FCA rejects Westpac's responsible lending settlement

In the recent matter of Australian Securities & Investments Commission v Westpac Banking Corporation [2018] FCA 1733, Perram J of the Federal Court dismissed an application by ASIC and Westpac Bank for judicial approval of a penalty settlement. ASIC tends to favour reaching settlements rather than litigation for the purpose of applying penalties due its relative efficiency. A settlement can be preferential to litigation in terms of time expended and cost, especially in investment cases with large plaintiff classes or numerous issues.

This case is particularly unique as Perram J made amicus curiae appointments — the appointment of an independent third party to assist the Court in certain ways — to argue against the application in the place of Westpac.

The penalty was concerned with the methods employed by Westpac regarding home loan suitability assessments in a period between 12 December 2011 and March 2015. The specific method in question was a rule of Westpac’s Automated Decision System which gave a 'Final Net Monthly Surplus/Shortfall' calculation. The issue was that the calculation was not based on financial information provided by the customer, but rather a benchmark known as the HEM Benchmark based on data gathered by the ABS.

Westpac and ASIC had agreed that use of the HEM Benchmark was a contravention of s 128 of the National Consumer Credit Protection Act 2009 (Cth) (‘the Act’). Perram J strongly disagreed with this outlining that s 128 is focused on entering into a credit contract before making an assessment. In his Honours own words “… using the HEM Benchmark does not conceivably contravene s 128”. His Honour then went on to critique the substance of the agreement, noting that other than stating Westpac breached s 128, it did not outline what conduct or facts resulted in the breach.

Even after a thorough examination of the relevant facts and submissions by counsel for both parties, Perram J was not convinced that the draft orders presented to him were sufficient to fulfil the obligations of the Court under s 166 of the Act. Section 166 requires a court making a declaration for the purposes of a civil penalty provision to specify the conduct constituting the contravention. His Honour was quite blunt in expressing that he felt the conduct specified was conduct that could breach s 128 stating “I simply do not accept that the conduct specified in the declaration is conduct which could possibly be a contravention of s 128. I will not declare conduct which is not unlawful to be unlawful. The contraventions of s 128, that is the entry into credit contracts, must be specified. The declaration tells one next to nothing.”

On this basis, the joint application was refused with a case management hearing set for November 27.  In making this refusal Perram J state “… I accept the need for the Court to encourage settlements in this area but the desirability of doing so does not permit the Court to become a rubber stamp”.


Foodora rider awarded $15k for unfair dismissal

The Fairwork Commission has handed down a highly important decision in the matter of Joshua Klooger v Foodora Australia Pty Ltd [2018] FWC 6836. Mr Klooger was a delivery rider for Foodora in Melbourne who had his employment terminated after he spoke out against pay rates and conditions in the Foodora structure and gig economy generally.

Mr Klooger commenced working as a 'Corporate Rider' (delivery rider) with Foodora in March 2016. Until his dismissal he held various titles/positions such as 'Rider Captain' and 'Driver Manager'. When Mr Klooger first began working as a rider in 2016, workers would select shift times in certain geographical locations through Foodora’s app or website. Access to shift selection was not restricted or preferenced except for users designated as 'Captains'. In October 2017, Foodora introduced a new system of shift selection. This system would use certain performance metrics, such as number of orders delivered per hour, to rank users into a series of ‘batches’ that would determine when a user was able to select upcoming shifts. Additionally, Foodora had been progressively reducing payments for new riders/drivers since about July 2016 to the point where an hourly rate was eliminated and replaced by a flat rate of $8.00 per delivery in February 2018.

Shortly after the payment rate had reached $8.00 per delivery, Mr Klooger made a complaint about pay rates and conditions at a public rally and on an interview with the television show 'The Project'.  Following these appearances, Foodora management requested Mr Klooger hand sole control of a mobile messaging app chat group to Foodora. When Mr Klooger failed to comply with these requests, Foodora advised they had decided to no longer contract his services, effective immediately. In response Mr Klooger filed an application for an unfair dismissal remedy pursuant to s 394 of the Fair Work Act 2009.

Foodora raised two lines of argument, first that Mr Klooger was an independent contractor and not entitled to unfair dismissal protections, and second even if he were an employee he was dismissed for a valid reason. In establishing Mr Klooger’s status as an independent contractor counsel for Foodora pointed to the agreement between the parties which was a standard form contract titled “INDEPENDENT CONTRACTOR AGREEMENT” expressly stipulating Mr Klooger was engaged as an independent contractor and not an employee. Other indicators of contractor status included: the level of control Mr Klooger reserved over the amount of shifts he did or did not take in a week, that the service agreement was not exclusive, and the ability to have someone else discharge the obligations. (Foodora drivers/riders could have someone other than themselves perform deliveries with permission).

In terms of the validity of the reason for dismissal, Foodora pointed to its request for Mr Klooger to handover administrative control of the chat group and Mr Klooger's failure to do so as a valid reason for his dismissal under s 387(a).

Counsel for Mr Klooger disputed both assertions arguing that Mr Klooger worked directly for Foodora and not as part of a distinct, independent trade or company of his own. Secondly the reason for dismissal was not valid as it was unclear what the actual reason was, was not based in fact, and failed to give Mr Klooger any real opportunity to respond.

Commissioner Cambridge weighed a number of factors such as the nature of work and manner in which it was performed, the terms and terminology of the contract, ability to delegate work, level of control over working conditions, expenses/capital investment on the part of Mr Klooger and the extent of remuneration received. On these factors the Commissioner found that the proper characterisation of that relationship was that of employee-employer, in the Commissioners own words: “the applicant was not carrying on a trade or business of his own, or on his own behalf, instead the applicant was working in the respondent’s business as part of that business. The work of the applicant was integrated into the respondent’s business and not an independent operation.”

On the issue of the dismissal, the Commissioner rejected the arguments of Foodora that the dismissal was based on a valid reason. Referring to an email chain between Foodora managers on 28 February and 1 March 2018, the Commissioner determined that the substantive and operative reason for Mr Klooger’s dismissal was his conduct involving public agitation and complaint about the terms and conditions that Foodora imposed on its delivery riders/drivers.

As Foodora is currently in voluntary administration, Mr Klooger was unable to seek reinstatement, rather he sought damages. The Commissioner agreed with this remedy and determined, based on an average weekly remuneration, that Mr Klooger be awarded the sum of $15,559.00 as compensation.


QCA: Consideration must be given to the time taken to assess costs when determining security payments

In the recent matter of Monto Coal 2 Pty Ltd & Ors v Sanrus Pty Ltd & Ors [2018] QCA 309, the Queensland Court of Appeal provided a reminder that the time required to assess costs may be taken into account when determining whether a respondent is able to realise assets to pay security.

Background and the proceeding below

The proceeding related to a dispute over a joint venture to mine coal at Monto entered into in 2002.  The proceeding had a long history, having been commenced in October 2007.  The plaintiffs consented to provide security for the defendants’ costs of $250,000 in December 2007 and at the time of writing, the proceeding is listed for trial for 16 weeks in 2019.

In December 2017, the defendants applied to the Court to increase the security from $250,000 to $4,000,000.

At first instance, Crow J dismissed the application on the basis that the defendants failed to meet the essential threshold requirement in r671(a) of the Uniform Civil Procedure Rules 1999 that there is reason to believe that the plaintiff will not be able to pay the defendants’ costs if ordered to do so.

His Honour based his decision upon evidence provided on behalf of the plaintiffs that their interest in the joint venture (the evidence indicated that the total value of the joint venture was $100,000,000) significantly exceeded the estimate of the defendants’ likely costs of the proceeding ($4,000,000) and that the plaintiffs may sell that interest in order to satisfy any costs liability to the defendant should their action fail.

The defendants appealed his Honour’s decision on the basis that, relevantly, his Honour had failed to apply the correct threshold test under r671(a) and had erred in failing to find that there was “reason to believe” that the plaintiffs will not be able to pay the defendants’ costs if ordered to pay them.

The defendants needed to succeed on each of those points in order for the appeal to succeed.

The decision on appeal

Gotterson JA (with whom McMurdo JA and Boddice J agreed) held that the primary judge had applied too strict a threshold test under r671(a).  The primary judge had approached the test on the basis that the defendants were required to satisfy the Court that the plaintiff “will not” be able to pay the defendants’ costs if ordered to do so, whereas the defendants were merely required to satisfy the Court that there was “reason to believe” that the plaintiffs would not be able to pay costs if ordered to do so.

In reaching his decision with respect to whether the primary judge should have in fact found that there was reason to believe that the plaintiffs will not be able to pay the defendants’ costs if ordered to pay them, Gotterson JA preferred the view was that it was for an applicant for security to adduce evidence from which the Court may form a reason to believe that a plaintiff will not be able to pay the defendants’ costs if ordered to pay them.

His Honour then turned to consider the time period within which a plaintiff must pay a defendant’s costs, observing that:

The expression itself does not stipulate when, or by what means, the plaintiff company is to be able to pay the costs order. It does not require, for example, that in order to be able to pay a costs order, a company must have available liquid funds sufficient to meet the costs order on the date that the order is made. To put it another way, it does not state or imply that a company will be unable to pay unless it has on hand such liquid funds at that date.

His Honour then cited an observation of von Doussa J in Beach Petroleum v Johnson and stated that:

These observations imply, correctly in my view, that the period of time likely to be required for determination, by assessment or otherwise, and allowing for resolution of any disputes that arise in the determination process, is to be taken into account. So also is the opportunity that the plaintiff corporation will have within that period to realise non-liquid assets in order to pay the quantum of the ordered costs as and when they are ultimately determined.

The appellants had contended that the Court should find that there was reason to believe that the plaintiffs would not be able to pay the defendants’ costs if ordered to pay them due to uncertainty surrounding when the plaintiff may be able to realise its interest in the joint-venture.

Gotterson JA ultimately found that on the evidence available, there was no reason to infer that the realisation of the plaintiffs’ interest in the joint venture in order to satisfy any costs order would take longer than the process of determining the costs payable.  His Honour also noted that the process of costs assessment may take a considerable time given that the proceeding had commenced some 11 years earlier in 2007 and was listed for 16 weeks’ trial.

In light of that, his Honour held that the threshold requirement that there be reason to believe that the plaintiffs would not be able to pay the defendants’ costs if ordered to do so had not been met and accordingly, dismissed the appeal.

Conclusion

The decision is a timely reminder to practitioners that:

  1. the threshold contained in r671(a) necessary for security for costs to be awarded requires only a “reason to believe” that the relevant party cannot pay costs if ordered to do so, rather than a concluded opinion that the relevant party cannot pay costs if ordered to do so; and
  2. the relevant time at which the threshold is to be analysed is not at the time that the order for costs is made; but rather, at the time when the costs must be paid at the conclusion of the costs assessment process. This allows non-liquid assets to be taken into consideration as available to satisfy a costs order if a plaintiff can show that those assets could be sold prior to the conclusion of the costs assessment process.  Practically, this may be of assistance in resisting an application for security for costs noting the significant length of time that the costs assessment process can take.


FCA: Unfair preferences recovered from trust property must benefit creditors

The Federal Court has held that payment from trust property recovered as an unfair preference must be applied by trustee in bankruptcy for the benefit of creditors of the trust.

Lane (Trustee), in the matter of Lee (Bankrupt) v Commissioner of Taxation (No 3) [2018] FCA 1572

Background

Mr Lee was the sole trustee of the Warwick Lee Family Trust (the Trust).  Prior to his bankruptcy, Mr Lee paid the sum of $322,447.58 to the Commissioner of Taxation (the Commissioner) in discharge of taxation liabilities arising from the operation of a Subway franchise operated by the Trust.  Mr Lee had funded that payment by using $171,659.00 of his own funds and $150,788.58 funds of the Trust, in doing so he exercised his right of exoneration as trustee[1].  The right of exoneration is the right of the Trustee to discharge obligations incurred in their capacity as trustee directly from the assets of the Trust.

After the bankruptcy of Mr Lee, the Commissioner agreed to return the sum of $322,447.58 to the trustee in bankruptcy in response to an assertion that the payment to the Commissioner constituted an unfair preference under section 122 of the Bankruptcy Act 1966 (Bankruptcy Act).

The issue for determination by Derrington J was whether, upon the recovery of the funds from the Commissioner, the trustee in bankruptcy held all funds for the benefit of all creditors of the estate of Mr Lee (both in his personal capacity and in his capacity as trustee of the Trust) or whether the trustee in bankruptcy held the sum of $150,788.58 (representing the amount initially paid by Mr Lee from funds of the Trust) for the benefit of Trust creditors only[2].

The Commissioner contended that the former view prevailed, whereas the trustee in bankruptcy contended that the latter view prevailed[3].

Decision

In reaching his determination, his Honour noted that section 122 of the Bankruptcy Act operated without the need for an order of the Court; that is, the payment is avoided upon the making of a sequestration order if the provision is applicable[4].

His Honour noted that as a matter of practical reality, however, that although the effect of the provision is to void a transfer to which it applies, transfers in effect remain effectual until a trustee in bankruptcy takes steps to avoid it[5].  Significantly, his Honour also noted that if a trustee in bankruptcy’s action to establish that a transfer was avoided by virtue of section 122 was successful, the “title in the property is to be regarded as not ever having passed”[6].

After undertaking an analysis of the basis of the trustee in bankruptcy’s entitlement to recover the preferential payment pursuant to section 122 of the Bankruptcy Act, his Honour concluded that:

Mr Lee’s entitlement to use trust funds only arose by reason of his position as trustee and because the debt arose from the administration of the trust.  Outside of his office as trustee, he was not entitled to pay the funds to the Commissioner nor did he have any entitlement to recover them when the payment was found to be void.  It necessarily follows that the right to recover the payments from a transaction which was avoided was a right which was held for the benefit of the trust[7].

After careful analysis of the Commissioner’s contention that any repayment by the Commissioner of an equivalent amount to that paid to it by Mr Lee utilising the right of exoneration from the Trust would be held by the trustee in bankruptcy free of all trust obligations and could be used to discharge debts to non-trust creditors, his Honour concluded that:

If a trustee acquires a chose in action as a consequence of the operation of a trust, that chose in action is held pursuant to the trustee’s rights and obligations, no less than other trust property.  In this case, the taxation liability which was discharged by the payment of trust funds to the Commissioner arose as a result of the operation of the trust and Mr Lee paid the amount of $150,788.58 out of the trust funds to discharge that liability and, pro tanto, it reduced the trustee’s equitable lien over the trust assets.  He was only entitled to use that money by reason of his position as trustee and the rights and entitlements he acquired as a result.  When the transaction was avoided by reason of the making of the sequestration order, the right to recover the payment only existed because of Mr Lee’s position as trustee.  His right to recover the amount paid is subject to the trust obligation to use the trust funds for the purposes of the trust.  It is not possible to hive off from the other rights and obligations of a trustee, the right to recover payments made for the purposes of the trust which have been avoided.  The right is necessarily a constituent element of the bundle of rights and obligations of the trustee and no principle was referred to which suggests that a trustee might exercise such rights independently of the other trust obligations [8]. [underlining added]

Conclusion

The decision is of assistance given that the issue in contention was not the subject of any direct Australian authority[9].

It now stands as authority for the proposition that when funds paid by a trustee in exercising their right of exoneration from trust assets are recovered as an unfair preference pursuant to section 122 of the Bankruptcy Act, the repaid funds are themselves “subject to the obligation to use them in the manner required of the original funds, being for the purposes of discharging trust debts”[10].

It should be noted, however, that his Honour’s conclusions arise as a result of his analysis of the terms and effect of the particular recovery provisions in the Bankruptcy Act and for that reason, caution ought be exercised before seeking to use the decision in the context of the broadly equivalent provisions of the Corporations Act 2001.

It should also be noted that at present, the decision of the Full Bench of the Supreme Court of Victoria in Commonwealth v Byrnes (as joint and several receivers and managers of Amerind Pty Ltd) (recs and mgrs apptd) (in liq) (2018) 354 ALR 789 is subject to appeal in the High Court of Australia.  The High Court’s decision on the nature of a trustee’s right of exoneration may well alter the position further.


WA businessman jailed for $890k phoneix activity

A Western Australian Phoenix operator has been sentenced to five years and four months in prison for fraudulently obtaining more than $890 000 through illegal phoenix activity. He was also ordered to repay the money.

The proceeding ensued after an extensive investigation by the Australian Tax Office which revealed that Western Australian businessman Sung Jae Cho had intentionally accumulated debt, liquidated his business to avoid paying the bill and then set up operation through a different corporate entity.  It was alleged that he also failed to report and remit the GST and Pay As You Go (PAYG) withholding while having sole and full control of the relevant entities.

The decision follows mounting scrutiny over the impact phoenixing operations are having on Australia's economy, which is estimated to cost the country between $1.8billion and $3.2 billion each year.

Assistant Commissioner Aislinn Walwyn claims this decision signals a "strong reminder to those involved in illegal phoenix activity that if you engage in this behaviour you will get caught." She warned that Australia's Phoenix taskforce will "continue to follow up phoenix operators despite their efforts to conceal their activities."

However the ATO believes the ruling significantly underscores the seriousness of the crime, asserting that it does not adequately reflect Mr Cho's conviction of 20 charges, spanning over 13 years from 1997.


Buyer Beware: Real Estate Agent Not Liable for Misleading Statement

In the matter of Hyder v McGrath Sales Pty Ltd [2018] NSWCA 223, the court was required to consider whether McGrath, in their capacity as a real estate agent, had engaged in misleading or deceptive conduct by making representations to a property purchaser about parking availability.

The proceedings commenced after Amy Hyder purchased a Sydney property for $9.4 million in February 2015, with her husband conducting the purchase negotiations and ultimately making the decision to proceed with the sale.

Acting on behalf of the property's seller, McGrath published printed and online advertising material which described the property as having 'plentiful parking' and highlighted that the property featured a "double garage plus private off-street and driveway parking.'

Both the online and printed material featured the following disclaimer:

"Scale in meters. Indicative only. Dimensions are approximate. All information contained herein is gathered from sources we believe to be reliable. However we cannot guarantee its accuracy and interested persons should rely on their enquiries."

Having inspected the property on at least four occasions, the Hyder's understood that it featured a double garage. There was also space in front of the garage for two more cars, however parking here would block access to the garage. Public parking was not permitted on the street.

The lot also included a strip of land which gave two other lots access to their homes, with these lots having right of way over the strip. However, prior to the Hyder's purchase, this space had been treated as parking for the property owners and at the time of purchase it featured two signs which read 'Private Parking Space 24'. '24' represented the street number of the relevant property.

Upon inspecting the property, the Hyder's had been informed by McGrath that the property owners had exclusive use of the 'private parking' area. The promotional material also included a detailed site plan showing images of three cars parked in this strip.

After agreeing to a purchase price of $9.4 million, Mrs Hyder signed a standard form contract of sale, which was accompanied by attachments including:

  • copies of a title search that noted the relevant rights of way;
  • the relevant deposited plan; and
  • the memoranda of transfer creating the rights of way.

The contract also included special conditions which indicated that the purchaser had not relied on any statements, inducements or representations made by or on behalf of the vendor (including by any estate agent acting on their behalf).

Despite this, Mrs Hyder commenced proceedings against McGrath in April 2016, alleging that the agent's pre-sale representations about parking availability contravened s18 of Australian Consumer Law. In doing so, Mrs Hyder contended that she had suffered a loss as a result of McGrath's misleading and deceptive conduct, stating that she would not have purchased the property at the price of $9.4 million had the representation not been made.

At first instance the primary judge dismissed the appellant's claim, finding that although McGrath had engaged in misleading and deceptive conduct, Mrs Hyder had not suffered loss as a result.

On appeal, the court was required to consider whether the primary judge erred in finding that Mrs Hyder would have proceeded with the purchase.

Ultimately, the court dismissed the appeal, finding that McGrath had not engaged in misleading or deceptive conduct. In doing so, it held that the parking information was not endorsed by McGrath, but rather information which it expressly or impliedly disclaimed responsibility for. Moreover, it held that Mrs Hyder had failed to establish that she suffered loss as a result of the conduct. The appeal was dismissed with costs.


Federal Court: Bankruptcy Notice Valid Despite Use of Pseudonyms

A fundamental factor of bankruptcy is that the public are able to identify a bankrupt and that the relevant parties are able to identify each other. Typically, this would mean that all relevant documentation must clearly identify the relevant parties. However, a recent case in the Federal Court has deemed that the use of pseudonyms in a bankruptcy notice will not necessarily render the notice a nullity.

LFDB v MS S M [2018] FCA 1397 concerned a bankruptcy notice which the applicant alleged was a nullity on the basis that is did not fulfil certain essential criteria. Specifically; it failed to name the addressee or creditor, its ‘purported creditor’ was ambiguously described and it could not support the creditor’s petition or fulfil bankruptcy’s ‘public interest objectives’.

As shown in the image below, the creditor used the pseudonyms L F D B and MS S M to name the debtor and creditor respectively. These were pseudonyms used by the applicant and respondent in a series of proceedings before the courts in New Zealand, the Federal Circuit Court of Australia and the Federal Court of Australia. The amount claimed in the Bankruptcy Notice exceeded $6.5 million and was a result of a judgment debt arising from the party’s long litigation history.

Relevantly, the parties were subject to suppression orders in both the New Zealand courts and Federal Circuit Court of Australia (or Federal Magistrates Court as it was then). The orders provided, among other things, that no identifying information or information capable of identifying could be published in relation to the parties or the judgement.

The applicant essentially argued two grounds for having the notice set aside: first, the use of pseudonyms was not in accordance with the Bankruptcy Act and its subordinate legislation as they would not allow the public or other creditors to properly identify the debtor and any related proceeding; and second, that the use of pseudonyms would cause the applicant to be misled as to his creditor’s identity.

Markovich J mostly agreed with the submissions of the applicant, noting that bankruptcy was not simply inter partes litigation and that the public interest aspect had been recently reinforced. However, her Honour was of the opinion that the issues raised were not relevant at the service of a bankruptcy notice. Rather, her Honour noted that as a bankruptcy notice operates only as between the addressee and the creditor, it is not a public document and no other creditor of the same debtor can rely on that notice. As such, despite the link between the notice and a creditor’s petition, the use of pseudonyms would not impact other creditors rights.

In regard to the second submission, Markovich J rejected the contention that the use of the “MS S M” pseudonym would have misled the applicant. Her Honour noted the parties had been engaged in litigation for a number of years where the 'S M' pseudonym had been used and that it was difficult to accept that the addition of 'MS' would raise enough ambiguity to mislead the applicant. Further, the notice annexed copies of orders made in the various litigations between the parties.


Employee Reassignment Sufficient to Reduce Bullying

In Mr Andrew Hamer [2018] FWC 6037, the Fair Work Commission (“the Commission”) found that the reassignment of an employee alleging work place bullying was an acceptable means of reducing the risk of the employee experiencing further bullying.

Mr Hamer was employed by the Australian Taxation Office (“ATO”) in Perth. After making allegations of bullying against three other employees of the Perth office, Mr Hamer made an application under section 789FC of the Fair Work Act 2009 for an order to stop the bullying.

At a conference conducted by the Commission, representatives of the ATO advised that Mr Hamer had been moved to a temporary position where he was not required to report to, or engage with, the three people against whom bullying was alleged. The ATO also agreed to attempt to find a permanent position for Mr Hamer (at the same level) where he would continue to be separated from the three. After successfully finding a position for Mr Hamer, the ATO wrote to the Commission advising that Mr Hamer was to be transferred and that the s 789FC application could therefore be withdrawn. However, Mr Hamer sought determination of the application.

In submissions, Mr Hamer expanded upon the type of bullying experienced, claiming it was done for the purpose of having him charged and convicted of a breach of the ATO’s Code of Conduct. Further, he alleged that the ATO had failed to properly investigate his claims, asserting that they did not comply with policy and apparently sided with the three parties against whom bullying was alleged.

Despite recognising Mr Hamer's concerns, the Commission was not satisfied there was a risk he would continue to be bullied by the persons named in the Application. In doing so, the Commission noted that a number of measures taken by the ATO significantly reduced the risk of further bullying.  These measures included:

  • Mr Hamer now working in a different business line that had no crossover with the named person’s business lines;
  • Mr Hamer working on a different floor in the office; and
  • a provision that teams in other states would interact with Mr Hamer or the named persons if there was any need for the two lines to cross.

Ultimately, although the Commission deemed the ATO's actions to be acceptable in reducing the risk of future bullying, employers should be careful to ensure that the measures taken in such situations are not perceived as an act of reprisal or victimisation. The reassignment of an employee who has filed a complaint may be viewed as such.


Full Federal Court: 'Casual' Employee Entitled to Annual Leave Payments

A recent decision in the Full Federal Court determined that a labour hire employee was entitled to annual leave payments. Typically, casual employees are not entitled to the same entitlements as a permanent employee and are instead paid casual loading. However, following this decision in WorkPac Pty Ltd v Skene [2010] FCAFC 131, simply paying casual loading and stating an employee is a casual may not be sufficient for an employee to be considered casual under the National Employment Standards (NES).

Case Facts

Mr Skene was employed by WorkPac (a labour hire company) as a dump-truck operator on mining operations in Central Queensland. Mr Skene was first employed from 17 April 2010 to 17 July 2010 in a “drive in, drive out” (DIDO) position, and then again from 20 July 2010 to 17 April 2012 in a “fly in, fly out” (FIFO) position working 12 hour shifts on seven days on, seven days off roster arrangements with little flexibility. During Mr Skene’s second stint his roster was at times provided 12 months in advance.

Upon his termination in 2012, Mr Skene was not paid money in lieu of unused annual leave which he challenged arguing that he was in fact a permanent employee under the NES and therefore entitled to such a payout. WorkPac argued that because Mr Skene had executed a document entitled “Casual or Fixed-Term Employee Terms and Conditions of Employment” and his employment contract provided he was employed on a casual basis, Mr Skeen should be deemed a casual employee.

Mr Skene was successful at first instance before the Federal Circuit Court and WorkPac were ordered to pay compensation and interest for the unused leave on a full loaded pay rate. WorkPac subsequently appealed this decision to the Full Federal Court.

Full Court Findings

The basis of the case was whether Mr Skene’s employment fell within the concept of casual employment. As there is no definition for “casual employee” in the Fair Work Act 2009 (Cth) the Court looked to the common law, modern awards and enterprise agreements to determine if there was a uniform understanding. The Court deemed that no such understanding existed in the context of awards of agreements instead relying on the common law to provide a definition. In doing so the Court established several “indicia” of employment:

  • Irregular work patterns;
  • Uncertainty as to the period over which employment is offered;
  • Discontinuity; and
  • Intermittency of work and unpredictability.

On this basis the Court held that an assessment of “the real substance, practical reality and true nature of the relationship” must be undertaken rather than simply adopting the description the parties have given to the relationship.

The Court observed that a ‘casual employee’ describes a type of employment that in part takes meaning from other recognised types of employment. Noting that the point of distinction between full-time and part-time employment is the ongoing nature of those employments, the Court stated that ongoing employment:

“…is characterised by a commitment by the employer, subject to rights of termination, to provide the employee with continuous and indefinite employment according to an agreed pattern of ordinary time (as distinct from overtime) work.  A corresponding commitment to provide service is given by the employee.”

In contrast a casual employee was described as having:

“… no firm advance commitment from the employer to continuing and indefinite work according to an agreed pattern of work. Nor does a casual employee provide a reciprocal commitment to the employer …”

In assessing the relationship, the Court noted the following:

  • Mr Skeens employment was predictable with rosters at times set up to 12 months in advance;
  • The employment was regular and continuous (save one period of approved unpaid leave);
  • The FIFO nature of the employment was inconsistent with the notion Mr Skeen had the ability to elect not to work on a particular day or refuse a shift;
  • It was unclear if Mr Skeens was actually paid any casual loading (however the Court held that the payment of a casual loading amount does not necessarily confirm casual status);
  • There was a strong suggestion that the work was not subject to significant fluctuation.

The Court subsequently dismissed the appeal being unable to find any error in the primary judge’s assessment of the relationship factors.

Considerations for employers

The case provides that simply describing your employee as a casual may not be sufficient for them to be classed as a casual under the NES as courts will look beyond the agreement or contract to determine the true nature of the relationship. Employers should be mindful of their working arrangements and review their workplace to ensure that a casual employee will actually be characterised as a casual.


WASCA clarifies the law of set-off in insolvency

In the recent matter of Hammersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liq) (receivers and managers appointed) [2018] WASCA 163 the Court of Appeal of the Supreme Court of Western Australia held that the attachment of a security interest under the Personal Property Securities Act 2009 does not preclude set-off in insolvency pursuant to section 553C of the Corporations Act 2001 or at general law.

Background

In 2012, Hammersley Iron Pty Ltd (Hammersley) engaged Forge Group Power Pty Ltd (Forge) to undertake building works with respect to the construction of power stations at West Angelas and Cape Lambert in Western Australia.

In 2013, Forge obtained finance from a bank and in exchange, granted the bank security over its personal property.  Accordingly, the bank registered the security on the Personal Property Security Register (PPSR) in July 2013 pursuant to the Personal Property Securities Act 2009 (PPSA).

The bank appointed receivers and managers to Forge in 2014 and Forge subsequently went into liquidation.

Proceeding below

Relying upon contractual rights, equitable set-off and set-off in insolvency pursuant to s553C of the Corporations Act 2001 (CA), Hammersley argued that its claims against Forge exceeded those that Forge had against it, and that it was entitled to rely upon the set-off described above and to prove for the balance in the liquidation of Forge.

In response, the receivers of Forge contended that:

  1. section 553C of the CA provided a code governing set-off in insolvency;
  2. set-off under section 553C did not apply because there was no mutuality as a result of the equitable interest in Forge’s claims against Hammersley subsisting in the bank because of the operation of the PPSA; namely, that the attachment of the security interest in the collateral pursuant to section 19 of the PPSA conferred on the bank a proprietary interest in the collateral at the time of attachment
  3. the ‘Securities Claims’ of Forge against Hammersley were not ‘accounts’ within the meaning of section 10 of the PPSA because they were not “claims for identifiable monetary sums due by ascertainable dates arising from disposing of property or the granting of rights in the ordinary course of business”. The primary judge upheld that contention, finding that the Securities Claims “were ‘claims that arose after the receivers were appointed by reason of the alleged wrongful draw down by Hammersley of securities provided by Forge’”; and
  4. as a result, Hammersley was required to pay what it was due to pay to Forge (for the benefit of the bank) and was left to prove in the winding up of Forge for its own claims pari passu with other creditors.

Tottle J upheld contentions of Forge (by its receivers) in the proceeding below.

The decision on appeal

On appeal, the Court of Appeal of the Supreme Court of Western Australia upheld Hammersley’s appeal.

In a lengthy judgment which incorporated a detailed analysis of the relevant principles and their background, the Court of Appeal delivered a single judgment, finding that:

1. Even assuming that the effect of the attachment of the security interest in the collateral pursuant to section 19 of the PPSA conferred on a secured creditor a proprietary interest in the collateral at the time of attachment, that did not of itself operate to destroy the mutuality required for a set-off to apply.

Rather, an analysis of the terms of the relevant security instrument, together with the relevant terms of the PPSA, is required in order to determine whether mutuality is destroyed on a case-by-case basis.

Here, an analysis of the relevant General Security Agreement, when read with the PPSA, indicated that at the relevant date, Forge retained the right to apply payments received from Hammersley for its own benefit by paying down its indebtedness to the bank and to trade creditors and was not available to the bank.  Accordingly, there were mutual dealings between Hammersley and Forge within the meaning of s553C of the CA sufficient to enliven the operation of the set-off pursuant to that section.

2. Section 553C of the Act was not a code governing all applicable circumstances of set-off in insolvency. Rather, the Court held that “there is nothing in s553C or its purpose or policy which would relieve the chargee of any equities which would otherwise apply to the charged debt.”

As a result, if statutory set-off pursuant to section 553C is not available, then the result is not that the chargee takes its interest in the claims of Forge free of any equities otherwise available under the general law or imposed by other statutory provisions, such as s80(1) of the PPSA.  Rather, any rights taken by a chargee such as the Bank are taken subject to the terms of the contracts between Hammersley and Forge “and any equity, defence, remedy or claim arising in relation to” those contracts.  The foregoing may include the right of set-off.

3. Forge’s ‘Securities Claims’, namely, claims that Hammersley had wrongfully drawn down against securities provided by Forge after the appointment of receivers, were ‘accounts’ within the meaning of section 10 of the PPSA. That was significant because if the Securities Claims were not accounts (the finding by the primary judge), then they were not capable of set-off because they would not be taken to have existed at the time of the appointment of the receivers.  The Court determined that the Securities Claims were ‘accounts’ because they arose from the maintenance of bank guarantees which Forge provided to Hammersley pursuant to terms of the relevant contracts which was an aspect of Forge’s usual business of providing building services.

Conclusion

The decision is of significance because it confirms that attachment of collateral in a security interest in a secured creditor pursuant to section 19 of the PPSA does not, of itself, act to destroy mutuality sufficient to permit set-off to occur in insolvency.

Also significant is the finding that section 553C of the CA is not a code that applies in respect of set-off in insolvency to the exclusion of general law principles.