Heather Emma Farnell v Marco Barac Trading As Exotic Studios [1994] ACTSC 30 (24 March 1994)

SUPREME COURT OF THE ACT

HEATHER EMMA FARNELL v. MARCO BARAC TRADING AS EXOTIC STUDIOS
No. SCA94 of 1993
Number of pages - 6
Workers' Compensation Act - Criminal law - Public policy

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
MILES CJ

CATCHWORDS

Workers' Compensation Act - appeal against Magistrate's decision - injury arising in course of employment as brothel receptionist - whether contract of employment void or unenforceable due to nature of employment.

Criminal law - proof of offence for purpose of civil proceedings - Police Offences Act - managing a brothel - living off the earnings of prostitution - common law offence of keeping a brothel - what constitutes - standard of proof - mere probability of guilt not sufficient.

Criminal law - common law offences - keeping a brothel - whether offence survived in ACT - whether employment in brothel constituted aiding and abetting common law offence of keeping a brothel.

Public policy - public interest in enforcing - entitlement to compensation outweighs public interest in proscribing conduct constituting common law offence since abolished.

Workers' Compensation Act

Police Offences Act

Prostitution Act

Prostitution Regulations, r.4

Briginshaw v. Briginshaw (1938) 60 CLR at 336

Subise Pty. Limited v. Shaw (1988) 13 NSWLR 98 (Court of Appeal)

Markulin v. Drew (1993) DFC 95-140

Treitel on Contracts 8th ed. at 390-392

Seidler v. Schallhofer (1982) 2 NSWLR 80 at 89

HEARING

CANBERRA, 4 February 1994
24:3:1994

Counsel for the appellant: Mr. R. Crowe

Solicitors for the appellant: Pamela Coward and Associates

Counsel for the respondent: Mr. D. Campbell

Solicitors for the respondent: Scott Sheils and Glover

ORDER

THE COURT ORDERS THAT:
1. The appeal be allowed.

2. The award made by the Magistrate on 12 October 1993 be set
aside.
3. The case be remitted to the arbitrator for further determination
according to law.
4. The respondent pay the appellant's costs.

DECISION

MILES CJ This is an appeal against an award of Magistrate Ward sitting as an arbitrator under the Workers' Compensation Act 1951 (the Act) to the effect that the appellant was not entitled to the benefits accorded by the Act to a worker incapacitated by injury arising out of or in the course of her employment. There was no dispute that the appellant carried out duties for the respondent pursuant to what was otherwise a contract of employment, but the respondent contended and the Magistrate found that the contract was void or unenforceable because of the nature of the appellant's duties.

2. The Magistrate's decision was made on a so-called "prima facie" basis at the end of the evidence given for the appellant. The respondent was not called upon to elect to call evidence or not to call evidence. Hence, without having heard all the evidence, the Magistrate was in no position to make any findings of fact. Nevertheless, it is common ground, at least for the purpose of the present appeal, that the appellant was employed by the respondent to work as a receptionist at what was a brothel. The business was conducted under the name of Exotic Studios. It appears that the appellant knew before she started working there in late 1992 that the premises were a brothel. The premises were situated in Fyshwick. The exact layout of the premises is unclear and it is not known whether they comprised the whole of the building. The premises were locked up when business was not being conducted. I was told that there were two receptionists, one for the day shift and one for the night shift. At the relevant time the appellant was working the day shift. She used to unlock and open up the place for business, record the names of the prostitutes working on that day on a day sheet, answer the telephone, register the time spent by a customer with a prostitute, and take and keep a record of the money received from the customer for tax purposes. There is an issue whether the evidence is capable of establishing that she introduced customers to prostitutes, as the Magistrate found she did. In my view, the evidence should be regarded as so capable.

3. There is no dispute that the evidence was capable of establishing that on 5 November 1992 the appellant received injury arising out of or in the course of her employment with the respondent within the meaning of the Act.

4. With an understandable acknowledgement that the case gives rise to "some problem with the terminology", the Magistrate found that "either there was no valid contract of employment ... or that the contract was void, illegal, unenforceable or contrary to public policy". As a consequence the Magistrate concluded that the appellant was not entitled to the benefits of the Act which depended upon a valid contract of employment between her and the respondent.

5. In reaching this conclusion, the Magistrate correctly recognized that in the Australian Capital Territory the provisions of the Act differ from those in some other jurisdictions where similar statutory workers' compensation schemes are in force. In some jurisdictions it is provided that where the contract of service is illegal, there is nevertheless a discretion to deal with the matter as if the injured person had been employed under a valid contract of service: see Willis' Workmen's Compensation 34th ed. at 161, 169.

6. In the United Kingdom it has been held that a claim for worker's compensation cannot be based on a contract of service which is "illegal and therefore void" (Kemp v. Lewis (1914) 3 KB 543) but otherwise where the contract is only voidable and not avoided at the date of injury (McLelland v. Hutchison (1918) SC 68). However, it is doubtful whether the distinction is or would be recognized in Australia at the present time. In my view, and for the purposes of the present appeal, the distinction may be regarded as irrelevant.

7. The Magistrate's view was that the illegality of the contract of service between the appellant and the respondent flowed from one or both characteristics, that is to say, because its performance necessarily involved the commission of a crime, and because the agreement was against public policy.

8. In relation to the criminal aspect, the Magistrate held that the appellant's duties as a receptionist necessarily involved her in being "at the very least" knowingly concerned in the management of a brothel, contrary to s.18 of the Police Offences Act 1920, "probably" living off the earnings of prostitution, contrary to sub-s.23(1) of the Police Offences Act, and aiding and abetting the common law misdemeanour of keeping a brothel, contrary to the common law in existence in the ACT on 5 November 1992.

9. Mr. Crowe, for the appellant, did not dispute that the nature of the premises of the respondent's enterprise was that of a brothel, that is to say, premises which prostitutes used habitually for the provision of sexual services for reward to the respondent who occupied the premises. He submitted that nevertheless there was no criminality in the appellant's activities. He submitted that the evidence could not support a finding that what she was doing involved her in the management of the premises or living off the earnings of prostitution. As I further understand the submission, Mr. Crowe did not contend that the common law misdemeanour of keeping a brothel had ceased to exist in the ACT at the time, but he did not concede that it was an offence to aid and abet that substantive offence. He joined issue with Mr. Campbell for the respondent on the general principle that a Court will not enforce a contract to commit a crime and submitted that the true approach was discretionary, so that where the breach of the criminal law was technical or of no seriousness, then the Court would not regard the contract as unenforceable, particularly where the consequences of the breach of the criminal law were slight when weighed against the consequences of the unenforceability of the contract.

10. On the question of whether the appellant's duties involved her in the commission of crime, I think that the onus and standard of proof need initial consideration. The proceedings before the arbitrator were civil, and neither party needed to prove anything beyond reasonable doubt. The appellant bore the general onus of proof, but on the issue of illegality of conduct, the respondent's contention is what is in essence a plea in confession and avoidance and hence an issue on which the respondent bears the onus. Moreover, the allegation against the appellant is serious enough for the principle in Briginshaw v. Briginshaw (1938) 60 CLR at 336 to apply. Accordingly, whilst the respondent is required to prove the facts for which he contends on the balance of probabilities only, the onus is to be discharged in the light of the gravity of the allegations he makes. This is an important principle. A person should not be treated by a court as if guilty of a crime when the usual protection of criminal process has not been accorded to her. Hence, in my view, the evidence needs to be examined more carefully than the Magistrate may have examined it in order to come to the conclusion that the appellant was guilty of living off the earnings of prostitution. It was not enough to say that she was "probably" guilty.

11. In my view, having regard to the seriousness of the allegation, the evidence could not be sufficient to establish that the appellant was living off the earnings of prostitution. Although no authority was cited before the Magistrate or in the appeal on this point, the common thread in the cases is to the effect that the statutory offence of living off the earnings of prostitution is directed at pimps and landlords who "have some continuous association with the 'industry' of prostitution and some habitual receipt of money from the earnings of prostitution": see Bignold's Police Offences 9th ed. at 291 where the assumption is made that the offender must be male and the view is expressed that the prosecution must show that the man lived with the prostitute or exercised control or direction over her.

12. Nor do I think that the evidence could be sufficient to establish that the carrying out of the appellant's duties as receptionist at the respondent's brothel meant that she was guilty of the offence of being knowingly concerned in its management, contrary to s.18 of the Police Offences Act. Not all employees in a business are concerned in its management. Management of a business is generally regarded as involving something in the nature of the exercise of a discretionary power of control and direction of the business. The appellant's duties were essentially those of a receptionist and bookkeeper. There was very little of a discretionary nature in those duties. She appeared to have lacked almost completely any power to direct other employees or to control the activities carried out on the premises. A long line of cases in Australia, New Zealand and the United Kingdom distinguishes between working in a brothel and taking part in its management. In the latter situation it is regarded as necessary that a substantial degree of control or responsibility in the use of premises for the purpose of prostitution is proved: see R v. Barrie (1978) 2 NZLR 78 and cases cited.

13. Then there is the matter of the common law offence of keeping a brothel and the question whether that common law offence was still in existence in the ACT on 5 November 1992. The Australian Capital Territory inherited the common law of New South Wales on 1 January 1911: Seat of Government Acceptance Act 1909, s.6. The Supreme Court of New South Wales has repeatedly confirmed that the common law misdemeanour of keeping a brothel survives in New South Wales: Application of Sheppard (1983) 1 NSWLR 265 (Yeldham J), Subise Pty. Limited v. Shaw (1988) 13 NSWLR 98 (Court of Appeal), R v. Rahme (unreported, 15 December 1993, Court of Criminal appeal). On the other hand, there is the view of Street CJ expressed in Subise at 106-107 as follows:

"The days must surely be coming to an end when ancient judge-made
law in the protection of public morality will continue to regulate
social conduct through the mechanism of common law misdemeanours.
The legislature reflecting as it does the wishes and standards of
the people, is the democratic organ for this purpose. ....
These misdemeanours, created by judges of the past, are equally
susceptible of being discarded by modern judges in recognition of
the wholly different context of social regulation in today's
community."

14. The position in New South Wales is affected by statutory provisions which have been regarded as preserving or keeping undisturbed the common law. There was at the relevant time nothing in the ACT by way of legislation comparable to that in New South Wales, which preserved the common law. The remarks of Street CJ, are, in my view, of considerable force and there is a real question whether as at 5 November 1992 it was a common law misdemeanour to keep a brothel in the ACT.

15. Moreover, there must also be doubt about the scope of the derivative offence of aiding and abetting the substantive offence of keeping a brothel, assuming the substantive offence to have survived. If anyone were to be regarded as guilty of complicity in the substantive offence by way of aiding and abetting, it would surely be the prostitute who delivers the service on the premises and the customer who receives the service on the premises. Yet, there does not appear to be a case reported of a prostitute or a customer convicted of aiding and abetting the keeping of a brothel by a single act of prostitution. On the contrary, all the cases cited above, and others referred to in argument, tend towards the proposition that, apart from so-called "street" offences, what the common law proscribes is the organization and arrangement of prostitution, or the exploitation of prostitution in the wide sense. In practical terms, unless the person charged is somehow knowingly concerned in the organization and management of a brothel, the criminal law will not intercede in regulating sexual relations between individual adult persons, despite the presence of a commercial element in that relationship. McHugh JA in Subise at 122 expressed the view by way of obiter dicta that a client who resorts to a brothel gives encouragement to the brothel keeper and "would seem to be guilty" of aiding and abetting the principal offence of keeping a brothel, but there appears to be no direct judicial authority that the client is guilty of aiding and abetting the keeping of the brothel. McHugh JA made no reference to the guilt or otherwise of the prostitute as an aider and abettor, and no reference to the guilt or otherwise of a person employed by a brothel keeper but who is not involved in its management.

16. Before finally deciding the issue of whether the contract of service should be regarded as unenforceable because it was a contract to perform services which constituted aiding and abetting the keeping of a brothel, two other issues raised in the appeal should be addressed.

17. It was submitted for the appellant that, even if the contract of service was not a contract to engage in conduct which was a transgression of the criminal law, a court would not recognize the contract as a matter of public policy. Again, reliance was placed on a number of cases both in Australia and overseas over a period of many years, this time in support of the principle that a Court will not entertain a claim to enforce a right arising from a contract for immoral purposes (including sexually immoral purposes) on the ground that such contracts are contrary to public policy. Young J in Markulin v. Drew (1993) DFC 95-140 has shown that even in its heyday in the eighteenth and nineteenth centuries the courts did not always enforce a general policy or rule that all contracts promoting sexual immorality were illegal. In the circumstances of the case before him Young J was attracted to the distinction drawn by Treitel on Contracts 8th ed. at 390-392 between contracts for "purely meretricious purposes" and those which are intended to regulate stable extra marital relationships. The distinction is not to the point in the present case, but it does serve to emphasise that, whilst the law may still refuse to enforce contracts which treat a woman as if she were a prostitute, not all contracts which involve extra marital sexual activity will be so regarded.

18. Statutory developments in the Australian Capital Territory with regard to prostitution in 1992 before and after 5 November may not be ignored insofar as they may shed light on relevant community attitudes. As Hope JA said in Seidler v. Schallhofer (1982) 2 NSWLR 80 at 89:

"... in the present case, what has to be decided is whether an
agreement of the kind entered into between the parties should
still be considered so contrary to the ideas prevailing in this
community as to the conditions necessary for its welfare .... that
the court should refuse to enforce it as contrary to public
policy."

19. In 1991 a Select Committee recommended to the ACT Legislative Assembly that prostitution should be "decriminalized" and regulated through a licensing system. Private Members' Bills to regulate the prostitution industry in the ACT were introduced into the Legislative Assembly by the Chair of the Committee, Mr. Michael Moore, but were defeated. Those Bills were modified and reintroduced into the Legislative Assembly by Mr. Moore on 8 April 1992 as the Prostitution Bill 1992 and the Prostitution (Consequential Amendments) Bill 1992. Later in 1992 the Attorney-General issued a discussion paper on Issues and Policy Options in the Regulation of Prostitution, to which the Bills were annexed. The discussion paper (put in evidence by consent on the hearing of the appeal) fell short of making recommendations. It suggested that prostitution should be "decriminalized" by general repeal of existing criminal sanctions relating to prostitution but with retention or creation of criminal sanctions for various activities connected with prostitution such as soliciting in a public place, certain acts concerning child prostitution, and unsafe sex practices in prostitution. There were also suggestions about the control of brothels through land use and environmental planning and the promotion of the welfare of prostitutes (also called "sex workers") including "an examination of the status of prostitutes as employees or independent contractors for workers' compensation purposes".

20. On 1 December 1992, less than four weeks after the appellant's injury, the Prostitution Act 1992 and the Prostitution (Consequential Provisions) Act 1992 came into force by notification in the Australian Capital Territory Gazette. I was not informed as to the date on which the Acts passed the Legislative Assembly, nor was I referred to any introductory speech on the part of the Attorney-General or relevant Minister. The provisions of the two Acts are similar but not identical with those of the two Bills, but I do not think it necessary to investigate further the legislative history. What is abundantly clear for present purposes is that both the Bills and the Acts put paid to any suggestion that the common law misdemeanour of keeping a brothel survives in the Territory. The Prostitution Act recognizes the existence and operations of brothels within the ACT and seeks to protect the social and physical environment of the community by controlling the location of brothels. It is an offence under the Prostitution Act to operate a brothel except in a prescribed place. The prescribed places are in the Division of Fyshwick in the Central Canberra District and the Division of Mitchell in the Gungahlin District: (Prostitution Regulations, r.4(a) and (b)). There is provision for a public servant to be appointed Registrar of Brothels and Escort Agencies, although I was not informed whether any person has been appointed to that office. The public ventilation and resolution of issues relating to prostitution and the keeping of brothels in the ACT in 1992 leads me to the conclusion that as at 2 November 1992, the date of the appellant's injury, prevailing community attitudes were not such that this Court should regard the contract of employment between the appellant and the respondent to carry out the duties of a receptionist in the respondent's brothel as illegal because it was against public policy. Put another way, public attitudes to sexual morality were not then (and are not now) such that the Court should refuse to recognize that contract to the extent that a worker should be denied the right to compensation that might have accrued to her upon suffering injury arising out of or in the course of that employment.

21. There are essentially two complete competing policy considerations. One is the social utility of recognizing the contract of employment and thereby allowing the appellant to enforce any right she may have to recover compensation in accordance with a well established statutory scheme designed to cover all workers who suffer employment related injury and incapacity. The other is the social utility of seeking to discourage the keeping of brothels by refusing to recognize the contract of employment of people working in brothels and denying compensation to persons suffering injury arising out of or in the course of such employment. There can be no doubt that prevailing community attitudes see the former as substantially outweighing the latter. Hence the Court should not, and indeed, once these findings are made, may not, fail to recognize the contract and the consequent rights and obligations of both parties to it.

22. That said, it adds little to observe that the keeping of brothels is hardly to be discouraged by declaring that brothel keepers are not liable to their employees for workers' compensation.

23. I return to the question whether the contract was a contract to perform services which were criminal in that they necessarily involved the aiding and abetting of what was still a common law offence at 5 November 1992, but ceased to be so on 1 December following. As I have already indicated, I have considerable doubt whether, as a matter of law, the duties of a receptionist were criminal in that sense. In the circumstances I consider that it is appropriate to adopt the approach of Street CJ referred to above. This approach is, I venture to say, reinforced by the reported remarks of the Chief Justice of Australia made on 15 March 1994 to the effect that it is not the role of the courts to decide cases by reference to obsolete or unsound rules which result in injustice and which await future reform at the hands of the legislature. The relevant reform for the purposes of the present case took place some few weeks after the appellant's injury. Even if her duties on 5 November 1992 involved her in aiding and abetting the all but obsolete common law offence of keeping a brothel conducted by the respondent, justice requires that her claim to compensation not be defeated by such a moribund concept long rejected by the community as a whole and about to receive through the community law making representatives the coup de grace.

24. The appeal is allowed. The award made by the Magistrate on 12 October 1993 is set aside and the case is remitted to the arbitrator for further determination according to law. The respondent is to pay the appellant's costs.