Submissions in relation to Mr Chen
144 The FWO submitted that Mr Chen's conduct must be considered in light of his experience and background, including as a businessman and as the operator of a chain of at least seven restaurants since 2010. He holds two degrees, one post-graduate. He admits to his knowledge of and experience in the Australian restaurant industry, in which he started work in 2009 at his parents' restaurant.
145 It was again emphasised that Mr Chen was on notice of his obligations and the role of the regulator by reason of his previous interactions with the FWO. Despite that prior experience and exposure, Mr Chen was directly responsible for New Shanghai Charlestown's underpayment contraventions. He was a person who made decisions on behalf of New Shanghai Charlestown regarding the engagement of employees and their terms of engagement, including pay. He knew that the Award applied to employees during the Assessment Period and was aware of the hours worked by them in their duties. He knew that they were not being paid the correct hourly pay as he, together with Ms Jenna Xu, directed Ms Sarah Zhu as to the hourly rates to pay the employees.
146 Despite being informed by Ms Sarah Zhu in July 2013, being the start of the Assessment Period, that the wages being paid to employees did not meet the necessary requirements under the Award, Mr Chen made the conscious decision not to pay the employees what they were entitled to. He continued to underpay the employees, even after several conversations with Ms Sarah Zhu to the same effect and after receiving information from the FWO about workplace obligations. He was also aware of and indeed authorised New Shanghai Charlestown's practice of cashing out annual leave and knew that employees were not receiving payslips. He was also centrally concerned with the record keeping contraventions and directed that the false records be created and provided to the FWO. He persisted despite the attempts at resistance on the part of Ms Sarah Zhu. In his affidavit, he submitted that "fear and panic" contributed to his actions. The FWO submitted that, while it is a natural response to feel panic at the prospect of being caught contravening the law, especially given the seriousness of the conduct, it is Mr Chen's response in the face of that panic which warrants a serious penalty, and cannot be seen as anything but aggravating and calling for deterrence.
147 The dominant submission for Mr Chen was that the FWO's assessment of the appropriate penalties for him made no allowance for the fact that he was the sole shareholder of New Shanghai Charlestown and will, in reality, bear the burden of any penalties imposed upon it personally. Reliance was placed on him being, at all material times, the sole director, shareholder and secretary of New Shanghai Charlestown. It was emphasised that, as reflected in the combined statement of agreed facts, he was responsible for the overall direction, control, management and supervision of the company's operations in relation to the restaurant, including in relation to setting and adjusting pay rates in determining wages and conditions of employment. Similarly, it was emphasised that he was a person responsible for the keeping of employee records on behalf of New Shanghai Charlestown and was at all material times responsible for the management and supervision of Ms Sarah Zhu and Ms Jenna Xu. In those circumstances, it was submitted that to impose separate penalties on Mr Chen in addition to the penalties imposed on New Shanghai Charlestown would be to penalise Mr Chen twice over for the same conduct. For that reason, it was submitted that no penalty should be imposed on him at all.
148 Reliance was placed upon the following authorities in support of the argument that no penalties should be imposed on Mr Chen at all:
(1) The Queen v Hoar (1981) 148 CLR 32 at 38;
(2) Trade Practices Commission v Cue Design Pty Ltd [1996] FCA 192 at [27];
(3) Australian Competition and Consumer Commission v Dimmeys Stores Pty Ltd [1999] FCA 1175;
(4) Australian Competition and Consumer Commission v Ithaca Ice Works Pty Ltd [2000] FCA 997 at [13];
(5) Australian Competition and Consumer Commission v Commercial and General Publications Pty Ltd (No 2) [2002] FCA 1349 at [27]-[30];
(6) Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (No 2) [2002] FCA 559; 190 ALR 169 at [45] and [50];
(7) Minister for the Environment and Heritage v Greentree (No 3) [2004] FCA 1317; 136 LGERA 89 at [78];
(8) Greentree v Minister for the Environment and Heritage [2005] FCAFC 128; 144 FCR 388 at [54];
(9) Australian Competition and Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) [2007] FCA 1617; 244 ALR 673 at [294];
(10) Australian Competition and Consumer Commission v Oobi Baby Pty Ltd [2008] FCA 1488 at [12];
(11) Australian Competition and Consumer Commission v SMS Global Pty Ltd [2011] FCA 855 at [119]; and
(12) Minister for Immigration and Border Protection v Choong Enterprises Pty Ltd [2015] FCA 390; 234 FCR 478 at [103]-[107].
149 Particular reliance was placed on one of those cases, Choong Enterprises, where it was said:
103 Clearly, Mr Choong was complicit in these (and all the) contraventions. He was the principal person involved. He was the person deciding on the payment regime, and the person who received and did not take heed of the warnings.
104 The Minister has sought pecuniary penalties be imposed on Mr Choong, in round figures representing the something less, as a proportion of the applicable maximum for an accessory, than the suggested pecuniary penalties for Choong Enterprises.
105 However, it is accepted that Mr Choong is the sole shareholder and director of Choong Enterprises. Consequently, the pecuniary penalties imposed on Choong Enterprises will involve a loss that will ultimately be borne by Mr Choong. In Australian Competition and Consumer Commission v ABB Transmission & Distribution Ltd (No 2) (2002) 190 ALR 169, that circumstance led to Finkelstein J imposing a considerably lesser accessorial penalty on the director than would otherwise have been the case: see at [45] and [50]. In Australian Competition and Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) (2007) 244 ALR 673, Heerey J took the same factor into account at [294], noting that there were other decisions also that recognise that in such circumstances it is legitimate to avoid double counting where an individual contravener is an owner of a corporate contravener. In that case, no pecuniary penalty was imposed on that individual. See also the remarks of Weinberg J in Australian Competition and Consumer Commission v Commercial & General Publications Pty Ltd (No 2) [2003] ASAL 55-090 at [27]-[29] to the same effect.
106 For the same reasons, I do not propose to impose additional pecuniary penalties on Mr Choong for the contraventions to which he was an accessory. As Weinberg J considered, in my view that will not diminish the deterrent effect of the orders to be made. I note that there is no suggestion that Choong Enterprises will not be able to meet the substantial pecuniary penalties imposed on it
150 The FWO responded by way of reply and oral submissions. The FWO submitted principally that the relationship between Mr Chen and New Shanghai Charlestown was irrelevant and, in the alternative, that it should carry very little weight. The FWO relied upon four propositions in opposition to the assertion that separate penalties should not be imposed on Mr Chen.
151 First, it was submitted that the authorities relied upon by Mr Chen could be distinguished factually and legally, and include criminal cases which involve different principles. In all the civil penalty cases relied upon by Mr Chen where no penalty was imposed on the shareholder respondent, this was by way of an agreed position or submission by the regulator. It was submitted that none of the authorities stand for the proposition that a Court is prohibited from awarding penalties against both a shareholder/director of a company and the company itself. It was pointed out that, in fact, dual penalties were awarded in several of those matters, including Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (No 2). It was submitted that the consistent theme in all the authorities is that each case needs to be assessed individually and in the context of and for the purposes of achieving the relevant statutory purpose.
152 Secondly, the FWO submitted that Mr Chen had neglected to refer to the clear line of authority in cases arising under the FW Act following Fair Work Ombudsman v Ramsey Food Processing Pty Ltd (No 2) [2012] FCA 408, in which Buchanan J said at [8]:
A submission was made by the respondents that some consideration should be given to reducing the amount of the penalty imposed on one or other of the respondents to account for the intimate connection between the actions of the first respondent and the conduct of the second respondent. As I understood the submission, it was that there was a risk of punishing twice for the same conduct - i.e. punishing both the first and second respondents for the conduct of the second respondent. The submission appeared to rely on the judgment of Mansfield J in Australian Prudential Regulation Authority v Holloway (2000) 45 ATR 278; [2000] FCA 1245, although I do not understand how it could do so. In that judgment Mansfield J fixed lesser penalties on Mr Holloway, the "alter ego" of Holloway & Co, than on Holloway & Co. In the legislative scheme which his Honour was applying no distinction was made between the maximum penalty that could be applied to corporations and the maximum penalty that could be applied to individuals. That is not the case here. The present legislative scheme fixes quite different (and much lower) penalties for individuals than for corporations. The culpability of each respondent must be assessed individually and in the context set by the maximum penalty prescribed in each case. I reject the suggestion, if this was what was intended, that either or both respondents might have the benefit of any reduction in penalty because they were jointly, as well as individually, culpable.
153 The FWO's reply submissions listed a large number of decisions of the Federal Circuit Court in which Ramsey Food Processing had been applied and both directors and companies had been made the subject of separate penalties. It was submitted that a significant number of cases have involved imposition of penalties on shareholder respondents as well as their company without specifically referring to Ramsey Food Processing. For example, Barker J in Fair Work Ombudsman v Han Investments Pty Ltd [2017] FCA 623 at [132]-[135] rejected a submission that a shareholder/beneficial owner should not be penalised for her role in the contraventions of her three companies.
154 Thirdly, it was submitted that the FW Act allows for, and its purpose is achieved by, imposing penalties on both New Shanghai Charlestown and Mr Chen. Section 546(2)(b) of the FW Act sets out the maximum penalty that can be imposed on a body corporate in relation to its direct liability. Section 550 of the FW Act imposes accessorial liability for persons involved in such contraventions. Those provisions therefore act to protect the public by making each entity or person that is responsible for the unlawful conduct accountable for their conduct and separately penalised. That is particularly apposite given that New Shanghai Charlestown and Mr Chen are distinct legal entities for which it is not disputed that liability can be found. The fundamental distinction between the two is reflected in the differing maximum penalties. Moreover, as the High Court pointed out in Hamilton v Whitehead (1988) 166 CLR 121 at 128, there was nothing conceptually wrong in prosecuting both the managing director of a company and the company for the same conduct. This situation was addressed by Foster J in Minister for Sustainability, Environment, Water, Population and Communities v Woodley [2012] FCA 957; 194 LGERA 290, a case concerning illegal lobster fishing, where his Honour said at [66]:
Whilst Mr Woodley is clearly the controlling mind of Venture, that fact does not mean that only one penalty is appropriate or that a purely nominal penalty should be imposed upon one or other of the respondents. This is particularly the case where, as here, much greater maximum penalties are applicable to corporations than to individuals (see Fair Work Ombudsman v Ramsey Food Processing Pty Ltd (No 2) [2012] FCA 408 at [8] (per Buchanan J)). Venture was, after all, the trading vehicle for the commercial fishing activities conducted by Mr Woodley. It would have been the repository of the financial rewards from the contravention, had any lobsters actually been caught in the Reserve.
155 The FWO submitted that, having erected the structure of a corporation, Mr Chen could not rely upon New Shanghai Charlestown's status as a separate legal entity when it suited him, and then reject that status when inconvenient. It was submitted that the doctrine of approbation and reprobation precludes a person who has exercised a right from exercising another right which is alternative to and inconsistent with the right that has been exercised: Commonwealth v Verwayen (1990) 170 CLR 394 per Brennan J at 421.7. The FWO relied upon the comments of Young J in Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 694-5:
Unfortunately, it very often happens in cases in this court that a person has arranged his affairs for commercial or fiscal reasons employing a particular structure, which with respect to creditors and the Government he expects to be recognized as no sham, but when it comes to a dispute with his former wife or former business associates it is not in his interests to maintain the structure and he pleads before this Court that one must not look at the structure at all but rather at the "realistic" or "practical" effect of what has happened. I do not find this sort of submission attractive. So long as the law permits people to erect structures which have meaningful legal consequences then if a person elects to erect such a structure he must take the consequences of such erection for better, for worse, for richer or poorer, in commercial sickness or commercial health.
156 Fourthly, the FWO submitted that the FW Act, like other liability schemes, provides for contraventions against persons and other entities for the same acts, whether direct or accessorial, citing as examples s 11.2 of the Criminal Code (Cth) and s 79 of the Corporations Act 2001 (Cth). It was submitted that the capacity for dual liability is the outcome of legislative intention and cannot be seen to be accidental. Reliance was placed on the comments of Biscoe J in Leichhardt Council v Geitonia Pty Ltd (No 7) [2015] NSWLEC 79, in which his Honour said, in the context of the Environmental Protection and Biodiversity Conservation Act 1999 (Cth) and having regard to United States legislation which allowed for offsetting penalties for related entities:
62 In all the Australian avoidance of double penalty decisions to which I have referred, both the one man company and its man were fined substantial amounts. It was acknowledged in Greentree and Kinnarney that the "total" fines imposed on them should be appropriate in the circumstances of the case - a principle analogous to the totality principle. In ABB, Greentree, Kinnarney and Palfrey (but not Mouawad) heavier fines were imposed on the corporation compared with the individual, taking into account that there were heavier maximum statutory penalties for corporations compared with individuals. In ABB, the ratio between the two (20:1) was reflected precisely in the fines imposed. In Greentree the ratio of the maximum statutory penalties for corporations and for individuals was 10:1 but the ratio of the fines imposed was 2:1, which appears to have been the product of instinctive synthesis. In Mouawad the same fine was imposed on the corporation and the individual. Where there was no difference in the maximum statutory penalties, the individual was fined substantially more than the corporation: Keir. In the present case, there is no difference in the statutory maximum penalty for a corporation and an individual.
63 On one view, a logical way to avoid double penalty in a case such as the present, where the individual is the sole shareholder and alter ego of his company (at least where the maximum statutory penalty for each is the same), is to impose a fine on the individual and only a nominal (or no) fine on his company. That would accord with the result under the United States Guidelines Manual. But none of the Australian authorities to which I have referred have taken (nor have they explicitly considered) that view. The explanation may lie in the proposition that avoidance of a double penalty is to be taken into account with other considerations, and that other considerations such as the sentencing objectives of deterrence, denunciation and punishment still require more than a nominal fine to also be imposed on the one man company. This suggests that although Mr Gertos, as the guiding mind behind the offences committed by Geitonia and indeed GRC, should bear the heaviest fine, Geitonia should also bear a fine that is not nominal.
157 It was submitted on behalf of the FWO that Mr Chen was the creator of the exploitative scheme and the guiding mind behind the contraventions, which were objectively serious. There was a public interest in imposing penalties on both New Shanghai Charleston and Mr Chen to achieve the purposes of both general and specific deterrence.
158 After the penalty hearing, the Full Court handed down its decision in Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2017] FCAFC 159. The Full Court relevantly observed:
363 Thirdly, the ACCC submits that there is a more appropriate approach to common ownership, namely that the Court can take this into account in the exercise of its discretion. For example, where there are close economic relationships between two contravenors, it may be proper for the Court to ultimately reduce the separate penalty imposed on each contravenor - or decline to impose any penalty on one of the contravenors - on the basis that any penalty imposed on one contravenor will ultimately be borne by the other: Australian Competition and Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) (2007) 244 ALR 673 at [294] per Heerey J; Australian Competition and Consumer Commission v Commercial and General Publications Pty Ltd (No 2) [2002] ATPR 41-905; [2002] FCA 1349 at [27] per Heerey J.
364 The ACCC contends that the appropriate approach in order to take into account common ownership (such as in this case) is first, to identify the respondent with the greatest responsibility for each contravention (the 'lead' contravenor) and determine the appropriate penalty for that respondent that achieves specific and general deterrence, and secondly, to determine the appropriate penalty for the remaining corporate respondents involved in the contraventions and, in doing so, to take into account the fact that a significant penalty is already to be imposed on the lead contravenor.
365 The ACCC concludes by submitting that, although a close economic relationship between contravenors may justify a reduction in the separate penalties imposed on one or both of them, it does not follow that it justifies a single penalty being imposed on related contravenors jointly and severally. The ACCC submits that the contravenors made deliberate choices to conduct their business through separate legal entities and therefore must take both the benefits and burdens that come with separate legal personality: Australian Competition and Consumer Commission v Origin Energy Limited [2015] FCA 55 (Origin Energy) at [62]-[64] per White J.
159 The weight of authority does not support the FWO's contention that the relationship between New Shanghai Charlestown and Mr Chen is irrelevant. However, nor does it provide much, if any support, for the proposition that, in the circumstances of this case, Mr Chen should receive no direct penalty at all. That is particularly so in the absence of any evidence as to the financial position of New Shanghai Charlestown.
160 In the circumstances of this case, the weight that should be attached to the relationship between New Shanghai Charlestown and Mr Chen should be limited. If persons like Mr Chen choose to avail themselves of the advantages of a corporate structure, which includes such things as limited liability, asset protection and tax advantages, there is a limit to which they can then seek to rely upon the disadvantages of that structure, in circumstances where it has been the primary vehicle by which they have engaged in serious contraventions of workplace laws. In all the circumstances, the appropriate course is therefore to take into account the relationship between Mr Chen and New Shanghai Charlestown, but for it to have a limited effect on the ultimate penalty to be imposed. That is particularly the case where the maximum penalty available for each group of underpayment contraventions is well below the illegal benefits that were obtained and therefore makes it difficult to arrive at a final penalty which adequately advances the need for general and specific deterrence.
161 The need for both general and specific deterrence in this case is substantially heightened by the conduct of Mr Chen in deliberately directing and contributing to the creation of false employment records and their production in response to the FWO's notice to produce. That deception was only detected by the eagle-eyes of the Fair Work Inspector, and might otherwise have permitted the contraventions to continue to this day. In those circumstances, Mr Chen has a very weak case for any reduction of penalty by reason of his ownership of New Shanghai Charlestown, let alone for no direct penalty being imposed at all.
162 Mr Chen's case for contrition and remorse was difficult to assess. The overall impression he conveyed was more of sorrow at having been caught, than of remorse for having engaged in the conduct in the first place. Had the matter proceeded to a hearing, there would have been little reason to impose anything less than the maximum penalty available, making the 20% discount for cooperation proposed by the FWO a real and substantial advantage accruing to him and to New Shanghai Charlestown, as well as Ms Jenna Xu and Ms Sarah Zhu.
163 The most compelling case for mitigation in assessing any direct penalty that might be imposed on Mr Chen was advanced in oral submissions on his behalf. It was convincingly pointed out by his counsel that he and New Shanghai Charlestown, at his direction, had commenced full and complete cooperation with the FWO from November 2014, which was the time at which solicitors were engaged to provide specialist workplace relations legal advice. There was no evidence and no suggestion that anything other than full and complete cooperation had occurred since November 2014. That cooperation should be accepted as an important mitigating factor, at least obviating the need to call for submissions as to why the FWO penalty range should be adhered to. There is a public interest in encouraging people to cooperate with the regulator. For that reason, there should be seen to be a real benefit in such cooperation, as otherwise the worth in doing so may be questioned.
164 A second argument made on behalf of Mr Chen, accruing also to the benefit of New Shanghai Charlestown, and collaterally, for parity reasons, to the benefit of Ms Jenna Xu and Ms Sarah Zhu, is that as at the end of June 2015, the solicitors acting for New Shanghai Charlestown and Mr Chen had accepted the underpayment figure and begun a discussion with the FWO of the timing as to when that amount would be made good. The rectification of the underpayments commenced on 14 July 2015. While it had been suggested on the company's behalf that there should be a longer payment period, that was only raised as a possibility and, once rejected, the payment sought by the FWO commenced almost immediately. Once again, those submissions should be accepted and, again, such cooperation should be, and be seen to be, appropriately recognised.
165 The third factor that it was submitted should be taken into account, again to the benefit of Mr Chen and through him New Shanghai Charlestown, was Mr Chen's voluntary and candid participation in a recorded interview with the FWO on 26 February 2016. That submission should be accepted. The transcript of the interview indicated full and complete cooperation on Mr Chen's part, frank admissions of wrongdoing and an acceptance of responsibility, with no attempt to try and blame anyone else or excuse his actions.
166 While the evidence as to the training and future compliance to be provided to New Shanghai Charlestown was less compelling, it does to an extent give some comfort that future contravention by the company is less likely. While I am not satisfied that this conduct warrants a departure from what the FWO has proposed in favour of a more lenient penalty, it is a factor that points away from the need to consider going beyond the regulator's proposal and calling for submissions as to why that should not occur. But for the measure of cooperation considered above - suggesting some degree of contrition and an asserted firm determination not to contravene again - there would have been no reason to go below the maximum penalty after the 20% cooperation discount. That inclination, to the extent that it is demonstrated on the evidence and given some weight, should not be left in a vacuum. That is especially so where the deliberate and persistent nature of the company's contravention and the attempt to thwart the FWO's investigation are more reliable indicators of the risk of repetition than bare assertions, even on oath. The intention of New Shanghai Charlestown and Mr Chen to mend their ways needs to be supported and reinforced with a suitable specific deterrence penalty. General deterrence also remains a vitally important consideration.