Fair Work Ombudsman v Al Hilfi

Were each of the Second and Third Respondents in default under r 5.22? 9 Rule 5.22 provides as follows: 5.22 When a party is in default A party is in default if the party fails to: (a) do an act required to be done, or to do an act in the time required, by these Rules; or (b) comply with an order of the Court; or (c) attend a hearing in the proceeding; or (d) prosecute or defend the proceeding with due diligence. 10 The FWO relied primarily on the failure of each of the second and third respondents to defend the Al Hilfi proceeding with due diligence (i.e. r 5.22(d)), although she did not abandon reliance on the other paragraphs should that be necessary. 11 I am satisfied that each of the second and third respondents has failed to defend the Al Hilfi proceeding with due diligence. 12 The second respondent was represented by solicitors and counsel until early April 2014. After those solicitors ceased to act, the second respondent took no part in the proceedings. An affidavit of Jennifer Mary Winckworth affirmed on 6 October 2014 sets out the FWO's attempts to contact the second respondent, and her efforts to keep the second respondent informed of the conduct and progress of the proceedings. Reference may be made to Ms Winckworth's affidavit and it is not necessary for me to set out the details. A summary of the second respondent's involvement, including his defaults, is as follows: (1) The second respondent had solicitors representing him until 4 April 2014 when those solicitors filed a notice of ceasing to act. (2) At no time thereafter did the second respondent file a notice of address for service as required by r 4.5 of the Rules. (3) The FWO has made numerous attempts to contact the second respondent, but he has not responded at any time. (4) The second respondent did not appear at the directions hearing on 30 April 2014, the case management conference on 13 June 2014, or on the first day of trial (i.e., 7 October 2014). The trial date was fixed at a time when the second respondent was represented by solicitors (i.e. 8 January 2014). 13 I find that the second respondent was aware of the proceedings and of the trial date. I find that he has chosen to take no part in the proceedings since April 2014. I find that the second respondent has not defended the proceeding with due diligence within r 5.22 (d) of the Rules. 14 The third respondent has not filed an address for service or appeared at any hearing held in the proceedings. He did not appear on the first day of trial. In fact, the FWO had difficulty serving the third respondent, and I made orders for substituted service under r 10.24 of the Rules on 28 May 2012 (Al Hilfi proceeding), and on 30 August 2012 (Al Basry proceeding) 15 A second affidavit of Ms Winckworth affirmed on 6 October 2014 establishes that, on 18 June 2012, the third respondent wrote to the FWO advising her that he had received a copy of the originating application and statement of claim and, according to him, had referred them to his trustee in bankruptcy. The third respondent alleged in the letter that he had become bankrupt in February 2012. Ms Winckworth's affidavit also establishes numerous attempts by the FWO to contact the third respondent. 16 The third respondent has effectively chosen to ignore these proceedings, and I find that he has not defended the proceeding with due diligence within r 5.22(d) of the Rules.

Should the Declaratory Relief sought by the FWO be granted? 17 Before the introduction of the Federal Court Rules 2011 (Cth), default judgments were dealt with in O 35A of the Federal Court Rules 1979 (Cth). The equivalent of what is now r 5.23(c) was O 35A r 3(2)(c). I set out O 35A r 3(2)(c) and r 5.23(c): 3 Orders on default (2) If a respondent is in default, the Court may: (c) if the proceeding was commenced by an application supported by a statement of claim or the Court has ordered that the proceeding continue on pleadings - give judgment against the respondent for the relief that: (i) the applicant appears entitled to on the statement of claim; and (ii) the Court is satisfied it has power to grant; Rule 5.23 Orders on default (2) If a respondent is in default, an applicant may apply to the Court for: (c) if the proceeding was started by an originating application supported by a statement of claim, or if the Court has ordered that the proceeding continue on pleadings - an order giving judgment against the respondent for the relief claimed in the statement of claim to which the Court is satisfied that the applicant is entitled; or ... 18 I start with a number of general observations on the Court's power to make declarations on an application for default judgment. 19 In Arthur v Vaupotic Investments Pty Ltd [2005] FCA 433 ("Arthur v Vaupotic Investments Pty Ltd") at [3] Heerey J said that O 35A r 3(2)(c) did not require proof by way of evidence of the applicant's claim, but rather, satisfaction on the part of the Court that, on the face of the statement of claim, there was a claim for relief and that the Court had jurisdiction to grant that relief. In that case, in relation to an alleged infringement of a registered design, Heerey J gave judgment in default, including injunctions and orders for delivery up and the payment of costs. 20 The decision in Arthur v Vaupotic Investments Pty Ltd has been followed in subsequent cases involving applications for default judgment: Australian Competition and Consumer Commission v 1Cellnet LLC [2005] FCA 856 (injunctions and other orders under the Trade Practices Act 1974 (Cth)); Luna Park Sydney Pty Limited v Bose [2006] FCA 94 (damages for breach of contract); Humphries v Halifax Vogel Group Proprietary Limited [2008] FCA 569 (injunction and other relief in connection with the infringement of a patent). Where the Rule of Court dealing with default judgments is engaged by a respondent's default, the allegations of fact in the statement of claim are deemed to be admitted: Australian Competition and Consumer Commission v Dataline.net.au Pty Ltd & Others (2007) 161 FCR 513 at 523, [42]. I agree with Flick J in Speedo Holdings B.V. v Evans (No 2) [2011] FCA 1227 at [19] and [23] that, despite the difference in wording between O 35A r 3(2)(c) and r 5.23(2)(c), this principle applies to r 5.23(2)(c) in the same way it did to O 35A r 3(2)(c). 21 In Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd and Others [2006] FCA 1427; (2006) 236 ALR 665, Kiefel J, sitting as a judge of this Court, made a number of important points which were not overturned or criticised by the Full Court when the matter went on appeal (Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd (In Liquidation) and Others (2007) 161 FCR 513). First, her Honour held that O 35A r 3(2)(c) involves an admission of the facts alleged in the statement of claim. It does not involve a concession by a respondent that the applicant is entitled to the relief sought (at 677, [44]). Secondly, her Honour said that the view that declarations would not be made on deemed admissions was, in fact, based on a rule of practice, not a rule of law. In view of modern developments in the use of declarations, caution should be exercised in applying the rule of practice (at 680-681, [58]). Her Honour went on to say (at 681, [59]): It may no longer be correct to have a practice which operates as a prohibition in every case of default and preferable to consider the circumstances pertaining to the particular case and the purpose and effect of the declaration. Millett J made declaratory orders in Patten v Burke Publishing Co Ltd [1991] 1 WLR 541; [1991] 2 All ER 821 where justice to the plaintiff required it. The order, however, operated principally inter partes and it might be doubted whether it would be of interest to other persons. Cases such as this, involving the protection of consumers, are of public interest. Declarations are often utilised in such cases to identify for the public what conduct contributes a contravention and to make apparent that it is considered to warrant an order recognising its seriousness. It is however important that there be no misunderstanding as to the basis upon which they are made. This could be overcome by a statement, preceding the declarations, that orders are made: "upon admissions which [the respondent in question] is taken to have made, consequent upon non-compliance with orders of the court". 22 As far as the particular circumstances of this case are concerned, declarations are appropriate because they are likely to have a deterrent effect: Australian Competition and Consumer Commission v Midland Brick Co Pty Ltd and Others (2004) FCA 693; (2004) 207 ALR 329 at 333, [22] per Lee J; Fair Work Ombudsman v Kentwood Industries Pty Ltd (No 2) [2010] FCA 1156 at [210] per McKerracher J. Furthermore, there is utility in setting out the basis for any pecuniary penalties which may be ordered: Rural Press Ltd & Others v Australian Competition and Consumer Commission & Others (2003) 216 CLR 53 at 92, [95] per Gummow, Hayne and Haydon JJ. 23 Finally, I am not bound to refuse declarations because no-one appeared to oppose them being made. The persons with the requisite interest in opposing the declarations could have appeared and could have opposed them. The fact that they have chosen not to do so does not mean that declaratory relief cannot be granted: Australian Competition and Consumer Commission v MSY Technology Pty Ltd & Others [2012] FCAFC 56 at [14], [18] and [34]. 24 I turn now to the facts relating to the alleged contraventions, and the second and third respondents' involvement in the contraventions. It will be apparent from what I said earlier, that the facts reflect the allegations in the Statement of Claim. 25 At all material times, the second respondent was the sole director, company secretary and sole beneficial owner of all the issued shares in two companies, Starlink International Group Pty Ltd ("Starlink") (a company now in liquidation), and Starlink Operations Group Pty Ltd ("Starlink Operations"). The two Starlink companies provided trolley collection services to Coles Supermarkets. Starlink made a written agreement with Coles Supermarkets to provide such services, and Starlink and Starlink Operations subsequently entered into a written agreement with Mr Al Hilfi for him to provide the services to them. 26 The third respondent was the general manager of both Starlink companies and, with the second respondent, had the principal management and control of the business of Starlink and Starlink Operations in relation to those companies' dealings with Coles Supermarkets, and in relation to the subcontractors engaged by Starlink Operations in relation to the provision of trolley collection services. 27 The second and third respondents were in effective control of the two Starlink companies. Mr Al Hilfi was dependent upon those companies for his business. The pay rates that Mr Al Hilfi was able to pay were a function of the fees that Starlink Operations paid under the subcontract. Starlink had entered into its agreement with Coles Supermarkets on the basis that it was in a position to monitor and control, and would monitor and control, the manner in which its subcontractors paid employees who were used to provide the services and the keeping of employee records by the subcontractors. Mr Al Hilfi was not a sophisticated businessman and, in relation to the manner in which he conducted his business, including the wage rates he paid the trolley collectors, he was subject to the direction of the second and third respondents. In the circumstances, the second and third respondents had the capacity to control, direct or influence (or all of these) the conduct of Mr Al Hilfi in relation to the wages and conditions that he paid and accorded to his employees, and the practices that Mr Al Hilfi adopted with respect to the issuing of payslips and the keeping of employee records in relation to the employees. 28 The second and third respondents were responsible for making the contract between Starlink Operations and Mr Al Hilfi, and negotiating the rates Starlink paid to Mr Al Hilfi under the contract. The second and third respondents were each familiar with the basis and rates upon which Mr Al Hilfi employed trolley collectors at the West Lakes site. Starlink and Starlink Operations employed supervisors in South Australia who reported to the second and third respondents as to the manner in which Mr Al Hilfi employed trolley collectors at the West Lakes site. It may be inferred from these matters that, at all times prior to 1 January 2010 and after that date, the second and third respondents knew that Mr Al Hilfi was paying the employees either fixed or lump sum amounts per week for their services, not based on hourly rates of pay, or rates of pay determined only by Mr Al Hilfi, but rather based on the fees that Starlink Operations paid to Mr Al Hilfi under the subcontract, and that those amounts or rates were not calculated having regard to the rates and conditions of employment prescribed by any award. 29 The second and third respondents were senior officers of Starlink and Starlink Operations, and those companies carried on the business of providing trolley collection services to Coles Supermarkets, including by way of subcontracting that work to other persons. In the course of carrying out such a business, they were required to and, as a matter of course, did acquire detailed knowledge of the incidents of award coverage of employees performing trolley collection work, and of workplace laws regulating employees in the trolley collection business. The award modernisation process was well-known and it was well-known that, as part of that process, a federal award regulating the rates and conditions of trolley collectors had been made in 2009, that it would come into effect on 1 January 2010, and that it would apply to all employers in South Australia. The second and third respondents knew that the SA Cleaners Award applied in that manner before 1 January 2010 as they were informed of this by a memorandum of legal advice dated 12 May 2008 from Mallesons Stephen Jacques to Starlink. In the circumstances, the second and third respondents each knew for some time before 1 January 2010 that from that date the wage rates and conditions of the employees would be regulated by a federal award, and that from that date Mr Al Hilfi would be obliged to comply with the provisions of the Act in relation to the issuing of payslips and the keeping of employee records. Furthermore, they knew on 1 January 2010, and at all material times after that, that the wage rates and conditions of the employees were regulated by a federal award, and that Mr Al Hilfi was obliged to comply with the provisions of the Act in relation to the issuing of payslips and the keeping of employee records. 30 The observance by Mr Al Hilfi of the increased wages and conditions prescribed by the federal award would have had a substantial impact upon the profitability of his business and entailed a renegotiation of the rates under the subcontract. Neither Starlink Operations nor the second and third respondents received any request by Mr Al Hilfi after 1 January 2010 for an increase in the rates under the subcontract. Neither the second respondent nor the third respondent made any inquiry or took any step to ascertain whether Mr Al Hilfi, after 1 January 2010, was paying and according the employees the rates and conditions prescribed by the federal award, or observing the provisions of the Act in relation to issuing of payslips and keeping employee records. In the circumstances, the second and third respondents each knew that the wage rates and conditions that Mr Al Hilfi applied in relation to the trolley collectors after 1 January 2010 were less beneficial than those that Mr Al Hilfi was required to observe by the applicable award, and Mr Al Hilfi was not issuing payslips and not keeping employee records in accordance with the Act. 31 Despite having the knowledge referred to above, the second and third respondents each omitted to take any, or any effective action, either before or after 1 January 2010 to ensure that, after 1 January 2010, Mr Al Hilfi complied with the federal award regulating the wage rates and conditions of the employees from that date, or that he complied with the provisions of the Act in relation to the issuing of payslips and the keeping of employee records from that date. By omitting to take any, or any effective action, they induced Mr Al Hilfi into the belief that neither they nor Starlink Operations required him, on and from 1 January 2010, to comply with award regulated wages and conditions in relation to his employment of the employees, or to comply with the provisions of the Act in relation to the issuing of payslips and the keeping of employee records, and that the continuation of the subcontract was not dependent upon Mr Al Hilfi complying with award regulated wages and conditions in relation to his employment of the employees, or to comply with the provisions of the Act in relation to the issuing of payslips and the keeping of employee records, and that the employment arrangements that Mr Al Hilfi had in place with the employees were acceptable to the second and third respondents. 32 By reason of all of the foregoing matters, the second and third respondents brought about, encouraged, or facilitated (or all of these), Mr Al Hilfi's conduct in paying the employees wage rates and according the employees conditions after 1 January 2010 that were less beneficial than those regulated by the applicable award, and in failing to comply with the provisions of the Act in relation to the issuing of payslips and the keeping of employee records, associated themselves with Mr Al Hilfi's conduct in that regard, or rendered Mr Al Hilfi's conduct in that regard more likely. 33 I need to be satisfied that on these facts, each of the second and third respondents was involved in the contraventions committed by Mr Al Hilfi in relation to the underpayment of wages, making of superannuation contributions, the issuing of payslips and the keeping of employee records within the meaning of s 550(2)(c) of the Act. That was the paragraph relied on by the FWO. It provides as follows: A person is involved in a contravention of a civil remedy provision if, and only if, the person : .... (c) has been in any way by act or omission, directly or indirectly, knowingly concerned in or party to the contraventions; 34 The FWO referred me to a number of authorities which she submitted were relevant in ascertaining the scope of this paragraph. She started with the well-known decision of the High Court in Yorke & Another v Lucas (1985) 158 CLR 661. That case concerned the application of s 75B of the Trade Practices Act 1974 (Cth), a section which was in similar, but not identical terms, to s 550(2)(c) of the Act. The Court said that, in order to fall within the terms of s 75B, the alleged accessory must have knowledge of all of the essential facts even if he or she does not know that those facts constitute a contravention. 35 The FWO next referred to R v Coney & Others (1882) 8 QBD 534, and in particular, the observations of Hawkins J at 557-558: It is no criminal offence to stand by, a mere passive spectator of a crime, even of murder. Non-interference to prevent a crime is not itself a crime. But the fact that a person was voluntarily and purposely present witnessing the commission of a crime, and offered no opposition to it, though he might reasonably be expected to prevent and had the power so to do, or at least to express his dissent, might under some circumstances, afford cogent evidence upon which a jury would be justified in finding that he wilfully encouraged and so aided and abetted. 36 In this context, the FWO also referred to Du Cros v Lambourne (1907) 1 KB 40, R v Russell (1933) VLR 59, Tuck v Robson (1970) 1 WLR 741, Randall v R (2004) 146 A Crim R 197, and Cooper v Ministry for Transport [1991] 2 NZLR 693 at 698 per McGechan J. 37 The FWO also referred to the decision of the Full Court of this Court in Sutton v AJ Thompson Pty Ltd (in liq) and Others (1987) 73 ALR 233. In that case, the respondents' accountant was found to have been knowingly concerned in a contravention of s 52 of the Trade Practices Act within s 75B of the Act. The respondents' accountant was held liable because he played a significant part in the contravention by keeping important information from the applicants and by accepting joint responsibility for certain false statements. 38 In Leighton Contractors Pty Ltd v Construction, Foresting, Mining and Energy Union [2006] WASC 144; (2006) 154 IR 228 Le Miere J in the course of construing s 48(2) of the Building and Construction Industry Improvement Act 2005 (Cth), which is in identical terms to s 550(2) of the Act, said that (at 234, [25]): A person is directly or indirectly knowingly concerned in or party to a contravention if he or she has full knowledge of the essential facts or matters constituting the contravention and is an intentional participant by virtue of some act or conduct on his or her part which contributes to the commission of the offence. The person must engage in some act or conduct, including an intentional omission, which implicates or involves him or her in the contravention. 39 Finally, the FWO referred to the following passage from Smith GC and Hogan B, Criminal Law (7th ed, Butterworths, 1992) p 132: Where D has a right to control the actions of another and he deliberately refrains from exercising it, his activity may be a positive encouragement to the other to perform an illegal act, and, therefore, in aiding and abetting. A husband who stands by and watches his wife drown their children is guilty of abetting the homicide. His deliberate abstention from action gives encouragement and authority to his wife's act. If a licensee of a public house stands by and watches his customers drinking after hours, he is guilty of aiding and abetting them in doing so. 40 These then were the cases to which I was referred by the FWO. I was not referred to a case which provides clear assistance on the question presently before me, and I am not aware of any such case. I would also make the point that this case is somewhat unique because I proceed by reference to facts which reflect general allegations in the Statement of Claim. 41 I have reached the following conclusions. I do not think that there is any difficulty in concluding that the second and third respondents were the alter ego or controlling minds of the Starlink companies. Those companies were in a contractual relationship with Mr Al Hilfi for the latter to provide trolley collection services. In order to provide those services, Mr Al Hilfi employed various persons and he did not meet his obligations as an employer. He contravened each of ss 45, 44(1), 536(1) and 535(1). Did the second and third respondents know of the essential elements of the contraventions? Of the seven paragraphs in the Fourth Further Amended Statement of Claim, three contain allegations of knowledge on the part of the second and third respondents. They knew before and after 1 January 2010 that Mr Al Hilfi was not paying his employees in accordance with the terms of an award (paragraph 48). They knew for some time prior to 1 January 2010 that from 1 January 2010 Mr Al Hilfi's employees would be regulated by a federal award, and that he would be subject to the obligations in the Act, including ss 536(1) and 535(1) (paragraph 49). They knew that the terms and conditions Mr Al Hilfi afforded his employees after 1 January 2010 were less beneficial than the terms and conditions prescribed by the applicable award, and that he was not issuing payslips and not keeping employee records in compliance with the Act (paragraph 50). 42 I have carefully considered whether there is a sufficient allegation of knowledge of the particular instances of the alleged contravention of s 45 (e.g., a failure to pay minimum weekly wages, a failure to pay shiftwork penalty rates, etc.). I have reached the conclusion that there is, particularly in light of the allegation that each of the second and third respondents knew that Mr Al Hilfi was paying his employees fixed or lump sum amounts based on fees that they were paying to Mr Al Hilfi, and the allegation that they were aware that a federal award regulating the rates and conditions of trolley collectors had been made in 2009 and would come into effect on 1 January 2010. 43 The next question is whether it can be said that the conduct of the second respondent, and the conduct of the third respondent, whether by act or omission and directly or indirectly is sufficient to meet the description of being knowingly concerned in the contravention or party to the contravention. I think that the answer to that question in this case is yes, and in reaching that conclusion, I have relied principally on the allegation (taken to be admitted) that, at all material times, the second and third respondents had the capacity to control, direct or influence the conduct of Mr Al Hilfi in relation to the wages and conditions that were paid and accorded to his employees by Mr Al Hilfi, and the practices that Mr Al Hilfi adopted with respect to the issuing of payslips and keeping of employee records in relation to employees and the allegation (taken to be admitted) that Mr Al Hilfi was not a sophisticated businessman and he was subject to the direction of the second and third respondents in relation to the manner in which he conducted his business, including in relation to the wage rates he paid the trolley collectors.

Conclusion 44 I will make the declarations and other orders sought by the FWO. I will also fix a date for the hearing of submissions as to the appropriate pecuniary penalties. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.