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[2004] FCA 43
Federal Court of Australia
2004-02-02
Merkel J
Original judgment source is linked above.
REASONS FOR JUDGMENT 1 The Textile Clothing and Footwear Union of Australia ("the TCFUA") commenced a proceeding in the Court for declaratory relief and for the imposition of penalties for breaches by the respondent, Lotus Cove Pty Ltd t/a Yambla Fashions ("Lotus Cove"), of terms of the Clothing Trades Award 1999 ("the award") between early 2000 and 5 February 2001 ("the relevant period"). As a result of the repeated failure by Lotus Cove to comply with interlocutory orders of the Court, the TCFUA seeks a default or summary judgment in the proceeding. The respondent has not appeared or placed any submissions before the Court in respect of the TCFUA's application. 2 The TCFUA alleges that Lotus Cove breached the award by having work performed away from its workshop or factory during the relevant period: (i) when it was not registered to do so and had not made application for registration to do so; (ii) without maintaining or giving out any or adequate written records ("work records") in relation to the work given out; (iii) without entering into written contracts or arrangements when arranging for work to be carried out away from its premises; (iv) without keeping lists in relation to the work given out and providing copies of them to the Industrial Registrar and the TCFUA; (v) in circumstances where the work was to be done by an outworker, but without providing the outworker with the information contained in Schedule B of the award. 3 The proceeding was commenced on 24 September 2002. On 11 November 2002 Lotus Cove filed its Defence to the TCFUA's Statement of Claim. On 19 December 2002 consent orders were made requiring, inter alia, that Lotus Cove file and serve further and better particulars of its defence and an affidavit of documents by 31 January 2003. This did not occur and on 21 March 2003 the Court ordered that Lotus Cove file further and better particulars by 28 March 2003 and an affidavit of documents by 11 April 2003. These orders were not complied with. On 14 November 2003 the TCFUA filed and served a notice of motion requesting default or summary judgment in its favour. 4 Under O 10 r 7 of the Federal Court Rules the Court may give a default judgment where the respondent in a proceeding has failed to comply with an order of the Court directing the respondent to take a step in that proceeding. Default judgment may also be obtained under O 15 r 16 as there has been a failure to comply with a rule or order relating to discovery. 5 The power to give default judgment was considered by the Full Court in Lenijamar Pty Ltd v AGC (Advances) Limited (1990) 27 FCR 388. At 395-396 Wilcox and Gummow JJ stated: "It is to be noted that the power given by this rule is conditioned on one circumstance only: the failure of a party to comply with an order of the Court directing that party to take a step in the proceeding. There is no requirement of intentional default or contumelious conduct, although the attitude of the applicant to the default and the Court's judgment as to whether or not the applicant genuinely wishes the matter to go to trial within a reasonable period will usually be important factors in weighing the proper exercise of the discretion conferred by the rule." 6 While in that case the Court was concerned with default by an applicant, there is no reason why the same principles would not apply to cases of default by a respondent (see Australian Securities Commission v Macleod (1994) 54 FCR 309 ("Macleod") at 313. The precondition which enlivens the power to grant default judgment is a failure to comply with an order of the Court. Thereafter, the relief (if any) that is to be granted is a matter for the Court's discretion, taking into account all the circumstances of the case. There does not appear to be any reason why the default procedure should not be available in a case where the relief is for the imposition of civil penalties. 7 The TCFUA accepts, correctly in my view, that its motion must be supported by affidavits establishing the facts necessary to: (i) persuade the Court that the circumstances warrant the grant of the discretionary remedies sought by the TCFUA; (ii) establish the Court's jurisdiction to grant those remedies; and (iii) establish the applicant's entitlement to those remedies. (See Macleod at 314.) 8 The alternative course open to, and sought by, the TCFUA is summary judgment under O 20 r 1. However, if the preconditions for default judgment are satisfied it is not necessary to consider whether this is a case where no arguable defence has been disclosed and as a consequence it would be appropriate to grant summary judgment. 9 The TCFUA has filed extensive affidavit material, which sets out admissions by a director of the respondent, and a detailed and comprehensive written submission summarising the evidence and outlining the conduct giving rise to the breaches upon which it relies. 10 The respondent has breached consent orders requiring the production of further and better particulars of its defence and an affidavit of documents. It has breached a further order requiring production of those documents. The breaches have not been remedied. I am prepared to infer that the respondent has demonstrated a determination not to co-operate in the preparation of the matter for trial and I am satisfied that the default judgment procedure is appropriate in the present case (see Macleod at 313). 11 The TCFUA seeks orders imposing penalties as well as declaratory relief. Section 178(1) of the Workplace Relations Act 1996 (Cth) ("the Act") confers on the Court the power to impose penalties where an organisation or person bound by an award breaches the terms of that award. The Court has jurisdiction to grant declaratory relief under s 21 of the Federal Court of Australia Act 1976 (Cth). 12 In order to establish its entitlement to the relief sought, the applicant must demonstrate that Lotus Cove was bound by, and breached, the award. It is then a matter for the Court as to the penalties that are appropriate in the circumstances. 13 I am satisfied that Lotus Cove became a respondent to the Clothing Trades Award 1982 in 1990 by becoming a party to the Clothing Trades (Roping-in No.3) Award 1990. The award in its current form came into existence by the variation of the Clothing Trades Award 1982 in 1999. I am satisfied that Lotus Cove is a respondent to it. 14 Lotus Cove alleges breaches of numerous terms of the award, all of which relate to "giving work out." Accordingly, the TCFUA must prove that Lotus Cove did, during the period in question, "give work out." "Work" is defined in cl 45 as meaning: "hand or machine work which relates to the construction or finishing of a garment or product, or part of a garment or product, when such work is performed outside a workshop or factory." 15 I am satisfied that the evidence establishes that the respondent gave out hand or machine work relating to the construction or finishing of a garment or product, or part thereof, to be performed outside the workshop or factory of Lotus Cove. A director of Lotus Cove, Mr Dimitriou, admitted that Lotus Cove "had work performed outside its workshop or factory premises" and that "work was given out by Lotus Cove for contractors to make various products according to its specifications and design." The precise times at which work was given out by the respondent are unclear but it appears that work was given out by Lotus Cove throughout the relevant period. 16 It then remains to consider whether the TCFUA has established by its evidence each of the breaches which it alleges. Although numerous terms of the award were said to have been breached, it is convenient to group the alleged breaches into the five categories referred to in [2] above. 17 The first category is that Lotus Cove gave out work when it was not registered to do so and had not made application for registration to do so. The TCFUA claims that, as a consequence, Lotus Cove breached cl 48.1 and cl 46.1.3 of the award. 18 Clause 48.1 requires that an employer must be registered before having any work performed away from his or her own workshop or factory. Records establish that Lotus Cove's last registration for this purpose expired in March 1997. I am satisfied that Lotus Cove was in breach of cl 48.1 when it gave out work during the relevant period. 19 Clause 46.1.3 requires that an employer, "when desirous of giving work out" to a non-respondent to the award, must make application for registration in accordance with cl 48.1. The applicant's evidence establishes that on 5 February 2001 Mr Dimitriou admitted that the respondent gave out work to four persons. None of those persons are identified in Schedule A as respondents to the award. Neither are they members of either of the two employer associations bound by the award. I am therefore also satisfied that Lotus Cove gave out work to non-respondents to the award. It can be also inferred that Lotus Cove was "desirous of giving out work" to a non-respondent to the award. No application for registration was found in the Australian Industrial Registry records. I therefore find that Lotus Cove was in breach of cl 46.1.3 during the relevant period. 20 Second, Lotus Cove gave out work and did not maintain any or adequate written "work records" in relation to the work given out. The TCFUA claims that Lotus Cove breached cll 46.2.1, 46.2.6 and 46.2.3(b), (e), (f), (j), (k) and (l) of the award. Clause 46.2.1 requires that an employer must make a written work record whenever giving out work. The applicant's evidence is that Mr Dimitriou admitted on 5 February 2001 that in many cases when giving out work no work record was created. This evidence is sufficient to demonstrate a breach of cl 46.2.1. 21 However it is also the TCFUA's evidence that in some cases Lotus Cove did maintain some written records of work it had given out, in the form of invoices for particular jobs. The TCFUA inspected these invoices and has given evidence as to their form and contents. 22 Clause 46.2.6 requires that a copy of the work record must be given to the person doing the work given out in every case. Clearly where no work record was created, none was given out and this clause has been breached in those cases. 23 The applicant's evidence establishes that in cases where invoices were created and provided to persons doing the work given out, the information contained in those invoices varied, but that consistently the invoices did not include the following information: · the employer's registration number (presumably because Lotus Cove was not registered); · the address(es) where the work was to be performed; · the date by which the work was to be completed; · the working time allowed for each item or for the complete job; · the price to be paid for each garment or article completed; or · the total amount to be paid (relevant in cases where the work is performed by an "outworker"). This evidence is sufficient to establish breaches of cl 46.2.3(b), (e), (f), (j), (k) and (l) respectively. 24 I therefore conclude that during the relevant period, the respondent on a number of occasions breached cl 46.2.1 and 46.2.6 by failing to keep work records and give out copies of work records to workers. On the occasions when the respondent did create records and gave copies out to workers, I find that it breached cl 46.2.3(b), (e), (f), (j), (k) and (l) by including insufficient information in those records. 25 Third, Lotus Cove gave out work but did not enter into written contracts or arrangements when arranging for work to be done away from its premises. The TCFUA claims that Lotus Cove breached cl 46.4.1 and cl 46.4.2 of the award. 26 Clause 46.4.1 provides that "An employer who gives work out to a respondent or non-respondent as provided in clause 46.1.1(e) must contract to provide, and must provide, terms and conditions no less favourable than those provided for outworkers in clause 47." 27 Despite the reference to giving work out to a respondent, it appears that this obligation is intended to arise where work is given out to the type of person described in clause 46.1.1(e), namely a "non-respondent who will personally perform all the work." Although this description does not align precisely with that in clause 45 for the term "outworker" ("a person who performs work as herein defined for an employer outside the employer's workshop or factory under a contract of service"), it seems likely that in practice the persons described by these two clauses will often be the same.
28 The evidence of the TCFUA is that on 5 February 2001 Mr Dimitriou admitted that: · Lotus Cove had work performed for it by an outworker; and · Lotus Cove did not enter into written contracts or agreements when it arranged for people to do work for it I am willing to infer that by "outworker" Mr Dimitriou meant a non-respondent to the award who personally performed all the work given to him or her (that is, a person falling within cl 46.1.1(e)). However I do not find this evidence sufficient to demonstrate that cl 46.4.1 of the award was breached. That clause is concerned with ensuring the existence of a contract, and that the terms of that contract are no less favourable to than those required for outworkers' contracts elsewhere in the award. Clause 46.4.1 does not require that contracts with outworkers be in writing. 29 It was open to the TCFUA to claim a breach of cl 47.3.1, which requires that employers must not employ outworkers without making a written agreement with them including certain matters set out in cl 47.3.2. However, that breach was not pleaded in the applicant's statement of claim. 30 Clause 46.4.2 provides that: "An employer may not enter into a contract or arrangement with a respondent or non-respondent as provided in clause 46.1.1(b), 46.1.1(c), or 46.1.1(d) unless: 46.4.2(a) the contract or arrangement contains a term which provides that any work performed by a person other than the respondent or non-respondent is carried out pursuant to a written agreement between the respondent or non respondent and the person who will actually perform the work; 46.4.2(b) the written agreement must specify each of the matters set out in relation to the work records referred to in clause 46.2.3(a) to (l); and 46.4.2(c) the written agreement must provide for wages and conditions no less favourable than those provided for outworkers in clause 47." This clause applies inter alia to the situation where an employer gives out work to a non-respondent to the award other than an outworker. I have already concluded that Lotus Cove gave out work to non-respondents. On the evidence it appears that some of these were contractors who either operated their own factories or employed outworkers themselves. 31 Despite the reference to cl 46.1.1(c) (which refers to situations where work is given out to non-respondents who do not use outworkers) the clause appears to address the situation where a respondent to the award gives out work to a second person who will, in turn, pass that work on to a third person (who is likely to be an outworker). The clause is directed at ensuring that in that situation, the main contract between the respondent and the second person contains a clause that any contract or agreement between the second and third persons must be in writing and contain certain terms. Clause 46.4.2 does not appear to require that the main contract between the respondent and the second person be in writing. This interpretation also accords with the apparent purpose of Part 9 (entitled "Outwork and Related Provisions") which is for the protection of outworkers. The clause therefore focuses on ensuring that any secondary contracts, which are likely to be formed with outworkers, are in writing. 32 The only evidence offered by the applicants of the breach by the respondent of cl 46.4.2 is that Lotus Cove gave work out to non-respondents other than outworkers without forming a written contract. This is insufficient to demonstrate a breach of cl 46.4.2. 33 Fourth, Lotus Cove gave out work and did not keep lists in relation to the work given out or provide copies of them to the Industrial Registrar and the TCFUA. Clause 46.4.3 of the award requires that employers who give out work inter alia to non-respondents of the award, must keep lists: · under subclause (a), of the persons to whom work has been given out; · under subclause (b), of the contracts or arrangements entered into with persons to whom work has been given out; · under subclause (c), of the names and addresses of the persons with whom such contracts or arrangements have been made. Subclause (d) provides that copies of these lists must be provided to the TCFUA and the Industrial Registrar four times a year. 34 The applicant's affidavit evidence establishes that on 5 February 2001 Mr Dimitriou admitted to agents of the TCFUA that Lotus Cove did not keep lists of persons to whom it gave out work; or of contracts or arrangements it entered into with persons engaged to perform work for it outside its premises; or of names and addresses of the persons with whom it entered into such contracts and arrangements. 35 The applicant's evidence also establishes that no such lists were received by the TCFUA from the respondent during the relevant period, and that the last time a list was received by the Industrial Registrar from Lotus Cove was March 1996. 36 I therefore conclude that during the relevant period the respondent was in breach of cl 46.4.3(a), (b), (c) and (d). 37 Fifth, Lotus Cove gave out work to an outworker without providing that person with the information contained in Schedule B of the award. Clause 46.7 provides that where an employer contracts with a person as provided in clause 46.1.1(e), the employer must provide that person, each time work is given out, with information as to their entitlements as set out in Schedule B of the award. I have already found that Lotus Cove gave out work as provided in clause 46.1.1(e). 38 The applicant's affidavit evidence is that when asked on 5 February 2001 about compliance with this provision Mr Dimitriou responded with words to the effect that he was not familiar with or aware of that information or with Schedule B to the award. TCFUA officers did not find information in the form or content of Schedule B in Lotus Cove's records. In the light of this evidence and the failure by the respondent to produce any evidence to the contrary, I am prepared to infer that during the relevant period Lotus Cove was in breach of cl 46.7 of the award. 39 I therefore find that during the relevant period, Lotus Cove at various times breached the following clauses of the award: · cl 48.1 (obligation to register before having work done); · cl 46.1.3 (obligation to apply for registration when desirous of giving work out); · cl 46.2.1 (obligation to make a work record whenever giving work out); · cl 46.2.6 (obligation to give a copy of the work record to the person doing the work); · cl 46.2.3(b), (e), (f), (j), (k) and (l) (obligations as to the content of work records); · cl 46.4.3(a), (b), (c) and (d) (obligation to keep and provide lists); and · cl 46.7 (obligation to give Schedule B information to outworkers). 40 Under s 178(4)(ii) of the Act the maximum penalty that may be imposed for a breach of a term of an award by a body corporate is $10 000. In Gibbs v The Mayor, Councillors and Citizens of the City of Altona (1992) 37 FCR 216 ("Gibbs v City of Altona") at 223 Gray J explained what constitutes a "term" of an award: "…each separate obligation found in an award is to be regarded as a 'term', for the purposes of s 178 of the Act. The ascertainment of what is a term should depend not on matters of form, such as how the award maker has chosen to designate by numbers or letters the various provisions of an award, but on matters of substance, namely the different obligations which can be spelt out. For these reasons, I incline to the view that each separate obligation imposed by an award is to be regarded as a 'term', for the purposes of s 178 of the Act. If the different terms impose cumulative obligations or obligations that substantially overlap, it is possible to take into account the substance of the matter by imposing no penalty, or a nominal penalty, in respect of breaches of some terms, but a substantial penalty in respect of others." It is likely that each of the separate clauses and subclauses that has been breached in this case imposes a separate obligation and for that reason should be considered as a separate term for the purposes of determining penalties. On that view Lotus Cove's conduct constituted breaches of 15 separate terms of the award. 41 In respect of many, if not all of the terms breached, the conduct amounting to a breach occurred repeatedly during the relevant period. In these circumstances s 178(2) of the Act applies. It provides that where "(a) 2 or more breaches of a term of an award, order or agreement are committed by the same organisation or person; and (b) the breaches arose out of a course of conduct by the organisation or person; the breaches shall, for the purposes of this section, be taken to constitute a single breach of the term." The TCFUA does not dispute that s 178(2) has application in this case. The result is that Lotus Cove's conduct is taken to constitute a total of 15 breaches of the award. Under s 178(4)(ii) the maximum penalty for those 15 breaches is $150 000. The TCFUA is seeking penalties in excess of $100 000. 42 However, this is one of the cases referred to by Gray J, in which "different terms impose cumulative obligations or obligations that substantially overlap" (Gibbs v City of Altona at 223). In those circumstances, as his Honour stated, the appropriate course is to impose "no penalty, or a nominal penalty, in respect of breaches of some terms, but a substantial penalty in respect of others." 43 For example, Lotus Cove's breach of cl 48.1 (its failure to register) and its breach of cl 46.1.3 (its failure to apply for registration) arise out of substantially the same conduct. As Gray J found in Clothing & Allied Trades Union of Australia v J & J Saggio Clothing Manufacturers Pty Ltd (1990) 34 IR 26 ("Saggio") at 37: "The positive act of employing an outworker without being registered is a breach of cl 27(B)(i) [now cl 48.1]. The omission to apply for registration is a breach of cl 27A(a) [now cl 46.1.3]. Although breaches of separate terms of the award are involved, the fundamental nature of the allegation is that of omission to apply for and secure registration. It would be inappropriate to penalise the respondent twice for the separate breaches." In Saggio Gray J (at 37) determined that a penalty should be imposed for the act of employing an outworker without being registered and no penalty should be imposed for the failure to apply for registration. 44 In the present case, the question of penalties should not be approached with the primary emphasis being placed on the number of breaches, even taking into account s 178 (2) of the Act. The award is unusual in that it establishes a complex scheme to prevent avoidance of its terms. This has the result, as shown in Saggio, that the same set of acts and omissions on the part of a respondent can result in numerous separate breaches. An appropriate approach in such a case is to determine penalties by reference to the "totality principle". In CSPU, The Community and Public Sector Union v Telstra Corporation Limited (2001) 108 IR 228 at 230 ([7]) Finkelstein J explained that approach: "The principle is that in imposing a penalty for a number of offences it is necessary to ensure that the penalties in aggregate are just and appropriate. One way the totality principle can be given effect is to determine what is an appropriate total penalty and then divide that penalty by the number of offences to produce a penalty for each separate offence." 45 The "totality" approach has the advantage of ensuring that separate penalties are not imposed in respect of overlapping obligations, where interrelated clauses have been breached by what is essentially the same conduct. The conduct by Lotus Cove throughout the relevant period giving rise to breaches of the award can be categorised as follows: (i) giving work out when it was not registered to do so and had not made application for registration to do so; (ii) giving work out without maintaining or giving out any or adequate written "work records" in relation to the work given out; (iii) giving work out without keeping lists in relation to the work given out and providing copies of them to the Industrial Registrar and the TCFUA; and (iv) giving work to an outworker without providing the outworker with the information contained in Schedule B of the award. 46 In determining an appropriate penalty in respect of the above conduct, the following matters favour the imposition of a significant penalty: · the evidence establishes that the award seeks to prevent conduct of the kind engaged in by Lotus Cove in order to prevent serious social and economic harm to, and exploitation of outworkers - consequently, the breaches are serious rather than technical; · Lotus Cove has conducted its business in disregard of the relevant award requirements; · Lotus Cove's breaches occurred on many occasions over approximately 12-13 months; and · Lotus Cove has shown no contrition or given any indication that it has taken or proposes to take steps to ensure future compliance with the award. 47 But there are a number of factors which may be put forward in mitigation: · there is no evidence that Lotus Cove's conduct has led to the exploitation of outworkers; · there is likewise no evidence that Lotus Cove's conduct in breaching the award was for the purpose of making excessive profits; · there is no evidence that Lotus Cove has engaged in prior conduct in breach of award obligations; · Lotus Cove co-operated with officers of the TCFUA and did not attempt to conceal its breaches of the award from them; · there is no evidence that Lotus Cove's disregard of the award requirements was wilful or contumelious - for example, there is nothing to suggest that it was given warnings by the TCFUA to which it failed to respond; · Lotus Cove appears to be a small enterprise and the imposition of a large fine of the kind sought by the TCFUA is likely to be oppressive; and · the TCFUA was unable to point any comparable cases where penalties of the magnitude sought by it have been imposed. 48 Taking all the above factors into account, I consider that an appropriate total penalty in the present case is $20 000. This amount can be apportioned to reflect the individual breaches as follows: 49 (i) Lotus Cove gave out work when it was not registered to do so and did not make any application for registration had been made when it was required to do so. Technically, two separate breaches (of cl 48.1 and cl 46.1.3) occurred in respect of this conduct. However, as Gray J stated in Saggio at 37, these breaches essentially relate to one omission, namely "to apply for and secure registration." It is therefore appropriate to impose a single penalty, of $6000, in respect of these breaches. 50 (ii) Lotus Cove gave out work without maintaining or giving out any or adequate written "work records" in relation to the work given out. This conduct technically constituted eight breaches of the award. In those cases in which no work record was produced at all, that conduct caused a breach of interrelated two clauses: cl 46.2.1 (containing the obligation to make a work record whenever giving work out) and cl 46.2.6 (containing the obligation to give a copy of the work record to the person doing the work). For these breaches a single penalty of $4000 is appropriate. I have taken into account that only in some instances were no records kept. In respect of the other cases, in which work records were maintained, but contained insufficient information, I impose a fine of $400 for each of the six subclauses breached (cl 46.2.3(b), (e), (f), (j), (k) and (l)), totalling $2400. 51 (iii) Lotus Cove gave out work without keeping lists in relation to the work given out and without providing copies of lists to the Industrial Registrar and the TCFUA. Lotus Cove breached three separate clauses (cl 46.4.3(a), (b), (c)) which required it to keep specific lists. The failure to provide lists to the Industrial Registrar and the TCFUA arose out of essentially the same conduct, since no lists could be provided if none were kept, so I propose to add no additional penalty for that breach. A penalty of $1200 in respect of each of the lists required to be kept is appropriate, totalling $3600. 52 (iv) Lotus Cove gave out work to an outworker without providing the outworker with the information contained in Schedule B of the award. The breach of cl 46.7 by failing to provide outworkers with the information contained in Schedule B is a serious breach as it leaves those most vulnerable to abuse in the industry unaware of their rights under the award. For this breach a penalty of $4000 is appropriate. 53 In imposing the above penalties it is appropriate to state that I accept the TCFUA's submission that the breaches of the award regime concerning outworkers in the present matter are serious. That regime is addressed at preventing abuses which are causing considerable social and economic problems in the community. As Gray J stated in Saggio (at 37): "In an industry in which the use of outworkers offers plenty of opportunity for exploitation of workers, failure to participate in a scheme designed to prevent such exploitation is a serious matter." Employers in the industry should be aware that future breaches of the kind that have occurred in the present case are a serious matter and can result in substantial penalties. Employers should also be aware that the factors that I have taken into account in mitigation in the present case may be less compelling in the future if they are aware of their award obligations and continue to disregard them. 54 The TCFUA seeks the "usual order" (Gibbs v City of Altona at 223) under s 356 of the Act, pursuant to which the penalties imposed by the Court would be paid to it as the applicant. There is no reason why such an order should not be made in the present case. I certify that the preceding fifty-four (54) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Merkel.
Associate: Dated: 2 February 2004 Counsel for the Applicant: Mr S Moore
Counsel for the Respondent: The Respondent did not appear
Textile Clothing & Footwear Union of Australia
Lotus Cove Pty Ltd
(1990) 27 FCR 388
(1994) 54 FCR 309
(1992) 37 FCR 216
(1990) 34 IR 26
(2001) 108 IR 228