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Thursday, 21 June 2012
Page: 7462

Mr McCLELLAND (Barton) (12:09): Before addressing the matters that the honourable member raised, can I say on the record that in no way did I recommend the watering down of the legislation. In fact, I moved amendments on 17 September 2002 that significantly increased the powers of the Federal Court of Australia. I refer the honourable member to page 6,512 of the Hansard of 17 September 2002, which sets out the amendments moved by the opposition—which amendments were accepted by the government, following discussions that I had with the then minister for workplace relations, with a view, as the amendments will show, to very firmly strengthening the legislation. I will refer in my contribution, in part, to that.

In my experience, the vast majority of trade unions are professionally managed by highly competent and dedicated people who act on the basis of sound professional advice. But, regrettably, there have been exceptions to that. Officers have sought to obtain personal benefit, or benefit on behalf of others, at the expense of members of their union. Reported instances include not only misapplying funds and resources of the union but also using the privileges of their office to attract and obtain services and benefits from third parties.

Aside from issues of profiteering, secret commissions and tax avoidance, these undeclared benefits can compromise officials. Rather than diligently representing the interests of their members without fear or favour, they effectively 'run dead' as a result of these side deals. This is no less than graft and corruption in its most reprehensible form, and it occurs at the expense of vulnerable members whose interests they have been charged with representing.

To borrow the words of Prime Minister Gillard, speaking on ABC Radio on 9 May of this year:

Let me say I never want to see a dollar that a worker gives a union used for any purpose other than the proper purposes of representing that union member's best interests.

Indeed, I know the Prime Minister is quite familiar with this area of the law; as lawyers in the mid-1990s, we were involved in a matter representing opposing clients. Indeed, my involvement in that matter has coloured much of my thinking in this area and resulted in me moving amendments on 17 September 2002 to actually strengthen the powers of the Federal Court of Australia.

In short, this bill has merit and I support it. But, with my new freedom as a backbencher, I would like to suggest where I think the law can be further strengthened. My main focus is on enhancing the ability of members of organisations to seek orders compelling officers of their union to perform and observe the rules of the union and, in so doing, comply with their broader fiduciary and statutory obligations, and ultimately, if required, to compensate the organisation for loss arising from their misconduct.

I will briefly outline the scheme of the act and, in so doing, will highlight those areas where additional enhancements should be made. The foundation of the scheme is, essentially, the codification of law that has established what those fiduciary obligations are. In particular, part 2 of chapter 10 of the Fair Work (Registered Organisations) Act contains quite detailed provisions regarding the general duties of trade union officials in respect of the financial management of organisations and also in respect of the misuse of position.

Section 285, for instance, sets out the obligation to exercise care and diligence. This requires judgment to be made in good faith and for proper purpose. The section specifically provides that decisions cannot be made for the purpose of seeking a material personal interest. Section 286 sets out the obligation to act in good faith and for a proper purpose and, specifically, to act in the best interests of the organisation. Section 287 sets out the obligation not to obtain personal advantage for oneself or for another person, and section 288 sets out the obligation not to improperly use information for personal benefit or for the benefit of another.

As I mentioned, these principles arise from the common law, including case law concerning trade unions, such as the well known cases of Short v Wellings (1951), Allen v Townsend (1977), Cook v Crawford in the early 1980s, Saddington v Oliver (1983) and indeed the former member Lindsay Tanner v Darroch (1986). As I mentioned, these issues also arose in those matters that I was involved with in the mid-1990s, which were filed in both the then Industrial Court of Australia and the Federal Court of Australia. There are a number of matters, generally under the name of Ludwig v Harrison and others, but probably most relevantly matter No. 1032 of 1996.

It can be seen that the statutory provisions and legal principles impose obligations, not just in respect of financial management and proper administration, but also, more generally, with respect to conduct that seeks to benefit the individual or, as the legislation also emphasises, a third party. These principles are sound; it is with respect to the issue of remedies that I think more attention needs to be given.

Part 2 of chapter 10 sets out the mechanisms for enforcing the obligations of trade union officials, including by obtaining a civil penalty order and, potentially, an order for compensation. The relevant provisions include section 306, which provides for the imposition of a civil penalty order of up to 100 penalty units in the case of a corporation and 20 penalty units in the case of an individual. Section 307 specifies the circumstances in which a compensation order may be made for breach of a civil penalty provision and requires the court to have regard to the extent of any profits made by an individual. Section 308 gives the Federal Court wide power with respect to any orders that may be 'appropriate in all the circumstances', including the power to grant interim injunctions.

Section 310 gives standing to commence an action for a civil penalty and compensation order to either the general manager of Fair Work Australia or to the affected organisation itself. Subsection 310(2) specifies that the minister for workplace relations also has standing but only with respect to enforcement of matters arising under section 305(2)(zk) which relate to enforcing orders once made. The first point I would therefore make is with respect to that issue of standing. The restriction on the minister for workplace relations commencing enforcement proceedings should, in my view, be removed. Clearly, that ability would be desirable to cut through bureaucratic delay, intransigence or obstinacy.

In addition, section 330 provides that the general manager may undertake an inquiry with respect to possible contravention of a civil penalty provision. Section 331 empowers the general manager to conduct an investigation with respect to contraventions of the civil penalty provisions. That gives rise to my second and third points. That is, if those inquiries and investigations are to be both timely and effective then consideration should be given to imposing a time limit. This should be extendable only with the consent of the minister, who should report to the parliament on the granting of any such extension. My third point is with respect to amending subsection 330(3), which currently provides that the general manager does not have the ability to compel the giving of evidence.

My fourth point relates to section 333, which provides that members of an organisation may request an investigation. The section provides that, in the case of a trade union of in excess of 5,000 members, at least 250 members must make such a request. In the case of a smaller organisation, at least five per cent of members must make such a request. I believe that consideration should be given to reducing the number of members who can request such an investigation.

But my main recommendations are in the area of performance and observance of the rules. It is frequently overlooked that—despite including the detailed scheme in respect of the duties of trade union officials which are set out in chapters 9 and 10 of the Registered Organisations Act, and I have outlined those provisions—the act retains the right of an individual member of a trade union to apply to the Federal Court of Australia for orders requiring an official to perform and observe the rules of the organisation. These powers are set out in part 3 of chapter 5 of the Registered Organisations Act and, in particular, sections 164, 164A and 164B. Similar provisions have been found in the Commonwealth industrial relations legislation since the original Commonwealth Conciliation and Arbitration Act 1904. In fact, considerable case law has developed around this power, confirming that, in exercising powers under the rules of a trade union, officials owe a fiduciary obligation to the organisation and members of the organisation. Those cases include a number of the cases to which I have earlier referred.

Importantly—this is in response to the comments of the member for Brisbane—this power was expanded by amendments that the then opposition moved, to extend the Federal Court's power to making orders to rectify the consequences of the breach of rules of an organisation, including the fiduciary obligations that trade union officials owe. As I said, those orders are set out in the debate of 17 September 2002 at page 6,512. I should say that the debate proceeded in the Main Committee because the government and the opposition had reached a consensus. Indeed, I had a very productive and constructive relationship with the then minister for workplace relations, who agreed to accept the amendments moved by the opposition.

The honourable member for Brisbane will see that the amendments that I made relate to empowering the court to rectify breaches of the rules of organisations. There was one restriction that remained in the legislation, to which I will shortly refer, and that restriction was already in the government's legislation with respect to the Federal Court not, in that particular part of the act, being empowered to order the payment of compensation, because it was contained in the civil penalty provisions. It is my view that the scheme of the act, as it has been tried—I think the former minister would agree with me—and the consequence of delay in the investigation of the HSU matter indicate that those procedures are too cumbersome. Going back to the thrust of the amendments that I moved on 17 September 2002, those orders confirmed the Federal Court's power to make orders to rectify the consequences of the breach of the rules, including making an order against a former official. The argument was that perhaps the legislation did not extend to an official once they were no longer an official and hence not under a continuing obligation to conform with the rules. That was rectified so that former officials could be included. Significantly, it also significantly included the ability of the court to make an order against a third party who may have benefited from the breach of the rules or a breach of the fiduciary obligations. The motivation, as I have indicated, for my moving those amendments was the experience in that matter that I had involvement in in the mid-1990s.

As I have indicated, those amendments that I moved followed very constructive discussions with the government and were accepted by the government. Those amendments and the reasoning for those amendments are set out in the relevant parts of the Hansard to which I have referred. The remaining limitation on the Federal Court's power is that which is contained in section 164B(4). That specifically prevents the court from ordering a person to pay compensation to an organisation—it was already within the government's legislation. That includes circumstances where the loss is a consequence of that person's breach of the rules and specifically their fiduciary obligations to the organisation.

Therefore my fifth recommendation, returning to the point raised by the member for Brisbane, is that that restriction which was already in the then government's legislation should be removed. That would enable the Federal Court, in appropriate circumstances, not only to enforce the rules and fiduciary obligations but also to rectify the consequences, including the ability to compel a third party or the official themselves to compensate the organisation for the consequence of abuse of rules or the abuse of their fiduciary obligations. This would essentially give the Federal Court of Australia an overarching supervisory jurisdiction over the internal management of trade unions. That jurisdiction is consistent with the role that courts have traditionally played, virtually since Federation. I think that is a way of really giving practical strength to the operation of this act.