General Manager of Fair Work Australia v Health Services Union - [2014] FCA 970 - FCA 2014 case summary — Zoe

CTHFCA

General Manager of Fair Work Australia v Health Services Union

[2014] FCA 970

Federal Court of Australia|2014-09-10|Before: Mr J, North J

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Source facts

Court

Federal Court of Australia

Decision date

2014-09-10

Before

Mr J, North J

Source

Original judgment source is linked above.

Judgment (60 paragraphs)

[1]

Note: In these declarations and orders, "Registered Organisations Provisions" means: a. until 30 June 2009, Schedule 1 to the Workplace Relations Act 1996 (Cth); b. from 1 July 2009, the Fair Work (Registered Organisations) Act 2009 (Cth).

[2]

Health Services Union 1. The first respondent, the Health Services Union (the HSU), by reason of the conduct of the Victoria No. 1 Branch (the Branch), contravened s 253 of the Registered Organisations Provisions in that the Branch failed to prepare a general purpose financial report for the 2006 - 2007 financial year, in accordance with Australian Accounting Standard AASB 124 Related Party Disclosures, that disclosed the nature of the related party relationship between the Branch and Philip Grima (Grima), who was then the domestic partner of the Branch President Pauline Fegan (Fegan), and the related party transactions between the Branch and Grima (trading as Urban Giftware) in that financial year, namely the purchase of goods, including promotional goods, to the value of $58,601.95. 2. The HSU, by reason of the conduct of the Branch, contravened s 253 of the Registered Organisations Provisions in that the Branch failed to prepare a general purpose financial report for the 2007 - 2008 financial year, in accordance with Australian Accounting Standard AASB 124 Related Party Disclosures, that disclosed the nature of the related party relationship between the Branch and Grima, and the related party transactions between the Branch and Grima in that financial year, namely the purchase of goods, including promotional goods, to the value of $124,900.20. 3. The HSU, by reason of the conduct of the Branch, contravened s 253 of the Registered Organisations Provisions in that the Branch failed to prepare a general purpose financial report for the 2007 - 2008 financial year, in accordance with Australian Accounting Standard AASB 118 Revenue, that disclosed the accounting policies adopted for the recognition of revenue, including the methods adopted to determine the stage of completion of transactions involving the rendering of services. 4. The HSU, by reason of the conduct of the Branch, contravened s 253 of the Registered Organisations Provisions in that the Branch failed to prepare a general purpose financial report for the 2007 - 2008 financial year, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that included a statement of changes in equity of the Branch. 5. The HSU, by reason of the conduct of the Branch, contravened s 265(5) of the Registered Organisations Provisions in that the Branch failed to provide to its members the full report required by s 265(1) in relation to the 2007 - 2008 financial year by 30 November 2008. 6. The HSU, by reason of the conduct of the Branch, contravened s 266(1) of the Registered Organisations Provisions in that the Branch failed to present a copy of the full report for the 2007 - 2008 financial year to either a general meeting of the members of the Branch or the Branch Committee by 31 December 2008. 7. The HSU, by reason of the conduct of the Branch, contravened s 268 of the Registered Organisations Provisions in that the Branch failed to lodge a copy of the full report and the certificate required by that section for the 2007 - 2008 financial year with the Industrial Registrar by 14 January 2009. 8. The HSU, by reason of the conduct of the Branch, contravened s 237(1) of the Registered Organisations Provisions in that the Branch failed to lodge a statement of loans, grants and donations for the 2006 - 2007 financial year with the Industrial Registrar by 28 September 2007. 9. The HSU, by reason of the conduct of the Branch, contravened s 252(1) of the Registered Organisations Provisions in that the Branch failed to keep such financial records as correctly record and explain the transactions of the Branch and to keep its financial records in such a manner as would enable the accounts of the Branch to be conveniently and properly audited under Chapter 8 Part 3 of the Registered Organisations Provisions, namely: a. documents (such as receipts) substantiating that $4,128 of the credit card expenditure reimbursed to Jeff Jackson (Jackson) and $6,995 of the credit card expenditure reimbursed to Shaun Hudson (Hudson) in the period 1 July 2007 to 30 November 2008 was for Branch business; and b. records of the authorisation of such credit card expenditure. 10. The HSU, by reason of the conduct of the Branch, contravened s 252(1) of the Registered Organisations Provisions in that the Branch failed to keep such financial records as correctly record and explain the transactions of the Branch and to keep its financial records in such a manner as will enable the accounts of the Branch to be conveniently and properly audited under Chapter 8 Part 3 of Registered Organisations Provisions, namely such records as were necessary to record and explain the annual leave taken or cashed out by Jackson in the period between 1 July 2007 and 30 November 2008. Fegan 11. The second respondent, Fegan, contravened s 285(1) of the Registered Organisations Provisions by providing her Personal Identification Number (PIN) for the Branch bank account to the Branch office manager, which (together with the provision by Jackson and Hudson of their PINs) enabled the Branch office manager to make payments by Electronic Funds Transfer (EFT) from the Branch bank account without further authorisation by Fegan. 12. Fegan contravened s 285(1) of the Registered Organisations Provisions by signing and providing to the Branch office manager a limited number of cheques, to be drawn on the Branch bank account, on which the amount to be paid had not been completed, thereby enabling the amount to be paid to be completed and the cheque drawn on the Branch bank account without further authorisation from Fegan, and without her having viewed a document (such as a purchase order or invoice) substantiating the payee and the amount to be paid. Jackson 13. The third respondent, Jackson, contravened s 285(1) of the Registered Organisations Provisions by providing his PIN for the Branch bank account to the Branch office manager, which (together with the provision by Fegan and Hudson of their PINs) enabled the Branch office manager to make payments by EFT from the Branch bank account without further authorisation by Jackson. 14. Jackson contravened s 285(1) of the Registered Organisations Provisions by signing and providing to the Branch office manager cheques, to be drawn on the Branch bank account, on which the payee and the amount to be paid had not been completed, thereby enabling the payee and amount to be paid to be completed and the cheque drawn on the Branch bank account without further authorisation from Jackson, and without him having viewed a document (such as a purchase order or invoice) substantiating the payee and the amount to be paid. 15. Jackson contravened s 285(1) of the Registered Organisations Provisions by arranging for the Branch office manager to become a signatory for Branch cheques, thereby permitting cheques to be drawn on the funds of the Branch in breach of HSU Rule 60(c), which required that all cheques drawn on the funds of the Branch be signed by the Branch Secretary (or in his or her absence the Branch Assistant Secretary) together with any two members of the Branch Committee. 16. Jackson contravened s 285(1) of the Registered Organisations Provisions by failing to provide, or to ensure that the Branch obtained and retained, documents (such as receipts) in respect of $4,128 of expenditure on his personal credit card for which he obtained reimbursement from the Branch in the period from 1 July 2007 to 30 November 2008. 17. Jackson contravened s 285(1) of the Registered Organisations Provisions by giving a direction to the Branch office manager in May 2008 to cause the Branch to make three additional salary payments to him (Jackson), each of $5,000, without having written authorisation from the Branch Committee for those additional salary payments. 18. Jackson contravened s 285(1) of the Registered Organisations Provisions by giving a direction to the Branch office manager in October 2008 to cause the Branch to make an additional payment of $5,000 to Ms Alex Hicks, who was employed by the HSU in the Branch, when that payment was not for the general administration of the Branch or for purposes reasonably incidental thereto, and he did not have authorisation from the Branch Committee for that payment. 19. Jackson contravened s 285(1) of the Registered Organisations Provisions by permitting the Branch, in 2008, to pay $1,289.20 for flights and $280.67 for accommodation for both himself and his spouse, for their travel to, and attendance at, the wedding of Ben Morgan (Morgan), a staff member employed in the Branch. 20. Jackson contravened s 286(1) of the Registered Organisations Provisions by permitting the Branch, in 2008, to pay $1,289.20 for flights and $280.67 for accommodation for both himself and his spouse, for their travel to, and attendance at, the wedding of Morgan. 21. Jackson contravened s 287(1) of the Registered Organisations Provisions by permitting the Branch, in 2008, to pay $1,289.20 for flights and $280.67 for accommodation for both himself and his spouse, for their travel to, and attendance at, the wedding of Morgan. 22. Jackson contravened s 285(1) of the Registered Organisations Provisions by failing to sign applications for, or arrange to have authorised (either by the Branch Committee or by another officer of the Branch such as the President), annual leave taken or cashed out by him in the period from 1 July 2007 to 30 November 2008. Hudson 23. The fourth respondent, Hudson, contravened s 285(1) of the Registered Organisations Provisions by providing his PIN for the Branch bank account to the Branch office manager, which (together with the provision by Fegan and Jackson of their PINs) enabled the Branch office manager to make payments by EFT from the Branch bank account without further authorisation by Hudson. 24. Hudson contravened s 285(1) of the Registered Organisations Provisions by signing and providing to the Branch office manager cheques, to be drawn on the Branch bank account, on which the payee and the amount to be paid had not been completed, thereby enabling the payee and amount to be paid to be completed and the cheque drawn on the Branch bank account without further authorisation from Hudson, and without him having viewed a document (such as a purchase order or invoice) substantiating the payee and the amount to be paid. 25. Hudson contravened s 285(1) of the Registered Organisations Provisions by permitting the Branch, in 2008, to pay $1,289.20 for flights, $280.67 for accommodation and $90.00 for parking, for both himself and his spouse, for their travel to, and attendance at, the wedding of Morgan. 26. Hudson contravened s 286(1) of the Registered Organisations Provisions by permitting the Branch, in 2008, to pay $1,289.20 for flights, $280.67 for accommodation and $90.00 for parking, for both himself and his spouse, for their travel to, and attendance at, the wedding of Morgan. 27. Hudson contravened s 287(1) of the Registered Organisations Provisions by permitting the Branch, in 2008, to pay $1,289.20 for flights, $280.67 for accommodation and $90.00 for parking, for both himself and his spouse, for their travel to, and attendance at, the wedding of Morgan. AND THE COURT ORDERS THAT: 28. Pursuant to s 306(1) of the Registered Organisations Provisions, a penalty of $38,500 is imposed on the first respondent for the contraventions referred to in paragraphs 1 to 8 above, comprised of: a. $22,400 in respect of the contraventions in paragraphs 1 and 2 above; b. $1,400 in respect of the contraventions in paragraphs 3 and 4 above; c. $12,600 in respect of the contraventions in paragraphs 5, 6 and 7 above; d. $2,100 in respect of the contravention in paragraph 8 above. 29. Pursuant to s 306(1) of the Registered Organisations Provisions, a penalty of $4,505 is imposed on the second respondent for the contraventions referred to in paragraphs 11 and 12 above, comprising: a. $2,805 in respect of the contravention in paragraph 11 above; b. $1,700 in respect of the contravention in paragraph 12 above; 30. Pursuant to s 306(1) of the Registered Organisations Provisions, a penalty of $18,262.50 be imposed on the third respondent for the contraventions referred to in paragraphs 13 to 22 above, comprising: a. $2,475 in respect of the contravention in paragraph 13 above; b. $2,475 in respect of the contravention in paragraph 14 above; c. $2,475 in respect of the contravention in paragraph 15 above; d. $1,237.50 in respect of the contravention in paragraph 16 above; e. $3,375 in respect of the contravention in paragraph 17 above; f. $1,237.50 in respect of the contravention in paragraph 18 above; g. $3,750 in respect of the contraventions in paragraphs 19, 20 and 21 above; h. $1,237.50 in respect of the contravention in paragraph 22 above; 31. Pursuant to s 306(1) of the Registered Organisations Provisions, a penalty of $6,720 is imposed on the fourth respondent for the contraventions referred to in paragraphs 23 to 27 above, comprising: a. $1,960 in respect of the contravention in paragraph 23 above; b. $1,960 in respect of the contravention in paragraph 24 above; c. $2,800 in respect of the contraventions in paragraphs 25, 26 and 27 above; 32. Pursuant to s 306(2) of the Registered Organisations Provisions, the penalties referred to in paragraphs 28 to 31 above be paid to the Commonwealth within 28 days of these orders. 33. Pursuant to s 307(1) of the Registered Organisations Provisions, the third respondent pay to the HSU compensation of $16,569.88 for damage suffered by the HSU resulting from the contraventions referred to in paragraphs 19, 20 and 21 above; 34. Pursuant to section 51A(1) of the Federal Court of Australia Act 1976 (Cth), the third respondent pay to the HSU interest of $10,229.52 on the compensation ordered in paragraph 33 above. 35. The compensation and interest referred to in paragraphs 33 and 34 above be paid to the HSU within 28 days of these orders. 36. The applications by the second and fourth respondents for relief from liability under section 315(2) of the Registered Organisations Provisions are dismissed. 37. The name of the applicant is amended to "General Manager of the Fair Work Commission". Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

[5]

INTRODUCTION 1 This proceeding concerns contraventions of the statutory provisions which govern the administration of registered organisations. 2 The general manager of Fair Work Australia is a statutory office established by s 656 of the Fair Work Act 2009 (Cth). The office holder is empowered to apply for the relief such as sought in this proceeding (s 310(1)) of the Fair Work (Registered Organisations) Act 2009 (Cth). The applicant was appointed to that office on 24 February 2012. 3 Before 1 July 2009, the provisions which governed the administration of registered organisations were principally to be found in Sch 1 of the Work Place Relations Act 1996 (Cth). From 1 July 2009, these provisions were enacted in a separate statute entitled the Fair Work (Registered Organisations) Act 2009 (Cth) with the section numbers unchanged. The applicable provisions will be referred to as the Registered Organisations Provisions. Where sections are referred to without reference to the statute in which they are found, the reference is to the applicable Registered Organisations Provisions. 4 The Health Services Union (HSU), the first respondent, is and has at all relevant times been an organisation registered under the Registered Organisations Provisions. 5 Prior to May 2010, the HSU was divided into branches and it had a branch called the Victoria No 1 Branch (the Branch). 6 From 21 June 2006 until 16 August 2009, Pauline Fegan, the second respondent, was the President of the Branch, Jeff Jackson, the third respondent, was the Secretary of the Branch, and Shaun Hudson, the fourth respondent, was the Assistant Secretary of the Branch. 7 The application before the Court was filed on 23 May 2012. By September 2012 each of the respondents admitted contraventions and filed statements of agreed facts and admitted contraventions. 8 Based on those admitted facts and contraventions the applicant now seeks declarations of contraventions against the respondents, orders imposing pecuniary penalties pursuant to s 306(1), and an order against the third respondent for payment of compensation to the HSU pursuant to s 307(1). The maximum penalty for contravention of a civil penalty provision applicable to the present proceeding is 300 penalty units in respect of a body corporate and 60 penalty units in respect of any other case. The penalty unit applicable is $110. Thus, the maximum penalty for each contravention by the HSU is $33,000 and for each contravention by each of the other respondents is $6,600. 9 There was no dispute between the parties as to the proper approach which the Court should take to the imposition of penalties, although they differed in the results which would be produced by that approach. 10 The purpose of imposing penalties for contraventions is primarily to deter the wrongdoer from repeating such conduct, and to deter others from contravening the statutory provisions in the future. 11 The Court must first establish the appropriate penalty for each contravention. This involves a process of judgment taking into account the purpose of the statutory provisions, the nature of the conduct, the circumstances in which it occurred, and matters personal to the wrongdoer. In each instance an assessment must be made whether the factors under consideration render the contravention more or less serious. In other words, where should the conduct be positioned on the spectrum of wrongdoing? Where the wrongdoer has shown contrition by accepting responsibility for the wrongdoing, the penalty should be discounted to reflect that factor. 12 The Court must also determine whether it is appropriate to group some of the contraventions on the basis that they form a single course of conduct or otherwise exhibit some common features which justify them being treated together. At the final stage the Court must apply the totality principle, that is to say, it must test whether the total penalty properly reflects an appropriate response to the conduct taken as a whole. 13 Reference was made in several of the written submissions by the parties to checklists of relevant matters which might be taken into account in setting penalties. Despite warnings in the cases cited that those lists are guides only, unnecessary time and space was taken up in the submissions by recording various factors and then discarding them as irrelevant in the present case. It is more efficient to focus on the facts in question in each case than to mechanically deal with factors found in such checklists. 14 These reasons now deal with the contraventions by each of the respondents separately, in accordance with the approach outlined. Following those sections, these reasons for judgment deal with the claims for compensation and for declarations.

[7]

General Deterrence 16 In written submissions the applicant contended that: 35. Each of the contravened provisions establishes important minimum standards that are designed to achieve the statutory objectives set out in section 5 of the Registered Organisations Provisions: 5 Parliament's intention in enacting this Act (1) It is Parliament's intention in enacting this [Schedule / Act] to enhance relations within workplaces between federal system employers and federal system employees and to reduce the adverse effects of industrial disputation. (2) Parliament considers that those relations will be enhanced and those adverse effects will be reduced, if associations of employers and employees are required to meet the standards set out in this [Schedule / Act] in order to gain the rights and privileges accorded to associations under this [Schedule / Act] and the [WR Act / FW Act]. (3) The standards set out in this [Schedule / Act]: (a) ensure that employer and employee organisations registered under this [Schedule / Act] are representative of and accountable to their members, and are able to operate effectively; and (b) encourage members to participate in the affairs of organisations to which they belong; and (c) encourage the efficient management of organisations and high standards of accountability of organisations to their members; and (d) provide for the democratic functioning and control of organisations; and (e) [ ... ]. (4) It is also Parliament's intention in enacting this Schedule to assist employers and employees to promote and protect their economic and social interests through the formation of employer and employee organisations, by providing for the registration of those associations and according rights and privileges to them once registered. 36. It is important that any penalty denounce the contravention of these minimum standards and promote compliance with them by organisations generally. 17 The HSU argued that the prevalence of a particular offence affects the weight to be given to general deterrence. Where a contravention is widespread, general deterrence will be of particular importance. That is not the case with the present contraventions. There are over 100 organisations registered under the Registered Organisations Provisions, most with branches in each State or Territory. The provisions which gave rise to seven of the eight contraventions committed by the HSU have existed since 1977, and the remaining provision which gave rise to a contravention committed by the HSU has existed since 1982. There has never been a proceeding brought against a registered organisation for failing to comply with these obligations. Contravention of these provisions is not widespread. Hence, there is little need for general deterrence. 18 In reply, the applicant contended that there was no evidence as to the prevalence of the conduct which is the subject of the contraventions, and there should be no assumption about that matter. 19 The need for general deterrence should be assessed against the apparent prevalence or otherwise of the contraventions in the relevant community. However, this factor does not significantly reduce the amount of the penalties which should be imposed in this case, as there was limited material on which to make that assessment. It can be accepted as a matter of public record that there have been no proceedings brought for contraventions of these provisions until now. The countervailing need for the Court to firmly denounce the conduct is more significant.

[8]

Involvement of Senior Management 20 The applicant argued that the contraventions arose from acts or omissions of the senior management of the Branch, namely the Branch Committee, including the second, third and fourth respondents, and that this involvement increased the seriousness of the contraventions. 21 The HSU contended that senior management was not involved in the contraventions. As Secretary of the Branch, the third respondent is best understood as a middle manager. The second and fourth respondents, as President and Assistant Secretary of the Branch, are best understood as junior managers. The third respondent was one of eleven branch secretaries of the HSU. As President of the Branch, the second respondent had a limited role under the Rules of the HSU (the HSU Rules), largely related to signing documents and calling and presiding over meetings. And, as Assistant Secretary of the Branch, the fourth respondent was an assistant to the third respondent. The senior management of the HSU are the National President, the National Vice President, the National Secretary and two National Assistant Secretaries. The second, third and fourth respondents did not hold any of these positions. There is no evidence that any national officer was aware of the contraventions. 22 The level at which the contraventions were committed, that is to say at the level of the Branch Committee, which included the Branch President, Branch Secretary and Branch Assistant Secretary, gives the contraventions a degree of seriousness which would not exist if they had been committed by more junior officers of the Branch. Then, the role of the Branch officers must be seen in the light of the structure of the HSU as a whole. The contraventions were not committed by the most senior officials of the HSU. Indeed, the conduct of the senior officials at the HSU mitigates the penalty which should otherwise be imposed. As a matter of fact, the contraventions were committed by the officers directly responsible for compliance. As a further matter of fact, the overriding control of the Branch in the structure of the HSU was the responsibility of national officials. These facts give a nuance to the assessment of the wrongdoing. It is unhelpful to seek to squeeze the issue into the box "involvement of senior management" created by one of the checklists referred to in the cited cases.

[11]

The indirect liability of the HSU 26 The HSU argued that when assessing its moral culpability, and the consequent need for specific deterrence, the legal and practical limits on its powers must be taken into account. 27 The Branch was a reporting unit under s 242, and the provisions which were contravened imposed on the Branch as a reporting unit. Section 305(3) provided that a contravention by a branch is taken to be a contravention by the organisation of which the branch is a part. Thus, the liability of the HSU arises from the conduct of the Branch. At the same time, Rule 44(a) of the HSU Rules provides that branches shall be completely and absolutely autonomous within the ambit of the HSU Rules and responsible for their own government and administration. The General Manager of Fair Work Australia certified pursuant to s 159 that the HSU Rules complied with the Registered Organisations Provisions. Thus, the only effective means for the HSU to respond where a branch is dysfunctional is to apply to the Court under s 323 to reconstitute the branch. This was the course which the HSU took. 28 The HSU argument that its culpability should be reduced because its liability is indirect, being dependant on the conduct of the Branch, and because its powers to intervene in the Branch are limited to extreme circumstances is ingenious but should not be given much weight. Similarly with the argument, considered in the next section, that any penalty on the HSU has the effect of doubly penalising the members in that they suffer from the contravention and then suffer from the payment of the penalty for that contravention. The difficulty with these considerations is that they flow from the legislative scheme applicable to the organisation. That scheme contemplates that the organisation will be subject to a penalty for contraventions of the Branch, that the rules of an organisation may provide for autonomy of branches, and that the resources of the organisation will be diminished to the detriment of members by payment of a penalty.

[14]

The reform of the Branch 36 The HSU relied on steps taken to reform the administration of the Branch following the contraventions. 37 In May 2010, the Branch merged with the Victorian No 3 Branch and the New South Wales Branch to form the HSU East Branch. 38 On 2 May 2012, the Secretaries of all the branches, save for the Secretary of the HSU East Branch, applied to this Court for orders demerging the HSU East Branch and appointing an administrator to the demerged branches. In June 2012, Flick J declared the elected offices in the HSU East Branch vacant, and ordered that an administrator be appointed to the HSU East Branch. The administrator was required by the orders to arrange for the demerger of the HSU East Branch, for elections of the demerged branches, and for the formulation and implementation of policies to ensure the proper administration of the branches (Brown v Health Services Union (2012) 205 FCR 548; [2012] FCA 644). 39 Subsequent developments in the reform of the Branch were set out in a supplementary statement of agreed facts between the applicant and first respondent dated 15 October 2013. Those developments included that on 21 August 2012, the HSU East Branch was demerged and the Branch was restored. In August 2012, the HSU Rules relating to the Branch were amended. On 21 December 2012, Branch elections were declared. 40 The HSU placed particular reliance on the rule changes which were explained in written submissions as follows: 67. New Officer specifically responsible for proper financial governance: the new rule 60 creates a new position of Branch Assistant Secretary-Treasurer of the Victoria No 1 Branch. It is a unique position that is almost completely dedicated to ensuring proper financial governance of the Branch. In addition to complying with the requirements of the Act, the Branch Assistant Secretary-Treasurer must ensure that the Branch's financial system is conducted in accordance with Australian Accounting Standards, Australian Accounting Interpretations and other pronouncements of the Australian Accounting Standards Board. In the performance of the financial accountability functions, the Branch Assistant Secretary-Treasurer is not subject to the direction of the Branch Secretary: rule 60(h). 68. New related party transactions rule: The new rule 86 governs related party transactions. The effect of the rule is: (a) to require disclosure of a broader range of transactions than those covered by the Australian Accounting Standards; (b) to require the publication of the disclosure within a shorter time frame than that required by the Act; and (c) to require the publication of the disclosure on the Union's website, a means of dissemination that is greater than that imposed by the Act. 69. Officers and members are bound by the adopted polices of the Branch: rule 83(b). Those polices are published on the Branch's website: rule 83(c). The policies can only be altered, amended or revoked by 70% of the members of the Branch Committee of Management: rule 83(d). Employees of the Union must also comply with those policies. A breach of the policy can result in the removal of the officer from his or her position; the dismissal of an employee; and criminal prosecution or civil proceedings or both. 70. Rule 2.6 of the Finance Policy and Procedures now requires the following: (a) where a person has an interest in a related party transaction, the interest must be promptly notified to the Assistant Secretary-Treasurer; (b) the matter is reported to the next meeting of the Branch Committee of Management; (c) the Branch Committee of Management must conduct a review of the transaction, but the person with an interest shall not participate in that review; (d) there must be a Register of Related Party Transactions maintained by the Assistant Secretary-Treasurer; (e) the Register must be disclosed to members within three months of the end of the financial year and published on the Union's website; (f) there are further steps that must be taken when there is an actual, potential or perceived conflict of interest of the officer; (g) at any stage, under rule 71, any member may inspect the Register on giving three days' notice. 71. Disclosure of potential conflicts of interest, remuneration and gifts received by officers: under the new rule 84 each officer must disclose to the Branch Committee any remuneration paid to the officer because the officer is a member of a board (such as a board of a superannuation trust) or received by the officer in connection with the performance of the officer's duties. These disclosures must be made in writing and the Branch must disclose to its members the identity of the officer making the disclosure and the remuneration received, including any non-cash benefits. The rule and associated policy require that sitting fees, honorariums or other remuneration attached to such positions be paid to the Branch. 72. The rule and associated policy also requires that the remuneration of officers received from the Union be published on the internet. The contract of officers engaged by the Union is only valid if approved by the Branch Committee. 73. Gifts of the value of more than $50 must be declared by officers. Invitations to sporting or social events, offers of a meal or other entertainment need to be disclosed. The restrictions extend to gifts offered to relatives of the officer made in connection with the officer's duties. There must be a register of gifts accepted and declined that is kept by the Assistant Secretary-Treasurer and is provided at least annually to the Branch Committee. 74. The new rule 85 governs the disclosure of interests that an officer (or a relative of the officer) has or acquires in a matter that relates to the affairs of the Branch. These disclosures must be made in writing to the Branch Committee and the Branch must disclose to its members the interests, including the interests of the officer's relatives, so disclosed. The policy requires the disclosure of actual, potential or perceived conflicts of interest. This includes the personal or financial interest of the officer, his or [her] relatives, friends or associates. The duties imposed extend further than any fiduciary or statutory obligations of the officers and employees. 75. Financial training for officers: rule 87 now requires that each person who holds office in the Branch, whose duties include duties that relate to the financial management of the Branch, shall undertake training that covers the officers' financial duties. 76. Audit and Compliance Committee: rule 88 imposes on the Branch for the first time an obligation to have an Audit and Compliance Committee ('the Committee'). It is comprised of the Branch Assistant Secretary-Treasurer, and four ordinary members appointed by and from the Branch Committee. The Branch Secretary is not a member of the Committee and it [the Committee] does not report to the Branch Secretary. The Committee must meet monthly and provide monthly written reports of its activities to the Branch Committee. It closely examines the financial statements and monitors and protects the funds and property of the Branch. The Committee operates under a binding Charter that clearly spells out its functions, processes, reporting obligations and the relationship between the external, independent auditor and the Committee. 77. Financial control systems: The rules and the policies impose extensive and thorough financial control systems that will ensure the highest standards of accountability. Within these systems there are a number of checks and audits that are undertaken. Exacting standards have now been created governing matters as diverse as the operation of bank accounts, the process governing authorisation of the transfer of funds, commitment to normal operating expenditure, the engagement of legal services, the approval of capital purchases and asset, property and income management. 78. New exhaustive policies have been promulgated that govern tendering and procurement, motor vehicle use and fleet management, corporate credit card use and business expense reimbursement. The policies all require that payments are based on fully supported documentation and financial records are supported by source documentation. 79. Each month the Branch Committee and the Audit and Compliance Committee receives and considers extensive financial reports, prepared on a monthly basis. The Branch Committee must satisfy itself that the reports truly and accurately reflect the Union's financial position. [Footnotes omitted.] 41 In summary, the changes made in the Branch administration since the contraventions were as follows: 80. Compared with the Branch that existed in 2006-08: (a) The officers who formerly held office in the period covered by the contraventions are no longer officers in the Branch or the Union. (b) Any new officers with financial responsibilities must be trained. (c) There is now an officer with specific responsibilities concerning the financial obligations of the Branch who, in addition to meeting the requirements of the Act, must ensure that the Branch's financial system is conducted in accordance with Australian Accounting Standards and other pronouncements of the Australian Accounting Standards Board. (d) There is an Audit and Compliance Committee, free of control by the Branch Secretary, with specific financial responsibilities, which must report in writing monthly to the Branch Committee. (e) The Branch Committee must consider financial reports every month and satisfy themselves of the accuracy of those reports. (f) The rules and policies concerning related party transactions set considerably higher standards than those required by the Act. (g) The standards of accountability and the disclosure requirements relating to the receipt of remuneration of officers are higher than those required by the Act. (h) There are rules and policies governing the disclosure of actual, potential or perceived conflicts of interest setting standards of accountability considerably higher than those required by the Act. (i) There are well developed and comprehensive financial control systems in place. (j) Each of these abovementioned rules and policies are not merely in place, they are fully implemented and any breach of any of the policies can result in the removal of the officer from his or her position, the dismissal of an employee who breaches the policy and criminal prosecution or civil proceedings or both. [Footnotes omitted.] 42 However, the supplementary statement of agreed facts between the applicant and HSU revealed that the Branch did not comply with the amended rules and policies in some respects and that further allegations of financial maladministration are presently under investigation by the applicant under s 331. The relevant agreed facts are as follows: 12. Since 23 December 2012 the Branch Assistant Secretary-Treasurer has not performed the functions conferred on her by sub-rules 60(b) and (c). Policies 13. ... the Branch Governance Policy, which has been published on the website as required by rule 83, save for the period during which it was erroneously removed from the Branch Website and replaced, in error, with a different version of the Branch Governance Policy, that had not been approved by the Branch Committee of Management. This error has since been rectified and the proper version of the Branch Governance Policy has been restored to the Branch's website. 14. Governance Principle 1.2, contained in the Branch Governance Policy, states that a Chief Financial Officer will be employed to assist the Assistant Secretary-Treasurer in overseeing the management of financial procedures, controls and reporting. The Victoria No 1 Branch has employed a Chief Financial Officer, who has assisted in overseeing the management of financial procedures, controls and reporting. However in practice the Chief Financial Officer has reported to the Branch Secretary and not to the Branch Assistant Secretary-Treasurer. 15. Until recently, Governance Principles 4.4 and 4.5, contained in the Branch Governance Policy, required a range of information to be made available to members on the Branch's website. However the Victoria No 1 Branch did not publish the following material, as then required by Governance Principles 4.4 and 4.5, on its website: • Reports of the Branch Committee of Management • Reports of the Audit and Compliance Committee. 16. On 19 September 2013 the Branch Committee of Management unanimously resolved to amend its Governance Principles to remove the obligation to publish reports of the Audit and Compliance Committee, the Branch Committee of Management and other union committees on its website… Further inquiries and investigations into the Victoria No 1 Branch 17. On 23 January 2013 a delegate of the Applicant commenced a further inquiry into the Branch as was required by ss 330 and 336 (1A) of the Fair Work (Registered Organisations) Act 2009. Officers of the Branch participated in, and cooperated with, that inquiry. The delegate has identified a number of issues during the course of that inquiry which he has subsequently raised with officials of the Branch. The delegate and the Branch have engaged in an ongoing dialogue about many of those issues, including the composition of the Audit and Compliance Committee, and continue to do so. 18. On 31 July 2013 the Branch Assistant Secretary-Treasurer made a complaint to the Fair Work Commission about various matters arising out of, or relating to, the financial management of the Branch. After making some preliminary inquiries, on 19 September 2013 a delegate of the Applicant commenced an investigation into the Branch under s 331 of the Fair Work (Registered Organisations) Act 2009. That investigation is ongoing. The First Respondent, including the Branch, has indicated a willingness to cooperate with that investigation. 43 The HSU relied on the changes to the rules and policies as evidence of corrective action taken, of contrition, and to demonstrate that there was no need in this case for specific deterrence. 44 The applicant, however, argued that the recent noncompliance and investigation show the danger that the HSU will contravene the Registered Organisations Provisions in future and that there is a need for specific deterrence against this potentiality.

[15]

Cooperation 45 It is common ground that any penalty imposed on the HSU should be discounted for the cooperation provided by it in the resolution of this proceeding. Cooperation signals contrition and an acceptance of responsibility for the wrongdoing. The steps taken by the HSU are described in the statement of agreed facts and admitted contraventions between the applicant and the first respondent as follows: 103. The First Respondent initiated without prejudice discussions with the Applicant shortly after the initial directions hearing with a view to resolving the present proceeding as between the Applicant and the First Respondent. 104. By joining in the present agreed statement of facts and contraventions, the First Respondent has surrendered the opportunity to contend that the application for the imposition of pecuniary penalties is out of time. The Applicant, the First Respondent and the Court have been relieved of the burden of resolving contested arguments on this matter. 105. The Applicant has requested, and the First Respondent has agreed, that the First Respondent take steps to cooperate with and assist the Applicant in relation to the conduct of aspects of the present proceeding. The First Respondent has cooperated and provided the assistance requested of it. 46 The applicant suggested that the appropriate discount would be between 25 and 30 per cent. The HSU contended that the appropriate discount would be 40 per cent. The HSU arrived at that figure because the applicant had suggested that an appropriate discount for the second, third and fourth respondents' contraventions would be between 25 and 30 per cent. But the HSU cooperated earlier than the other respondents, and has incurred considerable expense in reforming the administration of the Branch. In contrast, the third respondent has not repaid money wrongly paid to him by the HSU. 47 A factor in mitigation of penalty is the prompt steps taken by the HSU to resolve the dysfunction and to put in place amended rules which provide more comprehensive obligations in relation to related transactions. However, the existence of obligations means little without compliance with them. The noncompliance reflected in the supplementary statement of agreed facts between the applicant and the HSU diminishes the force of the steps taken to reform the HSU as a mitigating factor, and underscores the need for penalties to ensure specific deterrence. 48 The prompt steps taken by the HSU to reconstitute the Branch, and the efforts made to amend the Rules to increase accountability and transparency demonstrate that the HSU accepts the need for reform. Although the implementation of the new rules and policies have not been perfect, the conduct of the HSU warrants a discount of 30 per cent on the penalties which are otherwise appropriate for each contravention.

[18]

The Submissions of the Parties 55 The applicant argued that the penalty should be fixed at the upper end of the range for several reasons. The disclosure requirement is an important mechanism to ensure transparency and accountability in the financial administration of the Branch. The expenditure involved was substantial. The related party relationship was with the Branch President and the financial report was tabled before the Branch Committee so that the contravention involved senior management. The penalty must be sufficient to denounce the conduct and promote general deterrence. 56 The HSU argued that the objective seriousness of the contraventions put them in the very low end of the spectrum of around $1,000. The HSU drew attention to the nature of the obligation in s 253 so far as it concerns related party transactions. The section does not have the effect that such transactions are prohibited. The section requires disclosure in the general purpose financial report. There is no suggestion that the transaction itself was fraudulent, dishonest or made by an improper use of position. 57 The HSU then argued that the purpose of the disclosure requirement had not been thwarted in the circumstances of this case. By requiring that members are informed of related party transactions, the section ensures that the members are able to form an opinion about them and hold the officers accountable for the transactions. The disclosure of the particular transactions in the general purpose financial report would not have provided the members in this case with any opportunity which they did not actually receive. Elections were held in 2006. The transactions in question occurred after those elections. The next elections were held in 2009 and none of the members of the Branch Committee were elected. Thus, the failure to disclose the related party transactions in the particular circumstances of this case did not deprive the members of the Branch of the chance to remove the relevant office bearers at the next election. 58 The applicant accepted that it would be open to group these two contraventions because they involve substantially the same conduct over two successive years. However, the grouped penalty should be more than half the total penalty for the two contraventions because the second contravention was more than a continuation of the first contravention and involved a separate and further breach of the disclosure requirement.

[19]

Consideration 59 The applicant was correct to emphasise the importance of the requirement to disclose related party transactions and the need for the Court to denounce the contraventions of this requirement so that registered organisations understand the need to comply with the statutory obligations. The requirement for disclosure goes to the heart of the ability of members to control their organisation. Without knowledge of the administration they are powerless to exercise their right to control. The amount of the maximum penalty prescribed signals the importance of the obligation. Each contravention attracts a maximum penalty of $33,000. 60 The applicant was also correct, and the HSU did not dispute the point, that the dysfunction in the Branch explained, but did not excuse, the contraventions. 61 There is also little force in the contention of the HSU that the purpose of the disclosure requirement was not jeopardised, and that the conduct of the Branch did not prejudice members, because the ultimate sanction of rejecting officials who failed to make the disclosure was achieved as the second, third and fourth respondents no longer hold office in the HSU. It is true that the members were no longer governed by the officials engaged in the contravention. But, had the transactions been disclosed, the members may have exercised other options such as the calling of a Branch meeting to consider and act on the disclosed transactions. 62 Whilst the two contraventions are of the same nature and are close in time, and for these reasons should be grouped, some allowance must be made for the fact that they are discrete occurrences and not simply a continuation of the same conduct. 63 In all the circumstances an appropriate penalty for both contraventions is $32,000. 64 That penalty should be reduced by 30 per cent to take account of the cooperation, contrition, and willingness to facilitate the course of justice of the HSU. Consequently, the penalty which should be imposed for HSU Contraventions 1 and 2 is $22,400.

[21]

The Submissions of the Parties 68 The applicant again emphasised the importance of these standards in providing transparency and accountability in the financial management of organisations. However, the applicant accepted that these contraventions were less serious than HSU Contraventions 1 and 2 and warranted a penalty at the lower end of the spectrum. Further, the applicant accepted that it would be open to group these two contraventions as they concern omissions from one report relating to one year. 69 The HSU accepted that the report should have included the information required, but argued that the omissions were matters of form because the accounts were presented in a way that was sufficient and effective to ensure that the information required was available to readers of the report. Whilst the accounting policies for the recognition of revenue were not stated, it was obvious from the report that 94 per cent of the revenue was from members' subscriptions. A statement about the recognition of the small balance of the revenue of the Branch would not be material to readers of the statement. Thus, readers of the report would have obtained no further meaningful information from a statement of the accounting policies adopted for the recognition of revenue than what was obvious from the report. The contravention was thus a 'technical' breach of AASB 118. 70 In reply, the applicant disputed the contention that the absence of a statement concerning the non-subscription revenue was not material. In the context of the report as a whole it may have been material for the reader to know more about the source of the non-subscription revenue because the operating surplus for the 2007 - 2008 financial year was $17,386 and could have been affected by the nature of the non-subscription revenue. 71 The HSU contended that AASB 101, which required a statement as to changes in equity, was directed to profit-making enterprises. In the case of the HSU the equity was in the form of members' funds. The 2007 - 2008 financial report contained a reconciliation of members' funds, under the heading of "Members' Funds". The information recorded the change in equity applicable to this type of organisation. The only deficiency was not recording the reconciliation under a heading "Statement of Changes in Equity". Again, this was a 'technical' breach. 72 The HSU argued that the conduct related only to one contravention, namely, a failure to prepare the general purpose financial report in compliance with the Australian Accounting Standards. The failure to comply with the obligation was in two respects, but there was only one contravention of one obligation. Alternatively, contraventions 3 and 4 should be grouped. 73 The HSU also contended that no damage was caused by these contraventions. Further, the Branch relied on the opinion of its auditor that the Branch financial statements were prepared in accordance with the Australian Accounting Standards. 74 In the end, the HSU submitted that the contraventions were of the least serious conceivable and at most a nominal penalty of $100 should be imposed.

[24]

The Submissions of the Parties 81 The applicant submitted that these contraventions were serious and warranted a penalty in the high range. Sections 265, 266 and 268 are provisions necessary to promote the statutory objectives stated in s 5. Section 265 is designed to provide members with a proper opportunity to consider the relevant reports before they are presented to a general meeting or a Branch committee meeting. Section 266 is meant to ensure the reports are then presented to and considered at such a meeting. Section 268 facilitates public oversight of the compliance by the Branch with its obligations by requiring lodgement of the report with Fair Work Australia (previously the Industrial Registry). Each obligation promotes accountability, efficient management and the democratic functioning and control of organisations. Failure to comply with these obligations creates an environment in which wrongdoing or poor practice within a registered organisation may go undetected by members, and thus be permitted to flourish or continue unchecked. The Branch failed to present the reports to members or lodge them with the Industrial Registrar as required by ss 265 and 268. It was only after the appointment of an administrator by the Court that the Branch complied with these obligations almost a year after they fell due. The Branch's purported compliance with s 266 lacked the important element of a signed auditor's report. 82 The applicant submitted that senior management was involved in the contraventions and involvement at that level contributed to the seriousness of the contraventions. There was a need for the Court to set the penalty at a high level in order to denounce the conduct and ensure general deterrence. 83 At the same time, the applicant said that it would be open to the Court to group the three contraventions because they were steps in a reporting process. The grouped penalty should be more than a third of the total penalty, because each step in the reporting process carried its own obligation. 84 The HSU submitted that the substance of the obligations under these sections was ultimately complied with. The contraventions arose from the failure to comply with the timelines required by the provisions. The full report required by s 265 to be provided to members by 30 November 2008 was provided by October 2009. The auditor's report which was required by s 266 to be presented to the Branch Committee by 31 December 2008 was signed by 9 June 2009. And the documents required to be lodged with the Industrial Registry by 14 January 2009 were lodged in October 2009. 85 The HSU said that the delays were explained by the dysfunction in the Branch in that period which has been described earlier in these reasons for judgment. It accepted that this did not excuse the delay. The HSU emphasised that the liability for these contraventions fell on the registered organisation, although the conduct itself was conduct of the Branch, and that the HSU had limited power to address the defaults. It did use that power to remedy the situation at an early stage.

[29]

Section 252 96 Section 252(1) of the Registered Organisations Provisions provides as follows: (1) A reporting unit must: (a) keep such financial records as correctly record and explain the transactions and financial position of the reporting unit, including such records as are prescribed; and (b) keep its financial records in such a manner as will enable a general purpose financial report to be prepared from them under section 253; and (c) keep its financial records in such a manner as will enable the accounts of the reporting unit to be conveniently and properly audited under this Part. 97 The requirement to keep proper financial records is the foundation for the other obligations necessary to ensure proper financial administration. Thus, the general purpose financial report, which must comply with s 253(1), is to be based on the records kept pursuant to s 252(1). The audit of the general purpose financial report required by s 257(1) depends on the financial records kept under s 252(1). And members are given a statutory right under s 273(1) to apply to inspect the records kept including records which must be kept under s 252(1). 98 The HSU admitted several contraventions of s 252(1). Between 1 July 2007 and 30 November 2008 the Branch reimbursed the third and fourth respondents' expenses of $4,128 and $6,995 respectively, which had been charged to credit cards, without obtaining any documents substantiating that the expenditure was for Branch purposes or any records of authorisations for such expenditure. Further, between 1 July 2007 and 30 November 2008, the third respondent took certain periods of annual leave and cashed out other periods of annual leave, but the Branch failed to keep records of the leave taken or cashed out. 99 Section 252 is not a civil penalty provision: see s 305. Consequently, no pecuniary penalty may be imposed for contravention of the section. The applicant, however, sought declarations of the HSU's contraventions of s 252. This claim for relief is dealt with later in these reasons for judgment where the question of declarations is considered.

[32]

Introduction 101 Section 285(1) provides: (1) An officer of an organisation or a branch must exercise his or her powers and discharge his or her duties with the degree of care and diligence that a reasonable person would exercise if he or she: (a) were an officer of an organisation or a branch in the organisation's circumstances; and (b) occupied the office held by, and had the same responsibilities within the organisation or a branch as, the officer. 102 The second respondent admitted two contraventions of s 285(1). The first contravention (Fegan Contravention 1) concerned the provision to the office manager, Ms Rita Wills, of a Personal Identification Number (PIN) necessary to access the Branch bank account. The second contravention (Fegan Contravention 2) concerned the signing of cheques on which the amount had not been completed and for which no supporting documents for the expenditure had been sighted. 103 The maximum penalty for each contravention is $6,600, a total of $13,200. 104 The second respondent applied for relief from liability for these two contraventions under s 315(2) which provides: (2) If: (a) eligible proceedings are brought against a person or organisation; and (b) in the proceedings it appears to the Federal Court that the person or organisation has, or may have, contravened a civil penalty provision but that: (i) the person or organisation has acted honestly; and (ii) having regard to all the circumstances of the case, the person or organisation ought fairly to be excused for the contravention; the Court may relieve the person or organisation either wholly or partly from a liability to which the person or organisation would otherwise be subject, or that might otherwise be imposed on the person or organisation, because of the contravention. 105 The second respondent filed a statement of agreed facts and admitted contraventions between the applicant and herself on 11 September 2012. She filed an amended outline of evidence dated 6 November 2013, and also gave oral evidence.

[33]

The circumstances of the contraventions 106 The Branch operated a bank account with Bendigo Bank. In order to make an EFT payment, PINs were required. A separate PIN was issued to each of the Branch President, the Branch Secretary and the Branch Assistant Secretary. As Branch President, the second respondent received one of the PIN numbers. She provided it to Ms Wills who could then use it to make EFT payments without further authorisation by the second respondent. The third and fourth respondents also held separate PIN numbers for this account and also provided them to Ms Wills. The second respondent had faith in the capacity and honesty of Ms Wills. The second respondent also believed that the records of EFT payments made by Ms Wills were collected in a folder available for inspection by members of the Branch Committee. 107 In her outline of evidence and in her oral evidence the second respondent explained that she commenced working for the HSU as an organiser in 1995. She became Branch Secretary in 1999, and was President for a period before 2006 when she again took up the office of President. She had worked with Ms Wills since 1995 and found her an extremely honest and diligent person. 108 In relation to the provision of the PIN, the second respondent in her oral evidence said that when she became President in 2006, Ms Wills already had the PINs of the third and fourth respondents. Those PINs had been provided to Ms Wills in accordance with past practice. The second respondent provided her PIN following the same practice. 109 The second respondent also explained that the records of payments made by EFT were filed by Ms Wills in a monthly folder, and that the folders were available for scrutiny by members of the Branch Committee. She also gave evidence that these folders were taken into the meetings of the Branch Committee. 110 In relation to signing cheques without the amount filled in, the second respondent explained that this did not happen very often. It arose when a particular payment was anticipated and the second respondent knew she would be away when the payment had to be made. The second respondent signed these cheques for convenience because she was not going to be available when the bill came in. 111 The second respondent sought to give evidence about her role in the events at the end of 2008 when the Branch fell into dysfunction. She sought to paint herself as promoter of Branch reform and as pressing for greater financial responsibility. Evidence on this aspect, which would have required an assessment of the rights and wrongs of a bitter faction struggle, seemed insufficiently relevant to the issues under consideration and was excluded so that no further evidence on that struggle was then adduced. 112 The second respondent also called evidence from Ms Wills. An outline of her evidence was filed on behalf of the second respondent and she gave oral evidence. 113 Ms Wills said that she was employed by the Branch from July 1987 and was the office manager from 1998. She was responsible for paying wages and expenses of the Branch. 114 She said that before the Branch opened the Bendigo Bank account she paid wages through the Commonwealth Bank. At that time, in about 2000, she had her own password and paid wages by the use of it. The three PIN system came in when the Bendigo Bank account was opened and it was to be used to pay invoices as well as wages. 115 She said that the folder of paid invoices was placed on the table in Branch Committee meetings. On some occasions she took the folder into the meetings. This practice stopped at the end of 2008. 116 Ms Wills was challenged in cross-examination on the question whether the invoice folder was taken into Branch Committee meetings and whether she had done that. In an interview with Fair Work Australia on 15 December 2009, in the course of the investigation of these contraventions, Ms Wills said that the practice of placing the folders in the Branch Committee meetings started about the end of 2008. She also told Fair Work Australia that she did not take the invoice folder into the Branch Committee meetings. 117 The evidence which Ms Wills gave to the Court about the invoice folders was inconsistent with the statement she made to Fair Work Australia. The inconsistency was put to Ms Wills in cross-examination and she explained that she was very stressed at the time of the Fair Work Australia interview. She said that her evidence to the Court was correct. As will be explained in due course, it is not necessary to resolve the question whether the invoice folders were or were not available in the course of the Branch Committee meetings. 118 Ms Wills explained that when cheques were signed by the second respondent without the amounts completed, the cheques were kept in a locked cupboard in Ms Wills' office. The practice did not happen very often and was only necessary when the second respondent was not going to be available to sign cheques. 119 From March/April 2010 Ms Wills has worked as office manager in a business called Health Services Advocates and Mediators, which is run by a company of which Ms Wills is a director and secretary, and the second respondent was a former director and shareholder.

[34]

The Submissions of the Parties 120 The applicant contended that s 285(1) sets minimum standards for the conduct of officers of registered organisations. The Court should fix penalties which will deter others from acting unreasonably in the course of their duties. 121 Providing the PIN and signed cheques without sighting supporting documents and when the amount of the cheques was not completed circumvented important financial controls. The fact that the second respondent trusted Ms Wills and that the paid invoices were available for inspection by Branch Committee members was no substitute for the financial controls. 122 The applicant accepted that there was little need for specific deterrence because the second respondent was no longer an office holder in the HSU. The applicant accepted that there was no previous conduct of the second respondent relevant to the fixing of the penalty. 123 The applicant suggested that the appropriate penalty for the Fegan Contravention 1 is $3,300, and for Fegan Contravention 2, $1,370. The maximum penalty for each contravention is $6,600. In written submissions the applicant contended that a discount of around 25 per cent for contrition and cooperation is appropriate. Applying a figure in that vicinity would give a total penalty of $3,500. 124 The second respondent contended that the breaches were technical or minor. They were done for convenience so that bills would be paid on time and Ms Wills would not need to chase after other signatories, possibly even out of the office, to gather the necessary signatures. Further, the second respondent simply adopted the pre-existing system for the provision of PINs under which the third and fourth respondents were already operating. The second respondent argued that there was justification for her to trust Ms Wills who had served the Branch conscientiously for a very long time. Indeed, prior to the PIN system, Ms Wills was entrusted to pay wages of around $35,000 per month from a Commonwealth Bank account using one password held only by her. The second respondent made no personal gain by using these procedures. The availability of the paid invoice folder was a check on the validity of the payments made. The second respondent said that the better conclusion was that the invoice folder was made available at the meetings of the Branch Committee.

[35]

Consideration 125 The provision of the PIN, and the circumstances in which the second respondent signed cheques without the amounts completed and without sighting supporting documents, was an admitted breach of s 285(1). That conduct circumvented protections necessary for the secure financial administration of the Branch. Culpability is less in relation to the cheques than in relation to the provision of the PIN because there were few cheques involved and the names of the payees had been completed. The potential verification of the expenditure by reference to the invoice folder is no substitute for compliance with the protective processes. Consequently, it is not necessary for this purpose to resolve the evidentiary issue of whether the invoice folder was taken into the Branch Committee meetings or not. 126 The fact that it was convenient to circumvent the procedures does not mitigate the seriousness of the contraventions. The procedures were necessary for security of financial administration. It was unreasonable to jeopardise that security for the sake of convenience. The fact that the second respondent trusted Ms Wills, and with good reason, provides a basis for taking a slightly more lenient approach to the conduct. However, in the end it is necessary for good administration that the protective procedures are followed. Little weight should be given to this consideration as a reason for the second respondent failing to comply with reasonable practices. 127 There is no previous conduct of the second respondent relevant to the fixing of penalties, and no need for the penalties to ensure specific deterrence. However, the contraventions are not, as the second respondent contended, technical or minor. It is important that the penalties imposed act as deterrents to others from ignoring protective financial controls. An appropriate penalty, reflecting these considerations, for Fegan Contravention 1 is $3,300, and for Fegan Contravention 2 is $2,000. 128 The second respondent is entitled to a discount for her cooperation in resolving the proceeding quickly, and with the least expense, by finalising the statement of agreed facts and admitted contraventions at an early date. 129 The question of contrition, however, is more clouded. Although the second respondent admitted the contraventions in the statement of agreed facts and admitted contraventions, her outline of evidence and the written and oral submissions made on her behalf by her solicitor negated much of the force of the admissions. In her outline of evidence the second respondent said that giving the PIN to Ms Wills was in the best interests of the Branch and was for proper purposes. The written submissions claimed that the actions of the second respondent were taken in the "best interest of the organisation". And in oral submissions the solicitor for the second respondent contended that the contraventions were technical or minor. He said: We have always said, from day 1 in this matter, that whilst we accept that there may have been a technical breach of section 285, what we did, we did for proper purposes. 130 In fairness to the second respondent, although she adopted her outline as true and correct in every particular, her oral evidence did not seek to minimise the contravention to the same degree as the submissions made by her solicitor on her behalf. Nonetheless, her reliance on the existing practices and her trust in Ms Wills went beyond providing the context in which the contraventions occurred, and disclosed an attitude that it was better for the Branch for her to act as she did than to comply with the financial controls. These factors establish that the second respondent did not genuinely accept that there was greater long term benefit to the Branch to comply with financial controls, than the short term convenience to the functions of the Branch. The second respondent has not demonstrated that she genuinely accepts responsibility for the contraventions. An appropriate discount reflecting her cooperation and limited contrition is 15 per cent. 131 Thus, the penalty for Fegan Contravention 1 is fixed at $2,805, and the penalty for Fegan Contravention 2 is fixed at $1,700.

[37]

The s 315 application 133 The second respondent submitted that she should be relieved from liability for the contraventions. She relied on the circumstances in which the contraventions occurred. She had worked with Ms Wills for many years and trusted her integrity. Further, she complied with a practice in relation to the PIN which was already in place. If she had not given Ms Wills the PIN, and occasionally signed the cheques without the amounts filled in, Ms Wills would have had to find her or other signatories which would have been inconvenient at times, or, at worst, would have meant that some payments would have been delayed. Further, the second respondent did not engage in this conduct for personal gain and it did not yield any personal gain. Finally, the conduct did not cause any loss or damage to the organisation. 134 Section 315(2) requires the Court to examine the claim for exoneration from liability in three steps. First, the Court must ask whether the claimant acted honestly. Second, the Court must ask whether, having regard to all the circumstances of the case, the claimant ought fairly be excused from liability. And third, the Court must, as an exercise of residual discretion, determine whether the claimant should be relieved from liability. 135 It was not contended that the second respondent acted dishonestly, so the first step in the process is satisfied. The contraventions which were admitted involved failing to meet a standard of reasonable diligence. That means that the respondent acted unreasonably. However, it is possible that the remaining two steps in the process may be satisfied even though the contraventions involved unreasonable conduct. That is because unreasonableness is not a black and white concept: ASIC v Vines (2005) 65 NSWLR 281; [2005] NSWSC 1349 at [39] per Austin J. 136 In assessing the circumstances of the case under step two, or in exercising the residual discretion under step three, the Court may take into account the degree to which the claimant's conduct has fallen short of the statutory standard. 137 The second respondent's long experience with Ms Wills and the administration of the Branch is a double-edged sword. On the one hand, it gave the second respondent an assurance that the financial affairs of the Branch were secure in the hands of Ms Wills. On the other hand, it reflects a very long familiarity with the operation of the Branch and its financial affairs. The second respondent was involved with the HSU since 1995, that is to say, about thirteen years before the relevant events. She had served as Branch Secretary and would have been directly involved in the financial administration of the Branch in that capacity. She had also served as President for a term before the one with which this proceeding is concerned. The role of President is a primary leadership role in the Branch. The proper functioning of the Branch depends on its leaders using their experience to ensure that the Branch is administered properly. They provide the example to junior officials and staff of the need to comply with ordinary standards of diligence and competence. By ignoring the financial controls in place, the second respondent sent a message to other officials and staff that it was acceptable to ignore the rules if they were inconvenient. In all these circumstances, the second respondent should not be relieved from liability for the contraventions of s 285(1).

[45]

Jackson Contravention 7, 8 and 9 163 The third respondent admitted a further contravention of s 285(1), and also contraventions of ss 286(1) and 287(1). Section 286(1) provides as follows: (1) An officer of an organisation or a branch must exercise his or her powers and discharge his or her duties: (a) in good faith in what he or she believes to be the best interests of the organisation; and (b) for a proper purpose. 164 Section 287(1) provides: (1) An officer or employee of an organisation or a branch must not improperly use his or her position to: (a) gain an advantage for himself or herself or someone else; or (b) cause detriment to the organisation or to another person. 165 The three contraventions arose from a trip to Sydney that the third respondent took in 2008 with his spouse to attend the wedding of Ben Morgan who was employed by the HSU in the Branch as an organiser. The third respondent permitted the Branch to pay $1,289.20 for the flights and $280.67 for accommodation and did not reimburse the Branch for these costs. 166 As with Jackson Contravention 5, there is a particularly serious aspect to these contraventions in that they involved a misuse of the third respondent's position as Branch Secretary to obtain a private benefit for himself and his spouse to the determinant of the Branch. There is a strong need for the Court to express disapproval of these contraventions in order to send a clear message to deter others from engaging in similar conduct. 167 The applicant accepted that the three contraventions arose from a single course of conduct, and that it is appropriate to impose one penalty in respect of all three contraventions. The applicant submitted that the appropriate penalty was $3,960. Again, these contraventions are also the subject of an application for compensation orders which are dealt with later in these reasons for judgment. 168 The penalty suggested by the applicant fails to reflect the seriousness of the dereliction of the third respondent's duty as Branch Secretary. The appropriate penalty for all three contraventions is $5,000. 169 Reduced by the discount of 25 per cent, the penalty for Jackson Contraventions 7, 8 and 9 is fixed at $3,750.

[51]

Hudson Contravention 1 181 The fourth respondent admitted a contravention of s 285(1) constituted by the provision to Ms Wills of his PIN necessary to operate the Bendigo Bank account of the Branch. The circumstances of this contravention are the same as Fegan Contravention 1 and Jackson Contravention 1. In both cases the penalty imposed was $3,300. 182 There is however, an aspect of the fourth respondent's wrongdoing which distinguishes it from that of second and third respondents. In his oral evidence the fourth respondent explained that he began working as an orderly in the Victorian public health system and took an active interest in the work of the HSU. As a result, in 2006 he was offered the position of Assistant Secretary. He left school at year 10 and had no background in financial administration. The events of late 2008 and early 2009 were traumatic for the fourth respondent. He left the HSU after those events and undertook further education in business management. He is now employed in a commercial organisation with a high degree of responsibility for financial administration. With that experience, he explained in his oral evidence: I had no background in finances - financial control. I was a - more of an industrial person, a union activist. I certainly believed being promoted to assistant secretary and the obligations that held, looking back now, I shouldn't have, at that time. 183 The fourth respondent was the most junior of the individual respondents in the Branch hierarchy. He explained, and I accept, that he had little scope for taking or advocating a different course from the procedures established by the second and third respondents. Whilst it is true that the provision of the PIN to Ms Wills was a failure of the fourth respondent to act reasonably as Assistant Branch Secretary, his wrongdoing was less culpable through his lack of experience and junior position than that of the second and third respondents. The primary consideration in imposing a penalty for this contravention is to ensure that others in a like position will not contravene the section. In the circumstances of the fourth respondent, that object is appropriately achieved by imposing a penalty of $2,800. 184 Reduced by the discount of 30 per cent, the penalty for Hudson Contravention 1 is fixed at $1,960.

[53]

Hudson Contravention 3, 4 and 5 188 The fourth respondent has admitted contraventions of ss 285(1), 286(1) and 287(1) all constituted by the same circumstances as arose in relation to Jackson Contravention 7, 8 and 9. The Branch paid the expenses of the fourth respondent and his spouse of a visit to Sydney to attend the wedding of Ben Morgan, an organiser employed by the HSU. The expenses were $1,289.20 for flights, $280.67 for accommodation, and $90 for parking. 189 As explained in relation to the same contraventions by the third respondent, this conduct is particularly serious because it involved the use of the fourth respondent's office as Assistant Branch Secretary to gain a personal financial advantage at the expense of the Branch and its members. There is a compelling need for the Court to denounce such conduct and ensure that others are deterred from engaging in like conduct. 190 The penalty imposed on the third respondent for the same conduct was $5,000. There are, however, some distinguishing features in the circumstances applicable to the fourth respondent. 191 In his oral evidence, the fourth respondent said that he told Ms Wills to reimburse the Branch from his salary for the expenses of the trip. He accepted that it was wrong that he did not follow up on this direction to ensure that the Branch was reimbursed. This evidence was inconsistent with his statement to Fair Work Australia in the course of their investigation in November 2009. On that occasion he maintained that the expense of his attendance at the wedding was a proper expense of the Union. There was no mention in the statement to Fair Work Australia that he had told Ms Wills to reimburse the Branch from his salary, and such a direction would have been inconsistent with his asserted position that the expense was one proper to be borne by the Branch. Further, there was no mention of such direction in the fourth respondent's outline of evidence filed on 28 October 2013. When faced with this inconsistency, the fourth respondent could not explain his position coherently. He first denied that there was any inconsistency, and then said that when he made the statement to Fair Work Australia he was under extreme stress. In the course of the factional battle within the Branch, death threats had been made to his family. Ms Wills also gave evidence on the subject. She believed that the fourth respondent did not give her any direction to reimburse the Branch. 192 The probabilities favour the conclusion that the fourth respondent did not direct Ms Wills to reimburse the Branch for the expenses of the trip to Sydney. Indeed, the way in which the fourth respondent first gave his evidence on the subject suggested that he did not commit himself irrevocably, and that he had no actual recollection of giving the direction. Further, as previously explained, he was disposed to follow the leadership of the more senior officials of the Branch. As the third respondent, the Secretary of the Branch, had his expenses paid, it is probable that the fourth respondent followed that lead. 193 The fourth respondent said that after the Fair Work Australia investigation, he attempted to contact senior officials of the HSU to arrange for a reimbursement of the expenses, but was not able to do so. Ultimately, his solicitors made an arrangement which resulted in him repaying $1,000 on 7 March 2013, a further $1,000 on 8 March 2013, and $407.89 on 9 March 2013 to the first respondent in respect of the expenses and interest for the Sydney trip. 194 Again, as explained in relation to Hudson Contravention 1, the wrongdoing of the fourth respondent is tempered to some degree by his more junior role in the Branch, his lack of experience, and his tendency to comply with the leadership of more senior officials. The applicant rightly accepted that the three contraventions should be regarded as a single course of conduct, and one penalty imposed for the three contraventions. Taking those factors into account, but acknowledging the seriousness of the use of his position for personal advantage, the appropriate penalty for Hudson Contraventions 3, 4 and 5 is $4,000. 195 Reduced by the discount of 30 per cent, the penalty fixed for Hudson Contravention 3, 4 and 5 is $2,800.

[56]

COMPENSATION 200 Section 307(1) and (2) provide as follows: Compensation for damage suffered - contravention of Part 2 of Chapter 9 (1) The Federal Court may order a person to compensate an organisation for damage suffered by the organisation if: (a) the person has contravened a civil penalty provision in Part 2 of Chapter 9 in relation to the organisation; and (b) the damage resulted from the contravention. The order must specify the amount of the compensation. Damage includes profits (2) In determining the damage suffered by the organisation for the purposes of making a compensation order, the Court is to have regard to any profits made by any person resulting from the contravention. 201 The applicant claimed orders under s 307(1) for compensation against the third respondent, for damage resulting to the first respondent from Jackson Contravention 5 and Jackson Contraventions 7, 8 and 9. The damage said to flow from Jackson Contravention 5 is the three additional salary payments amounting to $15,000. The damage said to flow from Jackson Contravention 7, 8 and 9 is the cost of the flights to Sydney of $644.60 for each of the third respondent and his wife and the accommodation of $280.67. 202 The applicant also claimed that the third respondent should pay interest to the date of judgment on the compensation sums by operation of s 51A of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act). The applicant contended that the appropriate rate of interest is the rate the first respondent would pay to borrow money in the retail market: TS and B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 4) [2007] FCA 635, at [4] per Finkelstein J. 203 An affidavit affirmed on 4 March 2014 by Craig Leslie Rawson, senior executive lawyer employed by the Australian Government Solicitor, the solicitor for the applicant, demonstrated that the average small business overdraft rate from May 2008 to February 2014 was 9.91 per cent. The amount of interest calculated by the applicant on the compensation sum of $16,569.88 from the applicable dates up to and including 18 March 2014, which was the first day of the hearing, amounts to $9,437.52, and interest continues to accrue at the rate of $4.50 per day. 204 The fourth respondent did not argue against the compensation or interest claims. Consequently, there will be an order that the fourth respondent pay the first respondent compensation under s 307(1) in the sum of $16,569.88, plus interest under s 51A of the Federal Court Act to the date of judgment fixed at $10,229.52.

General Manager of Fair Work Australia v Health Services Union

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Judgment (60 paragraphs)

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Legislation Cited (7)

Cases Cited (13)

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