADI companies manufacture armaments and defence items of various kinds. They have numerous contracts with the Australian Government through its Department of Defence. The armaments which the companies make are for all branches of the Australian Armed Forces. They range from the manufacture or adaptation of ships and aircraft to various systems used in connection with armaments such as guidance systems, propulsion systems and software. The companies' activities include design, development, manufacture, adaptation, maintenance, repair and the provision of engineering and technology support services.

(15) Ancillary services which the companies provide include testing, tool design and manufacture and logistical and training support.

(16) Because a large number of Australia's armaments are based on the use of United States technology or the upgrading of armaments relies on the use of that technology the ADI companies need to have access to that technology. The choice of armaments for Australia's Armed Forces which is based on US technology is made by the Australian Government. It is not made by the ADI companies. It is a matter of Government policy.

(17) To get access to the US technology necessary for the ADI companies to be able to perform their obligations under defence related contracts with the Australian Government, the companies enter into contracts or obtain licences under US law which will make that technology available to them. Access to this technology is regulated by various US laws. The laws either deal with access directly or require specific provisions to be contained in export licences relating to that technology or agreements relating to that technology entered into between US companies and companies outside the US.

(18) The laws covering the projects in which the ADI companies are involved are the US Export Administration Regulations (EAR) and the US International Trafficking in Arms Regulations (ITAR). The EAR contain similar restrictions on the use of and access to US defence related technology as do the ITARs. It is only necessary for me here to say something about the ITARs. I briefly summarise the ITARs so far as they are relative to this application.

(19) The ITARs are made under broad powers conferred on the President of the United States under the US Arms Export Control Act. Those powers concern among other things the export of defence articles and defence services. The broad powers given to the President have been delegated to various senior government officials. Broadly the effect of the ITARs is that US defence related technology, called in the ITARs "defence articles" "defence services" and "technical data", and very broadly defined cannot be provided to a company outside the US unless the provider of the technology is a US incorporated company and the company to which the technology is to be provided enters into various agreements with that US company.

(20) Examples of agreements which have to be entered into according to the ITARs are technical assistance agreements and manufacturing licence agreements. The ITARs directly require the US sponsor company which enters into these agreements to comply with the ITARs. The ITARs provide that the agreements must contain a clause requiring the company to which technology is to be provided also to comply with the ITARs. That clause is expressed very generally and requires those companies to comply with US laws and regulations relating to exports and administrative actions of US Government agencies taken pursuant to those laws and regulations. This would of course include the ITARs and for that matter the EAR.

(21) The ITARs also require that such agreements cannot be entered into force or amended without the prior approval of the US State Department. That approval needs to be in writing.

(22) The ITARs require such agreements to include a clause that the technical data or defence services exported from the US in furtherance of the agreement and any defence articles which may be produced or manufactured from such technical data or defence services may not be transferred to a person in a third country or to a national of a third country except as specifically authorised in the agreement unless the prior written approval of the Department of State has been obtained.

(23) As I have said, the terms "defence services", "defence articles" and "technical data" are defined broadly in the ITARs. In summary, "defence services" covers the furnishing of assistance including training, whether in the US or abroad, in connection with any dealing with defence articles such as design, development, testing, manufacture, repair, maintenance, operation, use, modification or even destruction. The term also includes the furnishing of technical data.

(24) Broadly speaking "technical data" includes information in any form relating to defence articles or software directly relating to defence articles with the exclusion of material commonly taught in educational institutions, information in the public domain and basic generalised descriptive material.

(25) Again, broadly speaking, "defence articles" means items or technical data listed in what is called the US Munitions List. This is a list which is also set out in the ITARs.

(26) Under the ITARs the technical data or defence services are taken to be transferred to a person if disclosed to that person by any means including by visual means.

(27) The ADI companies after obtaining legal advice take the view that in this context "third country" means a country not named in or party to one of the agreements that I have just mentioned. "National" is not defined in the ITARs. After obtaining legal advice the ADI companies take the view that national has a similar meaning to the term "US person".

(28) That term is defined in the ITARs. It includes other terms which are also either defined in the ITARs themselves or in other US laws.

(30) The effect of the definition of "US person" when read with these other defined terms is that a US person is a person who is a lawful permanent resident of the US, (that is, who has been granted that privilege under US immigration laws) or a protected individual, (that is, a citizen or national of the US or a person granted under US law the status of an alien lawfully admitted for temporary residence in the US, or a person admitted as a refugee or granted asylum in the US), an entity, organisation or group incorporated to do business in the US, and a governmental entity, whether federal, state or local.

(31) There are various exclusions from the definition, the most important of which is "foreign person". The ITARs also define that term. Generally speaking that term covers an individual or organisation that is not a US person. For example, it means a natural person who is not a lawful permanent resident of the US or an organisation that is not incorporated to do business in the US or a foreign government or its agencies.

(32) I agree with the view taken by the ADI companies as to the meaning of the words "third country" in the ITARs. However, it may be that the interpretation of "national" to include such people as permanent residents through immigration might be too broad. I notice that the definition of "protected individual" in a related US law referred to in Mr McKibbin's affidavit uses the term "citizen or national".

(33) I also note that one meaning of the term "national" in international law relates to the legal relationship between an independent state and a member of that state.

(34) But I assume that the interpretation of the word adopted by the ADI companies is consistent with the way in which the body charged with the administration of the ITARs, the US Department of State, interprets that term and on this basis I do not quibble with the ADI companies' interpretation.

(35) The ADI companies then take the term "national of a third country" in the context of their agreements with the US sponsored companies to mean a person who is not a US person as defined by the ITARs or an Australian national which the companies consider to include an Australian citizen whether naturalised or a citizen by birth and also a person granted a permanent visa to reside in Australia by the Department of Immigration and Multicultural Affairs and Indigenous Affairs. That term, is called in a short-hand way, "permanent resident/landed immigrant". Finally, the term also includes a national of a country that is named in the relevant agreement.

(36) It is possible for an ADI company to apply to the US State Department, if the sponsor company agrees, to have an agreement amended to name nationals of a particular country so that nationals of that country could access the technology to which the agreement relates. Applications of this kind are rarely refused but the material before me indicates that applications of this kind take some six months to be considered. An application would, however, be refused if it related to a country to which the ITARs prohibit the export of defence articles, defence services or related technical data.

(37) Under the US State Department's guidelines for the preparation of agreements under the ITARs, guideline 10.2 requires that a technical assistance agreement or a manufacturing licence agreement must specify where a third country national is involved in the work covered by the agreement, the countries for which that national holds a current non-Australian passport, that that person must sign a non-disclosure agreement and a copy of that agreement must be provided to the US sponsor company.

(38) The guidelines require the agreement also to list the countries whose dual nationals hold current non-Australian passports, although it does not require these people to sign non-disclosure agreements or that the Australian company provide a list of names to the US sponsored company. A dual national in this context, that is in the context of the agreements entered into by the ADI companies, is a person who is an Australian national but is also the holder of a current passport from another country.

(39) From August 2002, after communications between the ADI companies and one of their US sponsor companies, the ADI companies have operated on the basis that a dual national includes an Australian citizen holding a current non-Australian passport. The US State Department has recently confirmed that this interpretation of the application of the ITARs is correct.

(40) Failure to comply with the ITARs is a very serious matter. If the ADI companies fail to comply the relevant US sponsor company will also fail to comply and could be penalised.

(41) The US Assistant Secretary of State for Politico Military Affairs might ban the US sponsor company or the ADI company from participating in the export of defence services, defence articles or technical data to which the ITARs apply; either absolutely, for specific projects, or indefinitely or for a set period. Civil penalties may be imposed on the US sponsor company and perhaps, although the matter is far from clear, on the ADI company of up to $US500,000 per violation. Criminal penalties may be imposed of up to $US1,000,000 or imprisonment for ten years. A US sponsor company may seek damages from the ADI company for breach of contract.

(As to all these matters and as to the interpretation of the ITARs generally, see the ITARs parts 120 to 127).

(42) The ADI companies currently have 49 agreements with US companies which are regulated by the ITARs. Projects governed by those agreements currently generate $AU400,000,000 in sales revenue for the group, 57 per cent of its total annual turnover. Of its total workforce of approximately 2500, approximately 1000 either directly or indirectly currently work on those projects. If the ADI companies, because they could not ensure that only authorised nationals would work on these projects, breach the ITARs and those provisions of the agreements which require them to comply with the ITARs it is likely that they will be banned from further work on any such projects; either currently or in the future and from receiving any ITAR related technical data, defence services or defence articles.

(43) If this occurred the consequences are likely to be these.

(44) First, this would impact on Australian Government defence upgrades and modernisations. They would be delayed and possibly Australia's defence capability would be compromised.

(45) Second, the Australian Government would have to find alternative ways to have these projects completed. The projects may have to be undertaken in the US and this would involve increased cost.

(46) Third, about 40 per cent of the ADI companies' workforce would need to be redeployed or if this were not possible would cease to work for those companies. This percentage may in fact be greater because the facilities which are currently used for the ITAR regulated projects and other work might without those ITAR regulated projects become unviable and have to be closed. This would mean further staff losses.

(46) Fourth, there would also be staff losses in ancillary staff employed in connection with the ITAR regulated projects, such as subcontractors, management and administration staff. The loss of these projects can then have potentially very serious effects on Australia's labour force and the national economy.

(47) Fifth, the ADI companies are major contributors to the tertiary education sector through various cooperative programs including research. If the ADI companies' staff, workload and revenue were substantially reduced it is likely that it would not be able to contribute to that sector to the extent that it now does.

(48) I now apply the principles I have earlier mentioned to the material before me. The proposed conduct involves possible race discrimination in employment related areas under the Equal Opportunity Act. No express exception in the Act clearly covers this conduct. But in my view it is appropriate to grant the exemption because there are significant aspects of the public interest which support its granting. The potential loss of the US related defence projects regulated by the ITARs, both current and future, from the ADI companies and from Australia would significantly prejudice the national interest in the sense the defence related capability, would adversely impact on Australia's employment and would impact on the tertiary education sector in the funding of research projects.

(49) I bearing in mind that although in my view it is appropriate to grant this exemption the exemption will potentially affect a relatively large group of people. Because of this I consider it appropriate to impose some conditions on the exemption. These conditions are aimed at minimising any potential disruptive effect that the exemption might have. I now summarise the conditions.

(50) First, if an ADI company to comply with its obligations under the ITARs or its related contractual obligations moves an employee from an ITAR regulated project to some other work it must take reasonable steps to explain to that person why he or she has been transferred and to avoid any race based hostility that might result from the transfer.

(51) Second, before rejecting an application to join the ADI companies' workforce to work on a project regulated by the ITARs, where that application is to be rejected on the basis of nationality or national origin and in the absence of the ITARs the application would be accepted, the ADI companies must consider other reasonable and practicable alternatives to rejection. These alternatives might include the feasibility of that person doing other work in the companies or the feasibility of applying for and obtaining the relevant US regulatory approvals.

(52) Third, the ADI companies must only rely on the exemption to the extent necessary to enable them to comply with US law relating to defence related projects and their related contractual obligations. If, for example, US law or those obligations become less onerous the exemption should only be relied on to enable compliance with the laws as in force for the time being.

(53) I make some final comments. First, I note that the ADI companies consider it not necessary to obtain an exemption from the Race Discrimination Act 1975 of the Commonwealth. I also note that they have applied already in New South Wales and Western Australia for exemptions similar to this one and intend to apply in the other states and territories. This is the first of those applications to be heard.

(54) Second, I do not anticipate that the companies will have difficulty in complying with the conditions which I have set on the exemption and which I have briefly summarised. I note that already the evidence is that the companies already are taking careful steps to explain the whole situation to members of their workforce and to any potential applicants who might be affected.

(55) They also are trying through applying for relevant approvals to ameliorate the rigour of the US regulations. I note, however, that Mr McKibbin said - and I accept his evidence - that the capacity of the ADI companies to redeploy workers is limited because most of its work is project related and lasts for a limited time. It is not work which is of a continuing nature and to which it is easy to redeploy workers.

(56) Third, I agree with the submissions made on behalf of the ADI companies that the rigour of the US regulations presents great logistical difficulties for the companies and that its application for this exemption is made more because it is a matter of necessity than because the company regards these as desirable practices.

Opportunity Act 1995

Race Discrimination Act 1975

ADI Limited (Exemption) [2004] VCAT 1963 (5 July 2004)

At a glance

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Judgment (83 paragraphs)

ADI Limited (Exemption) [2004] VCAT 1963 (5 July 2004)

Legislation Cited (2)