Federal Court imposed penalties on a union official for breaches of the Fair Work Act 2009 (Cth) (FW Act), and ordered that the union was not to indemnify the official for those penalties. On appeal the Full Court of the Federal Court held that section 545(1) of the FW Act did not give the Court power to order that the official not be indemnified.

In Issue

  • Whether the Federal Court had power to prohibit indemnification for a penalty imposed by it.

Background

In the decision of Director of Fair Work Building Industry Inspectorate v Construction, Forestry, Mining and Energy Union (No 2) [2016] FCA 436 the Federal Court of Australia (FCA) found, inter alia, that an officer of the union contravened section 348 of the Fair Work Act 2009 (Cth) (the FW Act) in connection with the blockade of the construction site of the City to Maribyrnong River Project Package B. This work was part of the Victorian Government's Regional Rail Link Project to build new regional rail lines.

Decision at trial

The trial judge made orders, inter alia, to the effect that:

  1. The union official pay penalties totaling $18,000 in respect of his contraventions; and
  2. The union must not directly or indirectly indemnify the official against the penalties in whole or in part.

This decision was appealed to the Full Court of the Federal Court (FCAFC).

Issues on appeal

A significant issue on appeal was whether the trial judge had the power, pursuant to section 545(1) of the FW Act, to prohibit the union from indemnifying the official for the penalties imposed on him.

Decision on appeal

In finding for the appellant with respect to this issue, and holding that section 545(1) of the FW Act did not give the FCA power to make an order prohibiting indemnification, the FCAFC observed that:

“If s 545(1) was a valid source of power for Order 13, it would also be a lawful source of power for other orders of a varied and broad kind that could intrude on the legitimate freedoms and rights of persons, whether contravenors or not. Examples of such orders might be: that banks not lend to a contravenor so as to force the contravenor to sell an asset to pay the penalty, that a contravenor pay the penalty from a particular asset or source, that family or friends of the contravenor not give or lend money to the contravenor to pay the penalty. Such intrusions into the lives of people require a clear statutory source. So does an order in aid of the force of the penalty that enjoins a party using its assets in a manner not shown to be unlawful.”

Special leave to appeal the FCAFC decision on this issue was granted by the High Court on 12 May 2017.

Implications for you

The trial judge apparently took a dim view of a party to proceedings, upon whom penalties have been imposed, being indemnified for those penalties by another. The judge’s concern seemed to be that indemnification of this type diminishes the deterrence effect of the penalties.

It will be interesting to see what the High Court’s view on the issue will be. In the event that the FCAFC’s decision is overturned it would give rise to an issue for insurers in the sense that, if a penalty were imposed on an insured under the FW Act, a Court may rely on section 545(1) to prohibit the insurer from providing indemnify for that penalty i.e. if it were otherwise covered under the insurance policy.

It is worthwhile noting that a related issue arose in the decision of Hillman v Ferro Con (SA) Pty Ltd (in liquidation) and Anor [2013] SAIRC 22, about which we have also published an article. In that case the South Australian Industrial Court imposed a higher penalty on the contravenor of workplace, health and safety legislation, in circumstances where it came to the Court’s attention that there was insurance in place which would provide indemnify for that penalty. The Court was, however, also of the view that it did not have the ability to consider the validity of such cover.