Faraci v The Leak Shop Pty Ltd [2003] NSWIRComm 169 (27 June 2003)

Last Updated: 11 July 2003

NEW SOUTH WALES INDUSTRIAL RELATIONS COMMISSION

CITATION : Faraci v The Leak Shop Pty Ltd [2003] NSWIRComm 169

FILE NUMBER(S): IRC6271

HEARING DATE(S): 23/05/2003

DECISION DATE: 27/06/2003

PARTIES:

APPLICANT

Nicholas Faraci

RESPONDENT

The Leak Shop Pty Limited

JUDGMENT OF: Peterson J

LEGAL REPRESENTATIVES

APPLICANT

Mr R Goodridge of counsel

SOLICITOR

Employment Lawyers

SYDNEY.

RESPONDENT

No appearance

CASES CITED: Reich v Client Server Professionals Pty Ltd (2000) 99 IR 69

Cornell v Titley [2002] NSWIRComm 326, unreported, 3 December 2002.

LEGISLATION CITED: Industrial Relations Act 1996 s106

Superannaution Guarantee Administration Act 1992 (Cth) s12

JUDGMENT:

- 1 -

INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES

IN COURT SESSION

CORAM: PETERSON J

DATE: 27 JUNE 2003

Matter No. IRC6271 of 2002

NICHOLAS FARACI v THE LEAK SHOP PTY LIMITED

Application under s106 of the Industrial Relations Act 1996.

JUDGMENT

1 These proceedings have been initiated under s106 of the Industrial Relations Act 1996 ('the Act'), by the applicant, Nicholas Faraci, against the respondent, The Leak Shop Pty Limited, in relation to a contract under which the applicant performed, on behalf of the respondent, the repair of leaky showers.

2 The matter was commenced on 7 November 2002 by the filing of a summons for relief. Prior to that time, on 13 August 2002, the applicant's solicitors served upon the respondent a letter of demand. Telephone calls ensued between those solicitors and the respondent. The respondent referred the matter to its solicitor. There then followed a series of letters between the solicitors for the parties, together with occasional telephone calls. The matter was listed before the Registrar on 6 February 2003, written advice of which was sent to the respondent at an address in Parramatta which was the street address of the registered office of the respondent; however, its proper address was care of a firm of accountants in Parramatta. The Industrial Registrar's advice of that hearing was returned unopened, it having been sent to the correct street address but without identifying the firm of accountants.

3 The matter was then allocated to me for conciliation or, if necessary, ex parte hearing. Upon the mention of the matter on 5 March 2003, again no appearance was entered, and indeed at no stage has an appearance been filed, for the respondent. At that mention I fixed the matter for conciliation or ex parte hearing at 10am on Friday, 23 May 2003. Written advice to the respondent of that fixation was given both by the Registrar and by the solicitors acting for the applicant. That the respondent was aware of that fixation is confirmed by correspondence received in my chambers from the respondent on 23 May 2003, which adverts to the inability of the respondent (which had not entered a notice of appearance) to be represented on that day. The letter which was signed by Steve Cardilini, Managing Director of the respondent, included the following observation:

". . . . unfortunately I will be unable to attend, as my business commitments make me definitely unavailable on any Friday".

4 The letter proceeded to make what appear to have been intended to be arguments in relation to the matter which, of course, I am unable to receive as such. It also made some indications which Mr Goodridge of counsel relied upon as admissions, that the head of claim concerning WorkCover premiums, was, effectively, admitted.

5 The letter addressed to my chambers, to which I referred in par.3, was copied to solicitors for the applicant. That caused those solicitors to facsimile an urgent notice to the respondent advising that, in the event of his non-attendance, they would be seeking an ex parte hearing to determine their client's application. They continued:

"It is therefore in your best interests to attend the Commission today as your failure to do so may result in orders being made against The Leak Shop".

6 They reminded the respondent again of the time and venue of the proceedings.

7 In the circumstances I proceeded to certify that an attempt to conciliate the matter had been unsuccessful and then heard the matter ex parte. This decision concerns the resolution of the hearing on that basis.

8 The applicant seeks an order in the amount of $5,406.03, being the recovery of WorkCover premiums wrongly deducted from the applicant's earnings ($925.15 plus interest of $129.80 = $1,054.95); moneys wrongfully retained to be attributed by the respondent towards any instances of bad workmanship that might arise after the applicant's termination ($1,058.20 plus interest of $148.47 = $1,206.67), and an amount representing the superannuation guarantee payments which the respondent was liable, but failed, to make on the applicant's behalf, in accordance with the Superannuation Guarantee (Administration) Act 1992 (Cth) ('the SGA Act'), being $3,144.41. The amounts of interest are calculated in accordance with Supreme Court rates and thus conform with s372 of the Act.

9 The amount representing WorkCover premiums is that which Mr Cardilini in his letter of 22 May 2003 accepts are payable, if not already paid. It was suggested in his letter that he had instructed his accountant to reimburse those sums although the evidence before me is to the effect that that has not occurred. In that regard, I would be moved to order the payment of that sum subject to any proof of payment which might be demonstrated by the respondent within 14 days.

10 The evidence before the Commission, which includes the affidavit of the applicant, satisfies me that the applicant performed work on behalf of the respondent. Whether the contractual relationship between the parties was one of employment or a principal and contractor appears to me to be uncertain. There are countervailing features for alternative conclusions. For example, the matters of fact alleged in the summons identify some factors characterising the work contract as one of employment, including the applicant, working exclusively for the respondent and subject to control and discipline. He was prohibited from performing any private leaky shower repairs other than as specified and approved by the respondent; he was paid weekly; the respondent could specify the make and model of the motor vehicle to be supplied by the applicant.

11 On the other hand, the applicant was required to supply a vehicle, compensation for which was to come out of the contract payments. He was required to supply certain materials, tools and mobile telephone, other materials were supplied by the respondent. The applicant was paid on a job basis upon the provision of an invoice to the respondent. He was subject to a six-month restraint of trade clause upon termination.

12 A number of other features were perhaps more neutral such as not pricing his own work; not carrying the risk of making a loss; a guaranteed flow of work and not being required to conduct free inspections.

13 In the circumstances of the case, it seems to me to be unnecessary that the Commission should attempt to place a characterisation on the relationship. Whether that relationship was one of employment or as an independent contractor, the evidence meets the statutory test provided by s106(1) of the Industrial Relations Act 1996, namely, it comes within the phrase "any contract whereby a person performs work in any industry". Equally, the contract is one which satisfies the definition of contract provided by s105, in that it is one which is unfair in that it permitted the wrongful deductions of workers' compensation premiums and the unauthorised retention of payments in respect of work done (as to which see Reich v Client Server Professionals Pty Ltd (2000) 99 IR 69). The payments due in respect of superannuation are payments which the respondent should have made on the applicant's behalf pursuant to the provisions of s12 of the SGA Act.

14 Of the money retained by the respondent to hold against future bad workmanship claims, $972.40 was a payment for work done, which had been made by the respondent by cheque payable to the applicant but which on presentation was dishonoured.

15 The basis of the obligation under the SGA Act arises from s16 thereof, which imposes the burden, and the wider definition of employer/employee in s12 which relates expressly to a person employed as an employee or under a contract principally for labour only. It is that latter part of the definition which seems to me to embrace the relationship, whether it be one of employment or principal/contractor.

16 The questions of the jurisdiction of the court and the appropriateness of making any order in furtherance of that jurisdiction were dealt with by Haylen J in Cornell v Titley [2002] NSWIRComm 326, unreported, 3 December 2002,. In that matter his Honour set out an extensive review of earlier judgments of the Commission in Court Session and its predecessors with respect to superannuation issues. His Honour concluded that:

On the material before the Court, I am satisfied that the necessary requirements to attract the jurisdiction of the Court have been established: no issue arises under s 109 of the Constitution. Here there is a contract, being both a contract of employment and in the wider definition an arrangement in relation to superannuation connected with that employment whereby the applicant performed work in the warehouse industry. In addition, there is a representation made to the applicant by the respondent which, in part, appears to have involved not only an initial denial of liability for superannuation contribution, but also, ultimately, a representation that they would be paid. An added feature in this case appears to be that an employment benefit available to the applicant, namely the provision of the utility, was removed from the use of the applicant on the pretext that it would be sold to cover the cost of these superannuation contributions. It is a fair inference from the material before the Court that the proceeds of the sale of the utility were used either by the respondent or the employing entity but not for the benefit of the applicant.

On the basis of the evidence and submissions made on behalf of the applicant, I am satisfied that the contract, in its widest definition, was unfair, harsh and, considering the fact that it essentially concerns superannuation contributions, was against the public interest.

17 As to the appropriateness of an order, Haylen J said:

In Beahan v Bush Boake Allen Australia Ltd (1999) 47 NSWLR 658, the Full Court referred to Huskisson RSL Sub-Branch Ltd v Sullivan (1990) 20 NSWLR 332 and Walker v The Industrial Court of New South Wales (1994) 53 IR 121 as authority for the proposition that a claim made within s 106 (and its statutory predecessors) may give rise to relief under other provisions of the Act: indeed, in Walker, Kirby P noted that it was not unusual for legal systems to provide a number of remedies for the one set of circumstances. As the submissions for the applicant indicated, there is no mechanism under the Commonwealth legislation for enforcing the minimum superannuation contributions or for recovery of the equivalent of the contributions due to an employee: employees are left to the remedies provided by the general law. The applicant may have had other remedies available in the Supreme Court but, as was pointed out in submissions, the commencement and maintenance of proceedings in the Supreme Court involve a much higher cost to the applicant than proceedings under s 106. This was a proper and relevant consideration having regard to the circumstances of the employing entity, the representations made by the respondent to the applicant and his failure to live up to them and his statutory obligations and the likelihood (which became a reality) that the respondent would not appear and there might be additional costs involved in securing the fruits of any order obtained. In those circumstances, there cannot be any criticism of the applicant for choosing this particular jurisdiction and in any event the provisions of s 106, in my view, provide an available form of relief to the applicant.

18 As I have said that matter involved some identicality with the present matter. One distinctive feature is that the relationship in that case was one of employment but, for the reasons I have earlier noted, that is a distinction without any effective difference for present purposes, given the obligations which arise under the SGA Act. I would adopt the approach of Haylen J and conclude that both as to jurisdiction and upon the merits as they are established in the case before me, that the applicant is entitled to an order which would achieve in his favour the payment to the appropriate fund of an amount equivalent to that which the respondent was obliged to pay. There is, in my view, a clear public interest in ensuring that obligations with respect to the payment of employer contributions to superannuation funds are met.

19 I deal with the reprehensible elements of the conduct of an employer who fails to meet his obligations.

20 As to the "retention" moneys, there is little that needs be said. It is, of course, undisputed that the contractual arrangement between the applicant and the respondent made no provision for payments due for work done to be withheld to cover the possibility of a future claim with respect to the quality of workmanship. The withholding of those moneys seems to me to result either from a simple breach of the parties' contractual relationship or, as the result of a contract which unfairly failed to make provision to ensure that the applicant would be paid for the work he undertook. There can be no other result in the circumstances than one which allows the recovery by the applicant of the money already earned pursuant to the contract.

21 The applicant sought an order for indemnity costs. A like application was made in Cornell v Titley, as to which Haylen J said:

14 The applicant also sought indemnity costs. In relation to the issue of indemnity costs (and more generally), counsel for the applicant submitted that employers who try to circumvent the statutory superannuation regime are clearly acting against the public interest. They were abusing a position of trust and prejudicing vulnerable persons who stand in a weaker position. Information is withheld from the employee allowing the loss to arise through gross neglect or equitable fraud. The facts at the very least must amount to an unjust enrichment by conscious act. In the context of the present case, indemnity costs were the only basis that any approximation of fair and reasonable justice could be achieved between the parties. Two employees performing the same labour upon the same terms ought to be placed in the same position. One of those employees ought not suffer a loss because of his employer's unfairness and breach of trust, contract and statutory obligation. An employee who has been denied his rights should be put in exactly the same position as an employee has been accorded his rights.

16 The President, Wright J, also referred to the judgment of Hill J in Boner v Anderson (No 2) (1993) 50 IR 406 and his Honour's expressed view that there should be an increased tendency to the awarding of indemnity costs, and the caution expressed by a Full Bench to that approach in Australian Mutual Providence Society v Avis (Bauer, Peterson and Marks JJ, unreported, IRC 96/5473 and IRC 96/5941, 18 December 1997). In Boner, it was noted that generally speaking an order for costs on an indemnity basis was justified in a case in which there are special or unusual features of an unmeritorious or improper nature surrounding the case of one party which makes it unreasonable and unfair that the successful party should be put out of pocket as a result of the proceedings. The President then continued:

31. Lastly, on the question of general principles, I should refer to a passage relied upon by the applicants in the recent judgment of Greg James J in Lolomanaia v Roads and Traffic Authority [2000] NSW SC 780 at par 22. Although his Honour was dealing with a slightly different matter, that is, the question of the extent of indemnity provided by indemnity costs, his Honour did, however, make an important observation in these terms:

It is clear that costs on an indemnity basis have increasingly more frequently become available and that, although generally costs should not be seen as a punishment of an unsuccessful party, either when they are awarded or in the extent to which they [are] awarded, regard must be had to the principle that costs operate by way of compensation to the successful party for what has had to be incurred in successfully asserting that party's rights in court. It must be noted that indemnity costs are limited to those costs which are reasonably incurred in prosecuting the proceedings to a successful conclusion. Costs on an indemnity basis merely restore fully the successful party's position.

17 In my view, the circumstances in this case are sufficient to warrant the awarding of indemnity costs. An important part of this particular jurisdiction is the requirement for conciliation prior to the matter being prepared for hearing. In this case, the respondent failed to appear and failed to appear at the conciliation when extensive steps were taken by the applicant to notify the respondent that the matter was listed and to fully inform the respondent of the nature of the claim made. The capacity to quickly and relatively inexpensively resolve the issue of unpaid superannuation contributions in conciliation proceedings was lost because of the respondent's conduct. The respondent has made no contact with the applicant to explain his non-appearance and the Court is left in the position of deciding these questions in circumstances of an unexplained absence and the apparent absence of any mitigating features. The other important consideration is a matter referred to by Greg James J in Lolomanaia. Bearing in mind the nature of the claim, it is not appropriate that this applicant be left out of pocket on the issue of costs.

22 I adopt without reservation his Honour's reasoning as applicable in the present case. I order and declare:

1. That the contract between the applicant and the respondent under which the applicant performed work in the shower repair industry was an unfair contract at the time it was entered into and also became unfair because of the conduct of the respondent;

2. That the respondent pay to the applicant or as nominated the sum of $5,406.03 made up as follows:

(i) the sum of $2,261.62 representing the principal and interest with respect to WorkCover premiums and the retention of moneys;

(ii) to the solicitors for the applicant, Employment Lawyers, the sum of $3,144.41 representing the superannuation guarantee payments due to the applicant to be held in trust for him and divested to an appropriate superannuation fund nominated by him.

(iii) the costs reasonably incurred by the applicant on an indemnity basis in an amount to be determined by the court.

23 As to costs, I direct the solicitors for the applicant to file within 14 days a memorandum of their costs in the matter, which I will consider for the purposes of the costs order.

LAST UPDATED: 27/06/2003