Reform Funds Volume Ten

Transcription

1 Final Report of the Royal Commission into the Building and Construction Industry Reform Funds Volume Ten Royal Commissioner, The Honourable Terence Rhoderic Hudson Cole RFD QC February 2003

2 Final Report of the Royal Commission into the Building and Construction Industry Volume Titles Volume 1 Volume 2 Summary of Findings and Recommendations Conduct of the Commission Principles and Procedures Volume 3 National Perspective Part 1 Volume 4 National Perspective Part 2 Volume 5 Volume 6 Reform Establishing Employment Conditions Reform Occupational Health and Safety Volume 7 Reform National Issues Part 1 Volume 8 Reform National Issues Part 2 Volume 9 Reform National Issues Part 3 Volume 10 Volume 11 Volume 12 Reform Funds Reform Achieving Cultural Change State and Territory Overviews Volume 13 Hearings New South Wales Part 1 Volume 14 Hearings New South Wales Part 2 Volume 15 Hearings Victoria Part 1 Volume 16 Hearings Victoria Part 2 Volume 17 Hearings Queensland Part 1 Volume 18 Hearings Queensland Part 2 Volume 19 Hearings South Australia, Tasmania, Northern Territory and Australian Capital Territory Volume 20 Hearings Western Australia Part 1 Volume 21 Hearings Western Australia Part 2 Volume 22 Volume 23 Administration Confidential Volume ISBN: Commonwealth of Australia 2003 This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth available from Information Services. Requests and inquiries concerning reproduction and rights should be addressed to the Manager, Copyright Services, Information Services, GPO Box 1920, Canberra ACT 2601 or [email protected] ii Final Report of the Royal Commission into the Building and Construction Industry

3 Contents Abbreviatons 1 General 1 Contractors 5 1 Overview 7 Introduction 7 Methodology 10 Superannuation funds 11 Redundancy funds 12 Long service leave funds 13 Training funds 14 Income protection 16 Pressure to contribute to nominated industry funds 17 Regulation of industry funds 19 Union trust funds 20 Notes to Overview 31 2 Building Employees Redundancy Trust 33 Introduction 33 Self-initiated redundancies 34 Distribution of surplus income 37 Access to welfare benefits provided by BERT 41 Privacy and collection of arrears 45 Conclusions 45 Persons involved 46 Notes to Building Employees Redundancy Trust 47 3 Building Unions Superannuation Scheme 51 Introduction 51 Collection of arrears 52 Reform of compliance infrastructure 59 Consequence of hearing 60 Conclusions 61 Persons involved 62 Notes to Building Unions Superannuation Scheme 63 Reform Funds iii

4 4 CEPU Electrical Division Victorian Branch financial analysis 65 The Trusts 65 CEPU Electrical Division Victorian Branch financial statements 67 ElecNet 67 Financial analysis 68 Conclusions 69 Persons involved 70 Notes to CEPU Electrical Division Victorian Branch financial analysis 71 5 Chifley Financial Services Limited 73 Conclusions 76 Persons involved 78 Notes to Chifley Financial Services Limited 79 6 College of Electrical Training Inc: ANTA Grant 81 Introduction 81 Facts 81 Conclusions 90 Persons involved 95 Notes to College of Electrical Training Inc: ANTA Grant 96 7 ElecNet (Aust) Pty Ltd 99 Introduction and background 99 July October October December January Year 2000 and thereafter 106 Legal issues and conclusions 111 Persons involved 116 Notes to ElecNet (Aust) Pty Ltd Electrical Contractors Association of Western Australia Incorporated Severance Scheme Fund 125 Background Cressall Road, Balcatta 126 Contributions held in trust 127 Surplus funds 127 Discussion 130 Conclusion 132 Persons involved 133 Notes to Electrical Contractors Association of Western Australia Incorporated Severance Scheme Fund 134 iv Final Report of the Royal Commission into the Building and Construction Industry

5 9 Incolink: Self-Initiated Redundancies 137 Background 137 Incolink Study 139 Conclusions 144 Persons involved 147 Notes to Incolink: Self-Initiated Redundancies Queensland Construction Training Fund 151 Introduction 151 Worker Grants 152 General Purpose Grants 159 Conclusions 170 Persons involved 171 Notes to Queensland Construction Training Fund Sunshine Coast Regional Group Apprentices Ltd 179 Introduction 179 Corporate governance 183 Related party loans Cootamundra Drive 195 The Male Superannuation Fund 200 Fuel Cards 201 Government response 202 Findings 206 Persons involved 207 Notes to Sunshine Coast Regional Group Apprentices Ltd Long Service Leave Funds in the Building and Construction Industry 217 Origins of long service leave 217 Overview of long service leave legislation 218 New South Wales 222 Victoria 224 Queensland 226 Western Australia 230 South Australia 233 Tasmania 236 Australian Capital Territory 238 Northern Territory 240 Observations 240 Issues 244 Discussion 247 Notes to Long Service Leave Funds in the Building and Construction Industry 251 Reform Funds v

6 13 Redundancy in the Building and Construction Industry 255 Introduction 255 The meaning of redundancy 255 History of redundancy provisions in awards 256 The role of the AIRC 258 Establishment of redundancy funds 260 A statistical comparison of industry redundancy schemes 262 Redundancy in the building and construction industry 265 Overview of principal redundancy schemes 267 Distribution of surplus income 278 Caps on redundancy contributions 281 Regulation of redundancy funds 283 Recommendations 285 Appendix A: Comparison of Selected Awards from the Top 100 Federal Awards 289 Appendix B: Summary of Principal Building and Construction Awards 293 Notes to Redundancy in the Building and Construction Industry Income Protection Insurance in the Building and Construction Industry 311 Introduction 311 Background 311 Insurance commissions and related benefits 312 Income protection funds 316 Discussion 317 Recommendations 318 Notes to Income Protection Insurance in the Building and Construction Industry Superannuation in the building and construction industry 325 Introduction 325 Superannuation in Australia 325 Regulatory regime 326 Superannuation in the building and construction industry 327 Framework for analysis 328 Governance arrangements 334 Choice of fund 336 Privacy 343 Cbus funded projects 344 Annexure A 347 Notes to Superannuation in the Building and Construction 348 vi Final Report of the Royal Commission into the Building and Construction Industry

7 Abbreviatons General Air Conditioning and Mechanical Contractors Association of Victoria Allied Construction Employees Superannuation Scheme Allied Unions Superannuation Trust (Queensland) Australia and New Zealand Banking Group Limited Australian Administrative Services Pty Ltd Australian Building and Construction Commission Australian Building Construction Employees and Builders Labourers Federation (Queensland Branch) Union of Employees Australian Conciliation and Arbitration Commission Australian Construction Industry Redundancy Trust Australian Council of Trade Unions Australian Federation of Construction Contractors Australian Federation of Construction Contractors, SA Branch Australian Industrial Relations Commission Australian Industry Group Australian National Training Authority Australian Prudential Regulation Authority Australian Retirement Fund Australian Securities and Investments Commission Australian Superannuation Savings Employment Trust Australian Taxation Office Australian Workplace Agreement AMCA ACE AUST Q ANZ AAS ABCC BLF Q ACAC ACIRT ACTU AFCC AFCC SA Branch AIRC AIG ANTA APRA ARF ASIC ASSET ATO AWA Reform Funds 1

8 Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union Building and Construction Industry Long Service Payments Corporation AMWU LSPC Building and Construction Industry Termination, Change and Redundancy Test Case decision Building and Construction Industry Training Fund Building Employees Redundancy Trust Building Industry Group Apprenticeship Scheme Building Industry Redundancy Scheme Trust (South Australia) Building Skills Pty Ltd Building Trades Association of Unions of Western Australia Building Unions Superannuation Scheme Queensland Chifley Financial Services Limited Civil Contractors Federation Superannuation Trust CoINVEST Ltd College of Electrical Training Incorporated Combined Trade Union Retirement Fund Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, Electrical Division, Victorian Branch Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, Plumbing Division, New South Wales Branch Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, Plumbing Division, Queensland Branch Construction & Building Unions Superannuation Fund Construction Employees Redundancy Trust Construction, Forestry, Mining and Energy Union Construction, Forestry, Mining & Energy, Industrial Union of Employees, Queensland Construction Income Protection Queensland Construction Industry Long Service Board BCI TCR Test Case decision BCITF BERT BIGA BIRST BSPL Association of Workers BUSS Q Chifley CCFST CoINVEST CETI CTRF CEPU CEPU Electrical Division, Victorian Branch CEPU Plumbing Division NSW Branch CEPU Plumbing Division Qld Branch Cbus CERT CFMEU CFMEU Q CIPQ the ACT Board 2 Final Report of the Royal Commission into the Building and Construction Industry

9 Construction Industry Long Service Leave Board Construction Industry Long Service Leave Payments Board Construction Industry Skills Group Training Ltd Construction Industry Training Board Construction, Mining, Energy, Timberyards, Sawmills and Woodworkers Union of Australia Western Australian Branch Construction Skills Training Centre Incorporated Construction Training Centre Contracting Industry Redundancy Trust Corrs Chambers Westgarth Coverforce Propriety Limited Coverforce Top-Up Accident Scheme Department of Industrial Relations ElecNet (Aust) Pty Ltd Electrical Contractors Association of WA Incorporated Electrical Industry Severance Scheme Electrical Trades Union of Australia, South Australian Branch eligible termination payments Enterprise Bargaining Agreement Funding Principles for the Award of Training Grants General Employee Entitlements and Redundancy Scheme Goods and Services Tax Housing Industry Association Limited Housing Industry Trade Training International Underwriting Services Pty Ltd Joint Electrical Training Council Incorporated Lowe Lippman Bott Pty Ltd Major Commercial Building Sector Agreement Master Builders Association of South Australia Inc Master Builders Association of Victoria Master Builders Association of Western Australia the SA Board the WA Board CISGT CITB CMETSWU CSTC CTC CIRT Corrs Coverforce CTAS DIR ElecNet ECAWA Protect/EISS Fund ETU SA ETP EBA the Funding Principles GEERS GST HIA HITT IUS JETCO LLB MCBSA MBASA MBAV MBAWA Reform Funds 3

10 Master Builders Australia Incorporated Master Plumbers and Mechanical Contractors Association of New South Wales Mechanical and Electrical Redundancy Trust National Electrical and Communications Association National Electrical and Communications Association, New South Wales Chapter National Electrical and Communications Association, Victorian Chapter National Privacy Principles New South Wales Electrical Superannuation Scheme New South Wales Industrial Relations Commission Plumbers and Gasfitters Employees Union of Australia, Queensland Branch, Union of Employees, The Queensland Building and Construction Industry (Portable Long Service Leave) Authority Queensland Construction Training Fund Queensland Industrial Relations Commission Queensland Major Contractors Association Queensland Master Builders Association Queensland United Employers Superannuation Trust Redundancy Payment Central Fund Limited, The MBA Inc MPMCA MERT NECA NECA NSW NECA Victoria NPPs NESS NSWIRC PGEU Q QLeave QCTF QIRC QMCA QMBA QUEST Incolink Redundancy Payment Central Fund No. 3 Incolink Fund No. 3 Redundancy Payment Central Fund No. 1, Income Protection and Trauma Insurance Scheme IPT Fund 1 Redundancy Payment Central Fund No. 2, Income Protection and Trauma Insurance Scheme IPT Fund 2 Rostered Days Off Severance Scheme Administration facility Severance Scheme Administration Fund Statewide Superannuation Trust Sunshine Coast Regional Group Apprentices Ltd Superannuation Plan for Electrical Contractors (Qld) Tasbuild Limited RDOs SSA facility SSA Fund Statewide Super SCRGAL SPEC Q Tasbuild 4 Final Report of the Royal Commission into the Building and Construction Industry

11 Tasmanian Construction Employees Redundancy Trust Tasplan Superannuation Fund Termination, Change and Redundancy Case The Very Good Company Pty Ltd Wagecover Australia Pty Ltd Western Australian Builders Labourers, Painters and Plasterers Union of Workers Western Australian Construction Industry Redundancy Fund Western Australian Department of Training Western Australian Industrial Relations Commission Westscheme Superannuation Fund Tas CERT Tasplan the TCR Test Case The Very Good Company Wagecover WABLPPU WACIRF WA DOT WAIRC Westscheme Contractors Baulderstone Hornibrook Pty Ltd Hackett Laboratory Services Pty Ltd Klesteel Pty Ltd, trading as Bassett Demolitions Thiess Pty Ltd Welding and Fabrication Pty Ltd Baulderstone Hackett Laboratory Bassett Demolitions Thiess Welding and Fabrication Reform Funds 5

12 6 Final Report of the Royal Commission into the Building and Construction Industry

13 1 Overview Introduction 1 I was required, under paragraph (b) of the Letters Patent, to inquire into and report on the following matters in relation to the building and construction industry: (b) the nature, extent and effect of any unlawful or otherwise inappropriate practice or conduct relating to: (i) (ii) failure to disclose or properly account for financial transactions undertaken by employee or employer organisations or their representatives or associates; or inappropriate management, use or operation of industry funds for training, long service leave, redundancy or superannuation. 2 Paragraph (c) of the Letters Patent requires me to report on any measures, including legislative and administrative changes, to improve practices or conduct in the building and construction industry or to deter unlawful or inappropriate practices or conduct in relation to that industry. For that purpose, I am to take into account my findings in relation to matters referred to in paragraphs (a) and (b) and any other relevant matters. 3 This volume addresses case studies and overview material relevant to paragraphs (b) and (c) of the Letters Patent. Case studies 4 There are 10 case studies dealt with in this volume. They are set out in alphabetical order according to the investigation name assigned to the particular incident by Counsel Assisting. 5 In relation to each incident investigated by the Commission, I have set out my findings of fact in relation to that incident, together with any findings that I have made in relation to the lawfulness of the conduct that I have found to have occurred. The discussion of each incident concludes with my observations in relation to the types of practices and conduct illustrated by that case study. 6 I have explained in detail my approach to the Commission s investigation of particular incidents and the making of findings in relation to them in the second volume of this report, which deals with the conduct of the Commission. That volume includes, among other things, a discussion of my interpretation of the relevant parts of my Terms of Reference, my approach to the rules of Reform Funds 7

14 evidence, and the circumstances in which findings of criminal, unlawful or inappropriate conduct have been made. I will not repeat here what I have said in that volume. 7 I should, however, briefly draw attention to two points relevant to this volume. 8 First, I have interpreted the word unlawful in my Terms of Reference to extend to all civil wrongs, including torts and breaches of contract, contraventions of statute, and illegal acts contrary to the criminal law. It follows that a finding in this volume that a person or organisation has engaged in unlawful conduct does not necessarily indicate that the person or organisation has committed a crime. 9 Second, I have not made findings that any individual, organisation or company has engaged in inappropriate conduct unless a concession to that effect had been made. I have taken that approach in order to avoid the unfairness that might have been involved in judging individuals retrospectively in accordance with a standard of uncertain content. I have, however, on many occasions made it clear that I regard particular categories of conduct as inappropriate, and that reforms should occur in order to prevent conduct that falls within those categories from occurring in the future. In making observations of that type, I should not be understood to find, or to imply, that the conduct that occasioned those observations was inappropriate at the time that it occurred. I was concerned instead to look forward, and to explain why I have suggested that a different standard of behaviour should apply in the future. 10 The specific instances of unlawful conduct that I have found to have occurred in the case studies included in this volume are set out in schedule A to this Overview. 11 In addition, there was evidence of a limited number of other categories of conduct that are in my view inappropriate. Some of the conduct in those categories is unlawful in some circumstances but not in others, often because of deficiencies in the relevant law. These deficiencies are addressed by recommendations. Other conduct in these categories is not at present unlawful, although I have recommended that some of it be made unlawful, and that the remainder be discouraged in other ways. 12 Categories of conduct which were identified by the Commission in the case studies contained in this volume, and which I regard as inappropriate include: (a) (b) (c) (d) (e) the making of payments by industry redundancy funds to members in circumstances not authorised by the trust deed; the provision of welfare benefits by an industry fund exclusively for those of its members who were financial members of a union, thereby discriminating against members of the fund who were not union members; deficiencies in the information sought by an industry redundancy fund from employees seeking a redundancy payment, and their employers; the inflation of building costs by the payment of commissions to a union; non-disclosure by a union to employer organisations during pattern enterprise bargaining negotiations, of the fact that the union would receive commissions in respect of the insurance product which the union was negotiating to have included in the pattern enterprise bargaining agreement; 8 Final Report of the Royal Commission into the Building and Construction Industry

15 (f) (g) (h) (i) (j) (k) (l) (m) (n) (o) (p) (q) (r) (s) the receipt by a negotiating party, a union, of an undisclosed benefit arising from the outcome of enterprise bargaining agreement negotiations pursuant to which employers agreed to provide a benefit to their employees; the creation by a branch of a union of trusts by which funds might be quarantined from potential creditors of the union; the preparation by a branch of a union of financial accounts which failed to include the assets of a trust which it controlled; the receipt by a trust controlled by a branch of a union, of the proceeds of part of a commission paid on an annuity purchased by a trustee of an industry redundancy fund; the receipt by a trust controlled by a branch of a union, of distributions from a trustee of an industry redundancy fund, the source of such distributions being interest earned on payments made by employers for the benefit of employees; the engagement by an industry superannuation fund of unions to collect contribution arrears; the provision by an industry superannuation fund to unions, of the names of members employed by particular employers and of the amounts of contributions paid on their behalf, often without member consent; the provision of such information by an industry superannuation fund, knowing that it may be used by union organisers and delegates to promote industrial action to encourage subcontractors to make contributions to the fund; the making of a payment from interest earned on funds in an industry severance fund, for the benefit of an employer association administering that fund, in circumstances where its entitlement to the benefit of that payment was not clear; deficient administration by a Commonwealth statutory authority and a State department in their administration of an application for an infrastructure grant of funds to a training organisation; the failure of a Commonwealth statutory authority and a State department to ensure that public moneys were disbursed only in accordance with the conditions of an approved grant; the resolution by the board of an industry training fund that grants to workers for training be restricted to applicants demonstrating financial union membership, the effect of which would, if implemented, be to discriminate against non-union members, and the implementation of that resolution by a union and an industry training centre; the requirement that applicants for grants from an industry training fund provide to the fund union membership numbers; the distribution by an industry training fund of most of its general purpose funding to unions or union-controlled bodies rather than to bipartite bodies as contemplated by the fund s objects; Reform Funds 9

16 (t) (u) (v) (w) (x) (y) (z) (aa) (bb) the allocation by an industry training fund of general purpose grants, not based upon the merits of training proposals before the Board or an assessment of training outcomes, but instead upon the perceived need to return funds to the union sponsors of an industry redundancy scheme; the failure by an industry training fund to advertise, or advertise effectively, when seeking expressions of interest for grant projects; the approval by the board of an industry training fund of funding for a scheme to which discriminatory conditions of participation, favouring the sons and daughters of trade unionists, apply; the approval by the board of an industry training fund of a grant to a union for a safety and training officer in circumstances where that officer in fact engaged in numerous tasks not related to training; with the result that the funding was expended for purposes not authorised by the trust deed; the repeated renewal by the board of an industry training fund of a grant to a union for a safety and training officer despite failing to receive acquittal of moneys provided under that grant; the failure by a union recipient of an industry training grant to adequately acquit moneys received; the failure of directors and officers of a group training company, being a company in receipt of public funding, to implement and observe proper corporate governance procedures; disregard by directors and an employee of a group training company of the law in procuring benefits for themselves and others; and the decision by authorities not to investigate or prosecute breaches of the law which were within their jurisdiction and referred to them. Methodology 13 Twenty-five funds were examined. The Commission received documents from employer and employee organisations, and trustee companies of industry funds. In addition, much material was obtained pursuant to notices to produce served upon the auditors of employer and employee organisations, companies, individuals and trustee companies of industry funds for training, long service leave, redundancy and superannuation. The names of the industry funds investigated by the Commission are set out in schedule B to this Overview. 14 The Commission engaged auditors, investigators and financial analysts to examine the material received with the object of deciding whether further inquiries by the Commission were warranted. 15 Factors taken into account when conducting these reviews included: (a) (b) the age of the issue highlighted by the analyses; whether the issue was repeated in later years; 10 Final Report of the Royal Commission into the Building and Construction Industry

17 (c) (d) (e) (f) (g) the amount involved; the seriousness of the issue; the time and resources required to conduct further inquiries; whether, notwithstanding any non-compliance with proper accounting practices, the non-compliance was of sufficient magnitude or seriousness to warrant further investigation; and whether the issue had already been identified by other inquiries made by the Commission. 16 In most cases, the Commission s inquiries did not reveal unlawful or otherwise inappropriate practice or conduct. In those circumstances, the fund did not become the subject of evidence at hearing. 17 From time to time, the Commission identified transactions or decisions which became the subject of further scrutiny. Some of these proceeded to hearing. 18 The matters that were presented at hearing represent a small portion of the matters investigated for the purposes of paragraph (b) of the Letters Patent. The case studies arising from the matters presented at hearing are contained in separate chapters of this volume. 19 This volume also contains observations regarding the operation of funds, and recommendations how such operations might be improved. 20 I have devoted separate chapters to long service, redundancy, income protection and superannuation. Training funds interweave into various industry funds, and into the wider issue of training and vocational education in the industry. Training funds are referred to in the redundancy and long service chapters, and in the chapter on Training in Volume 9. Superannuation funds 21 Superannuation funds are now of major importance. Approximately 30 per cent of all financial sector assets are comprised of superannuation savings. 1 In 2001 superannuation assets represented about 15 per cent of total private sector wealth In the building and construction industry most awards specify approved funds into which superannuation contributions must be made. 3 In the non-residential building and construction industry, superannuation coverage usually focuses on the use of centralised funds into which payments can be made by an employer on behalf of an employee. These payments are held in an account portable between employers. Pattern agreements generally specify that payments are to be made into these accounts Commission inquiries concentrated on industry superannuation funds operating in the building and construction industry. These funds were identified in building and construction industry awards and enterprise bargaining agreements or because of the involvement of industry participants in such funds. 24 There are many suitable superannuation funds to which employers and employees may wish to contribute. However it is clear that the existing process of pattern bargaining can, and often Reform Funds 11

18 does, preclude the exercise of any real choice. In some cases, contributions to a nominated fund are stated as a condition of working on a site. 25 Some superannuation funds operating in the building and construction industry have accumulated very significant assets and have become important investors in industry development. For example, the Construction and Building Unions Superannuation Fund (Cbus), as at 30 June 2001, had assets under management of $3.41 billion. 5 It provides development funding for many building and construction projects. 26 For reasons given in the chapter on Superannuation, I make recommendations that the proposed Building and Construction Industry Improvement Act provide that any industrial agreement or instrument which restricts choice of superannuation fund or scheme not be capable of certification. I also recommend that the Building and Construction Industry Improvement Act prohibit any person, by threat of industrial action, coercion or any other form of intimidation, from persuading or attempting to persuade an employee, prospective employee or employer to nominate or contribute to a particular superannuation fund or scheme. 27 I also recommend that the proposed Australian Building and Construction Commission (ABCC) be authorised to monitor projects where development funds are provided by building and construction industry superannuation, long service leave, redundancy or other industry funds to ensure that conditions attached to such loans or equity interests do not infringe the proposed Building and Construction Industry Improvement Act or the Workplace Relations Act 1996 (C wth). Redundancy funds 28 Specific redundancy funds have been established for workers in the building and construction industry, and address the characteristics of employment in that industry. Traditionally, a job becomes redundant when an employer no longer desires to have it performed by anyone. A dismissal for redundancy is a dismissal, not on account of any personal act or default of the employee dismissed or any consideration peculiar to him or her, but because the employer no longer wishes the job the employee has been doing to be done by anyone This traditional concept of redundancy does not fit comfortably into the building and construction industry, where some employment is project-based. At one level, an employee becomes redundant because the job no longer exists once a project is completed. At another level, employees frequently move seamlessly from one construction site to another as work finishes on the first site and becomes available on the other. Workers tend to stay employed within the industry, but on different sites and often with different employers. 30 Redundancy in the building and construction industry, therefore, is more broadly understood. The National Building and Construction Industry Award 2000 (clause 16) defines a redundancy to mean a situation where an employee ceases to be employed by an employer, respondent to this award, other than for reasons of misconduct or refusal of duty. Redundant has a corresponding meaning. 12 Final Report of the Royal Commission into the Building and Construction Industry

19 31 Entitlements to redundancy payments first occurred in various Federal and State awards. Details about the emergence of redundancy entitlements, and the matrix of applicable awards, are provided in the Redundancy chapter of this volume. 32 Although awards continue to provide minimum entitlements, redundancy benefits are now primarily determined by enterprise bargaining. Redundancy entitlements are provided in pattern agreements and subsequent certified agreements entered into at the single business level. To facilitate payment of these entitlements, redundancy or severance funds have been established. 33 There are eight principal schemes which operate in a range of sectors including civil construction, mechanical and engineering, electrical contracting, plumbing and allied services and general construction and building. Each fund is managed by a trustee in accordance with a trust deed. Details about each scheme are provided in the Redundancy chapter. 34 Redundancy funds have become significant financial concerns in the industry. For the financial year ended 30 June 2001, the eight principal schemes held a total of $534.8 million of members funds in trust. I provide overview comment below, referring to evidence elsewhere in my report, about the manner in which redundancy funds are administered and the industrial demands which employee organisations make to ensure that employers contribute to funds nominated by those employee associations. 35 Employers make weekly contributions to redundancy funds for the benefit of their employees. However, with the exception of the Australian Construction Industry Redundancy Trust (ACIRT), the surpluses earned by these funds are enjoyed by employee and employer associations, or other bodies, none of which contributes to the fund. Income of the funds is also applied for purposes unrelated to the purpose for which contributions are made, namely redundancy. This is unwarranted and I make a recommendation that redundancy funds should be used only for the purpose of meeting employee redundancy entitlements. I also recommend that the surpluses be applied solely for the benefit of employees or to reduce the contributions required by employers. 36 Superannuation and long service leave funds operate under a considered regime of public accounting, auditing and reporting. This achieves reasonable transparency in their operations. Redundancy funds, however, do not. This leaves open the potential for maladministration. This should not be so. Any failure of a redundancy fund would disadvantage a great number of people. I make recommendations that redundancy funds should similarly be subject to a regulated system of accounting, external auditing, actuarial assessment and reporting. Long service leave funds 37 In contrast to superannuation and redundancy, a single long service scheme for the building and construction industry operates in each State and the ACT. Each scheme is governed by specific legislation passed by each jurisdiction. These schemes are administered by a statutory corporation in New South Wales, Queensland, Western Australia, South Australia and the ACT. The schemes have been privatised in Victoria and Tasmania and so are administered instead by a trustee company. Nevertheless, the schemes operate on essentially similar principles. In the chapter devoted to long service leave, I outline the essential features of each scheme, Reform Funds 13

20 noting in particular the differences in entitlements between the schemes. I note the divergent and unrelated uses to which long service leave funds are applied, in addition to funding long service entitlements. 38 During the early 1990s, these funds enjoyed significant operating surpluses enabling employer contributions to be eased and benefits to be liberalised. In recent times, however, returns on the funds have diminished considerably, yet entitlements have remained and been liberalised. In some cases, employer contributions have needed to be increased to meet the shortfalls. 39 There is no long service scheme in the Northern Territory specifically for the building and construction industry. In that jurisdiction, long service entitlements are determined by reference to the Long Service Leave Act 1981 (NT) which provides for long service entitlements of workers generally in that Territory. In particular, entitlement to long service leave is determined by reference to continuous service with a single employer. 40 Administration of long service is a prerogative of the States and Territories. Nevertheless, I have commented upon uniformity of benefits and the manner of collecting contributions; continuance of portability; privatisation; workplace bargaining over long service entitlements; and discretionary benefits. I recommend that the Commonwealth encourage the States and Territories to ensure that moneys held or received by long service funds should be used only for the purpose of paying employees long service entitlements. Training funds 41 Training is, essentially, an expense. It is paid for in different ways. These include government grants, industry levies, industry contributions and subsidies. 42 Training funds are one of the mechanisms used to co-ordinate the receipt and distribution of money to be spent on training. They are therefore different in character to superannuation, redundancy and long service funds, which are established and operated principally to fund employee financial entitlements. Training funds form part of the framework for the delivery of vocational education and training in the building and construction industry. 43 In the Redundancy and Long Service Leave chapters, and in the Training chapter within the National Overview volumes, I detail the manner in which training is funded by various industry and government bodies. I detail the amounts of money that are spent on training, and the proportion of funds for training provided by the Commonwealth, States and Territories and industry. I identify the schemes through which the funding is provided (for example, the Australian National Training Authority (ANTA)) and the State and Territory bodies which administer the money provided. It is unnecessary for me to repeat that material here. However, I concluded that the lack of clarity and transparency regarding funding for training, leaves training funds and funding for training open to mismanagement and, on occasion, abuse. 44 For example, in 1998, a grant of approximately $1 million was made to the Western Australian College of Electrical Training Incorporated (CETI). The grant was made to enable it to purchase and establish a training college. The grant was contingent upon industry, in this case the Electrical Contractors Association of Western Australia Incorporated (ECAWA), contributing funds to at least match the value of the grant. The grant money was provided by ANTA to be administered by the Western Australian Department of Training (WA DOT). In the event, the 14 Final Report of the Royal Commission into the Building and Construction Industry

21 college was instead bought, and remains owned, by the ECAWA, not the CETI. $ of the grant money was spent on the purchase of the property and the CETI now leases the property from the ECAWA at a commercial rent of approximately $ per annum. Industry, in the form of the ECAWA, did not contribute anything, and the management of the grant was so poor that neither ANTA nor WA DOT was able to rebut the claim made by the ECAWA that it did not appreciate that it needed to contribute anything to the CETI. Also, neither ANTA nor WA DOT was aware that the majority of the grant moneys were, in effect, provided to the ECAWA, not the CETI, or that the ECAWA had not made its contribution, until inquiries were made about the matter by this Commission. This case study can be found in the College of Electrical Training Inc ANTA Grant chapter of this volume. 45 As another example, investigation was conducted into the activities of Sunshine Coast Regional Group Apprentices Ltd (SCRGAL), which employs approximately 620 apprentices and trainees and receives joint Commonwealth and State (Queensland) funding for that purpose. SCRGAL places apprentices as best as it is able with host employers. I heard evidence of significant and widespread misuse of SCRGAL resources and funds by members of its board and by its secretary. There were numerous breaches of the Corporations Law (C wth). I also found that these breaches were brought to the attention of the Australian Securities and Investments Commission, which chose not to act upon them. The case study can be found in the Sunshine Coast Regional Group Apprentices Ltd chapter. 46 These examples demonstrate the need for closer scrutiny of the use of training funding. In the Training chapter of the National Issues volumes, I recommend that there be an independent audit of funding arrangements for skills centres related to the industry. The results of the audit should be made public. 47 Investigation of redundancy and long service funds identified that in some cases significant sums are provided by the administrators of those funds to training funds or for training purposes. This provision is fully disclosed and sanctioned. Annual reports provided by the boards of directors administering the funds promote these contributions to training. 48 The virtue of providing funding for training is apparent; the appropriateness of applying money from redundancy and long service leave funds for training purposes is not. These funds are established and operated to enable employers to pay financial entitlements to their employees. They derive their income to pay these entitlements from employers contributions and returns on investment of those contributions. 49 Notwithstanding, there are many funds where significant sums either generated from investment of the funds, or paid by employers into the fund, are not applied for the purpose of paying entitlements of workers under the fund or in administration of the fund. Instead, the money is provided to other bodies for training or for other purposes. 50 For example, the Queensland Building and Construction Industry (Portable Long Service Leave) Authority, which trades under the name QLeave, imposes a levy of $2 for every $1000 of the cost of construction where the cost of construction exceeds $ QLeave reported upon the distribution of that levy as follows: QLeave delivers $1.25 of the $2 directly to the Queensland Division of Workplace Health and Safety. Reform Funds 15

22 Of the remaining $0.75 QLeave delivers $0.50 to the Building and Construction Industry Training Fund (Qld) to provide training that addresses skills shortages in the industry. The remaining $0.25 is invested to provide ongoing funds to pay workers long service leave entitlements for service to the industry This occurred during the financial year ended 30 June 2001, despite QLeave incurring an operating loss of $18.5 million. This distribution occurred again in the following year, despite Qleave incurring an operating loss of $ million. It may be that QLeave provides an expedient manner for funding training and providing revenue for the Queensland Government Division of Workplace Health and Safety. However, it is not appropriate that a levy, compulsorily raised by statute to fund long service leave, be used for other purposes. 52 A similar scenario operates with regard to the Queensland Building Employees Redundancy Trust (BERT). Union-endorsed pattern agreements provide for employers to contribute to BERT at rates specified under the agreement. Subsequent certified agreements entered into in accordance with the pattern require employers to contribute those agreed amounts to BERT. 53 The money is ostensibly to fund redundancy entitlements of workers, yet it distributes surplus income to the Queensland Construction Training Fund (QCTF) which operates as a private training fund in Queensland. The QCTFs income is derived solely from BERT. In its early years, distribution by BERT to the QCTF sometimes reached $2.5 million per year. Since about 1996, QCTF has received approximately $1 million per year from BERT for distribution in the form of training grants. 8 In various ways, the QCTF then provides most of its funding to unions or their affiliates, or to fund union schemes. This case study can be found in the Queensland Construction Training Fund chapter in this volume. Income protection 54 The Commission received widespread and consistent evidence about the use of pattern enterprise bargaining agreements (EBAs) to standardise employment agreements. Many of the pattern EBAs provided for income protection insurance to be provided by employers to their employees. Some pattern agreements specifically nominate the insurance provider. Others do so implicitly by referring to a policy or fund agreed upon by the applicable employer and employee associations. 55 The capacity to deliver an industry workforce to an insurer or to a fund manager has a commercial value. 56 In the Income Protection Insurance chapter I refer to evidence of commissions and management fees received by employee and employer organisations arising from these schemes. In the ElecNet (Aust) Pty Ltd case study, the commission received by a union as a result of arrangements included in a pattern EBA constituted a very significant income stream to that union. That case study illustrates a failure to disclose the commission to be received by the union at the time the EBA was negotiated. 57 Parties to an industrial agreement should be obliged to bargain in good faith. Such an obligation would include a requirement to disclose benefits to be derived from any such agreement, prior to it being agreed. Transparency should also exist in relation to the receipt of commissions and related benefits by industrial organisations. 16 Final Report of the Royal Commission into the Building and Construction Industry

23 58 I recommend measures to ensure disclosure of commissions and other benefits received by organisations, both at the time of negotiation of agreements giving rise to such commissions and benefits and in the financial and operating reports required to be filed by them in the Australian Industrial Registry. Pressure to contribute to nominated industry funds 59 Pattern EBAs in each State and Territory nominate particular funds for superannuation contributions, for example the Construction & Building Unions Superannuation Fund (Cbus) and the Building Unions Superannuation Scheme (Queensland) (BUSS Q). I also found consistent evidence of pattern agreements providing for employers to contribute to industry sponsored redundancy funds, for example ACIRT and BERT. 60 The evidence demonstrated that an overwhelming majority of certified agreements were in conformity with a pattern EBA containing a clause which provided for contributions to these nominated funds. Employers were subject to commercial and industrial pressure to enter into certified agreements in accordance with pattern EBAs. Nomination of particular funds in awards and EBAs 61 Employers are required to make superannuation contributions for employees pursuant to the Superannuation Guarantee (Administration) Act 1992 (C wth). The Act provides that superannuation contributions must be made to a registered fund which complies with the Act but does not specify particular funds for a particular industry. 62 Awards often nominate particular funds to which superannuation contributions can be made, but also allow contributions to alternative funds by agreement between an employer and employee. For example, clause 26.4 of the National Building and Construction Industry Award 2000 nominates C+BUS, BUS (Qld), QUEST, AUST (Qld), ARF, ASSET, STA, CCFST (Civil Contractors Federation Superannuation Trust), Tasplan, the Westscheme Superannuation Scheme, Building Employees Superannuation Trust, but also provides for contributions to any fund agreed between an employer and an employee. Breach of an award is subject to the imposition of a penalty Employers, employees and unions may also enter into an EBA which nominates an agreed superannuation fund. Certified agreements similarly have the force of law and a breach of the agreement is subject to the imposition of a penalty. 10 I received evidence in most States demonstrating the use of pattern EBAs nominating specific funds for various entitlements. 64 Industrial legislation in some States requires choice of superannuation fund. In New South Wales 11 and Queensland 12 employers and employees may independently agree upon a superannuation fund, despite any requirement in an applicable industrial instrument that payment be made to a specified fund. 65 In Western Australia s48b of the Industrial Relations Act 1979 provides that the Western Australian Industrial Relations Commission may not make an award or order, or register an industrial agreement, which requires contribution to a superannuation fund or scheme, unless that award, order or agreement permits choice of fund by an employee and requires the employer to be bound by the nomination of the employee. Reform Funds 17

24 66 There is no statutory requirement compelling an employer to make contributions to a redundancy fund. However, the Workplace Relations Act 1996 (C wth) and corresponding State legislation provide that where an employee is terminated, or made redundant, that employee is entitled to a prescribed period of notice of termination or compensation in lieu of notice. 13 The legislation provides a table for the calculation of the appropriate period of notice. Industrial awards also provide for entitlements to redundancy pay, to be paid in the event of redundancy. These entitlements are set out in the Redundancy chapter. 67 Following agreement reached between major contractors and unions in the late 1980s, a number of redundancy schemes were established in the building and construction industry to provide portability and security of benefits for employees. Pattern EBAs in the building and construction industry require payment of redundancy benefits to a nominated redundancy fund. Likewise, many pattern agreements provide for employer contributions to income protection or top-up insurance schemes or funds nominated in the pattern. 68 I have dealt elsewhere in my report with the industrial pressures which are applied to require contractors to enter into a certified agreement in accordance with an applicable pattern EBA in order to work on major sites. Where that situation applies, the result is that nominated funds obtain coverage of workers on such sites. 69 This situation may be contrasted with the varying and numerous funds utilised by employers and employees working in rural areas and on smaller sites where there is not such a requirement in order to work on the site. 70 Evidence was received by the Commission that contributions to nominated funds are also provided for in site or project agreements 14 certified pursuant to Federal or State legislation. This requirement is sometimes contrary to an applicable government code of practice. 71 For example, evidence was received by the Commission in Queensland where Thiess Pty Ltd (Thiess) contracted with the Department of Defence in relation to major construction work at Lavarack Barracks. Thiess sought to implement a project agreement. The unions with coverage of callings on the site demanded that the agreement require employer contributions to BUSS Q and BERT notwithstanding that this requirement would violate the National Code of Practice for the Construction Industry. Unlawful industrial action, at great cost to Thiess, was not resolved until Thiess gave a commitment to use its best efforts to ensure that all subcontractors working on the site paid superannuation and redundancy contributions to BUSS Q and BERT. The Lavarack Barracks case study is contained in the Queensland volumes. Commercial and industrial pressure to contribute to nominated funds 72 In addition to a requirement that contractors enter a union-endorsed EBA, employers are subject to commercial and industrial pressure to ensure that contributions are paid and are up to date. Evidence of this requirement was widespread. 73 For example, the Commission received extensive evidence of site inductions at which employees or their employers were required to provide details about membership of nominated funds. 15 The information is then utilised to ensure contributions were, and remained, up to date. 18 Final Report of the Royal Commission into the Building and Construction Industry

25 74 In New South Wales the Commission received evidence from Mr Stephen Bassett, director of Klesteel Pty Ltd which trades as Bassett Demolitions (Bassett Demolitions). Bassett gave evidence that his company won the tender for demolition work on the Australand Rhodes project where, during the induction process, his employees were required to complete Cbus and Coverforce Top-Up Accident Scheme (CTAS) details on induction forms. Bassett s employees where unable to provide those details and Bassett was questioned by the site delegate. Bassett told both the Australand site manager and later the project manager that Bassett Demolitions did not contribute to those funds, did not have an EBA and was not unionised. The project manager replied that unless Bassett Demolitions had an EBA and was unionised, it would not be able to work on the project. Bassett Demolitions did not comply and was subsequently terminated In New South Wales the Commission received evidence from Mr Kenneth Hackett, director of Hackett Laboratory Services Pty Ltd (Hackett Laboratory), and Mr David Farr, manager of Hackett Laboratory Services Pty Ltd. Hackett Laboratory was a geo-technical and environmental testing and consulting firm engaged by Baulderstone Hornibrook Pty Ltd (Baulderstone) on the Tandys Lane project. Hackett Laboratory employees are remunerated in accordance with the Drafting and Technical Officers Award 2000 and the Engineering and Construction Laboratories Association Federal Award They are predominantly engineers and industrial chemists. In the course of the Tandys Lane project, they spent about 20 per cent of their time in the field digging samples and the remainder testing samples in the laboratory. Mr Andrew Ferguson, Branch Secretary, Construction, Forestry, Mining and Energy Union (CFMEU), Construction and General Division, New South Wales Divisional Branch, insisted Hackett Laboratory employees be remunerated in accordance with a CFMEUendorsed pattern EBA or the Baulderstone EBA, which set wage rates for construction workers and required contributions to Cbus, ACIRT and CTAS In Tasmania the Commission received evidence from Paul Marshall of Welding and Fabrication Pty Ltd (Welding and Fabrication) that in order to continue to make superannuation contributions to Lifetrack, its preferred fund, and to work on the Woolstore Apartments site, Welding and Fabrication made superannuation contributions to Cbus in addition to its usual contributions to Lifetrack for the duration of the project. When a Welding and Fabrication employee refused to change his choice of superannuation fund from the Superannuation Trust of Australia to Cbus, that employee was removed to the company s workshop and not allowed on site These examples are but a random sample of evidence received. Regulation of industry funds 78 Regulation of industry funds varies from comprehensive legislative requirements, in the case of superannuation and long service leave funds, through to nominated boards of management with no external governance upon the manner in which the fund will be managed, in the case of some redundancy or severance funds. Reform Funds 19

26 79 In circumstances where all of these funds are established, contributed to and administered primarily for the purpose of providing a pool of funds from which employees can obtain benefits in certain circumstances, it is anomalous for there to be such disparate regulation. 80 The need for external regulation, at least for the purposes of setting basic accounting, auditing and reporting obligations, becomes more apparent having regard to the significant amounts of money now under administration, and the practicable inability of the beneficiaries of these funds to control or even oversee the manner in which these funds are administered. Many of the case studies illustrate problems that would ordinarily not arise if regulation requiring essential accounting, auditing and reporting was in place. 81 I make recommendations about regulation of redundancy funds in the chapter about those funds. Union trust funds 82 By deeds of settlement, each dated 20 July 2000, the CEPU Electrical Division, Victorian Branch (as it then was) established the ETU (Victorian Branch) Distress, Mortality & Training Fund and the ETU (Victorian Branch) Trust. In each case, the trustees are the persons holding the offices of President, Vice President, Treasurer, Secretary and Assistant Secretary of the CEPU, Electrical Division, Victorian Branch or its successors, namely the CEPU, Electrical Division, Southern States Branch as it is now known. 83 The beneficiaries of the ETU (Victorian Branch) Distress, Mortality and Training Fund include the Electrical Division of the CEPU, the Southern States Branch of that Division, any present or former member of the Southern States Branch, any spouse or child of a present or former member of the Southern States Branch, any other organisation or association registered under the Workplace Relations Act 1996 (C wth) or under the industrial relations legislation of any State or Territory, any present or former member of such an organisation and any provider of medical, funeral, legal and other services in relation to death or injury of a member of the Southern States Branch, or of any other organisation or association registered under the Workplace Relations Act 1996 (C wth) or under the industrial relations legislation of any State or Territory The beneficiaries of the ETU (Victorian Branch) Trust are the Electrical Division of the CEPU, any present or former member of the Southern States Branch and any spouse or child of a present or former member of the Southern States Branch Each fund or trust is in the nature of a discretionary trust. In each trust deed, clause 3 provides that the overriding object of the Fund [or Trust] is to provide benefits to the Beneficiaries and any other objects ancillary thereto. 86 Clause 5 of each deed empowers the trustees to apply income from the trust for the benefit of the beneficiaries in such manner as the Trustees deem fit. Clause 7 empowers the trustees to distribute capital to any one or more of the Beneficiaries for their own use and benefit in such manner as the Trustees deem fit. 87 In summary, both trusts are controlled by the key office bearers of the CEPU, Electrical Division, Southern States Branch, for the benefit of that Branch, and other entities and persons, at the discretion of those office bearers. 20 Final Report of the Royal Commission into the Building and Construction Industry

27 88 Mr Dean Mighell, Secretary of the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, Electrical Division, Southern States Branch, gave the following evidence to the Commission about these trusts: COMMISSIONER: Mr Mighell, why did you set up the two trusts that you ve referred to? -I think when we to answer that, I wanted to set something up that, if we were able to set up alternate income streams for the union, other than just general membership contributions, and we wanted to put in a trust so it would be seen to be separate from, if you like, just the general funds of the union, that it be something that I think the members could look at, that had them as a beneficiary and their families, and was something a little bit different than just the normal day-to-day account of the uniontype stuff. That s why the trust funds are there. I suppose they then can operate in a way that is different from the funds of the union, if you like, in the sense that it s about membership benefits and growing the trust to keep putting those benefits in, and it s not just mixed up in the general funds of the union. Do you regard the assets of the trust as assets of the union? -No, I don t. You do not? -No. No, I regard them as different. Whose assets are they? -I think they are the beneficiaries assets, and that s for our members and their families, current future members, long-term. I guess my thinking was at the time of doing it, let s set something up that is a long-term thing, that we can put funds into that is about membership benefits. I suppose ultimately at the end of the day, I d like to see those funds grow to the extent of delivering health benefits back to the members. It s something we ve talked about with our troops. I mean, we need a fair bit of money to be able to do that, but I suppose we re a little bit ambitious about it. MR ROBBERDS: One of the reasons you did it was to quarantine this money from creditors, wasn t it? -No. You never said that? -No, I don t recall saying that. Has the union the ETU ever said that? -Not that I can recall, no. One of the reasons for doing it was to safeguard the assets, wasn t it, against creditors? -No. The money in the trust I want safeguarded, irrespective of what may happen to the union. If we have set up membership benefits for our members, I don t want to set them up and see them discontinue. I think that s one of the things long-term about the trusts: they have to have enough money in there so that the benefits we deliver come from the earnings of the trust. I don t want them mixed up in the union. If the union gets sued, or whatever the case may be, I want these benefits to be in place for our troops Mighell s evidence is confirmed in a document entitled ETU News, Southern States Branch, September At page 20 of that document, in an article entitled How the ETU trusts work, the following is stated: The ETU has established two trust funds - the ETU (Victorian) Trust and the ETU (Victorian) Distress, Mortality and Training Trust [sic]. Reform Funds 21

28 These trusts are set up under trust deeds, which set out the rights of beneficiaries and the obligations of trustees in relation to the trust property. Trusts are a commonly used vehicle for conducting business and safeguarding assets, they are used by families, businesses and charities. With a discretionary trust, the trustees are given flexibility to invest trust assets and to control the distribution of trust property to beneficiaries. Always, however, a trustees [sic] discretion is restricted by the terms of the trust deed. For both ETU trusts, which are discretionary trusts, the classes of beneficiaries include the ETU, its members and former members and their spouses and children. In addition, the Distress, Mortality and Training Fund may provide for the payment of medical, funeral and legal services and other benefits in relation to the death or injury of a worker. Through the establishment of the ETU Trusts, property held in trusts is likely to be quarantined from any potential creditors for the benefit of ETU members and all beneficiaries Mighell put forward various reasons why these trusts were established. The ETU News article does likewise. However, with the exception of quarantining the assets of the union from creditors, all of these purposes could be equally achieved by appropriate financial management of the union s money. For example, if money is to be earmarked for certain purposes, that can be achieved by the union establishing separate bank accounts. 91 It is also clear from the financial statements published on page 20 of the ETU News article that the income and assets of both trusts are, in truth, income and assets of the union. The money has been transferred to each of the trusts at the election of the union and is available to be returned to the union at the discretion of the trustees, namely the key officeholders of the union. However, because any such payment to the union would be at the discretion of the trustees, and may instead be paid to any of the other beneficiaries named in the trust deed, it is said that the asset of the trusts are not assets of the union. 92 It becomes clear, in my view, that the sole material purpose of the trusts is to provide the union with a repository for assets so that, as Mighell stated in evidence, it is safeguarded irrespective of what may happen to the union. 23 As an example of what may happen to the union, Mighell explained that the trusts would give protection to assets if the union gets sued I regard this situation as wholly unsatisfactory. Employee associations such as the CEPU enjoy many privileges under industrial legislation. They can enter another s premises. They can inspect a contractor s books. Further, they may engage in protected action against employers on behalf of their members and thus cause irrecoverable loss. There was much evidence throughout Australia of employee associations taking unlawful industrial action and causing great financial loss to others as a consequence. 25 That loss is recoverable from the union. 22 Final Report of the Royal Commission into the Building and Construction Industry

29 94 In circumstances where employee associations enjoy special privileges in the industry and have the ready capacity to cause great financial loss to others within the industry through unlawful industrial action, they should, correspondingly, be accountable for their conduct in a meaningful way. With privilege comes responsibility. In particular, employee associations should not have capacity to cause loss through unlawful industrial action, and yet the right to quarantine their assets in order to defeat a person s ability to recover that loss. Issue: Employee associations enjoy many privileges under industrial legislation. In particular, they may engage in protected action against employers on behalf of their members and thus cause irrecoverable loss. They also have, and often use, the capacity to cause great financial loss through unlawful industrial action. That loss is recoverable. The assets of the union should be available to meet such losses. Assets should not be able to be quarantined so as to defeat creditors, and those to whom the union has caused loss. Recommendation 166 Legislation be enacted to prohibit employee associations from directing income or assets of that employee association to any person or body where the effect is, or might be, to put that income or those assets beyond the reach of creditors of that employee association. All assets and liabilities, income and expenses of an employee association should be required to be declared in consolidated accounts of that employee association. Registration conditions under the Workplace Relations Act 1996 (C wth) and equivalent State legislation may be a suitable means of implementing this recommendation. Reform Funds 23

30 Schedule A Summary of findings of unlawful conduct Case study Description of conduct Who is the Paragraph finding reference in against? findings ElecNet (Aust) Pty Ltd Having regard to the provisions Dean Mighell 113 of s9 of the Fair Trading Act 1999 and the finding that Dean Mighell, prior to March 1999, failed to disclose to the representatives of NECA when asked that the CEPU Electrical Division Victorian Branch was receiving a spotter s fee or commission, and informed them that the CEPU Electrical Division Victorian Branch was not receiving any benefit from the policy, during negotiations for pattern EBAs, on the material before me, I am satisfied that Dean Mighell, the Secretary of the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, Electrical Division, Victorian Branch, engaged in unlawful conduct. Sunshine Coast Regional Having regard to the provisions Robert Purvis 87, 88 Group Apprentices Ltd of s182 of the Corporations Law (C wth) and the finding that, by deciding to lend himself $ of SCRGALs money, without providing any security, without agreeing to any repayment schedule, and on interest-free terms, Robert Purvis improperly used his position as a director of SCRGAL to gain an advantage for himself, on the material before me, I am satisfied that Robert Purvis, at the relevant time the Managing Director of Sunshine Coast Regional Group Apprentices Ltd, has engaged in unlawful conduct. 24 Final Report of the Royal Commission into the Building and Construction Industry

31 Case study Description of conduct Who is the Paragraph finding reference in against? findings Sunshine Coast Regional Having regard to the provisions Neil Wilkinson 89, 90 Group Apprentices Ltd of s182 of the Corporations Law (C wth) and the findings that Neil Wilkinson, by assisting Robert Purvis in securing a loan of $ , and by co-signing the relevant cheques, improperly used his position as either an officer or employee of SCRGAL to gain an advantage for someone else, and that Wilkinson was involved in Purvis contravention of s182, as he signed the relevant cheques, on the material before me, I am satisfied that Neil Wilkinson, at the relevant time an employee of Sunshine Coast Regional Group Apprentices Ltd, has engaged in unlawful conduct. Sunshine Coast Regional Having regard to the provisions of Neil Wilkinson 91, 92 Group Apprentices Ltd s182 of the Corporations Law (C wth) and the finding that Neil Wilkinson, by seeking and obtaining a loan for himself of $ from SCRGAL, with no security provided, no repayment schedule, and on interest-free terms, improperly used his position as an officer or employee of SCRGAL to gain an advantage for himself, on the material before me, I am satisfied that Neil Wilkinson, at the relevant time an employee of Sunshine Coast Regional Group Apprentices Ltd, has engaged in unlawful conduct. Reform Funds 25

32 Case study Description of conduct Who is the Paragraph finding reference in against? findings Sunshine Coast Regional Having regard to the provisions Robert Purvis 93, 94 Group Apprentices Ltd of s182 of the Corporations Law (C wth) and the findings that Robert Purvis, by assisting Neil Wilkinson in securing a loan of $25 000, by co-signing the relevant cheques, improperly used his position as a director of SCRGAL to gain an advantage for someone else and that Purvis was involved in Wilkinson s contravention of s182, on the material before me, I am satisfied that Robert Purvis, at the relevant time the Managing Director of Sunshine Coast Regional Group Apprentices Ltd, has engaged in unlawful conduct. Sunshine Coast Regional Having regard to the provisions Robert Purvis 100, 101, Group Apprentices Ltd of s208 and s209(2) of the Neil Wilkinson 102 Corporations Law (C wth) and the findings that there is no suggestion that the loan to Robert Purvis was approved by the members of SCRGAL in accordance with s208 of the Corporations Law (C wth), that the $ that SCRGAL loaned to Purvis involved SCRGAL giving a financial benefit to a related party and that both Purvis and Neil Wilkinson were involved in that contravention, as they both signed the cheques to loan the money to Purvis, on the material before me, I am satisfied that Robert Purvis, at the relevant time the Managing Director of Sunshine Coast Regional Group Apprentices Ltd, and Neil Wilkinson, at the relevant time an employee of Sunshine Coast Regional Group Apprentices Ltd, have engaged in unlawful conduct. 26 Final Report of the Royal Commission into the Building and Construction Industry

33 Case study Description of conduct Who is the Paragraph finding reference in against? findings Sunshine Coast Regional Having regard to the provisions Neil Wilkinson 124, 125 Group Apprentices Ltd of s209(2) of the Corporations Law (C wth) and the findings that, by authorising the use of SCRGALs assets to pay tax that should have been paid by Alison Grosse and by not recovering the relevant amount from Grosse, Neil Wilkinson improperly used his position as an officer or employee of SCRGAL for the financial benefit of another (Grosse), on the material before me, I am satisfied that Neil Wilkinson, at the relevant time an employee of Sunshine Coast Regional Group Apprentices Limited, has engaged in unlawful conduct. Sunshine Coast Regional Having regard to the provisions Alison Grosse 128, 129, 130 Group Apprentices Ltd of s232(6) of the Corporations Law (C wth) and the findings that, as the long time chairperson of SCRGAL, Alison Grosse ought to have known that she did not have the right to purchase a property at 19 Cootamundra Drive, Mountain Creek, Mooloolaba (the Property) from the company, that the price paid by Grosse for the Property was well below market value at the time of the sale, and that Grosse was in a position to purchase the Property from SCRGAL because she was a director of SCRGAL, on the material before me, I am satisfied that Alison Grosse, at the relevant time the Chairperson and a director of Sunshine Coast Group Regional Apprentices Limited, has engaged in unlawful conduct. Reform Funds 27

34 Case study Description of conduct Who is the Paragraph finding reference in against? findings Sunshine Coast Regional Having regard to the provisions of Alison Grosse 132, 133, 134 Group Apprentices Ltd s243ze(2) of the Corporations Law (C wth) and the findings that selling the Property to Alison Grosse was conferring a financial benefit on a related party, that the sale of the Property by SCRGAL to Grosse was not at arms length, that the approval of the members of SCRGAL was not obtained in relation to the sale of the Property to Grosse, and that none of the possible exemptions under the Corporations Law (C wth) apply, on the material before me, I am satisfied that Alison Grosse, at the relevant time the Chairperson and a director of Sunshine Coast Group Regional Apprentices Limited, has engaged in unlawful conduct. Sunshine Coast Regional Having regard to the provisions of Robert Purvis 132, 133, 134, Group Apprentices Ltd s243ze(3) of the Corporations Law 135 (C wth) and the findings that selling the Property to Alison Grosse was conferring a financial benefit on a related party, that the sale of the Property by SCRGAL to Grosse was not at arms length, that the approval of the members of SCRGAL was not obtained in relation to the sale of the Property to Grosse, that none of the possible exemptions under the Corporations Law (C wth) apply, and the fact that Robert Purvis was involved in that contravention, on the material before me, I am satisfied that Robert Purvis, at the relevant time the Managing Director of Sunshine Coast Group Regional Apprentices Limited, has engaged in unlawful conduct. 28 Final Report of the Royal Commission into the Building and Construction Industry

35 Case study Description of conduct Who is the Paragraph finding reference in against? findings Sunshine Coast Regional Having regard to the provisions of Robert Purvis 149, 150 Group Apprentices Ltd ss182 and 209 of the Corporations Law (C wth) and the findings that Robert Purvis procured the creation by SCRGAL of a superannuation fund of which he was the only member, and then arranged for SCRGAL to contribute $ into that fund during a period of just two months, on the material before me, I am satisfied that Robert Purvis, at the relevant time the Managing Director of Sunshine Coast Group Regional Apprentices Limited, has engaged in unlawful conduct. Sunshine Coast Regional Having regard to the provisions of Robert Purvis 156, 157 Group Apprentices Ltd ss182 and 209 of the Corporations Law (C wth), and the findings that the creation and operation of the A Floater fuel card involved the use of SCRGALs resources by Robert Purvis for his personal gain, or the personal gain of others chosen by him (including related parties), on the material before me, I am satisfied that Robert Purvis, at the relevant time the Managing Director of Sunshine Coast Group Regional Apprentices Limited, has engaged in unlawful conduct. Reform Funds 29

36 Schedule B Industry funds investigated Redundancy funds Australian Construction Industry Redundancy Trust Building Employees Redundancy Trust Contracting Industry Redundancy Trust Electrical Contractors Association of WA Inc. Severance Scheme Fund Electrical Industry Severance Scheme (trading as Protect) Mechanical & Electrical Redundancy Trust Redundancy Payment Central Fund Trust (trading as Incolink) South Australian Building Industry Redundancy Scheme Trust Western Australian Construction Industry Redundancy Fund Training funds Building and Construction Industry Training Fund Queensland Queensland Construction Training Fund Long service leave funds ACT Construction Industry Long Service Board Building and Construction Industry (Portable Long Service Leave) Authority (QLeave) CoINVEST Limited New South Wales Building and Construction Industry Long Service Leave Payments Corporation South Australian Construction Industry Long Service Leave Board TasBuild Limited Western Australian Construction Industry Long Service Leave Payments Board Superannuation funds Allied Unions Superannuation Trust (Queensland) Building Unions Superannuation Scheme (Queensland) CONNECT Construction and Building Unions Superannuation Fund New South Wales Electrical Superannuation Scheme Superannuation Plan for Electrical Contractors (Qld) Westscheme Superannuation Scheme 30 Final Report of the Royal Commission into the Building and Construction Industry

37 Notes to Overview 1 Australian Prudential Regulation Authority (online), Superannuation Market Statistics, [accessed 21 December 2002], 2 Productivity Commission 2001, Review of the Superannuation Industry (Supervision) Act 1993 and Certain Other Superannuation Legislation, Report No. 18, AusInfo, Canberra, Part Productivity Commission, 1999, Work Arrangements on Large Capital City Building Projects, Labour Market Research Report, AusInfo, Canberra, pp ; See for example National Building and Construction Industry Award 2000 cl. 26.4; Australian Workers Union Construction and Maintenance Award 2002 cl. 26.4; National Electrical, Electronic and Communications Contracting Industry Award 1998 cl. 19.3; and Plumbing Trades (Southern States) Construction Award 1999 cl Productivity Commission, 1999, Work Arrangements on Large Capital City Building Projects, Labour Market Research Report, AusInfo, Canberra, pp Cbus Statement, exhibit 2080, p.3, document at R v Industrial Commission of South Australia; Ex parte Adelaide Milk Supply Co-operative Ltd and Ors (1977) 16 SASR 6 at 8. 7 QLeave (on line), General Information [accessed 8 February 2003], 8 QCTF case study. 9 Workplace Relations Act 1996 (C wth), s Workplace Relations Act 1996 (C wth), s Industrial Relations Act 1996 (NSW), s Industrial Relations Act 1999 (Qld), s For example, Workplace Relations Act 1996 (C wth), s170cm. 14 Overview Building Industry Construction Documents Tender Bundle, exhibit 365, clause 2.2, document at 0128; Colquhoun Statutory Declaration, exhibit 594, annexure GAC4, document at ; Maslin Statement, exhibit 221, annexure HCM-5, document at 0317; AWU Tender Bundle, exhibit 1387, document at 0029; EBA between Baulderstone Hornibrook Pty Ltd and CFMEU, exhibit 336, clauses 10(a), 10(c), document at For example: Hobart Private Hospital Tender Bundle, exhibit 192, document ; Site Safety Induction Questionnaire, exhibit 1737, document ; Subcontractor Questionnaire, exhibit 1384, document ; Induction registration form, exhibit 1771, document ; Induction attendance record, exhibit 1741, document ; ADCO Constructions Prescribed occupational & induction record, exhibit 1074, document ; Grollo site induction registration first aid management form, exhibit 1266, document ; Gartrell Statutory Declaration, exhibit 770, Annexure SG 5, document ; Elkington Statutory Declaration, exhibit 940, Annexure RE/2, document ; Subcontractor legislative pre-site induction requirements checklist, exhibit 667, document ; Doric site induction register, exhibit 940, document See Demolition and Excavation case study in the New South Wales volumes. 17 See Civil Construction case study in the New South Wales volumes. 18 See Woolstore Apartments Project case study in the Tasmania volume. 19 ElecNet/IUS/Challenger Tender Bundle, Exhibit 1638, annexure 46, document ElecNet/IUS/Challenger Tender Bundle, Exhibit 1638, annexure 47, document Mighell, T15542/ / Document titled ETU News, Southern States Branch, September 2002, found at [accessed 8 February 2003]. Reform Funds 31

38 23 Mighell, T15543/ Mighell, T15543/ For example, the Sun Metals case study in Queensland; the National Gallery, Age Print Centre and Woolworths case studies in Victoria; the Bregma, Tom s Cranes and Kwinana Civil Projects case studies in Western Australia; and the Bovis Lend Lease case study in New South Wales. Refer generally to the Reform Achieving Cultural Change volume, which addresses the manner in which unlawful industrial action causes financial loss in the industry. 32 Final Report of the Royal Commission into the Building and Construction Industry

39 2 Building Employees Redundancy Trust Introduction 1 This investigation concerned the operation of the Building Employees Redundancy Trust (BERT) and, in particular: (a) (b) (c) (d) the extent to which claims are made for payment from BERT in circumstances where the claimant has not genuinely been made redundant; whether the way in which the Sponsors of BERT (see below) account for income from BERT that is distributed to them is lawful; whether emergency ambulance cover, funeral benefits and trauma and counselling services are denied to BERT members who are not financial union members; and whether BERT has provided information about arrears in employer contributions to union representatives, in breach of its privacy obligations. 2 BERT was established in 1989 to provide redundancy benefits for employees in the Queensland building and construction industry. It was intended to provide funds to assist workers during periods of unemployment between projects. 1 BERT is currently constituted pursuant to a trust deed dated 16 May 1996 (the Trust Deed). 3 As at 30 June 2001, BERT had assets of $39.2 million. It had employee members, and 4197 employers were registered contributors to the fund. In the financial year ended 30 June 2001, BERT paid out benefits of $17.6 million, of which approximately $15.1 million represented payments of redundancy benefits. 2 4 The Trustee of BERT is B.E.R.T. Pty Ltd. That company is jointly controlled by one employer organisation and three employee organisations (the Sponsors). The Sponsors are the Construction, Forestry, Mining and Energy Union, Construction and General Division, Queensland Workers Divisional Branch, the Australian Building Construction Employees and Builders Labourers Federation (Queensland Branch) Union of Employees (BLF Q) and the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, Plumbing Division, Queensland Branch (CEPU Plumbing Division, Qld Branch). B.E.R.T. Pty Ltd has class A and class B shares, and four shares of each class have been issued. The class B shares are held by the Queensland Major Contractors Reform Funds 33

40 Association (QMCA). 3 Two of the class A shares are held by the Construction, Forestry, Mining and Energy Union (CFMEU), and one each by the BLF Q and CEPU Plumbing Division, Qld Branch. 5 B.E.R.T Pty Ltd. has a Board of Directors (the Board) which is composed of equal numbers of representatives of the employer and employee sponsors. The QMCA nominates three directors, and the CFMEU, BLF Q and CEPU Plumbing Division, Qld Branch each nominate one director. The Board is essentially a policy and overview body. Meetings of the Board are held quarterly, with additional special purpose meetings as needed. 4 6 The day-to-day operations of BERT are managed by Super Partners, a fund administrator formerly known as Jacques Martin Industry Funds Administration. 5 BERT has outsourced most of its functions to Super Partners. 7 The functions that BERT has not outsourced are carried out by the BERT Co-ordinator, Mr William Perrett. Perrett was seconded to BERT from the CFMEU on the establishment of BERT in 1989, and he has been the BERT Co-ordinator ever since. His responsibilities are to liaise with employers and employees, to follow up arrears in contributions from employers, and to respond to queries from both employers and employees. Prior to joining BERT, Perrett was a CFMEU Delegate and Organiser. 6 Self-initiated redundancies 8 Under the Trust Deed, a member of BERT who resigns from his or her employment is not entitled to a payment from BERT unless he or she leaves the construction industry permanently, or retires after the age of 55 years. 7 9 Benefits are, however, payable by BERT to a member if the member is made redundant, provided that the member makes a claim within 56 days of termination of employment. Clause 1.1(32) of the Trust Deed provides that: Redundancy means that termination of employment of a Member in circumstances where the work the Member has been performing is no longer required to be done by anyone and Redundant has a corresponding meaning The Commission investigated the extent to which a practice exists among employee members of BERT of initiating the termination of their own employment for the purpose of gaining access to redundancy entitlements held by BERT. One indication of the existence of this practice is employees ceasing work with their employer and claiming a redundancy payment, before recommencing work with the same employer within a short period of time. 11 If an employee claims to be redundant in circumstances in which the work that that employee was performing is still required to be done, an employee seeks a benefit in circumstances in which he or she is not entitled to that benefit. Such a claim is not in accordance with the Trust Deed. Employers have contributed to BERT on the basis that the scheme will be administered according to the Trust Deed. 12 During early 1999 Perrett identified a trend which showed that claims on BERT for payment increased markedly around the Christmas period. He brought that trend to the attention of the Board. A Board meeting was held on 10 June 1999 at which a list was tabled of employers 34 Final Report of the Royal Commission into the Building and Construction Industry

41 whose workers had made redundancy claims in December, and who had then made payments in respect of those same workers in January On 30 June 1999 Perrett wrote to the companies on the list that had been tabled on 10 June He wrote, in part: It has come to attention of the B.E.R.T. Trustees that a situation is arising whereby worker members of the B.E.R.T. Fund are making claims on their B.E.R.T. account in December and then having contributions made by the same employer in the month of January. A position that the B.E.R.T. Trustees believe should not occur. Both employers and employees who are supporting this practice are looking at the B.E.R.T. Fund as being nothing more than a Christmas Club, something which we at the B.E.R.T. Fund find unacceptable and certainly not being in the category of redundancy When a claim is made for payment on the basis that an employee is redundant, the claim must be accompanied by a separation certificate. 11 The separation certificate requires the employer to indicate the reason employment has terminated. One of the available options is redundancy. 12 It should, therefore, be difficult for an employee to obtain payment from BERT when not genuinely redundant, unless the employer is prepared to assist by providing a false separation certificate. 15 At a Board meeting on 8 June 2000, Perrett proposed that in order to reduce the increase in benefit payments around the Christmas period, all claims for payments by BERT should be required to be accompanied by a statutory declaration signed by the employer verifying that the worker has been terminated due to lack of work. Following discussion of that suggestion, the Board resolved that this proposal would not be implemented, however the education program to employers and members would be continued Mr Leigh Ashman, the Chairman of the Board, said that the suggestion that a statutory declaration be required to verify claims was rejected by the Board because it considered a signed separation certificate to be sufficient. He said that BERT has enough trouble obtaining separation certificates from employers Ashman said that, notwithstanding the consideration of this topic outlined above, the Board did not believe that the practice of making redundancy claims that were not bona fide was widespread among BERT members In response to a notice to produce issued by the Commission, 16 BERT provided the Commission with a spreadsheet that listed the employees who had ceased employment and received a payment from BERT, and for whom further contributions were then made to BERT within the next six months (indicating that they had recommenced work in the industry). 19 BERT also provided a second spreadsheet that listed the employees who had ceased employment and received a payment from BERT, and for whom further contributions were then made to BERT from their immediate previous employer within the next six months (indicating that they had recommenced work with their former employer during that time period). Reform Funds 35

42 20 The information provided in these spreadsheets included the date at which the employee had ceased employment with his or her previous employer, and the date of the first payment made by an employer to BERT following the payment by BERT of a benefit to that employee The results of an analysis of these spreadsheets are set out in a statement of Mr Jamie Lowe, a Commission analyst. The analysis indicated that in the period between 1 December 2000 and 1 June 2002: (a) (b) (c) (d) (e) 2440 employees received a payment from BERT and then received a contribution to BERT within a six month period (indicating that they had recommenced work within six months of being made redundant); 18 Of that total, 1291 employees, or 53 per cent, recommenced work with their previous employer; employees recommenced work with their previous employer within 20 days or less. That equates to 46.4 per cent of all employees who returned to work with their previous employer within six months, and 24.6 per cent of all employees who had recommenced work with any employer within six months; 20 Of the 599 employees identified above, 381 returned to work with their previous employer within ten days or less. That equates to 29.4 per cent of all employees who returned to work with their previous employer within six months, and 15.6 per cent of all employees who had recommenced work with any employer within six months; 21 Of the 599 employees identified above, 226 returned to work with their previous employer within five days or less. That equates to 17.5 per cent of all employees who returned to work with their previous employer within six months, and 9.3 per cent of all employees who had recommenced work with any employer within six months Of the 599 employees who recommenced with their previous employer within 20 days or less of ceasing employment, 139 employees recommenced employment between 26 December and 31 December. That equates to 10.8 per cent of all employees who were made redundant and recommenced employment with their previous employer, and 23.2 per cent of those who recommenced with the same employer within 20 days. 23 In other words, almost a quarter of the payments made to workers who were terminated, and who recommenced work with their previous employer within 20 days, were made to workers who recommenced during the five day period after Christmas. It is highly unlikely that these workers were terminated because the work that they were doing no longer needed to be done, given that work was required again immediately after Christmas. It is much more likely that employers laid their workers off in order to avoid paying holiday pay and other entitlements during the holiday period, or that workers sought to be laid off in order to gain access to the funds in their BERT account. In neither case is the payment from BERT appropriate, as there has not been a redundancy within the meaning of the Trust Deed. 23 Ashman said that he did not consider it unusual that a considerable percentage of people who received redundancy payments from BERT returned to work with their previous employer within a six month period. He said that there tends to be a loyalty of employers towards employees they know, and the employers seek to re-hire those employees once a new project 36 Final Report of the Royal Commission into the Building and Construction Industry

43 starts up. 24 That loyalty is reflected in the figures, with 53 per cent of the workers who received a payment from BERT recommencing work with their immediate previous employer within 6 months of receiving the payment. 24 Loyalty does not, however, account for the very short periods between workers being laid off and then being rehired by their former employer. The figures outlined above show that 17.5 per cent of workers who received a payment from BERT and then recommenced with their previous employer did so within five days or less. It is improbable that any of these payments were made in situations of genuine redundancy, as that term is defined in the Trust Deed, for it cannot be said that the work a worker was doing was no longer required to be done by anyone if the same worker s skills were needed again in less than five days. 25 The figures show that 29 per cent of workers who received a payment from BERT and then recommenced with their previous employer did so within ten days, and 46 per cent within 20 days. While some of these payments may have been made as a result of genuine redundancies, the time periods are so short as to raise a real question as to whether the work that the employees were doing was no longer required to be done by anyone. 26 Although it did not suggest this in evidence, BERT contended in a submission that the statistical analysis might not be accurate because payment to BERT subsequent to an employee claiming redundancy and being paid by BERT might be arrears. 25 This is theoretically so. No material was advanced to suggest the extent to which these further payments were in fact arrears. This possibility may affect the precision of the analysis but it does not deny the strong possibility of the making of payments not in accordance with the Trust Deed. 27 On the evidence before me, I am satisfied that a substantial number of payments are made by BERT to employees who are not genuinely redundant. Such payments are not authorised by the Trust Deed and, in accordance with its terms, should not have been made. 28 I acknowledge that BERT does require employers to provide a separation certificate to support redundancy claims, and the correspondence from Perrett set out above demonstrates that BERT is opposed to making payments as a result of self-initiated redundancies. It is therefore likely that in most, if not all, of the cases in which BERT makes payments to employees who are not in fact redundant, it does so because it is misled by the workers who have submitted the claims, assisted by false separation certificates from employers. Distribution of surplus income The Trust Deed 29 Clause 29.1 of the Trust Deed provides: The Trustee may in respect of all or any part of the Net Income for an Accounting Period: (1) pay, apply or set it aside to or for any one or more of the Income Beneficiaries to the exclusion of the others and in such proportions as the Trustee thinks fit; or (2) accumulate it by paying into the Reserve Account; provided that any distribution of Net Income pursuant to this clause 29.1: Reform Funds 37

44 (3) to the Sponsors, must be made: (a) (b) as to one half for the Unions and if more than one equally between them; and as to the other half for the Employer Organisations and if more than one equally between them; and (4) to the legal representatives or Dependants of a deceased Member, must be limited to the payment of a funeral benefit where the Trustee is satisfied that there is financial hardship. No distribution is to be made if in the opinion of the Trustee, it would affect the taxation treatment of the Fund or its Participating Employers The Trust Deed defines Income Beneficiaries to mean: (a) (b) the Sponsors; the legal personal representative or the Dependants of any deceased Member; and (c) any Approved Institution At present, the only Approved Institution is the Queensland Construction Training Fund (QCTF) BERT does not accumulate net income in the Reserve Account. It distributes the whole of its net income each year to the Income Beneficiaries in order to avoid the adverse tax consequences of retaining income. 29 The Welfare Fund 33 On 3 September 1998, following a request from the Board for legal advice about the Welfare Fund, the legal firm Deacons Graham & James wrote to the Board: It may be that the description welfare fund is somewhat misleading. There was a time prior to the execution of the current deed for the BERT Fund that the directors of B.E.R.T Pty Ltd. proposed the establishment of a genuine welfare fund. This proposed welfare fund would have been a separate charitable trust The establishment of this proposed welfare fund was ultimately abandoned in favour of an arrangement whereby the BERT Fund would be able to make distributions of income to the various sponsors Notwithstanding this letter, the term welfare fund continues to be used by BERT. 31 The term is apparently used to refer to distributions made by BERT to the Sponsors in accordance with clause 29 of the Trust Deed. The reason for this description may be found in recital D to the Sponsors Deed entered into by the Sponsors on 20 May 1996 (Sponsors Deed), 32 by which: The Sponsors acknowledge that the distributions from the Fund to them are intended to be applied for the provision of welfare or related assistance for workers in the Construction Industry or their dependants and for other initiatives agreed upon by the Sponsors for the benefit of the Construction Industry Final Report of the Royal Commission into the Building and Construction Industry

45 The Sponsors Deed 35 In accordance with clause 29 of the Trust Deed, distributions made by BERT to the Sponsors must be divided one half for the employer sponsor and one half between the employee sponsors. 36 The detail of the use to which funds so distributed may be put is found in the Sponsors Deed. Clause 2.1 of that Deed provides that Distributions paid, applied or set aside in favour of the Sponsors from the Fund must be dealt with in a manner jointly agreed upon by the Employer Organisation and the Unions. Clause 2.2 provides that, to facilitate agreement about the use of such funds, an Advisory Committee should be created composed of three representatives of the QMCA and three representatives from the employee sponsors. The Advisory Committee is required to meet to advise and recommend to the Sponsors the uses to which each of the distributions made to the Sponsors are to be applied. 34 Until the Advisory Committee unanimously agrees on the recommendations to be made to the Sponsors, and all Sponsors accept those recommendations, any distributions from BERT made in favour of the Sponsors must be deposited by way of non-interest bearing loans to BERT, repayable at call The legal structures created by the Sponsors Deed have not been well understood or implemented by BERT or the Sponsors. 38 Meetings of the Advisory Committee have been infrequent. Such meetings were held on 10 June 1999, 9 September 1999 and 16 December 1999, 36 but there were no meetings of the Advisory Committee between 16 December 1999 and June Ashman gave evidence that Advisory Committee meetings were held as part of ordinary Board meetings, and that no separate minutes of the meetings were kept. 38 That is not consistent with the requirement that decisions of the Advisory Committee be unanimous. The fact that the Advisory Committee has recently recommenced meeting is an implied acknowledgment of that fact. 39 In a letter to the Commission dated 3 October 2002, Ashman explained the processes adopted by BERT in relation to its net income as follows: In June of each year the Board of BERT resolves to distribute all of the net income of the BERT Fund pursuant to Clause 29 of the Trust Deed. At this stage the BERT Board is not able to make decisions as to the quantity of the distributions to be made until B.E.R.T Pty Ltd. receives its audited accounts detailing the net income of the Fund which is usually in about September or October of each year. The net income is then distributed equally to the Sponsors and this amount flows through the Sponsors to the Welfare Fund, which is managed by the Advisory Board of the Sponsors. The Sponsor s representatives on the Advisory Board are the same as those on the BERT Board. Following the release of the audited accounts the Advisory Board then allocates actual amounts from the Welfare Fund. 39 Reform Funds 39

46 40 That letter suggests that all of BERT s net income each year is distributed to the Sponsors, and that later in the year, after BERT receives its audited accounts, it decides how to distribute or use that money. 41 The way in which funds were granted to the QCTF during 2001 illustrates this process. On 9 October 2001 a meeting was held that purported to be a meeting of the Welfare Fund. No such fund exists, but it appears that this meeting was intended to be a meeting of the Advisory Committee. The minutes of that meeting record that: It was resolved to recommend to the Sponsors and, on behalf of the Sponsors, to accept the recommendations that the following disbursement be made from the Welfare Fund Account: 1. $850,000 to the Queensland Construction Training Fund, with a strong recommendation that a minimum amount of $150,000 be directed to the Construction Skills Training Centre Pty Ltd as they continue to provide essential services of training to the construction and building industry The amount distributed to the QCTF is largely dependent on the investment returns made on BERT s assets, so it is subject to fluctuation. 41 BERT s surplus income is allocated first to providing the welfare benefits discussed below, and the balance is distributed to the QCTF. 42 There may not be any distribution this year, due to the poor investment returns achieved on the BERT fund. 43 Accounting for distributions to the Sponsors 43 In September 1998 BERT sought legal advice from Deacons Graham & James regarding the accounting, taxation and audit requirements for the welfare fund. In a letter to BERT dated 3 September 1998, Deacons Graham & James advised that there is no separate trust fund which could be described as a welfare fund as such (emphasis original). The letter stated that the appropriate process for distributions to the Sponsors is as follows: (a) (b) (c) the trustee of the BERT Fund should notify each of the sponsors of any distribution of income which is to be made to that sponsor for any financial year; each sponsor will have a present and indefeasible entitlement to that income. However, until the advisory committee and sponsors have unanimously agreed on the way in which to apply those funds, the funds will be reinvested by way of interest-free loan to the fund; accordingly, until an income entitlement of the sponsor has been expended in accordance with the process described in the sponsors deed, each sponsor should:- (i) (ii) include as part of its income for the relevant year the amount of its respective entitlement from the BERT Fund; and record as an asset in its accounts an amount equal to the interest-free loan to the BERT Fund Final Report of the Royal Commission into the Building and Construction Industry

47 44 BERT does advise the Sponsors of the amounts distributed by BERT, but Ashman did not know how the distributions were treated in the accounts of the Sponsors It appears that BERT did advise the Sponsors of the advice it had received concerning proper accounting for distributions. On 4 November 1998 Ashman wrote a letter to Mr Greg Simcoe, the State Secretary of the BLF Q, in relation to the distribution of income by BERT to the Sponsors for the year ended 30 June The letter stated, in part, that: As agreed with sponsors, and in accordance with the Sponsors Deed, these funds have been re-invested with the B.E.R.T. Fund by way of an interest free loan. With regard to the financial treatment of such disbursements, the Fund s solicitor has suggested that each sponsor record the amount of it s [sic] respective entitlement as part of its income for the relevant year and also record as an asset in its Accounts an amount equal to the interest free loan made to the B.E.R.T. Fund. It is also recommended that where further distribution of these monies is made for the provision of welfare or related assistance by the Advisory Committee, that each sponsor record an expense for it s [sic] relevant share of the transaction and as a result a corresponding reduction in the amount of the sponsor s loan to the B.E.R.T. Fund In fact, the Sponsors have each recorded BERT distributions differently in their audited accounts. The CEPU Plumbing Division, Qld Branch has in the past recorded BERT distributions in its accounts as income equating to one sixth of the total BERT distribution (which reflects its share as one of the three employee sponsors). 47 More recently, however, it has adopted the same approach as the BLF Q, which is to acknowledge distributions from BERT in a note in its accounts, but to state that the amount is not to be included as income and expenditure of the BLF Q. 48 By contrast, the CFMEU accounts report an amount in the Profit and Loss Statement under the category Sundry Income and Reimbursement, but no breakdown of the amount is provided, so it may or may not relate to BERT distributions. 49 The QMCA does not make any reference at all in its accounts to its half-share entitlement to each BERT distribution The advice given to BERT by Deacons Graham & James seems to me to be correct. Each of the Sponsors should account for distributions from BERT as income, and payments of welfare benefits should be recorded as an expense in the accounts of each Sponsor. The CEPU Plumbing Division, Qld Branch and BLF Q s accounts do reveal BERT distributions, if not exactly in the way Deacons Graham & James advised. 48 There is no material before the Commission to explain why the CFMEU has failed to disclose or adequately account for the distributions made by BERT to it. In a submission, QMCA stated that it has not received any formal notification from BERT of any distribution, nor received any funds and, accordingly, has not addressed any distribution in its account. 51 It stated it had no record of receiving the advice of Deacons Graham & James. If that be so, the CFMEU may be in a similar position. This matter should be further investigated by the appropriate regulator. Access to welfare benefits provided by BERT 49 During 1996 BERT decided to provide various benefits, including funeral benefits, emergency ambulance transport, and trauma and critical incident counselling services to members Reform Funds 41

48 (Welfare Benefits). 52 Since that decision was made, the total Welfare Benefits paid by BERT were, as at 30 June 2001: (a) (b) $ in funeral benefits; $ in emergency transport claims; and (c) More than 100 hours of trauma counselling When outlining the benefits of participating in BERT, BERT s Annual Report for 2001 states that: For financial members of sponsoring unions Funeral benefits Up to age 65 Emergency ambulance transport For you and your family The Fund takes out insurance to cover both of the above benefits Trauma and critical incident counselling This assistance is provided through a fund set up with a professional counselling organisation. 54 The above benefits are listed on the same page of the Annual Report as that which lists BERT MEMBER BENEFITS, but in a separate box. The Welfare Benefits therefore appear to have been deliberately separated from the general benefits of BERT membership, which is consistent with the indication that they are available only to financial union members. 51 BERT, as agent for the Sponsors, has taken out insurance policies in relation to the Welfare Benefits. Those insurance policies relate to the funeral and emergency transport benefits provided by BERT. The insurance policy in respect of the emergency transport benefit defines the Insured Persons as: All financial members & staff of the: (a) (b) (c) Construction Forestry Mining & Energy Union (Queensland Construction & General Divisional Branch) Australian Building Construction Employees & Builders Labourers Federation Union of Employees (Queensland Branch) Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing & Allied Services Union of Australia, Plumbing Division, Queensland Branch Insured Persons are defined in the same way in the life insurance policy that BERT has taken out in relation to the provision of funeral benefits Finally, the service agreement between BERT and Woods Styles Australia Pty Ltd for the provision of trauma counselling services relates to: 42 Final Report of the Royal Commission into the Building and Construction Industry

49 crisis counselling for all financial ABCE and BLF (Qld Branch) Union of Employees, CEPU Plumbing Division (Qld Branch) and CFMEU Qld Construction and General Division Notwithstanding the above, Ashman denied that Welfare Benefits were provided by BERT only to financial union members. 55 Ashman said he did not know that the insurance policies provided only for the provision of cover for financial union members, 58 and said that he could not recall seeing any of the insurance policies that BERT had taken out for funeral and emergency transport benefits. 59 He suggested that the provision of Welfare Benefits was largely handled by the unions, 60 who were the first point of call in the provision of Welfare Benefits because they volunteered to take on that role In fact, in or about August 1999, Ashman himself signed a proposal for Group Life Insurance with MLC Limited that was expressed to provide benefits only for financial union members. 62 In light of that fact, and the fact that the Annual Report expressly indicates that Welfare Benefits are restricted to financial union members, it is unlikely that Ashman was unaware of that restriction. 57 When giving evidence, Ashman accepted that the existing insurance policies will need to be changed to allow any BERT member to claim Welfare Benefits. 63 It appears, therefore, that he accepted that BERT should not discriminate against non-union members in the provision of Welfare Benefits. That plainly is so because the funds are contributed by employers for the benefit of all workers, not just union members. 58 It appears that not only were some BERT members denied Welfare Benefits, but at least for a period Welfare Benefits were provided to financial union members who were not members of BERT. On 28 May 1997 Windsor Management Group sent a letter to Mr Terrence McIntyre, the BLF Q representative on the Board, stating that: When these [insurance] covers were initially commenced, it was agreed that only those members which were both members of the union and the B.E.R.T. Fund would be covered and this equated to 10,000 members. It would appear that all financial members of the unions are being covered, with no consideration as to whether they are part of B.E.R.T. or not Ashman said that he asked the sponsor unions, approximately two Board meetings prior to his giving evidence to the Commission on 8 October 2002, whether Welfare Benefits were limited to financial union members, and he was told that all BERT members were entitled to claim these benefits. 65 However, he was told it was necessary to present a claim at one of the sponsor union offices, so BERT members who are not financial union members may be reluctant to make a claim in this way. 66 Ashman could not explain what had prompted him to ask whether Welfare Benefits were limited to financial union members Ashman said that the union sponsors told him that there were examples of non-union members of BERT being paid Welfare Benefits. If that is so, BERT has committed a fraud on the relevant insurers if it has submitted claims in relation to persons who are not in fact covered Reform Funds 43

50 by the relevant insurance policies. There is not, however, adequate evidence to establish that any payments have been made outside the terms of the insurance policies Notwithstanding Ashman s evidence, the Annual Report and the insurance policies compel the conclusion that BERT in fact provides Welfare Benefits only to financial members of the sponsor unions. The definition of Insured Person in the relevant insurance policies could easily have been BERT member. The fact that the scope of cover was defined by reference to financial union membership must have been a deliberate decision to exclude BERT members who were not union members. That is consistent with the letter from Windsor Management Group on 28 May 1997 quoted above. 62 The availability of Welfare Benefits should not be so restricted. Not only is the initial source of funds the employers, who contribute for all employees not just financial unionists, but Welfare Benefits are provided as a result of the funds distributed to the Sponsors. 69 That means that half of the funds used to provide these benefits are funds to which the QMCA has a present and indefeasible entitlement. 70 In those circumstances, there is no justification for providing the Welfare Benefits only to financial union members. The Sponsors at present refuse to provide valuable Welfare Benefits to some BERT members on the sole basis that they are not financial union members. That is discrimination on the basis of union membership. 63 Real questions arise as to whether that discrimination contravenes the Anti-Discrimination Act 1991 (Qld), which prohibits direct or indirect discrimination on the basis of a range of attributes, including trade union activity, in the provision of, among other things, goods and services. The Commission did not explore the precise manner in which specific claims for Welfare Benefits are administered by BERT. In those circumstances, I make no findings in relation to the operation of that Act. 64 The QMCA members of the Board and the Advisory Committee have acquiesced in discrimination against BERT members who have chosen not to join a union. This is despite their obvious power to prevent it, given that the Sponsors Deed operates so that no Welfare Benefits could be provided at all without their agreement. The representatives of the QMCA on the Advisory Committee have, in effect, agreed to spend the QMCA s money in providing Welfare Benefits not to BERT members, but to union members. Their reasons for so agreeing are not clear. Ultimately all of the members of the Advisory Committee are responsible for the discrimination, as all of them could, having regard to the Sponsors Deed, have vetoed the proposal. As the Advisory Committee has been in practice effectively indistinguishable from the Board, BERT must be held responsible for this conduct. 65 In a submission in response to that of Counsel Assisting, the solicitors for BERT on 11 November 2002 advised the Commission that: And that: In light of Counsel Assisting s concerns modifications to the Welfare Fund insurance policies and procedures for access to insurance coverage by BERT members will be dealt with at the next BERT board meeting. Administration and payment of welfare claims are now being conducted by Windsor Management Group and not the sponsoring Unions. 71 These are welcome and appropriate changes. 44 Final Report of the Royal Commission into the Building and Construction Industry

51 Privacy and collection of arrears 66 The Commission heard evidence, in the context of the MarGra and Battaglia investigations in Brisbane (see volumes of the report dealing with Queensland hearings), concerning BERT s approach to the collection of arrears from employers who have fallen behind in their payments to BERT. 67 BERT s approach to the collection of arrears was set out in its submissions in relation to MarGra. 72 That approach involves, in substance, a number of letters from Super Partners to the employer that is in arrears, followed after 45 days by the referral of the matter to Perrett. Perrett estimates that there are about 100 participating employers in arrears at any one time. He chases up the arrears. In the course of doing so, he may ask the union sponsors for information about the defaulting company (to see whether it has, for example, gone into liquidation) In the past, Perrett has on occasions followed up defaulting employers while in the company of union organisers. Ashman said, however, that as a result of the MarGra incident, Perrett is now required by BERT to do this by himself, with no union involvement A report on employers who are in arrears is prepared by BERT and provided to the Sponsors, to see if they can assist in the collection of arrears. 75 Ashman said that he did not know what the union sponsors did with this report, and, in particular, whether it was given to organisers or delegates BERT is able to print out a contribution advice in respect of a particular employer that has the names of all the employees who receive contributions from that employer listed on it. Ashman stated, however, that such a contribution advice would not be provided by the Board, or by Super Partners, to union organisers or delegates. He said that he believed that Super Partners had been instructed not to do this, at least since the commencement of the amendments which extended the operation of the Privacy Act 1988 (C wth). 77 In those circumstances, little would be achieved by examining incidents prior to the commencement of that Act. Ashman said that the only time that a union organiser or delegate is able to obtain information from BERT about whether an employer is behind in contributions is when one of their members asks them to follow this up, and the organiser or delegate makes an inquiry on behalf of that member. 78 Conclusions 71 On the material before me, I am satisfied that the Building Employees Redundancy Trust has in the past discriminated against members of Building Employees Redundancy Trust who are not financial union members in the provision of Welfare Benefits. It was wrong to do so. It appears the situation is being rectified. 72 The Building Employees Redundancy Trust has regularly made payments to employees in circumstances where those employees are not entitled to receive a payment under the Trust Deed. Those payments are most likely made as a result of a deception of the Building Employees Redundancy Trust by employers and employees who are participants in the Building Employees Redundancy Trust scheme, the deception being designed to obtain funds Reform Funds 45

52 from the Building Employees Redundancy Trust in circumstances in which payments are not contemplated by the trust deed. 73 Although the Building Employees Redundancy Trust apparently disapproves of this practice, it has done very little to prevent or discourage it. It would be possible for the Building Employees Redundancy Trust to put in place a procedure to check whether employees have recommenced work with their previous employer within a very short period of time after claiming payment from the Building Employees Redundancy Trust. While the Building Employees Redundancy Trust may well have made a payment to the relevant employee before this practice is detected, the Building Employees Redundancy Trust could nevertheless investigate that payment and, if appropriate, seek the return of the funds. That would go some distance towards discouraging the abuse of the Building Employees Redundancy Trust scheme. It is the responsibility of the Building Employees Redundancy Trust to ensure that it makes payments only in accordance with the Trust Deed. 74 This case study illustrates: (a) (b) (c) The making of payments by an industry redundancy fund to members in circumstances not authorised by the trust deed; The need for a regulatory authority to ensure that employee and employer associations in receipt of surplus income from industry funds properly account for those funds; and The provision of welfare benefits by an industry fund exclusively for those of its members who were financial members of a union, thereby discriminating against members of the fund who were not union members. Persons involved Name Ashman, Leigh Lowe, Jamie McIntyre, Terrence Perrett, William Position/Title Chairman of the Board, Building Employees Redundancy Trust. Analyst, Royal Commission into the Building and Construction Industry. Representative for the Australian Building Construction Employees and Builders Labourers Federation (Queensland Branch) Union of Employees, on the Board, Building Employees Redundancy Trust. Co-ordinator, Building Employees Redundancy Trust; Former Delegate and Organiser, Construction, Forestry, Mining and Energy Union. Simcoe, Greg State Secretary, Australian Building Construction Employees and Builders Labourers Federation (Queensland Branch) Union of Employees. 46 Final Report of the Royal Commission into the Building and Construction Industry

53 Notes to Building Employees Redundancy Trust 1 Ashman Statement, exhibit 1663, document at BERT Tender Bundle, exhibit 1664, document at 0092, The QMCA was previously called the Australian Federation of Civil Engineering Contractors, Queensland Branch, Industrial Union of Employers - Ashman Statement, exhibit 1663, document Ashman Statement, exhibit 1663, document at BERT Tender Bundle, exhibit 1664, document at 0105; Ashman Statement, exhibit 1663, p.2, document Ashman Statement, exhibit 1663, document at 0003; BERT Tender Bundle, exhibit 1664, document at BERT Tender Bundle, exhibit 1664, document at 0084 cl BERT Tender Bundle, exhibit 1664, document at BERT Bona Fide Redundancy Documents Tender Bundle, exhibit 1667, document at BERT Bona Fide Redundancy Documents Tender Bundle, exhibit 1667, document Ashman, T15365/44 45, T15369/ See, for example, Le Statutory Declaration, exhibit 1665, document , paragraph 11, annexure A, document BERT Bona Fide Redundancy Documents Tender Bundle, exhibit 1667, document at Ashman, T15369/ Ashman, T15365/ This was Notice NBF1728: BERT Bona Fide Redundancy Documents Tender Bundle, exhibit 1667, document Lowe Statement, exhibit 1751, paragraph 5, document Lowe Statement, exhibit 1751, paragraph 9, document Lowe Statement, exhibit 1751, paragraph 10, document Lowe Statement, exhibit 1751, paragraph 12, document Lowe Statement, exhibit 1751, paragraph 13, document Lowe Statement, exhibit 1751, paragraph 14, document Lowe Statement, exhibit 1751, paragraph 15, document Ashman, T15369/ Submission by Ebsworth and Ebsworth Lawyers on behalf of B.E.R.T Pty Ltd., dated 11 November 2002, paragraphs 6 and BERT Tender Bundle, exhibit 1664, document at BERT Tender Bundle, exhibit 1664, document at 0067 clause 1.1 (23). 28 BERT Tender Bundle, exhibit 1664, document at Ashman, T15376/ BERT Tender Bundle, exhibit 1664, document at See, for example, Ashman, T15374/ BERT Tender Bundle, exhibit 1664, document BERT Tender Bundle, exhibit 1664, document at BERT Tender Bundle, exhibit 1664, document at 0105 cl Reform Funds 47

54 35 BERT Tender Bundle, exhibit 1664, document at 0105 cl BERT Tender Bundle, exhibit 1664, documents BERT Tender Bundle, exhibit 1664, document Ashman T15379/21 23; BERT Tender Bundle, exhibit 1664, document BERT Tender Bundle, exhibit 1664, document at 0002; cf Ashman, T15375/15 29, T15376/21 35, suggesting this may have been an abnormal approach. Ashman s written view is more likely to have been carefully considered and should, therefore, be preferred, particularly as his oral evidence was somewhat inconsistent. 40 QCTF CSTC Tender Bundle, exhibit 1668, document at Ashman, T15374/ Ashman, T15374/ Ashman, T15374/ BERT Tender Bundle, exhibit 1664, document at Ashman, T15378/ BERT Tender Bundle, exhibit 1664, document at See, for example, Extracts from the Financial Statements for the year ended 31 March 1999 of the CEPU Plumbing Division, Qld Branch, which relate to the way it has accounted for distributions from BERT: exhibit 2093, document at See, for example, Extracts from the Financial Statements for the years ended 31 December 1999 and 2000 of the BLF Q, which relate to the way it has accounted for distributions from BERT: exhibit 1800, documents , See how the CEPU Plumbing Division, Qld Branch has accounted for distributions from BERT in its Financial Statements for the year ended 31 March 2000, exhibit 2092, document at See, for example, Extracts from the Financial Statements for the year ended 31 December 2000 of the Construction, Forestry, Mining and Energy Union, Construction and General Division, Queensland Construction Workers Divisional Branch, which relate to the way it has accounted for distributions from BERT: exhibit 2091, document at 0128, 0130 and See, for example, Extracts from the Accounts of the QMCA, which relate to the way it has accounted for distributions from BERT: exhibit 1800, documents , Submission by the Queensland Major Contractors Association in response to the Submissions of Counsel Assisting re the Building Employees Redundancy Trust, dated 7 November 2002, paragraph BERT Tender Bundle, exhibit 1664, document at BERT Tender Bundle, exhibit 1664, document at For details of the exact payments made out of the welfare fund see BERT Tender Bundle, exhibit 1664, document at BERT Tender Bundle, exhibit 1664, document at BERT Tender Bundle, exhibit 1664, document at BERT Tender Bundle, exhibit 1664, document at 0012; BERT Tender Bundle, exhibit 1664, document at BERT Tender Bundle, exhibit 1664, document at Ashman, T15381/ Ashman, T15381/6 13. Ashman said that he had not seen the IMG policy that he was shown while giving evidence, and he said that he believed that this was the only policy, implying that he could not recall seeing any other policies. 60 Ashman, T15381/ Ashman, T15381/ Final Report of the Royal Commission into the Building and Construction Industry

55 62 BERT Tender Bundle, exhibit 1664, document at Ashman, T15382/ BERT Tender Bundle, exhibit 1664, document at Ashman, T15380/ He could not remember which of the employee sponsor representatives told him this. 66 Ashman, T15380/ Ashman, T15383/ /7. 68 Ashman, T15383/ Ashman, T15382/ BERT Tender Bundle, exhibit 1664, document at Submission by Ebsworth and Ebsworth Lawyers on behalf of B.E.R.T Pty Ltd., dated 11 November 2002, paragraphs 27 and Tender Bundle entitled Privacy and Collection of Arrears, exhibit 1648, document Tender Bundle entitled Privacy and Collection of Arrears, exhibit 1648, document at ; Ashman, T15370/ Ashman, T15371/ Ashman, T15371/ Ashman, T15371/ /5. 77 Ashman, T15373/ Ashman, T15373/2 7. Reform Funds 49

56 50 Final Report of the Royal Commission into the Building and Construction Industry

57 3 Building Unions Superannuation Scheme Introduction 1 This investigation concerned the Building Unions Superannuation Scheme (Queensland) (BUSS Q or the Fund) and, in particular, whether: (a) (b) BUSS Q provides information about arrears in superannuation contributions to unions in breach of its privacy obligations; and BUSS Q allows the unions to employ inappropriate techniques in pursuing arrears in contributions on behalf of the Fund. 2 BUSS Q was established in 1984 to receive superannuation contributions on behalf of workers in the Queensland building and construction industry. 1 3 The sponsors of BUSS Q are: (a) (b) (c) (d) the Queensland Master Builders Association, Industrial Organisation of Employers (QMBA); the Construction, Forestry, Mining & Energy, Industrial Union of Employees, Queensland (CFMEU Q); the Australian Building Construction Employees and Builders Labourers Federation (Queensland Branch) Union of Employees (BLF Q); the Plumbers and Gasfitters Employees Union of Australia, Queensland Branch, Union of Employees (PGEU Q); and (e) the Queensland Council of Unions. 2 4 As a result of a deliberate policy adopted by the CFMEU Q, BLF Q and PGEU Q (together the Unions), BUSS Q is the only superannuation fund nominated in the Queensland Statement of Intent, and in the pattern enterprise bargaining agreement that is used by the CFMEU Q and BLF Q. 3 BUSS Q is also nominated in the relevant industrial awards as a superannuation fund that can receive superannuation contributions made in accordance with those awards. 4 5 The trustee of BUSS Q is BUSS (Qld) Pty Ltd, the Board of Directors of which must comprise equal numbers of persons appointed by the employers and members. 5 Reform Funds 51

58 6 Mr Paul Byrne is the General Manager of the Building Unions Superannuation Scheme (Queensland). Collection of arrears BUSS Q s arrears process 7 Byrne gave evidence that: One of the greatest areas of concern to the Trustee is the level of non-compliance by employers in making their obligatory payments to the Fund. It is therefore incumbent on the Fund to look after its members interest and pursue outstanding monies. The Fund takes this responsibility most seriously and consequently has an aggressive debt collection program. The costs associated with debt collection are borne by all Fund members, therefore cost management is paramount. 6 8 BUSS Q estimates that, 60 days after contributions are due to have been paid, about 6.5 per cent to seven per cent of employers have not yet paid the required contributions. 7 That percentage drops appreciably as time goes on; however, where contributions are 60 days in arrears it is often because a contributor has gone out of business, so some unpaid contributions are never recovered. 8 9 BUSS Q s arrears process involves a first letter being sent to an employer whose contributions are in arrears seven days after the payment was due. A second letter is sent by BUSS Q after another ten days. Any employers who are still in arrears ten days after the second letter receive a telephone call from BUSS Q BUSS Q decided to discontinue the use of a professional credit controller 12 to 18 months ago, and to bring the process of collection of arrears in-house. 10 Prior to making that decision, BUSS Q used Credit Solutions Australia, to whom it paid about $ a year to provide collection services. 11 The role of the unions 11 The unions have always been involved in collection of contributions to BUSS Q. However, now that it no longer uses a professional credit controller, if contributions are not received following the telephone call from BUSS Q the Unions become involved in the collection process, and at an earlier point in time than they did previously. 12 Byrne wrote: BUSS(Q) has an agreement with both the employer sponsor and the employee sponsor unions which involves in part, sponsor assistance in the collection of arrears of contributions. To that end, BUSS(Q) has over the years provided to the employee sponsors, details of payments made by Participating Employers in relation to their member employees. That provision of that information has been made a platform of BUSS(Q) s privacy policy statement of December BUSS(Q) also provides such information to employer sponsors of the fund upon request. Without the assistance of the employee sponsor in collecting arrears of contributions, BUSS(Q) would need to put in place a collection infrastructure or contract out to a 52 Final Report of the Royal Commission into the Building and Construction Industry

59 collection agency, the collection of any arrears of contributions at a far earlier stage than it currently does. That would add enormous costs of the administration of BUSS(Q) to the detriment of its employee members In order to facilitate their involvement in the collection of arrears, the Unions are given a report by BUSS Q that is taken from BUSS Q s 60-day and 90-day arrears reports. The reports contain the names of employers that have EBAs with one of the Unions and who are in arrears. 14 BUSS Q also provides Union organisers and delegates with lists of the names of individual members of the Fund, and contributions made in respect of those members Byrne said that he did not believe that the agreement between BUSS Q and the Unions in relation to their involvement in the arrears collection process had been formally documented. 16 On 23 February 1999 however, the Unions put a Proposal for Grant to BUSS Q in the following terms: The BLF, CFMEU and CEPU (Plumbers Division) have been the main founding employee sponsors of BUSS(Q) since its inception in Over the last 15 years these Unions have actively supported BUSS(Q). This support has been in many areas: industrial agreements. They key reason for the initial and long term success of BUSS(Q) can be mainly attributed to the fact that the founding Unions have insisted that BUSS(Q) is the only superannuation fund named in the Statement of Intent and Enterprise Bargaining Agreements. Also Union action has resulted in the naming of BUSS(Q) in industrial awards in the building and construction area. new members. Union organisers and delegates have been instrumental in the signing up of a vast number of new members to the Fund. This activity ensures that new members are covered for insurance as soon as they commence on a site and are a major part of the membership growth for the Fund. arrears. Over many years the Unions have facilitated with the collection of contributions arrears. In many instances, the monies collected may otherwise not have been, except for the diligence and drive initiated by the Unions representatives. claims process. Recently, an industrial officer was instrumental in the reversal of a decision by an insurer to decline a TPD claim. This activity is invaluable to the Fund and may have protected the Trustee from a long and expensive legal battle. marketeers. Delegates and organisers are fully versed with the strengths and benefits of BUSS(Q) and are forever promoting the Fund to possible new members and employers. assistance to Co-ordinator. Delegates and organisers facilitate the platform for the Fund Co-ordinator on field trips. Recently the Cairns organisation organised site visits for the Fund Co-ordinator in both Cairns and Townsville. This activity ensured the success of the trip. Exceptional public relations, new members and rollovers occurred on this visit. Reform Funds 53

60 Currently marketing expenditure by BUSS(Q) for BLF, CFMEU and CEPU (Plumbers Division) runs at $10000 p.a. for advertising in the trade union publications. As the Fund is now at a mature stage of its development, the employee Unions offer their services (as identified above) to BUSS(Q) at a rate of $40000 p.a. for five years Byrne agreed with the various propositions put by the Unions in the above proposal. In particular, he agreed that [o]ver many years the Unions have facilitated with the collection of contributions arrears. In many instances, the monies collected may otherwise not have been, except for the diligence and drive initiated by the Unions representatives. 18 He said that collecting arrears was probably the biggest thing the unions can do, as well as the signing of members. 19 These are the two major services that the Unions provide in return for the $ per annum payment It follows that BUSS Q now pays the Unions approximately what it used to pay Credit Solutions Australia, a professional credit control manager, for assistance with the collection of arrears. In order to enable the Unions to carry out this task, it discloses information to them about the currency of contributions to both members and non-members of the Unions. 21 The Privacy Act 1988 (C wth) 16 On 21 December 2001 amendments to the Privacy Act 1988 (C wth) (the Act) commenced which introduced ten National Privacy Principles (NPPs) concerning the use, maintenance and disclosure of personal information and sensitive information. Section 6 of the Act provides that: Personal information means information or an opinion whether true or not, and whether recorded in a material form or not, about an individual whose identity is apparent, or can reasonably be ascertained, from the information or opinion. Sensitive information means: (a) information or an opinion about an individual s: (vi) membership of a professional or trade association. 17 To the extent that an organisation is not bound by an approved privacy code, the organisation must not do an act or engage in a practice that breaches a NPP. 22 The word organisation is defined widely for these purposes, and includes trusts such as BUSS Q NPP2, which concerns the Use and Disclosure of information, provides in part: 2.1 An organisation must not use or disclose personal information about an individual for a purpose (the secondary purpose) other than the primary purpose of collection unless: (a) both of the following apply: (i) the secondary purpose is related to the primary purpose of collection and, if the personal information is sensitive information, directly related to the primary purpose of collection; 54 Final Report of the Royal Commission into the Building and Construction Industry

61 (ii) the individual would reasonably expect the organisation to use or disclose the information for the secondary purpose; or (b) the individual has consented to the use or disclosure In other words, unless the disclosure of information is necessary for the primary purpose for which the information was collected, it can only be disclosed either with the consent of the individual to whom the information is personal, or if both the secondary purpose of disclosure is related to the primary purpose for which the information was collected and the individual would reasonably expect the organisation to use or disclose the information for the secondary purpose. 20 NPP2 has obvious relevance to the information that a superannuation fund can disclose in the course of activities designed to chase up superannuation contributions that have fallen into arrears, because information about the contributions made on behalf of a named individual is personal information. Legal advice concerning the Privacy Act 1988 (C wth) 21 On 5 October 2001 Byrne wrote to Corrs Chambers Westgarth (Corrs) seeking legal advice in respect of BUSS Q s obligations under the Act. On 28 November 2001 Corrs provided their advice (the Advice). The Advice recited, in an introductory section headed Background and Instructions, that: Union delegates from time to time ask BUSS(Q) for information about whether the employer at a particular job-site has paid its contributions. In these circumstances BUSS(Q) provides a list of the names of its members employed at that job-site, with details of how much has been contributed for each of those members over the period requested. The members of BUSS(Q) may or may not be union members, and BUSS(Q) does not necessarily know in all cases which of its members are union members In other words, BUSS Q had instructed Corrs that it had and would provide information about contributions made on behalf of named individuals to union delegates even if it did not know whether or not those individuals were members of the relevant union Corrs gave BUSS Q the following advice in relation to the operation of NPP2: 3.2 Disclosure of name and contribution details to trade unions It is probably reasonably arguable that disclosure of information about members to a trade union, for the purpose of facilitating collection of superannuation contributions an employer is required to pay for them, is in some way related to the primary purpose of providing superannuation benefits. However in our view it is doubtful that all members would reasonably expect the Trustee to disclose their names, or the amount of contributions received for them, to a trade union. This is particularly the case for members who are not trade union members, and probably, even for some trade union members. Reform Funds 55

62 It therefore appears to us that disclosure to a trade union is not a permitted secondary purpose, and member consent will be required Corrs advised BUSS Q in relation to its options for obtaining member consent before personal information was disclosed to the Unions. It wrote: We understand it is proposed that, once the BUSS(Q) member booklets and member applications are updated to comply with privacy requirements: the privacy information in the member booklet will include: - a description of the circumstances in which members addresses are disclosed to BERT and CIPQ; - an explanation that BUSS(Q) supplies union delegates with information about the names of members employed at a particular job site, and the amount of contributions that have been made for them over a period of time; and the member application will include a general statement or declaration, next to the applicant s signature, to the effect that the applicant consents to the disclosure of information about the applicant to the persons and for the purposes notified in the member booklet. We understand that alternative options (for example, asking applicants to indicate their consent by ticking a box, or not ticking a box) are unworkable and would significantly reduce the effectiveness of the database matching process with BERT and CIPQ and the contributions monitoring role performed by trade unions. We confirm that the proposed process involves a significant risk that, if a member complains about disclosure of the member s address to BERT or CIPQ, or about disclosure of the member s name and contribution details to a trade union, the Privacy Commissioner will take the view that simply signing the application form where the member was given no option to sign the form without consenting to those disclosures, does not genuinely indicate consent In December 2001 BUSS Q adopted a Privacy Policy Statement. That statement reads, in part: BUSS(Q) believes it is important that contributions are paid regularly, and any late payments are identified so steps can be taken to recover late contributions. As part of the process of monitoring contributions, BUSS(Q) from time to time, supplies Fund Sponsors with information about the names of members employed by particular employers who are working on sites where an award, industrial agreement or enterprise bargain agreement is in place as well as the amount of contributions that have been made for them over a period of time It follows from that statement that BUSS Q has not changed its approach to the provision of information to the Unions as a result of the Advice. Nor has it adopted an application form that would allow members of the Fund genuinely to choose whether they wished personal information to be disclosed to the Unions, as it has adopted a form of the very type described in the Advice. It has done that because it believes that it would be unworkable to have a tick box where the member could genuinely indicate their consent. 29 The reason that it would be 56 Final Report of the Royal Commission into the Building and Construction Industry

63 unworkable is that some members might refuse their consent, and BUSS Q would therefore have to separate those people out of the information given to the unions. 30 To avoid the risk of that outcome (a risk that is an obvious feature of any genuine request for consent), BUSS Q has adopted an approach that does not genuinely give the member an opportunity to consent. 31 In other words, the Board of BUSS Q has chosen to ignore the legal advice that it sought and was given in relation to the requirements of the Act It follows that BUSS Q has not truly given applicants for membership of the Fund a choice as to whether they are willing to consent to the disclosure of their personal information to the Unions, and thus that no true consent has been given for the purposes of NPP2. It has not given any choice at all to existing members about whether they consent to the disclosure of their personal information to the Unions. It follows that BUSS Q is not permitted to disclose members personal information to the Unions for the purpose of facilitating the collection of arrears (unless the relevant member of BUSS Q is, to BUSS Q s knowledge, also a member of a Union whose rules authorise the Union to obtain information of that type). The fact that the Fund admittedly does disclose personal information to the Unions whether or not the relevant member is a Union member means that BUSS Q s current procedures are likely to be in breach of the Act. 33 Cbus An alternative approach 28 BUSS Q suggested that it adopted its current methodology because it would not be practical to check whether genuine member consent had been obtained prior to disclosing personal information to the Unions. That suggestion can be tested against the approach adopted by Construction & Building Unions Superannuation Fund (Cbus) in relation to the disclosure of information to its sponsors. In any event, that is not an answer to any breach of the law. 29 Like BUSS Q, Cbus initially approaches the collection of arrears by a series of letters. If contributions are not received by the close of business on the 14th day of the month, a letter is sent reminding the employer that contributions are overdue. If the contributions are not received within a further ten days, the Fund Administrator sends a second reminder letter. If contributions are not received within a further ten days, the matter is referred to Cbus s credit control manager, Industry Funds Credit Control Pty Ltd, which sends a further letter Unlike BUSS Q, Cbus believes that the involvement of a specialist credit control manager is an integral part of its approach to the collection of arrears Cbus does not formally involve the unions as part of its arrears collection procedure. Its policy in relation to the provision of information to sponsoring organisations (including unions) is as follows: The Fund will confirm details if a member is named or a group of members is named and sufficient identification provided with the name or names. On a request basis only, the following necessary information, which should otherwise be treated as confidential, is provided to relevant sponsoring organisations and then only to nominated persons for the express purpose of assisting the Fund with the collection of superannuation contributions which are in arrears: 1. The last month the employer paid a contribution to the Fund; Reform Funds 57

64 2. Details of any month(s) not paid by the employer; 3. The number of members paid for by the employer; 4. Payment details of a specific named person or persons, to confirm if they have been paid or not paid for; and 5. The Fund does not provide lists of members sponsored by an employer to a third party unless authorised by the Cbus Trust Deed. The employer s Monthly Contribution Return shows details of all payments made in the last three months and lists all people paid for in the last month. This Contribution Return is used as the major source of information needed in any compliance check Information concerning contributions made by employers in relation to particular members is given out by Cbus to union officials only if the particular individual is named and confirmation is given by the union official requesting the information that they have been authorised to request that information by the person concerned It follows that Cbus does not provide information about individual members to union organisers or delegates unless the relevant individuals have in fact given consent. That approach is consistent with the advice provided to BUSS Q by Corrs. It does not, therefore, appear that this advice was impractical. Inappropriate collection techniques 34 Mr John Sutton, the National Secretary of the Construction, Forestry, Mining and Energy Union, Construction and General Division, told the Commission that unions are very good at the collection of superannuation arrears because they approach this task with more conviction, more passion than a public servant. 38 While conviction and passion may often be appropriate in ensuring that employers meet their full obligations to pay their workers properly, the existence of such passion places a particular burden upon BUSS Q to ensure that inappropriate methods are not used in the collection of arrears possibly owed to the Fund. 35 Byrne accepted that, having chosen to treat the Unions as its debt-collecting agents, BUSS Q is responsible for the way in which the Unions carry out that function. 39 He said that he had spoken to both Mr Wallace Trohear, the State Secretary of the Construction, Forestry, Mining & Energy, Industrial Union of Employees, Queensland and Mr Gregory Simcoe, the State Secretary of the Australian Building Construction Employees and Builders Labourers Federation (Queensland Branch) Union of Employees about how they carry out this function. They told him that their organisers use information to approach employers about outstanding contributions, but that they do not show the information to anyone, they do not copy it, and they destroy it once it has been used Byrne was asked whether it would be appropriate for Union organisers or delegates to use industrial action as a way of encouraging employers to pay arrears thought to be outstanding. He said that it probably would not be appropriate On 5 October 2001 Byrne sent a letter to Corrs in which he wrote, in part: 58 Final Report of the Royal Commission into the Building and Construction Industry

65 Our current practice is such that employer and member Directors are given specific member and employer information. This information can then be passed down to say union organisers or delegates for their information and potential industrial action use on a building site That letter demonstrates that BUSS Q is aware that one of the things that Unions do with information provided to them by BUSS Q is promote industrial action to encourage subcontractors to make payments to BUSS Q. It is not appropriate for Union officials to encourage industrial action in order to put pressure on an employer to make a superannuation contribution. One reason for this is that the question of whether a superannuation contribution is due in respect of particular workers can be a very difficult one to answer. It may turn, for example, on the question of whether a worker is properly categorised as an employee or an independent contractor. 43 The fact that there is frequently room for genuine dispute about whether a superannuation payment is due means that industrial action or threats of industrial action are inappropriate tools to use in seeking to have payments made. They put unreasonable pressure upon employers to make payments whether or not they are truly due. 39 Another reason is that there are invariably in place dispute resolution procedures between employer and employee to resolve such matters without resort to industrial pressure or action. It follows that BUSS Q should not use the Unions as part of its arrears process while knowing that one of the tools used by the Unions in carrying out this function is the threat of industrial action. The provision of information to Unions for this purpose is likely to have been unlawful as being contrary to the Act unless the consent of the employee has been freely given. Reform of compliance infrastructure 40 If the arrears processes outlined above do not result in payment being received by BUSS Q, the final part of BUSS Q s compliance process is to write to the ATO advising that the relevant company has not met its superannuation guarantee obligations. BUSS Q believes that the ATO does follow up referrals of that type, although BUSS Q does not find out the outcome of any particular referral Ms Helen Hewett, fund secretary of Construction & Building Unions Superannuation Fund, made a number of suggestions to the Commission in relation to the way in which superannuation compliance could be improved. Byrne agreed with these suggestions. 45 Hewett s suggestions included: Increasing the resources of the Australian Taxation Office in the area of compliance, in particular, to increase the number of field audits. 46 Legislation requiring employers to make monthly payments. At the present time the Superannuation Guarantee Legislation requires employers to pay a superannuation contribution by 28 July. There is currently legislation (to come into effect on 1 July 2003) requiring employers to make contributions quarterly. However, features of the building industry such as the high mobility of the workforce makes it highly desirable for monthly payments to be made to ensure compliance. Reform Funds 59

66 in the area of an obligation to providing information [sic], it would assist enforcement significantly if there was a legislative backing for employers to provide up to date information regarding employees who are members of a superannuation fund There should be more frequent issue of member statements (currently only required annually) so that members will more readily know if contributions are not paid. This is particularly so with the introduction of quarterly payments. Higher priority of ranking of unpaid superannuation contributions in insolvencies These proposals for reform are considered elsewhere in this Report. Consequence of hearing 43 On 13 November 2002 the Commission was advised by Byrne that at its Board meeting on 6 November 2002, the Directors resolved to amend the arrears policy of BUSS Q with regard to the supply of information to third parties. 44 The minute of the meeting records: The Trust Deed be amended to authorize the disclosure of information to third parties where it is required in relation to the administration of the Fund or to facilitate the provision of services or benefits to members. The Fund will confirm details if a member is named or a group of members is named and sufficient identification provided with the name or names. On a request basis only, the following necessary information, which should otherwise be treated as confidential, is provided to relevant sponsoring organisations and then only to nominated persons for the express purpose of assisting the Fund with the collection of superannuation contributions which are in arrears: 1. The last month the employer paid a contribution to the Fund; 2. Details of any month(s) not paid by the employer; 3. The number of members paid for by the employer; 4. Payment details of a specific named person or persons, to confirm if they have been paid for not paid for; and 5. The Fund does not provide lists of members sponsored by an employer, to a third party unless authorised by the BUSS(Q) Trust Deed. The employer s Monthly Contribution Return shows details of all payments made in the last three months and lists all people paid for in the last month. This Contribution Return is used as the major source of information needed in any compliance check At the same meeting of the Board, the Directors further resolved to amend the approach of BUSS Q to the implementation of its Privacy Policy by allowing members to opt out of the process of supplying information to third parties. 60 Final Report of the Royal Commission into the Building and Construction Industry

67 46 The minute of that meeting records: On joining the Fund, members be offered a choice of whether information can be supplied: - for the matching of addresses with members of B.E.R.T. and CIP(Q); and - to the unions for the purpose of collecting arrears of contributions. - The member application is to include the following: The trustee takes very seriously its responsibility to ensure that your contributions are up to date. From time to time the trustee may provide some personal information to a union and/or employer sponsor to assist in the collection of outstanding superannuation payments A significant number of members of BUSS(Q) are also members of Building Employees Redundancy Trust (BERT). BUSS(Q) conducts a database matching process with BERT twice yearly to ensure each organisation has the most up-to-date address for people who are members of more than one of them. Where the database search shows a different address for the same person, each organisation adopts the most recent address. The database matching process means that each member s address on BUSS(Q) s records is disclosed to BERT. Please advise BUSS(Q) directly if you do not wish either of these to occur, and the Trustee will comply with your wishes These steps, when implemented, may resolve some of the concerns raised by this Commission concerning aspects of the Privacy Act 1988 (C wth) and are welcomed. 48 However, the second resolution does not address existing members. The submission also stated that BUSS Q has never endorsed or knowingly assisted the collection of contributions which are not genuinely owing, or by use of unlawful industrial action. The provision of information to union officials, if authorised, does not necessarily mean that unlawful industrial action will occur. However, it is clear from Byrne s letter of 5 October 2001 that industrial action by union organisers to recover such sums is both known and contemplated. That is not a legitimate method of debt collection. There are adequate processes available under dispute resolution clauses for employees and employers to resolve any dispute between them regarding whether the employer has made the payments due to BUSS Q on account of the employee. If it is found that the provision of information by BUSS Q to union officials or employer sponsors results in unlawful action of any type, that process of debt collection should be abandoned. Conclusions 49 This case study illustrates: (a) The engagement of unions by an industry superannuation fund to collect contribution arrears. Reform Funds 61

68 (b) (c) The provision to unions by an industry superannuation fund, of the names of members employed by particular employers and of the amounts of contributions paid on their behalf, often without member consent; and The provision of such information by an industry superannuation fund, with the knowledge that it may be used by union organisers and delegates to promote industrial action in order to encourage subcontractors to make contributions to the fund. Persons involved Name Byrne, Paul Position/Title General Manager, Building Unions Superannuation Scheme (Queensland). Hewett, Helen Fund Secretary, Construction & Building Unions Superannuation Fund. Sutton, John Simcoe, Greg Trohear, Wallace National Secretary, Construction, Forestry, Mining and Energy Union, Construction and General Division. State Secretary, Australian Building Construction Employees and Builders Labourers Federation (Queensland Branch) Union of Workers. State Secretary, Construction, Forestry, Mining & Energy, Industrial Union of Employees, Queensland. 62 Final Report of the Royal Commission into the Building and Construction Industry

69 Notes to Building Unions Superannuation Scheme 1 Byrne Statutory Declaration, exhibit 1649, document at Byrne Statutory Declaration, exhibit 1649, document at Proposal for Grant, exhibit 1652, document Byrne, T15309/ See s89 of the Superannuation Industry (Supervision) Act 1993 (C wth) 6 Byrne Statutory Declaration, exhibit 1649, document at Byrne, T15310/ Byrne, T15310/ Tender Bundle entitled Privacy and Collection of Arrears, exhibit 1648, attachment 27, document ; Byrne, T15312/ Byrne, T15314/ Byrne, T15314/ Byrne, T15313/ Byrne Statutory Declaration, exhibit 1649, document at Byrne, T15315/ Byrne, T15315/ Byrne, T15313/ Proposal for Grant, exhibit 1652, document Byrne, T15313/ Byrne, T15314/ Byrne, T15314/ Byrne, T15314/28, 15315/ Section 16A(2) of the Privacy Act 1988 (C wth). 23 Section 6C of the Privacy Act 1988 (C wth). 24 Tender Bundle entitled Privacy and Collection of Arrears, exhibit 1648, attachment 17, document at A fact confirmed by Byrne, T15318/ Tender Bundle entitled Privacy and Collection of Arrears, exhibit 1648, attachment 17, document at Tender Bundle entitled Privacy and Collection of Arrears, exhibit 1648, attachment 17, document at Tender Bundle entitled Privacy and Collection of Arrears, exhibit 1648, attachment 18, document Byrne, T15317/ Byrne, T15317/ Byrne, T15317/ Byrne, T15319/ Byrne confirmed that the topic was addressed by the Board, as is apparent from the minutes: see Tender Bundle entitled Privacy and Collection of Arrears, exhibit 1648, attachment 24, document at See also Byrne, T15317/ /1. 33 In light of the legal advice that it received from Corrs, it is difficult to see the basis for the submission by BUSS Q, in relation to the Mar Gra Pty Ltd incident investigated by the Royal Commission, that In our view the above system is not in breach of the Privacy Act 1998 [sic] or otherwise at odds with the fiduciary duties Reform Funds 63

70 owed by BUSS(Q) to its employee members : Tender Bundle entitled Privacy and Collection of Arrears, exhibit 1648, attachment 27, document at Cbus Submission, exhibit 1518, paragraph 2.7, document at Cbus Submission, exhibit 1518, paragraph 3.4, document at Cbus Submission, exhibit 1518, paragraph 6.15, document at Cbus Submission, exhibit 1518, paragraph 6.32, document at Sutton, T14753/ Byrne, T15319/ Byrne, T15320/ Byrne, T15321/44 T15322/3. 42 Tender Bundle entitled Privacy and Collection of Arrears, exhibit 1648, attachment 14, document See for example, Byrne, T15320/16-34; Wilkinson Statutory Declaration, exhibit 1517, paragraph 40, document Byrne, T15311/ Byrne, T15311/ / As to the existing resources devoted by the ATO to this area, see generally Wilkinson Statutory Declaration, exhibit 1517, paragraphs 16-24,document Hewett Statement, exhibit 1528, paragraph 8, document Letter from Paul Byrne, General Manager, BUSS Q, 13 November 2002, exhibit 2077, document at Letter from Paul Byrne, General Manager, BUSS Q, 13 November 2002, exhibit 2077, document at Final Report of the Royal Commission into the Building and Construction Industry

71 4 CEPU Electrical Division Victorian Branch financial analysis 1 On 11 October 2002, Mr Dean Mighell, who described himself as the Secretary of the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, Electrical Division, Victorian Branch (CEPU Electrical Division Victorian Branch), gave evidence concerning a number of recent financial transactions of the CEPU Electrical Division Victorian Branch and two trusts which were set up by the CEPU Electrical Division Victorian Branch. 2 This case study summarises that evidence and the documents which comprise exhibits 1708 and Exhibit 1708 is a diagram which traces these financial transactions. It is annexure A to this case study. Exhibit 1709 comprises documents which explain or record the transactions. 4 It appears that the Tasmanian and Victorian Branches of the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, Electrical Division, may have amalgamated in April However, any such amalgamation is of no significance to this case study. The Trusts 5 On 20 July 2000, two deeds of settlement were executed. One of those deeds established the ETU (Victorian Branch) Trust and the other established the ETU (Victorian Branch) Distress, Mortality and Training Fund. 1 6 The parties to each deed are Mr Michael Hymer (the settlor) and the persons, as at the date of the deeds, holding the offices of President, Vice President, Treasurer, Secretary and Assistant Secretary of the CEPU Electrical Division Victorian Branch (the trustees). The terms of the two trusts are almost identical. 7 The beneficiaries under the ETU (Victorian Branch) Trust are: (a) (b) any present or former member of the CEPU Electrical Division Victorian Branch; any spouse or child of a present or former member of the CEPU Electrical Division Victorian Branch; and Reform Funds 65

72 (c) the Electrical Division of the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, its successor and its divisional branches and the successor of its divisional branches. 8 The beneficiaries under the ETU (Victorian Branch) Distress, Mortality and Training Fund are the beneficiaries described above, together with: (a) the CEPU Electrical Division Victorian Branch; (b) any other organisation or association registered under the Workplace Relations Act 1996 (C wth) or under the industrial relations legislation of any State or Territory; (c) (d) any present or former member of an organisation or association described in subparagraph (b) above; and any provider of medical, funeral, legal and other services in relation to the death or injury of a member of the CEPU Electrical Division Victorian Branch or an organisation or association described in subparagraph (b) above. 9 Clause 3 of the ETU (Victorian Branch) Trust states that the overriding object of the Trust is to provide benefits to the CEPU Electrical Division Victorian Branch and the beneficiaries and any objects ancillary thereto. 10 Clause 3 of the ETU (Victorian Branch) Distress, Mortality and Training Fund states that the overriding objective of the Fund is to provide benefits to the beneficiaries and any other objects ancillary thereto. 11 Mighell gave evidence to the effect that the reason why he set up the two trusts was because he wanted to set up alternative income streams for the union and to put money into a trust which was separate from the general funds of the union and, in respect of which, the members of the CEPU Electrical Division Victorian Branch and their families would be beneficiaries. He said he does not regard the assets of the trusts as assets of the union The December 2000 edition of the ETU News referred to the trusts in these terms: Trusts are a commonly used vehicle for conducting business and safeguarding assets. They are commonly used by families, businesses and charities. Through the establishment of the ETU trusts, property held in the trusts is likely to be quarantined from any potential creditors for the benefit of ETU members and all beneficiaries Mighell gave evidence that he wanted the money in the trusts safeguarded, irrespective of what happened to the union. He wants the benefits to be available to the members, even if the union is sued In using these trusts, as a means of developing alternative streams of income, the CEPU Electrical Division Victorian Branch has broken new ground. It is something that no other union in Australia has done In less than two years, the trusts accumulated approximately $3 million Final Report of the Royal Commission into the Building and Construction Industry

73 CEPU Electrical Division Victorian Branch financial statements 16 During Mighell s evidence, a question arose as to whether the CEPU Electrical Division Victorian Branch had recently filed its accounts with the Australian Industrial Registry and whether those accounts were consolidated accounts which included the accounts of the two trusts On 11 October 2002, counsel for Mighell informed the Commission that the accounts of the CEPU Electrical Division Victorian Branch had been approved by the relevant Committees of Management and that the accounts of the trusts had also been approved by the relevant persons but that consolidation of the accounts had not been finished Having regard to what was earlier said that day by counsel for Mighell, it is clear that the most recent accounts of the CEPU Electrical Division Victorian Branch had not, at that time, been filed with the Australian Industrial Registry. 19 The evidence disclosed that, for the year ended 30 December 2000, the audited financial statements of the CEPU Electrical Division Victorian Branch, which were filed with the Australian Industrial Registry, were not consolidated accounts. These audited financial statements did not consolidate the financial statements of the CEPU Electrical Division Victorian Branch and the financial statements of the two trusts. Furthermore, those financial statements show that the $ which the ETU (Victorian Branch) Distress, Mortality and Training Fund had deposited in the Commonwealth Bank Cash Management Call Account as at 31 December 2000, was not included in those financial statements. 9 ElecNet 20 ElecNet (Australia) Pty Limited (ElecNet) is the trustee of the Electrical Industry Severance Scheme which trades under the name of Protect. Prior to the establishment of Protect, workers in the electrical, electronic and communications industry had contributions for severance paid into two funds: (a) (b) the Redundancy Payment Central Fund No.3 (Incolink Fund No.3); or the Electrical Industry Severance Scheme (EISS Fund). 21 The 1999 enterprise bargaining negotiations between the CEPU Electrical Division Victorian Branch and the National Electrical and Communications Association Victorian Chapter led amongst other things, to a proposal for the establishment of a single fund to provide severance and income protection benefits to workers in the electrical, electronic and communications industry. 22 ElecNet had been the trustee of the EISS Fund. That fund was renamed Protect and the trust deed amended. 23 Following the amendment of the EISS Fund Trust Deed, the Incolink Fund No.3 was wound up and members benefits transferred to Protect. Those benefits and the members benefits previously held by ElecNet for the EISS Fund were then all held as part of Protect. 10 Reform Funds 67

74 Financial analysis 24 As a result of that agreement to amalgamate the Funds, the following occurred: (a) Incolink Fund No.3 transferred $ to Protect; 11 (b) on 8 November 2000 Incolink Fund No.3 paid $ to the ETU (Victorian Branch) Distress, Mortality and Training Fund; 12 and (c) approximately $12 million which remained in the EISS Fund was taken over by Protect; The $ payment referred to above represented undistributed surpluses in the Incolink Redundancy Central Payment Fund Portable Sick Leave Scheme No.3 and was intended to be a payment to the beneficiaries of that Fund On 8 November 2000 a payment of $ was made from the Protect fund to the ETU (Victorian Branch) Distress, Mortality and Training Fund. That payment represented undistributed surpluses in Incolink Fund No.3 and was intended to be a payment to the beneficiaries of that fund On 14 December 2000 Protect paid to the NECA Victorian Chapter the sum of $ This was apparently a distribution from the ElecNet fund. On 21 June 2001 the NECA Victorian Chapter paid that sum to the ETU (Victorian Branch) Trust. The evidence is unclear as to why that payment was made On 3 January 2001 Protect paid $ to the ETU (Victorian Branch) Trust. This was apparently a distribution from Protect On 12 February 2001 the ETU (Victorian Branch) Trust paid $ for the purchase of a house in Tasmania. The contract for purchase showed the purchaser as the CEPU Electrical Division Victorian Branch and the contract was conditional upon a Mr Harkins receiving confirmation of his successful appointment as State Secretary of the ETU, Tasmanian Branch within 21 days of the date of the contract. Clause 10 of the contract enabled the purchaser to nominate another person to complete the contract. This was apparently done because the property was transferred to the ETU (Victorian Branch) Trust Mighell gave evidence that one of the reasons for purchasing the house in Tasmania was that, ultimately, the trust wanted to make holiday accommodation available to the union members On 9 July 2001 the ETU (Victorian Branch) Trust lent $ to the CEPU National Office to enable the National Office to pay off a loan on the National Office building. The ETU (Victorian Branch) Trust loan has been repaid On 11 July 2001 the ETU (Victorian Branch) Distress, Mortality and Training Fund paid $ to the ETU (Victorian Branch) Trust. This payment was made to put funds into the ETU (Victorian Branch) Trust and to bring its account back into credit after it became overdrawn when it made the loan referred to above On 13 February 2001 the ETU (Victorian Branch) Distress, Mortality and Training Fund paid $ to the ETU South Australian Branch. That amount was calculated as the South Australian members entitlements from the surplus generated by Incolink No.3 Fund Final Report of the Royal Commission into the Building and Construction Industry

75 34 On 15 March 2001 Protect paid $ to the National Electrical and Communications Association, Victorian Chapter. That money represented funds from the EISS Portable Sick Leave Scheme In July 2001 Protect took out a $25 million annuity with Challenger Life Limited. A commission of $ was paid to Professional Investment Services Pty Ltd in respect of that annuity Professional Investment Services Pty Ltd then distributed most of that commission on 14 August 2001 as follows: (a) $ to Lawford Devin & Associates; 25 and (b) $ to Southern Alliance Financial Services Pty Ltd The shareholders of Southern Alliance Financial Services Pty Ltd are the CEPU Electrical Division Victorian Branch as to 65 per cent and Mr Tony Devin as to 35 per cent. Devin has an arrangement with Southern Alliance Financial Services Pty Ltd, whereby he normally takes 75 per cent of a placement fee and Southern Alliance Financial Services Pty Ltd takes 25 per cent. In this case, Devin offered Southern Alliance Financial Services Pty Ltd 50 per cent Mighell then directed the commission received by Southern Alliance Financial Services Pty Ltd be paid to the ETU (Victorian Branch) Trust and this was done on 12 September On 6 August 2001 International Underwriting Services Pty Ltd (IUS) paid $ to The Very Good Company Pty Ltd. This was the first instalment of the management or spotter s fee earned by the CEPU Electrical Division Victorian Branch in respect of the IUS income protection insurance policy. That policy and the earning of the spotter s fee are the subject of a separate case study. On 8 August 2001, The Very Good Company Pty Ltd paid that fee to the ETU (Victorian Branch) Trust On 5 December 2001 Protect paid $ to the ETU (Victorian Branch) Trust. This represented money left in the apprentice levy account when Incolink No.3 Fund was wound up On 5 December 2001 Protect paid $ to the ETU (Victorian Branch) Distress, Mortality and Training Fund. This was a payment of income protection and trauma scheme contributions (apparently the balance from the Incolink Redundancy Central Payment Fund Income Protection and Trauma Scheme No.3). 31 Conclusions 42 The evidence analysed above shows that the ETU (Victorian Branch) Trust has received income of $ On 3 October 2002, IUS paid to the CEPU Electrical Division Victorian Branch $ which was a further instalment of the spotter s fee payable in respect of the IUS income protection insurance policy. The tax invoice which IUS received before that payment described the fees as payable to ETU Distress, Mortality and Training Fund. Presumably, therefore, the CEPU Electrical Division Victorian Branch has arranged for this amount to be paid to the ETU (Victorian Branch) Distress, Mortality and Training Fund. 32 Reform Funds 69

76 44 A further amount of $ is presently held in trust by IUS to be applied in payment of the third instalment of the spotter s fee, together with any additional moneys which might be payable The evidence shows that money paid by employers into a redundancy fund for the purpose of meeting redundancy payment obligations to employees, has been used to purchase a house in Tasmania which is used as a residence by the State Secretary of the Electrical Trades Union, Tasmanian Branch This case study illustrates: (a) (b) (c) (d) (e) The creation by a branch of a union of trusts by which funds might be quarantined from potential creditors of the union; The preparation by a branch of a union of financial accounts which failed to include the assets of a trust which it controlled; The receipt by a trust controlled by a branch of a union, of the proceeds of part of a commission earned on an annuity taken out by a trustee of an industry redundancy fund; The receipt by a trust controlled by a branch of a union, of distributions from a trustee of an industry redundancy fund, the source of such distributions being moneys paid by employers. The need for a statutory requirement there be filed with the Industrial Registrar accounts of registered organisations, which accounts include: (i) (ii) the accounts of all entities, trusts or other instrumentalities controlled by or associated with the registered organisation or officials; or entities holding assets or deriving income from the registered organisation; employee or employer organisations with which the registered organisations deals; entities providing products or services to the registered organisation or its members; a fund providing benefits to the registered organisation or its members from funds provided by employers or employees. Persons involved Name Mighell, Dean Position/Title Secretary of the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia Electrical Division, Victorian Branch. 70 Final Report of the Royal Commission into the Building and Construction Industry

77 Notes to CEPU Electrical Division Victorian Branch financial analysis 1 Hellings Statutory Declaration, exhibit 1707, annexure DH5, document ; Hellings Statutory Declaration, exhibit 1707, annexure DH1, document Mighell, T15542/ /9. 3 ETU News, Victorian Branch, December 2000, Exhibit 93, document at The trusts were referred to in similar terms in the September 2002 edition of the ETU News, Victorian Branch see Mighell T15543/ /12. 4 Mighell, T15543/ Mighell, T15551/ Mighell, T15552/ Mighell, T15553/39-T15555/11. 8 T15574/ Hellings Statutory Declaration, exhibit 1707, annexure DH2, documents ; Financial Statement of ETU Australia for year ended , exhibit 1750, document at 0013 which shows $874,331 in the ETU s main account with the Commonwealth Bank of Australia. 10 Power Statement, exhibit 542, paragraphs 2-8, document Flowchart headed ETU Financial Analysis, exhibit 1708, document ; Folder of Documents supporting Exhibit 1708, exhibit 1709, document at 0128; Mighell, T15559/ Flowchart headed ETU Financial Analysis, exhibit 1708, document ; Folder of Documents supporting Exhibit 1708, exhibit 1709, document ; Mighell, T15559/ / Flowchart headed ETU Financial Analysis, exhibit 1708, document ; Folder of Documents supporting Exhibit 1708, exhibit 1709, document ; Mighell, T15565/ Folder of Documents supporting Exhibit 1708, exhibit 1709, document Flowchart headed ETU Financial Analysis, exhibit 1708, document ; Folder of Documents supporting Exhibit 1708, exhibit 1709, document ; Folder of Documents supporting Exhibit 1708, exhibit1709, document The directors of ElecNet resolved on 17 and 31 October 2000 that this $819, be transferred from Incolink to the ETU Minutes of Board Meetings of ElecNet (Australia) Pty Ltd, exhibit 1711, document at 0074; Minutes of Board Meetings of ElecNet (Australia) Pty Ltd, exhibit 1711, document at Flowchart headed ETU Financial Analysis, exhibit 1708, ; Folder of Documents supporting Exhibit 1708, exhibit 1709, document ; Mighell, T15565/ /13; Folder of Documents supporting Exhibit 1708, exhibit 1709, document Flowchart headed ETU Financial Analysis, exhibit 1708, document ; Folder of Documents supporting Exhibit 1708, exhibit 1709, document ; Folder of Documents supporting Exhibit 1708, exhibit 1709, document ; Mighell, T15561/ /4. 18 Flowchart headed ETU Financial Analysis, exhibit 1708, document ; Mighell, T15564/ / Mighell, T15575/ Flowchart headed ETU Financial Analysis, exhibit 1708, document ; Folder of Documents supporting Exhibit 1708, exhibit 1709, document ; Folder of Documents supporting Exhibit 1708, exhibit 1709, document ; Mighell, T15662/ Flowchart headed ETU Financial Analysis, exhibit 1708, document ; Folder of Documents supporting Exhibit 1708, exhibit 1709, document ; Mighell, T15562/ Flowchart headed ETU Financial Analysis, exhibit 1708, document ; Folder of Documents supporting Exhibit 1708, exhibit 1709, document ; Mighell, T15561/ Reform Funds 71

78 23 Flowchart headed ETU Financial Analysis, exhibit 1708, document ; Folder of Documents supporting Exhibit 1708, exhibit 1709, document at 0058; Folder of Documents support Exhibit 1708, exhibit 1709, document The National Electrical and Communications Association is registered under the Workplace Relations Act 1996 (C wth) as the National Electrical Contractors Association. 24 Flowchart headed ETU Financial Analysis, exhibit 1708, document ; Folder of Documents supporting Exhibit 1708, exhibit 1709, document Flowchart headed ETU Financial Analysis, exhibit 1708, document ; Folder of Documents supporting Exhibit 1708, exhibit 1709, document Flowchart headed ETU Financial Analysis, exhibit 1708, document ; Folder of Documents supporting Exhibit 1708, exhibit 1709, document Mighell, T15562/ /24, especially at T15563/ / Flowchart headed ETU Financial Analysis, exhibit 1708, document ; Folder of Documents supporting Exhibit 1708, exhibit 1709, document ; Folder of Documents supporting Exhibit 1708, exhibit 1709, document ; Mighell, T15564/ Flowchart headed ETU Financial Analysis, exhibit 1708, document ; Folder of Documents supporting Exhibit 1708, exhibit 1709, document ; Folder of Documents supporting Exhibit 1708, exhibit 1709, document ; Mighell, T15564/ Flowchart headed ETU Financial Analysis, exhibit 1708, document ; Folder of Documents supporting Exhibit 1708, exhibit 1709, document ; Folder of Documents supporting Exhibit 1708, exhibit 1709, document ; Mighell, T15562/ Flowchart headed ETU Financial Analysis, exhibit 1708, document ; Folder of Documents supporting Exhibit 1708, exhibit 1709, document ; Folder of Documents supporting Exhibit 1708, exhibit 1709, document ; Folder of Documents supporting Exhibit 1708, exhibit 1709, document at Smith Supplementary Statement, exhibit 1645, paragraph 16, document ; Smith Supplementary Statement, exhibit 1645, attachment IS2, document Smith Supplementary Statement, exhibit 1645, paragraph 14, Document Mighell, T15564/39-T15596/18; T15566/17-28; T15575/13-23; Contract for Sale, exhibit 1709, document Final Report of the Royal Commission into the Building and Construction Industry

79 5 Chifley Financial Services Limited 1 This investigation inquired into the circumstances which have resulted in the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, Plumbing Division, New South Wales Branch (CEPU Plumbing Division, NSW Branch) receiving insurance commissions from Chifley Financial Services Limited (Chifley) in respect of 24 hour income protection insurance taken out by employers in the plumbing and mechanical services sector of the building and construction industry. 2 Chifley provides financial services advice and is a multi-life insurance agent. It has no general insurance arrangements. However, general insurance arrangements are provided to its clients through a licence and services agreement which Chifley made on 8 February 1999 with Lowe Lippman Bott Pty Ltd (LLB). 1 3 That agreement recited that LLB (which is an insurance broker) wished to offer specialised insurance broking services to clients of Chifley and, subject to the terms of the agreement, Chifley agreed to LLB registering the name Chifley Insurance Brokers as a business name of LLB and to LLB using that name in the offering, promotion and provision of the services. 2 4 In essence, the agreement enables LLB to operate Chifley Insurance Brokers as a division of LLB and, in return, Chifley receives a licence and referral fee from LLB calculated as a percentage of the premiums paid by clients referred by Chifley to Chifley Insurance Brokers. 3 5 In early 1999, Mr Warren West, the then Acting Secretary of the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, Plumbing Division, New South Wales Branch approached Chifley to discuss the development of an improved income protection and top-up insurance product for the plumbing and mechanical contracting services sector. At the time, Chifley had an established rapport with the CEPU Plumbing Division, NSW Branch as they were located in the same building. 4 6 At that time, the standard Enterprise Bargaining Agreement (EBA) which had been negotiated by the CEPU Plumbing Division, NSW Branch with the Australian Mechanical Contractors Association and the Master Plumbers and Mechanical Contractors Association of New South Wales (MPMCA) 5 contained a provision for a 24 hour injury and sickness insurance policy to be taken out with Wagecover Australia Pty Ltd (Wagecover). West approached Chifley because the CEPU Plumbing Division, NSW Branch had found that the service offered to its members Reform Funds 73

80 by Wagecover was unacceptable and it was decided to look for another insurance company to be engaged for the pattern enterprise bargaining agreement. 6 7 An insurance product was then developed for the CEPU Plumbing Division, NSW Branch by LLB. As part of the development of the product, it was agreed that the CEPU Plumbing Division, NSW Branch would receive an ongoing commission. This was to be calculated at a rate of $1 a member each week. The $1 component to be provided to the CEPU Plumbing Division, NSW Branch was calculated as part of the premium to be paid by contributing employers. Mr James Thomas, the General Manager, Business Development of Chifley Financial Services Limited, could not recall whether the CEPU Plumbing Division, NSW Branch had asked for such a payment or whether an offer was made by Chifley or LLB. 7 8 In 1999, the MPMCA and the CEPU Plumbing Division, NSW Branch were engaged in pattern enterprise bargaining negotiations and, in about mid to late 1999, West presented to the MPMCA, the insurance product developed by LLB to replace the insurance provided by Wagecover. 8 9 A written proposal canvassing four options as to cover and conditions, with costings, was provided by Chifley. Option 4 was agreed by the MPMCA. In agreeing to the CEPU Plumbing Division, NSW Branch s claim, the fact that the premium proposed by Chifley was less than that charged by Wagecover for essentially the same level of benefits, as well as the fact that there was dissatisfaction amongst the MPMCA membership with Wagecover, encouraged the MPMCA to accept the proposal Accordingly, agreement was reached for the pattern enterprise bargaining agreement to include the following words: 24 Hour Income Protection Insurance The employer recognises the importance of providing income security for employees and their families. Accordingly the employer agrees to take out a policy of insurance providing 24 hour accident protection, workers compensation and sickness top-up insurance in respect of each employee. For the purposes of this agreement the agreed policy of insurance is the Chifley Insurance Brokers Option 4 or equivalent Thomas was advised by LLB that the only facility which could be used to make the payment to the CEPU Plumbing Division, NSW Branch was through a brokers fee. As the commission received by Chifley for its work was less than $1 a person each week, Chifley did not view this as an avenue to provide payment. The implementation of the arrangement was handled by LLB. From the introduction of the goods and services tax on 1 July 2000, the premium of $12 was subject to an additional charge of $1.20. The premium became, and still is, $13.20 an employee each week After the successful completion of the pattern enterprise bargaining negotiations, West provided Chifley with the names and contact details of companies which signed up to new enterprise bargaining agreements or were in the process of doing so. Chifley then forwarded those details to LLB which then contacted those companies, advising them of the availability of the policy Final Report of the Royal Commission into the Building and Construction Industry

81 13 It was proposed that, at the end of each month, LLB would calculate the commission to be received by Chifley and the amount to be received by the CEPU Plumbing Division, NSW Branch. It was proposed that cheques for the monthly distributions to both the CEPU Plumbing Division, NSW Branch and Chifley would be provided by LLB. However, Chifley felt that it was not in the commercial interests of Chifley to allow LLB to provide the payments to the CEPU Plumbing Division, NSW Branch directly and, for that reason, it asked that LLB transfer all commissions into Chifley s accounts so the CEPU Plumbing Division, NSW Branch would not develop a direct relationship with LLB. It appears that Chifley commenced making payments to the CEPU Plumbing Division, NSW Branch in May 2000 when it made the payment for January During 2001 Chifley made a decision to review the commission arrangements and this resulted in Chifley electing to cease the payment of $1 for each worker each week and providing a flat payment on a monthly basis. Under that new arrangement, Chifley has been paying the CEPU Plumbing Division, NSW Branch a payment of $3000 per month. This is generally less than the amount received by the CEPU Plumbing Division, NSW Branch from the previous arrangement. This new arrangement began in September 2001 with a payment of $ being made at that time for May, June, July and August The MPMCA was unaware of the payment of the commission to the CEPU Plumbing Division, NSW Branch West gave evidence that Chifley offered the CEPU Plumbing Division, NSW Branch a chance to sit on a claims review committee which would sit every one or three months to deal with disputed claims. He gave evidence that Chifley explained that there would be a fee paid to the union for its representation on this committee, in the sum of $1 for each person for each week. He also gave evidence that the CEPU Plumbing Division, NSW Branch undertook, as part of the arrangements, to promote the Chifley product among members and employers As it transpired, the claims review committee never operated. 17 However, Thomas conceded that the arrangement claimed by West was part of the arrangement made with the CEPU Plumbing Division, NSW Branch 18 and the letter from Chifley to the CEPU Plumbing Division, NSW Branch dated 25 September 2001, which forwarded the cheque for $ to the CEPU Plumbing Division, NSW Branch commenced as follows: With reference to our recent telephone conversation we agree that Chifley will pay you a monthly fee in return for your promotion of Chifley s products and service. The type of support you will provide will include: advertising in your journal to members; use of Chifley s journal articles in your journals; promotion of Chifley s products at worksites and your State conferences; and referring your members to us when they require financial advice. 19 Reform Funds 75

82 Conclusions 18 It was contended in a submission on behalf of West that as the negotiation of the policy was an aspect of a framework agreement, all that would result is an unregistered and unenforceable industrial agreement. 20 That neglects the reality understood by both parties to the negotiation, namely, that they were negotiating a clause to be included in all industrywide pattern agreements. 19 Submissions have been made to the effect that conduct that takes place during the course of negotiations between a union and an employer organisation in relation to the content of a framework enterprise agreement does not take place in trade or commerce. 21 The effect of those submissions was said to be that misleading or deceptive conduct that took place during negotiations in relation to a framework enterprise agreement could not contravene either section 52 of the Trade Practices Act 1974 (C wth) or the equivalent State Fair Trading Act provisions. 20 I do not accept those submissions. The High Court has indicated that the concept of trade or commerce does not extend to all conduct, regardless of its nature, in which a corporation might engage in the course of, or for the purposes of, its overall trading or commercial business. Instead, conduct occurs in trade or commerce only if it is conduct which is itself an aspect or element of activities or transactions which, of their nature, bear a trading or commercial character It may well be the case that a framework enterprise agreement does not impose any enforceable obligation on any employer to pay money, or impose any corresponding obligation on any union. 23 That fact does not have any implications for whether the conduct in question bears a trading or commercial character. The words trade or commerce are clearly of the widest import The authorities are somewhat inconsistent as to whether or not conduct that occurs in the course of employment negotiations between a company and its employees or prospective employees takes place in trade or commerce. 25 The more recent authorities do, however, suggest that negotiations between an employer and its employees may not take place in trade or commerce, 26 and reliance has been placed upon those authorities to suggest that the negotiation of a framework agreement between a union and employer organisation similarly does not take place in trade or commerce. 23 The analogy is flawed. The negotiation of a framework agreement does not take place between a company and its employees, in which context the negotiation may be thought to be merely incidental to the company s trading activities. 27 It takes place between a union and an employer organisation. Both employer organisations and unions invariably charge membership fees in return for which they provide services. Those services include the negotiation of the terms and conditions for framework agreements, which are often then picked up and incorporated into registered agreements signed by particular employers. The provision of negotiation services in return for reward is an inherently commercial activity. If misleading conduct occurs in the course of those negotiations, it occurs in trade or commerce. 76 Final Report of the Royal Commission into the Building and Construction Industry

83 24 In addition, aspects of the framework agreement would have operated, when incorporated into registered agreements, to give a direct financial benefit to the CEPU Plumbing Division, NSW Branch. That is a further reason for concluding that the conduct that took place in the negotiation of the framework agreement occurred in trade or commerce. 25 Although there may be some doubt about the meaning to be given to the licence and service agreement made between Chifley and LLB, the agreement envisages LLB charging a brokerage fee to its clients. 26 LLB regarded the employers who took out the 24 hour income protection insurance as its clients. It charged those employers a brokerage fee; and it was from that brokerage fee that the $1 a worker each week was paid to the CEPU Plumbing Division, NSW Branch MPMCA was not informed that the CEPU Plumbing Division, NSW Branch would be paid a commission. The issue which arises is whether it should have been so informed. 28 Silence may constitute misleading or deceptive conduct contrary to section 52 of the Trade Practices Act 1974 (C wth). However, it does not always constitute actionable misrepresentation. For silence to constitute misleading or deceptive conduct or an actionable misrepresentation, there must exist a duty on the person remaining silent to speak Here no enquiry was made by officers of MPMCA of the CEPU Plumbing Division, NSW Branch concerning whether it was receiving a commission from the policy advanced by it in the EBA negotiations. Further, there is some evidence that the CEPU Plumbing Division, NSW Branch was to earn commission by promoting the insurance policy in the manner described. In those circumstances, I am not satisfied that there has been any breach of section 52 of the Trade Practices Act 1974 (C wth). 30 However, the common understanding of the parties to the EBA pattern agreement was that the employers would pay for a policy providing 24 hour income protection insurance for the employers workers. It was not that it would pay a weekly sum to provide both that cover and a commission to the union of $1 for each person for each week, later commuted to $3 000 a month. The weekly payment agreed as part of the EBA negotiations, was not intended to be a source of revenue to the CEPU Plumbing Division, NSW Branch: it was intended to be a payment to cover the cost of the insurance policy for the employers work force. Fair dealing required the disclosure of the commission paid to the CEPU Plumbing Division, NSW Branch. There is no sensible basis upon which employers should be asked to make a payment equivalent to $1 a week for each employee to the union, simply because the employer agrees to provide moneys to pay the cost of a policy to give its employees income protection. The effect is to inflate building costs for the benefit of the union, not employees. 31 This case study illustrates: (a) (b) The inflation of building costs by the payment of commissions to a union; Non-disclosure by a union to employer organisations during pattern enterprise bargaining negotiations, of the fact that the union would receive commissions in respect of the insurance product which the union was negotiating to have included in the pattern enterprise bargaining agreement; and Reform Funds 77

84 (c) The need for a statutory requirement for disclosure of commissions or benefits arising or possibly arising from the payment for or receipt of benefits. Persons involved Name Thomas, James West, Warren Position/Title General Manager, Business Development, Chifley Financial Services Limited. At the relevant time, Acting Secretary, Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, Plumbing Division, New South Wales Branch. 78 Final Report of the Royal Commission into the Building and Construction Industry

85 Notes to Chifley Financial Services Limited 1 Thomas Statutory Declaration, exhibit 1660, paragraphs 4-5, document Thomas Statutory Declaration, exhibit 1660, attachment JT1, document at Thomas Statutory Declaration, exhibit 1660, paragraph 6, document ; J Statutory Declaration, exhibit 1660, attachment JT1, document at J Thomas Statutory Declaration, exhibit 1660, paragraphs 7-8, document In paragraph 2 of the statutory declaration of Warren Charles West, exhibit 1661, document , the parties with whom the CEPU Plumbing Division NSW Branch negotiated, are described as AMCA (Australian Contractors Association) and the Master Plumbers Association. See also paragraph 4 of the statutory declaration of Steven Ackerley, exhibit 1659, document , which makes reference to the Master Plumbers and Mechanical Contractors Association of New South Wales. 6 West Statutory Declaration, exhibit 1661, paragraphs 1-4, document Thomas Statutory Declaration, exhibit 1660, paragraphs 3, 9 and 10, document Murray Statutory Declaration, exhibit 1662, paragraph 5, document Murray Statutory Declaration, exhibit 1662, paragraph 8, document Thomas Statutory Declaration, exhibit 1660, paragraph 10, document Thomas Statutory Declaration, exhibit 1660, paragraphs 11-13, document Thomas Statutory Declaration, exhibit 1660, paragraphs 25-26, document Thomas Statutory Declaration, exhibit 1660, paragraphs 14-15, document ; Chifley Financial Tender Bundle, exhibit 1658, documents and Thomas Statutory Declaration, exhibit 1660, paragraph 17, document ; Thomas Statutory Declaration, exhibit 1660, attachment JT2, document West, T15354/45; Ackerley Statutory Declaration, exhibit 1659, paragraph 8, document ; Ackerley, T15347/20; Murray Statutory Declaration, exhibit 1662, paragraph 12, document ; Thomas Statutory Declaration, exhibit 1660, paragraph 22, document Thomas gave evidence that, following a meeting with representatives of the MPMCA and the CEPU Plumbing Division, NSW Branch which he attended, he raised the issue of disclosure with West and that, following that discussion, he believed West would discuss the commission with the MPMCA see Thomas Statutory Declaration, exhibit 1660, paragraph 22, document West denied that that conversation with Thomas took place West, T15355/9. 16 West Statutory Declaration, exhibit 1661, paragraphs 7-8, document ; West T15355/ Thomas, T15351/45, 15352/ Thomas, T15351/ Thomas Statutory Declaration, exhibit 1660, attachment JT2, document Submissions by Maurice Blackburn Cashman Lawyers on behalf of Mr Warren West dated 22 November 2002, in reply to the submissions of Counsel Assisting, paragraph 1; Ryan v Textile, Clothing and Footwear Union of Australia [1996] 2 VR Submissions by Maurice Blackburn Cashman Lawyers on behalf of Mr Warren West dated 22 November 2002, in reply to the submissions of Counsel Assisting, paragraphs Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594, See Ryan v Textile, Clothing and Footwear Union of Australia [1996] 2 VR Re Ku-ring-gai Co-operative Building Society (No 12) Ltd (1978) 36 FLR 134, 167. Reform Funds 79

86 25 See Patrick v Steel Mains Pty Ltd (1987) 77 ALR 133; Barto v GPR Management Services Pty Ltd (1991) 33 FCR 389; cf Martin v Tasmania Development and Resources (1999) 163 ALR 79; Mulcahey v Hydro Electric Commission (1998) 85 FCR 170, Martin v Tasmania Development and Resources (1999) 163 ALR 79, [77]; Mulcahey v Hydro Electric Commission (1998) 85 FCR 170, Martin v Tasmania Development and Resources (1999) 163 ALR 79, [77]. 28 Thomas Statutory Declaration, exhibit 1660, attachment JT1, document see definition of Broker Clients, Member and Services. See also clause 9, which makes reference to a commission or brokerage to be paid to LLB. See also clause 11(b) which enables LLB to deal directly with clients introduced by Chifley and to provide the Services to that client in the manner that LLB normally deals with its clients under the normal broker/client relationship, as required by law Thomas Statutory Declaration, exhibit 1660, attachment JT1, document at 0008, 0012 and See also Thomas Statutory Declaration, exhibit 1660, paragraph 12, document See Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546 at 557; Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 32; Lam v Ausintel Investments Pty Ltd (1989) 97 FLR Final Report of the Royal Commission into the Building and Construction Industry

87 6 College of Electrical Training Inc: ANTA Grant Introduction 1 In May 1998 the Electrical and Electrotechnology Training Centre Incorporated, now known as the College of Electrical Training Incorporated (CETI), applied for an infrastructure grant from the Australian National Training Authority (ANTA) to expand the capacity and training delivery capabilities of the [CETI] through the redevelopment of a recently acquired industry specific land and building package at 9 Cressall Road, Balcatta 1 (the Property). CETI s application was lodged with the WA Department of Training (WA DOT). 2 ANTA and WA DOT each prepared guidelines to be applied in relation to applications for an infrastructure grant. Both sets of guidelines stipulated that the approval of a grant was conditional upon a contribution from industry of not less than 50 per cent of the proposed project cost. CETI s application proposed a total project value of $ and a ratio of contributions for the project of $ from industry and $ by way of the grant. The proposed industry contribution was to be from the Electrical Contractors Association of Western Australia (Inc) (ECAWA) and was to be comprised, in part, of buildings and land to the value of $ The application was subsequently approved and the grant was provided. Of the total grant, the sum of $ was spent upgrading the building on the Property. 4 The grant was subsequently acquitted, however ECAWA retained ownership of the Property. Further, CETI rents the Property from ECAWA for an annual rental of $ ANTA maintains that the industry contribution was to be made by the ECAWA donating the Property to CETI. 6 The Commission investigated how it transpired that the grant was approved, provided and subsequently acquitted in circumstances where the Property was not transferred to the CETI. Facts 7 ECAWA is an association incorporated under the Associations Incorporation Act 1987 (WA). It is a union of employers. The object of the association is to protect by any lawful means and further the interests of employers in the electrical contracting industry in Western Australia. Any Reform Funds 81

88 person who is substantially engaged in the business of an electrical contractor, or who (being a resident of Western Australia) is a member of a partnership which is substantially engaged in such business, or a company so engaged, is eligible for membership of the ECAWA provided the person, one of the partners, or in the case of a company a person nominated by the company for the purpose, holds an electrical contractor s licence and the person is an employer. 2 8 In October 2002, ECAWA membership was approximately 400. The membership ranges from sole traders to national corporations who are electrical contractors operating out of Western Australia. ECAWA is an association registered in the Western Australian Industrial Relations Commission under the Industrial Relations Act 1997 (WA). 3 9 CETI is an association incorporated under the Associations Incorporation Act 1987 (WA). CETI was incorporated on 8 November It changed its name to the College of Electrical Training Incorporated on 15 April The objects of the CETI are variously described in the CETI Rules but relate to training of apprentices and trainees in the electrical and electrotechnology industry in WA. Its first stated object is to establish a training centre CETI is an independent body and does not form part of ECAWA The membership of CETI is limited to the Board members of CETI. 8 The Board is comprised of six members. ECAWA and the Electrical and Electronic Group Apprenticeship Scheme Incorporated, now known as Electrical Group Training Limited, 9 each appoint three persons (CETI Rules, clause 6.2). 10 The Board members appoint the chairman Since 1974, the Commonwealth of Australia has provided capital funding to states and territories towards the establishment of a comprehensive network of TAFE colleges across the country. Since 1987, the Commonwealth has administered a Skill Centre Program. Under the Program, industry is invited to participate in joint venture arrangements to establish industry based training facilities, or Skill Centres. Infrastructure funds are provided by the Commonwealth for the development of Skill Centres. In the past, such funding was very much directed towards the TAFE program. From 1995 onwards, infrastructure funding has been made available more flexibly to encourage the creation of a broader training market involving both TAFE colleges as well as private and industry based providers ANTA is a Commonwealth statutory authority established in 1992 to provide a national focus for vocational education and training in Australia. ANTA receives approximately $1 billion for funding each year from the Commonwealth Department of Education Science and Training. The funds are allocated to various bodies for approved purposes. Within this funding, there is an allocation of approximately $200 million each year for allocation under ANTA s Infrastructure Program. Included in this $200 million is an allocation of $7 million a year for Industry Based Skill Centres Infrastructure Grants For the purpose of administering the Grants, ANTA published a document entitled Information and Guidelines (ANTA Guidelines) At all material times, 15 relevant clauses of the ANTA Guidelines included: 4.1 It is expected that proposals will be developed in consultations between industry groups and State/Territory Training Agencies. 82 Final Report of the Royal Commission into the Building and Construction Industry

89 4.3 It is expected that a substantial contribution will be made by industry to any Skill Centre project as industry will be the main beneficiary. The level of such contributions will be a matter for negotiation between the State/Territory Training Agency, the industry involved and any other party. While there are no set levels of contributions by the parties, it would generally be expected that ANTA funds would represent less than half of the establishment costs. 4.4 Funds under this initiative are provided for expenditure of a capital nature and proposals should not include funds for operational expenses or for course development. 4.6 A key feature of any proposal will be the long term financial viability of the Centre and the need, if any, for ongoing support from public sources or government training programs 4.8 These guidelines set out the requirements from ANTA s viewpoint. It will be a matter for the States/Territories to put in place any procedures they consider necessary to meet their own requirements, including conditions of grants, to ensure that proposals will withstand public scrutiny and to propose appropriate management arrangements to ensure proper accountability of public funds. 7.7 Budget Outline This should be in two parts. The first should indicate the total establishment costs, with indications of the various sources of funding. It should be noted that it would be generally expected that funds from ANTA would represent less than half the establishment cost. The second are [sic] estimated income and expenditure statements for a three year period. These should form part of a broader business plan. It is from this information that an assessment can be made regarding financial viability. 8.1 The following criteria should be applied when assessing proposals for assistance: (b) (c) The financial viability of the Centre as demonstrated in a Business Plan for the first three years of operation and the ability of the Centre to generate its own operational support; The degree and type of non-government funding proposed for the establishment of the Centre, including the level of industry support. It would generally be expected that ANTA funds would represent less than half of the establishment costs; (f) For industry based centres, the establishment of a separately incorporated body to operate the Centre. Reform Funds 83

90 9.2 Proposals may be submitted to ANTA by State/Territory Training Agencies as they are developed. 9.3 Once funds have been approved by ANTA, State/Territory Training Agencies will have responsibility to progress the proposal with the applicants and arrange for the necessary formal agreements and management processes to be put in place to protect public funds. 9.5 All contractual matters relating to the establishment of approved Skill Centres and the appropriate use of public funds will be the responsibility of the State or Territory (original emphasis). 16 The State Training Agency acts on ANTA s behalf in relation to supervision of the grants. 17 WA DOT is the applicable State Training Agency, as described in the ANTA Guidelines, for the purpose of administering the infrastructure grants in WA. 18 For this purpose, WA DOT published and distributed a document entitled 1998 Skills Centre Capital Funding - Call for Applications - Information and Guidelines Kit (WA DOT Guidelines). 19 The WA DOT Guidelines applied at all material times. Relevant clauses of the WA DOT Guidelines included: 1. The purpose of this information kit is to invite industry and enterprise applications for the establishment of skill centres (or the expansion of existing facilities) to be funded in 1998 under the skill centre component of the (ANTA) Infrastructure Program. 3. Funding made available under the Skill Centre component of the Infrastructure Program during 1998 may be requested for a variety of purposes including: The purchase of land and/or appropriate facilities; Construction of buildings; Modifications to existing facilities; 5. The objective of skill centre funding is to further assist in the development of the national and Western Australian vocational education and training systems by: Encouraging a greater contribution by industry in the establishment and operation of appropriate vocational education and training facilities 6. As the agency responsible for co-ordinating the development and submission of Western Australia s skill centre capital funding applications [DOT] has established a process which is designed to ensure that: [DOT], through liaison with stakeholders, industry and applicants, maximises its exposure to, and understanding of, applications received; 84 Final Report of the Royal Commission into the Building and Construction Industry

91 The process to be adopted by [DOT] for the 1998 skill centre capital funding process is outlined below: Call for Applications - Applications to access skill centre funding are called for through public advertisement. Assessment of Applications - All applications will be assessed by [DOT] against the criteria listed at Section 9 of this Information Kit. 7. There are a number of key considerations that are required to be reflected in skill centre capital funding applications: 8. Industry should contribute at least 50% of the total capital costs associated with the proposed development (in-kind contributions are acceptable). Enterprise based applications require a higher level of contribution and this will be negotiated with the applicant. Budget An estimated breakdown of total budget costs and the respective industry and ANTA contributions are required. 9. Initial skill centre applications will be assessed competitively against a set of criteria to determine those that are most appropriate to develop into full submissions for consideration by [DOT], and possible recommendation to ANTA. Initial skill centre applications will be assessed against the following criteria: 1. The application has an appropriate mix of funding support as detailed in this Call for Applications information kit. Capital cost estimates are well based. Please note that applications proposing funding contribution from industry of less than 50% will not be further considered; 3. The application demonstrates financial viability without continued provision of recurrent public funding for capital or operational purposes, including employment based training and tendered funding; 20 (original emphasis). 17 In early 1998 and some time prior to 18 March 1998, CETI provided WA DOT with a preliminary application for an infrastructure grant On 18 March 1998 the WA DOT Contracts Committee noted and accepted an Evaluation Report which recommended the CETI application for further development Following the WA DOT Contracts Committee Meeting, WA DOT liaised with ECAWA and CETI. In the discussions it was made very, very clear that there was a 50 per cent contribution required from industry. 23 Reform Funds 85

92 20 WA DOT subsequently received a formal application dated 4 May 1998 from CETI (the Application) The Application was put together by the then Executive Director, the Electrical Contractors Association of WA Incorporated, Mr Gus Ferguson, and his staff. 25 The present Executive Director of the Electrical Contractors Association of WA Inc, Mr Rodney Hale, was involved in much of the drafting By contrast, the Chairman of the College of Electrical Training Incorporated, Mr Tony Sulley, who signed the Application, had no role in preparing it. His evidence was: I did not have anything to do with the putting together of the application as such. It was presented to the Board, we approved it and I signed it Sulley s understanding of matters was as follows: As far as I am aware there was an offer by the Government for a grant based on an industry Financial input and the Government s input. we said to the ECA, that we did not have any money. We cannot do this, but we have this will to move so the ECA, representing the industry, said to the CET that they would provide the building, so that we could go ahead with the submission on behalf of the college. That is my understanding. I do not know what the ECA s understanding was as to their obligation for the industry contribution. Apart from the fact that they would supply premises Relevant clauses of the Application included: 2.1 This application has been jointly prepared by the [CETI] and the [ECAWA] in consultation with [WA DOT] and the electrical/electronics/communications industries. 2.2 The purpose of this application is to seek support in the form of capital funding from the [ANTA] infrastructure program to expand the capacity and training delivery capabilities of the [CETI] through the redevelopment of a recently acquired industry specific land and building package at 9 Cressall Road, Balcatta. 2.4 In the creation of the [CETI], industry determined the objectives of the Centre, incorporating them into the body of its constitution and rules, establishing a clearly definable direction for training. Rule 3 of the Centre s constitution states that the objects are: 3.1 (a) To establish the Training Centre; 3.3 The property and income of the Association shall be applied solely towards the promotion of the objects of the Association. 4. Due to the training demand and physical/geographical limitations of the current facility in Malaga, the Board of the [CETI] actively sought appropriate parcels of 86 Final Report of the Royal Commission into the Building and Construction Industry

93 land or established properties for purchase to allow for the timely growth of the Centre s activities as determined by industry. A number of packages were identified during the later part of 1997 with two opportunities to purchase being lost due to the submission of qualified offers. Extensive renegotiations with industry and government on the ability of the [CET] to acquire suitable long term accommodation saw the ECA develop a financial portfolio enabling it to purchase a land and building package at 9 Cressall Road, Balcatta, thereby allowing the [CETI] to plan for its long term accommodation needs through 1998 and beyond BUDGET The application is based on a proposed total project value of $2,203, It is further proposed that the ratio of contributions for this project be as follows: Item Contributions by Industry $ ANTA $ Buildings and land $1,200,000 - Design and development - - Building upgrade - $650,000 TOTAL 1,315, , It is the Board s view that the [CETI] is a worthy applicant for financial assistance as: The industries it services are prepared to invest, in real terms, the greater portion of capital required to enhance the training effort necessary for a sustained industry growth The Application had annexed to it, among other things: (a) (b) (c) a cost estimate of $ for construction costs at the proposed training centre at the Property. The cost estimate was contained in a letter dated 6 May 1998 from Bruce McLean, Architects, to Ferguson at ECAWA; 30 a copy of the first page of the contract for sale of the Property stating ECAWA as the purchaser of the property for a purchase price of $ ; 31 a letter dated 14 April 1998 from the Australia and New Zealand Banking Group Limited (ANZ) evidencing settlement of ECAWA s purchase of the Property on 9 April 1998 and a loan of $ by the ANZ to ECAWA to assist ECAWA with the purchase Under cover of a letter dated 23 June 1998, Mr Ian Hill, the Chief Executive of the Western Australian Department of Training, submitted four WA applications, including the CETI Application, to ANTA. The letter stated, relevantly: Reform Funds 87

94 The four attached applications have been developed by the proponents in close consultation with [WA DOT]. I am confident that the attached proposals present a sound case for funding. The four applications enclosed seek a total of just over $2.1 million in ANTA funds which is balanced against a total industry contribution of over $3.5 million [WA DOT] fully endorses the four attached applications Subsequent to lodgment of the Application, the amount to be contributed by industry and the value of the grant was the subject of discussion between Mr Nigel Haywood, the Director, System Planning and Industry Analysis Directorate, the Western Australian Department of Training and Mr Geoff Hender of the College of Electrical Training Incorporated. The result of the discussions was an agreement that the industry contribution would be Building and land to a value of $ comprised of the purchase price ($ ), stamp duty ($ ), settlement ($ ) and architect s and engineer s fees ($16 528). The ANTA grant was revised to a total sum of $ These details were confirmed by facsimile letter dated 8 July 1998 from Haywood to Mr William McGuiness (of the Australian National Training Authority) On 8 July 1998 an internal ANTA memorandum to the General Manager of ANTA, 35 sought approval of the CETI Application for an infrastructure grant in the amount of $ The memorandum stated, relevantly: Over the last few years [CETI] has been undergoing growth in demand for its services. The Centre which is currently located at 22 Westchester Rd, Malaga is physically restricted in its capacity to expand and has been seeking a new site for some time. They have recently put together a financial portfolio which will enable them to purchase land and buildings at 9 Cressall Rd, Balcatta The General Manager approved the Application on 9 July By letter dated 21 July 1998, he wrote to Hill (of WA DOT) advising of the approval of the infrastructure grant for the total sum of $ Attached to the letter was a schedule relating to the project which set out relevant details about the grant. Relevantly, the schedule provided: INDUSTRY CONTRIBUTION Existing site with land and buildings - $1,198, The schedule made provision for Hill to sign, date and return a copy of the schedule acknowledging the details set out in the schedule. Hill signed the schedule, dated it 4 August 1998, and returned it to ANTA under cover of a letter dated 4 August The grant moneys were subsequently provided by ANTA to WA DOT, for payment by WA DOT to CETI On 15 September 1998 Hill (on behalf of the WA Minister for Employment and Training) and Sulley (on behalf of CETI) signed an agreement providing for the expenditure of the infrastructure grant and for performance obligations to be met by CETI. Sulley signed the agreement in the presence of Ferguson as a witness Final Report of the Royal Commission into the Building and Construction Industry

95 33 By clause 3.1 of this performance agreement, CETI undertook to carry out the project set out and described in CETI s application in accordance with Schedule 1 of the agreement. Schedule 1 described the grant as a once only grant of $901,569 towards an estimated cost of $2.1 million being for the acquisition and redevelopment of the new centre at the Property. The Schedule then went on to describe the purposes for which the grant was to be expended By lease dated 13 October 1998, ECAWA leased the Property to CETI for a lease period of five years commencing 1 October 1998 and for a rental of $8800 a month (or $ a year). The lease was executed under the common seal of both parties. Ferguson was one of the persons who signed on behalf of the ECAWA, and Sulley was one of the persons who signed on behalf of CETI During 2000 and early 2001, an exchange of correspondence occurred between WA DOT and ANTA regarding acquittal of the infrastructure grant. 44 The correspondence showed that $ from the infrastructure grant had been spent on building improvements to the Property and the balance of $ on equipment (as intended) By letter dated 9 February 2001, ANTA wrote to WA DOT stating, relevantly: The information you have provided for this skill centre adequately accounts for the expenditure of ANTA s funds, but does not state whether the industry contribution, which was part of the original approval, was received by the centre or how this money was expended This letter accorded with ANTA s general practice to talk to the State Training Authority, to get from them that the conditions in terms of the industry contribution have been met WA DOT replied by facsimile letter dated 12 March 2001, attaching a copy of the schedule referred to in paragraph 29 above, and stating, relevantly: It appears from the schedule that the industry contribution was recognized at the time of approval, in 1998, as the existing site with land and buildings By dated 14 March 2001, ANTA replied to WA DOT stating, relevantly: there is no need to acquit the industry contribution for CET. Normally we would seek an assurance that the skill centre actually received the industry contribution but in this case it is clear in our records that the building and land was purchased for $1,198,571. We have acquitted the project on our records No further action was taken by ANTA or WA DOT. No inquiry was made by WA DOT to verify that the industry contribution had been made and in particular that the Property had been transferred from ECAWA to CETI. 50 Likewise, ANTA made no such inquiry of WA DOT. Ms Kareena Arthy, Director of Research, Planning and Reporting in the Australian National Training Authority, gave evidence that ANTA only required evidence that the Property existed. Whether it was transferred was a matter of management and administration, which was the responsibility of WA DOT. 51 From the viewpoint of all concerned, the matter was concluded. 41 The financial accounts of ECAWA 52 and of CETI 53 evidence that CETI pays rent for the property to ECAWA in accordance with the lease, and that approximately 80 per cent of CETI s income is derived from course fees. Reform Funds 89

96 42 In 2001 CETI constructed a new workshop and class room on the Property at a cost of $ This cost was met solely by CETI, 54 notwithstanding that those improvements became the property of ECAWA Under the terms of the lease, clause 4.4, CETI is liable to surrender and deliver up possession of the Property at the expiration of the lease term or otherwise in accordance with the terms of the lease. Conclusions Industry Contribution 44 The first question to be answered is whether it was a condition of the grant to CETI that ECAWA would transfer the Property to CETI. 45 The answer to that question depends upon the meaning to be given to the ANTA Guidelines, the WA DOT Guidelines, the Application and the grant agreement of 15 September In particular, it depends upon the meaning to be given to the words contribution by industry referred to in the first three of those documents. 46 ECAWA and CETI submitted, during the hearing, that the only obligation on ECAWA was to make the Property available to CETI However, contribute means much more than merely make available. Contribute is variously defined to mean: to give or pay jointly with others; to furnish to a common fund or charge; to give or make contribution; to give or furnish along with others to a collective stock; to give or furnish along with others towards bringing about a result; 57 and to give in common with others; to give to a common stock or for a common purpose: to contribute money, time, help The words contribute and contribution in both the ANTA Guidelines and the WA DOT Guidelines should be given their ordinary meaning, namely to give, and the word contribution in the Application should also be read with that meaning in mind. 49 Clause 4.6 of the ANTA Guidelines (which is set out above) is particularly significant. The Application made no mention of a proposed lease of the premises by ECAWA to CETI. That fact is a strong indication that the Application should be understood to mean that the industry contribution of land and buildings would result in a transfer of the Property to CETI. If it were otherwise, there would be no provision in the Application showing CETI s long term occupation of the Property which would, in turn, be a necessary element of the long term financial viability of the Training Centre. 50 Furthermore: (a) the WA DOT Guidelines were provided to CETI and ECAWA for the purpose of CETI preparing its application and state industry should contribute at least 50% of the total capital costs associated with the proposed development (see clause 7 set out above); 90 Final Report of the Royal Commission into the Building and Construction Industry

97 (b) (c) clause 13.1 of the Application regarding Budget, set out above, states that the Application is based on a total project value of $ It then proposed the ratio of contributions between Industry and ANTA of $ and $ respectively; and the Application, at clause 17, expressed ECAWA s view that CETI was a worthy applicant because the industries it services are prepared to invest, in real terms, the greater portion of capital required (emphasis added). 51 It is therefore plain that it was a condition of the grant to CETI that ECAWA would transfer the Property to CETI. The conduct of ECAWA and its understanding 52 The Application for the infrastructure grant was, for all practical purposes, prepared by ECAWA. CETI, and Sulley in particular, merely put their names to it to enable it to be put forward. 53 In his evidence, Hale referred to that part of clause 7 of the WA DOT Guidelines which states: Industry should contribute at least 50% of the total capital costs associated with the proposed development (in-kind contributions are acceptable). He then went on to say: My understanding is that at the time the Application was made, (much of which I was involved in drafting), that our in kind contribution was a location to have the training occur He also gave the following evidence: Prior to ANTA approval the ECA took steps to purchase 9 Cressall Road for the sole purpose of providing facilities to be used by CET. To the best of my knowledge and from my enquiries, no one had any belief or even thought that there was any requirement that if ECA bought the land and the buildings, that it would have to donate the land and buildings to CET or to any other party, as a condition of getting ANTA funding. It was always understood by ECA and CET that our contribution to the project overall was that CET [sic] would make available the location where the training would occur, and ANTA would fit out that location. no one expected ECA to donate the land and buildings or not to charge rent Acceptance of that evidence would mean that it must follow that ECAWA prepared the Application with the intention that $ of the grant moneys, in the event that the grant was approved, would be received effectively by ECAWA, rather than CETI, for capital improvement of ECAWA s Property. 56 This is what has, in fact, occurred. It would not have occurred if the condition had been satisfied. Reform Funds 91

98 57 It seems plain enough that the failure to transfer the Property from ECAWA to CETI occurred through a series of misunderstandings. ECAWA did not appreciate that it was obliged both by the conditions of the application and the grant to transfer the Property. Neither WA DOT nor ANTA gave close attention to the legal position of ownership of the Property, although the legal title to the Property is clear. No attempt to hide the legal ownership of the Property was made, but neither WA DOT nor ANTA noted ECAWA s ownership, although each was advised of it. Everybody concerned seemed to treat ECAWA and CETI as the one entity although clearly they are separate. 58 Nonetheless, because of this oversight or misunderstanding, ECAWA has been advantaged by the provision of almost $1 million of public moneys which has been invested in a property owned by it, when those moneys were intended to be invested in a training facility owned by CETI. There is no doubt that if ECAWA had indicated it would not transfer the Property to CETI, the application would not have been considered, let alone approved, because there was the requirement that the industry contribute at least 50% capital funding. ECAWA has been further advantaged by the receipt of substantial rental paid from funds raised by the provision of training which ought to have been used for the conduct of the training school. 59 There was evidence before me from Mr Hale that now that the matter was drawn to attention, the position would be reviewed by ECAWA. It is clear the Property should be transferred to CETI to fulfil the conditions of the grant. WA DOT 60 WA DOT failed to ascertain whether the industry contribution had been made. Haywood acknowledged that to the Commission: [W]e were looking at that application as being one that was pretty cut and dry, in that there was a sale document there that was indicating that land and buildings were going to be purchased for the value which was in the budget, which was around $1.2 million. We were seeing that as being the industry contribution that would then be leveraged against the ANTA dollars. The error that was made was indeed that that sale document did indicate that the purchaser was indeed the ECA and not the proponent, which was the [CETI]. That is the fundamental error that occurred in providing that application to ANTA for ANTA s consideration Haywood asserted that WA DOT s error led it to believe that the industry contribution had already been made by the purchase of the Property in the name of CETI. In evidence, he endeavoured to share responsibility for the error with ANTA: ANTA had access to the same information that we did and it appears as though ANTA had looked at it the same way that we did, and indeed had not picked up the same error In circumstances where: (a) (b) clause 4 of the Application made it plain that ECAWA had purchased the Property; the name of the purchaser shown on the first page of the contract for sale was ECAWA; and 92 Final Report of the Royal Commission into the Building and Construction Industry

99 (c) the letter from the ANZ dated 14 April 1998 was addressed to the executive directors of ECAWA and there was nothing in that letter to suggest that the purchaser was not ECAWA, it is plain there was a gross lack of care on the part of WA DOT in administering this application. 63 It necessarily follows that WA DOT was deficient in failing to appreciate that the Application and the annexures showed that ECAWA had purchased the Property. WA DOT was deficient in failing to ensure that the Property was transferred to CETI. ANTA 64 ANTA also failed to ascertain whether the industry s contribution had been made. Although, by letter dated 9 February 2001, it inquired of WA DOT about the industry contribution, this letter appears to have been written without a proper understanding of the Application and how the industry contribution was going to be made, namely by the transfer of the Property. The letter stated: The information you have provided for this skill centre adequately accounts for the expenditure of ANTA s funds, but does not state whether the industry contribution, which was part of the original approval, was received by the centre or how this money was expended Furthermore, ANTA also appears not to have understood the Application and the annexures. See, for example, the second quoted paragraph from the internal memorandum which is set out in paragraph 28 above and the extract from the schedule attached to ANTA s letter to WA DOT dated 21 July 1998 (see paragraph 29 above). That schedule appears to have led to the further misunderstanding which is shown in ANTA s dated 14 March 2001: As you suggested in our phone discussion on Monday, there is no need to acquit the industry contribution for CET. Normally we would seek an assurance that the skill centre actually received the industry contribution but in this case it is clear in our records that the building and land was purchased for $1,198,571. We have acquitted the project on our records (emphasis added) Thus, ANTA s inquiry made in the letter dated 9 February 2001, appears to have been satisfied by receiving evidence that the Property existed and that it had been purchased ANTA was deficient in failing to appreciate that the Application and the annexures showed that ECAWA had purchased the Property. ANTA was deficient in failing to ensure that the Property had been transferred to CETI. 66 Deficiencies in the Documentation 68 The evidence disclosed a deficiency in the manner in which the grant conditions were documented. For example: (a) on no occasion was ECAWA, on behalf of industry, asked to commit to its contribution to enable CETI to obtain the grant (and it never did). WA DOT and ANTA appear to have proceeded solely on the indirect representation of industry s intentions, made in the Reform Funds 93

100 Application from CETI. But for the Application stating it was jointly prepared by ECAWA and CETI, it would be difficult to attribute this representation to ECAWA; (b) (c) (d) (e) ANTA claims that it would not have approved the grant had it known that the Property was not going to be transferred to CETI. 67 However, nothing was in place to ensure the transfer; nowhere was it stated that ECAWA intended to, or would be obliged to, give, transfer or donate the Property to CETI. WA DOT and ANTA proceeded on that assumption by reference to the WA DOT Guidelines, the ANTA Guidelines and the schedule of details about the grant acknowledged by Hill (of WA DOT), each of which referred only to industry contribution. Also, nowhere did CETI or ECAWA acknowledge that assumption to be correct. The Application, in clause 13.1, merely repeated the terminology using the phrase ratio of contributions ; contribution by industry was a critical component of the infrastructure grant scheme, yet it was not defined or further described in the ANTA Guidelines, the WA DOT Guidelines, the application or any ancillary document. Its meaning was left for interpretation by those concerned; and the lack of documentation governing the industry contribution contrasts markedly with the detailed agreement entered into between the WA Minister for Employment and Training and CETI governing use of the grant. 68 Findings 69 This case study illustrates: (a) (b) (c) deficient administration by a Commonwealth statutory authority and a State department in their administration of an application for an infrastructure grant of funds to a training organisation; the failure of a Commonwealth statutory authority and a State department to ensure that public moneys were disbursed only in accordance with the conditions of an approved grant; and the resulting advantage flowing to an employer association from moneys intended to be expended on a training facility. 94 Final Report of the Royal Commission into the Building and Construction Industry

101 Persons involved Name Arthy, Kareena Ferguson, Gus Hale, Rodney Haywood, Nigel Hender, Geoff Hill, Ian McGuiness, William Sulley, Tony Position/Title Director, Research Planning and Reporting, Australian National Training Authority. Former Executive Director, Electrical Contractors Association of WA Incorporated. Executive Director, Electrical Contractors Association of WA Incorporated. Director, System Planning and Industry Analysis Directorate, Western Australian Department of Training. College of Electrical Training Incorporated. Chief Executive, Western Australian Department of Training. Australian National Training Authority. Chairman, College of Electrical Training Incorporated. Reform Funds 95

102 Notes to College of Electrical Training Inc: ANTA Grant 1 Tender Bundle of Documents re: CETI, exhibit 1759, document at Tender Bundle of Documents re: CETI, exhibit 1759, document Hale Statement, exhibit 1764, paragraph 6, document Tender Bundle of Documents re: CETI, exhibit 1759, document Tender Bundle of Documents re: CETI, exhibit 1759, document Tender Bundle of Documents re: CETI, exhibit 1759, document at Hale Statement, exhibit 1764, paragraph 11, document ; Sully Statutory Declaration, exhibit 1758, paragraphs 5 and 8, Document They are separately incorporated associations. 8 Tender Bundle of Documents re: CETI, exhibit 1759, document at Sulley Statutory Declaration, exhibit 1758, paragraph 6, Document Hale Statement, exhibit 1764, paragraph 12, document ; Tender Bundle of Documents re: CETI, exhibit 1759, document at Tender Bundle of Documents re: CETI, exhibit 1759, document at 0009; Sulley Statutory Declaration, exhibit 1758, paragraph 5, document , cf paragraph Tender Bundle of Documents re: CETI, exhibit 1759, document at Arthy Statutory Declaration, exhibit 1761, paragraphs 1 3, document Tender Bundle of Documents re: CETI, exhibit 1759, document The ANTA Guidelines were approved by the Ministerial Council on 25 May 1995 and remained in force unchanged until after the end of 1999 : Arthy Supplementary Statutory Declaration, exhibit 1762, paragraph 1, document ; Arthy Statutory Declaration, exhibit 1761, paragraph 4, document Tender Bundle of Documents re: CETI, exhibit 1759, document at 0011, Arthy Statutory Declaration, exhibit 1761, paragraph 6, document Haywood Statement, exhibit 1763, paragraph 2, document Haywood Statement, exhibit 1763, paragraph 5, document ; Haywood Statement, exhibit 1763, attachment NH1, document Haywood Statement, exhibit 1763, paragraph 5, document ; Haywood Statement, exhibit 1763, attachment NH1, document at Haywood Statement, exhibit 1763, paragraph 8, document Haywood Statement, exhibit 1763, paragraph 9, document ; the minutes of the meeting of the WA DOT Contracts Committee held on 18 March 1998, and the Evaluation Report were tendered as part of the Tender Bundle of Documents re: CETI, exhibit 1759, documents at 0048; at 0055, at Haywood, T15973/1 23, especially Tender Bundle of Documents re: CETI, exhibit 1759, document ; Haywood Statement, exhibit 1763, paragraph 10, document This was in accordance with the process envisaged by ANTA: Arthy Statutory Declaration, exhibit 1761, paragraphs 7 and 8, document Sulley Statutory Declaration, exhibit 1758, paragraphs 12, 30 and 32, document Hale Statement, exhibit 1764, paragraph 18, document Sulley Statutory Declaration, exhibit 1758, paragraph 12, document Sulley Statutory Declaration, exhibit 1758, paragraphs 15 17, document Final Report of the Royal Commission into the Building and Construction Industry

103 29 Tender Bundle of Documents re: CETI, exhibit 1759, document at , Tender Bundle of Documents re: CETI, exhibit 1759, document at Tender Bundle of Documents re: CETI, exhibit 1759, document at Tender Bundle of Documents re: CETI, exhibit 1759, document at Tender Bundle of Documents re: CETI, exhibit 1759, document at Tender Bundle of Documents re: CETI, exhibit 1759, document ; Tender Bundle of Documents re: CETI, exhibit 1759, document Tender Bundle of Documents re: CETI, exhibit 1759, document Tender Bundle of Documents re: CETI, exhibit 1759, document Eccles approval is noted on the memorandum forwarded to him: Tender Bundle of Documents re: CETI, exhibit 1759, document at See also Arthy Statutory Declaration, exhibit 1761, paragraph 12, document Tender Bundle of Documents re: CETI, exhibit 1759, document at Tender Bundle of Documents re: CETI, exhibit 1759, document Arthy Statutory Declaration, exhibit 1761, paragraph 14, document Tender Bundle of Documents re: CETI, exhibit 1759, document at Tender Bundle of Documents re: CETI, exhibit 1759, document at 0104, Tender Bundle of Documents re: CETI, exhibit 1759, document at 0006, Tender Bundle of Documents re: CETI, exhibit 1759, document ; Tender Bundle of Documents re: CETI, exhibit 1759, document ; Tender Bundle of Documents re: CETI, exhibit 1759, document ; Tender Bundle of Documents re: CETI, exhibit 1759, document ; Tender Bundle of Documents re: CETI, exhibit 1759, document ; Tender Bundle of Documents re: CETI, exhibit 1759, document ; Tender Bundle of Documents re: CETI, exhibit 1759, document ; Tender Bundle of Documents re: CETI, exhibit 1759, document ; Tender Bundle of Documents re: CETI, exhibit 1759, document Hale, T15978/13 22; Tender Bundle of Documents re: CETI, exhibit 1759, document Tender Bundle of Documents re: CETI, exhibit 1759, document Arthy, T15960/ Ms Arthy gave conflicting evidence that ANTA only required evidence that the Property existed, and that transfer of the Property to the grantee was a matter for the State authority: Arthy, T15960/25 T15961/13. We reject ANTA s claim that it was not obliged even to obtain a report from the State authority that the transfer had occurred. Indeed, it sought such confirmation by letter dated 9 February 2001: see Tender Bundle of Documents re: CETI, exhibit 1759, document at Tender Bundle of Documents re: CETI, exhibit 1759, document Tender Bundle of Documents re: CETI, exhibit 1759, document Haywood Statement, exhibit 1763, paragraph 19, document Arthy, T15960/ /2. 52 Tender Bundle of Documents re: CETI, exhibit 1759, document at Tender Bundle of Documents re: CETI, exhibit 1759, document at Sulley Statutory Declaration, exhibit 1758, paragraph 53, Document ; Tender Bundle of Documents re: CETI, exhibit 1759, document at 0025, Hale Statement, exhibit 1764, paragraph 38, document Arthy, T15964/11 24 (Levin). Reform Funds 97

104 57 The Oxford English Dictionary (2nd ed 1991). 58 The Macquarie Dictionary (Revised ed, 1985). 59 Hale Statement, exhibit 1764, paragraph 18, document ; Hale, T15976/ /9. 60 Hale Statement, exhibit 1764, paragraphs 21, 22 and 37, document Haywood, T15973/ Haywood, T15973/ /3. 63 Tender Bundle of Documents re: CETI, exhibit 1759, document at Tender Bundle of Documents re: CETI, exhibit 1759, document Arthy, T15961/2 6; Tender Bundle of Documents re: CETI, exhibit 1759, document See also Tender Bundle of Documents re: CETI, exhibit 1759, document Arthy, T15961/ Tender Bundle of Documents re: CETI, exhibit 1759, document Final Report of the Royal Commission into the Building and Construction Industry

105 7 ElecNet (Aust) Pty Ltd Introduction and background 1 Between October and December 1999, representatives of the Victorian Chapter of the National Electrical and Communications Association (NECA Victoria) and the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, Electrical Division, Victorian Branch (CEPU Electrical Division Victorian Branch) negotiated a pattern enterprise agreement for the period The National Electrical and Communications Association (NECA) is a national employer organisation registered under the Workplace Relations Act 1996 (C wth) as the National Electrical Contractors Association. 2 During those negotiations, the parties agreed that: (a) (b) (c) clause 22 of the pattern enterprise agreement would state that the employer shall provide income protection insurance for employees through an ETU/NECA agreed policy and scheme ; the agreed policy would be a policy which the CEPU Electrical Division Victorian Branch had negotiated with International Underwriting Services Pty Ltd (IUS); the maximum premium cost to employers bound by the enterprise agreement for the full duration of that agreement would be: for apprentices and trainees $7.00 a week; for all additional employees $12.50 a week; and (d) an additional $2.00 a week for each employee would be contributed to the premium by the relevant severance funds, ElecNet and Incolink No.3 or their successor, bringing the weekly premium up to $9.00 a week and $14.50 a week, respectively. 1 3 Mr Dean Mighell, the Secretary of the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, Electrical Division, Victorian Branch 2, maintains that during the negotiations he and other CEPU Electrical Division Victorian Branch negotiators made it clear in express terms to the NECA Victoria negotiators that the CEPU Electrical Division Victorian Branch was to gain financially in the event that the IUS policy was adopted. The NECA Victoria representatives deny that to be the case. Mighell does not contend he informed them of the extent of the benefit. Reform Funds 99

106 4 ElecNet (Aust) Pty Ltd (ElecNet) is the trustee of the Electrical Industry Severance Scheme which trades under the name of Protect. 3 It has five directors, three of whom are appointed by the CEPU Electrical Division Victorian Branch and two of whom are appointed by NECA Victoria. 4 5 Mr Philip Green is the Secretary and Chief Executive Officer of NECA Victoria. He is one of the two directors of ElecNet appointed by NECA Victoria. 5 6 Mr Peter Williams is the other of the two directors of ElecNet appointed by NECA Victoria. 6 7 Mighell is a CEPU Electrical Division Victorian Branch appointed director of ElecNet. 7 8 Mr Patrick Power is the Secretary of ElecNet. It is not clear when he commenced to act as Secretary, but his formal appointment appears to have been agreed at the Meeting of Directors held on 28 February In the Minutes of the Directors Meetings held on 16 November 1999, 23 December 1999 and 8 February 2000, 8 Power is described as a visitor. Prior to his being appointed as the Secretary, he was an Industrial Officer with the CEPU Electrical Division Victorian Branch. 9 9 The Commission attempted to obtain evidence from Mr David Mier who is a director of ElecNet, appointed by the CEPU Electrical Division Victorian Branch. 10 A Summons for his attendance was issued under the Royal Commissions Act 1902 (C wth). However, he evaded service and was not served. 11 His lawyers were given notice of the adverse evidence against him. 10 His lawyers were Maurice Blackman Cashman, also the lawyers for Mighell, and they informed the Commission on several occasions that they were awaiting instructions from him to accept service of the Summons. Those instructions were not forthcoming and the lawyers informed the Commission that Mier had gone away on holidays. 12 July October In July 1999 an organiser of the CEPU Electrical Division Victorian Branch telephoned Mr Ted Lovelee to inquire about the CEPU Electrical Division Victorian Branch s wish to establish an income protection insurance scheme. Lovelee referred the CEPU Electrical Division Victorian Branch s request to Mr John Smith, known as Iain Smith, who acted for IUS Between July 14 and October 1999 Smith worked with Mighell and Mier (in his capacity as an organiser with the CEPU Electrical Division Victorian Branch) to develop an income protection insurance policy which met the CEPU Electrical Division Victorian Branch s requirements and which could be used to benefit employees engaged in any occupations specified in the Electrical, Electronic and Communications Contracting Industry Award Nine powerpoint presentations were prepared by Smith, for the purpose of fine-tuning the details of the proposed insurance policy Proposed premiums fluctuated in the course of negotiations between $10.50 and $11.00, depending on the proposed benefits. The final agreed proposed policy involved a weekly premium of $10.75 per employee per week Final Report of the Royal Commission into the Building and Construction Industry

107 14 The ninth version of the powerpoint presentation reflected agreed benefits and an agreed premium To implement the proposal, Smith delivered to the CEPU Electrical Division Victorian Branch s offices in Swanston Street, Melbourne, an application form entitled Application Form for Injury or Sickness Insurance containing the key details of the proposed policy. The application was subsequently returned to Smith, signed by Mighell, dated 26 October 1999 and bearing a stamp of the Electrical Trades Union of Australia Victorian Branch. The application recorded the proposed premium of $10.75 a week for each employee for the new benefits. The name of the insured was shown as Communications, Electrical & Plumbing Union of Australia Electrical Division Victorian Branch on behalf of a number of Employers (Employer) Also in October Mighell asked Smith if the premium could be increased from $10.75 to $14.50 to include a management fee or spotter s fee to be paid to the CEPU Electrical Division Victorian Branch. Smith said he could see no difficulty with the proposal as long as it was totally declared and everything was clear. He told Mighell that before he could commit IUS to that agreement, he would need to discuss the matter with Mr Peter Grzonkowski, the managing director of IUS Holdings Pty Ltd, the holding company of IUS. 20 Neither the policy nor any previous draft of the policy prepared by Smith identified the CEPU Electrical Division Victorian Branch s management fee as part of the premium Grzonkowski spoke with IUS s lawyers and a few days later Smith spoke with Mighell and told him that their lawyers approved the spotter s fee, provided there was a written request for payment Towards the end of the policy negotiations, Mighell informed Smith that the CEPU Electrical Division Victorian Branch wanted the proposed insurance policy to distinguish between tradesmen and apprentices. In particular, the CEPU Electrical Division Victorian Branch wanted the weekly benefit for apprentices to be lower, and so the premiums for them to be lower. The CEPU Electrical Division Victorian Branch wanted the weekly benefit for apprentices to be $600 a week. Smith calculated that the premium for apprentices could be set at $7.50 a week for each apprentice Some time after the separate arrangements for apprentices had been agreed, Mighell informed Smith that the CEPU Electrical Division Victorian Branch wanted a spotter s fee for the apprentices and would like to increase the premium for apprentices to $9.00 to cover that fee. Mighell asked whether that could work the same way as the management fee for tradesmen. Smith told him that we can increase the premium on the same basis. Smith then prepared a further draft of the insurance policy to reflect that change. 24 October December On or about 14 October 1999 the CEPU Electrical Division Victorian Branch commenced negotiations with various persons representing NECA Victoria for the purpose of reaching agreement on a pattern enterprise agreement for the period Mighell and Mier attended all of the negotiation meetings on behalf of the CEPU Electrical Division Victorian Branch. The CEPU Electrical Division Victorian Branch was represented in the Reform Funds 101

108 main at the meetings by Mighell and Mier. Two other CEPU Electrical Division Victorian Branch organisers, Mr Mick Montebello and Mr Kevin Harkins, attended some of the meetings NECA Victoria was represented at each meeting by Green, Williams, Mr Patrick Walton, the then President of NECA Victoria, and Ms Rebecca Fraser, who was employed by NECA Victoria as an employee relations advisor and industrial officer. 27 Two other persons, Mr Neville Palmer and Mr Norman Lancefield, attended most of the meetings representing NECA Victoria There were between seven and ten meetings held between October and December 1999 for the purpose of negotiating the pattern agreement At the first or second of the meetings, Mighell made plain that the CEPU Electrical Division Victorian Branch wanted the pattern EBA to include a clause requiring employers to take out an income protection insurance policy, and that such a policy must cover absence from work due to illness in addition to accident cover Mighell informed the meeting that the CEPU Electrical Division Victorian Branch had found a policy which would provide the kind of insurance cover sought by the CEPU Electrical Division Victorian Branch Mighell provided the meeting with documents on which was set out the key benefits to be provided under the policy. The evidence varies as to what documents were provided at the meeting. Green and Walton gave evidence that the details were written on between one and three sheets of paper. 32 Mighell gave evidence that the documents put forward comprised 18 sheets of paper. 33 A copy of the documents which Mighell said were provided at the meeting was tendered as Exhibit It is nevertheless clear that whatever documents were provided by Mighell at the meeting, they were not a draft policy. They merely listed benefits to be provided under the policy proposed by the CEPU Electrical Division Victorian Branch and nowhere stated the premium payable under the proposed policy. 28 Exhibit 1710 is a copy of the ninth version of the powerpoint presentation prepared by Smith, save for the omission of the page on which was typed Cost $10.75 a week for each worker for all benefits. The cost is not shown on any of the pages which comprise Exhibit It is extraordinary that Mighell was able to produce eighteen pages of a 19 page document, but not the one page with the critical cost of $10.75 on it. 29 At this meeting, 35 Mighell stated that the premium under the proposed policy was $14.50 for tradesmen and $9.00 a week for apprentices. 36 Mier, who also attended the negotiations, was also aware that the premium quoted by IUS was $10.75 a week for each member At one of the early meetings, Mighell said, in effect, that the CEPU Electrical Division Victorian Branch had brought the policy to the table, it was a good policy and he challenged the NECA Victoria representatives to find an equivalent or better policy Despite efforts by Fraser and Walton, NECA Victoria was unable to source a policy offering benefits equivalent to those sought by the CEPU Electrical Division Victorian Branch Final Report of the Royal Commission into the Building and Construction Industry

109 32 Persons representing NECA Victoria considered the premium for the proposed policy for $14.50 high. 40 Walton s inquiries with business associates made it clear to him that a policy providing for the same benefits sought by the CEPU Electrical Division Victorian Branch could be obtained for a premium well below that asked for by Mighell. 41 In the time available, NECA Victoria was unable to obtain a firm quotation Persons representing NECA Victoria suspected that the CEPU Electrical Division Victorian Branch was obtaining some kind of financial benefit from the policy but had no evidence on which to base the suspicion During the meetings, persons representing NECA Victoria asked Mighell if the CEPU Electrical Division Victorian Branch was getting any financial benefit from the policy. In particular, Walton asked words to the effect, [H]ow much are you getting out of this? Mighell avoided the question, saying in reply words to the effect, [Y]ou blokes think we re getting hundreds of thousands of dollars out of this. That s all bullshit Williams and Green also asked whether the CEPU Electrical Division Victorian Branch was receiving any financial benefit from the policy but Mighell always avoided the question, 45 for example by referring to the quality of the policy sourced by the CEPU Electrical Division Victorian Branch and saying that the CEPU Electrical Division Victorian Branch had brought it to the table In 1999 Smith attended the offices of NECA Victoria. He gave a presentation about the intended policy to representatives of the CEPU Electrical Division Victorian Branch and NECA Victoria. Smith spoke about the benefits payable under the policy, the waiting period before benefits would be payable and the manner in which the policy would interact with workers compensation insurance. 47 The proposed premium of $14.50 for tradesmen was stated and acknowledged, as part of the presentation, but no question was asked by anybody about the premium The CEPU Electrical Division Victorian Branch made clear that it would not settle the EBA negotiations except with NECA Victoria s agreement to the policy and ultimately, NECA Victoria agreed to proceed with the policy. 49 That agreement was formalised in a memorandum of agreement dated 22 December 1999 signed by Mighell and Green At about the same time, agreement was reached upon the terms of an interim pattern agreement. 51 That pattern, or template, agreement provided, at clause 22 (page 18), that: The employer shall provide income protection insurance for all employees through an ETU/NECA agreed policy and scheme. It is agreed that the premium will be collected by the ETU/NECA agreed severance scheme at the same time as severance payments. It is noted that GST may be applicable to premiums The interim agreement was agreed to by the CEPU Electrical Division Victorian Branch and NECA Victoria in order to have an agreed pattern agreement available in the industry from the commencement of the new three year period commencing 1 January 2000, notwithstanding the CEPU Electrical Division Victorian Branch and NECA Victoria had yet to agree upon Reform Funds 103

110 resolution of the CEPU Electrical Division Victorian Branch s claim for a 36 hour week. 53 That issue was resolved by April The final pattern or template agreement to cover the period 1 January 2000 to 31 December 2002 retained clause 22 (providing for income protection insurance) without amendment Part of the memorandum of agreement dated 22 December 1999, referred to in paragraph 37 above, stated: It is hereby agreed between NECA and the ETU that the maximum premium cost to employers bound by the enterprise agreement for the full duration of the enterprise agreement is: a. for apprentices and trainees $7.00 per week; and b. for all other employees $12.50 per week. An additional $2.00 per week per employee will be contributed to the premium by the relevant severance funds, ElecNet and Incolink No.3 or their successor bringing the weekly premium up to $9.00 per week and $14.50 per week respectively This agreement was subsequently implemented at a meeting of the directors of ElecNet held on 23 December 1999, attended by Williams, Mighell, Mier and Green in their capacities as directors of ElecNet. The minutes of the meeting record: INSURANCE New insurance arrangements under enterprise agreements have been negotiated which have implications for ElecNet. Under those enterprise agreements employers will make an insurance premium contribution of $12.50 per week and $7.00 per week in the case of apprentices. It was resolved that an additional $2.00 per week per employee will be contributed to the premium by ElecNet bringing the weekly premium up to $14.50 per week and $9.00 per week respectively The intention was that the $2.00 subsidy a week for each person insured would be drawn from the net earnings of the investment of the Protect fund From that point, if not earlier, Mighell knew that the CEPU Electrical Division Victorian Branch would make a profit of $3.75 a week for every tradesman, and $1.50 a week for every apprentice, subsequently insured under the policy A draft policy was not provided by the CEPU Electrical Division Victorian Branch until subsequent to NECA Victoria agreeing to the policy proposed by the CEPU Electrical Division Victorian Branch. 60 This agreement occurred in late The draft policy produced by the CEPU Electrical Division Victorian Branch identified the CEPU Electrical Division Victorian Branch as the insured under the policy. Green did not consider this to be appropriate and insisted that the insured be ElecNet. Mighell agreed to that proposal. 62 The policy was subsequently taken out with ElecNet as the insured Final Report of the Royal Commission into the Building and Construction Industry

111 46 Mighell knew in a general sense that, as a director of ElecNet, if he was in any way directly or indirectly interested in a contract or proposed contract with ElecNet, he had an obligation to declare the nature of that interest at a meeting of directors as soon as practicable after the relevant events had come to his knowledge. 64 No such declaration by Mighell is recorded in any minutes of any meeting of the board of directors of ElecNet. 65 On the material before me, I am satisfied no declaration of the interest of the CEPU Electrical Division Victorian Branch, of which he was Secretary, was made at this meeting. January Employer members of NECA Victoria began signing certified agreements with the CEPU Electrical Division Victorian Branch, in terms of the pattern agreement, during the first two weeks of January It appears that the CEPU Electrical Division Victorian Branch informed Smith that it wished to vary the proposed insurance policy to increase the extended cover provision such that coverage under the policy would continue for a period of 39 weeks, rather than 31 days, from the date that an insured person ceased his or her current employment with their employer provided the insured person had accepted a position with another employer prior to ceasing their employment with his or her initial employer. This provision, in its initial form, appeared on page 12 of an earlier draft policy By facsimile dated 4 January 2000 Smith wrote to Power informing him that he had amended the policy to allow for an extended cover of 39 weeks and of the text of the amended clause. Smith also informed him: The additional cost for this is $0.10 per week for trades men (sic) and (if required) $0.05 per week for apprentices. This would bring the costs to $10.85 for tradesmen and $7.55 per week for apprentices Power had been present at the meeting of the board of directors of ElecNet held 12 days earlier (on 23 December 1999) at which the meeting noted that the premiums for the policy would be $14.50 for tradesmen and $9.00 for apprentices A few days later, Smith, Mighell and Power and perhaps Mier, met to discuss the proposed change to the policy and, in particular, the proposed increases in the premiums for tradesmen and apprentices. The CEPU Electrical Division Victorian Branch wanted to increase the extended cover to 39 weeks, and also to retain the premium at $10.75 for tradesmen and $7.50 for apprentices Someone representing the CEPU Electrical Division Victorian Branch said words to the effect that the union already provided a funeral benefit for its members and asked if that benefit was taken out of the policy, would that keep the premium down. Smith calculated that the absence of that benefit reasonably offset the increased cover from a maximum of 31 days to a maximum of 39 weeks. Smith agreed to that proposal and the premiums remaining at $10.75 and $ The deletion of the $5000 benefit for death by any cause and the increase in extended cover from 31 days to 39 weeks is reflected in the subsequent draft policy prepared by Smith. 72 Reform Funds 105

112 Year 2000 and thereafter 53 In early 2000 Mighell or a colleague from the CEPU Electrical Division Victorian Branch asked Smith if there was anywhere outside of IUS where the CEPU Electrical Division Victorian Branch management fees could be held for a period of time. Smith was told that the CEPU Electrical Division Victorian Branch wanted to establish a trust in which to keep the management fees and that the trust had not yet been established. Smith replied that IUS could transfer the CEPU Electrical Division Victorian Branch s management fee to a company of his, The Very Good Company Pty Ltd (The Very Good Company). 73 On 20 July 2000 the ETU (Victorian Branch) Distress, Mortality & Training Fund was established by a deed of settlement. 74 (On the same day, the ETU (Victorian Branch) Trust was established by way of a deed of settlement.) The insurance policy commenced its coverage on 1 March On 1 March 2000 Smith wrote to Power informing him, among other things, that the premium to IUS for the month of March, based on 7000 members, would be $ based on a payment of $14.50 per member On 1 March 2000 Mighell wrote to Grzonkowski confirming the CEPU Electrical Division Victorian Branch s request that payment of management fees due to the CEPU Electrical Division Victorian Branch arising from our commercial arrangement be forwarded to The Very Good Company Pty Ltd. The letter was titled Re: Commercial and confidential arrangements ETU and IUS On 1 March 2000 Mighell wrote to Smith, in Smith s capacity as a director of The Very Good Company, requesting that management fees due to the CEPU Electrical Division Victorian Branch and received by The Very Good Company be forwarded to the CEPU Electrical Division Victorian Branch and sought Smith s formal agreement to this request. This letter was titled Re: Commercial and confidential arrangements ETU and The Very Good Company On 2 March 2000 Smith, on behalf of The Very Good Company, wrote to Mighell confirming that in accordance with our discussions, The Very Good Company will forward to the ETU all fees due to the ETU that it receives On or about 23 March 2000 Power completed an application for the insurance policy in the name of ElecNet and signed the application in his capacity as secretary of ElecNet At some stage during the first six months of 2000 Mighell informed Green that the CEPU Electrical Division Victorian Branch was receiving commissions or similar financial benefits as a result of sourcing the policy. Mighell stated that the CEPU Electrical Division Victorian Branch provided funeral benefits and ambulance cover to its members and that it was paying for that from the money it got from the policy Green asked Mighell How much are you getting? to which Mighell replied Oh not much and would not elaborate further Green formed the view that there was no point in continually pressing Mighell to tell him how much the ETU was receiving or complaining about the CEPU Electrical Division Victorian Branch receiving a benefit, because once the interim pattern EBA had been settled in 106 Final Report of the Royal Commission into the Building and Construction Industry

113 December 1999, there was, in Green s opinion, nothing in reality that could be done. He did not consider that NECA Victoria could re-open the matter for further negotiations Some time after March 2000 Mighell also told Williams that the CEPU Electrical Division Victorian Branch was receiving a kickback from the policy. He told Williams that they were getting some money through the policy, but the CEPU Electrical Division Victorian Branch provided ambulance cover for its members and the money from IUS was to compensate them for that. Because the EBA was already in place when he had this conversation with Mighell, he too formed the view that it was too late for NECA to challenge the policy Some time later in 2000 a letter dated September 2000 from the CEPU Electrical Division Victorian Branch, signed by Mighell, was included as part of a package of materials being forwarded by ElecNet to new employers and employees who became members of the Protect fund. 86 The document was titled Protect a message to employers from the ETU. It discussed the income protection insurance policy. It stated, among other things: Because so much time and effort was involved in preparing and negotiating the insurance cover, the Union may receive a financial benefit from the insurer. The financial benefit will vary, depending upon the level of insurance coverage provided to each worker. This money will not go to the Union it will go directly into a Distress, Mortality & Training Fund that has been established to benefit ETU members and their families Notwithstanding the general disclosure by Mighell that the CEPU Electrical Division Victorian Branch may receive a financial benefit, Green and Palmer agreed that there was nothing [they] could do about it at that stage because the EBA had been settled and the policy was in place. 88 No-one from NECA Victoria pursued the matter. NECA Victoria had: agreed to the amount, the $14.50, as part of a package, it was time to put the package to bed and attempt to move on By reference to clause 22 of the pattern agreement and (therefore) subsequent certified agreements, employers insuring their employees under the IUS policy paid the applicable premium to the Protect fund administrator, Australian Administrative Services Pty Ltd (AAS). 67 AAS paid a fixed monthly premium to IUS based on an estimated number of persons insured under the policy. In the first month of the policy, March 2000, AAS paid IUS a premium of $ based upon an estimate of 7000 employees covered under the policy for a five week period at $14.50 a week for each employee. 90 By a mathematical analysis of annexure IS29 to Smith s Statement, it can be seen that between April 2000 and December 2000, a fixed premium based on 3000 employees was used. This was revised to 6000 employees commencing 1 January It remained at 6000 thereafter The intention was that, at the end of six months, IUS would recalculate the premium, based on records of actual membership subsequently provided by AAS, and then reconcile the actual premium with the fixed premiums collected each month. Depending upon whether the actual premium payable was more or less than the fixed premiums paid, AAS (on behalf of ElecNet) would pay an amount to reflect the adjustment or receive a reduction in the following month s premium. 92 Reform Funds 107

114 69 During 2000 and 2001, AAS and IUS had great difficulty reconciling the fixed monthly premiums with the actual premiums that should be charged. The reconciliation process extended for approximately 18 months, rather than the intended six months, because AAS was unable to state exactly how many people were covered under the policy. The reconciliation was eventually completed in July It occurred at a meeting between Smith, Power, and two of the directors of ElecNet, Williams and Mighell. AAS had still been unable to quantify how many people were covered by the policy. Those at the meeting reached agreement upon a fair sum to be paid as additional premiums for the purposes of achieving a reconciliation For the purposes of calculating the CEPU Electrical Division Victorian Branch s management fee in respect of each month, IUS prepared a spreadsheet, which identified, in the case of each month, from March 2000 to June 2001, the premium payable under the policy (together with GST and stamp duty) to give the total amount received; the amount to be forwarded to the underwriter by way of its premium; and the remainder (identified as Total Rebate ) to be forwarded to the CEPU Electrical Division Victorian Branch as its management fee (inclusive of GST). On this basis, IUS calculated the management fee payable to the CEPU Electrical Division Victorian Branch for this period to be $ A day or so after the reconciliation was done, Mighell or one of his colleagues spoke with Smith by telephone asking if Smith could forward the CEPU Electrical Division Victorian Branch management fee Smith explained that the money was held in IUS s bank account and he was requested to send a cheque drawn on The Very Good Company s account, made payable to the ETU (Victorian Branch) Trust. 96 Smith then arranged for the amount due to the CEPU Electrical Division Victorian Branch to be transferred by IUS to an account with Macquarie Investment Management Limited in the name of The Very Good Company and having an account number The management fee, in the amount of $ , was transferred by IUS to that account in three amounts on 3 August, 6 August, and 8 August On 6 August 2001, Smith wrote a cheque in the sum of $ drawn on The Very Good Company s account with Macquarie Investment Management. The cheque was made payable to the ETU (Victorian Branch) Trust. The cheque was sent to Mighell under cover of a letter dated 6 August The cheque was presented on 8 August On 6 August 2001, Smith prepared a tax invoice dated 6 August 2001 to reflect the management fees collected by The Very Good Company Smith subsequently received an invoice dated 31 August 2001 from the CEPU Electrical Division Victorian Branch directed to The Very Good Company reflecting the CEPU Electrical Division Victorian Branch management fees provided by The Very Good Company A second reconciliation was done in May 2002 for the period 1 July 2001 to 31 December That reconciliation identified a further sum to be paid by ElecNet to IUS to reflect the actual number of employees insured under the policy. IUS received that money in June or July Once the money was received from ElecNet, IUS was in a position to pay the CEPU Electrical Division Victorian Branch s management fee. No invoice was received from the CEPU Electrical Division Victorian Branch. 108 Final Report of the Royal Commission into the Building and Construction Industry

115 77 When doing the next reconciliation in September 2002, for the period 1 January 2002 to 30 July 2002, Smith noticed that the CEPU Electrical Division Victorian Branch s next instalment of its management fee had not been paid. He therefore telephoned Power and advised him of this fact Smith subsequently received a tax invoice dated 20 September 2002 from the CEPU Electrical Division Victorian Branch seeking its management fees for the period 1 July 2001 to 31 December That invoice identified an amount of $ (inclusive of GST) payable for CEPU Electrical Division Victorian Branch s management fees. The invoice was directed to IUS directly, rather than through the intermediary company, The Very Good Company, and identified that the management fees be for ETU Distress Mortality and Training Fund. The money payable under the invoice was forwarded to the CEPU Electrical Division Victorian Branch by electronic transfer on 3 October A further reconciliation was carried out in September 2002, calculating the actual premiums for the period 1 January 2002 to 30 June That reconciliation identified a further amount of money payable by ElecNet to IUS. After that money has been paid, IUS will be in a position to pay the next instalment of the management fee to the CEPU Electrical Division Victorian Branch. As at October 2002, an amount of $ was held in trust to be applied in payment of the third instalment, together with any additional moneys which might be payable The National Electrical and Communications Association (NECA) lodged a submission dated 21 May 2002 with the Royal Commission. 106 At paragraph 6.1.3, NECA wrote about an insurance commission. The paragraph stated: The benefit arrangement agreed for this industry s severance includes income protection insurance. The market rates for this insurance can vary depending on the employer. However, the union requires the insurance to be purchased through its nominated agency. The market rate is some $4 per man per week less than (sic) charged by IUS which allows $2m per annum (10,000 members, $4 x 52 weeks) for distribution as commission Notwithstanding this claim, 108 NECA Victoria did nothing to ascertain the nature or extent of the financial benefit being received by the CEPU Electrical Division Victorian Branch under the IUS policy. For example, at no time did Green or any other member or officer of NECA Victoria ask Smith or anyone else at IUS about the calculation of the premium despite Green and Williams being at numerous meetings with Smith in 2000 and 2001 to discuss the administration of the policy. 109 Smith never volunteered the details about the premium although he would have done so if asked At paragraph 6.3 of the NECA submission, NECA stated: Throughout the negotiations, NECA had strong suspicions that the ETU would receive commissions or financial benefits from the income protection insurance scheme. This concern was raised by NECA on a number of occasions during the negotiations, however an unequivocal response was never forthcoming from the ETU. 111 Reform Funds 109

116 83 On 19 August 2002, NECA Victoria and the CEPU Electrical Division Victorian Branch commenced negotiations for the next pattern EBA to apply during the period 1 January 2003 to 31 December At the beginning of the third meeting, on 9 September 2002, Mighell expressed his anger about NECA s submission dated 21 May 2002, and in particular the claims made at paragraphs and 6.3 set out above. Mighell described these claims as fanciful. 113 Mighell nevertheless continued by stating words to the effect, We want to continue with the income protection insurance arrangements, we want to continue with the same scheme. 114 Mighell challenged them to produce a better policy Those representing NECA Victoria pressed him to quantify the CEPU Electrical Division Victorian Branch s commission. In reply, Mighell said words to the effect, We get a million dollars from it. 116 Mighell continued, Yeah, we use the money to provide ambulance cover and funeral benefits and to pay the wages of our occupational health and safety officer, and our WorkCover officer. 117 At this or the next meeting, he said, We put the money into a trust. The CEPU Electrical Division Victorian Branch invoices the trust and it reimburses the union for those costs After those representing the CEPU Electrical Division Victorian Branch had left the meeting, those representing NECA Victoria stayed to discuss what Mighell had told them. They determined that it was untenable for NECA Victoria to continue in the 2003 EBA with the IUS policy with this amount of commission payable to the CEPU Electrical Division Victorian Branch On 14 September 2002, Green, Mighell and NECA Victoria s industrial officer, Mr Frank Kennedy, met to discuss the IUS policy. Green explained that NECA could not agree to the policy continuing in its present form. He sought a continuation of the policy but at its true cost. He explained that, $1 million for you is not on During the meeting, Mighell stated words to the effect, No, it s not a million dollars from the policy. We re now getting a million dollars per year. Mighell repeated that the money was used to pay for funeral benefits, ambulance cover and the wages of the CEPU Electrical Division Victorian Branch s OH&S officer and WorkCover officer. He added that the money was also used to pay the wages of its apprentice welfare officer. Mighell insisted that the policy continue in its present form On 16 September 2002 representatives of the CEPU Electrical Division Victorian Branch and NECA Victoria met again to discuss the forthcoming pattern agreement. The meeting commenced with Mighell making clear that the continuation of the insurance policy with IUS was a fundamental claim of the union for the purpose of reaching agreement on the forthcoming pattern EBA. Mighell said words to the effect: Look, it s not negotiable. I told that you if you won t agree to continue with this policy, then we won t negotiate with NECA. We ll negotiate directly with individual employers on a catch and kill basis On 20 September 2002 Kennedy met with Mighell to discuss whether there were any that which could be explored to break the impasse. There were none. On that occasion, Mighell 110 Final Report of the Royal Commission into the Building and Construction Industry

117 explained that the CEPU Electrical Division Victorian Branch management fee was used to pay the wages of the CEPU Electrical Division Victorian Branch s industrial officer, in addition to all the other officers previously identified. Mighell confirmed that the CEPU Electrical Division Victorian Branch would not negotiate with NECA Victoria on the forthcoming EBA unless NECA Victoria agreed to a continuation of the IUS policy. Mighell also confirmed that if NECA Victoria did not agree to the IUS policy, it would negotiate directly with individual employers and seek wage increases in each year of the forthcoming EBA of three per cent, six per cent, and six per cent respectively, rather than the three per cent, five per cent and five per cent which had been proposed in the EBA meetings with NECA Victoria earlier that year (2002). 123 Legal issues and conclusions Trade or commerce 91 Mighell contended that, as the negotiation of the policy was an aspect of a pattern enterprise agreement, all that would result was an unregistered and unenforceable industrial agreement. 124 That neglects the reality understood by both parties to the negotiation, namely, that they were negotiating a clause to be included in all industrywide pattern agreements. 92 Submissions have been made to the effect that conduct that takes place during the course of negotiations between a union and an employer organisation in relation to the content of a framework enterprise agreement does not take place in trade or commerce. 125 The effect of those submissions was said to be that misleading or deceptive conduct that took place during negotiations in relation to a framework enterprise agreement could not contravene either section 52 of the Trade Practices Act 1974 (C wth) or the equivalent State Fair Trading Act provisions. 93 I do not accept those submissions. The High Court has indicated that the concept of trade or commerce does not extend to all conduct, regardless of its nature, in which a corporation might engage in the course of, or for the purposes of, its overall trading or commercial business. Instead, conduct occurs in trade or commerce only if it is conduct which is itself an aspect or element of activities or transactions which, of their nature, bear a trading or commercial character It may well be the case that a framework enterprise agreement does not impose any enforceable obligation on any employer to pay money, or impose any corresponding obligation on any union. 127 That fact does not have any implications for whether the conduct in question bears a trading or commercial character. The words trade or commerce are clearly of the widest import The authorities are somewhat inconsistent as to whether or not conduct that occurs in the course of employment negotiations between a company and its employees or prospective employees takes place in trade or commerce. 129 The more recent authorities do, however, suggest that negotiations between an employer and its employees may not take place in trade or commerce, 130 and reliance has been placed upon those authorities to suggest that the negotiation of a framework agreement between a union and employer organisation similarly does not take place in trade or commerce. Reform Funds 111

118 96 The analogy is flawed. The negotiation of a framework agreement does not take place between a company and its employees, in which context the negotiation may be thought to be merely incidental to the company s trading activities. 131 It takes place between a union and an employer organisation. Both employer organisations and unions invariably charge membership fees in return for which they provide services. Those services include the negotiation of the terms and conditions for framework agreements, which are often then picked up and incorporated into registered agreements signed by particular employers. The provision of negotiation services in return for reward is an inherently commercial activity. If misleading conduct occurs in the course of those negotiations, it occurs in trade or commerce. 97 In addition, aspects of the framework agreement would have operated, when incorporated into registered agreements, to give a direct financial benefit to the CEPU Electrical Division Victorian Branch. That is a further reason for concluding that the conduct that took place in the negotiation of the framework agreement occurred in trade or commerce. Mighell s conduct 98 The questions to be decided are whether Mighell told those negotiating on behalf of the employers or the Board of ElecNet that the CEPU Electrical Division, Victorian Branch was receiving a financial benefit from the $14.50 premium, whether he told them the amount of that benefit, and if he did not, why he did not do so. 99 There is conflict regarding the first question. There is no conflict regarding the second. Mighell does not suggest that he ever told anyone on behalf of the employers, or the Board of ElecNet, that the CEPU Electrical Division Victorian Branch was to receive $3.75 a week for each employee. On his account, it was not until September 2002 that he indicated that the CEPU Electrical Division Victorian Branch was getting $1 million. 100 Mighell was not clear as to what it is that he said he told the employer representatives. His statement said: (a) (b) (c) At all times during negotiations I and other negotiators had made it clear in express terms to the NECA negotiators that the ETU was to gain financially in the event that the IUS policy was adopted. He did not say what those express terms were. 132 The other negotiator referred to was principally Mier. Mighell s position is not assisted by the fact that Mier evaded service, nor the fact that Mighell s solicitors, also acting for Mier, were in contact with him but were unable to get instructions from him either to accept service, or, apparently, to provide a statement supporting Mighell. Mier is still an organiser of the union of which Mighell is Secretary. Given Mier s knowledge of the conflict between the version of events given by Mighell, and the five employer representatives who disagree with this account, one would have expected Mier to have been anxious to support the version of his State Secretary if he was able to do so. In most of these meetings, it was made clear that the ETU would receive some money from the insurance premium which we would use, in part, to fund benefits to members including ambulance cover for members and their families and funeral benefits. 133 I absolutely deny that no declaration was made by me that the ETU would receive a financial benefit from the insurance policy. The employers knew at all times. They were 112 Final Report of the Royal Commission into the Building and Construction Industry

119 told at all relevant times that the ETU was to receive a financial benefit from the IUS insurance policy When examined, Mighell said he told the employers that the union was getting money from the policy, and that it would be used for ambulance and associated benefits. 135 It was put to him that Walton had asked the direct question, How much are you getting out of this? and that his response was: You blokes think we re getting hundreds of thousands of dollars out of this. That s all bullshit. His answer was, No, I don t recall specifically saying that. We were all very up front about we would make money out of it. How much, we didn t know at that stage. 136 In fact, he did know that the union would receive $3.75 for each tradesman and $1.50 for each apprentice for each week for all employees who become members pursuant to pattern EBAs. If he was up front regarding the benefit the CEPU Electrical Division Victorian Branch would receive, he would have told the employer representatives of those sums. He did not do so. 102 The critical issue is whether such disclosure was made before the agreement for the framework EBA was reached in December The Board minutes of 8 June 2000 record: The Board noted ETU intention to provide appropriate disclosure advice in respect to income protection arrangements. Mighell s evidence was that after the EBA was signed, some employers were arranging insurance directly through Protect or arranging such insurance through NECA. In those circumstances there was no disclosure of any interest of the union in the policy. The union thought it necessary to make such disclosure and sought the assistance of the Board of ElecNet to achieve that. Ultimately, the method of giving employers, and perhaps employees, notice was the inclusion of a document prepared by Mighell in a package of materials forwarded to employers and employees who joined the Protect fund. The document entitled Protect a message to employers from the ETU stated: Because so much time and effort was involved in negotiating the insurance cover, the union may receive a financial benefit from the insurer. The financial benefit will vary, depending upon the level of insurance coverage provided to each worker. This money will not go to the union it will go directly to a Distress Mortality and Training Fund that has been established to benefit ETU members and their families. 104 That document itself was misleading. The CEPU Electrical Division Victorian Branch knew it would get $3.75 a week for each tradesman employee covered by a pattern EBA. Had Mighell wished to be frank with the employers he should have given them that information. He did not do so. 105 Even if one were to accept Mighell s evidence, it follows that any disclosure of interest was in the most guarded general terms. A real question arises whether disclosure in the general terms he asserts was adequate. 106 There is considerable evidence contrary to Mighell s. Fraser gave evidence that: I have no recollection of the ETU ever saying at any of the negotiating meetings at which I was present that it was to receive any benefit from the policy. 137 Reform Funds 113

120 Counsel for Mighell did not cross-examine Fraser when asked if he wished to do so Palmer gave evidence: At a subsequent meeting with the ETU held in the offices of NECA Victoria at 222 Kings Way, South Melbourne, Mr Walton asked a series of questions about the make-up of the proposed premium. I remember in particular him saying words or words to the effect: Is the union getting anything out of this? I no longer recall the exact words of Mr Mighell s response. However, I can definitely remember him denying that the ETU was getting any benefit. 139 Counsel for Mighell did not wish to cross-examine Palmer. 108 Walton gave evidence: In October and November 1999, when Mr Mighell was being adamant that we go with the policy that he was proposing, I said to him words to the effect How much are you getting out of this? Mr Mighell avoided the question, saying to me words to the effect You blokes think we re getting hundreds of thousands of dollars out of this. That is all bullshit. The clear inference I and the other members of NECA Victoria got was that the ETU were not getting any financial benefit out of the policy. 140 Counsel for Mighell did not wish to cross-examine Walton Williams gave evidence: 40. I suspected at the time that the ETU would receive some sort of kickback from IUS, however no declaration of that nature was made by Dean Mighell and I had no evidence to support that suspicion. I had this suspicion because of the way the policy was presented to us. 41. At a later time Dean Mighell acknowledged that the ETU does receive a kickback, but this has never been quantified. He said to me words to the effect We re getting some money through the policy, but you ll find that the ETU provides ambulance cover for its members. The money we get from IUS is to compensate us for that. 42. By the time Dean Mighell told me this, the EBA was already in place and it was too late for NECA to challenge the policy. 142 Counsel for Mighell did not wish to cross-examine Williams Green gave evidence: 46. Throughout the negotiations NECA had strong suspicions that the ETU would receive commissions or financial benefits from the income protection insurance arrangements. These suspicions were based on the union s strong insistence that the IUS policy be implemented; the fact that they had brought a complete policy to the negotiating table, rather than a broad set of principles; and the unproved feeling at the time that the premium was high. However, we had no evidence to support these suspicions. 114 Final Report of the Royal Commission into the Building and Construction Industry

121 47. The negotiating committee raised our concerns about the ETU benefiting from the policy on a number of occasions during the negotiations, however, an unequivocal response was never forthcoming from the union. 144 Counsel for Mighell initially said he wished to cross-examine Green but, after an adjournment, reversed that decision On the material before me, I am satisfied that Mighell did not, prior to the agreement reached in December 1999 disclose to the Board of ElecNet, or the employers negotiating team for the EBA the fact that the CEPU Electrical Division Victorian Branch was receiving a benefit by way of commission from the insurance policy. I reject Mighell s evidence that he was up front about the fact that the CEPU Electrical Division Victorian Branch would make money out of the policy. My finding flows from the evidence of the five employer witnesses who denied that he had so informed them, some of those witnesses giving evidence that he had denied that the CEPU Electrical Division Victorian Branch received any benefit. The evidence establishes that some time prior to June 2000, probably around March 2000, Mighell gave a general indication that a benefit was being received. This was after the EBA negotiations had concluded, and the policy was in place. Even then, there was not frank disclosure of the benefit. The document prepared in September 2000 equally lacked frankness asserting that there may be some benefit to the CEPU Electrical Division Victorian Branch, when it was plain, as Mighell knew, that the CEPU Electrical Division Victorian Branch was receiving a benefit equivalent to $3.75 a week for each tradesman in respect of all members of ElecNet. That he repeatedly failed to frankly disclose that benefit reinforces the finding made. The reason he did not tell the employers of the amount is obvious he did not want them to know as he suspected, rightly, that they would not agree to the union receiving such a weekly sum as a result of the policy, and would have required a reduction in the premium. Findings 112 Section 9(1) of the Fair Trading Act 1999 (Vic) provides that: A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. 113 Having regard to the provisions of s9 of the Fair Trading Act 1999 and the finding that Dean Mighell, prior to March 1999, failed to disclose to the representatives of NECA Victoria when asked that the CEPU Electrical Division Victorian Branch was receiving a spotter s fee or commission, and informed them that the CEPU Electrical Division Victorian Branch was not receiving any benefit from the policy, during negotiations for pattern EBAs, on the material before me, I am satisfied that Dean Mighell, the Secretary of the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, Electrical Division, Victorian Branch, engaged in unlawful conduct. 114 I do not propose to make any findings concerning David Mier, as the summons for his attendance was not served. 115 This case study illustrates: Reform Funds 115

122 (a) (b) (c) The failure by a negotiating agent, here a union, to disclose a commission to be received by it in consequence of the successful outcome of the negotiations. The receipt by a negotiating party, here a union, of an undisclosed benefit arising from the outcome of enterprise bargaining agreement negotiations whereby employers agreed to provide a benefit to their employees. The need for a statutory requirement for disclosure of commissions or benefits arising or possibly arising from the payment for receipt of benefits. Persons involved Name Fraser, Rebecca Geraghty, Robert Green, Philip Position/Title Employee Relations Adviser and Industrial Officer, Victorian Chapter of the National Electrical and Communications Association. Director, ElecNet (Aust) Pty Ltd. Secretary and CEO, Victorian Chapter of the National Electrical and Communications Association; Director, ElecNet (Aust) Pty Ltd. Grzonkowski, Peter Harkins, Kevin Kennedy, Frank Lancefield, Norman Lovelee, Ted Mier, David Managing Director, IUS Holdings Pty Limited. Organiser, Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, Electrical Division, Victorian Branch. Industrial Officer, Victorian Chapter of the National Electrical and Communications Association. Representative, Victorian Chapter of the National Electrical and Communications Association. Position unknown. Organiser, Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, Electrical Division, Victorian Branch; Director, ElecNet (Aust) Pty Ltd. Mighell, Dean Secretary, Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, Electrical Division, Victorian Branch; Director, ElecNet (Aust) Pty Ltd. 116 Final Report of the Royal Commission into the Building and Construction Industry

123 Montebello, Mick Palmer, Neville Power, Patrick Organiser, Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, Electrical Division, Victorian Branch. Representative, Victorian Chapter of the National Electrical and Communications Association. Secretary, ElecNet (Aust) Pty Ltd; Previously Industrial Officer, Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, Electrical Division, Victorian Branch. Smith, John (Iain) Director, IUS Holdings Pty Ltd; Director, The Very Good Company Pty Ltd. Walton, Patrick Williams, Peter Former President, Victorian Chapter of the National Electrical and Communications Association. Representative, Victorian Chapter of the National Electrical and Communications Association; Director, ElecNet (Aust) Pty Ltd. Reform Funds 117

124 Notes to ElecNet (Aust) Pty Ltd 1 Green Statement, exhibit 1640, attachment PJG13, document On 11 October 2002 Mr Dean Mighell gave evidence before the Commission. In doing so he described himself as the Secretary of the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, Electrical Division, Victorian Branch. It appears that the Tasmanian and Victorian Branches of the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, Electrical Division, may have amalgamated in April However, any such amalgamation is of no significance to this case study. 3 Power Statement, exhibit 542, paragraph 2, document Green Statement, exhibit 1640, paragraph 5, document Green Statement, Exhibit 1640, paragraphs 1, 3, and 5, document Williams Statement, Exhibit 1642, paragraphs 2 and 3, document Minutes of Board Meetings of ElecNet (Australia) Pty Ltd, exhibit 1711, document at Minutes of Board Meetings of ElecNet (Australia) Pty Ltd, exhibit 1711, documents , and Power, T15924/18 30, T15925/22 24; Minutes of Board Meetings of ElecNet (Australia) Pty Ltd, exhibit 1711, document at 0032; Minutes of Board Meetings of ElecNet (Australia) Pty Ltd, exhibit 1711, document at 0028; Minutes of Board Meetings of ElecNet (Australia) Pty Ltd, exhibit 1711, document at 0105; Minutes of Board Meetings of ElecNet (Australia) Pty Ltd, exhibit 1711, document at Minutes of Board Meetings of ElecNet (Australia) Pty Ltd, exhibit 1711, document at Letter from 9th October 2002 from RCBCI to Maurice Blackburn Cashman enclosing Statutory Declaration of C. Kelly dated 27th September 2002, exhibit 1749, document Letter from 9th October 2002 from RCBCI to Maurice Blackburn Cashman enclosing Statutory Declaration of C. Kelly dated 27th September 2002, exhibit 1749, document at Smith Statement, exhibit 1644, paragraphs 5 and 6, document Smith, T15298/ Smith Statement, exhibit 1644, paragraphs 8 14, document Smith Statement, exhibit 1644, paragraphs 14, 19 20, document Smith Statement, exhibit 1644, paragraph 14, document ; Smith Statement, exhibit 1644, attachment IS12, documents , , Smith Statement, exhibit 1644, paragraphs 20 21, document ; Smith Statement, exhibit 1644, attachment IS15, documents , , document Mighell, T15338/1 21, T15535/ Smith Statement, exhibit 1644, paragraphs and 33, document Smith gave evidence (Smith, T15300/4-37) that Mighell asked him to increase the premium from $10.75 to $14.50 to cover the ETU s management fee in early 2000 but is uncertain. That evidence about the date must be rejected. It is clear that in December 1999, Smith gave a presentation about the policy at the offices of NECA Victoria and that the premium of $14.50 was noted but not discussed. 21 Smith Statement, exhibit 1644, attachment IS17, document ; Smith Statement, exhibit 1644, attachment IS18, document ; Smith Statement, exhibit 1644, attachment IS19, document ; Smith Statement, exhibit 1644, attachment IS20, document ; Smith Statement, exhibit 1644, attachment IS21, document ; Smith Statement, exhibit 1644, attachment IS22, document Final Report of the Royal Commission into the Building and Construction Industry

125 22 Smith Statement, exhibit 1644, paragraph 29, document Smith Statement, exhibit 1644, paragraph 30, document Smith Statement, exhibit 1644, paragraph 31, document ; Mighell Statement, exhibit 1656, paragraph 5, document Green Supplementary Statement, exhibit 1641, paragraph 3, document ; Green Statement, exhibit 1640, attachment PJG13, document Fraser Statement, exhibit 1704, paragraph 6, document Walton, T15294/28 30; Fraser Statement, exhibit 1704, paragraphs 3 and 5, document ; Green Supplementary Statement, exhibit 1641, paragraph 5, document Fraser Statement, exhibit 1704, paragraph 5, document ; Green Supplementary Statement, exhibit 1641, paragraph 5, document Green Supplementary Statement, exhibit 1641, paragraph 3, document ; Mighell Statement, exhibit 1656, paragraph 8, document Green Supplementary Statement, exhibit 1641, paragraph 6, document Green Supplementary Statement, exhibit 1641, paragraph 6, document ; Mighell Statement, exhibit 1656, paragraph 7, document Green,T15282/32 45; Walton, T15295/ Mighell,T15568/ Provision of Protection Benefits for ETU Members in the Electrical and Communications Industry, exhibit Green, T15280/ Palmer Statement, exhibit 1703, paragraph 7, document ; Green Supplementary Statement, exhibit 1641, paragraph 7, document ; Mighell, T15533/ Smith quoted $10.75 to Mier personally by facsimile dated 20 October 2000: Smith Statement, exhibit 1644, paragraph 19, document ; Smith Statement, exhibit 1644, attachment IS14, document Green, T15283/ /2. 39 Green Supplementary Statement, exhibit 1641, paragraph 9, document ; Fraser Statement, exhibit 1704, paragraph 13, document ; Mighell Statement, exhibit 1656, paragraph 10, document ; Green, T15283/ Green Supplementary Statement, exhibit 1641, paragraph 9, document ; Palmer Statement, exhibit 1703, paragraph 8, document Walton Statement, exhibit 1643, paragraph 13, document Green, T15283/ Green Supplementary Statement, exhibit 1641, paragraph 10, document ; Palmer Statement, exhibit 1703, paragraph 9, document ; Williams, T15291/ Walton Statement, exhibit 1643, paragraph 14, document ; Walton T15295/9 14; Palmer Statement, exhibit 1703, paragraph 10, document Mighell did not deny this exchange saying only No, I don t recall specifically saying that : Mighell, T15536/ Green Supplementary Statement, exhibit 1641, paragraphs 11 and 12, document ; Green, T15283/ Green Supplementary Statement, exhibit 1641, paragraph 12, document ; Green Statement, exhibit 1640, paragraph 47, document ; Green, T15283/ / Fraser Statement, exhibit 1704, paragraph 12, document ; Smith Statement, exhibit 1644, paragraph 33, document Smith understood it was in early 2000, as best as he Reform Funds 119

126 can recall, however that evidence is rejected firstly because of the majority views that the discussion occurred in late 1999 and secondly because it is less logical that a meeting to discuss the proposed policy would occur subsequent to NECA Victoria agreeing to the policy (which it did about 22 December 1999). 48 Smith Statement, exhibit 1644, paragraph 33, document ; Fraser Statement, exhibit 1704, paragraph 12, document ; Green, T15286/20 24; Williams, T15292/ Green Supplementary Statement, exhibit 1641, paragraphs 13 and 14, document ; Green Statement, exhibit 1640, paragraph 49, document Green Statement, exhibit 1640, attachment PJG13, document Green Statement, exhibit 1640, paragraph 50, document Green Statement, exhibit 1640, attachment PJG14, clause 22, document Green, T15279/32 45, T15281/ Green, T15279/32 41; Green Statement, exhibit 1640, paragraph 50, document Green Statement, exhibit 1640, attachment PJG15, clause 22, document Green Statement, exhibit 1640, attachment PJG13, document Green Statement, exhibit 1640, paragraph 52, document ; Green Statement, exhibit 1640, attachment PJG17, paragraph 4, document Green, T15281/ Mighell, T15336/5 9; T15337/ / Green Supplementary Statement, exhibit 1641, paragraph 16, Document Green, T15285/ Green Supplementary Statement, exhibit 1641, paragraph 17, document ; Mighell Statement, exhibit 1656, paragraph 10(ii), document Smith Statement, exhibit 1644, attachment IS28, document Mighell, T15331/ / What is recorded at paragraph of the minutes of the meeting held on 8 June 2000 is dealt with in paragraphs of the Addendum. 66 Green Supplementary Statement, exhibit 1641, paragraph 26, document ; Mighell T15537/ Smith Statement, exhibit 1644, attachment IS19, Special Provisions additional benefits paragraph 3, document ; Smith Statement, exhibit 1644, attachment IS23, document Smith Statement, exhibit 1644, attachment IS23, document Power, T15928/22 30; Minutes of Board Meetings of ElecNet (Australia) Pty Ltd, exhibit 1711, document at Power, T15931/26 32; Smith Supplementary Statement, exhibit 1645, paragraphs 3 and 4, document ; cf Mighell, T15332/23 T15333/ Smith Supplementary Statement, exhibit 1645, paragraph 4, document Mighell gave evidence that the deletion of the funeral benefit from the proposed policy occurred months before : Mighell, T15332/ That evidence is rejected. It is contrary to the changes made to the draft policies, and leaves no explanation for why the premium remained unchanged despite the change made to the benefits. 72 Smith Statement, exhibit 1644, attachment IS20, Special provisions additional benefits paragraph 3, document Smith Statement, exhibit 1644, paragraph 35, document Hellings Statement No.3, exhibit 1707, paragraph 5, document ; Hellings Statement No.3, exhibit 1707, annexure DH1, document Final Report of the Royal Commission into the Building and Construction Industry

127 75 Hellings Statement No.3, exhibit 1707, paragraph 11, document ; Hellings Statement No.3, exhibit 1707, annexure DH5, document Smith Statement, exhibit 1644, attachment IS28, document ; Smith Statement, exhibit 1644, paragraph 38, document Smith Statement, exhibit 1644, paragraph 38, document ; Smith Statement, exhibit 1644, attachment IS24, document ; Mighell, T15537/ Smith Statement, exhibit 1644, attachment IS25, document ; Smith Statement, exhibit 1644, paragraph 39, document ; Mighell gave evidence that he believed IUS drafted the letter: Mighell, T15542/16 33; Smith was not questioned on that evidence. 79 Smith Statement, exhibit 1644, attachment IS26, document ; Smith Statement, exhibit 1644, paragraph 40, document Smith Statement, exhibit 1644, attachment IS27, document ; Smith Statement, exhibit 1644, paragraph 41, document Smith Statement, exhibit 1644, attachment IS28, document Green Supplementary Statement, exhibit 1641, paragraph 22, document ; Green, T15285/26 36; cf Mighell, T15333/ Green Supplementary Statement, exhibit 1641, paragraph 22, document Green Supplementary Statement, exhibit 1641, paragraph 23, document Williams Statement, exhibit 1642, paragraphs 41 and 42, document ; Williams, T15291/36 44; cf Mighell, T15333/ Green Supplementary Statement, exhibit 1641, paragraph 24, document Green Supplementary Statement, exhibit 1641, attachment PJG19, document Green Supplementary Statement, exhibit 1641, paragraph 25, document Green, T15286/ Smith Statement, exhibit 1644, attachment IS24, document ; Smith Statement, exhibit 1644, paragraph 43, document Smith Statement, exhibit 1644, annexure IS29, document Smith Statement, exhibit 1644, paragraph 43, document Smith Statement, exhibit 1644, paragraphs 46 and 47, document Smith Statement, exhibit 1644, paragraph 45, document ; Smith Statement, Exhibit 1644, attachment IS29, document Smith Statement, exhibit 1644, paragraph 48, document Smith Statement, exhibit 1644, paragraph 48, document Smith Statement, exhibit 1644, paragraph 49, document ; Smith Statement, exhibit 1644, attachment IS30, document Smith Statement, exhibit 1644, paragraphs 50 and 51, document Smith Statement, exhibit 1644, paragraph 52, document ; Smith Statement, exhibit 1644, attachment IS32, document Smith Statement, exhibit 1644, paragraphs 53, document ; Smith Statement, exhibit 1644, attachment IS33, document Smith Supplementary Statement, exhibit 1645, paragraph 9, document Smith Supplementary Statement, exhibit 1645, paragraphs 10, 11 and 14, document Smith Supplementary Statement, exhibit 1645, paragraph 12, document ; Smith Supplementary Statement, exhibit 1645, attachment IS2, document Reform Funds 121

128 104 Smith Supplementary Statement, exhibit 1645, paragraphs 12 and 13, document ; Smith Supplementary Statement, exhibit 1645, attachment IS2, document Smith Supplementary Statement, exhibit 1645, paragraph 14, document See also attachment IS1, document , to that statement and attachment IS2, document National Electrical and Communications Association (NECA), Submission to the Royal Commission into the Building and Construction Industry, 21 May 2002, exhibit 528, document National Electrical and Communications Association (NECA), Submission to the Royal Commission into the Building and Construction Industry, 21 May 2002, exhibit 528, document at Green, T15287/ Green, T15286/9 24; Williams, T15292/31 37; Smith, T15301/ Smith T15300/ / National Electrical and Communications Association (NECA), Submission to the Royal Commission into the Building and Construction Industry, 21 May 2002, exhibit 528, document at Green Supplementary Statement, exhibit 1641, paragraph 27, document Green Supplementary Statement, exhibit 1641, paragraphs 28 and 29, document ; Mighell T15334/ Mighell, T15334/ / Mighell T15538/41 T15539/ Green Supplementary Statement, exhibit 1641, paragraphs 30 and 31, document ; Palmer Statement, exhibit 1703, paragraph 20, document ; Mighell, T15335/ Green Supplementary Statement, exhibit 1641, paragraph 32, document ; Mighell, T15340/ Green Supplementary Statement, exhibit 1641, paragraph 32, document ; cf Mighell, T15340/ Green Supplementary Statement, exhibit 1641, paragraph 34, document Green Supplementary Statement, exhibit 1641, paragraph 36, document ; cf Mighell, T15340/ Green Supplementary Statement, exhibit 1641, paragraph 37, document ; cf Mighell, T15340/ / Green Supplementary Statement, exhibit 1641, paragraphs 40 and 41, document ; cf Mighell, T15538/ Green Supplementary Statement, exhibit 1641, paragraph 42, document ; cf Mighell, T5539/ Submissions by Mr E White of Counsel on behalf of Mr D Mighell dated 4 December 2002, in response to the submissions of Counsel Assisting, paragraph 31; Ryan v Textile, Clothing and Footwear Union of Australia [1996] 2 VR Submissions by Mr E White of Counsel on behalf of Mr D Mighell dated 4 December 2002, in response to the submissions of Counsel Assisting, paragraphs Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594, See Ryan v Textile, Clothing and Footwear Union of Australia [1996] 2 VR Re Ku-ring-gai Co-operative Building Society (No 12) Ltd (1978) 36 FLR 134, See Patrick v Steel Mains Pty Ltd (1987) 77 ALR 133; Barto v GPR Management Services Pty Ltd (1991) 33 FCR 389; cf Martin v Tasmania Development and Resources (1999) 163 ALR 79; Mulcahey v Hydro Electric Commission (1998) 85 FCR 170, Final Report of the Royal Commission into the Building and Construction Industry

129 130 Martin v Tasmania Development and Resources (1999) 163 ALR 79, [77]; Mulcahey v Hydro Electric Commission (1998) 85 FCR 170, Martin v Tasmania Development and Resources (1999) 163 ALR 79, [77]. 132 Mighell Statement, exhibit 1656, paragraph 7, document Mighell Statement, exhibit 1656, paragraph 8, document Mighell Statement, exhibit 1656, paragraph 10, document Mighell, T15533/ / Mighell, T15536/ Fraser Statement, exhibit 1704, paragraph 16, document Fraser, T15530/ Palmer Statement, exhibit 1703, paragraph 10, document Walton Statement, exhibit 1643, paragraph 14, document Walton, T15296/ Williams Statement, exhibit 1642, paragraphs 40 42, document Williams, T15293/ Green Statement, exhibit 1640, paragraphs 46 47, document T15325/ Reform Funds 123

130 124 Final Report of the Royal Commission into the Building and Construction Industry

131 8 Electrical Contractors Association of Western Australia Incorporated Severance Scheme Fund Background 1 This case study concerns a severance fund administered by the Electrical Contractors Association of Western Australia Incorporated (ECAWA). The Commission carried out investigations into the use made by ECAWA of interest earned on that fund and, in particular, a payment of $ which the fund made in April or May This payment was used to reduce the amount owing by ECAWA on a loan facility on a property owned by it at 9 Cressall Road, Balcatta (the Property). 2 ECAWA is an association incorporated under the Associations Incorporation Act 1987 (WA). It is also an employer association registered in the Western Australian Industrial Relations Commission (WAIRC) under the Industrial Relations Act 1997 (WA). ECAWA provides a range of advice and assistance to member electrical contractors in WA. The ECAWA membership ranges from sole traders to national corporations who are electrical contractors operating out of Western Australia. Current ECAWA membership is approximately In 1989 an agreement called the Major Commercial Building Sector Agreement (MCBSA) was signed by the Electrical Contractors Association of Western Australia and The Electrical Trades Union of Aust. Western Australian Branch. The agreement was intended to stabilise production in the Major Commercial Building Sector. It provided for the payment of severance pay to workers but only if such workers worked on the terms and conditions set out. Those terms addressed inclement weather, amenities, RDOs and Christmas shutdown, reduction in lost time, site agreements, observance of award and conditions of employment, all in payments and protective clothing. The MCBSA contemplated a payment of $20 a week for each worker by the employer to the Severance Scheme Administration Fund (SSA Fund) operated by the Electrical Contractors Association of Western Australia. 4 Clause 2 of the MCBSA contemplated individual licensed electrical contractors signing the MCBSA and thereupon agreeing to honour its terms and conditions. Reform Funds 125

132 5 The MCBSA came into effect on 12 April 1989 but was binding on signatories only from the date of signing and for work tendered by the signatory from that date, and for all current projects where there was an obligation to pay severance pay. 2 Up to 42 participating companies were signatories to the MCBSA. 3 6 Subsequently, another version of the MCBSA was prepared. It came into effect on 12 April 1989 and was amended on 1 July It is better regarded as a new agreement (the 1992 agreement), not an amendment of the 1989 agreement. By April 1992 ECAWA had been incorporated. ECAWA and a union described as the AEEFEU (WA Branch) were signatories, and the agreement made provision for electrical contractors to become signatories. The term Severance Scheme Administration Fund was no longer used. Instead, signatory employers agreed to contribute to the severance scheme facility administered by ECAWA. That facility was later described in the agreement as the Severance Scheme Administration facility (SSA facility). The 1992 agreement also made changes to the contributions that the signatory employers were obliged to make for each employee and to the circumstances in which the employees could access termination payments. 4 The 1992 agreement continued in force until the Union, Association or signatory withdraws in writing. 5 8 A dispute arose in between ECAWA and the Union signatory to the 1992 agreement. Negotiations between the parties failed to resolve the dispute. Consequently ECAWA and its participating members withdrew from the 1992 agreement. At that point, in December 1994, the 1992 agreement became defunct or was terminated. Some of the participating members moved their funds to the Western Australian Construction Industry Redundancy Fund (WACIRF). Others requested ECAWA to continue operating the fund (the Fund), which it did. At present, there are six employers contributing to the Fund. 6 Contributions to the Fund, subsequent to the 1992 agreement becoming defunct, were voluntary. 9 The Fund rarely exceeded $1.2 million. In 2002 the Fund balance was approximately $1 million All decisions on matters pertaining to the Fund are made by ECAWA Management Committee. The Management Committee is assisted by the Finance Sub-committee, consisting of the ECAWA s Executive Director and Financial Controller, and four members of the Management Committee. The Finance Sub-committee may only make recommendations to the Management Committee and has no power to act independently. Mr Rodney Hale, Executive Director of the Electrical Contractors Association of Western Australia Incorporated gave evidence that the Management Committee has never delegated any of its powers that relate to the Fund. 8 9 Cressall Road, Balcatta 11 In February 1998 ECAWA purchased the Property. 9 To fund the purchase, ECAWA sold its half share in a property at Westchester, secured a loan from the ANZ Bank for $ and drew upon a term deposit with the ANZ. 10 The purchase was completed on 9 April Final Report of the Royal Commission into the Building and Construction Industry

133 12 As at 16 October 2002 the outstanding balance of the ECAWA s debt to the ANZ was approximately $ The reduction from $ to $ was assisted by a lump sum payment by ECAWA into the loan account of a sum of $ This sum was taken from the surplus of the Fund that is to say, from the balance of the interest which had been earned on the contributions made since 1989 by employers. 13 Contributions held in trust 13 Both the MCBSA and the 1992 agreement made on 1 July 1992 contained provisions that: (a) (b) (c) contemplated employer contributions being paid to a worker s account with the fund; relieved the employer of any obligation to pay accrued severance pay entitlements, once the employer had made payment to the fund for those entitlements; and vested in the fund the responsibility to then make the severance payment to the employee for those entitlements upon termination of employment It follows that the contributions made by employers to the funds pursuant to the MCBSA and the 1992 agreement, were held in trust by the funds for each of the employees on whose behalf the payments were made As the purpose and character of the contributions made since January 1995 are to be derived from the 1992 agreement, the contributions which have been made to the Fund by employers since January 1995 are similarly held in trust for the employees. Surplus funds 16 Although the MCBSA, and the 1992 agreement contemplated each fund keeping an account for each employee on whose behalf contributions were made, both agreements were silent as to how the balance of an employee s account would be calculated. In particular, they were silent as to whether administration costs could be met from contributions made by employers and to the manner in which interest and other income earned on the funds could be applied. 17 In 1995 ECAWA considered that clarity was required in terms of what it could do with the interest earned on the Fund. 18 That clarity was subsequently provided by letters from signatory employers in the following terms: RE: SEVERANCE SCHEME ADMINISTRATION CONTRIBUTIONS I refer to the above scheme in which contributions have been made by this business in accordance with the Major Commercial Building Sector Agreement. I confirm that when our company signed the Major Commercial Building Sector Agreement and made contributions in accordance with that Agreement, it was and still is our intention that our relevant employees would only receive the actual contributions made by us on his behalf. It was not intended that they would be entitled to interest or other income earned on the funds pending their distribution to employees. Reform Funds 127

134 It was our intention that the interest or income would be available to the ECA for its own use and benefit, including defraying its set-up and administrative costs, drawing appropriate management fees and providing training Two sample letters signed by employers were received in evidence. One was dated 18 January The other was undated but bore a received date stamp of 11 September Over a period of time, ECAWA gave consideration to the appropriate use of the surplus in the Fund. On 14 September 1999, at a meeting of the Management Committee, Hale informed the Committee that there may be funds available through interest from the Fund. The minutes of the meeting record that this was to be raised at the next Finance Committee Meeting for consideration in supplementing ECAWA training induction needs for industry On 8 October 1999 the Finance Committee minutes record that research was still being conducted in order to ascertain the legality of utilising and the ownership of interest funds in the Fund On 12 October 1999 the Management Committee minutes record: Discussion on moneys accrued. Interest and principal. Rod [Hale] stated that his understanding is that it has always been the intent that the interest earned only ever be used for training. There is legal opinion that fund money (principal) is owned by the employees, not the employers. Doesn t appear to be any documentation to show whether the union has a continuing role Noting that there was presently $ in interest in the Fund, the Management Committee resolved that the interest be expended to develop training programs as the Committee directs The Treasurer s Report at the ECAWA Annual General Meeting in 1999 contains the following: ECA investment in property through West Perth and Balcatta sites continues with the bank loan of $360, on the Balcatta property being actively reduced by $34, as of 31st August Changes in the industrial employment practices resulted in an approximate 6% increase to $814, in the funds invested in the redundancy scheme, with the severance scheme remaining stable at approximately $1,099, ECAWA s audited Financial Statements for the year ended 31 August 1999 indicate that the outstanding debt on the Property at that date was $ On 10 March 2000 the Finance Committee minutes record Hale s advice that he had met with the ANZ Bank in relation to the ANZ loan on the Property and that the outstanding balance of the loan was discussed. It was also noted that a reduction proposal was to be prepared and submitted to the next meeting On 7 April 2000 the Finance Committee discussed the ANZ loan on the Property. It was resolved to recommend to the Management Committee that $ be withdrawn from the surplus in the Fund and used to reduce the bank loan on the Property. 128 Final Report of the Royal Commission into the Building and Construction Industry

135 28 On 11 April 2000 the Management Committee resolved to allocate from the surplus held in the Fund the sum of $ towards the reduction of the loan on the Property On 5 May 2000 the Finance Committee was advised that the loan facility had been reduced by $ The Finance Committee minutes of 9 March 2001 record the following under the heading SAA Scheme : Over the previous months, the Executive Director had conducted an extensive research of the ECA archives to determine the future of residual monies in the fund. He advised the Committee that following the failed negotiations with the CEPU, the MCBSA was terminated in December of Some members have chosen to continue with severance payments after that time based on EBA agreements. 27 With the termination of the agreement, equal payments were made to both the ECA and CEPU with all parties including contributing members formally rejecting any claim to monies generated through account interest. With reference to transferring monies out of the Fund and into new agreements, members were advised that the agreement provided only three options for payment, leaving little room to move towards new agreements. The Committee on review of the information believe the matter to be closed requiring no further attention The Management Committee minutes of 13 March 2001 record the following under the heading SAA Scheme : In 1993 this agreement was cancelled and in 1994 discussions to renew it failed. In 1996 the CEPU approached the ECA re payments of interest monies and 42 members of the Scheme were asked to sign a declaration re distribution of interest. In 1997 the CEPU approached some members to transfer to their own scheme (WASERV) [sic], but no money was ever transferred. Mr Hale is conducting a search through archives to find the papers containing the members resigning from the Scheme. He believes the agreement is dead and the CEPU have fully walked away from it. The Committee see some merit in starting a new scheme, and Mr Hale is to look into the possibility of establishing this The notes which form part of the accounts of ECAWA for the 12 months ended 31 August 1999 refer to the Fund as an employee cessation scheme administered for the benefit of members. The notes state that the results of the scheme do not form part of the trading results of ECAWA and so are capitalised against the scheme s accounts. However income earned for the administration is treated as revenue The detailed Statement of Income & Expenditure of the Fund for the year ended 31 August 1999 shows the only income as $ being interest received on deposits. Expenses charged against that income include administration fees of $ Reform Funds 129

136 34 The summary Statement of Income & Expenditure of the ECAWA for the 12 months ended 31 August 1999 shows an income item of $ being an administration fee received from the Severance Scheme The Balance Sheet for the year ended 31 August 2001 of what is described as The Electrical Contractors Association of WA Severance Scheme shows $ in two ANZ bank accounts; liabilities of $ (which includes Contribution owing to Employees $ ); and net assets of $ In the period from 1999 to the present, the only payments made by the Fund from surplus moneys were payments made to the ECAWA to cover ongoing administration, audits and the maintenance and upgrading of computer software and hardware; the payment to the ANZ Bank of $ to reduce ECAWA s mortgage on the Property; and bank charges and financial taxes. 34 Discussion 37 It is clear that upon termination of their employment (in circumstances set out in the 1992 agreement), employees become entitled to receive a severance benefit from the Fund. 35 According to ECAWA, participating employers accept that they relinquish all right to any claim upon the Fund once a contribution is made The payment of the $ raises a question as to who was entitled to the surplus of the Fund. The distribution of surpluses from redundancy and severance funds is usually governed by a trust deed. The deed records an agreement between the relevant employer and employee organisations, and any other stakeholders, upon how the surpluses are to be distributed. In the present case, there is no such trust deed By April or May 2000 when the $ payment was made from the interest which had been earned, some and perhaps most of that $ may have been earned on contributions made by electrical contractors prior to 1 January (The Commission has not received any evidence which enables it to determine the dates when the employer contributions, which then made up the current reserves, were paid into the funds. That is to say, the Commission does not know how much of those reserves was contributed before 1 July 1992; how much of those reserves was contributed before the 1992 agreement was terminated in December 1994; nor how much of those reserves was contributed after that termination. The function of the three funds was and is to regularly receive contributions from employers and to regularly pay entitlements to employees. Thus, no assumption can be made as to the dates of the contributions which comprised the reserves in April and May 2000.) 40 Accordingly, which persons or companies were entitled to that $ may depend upon the agreement (if any) made between the parties and signatories to the MCBSA when they signed that agreement in 1989, as to who should be entitled to the interest. 41 If no such agreement was made, then (subject to the qualification made below) interest earned on the contributions would have been held in trust for the employees because the contributions were held in trust for them. This is because a trustee is bound to invest trust funds in order that 130 Final Report of the Royal Commission into the Building and Construction Industry

137 income will be earned therefrom for the beneficiaries, subject to any contrary direction given at the time a trust is created The qualification is this: if no such agreement was made in 1989 but such an agreement was made at the time of the signing of the 1992 agreement, then that agreement would determine what can be done with the interest earned on contributions made since the time of the signing of the 1992 agreement. 43 Part of the evidence obtained by the Commission on these questions was the two letters referred to in paragraphs 18 and 19 above and the evidence given by Hale to the effect that ECAWA has no record, and Hale has no knowledge, of any documentation prior to January The documents which comprise the MCBSA raise the possibility that there may be written evidence to support the proposition that it was agreed by the parties and signatories to the two agreements that interest would be available to ECAWA for its own benefit. The first page of the MCBSA is a cover sheet on which is printed: MAJOR COMMERCIAL BUILDING SECTOR AGREEMENT There is also a date received stamp showing the date 7 April The second page has printed on it, in the same font, the following: CONTENTS.. 1. MAJOR COMMERCIAL BUILDING SECTOR AGREEMENT. 2. LETTERS OF UNDERSTANDING. Seven pages of the MCBSA (printed in a different font) then follow. 45 These nine pages raise the following possibilities: (a) all nine pages were received by ECAWA at the same time on 7 April 1989; (b) (c) letters of understanding were received at the same time or, alternatively, it was intended that letters of understanding would be received at the same time; and the letters of understanding were letters written by the electrical contractors who became signatories to the agreement. 46 The Commission has not obtained any direct evidence as to whether those letters of understanding, if written, still exist and no evidence has been received by the Commission as to the contents of those letters. (The evidence of Hale that he has no knowledge of any documentation prior to January 1995 probably means that ECAWA does not have possession of the originals of any such letters. However, no evidence has been received by the Commission as to whether copies have been retained by the signatories.) In particular, the Commission has not received any evidence which indicates whether the letters included a declaration of intention by the electrical contractor that interest earned on the electrical contractor s contributions to the SSA Fund would be available to ECAWA for its own use and benefit. Reform Funds 131

138 47 If it be the fact that, in April 1989, it was agreed by the parties and signatories to the MCBSA that the employees would not be entitled to interest on the contributions, and that the interest would be available to ECAWA for its own use and benefit, then ECAWA would have been entitled to receive payments from the interest. 48 Furthermore, it would follow from the fact that the 1992 agreement, in effect, constituted the SSA facility as a continuation of the SSA Fund for the same purposes, that if such an agreement was made, ECAWA would have been entitled to receive payments from interest earned on contributions made between 1 July 1992 and the termination of the 1992 agreement in December The two letters referred to in paragraphs 18 and 19 above, make it clear that the employers who wanted ECAWA to continue the Fund, intended that interest earned on their contributions would be available to ECAWA for its own use and benefit. Accordingly, it is likely that ECAWA would be entitled to receive payments from interest earned on contributions made since 1 January If it be the fact that no agreement was made prior to 1 January 1995 which permitted ECAWA to use the interest earned on the contributions made to the funds, then it would follow that the Fund would not be able to use interest earned on the contributions made prior to 1 January 1995 to make payments to ECAWA, for its own use and benefit. 51 A trustee is entitled to reimbursement for all moneys paid for expenses reasonably incurred in the execution of the trust. Thus, ECAWA is entitled to reimburse itself for such reasonably incurred expenses from the interest earned on the contributions. 40 But this principle of law would have no application to the $ payment. Conclusion 52 Forty-two electrical contractors became signatories to the MCBSA. The Electrical Trades Union of Aust. Western Australian Branch also signed that agreement. Apart from the two letters referred to above, the Commission has not obtained any evidence from those organisations bearing upon the question of what agreement, if any, was made in April 1989 as to who should receive the benefit of interest earned on contributions. 53 Apart from the two letters, the Commission has not obtained any evidence from the union and electrical contractor signatories to the 1992 agreement, bearing upon the question of what agreement, if any, was made in July 1992 as to who should receive the benefit of interest earned on contributions. 54 The Commission is not able to determine how much of the reserves as at April or May 2000 comprised contributions made since 1 January 1995 (which is taken for present purposes to be the date when the Fund commenced). 55 On the material before me, I am unable to make a finding whether ECAWA was entitled to receive the payment of $ made from the Fund in April or May The obligations and entitlements of the participants in this scheme, and the entitlement of ECAWA to any surplus funds need to be clarified, if necessary, by seeking appropriate declarations from the Supreme Court of Western Australia. 132 Final Report of the Royal Commission into the Building and Construction Industry

139 57 This case study illustrates: (a) (b) The making of a payment from interest earned on funds in an industry severance fund, for the benefit of an employer association administering that fund, in circumstances where its entitlement to the benefit of that payment was not clear; and The need for clarity about entitlement to interest on funds held in trust for employees in a severance fund in the building and construction industry. Persons involved Name Hale, Rodney Position/Title Executive Director, Electrical Contractors Association of Western Australia Incorporated. Reform Funds 133

140 Notes to Electrical Contractors Association of Western Australia Incorporated Severance Scheme Fund 1 Hale Statement, exhibit 1764, paragraph 6, document Tender Bundle of Documents re: Electrical Contractors Association of WA Inc, exhibit 1760, document Hale Statement, exhibit 1764, paragraph 54, document Tender Bundle of Documents re: Electrical Contractors Association of WA Inc, exhibit 1760, documents Tender Bundle of Documents re: Electrical Contractors Association of WA Inc, exhibit 1760, document at Hale Statement, exhibit 1764, paragraphs 56 and 57, document ; Hale T15979/1-5; Tender Bundle of Documents re: Electrical Contractors Association of WA Inc, exhibit 1760, document at Hale Statement, exhibit 1764, paragraph 54, document ; Hale T15979/7. 8 Hale Statement, exhibit 1764, paragraph 60, document Tender Bundle of documents re: CET, exhibit 1759, document at Hale Statement, exhibit 1764, paragraph 23 document Tender Bundle of documents re: CET, exhibit 1759, document at Hale Statement, exhibit 1764, paragraph 24, document Hale Statement, exhibit 1764, paragraph 41, document Tender Bundle of Documents re: Electrical Contractors Association of WA Inc, exhibit 1760, documents at 0017 and at Gummow, W., Jacobs, K. and Meagher, R. 1997, Jacobs Law of Trusts in Australia (6th ed), Butterworths Sydney, paragraphs 101, Hale Statement, exhibit 1764, annexure 7, document ; Tender Bundle of Documents re: Electrical Contractors Association of WA Inc, exhibit 1760, document Hale Statement, exhibit 1764, annexure 7, document ; Tender Bundle of Documents re: Electrical Contractors Association of WA Inc, exhibit 1760, document Tender Bundle of Documents re: Electrical Contractors Association of WA Inc, exhibit 1760, document at Tender Bundle of Documents re: Electrical Contractors Association of WA Inc, exhibit 1760, document Tender Bundle of Documents re: Electrical Contractors Association of WA Inc, exhibit 1760, document at Tender Bundle of Documents re: Electrical Contractors Association of WA Inc, exhibit 1760, document at Tender Bundle of Documents re: Electrical Contractors Association of WA Inc, exhibit 1760, document Tender Bundle of Documents re: Electrical Contractors Association of WA Inc, exhibit 1760, document at Tender Bundle of Documents re: Electrical Contractors Association of WA Inc, exhibit 1760, document Tender Bundle of Documents re: Electrical Contractors Association of WA Inc, exhibit 1760, document at Final Report of the Royal Commission into the Building and Construction Industry

141 26 Tender Bundle of Documents re: Electrical Contractors Association of WA Inc, exhibit 1760, document Tender Bundle of Documents re: Electrical Contractors Association of WA Inc, exhibit 1760, document at Tender Bundle of Documents re: Electrical Contractors Association of WA Inc, exhibit 1760, document at Tender Bundle of Documents re: Electrical Contractors Association of WA Inc, exhibit 1760, document at Tender Bundle of Documents re: Electrical Contractors Association of WA Inc, exhibit 1760, document at Tender Bundle of Documents re: Electrical Contractors Association of WA Inc, exhibit 1760, document at Tender Bundle of Documents re: Electrical Contractors Association of WA Inc, exhibit 1760, document at Tender Bundle of Documents re: Electrical Contractors Association of WA Inc, exhibit 1760, document at Hale Statement, exhibit 1764, paragraph 68, document Tender Bundle of Documents re: Electrical Contractors Association of WA Inc, exhibit 1760, document at Tender Bundle of documents re: CET, exhibit 1759, document at Hale, T15979/ Gummow, W., Jacobs, K. and Meagher, R. 1997, Jacobs Law of Trusts in Australia (6th ed),,butterworths, Sydney, paragraph Hale, T15980/ Gummow, W., Jacobs, K. and Meagher, R. 1997, Jacobs Law of Trusts in Australia (6th ed), Butterworths, Sydney, paragraph Reform Funds 135

142 136 Final Report of the Royal Commission into the Building and Construction Industry

143 9 Incolink: Self-Initiated Redundancies Background 1 Redundancy Payment Central Fund Ltd, trading under the name Incolink, is the trustee of six funds, namely: (a) (b) (c) Redundancy Payment Central Fund; Redundancy Payment Central Fund No.1 Income Protection and Trauma Insurance Scheme; Construction Industry Portable Sick Leave Pay Scheme; (d) Redundancy Payment Central Fund No. 2; (e) Redundancy Payment Central Fund No. 2 Income Protection and Trauma Insurance Scheme; and (f) Redundancy Payment Central Fund No. 2 Portable Sick Leave Pay Scheme. 1 2 The first three of these funds are generally characterised as Fund 1 funds and the second three as Fund 2 funds. The Fund 1 funds relate to participants in the building and construction industry. The Fund 2 funds relate to participants in the metal and engineering construction and contracting industries. Each of the six funds is governed by a trust deed. 2 3 The Commission primarily inquired into aspects of the Redundancy Payment Central Fund (the Fund). It is administered in accordance with a consolidated trust deed (the Deed). 3 The parties to the Deed are the Master Builders Association of Victoria (MBAV), the Amalgamated Society of Carpenters & Joiners of Australia (Victorian Branch), the Building Workers Industrial Union of Australia (Victoria), the Victorian State Building Trades Union and the trustee. 4 Part 3 of the Deed provides for employers becoming members of the Fund. Clause 3.4 of Part 3 requires a member to make redundancy pay contributions to the Trustee in compliance with any terms and conditions laid down from time to time by the Redundancy Pay Agreement (subject to provisions not here relevant). The Redundancy Pay Agreement is defined in Part 1 of the Deed to mean the 1987 Building Industry Redundancy Pay Agreement between the MBAV, the Unions, the Victorian Trades Hall Council and the State of Victoria as amended. Reform Funds 137

144 5 Clause 3.5 provides that all contributions made by a member to the Fund become part of the Trust Fund. 6 Part 3A of the Deed provides for contributions to the Fund. Clause 3A.1 of Part 3A provides: 3A.1 Each member will make the following contributions to the Fund in respect of each worker: (1) from 1 st October 1991 to 30 th September 1992, an amount per week which equals $40.00 adjusted for any increase in the Consumer Price Index (all Groups) Melbourne, during the period 1 st July 1990 to 30 th June 1991 and rounded to the nearest 10 cents; and (2) thereafter for each subsequent year commencing 1 st October an amount per week calculated in accordance with subclause 3A.1(1) as adjusted each 1 st October for any increase in the Consumer Price Index (all Groups) Melbourne, during the twelve months ending 30 th June immediately preceding that 1 st October and rounded to the nearest 10 cents. 7 As at 30 March 2000 the weekly contribution for each employee was $ As at 31 December 2001 the weekly contribution for each employee was $ As at September 2002 the weekly contribution was approximately $ Part 3B provides for the application of contributions. Clause 3B.1 of Part 3B provides that 50 cents of each contribution shall be used as an industrial levy to provide benefits to apprentices and shall be credited to the Apprentice and Former Apprentice Payments Account on or after the Payment Procedures Variation Commencement Date (defined in clause 1.1.(11AA) to mean 1 July 1994). The balance of each contribution must be credited to an account established for the worker in respect of whom the contributions have been made. 9 Part 3C of the Deed provides for payments of contributions. Clause 3C.1 of Part 3C provides: 3C.1 Subject to Clauses 3C.3 and 3C.4 a weekly contribution shall be paid for any week of Monday to Friday in which a worker is entitled to be paid wages by the member in respect of the work performed on a construction site. 10 Clauses 3C.2 3C.5 address adjustments to a member s obligation to pay contributions where a worker s employment is terminated, or a worker is absent without pay or a worker commences work, or ceases work, during a weekly contribution period. 11 Clauses 3C.4 and 3C.5 provide for contributions where a worker commences or ceases their employment - 3C.4 A weekly contribution shall be payable in respect of a worker who commences with a member on a Tuesday, Wednesday, Thursday or Friday. 3C.5 No contribution shall be payable in respect of a week where a worker ceases employment on a Monday, Tuesday, Wednesday or Thursday. 12 Part 3DD of the Deed provides for payment of benefits to workers, other than apprentices, on or after the Payment Procedures Variation Commencement Date (1 July 1994). 138 Final Report of the Royal Commission into the Building and Construction Industry

145 13 Clause 3DD.1 of Part 3DD provides: 3DD.1 Where the employment of a worker is terminated for any reason on or after the Payment Procedures Variation Commencement Date then, upon the Trustee receiving a written request from the worker at the time of termination of employment on a form prescribed by the Trustee, the Trustee shall pay to the worker the lesser of: (1) a redundancy benefit not exceeding the maximum initial payment benefit as prescribed from time to time in the Redundancy Pay Agreement; and (2) a redundancy benefit equal to the amount standing to the credit of that worker in his or her Worker s Account. 14 The maximum redundancy benefit presently payable under subclause 3DD.1(1) is $ Clauses 3DD.2, 3DD.3 and 3DD.4 stipulate the circumstances in which the balance of a worker s account may be accessed. 8 They provide: 3DD.2 If a worker has remained out of work for four (4) consecutive weeks commencing the date after termination of his or her employment on or after the Payment Procedures Variation Commencement Date, the worker shall be entitled to withdraw the balance (if any) of his or her Worker s Account after providing the Trustee with evidence that the worker is registered with the Commonwealth Employment Service. 3DD.3 Where a worker ceases to be employed in the industry and the employment of that worker has terminated for any reason on or after the Payment Procedures Variation Commencement Date the worker may withdraw the balance (if any) of his or her Worker s Account in a lump sum, thirty nine (39) weeks after the last contribution was paid on behalf of that worker. 3DD.4 Where a worker retires from the workforce and the employment of the worker has terminated for any reason on or after the Payment Procedures Variation Commencement Date, the worker may withdraw the balance (if any) of his or her Worker s Account in a lump sum provided he or she is over fifty-five years of age. Incolink Study 16 The Commission s investigation focussed on the circumstances in which employees are able to obtain redundancy payments from Incolink on termination of their employment, and in particular on situations where employees might have initiated termination of their employment for the purpose of accessing redundancy payments from the Fund. These are sometimes called self-initiated redundancies In an endeavour to see what evidence existed of such redundancies, the Commission examined those situations in which there was a termination of employment by an employer, the employee received a termination payment from Incolink and the employee returned to work with the same employer immediately after the termination, or within a very short period thereafter. 10 Reform Funds 139

146 18 Incolink had no statistical material on self-initiated redundancies. 11 Accordingly, the Commission obtained from Incolink information that enabled it to identify all employees whose employment had been terminated and who had received a termination payment from the Fund during the six month period 1 January 2001 to 30 June 2001, and who had recommenced employment with the same employer during that period. There were 1000 employees in this category. 12 These 1000 employees were a portion of the 7084 employees who received a redundancy payment from the Fund between 1 January 2001 and 30 June The information obtained included each employee s name and membership number and relevant details pertaining to their employer. The information was then sorted by reference to the number of days between the date when each employee ceased employment and then resumed employment with the same employer. The analysis was then limited to those employers where one or more of their employees had returned to work with that employer within ten days of their termination. There were 79 employers in this category. Some of those 79 employers had one such employee in this category. Others had more. One employer had 11. There were 129 such employees It was then necessary to identify employers who might be able to provide further information. The Commission decided to contact employers where more than one employee appeared to have been absent from work for less than one day or where employees had matching periods of absence. On this basis, eight employers were identified and approached. One was not requested to provide a statement, one chose not to do so, and the remaining six provided statements The statements obtained from those six employers confirmed that some of their employees caused their employment to be terminated and then either continued working or returned to that employment within a short period of time. 16 In general, the employees did so because they needed money urgently. 17 The employees needed the money for various reasons including a car, 18 building extensions at home, 19 school fees 20 and the like. 22 For the purpose of processing claims for redundancy payments, following termination of employment, Incolink requires a form attesting to the fact that the employee s contract of employment has been terminated. 21 In a letter forwarded to the Commission, 22 Incolink stated that three forms are used in relation to claims by terminated employees, namely: (a) (b) (c) an Employment Separation Certificate (issued by Centrelink and which is used to enable persons to access social security benefits) to be signed by the employer; 23 a Confirmation of Termination document (issued by Incolink) to be signed by the employer and employee; 24 and a redundancy claim form (issued by Incolink) used only in circumstances where the terminated employee wishes to claim the balance of money held by Incolink in his or her account Centrelink s Employment Separation Certificate provides for six possible reasons for the termination. The employer must select the applicable reason(s) and in some cases state details about the applicable reason(s). 140 Final Report of the Royal Commission into the Building and Construction Industry

147 24 The Confirmation of Termination declaration requires the employer to state the employee s name and number, the dates upon which the employee started work and was terminated, and the number of unused sick days to which the employee is entitled. Otherwise, the employer is required only to sign and date the form, and print his or her name and position. In particular, the document does not require the employer or employee to give reasons for the termination, nor give information from which the reasons could be inferred. 25 The third form would be used in circumstances where clause 3DD.2, 3DD.3 or 3DD.4 applies, and so is not relevant for present purposes. 26 To enable the employees to claim the initial redundancy payments from Incolink, the employers completed either an Employment Separation Certificate or a Confirmation of Termination declaration. 27 In circumstances where the employees intended to resume employment with the same employer shortly after the termination, and had no other use for an Employment Separation Certificate, it may be presumed that in the great majority of cases (at least) they used Incolink s Confirmation of Termination document which sought far less information about the termination. 28 Most, if not all, of the employers from whom statements were taken by the Commission recognised, or at least suspected, that the employees in question would not be absent from their employment with the same employer for any significant period. One employer said: In most cases the employee will continue working with the company the day immediately after the signing of the relevant form which we are required to sign The employers recognised that the employees were using the system to supplement their wages but, for various reasons, acquiesced in that occurring by signing the necessary Confirmation of Termination forms. Those reasons included: (a) it was in the interests of keeping a good working relationship ; 27 (b) (c) it makes no difference to the employer if [the redundancy payment] is claimed or not as we [the employers] are still required to continue paying the weekly contribution ; 28 each of the employees [who claimed the redundancy payment] was going through a difficult time and was feeling the pinch financially ; 29 (d) employees always appear to access the money for a worthwhile reason ; 30 (e) (f) the employment ended at the request of the employee they are all very hard workers and in many ways the backbone of the company given their skills and abilities. For these reasons upon departure we would have left the door open for their return. In each of these instances the employee approached us soon after finishing up to seek a return to work ; 31 and the employment ended at the request of the employee. The company did not have much work on and we were in a slow period. Naturally, we also wanted to look after the employees as best as we could and we didn t stop them from leaving. We left the door open, if they wanted to come back A few days later the company had work on and we asked the two employees to come back. 32 Reform Funds 141

148 30 Incolink became aware that, from time to time, employers may be privy to an arrangement where an employee s employment would be terminated on an understanding that the employee would be re-engaged by the same employer shortly afterwards. 33 In an endeavour to address the problem, Incolink introduced amendments to the trust deed to remove an obligation for Incolink to make a payment where a resignation could be regarded as artificial. 34 Thus, clause 3DD.5 of the Deed provides: 3DD.5 For the purposes of this part the employment of a worker is not terminated if the worker is to be regarded as having been employed by one employer, within the meaning of clause 3DD.6 or as having been continuously employed within the meaning of clause 3DD.7. The question whether the employment of a worker is or is not terminated must be determined by the Trustee. The Trustee must, in making a determination that the employment of a worker is not terminated: (1) give notice of the proposed determination to the worker; (2) give the worker at least 7 days after the service of that notice to make submissions (which may be written or oral or both) to the Trustee; (3) take into account any submissions made. If the Trustee makes a final determination that the employment of a worker is not terminated, it must advise the worker of that determination. Any determination by the Trustee under this clause is final and the worker has no right of appeal or review. 31 Clause 3DD.6 sets out a number of situations in which a worker is to be regarded as having been employed by one employer. Clause 3DD.6 provides: 3DD.6 (1) This clause sets out several situations in which a worker is to be regarded, for the purposes of this part, as having been employed by the one employer, even though the worker may have worked over the relevant period of time for more than one employer in a strict legal sense. (2) If a worker is employed by a corporation, he or she is to be regarded as having been employed by that corporation during any period that: (a) he or she was employed by a related corporation of that corporation (within the meaning of the Corporations Law); or (b) he or she was employed by another corporation and (i) (ii) the directors of that other corporation and the worker s present employer were substantially the same; or that other corporation and the worker s present employer were under substantially the same management. (3) If the ownership of a business employing someone changes but the employment of the worker continues, the worker is to be regarded as having 142 Final Report of the Royal Commission into the Building and Construction Industry

149 been employed by one employer from the date on which the worker started his or her employment with that business. (4) If for any reason the employment of a worker by the owner of a business terminates, but the ownership of the business changes and the Trustee believes that the new owner intends to employ the worker within 14 days after the termination, the worker is to be regarded as having been employed by the one employer from the date on which the worker first started employment at that business (unless the new owner does not so employ the worker). (5) If a worker performs duties in connection with any assets used in the carrying on of a business of his or her employer and those assets are transferred to another employer who continues the employment of the worker, the worker is to be regarded as having been employed by one employer from the date on which the worker started his or her employment at that business. (6) If a worker performs duties in connection with any assets used in the carrying on of a business of an employer and (a) (b) (c) the employment of a worker by that employer terminates for any reason; and those assets are transferred to another employer; and the Trustee believes that the other employer intends to employ the worker within 14 days after the date of the termination to perform duties in relation to those assets, or other assets of a similar kind; (7) In this clause - 32 Clause 3DD.7 provides: the worker is to be regarded as having been employed by one employer from the date on which the worker first started employment at that business (unless the other employer does not so employ the worker). assets includes land, plant and equipment; business includes a trade, process or occupation and any part of a trade, process or occupation and also includes any part of a business; transfer includes a transmission, conveyance, assignment or succession, whether by agreement or by operation of law. (1) This clause sets out situations in which a worker is to be regarded as having been continuously employed even though in a strict legal sense it could be said that the workers employment was interrupted. (2) A worker s employment is to be regarded as being continuous despite any interruption or ending of the employment by the employer or by the worker Reform Funds 143

150 (or both) if the interruption or ending is not bona fide and is made with the intention (or with an intention which includes the intention) of creating an entitlement in the worker under this Part. Conclusions 33 It is clear on the evidence that from time to time employees access termination payments from the Fund in circumstances where they are not entitled to those payments by reason that their employment has not, in truth, ended. Questions arising include: (a) (b) (c) (d) what is the extent of the problem? what is the cost of the problem and by whom is it borne? how effective are the measures taken to address the problem? how could the problem be more effectively addressed? 34 Over the six month period considered by the Commission, 129 employees were identified as employees whose employment was terminated, who then received a termination payment from the Fund and who were re-engaged by the same employer within ten days of their termination employees received a redundancy payment from the Fund during that same period. It follows that those 129 termination payments were approximately two per cent of the total termination payments made from the Fund during the six month period. 36 The important ancillary question is what proportion of those 129 payments were made to persons entitled to those payments, irrespective of their prompt return to their previous employment, and what proportion represents sham or self-initiated redundancies. 37 The Commission obtained statements from six of the 79 employers. Each, in general terms, acknowledged that they at least acquiesced in their employees obtaining an initial Incolink payment. Three of the employers acknowledged that this is a practice which occurs throughout the building industry One employer stated that if we were asked directly to let an employee finish up so they could claim an Incolink payment, and then return to work, we would say no. However, that employer still facilitated Incolink payments when employees wished to leave for reasons such as attempts at a few days work in another industry, family problems or relationship difficulties and left the door open for their return suspecting in some instances that employees will return Each of the employers admitted, in substance, to enabling their employees to obtain Incolink payments to which they were not entitled. One employer volunteered doing this type of thing once or twice myself when previously an employee in the industry Despite the small sample of employers from whom statements have been taken, the consistent nature of the evidence, the repeated claims that it is a practice which occurs throughout the building industry and the frank admissions of what occurs combine to make it reasonable to conclude that many more, and probably most, of the 129 employees identified similarly obtained termination payments from Incolink to which they were not entitled. 144 Final Report of the Royal Commission into the Building and Construction Industry

151 41 For the purpose of assessing the extent of the problem at its highest, if an assumption is made that each of the 129 employees so identified obtained a termination payment from Incolink to which they were not entitled, it would follow that approximately 2 per cent of termination payments made by Incolink from the Fund during the six month period was paid to employees not entitled to those payments, by reason of clauses 3DD.5 and 3DD Turning to the second question about cost, clause 3DD.1 of the Deed provides that where the employment of a worker is terminated for any reason the worker may request (and Incolink shall pay) the lesser of a redundancy benefit not exceeding the maximum initial payment benefit as prescribed from time to time in the Redundancy Pay Agreement (currently $ ) and the balance of the worker s account. Again for the purpose of assessing the extent of the problem at its highest, if an assumption is made that in each case the lesser amount was $3100, this would mean that the amount paid to each employer approximated one year s contributions to the Fund by the employer in respect of that employee Presuming, therefore, that each of the 129 termination payments was in the amount of $3100, it follows that those payments represent an improper outgoing from the Fund for the first six months of 2001 of approximately $ Each year, Incolink s investments generate surplus funds above the redundancy requirements of members and the additional benefits and services provided by Incolink. 40 In other words, the improper payments for self-initiated redundancies reduce the capital of the Fund that would otherwise have been available for investment. To this extent, potential surplus of the Fund is reduced. Under Part 7 of the Deed, net income (or surplus) of the Fund is distributed equally between the MBAV, on the one hand, and the participating unions, 41 on the other. Accordingly, those entities ultimately bear the cost of self-initiated redundancies. 45 There is no detriment to employers. Their contributions to the Fund are fixed, in accordance with Part 3A of the Deed, irrespective of the profitability of the Fund or any other factor. Also, employers do not share in the net income of the Fund (excepting any indirect benefit received by those who are members of the MBAV). Similarly, employees do not share in the net income of the Fund (excepting any indirect benefit received by those who are members of a participating union). 46 Turning to the third question, the amending clauses 3DD.5 and 3DD.7 entitle Incolink not to pay a termination payment where, in substance, a sham or self-initiated redundancy has occurred. For the reason set out in paragraph 27, employees who initiate their redundancy will invariably utilise Incolink s Confirmation of Termination document for the purpose of obtaining an initial redundancy payment from the Fund. 47 Because of the deficiencies in the documentation referred to in paragraph 24, the Confirmation of Termination document does not provide any effective means of enabling Incolink to identify those cases where a termination payment might not be payable by reason of clauses 3DD.5 and 3DD.7 of the Deed. Indeed, Mr John Glasson, Chief Executive Officer of Redundancy Payment Central Fund Ltd, acknowledged: I accept that [self-initiated redundancies] happen[s] from time to time, but it is not possible for Incolink, in the way that the schemes are administered and the way that payments are made and the way that applications from redundant workers are made to Reform Funds 145

152 the fund, it is [im]possible to verify whether that person is going to be employed or reemployed by that same employer either the following Monday or two weeks down the track. It is simply an impractical proposition. No, it is impossible. In terms of us administering the trust deed and if the material is presented to us in the form that is required, signed by employee and signed by employer and there is nothing suspicious about it, then we must administer the trust deed as we are required to do. But I accept the problem that has been identified and I am aware that it s there, but Incolink has not been able to find any practical way of dealing with it The Confirmation of Termination form appears to be equally ineffective in enabling Incolink to identify those cases where a termination payment might not be payable by reason of clauses 3DD.5 and 3DD.6 of the Deed. 49 In respect of the fourth question posed, it is submitted that measures could readily be taken to address the problem. The employer needs to confirm that the employment was terminated. Further questions could be asked in the Confirmation of Termination document, including: (a) (b) questions about the reasons for the termination, for example in the manner asked in the Employment Separation Certificate; and the question whether the employee requested termination of his or her employment, by resignation or otherwise. 50 Questions could also be asked addressing the factual circumstances described in clause 3DD Employers would be less likely to complete a Confirmation of Termination document, in circumstances of a sham or self-initiated redundancy, where such questions must be answered and where the employer knows that the purpose of the document is to enable the employee to obtain a significant payment from the Fund. 52 Another, and additional, measure to eliminate self-initiated redundancies would be to give employers cause to resist employees accessing termination payments in circumstances of a self-initiated redundancy. For example, contributions on behalf of an employee could be capped such that an employer would not need to continue contributing on behalf of an employee once that cap was reached. A payment to an employee would restore an employer s obligation to pay. 53 Also, if employers or employees were to receive directly, in the manner of a dividend, a share of the surplus of the Fund, for example, as paid to employees under Australian Construction Industry Redundancy Trust, employers might resist sham redundancies on the grounds that it diminished their return on the Fund. Of course, these are matters for the parties to the Deed. 54 This case study illustrates: (a) The payment of moneys from an industry fund for redundancy to employee members in circumstances other than those permitted by the trust deed; 146 Final Report of the Royal Commission into the Building and Construction Industry

153 (b) (c) Deficiencies in the information sought by the fund from employees seeking such a payment, and their employers; and The cost to the industry fund and its sponsors of those payments. Persons involved Name Glasson, John Arundel Stewart Position/Title Chief Executive Officer, Redundancy Payment Central Fund Ltd, trading as Incolink. Reform Funds 147

154 Notes to Incolink: Self-Initiated Redundancies 1 Glasson Statement, exhibit 543, paragraphs 4, 6 and 26, document Glasson Statement, exhibit 543, paragraphs 4-11, document Volume of Incolink Trust Deeds, exhibit 1812, document Hobday Statutory Declaration, exhibit 1673, annexure AGH1, document at Glasson Statement, exhibit 543, annexure 1, document at Hobday Statutory Declaration, exhibit 1673, paragraph 4, document ; Lawrence Statutory Declaration, exhibit 1674, paragraph 4, document ; Burge Statutory Declaration, exhibit 1669, paragraph 4, document ; Eden Statutory Declaration, exhibit 1672, paragraph 4, document ; Cameron Statutory Declaration, exhibit 1671, paragraph 5, document ; Glasson, T15399/ Glasson T15398/21-24; Lawrence Statutory Declaration, exhibit 1674, paragraph 7, document ; Burge Statutory Declaration, exhibit 1669, paragraph 11, document ; Glasson Statement, exhibit 543, paragraph 19, document There is no cap the balance could be $ or more: Glasson, T15398/25. 9 Lowe Statutory Declaration, exhibit 1675, paragraph 5, document Lowe Statutory Declaration, exhibit 1675, paragraph 6, document Lowe Statutory Declaration, exhibit 1675, paragraph 7, document Glasson Statement, exhibit 543, annexure 11, document Glasson Statement, exhibit 543, annexure 11, document Glasson Statement, exhibit 543, paragraph 54,, document ; Glasson Statement, exhibit 543, annexure 11, document ; Lowe Statutory Declaration, exhibit 1675, paragraphs 8-13, document ; Lowe Statutory Declaration (second), exhibit 1851, paragraphs 5-7, document Lowe Statutory Declaration, exhibit 1675, paragraphs 14-17, document Hobday Statutory Declaration, exhibit 1673, paragraphs 6-10, document ; Lawrence Statutory Declaration, exhibit 1674, paragraphs 7-10, document ; Eden Statutory Declaration, exhibit 1672, paragraphs 7-10, document ; Cameron Statutory Declaration, exhibit 1671, paragraphs 8-13, document ; Callipari Statutory Declaration, exhibit 1670, paragraphs 7-8, document Hobday Statutory Declaration, exhibit 1673, paragraph 7, document ; Lawrence Statutory Declaration, exhibit 1674, paragraph 8, document ; Burge Statutory Declaration, exhibit 1669, paragraph 11, document Lawrence Statutory Declaration, exhibit 1674, paragraph 8, document ; Eden Statutory Declaration, exhibit 1672, paragraph 8, document Lawrence Statutory Declaration, exhibit 1674, paragraph 8, document ; Eden Statutory Declaration, exhibit 1672, paragraph 8, document Eden Statutory Declaration, exhibit 1672, paragraph 8, document Glasson, T15398/ Letter dated 9 October 2002 from Deacons, solicitors for Incolink to Dr John Bishop, Counsel Assisting the Commission, exhibit 1813, document Letter dated 9 October 2002 from Deacons, solicitors for Incolink to Dr John Bishop, Counsel Assisting the Commission, exhibit 1813, annexure 1, document Letter dated 9 October 2002 from Deacons, solicitors for Incolink to Dr John Bishop, Counsel Assisting the Commission, exhibit 1813, annexure 2, Document Final Report of the Royal Commission into the Building and Construction Industry

155 25 Letter dated 9 October 2002 from Deacons, solicitors for Incolink to Dr John Bishop, Counsel Assisting the Commission, exhibit 1813, annexure 3, document Lawrence Statutory Declaration, exhibit 1674, paragraph 9, document Hobday Statutory Declaration, exhibit 1673, paragraph 8, document Hobday Statutory Declaration, exhibit 1673, paragraph 8, document Burge Statutory Declaration, exhibit 1669, paragraph 11, document Eden Statutory Declaration, exhibit 1672, paragraph 8, document Cameron Statutory Declaration, exhibit 1671, paragraphs 8 and 10, document Callipari Statutory Declaration, exhibit 1670, paragraphs 7 and 8, document Glasson Statement, exhibit 543, paragraph 53, document Glasson Statement, exhibit 543, paragraph 53, document Hobday Statutory Declaration, exhibit 1673, paragraph 7, document ; Lawrence Statutory Declaration, exhibit 1674, paragraph 8, document ; Eden Statutory Declaration, exhibit 1672, paragraph 8, document Cameron Statutory Declaration, exhibit 1671, paragraphs 8, 10, 11 and 12, document Hobday Statutory Declaration, exhibit 1673, paragraph 10, document Glasson, T15398/ Glasson T15399/ Glasson Statement, exhibit 543, annexure 1, document at Those participating unions are presently the AWU, the CFMEU and the CEPU: Glasson Statement, exhibit 543, paragraphs 9 and 26, document Glasson T15396/13-19, 15397/ /1. Reform Funds 149

156 150 Final Report of the Royal Commission into the Building and Construction Industry

157 10 Queensland Construction Training Fund Introduction 1 This investigation concerned the operation of the Queensland Construction Training Fund (QCTF) and, in particular, the circumstances in which: (a) (b) (c) training grants made by the QCTF to individual workers are subject to restrictions; the QCTF makes general purpose training grants; particular grants are made by the QCTF, including: (i) (ii) (iii) the grants made to fund the Construction, Forestry, Mining and Energy Union (CFMEU) apprentice scholarship scheme; the grants made to the Construction Skills Training Centre to assist with its rental; and the grants made to the Communications, Electrical, Electronic, Information, Postal, Plumbing and Allied Services Union of Australia (CEPU) Plumbing Division Queensland Branch to fund a safety and training officer. 2 The QCTF was created in 1991 to receive and distribute surplus income from the Building Employees Redundancy Trust (BERT) in Queensland. 1 Its objects are to foster, promote, encourage, advance and assist in the acquisition and enhancement of knowledge, skills, training and education (both theoretical and practical) of persons employed in or otherwise providing services in and to the construction industry within the State of Queensland. 2 3 The QCTF is a trust, and its trustee is QCTF Pty Ltd. 3 That company is controlled by a board of eight directors (the Board). The authority to expend QCTF funds is vested in the Board, 4 which is composed of a chairperson, three employer directors, three employee directors and an independent director who must be a certified practising accountant. The current directors are: (a) (b) Mr Bruce Cull (Chairman, and Operations Manager Building, Leighton Contractors Pty Ltd); Mr David Jenkinson (Queensland Major Contractors Association); Reform Funds 151

158 (c) (d) (e) (f) (g) Mr Bradley O Carroll (Communications, Electrical, Electronic, Information, Postal, Plumbing and Allied Services Union of Australia, Plumbing Division, Queensland Branch (CEPU Plumbing Division Queensland Branch)); Mr Mick Nash (Queensland Major Contractors Association); Mr Greg Simcoe (Australian Building Construction Employees and Builders Labourers Federation (Queensland Branch) Union of Employees (BLF Q)); Mr Wallace Trohear (Construction, Forestry, Mining and Energy Union (CFMEU), Construction and General Division, Queensland Construction Workers Divisional Branch); Mr Peter Veale (Specialist Subcontractors Association); and (h) Mr Malcolm Raward (Independent Director). 5 4 The Board rarely makes decisions by voting. Cull has been a member of the Board since 1996, and he has attended most of the seven or eight Board meetings every year. He could not recall the Board ever having taken a decision by vote. 6 5 The QCTF s income is derived solely from BERT. 7 In its early years the amount available for distribution by the QCTF sometimes reached $2.5 million a year. 8 In about 1996, however, the BERT trust deed was amended to allow BERT to distribute surplus income for purposes other than training. Since that time, the funding available to the QCTF has dropped, and it has received approximately $1 million a year for distribution in the form of training grants. 9 6 The QCTF distributes the funding available to it by making three types of training grant; worker grants, general purpose grants and specific purpose grants. 10 Worker grants and general purpose grants are considered below. Worker Grants Introduction 7 Worker grants are paid to individual workers who make application to the QCTF for reimbursement of costs associated with attending a training course. 8 The power to make worker grants of less than $3000 has been delegated by the Board to the QCTF Manager, Mr Peter Roebig. 11 Applications are referred to the Board by Roebig if they raise any difficult issues, or if they exceed $3000 in value. 12 Otherwise, Roebig simply reports the worker grants that he has made to the Board Roebig assesses worker grant applications by reference to a document titled Funding Principles for the Award of Training Grants (the Funding Principles). 14 That document was adopted by the QCTF in November 1996, and it was last revised on 27 February Clause 3.3(b) of the Funding Principles provides that: The applicant must reside in Queensland and be a current member of BERT. In addition, the status of currency of BERT contributions and membership will be established between the BERT Manager and the QCTF Manager to determine eligibility of worker grant applications Final Report of the Royal Commission into the Building and Construction Industry

159 11 Clause 3.3(c) of the Funding Principles provides, in part, that any grant requested shall not exceed the contributions held in BERT. 17 Roebig administers this requirement by contacting BERT and advising BERT of the cost of the training for which a worker has applied. BERT then informs Roebig of whether the applicant has sufficient funds in BERT for the training requested. In that way, Roebig determines whether the application complies with the Funding Principles without needing to be told the precise balance in the applicant s BERT account It follows that the Funding Principles create a strong nexus between participation in BERT and access to QCTF funds. Financial union membership as a funding criteria The Union Membership Resolution 13 A QCTF Board meeting was held on 24 October At that meeting, Simcoe, the State Secretary of the BLF Q and a Board member, raised concerns regarding the criteria for determining whether a worker should receive a QCTF grant. Simcoe suggested that an applicant should be required to be both a BERT member and a financial member of one of the CFMEU, BLF Q or CEPU Plumbing Division Queensland Branch in order to receive a worker grant. 19 The minutes record that, following this suggestion, a resolution (the Union Membership Resolution) was carried by the Board in the following terms: that until further notice and due to limited funds available to the QCTF that both financial membership of BERT and either or the CFMEU, BLF or CEPU be demonstrated Simcoe gave two accounts of his intention in proposing the Union Membership Resolution. His first explanation, which is consistent with the inclusion in the resolution of the words due to limited funds, was that the QCTF s funds were dwindling, so I just thought to make the people that provided it get a fair crack at it, that it should be restricted to those people. 21 The idea was to reduce the pool of eligible applicants so as to make the funds available to the QCTF last longer. Simcoe regarded the people who provided the funds as people who were in both BERT and the unions, because there wouldn t be anyone in the BERT scheme initially that wouldn t have been in the union, because it s a union-based scheme, and it s usually delivered via unionism Simcoe suggested, however, that a person who was a BERT member but not a union member could receive funding despite the Union Membership Resolution. 23 That suggestion is inconsistent with the plain meaning of the resolution. Nevertheless, he said that his intention was to make sure that union members could receive funding even if they were not in BERT, because some were not in BERT through no fault of their own. 24 He said that he intended to increase the class of eligible applicants to include union members who were not members of BERT. 25 That explanation is not consistent with the reference in the Union Membership Resolution to the resolution being related to the limited funds available, because the preservation of limited funds would require the applicant pool to be restricted, not enlarged. Simcoe was unable to explain this, stating simply that, I mustn t have given it a lot of thought, no, obviously. 26 Reform Funds 153

160 16 Simcoe s first explanation for the Union Membership Resolution should be preferred. It is clear from the text of the resolution that it was related to the limited funds available to the QCTF. It cannot therefore have been Simcoe s intention to increase the number of people eligible to receive funds, for that would have exacerbated the problem of limited funds. Simcoe s first explanation indicates that he was of the view that the core BERT members were people who were in both BERT and one of the unions. He therefore suggested that, in times of limited funds, those people should receive funding in preference to others. 17 It follows that, by passing the Union Membership Resolution, the Board agreed to create two classes of applicant for worker grants. The resolution implicitly reflected a judgment that applicants for worker grants who were union members were more worthy of funding than applicants who were not union members. 27 It embodied a decision by the Board to limit the class of applicants who could receive funding from the QCTF by excluding people who were members of BERT, and who complied with all of the Funding Criteria, because they were not members of a union. It did that even though union membership is irrelevant to the purposes of the QCTF, which are concerned only with training. 28 Implementation of the Union Membership Resolution 18 Consistently with the Union Membership Resolution, O Carroll has on several occasions informed Mr William Watson, the Chairman of the Master Plumbers Contractors Association of Australia, that QCTF funding is not available to his employees because they are not members of the CEPU Plumbing Division Queensland Branch. 29 Similarly, a CEPU Plumbing Division Queensland Branch receptionist recently suggested to Watson that one of his employees, who wished to receive QCTF funding, should join the CEPU Plumbing Division Queensland Branch on a temporary basis and then resign three months later after completing the training Watson s evidence as to the CEPU Plumbing Division Queensland Branch s practice is consistent with a memorandum sent by the Building and Construction Industry Training Fund (BCITF) to the CEPU Plumbing Division Queensland Branch on 11 March 2002, in which the BCITF stressed that: BCITF funds provided to associations or unions (like CEPU) should be made available for access by both CEPU members and non-members. That is, the courses should not be restricted to CEPU members only attendance should be open to all, regardless of membership. 31 (emphasis in original) A clear inference is open from that memorandum that the CEPU Plumbing Division Queensland Branch had been restricting access to its courses to CEPU Plumbing Division Queensland Branch members. 20 CSTC Pty Ltd (CSTC), which is generally known as the Construction Skills Training Centre, was established in The single share in the CSTC is held by the BLF Q, and its initial funding was provided as a loan from the BLF Q for $ The directors of the CSTC are Simcoe, Cull and Mr John Christian On 27 October 2000, the CSTC held a board meeting that was attended by Simcoe, Cull, Christian and Ms Lisa King. The minutes record that at that meeting Simcoe and Cull explained the funding arrangements that were agreed to at the QCTF meeting on 24 October 2000, three 154 Final Report of the Royal Commission into the Building and Construction Industry

161 days earlier. The minutes record that It was identified that to receive funding directly from the QCTF the trainee must be both an active member of BERT and a financial union member. (emphasis added) 33 Simcoe was unable to account for the wording of these minutes, as he maintained that the purpose of the Union Membership Resolution was not to exclude BERT members who were not union members from receiving funding The only purpose Simcoe and Cull could have had in reporting the existence of the Union Membership Resolution to the CSTC board was for the CSTC to act in accordance with the resolution. That would have gone a long way towards implementing the resolution, for the vast majority of individual workers who are trained with QCTF funds are trained by the CSTC QCTF Board resolutions are normally put into effect, 36 and the Union Membership Resolution was expressed to apply until further notice. There has not, to Cull s knowledge, ever been any decision by the Board to revoke the Union Membership Resolution. 37 It would seem to follow from this that the Union Membership Resolution still governs the provision of funding by the QCTF. 24 It appears, however, that for the most part the Union Membership Resolution has not been implemented by the QCTF in its consideration of worker grant applications. Roebig, who administers the bulk of the worker grants made by the QCTF, swore that he evaluates applications against the Funding Principles, and that he does not consider whether applicants are financial union members. 38 Similarly, Cull said that he had never considered the union membership of an applicant when determining whether to make a worker grant Christian, while accepting that the contents of the minutes of the CSTC board meeting on 27 October 2001 are true, swore that he did not recall the meeting, and that the CSTC has not enforced the condition that QCTF funded training be made available only to workers who are both BERT members and financial union members In light of the above, it seems the Union Membership Resolution has not been implemented by the QCTF, although it has apparently been implemented by the CEPU Plumbing Division Queensland Branch. The effect of the Union Membership Resolution 27 The Union Membership Resolution, if implemented, would have discriminated against workers, who would otherwise have been eligible to receive funding, on the basis of their union membership. There is no reason why the union membership of an applicant for a worker grant is relevant to the question of whether that applicant should receive such a grant. The money expended in the form of worker grants does not belong to the unions, and therefore its distribution should not be limited to union members. If the QCTF had implemented the Union Membership Resolution, it may have breached the Anti-Discrimination Act 1991 (Qld). It may have disadvantaged some workers in their employment, raising questions under the freedom of association provisions of the Industrial Relations Act 1999 (Qld). It is not necessary to explore these questions, given the fact that for the most part the resolution was not implemented. 28 It cannot reasonably be suggested that at the time the Board passed the Union Membership Resolution it did not intend to implement it. That means that the Board voted in a way that involved it deciding to discriminate against people who would otherwise have been eligible to Reform Funds 155

162 receive training funding because they were not union members. The minutes do not record any debate or disagreement in relation to that decision. Cull, who was the Chairman at the meeting at which the Union Membership Resolution was passed, could not recall it being passed or debated. 41 In fact, he could not recall any occasions on which the Board had voted on a matter since he joined the Board on 12 June That suggests that there was little debate or disagreement about the Union Membership Resolution, even though three of the six directors present at the meeting were employer representatives That the Union Membership Resolution was passed by the Board raises real questions about the effectiveness of the composition of the Board in ensuring that the QCTF operates appropriately. The structure of the Board, with its equal representation of employer and employee representatives, is a common structure for industry funds. 44 It is presumably intended to ensure that such funds operate in the best interests of the industry generally, rather than by favouring the interests of either employer or employee organisations. It does not, however, appear to achieve that objective. That is apparent from the fact that the employer representatives on the Board were prepared to accept the Union Membership Resolution, despite the fact that it discriminated against non-union members. It is open to infer that that resolution was precisely the type of resolution that the employer representatives on the Board should have opposed. 30 Why the employer representatives supported the Union Membership Resolution is not clear. Employer representatives have little incentive to exercise their function on the Board vigorously. Like the employee directors, they are present on the Board in a voluntary capacity. Unlike the employee directors, however, there is little scope for the employer representative s own organisations to benefit directly from their involvement with the QCTF. On the other hand, they have a real incentive to avoid conflict with the employee representatives on the Board, with whom they need to maintain good relationships in order to carry out their primary functions with the major construction companies for whom they work. 31 It appears that the employer representatives generally take the view that, provided training outcomes are achieved, it is not in their interests to challenge proposals put forward by the employee representatives, even if those proposals advance the interests of the unions or their members ahead of those of other applicants for funding. 45 That approach may well explain why so few votes are taken by the Board despite the fact that, as is discussed below, many decisions taken by the Board advance interests of the employee organisations that are not directly related to training. 32 When giving evidence, Cull accepted that the Union Membership Resolution involved the QCTF discriminating against a category of people because they were not members of a union. 46 He also accepted that such discrimination was inappropriate This concession was rightly made. I am satisfied the Board, and therefore the QCTF, have acted inappropriately in passing the Union Membership Resolution. Training should be available to all in the industry, not just union members. 156 Final Report of the Royal Commission into the Building and Construction Industry

163 Financial union membership as an alternative criterion to BERT membership 34 In December 2000, Christian wrote to the QCTF on behalf of the CSTC seeking written clarification of whether it was necessary to be a financial union member and an active member of the BERT scheme, or a financial union member or an active member of the BERT scheme, in order to receive QCTF funding. 48 It is reasonable to infer that that correspondence was a result of uncertainty over the effect of the Union Membership Resolution. 35 On 12 December 2001, a QCTF Board meeting was held. At that meeting, a resolution (the BERT waiver resolution) was carried in the following terms: That the QCTF waive the requirement for an individual worker to demonstrate financial membership of the BERT in lieu of financial membership of one or other of the CFMEU, BLF or CEPU when undertaking training through the Construction Skills Training Centre (CSTC). The waiver of the QCTF Funding Rules and Guidelines Item 3.3b for worker grants is restricted solely to the current CSTC Training grant #16/01 and will be reviewed from time to time at the Directors discretion The BERT waiver resolution involved an explicit departure from what had been, up until that time, a major plank of the Funding Principles, being that funding would only be made available to members of BERT Roebig informed Christian of the BERT waiver resolution in a letter dated simply December This letter was intended to be the written clarification requested by Christian in his letter of 4 December The BERT waiver resolution was passed by the Board as a result of a realisation that the Union Membership Resolution did not operate to make funding available to union members who were not also BERT members (which Simcoe, at one point, suggested was the purpose of the Union Membership Resolution) The BERT waiver resolution was limited, in its terms, to the then current CSTC training grant. The CSTC, however, continues to operate on the basis that the BERT waiver resolution applies. Christian s evidence was that the CSTC acts on the basis that QCTF funding is available if a worker can show either financial union membership or BERT membership. 53 That is confirmed by a CSTC Course Information brochure (the brochure) which is provided by the CSTC to applicants for training. 54 The brochure sets out the funding options available to an applicant for training by the CSTC as follows: Building Employees Redundancy Trust (BERT) Due to the Building Employees Redundancy Trust (BERT) allocating funding to the QCTF we can offer subsidised training for active BERT members. The total cost for each program per active BERT member will be a service fee of $ Queensland Construction Training Fund (QCTF) The total cost for each program per financial member of the CFMEU (Qld) (Building and Construction Division), BLF or CEPU Qld (Plumbers Division) will be $ Information required for subsidies to be allocated is: Reform Funds 157

164 Full name; Date of birth; BERT number; Financial union ticket (a copy must be enclosed with your application to receive Union subsidy); and Postal address. Please note This information will be forwarded to the relevant parties for verification before the subsidy can be allocated. If information supplied is found to be incorrect you will be required to either show proof of current union and/or active BERT membership or pay the relevant course fees. 55 (emphasis in original) 39 The brochure has a number of notable features. First, it distinguishes between BERT funding and QCTF funding. That is surprising, given that QCTF funding comes from BERT, and BERT does not provide any training funding other than through the QCTF. The brochure is structured to treat BERT members as eligible for BERT funding, and union members as eligible for QCTF funding, with QCTF funding described at one point as a Union subsidy. Furthermore, when dealing specifically with QCTF funding, the brochure does not indicate that BERT membership is a requirement of funding. The focus is exclusively on financial union membership and proof thereof. 40 The brochure suggests that the CSTC perceives the QCTF as a trust that provides funding only to financial union members. That perception is consistent with the terms of the Union Membership Resolution, even if it is not, in fact, consistent with the QCTF s practice. That perception is likely to discourage people who are not financial union members from applying for funding from the QCTF. 41 Like the Union Membership Resolution, the BERT waiver resolution was passed without apparent objection by the employer representatives on the Board. Unlike the Union Membership Resolution, the BERT waiver resolution increased the class of persons able to receive funding. It is not obvious why the employer representatives on the Board would have favoured waiver of the Funding Principles to allow funding to be provided to individuals who were not members of BERT, and who therefore had not contributed to the funding available to the QCTF. The resolution was not discriminatory, and the QCTF trust deed does not prevent funding from being provided to persons who have no connection with BERT. 42 The BERT waiver resolution is a further illustration that the composition of the Board is not effective in ensuring that the QCTF operates to advance industry interests generally, rather than to advance union interests. Requests for union membership information 43 The application form for QCTF worker grants requires applicants to indicate whether they are members of a union and, where they are, to provide their union membership number. 56 Cull and Roebig both attempted to explain that requirement by stating that this information is a form of identification, and that it assists in keeping track of BERT members. 57 That explanation is of 158 Final Report of the Royal Commission into the Building and Construction Industry

165 doubtful cogency, in light of the fact that the application form requests a BERT membership number, which should serve the same purpose Simcoe said that union membership information was collected to provide statistical information on who was accessing QCTF money. 59 When asked what he would do with that information, Simcoe said, Well, it s a union-initiated scheme. If it comes back to say that the majority of people accessing the scheme aren t financial members of the union, I think the union needs to get their arse into gear and do something about it. 60 He did not elaborate on precisely what the union would seek to do. 45 If steps were taken to try to ensure that QCTF money was paid only, or even predominantly, to financial union members, this would involve discrimination in the provision of QCTF funds. The possibility that such steps might be taken would be substantially eliminated if the QCTF did not know the union membership status of applicants for worker grants. That, in itself, is sufficient reason for the QCTF to stop collecting union membership information. 46 A further consideration that decisively favours a change in the QCTF s practice is that the QCTF worker grant application form, by inquiring as to an applicant s union membership and union number, breaches the Privacy Act 1988 (C wth). That Act gives effect to a number of National Privacy Principles, the first of which provides that, An organisation must not collect personal information unless the information is necessary for one or more of its functions or activities. 61 Personal information includes information concerning union membership. 62 If, as the QCTF asserts, union membership really is irrelevant to the award of worker grants, then it is doubtful whether the tracking benefits provided by a union membership number, over and above those provided by a BERT number, would justify the collection of that information. The collection of that information is therefore unnecessary and probably unlawful. 47 The CSTC, on the other hand, would need to collect union membership information in order to give effect to the BERT waiver resolution. General Purpose Grants Introduction 48 Only about ten per cent of the funds available to the QCTF are disbursed through worker grants. 63 The vast majority of the QCTF s funds are distributed through general purpose grants. The QCTF believes that this is a more efficient use of its resources, as it can direct applicants for worker grants to a training provider that is receiving a QCTF general purpose grant and avoid the administrative burden of processing large numbers of worker grants The QCTF trust deed provides that one of the objects of the QCTF is to: foster, promote, encourage, advance, [sic] assist tripartite organizations involved in training and education activities for such persons [i.e. persons employed or otherwise providing services in and to the Construction Industry] thereby benefiting and advancing the education of such persons and benefiting the industry and the public by the provision of beneficial and more efficient Industry services and products. 65 Reform Funds 159

166 50 The term tripartite organization is defined in clause 2 of the trust deed to mean any body or entity corporate or unincorporated which represents employer organizations or associations; employee organizations or associations (including trade unions) and government (both State and Commonwealth). 51 The term tripartite fell into disuse in the early 1990s, when governments ceased to be formally involved in training organisations. 66 It may have been largely obsolete by the time the QCTF was established, as the QCTF s original funding principles, which were adopted by the QCTF trustees only a month after the QCTF was created, did not use that term. The original funding principles were set out in a document headed Objectives for the Trust and Guidelines for Applications for Grants from the Trust. 67 That document stated that funding to organisations would be given only to bipartite organisations (meaning organisations controlled by both employers and employees). 52 The policy of funding only bipartite organisations was abandoned in about 1996, when the BERT trust deed was amended to allow BERT to distribute its surplus income for purposes other than training. 68 The change is reflected in the QCTF s current Funding Principles. Although those Funding Principles are primarily concerned with worker grants, they do acknowledge that funding may be made available to organisations. Clause 3.1 of the Funding Principles provides that funding may be made available to: (a) (b) foster, promote, encourage, advance and assist in the acquisition and enhancement of the knowledge, skills, training and education (both theoretical and practical) of those persons employed in or otherwise providing services in and to the Construction Industry within the State of Queensland. All applications in either worker or general purpose grant categories should demonstrate membership or contribution to the Building Employees Redundancy Trust (BERT); foster, promote, encourage, advance and assist organisations involved in such training and educational activities as aforesaid for such persons Clause 3.1(b) of the Funding Principles is obviously modelled on the QCTF trust deed, although the term tripartite organization has been removed. While the Funding Principles have been amended, the QCTF trust deed has not been altered. It therefore continues to provide that it is one of the objects of the QCTF to foster, promote, encourage, advance, [sic] assist tripartite organizations involved in training and education activities. 54 Cull accepted that, in light of the fact that tripartite bodies no longer exist, effect would best be given to the QCTF trust deed if funding was provided where possible to bipartite organisations. 70 When asked whether the QCTF regarded it as desirable or important to fund bipartite organisations, Cull said it was not an important criterion, and that he could not remember the word bipartite ever coming up at Board meetings That evidence is consistent with the general purpose grants in fact made by the QCTF. The last round of QCTF general purpose grants were made on 16 November 2001, 72 at which time the following grants were approved: 73 (a) CFMEU apprentice scholarship $ (b) CSTC rental $ Final Report of the Royal Commission into the Building and Construction Industry

167 (c) CSTC training programs $ (d) Construction Training Centre $ (e) CEPU Plumbing Division Queensland Branch safety and training officer $ The distribution of grants outlined above is essentially the same as it has been for some years. 74 Consequently, for several years the recipients of well over 90 per cent of the general purpose grants made by QCTF have been either unions, or the CSTC (which is owned and controlled by the BLF Q) While the trust deed does not require grants to be made only to bipartite or tripartite bodies, the deed clearly envisages that preference should be given to such bodies. The current distribution of grants is inconsistent with that preference, and does not give full effect to the objects of the QCTF. The criteria for awarding general purpose grants 58 The availability of funding through the QCTF is not widely known in the building and construction industry in Queensland. 76 In apparent recognition of that fact, at a meeting of the Board on 20 February 2001, Raward suggested that: in light of the reduced disbursements from BERT over the past couple of years and because the disbursement has primarily be [sic] distributed to only a few recipients that the Fund consider a new model from awarding of general purpose grants. Mr Raward indicated that a more level playing field was needed which provided all applicants a fair go. He suggested that the QCTF Funding Rules and Guidelines be amended to reflect a more equitable way in which this could be accommodated. Mr Shannon suggested the development of a new set of separate criteria for general purpose applications. Mr Raward suggested that the Manager contact groups and organisations that were likely to seek funding from the QCTF alerting these organisations to the need to submit applications by a set date so that Directors could consider applications in one hit Raward s evidence is that he made these suggestions on 20 February 2001 principally because he considered that they would allow for a better spread of applications approved, both in terms of the funding made available to each applicant, and the purpose of the training programs funded. He was conscious of the need to streamline the application process to avoid the Board having to consider funding applications intermittently throughout any given year. Finally, he thought the proposed changes would help to avoid any possible inference of a firstcome-first-served allocation process. 78 In other words, Raward had concerns in relation to both the substantive outcomes of grants made and the process adopted by the Board. 60 The QCTF wrote to various bodies inviting them to seek funding from the QCTF. 79 It did so, however, only after Raward objected to an attempt to make funding decisions at a Board meeting on 22 October 2001 when such invitations still had not been sent out, notwithstanding the decision eight months earlier. 80 Invitations seeking expressions of interest were made after Reform Funds 161

168 the meeting on 22 October 2001, but it is not clear how widely those invitations were distributed. It appears that there were not, for example, any advertisements in the newspaper. 81 Furthermore, very little time was allowed for responses, as funding decisions were made by the Board on 16 November Prior to late 2001, invitations seeking expressions of interest in funding had never been issued by the QCTF. 83 Decisions on when to apply for funding were made on the basis of word of mouth within the industry. 84 The steps taken in 2001 did, therefore, represent some improvement in the QCTF s processes. 62 There was no change to the Funding Principles as a result of Raward s suggestions on 20 February Raward s concerns in relation to the substantive outcomes of the grants process, and whether all applicants received a fair go on a level playing field, therefore, were not addressed. 63 At present, the QCTF regards continuity of training as the most important criteria when making general purpose grants. 86 Several witnesses gave evidence that if the QCTF believed that it has received value for money and proven training outcomes from a training program that it already funds, it will provide ongoing support for that program in priority to new training proposals, because those programs are often untried and therefore may not achieve the objects of the QCTF In practice that means that, because in recent years the QCTF s funds have been largely expended by general purpose grants to the CFMEU, CSTC and CEPU Plumbing Division Queensland Branch, the large part of the QCTF s funds will continue to be granted to those organisations because of the proven track record of those grants The statements of several witnesses that applications for general purpose grants are assessed by the Board primarily on merit need to be understood in that light. 89 An existing program will receive funding in preference to a potentially more meritorious new proposal because that new proposal is, by definition, untested, and will not have proven outcomes In truth, general purpose grants are not in fact made by the QCTF on the basis of proven outcomes or merit. Instead, the process is that the CFMEU, CEPU Plumbing Division Queensland Branch and CSTC put proposals for grants to the Board, which are considered to determine whether they will deliver a training outcome. If the proposals will deliver a training outcome, they are approved without consideration being given to whether: better training outcomes could be obtained by granting the money in some other way; the grants made are directed to the areas in which there is the greatest training need; QCTF funding is being used to advance interests unrelated to training. 91 There is no objective merit assessment process, and little or no attempt to ensure that the Board has a range of alternative proposals from which to choose. 67 This approach is the consequence of the expectation held by, at least the BLF Q and CFMEU that QCTF funding should be returned to the people who provided it, 92 meaning, in this context, union members. Simcoe gave oral evidence that was, in the end, to that effect. 93 The same view is apparent in a letter written by Trohear, the State Secretary of the CFMEU, 162 Final Report of the Royal Commission into the Building and Construction Industry

169 Construction and General Division, Queensland Construction Workers Divisional Branch, to Roebig on 31 March That letter was written shortly after the CFMEU had sought a grant of $ from the QCTF to fund the fourth intake of the CFMEU scholarship scheme (discussed below). The CFMEU had been asked by the QCTF to reduce the amount of funding sought. 95 Trohear responded to that request by writing, in part: Contributions to the BERT scheme on behalf of CFMEU members constitute the largest proportion of funds contributed to the scheme. As you are aware, the Apprentice Scholarship is the major program delivering a training outcome to that proportion of the industry where these funds are generated and as such represents fair value for our member s [sic] money. On consideration of the allocation of grants over the past 12 months, it is clear that CFMEU members are not receiving a fair distribution of training grants allocated by the QCTF. I therefore re-submit our original application and request the QCTF Board reconsider the decision to reduce the grant to the extent it has. I also suggest the board re-evaluate the principles by which grants are approved to ensure that training outcomes more accurately reflect the occupational distribution of the industry. It is appropriate that those workers whose money finances the QCTF receive fair value for their money and this can only occur if fair distribution principles are applied when grant applications are considered by the Board The letter had its intended effect. On 18 April 2000, the CFMEU application was again discussed, and a grant of $ was approved, with the balance of the funding sought to be reconsidered after the next distribution to QCTF from BERT. 97 In October 2000 the CFMEU was granted a further $ Trohear is a member of the Board. His letter reflected a clear expectation that the percentage of the total QCTF funding that should be paid to benefit CFMEU members should be in proportion to the percentage of BERT members who are members of the CFMEU. He clearly regarded such proportionality as an essential component of a fair distribution of training grants allocated by the QCTF. In other words, he considered that QCTF grants should be made to the unions that were responsible for generating the income. There is no hint in his letter that grants should be made on the basis of an objective assessment of all grant applications on the basis of merit. Indeed, there is no reason why meritorious grants would necessarily reflect the occupational distribution of the industry. In any given year it is possible, for example, that several meritorious proposals might relate to the training of plumbers, and none to the training of tradespeople in CFMEU callings. It follows that if, as Trohear asserts, the grants made by the QCTF should reflect the occupational distribution of the industry, that entails the awarding of grants by reference to criteria other than merit. 70 The process by which the QCTF makes general purpose grants is less than satisfactory. Although it was created as an industry fund under joint employer and employee control, and although the funding comes entirely from payments made by employers as redundancy payments for their employees, access to QCTF funds is in practice, greatly restricted to the unions represented on the Board. Funding is not awarded solely, or even principally, by Reform Funds 163

170 reference to merit, or in an attempt to maximise training outcomes. Grants are awarded by the QCTF in a way that ensures that income from BERT is directed to projects selected by the unions that are most closely associated with that fund. That outcome is facilitated by the fact that the availability of funding from the QCTF is not widely known, and little attempt is made by the QCTF to draw its existence to the attention of potential applicants. The recent efforts in altering that position were limited and are, in any event, unlikely to result in any change to QCTF funding patterns, due to the great weight placed by the Board on continuing to fund projects that have already commenced. 99 CFMEU apprentice scholarship scheme 71 In October 1996, the CFMEU applied for a grant from the QCTF to fund the creation of the CFMEU Apprentice Scholarship Scheme (the Scheme) The Scheme was created for the express purpose of assisting the sons and daughters of CFMEU members to obtain apprenticeships. 101 It aimed to develop a tradesperson of the highest standard with a good understanding of trade union principles. 102 The application form required applicants to provide their parent s name and union number. 103 In addition, in order to participate in the Scheme, applicants were required to agree to join the CFMEU and to agree to stay members of the CFMEU for at least eight years. 104 They were also required to agree to attend trade union training for two days a year during the life of the scholarship. 105 Trohear was very open about the restrictions on eligibility for the Scheme in the proposal for funding. 73 The initial grant sought by the CFMEU for the Scheme was $ The Board meeting at which the Scheme was first discussed was heated. Initially, no-one other than Trohear was in favour of the Scheme. Mr Gordon Hutchings, one of the employer representatives, opposed the Scheme, stating that he did not see why Trohear s son should have a better chance of getting an apprenticeship in the industry than his son, just because his father was in the CFMEU. Hutchings recollection was that both Cull and Simcoe also opposed the Scheme After the discussion at the meeting had gone on for some time, Trohear said words to the effect that, You can all go to buggery the motion is on the table. Simcoe then said that he would not let a fellow unionist s proposal go without a seconder, so he seconded the motion. A vote was taken. Hutchings was the only person who voted against the motion. He was astonished by the vote, as the debate that preceded it had indicated that everyone was against the Scheme Cull did not deny Hutchings account of that meeting, although he could not himself recall the meeting. 109 Simcoe also could not recall the meeting. 110 He thought, however, that he would have supported the Scheme willingly rather than reluctantly. 111 Simcoe said he thought the Scheme was a good scheme. 112 He accepted that he would have known about the eligibility restrictions at the time the proposal to fund the Scheme was put to the Board, 113 although he said he did not know about the requirement to stay a member of the CFMEU for eight years. 114 He said he would have taken it for granted that people who participated in the Scheme would join the CFMEU Simcoe said that he was happy for access to funding from the QCTF to turn on the union membership of both the applicant and the applicant s parent, stating: 164 Final Report of the Royal Commission into the Building and Construction Industry

171 I think that it s incumbent of unions to promote themselves and to promote the membership. And if we can assist our membership first and foremost, that s why we are there. That s the reason we are a union, because of the membership. So if we come up with some scheme, in a society where unemployment is very difficult for young people, and if the union comes up with a scheme and offers it to their membership first and foremost, I don t see any problem with that That evidence provides further support for the view that the unions regard it as appropriate to use the QCTF to advance their interests and the interests of their members, notwithstanding the fact that QCTF funds do not belong to the unions. The fact that the Scheme was approved, despite the clearly discriminatory nature of its eligibility criteria, shows that the unions are able to use the QCTF to advance their interests, notwithstanding the fact that half of the Board consists of employer representatives. 78 The initial grant to the CFMEU for the Scheme has been renewed every year since On several of the occasions on which the grant has been renewed, the minutes of the relevant Board meeting have recorded that, As in the past the CFMEU have indicated that preference will be given to the sons and daughters of Union members to fill available positions. 118 The repeated references to the focus of the Scheme on sons and daughters of CFMEU members, both in the initial funding application and in the minutes of applications for renewal of the grant, make it is clear that the CFMEU has not attempted to hide the restrictions on access to the Scheme. 79 In those circumstances, the evidence of Cull and Raward that they were not aware that the CFMEU apprentice scholarship scheme gives preference to the sons and daughters of CFMEU members is surprising. 119 That is particularly the case in relation to Cull, as Hutchings evidence is that Cull was present at the meeting when the Scheme was first discussed, and that he opposed the Scheme during discussions at that meeting, prior to voting in favour of it. Cull agreed that he would have read the application for the grant to create the Scheme before it was approved, 120 and he accepted that the restrictions on eligibility were clear on the face of the application. 121 He must, therefore, have known about the restrictions on eligibility at the time that he voted in favour of the Scheme. Cull must, therefore, have voted in favour of the grant despite the eligibility restrictions, and then simply have forgotten about them Raward was not present at the Board meeting when the Scheme was first approved. 123 His evidence that he was unaware of the eligibility restrictions, however, suggests that very little scrutiny is given to applications to renew existing grants. As outlined above, the renewal applications have made it clear that the Scheme favours the sons and daughters of CFMEU members. Raward s evidence suggests that considerations of continuity of funding weigh so heavily upon the Board that it renews grants without individual directors being aware of major features of the grant so renewed. The Board has approved grants of hundreds of thousands of dollars in relation to almost every renewal of the Scheme, without giving sufficiently close attention to the proposal to ensure that all Board members were aware of the major features of the Scheme. Reform Funds 165

172 81 Cull said that he did not think that the restrictions on eligibility for the Scheme were too clever, and he said that those restrictions need to be discussed, debated, changed. 124 He later accepted that the restrictions were not appropriate That concession was rightly made. Despite some evidence that the tradespeople produced by the Scheme are of high quality, 126 the QCTF has funded a Scheme to which discriminatory restrictions on eligibility apply. Apprenticeship schemes should be open to all young people, not just the children of unionists. 83 Had the Board made a wide ranging call for expressions of interest in receiving QCTF funding, and had it engaged in an objective assessment of whether the Scheme was delivering the maximum possible training outcomes, it may well have concluded that it did not do so. Mr Walter Sommer, the Chairman of Construction Training Australia, the immediate past Chairman of Construction Training Queensland, and the Chairman of the Building Industry Group Apprenticeship Scheme (BIGA), has reached that conclusion. 127 He gave evidence that, if the money spent on the Scheme was given to BIGA, it would probably result in BIGA taking on an additional 150 apprentices, rather than the 60 or so apprentices funded through the CFMEU scheme. 128 CSTC rental grant 84 The CSTC is the major training provider in Queensland in areas that relate to the callings of BLF Q members, although many of its courses extend beyond BLF Q callings. The major areas in which CSTC provides training are occupational health and safety, scaffolding, dogging and forklift The CSTC is based at the Construction Training Centre (CTC) in Salisbury, Queensland. The CSTC was originally based in premises owned by the CFMEU in Fortitude Valley, Brisbane, where it paid only a peppercorn rental. 130 In 1998, however, the newly created CTC was looking for tenants, as little training activity was taking place on the site. The CSTC moved to the CTC only after it was promised that it would receive substantial rental assistance. 131 This promise was apparently made by the QCTF The CSTC receives from the QCTF a grant in the region of $ a year to subsidise its rental at the CTC. The grants completely covered its rental for the first few years after it moved to the CTC, but more recently the CSTC has been required to pay about $ a year over and above the QCTF grant It is QCTF policy to seek, where possible, to maximise the number of student contact hours that result from its training grants. 134 The allocation of a rental subsidy to the CSTC is not consistent with that policy. 135 It is not consistent with the QCTF s stated intention to focus on maximising training outcomes, because once a payment is made for an infrastructure or overhead component of a training providers costs, it is not possible to link any direct training outcomes to that grant It is not clear why these policies should be waived for the benefit of the CSTC, but not for other training providers. It is understandable that, the QCTF having given a commitment to the CSTC that it would provide a rental subsidy, this subsidy should be paid, but it is not obvious why that commitment should have been given in the first instance. 166 Final Report of the Royal Commission into the Building and Construction Industry

173 89 The stated reason for the rental assistance was to assist in making the CTC a success by providing a core tenant. 137 That may have been reasonable, as the QCTF owns a half share in the CTC, and it had made a substantial investment in the success of the CTC. 138 The importance of the CTC to the future of training in the building and construction industry in Queensland is not something that the Commission is well placed to assess. As a consequence, the appropriateness of the QCTF s support for that site is likewise difficult to assess. 90 Cull stated that he was not, in fact, happy that the QCTF pays the rental grant to the CSTC. 139 He said that the most recent rental grant was made only after BERT recommended to the QCTF, in October 2001, that it should distribute at least $ of the $ that BERT had allocated to the QCTF to the CSTC. BERT made this recommendation as they [the CSTC] continue to provide essential services of training to the construction and building industry. 140 BERT intended that letter to be understood, and it was understood, as a direction that QCTF pay money to the CSTC to assist with its rental. 141 CEPU Plumbing Division Queensland Branch Safety and Training Officer 91 On 17 December 1998 the Board considered an application by the CEPU Plumbing Division Queensland Branch for a grant to fund the employment of a safety, post trade and apprentice training officer (the CEPU Plumbing Division Queensland Branch grant). The application sought a grant of $ over two years. 142 Analysis of the grant indicated that it was envisaged that, of the total grant sought, $ would be spent on the salary for a Project Officer. 143 The application envisaged that the officer employed as a result of the grant would work full-time for the CEPU Plumbing Division Queensland Branch in the safety and training role The CEPU Plumbing Division Queensland Branch grant was approved, and Mr Bradley O Carroll was employed by the CEPU Plumbing Division Queensland Branch as its safety and training officer There was discussion at the Board meeting at which the CEPU Plumbing Division Queensland Branch grant was approved about the appropriateness of making lump sum up-front payments without appropriate checks, balances and acquittals. Following this discussion, the CEPU Plumbing Division Queensland Branch grant was approved on terms that stated payments were to be made in four instalments at 1 January and 1 July in 1999 and 2000 respectively and are to be based on regular bi-monthly reporting and acquittal of expenditure against the CEPU Plumbing Division Queensland Branch grant to the Manager. 146 It was a condition of the CEPU Plumbing Division Queensland Branch grant that adequate acquittals be provided to the QCTF every two months. 147 That was because the Board accepted that it needed to keep a close eye on the expenditure of the grant if it was to get value for money Clause 3.4 of the QCTF Funding Principles relates to General and Specific Purpose Grants. The clause is primarily concerned with limiting the amount of establishment funding that the QCTF will provide to an organisation. 149 Clause 3.4 also, however, provides that: The periodic progress payments against a grant shall always be in arrears and paid upon submission of a progress claim with attached periodic reports from the grantee which Reform Funds 167

174 comprehensively detail the outcomes achieved including the number of participants trained, the extent of training completed and an acquittal of funds to date In approving the CEPU Plumbing Division Queensland Branch grant on terms that involved the making of payments in advance, the Board departed from this Funding Principle, which stated that payments shall always be in arrears. The Board did, however, seek to limit its exposure by making payments after the first payment depend upon the receipt of adequate acquittals. 96 O Carroll did not provide adequate acquittals between his commencement with the CEPU Plumbing Division Queensland Branch in January 1999 and February From time to time he provided letters to the QCTF containing two or three sentence accounts of his activities, sometimes accompanied by lists of the names of persons trained, but that was the full extent of his reporting. 151 Cull accepted that the reports provided by O Carroll did not provide a very clear idea of how he spent his time. 152 They also provided very little indication of how the grant money was spent. 97 The QCTF could not ensure that its grant to the CEPU Plumbing Division Queensland Branch was achieving appropriate training outcomes without knowing how O Carroll spent his time, as logically if O Carroll could produce some training outcomes while not spending all of his time working on his training role, he could produce better outcomes if he spent more time on this task During the entire period between January 1999 and February 2002, O Carroll did not record how he spent his time. 154 In February 2002, when the QCTF attempted to conduct an audit of the expenditure of funds provided pursuant to the CEPU Plumbing Division Queensland Branch grant, Roebig was advised that the CEPU Plumbing Division Queensland Branch s computer system had crashed, destroying approximately six months of data. There were no hard-copy files relating to any of the information entered into the electronic database, and no formal procedures manual, so there were no records at all available in relation to that period There is reason to suspect that the poor record keeping and reporting by O Carroll was deliberate. Evidence before the Commission reveals that O Carroll spends a considerable proportion of his time on union duties that are not related to safety and training. 156 By his own admission, he was present on the picket line at the Nambour Hospital on many days. 157 That picket line was in place from 23 May 2001 to 16 July During that period, there is no mention of the Nambour Hospital in O Carroll s reports to the QCTF. In a letter to Roebig dated 26 July 2001, O Carroll wrote: Would you please make available the next $40, of our grant available to cover the wages of our Training Officer for the period March to September as per our Training Grant Application. Your urgent attention to this matter is appreciated Roebig responded to this letter on 2 August 2001, stating that, The request is inappropriately phrased nor did it include an acquittal of the previous funds as requested in my letter to you of 28 May It can readily be inferred from that letter that Roebig had not received any acquittal for O Carroll s activities between 28 May 2001 and 2 August Final Report of the Royal Commission into the Building and Construction Industry

175 101 It follows that O Carroll requested payment from the QCTF to meet his salary for a period in which he had spent a large amount of time engaged in activity that had nothing to do with training, and that he did not inform the QCTF of this fact. His conduct concealed from the QCTF information that was obviously relevant to whether the QCTF should pay to the CEPU Plumbing Division Queensland Branch the funds allocated under the CEPU Plumbing Division Queensland Branch grant. 102 The evidence concerning the Nambour Hospital is not the only evidence before the Commission that O Carroll engages in union duties unrelated to safety and training. 161 O Carroll, indeed, does not deny that he undertakes such activities. His evidence to the Royal Commission in January 2002 was that he has no written statement of duties, 162 and that his duties are decided on the basis of what the membership requires and where our duties are required to be. My predominant role is with training and safety. However, there are other occasions where I have to get involved in other sort of union-oriented business, where I would be directed to do so. 163 Indeed, when giving evidence in January, he accepted that he sometimes acts as a union organiser, as is apparent from the following exchange: 164 Counsel: So is it part of your role as training and safety officer, on occasion, to facilitate the pressing of industrial claims on behalf of members whom you encounter? O Carroll: It is not part of my role as a training and safety officer, it is part of my role as an employee of the plumbers union. Counsel: So your only employment with the plumbers union is as training and safety officer, isn t it? O Carroll: No Counsel: What other employment do you have with the plumbers union apart from that type of - - -? O Carroll: I think we are a relatively small union. We have four officials and your duties from day to day change in accordance to what is happening in the world, if you like. Training and safety is one of my roles, which I put significant time into. I work probably about 50 to 60 hours a week, and that would account for a significant time of that. However, there are other times where I do other than just the training and safety role. Counsel: What other functions do you carry out from time to time, apart from safety and training? O Carroll: Wide and varied. It could be - whatever is required. It could be going to see a member over a WorkCover claim, organising members to go to a solicitor to get advice over a WorkCover claim, it could be about attending a site meeting to give some sort of report-back. Mr Howcroft referenced the WorkCover changes. I think I went to a couple of meetings where the legislation was explained to the workers on site when the changes took place. Many and varied. Reform Funds 169

176 Counsel: Summarising all those duties, in addition to being safety and training officer, you would often, as occasion required, carry out duties that one would, in other unions, associate with the role of an organiser? O Carroll: Correct. 103 The QCTF renewed the CEPU Plumbing Division Queensland Branch grant several times, despite the absence of adequate reports, records and acquittals. The grant was renewed on 24 October 2000, when the CEPU Plumbing Division Queensland Branch was granted $ , 165 and again on 16 November 2001, when the CEPU Plumbing Division Queensland Branch was granted $ It is likely that the CEPU Plumbing Division Queensland Branch grant was renewed, notwithstanding the CEPU Plumbing Division Queensland Branch s non-compliance with the acquittal conditions placed on the grant, 167 because it was the only substantial funding provided to the CEPU Plumbing Division Queensland Branch by the QCTF, and the CEPU Plumbing Division Queensland Branch is one of the three union sponsors of BERT. 105 The fact that the CEPU Plumbing Division Queensland Branch grant was twice renewed demonstrates the inaccuracy of the assertion that the Board s policy in favour of continuity of training is appropriate because of the proven outcomes of the existing recipients of general purpose grants. 168 There were no proven outcomes associated with the CEPU Plumbing Division Queensland Branch grant, because the reporting and acquittal were so inadequate that the QCTF could not have determined with confidence whether it was getting appropriate, let alone maximum, training outcomes from the grant. The Board, and thus the QCTF, should not have renewed the CEPU Plumbing Division Queensland Branch grant without ensuring adequate compliance with the acquittal conditions. 106 Had the reporting by the CEPU Plumbing Division Queensland Branch been better, the QCTF would have been aware that it was funding the employment of a person who acts, for part of this time, as a union organiser, with many and varied responsibilities that have nothing to do with safety and training. 169 Funding directed towards these other activities does not maximise training outcomes, and is not consistent with the QCTF trust deed, which provides that the objects of the trust relate only to fostering or advancing the knowledge, skills, training and education (both theoretical and practical) of persons employed in or otherwise providing services in and to the construction industry within the State of Queensland. 170 The QCTF should not have paid for the employment of any person without ensuring that the activities of that person related only to activities authorised by the QCTF trust deed. Conclusions 107 This case study illustrates: (a) (b) the resolution by the board of an industry training fund that grants to workers for training be restricted to applicants demonstrating financial union membership, the effect of which would be to discriminate against non-union members; the implementation of that resolution by a union and an industry training centre; 170 Final Report of the Royal Commission into the Building and Construction Industry

177 (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) the inability of employer representatives on the board of an industry training fund to effectively represent employer interests; the requirement that applicants for grants from an industry training fund provide to the fund union membership numbers, the collection of that information being contrary to the provisions of the Privacy Act 1988 (C wth); the distribution by an industry training fund of most of its general purpose funding to unions or union-controlled bodies rather than to bipartite bodies as contemplated by the fund s objects; the allocation by an industry training fund of general purpose grants, not based upon the merits of training proposals before the Board or an assessment of training outcomes, but instead upon the perceived need to return funds to the union sponsors of an industry redundancy scheme which distributes surplus income to the training fund; the failure by an industry training fund to advertise, or advertise effectively, to seek expressions of interest in funding; the approval by the board of an industry training fund of funding for a scheme to which discriminatory conditions of participation, favouring the sons and daughters of trade unionists, apply; the approval by the board of an industry training fund of a grant to a union for a safety and training officer in circumstances where that officer in fact engages in numerous tasks not related to training; with the result that the funding is expended for purposes not authorised by the trust deed; the repeated renewal by the board of an industry training fund of a grant to a union for a safety and training officer despite failing to receive acquittal of moneys provided under that grant; the failure by a union recipient of an industry training grant to adequately acquit moneys received; and the belief by unions represented on the board of an industry fund that the fund or its income source is a union-initiated scheme and that as such the benefits of the scheme should flow primarily to union members and that the funds are available for the unions purposes. Persons involved Name Christian, John Cull, Bruce Position/title Director, CSTC Pty Ltd. Chairman and Operations Manager Building, Leighton Contractors Pty Ltd; Director, QCTF Pty Ltd. Reform Funds 171

178 Hutchings, Gordon Employer representative, Queensland Construction Training Fund. Jenkinson, David Queensland Major Contractors Association; Director Queensland Construction Training Fund. King, Lisa O Carroll, Bradley CSTC Pty Ltd. Safety and Training Officer, Communications, Electrical, Electronic, Information, Postal Plumbing and Allied Services Union Of Australia, Plumbing Division, Queensland Branch; Director, QCTF Pty Ltd. Nash, Mick Queensland Major Contractors Association; Director, QCTF Pty Ltd. Raward, Malcolm Roebig, Peter Simcoe, Greg Director, QCTF Pty Ltd. Manager, Queensland Construction Training Fund. State Secretary, Australian Building Construction Employees and Builders Labourers Federation (Queensland Branch) Union of Employees; Director, QCTF Pty Ltd. Sommer, Walter Trohear, Wallace Veale, Peter Chairman, Construction Training Australia, immediate past Chairman, Construction Training Queensland and Chairman, Building Industry Group Apprenticeship Scheme. State Secretary, Construction, Forestry, Mining and Energy Union, Construction and General Division, Queensland Construction Workers Divisional Branch; Director, QCTF Pty Ltd. Specialist Subcontractors Association; Director, QCTF Pty Ltd. Watson, William Chairman, Master Plumbers Contractors Association of Australia. 172 Final Report of the Royal Commission into the Building and Construction Industry

179 Notes to Queensland Construction Training Fund 1 QCTF Funding Criteria Tender Bundle, Exhibit 1688, document ; Cull, T15451/38. 2 Shannon Statutory Declaration, Exhibit 1681, Annexure 1, Document Shannon Statutory Declaration, exhibit 1681, paragraph 2, document Shannon Statutory Declaration, exhibit 1681, paragraph 2, document ; Shannon Statement, exhibit 1753, document at Shannon Statement, exhibit 1753, document at Cull, T15453/ Shannon Statutory Declaration, exhibit 1681, paragraph 2, document ; Roebig Statutory Declaration, exhibit 1682, paragraph 2, document Shannon Statutory Declaration, exhibit 1681, paragraph 6, document Cull Statutory Declaration, exhibit 1691, paragraph 3, document ; Roebig Statutory Declaration, exhibit 1682, paragraph 3, document ; Raward Statutory Declaration, exhibit 1687, paragraph 3, document QCTF Funding Criteria Tender Bundle, exhibit 1688, clause 3.2, document at 0046; Cull Statutory Declaration, exhibit 1691, paragraph 4, document Roebig Statutory Declaration, exhibit 1682, paragraph 5, document ; Cull Statutory Declaration, exhibit 1691, paragraph 6, document Roebig Statutory Declaration, exhibit 1682, paragraph 5, document Cull, T15455/ Roebig Statutory Declaration, exhibit 1682, paragraph 5, document ; Cull Statutory Declaration, exhibit 1691, paragraph 7, document QCTF Funding Criteria Tender Bundle, Exhibit 1688, document at 0041; Roebig Statutory Declaration, exhibit 1682, paragraph 3, document QCTF Funding Criteria Tender Bundle, Exhibit 1688, document at QCTF Funding Criteria Tendle Bundle, Exhibit 1688, document at Roebig Statutory Declaration, Exhibit 1682, paragraph 6, document Cull Statutory Declaration, Exhibit 1691, paragraph 8, Simcoe had no recollection of this meeting: Simcoe, T15489/ QCTF Funding Criteria Tender Bundle, Exhibit 1688, document at Simcoe, T15490/ Simcoe, T15489/ Simcoe, T15490/17-19, T15493/ Simcoe, T15490/23-25, T15492/ Simcoe, T15490/ Simcoe, T15491/ Cull, T15458/ Cull, T15458/ Watson Statutory Declaration, Exhibit 1686, paragraph 4, document Watson Statutory Declaration, Exhibit 1686, paragraphs 5 6, document QCTF CEPU Grant Tender Bundle, Exhibit 1689, document Christian Statutory Declaration, Exhibit 1684, paragraph 4, document QCTF Funding Criteria Tender Bundle, Exhibit 1688, document Simcoe, T15493/ Reform Funds 173

180 35 Cull, T15460/ Cull, T15459/ Cull, T15459/ Roebig Statutory Declaration, Exhibit 1682, paragraph 9, document Cull Statutory Declaration, Exhibit 1691, paragraph 9, document Christian Statutory Declaration, Exhibit 1684, paragraph 24, document Cull Statutory Declaration, Exhibit 1691, paragraph 9, document ; Cull, T15456/ Cull Statutory Declaration, Exhibit 1691, paragraph 2, ; Cull, T15453/ QCTF Funding Criteria Tender Bundle, Exhibit 1688, document Simcoe, T15488/ For example, Cull, T15474/ /7. 46 Cull, T15464/ Cull, T15464/ QCTF Funding Criteria Tender Bundle, Exhibit 1688, document QCTF Funding Criteria Tender Bundle Exhibit 1688, document at QCTF Funding Criteria Tender Bundle, Exhibit 1688, document at QCTF Funding Criteria Tender Bundle, Exhibit 1688, document See paragraph 14 above. 53 Christian Statutory Declaration, Exhibit 1684, paragraph 22, document Christian Statutory Declaration, Exhibit 1684, paragraph 22, document Christian Statutory Declaration, Exhibit 1684, Annexure 3, Document Cull Statutory Declaration, Exhibit 1691, Annexure 3, document Cull Statutory Declaration, Exhibit 1691, paragraph 10, document ; Roebig Statutory Declaration, Exhibit 1682, paragraph 7, Cf Roebig Statutory Declaration, Exhibit 1691, paragraph 7, document , who says that the BERT membership number is often not supplied or is insufficient for ascertaining the identity of the applicant. This explanation is not convincing. Workers who wish to receive funding must comply with the QCTF s requirements. The QCTF could readily require the BERT number to be supplied. If that were done, it is difficult to see how any confusion about identify could arise. 59 Simcoe, T15494/ Simcoe, T15495/ Privacy Act 1988 (C wth), Sch 3, National Privacy Principle Privacy Act 1988 (Cth), s 6, which defines personal information to mean information or an opinion whether true or not about an individual whose identity is apparent, or can reasonably be ascertained, from the information or opinion. Union membership information in fact falls within the stricter category of sensitive information. 63 Cull Statutory Declaration, Exhibit 1691, paragraph 5, document Cull Statutory Declaration, Exhibit 1691, paragraph 5, document ; Cull, T15455/ QCTF Funding Criteria Tender Bundle, Exhibit 1681, document at Shannon Statutory Declaration, Exhibit 1681, Annexure, document QCTF Funding Criteria Tender Bundle, Exhibit 1688, document Shannon Statutory Declaration, Exhibit 1681, paragraph 5, document QCTF Funding Criteria Tender Bundle, Exhibit 1688, document at 0046 (emphasis added). 174 Final Report of the Royal Commission into the Building and Construction Industry

181 70 Cull, T15466/ Cull, T 15466/ Cull, T15465/ Cull Statutory Declaration, Exhibit 1691, paragraph 14, Annexure 5, document Cull, T15465/10-12; Simcoe, T15501/ Christian Statutory Declaration, paragraph 4. I do not accept that the presence of one employer representative on a board of three directors makes the CSTC a bipartite body, for in that situation, the body is not controlled jointly by employee and employer interests cf Shannon Statutory Declaration, Exhibit 1681, paragraph 4, document Sommer Statutory Declaration, Exhibit 1685, paragraph 11, document See also Sommer, T15499/ QCTF Funding Criteria Tender Bundle, Exhibit 1688, document at Raward Statutory Declaration, Exhibit 1687, paragraph 7, document QCTF CFMEU Apprenticeship Scholarship Tender Bundle, Exhibit 1690, document QCTF CFMEU Apprenticeship Scholarship Tender Bundle, Exhibit 1690, document at Cull, T15471/ QCTF CFMEU Apprenticeship Scholarship Tender Bundle, Exhibit 1690, Attachment 29, Document Cull Statutory Declaration, Exhibit 1691, paragraph 21, document Raward Statutory Declaration, Exhibit 1687, paragraph 8, document Cull Statutory Declaration, Exhibit 1691, paragraph 21, document ; Raward Statutory Declaration, Exhibit 1687, paragraph 9, document Shannon Statutory Declaration, Exhibit 1681, paragraph 12, document ; Cull Statutory Declaration, Exhibit 1691, paragraph 16, document ; Roebig Statutory Declaration, Exhibit 1691, paragraph 8, document ; Raward Statutory Declaration, Exhibit 1687, paragraph 4, Shannon Statutory Declaration, Exhibit 1681, paragraph 12, document ; Cull Statutory Declaration, Exhibit 1691, paragraph 16, document ; Roebig Statutory Declaration, Exhibit 1682, paragraph 8, document ; Raward Statutory Declaration, Exhibit 1687, paragraph 4, document Shannon Statutory Declaration,Exhibit 1681, paragraph 10, document ; Raward Statutory Declaration, Exhibit 1687, paragraph 4, document ; Roebig Statutory Declaration, Exhibit 1682, paragraph 8, document Shannon Statutory Declaration, Exhibit 1681, paragraph 13, document ; Cull Statutory Declaration, Exhibit 1691, paragraph 16, document ; Roebig Statutory Declaration, Exhibit 1682, paragraph 8, document ; Raward Statutory Declaration, Exhibit 1687, paragraph 4, document Roebig Statutory Declaration, Exhibit 1687, paragraph 8, document This proposition was accepted by Cull: Cull, T15486/ Simcoe, T15488/ See for example, Simcoe, T15488/ /4, 15489/42-44, 15490/ QCTF CFMEU Apprenticeship Scholarship Tender Bundle, Exhibit 1690, document at Reform Funds 175

182 95 QCTF CFMEU Apprenticeship Scholarship Tender Bundle, Exhibit 1690, document at QCTF CFMEU Apprenticeship Scholarship Tender Bundle, Exhibit 1690, document QCTF CFMEU Apprenticeship Scholarship Tender Bundle, Exhibit 1690, document at QCTF CFMEU Apprenticeship Scholarship Tender Bundle, Exhibit 1690, document at See Shannon Statutory Declaration, Exhibit 1681, paragraph 14, document Shannon also mentioned limited funds. The funding available for allocation in November 2001 was, however, broadly comparable to the funding the year before. 100 QCTF CFMEU Apprenticeship Scholarship Tender Bundle, Exhibit 1690, document at 0211; Hutchings Statutory Declaration, Exhibit 1683, paragraph 7, document QCTF CFMEU Apprenticeship Scholarship Tender Bundle, Exhibit 1690, document at 0211, That this targeting occurs has apparently been accepted by the solicitors for the QCTF and Cull: see Cull Statutory Declaration, Exhibit 1691, paragraph 22, document QCTF CFMEU Apprenticeship Scholarship Tender Bundle, Exhibit 1690, document at QCTF CFMEU Apprenticeship Scholarship Tender Bundle,Exhibit 1690, document at QCTF CFMEU Apprenticeship Scholarship Tender Bundle, Exhibit 1690, at QCTF CFMEU Apprenticeship Scholarship Tender Bundle, Exhibit 1690, Document at QCTF CFMEU Apprenticeship Scholarship Tender Bundle, Exhibit 1690, document at Hutchings Statutory Declaration, Exhibit 1683, paragraph 8, document Hutchings Statutory Declaration, Exhibit 1683, paragraph 7 10, document Cull, T15473/ / Simcoe, T15502/ Simcoe, T15502/ Simcoe, T15503/ Simcoe, T15501/ Simcoe, T15502/ Simcoe, T15501/ / Simcoe, T15504/ But cf T15505/ See, regarding the fifth intake, the grant of $365,898 made on 16 November 2001: QCTF CFMEU Apprenticeship Scholarship Tender Bundle, Exhibit 1690, documents and at QCTF CFMEU Apprenticeship Scholarship Tender Bundle,Exhibit 1690, documents at 0196 (minutes of meeting on 21 March 2000) and at 0021 (minutes of meeting on 24 October 2000). 119 Raward Statutory Declaration, Exhibit 1687, paragraph 11, document ; Cull Statutory Declaration, Exhibit 1691, paragraph 22, document Cull, T15474/ Cull, T15475/ Final Report of the Royal Commission into the Building and Construction Industry

183 122 Cull Statutory Declaration, Exhibit 1691, paragraph 22, document is consistent with this suggestion, as the wording used is I can not remember that that scheme was created for the express purpose of assisting the sons and daughters of CFMEU members to obtain apprenticeships. 123 Raward Statutory Declaration, Exhibit 1687, paragraph 10, document Cull, T15473/ Cull, T 15476/ Hutchings Statutory Declaration, Exhibit 1683, paragraph 11, document ; Cull, T15476/ Sommer Statutory Declaration, Exhibit 1685, paragraph 1, document Sommer Statutory Declaration, Exhibit 1685, paragraph 10, document Christian Statutory Declaration, Exhibit 1684, paragraph 7, document ; Simcoe, T15501/ Christian Statutory Declaration, Exhibit 1684, paragraph 5, document Christian Statutory Declaration, Exhibit 1684, paragraph 8, document ; Simcoe, T15497/ Christian was unable to recall who made this promise. 132 Cull, T15483/ Christian Statutory Declaration, Exhibit 1684, paragraph 9, document Cull Statutory Declaration, Exhibit 1691, paragraph 17, document ; Shannon Statutory Declaration, Exhibit 1681, paragraph 9, document See Cull Statutory Declaration, Exhibit 1691, paragraph 18, document ; Cull, T15482/ See Simcoe, T15496/ See Cull, T15483/ Cull, T15484/ Cull Statutory Declaration, Exhibit 1691, paragraph 18, document ; Cull, T15485/ QCTF CSTC Tender Bundle, Exhibit 1668, document Shannon Statutory Declaration, Exhibit 1681, paragraph 8, document ; Ashman T15384/ QCTF CEPU Grants Tender Bundle, Exhibit 1689, document at The final form of the application is at QCTF CEPU Giants Tender Bundle, Exhibit 1689, document QCTF CEPU Grants Tender Bundle, Exhibit 1689, document at There is no suggestion in any of the CEPU funding proposals that the Safety and Training Officer position is anything other than fulltime, and the costing of the safety and training officer position did not reflect any percentage discounting for time spent on other tasks. Cf Simcoe, T15506/4-5, suggesting that the position would be close to fulltime, but not fulltime. 145 QCTF CEPU Grants Tender Bundle, Exhibit 1689, document at QCTF CEPU Grants Tender Bundle, Exhibit 1689, document at Roebig Statutory Declaration, Exhibit 1682, paragraph 13, document ; QCTF CEPU Giants Tender Bundle Exhibit 1689, document Cull, T15477/ See also Simcoe, T15508/ The normal limit under the Funding Principles is 25 per cent of the establishment costs of a training program: see Exhibit 1688, document at QCTF Funding Criteria Tender Bundle, Exhibit 1688, document at Reform Funds 177

184 151 Tender Bundle of Documents re: QCTF CEPU Grants, exhibit 1689, document ; Tender Bundle of Documents re: QCTF CEPU Grants Exhibit 1689, document at Cull, T15478/ A proposition accepted by Cull: Cull, T15481/ Roebig Statutory Declaration, exhibit 1682, paragraph 13, document Tender Bundle of Documents re: QCTF CEPU Grants, exhibit 1689, document Watson Statutory Declaration, exhibit 1686, paragraph 3, document O Carroll Statement, exhibit 74, paragraph 32, document See also, Dicks, T691/ See Submissions of Counsel Assisting Concerning the Nambour Dispute, 8 March 2002, paragraph Tender Bundle of Documents re: QCTF CEPU Grants, exhibit 1689, document Tender Bundle of Documents re: QCTF CEPU Grants, exhibit 1689, document Hutchings Statutory Declaration (No. 2), exhibit 1066, paragraphs 14-16, document (assuming Greenslopes Hospital is a different place to Nambour Hospital). 162 O Carroll, T1287/ O Carroll, T1288/1 7. He referred in this evidence to direction by the State Secretary of the CEPU. 164 O Carroll, T1291/ Tender Bundle of Documents re: QCTF CEPU Grants, exhibit 1689, document at Tender Bundle of Documents re: QCTF CEPU Grants, exhibit 1689, document at See Cull, T15481/43-45, where he accepts this proposition. 168 See paragraph 63 above. 169 See also O Carroll, T1291/28 48, T1304/ Shannon Statutory Declaration, exhibit 1681, annexure 1, document at Final Report of the Royal Commission into the Building and Construction Industry

185 11 Sunshine Coast Regional Group Apprentices Ltd Introduction 1 This investigation concerned the operation of Sunshine Coast Regional Group Apprentices Ltd (SCRGAL) and, in particular: (a) (b) (c) (d) (e) loans made by SCRGAL to directors and employees; the purchase of a property owned by SCRGAL by the Chairperson of SCRGAL; the payment by SCRGAL of over $ to a superannuation fund of which SCRGAL s Managing Director was the only member; the use of SCRGAL fuel cards; and the Queensland Government and Commonwealth Government s responses to deficiencies in SCRGAL s operations. Group training companies 2 There are approximately 35 group training organisations in Queensland, of which about 14 operate in the building and construction industry. 1 About 20 per cent of Queensland s apprentices are indentured to group training organisations. 2 Within the building and construction industry, that percentage rises to about 26 per cent. 3 3 Group training companies operate by directly employing apprentices or trainees and then placing them with host employers. Placements may vary in length from weeks to years. When particular projects are completed, apprentices working on those projects are placed with another employer. If no such placement is available, apprentices may perform work directly for the group training company. 4 A national review of group training has recently concluded that apprentices and trainees have generally better training outcomes if they are placed with a group training organisation than with one particular host employer. 4 5 The Queensland Government operates a funding program known as the Housing Industry Trade Training (HITT) program. That program, which is administered for the Department of Housing by Project Services (a commercialised business unit within the Department of Public Reform Funds 179

186 Works), aims to provide training opportunities to apprentices who are indentured to group training companies. 5 It does this by awarding contracts to group training companies to construct public housing. 6 Construction projects awarded under the HITT program are negotiated through a closed tender process. That means that the Department of Public Works, on behalf of the Department of Housing, prepares an estimate of the project cost and the HITT scheme is asked to prepare its tender price. If that tender price is within a few per cent of the project estimate then, provided certain financial criteria are satisfied, the contract is awarded under the HITT scheme. 7 6 Companies participating in the HITT scheme can claim up to 20 per cent of the construction cost of the project, in addition to the total construction cost, to compensate for the employment and supervision of apprentices working on the project. 8 Sunshine Coast Regional Group Apprentices Ltd 7 Sunshine Coast Regional Group Apprentices Ltd (SCRGAL) is a public company limited by guarantee. 9 It was incorporated in 1984 to provide employment opportunities in the Sunshine Coast area of Queensland, 10 and it is recognised as a group training organisation under the Training and Employment Act 2000 (Qld). 11 SCRGAL is one of the largest group training companies in Queensland, employing approximately 620 apprentices and trainees. 12 Its training outcomes appear to have been satisfactory SCRGAL s Memorandum of Association provides that SCRGAL s objects are: (a) (b) (c) To employ and indenture apprentices to itself and second such apprentices to employers located in the Sunshine Coast region for varying periods; To administer a group apprenticeship scheme in relation to such apprentices in the Sunshine Coast region; To encourage promote and undertake the training of apprentices in the Sunshine Coast region; (d) To advise on the training of apprentices SCRGAL itself undertakes building work involving both single occupancy and multiple occupancy residential building. 15 Most of this building is undertaken on projects funded under the HITT scheme. SCRGAL has received a substantial amount of work under that scheme. In the financial year , for example, SCRGAL was awarded construction projects with a total value of $4.97 million under that program. That comprised six projects which yielded 32 units of public housing SCRGAL also receives joint Commonwealth and State funding under the group training funding arrangement, which is a joint initiative to promote the employment and completion of training contracts for apprentices and trainees. 17 On 31 July 2001 the Department of Employment and Training (the Department) entered into a Performance and Funding Agreement with SCRGAL (the Performance and Funding Agreement) pursuant to which it agreed to provide SCRGAL with $ in funding drawn from that initiative Final Report of the Royal Commission into the Building and Construction Industry

187 Key participants 11 Two individuals have been involved with SCRGAL since it was founded. They are Mr Robert Purvis and Mrs Alison Grosse (formerly Mrs Alison Kerr and Kerr-Jones). More recently, Mr Neil Wilkinson has played a significant role in the operations of the company. Purvis 12 Purvis was employed by SCRGAL in 1984 and he was, between February 1996 and December 2001 (when his employment was terminated), 19 the company s Managing Director Purvis was summonsed to attend before the Royal Commission on Monday, 14 October On Sunday, 13 October 2002 at 1.46 pm, Purvis solicitor sent a facsimile to the Commission stating that Purvis was unable to appear before the Commission due to ill health. That facsimile was accompanied by an affidavit sworn by Dr Charles Ong. Dr Ong swore that he had treated Purvis since 30 October 1981, and that Purvis suffers from hypertension, stress, anxiety, depression, high cholesterol, triglycerides and diabetes. He stated that he saw Purvis on Tuesday 8 October 2002 when Purvis expressed his anxiety about outstanding legal matters and the Royal Commission into the Building and Construction Industry inquiry on Monday 14 October Dr Ong expressed the opinion that, were Purvis to give evidence before the Royal Commission, the additional stress would cause deterioration in his health and possibly result in a nervous break down. He said that Purvis was not fit to fly to Melbourne and provide evidence before the Royal Commission Dr Ong stated in his affidavit that he last examined Purvis on 9 October That was the Wednesday before Purvis was summonsed to give evidence. Dr Ong swore his affidavit on 11 October 2002, the Friday before the hearing. 22 It is apparent, therefore, that at least by that Friday, and possibly some days earlier, Purvis did not intend to appear as summonsed. In those circumstances, his failure to notify the Commission of that fact until the Sunday afternoon before the hearing reflects adversely upon him. Purvis conduct gives rise to an inference that Purvis intended to deny the Commission the opportunity to verify the reasons for his nonattendance. 16 Following his failure to appear on Monday 14 October 2002 Purvis was directed to put on a statutory declaration dealing with any of the matters about which evidence was given that he wished to dispute. 23 Purvis provided a statutory declaration in response to that direction. 24 Dr Ong having made it plain, however, that in his opinion Purvis could not be examined by the Commission without risk to his health, it followed that it was not possible for Counsel Assisting to cross-examine Purvis in relation to the contents of his statutory declaration. That being the case, I had no choice but to proceed on the basis that, where the weight of evidence conflicts with Purvis statutory declaration, Purvis account can be rejected notwithstanding that Purvis has not been cross-examined in relation to that account. Grosse 17 Grosse was a founding director of SCRGAL. 25 From 1985 until a few days before appearing before the Royal Commission, she was also the Chairperson of SCRGAL. 26 She has now Reform Funds 181

188 resigned that position, but she remains a director. 27 Grosse is also the Mayor of Maroochy Shire Council Grosse is the representative on the Board of Noel Burns Industries Pty Ltd, which is one of the founding member companies. 29 Her personal company, Excellent Communications Pty Ltd, is another member. That means that Grosse is responsible for the appointment of one of her fellow directors. 30 In effect, she controls two of the votes on the Board. Wilkinson 19 Wilkinson is a solicitor. He holds a current practising certificate. 31 He was retained by SCRGAL as its solicitor from about 1995, and he was then employed by SCRGAL as an in-house solicitor from July Wilkinson is currently employed by SCRGAL as its company secretary. 33 He believes that he was registered as the company secretary in May 2001, 34 but said that he did not become responsible for Board minutes and papers until 3 December 2001, when the new Board came into existence Wilkinson s original employment agreement with SCRGAL allowed him to maintain a small legal practice from SCRGAL s premises in SCRGAL s time and using SCRGAL s facilities at no cost to himself. 36 He continued to carry on this practice from SCRGAL premises, on SCRGAL time and using SCRGAL resources until some time in August 2002, well after he became company secretary of SCRGAL. He stopped doing private legal work at that time because the Board asked him to stop. 37 The Members and the Board 22 SCRGAL originally had six member companies, 38 including three local councils, although all three councils recently resigned their memberships. 39 There are currently four members, being Excellent Communications Pty Ltd, Nimvale Pty Ltd, Noel Burns Industries Pty Ltd and Welch Contracting Pty Ltd The directors of SCRGAL are representatives of the member companies. 41 The directors (together the Board) are currently Ms Toni McRae (the new Chairperson), Mr Malcolm Dixon (who represents Nimvale Pty Ltd), Grosse (representing Noel Burns Industries Pty Ltd) and, probably, Mr Terry Welch (who represents Welch Contracting Pty Ltd). 42 A representative of the Department, Mr Peter McNeill, is also on the Board. All of those people, other than Grosse, have been on the Board for less then 12 months. 43 Other staff 24 After Purvis was dismissed, the three most senior executive staff of SCRGAL were Mr Ken Peters, Ms Linda Bacon and Mr Ron Manly. Peters was made redundant on 20 September 2002, Bacon resigned from SCRGAL in the same month, and Manly has been absent since early September 2002 on stress leave Other than Wilkinson and Grosse, therefore, there are no people currently involved in the management of SCRGAL who have long term experience with the company. 182 Final Report of the Royal Commission into the Building and Construction Industry

189 Corporate governance The Review 26 In late November and early December 2001 allegations were raised by the Sunshine Coast media in connection with SCRGAL. The media allegations prompted a review of SCRGAL by the Department (the Review) The Department had a right to conduct the Review pursuant to the provisions of the Performance and Funding Agreement. 46 It contracted Ms Wendy Partridge to lead the Review team. The Review was conducted between 7 December 2001 and late January 2002, and a report was provided to the Department on 19 February The Review identified a number of major corporate governance problems at SCRGAL. Those problems included: (a) incomplete and non-existent board minutes, especially from 1994 onwards, with no records of any Board meetings between 1997 and 2000, and only a few minutes relating to meetings late in 2000 and early 2001 (regular meetings recommencing late in 2001, at about the time the media allegations concerning SCRGAL emerged); 48 (b) difficulty identifying the make-up of the Board for some periods since 1984; (c) (d) (e) a lack of evidence that annual general meetings were held; lack of Board procedures and policies in relation to the handling of potential conflicts of interest; consultancy payments made to directors and related parties in contravention of the Company s constitution; and (f) inadequate and largely non-existent reporting systems SCRGAL s current management does not dispute that each of the above problems existed. 50 The current Board is in the process of making changes to rectify the corporate governance problems identified during the Review Grosse gave evidence that, as Chairperson of the Board, she attempted to convene Board meetings, but that nothing happened because Purvis ignored her. She agreed there were no Board meetings after 1997 or She said that, for most of the period since meetings stopped, the Board consisted only of herself, Purvis and Barry McDonald, so that effectively there was no Board left. 53 Submissions concerning corporate governance 31 At common law, the directors of a company owe various duties to that company. In Daniels v AWA Ltd, the New South Wales Court of Appeal made the following statement about a director s duty: a director, whatever his or her background, has a duty greater than that of simply representing a particular field of experience. That duty involves becoming familiar with the business of the company and how it is run in ensuring that the board has available means Reform Funds 183

190 to audit the management of the company so that it can satisfy itself that the company is being properly run. [A] person who accepts the office of director of a particular company undertakes the responsibility of ensuring that he or she understands the nature of the duty a director is called upon to perform. That duty will vary according to the size and business of the particular company and the experience or skills that the director held himself or herself out to have in support of the appointment to office The Directors of SCRGAL, and in particular Grosse, as Chairperson, and Purvis, as Managing Director, failed in the discharge of that duty. The Board clearly did not ensure that it had available means to audit the management of the company so that it can satisfy itself that the company is being properly run. By failing to hold any (or any regular) Board meetings, the Directors of SCRGAL breached their duty to the company. Related party loans 33 SCRGAL made a number of loans to directors or senior staff of the company. The loans were described in SCRGAL s accounts as short term investments All of the loans were unsecured. None of the loans were documented when they were made, although some have since been documented. 56 For the largest of the loans, no repayment schedules were put in place, and no regular repayments were made (at least until very recently). In addition, there was no evidence that Fringe Benefits Tax had been paid in relation to any of the loans There is no evidence that any of the loans made by SCRGAL to directors or employees were ever discussed or approved by the Board, or by the members of SCRGAL As at the conclusion of the Review, no interest had been paid on any of the loans. 59 Since Purvis was dismissed, however, the Board has resolved that he is to be charged interest on his loan As a result of a recent motion moved by the Department s representative on the Board, the Board resolved that all outstanding loans should be repaid. 61 The Board has, however, resolved that interest will not be charged on any of the outstanding loans to directors or employees, other than the loan to Purvis Only the three largest loans made by SCRGAL to directors or employees were examined by the Commission. Two of those loans were made to Purvis, and one was made to Wilkinson. The loans to Purvis 39 Purvis and Grosse jointly owned a property at 16 Church Street, Maroochydore. At some time late in 2000 or early in 2001 the decision was made that Purvis would purchase Grosse s share of that property. 63 There is conflicting evidence about the reasons for that decision, and at whose instigation the transaction occurred, but it is not necessary to resolve that conflict. 40 The property at 16 Church Street had been valued at $ in June There was a mortgage over the property with Suncorp Metway for $ , meaning that, accepting the 184 Final Report of the Royal Commission into the Building and Construction Industry

191 $ valuation, Purvis and Grosse held equity in the property of $ In order for Purvis to buy Grosse s share of the property, he therefore had to pay to her $ The events of 18 January On 18 January 2001 three SCRGAL cheques were drawn. They were written out by Wilkinson, 66 and signed by Wilkinson and Purvis. 67 The first was a cheque made out to Purvis for $ The second was a cheque made out to Wilkinson for $ The third was a cheque made out to Grosse for $ Purvis account of the events on 18 January 2001 that led to the creation of those three cheques is as follows: On 18 January 2001, Neil Wilkinson came to my office. He said to me, Alison (Grosse) has just got off the phone. She wants to know what you re doing about buying her out? I said, I can t afford it. Wilkinson said, Not a problem. Alison and I have discussed it. The company is eligible under its Articles to lend the money. There is enough there we ve checked. The company can handle it easily at the moment. I said, It might be OK for you and Alison to say this to me, however what about the rest of the Board, have they approved this? Wilkinson replied, yes, it s been approved. As Company Secretary and solicitor I have advised the Board and Alison that everything is in order and the company is able to do this. When Wilkinson left my office, I rang my son who is employed by Suncorp and through whom I was negotiating the loan and said to him that I now didn t need Suncorp s loan as the company was now going to lend the money to me. I then got out the joint cheque account which Grosse and I had for the property and wrote out three (3) cheques. One (1) to Grosse for her profit on the property, one (1) to Suncorp to pay out the loan and one (1) for stamp duty. By doing this I was under the belief that the money would be paid to me by way of loan and enter this account as one lump sum. I then went to Wilkinson s office and told him what I d done in relation to the cheques and how the money was to be paid. He said to me, No, we re not going to do it like that. This is the easy way we ll do it. I have some cheques here for you to sign. This is the way that Alison wants it done. I relied on his advice. I went through to sign the cheques and there I noticed in those cheques in the middle of two (2) of the cheques, one (1) being made out to Grosse and one (1) being made out to Suncorp Metway, a third cheque in the name of Wilkinson for $25, I said, What s this one for. He said, When I was talking to Alison, I mentioned that I had some debts to pay and she said Oh well, you may as well put them all in together and I ve drawn that cheque for that purpose. I said to Wilkinson, Are you positive that this is correct. He said, Yes I said, Why is it in the middle? He didn t answer me. I then signed the cheques relying on his advice to me A number of aspects of Purvis account are not credible. 44 First, Purvis asserted that he asked Wilkinson whether the Board had approved the loan, and that Wilkinson told him that it had been approved and that everything was in order. Leaving aside the language that Purvis suggests Wilkinson used, which is extremely artificial, Purvis knew that Board meetings were almost never held. 70 Purvis was one of just three directors, 71 and he was in complete day to day control of SCRGAL. 72 It is not credible for Purvis to assert that he believed the Board had approved the loan to him. He would necessarily have been Reform Funds 185

192 aware of any meeting at which such approval may have occurred. He must, therefore, have known that the loan had not been approved by the Board. 45 Second, it is not credible for Purvis to assert that he signed a cheque to loan Wilkinson $ simply on the basis of Wilkinson s advice that Grosse had approved it, asking only, Are you positive that this is correct. It is not at all clear what was supposed to be correct. Leaving that aside, on his account Purvis claimed that, even though he was the Managing Director of SCRGAL, he did not ask why SCRGAL should lend a substantial amount of money to Wilkinson, nor did he make any attempt to discuss repayment terms, security or interest in relation to the loan. That is despite Purvis evidence that he expected his own loan to be documented, and that he would need to provide security. 73 If that was the case, Purvis would have been expected to require the same of Wilkinson. Yet on his own evidence, he did not do so. That casts doubt not just upon Purvis claims in relation to the terms of his own loan, but also upon his claims as to the circumstances in which he came to agree to loan Wilkinson $ of SCRGAL s money. 46 Wilkinson s account of the events on 18 January 2001 was very different. Wilkinson stated that Purvis told him that all of the money advanced to Purvis by SCRGAL on that day was to be repaid the next week, after Purvis obtained a loan from Suncorp Metway. 74 In other words, he said the loan to Purvis was simply a bridging loan. Wilkinson was not, however, able to give a satisfactory explanation of the need for SCRGAL to provide bridging finance to Purvis. He said Purvis wanted to buy Grosse out to take advantage of a rumoured rise in property prices in the area. 75 A delay of one week, while waiting for finance from Suncorp Metway, would have been very unlikely to frustrate that objective, so that explanation does not explain the need for a loan from SCRGAL. Furthermore, if the loans to Purvis were intended to be for a duration of only one week, it is very unlikely that Purvis would have been prepared to sign a cheque advancing $ to Wilkinson with no agreed repayment schedule, no interest and no security. He would have been treating Wilkinson more favourably than he was treating himself. I reject Wilkinson s evidence that the loans to Purvis were intended to be of short duration. 47 Wilkinson s evidence that he signed cheques lending $ to Purvis for the sole reason that Purvis told him to do so is similarly not credible, and is rejected. 76 As a practising solicitor, Wilkinson must have been aware of his legal obligations in relation to company property. He is unlikely to have breached those obligations simply because Purvis instructed him to do so. His evidence that he didn t believe it [the loan to Purvis] to be wrong 77 is not credible. Nor is his evidence that If I had my time over, I d be a much wiser man. 78 It must have been obvious to Wilkinson at the time that he signed the cheques that he should not sign them. They were cheques intended to pay a large amount of money for the personal benefit of a director, in circumstances where no Board or member approval had been obtained and there was no possible benefit to SCRGAL. Wilkinson s statement that it was not his function to inform the Board about the transaction is unacceptable. 79 He was employed by SCRGAL as an in-house solicitor, he was a cheque signatory, and he was asked to participate in an unlawful transaction. He plainly had a duty to refuse to sign the cheques, and to inform the Board. 48 The probability is that Wilkinson agreed to sign the cheques loaning money to Purvis because Purvis had agreed to lend Wilkinson $ Final Report of the Royal Commission into the Building and Construction Industry

193 The letter dated 23 January Purvis claimed to have written a letter to Wilkinson on 23 January 2001 in relation to the loans made to Purvis by SCRGAL on 18 January The letter, which was marked to indicate that it had been copied to Mr Des Robinson, internal accountant of Sunshine Coast Regional Group Apprentices Ltd, and Mr Kevin Hoiberg, then auditor of Sunshine Coast Regional Group Apprentices Ltd, recounted that Purvis had agreed to purchase Grosse s share of 16 Church Street. It then continued: Would you please attend to the following on my behalf: 1. Execution of a contract and transfer between AKJ and myself to reflect the above. 2. Execution of a mortgage over the property in favour of SCRGAL for the sum of $266,773 against a value of $300, Creation of loan agreement between SCRGAL and Rob Purvis. 4. Should additional security be required, I am also prepared to offer a charge over my superannuation (approx $300,000), and a first mortgage over Lot 3, 17 Grant Street Buderim (est value $140,000) 5. I also accept that interest may be chargeable on this loan at a commercial rate. 6. I also accept a repayment programme to reduce the debt if required. Would you please inform me of what you require me to do to complete this? An attempt was made by Purvis and Hoiberg to give the above letter to Robinson in or about October Robinson was told by Purvis or Hoiberg that the letter had just been prepared and back-dated to 23 January He refused to be involved in the deception. Hoiberg told Robinson Don t worry, you won t be asked if the contents of the memo are correct, you will only be asked if you received a copy of the memo Purvis asserted that the letter dated 23 January 2001 was handed to Wilkinson on or about that date, and that he (Purvis) did not keep a copy. He then asserted that the letter that he tried to give to Robinson in or about October 2001 was not a direct copy of that letter but was prepared at a later date as a reproduction or facsimile of the original. He stated that the purpose of its reproduction was for Robinson to prepare a loan agreement That evidence is not credible and is rejected, because: (a) (b) Purvis could not have reproduced a full page letter some 9 months after it was written in circumstances in which he had not kept a copy. The task would, at best, have been one of reconstruction. It was misleading to date the letter 23 January 2001 and to mark it as having been copied to Hoiberg and Robinson in circumstances when, on Purvis own account, that did not occur (as on his version of events the only copy was given to Wilkinson in January, meaning no copies were given to Hoiberg or Robinson at that time); there was plainly no need to reproduce and back-date a letter in order to assist Robinson in the task of preparing a loan agreement. All that would have been required for that purpose was for Purvis to tell Robinson the terms of the loan; Reform Funds 187

194 (c) Purvis stated that another purpose of the document (presumably being the reproduction of the letter of 23 January 2001) was that it was to be given to Wilkinson for the purposes of hopefully goading him into entering into a formal loan agreement with the company, which he has [sic] resisted to that time in relation to the $ loan to him. There is no logical reason why giving Wilkinson a copy of a letter that he had already been given in January would have goaded him into entering into a loan agreement in relation to his own loan of $ In so far as there is any logical connection between the reproduction and the loan to Wilkinson, it is more likely to be that a letter that Wilkinson had not previously been given, which was backdated, would goad him into action of some sort. In any event, the evidence is that the reproduction was not given to Wilkinson, 85 so it could not have had the effect of goading him to do anything. 53 Purvis evidence in relation to the letter dated 23 January 2001 is plainly false. It reveals him to be a witness of little credit. That evidence, taken together with the circumstances of his nonattendance before the Commission leads to the conclusion that, where Purvis evidence conflicts with that of others, it generally should not be accepted. 54 The creation of the letter dated 23 January 2001 reveals that Purvis was aware that the loan made to him by SCRGAL was improper. His back-dating of the letter is an attempt to suggest that, right from the time the loan was made, Purvis intended to provide security and that he was prepared to pay interest. That was likely done in order to make it appear that he had not abused his position as a director. Plainly, however, the loan was not governed by any such terms, as the letter was false. The loan agreement 55 On 8 October 2001 Purvis signed a short loan document acknowledging a loan to him of $ from SCRGAL (the Loan Agreement). Purvis signature on the Loan Agreement was witnessed by Robinson. 56 The Loan Agreement did not specify any repayment terms. It did, however, record Purvis agreement that the directors of SCRGAL may at their discretion charge interest on the outstanding balance, and it stated that the balance of the loan was repayable if Purvis employment with SCRGAL was terminated by either himself or SCRGAL. It also stated that security is provided in respect of this loan on the basis that this document will transfer ownership of the property 16, Church Street Maroochydore Qld 4556 to SCRGAL should I fail to repay the balance outstanding by 31st March There was no evidence of any interest being paid by Purvis as at the conclusion of the Review. 87 Nor had the balance of the loan been repaid, notwithstanding that Purvis employment with SCRGAL terminated in December Furthermore, despite the fact that the loan was not repaid by 31 March 2002, ownership of 16 Church Street had not been transferred to SCRGAL The Loan Agreement has thus been of little practical value. Despite this, in February 2002 Purvis asked Robinson to agree that his signature on the Loan Agreement was conditional upon Wilkinson and Grosse signing similar agreements in relation to loans that SCRGAL had made to them. Robinson refused, saying that he believed Purvis had signed the agreement because it was the only way to do things properly. 89 Robinson received a telephone call the 188 Final Report of the Royal Commission into the Building and Construction Industry

195 next morning from Purvis solicitor in which he was told how important it was for Purvis to establish that the Loan Agreement was signed only to put pressure on Wilkinson and Grosse. Purvis s solicitor also asked Robinson to sign a statutory declaration to that effect, but Robinson refused. 90 These events lend further weight to the conclusion that Purvis is generally a witness of little credit. The cheque to Grosse 59 The third SCRGAL cheque prepared on 18 January 2001 was a cheque for $ made out to Grosse. It was the payment for Grosse s half share of 16 Church Street. Grosse was given that cheque by Wilkinson. She asked Wilkinson why the payment was being made by a SCRGAL cheque, rather than by a cheque from Purvis. Wilkinson told her that it represented bridging funds until the next week, when Purvis would obtain a loan from Suncorp Metway. 91 Grosse said that she believed that Purvis was going to repay SCRGAL for this loan after he obtained a loan from Suncorp Metway in his own name, so she banked the cheque. 92 There is no basis for rejecting that evidence. 60 It follows that, notwithstanding that the cheque for $ was made payable to Grosse, that cheque was in fact a loan to Purvis. 93 Robinson explained this to both Purvis and Grosse. 94 Despite this, there was no mention in the Loan Agreement signed by Purvis of the loan for $ Purvis did, however, implicitly acknowledge the existence of that loan in the letter dated 23 January 2001 that is quoted above, as he instructed Wilkinson to arrange a mortgage of $ over the Church Street property. 61 Despite that acknowledgment, in or about October 2001 Purvis instructed Robinson to prepare a loan agreement for Grosse to sign in relation to the $ cheque. 95 That was done but, unsurprisingly, Grosse refused to sign that agreement. She stated, quite reasonably, that that amount was a debt owed to SCRGAL by Purvis. 96 Purvis attempt to have Grosse sign a loan agreement in relation to the $ payment was dishonest. The loan to Wilkinson Wilkinson s refusal to acknowledge the loan 62 On 18 January 2001 the same day on which Wilkinson counter-signed two cheques on behalf of Purvis in relation to 16 Church Street, SCRGAL made a loan to Wilkinson of $ The cheque to Wilkinson was the cheque between the two cheques relating to the loans to Purvis. 97 No loan agreement was prepared in relation to the loan to Wilkinson at that time. 63 In September and October 2001 Robinson made a number of attempts to have Wilkinson sign a loan agreement to document and acknowledge the $ loan to him. 98 Wilkinson refused to sign such an agreement On about 5 October 2001, following Wilkinson s refusal to sign a loan agreement, Grosse asked Robinson and Hoiberg whether they could write the loan to Wilkinson off and transfer the amount to a salary bonus. 100 Wilkinson denied that this was done at his instigation. 101 Hoiberg apparently objected to writing the loan off, because of the fringe benefits tax implications for SCRGAL of doing so. 102 The loan was, however, written off, although that decision was subsequently reversed. 103 Reform Funds 189

196 65 On 11 October 2001 Purvis sent a memo to Wilkinson which read, in part: Subject: Loan/Advance N. Wilkinson I refer to the above advance to you by SCRGAL. This was advanced to you by way of loan, but as no documentation exists on this, the auditor has asked how this amount should be shown. The accounting alternatives are as follows: 1. Disclose this as a secured loan from SCRGAL to an employee. To do this, you must comply with Loan Documentation which is acceptable to the Directors of this company. This is in keeping with every other person who received this type of advance and have agreed to submit documentation and security adequate to the Directors. It is only reasonable that the company have the same expectation of you. 2. However, you have stated that you do not have assets and you will not sign the appropriate Loan Documentation. Therefore the auditor question s [sic] the recoverability of this debt and it will have to be treated as a non recoverable amount. Consequently, SCRGAL will have to recognise that you will not repay the sum and they will never receive the money back. Therefore, we are advised that we must show this amount as a fringe payment to you and the company will be liable to pay fringe benefit tax of approximately $26,000. As a result of this meeting with Alison, D Robinson and K Hoiberg it has become apparent that SCRGAL are exposed to certain Taxation complications because of your failure to sign Loan Documentation acceptable to this company. This is not acceptable and to protect this company s interests I offer you the following options: 1. Comply with an Agreement prepared by SCRGAL which acknowledges your debt, provides SCRGAL with an acceptable security against that debt and a planned repayment program. 2. The money you received will be classified as an advance payment against your salary and no further salary will be paid to you until the advance is paid in full. SCRGAL will pay the additional PAYG Tax on your behalf Probably after the above memorandum was sent, a heated meeting took place between Wilkinson and Purvis. Robinson said that he could overhear part of that meeting, as he was in the next room. He said that Purvis was trying to get Wilkinson to agree that he would repay the money, but that he did not think Wilkinson had any intentions of doing that at all. 105 The loan agreement 67 Wilkinson did ultimately sign a loan agreement. Wilkinson s signature on that document was not witnessed. The loan agreement was dated 20 September 2001 but that date is almost certainly incorrect in light of both Wilkinson s oral evidence 106 and the fact that the 190 Final Report of the Royal Commission into the Building and Construction Industry

197 5 October meeting and the 11 October 2001 memorandum do not make sense if Wilkinson had signed a loan agreement weeks earlier. Wilkinson said he believed that he signed the loan agreement on 1 October 2001 but he did not account for why he was able to identify that date, which is similarly inconsistent with the other evidence In the loan agreement that he ultimately signed, Wilkinson acknowledged receipt of the sum of $ from SCRGAL on 18 January The loan agreement stated that that amount would be repaid as agreed. It stated that security would be provided as agreed. 108 The agreement Wilkinson was asked to sign was in the standard form prepared by Robinson, but Wilkinson deleted the clause that stated that SCRGAL may, at its discretion, charge interest on the outstanding balance. 109 He also deleted the clause that stated that the balance would be repaid if he left SCRGAL s employment. 69 Wilkinson was abrupt and inclined not to answer any questions when asked about the $ loan by Partridge during the course of the Review. 110 All he was prepared to say was that the loan related to an agreement between himself and Purvis. He refused to give any information about the content of that agreement to either Partridge or Robinson, 111 even when specifically questioned about it Wilkinson was asked before the Royal Commission why he had been loaned $ by SCRGAL. His answer was, Because I wanted $ loaned to me. I needed $ to refinance some other debts I had. 113 He said that he simply asked Purvis for the loan, and Purvis agreed When asked why he sought a loan from SCRGAL, rather than a bank, Wilkinson said I asked, as others had done before, and I was given it. 115 That answer reveals Wilkinson s stated unhappiness with the manner in which SCRGAL was run by Purvis to be false and selfserving. 116 Wilkinson was happy to take advantage of irregular practices in SCRGAL s operations, including interest-free unsecured loans with no repayment schedules, for his personal benefit. It would have been hypocritical for him to disapprove of others doing the same. 72 Wilkinson said that the details of the loan were agreed with Purvis. 117 A short time later, however, he said that no repayment arrangements were discussed, and no security arrangements were discussed, at the time the loan was made. 118 Even though his and Purvis actions involved almost $ of SCRGAL s money, Wilkinson said of the discussion about the loans that it was not a legal occasion and that it was not being addressed in a legal fashion When asked why he wrote as agreed in the loan agreement, if the relevant matters were not the subject of agreement between himself and Purvis, he said I suppose it was my way of letting Rob know that he and I had not discussed those matters. There was nothing agreed. 120 In other words, Wilkinson s evidence was that he wrote as agreed to signify nothing agreed. That explanation is absurd. 74 Wilkinson claimed that the only term of the loan by SCRGAL to him that he agreed with Purvis was that he would repay the loan if he ever left SCRGAL s employment. 121 I reject that evidence, as among the clauses of the standard form contract that Wilkinson eventually signed, he deleted a term that stated that the outstanding balance would be repaid if his Reform Funds 191

198 employment with SCRGAL terminated. He said that was done through inadvertence. 122 It is clear, however, that he directed his attention to each clause of the contract, deleting two of them, and writing as agreed in relation to the other two. 75 It is likely that Wilkinson deleted the clause concerning repayment of the loan were he to leave SCRGAL because he modified the standard form agreement in an endeavour to ensure that it created no obligations whatsoever. 123 Having been forced to document the loan in order to stop his salary being diverted by Purvis to repay of the loan, he intentionally documented it in a way that created no obligations at all. 76 The loan remains outstanding, and no new loan agreement has been created. Wilkinson still has not provided SCRGAL with security in relation to the loan, and no interest is being charged. 124 As at the date of the conclusion of the Review, no repayment schedule was in place. 125 Wilkinson started making repayments of the loan only in about early September 2002, well after the Commission s investigation of SCRGAL was known to that company. Repayments are being deducted from his salary at the rate of $100 per week. 126 At that rate, it will take approximately five years for Wilkinson to repay the loan Wilkinson was asked whether his contract of employment provided for a performance bonus. He said, My contract of employment definitely does not provide for bonuses to be paid; neither then nor now. 128 Wilkinson was then shown a letter that he sent to the Board on 3 July 2002 in accordance with a direction given to me by the Chairperson, Alison Grosse. Attached to that letter was a flying minute relating to four Motions. 129 Motion 3 was in the following terms: That the board secretary Mr Wilkinson be immediately paid his outstanding performance bonus of $15,000, as per his existing contract, based on the attached PERFORMANCE INFORMATION SUPPLIED. [The capitalised words were added in handwriting] Robinson asked one of the Directors (Dixon) and the acting CEO (Peters), whether any of Wilkinson s performance bonus was to be put towards his loan. Peters went to the Board and asked that question, and he was told that it was not to be used to reduce the loan, and was to be paid to Wilkinson. 131 Wilkinson said he was not aware of any suggestion that his performance bonus should be put towards the repayment of his loan That evidence is surprising, and does not reflect well on the current Board, which passed up an opportunity substantially to reduce an irregular loan which continued to exist on interest free and security free terms. Indeed the decision not to set off the bonus against the loan, together with the decision not to charge interest on the loan, raises questions about the extent to which the new Board is unduly influenced by Wilkinson and, perhaps, Grosse, 133 in its decisions concerning the proper administration of SCRGAL. The loans to Purvis and Wilkinson Corporations Law: Improper use of position 80 As at 18 January 2001 when the loans to Purvis and Wilkinson were made, the Corporations Act 2001 (C wth) had not yet come into operation. 134 The relevant law was found in the Corporations Law (C wth), s182 of which was identical to the current s182 of the Corporations Act 2001 (C wth). The section provided that: 192 Final Report of the Royal Commission into the Building and Construction Industry

199 (1) A director, secretary, other officer or employee of a corporation must not improperly use their position to: (a) (b) gain an advantage for themselves or someone else; or cause detriment to the corporation. Note: This subsection is a civil penalty provision (see section 1317E). (2) A person who is involved in a contravention of subsection (1) contravenes this subsection. 81 The term director was defined in the Corporations Law (C wth) to include persons who act in the position of a director. 135 Consequently, whether or not Purvis was validly appointed as a director, and whether or not he had lost that position by reason of the operation of SCRGAL s Articles of Association, 136 his conduct is caught by s182 of the Corporations Law (C wth). 82 As at 18 January 2001 Wilkinson was an employee of SCRGAL. He was therefore bound by s 182 of the Corporations Law (C wth). 83 In relation to the element of s 182 that relates to the improper use of position, the High Court has held that the test is an objective one. Impropriety does not depend on an alleged offender s consciousness of impropriety. Impropriety consists in a breach of the standards of conduct that would be expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstances of the case. Impropriety is not restricted to abuse of power. It may consist in the doing of an act which a director or officer knows or ought to know that he has no authority to do It is a breach of s182 to cause a company to enter into an agreement which confers unreasonable personal benefits on a director (and, presumably, on an officer or employee) The standards of behaviour which the law applies to directors do not depend upon the directors awareness of those standards. 139 Impropriety is not limited to conscious impropriety, so a director of a company may act improperly with no intention of acting dishonestly or otherwise than in the best interests of the company as a whole No regard was had by either Purvis or Wilkinson to the best interests of SCRGAL. There was no possibility that the loans made on 18 January 2001 would benefit SCRGAL in any way. Both Purvis and Wilkinson must have known that they did not have authority to make the loans, and if they did not know that, they ought to have known it. That is sufficient for the purposes of s By deciding to lend himself $ of SCRGAL s money, without providing any security, without agreeing to any repayment schedule, and on interest-free terms, Purvis improperly used his position as a director of SCRGAL to gain an advantage for himself. 88 Having regard to the provisions of s182 of the Corporations Law (C wth) and the findings set out in paragraph 87 above, on the material before me, I am satisfied that Robert Purvis, at the relevant time the Managing Director of Sunshine Coast Regional Group Apprentices Ltd, has engaged in unlawful conduct. Reform Funds 193

200 89 Wilkinson, by assisting Purvis in securing this loan, and by co-signing the relevant cheques, improperly used his position as either an officer or employee of SCRGAL to gain an advantage for someone else, in contravention of s182. In addition, Wilkinson was involved in Purvis contravention of s182, as he signed the relevant cheques, and he therefore acted contrary to s182(2) on that basis also. 90 Having regard to the provisions of s182 of the Corporations Law (C wth) and the findings set out in paragraph 89 above, on the material before me, I am satisfied that Neil Wilkinson, at the relevant time an employee of Sunshine Coast Regional Group Apprentices Ltd, has engaged in unlawful conduct. 91 Wilkinson, by seeking and obtaining a loan for himself of $ from SCRGAL, with no security provided, no repayment schedule, and on interest-free terms, improperly used his position as an officer or employee of SCRGAL to gain an advantage for himself Having regard to the provisions of s182 of the Corporations Law (C wth) and the findings set out in paragraph 91 above, on the material before me, I am satisfied that Neil Wilkinson, at the relevant time an employee of Sunshine Coast Regional Group Apprentices Ltd, has engaged in unlawful conduct. 93 Purvis, by assisting Wilkinson in securing a loan of $25 000, by co-signing the relevant cheques, improperly used his position as a director of SCRGAL to gain an advantage for someone else, in contravention of s182. In addition, Purvis was involved in Wilkinson s contravention of s182, and thus further acted contrary to s182(2) on that basis. 94 Having regard to the provisions of s182 of the Corporations Law (C wth) and the findings set out in paragraph 93 above, on the material before me, I am satisfied that Robert Purvis, at the relevant time the Managing Director of Sunshine Coast Regional Group Apprentices Ltd, has engaged in unlawful conduct. Corporations Law: The provision of financial benefits to related parties 95 As at 18 January 2001 s208 of the Corporations Law (C wth) (which is identical to the current s208 of the Corporations Act 2001 (C wth)) provided that: (1) For a public company to give a financial benefit to a related party of the public company: (a) the public company must: (i) (ii) obtain the approval of the public company s members in the way set out in sections 217 to 227; and give the benefit within 15 months after the approval; or (b) the giving of the benefit must fall within an exception set out in section 210 to Section 209(2) of the Corporations Law (C wth) provided that a person contravenes this subsection if they are involved in a contravention of section 208 by a public company or entity. Section 209(2) is a civil penalty provision. The term involved is defined in s79 of the 194 Final Report of the Royal Commission into the Building and Construction Industry

201 Corporations Law (C wth) to include activities that aid, abet, counsel or procure a contravention. Signing a cheque obviously constitutes involvement. 97 By reason of s 228(2)(a) of the Corporations Law (C wth), a related party of a public company includes directors of that company. Purvis was, therefore, a related party of SCRGAL. 98 Section 229 of the Corporations Law (C wth) directs that a broad interpretation be given to financial benefit in determining whether a financial benefit has been given for the purposes of s208, and it provides that an example of giving a financial benefit is giving or providing the related party finance or property. 99 None of the exemptions in sections 210 to 216 of the Corporations Law (C wth) apply. In particular, the loan to Purvis was not on arms length terms (s210), given that it was interest free and no security was provided. 100 There is no suggestion that the loan to Purvis was approved by the members of SCRGAL in accordance with s It follows that the $ that SCRGAL loaned to Purvis involved SCRGAL giving a financial benefit to a related party contrary to s208 of the Corporations Law (C wth). Both Purvis and Wilkinson were involved in that contravention, as they both signed the cheques to loan the money to Purvis. 102 Having regard to the provisions of s208 and s209(2) of the Corporations Law (C wth) and the findings set out in paragraph 100 and 101 above, on the material before me, I am satisfied that Robert Purvis, at the relevant time the Managing Director of Sunshine Coast Regional Group Apprentices Ltd, and Neil Wilkinson, at the relevant time an employee of Sunshine Coast Regional Group Apprentices Ltd, have engaged in unlawful conduct. 19 Cootamundra Drive Background and valuations 103 In August 1990 SCRGAL s then directors approved an offer of $ for a property at 19 Cootamundra Drive, Mountain Creek, Mooloolaba (the Property). 142 In October 1990 SCRGAL purchased the Property for approximately $ SCRGAL purchased the Property so that apprentices from SCRGAL could keep themselves occupied by working on it during periods of low availability of work. 144 Work was apparently undertaken on the Property over a number of years. SCRGAL s accounts record progressive increases in the value of the renovations done at the Property in each year between 1991 and There was not, however, any documentation in relation to the way in which apprentice time had been costed. 145 By 30 June 1996 SCRGAL s accounts recorded the value of renovations undertaken at the Property at $ At the same date, the Property was valued on SCRGAL s books at $ In June 1996 a valuation of the Property was obtained by SCRGAL from Rafter & O Hagan, a Sunshine Coast real estate agent. Rafter & O Hagan noted that, at that time the valuation was performed, the market was in a recessionary phase. Rafter & O Hagan described the Property as one of the poorer houses in a reasonably good street, 147 and valued it at $ Reform Funds 195

202 That valuation valued the land at $ and the building and other improvements at $ SCRGAL s accounts for the year ended 30 June 1998 valued the Property at a directors valuation of just $ , a drop of over $ No explanation was provided to the Commission as to how the directors arrived at that valuation, although Partridge asked both Purvis and Hoiberg to explain the revaluation. 150 While all of the properties owned by SCRGAL were recorded in SCRGAL s accounts for the year ended 30 June 1998 at directors valuations, the Property was the only one of SCRGAL s properties to have its value revised down substantially In August 1998 a few months after the downward revision of the Property s value by SCRGAL s directors, Purvis again requested Rafter & O Hagan to value the Property. On this occasion, however, Rafter & O Hagan was asked to value the vacant land only, and to ignore the improvements. 152 On that basis, Rafter & O Hagan provided a valuation of $ On 16 October 1998 the Property was inspected by Jon Herriot, a builder associated with SCRGAL. Herriot sent his report to SCRGAL marked to the attention of Purvis. 154 Herriot indicated that the Property was in very poor condition, and that it would cost $ to make it saleable, and $4000 to make it habitable. He recommended demolition of the house, which he said would cost $ Sale to Grosse 109 On 24 December 1998 Grosse entered into a contract to purchase the Property from SCRGAL. The purchase price was $ The purchase price set by SCRGAL was not supported by any valuation of the Property. 110 Purvis denied obtaining valuations or other evidence to substantiate the sale price of the Property. 157 I reject that denial, given that the two reports outlined above, both of which occurred within months of the sale of the Property to Grosse, were arranged by him. 111 At the time of her purchase of the Property from SCRGAL, Grosse believed that she was, and acted as, both a director of, and the chairperson of, SCRGAL Grosse s evidence was that she did not have any day to day involvement in her purchase of the Property from SCRGAL, as the transaction was handled by Purvis. She said that she stepped back from the purchase of the property and any approval required by SCRGAL so that there could be no allegation of impropriety in the handling of the purchase of the property There is no evidence that the sale of the Property to Grosse was ever considered or approved by the Board or by the members of SCRGAL. 160 Grosse said that she did not know whether the Board had approved the sale, but that she assumed that Purvis had obtained whatever Board approval was necessary. 161 At the time of her purchase of the Property, the Board had only three members (Purvis, Grosse and Mr Barry McDonald 162 ), and it rarely met. 163 Grosse s evidence that she assumed Board approval had been obtained cannot be accepted, because she would have known about any Board meeting that occurred. 114 Grosse said that the $ that she paid for the Property was based on an evaluation conducted by Rafter & O Hagan and another written opinion of Registered Builder, Jon Herriot. 196 Final Report of the Royal Commission into the Building and Construction Industry

203 She said, however, that she did not see the valuations before she purchased the Property, 164 and that she did not ask to see them. 165 Those two opinions did not in fact support the price paid by Grosse for the Property. If Herriot s opinion was accepted, the Property was worth only approximately $ ($ for the land, minus $ to demolish the house). That opinion should not, however, be accepted, as Herriot s view that it would require $ to make the house saleable was clearly inconsistent with Rafter & O Hagan s view. It was also inconsistent with Grosse s view (as she purchased the Property without any intention to demolish the dwelling), 166 and inconsistent with the subsequent sale of the Property for a substantial capital gain without any extensive renovation work having been done. Rafter & O Hagan s second valuation provided no basis for the $ figure, as it made no reference to the house, being a valuation of the land only. 115 If Rafter & O Hagan had been asked to value the land and house in August 1998, the value given would have been around $ , or $ more than Grosse in fact paid. 167 When it was put to Grosse that she had acquired the Property for $ less than it was worth at the time, she said It could possibly be so. That s the luck of the draw with every bit of real estate, isn t it? 168 I reject that explanation. The Property was not offered for sale on the open market. It was offered for sale to the then Chairperson of the company. There was no element of luck involved in the fact that Grosse acquired the Property for well less than its market value. That was, instead, a direct result of the steps taken by Purvis and Grosse to have SCRGAL sell the Property to Grosse. Registration of the transfer of title 116 Wilkinson, who at the relevant time was not yet an employee of SCRGAL, acted for both SCRGAL and Grosse in the sale of the Property. 169 Settlement took place on 19 February The Property did not thereafter appear on SCRGAL s books Title to the Property was never transferred from SCRGAL to Grosse. 172 Grosse could not explain why that was the case. 173 She said that she was not aware that the sale was not registered at the time of the transaction In February 2000 some 12 months after the sale of the Property to Grosse, Wilkinson wrote a letter addressed To whom it may concern. In that letter, Wilkinson stated that for various business and other reasons which are personal to my client, the transfer has not be registered in the Titles Office. 175 During the Review, Partridge asked Wilkinson why the transfer had not been registered. He adopted the attitude that it was none of her business, and that the title was not transferred for private reasons When giving evidence to the Royal Commission, Wilkinson said that he could not recall what reason there was at the time of the transaction which precluded proceeding along the normal path. 177 Wilkinson agreed that Grosse did not instruct him not to register the transfer. 178 He then attempted an explanation, apparently directed to a later point in time, by stating that he was unwilling to allow Grosse to sign a declaration for stamp duty purposes that the Property was acquired by her as her principal place of residence, due to the need for her to move regularly to conceal her location from Purvis. 179 That explanation stretches credibility. Even if true, it does not explain why the transfer of title was not registered at the time Grosse Reform Funds 197

204 purchased the Property because, at that point in time, Grosse had told Wilkinson that she intended to live in the house. 180 That is consistent with Grosse s evidence that when she purchased the house she intended to live in it. 181 She did not intend to demolish it. 182 She could, therefore, have signed the stamp duty declaration at that time. 120 In the ordinary course of events, as the solicitor responsible for the conveyance of the land, Wilkinson should have registered the transfer of title. It is likely the transfer was not registered in order to conceal the fact that a related party transaction had occurred in which Grosse had acquired an asset from SCRGAL at a substantial undervalue in breach of the Corporations Law (C wth). Sale by Grosse 121 In January 2001 Grosse entered into a contract to sell the Property. The sale price was $ There was evidence that property in Mooloolaba had increased substantially in the period following Grosse s purchase of the Property Settlement occurred in February The property was transferred directly to the third party purchaser from SCRGAL, and the transfer documentation was signed by Purvis and Grosse and witnessed by Wilkinson Wilkinson acted for Grosse in the sale of the Property. Land tax had accrued during Grosse s period of ownership of the Property, and that tax had been charged to SCRGAL because the transfer of title had not been registered. 186 At the time of the sale of the Property by Grosse, SCRGAL had not paid its land tax bill in relation to any of its properties, and its tax bill at that time totalled approximately $8056. That outstanding land tax was holding up the sale of the Property by Grosse. 187 Wilkinson, while employed by SCRGAL but acting for Grosse, arranged for SCRGAL to pay its outstanding land tax bill (including the amount of land tax charged to SCRGAL in respect of the Property). 188 SCRGAL did not seek to recover from Grosse the amount that it paid in respect of the land tax in relation to the Property By authorising the use of SCRGAL s assets to pay tax that should have been paid by Grosse and by not recovering the relevant amount from Grosse, Wilkinson improperly used his position as an officer or employee of SCRGAL for the financial benefit of another (Grosse). 125 Having regard to the provisions of s209(2) of the Corporations Law (C wth) and the findings set out in paragraph 124 above, on the material before me, I am satisfied that Neil Wilkinson, at the relevant time an employee of Sunshine Coast Regional Group Apprentices Limited, has engaged in unlawful conduct. Submissions in relation to 19 Cootamundra Drive Corporations Law: Improper use of position 126 When Grosse purchased the Property from SCRGAL in December 1998, s182 was not in force. The relevant provision was s232(6) of the Corporations Law (C wth), which provided that: An officer or employee of a corporation must not, in relevant circumstances, make improper use of his or her position as such an officer or employee, to gain, directly or 198 Final Report of the Royal Commission into the Building and Construction Industry

205 indirectly, an advantage for himself or herself or for any other person or to cause detriment to the corporation. 127 As is apparent, s232(6) of the Corporations Law (C wth) is not materially different from the current s182 of the Corporations Act 2001 (C wth). 128 As the long time chairperson of SCRGAL, Grosse ought to have known that she did not have the right to purchase the Property from the company. That is sufficient for her use of her position to be improper The price paid by Grosse for the Property was well below market value at the time of the sale. 191 Grosse was in a position to purchase the Property from SCRGAL because she was a director of SCRGAL. The sale of the Property to her involved her in using her position to gain an advantage for herself contrary to s232(6) of the Corporations Law (C wth). 130 Having regard to the provisions of s232(6) of the Corporations Law (C wth) and the findings set out in paragraphs 128 and 129 above, on the material before me, I am satisfied that Alison Grosse, at the relevant time the Chairperson and a director of Sunshine Coast Group Regional Apprentices Limited, has engaged in unlawful conduct. Corporations Law: The provision of financial benefits to related parties 131 The relevant law, as it applied in late 1998 and early 1999, at the time Grosse purchased the Property from SCRGAL, was contained in ss 243A to 243ZI of the Corporations Law (C wth). 132 Grosse was, as a director of SCRGAL, a related party. 192 Selling an asset to a related party is a classic example of a company conferring a financial benefit. 193 That is obviously so if, as here, the Property was sold at approximately $ less than its market value, but even if the sale had been at close to the true market value the sale would still have involved a financial benefit 194. The question then would have been whether the sale was at arms length. On the facts of the sale by SCRGAL to Grosse, that question would clearly be answered in the negative. 133 The approval of the members of SCRGAL was not obtained in relation to the sale of the Property to Grosse, and none of the possible exemptions apply. 195 It follows that the sale of the Property by SCRGAL to Grosse took place in contravention of s243h(1) of the Corporations Law (C wth). 134 Having regard to the provisions of s243ze(2) of the Corporations Law (C wth) and the findings set out in paragraphs 132 and 133 above, on the material before me, I am satisfied that Alison Grosse, at the relevant time the Chairperson and a director of Sunshine Coast Group Regional Apprentices Limited, has engaged in unlawful conduct. 135 Having regard to the provisions of s243ze(3) of the Corporations Law (C wth) and the findings set out in paragraphs 132 to 134 above and the fact that Purvis was involved in that contravention, on the material before me, I am satisfied that Robert Purvis, at the relevant time the Managing Director of Sunshine Coast Group Regional Apprentices Limited, has engaged in unlawful conduct. Reform Funds 199

206 SCRGAL s entitlement to recover funds from Grosse 136 Grosse s purchase of the Property from SCRGAL was in breach of her duties to that company under the Corporations Law (C wth). 137 If not for her purchase of the Property from SCRGAL in breach of her duty, SCRGAL would have owned the Property during the period in which house prices in Mooloolaba increased substantially, and it would therefore have received the benefit of the $ capital gain made by Grosse from her dealings with the Property. 138 No steps have been taken by SCRGAL to recover that gain from Grosse SCRGAL is, however, entitled to recover the full amount of the profit made by Grosse as a result of her purchase of the Property from SCRGAL in breach of her duty. That right arises under both the Corporations Law (C wth) 197 and under the general law principles relating to the recovery of profits from a fiduciary SCRGAL should take steps to recover the capital gain from Grosse. The Department should take any steps that are available to it to encourage SCRGAL to seek to recover that capital gain. The Male Superannuation Fund 141 In May 2001 SCRGAL created a superannuation fund known as the Male Superannuation Fund (the Fund). 142 The trustee of the Fund is Tristam Pty Ltd. Tristam Pty Ltd has two directors, Purvis and Wilkinson. The Fund s only member is Purvis In June 2001 SCRGAL deposited $ into the Fund. In July 2001 SCRGAL deposited a further $ into the Fund. 200 At least one of the cheques was signed by Purvis and Wilkinson According to Purvis, the Fund was constituted by a minute of the Board of 14 May He said that this minute provided that, when an employee has reached a term of ten (10) years, they may be invited to become a member of the Fund. 203 Purvis stated that the persons who were eligible at the time were himself, Peters and Bacon. He said that the reason he was nominated first was simply that: for financial reasons, the fund had to be commenced and money paid in before the end of the 2001 financial year. So as the senior member, I was placed in first and in January 2002 the other members would be added. Following my dismissal, I understand that this did not happen Purvis explanation cannot be accepted. There is no reason why all three eligible members could not have been placed into the Fund at the same time. If logistical difficulties prevented that, the other members could have been added shortly after Purvis. Purvis did not explain why the additional members were not to be added until January. 146 Robinson s evidence was that he was never aware of any suggestion that there would be any members of the Fund other than Purvis. 205 Purvis asked Robinson at one point to tell him the 200 Final Report of the Royal Commission into the Building and Construction Industry

207 maximum amount that could be put into his superannuation, which Robinson took to be a question about the maximum amount that could be paid before additional tax was required. He told Purvis that he thought the relevant amount was $ That line of questioning, and the fact that two payments were made, each of approximately $ , just either side of the end of a financial year, is consistent with the conclusion that Purvis intended all of the money to be for the benefit of one person. 147 SCRGAL sought advice from its accountants as to whether the contributions made by it to the Fund can be cancelled and the funds returned to SCRGAL. It was advised that they cannot be cancelled SCRGAL then requested the Australian Taxation Office (ATO) to sanction the return of the money in the Fund to SCRGAL. 208 Robinson gave evidence that the ATO has written to SCRGAL stating that the money can be refunded. The difficulty is, however, that the money in the Fund had been used to purchase a house, and before it is possible to sell the house the approval of Purvis and Wilkinson, the directors of the trustee, is required. That approval has not been forthcoming. 209 The $ therefore remains in the Fund, and Purvis remains the only member. 149 On the material before me, I am satisfied that Purvis procured the creation by SCRGAL of a superannuation fund of which he was the only member, and then arranged for SCRGAL to contribute $ into that fund during a period of just two months. 150 Having regard to the provisions of ss182 and 209 of the Corporations Law (C wth) and the findings set out in paragraph 149 above, on the material before me, I am satisfied that Robert Purvis, at the relevant time the Managing Director of Sunshine Coast Group Regional Apprentices Limited, has engaged in unlawful conduct. Fuel Cards 151 On 4 March 1999 a SCRGAL fuel card was issued in the name of A Floater. This fuel card was created as a result of instructions given by Purvis, 210 and its operation was controlled by him. 211 Purvis in fact controlled all of SCRGAL fuel cards, retaining the paperwork himself and providing Robinson only with total amounts to be entered into the accounts, not with any breakdowns of those amounts SCRGAL has never had an employee named A Floater. 213 Investigations conducted by Robinson led him to conclude that the A Floater card had been used to purchase fuel for Purvis, his wife, and a junior staff member. 214 Robinson concluded that the A Floater fuel card had been used heavily by Purvis wife Purvis stated that the A Floater card was initiated as a general office card for use where staff or other persons who had carried out work on behalf of the company could be reimbursed for their costs. The name A Floater was to designate that the card had a floating use. 216 He said that this was the reason the card was used to purchase various different types of fuel. Purvis admitted that the card was used by his wife, but he said that occurred only when he called on her to make journeys on behalf of SCRGAL. 217 Reform Funds 201

208 154 I reject Purvis evidence in relation to the A Floater fuel card. Purvis stated that the use of the card was known to the accountant, by whom he presumably means Robinson. 218 Robinson denied this, 219 and his evidence should be preferred to that of Purvis. Robinson appeared to be a witness of truth and he had no reason to lie. Purvis, by contrast, was not truthful Furthermore, the A Floater card was cancelled by Purvis on 27 November 2001, 221 just days before Purvis was suspended as the Managing Director of SCRGAL. Purvis decision to cancel the card just before his employment was suspended suggests that there was something irregular in relation to the operation of the card. If the existence of the A Floater fuel card really was well known, and it was for floating office use, Purvis would have been unlikely to cancel the card at a time when allegations were being made in the Sunshine Coast press about improper activities within SCRGAL. 156 On the material before me, I am satisfied that the A Floater fuel card involved the use of SCRGAL s resources by Purvis for his personal gain, or the personal gain of others chosen by him (including related parties). 157 Having regard to the provisions of ss182 and 209 of the Corporations Law (C wth), and the findings set out in paragraph 156 above, on the material before me, I am satisfied that Robert Purvis, at the relevant time the Managing Director of Sunshine Coast Group Regional Apprentices Limited, has engaged in unlawful conduct. Government response Queensland Department of Employment and Training 158 As a result of the Review, the Department recommended to SCRGAL that it undertake a number of reforms to its corporate business practices. It also nominated a departmental officer, Mr Peter McNeill, to sit on the Board of SCRGAL to oversee its operations. 222 McNeill reports to Mr John Hassed, the General Manager, Training Services, in the Department. 223 McNeill has taken some steps to help regularise SCRGAL s operations such as, for example, proposing a resolution that all outstanding loans be repaid The Department did not ask the existing Board of SCRGAL to stand down following the Review, because it received legal advice that it did not have the capacity to make that request, or to require a change to the Board Hassed said that the results of the Review of SCRGAL have brought about a re-think in the Department s approach to monitoring group training companies. There will now be an audit program introduced on a three-year basis, a reform which is consistent with the new national standards for group training organisations. The Department also intends to undertake spot checks on issues including governance arrangements. 226 The depth or detail of the audits to be conducted, and whether they will be undertaken by the Department itself or by external consultants, has yet to be determined Hassed stated that the Department did not have the tools available to it to rectify problems identified during the course of its audits. He said that the Department had to rely on other agencies that did have these tools, but that it was then a decision for them as to whether any action would be taken in relation to matters raised by the Department Final Report of the Royal Commission into the Building and Construction Industry

209 162 As a result of the Review, the Department did refer various matters concerning SCRGAL to: (a) (b) (c) the Australian Securities and Investments Commission (ASIC); the ATO; the Queensland Crime and Misconduct Commission; and (d) the Queensland Police Service Only the ATO took any steps as a result of those referrals. That was the case notwithstanding that the bulk of the investigative work in relation to SCRGAL had been done by the Department, and that clear breaches of the law had been identified. Australian Securities and Investments Commission 164 On about 8 February 2002 Partridge and Hassed met with Ms Jan Speirs, the Assistant Director Enforcement (North East) and Mr Neale Patterson from ASIC. At that meeting the Department briefed ASIC in relation to the preliminary findings from the Review, and about the Department s emerging concerns about breaches of the corporations legislation. The Department agreed to give ASIC a copy of the final report of the Review, which was in fact done On 18 April 2002 ASIC wrote to Grosse. It wrote: The following matters have been raised which are of concern to ASIC: 1. Wages, consultancy fees and other expenses have been paid to SCRGAL officers contrary to the company s constitution; 2. No financial accounts were provided to members with respect to the 2001 Annual General Meeting; 3. Members have not been provided with copies of financial accounts in prior years; 4. Failure to hold Annual General Meetings for prior financial years; 5. Appointment of Directors at the 3 December 2001 Annual General Meeting contrary to the terms of the company s Constitution; and 6. Lack of corporate governance by the Board of Directors ASIC then set out a number of provisions of the Corporations Act 2001 (C wth) that may have been contravened by SCRGAL or its directors, and the possible penalties for breach of these provisions, before concluding: Please note that ASIC doesn t propose to take any proceedings against the company s Directors at this point in time, however, should ASIC become aware of further breaches of any of the provisions of the Act, then it may take such action as it deems appropriate On 29 April 2002 ASIC wrote to the Director-General of the Department. The letter stated, in part: Reform Funds 203

210 The review [meaning the Review] has referred to possible breaches of the Corporations Act by SCRGAL directors. ASIC has conducted enquiries into various aspects of the company s operations including, inter alia, the purchase and sale of a property at 19 Cootamundra Drive Mooloolaba; the holding of the company s Annual General Meeting on 3 December 2001 and subsequent adjournment to 31 January 2002; use of company funds by the Directors and corporate governance issues. Following these enquiries and consideration of the Department s report, ASIC has decided that it will not further investigate this matter. ASIC has taken into consideration the size of the transactions and the time that has elapsed in respect of some of the transactions that occurred in ASIC also considers that the proposed recommendations, if implemented by the Department, would prevent any continuing misconduct and a reconstituted Board would be in a position to consider pursuing any civil action for losses incurred as a result of the previous Board s actions The above is the extent of ASIC s explanation to the Department as to why it declined to take its investigations of SCRGAL forward, or to initiate any action against SCRGAL or its directors ASIC s response to the Review is surprising. It was presented with evidence of numerous breaches of the Corporations Law (C wth). Most of the investigative work had already been done. The breaches uncovered involved the complete breakdown of corporate governance, such that a public company in receipt of substantial public funding had not held regular board meetings for many years. The investigation revealed complete disregard for SCRGAL s constitution. It also revealed, among other things, the Managing Director and Chairperson of a company breaching their fiduciary and statutory duties in order to make substantial personal profit. Finally, and contrary to ASIC s letter to the Department, the problems identified were not particularly old, with the related party loans, for example, only just over 12 months old at the time they were referred to ASIC. 170 On the material before me, the conduct of Purvis, Wilkinson and Grosse breached s182 and s209 of the Corporations Law (C wth) or their equivalents under the earlier provisions of the Corporations Law (C wth). Those provisions are civil penalty provisions. While SCRGAL could seek a compensation order for breach of those provisions, only ASIC can seek a pecuniary penalty order or a disqualification order. 235 Prima facie, Purvis, Wilkinson and Grosse s conduct may have warranted their disqualification from managing companies for a period of time. ASIC s decision not to pursue the matter meant that this could not occur. 171 The Department rightly considered that it did not itself have the power to take action against the individuals involved in the maladministration of SCRGAL. ASIC did have that power and it is difficult to see why in the circumstances it would have declined to use it, in the face of conduct that completely disregarded the law ASIC is required to administer. It is not any answer for ASIC to indicate that the new Board can take action to recover SCRGAL s losses, because Grosse and Wilkinson remain in positions of influence within SCRGAL. The new Board has, as a consequence, begun litigation against Purvis, who has left the company, but it has done nothing in response to the various breaches of the law identified above that were committed by Wilkinson and Grosse. 204 Final Report of the Royal Commission into the Building and Construction Industry

211 172 ASIC, through one of its Commissioners, Professor Collier, gave evidence before the Commission of factors which it takes into account in determining whether to start proceedings. These factors included: (a) The resources required to be devoted to complete a formal investigation to: (i) (ii) Confirm all allegations or information contained in the DET Review and other relevant information identified from these further investigations; Convert all relevant information obtained to evidence in admissible form (by identification of documentary and oral evidence to support the allegations, the interview of witnesses, and drafting and settling of witness statements); (b) (c) (d) (e) (f) The likelihood that an adequate and appropriate enforcement outcome would be achieved; Whether any alternative remedy may be sought by third parties in relation to the alleged misconduct; Whether the matter involved serious corporate wrong-doing or serious risk or detriment to consumers; The competing demands for the allocation of investigative resources in the Queensland office; and ASIC s current regulatory and enforcement priorities. Presumably ASIC weighed these factors in relation to this matter and determined there were matters of greater importance to which to direct its resources. Australian Taxation Office 173 The Department raised a number of matters that it identified during the Review with the ATO. These matters included: (a) (b) (c) (d) consultancy payments that had been made by SCRGAL to Purvis and Grosse that had passed through SCRGAL s payroll system, in relation to which no tax had been deducted and where no supporting contracts or records demonstrated that any services had been provided; fringe benefits tax that had not been paid by SCRGAL in relation to interest-free loans, the home garaging and private use of motor vehicles, and the payment by SCRGAL for various forms of insurance for Purvis and Grosse; the payment of cash bonuses that had not gone through SCRGAL s payroll system; and possible undisclosed capital gains tax issues concerning the sale of 19 Cootamundra Drive The initial meeting between the Department and the ATO occurred on 24 April 2001, and involved Partridge, Mr Tim Maloney, the Director of Training Operations from the Department, and Mr McAuliffe, a Departmental officer from the Review team, meeting with two ATO Reform Funds 205

212 investigators. 237 There was a further meeting about 23 May 2002 at which the Department formally handed over information to the ATO. 175 The ATO conducted an investigation as a result of the matter referred to it by the Department. The evidence does not reveal the outcome of that investigation. It is not, therefore, possible to reach any conclusions in relation to the adequacy of the ATO s response to the matters raised in the Review. 238 Police and Crime and Misconduct Commission 176 Representatives of the Department met with the Queensland Crime and Misconduct Commission to discuss SCRGAL. That body had jurisdiction in relation to Grosse, as an elected member of a local council, but it took the view that the information provided by the Department did not relate to her activities as Mayor of Maroochy Shire. It therefore decided not to take action Representatives of the Department also met with the Queensland Police (Maroochydore CIB). No action was taken by the Queensland Police as a result of this meeting. 240 Conclusions 178 Notwithstanding the fact that the Review identified a large number of irregularities and apparent breaches of the law by SCRGAL and those associated with it, no authority with the power to take steps in relation to those breaches of the law has done so (with the possible exception of the ATO). 179 The Department has taken what steps it can to ensure that the breaches of the law identified during the Review do not continue in the future, but nothing has been done to hold persons who have breached the law accountable for their actions. That is unsatisfactory. Findings 180 On the material before me, I am satisfied that: (a) The directors of SCRGAL, in breach of their duty, failed to hold regular Board meetings; (b) Purvis unlawfully obtained a loan from SCRGAL for $ ; (c) Wilkinson was unlawfully involved in assisting Purvis in obtaining a loan from SCRGAL; (d) Wilkinson unlawfully obtained a loan from SCRGAL for $25 000; (e) (f) (g) (h) (i) Purvis was unlawfully involved in assisting Wilkinson in obtaining a loan from SCRGAL; Purvis attempted to have Grosse execute a loan agreement in relation to the payment of $ to her that was, as Purvis knew, in fact a loan to him; Grosse unlawfully purchased 19 Cootamundra Drive, Mountain Creek from SCRGAL; Wilkinson failed to register the transfer of the title over 19 Cootamundra Drive from SCRGAL to Grosse; Wilkinson used SCRGAL s assets to pay land tax owed by Grosse; 206 Final Report of the Royal Commission into the Building and Construction Industry

213 (j) (k) (l) Purvis was unlawfully involved in assisting Grosse in obtaining a financial benefit from SCRGAL; Purvis unlawfully procured the payment by SCRGAL of $ into a superannuation fund of which he was the sole member; Purvis unlawfully procured the issue of a fuel card to SCRGAL that he used to provide benefits to himself or those nominated by him. 181 This case study illustrates: (a) (b) (c) The failure of directors and officers of a group training company, being a public company in receipt of public funding, to implement and observe proper corporate governance procedures; Disregard by directors and an employee of a group training company of the law in procuring benefits for themselves and others; and The decision by authorities not to investigate or prosecute breaches of the law which were within their jurisdiction and referred to them. Persons involved Name Bacon, Linda Position Former Executive Staff Member, Sunshine Coast Regional Group Apprentices Ltd. Collier, Berna (Professor) Commissioner, Australian Securities and Investments Commission. Dixon, Malcolm Grosse, Alison (née Kerr and Kerr-Jones) Director, Sunshine Coast Regional Group Apprentices Ltd. Former Chairperson, Sunshine Coast Regional Group Apprentices Ltd; Current and founding director, Sunshine Coast Regional Group Apprentices Ltd; Mayor, Maroochy Shire Council; Owner, Excellent Communications Pty Ltd. Hassed, John Herriot, Jon Hoiberg, Kevin Maloney, Tim General Manager, Training Services, Queensland Department of Employment and Training. Registered Builder. Former Auditor of Sunshine Coast Regional Group Apprentices Ltd. Director, Training Operations, Queensland Department of Employment and Training. Reform Funds 207

214 Manly, Ron McAuliffe McDonald, Barry McNeill, Peter McRae, Toni Ong, Charles (Dr) Partridge, Wendy Patterson, Neale Peters, Ken Executive Staff Member, Sunshine Coast Regional Group Apprentices Ltd. Queensland Department of Employment and Training. Board Member, Sunshine Coast Regional Group Apprentices Ltd. Department of Employment and Training; Board Member, Sunshine Coast Regional Group Apprentices Ltd. Chairperson and Director, Sunshine Coast Regional Group Apprentices Ltd. Physician; treated Robert Purvis. Leader, SCRGAL Review team. Australian Securities and Investments Commission. Former Executive Staff Member, Sunshine Coast Regional Group Apprentices Ltd. Purvis, Robert Managing Director, Sunshine Coast Regional Group Apprentices Ltd, February 1996 December Robinson, Des Speirs, Jan Welch, Terry Wilkinson, Neil Internal Accountant, Sunshine Coast Regional Group Apprentices Ltd. Assistant Director Enforcement (North East), Australian Securities and Investments Commission. Director, Sunshine Coast Regional Group Apprentices Ltd. In-house solicitor and Company Secretary, Sunshine Coast Regional Group Apprentices Ltd. 208 Final Report of the Royal Commission into the Building and Construction Industry

215 Notes to Sunshine Coast Regional Group Apprentices Ltd 1 Hassed, T15678/ Maloney Statement, exhibit 1723, paragraphs 3-4, document Hassed, T15679/ Hassed, T15687/ Maloney Statement, exhibit 1723, paragraph 6, document Maloney Statement, exhibit 1723, paragraphs 5-7, document Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 179, document Maloney Statement, exhibit 1723, paragraph 6, document ; Hassed, T15679/ Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 180, document Grosse Statement, paragraph 1, exhibit 1735, document Maloney Statement, exhibit 1723, paragraph 2, document Hassed, T15688/4; cf Grosse Statement, exhibit 1735, paragraph 3, document Hassed, T15688/ /8. 14 Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 180, document at Peters Statutory Declaration, exhibit 1724, paragraph 2, document ; Grosse Statement, exhibit 1735, paragraph 3, document Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 179, document Hassed, T15679/24-28, Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 182, document at 0113 and 0119; Maloney Statement, exhibit 1723, paragraph 9, document ; Hassed, T15679/ Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 47, document Purvis Statutory Declaration, exhibit 1798, paragraph 1, document Ong Statement, exhibit 1726, paragraphs 1-6, document Ong Statement, exhibit 1726, paragraph 4, document T15624/ Purvis Statutory Declaration, exhibit 1798, document Grosse, T15715/ Grosse, T15715/36-37, 15716/4. 27 Partridge Statement, exhibit 1728, paragraph 5, document ; Grosse Statement, exhibit 1735, paragraph 1, document Grosse, T15715/ Grosse, T15716/ Grosse, T15716/ Wilkinson, T15690/ Purvis Statutory Declaration, exhibit 1798, paragraph 2, document ; Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 67, document , which sets out his job description. 33 Wilkinson, T15690/ Wilkinson, T15690/27, Wilkinson, T15690/40. Reform Funds 209

216 36 Robinson Statement, exhibit 1729, attachment 7, document ; Purvis Statutory Declaration, exhibit 1798, paragraph 2, document Wilkinson, T15694/ Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 180, document at Wilkinson, T15691/ Wilkinson, T15692/ Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 181, clause 40(c), document at Wilkinson, T15692/ Robinson, T15661/ Robinson, T15660/ Maloney Statement, exhibit 1723, paragraph 10, document ; Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 1, document Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 182, document at 113 and 0119; Maloney Statement, exhibit 1723, paragraph 9, document ; Hassed, T15679/ Partridge Statement, exhibit 1728, paragraphs 2-3, document ; Partridge, T15625/24-25; Maloney Statement, exhibit 1723, paragraph 11, document Partridge, T15626/ Purvis Statutory Declaration, exhibit 1798, paragraph 7(i), document where Purvis asserts that Board minutes were kept and filed in the office, and that if they are not available then they must have been removed following his dismissal. That assertion is supported by Ken Peters, who became the acting CEO after Purvis was dismissed: Peters Statutory Declaration, exhibit 1724, paragraph 8, document Given, however, that some minutes were available to Partridge during the Review, it seems unlikely that more extensive sets of minutes were removed. 49 Partridge Statement, exhibit 1728, paragraph 6, document ; Tender Bundle of Documents re SCRGAL, exhibit 1725, attachment 1, document Tender Bundle of Documents re SCRGAL, exhibit 1725, attachment 2, document acknowledging, for example, that the Board met infrequently, at best virtually only annually. Partridge, T15627/20-21; Hassed, T15680/40-45; Grosse, T15717/ Partridge, T15657/ Grosse, T15717/30-38, 15719/ Grosse, T15719/ Daniels v AWA Ltd (1995) 37 NSWLR 438, Partridge Statement, exhibit 1728, paragraph 12, document ; Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 19, All of the loans are listed on this ledger printout. 56 Robinson, T15662/5-13; Partridge Statement, exhibit 1728, paragraph 15, document ; Partridge T15636/ Partridge, T15633/ Partridge Statement, exhibit 1728, paragraph 16, document ; Partridge, T15634/ Partridge, T15633/ Robinson, T15667/ Partridge, T15657/ Robinson, T15667/35, 15668/ Final Report of the Royal Commission into the Building and Construction Industry

217 63 Purvis Statutory Declaration, exhibit 1798, paragraphs 5(i) and 5(ii), document ; Grosse Statement, exhibit 1735, paragraph 16, document Partridge, T15634/ Partridge Statement, exhibit 1728, paragraph 18, document Robinson, T15664/6. 67 Partridge Statement, exhibit 1728, paragraph 17, document ; Robinson, T15663/40-41; Grosse Statement, exhibit 1735, paragraph 16, document stating that the cheque to her for $ was in Wilkinson s handwriting. 68 Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 5, document ; Partridge Statement, exhibit 1728, paragraph 17, document Purvis Statutory Declaration, exhibit 1798, paragraph 5(iii), document Partridge, T15626/18-24; Purvis Statutory Declaration, exhibit 1798, paragraph 7(i), document ; Peters Statutory Declaration, exhibit 1724, paragraph 8, document Robinson, T15661/ Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 2, document Purvis Statutory Declaration, exhibit 1798, paragraph 5(iii), document Wilkinson, T15699/ Wilkinson, T15699/ Wilkinson, T15699/44-45, 15702/ Wilkinson, T15701/ Wilkinson, T15700/9. 79 Wilkinson, T15701/ Cf Wilkinson, T15700/28-29, who denies any connection between the two loans. 81 Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 16, document Robinson, T15668/ / Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 178, document ; Robinson, T15671/11, Purvis Statutory Declaration, exhibit 1798, paragraph 5(iv), document Wilkinson, T15699/1-2; Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 178, document Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 17, document Partridge Statement, exhibit 1728, paragraph 24, document ; Partridge T15637/ Partridge, T15637/ Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 178, document Robinson prepared this document: Robinson, T15671/3. Robinson, T15670/ Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 178, document at 0007; Robinson, T15670/ Partridge Statement, exhibit 1728, paragraph 20, document ; Grosse Statement, exhibit 1735, paragraph 16, document ; Grosse, T15721/ Grosse, T15721/ Robinson Statement, exhibit 1729, paragraph 13, document ; Partridge, T15639/38-40,15640/4; Robinson, T15664/29-39; Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 19, document Robinson, T15664/ Reform Funds 211

218 95 Robinson, T15664/13-20; Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 27, document , which is the unsigned draft of the loan agreement prepared for Grosse in relation to the $ payment that was in fact a loan to Purvis. 96 Grosse, T15722/ Tender Bundle of Documents, exhibit 1725, attachment 5, document Partridge Statement, exhibit 1728, paragraph 17, document Robinson, T15662/21, 34-39; Robinson Statement, exhibit 1729, paragraph 12, document Wilkinson, T15704/ Robinson, T15665/27-37; Partridge Statement, exhibit 1728, paragraph 29, document Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 42, document This document is, however, of limited evidentiary value, as it has never been signed. It is, however, consistent with Robinson s evidence. 101 Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 178, document at Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 42, document This document is, however, of limited evidentiary value, as it has never been signed. 103 Tender Bundle of Documents, exhibit 1725, attachment 19, document , which shows the write-off of the loan, including a handwritten note Transferred to Expense (regarded as unrecoverable) K Hoiberg. Partridge, T15641/43-44; Partridge Statement, exhibit 1728, paragraph 31, document Partridge did not know why it was reversed: Partridge, T15643/ Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 20, document Robinson, T15663/ Wilkinson, T15704/ Wilkinson, T15704/ Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 21, document Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 21, document Partridge, T15636/40-43; Partridge Statement, exhibit 1728, paragraph 27, document Partridge, T15641/10-28; Robinson, T15662/ Partridge, T15642/ Wilkinson, T15700/ Wilkinson, T15700/ Wilkinson, T15703/ Wilkinson, T15702/ Wilkinson, T15704/ Wilkinson, T15704/ Wilkinson, T15706/ Wilkinson, T15704/ Wilkinson, T15704/ Wilkinson, T15705/ Cf Wilkinson, T15705/ Wilkinson, T15708/14-16; Robinson, T15668/ Partridge, T15642/ Robinson, T15666/ Final Report of the Royal Commission into the Building and Construction Industry

219 127 Robinson, T15666/ Wilkinson, T15696/ Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 56, document Tender Bundle of Documents re SCRGAL, exhibit 1725, attachment 57, document at Robinson, T15666/ Wilkinson, T15698/ Grosse is said to have requested Wilkinson to circulate the flying minute: Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 56, document The Corporations Act 2001 (C wth) commenced on 15 July Section 9 of Corporations Law (C wth). 136 As a consequence of having contracted with the company:tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 181, article 40(d), document at R v Byrnes (1995) 17 ACSR 551. See also Chew v R (1992) 107 ALR 171; R v Towey (1996) 21 ACSR 46; R v Cook (1996) 20 ACSR ASIC v Adler (2002) 41 ACSR 72, [458]. 139 R v Towey (1996) 21 ACSR 46, Chew v R (1992) 173 CLR 626 at 640 (Dawson J); R v Byrnes (1995) 17 ACSR 551at 566 (Brennan, Deane, Toohey and Gaudron JJ). 141 This is obvious on the facts. In case there is any doubt, however, see ASIC v Parkes (2001) 38 ACSR 355, where the court held that an officer of a company who causes the company to make payments out of its funds to satisfy the personal debts of the officer makes improper use of their position. 142 Partridge Statement, exhibit 1728, paragraph 77, document ; Tender Bundle of Documents, exhibit 1725, attachment 109, document Tender Bundle of Documents, exhibit 1725, attachment 112, document Peters Statutory Declaration, exhibit 1724, paragraph 3, document ; Grosse, T15722/ Partridge Statement, exhibit 1728, paragraph 73, document ; Partridge, T15646/ Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 122, document O Hagan Statutory Declaration, exhibit 1721, paragraphs 8, document Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 120, document at 0027; O Hagan Statutory Declaration, exhibit 1721, paragraphs 7-9, document Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 123, document Attempts to obtain documents in relation to it have been unsuccessful: Partridge Statement, exhibit 1728, paragraphs 65 and 85, document ; Partridge, T15648/ Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 123, document O Hagan Statutory Declaration, exhibit 1721, paragraph 11, document The valuation was addressed to Purvis, and referred to his recent instructions to inspect and value the allotment as if vacant: Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 124, document Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 124, document at Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 125, document Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 125, document Reform Funds 213

220 156 Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 126, document ; Grosse, T15722/ Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 153, question 3, document ; Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 152, document Grosse Statement, exhibit 1735, paragraph 7, document ; Grosse, T15722/26-33, subject to the qualification that she had in fact lost office by virtue of SCRGAL s Articles of Association, because she had been interested in contracts with the company, but she was not aware of that fact. 159 Grosse Statement, exhibit 1735, paragraph 8, document Partridge, T15646/11-16, 15649/ Grosse, T15725/37; Grosse Statement, exhibit 1735, paragraph 12, document Robinson, T15661/ Grosse, T15725/ Grosse, T15724/ Grosse, T15724/ Grosse, T15723/ / O Hagan Statutory Declaration, exhibit 1721, paragraph 15, document Grosse, T15725/ Partridge Statement, exhibit 1728, paragraph 69, document , (although this is based upon assertion by Purvis solicitor); Partridge, T15649/35-40; cf Wilkinson, T15710/ /6, who said he did not recall acting for Grosse, but acknowledged that there was no solicitor on the other side of the record. 170 Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 128, document ; Tender Bundle of Documents, exhibit 1725, attachment 132, document Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 130, document Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 161, document ; Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 136, document ; Partridge Statement, exhibit 1728, paragraph 78, document Grosse Statement, exhibit 1735, paragraph 9, document Grosse, T15722/ Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 132, document Partridge, T15650/ Wilkinson, T15713/ Wilkinson, T15714/ Wilkinson, T15713/ Wilkinson, T15713/ Grosse, T15723/ Grosse, T15724/ Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 135, document ; Grosse, T15722/ O Hagan Statutory Declaration, exhibit 1721, paragraph 16, document ; Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 154, document Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 127, document ; Partridge Statement, exhibit 1728, paragraph 80, document Final Report of the Royal Commission into the Building and Construction Industry

221 186 A fact Wilkinson accepted: Tender Bundle of Documents, exhibit 1725, attachment 178, document Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 136, document ; Partridge, T15651/ Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 133, document ; Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 146, document ; Partridge Statement, exhibit 1728, paragraph 79, document ; Wilkinson, T15714/ Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 134, document ; Partridge Statement, exhibit 1728, paragraph 86, document ; Wilkinson, T15714/38. Grosse Statement, exhibit 1735, paragraph 19, document asserted that she paid the land tax amount, because she has a practice of paying my bills as soon as I receive them. That practice does not support Grosse s conclusion, because the bills went to SCRGAL, rather than her. 190 R v Byrnes (1995) 17 ACSR 551. See also Chew v R (1992) 107 ALR 171; R v Towey (1996) 21 ACSR 46; R v Cook (1996) 20 ACSR O Hagan Statutory Declaration, exhibit 1721, paragraph 15, document ; O Hagan Supplementary Statement, exhibit 1722, paragraphs 2-3, document Section 243F of Corporations Law (C wth). 193 Section 243G(4)(c) of Corporations Law (C wth). 194 Section 243N of Corporations Law (C wth). 195 Sections 243J 243PB of Corporations Law (C wth). 196 Robinson, T15677/ Section 1317HD of Corporations Law (C wth). This section applied because s 232(6) was, by reason of s 1317DA, a civil penalty provision. 198 Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134; Cook v Deeks [1916] 1 AC 554; Furs Ltd v Tomkies (1936) 54 CLR Robinson Statement, exhibit 1729, paragraph 22, document ; Robinson Statement, exhibit 1729, attachment 8, document ; Robinson, T15674/ Robinson Statement, exhibit 1729, paragraph 23, document ; Robinson Statement, exhibit 1729, attachment 8, document Robinson, T15675/ Robinson initially referred to a minute but, when asked if there were minutes kept during that period, was unsure what type of document it was, and said it might have been a memorandum: Purvis Statutory Declaration, exhibit 1798, paragraphs 6(i)-6(ii), document ; Robinson, 15674/ Purvis Statutory Declaration, exhibit 1798, paragraph 6(i), document ; Robinson, T15674/ Purvis Statutory Declaration, exhibit 1798, paragraph 6(ii), document Robinson, T15675/ Robinson, T15675/ Tender Bundle of Documents re: SCRGAL, exhibit 1729, attachment 8, document ; Robinson, T15676/ Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 2, document at Robinson, T15676/ / Purvis Statutory Declaration, exhibit 1798, paragraph 4(i), document Purvis Statutory Declaration, exhibit 1798, paragraph 4(ii), document Reform Funds 215

222 212 Partridge Statement, exhibit 1728, paragraph 50, document ; Robinson Statement, exhibit 1729, paragraphs 15-16, document ; Partridge, T15652/21-25; Robinson, T15672/5-6, 15673/ Robinson Statement, exhibit 1729, paragraph 15, document , in relation to the period since August 1999; Partridge, T15652/ Partridge Statement, exhibit 1728, paragraphs 56 and 58, document Robinson, T15672/ Purvis Statutory Declaration, exhibit 1798, paragraph 4(ii), document Purvis Statutory Declaration, exhibit 1798, paragraph 4(ii), document Purvis Statutory Declaration, exhibit 1798, paragraph 4(ii), document Robinson Statement, exhibit 1729, paragraph 15, document See paragraph 53 above. 221 Tender Bundle of Documents re: SCRGAL, exhibit 1725, attachment 60, document , indicating the cancellation date and that it was cancelled by rob. 222 Maloney Statement, exhibit 1723, paragraph 12, document ; Partridge, T15657/17-24; Hassed, T15682/ Hassed, T15683/ Partridge, T15657/ Hassed, T15682/ Hassed, T15685/ Hassed, T15686/ Hassed, T15686/ Maloney Statement, exhibit 1723, paragraph 12, document Partridge, T15630/ Letter from ASIC to A. Grose dated 18 April 2002 together with letter from ASIC to J. Hassed dated 29 April 2002, exhibit 1734, document Letter from ASIC to A. Grose dated 18 April 2002 together with letter from ASIC to J. Hassed dated 29 April 2002, exhibit 1734, document at Letter from ASIC to A. Grose dated 18 April 2002 together with letter from ASIC to J. Hassed dated 29 April 2002, exhibit 1734, document Hassed, T15682/ Section 1317J(4) of Corporations Law (C wth). 236 Partridge, T15628/ Partridge, T15628/ / Partridge, T15629/ Partridge, T15631/ Partridge, T15632/ Final Report of the Royal Commission into the Building and Construction Industry

223 12 Long Service Leave Funds in the Building and Construction Industry Long service leave is a period of paid leave from work granted to employees after a continuous period of service with an employer. The purpose of such leave as articulated over time in various cases and parliamentary proceedings is to provide a reward for long service and to provide long serving employees with a respite from work and enable them to renew their energies at intervals during their working life. 1 Origins of long service leave 1 Australia s approach to long service is distinctive in that long service leave is a legislated right of the entire workforce. 2 Other countries, such as Britain and Greece, grant an extended period of annual leave as a reward for continuity of service. In some Canadian provinces, extended annual leave after set periods of continuous service is prescribed in legislation. In New Zealand, long service leave provisions are contained in some employment contracts. 3 2 The origins of long service leave in Australia may be traced back to the 19 th century Victorian and South Australian civil service legislation. Officers returning home to England after a period of service in the colonies were granted entitlements of up to 12 months leave at half salary or six months leave on full salary after at least ten years service. The purpose of the leave was to reward those who had performed long and faithful service in the colonies by providing an opportunity for them to visit the United Kingdom. 4 3 This purpose became redundant but the entitlement remained. It was extended to most public service employees in Australia by the end of the 1920s. By the late 1940s, long service leave was included in Federal awards by consent. In the 1950s, similar entitlements were extended to the private sector through the introduction of long service leave legislation in all States. 5 4 The purpose of such legislation, according to Parliamentary debates prior to the introduction of the Long Service Leave Bill 1955 in New South Wales, was to: reduce labour turnover; provide a reward for long and faithful service; and enable employees halfway through their working life to recover their energies and return to work renewed, refreshed and re-invigorated. 6 Reform Funds 217

224 5 In 1964 the Commonwealth Conciliation and Arbitration Commission arbitrated its first long service leave award which provided for non public service employees to be granted 13 weeks leave after 15 years of continuous service with the same employer, with pro-rata payment in lieu on termination of employment after ten years service. Overview of long service leave legislation 6 Traditionally, long service leave is a matter regulated by the States, not the Commonwealth. 7 General long service leave legislation was introduced in all States between 1951 and As a consequence, the then Federal industrial relations tribunal refused to insert clauses into Federal awards on the grounds that the relevant State legislation was adequate and uniform. 8 Today, each State (except Queensland) and Territory continues to have both general workplace relations legislation and general long service leave legislation. In Queensland, long service leave legislation forms part of its general industrial relations legislation. 8 The Commonwealth has enacted legislation to provide for long service leave for Commonwealth employees and certain other persons. Awards and agreements made under the Workplace Relations Act 1996 (C wth) may contain long service leave provisions. 9 9 The current legislation is set out in table 1 below. Table 1 Workplace relations and long service leave legislation (by jurisdiction) Jurisdiction Workplace relations legislation Long service leave legislation Commonwealth Workplace Relations Act 1996 (C wth) Long Service Leave (Commonwealth Employees) Act 1976 (C wth) New South Wales Industrial Relations Act 1996 (NSW) Long Service Leave Act 1955 (NSW) Victoria Workplace Relations Act 1996 (C wth) Long Service Leave Act 1992 (Vic) Queensland Industrial Relations Act 1999 (Qld) Industrial Relations Act 1999, (Qld), Chapter 2, Part 3 Western Australia Industrial Relations Act 1997 (WA) Long Service Leave Act 1958 (WA) and Long Service Leave General Order 1977 (WA) South Australia Industrial and Employee Relations Long Service Leave Act 1987 (SA) Act 1994 (SA) Tasmania Industrial Relations Act 1984 (Tas) Long Service Leave Act 1976 (Tas) Australian Capital Workplace Relations Act 1996 (C wth) Long Service Leave Act 1976 (ACT) Territory Northern Territory Workplace Relations Act 1996 (C wth) Long Service Leave Act 1981 (NT) Source: Creighton, B. and Stewart, A., Labour Law: An Introduction (3rd ed.), Federation Press, Sydney, p Final Report of the Royal Commission into the Building and Construction Industry

225 10 Specific long service leave legislation for the building and construction industry was first introduced in Tasmania in The other States and Territories (except the Northern Territory) followed between 1972 and The Commonwealth has not enacted such legislation. 11 The current industry long service leave legislation in the applicable jurisdiction pertaining to the building and construction industry is set out in table 2 below. Table 2 Building and construction industry long service leave legislation (by jurisdiction) Jurisdiction New South Wales Victoria Queensland Western Australia Legislation Building and Construction Long Service Payments Act 1986 (NSW) Construction Industry Long Service Leave Act 1997 (Vic) Building and Construction Industry (Portable Long Service Leave Act) 1991 (Qld) Construction Industry Portable Paid Long Service Leave Act 1985 (WA) South Australia Tasmania Construction Industry Long Service Leave Act 1987 (SA) Construction Industry Long Service Leave Act 1997 (Tas) Australian Capital Territory Long Service Leave (Building and Construction Industry) Act 1981 (ACT) 12 Key factors that led to the introduction of the relevant schemes included: the strategic nature of the building and construction industry; high union density and industrial strength; a well-established industry focus; and patterns of employment in the industry Portability of long service leave is perhaps the most significant feature of the long service scheme operating in each jurisdiction. Entitlement to long service leave is determined by reference to the time that an employee has worked in the industry, rather than time worked with a particular employer. For all jurisdictions except the Northern Territory, portability of long service leave was a legislated entitlement by the early 1990s. 14 Portable long service leave in the building and construction industry is based on the contention that the short term nature of work projects means a person is unlikely to accrue sufficient time with any one employer to gain an entitlement to long service leave Portability enables employees to receive a payment after they have worked a requisite number of years in the industry, regardless of the number of different employers or whether the employment was continuous. 12 Employers contribute to a fund and the administrator of the Reform Funds 219

226 fund, rather than the employer, then accepts responsibility for an employee s long service entitlements when they become due. 16 This commitment by all the relevant jurisdictions to portable long service has been enhanced by the Reciprocal Agreement Between States for Long Service Provisions in the Building and Construction Industry (1999), to which all States and the ACT are parties. It is binding on the long service schemes in each of those jurisdictions. This agreement provides for payment for long service based on the combined value of workers service in the industry wherever they have worked in Australia (excepting the Northern Territory). Where a worker qualifies for a long service entitlement in one jurisdiction, and has worked in another jurisdiction, each jurisdiction is liable for payment in respect of their part of the period of service. 17 The ACT and State governments allow for portability of long service in the building and construction, coalmining and stevedoring industries. The ACT government has extended portability to the contract cleaning industry. 13 It is noteworthy that other industries with a less unionised workforce, for example, hospitality, have a more mobile workforce than any of the abovementioned industries yet do not receive portability of long service. 18 In all jurisdictions, administrative workers employed in the building and construction industry are ineligible to participate in the portable long service schemes. Such workers are covered by other awards and legislation. 19 The total numbers of workers and employers registered under the various schemes as at 30 June 2001 and 30 June 2002 are shown in tables 3 and 4 respectively. Table 3 Construction industry long service leave funds registered workers and employers as at 30 June 2001 Jurisdiction Registered Registered Registered workers employers contractors a New South Wales Victoria Queensland South Australia Western Australia Tasmania ACT Total Source: Annual reports of various long service industry schemes (a) Not all jurisdictions separate contractor and employer figures 220 Final Report of the Royal Commission into the Building and Construction Industry

227 Table 4 Construction industry long service leave funds registered workers and employers as at 30 June 2002 Jurisdiction Registered Registered Registered workers employers contractors a New South Wales Victoria Queensland South Australia Western Australia Tasmania ACT Total Source: Annual reports of various long service industry schemes (a) not all jurisdictions separate contractor and employer figures 20 Levies for long service funds are collected either as a percentage of employees ordinary rates of pay or as a percentage of the cost of construction work where the work is above a certain value. Table 5 provides a comparison of the levies charged as at 30 June Table 5 Long service schemes summary of levy charges Current levy charged NSW 0.2% of total cost of work, on building work over $ Vic Nil until 1 July 2003 (expected then to be set at 1.5%) Qld WA 0.075% of total cost of work, on building work over $ a 0.1% of workers ordinary pay SA 2.0% of workers ordinary pay (increased to 2.5% from 1 January 2003 Tas 0.7% of workers ordinary pay 1.0% of workers ordinary pay ACT (a) 0.1% of workers ordinary pay The full levy is 0.2%. Of that amount, 0.125% is forwarded to the Division of Workplace Health and Safety. Of the remaining 0.075%, 0.050% is allocated to the Building and Construction Industry Training Fund (Qld). Reform Funds 221

228 New South Wales 21 The Building and Construction Industry Long Service Payments Act 1986 (NSW) covers workers performing building and construction work. Such work is defined in s3 of the Building and Construction Industry Long Service Payments Act 1986 (NSW) to mean: Work in the building and construction industry performed in New South Wales, being: (a) (b) work carried out under a contract of employment for which a rate of pay is fixed by an award prescribed by the regulations, or work: (i) (ii) carried out under a contract that is not a contract of employment, and that would, if it had been carried out under a contract of employment, be work for which a rate of pay was fixed by an award prescribed by the regulations, or (c) the work of a person who, under a contract of employment: (i) (ii) directly supervises work of the kind referred to in paragraph (a) or (b), or is a clerk of works. 22 Prior to 31 July 1982 the New South Wales long service scheme for the building and construction industry was administered by the (former) Builders Licensing Board. On 1 August 1982 the Building and Construction Industry Long Service Payments Corporation (LSPC) was established as a statutory corporation The LSPC is constituted under s4 of the NSW Act. The Director-General, Department of Industrial Relations, is responsible for the management of the affairs of the LSPC. It is subject to the control and direction of the responsible Minister. 24 The LSPC receives advice from the Building and Construction Industry Long Service Payments Committee constituted under s8 of the Building and Construction Industry Long Service Payments Act 1986 (NSW). Under s8(2), the Committee consists of 11 members, of whom: (a) (b) (c) (d) one, who shall be the Chairperson of the Committee, shall be the Director-General or a person for the time being nominated by the Director-General, 3 shall be persons appointed by the Minister from a panel of 6 persons nominated by the Labor Council of New South Wales, 3 shall be persons appointed by the Minister from a panel of 6 persons nominated jointly by the Master Builders Association of New South Wales and Employers First, and 4 shall be persons appointed by the Minister who have a knowledge of, and experience in, the building and construction industry. 25 Section 9(2) of the Building and Construction Industry Long Service Payments Act 1986 (NSW) states that the Committee shall provide the LSPC with advice on such matters relating to the administration of the Building and Construction Industry Long Service Payments Act Final Report of the Royal Commission into the Building and Construction Industry

229 (NSW) as are referred to it by the LSPC. The Committee may also make recommendations on the administration of the Building and Construction Industry Long Service Payments Act 1986 (NSW), the investment of funds and the rate of any long service levy. 26 Section 10 of the Building and Construction Industry Long Service Payments Act 1986 (NSW) requires the LSPC to establish, administer and control the Building and Construction Industry Long Service Payments Fund. Long service levies, money borrowed by the LSPC, proceeds of any investment of the Fund and any other amounts received by the LSPC in the course of its administration are paid into the Fund. 27 Long service payments provided for under the Building and Construction Industry Long Service Payments Act 1986 (NSW), expenses incurred and any other payments authorised by the Act are paid from the Fund. 28 The LSPCs annual report for indicated that for the financial year , long service leave payments were made to 7724 workers with a total value of $32.4 million. At that time, workers were registered with the scheme. 15 This represents payments to 3.2 per cent of workers registered with the scheme. Cumulative payments since the scheme commenced numbered , at a value of $281.8 million. Actuarial estimates of the scheme s liabilities were $358.4 million, with total funds invested of $369.8 million The annual report indicated that the cost of administering the scheme was high. For example, $19.7 million was collected in levies during the year , yet the scheme s administrative costs for that period were $7.8 million. $4.69 million was spent on salaries or salary related expenses. The annual report states that $29.6 million was collected in levies and that the scheme s administrative costs for that period were $8.1 million. 30 Section 14 of the Building and Construction Industry Long Service Payments Act 1986 (NSW) prescribes that actuarial investigations of the LSPC are undertaken at least every three years. The LSPC must report the outcomes of the investigations to the responsible Minister together with such comments as it deems appropriate. 31 Section 28 of the Building and Construction Industry Long Service Payments Act 1986 (NSW) details criteria for eligibility for payments under the Act. It provides: (1) A person who is a registered worker having service credits in the register of workers may apply to the Corporation in the approved form for a long service payment if: (a) (b) (c) (d) the person has completed 10 years service as a worker, [repealed] the person has completed 5 years service as a worker and satisfies the Corporation that he or she has permanently ceased to perform building and construction work, the person has completed 55 days service as a worker and, having attained the prescribed retiring age, satisfies the Corporation that he or she has permanently ceased to perform building and construction work, Reform Funds 223

230 (e) (f) (i) the person has completed 55 days service as a worker and a registered medical practitioner has certified the person to be totally and permanently incapacitated for building and construction work, the person has completed 5 years service as a worker since the person: first became entitled to apply for a long service payment by virtue of paragraph (a), or (ii) would have become so entitled but for the operation of any provision of s31, whether or not any such payment was made, or (g) the person has completed 5 years service as a worker since the person: (i) last became entitled to apply for a long service payment under paragraph (f), or under any previous application of this paragraph, or (ii) would have become so entitled but for the operation of any provision of s31, whether or not any such payment was made. 32 Before July 1986 the scheme was funded by a charge on employers. Since then, it has been funded by a levy on building and construction work, payable under s35 of the Building and Construction Industry Long Service Payments Act 1986 (NSW), calculated on the cost of construction. It cannot exceed 0.6 per cent of that cost. 33 The levy is currently 0.2 per cent on building and construction work where the cost of the work exceeds $ The levy is collected by local councils on behalf of the LSPC, in the course of approving building work. The levy rate has remained unchanged since 1 July Victoria 34 In Victoria, the Construction Industry Portable Long Service Leave Scheme was privatised in 1997 under the Construction Industry Long Service Leave Act 1997 (Vic). The scheme is administered in accordance with a trust deed by a company incorporated under the Corporations Law (C wth). 35 CoINVEST Ltd is the Trustee of the fund. It trades under the name CoINVEST. The trustee has 11 directors who hold office for four years. The Board is comprised of: four employee representatives; four employer representatives; and three professional directors (the Chair is selected from this category) The Victorian scheme covers workers in construction, reconstruction or renovation. Three types of construction work are covered under the CoINVEST scheme: building, metal and electrical trades. Workers must work under one of the awards covered by the scheme, or be doing the same work as that covered under such an award Workers and tradespeople up to the level of foreman are able to receive benefits under the scheme, but supervisors are not Final Report of the Royal Commission into the Building and Construction Industry

231 38 Contractors, subcontractors and workers must not, for more than five days in any month, perform construction work unless they are registered with CoINVEST (s8). Participation in the scheme is thereby effectively made compulsory. In accordance with s4 of the Construction Industry Long Service Leave Act 1997 (Vic), the trust deed requires those employers and working subcontractors registered with CoINVEST to pay a levy determined by the trustee. The payment dates, the amount payable, the method used to calculate payment and the option to apply different methods of calculation for different areas of the construction industry are determined by the trustee in accordance with the trust deed. 39 A restriction on the powers of the trustee prescribed under s7 of the Construction Industry Long Service Leave Act 1997 (Vic), states: (1) The trustee must not, without the prior approval of the Governor in Council, exercise any power, authority or discretion given to the trustee by the Trust Deed the exercise of which would have the effect of enlarging the class of persons capable of being paid benefits out of the fund. 40 By an order dated 12 June 2001 the Governor in Council approved exercise of trustee powers to enlarge the class of persons capable of being paid benefits out of the fund. Such power was restricted to provide for: access to pro-rata long service leave after seven years (instead of ten) from 1 July 2001; access to full long service leave entitlements of 13 weeks after ten years from July 2002 (previously 15 years was required to receive 13 weeks leave); and payment of all accrued benefits of 55 days and over to the estates of deceased workers The CoINVEST Board determined to exercise that power from 1 July The 2001 annual report noted actuarial advice that these changes increased the accrued long service leave benefits liability by $36.2 million to $233.9 million from 1 July The scheme has been free to employers since 1 December 1993 by reason of the annual surplus generated by the fund. However, the changes to benefits and qualifying periods described above led the Board to announce the reintroduction of industrial contributions from 1 July 2003: The Board expects that this will be at a rate equivalent to about 1% of ordinary wages or greater, depending on the state of the fund at the time The annual report stated: Following the increase in benefits to workers (reported in the 2000/2001 annual report), the Board decided that employers engaged in Victoria s building and construction industry will be required to make contributions to the Fund from 1 July Contributions will be 1.5 per cent of a worker s ordinary rate of pay, which represents a weekly contribution of $12 on an average weekly pay of $800. Reform Funds 225

232 45 Section 3 of the Construction Industry Long Service Leave Act 1997 (Vic) prescribes that the long service leave levy must not be more than 3 per cent of the ordinary pay of the worker. 46 CoINVEST s 2001 annual report indicated that it had net assets of $369.2 million and assessed long-term liabilities of $197.7 million as at 30 June However, the 2002 annual report indicated that total assets had fallen to $311.5 million and assessed long-term liabilities had risen to $258.9 million as at 30 June The 2001 annual report stated: in the last 12-month period we [CoINVEST] paid 3,697 claims to workers and working subcontractors to the value of $19.5 million. Of the 3,697 claims paid, 3,350 had more than one employer (89.6%) over their career. 48 The 2002 annual report noted that in that financial year, 88 per cent of workers who took long service leave had more than one employer during their career in the industry. As at 30 June 2002 the scheme had been in operation for more than 25 years. The 2002 annual report indicated that, since inception, more than $240 million had been paid in long service leave payments to more than workers. 49 Section 6 of the Construction Industry Long Service Leave Act 1997 (Vic) provides: (1) Every worker is entitled to long service leave, and to be paid benefits out of the fund, in respect of continuous service in the construction industry. (2) Every working sub-contractor who has paid long service leave charges is entitled to be paid benefits out of the fund in respect of continuous service in the construction industry. (3) The amount of the entitlement and the method by which that amount is to be calculated are as determined from time to time by the trustee in accordance with the trust deed. 50 Workers can leave the construction industry for up to four years, and as often as they wish, without losing their service credits. 51 In accordance with s78 of the Long Service Leave Act 1992 (Vic), reflected in CoINVEST s policy, workers are unable to work while on long service leave CoINVEST s 2002 annual report indicated that for the financial year , long service leave payments were made to 4486 workers with a total value of $21.3 million. There were active workers and apprentices registered with the scheme. This represents payment to 3.6 per cent of workers and apprentices registered with the scheme. Queensland 53 In Queensland, long service leave entitlements in the building and construction industry are governed by the Building and Construction Industry Portable Long Service Leave Act 1991 (Qld). An eligible worker for the purposes of the Building and Construction Industry Portable Long Service Leave Act 1991 (Qld) is: 226 Final Report of the Royal Commission into the Building and Construction Industry

233 an individual who, for the majority of the person s ordinary hours of work, performs or usually performs building and construction work: (a) (b) (c) under a contract of employment for which a rate of pay is fixed by a building and construction industry award or agreement; or under a subcontract to provide services of labour only, or substantially for labour only, that would, if performed under a contract of employment, be work for which a rate of pay is fixed by a building and construction industry award or agreement; or under a contract of employment as a foreperson, subforeperson or like position (from 01/01/99). 54 Those who are not deemed eligible workers, in accordance with s3a(4) of the Building and Construction Industry Portable Long Service Leave Act 1991 (Qld) are: those engaged under a contract of employment with a non-queensland government entity; persons engaged in a managerial, clerical, professional or ancillary capacity; those not substantially engaged in the building and construction industry; and a person who is party to a contract with a labour hire agency that arranges for the person to perform building and construction work for someone else under an arrangement between the agency and the other person. 55 The Queensland Building and Construction Industry (Portable Long Service Leave) Authority was established under s6 of the Building and Construction Industry Portable Long Service Leave Act 1991 (Qld). It trades under the name QLeave and administers the scheme. It also provides educational and awareness programs, ensures compliance with the Building and Construction Industry Portable Long Service Leave Act 1991 (Qld) and makes recommendations to the Minister on issues affecting the provision of long service leave in the industry and the operation of the Building and Construction Industry Portable Long Service Leave Act 1991 (Qld). 56 QLeave s Board of Directors, as prescribed under s13 of the Building and Construction Industry Portable Long Service Leave Act 1991 (Qld), consists of eight directors, appointed by the Governor in Council, who hold office for three years. Those directors are: the chairperson; the deputy chairperson who must have knowledge of, and experience in, financial affairs; three directors representing employers in the building and construction industry; and three directors representing workers who perform building and construction work. 57 At least every two years QLeave is required to appoint an actuary to investigate the sufficiency of the funds held and the adequacy of the long service leave levy. The actuary s report and its recommendations must be given to the Minister. 58 Workers covered by the Building and Construction Industry Portable Long Service Leave Act 1991 (Qld) are credited with a year s service every 220 days work. A worker is entitled to 8.67 weeks leave once they have accrued 2200 service credits (equivalent to ten years full-time service). Reform Funds 227

234 59 Section 56 of the Building and Construction Industry Portable Long Service Leave Act 1991 (Qld) allows registered workers to apply for long service leave, or a payment in lieu of long service leave, if the applicable award or agreement provides for payment of all or part of a worker s long service leave entitlement. Where the award or agreement does not allow for payment, such payment in lieu of long service leave can only be made where the worker has accrued ten years service and the Queensland Industrial Relations Commission has ordered the payment under s53(3) of the Industrial Relations Act 1999 (Qld). 60 Workers can temporarily leave the industry for up to four years before their membership with the scheme is cancelled. If the worker is not entitled to long service leave or a pro-rata payment, their accrued service is forfeited. 61 According to QLeave: There are provisions for pro rata payments to be made for workers who have been registered with any of the reciprocal schemes for at least seven years and intend to permanently leave the industry, or die. These provisions can only be paid once the worker has: (a) (b) (c) been registered as an eligible worker for seven years, and has accumulated at least 1540 service credits for a full-time entitlement, or has accumulated at least 1155 service credits for a part-time entitlement. These provisions will be paid to the worker, or their representative, at the ordinary weekly rate of pay at the time of the application. If a worker takes a leaving the industry payment their membership is cancelled. If at some time in the future they return to work in the industry as an eligible worker they can rejoin the scheme, but they will have to start accruing service credits from zero and their previous years in the industry will not be counted towards any further benefits Workers who lose long service leave entitlements if an employer is declared bankrupt or insolvent are able to be reimbursed the difference between their entitlement from the employer and the sum paid as a result of the insolvency or external administration, up to the amount of service credits recorded with QLeave Numerous amendments to the Building and Construction Industry (Portable Long Service Leave) Act 1991 (Qld) commenced on 1 January 2001, resulting in increased coverage to workers in the building and construction industry through: the introduction of automatic registration of workers from employer notification; removal of the requirement that Forepersons/Sub-Forepersons directly supervise eligible workers; the inclusion of Safety Officers appointed under the Workplace Health and Safety Act 1995 in relation to building and construction work; and acknowledging indentured time of Local and State Government apprentices and trainees, once these workers move into private sector employment Final Report of the Royal Commission into the Building and Construction Industry

235 64 Section 32 of the Building and Construction Industry Portable Long Service Leave Act 1991 (Qld) prescribes that: (1) The funds of the authority consist of (a) (b) (c) long service leave levy paid to the authority; and amounts borrowed by the authority; and the proceeds from investments by the authority (2) Funds of the authority are to be applied to making (a) (b) (c) (d) long service leave payments; and payments in respect of expenses incurred in the administration of this Act; and payments in respect of borrowings by the authority; and investments by the authority 65 QLeave s annual report for stated that all liabilities of the scheme were fully funded. It reported surplus funds of $101.2 million, funds invested of $178.5 million and worker liabilities of $79.4 million. Funds collected and remitted to the Division of Workplace Health and Safety totalled $10.63 million. A total of $4.46 million was distributed in the form of training grants and $4.9 million was spent on administration and operating costs. 66 In the following financial year, Qleave reported that surplus funds had fallen to $76.9 million, funds invested had fallen to $161.4 million and worker liabilities had risen to $85.8 million. Funds collected and remitted to the Division of Workplace Health and Safety totalled $14.76 million. The amount distributed for training grants to the Building and Construction Industry Training Fund (Qld) rose to $6.21 million and administration and operating costs rose to $5.3 million. 67 The annual reports stated that for the financial year there were members, but only 2067 claims made, representing 2 per cent of workers registered with the scheme, for a net cost of $8.2 million. In the financial year, there were 2563 claims, representing 2 per cent of workers registered with the scheme, for a net cost of $9.9 million. 68 The long service levy is prescribed by regulation as a percentage of the cost of building and construction work costing $ or more. It is apparent that only a small portion of the levy collected is applied for the purpose of funding long service entitlements under the Building and Construction Industry Portable Long Service Leave Act 1991 (Qld). QLeave explained the distribution of the levy as follows: The levy and [workplace health and safety notification] fee are currently [0].2% of the total cost of work on a project. This equates to $2 for every $1000 of project costs. QLeave delivers $1.25 of the $2 directly to the Queensland Division of Workplace Health and Safety. Of the remaining $0.75 QLeave delivers $0.50 to the Building and Construction Industry Training Fund (Qld) to provide training that addresses skills shortages in the industry. The Reform Funds 229

236 remaining $0.25 is invested to provide ongoing funds to pay workers long service leave entitlements for service to the industry. 27 Western Australia 69 The Long Service Leave Act 1958 (WA), as amended by the Long Service Leave General Order, prescribes long service leave entitlements for most employees in Western Australia. These legislative provisions give employees an entitlement to 13 weeks leave after 15 years employment with one employer and a pro rata entitlement after ten years. 70 In the building and construction industry, this entitlement is overlaid by the Construction Industry Portable Paid Long Service Leave Act 1985 (WA), which allows employees to accumulate long service leave entitlements by working in the industry for at least ten years. Employees carry their accruing or accrued long service leave from employer to employer. 71 The scheme is a predefined benefit scheme, not an accumulation scheme. Employees are eligible to receive a defined long service leave benefit when they meet the entitlement provisions of the scheme. 72 The scheme is administered by the Construction Industry Long Service Leave Payments Board (the WA Board) established under s5 of the Construction Industry Portable Paid Long Service Leave Act 1985 (WA). 73 Those employed in the building and construction industry in a classification of work referred to in awards specified by the WA Board are covered by the scheme. So too are temporary employees engaged under certain Government awards. Such work includes all construction, alteration, renovation, repair or maintenance to any building or structure whether commercial, industrial or domestic, new or existing, and the installation, maintenance or repairs of fixtures or plant and equipment The WA Board, which is elected for up to five years, has seven members comprised of: the chairman; three persons representing employers, selected from nominations submitted by the Master Builders Association of Western Australia and the Chamber of Commerce and Industry of WA; and three persons representing employees, selected from nominations provided by Unions WA and the Building Trades Association of Unions of Western Australia (Association of Workers). 75 The functions of the WA Board are: (a) (b) (c) (d) to maintain the register of employers and register of employees; to administer the Scheme of payment to employees during long service leave established under the Act; to advise the Minister on the administration of the Act; and to carry out such other functions as are conferred on the Board under the Act. 230 Final Report of the Royal Commission into the Building and Construction Industry

237 The liabilities of the Board include assuming, without cost to employers, the liability for less than ten years of registered employees long service leave credits for past continuous service with an employer prior to 6 January In addition the Board accepts the liability for service credits for apprentices without cost to employers. The Board keeps a record in a centralised register of the number of days each employee is engaged in the industry regardless of how many employers the employee works for. An employee may be credited with a maximum of 220 days per calendar year Section 19 of the Construction Industry Portable Paid Long Service Leave Act 1985 (WA) prescribes that the WA Board must appoint an actuary each year to conduct investigations into the status of the funds. The actuary is required to provide a report to the WA Board, which states (among other things) whether a reduction or increase in the levies collected by the Board is necessary. 77 Part III of the Construction Industry Portable Paid Long Service Leave Act 1985 (WA) prescribes the benefits of the scheme. The benefits include 13 weeks long service leave after 15 years of service in the industry, pro-rata lump sum benefits payable upon termination of employment after ten years of service (2200 days), and beneficiary entitlements to an employee who dies after completing at least ten years of service in the industry. 78 The Commission received a statement from the WA Board which stated: After 15 years of service in the industry (3300 days of service) a registered employee is entitled to 13 weeks long service leave. The Board pays the employee for the long service leave at their current ordinary rate of pay as set out in the appropriate award or registered enterprise bargaining agreement. Also after 10 years service an employee is entitled to a pro rata payment upon termination of employment. The legislation governing the Scheme provides that any employee who has not been allocated any service days for two years, where their accumulated service days are less than 1100 days (equivalent to five years of service) or four years where they have accumulated more than 1100 service days, must have their service days extinguished. No monies attach to service days extinguished, however the extinguishing of service days does have the effect of reducing the Board s overall long term liabilities Section 28 of the Construction Industry Portable Paid Long Service Leave Act 1985 (WA) prohibits people who are receiving or have received any long service leave payment under the Construction Industry Portable Paid Long Service Leave Act 1985 (WA) from engaging in employment for hire or reward, during the period they have been given long service leave. 80 WA Board statistics indicated that as at 30 June 2001 approximately 85 per cent of employees registered with the scheme had had more than one employer since they commenced in the scheme. As at that date 3800 employers were registered, down from 3970 at the end of the Reform Funds 231

238 previous financial year, and employees were registered in the scheme, down from at the end of the previous financial year The WA Board is funded by a compulsory levy on employers in the construction industry. The WA Board is able to invest moneys as it sees fit in accordance with the requirements of the Trustees Act 1962 (WA). 82 In a statement received by the Commission, the WA Board stated: To meet the costs of the scheme each employer pays a levy to the Board based on a percentage of their employees ordinary pay, except in the case of apprentices for whom no levy is payable. The levy rate is currently set at 0.1% of ordinary pay. The rate of the levy is set by the Board based on actuarial advice of the amount of funds needed to meet the liabilities of the Board under the Scheme and all the costs associated with administering the Scheme. The Scheme is funded by a levy on employers which is set at a rate designed to meet the liabilities and administrative running costs of the Scheme. All monies received by the Board are held in a central fund and applied to meet the Board s liabilities and its running costs. Monies are not allocated to individual accounts. There is no distribution of surplus Board funds. Any surplus in excess of its liabilities does, however, affect the employer levy rate. The Board reviews the levy rate annually and based on actuarial advice, adjusts the rate from time to time taking into account the financial situation of the Fund including any surpluses Total income to the WA Board in was reported as approximately $5.7 million. Average contributions per quarterly employer return period were approximately $ Payments of long service leave benefits totalled over $4.7 million to 930 employees, representing 2.4 per cent of workers registered under the scheme. The balance of retained earnings at 30 June 2001 was $27.6 million and the total cash and investments of the WA Board as at 30 June 2001 was $83 million. The actuarial estimate of the liability of the scheme in the balance sheet was $58.8 million as at 30 June The WA Board s annual report notes that the employer contribution rate has steadily fallen, from 3 per cent in 1987 to 0.1 per cent in 1999, and that it remained at 0.1 per cent for the financial year ended 30 June The WA Board attributed the contribution rate to the excellent investment returns that have been achieved. 34 This is borne out by the financial reports, which identify contributions from employers of $ , yet a return on the investment of the fund of $ Administrative expenses were $ and payments of long service entitlements totalled $ Total income to the WA Board in was reported as falling to approximately $2.9 million. Average contributions per quarterly employer return period fell to approximately $ Payments of long service leave benefits totalled just over $4.25 million to 868 employees, representing 2.3 per cent of workers registered under the scheme. The balance of retained 232 Final Report of the Royal Commission into the Building and Construction Industry

239 earnings at 30 June 2002 had fallen by $10 million to $17.6 million and the total cash and investments of the WA Board as at 30 June 2002 was $76 million. The actuarial estimate of the liability of the scheme in the balance sheet was $58.1 million as at 30 June The WA Board s annual report notes that the employer contribution rate has steadily fallen, from 3 per cent in 1987 to 0.1 per cent in 1999, and that it remained at 0.1 per cent for the financial year ended 30 June However it reports: The Board s actuary has estimated that the long term rate of contribution to cover the liabilities of the Scheme is around 1% of the ordinary rate of pay. The current reduced rate of 0.1% is then a significant discounting of the long term rate and cannot be maintained indefinitely. 87 This is borne out by the financial reports, which identify contributions from employers falling to $ , yet the return on the investment of the fund falling to $ Administrative expenses were $ and payments of long service entitlements totalled $ The result was an operating loss for the year of $ , down from a loss of $ in the previous year. 88 None of the income derived from the Western Australian fund is diverted to matters that are unrelated to the fund. South Australia 89 In South Australia, long service leave in the building and construction industry is governed by the Construction Industry Long Service Leave Act 1987 (SA). 90 The Construction Industry Long Service Leave Act 1987 (SA) provides for a scheme where long service leave is based on service in the industry rather than service to a particular employer. The Construction Industry Long Service Leave Act 1987 (SA) makes it compulsory for an employer of a person covered by the scheme to contribute to the scheme in relation to that employee. Contributions are made to the Construction Industry Fund. Section 20(1) of the Construction Industry Long Service Leave Act 1987 (SA) states that the Construction Industry Fund and the Electrical and Metal Trades Fund are combined and continue in existence as the Construction Industry Fund. 91 The scheme is managed by the Construction Industry Long Service Leave Board (the SA Board), established under s6 of the Construction Industry Long Service Leave Act 1987 (SA), which trades under the name Construction Benefit Services. It covers workers, apprentices and casuals who work predominantly on site at least three days per month, performing work described in awards specified by the SA Board. Subject to certain exceptions, ss5(1), (1a) and (1b) of the Construction Industry Long Service Leave Act 1987 (SA) prescribe the kinds of work that are covered by the scheme: (1) A person is within the ambit of this subsection if (a) the person works under a contract of service in the construction industry; and (b) Reform Funds 233

240 (i) (ii) an award referred to in the schedule 1 or the regulations prescribes a weekly rate of pay for work of that kind; or the person works on site as a foreman and within 12 months before commencing work as a foreman the person worked in some other capacity as a construction worker under an award referred to in the schedule 1 or the regulations; and (c) (i) the employment involves on site work that makes up the whole, or a proportion of at least one-half, of the period of employment over (A) (B) (C) the whole period of employment; or the first month of employment; or any three-month period of employment; or (ii) in the case of a foreman, the on site employment involves supervising other employees who work on the site, but without affecting any accrued effective service entitlement, this subsection ceases to apply to the employment if the employee has not worked on site for the last three months or, in the case of a foreman, has not gone on site in the performance of his or her functions as a foreman for the last three months (disregarding any period during which the employee is absent from work as a result of an allowable absence). (1a) A person is within the ambit of this subsection if (a) (b) (c) (d) the person works under a contract of service in the construction industry; and an award referred to in schedule 1A, or the regulations, prescribe a weekly rate of pay for work of that kind (subject to any limitation as to classifications referred to in that schedule or the regulations); and the person s employer has registered with the Board as an employer for the purposes of this Act; and the person s employer and the Board have agreed that the Act should apply to the person. (1b) A person is within the ambit of this subsection if (a) (b) (c) the person has been employed as a construction worker within the ambit of subsections (1) or (1a); and the person is seconded to a relevant association to act as an officer or employee of the association after being granted leave without pay by an employer in the construction industry; and the relevant association is registered with the Board for the purposes of this provision; and 234 Final Report of the Royal Commission into the Building and Construction Industry

241 (d) the person is not (and does not become) a member of the governing body of the relevant association, but without affecting an accrued effective service entitlement, this subsection ceases to apply to the person if the person attains an effective service entitlement of 2600 days 92 Section 7 of the Construction Industry Long Service Leave Act 1987 (SA) requires that the SA Board consist of seven members. The SA Board is nominated by the Minister and consists of: one person who will be the presiding officer of the Board; three members selected from recommendations of employer associations, to represent the interests of employers in the construction industry; and three members selected from recommendations of the United Trades and Labor Council, to represent the interests of construction workers. 93 A suitable person may deputise for a member of the SA Board and that person may, in the absence of that member from the duties of office, act as a member of the SA Board. A deputy is to be nominated in the same way as the member. 94 Section 22(1) of the Construction Industry Long Service Leave Act 1987 (SA) prescribes that the SA Board may lend money from the Construction Industry Fund to an industrial organisation for the purpose of establishing or operating a group training scheme for the construction industry approved by the Industrial and Commercial Training Commission, with the approval of the Minister and the Treasurer. The loan is subject to terms and conditions as the Minister and the Treasurer think appropriate and may be free of interest. The annual reports for the years ended 30 June 2001 and 2002 indicate that such a loan has not been made at least during those years. 95 The annual report for indicated that during this period the SA Board s levy income increased by 10.9 per cent to $2.56 million. Total liabilities for the Construction Industry Fund were $ million and total assets were $ million, resulting in an unfunded liability of $ There were employees registered with the scheme during that financial year, and 1203 claims were paid at a cost to the Construction Industry Fund of $5.02 million. This represented 7.5 per cent of workers registered with the scheme. 97 Matters worsened in the following year. The annual report for stated that although the SA Board s levy income increased from $2.56 million to $3.9 million as a result of the levy rate increases, the total accrued liabilities for the Construction Industry Fund rose from $ million to $27.7 million and total assets fell from $ million to $24 153, resulting in an increased unfunded liability of $3.547 million As at 30 June 2002, there were employees registered with the scheme, and 1024 claims were paid at a cost to the Construction Industry Fund of $3.9 million. This represented 6.4 per cent of workers registered with the scheme. 99 Section 24(1) of the Construction Industry Long Service Leave Act 1987 (SA) prescribes that annually the SA Board must appoint an actuary to investigate the state and sufficiency of the Construction Industry Fund. The actuary s report to the SA Board must state whether rates of Reform Funds 235

242 contribution to the Fund should be reduced or increased. A copy of the report accompanies the SA Board s recommendations about the levy rates and must be supplied immediately to the Minister, who in turn must supply a copy of the report to both Houses of the South Australian Parliament within six sitting days after receipt. 100 Section 16(1) of the Construction Industry Long Service Leave Act 1987 (SA) prescribes that a construction worker who has an effective service entitlement of 2600 days (equated to ten years full-time work) is entitled to 13 weeks long service leave. 101 Long service leave must be granted by the employer by whom the construction worker is employed when the entitlement arises, as soon as practicable after the person becomes entitled to the leave. Leave may be taken in separate periods, as negotiated by the employer and worker provided that, in accordance with s16(3): (e) (f) (g) a construction worker s first long service leave entitlement cannot be taken in more than three separate periods; and each such period must be constituted by whole weeks of leave and be of at least two weeks duration; and any subsequent period of long service leave to which the construction worker becomes entitled must be taken in periods of at least two weeks duration 102 Section 17 of the Construction Industry Long Service Leave Act 1987 (SA) provides for prorata payments after seven years of service where the worker has died, ceased to work as a construction worker because of a disability that will prevent him or her from working as a construction worker for a continuous period of 12 months or more, or ceased to work as a construction worker and will not be working as a construction worker for a continuous period of 12 months or more (from the time when he or she ceased to work as a construction worker. 103 If a person dies, any entitlement of the person due in accordance with the Construction Industry Long Service Leave Act 1987 (SA) vests in his or her personal representative Section 19(1) of the Construction Industry Long Service Leave Act 1987 (SA) prohibits a construction worker engaging in any other employment in place of his or her employment as a construction worker while on long service leave. 105 With effect from 2 November 2000, the levy rate was increased from 1 per cent to 1.6 per cent of a worker s ordinary pay in order to address poor investment returns, industry wage growth and continuing liabilities. The levy was further increased, for these reasons, to 2 per cent with effect from 1 January In its annual report for the year ended 30 June 2002, the SA Board recommended to the Government that the levy be further increased to 2.5 per cent to address the continuing unfunded liability of the Fund. Tasmania 106 The Construction Industry (Long Service) Act 1997 (Tas) provides for the privatisation of the Tasmanian long service scheme. On 1 July 1998, under s4 of the Construction Industry (Long Service) Act 1997 (Tas), the Minister for Workplace Standards declared TasBuild Limited 236 Final Report of the Royal Commission into the Building and Construction Industry

243 (Tasbuild), to be responsible for administering the newly privatised scheme. All assets and liabilities of the fund were transferred to Tasbuild. 107 The Tasmanian Government retains an enforcement role to ensure that employers register themselves and their employees and make the necessary payments into the fund. 39 The administration of the Construction Industry (Long Service) Act 1997 (Tas) remains with the Minister for Workplace Standards and the Workplace Standards Authority Under the terms of its Trust Deed, TasBuild is responsible for providing long service leave benefits to workers in the construction industry. 41 It is managed by a Board of Directors with equal representation of employers and employees in the industry. In addition to its responsibility to manage and administer the fund, the Trustee may determine: which work is construction work for the purposes of the scheme; whether a person is an employer or employee within the construction industry; and what a person s obligations and entitlements are under the scheme The Board of TasBuild has seven members, who are required to subscribe to a memorandum of association. Directors are divided into three classes: A three employer representatives; B three employee representatives; and C a chairperson Sections 5 and 6 of the Construction Industry (Long Service) Act 1997 (Tas) provide for mandatory registration with the trustee of all employers and employees in the construction industry and payment to the trustee of any payment which the trustee determines is necessary to fulfil the employer s obligations under the scheme. 111 Section 7 of the Construction Industry (Long Service) Act 1997 (Tas) states that TasBuild may impose a levy to fulfil its obligations under the scheme. The levy is currently set at 0.7 per cent of the ordinary weekly wage The Commission received a submission from the Tasmanian Government which stated: [T]he company [Tasbuild] can invest and manage the fund and must do so in the interest [of] all persons who have, or may have, in the future, an entitlement to a payment from the fund. Where the trustee invests any of the monies in the fund, it is obliged to review that investment every twelve months In the Trustee paid $1.4 million in entitlements to 279 workers, representing 4.4 per cent of workers registered with the scheme. In the following year, the Trustee paid $1.16 million in entitlements to 231 workers, representing 2.9 per cent of workers registered with the scheme. 114 The annual report states that since the incorporation of Tasbuild, the Trustee has paid out $4.43 million in entitlements to workers. 115 In its annual report for the year ended 30 June 2001 TasBuild reported total liabilities of $ million and total assets of $39.58 million. 46 In its annual report for the year ended Reform Funds 237

244 30 June 2002 TasBuild reported total liabilities of $18.06 million and total assets of $38.26 million. 47 Australian Capital Territory 116 The Long Service Leave (Building and Construction Industry) Act 1981 (ACT) provides the legislative framework for the administration of long service leave for workers in the building and construction industry in the ACT. 117 Building and construction work is defined in s3 of the Long Service Leave (Building and Construction Industry) Act 1981 (ACT) to mean: work performed in the Territory in the building and construction industry, being (a) (b) work in respect of which a rate of pay is fixed by a prescribed award; or work performed under a contract of employment by a person (i) (ii) as a clerk of works or construction supervisor; or acting as a foreman, sub-foreman or leading hand in the supervision of work performed in the building and construction industry. 118 Section 50 of the Long Service Leave (Building and Construction Industry) Act 1981 (ACT) prescribes that a registered employee or contractor is deemed to have completed a year of service for each 220 days. Section 51 of the Act prescribes that eligible employees and contractors credited with a period of recognised service of not less than ten years are entitled to: (a) (b) an amount of long service leave calculated at the rate of the defined fraction of a week s leave for each completed year of service credited to the employee or contractor in the Employees and Contractors Register; and for any remainder of the period of service credited to the employee or contractor in the Employees and Contractors Register, an amount of long service leave equal to the period that bears the same proportion to the defined fraction of a week as the remainder bears to 1 completed year of service. 119 Section 4 of the Long Service Leave (Building and Construction Industry) Act 1981 (ACT) establishes the Construction Industry Long Service Board (the ACT Board). It is a body corporate with perpetual succession. The ACT Board is capable of acquiring, holding and disposing of real and personal property and may sue and be sued in its corporate name. 120 Each member of the ACT Board is appointed by the Minister and holds office for a period up to five years and is able to be reappointed. The ACT Board consists of three members: the chairperson; a member representing employer organisations; and a member representing employee organisations. 121 The functions of the ACT Board, as prescribed in s6 of the Long Service Leave (Building and Construction Industry) Act 1981 (ACT), are: 238 Final Report of the Royal Commission into the Building and Construction Industry

245 (a) (b) (c) (d) (e) to administer the scheme of long service benefits established by this Act in respect of employees and contractors engaged in the building and construction industry; to make recommendations to the Minister as to any changes that the Board considers should be made to the rate of payments made by employers and registered contractors under this Act; to make recommendations to the Minister as to the laws of a State or another Territory that the Board considers suitable to be declared as corresponding laws under section 62 [which concerns reciprocal agreement for the interstate transfer of benefits]; to make payments in accordance with this Act; and to establish and maintain the Employers Register and the Employees and Contractors Register in accordance with this Act. 122 The ACT Board has the power to recover moneys payable to the ACT Board and any debts that may be incurred against the ACT Board. It is able to enter into agreements to borrow moneys in accordance with the Long Service Leave (Building and Construction Industry) Act 1981 (ACT) and to refund any moneys refundable under the Long Service Leave (Building and Construction Industry) Act 1981 (ACT) (s7) In its annual report for the year ended 30 June 2001, the ACT Board reported that it had 7191 registered current employees, 629 employers and 52 contractors. It reported payments of $2.17 million to 508 eligible workers. This represents payments to 7.1 per cent of workers registered with the scheme. Total liabilities were $19.43 million, of which $17.1 million was estimated accrued long service leave benefits. Total assets of the fund were $42.06 million for the same period. In the following year, total liabilities had risen to $20.92 million, of which $18.4 million was estimated accrued long service leave benefits. Total assets of the fund had fallen to $ million for the same period. 124 For the financial year ended 30 June 2002 contributions from employers and contractors rose slightly, from $1.334 million to $1.359 million. 49 During the financial year ended 30 June 2002, benefits totalling $2.26 million were paid in response to 503 claims. This represented a slight rise in benefits paid, compared to benefits totalling $2.167 million paid in the previous year. Investment income, however, fell from a profit of $2.398 million during the financial year ended 30 June 2001 to a loss of $ The net result was an operating loss of $3.2 million for the financial year ended 30 June Section 24 of the Long Service Leave (Building and Construction Industry) Act 1981 (ACT) prescribes triennial investigations of the fund by an actuary. The actuary s report must be forwarded to the ACT Board and to the Minister. It must include an opinion as to whether levy rates payable to the ACT Board by employers and registered contractors covered by the Long Service Leave (Building and Construction Industry) Act 1981 (ACT) should be changed. 126 The Long Service Leave (Building and Construction Industry) Act 1981 (ACT) imposes a compulsory levy on employers in the building and construction industry to fund the long service entitlements of employees in the industry. The current levy is set at 1.0 per cent of a worker s ordinary pay. Reform Funds 239

246 Northern Territory 127 In the Northern Territory, long service leave payments are governed by the Long Service Leave Act 1981 (NT). To be eligible for corporate service leave, an employee must have been employed by an employer for not less than 10 years continuous service (s8). It does not provide for portability of long service within the industry, or for time out of employment without losing service credits. There is no specific legislation concerning the payment of long service leave benefits in the building and construction industry. Observations 128 Commissioner Gyles, in his inquiry into Productivity in the Building Industry in New South Wales, commented on the nature of long service leave benefits as follows: There is a significant difference between a long service leave entitlement and a scheme for long service payments [emphasis included]. Long service leave in the community generally first became available to employees after they had completed a minimum period of continuous service with an employer (currently 15 years). Subsequently, additional entitlements were created so that employees receive a pro-rata payment on termination of employment for any reason after 10 years continuous service, or on retrenchment (or resignation because of pressing domestic necessity) after 5 years. As previously noted, the construction industry scheme is not concerned with leave at all, but with payments. In other words, a scheme which was initially promoted on the basis that an employee who faithfully served an employer for an extended period deserved a long paid break as a reward, has been transformed in the construction industry into a scheme whereby anybody who is employed in the industry for a total of 10 years, no matter how many employers are involved or how frequently he or she goes and works temporarily in another industry, will be entitled to a sum of money That observation remains true in New South Wales, and in each of the other States and the ACT, save for variances in the number of years that a person must work in the industry before an entitlement becomes payable. 130 In each jurisdiction where a building and construction industry long service leave fund has been established, the annual reports provided by the trustees or boards responsible for administering those funds are largely devoted to the financial performance of the fund. 131 During the 1990s all competently managed funds, including superannuation, redundancy and long service leave funds applying in the building and construction industry, provided significant returns on capital. Long service leave funds enjoyed this return, in addition to relatively low outgoings in the form of long service leave payments to workers. The result was significant increases in capital. 132 The various long service leave funds operating in the building and construction industry responded to this windfall by reducing employer contributions or, in the case of Victoria, eliminating them altogether. 240 Final Report of the Royal Commission into the Building and Construction Industry

247 133 Some schemes were also made more generous for workers. 51 Employees became entitled to leave the industry for greater periods of time without losing service credits. Employees could obtain pro-rata long service leave payments after a lesser period of service and access the scheme even where they were self-employed. 134 Other benefits were provided. For example, employers were no longer required to pay levies for apprentice employees, although the apprentices could still count their service as an apprentice for long service leave purposes. 135 The result was to widen the class of workers able to obtain a benefit from a fund, and so to increase the liabilities and outgoings of the fund. 136 Other uses were made of the surpluses. In Queensland, large sums were (and continue to be) provided to training schemes as mentioned in the overview of the Queensland fund. In New South Wales, in 1995, the Government determined that a portion of the accumulated surplus, being funds in excess of current and foreseeable liabilities, be repatriated to the government s consolidated fund. However, this [was] not intended to in any way impact the future liability of the scheme or its ability to meet benefit commitments All this was possible because of the excellent returns being achieved on investment of the funds capital. Financial statements contained in the annual reports of the various funds make clear that the great majority of each fund s income was derived from investment returns rather than employer contributions. 138 However, in recent times, investment returns on long service leave funds have declined in line with the global economic slow down. Recent annual reports identified that the schemes were affected by: lower return on investments; maturing of schemes; increased wages resulting from enterprise bargaining; and increased benefits for employees. 139 Tables 6 8 below give an indication of the declining financial wellbeing of all the funds. Table 6 Long service schemes total assets and liabilities in NSW Vic Qld WA SA Tas ACT Total assets $ $ $ $ $ $ $ ($m) Total liabilities $ $ $ $ $ $ $ ($m) Net assets $ $ $ $ $(0.295) $ $ of fund ($m) Reform Funds 241

248 Table 7 Long service schemes total assets and liabilities in NSW Vic Qld WA SA Tas ACT Total assets $ $ $ $ $ $ $ ($m) Total liabilities $ $ $ $ $ $ $ ($m) Net assets $ $ $ $ ($3.547) $ $ of fund ($m) Table 8 Long service schemes operating surplus or deficits Jurisdiction $000 $000 $000 New South Wales (76 048) Victoria ( ) (31 025) Queensland (24 245) (19 136) (2 596) South Australia (3 252) (314) (254) Western Australia (10 080) (3 739) (1 813) Tasmania (905) Australian Capital Territory (3 248) (358) Source: Annual reports of various portable long service leave schemes 140 It is apparent that funds are incurring significant losses. 141 The circumstances in Victoria are dramatic. CoINVEST reported an operating loss of $ million for the year ended 30 June The annual report states there was a fall in investment income from $11.9 million to a $30.65 million loss and an increase in future benefits liability from $15.7 million to $61.2 million. This follows an operating deficit for the year ended 30 June 2001 of $31.03 million, which in turn follows a $13.4 million operating surplus in the previous year. 142 In New South Wales, the net assets of the fund have fallen by approximately $76 million, from $90 million to $14 million. It has gone from an operating surplus of $5 million to an operating loss of $76 million. 143 In Queensland, QLeave s annual reported a deficit of $19.1 million, attributed to an increase in entitlement liability as the scheme matures, the maintenance of a reduced levy rate and the delivery of funds to the Building and Construction Industry Training Fund (Qld). QLeave reported a per cent decrease in income compared to the previous financial year, said to be the result of the downturn in building and construction activity in Queensland and decreased investment performance Final Report of the Royal Commission into the Building and Construction Industry

249 144 In the ACT, the operating loss of $ for the year ended 2002 was attributed to the increased provision for future long service leave. 54 For the financial year ended 30 June 2002, the operating loss had increased tenfold. 145 Western Australia s scheme recorded a $3.74 million deficit, largely due to the lower investment return and the fall in employment in the construction industry. 55 The WA Board earned a 4.7 per cent return in , half its budget estimate. Its operating loss nearly tripled in the following year. 146 South Australia s unfunded liability increased more than tenfold, despite an increase in levies. Its operating deficit also increased tenfold. 147 In Tasmania, the fund went from an operating profit of approximately $1 million, for the financial year ended 30 June 2001, to an operating loss of approximately the same amount in the following year. 148 Significant policy questions arise from this situation. Entitlements are payable by reference to the governing legislation or legal instruments, irrespective of the financial success of the fund. Moreover, it is apparent that entitlements and other benefits payable under these funds were increased because the funds (at the time) were providing sufficient returns to pay for them. Those entitlements and other benefits remain, despite the funds no longer being able to pay for them from self-generated income. In some cases employer levies have been increased to meet the shortfall, but still funds operate at a loss. 149 On 12 June 2001 the Board of CoINVEST, in response to industrial pressure, 56 determined to reduce the qualifying period in respect of pro-rata long service benefits from ten years to seven years and to provide pro-rata benefits for the representative of a member who died before the qualifying time but had at least 55 days of continuous service. Those changes came into effect on 1 July Actuarial advice obtained by the Board to measure the financial effect of these changes indicated an increase of $36.2 million in the accrued long service leave benefits liability of the fund. As a direct result, employers in Victoria, who have not needed to contribute to the fund since 1993 because of the sufficiency of returns on investment of the fund to meet their long service obligations to their employees, will commence paying a levy to the fund of 1.5 per cent of each worker s ordinary pay from 1 July Clearly that cost will be passed on as part of the cost of building and construction work in Victoria. 150 The Chairman of the Victorian scheme indicated in the annual report that the reduction of the qualifying period for a long service payment was the event with the most significant impact on the future of the fund during the year the decision will mean the reintroduction of industry contributions from 1 July The continuing provision of various benefits has steadily and incrementally widened the class of workers who can access a payment from the fund, to the point that the long service schemes in each of the participating jurisdictions now concern an additional payment to workers, and have little to do with long service. 152 These features call into question which model is most appropriate for administration of long service funds. All the various funds commenced with a legislative model, where entitlements and contributions were prescribed in legislation and the scheme was administered by the Reform Funds 243

250 Crown. As funds became more commercially orientated, so the administration moved to corporate models. Presently, in New South Wales, Queensland, Western Australia, South Australia and the ACT, the schemes are administered by an independent statutory authority. 153 In Victoria (1997) and Tasmania (1998), long service schemes have been privatised. The schemes are underpinned by simple enabling legislation, which provides authority for establishing the trustee to administer the scheme, and by legally binding documents particularly the trust deed and memorandum and articles of association of the trustee company. These documents address the registration of employers and employees; contributions to the fund; entitlements to be paid from the fund; the actuarial valuation of the fund; and the composition of the board of directors. 154 The critical difference between the two approaches is that, in the latter model, government no longer has any hands on involvement in the scheme or any financial exposure to it. Issues 155 In Discussion Paper Fourteen, the Commission invited responses on two main issues: Is it appropriate that long service leave entitlements within the industry continue to be made according to the existing arrangements or should greater flexibility be provided through collective or individual bargaining? What changes (if any) should be made? Is it appropriate for funds from long service leave levies to be used for other purposes? 156 With regard to the first issue raised in Discussion Paper Fourteen, the submissions received by the Commission without exception supported the retention of the existing schemes. Submissions from both employer and employee groups opposed a proposal that long service leave should be subject to collective or individual bargaining. 157 The Construction, Forestry, Mining and Energy Union (CFMEU) submitted: In response to the main question asked by the Paper, long service leave benefits in this industry should not be left to individual and collective bargaining as this will result in many workers in weak bargaining positions losing out. Opening long service leave entitlements up to collective and individual bargaining will result in many workers losing their entitlements workers with lower bargaining power, such as those who are forced into individual bargaining, will lose out. Meanwhile workers whose employers go bust would probably lose everything The Civil Contractors Federation provided the Commission with a submission on behalf of its eight State and Territory branches, the Earthmovers and Contractors Association, the Demolition Contractors Association of New South Wales, the Golden Buckets Association of New South Wales and the Construction Plant Materials Association of New South Wales. The submission stated: 244 Final Report of the Royal Commission into the Building and Construction Industry

251 Long service leave / payments entitlements should have greater flexibility, Nationally [sic]. However, not through individual/collective bargaining The Australian Industry Group submitted: While the current arrangements may not be perfect, we do not believe that long service leave entitlements in the building and construction industry should be the subject of collective or individual bargaining In answer to the first question, the Queensland Government submitted: Any proposals to change existing arrangements are rejected The Master Builders Association of Western Australia submitted: MBAWA would prefer the provision of the state s portable LSL scheme to be sacrosanct 162 The Commission received a submission from the Acting Secretary of the Tasmanian Department of Premier and Cabinet. It stated: In regard to the Commission s specific invitation for comment on page 8 of the paper, the Tasmanian Government believes that long service entitlements within the industry should continue to be provided according to the existing arrangements in this jurisdiction The Commonwealth supported the more flexible use of long service leave provisions and referred to the long service leave flexibility paper prepared for the then Labour Ministers Council in This paper was also referred to by the Commission in Discussion Paper Fourteen. The Commonwealth submitted: Arrangements can be put in place which allow employers and employees to better manage access to leave entitlements for the purpose of work planning, whilst at the same time ensuring employees can better manage their personal needs and circumstances. This is particularly important in the case of long service leave, given that where it applies it can mean employers are without a staff member for a considerable period of time it is necessary to focus on developing approaches to managing long service leave which ensure flexibility for employers and employees in accessing [long service leave entitlements]. Critical to the success of such an approach will be to ensure that any long service provisions: are written in plain English provide the means of managing the entitlement which are transparently fair to both parties enable employers and employees to jointly determine the timing, quantum and opportunity cost of any leave enable cashing out In respect of the second issue, long service funds are applied in various ways. Reform Funds 245

252 165 In Tasmania, the Trustee s investment strategy includes an allocation of specific funds to construction projects. The amount allocated in was $9 million. The financial support provided by the Trustee is intended to create employment opportunities for current and potential beneficiaries of the fund. All projects are secured by mortgages with a defined exit strategy for the return of capital within a specified time after completion of the project In Queensland, the long service leave scheme directs 50 cents of every $2.00 collected in long service leave levies into a building and construction training fund. Between 1998 and 2002, $16.2 million has been provided to this training. A further $1.25 of every $2 is provided to the Queensland Division of Workplace Health and Safety. 167 The Commission received various submissions in reply to the question of whether this is appropriate. Some submissions supported the schemes using long service funds for uses other than payment of long service entitlements. Other submissions did not. Submissions in support referred to the broader, industrywide, benefits which flow from this expenditure. 168 The CFMEU submitted: It must be remembered that the schemes themselves involve the collection of a pool of funds. It seems appropriate from our perspective that those funds be used to strengthen the scheme and/or the industry. Investments in property for example creates jobs for workers and helps the industry grow. Of course, the use of funds for other purposes should at all times be consistent with the rules and objectives of the scheme itself. Where this is the case, and where either workers or the industry benefits, we see nothing inappropriate about funds being used for other purposes TasBuild submitted that its policy of applying funds to assist projects to get off the ground was unique to Tasmania. 67 TasBuild submitted that this policy: has provided continuity of employment for workers within the industry and has assisted businesses to continue operating in Tasmania The Tasmanian Government likewise submitted that the allocation of specific funds to invest in relevant projects was appropriate Similarly, the Queensland Government considers it highly appropriate to use funds to assist the industry in training workers. 70 It submitted: QLeave has contributed $18.5m to the Building and Construction Industry Training Fund to address skills shortages in the BCI Grants are provided to BCI employers to train their employees and since 1999, 2083 apprentices and trainees have benefited from this scheme. Without QLeave providing funds for industry training, it is almost certain that the industry s skill levels would be lower and skill shortages would be higher Without this important investment in training, the BCI s long-term viability and productivity would be in question Final Report of the Royal Commission into the Building and Construction Industry

253 172 Other responses to Discussion Paper Fourteen expressed concern about the use of long service leave moneys for unrelated purposes. According to these submissions, the alternate use of funds weakens the long term financial viability of the schemes. For instance, the Australian Industry Group does not support the alternate use of funds and submitted that such provisions should be removed. 72 A similar view was expressed by the Civil Contractors Federation The Master Builders Association of Western Australia also opposed the use of funds for alternative purposes. It submitted: MBAWA does not support the right or opportunism of governments to plunder funds from the portable LSL Scheme for any other use than as prescribed by the founding legislation. It is inappropriate for employer contributions to be put to other purposes (eg. capital works, underwriting a budget deficit, training etc.) Similar views on the repatriation of long service leave moneys by State governments were expressed by the Australian Industry Group 75 and the Civil Contractors Federation The alternate use of funds was also opposed by the Commonwealth. The Commonwealth Department of Employment and Workplace Relations submitted: long service leave levies should be utilised for the purpose for which they were collected. As the Commission s paper points out, long service leave provides important benefits to the employee, and ultimately for the employer in terms of a more refreshed and motivated workforce. Diversion of funds for other purposes, even for purposes which may be considered worthwhile, is likely to lead to a long term diminution of the benefits to be derived from levies that provide for effective long service leave schemes. This issue should also be seen in the context of transparency of financial transactions and corporate governance in the building and construction industry Ensuring that long service leave levies are used only for the purpose for which they were collected will contribute to an improved culture of appropriate financial transactions and transparent operation of industry funds. 77 Discussion 176 There were some issues upon which there was little contention. In particular: (a) (b) portability should be retained, such that long service is determined by service in the industry rather than service with a particular employer. Submissions from all quarters of the industry opposed removal of portability. To propose that long service should again be tied to service with a particular employer, consistent with other industries, is to ignore the nature of the industry. The statistics make plain that without portability, only a small fraction of the workforce would be able to access the schemes; and long service entitlements should continue to be determined by the administrators of the schemes, and not become the subject of individual or collective enterprise bargaining. There was bipartisan opposition to such a proposal. Long service is a traditional entitlement determined by reference to the objective criterion of time in the workforce. It Reform Funds 247

254 is not a matter which should be linked to matters such as productivity. Nor should it be exposed as a bargaining chip in the negotiation of an enterprise bargaining agreement. 177 There are several important issues confronting the operation of long service schemes across the industry which were more contentious. These are: (a) (b) (c) whether key aspects of the schemes should be common (for example, the manner in which levies are imposed and the periods which should apply before an employee may access a scheme); whether long service schemes should be privatised ; and whether fund moneys should be used for purposes unrelated to the scheme. Uniformity 178 Long service schemes in the building and construction industry are, and always have been, conducted on a State and Territory basis. They have common features, except in the Northern Territory where no separate scheme exists. In 1999, the governments of all the States and the ACT entered into the Reciprocal Arrangement which provides for portability of entitlements between the States and the ACT. 179 The Chief Executives of the various Boards meet regularly to discuss matters of mutual interest. The jurisdictions have initiated benchmarking as part of their performance monitoring activities. In 1999 the Labour Ministers Council released a research paper concerning flexibility in long service leave The common attributes of the various long service schemes make a strong case for a uniform scheme. There appears to be merit in allowing workers in Australia to access benefits under a long service scheme after the same numbers of years of service, in circumstances where time in the workforce is the central factor in determining the entitlement. Likewise, there appears to be merit in a common system for collecting levies for the funds. 181 However these are matters for the States and the Territories. It is not for the Commonwealth to push matters or otherwise to lead the way. It is similarly the prerogative of the Northern Territory to have no specific scheme. Privatisation 182 Privatisation occurred in Victoria (in 1997) and Tasmania (in 1998). It was proposed in the ACT but did not proceed. 79 The remaining schemes are administered by statutory corporations which report to a responsible Minister. 183 Whether an activity should be privatised or under government control is quintessentially a question for government. The differences of approach demonstrate the absence of a clear answer. I observe, however, that the breadth of access to the schemes and the income and outgoings of the schemes are now such that the schemes have little to do with long service leave. 184 The funds are administered on industry lines without regard to government. Employers in the industry pool their contributions. Returns on investments are sought and employees draw 248 Final Report of the Royal Commission into the Building and Construction Industry

255 benefits by reference to service in the industry. The central focus of the funds is their capacity to pay and the returns on their investments. They function according to commercial principles and are subject to the economic circumstances affecting the industry. 185 I note Mr Sheridan s view, in his review of the Construction Industry Long Service Leave Scheme in South Australia, 80 that there is no longer a sound case for the involvement of Government in the administration of these funds and that Government should not be financially exposed to a scheme in which it no longer has any proper role. He observes that such involvement hampers the capacity of the funds to operate on an efficient commercial basis. 186 Whatever be the merits of Mr Sheridan s view, privatisation is entirely a matter for State and Territory Governments. Use of surpluses 187 Last, I turn to the question whether fund moneys should be used for purposes unrelated to the scheme, such as training, investment in construction, underwriting of budget deficits, and general industry development. 188 I consider that long service leave moneys should be used only for the purposes for which they were paid. Transparency is important, particularly in this industry. It should be clear that moneys required by legislation to be paid by employers for the purpose of long service leave be used for that purpose. At present there are two deficiencies. First, the payments are frequently unrelated to leave, but are simply a lump sum. Second, a portion of the moneys raised or income on the capital fund is used for purposes other than long service payments to employees. 189 The fact that long service leave funds are siphoned off for other purposes which may be beneficial to the industry is not a sufficient justification for that occurring. If funds are required to be raised for training schemes or, as in Queensland, for payment to Government for use by its Workplace Health and Safety Division, they should be raised transparently for that purpose, either by legislation or agreement. 190 As appears from the chapter addressing Training in the Building and Construction Industry in the National Issues volumes, there is little, if any, clarity or understanding of both sources and uses of funds for training. There can be great difficulty in monitoring the requirement for funds for training purposes unless there is a clear understanding of the extent of the industry needs, the quantum of funds provided by Governments and industry, and the source of such funds. Transparency in funding will greatly assist. 191 I can see no justification for imposing upon the industry a levy by legislation for long service leave for employees and then using portions of the funds so raised for other purposes. 192 The matter is, however, ultimately a matter for the States and Territories. Reform Funds 249

256 Issue: Employers are required under long service leave legislation to contribute to long service schemes for the purpose of funding their employees long service entitlements, yet much of the money contributed, or raised from capital investment of the long service leave fund, is used for other purposes. Money compulsorily acquired should be used for the purpose for which it is collected. Recommendation 167 The Commonwealth encourage the States and Territories to ensure that moneys held or received by long service leave funds should be used only for the purpose of paying employees long service leave entitlements. 250 Final Report of the Royal Commission into the Building and Construction Industry

257 Notes to Long Service Leave Funds in the Building and Construction Industry 1 New South Wales Parliamentary Debates Volume 195, p and The Municipal Officers (New South Wales Electrical Undertakings) Long Service Leave Award 1970 (1973) 148 CAR 917 at 919 quoted in Queensland Government, Submission to the Queensland Industrial Relations Commission, Review of Long Service Leave Entitlements, Industrial Relations Act 1999, Case no. B1404 of 1999, p Allen Consulting Group (The) November 1999, Long Service Leave (Building and Construction Industry) Act A National Competition Policy Review. Final Report prepared for ACT Work Cover, p Burgess J., Sullivan A. and Strachan G. 2002, Long Service Leave in Australia: Application and Reform. A paper presented at the 16th Conference of the Association of Industrial Relations Academics of Australia and New Zealand, February 6 8, Queenstown, [accessed 18 April 2002], p Labour Ministers Council 1999, Research Papers Flexibility in Long Service Leave. A paper prepared by the WA Department of Productivity and Labour Relations in liaison with the federal Department of Employment, Workplace Relations and Small Business, May, p. 7; New South Wales Parliamentary Debates Volume 195, p and The Municipal Officers (New South Wales Electrical Undertakings) Long Service Leave Award 1970 (1973) 148 CAR 917 at 919 quoted in Queensland Government, Submission to the Queensland Industrial Relations Commission, Review of Long Service Leave Entitlements, Industrial Relations Act 1999, Case no. B1404 of 1999, p New South Wales Parliamentary Debates Volume 195, p and The Municipal Officers (New South Wales Electrical Undertakings) Long Service Leave Award 1970 (1973) 148 CAR 917 at 919 quoted in Queensland Government, Submission to the Queensland Industrial Relations Commission, Review of Long Service Leave Entitlements, Industrial Relations Act 1999, Case no. B1404 of 1999, p Labour Ministers Council 1999, Research Papers Flexibility in Long Service Leave. A paper prepared by the WA Department of Productivity and Labour Relations in liaison with the Federal Department of Employment, Workplace Relations and Small Business, May, pp Deery, S. and Plowman, D., Australian Industrial Relations (2 nd ed.), McGraw-Hill Book Company, Sydney, p Deery, S. and Plowman, D., Australian Industrial Relations (2 nd ed.), McGraw-Hill Book Company, Sydney, p Workplace Relations Act 1996 (C wth), s89a(2)(f). 10 New South Wales Parliamentary Debates Volume 195, p and The Municipal Officers (New South Wales Electrical Undertakings) Long Service Leave Award 1970 (1973) 148 CAR 917 at 919 quoted in Queensland Government, Submission to the Queensland Industrial Relations Commission, Review of Long Service Leave Entitlements, Industrial Relations Act 1999, Case no. B1404 of 1999, p Labour Ministers Council 1999, Research Papers Flexibility in Long Service Leave. A paper prepared by the WA Department of Productivity and Labour Relations in liaison with the Federal Department of Employment, Workplace Relations and Small Business, May, p Gyles, R. QC 1992, Royal Commission into Productivity in the Building Industry in New South Wales, Final Report, Sydney, NSW, p ACT Department of Urban Services (online), Industry Policy and Regulation [accessed 23 September 2002], 14 Long Service Payment Corporation (NSW) Annual Report Long Service Payment Corporation (NSW) Annual Report Long Service Payment Corporation (NSW) Annual Report Long Service Payment Corporation (NSW) (online), Levy Information [accessed 2 October 2002], Reform Funds 251

258 18 CoINVEST Annual Report at p CoINVEST (online), Information Sheets, Who is Covered? [accessed 22 January 2003], 20 CoINVEST (online), Information Sheets, Who Is Covered? [accessed 2 October 2002], 21 CoINVEST (online), Company Bulletin [accessed 22 January 2003], 22 CoINVEST Annual Report CoINVEST (online), Company Bulletin [accessed 2 October 2002], 24 QLeave (online), General Information [accessed 2 October 2002], 25 QLeave (online), Fact Sheet Legislative Amendments 1 January 2001 [accessed 2 October 2002], 26 QLeave Annual Report QLeave (online), General Information [accessed 2 October 2002], 28 Construction Industry Long Service Leave Payments Board (WA) (online), Employee Information [accessed 2 October 2002], 29 Government of Western Australia, Draft statement provided to the Commission in relation to the operation of the Western Australian Construction Industry Long Service Leave Payments Board, 25 July 2002, pp Government of Western Australia, Draft statement provided to the Commission in relation to the operation of the Western Australian Construction Industry Long Service Leave Payments Board, 25 July 2002, pp Construction Industry Long Service Leave Payments Board (WA), Annual Report , p Government of Western Australia, Draft statement provided to the Commission in relation to the operation of the Western Australian Construction Industry Long Service Leave Payments Board, 25 July 2002, pp Construction Industry Long Service Leave Payments Board (WA) Annual Report Construction Industry Long Service Leave Payments Board (WA) Annual Report Construction Industry Long Service Leave Payments Board (WA) Annual Report Construction Industry Long Service Leave Board (SA) Annual Report Construction Industry Long Service Leave Board (SA) Annual Report Construction Industry Long Service Leave Act 1987 (SA), s Tasmanian Government, Department of Premier and Cabinet, Submission to the Royal Commission into the Building and Construction Industry, 21 February 2002, exhibit 179, document at Tasmanian Government, Department of Premier and Cabinet, Submission to the Royal Commission into the Building and Construction Industry, 21 February 2002, exhibit 179, document at TasBuild (online), Frequently Asked Questions [accessed 2 October 2002], 42 TasBuild (online), Frequently Asked Questions [accessed 2 October 2002], 43 TasBuild Pty Ltd, Annual Report , at p. 5, 44 TasBuild (online), Frequently Asked Questions [accessed 2 October 2002], 45 Tasmanian Government, Department of Premier and Cabinet, Submission to the Royal Commission into the Building and Construction Industry, 21 February 2002, exhibit 179, document at TasBuild Pty Ltd, Annual Report 2002, p Final Report of the Royal Commission into the Building and Construction Industry

259 47 TasBuild Pty Ltd, Annual Report 2002, p ACT Construction Industry Long Service Leave Board, Annual Management Report , p ACT Construction Industry Long Service Leave Board, Annual Management Report , p Gyles, R. QC 1992, Royal Commission into Productivity in the Building Industry in New South Wales, Final Report, Sydney, NSW, p Gyles, R. QC 1992, Royal Commission into Productivity in the Building Industry in New South Wales, Final Report, Sydney, NSW, p. 89; CoINVEST annual report ; and Review of the Construction Industry Long Service Leave Scheme, South Australia, 28 February 2001 prepared by Mr T A Sheridan (the Sheridan Report) at page Letter dated 16 April 1996 from Ms Helen Dauer, Director-General, NSW Department of Industrial Relations to Mr Booth, General Manager, the Master Plumbers and Mechanical Contractors Association of NSW. 53 QLeave, Annual Report , p ACT Long Service Leave Board Annual Report 2000/ Construction Industry Long Service Leave Payments Board (WA) Annual Report Welch Statement, exhibit 1767, paraphs 38-44, document at CoINVEST, Annual Report , p Construction, Forestry, Mining and Energy Union (CFMEU), Submission to the Royal Commission into the Building and Construction Commission in reference to discussion paper 14, 21 November 2002, exhibit 1857, document at Civil Contractors Federation (CCF), Submission to the Royal Commission into the Building and Construction Industry in reference to discussion paper 14, November 2002, exhibit 1876, document at Australian Industry Group (AIG), Submission to the Royal Commission into the Building and Construction Industry in reference to discussion paper 14, 18 November 2002, exhibit 1837, document at Queensland Government, Crown Law, Submission to the Royal Commission into the Building and Construction Industry in reference to discussion paper 14, 22 November 2002, exhibit 1855, document at Tasmanian Government, Department of Premier and Cabinet, Submission to the Royal Commission, into the Building and Construction Industry in reference to discussion paper 14, 22 November 2002, exhibit 1875, document at Labour Ministers Council 1999, Research Paper Flexibility in Long Service Leave, A paper prepared by the WA Department of Productivity and Labour Relations in liaison with the Federal Department of Employment, Workplace Relations and Small Business, May. 64 Commonwealth Government, Department of Employment and Workplace Relations 2002, Submission to the Royal Commission into the Building and Construction Industry in reference to discussion paper 14, 13 December. 65 TasBuild Pty Ltd, Annual Report , p Construction, Forestry, Mining and Energy Union (CFMEU), Submission to the Royal Commission into the Building and Construction Commission in reference to discussion paper 14, 21 November 2002, exhibit 1857, document at TasBuild Pty Ltd, Submission to the Royal Commission into the Building and Construction Industry in reference to discussion paper 14, 21 November 2002, exhibit 1852, document at TasBuild Pty Ltd, Submission to the Royal Commission into the Building and Construction Industry in reference to discussion paper 14, 21 November 2002, exhibit 1852, document at Reform Funds 253

260 69 Tasmanian Government, Department of Premier and Cabinet, Submission to the Royal Commission into the Building and Construction Industry in reference to discussion paper 14, 22 November 2002, exhibit 1875, document at Queensland Government, Crown Law, Submission to the Royal Commission into the Building and Construction Industry in reference to discussion paper 14, 22 November 2002, exhibit 1855, document at Queensland Government, Crown Law, Submission to the Royal Commission into the Building and Construction Industry in reference to discussion paper 14, 22 November 2002, exhibit 1855, document at Australian Industry Group (AIG), Submission to the Royal Commission into the Building and Construction Industry in reference to discussion paper 14, 18 November 2002, exhibit 1837, document at Civil Contractors Federation (CCF), Submission to the Royal Commission into the Building and Construction Industry in reference to discussion paper 14, November 2002, exhibit 1876, document at Master Builders Association of Western Australia (MBA WA), Submission to the Royal Commission into the Building and Construction Industry in reference to discussion paper 14, 14 November 2002, exhibit 1840, document at Australian Industry Group (AIG), Submission to the Royal Commission into the Building and Construction Industry in reference to discussion paper 14, 18 November 2002, exhibit 1837, document at Civil Contractors Federation (CCF), Submission to the Royal Commission into the Building and Construction Industry in reference to discussion paper 14, November 2002, exhibit 1876, document at Commonwealth Government, Department of Employment and Workplace Relations, Submission to the Royal Commission into the Building and Construction Industry in reference to discussion paper 14, 12 December 2002, exhibit 1929, document at Labour Ministers Council May 1999, Research Papers Flexibility in Long Service Leave. A paper prepared by the WA Department of Productivity and Labour Relations in liaison with the Federal Department of Employment, Workplace Relations and Small Business. 79 Review of the Construction Industry Long Service Leave Scheme, South Australia, 28 February 2001 prepared by Mr T A Sheridan (the Sheridan Report), p Review of the Construction Industry Long Service Leave Scheme, South Australia, 28 February 2001 prepared by Mr T A Sheridan (the Sheridan Report) at page Final Report of the Royal Commission into the Building and Construction Industry

261 13 Redundancy in the Building and Construction Industry Introduction 1 In June 1998 the Australian Industrial Relations Commission (AIRC), in determining the Building and Construction Industry (NT) Award (Print Q1599), stated that the current Federal award redundancy provisions reflected: the outcome of a relatively tortuous process of arbitration and negotiation. That process resulted in the development of what was described by several Full Benches as one general statement of benefits to apply to redundancy in the building and construction industry. 1 2 The opening sections of this chapter briefly examine this tortuous process of arbitration and negotiation. This necessitates an historical examination of how, since the late 1980s, the industry has provided for redundancies through industry funds. It also involves an analysis of how the Termination, Change and Redundancy Case (the TCR Test Case), determined by the Australian Conciliation and Arbitration Commission (ACAC) in August 1984, was translated into the building and construction industry. The meaning of redundancy 3 Redundancy, according to the Industrial Court of New South Wales, is a new social and industrial phenomenon. 2 The classic definition of redundancy was given by Bray CJ in 1977 in R v Industrial Commission of South Australia; ex parte Adelaide Milk Supply Co-Operative Ltd and Ors: the concept of redundancy seems to be simply this, that a job becomes redundant when the employer no longer desires to have it performed by anyone. A dismissal for redundancy seems to be a dismissal, not on account of any personal act or default of the employee dismissed or any consideration peculiar to him, but because the employer no longer wishes the job the employee has been doing to be done by anyone. 3 4 In 1993, in ICI Australia Operations Pty Ltd (T/as Dulux Australia) v Hutton, the Industrial Court of New South Wales described redundancy as: Reform Funds 255

262 a category of cessation or termination of employment which is recognised as being quite different from that of termination of a contract of employment in the normal and usual course of events. 4 5 According to Maken, a redundancy occurs: as a result of increasing unemployment consequent upon economic and industry down turns, company amalgamations and take overs, technological change and restructuring or re-organisations of employment. 5 6 The concept of redundancy has a wider meaning in the building and construction industry. The National Building and Construction Industry Award 2000 (clause 16.1) defines a redundancy to mean:... a situation where an employee ceases to be employed by an employer, respondent to this award, other than for reasons of misconduct or refusal of duty. Redundant has a corresponding meaning. History of redundancy provisions in awards 7 Traditionally, redundancy was not a matter subject to industrial regulation. The first Australian legislation which contained provisions addressing redundancies was s88g of the Industrial Arbitration Act 1940 (NSW). 6 In 1963 the New South Wales Government commissioned report on problems arising from mechanisation and technological change in industry. 7 Redundancy legislation was introduced in New South Wales in Similar legislation followed in South Australia, and in the early 1980s New South Wales introduced the Employment Protection Act 1982 (NSW). This legislation was procedural, rather than providing substantive award obligations concerning redundancies, with the result that it was left to tribunals to determine redundancy obligations in awards. 8 8 Until the 1980s, tribunals took a narrow view of their jurisdiction in this area. Thus, the ACACs view was that it should not encroach on the right of management to plan and organise the method of work. 9 As a consequence, industrial tribunals tended to provide only one form of redundancy protection lump sum severance payments. According to Deery, this approach recognised that employees had property rights in their jobs and that in redundancy situations they should be indemnified for the liquidation of those rights In 1981, the Australian Council of Trade Unions (ACTU) launched a claim for national minimum redundancy standards. This coincided with a period of substantial job losses in the metals and engineering industries where many employees had no award entitlement to severance pay. The Australian economy was undergoing significant structural and technological change In August 1984, the ACAC handed down its decision in the TCR Test Case decision. 12 The decision established standards to be set in federal awards on matters including unfair dismissal, notice of termination, consultation by employers in relation to technological change and redundancy. 11 The ACAC noted that substantial debate took place as to what should be regarded as redundancy for the purpose of any decision the Commission might make. The ACTU contended that redundancy protection should apply essentially where an employee is 256 Final Report of the Royal Commission into the Building and Construction Industry

263 dismissed through no fault of his own. The ACTU relied on the definition of redundancy given by Bray CJ in R v Industrial Commission of South Australia; ex parte Adelaide Milk Supply Co-Operative Ltd and Ors which, it contended, was the commonly accepted definition of redundancy in Australia. 13 The ACAC noted that a key element of that definition is that the employer no longer requires the work to be done by anyone. 12 The ACAC rejected a submission that redundancy entitlements should apply only in certain situations, for example in cases of redundancy arising from technological change. The ACAC commented that employees, no matter what the reason for redundancy, equally experience the inconvenience of hardship associated with searching for another job we do not believe that there should be any fundamental distinction, in principle, based on the causes of redundancy However, in doing so, it is apparent that the ACAC accepted the definition of redundancy set out in R v Industrial Commission of South Australia; ex parte Adelaide Milk Supply Co-Operative Ltd and Ors. The ACAC, in its later Supplementary Decision, stated: in our decision we made reference to a number of definitions of redundancy and our draft order was based on the definition of the Chief Justice, Bray J, in the South Australian Supreme Court The TCR Test Case decision became the standard Federal award provision regulating redundancies. The decision flowed on to State awards, except in Tasmania However, when the TCR Test Case decision was handed down in 1984, it was widely acknowledged that it had limited implications for the building and construction industry where employment is often on a casual or intermittent basis, or where awards include a follow-the-job loading. 17 In its Supplementary Decision, the ACAC stated: it was not our intention that the redundancy provisions should apply to the ordinary and customary turnover of labour In March 1994, with the commencement of the Industrial Relations Reform Act 1993 (C wth), federal industrial legislation provided some redundancy protection to Australian workers for the first time In June 1994 the New South Wales Industrial Relations Commission reviewed the level of severance payments in that State. The NSWIRC determined that it was appropriate for the safety net established in the 1980s to be increased. Accordingly, it increased the scale of redundancy benefits from four weeks pay, for an employee with between one and two years service, to 20 weeks pay for a worker over 45 years with at least six years service. 20 In so determining, the NSWIRC confirmed its 1983 decision that support during unemployment was one of the prime rationales for awarding severance payments. 21 This rationale differs from the ACACs 1984 TCR Test Case decision In 2002 proceedings were brought in the AIRC and the Queensland Industrial Relations Commission (QIRC) to increase the redundancy benefits awarded under the 1984 TCR Test Case decision. The QIRC has heard a claim to apply the 1994 New South Wales redundancy standard to Queensland employees under the Industrial Relations Act 1999 (Qld). The QIRC has reserved its decision. Reform Funds 257

264 19 The ACTU Redundancy Test Case is presently before the AIRC under the Workplace Relations Act 1996 (C wth). As with the Queensland proceedings, the ACTU claim seeks to increase redundancy entitlements under the Federal award so as to be in line with the New South Wales standard. 20 While Federal and State awards made under Federal and State legislation continue to provide minimum redundancy pay entitlements, the last decade has witnessed a marked increase in the incidence of redundancy provisions in enterprise bargaining agreements (particularly in the building and construction industry) which provide for employer contributions to industry redundancy funds. 23 In 1992 only 16 per cent of agreements included some redundancy provisions. By 1998, redundancy provisions were found in 46 per cent of agreements. According to the Australian Centre for Industrial Relations Research and Training: [t]his reflects the increased emphasis placed by redundancy legislation on the role of awards and enterprise agreements in regulating redundancy issues. 24 Statistics contained in the Commonwealth Department of Employment and Workplace Relations workplace agreements database show that 95 per cent of federally registered agreements certified during 2000 to 2001 in the construction industry contain termination, change and redundancy provisions. The role of the AIRC 21 In March 1989 the AIRC handed down the Building and Construction Industry Termination, Change and Redundancy Test Case decision (the BCI TCR Test Case Decision). 25 This decision arose from applications to amend industry awards to provide for redundancy benefits upon termination of employment. These applications sought, in essence, to flow-on the ACAC TCR Test Case decision to the industry, save for certain variations. In support of their applications, the majority of the building unions submitted that: many agreements made between employers and unions departed from, and were more generous than, the TCR standard; the Full Bench in the TCR Case made its decision against the background of the manufacturing industry and not against the particular circumstances which apply in the building and construction sector; the itinerant nature of employment in the building and construction industry alters the way in which the Commission should view the concept of severance pay; the age profile of employees working in the industry also warrants different treatment for employees from those employed in other sectors of industry; and no adjustment is needed to the follow-the-job loading in the award as it did not compensate employees for the circumstances sought in the application No party to the AIRC proceedings opposed the concept of a redundancy scheme in the industry. 258 Final Report of the Royal Commission into the Building and Construction Industry

265 23 In its decision, the AIRC Full Bench approved the flow-on of the TCR Test Case decision to the industry, but rejected the proposal for separate provisions on the ground that there should be one general standard of benefit namely that determined by the Full Bench in the TCR Case. However, the Commission recognised the high labour mobility in the industry and so made special provision for the accrual of redundancy benefits. The AIRC determined: An employee will be entitled to accrue redundancy benefits up until he or she leaves the industry. An employer will be required to provide a statement of service of an employee on each occasion that employee s service is terminated. When an employee decides that he or she no longer wishes to work in the industry, he or she shall produce to his or her current employer a statutory declaration to that effect. The employee will then be entitled to redundancy benefits commensurate with his/her years of service in the industry. For the purposes of implementation, credit will be given for service which an employee has given to his/her current employer Unfortunately, the BCI TCR Test Case Decision was unworkable. In the main, this was because liability for redundancy pay, while it accrued over time, vested in the employee s final employer and no employer wanted this unfunded liability. 25 In October 1989, the issue returned to the AIRC before Commissioner Grimshaw who reviewed the previous decision of the AIRC and made orders which recognised service in the industry, and the existence of redundancy funds, for the purpose of determining redundancy entitlements. Commissioner Grimshaw s decision formally recognised the operation of redundancy funds across the industry but to address the potential for double dipping between agreements and the award decided that any period of service during which contributions are paid into an agreed fund will not count as service for the purpose of the award Following further industrial action and proceedings before the AIRC, the matter came before Commissioner Palmer in early The proceedings before Commissioner Palmer were precipitated by an in-principle agreement reached between building unions and employers in August 1990 over service in the industry, rather than service to an employer, in relation to redundancy benefits. Commissioner Palmer made orders to give effect to the in-principle agreement for inclusion in the Federal building industry award. 29 It included the definition of redundancy now contained in the National Building and Construction Industry Award This Federal award variation has not been amended since In 1992, an AIRC Full Bench dismissed an appeal against Commissioner Palmer s decision, finding that it did not disclose any manifest errors of principle, reasoning or judgment. 30 Reform Funds 259

266 Establishment of redundancy funds 29 The traditional concept of redundancy does not fit comfortably into the project-based nature of the building and construction industry. As indicated above, in a traditional redundancy situation, an employee receives redundancy pay because the job no longer exists. This raises particular issues for the building and construction industry, because jobs regularly cease at the completion of a project on a particular site. Despite the itinerant nature of such work, official statistics suggest that while work ceases on one site, work becomes available on another site. 31 Workers therefore tend to stay working within the industry, albeit on different sites and often with different employers. Redundancy funds now operate throughout the industry to deal with this situation. 30 Employees entitlements to redundancy pay are stated in the applicable awards. The various entitlements are set out later in this chapter. Redundancy funds have been established throughout Australia as an internal industry-run mechanism to facilitate payment of these entitlements. Employers contribute a weekly amount to the relevant fund in respect of each employee. The contributions are recorded against an account in the name of the employee. In the event of redundancy, the employee may apply for a payment from the fund drawn from the money held in that employee s account. The employer may set off the amount held in the employee s account against the redundancy entitlement payable to the employee under the applicable award. 31 The applicable awards recognise this use of redundancy funds for payment of redundancy entitlements. Clause of the National Building and Construction Industry Award 2000 provides: An employer bound by this award may utilise a fund to meet all or some of the liabilities created by this clause. Where an employer utilises such a fund: (a) payments made by a fund designed to meet an employers liabilities under this clause, to employees eligible for redundancy/severance pay shall be set off against the liability of the employer under this clause, and the employee shall receive the fund payment or the award benefit whichever is the greater but not both; or (b) where a fund, which has been established pursuant to an agreement between unions and employers, does not make payments in accordance with this clause, contributions made by an employer on behalf of an employee to the fund shall, to the extent of those contributions, be set off against the liability of the employer under this clause, and payments to the employee shall be made in accordance with the rules of the fund or any agreement relating thereto and the employee shall be entitled to the fund benefit or the award benefit whichever is greater but not both. 32 Most of the other awards pertaining to the building and construction industry, as discussed below, have the same or a similar provision. 33 The use of redundancy funds to manage redundancy entitlements has several features. 260 Final Report of the Royal Commission into the Building and Construction Industry

267 34 First, weekly contributions by the employers ensure that the redundancy entitlements of employees are secure. This can be critical in the event that an employer s business fails and the employer is left unable to pay the employees entitlements. 35 Second, in the event of redundancy, an employee can draw from the account in accordance with the trust deed and other administrative documents governing the fund. Alternatively, the employee may elect not to do so and choose to allow the amount held in the account to accumulate. The employee might move to another employer who then contributes to that fund on behalf of that employee. In this way, the redundancy pay becomes portable and the amount held in an employee s account can be comprised of the accumulated weekly contributions of a series of employers. 36 Various qualifications on, and departures from, this broad statement about the role and operation of redundancy funds are set out later in this chapter. 37 The employer s obligation to contribute to a redundancy fund invariably arises under a certified agreement. The Commission received widespread and consistent evidence of pattern agreements between employee and employer associations which provide for employer contributions to nominated redundancy funds and the amount of the employer s weekly contributions to be paid on behalf of each employee. As dealt with elsewhere in my report, commercial and industrial pressure is applied to ensure that employers enter into individual certified agreements in accordance with the pattern which in turn secures the role and coverage of the nominated redundancy fund for the employers and employees alike. 38 The origins of the redundancy funds which operate in the industry today can be traced back to a wages campaign in early At that time, the building unions in New South Wales and three other States launched an industrial campaign for a $52 a week wage settlement for the industry, $20 of which was for severance payments. 32 This $20 component was said to be a legitimate application of the ACACs TCR Test Case decision to the industry, because the wage fixing principles at the time permitted the flow-on of Test Case standards The ACTU raised the issue during the ACAC March 1987 National Wage Case proceedings. In its decision, the ACAC noted what the TCR Test Case decision had said about itinerant work and stated further: Any application or claim for a flow-on of the termination, change and redundancy provisions into the building and construction industry will have to be considered on its merits Despite this, in August 1987, the building unions, the Australian Federation of Construction Contractors (AFCC) and the Master Builders Association of Victoria (MBAV) reached a private two-year $20 severance pay agreement, which was to take effect from 1 October 1987 notwithstanding an undertaking to the ACAC that they would not pursue any extra claims, award or over award, except where consistent with the National Wage Case Principles. The agreement was to apply throughout Australia excluding Queensland and the Northern Territory. The agreement provided for the establishment of a redundancy scheme. 35 Reform Funds 261

268 41 The agreement caused other industry organisations to bring proceedings before the ACAC out of concern that there would be impending disputes arising out of the agreement. On 11 September 1987, Ludeke J of the ACAC stated: The parties willingness to enter into these agreements without reference to the Commission cannot be supported by reference to any Principle [of the National Wage Fixing Principles] No attempt was made during these proceedings to bring the agreements within the Principles, nor, in my opinion, could they be so justified in their present form. It follows that any further attempt to extend the agreements is unacceptable As a consequence of these and other related proceedings, in late 1987, the President of the ACAC established a Full Bench Building Industry Inquiry. 37 The Inquiry handed down its decision in March Despite the August 1987 agreement to establish a redundancy scheme, it did not become operational. This was because of the inability to find an administrator for the fund and taxation difficulties in implementing it. 38 As a result, employers simply paid their workers upon leaving the project for whatever reason, including resignation, the rate of $20 for each week of service. As Commissioner Gyles commented: It is difficult to see this as anything else but a barely disguised over-award payment outside the wage fixing guidelines, never brought before the [ACAC], and contrary to the no-claims commitment Following the failure of this scheme, the MBAV agreed to establish the Redundancy Payments Central Fund (which now trades as Incolink) under the terms of the Victorian Building Industry Agreement with employer contributions of $20 a week for each worker. Since March 1998, various other parties at State level have established redundancy funds. These schemes are established under the terms of unregistered industrial agreements and governed by deeds of trust These schemes were being implemented at the same time that the ACAC was considering redundancy. As the then Federal Department of Industrial Relations (DIR) later commented, all of these schemes were designed to comply with the anticipated award provision. 41 This occurred from 1989 onwards. A statistical comparison of industry redundancy schemes 46 For this comparison, the statistics provided by the Australian Bureau of Statistics data are used. The Australian Bureau of Statistics uses the terms retrenchment and redundancy interchangeably and this has been maintained here In relation to the statistics quoted, the terms retrenchment and redundancy should be taken to mean those who were retrenched or made redundant in the three years before July As at July 2001, across all industries persons had been retrenched. This was six per cent of the persons aged 18 to 64 who had held a job over the three years up to that 262 Final Report of the Royal Commission into the Building and Construction Industry

269 time. 44 Of those persons, 52 per cent were aged between 25 and 44. Forty-three per cent were from three industries. 45 These were: manufacturing (20 per cent); property and business services (12 per cent); and construction (11 per cent). 49 Across all industries, tradespersons and related workers constituted 18 per cent or of those retrenched. Of those retrenched, labourers and related workers constituted 14 per cent or The total number of employees made redundant over the three year period in the building and construction industry was Of all persons made redundant, 77 per cent had less than five weeks notice while 25 per cent had less than one day s prior notice. Forty-two per cent provided as the reason for being made redundant as not enough work/job cuts Of the persons employed in the construction industry who were retrenched during the three years before July 2001, (or 67 per cent) were re-employed as at July A total of , or 46 per cent, of persons in the construction industry made redundant during the three year period were re-employed in the industry. Of that total, persons who resumed employment changed industry Of the persons made redundant, (or 33 per cent) had not returned to work as at July Of these 9200 were no longer in the work force, and were reported as unemployed The Australian Bureau of Statistics data indicates that of the who found further employment after their retrenchment, , or more than one in four, changed occupation (regardless of the industry they were subsequently employed in) The building and construction industry is strongly affected by economic conditions. Because it is cyclical the non-residential sector of the building and construction industry can have pronounced swings. 52 Redundancies can be expected to increase or decrease accordingly. Award entitlements in other industries 57 For comparative purposes, a selection has been made of a cross section of non-building industry awards from the top 100 Federal awards. 53 While an analysis has been provided at appendix A, this brief summary shows that the benefits that apply upon being made redundant are generally consistent across industries. 58 The awards selected are: Clothing Trades Award 1999; Clerical and Administrative Employees (Victoria) Award 1999; Hospitality Industry Accommodation, Hotels, Resorts and Gaming Award 1998; Reform Funds 263

270 Community Employment, Training and Support Services Award 1999; Bakers (Australian Capital Territory) Award 1998; and Transport Workers (Mixed Industries) Award Each of these awards provides that redundancy arises where an employer decides that the employer no longer wishes the job being undertaken by the employee to be done. In this respect, the decision is not due to the ordinary or customary turnover of labour All six awards provide no benefit to employees with less than one year s service, a maximum benefit of eight weeks pay and a schedule of benefits as defined by length of service as follows: four weeks pay for between one and two years of service; six weeks pay for between two and three years of service; seven weeks pay for between three and four years of service; and eight weeks pay for service of four or more years. 55 Enterprise bargaining agreements in other industries 61 Since the 1984 TCR Test Case decision of the ACAC referred to above, redundancy clauses have been incorporated into most major awards. However, today workplace bargaining is seen by many, including the Commonwealth Government, as the most appropriate forum for employers and employees to reach agreement on redundancy arrangements to apply to their enterprise The Commonwealth Department of Employment and Workplace Relations records that 82 per cent of the federally registered agreements certified during 2000 to 2001 contained termination, change and redundancy provisions. 57 National support scheme 63 Supplementary to the benefit arrangements provided under industrial instruments, the Commonwealth Government has attempted to secure employee entitlements, including redundancy entitlements, through a national employee entitlements support scheme. The General Employee Entitlements and Redundancy Scheme (GEERS) was established to provide for the entitlements of employees whose employment is terminated due to an employer s insolvency GEERS provides for payment in place of notice and up to eight weeks redundancy pay, as the community standard, to eligible claimants. Under the scheme an eligible claimant is any person who was lawfully employed in Australia whose employment has been terminated since 12 September 2001 and is owed certain employee entitlements by their former employer. This definition excludes contractors and employees who were shareholding executive directors, a relative of such a director or a relative of the former employer. 59 The scheme includes an income cap of $ for the financial year for the purposes of calculating claims Most employees within the building and construction industry, whether under a State or Federal award, or collective agreement, would be classified as eligible claimants for the purpose of GEERS Final Report of the Royal Commission into the Building and Construction Industry

271 Redundancy in the building and construction industry Award entitlements 66 Sixteen principal industrial awards have been identified which provide for employment arrangements in the building and construction industry in each State and Territory. These 16 awards have been examined to identify: the definition of redundancy provided; eligibility criteria; benefits provided (based on length of service); benefits provided for employees with less than one year of service; maximum redundancy entitlements; and any additional termination benefits. 67 The names of the 16 awards, and a summary of their key features, is provided at appendix B to this chapter. 68 The redundancy definition within each award determines in which circumstances an employee becomes eligible for payment. The first definition applies to 13 of the 16 awards examined: Redundancy means a situation where an employee ceases to be employed by an employer, respondent to this award, other than for reasons of misconduct or refusal of duty. Redundant has a corresponding meaning This definition, where termination can occur for any reason except misconduct or refusal of duty, is broader than the traditional meaning of redundancy as enunciated by Bray J in R v Industrial Commission of South Australia; ex parte Adelaide Milk Supply Co-Operative Ltd and Ors, quoted above. 70 The National, Electrical, Electronic and Communications Contracting Industry Award 1988 provides that: Redundancy shall apply where an employer has made a definite decision that the employer no longer wishes the job an employee has been doing done by anyone and this is not due to the normal and customary turnover of labour as recognised by the electrical contracting industry and that decision leads to the termination of employment of the said employee This definition is similar to the definition provided in the Building and Construction Industry (NT) Award 2002 as it applies to off site establishments. These definitions reflect the community standard. 72 The remaining two awards provide no definition of redundancy Redundancy benefits are determined by length of service. There are three sets of benefits provided across the 16 awards as listed in table 13.1 below. The Building and Construction Reform Funds 265

272 Industry (ACT) Award 2002 and the Building and Construction Industry (NT) Award 2002 provide separate benefits for on-site and off-site workers. 74 The first set of benefits listed in the table applies to nine awards considered, including the National Building and Construction Industry Award The second set of benefits listed applies eight awards, including the principal awards identified for South Australia and Queensland. 76 The third set of benefits applies only to the Electrical, Electronic and Communications Contracting Industry (State) Award in New South Wales. Table 13.1 Redundancy benefits payable, building and construction industry awards Years Benefits 1 Benefits 2 Benefits 3 1 to weeks hours 4 weeks 4 weeks per week completed 5 weeks if over (up to 4.8 weeks) 45 years of age 2 to weeks hours 6 weeks 7 weeks per completed week 8.75 weeks if over (up to 7 weeks) 45 years of age 3 to 4 7 weeks hours 7 weeks 10 weeks per week completed 12.5 weeks if over (maximum 8 weeks) 45 years of age 4 to 5 8 weeks 8 weeks 12 weeks 15 weeks if over 45 5 to 6 8 weeks 8 weeks 14 weeks 17.5 weeks if over 45 6 or more 8 weeks 8 weeks 16 weeks 20 weeks if over Each award provides either a separate set of benefits or separate eligibility criteria for persons employed for less than 12 months. Thirteen awards provide a severance or redundancy benefit of 1.75 hours for each week of service if, and only if, redundancy is occasioned otherwise than by the employee. One award provides for pro rata benefits and the remaining two awards note that the: general obligation on employers should be no more than to give relevant employees an indication of the impending redundancy at the first reasonable opportunity and to take such steps as may be reasonable to facilitate the obtaining by the employees of suitable alternative employment Various other issues are addressed in the 16 awards. These include an entitlement for redundancy benefits to be paid to the employee s estate in the event of death. These clauses 266 Final Report of the Royal Commission into the Building and Construction Industry

273 do not deliver any additional financial benefits. Four awards provide that an employer can make an application to vary the severance payment if the employee obtains acceptable alternative employment. A summary of these additional clauses is provided at appendix B. Enterprise bargaining agreements 79 Participants in the building and construction industry have made significant use of the agreement-making framework provided under the Workplace Relations Act 1996 (C wth). Since 1997 the industry has accounted for between 30 and 40 per cent of all agreements certified under the Act within any given year Table 13.2 sets out the total number of construction industry Federal agreements, and the number of employees covered by such agreements, as a proportion of all such registered agreements and all employees whose employment is covered by such agreements in the Federal jurisdiction. Table 13.2 Construction industry Federal agreements, as a proportion, 1997 to 2001 Year & Measure No. % No. % No. % No. % Agreements Employees Of the 6103 building and construction industry Federal agreements certified during 2000 and 2001, 76 per cent were classified as pattern agreements because of their common terms. These agreements applied to 62 per cent of employees covered by Federal agreements in the industry As has been demonstrated in the hearings of the Commission, pattern agreements with common conditions have also been made under State laws in most States. Statistics regarding the prevalence of pattern agreements in the States and Territories are not readily available. However the Federal statistics provide a useful indicator. 83 For the years 2000 and 2001, 69 per cent of the pattern agreements, or 2755 agreements, conformed to six patterns. All six patterns included provisions that required employers to contribute to nominated redundancy funds. 72 These redundancy funds are detailed below. Overview of principal redundancy schemes 84 Following agreement reached between major contractors and building and construction industry unions during the late 1980s, a number of redundancy funds, also referred to as severance or redundancy schemes, were established in the building and construction industry. A key feature of each scheme is the portability of benefits between employers and places of work within the industry. Reform Funds 267

274 85 There are presently eight principal schemes covering a range of sectors including civil construction, mechanical and engineering, electrical contracting, plumbing and allied services, and general construction and building. They are: Australian Construction Industry Redundancy Trust (ACIRT); Building Employees Redundancy Trust (BERT); Building Industry Redundancy Scheme Trust (South Australia) (BIRST); Contracting Industry Redundancy Trust (CIRT); The Redundancy Payment Central Fund Ltd (trading as Incolink); Mechanical and Electrical Redundancy Trust (MERT); Electrical Industry Severance Scheme (trading as Protect); and Western Australian Construction Industry Redundancy Fund (WACIRF). 86 Employers are bound to contribute to a particular scheme under a certified agreement or deed of adherence. The amount of the contribution is usually determined at the industry level and reflected in a pattern agreement or an applicable deed. 87 While the principal schemes are similar and each share the same purpose, they differ in their manner of operation, the level of benefits available to employees and the level of contributions required of participating employers. Some schemes have features additional to the provision of redundancy benefits. 88 For the year ending 30 June 2001 (excepting WACIRF which operates with a financial year ending 31 March) the eight principal schemes held a total of $534.8 million against employees accounts The $534.8 million represents funds held for the purpose of paying redundancy benefits. It excludes, wherever possible, moneys that can be identified within financial records as being held on behalf of employer or employee sponsors or retained for other purposes. It also excludes employers contributions held in trust or otherwise held for payment of benefits other than redundancy. For example, a total of $7.9 million was recorded within the financial records of four schemes as redundancy contributions held in reserve for inactive or lost workers. This $7.9 million does not form part of the $534.8 million Contributions generally range from around $25 to over $100 a week for each employee. 91 A brief analysis of each fund is set out below. Australian Construction Industry Redundancy Trust (ACIRT) Structure and size 92 ACIRT is a national redundancy fund designed for those in the construction industry and allied industries. This is achieved by the definition of Employer, meaning a person liable to pay or wishing to pay contributions to the Fund in respect of its employees employed in the Construction Industry or allied industries, and the definition of Construction Industry to include but not be limited to all work performed in connection with the erection, repair, 268 Final Report of the Royal Commission into the Building and Construction Industry

275 renovation, maintenance, ornamentation, alteration or demolition of buildings or structures, the manufacture of, or making, assembling, erection, repair, renovation, maintenance, ornamentation, alteration and fixing of components, pre-fabricated units, fixtures or fittings in connection with the buildings or structures, in any material either on-site or off-site. 93 It is established under clause 2.1 of a trust deed dated 10 October The Deed is a consolidation of various amendments subsequently made. 94 As at 30 June 2002 the fund had active employee members. The majority of these members were based in New South Wales. Around employee members were based in States other than New South Wales. For the same period ACIRT had 2790 active employer members The corporate trustee of ACIRT is ACIRT Pty Ltd which has 14 issued shares. 77 In accordance with the trust deed, employer representatives hold seven shares and employee representatives hold seven shares. 78 Each grouping is entitled to half of the available votes during board meetings. 79 ACIRT advises that the structure of the board was designed to replicate an Industry Superannuation fund corporate trustee At present, employee directors have been appointed by the Australian Council of Trade Unions, the Construction, Forestry, Mining and Energy Union (CFMEU), the Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union, referred to as the Australian Manufacturing Workers Union (AMWU), and the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union (CEPU) Employer directors have been appointed by the Master Builders Association of New South Wales, the Australian Industry Group, the Civil Contractors Federation, and the Master Plumbers and Mechanical Contractors Association of New South Wales For the financial year ending 30 June 2001 ACIRT held total assets of $174.3 million which consisted of $167.1 million in net assets available to pay benefits to employee members after liabilities payable. ACIRT held a further $4.9 million in the forfeited members reserve and recorded income after expenditure of $9.2 million Some members of ACIRT were previously members of a former redundancy trust known as the Tasmanian Construction Employees Redundancy Trust (Tas CERT). On 28 March 2000, the directors of the then Trustee of Tas CERT, Tas CERT Pty Ltd, resolved to discontinue [Tas CERT] with effect from the 30 April, 2000 and to close the Trust to new members with effect from the 30 April 2000 and that all Members and their account balances (unless the Member requests a transfer to another recognised redundancy fund before that date) to be transferred automatically to ACIRT. 84 ACIRT had, earlier, also received members from other redundancy funds. In June 1995 the Australian Metal, Engineering and Civil Construction Redundancy Trust Fund terminated by way of merger with ACIRT. In March 1997 the Construction Employee Redundancy Trust (CERT) terminated and its members were given the opportunity to transfer into ACIRT or another redundancy fund of their choice. Those members who remained in CERT upon its termination were automatically transferred into ACIRT. 85 Reform Funds 269

276 Eligibility and benefits payable 100 The definition of redundancy in the trust deed includes the termination or cessation of employment for any reason excepting circumstances where a participating employer ceases to participate in the fund Employee members, who meet the definition of redundancy as specified in the trust deed, may seek payment of a benefit from ACIRT of their full accumulated account balance or a lesser amount as specified. 87 All benefit payments, except rollovers, are classified as eligible termination payments (ETP) and taxed at the appropriate ETP rate The trustee has the discretion to pay funeral benefits in instances of financial hardship 89 up to a maximum of $ For the financial year ended 30 June 2001 funeral benefits had been paid on 70 occasions at a total cost of $ Benefits are accumulated at a minimum rate specified in the trust deed. The trust deed defines the weekly minimum contribution as $25 for all employees other than apprentices in all instances except where an industrial agreement or enterprise agreement applies. In such circumstances the minimum contribution rate is the rate specified in the industrial agreement Under the scheme, contributions can be capped at a specified level, generally once a member s account has reached eight weeks pay. 93 However, this generally does not occur because of the prevalence of enterprise bargaining agreements that define minimum contributions and do not allow for a cap on payments. 105 Australian Administration Services Pty Ltd, the ACIRT fund administrator, has advised that employers pay between $25 and $110 weekly for each employee. 94 Pattern enterprise bargaining agreements received into evidence during the Sydney hearings presently provide for a weekly contribution of $61 for each employee. 95 Use of surpluses 106 The trust deed of ACIRT provides that after benefits have been paid to participating employees in accordance with the deed, any surplus shall be paid to members, former members or their dependants by way of further benefits in such share or shares as the Trustee determines Consequently, ACIRT does not provide any funds to its sponsors. Instead, ACIRT distributes income to members as annual dividends. 108 ACIRT directs all surplus income to employee members on an annual basis. 97 For the year ending 30 June 2000 the fund distributed more than $6 million to members representing an average return on the fund of five per cent. 98 The annual distribution to members for the year ending 30 June 2001 was also five per cent representing more than $6.74 million in distributions. 99 Building Employees Redundancy Trust (BERT) Structure and size 109 BERT was established in 1989 to provide redundancy benefits to assist employees in Queensland during periods of unemployment between projects. 100 It is constituted pursuant to a trust deed dated 16 May Final Report of the Royal Commission into the Building and Construction Industry

277 110 As at 30 June 2001 BERT had a total of members of whom were identified as active members. In total 4197 employers were registered with BERT The trustee of BERT is B.E.R.T. Pty Ltd which is controlled by one employer association and three employee associations which are collectively the sponsors of BERT. The board of directors is made up of three employer representatives from the Queensland Major Contractors Association (QMCA) (the employer sponsor of BERT) and three employee representatives. The CFMEU, Construction & General Division, Queensland Construction Workers Divisional Branch, the Australian Building Construction Employees and Builders Labourers Federation, (Queensland Branch), Union of Employees (BLF Q) and the CEPU, Plumbing Division, Queensland Branch 102 each nominates one employee director For the financial year ending 30 June 2001 BERT reported total assets of $41.7 million, which after liabilities represented $39.6 million in accumulated members funds for distribution. 104 A further $2.4 million as at 30 June 2001 was held in the forfeited benefits reserve 105 in accordance with the trust deed. 106 Eligibility and benefits payable 113 The BERT trust deed defines redundancy to mean the termination of employment of a member in circumstances where the work the member has been performing is no longer required to be undertaken by anyone Upon being made redundant, retiring, suffering financial hardship, becoming totally or permanently disabled, dying or permanently leaving the industry, the employee or their dependent may claim a benefit from the fund. 108 The amount of the benefit is equal to the balance of the member s account. 109 In the year ending 30 June 2001 BERT paid $17.5 million to members in benefits of which approximately $15.1 million represented redundancy benefits Participating employers are required to pay a minimum weekly contribution of $45, as set out in the trust deed, or a contribution rate as specified in an industrial agreement or enterprise agreement The Commission has examined agreements between the Construction, Forestry, Mining and Energy, Industrial Union of Employees, Queensland and the BLF Q and each of the following employers: Advanced Interiors Pty Ltd; 112 APS Contracting Pty Ltd; 113 Advance Bricklaying Pty Ltd; 114 and Findlay Pty Ltd Each agreement specifies weekly contributions of $55 for each employee from 1 January In each instance employees can elect to redirect contributions to the Building Unions Superannuation Scheme, an industry superannuation plan, upon accumulating the maximum award entitlement. These provisions reflect the clauses in the pattern agreement reached Reform Funds 271

278 between the aforementioned unions and the Queensland Master Builders Association, Industrial Organisation of Employers. 116 Use of surpluses 118 The BERT fund for the year ending 30 June 2001 made distributions to two beneficiaries of $1.4 million. Neither of these beneficiaries were sponsors of the fund. Instead, $1 million was distributed to the Queensland Construction Training Fund (QCTF) and $ was provided to the Welfare Fund. In other years, distributions have also been made to the Workers Health Centre Any distributions not expended by the Welfare Fund are forwarded as grants to the QCTF or the Workers Health Centre. 118 While the BERT fund has in recent years made distributions exclusively to the Welfare Fund, QCTF and Workers Health Centre, the trust deed allows for payments to the sponsors at a rate equal to one half to the unions and one half to the employer associations. 119 The advisory committee which has discretion to decide the way in which the Welfare Fund distributions are to be expended is comprised of representatives of the BERT sponsors. Distribution may be provided to sponsors to fund industry projects A case study upon the operations of BERT is contained in this volume. Building Industry Redundancy Scheme Trust (BIRST) Structure and size 121 BIRST was established under a trust deed in 1989 by the AFCC SA Branch, and a number of unions. In 1996 the deed was amended and the Master Builders Association of South Australia Inc. (MBASA) assumed the role of employer representative on the BIRST board In addition to three MBASA representatives and a representative of the Master Plumbers Association, the Building Trades Federation appoints four directors as employee representatives. Three of the employee representatives are office holders of the CFMEU and the fourth is an office holder of the CEPU As at 30 June 2002 BIRST had 485 participating employers and 3557 employee members. 123 The reported number of employees in the building and construction industry in South Australia during August 2002 was For the financial year ending 30 June 2001, BIRST retained net assets representing employees funds of $13.7 million. Income after expenditure equalled $ Eligibility and benefits payable 125 Under the trust deed, redundancy means a situation where an employee ceases to be in the employ of an employer for any reason other than misconduct or refusal of duty A member, upon being made redundant as defined, is paid the balance of his or her account when the fund receives a claim form completed by that member s last employer. 127 For the year ending 30 June 2001, BIRST paid more than $4.2 million in redundancy benefits to members Final Report of the Royal Commission into the Building and Construction Industry

279 127 Following amendments to the deed negotiated in 1996, employer contributions must be a minimum of $40 a week for each employee. However, many employers have agreed to pay more under applicable enterprise bargaining agreements. 129 The current pattern agreement provides for a rate of about $50 a week for each employee In addition to redundancy benefits, the scheme provides emergency ambulance, funeral and journey accident insurance cover. 131 Use of surpluses 129 Under the terms of the trust deed, income not expended in meeting the expenses of the trust or recouping capital losses can be set aside for equal distribution between the sponsor employer association and employee associations. 132 The distribution for the year ending 30 June 2001 was $ each for the MBASA and for the CFMEU. In the previous financial year, the CFMEU received $ and the MBASA received $ Contracting Industry Redundancy Trust (CIRT) Structure and size 130 CIRT was established pursuant to a trust deed dated 19 February The scheme covers workers in the electrical contracting industry in Queensland. The Redundancy Pay Agreement, as cited in the deed, is a further constituent document. 131 The trustee, CIRT (Qld) Pty Ltd, has seven directors. Three represent employers, three represent employees and there is one independent director. 134 The fund sponsors and signatories to the trust deed are the Electrical Contractors Association of Queensland and the Electrical Trades Union of Employees of Australia. 132 As at 30 June 2001 CIRT held, in trust, members contributions of $5.7 million. 135 At that time the scheme reported 195 participating employers and 4275 active members with annual contributions of $3.3 million. 136 Eligibility and benefits payable 133 The document referred to as the Redundancy Pay Agreement within the trust deed defines redundancy as a situation where an employer no longer requires the work that has been performed by the employee to be undertaken by anyone and subsequently terminates the employment of that employee. 134 The definition denotes that termination by the employee as a consequence of voluntary resignation, retirement, death or otherwise is deemed not to be termination due to redundancy. However, benefits can be claimed for reasons other than redundancy namely, death, disability, leaving the industry or financial hardship The Redundancy Pay Agreement provides that the benefit paid to employees is the total of contributions existing in the members account or the entitlement prescribed by the appropriate award termination, change and redundancy provision. 138 Payment is made once an application has been received from the member and confirmation of termination is received from the employer. Reform Funds 273

280 136 In total, 1349 claims were made during the year ending 30 June 2001 with total benefits paid of $3 million. The average amount paid for each claim was $ The sample enterprise agreements tendered before the Commission which require contributions to CIRT provide for differing contribution levels dependent on the type of work being undertaken. These payments range from $10 to $55 a week for each employee. 140 Use of surpluses 138 CIRT does not make payments, excepting those relating to operational arrangements, or distributions to employee or employer sponsors. 141 The fund distributes surplus funds, on occasion, to the Joint Electrical Training Council Incorporated (JETCO) which is an incorporated association established by the CIRT trustee. Its principal activity is to receive grants from CIRT to be used for training in the electrical industry. 142 JETCO has in turn forwarded money to two other related companies which were incorporated for the purpose of providing training and funding apprenticeships in the Queensland electrical industry. The Redundancy Payment Central Fund Limited (trading as Incolink) Structure and size 139 Incolink is the trustee of six funds. These funds are characterised as fund 1 funds and fund 2 funds. Fund 1 funds relate to persons engaged in the building and construction industry and fund 2 funds relate to persons in the metal and engineering construction industries. The fund 1 redundancy fund was constituted by deed of trust dated 10 April 1989 and the fund 2 redundancy fund was constituted by deed of trust dated 20 October Incolink has eight voting directors comprised of: four employer representatives, three of whom represent the MBAV; and four employee representatives: two of whom are from the CFMEU and one each from the Victorian Trades Hall Council and the CEPU For the year ending 30 June 2001, Incolink reported total assets of $202.8 million comprised of employee contributions held in trust of $175.8 million for fund and employee contributions held in trust of $28.6 million for fund Incolink divides employee members into two groups: those with a current balance and those with no current balance. As at 14 November 2002, Incolink had employee members in fund 1 with a current balance, and employee members in fund 2 with a current balance. As at 14 November 2002 a further persons registered with Incolink in either fund 1 or fund 2 had no current account balance. 147 Eligibility and benefits payable 143 The trust deed provides that a member is eligible for payment of a prescribed benefit or the member s account balance, whichever is lesser, in the event of termination for any reason. 148 The prescribed benefit is presently $3100 payable unless the member s balance is less than this amount. 149 An additional benefit equivalent to the balance of the member s account is payable should the member remain out of work for four consecutive weeks Final Report of the Royal Commission into the Building and Construction Industry

281 144 Incolink makes approximately payments a year. 151 This translated to payments to employees for the year ended 30 June 2001 of $25.5 million from fund and $5.1 million from fund Conversely, receipts from employers were reported in the respective statements of cash flows for the same period as $42.9 million for fund and $12 million for fund Each year the Victorian Building Industry Agreement Consultative Committee reviews employers contributions to take account of increases in the consumer price index. 156 The rate identified in a sample enterprise agreement, consistent with the pattern agreement for general construction, as at 30 March 2000 is $47.60 weekly for each employee Incolink provides for a portable sick leave fund and income protection and trauma insurance schemes through the other four funds under its control. Other benefits include financial and personal counselling, an alcohol and drug program, career counsellors and scholarships. 158 Use of surpluses 147 Incolink distributions are calculated separately for fund 1 and fund 2. In the year ending 30 June 2001 over $6 million was distributed from fund 1 in the form of grants received by applicant beneficiaries. 159 Surpluses from fund 2 distributions are noted in the accounts but are not drawn upon until required. For the year ending 30 June 2001, $ was drawn upon by fund 2 beneficiaries The fund 1 beneficiaries are the Australian Workers Union (AWU), the CFMEU, the CEPU, and the MBAV. 161 There is provision for other building and construction industry participants to apply for grants under fund 1, 162 however, most grant recipients are also fund 1 beneficiaries. 149 The fund 2 beneficiaries are the CFMEU and the AMWU. 163 Mechanical and Electrical Redundancy Trust (MERT) Structure and size 150 MERT was established pursuant to a trust deed made on 18 July The trustee, MERT Pty Ltd, is made up of representatives from each of the sponsoring organisations. 151 These organisations are the AMWU, the AWU, the CEPU, Electrical Division, New South Wales Branch and the National Electrical and Communications Association, New South Wales Chapter (NECA NSW) As at 30 June 2002 MERT held 508 participating employers, 447 of whom were based in New South Wales, and active members, of whom were based in New South Wales Financial statements for the year ending 30 June 2001 record net assets available to pay benefits of $44.7 million. A further $1.8 million is recorded in the forfeited members reserve which accounts for member accounts which have had no activity for two years or more. Income after expenditure for the same period amounted to $1.4 million. 167 Reform Funds 275

282 Eligibility and benefits payable 154 Under the terms of the trust deed, redundancy means a member s employer has made a definite decision that the job the member is doing does not need to be done by anyone. This decision leads to termination of the job The benefit payable is the entitlement owing as a consequence of the obligations placed on the employer under the relevant industrial instruments. The employer is required to make up the difference for redundant employees whose account balances fall short of their entitlements For the year ending 30 June 2001 MERT paid members claims of $11.6 million. MERT received contributions during this period of $12.6 million. 170 Additional benefits include the payment of education costs from the MERT Education Fund. 157 MERT accepts a minimum contribution of $25 a week, but actual contribution levels vary significantly depending upon the requirements of enterprise bargaining agreements and other registered agreements. The pattern enterprise bargaining agreement in place for the electrical and communications contracting industry in New South Wales requires contributions of $60 weekly for each employee. 171 Use of surpluses 158 The MERT trust deed allows for surpluses to be distributed to sponsors or distributed in a manner agreed by sponsors. 172 Although there is no common format for the application of surpluses, distributions are generally proportioned to sponsor organisations while other organisations are permitted to make applications for funding For the year ending 30 June 2001 MERT made distributions of approximately $3 million Distributions to sponsoring organisations were as follows: The Electrical Trades Union of Australia, New South Wales Branch received $ ; The AMWU received $ ; The AWU received $93 000; and The NECA NSW received $ MERT Education Fund operates under a trust deed established to meet the education costs of members and their families upon application. It received $1.1 million. 175 During the previous financial year, the MERT Education Fund received $2.6 million. 176 The Electrical Industry Severance Scheme (trading as Protect) Structure and size 162 The Electrical Industry Severance Scheme, which trades under the name Protect, was established in its current form on 19 February The trustee, ElecNet (Aust) Pty Ltd, has a board of five directors. Three directors are representatives of the CEPU, Electrical Division, Southern States Branch and two represent the National Electrical and Communications Association, Victorian Chapter (NECA Victoria) Final Report of the Royal Commission into the Building and Construction Industry

283 163 For the year ending 30 June 2001, Protect held in trust $43.7 million in funds. A further $ was held in the members reserve, representing the balance of lost workers accounts. Total revenue for the period, excepting membership contributions, was $2 million. 178 Eligibility and benefits payable 164 The trust deed provides that upon receipt of a written request, the member is entitled, at the time of termination for any reason, to receive the lesser of a payment of $3100 or, if the member s account balance is less than $3100, the balance of the member s account. Members who remain out of work for four consecutive weeks following their date of termination who have registered with an appropriate employment service are entitled to the balance of their account Employers are required to make contributions as a consequence of obligations placed upon each employer under individual enterprise bargaining agreements. 180 In Victoria, where the fund primarily operates, 181 the pattern enterprise bargaining tendered during hearings provides for a weekly payment of $50 for each employee from 1 July In addition to severance payments Protect also provides income protection insurance which includes a range of other features. 183 Use of surpluses 167 The accounts of Protect report that there were no distributions to the NECA Victoria or the CEPU, for the year ending 30 June Evidence before the Commission showed that the CEPU received $ and NECA Victoria received $ as distributions for the year ending 30 June Western Australian Construction Industry Redundancy Fund (WACIRF) Structure and size 169 WACIRF covers workers who provide labour on commercial and industrial sector building projects in Western Australia. It was established in 1989 pursuant to a trust deed WA Construction Industry Redundancy Fund Limited is the trustee of WACIRF. Its board is comprised of equal employee and employer representatives The fund had total assets of $17.9 million for the year ending 31 March WACIRF held accumulated members funds as at 31 March 2002, subsequent to liabilities payable and accumulated deficits at the end of the financial year, of $17.5 million. 188 Eligibility and benefits payable 172 WACIRF provides for payment of the balance of the participating employee account in circumstances where the employee has ceased employment without being offered re-employment in the building industry For the financial year ending 31 March 2002 WACIRF paid $5 million in redundancy benefits to members. WACIRF received contributions for the same period of $6.6 million. 190 Reform Funds 277

284 174 Participating employers, as defined by the trust deed, are required to make contributions as set out in the regulations accompanying the deed. The regulations require payment of a weekly contribution by participating employers at a rate determined by the trustee, or a redundancy payment rate as provided in any registered industrial agreement referrable to the participating employer The Commission has reviewed collective agreements for the following companies: Gemstate Scaffolding Pty Ltd; 192 Celtic Scaffolding Pty Ltd; 193 Plasterwise Plastering Pty Ltd; 194 Masterplanners Interiors Pty Ltd; 195 and Sanwell Pty Ltd In each instance, contributions conform to an agreed pattern, which provides for a weekly contribution to WACIRF of $60 for each employee. Use of surpluses 177 WACIRF s financial records provide for two beneficiary accounts, one for the Master Builders Association of Western Australia and one for the Building Trades Association. Each of the beneficiaries can draw against these accounts. The accounts are made up of distributions of surplus income and forfeited employee member s contributions for the year For the financial year ending 31 March 2001, WACIRF made total distributions to beneficiaries of $73 660, while each beneficiary made drawings of $ For the year ending 31 March 2002, drawings increased to $ for each beneficiary with total distributions of $ evenly split between the beneficiaries Forfeited members benefits, identified here as a consequence of being credited to beneficiaries accounts, equalled $ over the two financial years. 199 Distribution of surplus income 180 Excepting ACIRT, surpluses generated by each of the funds are paid to their sponsors or for other purposes, for example education, welfare and training. ACIRT, instead, distributes any surplus income as a dividend paid annually to employee members. This largely arose from the findings and recommendations in the Gyles Report. 181 Industry funds have become an important source of revenue for industry training initiatives. In Victoria, the bulk of the training provided by the CFMEU, Construction and General Division training unit, consisting of about 12 employees, is funded by Incolink. The QCTF is entirely funded by BERT Some industry participants expressed concerns about surpluses being used in this manner. It is said that as a matter of principle funds should be used wholly and solely for the benefit of members and that employers make contributions for particular individuals and not for industry purposes Final Report of the Royal Commission into the Building and Construction Industry

285 183 Mr John Sutton is the National Secretary of the Construction, Forestry, Mining and Energy Union, Construction and General Division, and a director of ACIRT. In the ACIRT annual report to members for the period July 1999 to June 2000, Sutton noted that other redundancy funds use investment earnings to fund member benefits like training and insurance cover. He added Workers can t see the tangible benefits of these. Why shouldn t the worker get a precise return on their money? The Commission received a statement from Sutton dated 21 June Appendix I to that statement dealt with industry redundancy funds. It contained the following: In 1984 the Australian Conciliation and Arbitration Commission decided to introduce redundancy provisions into awards generally (the 1994 TCR decision) The 1984 TCR decision did not immediately flow to the construction industry because redundancy awards had not in the past catered for industries with itinerant employment patterns. However, following the TCR decision the building unions were able to negotiate agreements with various employers and employer organizations for a redundancy pay scheme based on service in the industry, as distinct from service with the one employer, or service on a major project. A central feature of this scheme was the payment of weekly contributions into trust funds which were established in various States. The funds were designed to protect the accrued redundancy entitlements of workers in an industry where company failures occur frequently. These funds enabled workers to preserve redundancy pay entitlements which had accrued with a series of employers. The current award provision has remained unchanged since [October 1990], and provides that an employer may utilize a redundancy fund to meet all or some of the liabilities created by the redundancy clause. The recognition of redundancy funds by awards since 1989, and their subsequent utilization in numerous certified agreements, has resulted in a steady growth of the assets held by the funds, as well as greater security of employees redundancy entitlements. 2. Purpose and Function The fundamental purpose and function of the construction industry redundancy funds is to provide a safe and efficient means for employers to fund their employees redundancy entitlements in accordance with various awards and certified agreements. 4. Effectiveness The redundancy funds are a well accepted part of the construction industry with wide acceptance by employers and employees. In an industry of constant itinerancy by a Reform Funds 279

286 significant section of the workforce and large numbers of bankruptcies among employers, the numbers of disputes about workers redundancy entitlements are few indeed. The redundancy fund model in our industry has been a success story which other industries are seeking to emulate 5. Reform proposals All of the industry redundancy funds are under the control of independent Boards. Reform is a matter for each Board to consider as and when circumstances require. Accordingly, the CFMEU has no proposals for any general reform of the industry redundancy funds As observed by the CFMEU, redundancy funds are for the purpose of funding redundancy entitlements. However it is clear that the funds receive, hold and generate money well in excess of what is required to fund employees redundancy entitlements under the applicable award. 186 In the case of an employee receiving a weekly wage of $800, an employer (or employers in series) paying $50 per week in contributions to the applicable redundancy fund will have contributed enough to pay eight weeks of redundancy pay (being the usual maximum redundancy entitlement) within approximately two and one half years, yet employer contributions continue to be payable. 187 Very significant operating surpluses are generated as result. These are distributed each year, as discussed above in the consideration of each scheme. 188 The funds also provide benefits to employee members which are unrelated to the payment of redundancy entitlements. 189 Incolink, in Victoria, provides free emergency transport benefits, journey cover, personal accident insurance, dental accident benefits and a health plan to employee members. 204 Several funds pay a funeral benefit of up to $5000 to the family of a deceased financial member. 205 MERT provides substantial funding for the education of members and their families. 190 Pattern agreements in Queensland provide that employee members of the BERT scheme with more than $6 000 in contributions paid into the fund on their behalf may elect to re-direct the employer s redundancy contributions to the Building Unions Superannuation Scheme (Queensland) (BUSS Q). The effect is nearly to double the employer s superannuation contributions for those employees who make such an election ACIRT largely avoids these indirect benefits for employees. Instead it makes a direct annual cash distribution of surplus to employee members. 192 The ACIRT annual report states: In 1999/2000, ACIRT distributed $ to members, representing a return of 5% members received a distribution cheque, ranging from $50 to $4561. Cheque amounts depended on how much each member had in their redundancy and productivity accounts. Only members with accounts that generated a return of more than 280 Final Report of the Royal Commission into the Building and Construction Industry

287 $50 during the year that is, they had a minimum account balance of $1000 for the full year were eligible for a distribution. 193 The annual report states that for that financial year members received between $50 and $5475 depending on their account balance. Total member distributions equalled $6.74 million. Mr Frank Chambers, a member of the ACIRT Board, stated: With ACIRT, the interest goes back to members members love that cheque once a year. 194 The large amounts of money generated by the funds and distributed for purposes other than payment of redundancy entitlements makes plain that redundancy funds have now progressed well beyond the purpose for which they were established. They have become an additional income stream for employees, for employer and employee associations and for other unrelated bodies. Employers do not receive a return on their money, yet the schemes are all funded by weekly employer contributions and returns on investments of previous contributions. 195 Those administering the funds appear to have lost sight of the fundamental premise that employer contributions are to fund redundancy entitlements. It follows that contributions, and returns on investments of the fund, should be held by the fund and distributed only for the purpose of paying redundancy entitlements. 196 Under the various awards, redundancy entitlements increase with time and with increases in rates of pay. It follows that surpluses generated by the fund should be credited against employee members accounts, and not distributed to them or to sponsors or to others, in order that additional funds are available to meet increased redundancy entitlements. 197 If funds were used only for the purposes for which they were established, contributions could be reduced thus reducing building costs or benefits to employees could be increased. Caps on redundancy contributions 198 In table 1 of this chapter I have set out the various redundancy benefits payable under various awards. Excepting the benefits payable under the Electrical, Electronic and Communications Contracting Industry (State) Award (NSW), there is a maximum entitlement of eight weeks pay. 199 However, each of the eight principal schemes considered in this chapter provide for employer contributions to the applicable fund which do not correlate with entitlements. Employers contribute a fixed amount for each employee each week, irrespective of the amount held by the fund in that employee s account or whether it exceeds the employee s entitlement under the applicable award. The weekly amounts are stated in pattern agreements and then implemented under subsequent certified agreements. 200 I received submissions on the question of whether contributions ought be capped to relieve an employer from having to contribute to the fund once contributions on behalf of an employee are sufficient to pay for the employee s entitlements in the event of redundancy. 201 The Australian Industry Group submitted: Given the increasing amount of funds under administration and the generous nature of the existing benefits, the following should be considered: Reform Funds 281

288 There is a strong argument that redundancy funds should be capped to discourage the existing practice of unions pursuing a higher level of contribution to the relevant redundancy fund with each bargaining round, at significant cost to construction industry employers. The existing level of contribution already provides very generous severance benefits. If benefits were capped, there may be an opportunity for the funds to eventually be self-funding The Housing Industry Association made the following submission: HIA has also expressed concerns about defined benefits funds such as redundancy funds, which do not provide for capped contributions. At present, employer contributions to redundancy funds can continue indefinitely even though the maximum level of employee benefits has been reached. These funds are simply a tax on industry employment, the proceeds of which are available for uses determined by the managers of the scheme rather than by either the contributors or the beneficiaries. This is an open invitation for abuse and an area crying out for legislative reform As a matter of principle, employer contributions to a redundancy fund should be held, invested and applied for the purpose for which they are made, namely paying redundancy entitlements, and for no other purpose. An employer should be required to contribute only to the extent necessary to meet redundancy obligations. 204 As discussed above, employer contributions continue to be payable irrespective of the amount held by a fund in the member s redundancy fund account. In time, an employee may hold in his or her account an amount well in excess of the employee s redundancy entitlement under the award and may access that money in the event of redundancy. In the case of many funds, redundancy is defined to mean termination for any reason excepting misconduct or refusal to work. 205 The effect is to cause the amount held in the worker s account to become an asset owned by the worker, rather than the employer s money held by the fund to be payable in the event that the employer becomes liable to pay a redundancy entitlement. 206 I consider, however, that the proposal to cap employer contributions needs further consideration. The circumstances and frequency of redundancy can be infinite. Redundancy is properly a matter for negotiation in the individual and collective bargaining process. Freedom to agree upon redundancy provisions suitable to both parties should exist. Self-initiated redundancies 207 The term self-initiated redundancy refers to the practice whereby an employee initiates termination of their own employment for the express purpose of accessing entitlements held in trust by the relevant scheme or provided under the relevant award. This process can occur with or without the knowledge or agreement of the relevant employer. 208 In an endeavour to see what evidence existed of self-initiated redundancies, the Commission examined the BERT and Incolink funds to identify situations where there was a termination of employment by an employer, the employee received a termination payment from one of the 282 Final Report of the Royal Commission into the Building and Construction Industry

289 two schemes and the employee returned to work with the same employer immediately after termination, or within a very short period The two case studies on BERT and Incolink demonstrate that from time to time employees arrange to have their employment terminated in order to make a claim on the applicable redundancy fund, but with the realised expectation that there would be no break or only a short break in their employment Employers were aware of, or at least suspected, this practice. 211 Despite this, employers acquiesced in the employee s endeavour because it made no difference financially to the employer if a claim was made. The employer was required to continue making contributions on behalf of the employee regardless of the employee s accumulated account balance or the reduction to it arising from the claim The evidence about the extent of this practice was inconclusive. However, there are ways in which it could be addressed. For example, fund administrators could require employers to give the reason or reasons for the termination of employees, or more detail about the reasons. An employer could be asked in terms whether the employee has requested the termination. Such requirements may dissuade employers from submitting notice of termination forms containing information which they know or suspect to be incorrect, where the true or primary purpose is to allow an employee to claim a payment from the fund. Regulation of redundancy funds Accounting and reporting requirements 212 Comparison of the eight principal schemes reviewed within this report shows numerous similarities among them in: operation; the nature and role of sponsoring organisations; the treatment of surpluses (excepting ACIRT); the manner in which employers and employees are bound to the scheme; the large sums of money under administration; and the financial importance of the funds to a large proportion of the workforce. 213 Despite this, there are no standard accounting, auditing or reporting requirements for these schemes. I regard this as an anomaly which should be corrected. 214 Companies with less assets than any of the principal redundancy schemes here considered are subject to obligations of transparency and public accountability as a result of the accounting and disclosure requirements placed upon the company by legislation. 215 Superannuation and long service funds are properly subject to carefully prescribed accounting obligations in the interests of proper administration. 216 Redundancy schemes perform the same essential function of providing for member entitlements. I consider they should likewise be subject to accounting, auditing and reporting Reform Funds 283

290 requirements of a similar nature. I do not propose to venture here into the manner in which this should be done. It plainly requires careful consideration of appropriate standards, consideration of the requirements placed upon the administrators of superannuation and long service leave funds, among others, and consideration of the adaptability of those requirements to redundancy funds. There should also be consultation with Australian Securities and Investments Commission (ASIC), Australian Prudential Regulation Authority (APRA), the Australian Taxation Office (ATO) and industry about the manner in which obligations should be implemented. 217 The need for proper accountability becomes apparent, having regard to recent amendments to the Workplace Relations Act 1996 (C wth), 213 to commence on 12 May 2003, designed to strengthen the accountability of organisations registered under that Act. It is illogical that the redundancy funds managed by these same organisations are not bound by similar obligations. Regulatory requirements 218 My observations about the absence of sufficient accounting and reporting requirements apply equally to the regulation of redundancy funds. 219 In essence, redundancy and severance schemes are similar to superannuation and long service schemes excepting the purpose of payments and the frequency with which claims can be made. I see no reason in principle why they should not operate under similar regulation. Again, it is not appropriate for me to venture into how this should best be done. The issues are complex and uncertain. For example, the Commission received submissions from three of the fund trustees, or the trustees representatives, to the effect that the funds are not reporting entities for the purposes of the Statements of Accounting Concepts and therefore need not prepare general purpose financial reports. The Commission subsequently obtained a professional opinion to the contrary. I express no view upon which is right. 220 Consultation with industry, APRA and the ATO, among others, should occur before decisions are made. The superannuation industry framework administered by APRA might be a suitable model. Taxation 221 The issue of fringe benefits tax was raised in a number of submissions to the Commission and in evidence received by the Commission The Commission received evidence that MERT and other similar redundancy funds were operating under a tax ruling which recognised that employer contributions to such funds were not fringe benefits and therefore were not subject to fringe benefits taxation. Following the expiry of the tax ruling, the ATO advised that its interpretation of the legislation requires employers to pay fringe benefits tax on employer contributions to the fund Similarly, by letter dated 25 March 2002, the ATO advised the trustee of Incolink that employer contributions to that fund are subject to fringe benefits tax. The ATO also advised that it would not seek to apply fringe benefits tax on those contributions prior to 1 April 2003 to allow all involved to review the current arrangements, and if appropriate make alternative arrangements Final Report of the Royal Commission into the Building and Construction Industry

291 224 On 11 October 2002, the Federal Treasurer announced that the Government will provide a fringe benefits tax exemption for certain payments to prescribed employee entitlement funds from 1 April The Treasurer expressly referred to employee entitlement funds which may be set up to protect employee entitlements in the event of insolvency, or to provide for entitlements, such as redundancy and long service leave. 225 The Treasurer considered certain circumstances where payments into employee entitlement funds would be effectively taxed twice once as a fringe benefit when paid into the fund and once when paid out of the fund. The Treasurer announced that to ensure that this does not occur, the Government will exempt from fringe benefits tax certain payments to employee entitlement funds that have been prescribed in regulations. The Commissioner of Taxation will advise upon criteria required to be met by a fund in order to be prescribed. 226 The criteria for funds to be prescribed will be developed in consultation with representatives of employee entitlement funds. The criteria will address characteristics such as what payments can be made from the fund, who controls the fund and the extent to which funds are available to be distributed to individual employees. The exemption could apply to payments such as redundancy, annual leave, long service leave and sick leave The Treasurer s announcement does not comment upon the kinds of redundancy funds to which the exemption may apply. In particular, in relation to the building and construction industry, some redundancy funds provide for a payment to be made when termination occurs for any reason excepting misconduct or refusal to work. 218 The National Award, in effect, does likewise. Other funds 219 provide for a payment only where an employee is made redundant as that term is traditionally understood The project-based nature of the industry also needs to be considered when determining whether an employee is redundant. 229 The various uses for which and bodies to which redundancy funds apply or distribute surplus income, in addition to paying redundancy benefits, should also bear upon their true character and so their eligibility for fringe benefits tax exemption. 230 I do not advance views on these issues. They are matters for industry and the ATO. Recommendations 231 It is apparent that, with the exception of ACIRT, employers contribute to redundancy funds ostensibly for the benefit of their employees and yet neither they nor their employees obtain any meaningful benefit from any operating surplus arising from investment of the fund. Surpluses are instead distributed to employee and employer associations or to other bodies chosen at the direction of the funds administrators, none of which contributes to the fund. 232 In the Royal Commission Report into Productivity in the Building Industry in New South Wales, Commissioner Gyles stated in relation to the (then) Construction Employees Redundancy Trust (CERT): The AFCC and the building unions maintain the power to set contributions virtually at will, or at least taking into account criteria which could justify virtually anything, and the distribution of moneys going far beyond the purposes of funding the award Reform Funds 285

292 redundancy/severance provisions or anything like them are permitted. The potential for maladministration, patronage and corruption remains. The lack of prudential control is just as great. There are not even the most basic safeguards, such as the provision of audited accounts to members. Above all, supported as it is by express and implied industrial and commercial pressure, the arrangement is, in effect, a tax upon the employers of the industry for ill-defined purposes, decided by a small part of the industry with radically different objectives than the majority of employers. To suggest that subcontractors and contractors generally would willingly contribute funds to the AFCC and the building unions for them to spend for the benefit of the industry as they see fit is, of course, fantasy. Furthermore, the notion that this elaborate structure is to cover the situation that an employer might not be able to pay the award severance pay is equally absurd. In the result, a vast amount of money has been channelled from employers to a fund which has already become a monster with a life of its own at a cost far greater than was necessary to give an over-award payment to workers. I have no doubt the money contributed would have been far better off in the pockets of either the employers or the workers rather than in the clutches of these scheme Trustees. 221 I have no doubt that the CERT scheme should be unwound, if it is possible to do so. It does not concern me whether the moneys which are the subject of the CERT scheme are returned to the employers or to the workers. If those moneys are to remain where they are, they should be subject to a statutory trust for the purpose for which they were intended and not left to the whim of the AFCC and the BTG It is a matter of history that CERT was subsequently wound up and ACIRT established, which provides for distribution of surpluses to employee members. It appears to me that other funds have not followed suit because of the vested financial interests that sponsors would lose by doing so. 234 It is plain that redundancy funds now operate for purposes well beyond funding redundancy entitlements. Large sums of money are provided for training, insurance, education and other purposes. Often employee and employer associations have interests in those other concerns. 223 Excepting ACIRT, the funds provide substantial income streams to employer and employee associations in the form of surplus distributions. There is an incentive for those bodies to negotiate or agree to increases in employer contributions in the course of pattern EBA negotiations. 235 Employers contributions finance these funds and yet employers derive negligible if any benefit from them. They are paying for benefits and activities well beyond the purpose of meeting their potential redundancy obligations to their employees. 236 As the CFMEU observed in the statement from its National Secretary, Construction and General Division quoted above, the fundamental purpose and function of the construction industry redundancy funds is to provide a safe and efficient means for employers to fund their 286 Final Report of the Royal Commission into the Building and Construction Industry

293 employees redundancy entitlements. I agree. These funds should be used for the purpose for which they were intended, and no other. I hold the same view in relation to long service funds, as explained in that chapter. 237 How this could or should be achieved is uncertain. There is no legislation requiring contributions to redundancy funds, as exists in the case of superannuation and long service funds, to which a suitable condition could be added. The funds are administered by private trustee companies in accordance with trust deeds drafted in the broadest terms. The directors of those companies are appointed by the employer and employee associations which (excepting ACIRT) are the primary beneficiaries of surpluses generated by the funds. Those associations have vested interests in maintaining the status quo. Employers and employees alike are locked into the nominated funds by the pattern EBA process. 238 In my view, the initiative lies with government. Issue Redundancy funds were set up for the benefit of employees to ensure payment of entitlements in the event of redundancy. They should operate solely for the benefit of employees. With the exception of the Australian Construction Industry Redundancy Trust (ACIRT), they instead provide significant income streams for others. Other funds distribute surpluses for training, or to sponsors or their nominees. At present, surpluses from ACIRT are distributed annually as additional income to employee members irrespective of redundancy. Surpluses should either be credited to member employees accounts to be applied towards meeting redundancy entitlements and payable only in the event of redundancy or, if funds held are sufficient to meet redundancy obligations, used to reduce any contributions required. Recommendation 168 (a) (b) Surpluses in redundancy funds either be credited to the employee members accounts to be payable only in the event of redundancy or, if funds held are sufficient to meet redundancy obligations, used to reduce any contributions required; and The distribution of surpluses in accordance with this recommendation should be a prerequisite for a redundancy fund being prescribed as a fund exempt from fringe benefits tax. 239 It is anomalous that superannuation and long service leave funds are subject to prudent and appropriate regulation, yet redundancy funds are not. Redundancy funds have matured throughout Australia to become a significant component of the industry s financial structure. Approximately $500 million is currently under management. The repercussions would be enormous should any of these funds diminish or collapse for reasons of mismanagement, misappropriation or abuse. The opportunities for any of these events to occur are manifest. Governments role, through agencies such as ASIC, APRA and the ATO, to put in place Reform Funds 287

294 safeguards against such events is apparent. Government would be exposed to unarguable criticism should any of the principal redundancy funds considered in this chapter misapply funds and the employees for whom the funds are ostensibly established be left without recourse. 240 The manner in which appropriate safeguards should be implemented requires consultation with industry to achieve acceptance by industry 241 Compliance with prescribed accounting, auditing and reporting requirements can properly be incorporated into criteria to be met in order for a redundancy fund to be prescribed as a fund exempt from fringe benefits tax. Issue Redundancy funds have matured throughout Australia to become a significant component of the industry s financial structure. Approximately $500 million is currently under management yet they function without any prudential control. The repercussions would be enormous should any of these funds diminish or collapse for reasons of mismanagement, misappropriation or abuse. The opportunity for any of these events to occur is manifest. Recommendation 169 Legislation be enacted to implement a uniform system of financial reporting, external auditing, actuarial assessment and annual reporting to a prudential authority for redundancy funds. The systems presently applying for superannuation and long service leave funds should be points of reference. Documents produced, in compliance with the legislation, be public documents. Recommendation 170 Compliance with those requirements be a prerequisite to a redundancy fund being prescribed as a fund exempt from fringe benefits tax. 288 Final Report of the Royal Commission into the Building and Construction Industry

295 Appendix A: Comparison of Selected Awards from the Top 100 Federal Awards Reform Funds 289

296 290 Final Report of the Royal Commission into the Building and Construction Industry

297 Award Definition Eligibility Benefits Benefits Maximum Other (+ 1 yr) (< 1 yr) Benefits Termination Clauses Clothing Trades R4 E7, E9 B2 B2(<1) MB2 TB2, TB6, Award 1999 TB7, TB12, TB5 Clerical and R3 E7, E8, E9 B2 B2(<1) MB2 TB2, TB5, TB6, Administrative TB7, TB8, TB3 Employees (Victoria) 1999 Hospitality Industry R3 E7, E8, B2 B2(<1) MB2 TB5, TB2, TB6, Accommodation, E9, E4 TB7, TB8 Hotels, Resorts and Gaming Award (1998) Community R3 E7, E4, E9 B2 B2(<1) MB2 TB5, TB2, TB6, Employment, TB7, TB8 Training and Support Services Award 1999 Bakers (Australian R3 E7, E4, B2 B2(<1) MB2 TB5, TB2, TB6, Capital Territory) E8, E9 TB7, TB8 Award 1998 Transport Workers R3 E7, E8, E9 B2 B2(<1) MB2 TB5, TB2, TB6, (Mixed Industries) TB7, TB8, TB3 Award 2002 Key See Appendix B Reform Funds 291

298 292 Final Report of the Royal Commission into the Building and Construction Industry

299 Appendix B: Summary of Principal Building and Construction Awards Reform Funds 293

300 294 Final Report of the Royal Commission into the Building and Construction Industry

301 Award Definition Eligibility Benefits Benefits Maximum Other (+ 1 yr) (< 1 yr) Benefits Termination Clauses C wth : National R1 E1, E2, E3 B1 B1(<1) MB1 TB1, TB2, TB3 Building and Construction Industry Award 2000 C wth : National R2 E1, E9, B2 B3(<1) MB2 TB2, TB3, Electrical, Electronic E10, E11 TB6, TB9 and Communications Contracting Industry Award 1998 C wth : Australian R1 E1, E2, B1 B1(<1) MB1 TB2, TB3 Workers Union E3, E12 Construction and Maintenance Award 1989 C wth : Sprinkler R1 E1, E2 B1 B1(<1) MB1 TB1, TB2, TB3 Pipe Fitters Award 1998 C wth: Plumbing R1 E2, E1 B1 B1(<1) MB1 TB1, TB2, TB3 Trades (Southern States) Construction Award 1999 ACT : The Building R1 E1, E2, B1 B1(<1) MB1 TB1, TB2, TB3 and Construction E3, E12 Industry (ACT) Award 2002 on-site building and construction ACT : The Building No E5, E7, B2 B2(<1) MB2 TB2, TB3, TB5, and Construction definition E8, E9 TB6, TB7, TB8 Industry (ACT) refer above Award 2002 maintenance, joinery and workshop Reform Funds 295

302 Award Definition Eligibility Benefits Benefits Maximum Other (+ 1 yr) (< 1 yr) Benefits Termination Clauses NT : The Building R1 E2, E12 B1 B1(<1) MB1 TB1, TB2 and Construction Industry (NT) Award 2002 on-site building and construction industry NT : The Building R3 E8, E9 B2 B2(<1) MB2 TB2, TB3, TB6, and Construction TB7, TB8 Industry (NT) Award 2002 off-site establishments) WA : Building R1 E6, E12 B1 B1(<1) MB1 TB2, TB7 Trades (Construction) Award 1987 WA : Electrical R1 E12, E1, E2 B1 B1(<1) MB1 TB1, TB2, TB3 Contracting Industry Award WA : Earth R1 E1, E6, E12 B1 B1(<1) MB1 TB2, TB7 Moving and Construction Award WA : Metal No E5, E7, E8, B2 B2(<1) MB2 TB2, TB5, TB6, Trades (General) definition E9, E13 TB7, TB8 Award 1966 NSW : Electrical, No E1, E8, E7, B3 B2(<1) MB3 TB2, TB5, TB7, Electronic and definition E5, E2, E9 TB9, TB10, Communications TB11 Contracting Industry (State) Award NSW : Building R1 E1, E2, E3 B2 B1(<1) MB2 TB1, TB2, TB3 and Construction Industry (State) A ward C Final Report of the Royal Commission into the Building and Construction Industry

303 Award Definition Eligibility Benefits Benefits Maximum Other (+ 1 yr) (< 1 yr) Benefits Termination Clauses SA : Building and R1 E1, E12 B2 B1(<1) MB2 TB1, TB2, TB3 Construction Workers (State) Award SA : Building R1 E1, E2, E12 B2 B1(<1) MB2 TB1, TB2, TB3 Trades (S.A.) Construction Award QLD : Building R1 E1, E2, E12 B2 B1(<1) MB2 TB1, TB2, TB3 and Construction Industry (Qld) Award Reform Funds 297

304 References Provision Redundancy Definition R1 Redundancy means a situation where an employee ceases to be employed by an employer, respondent to this award, other than for reasons of misconduct or refusal of duty. Redundant has a corresponding meaning. R2 R3 R4 Redundancy shall apply where an employer has made a definite decision that the employer no longer wishes the job an employee has been doing done by anyone and this is not due to the normal and customary turnover of labour as recognised by the electrical contracting industry and that decision leads to the termination of employment of the said employee. Redundancy occurs when an employer decides that the employer no longer wishes the job the employee has been doing to be done by anyone and this is not due to the ordinary and customary turnover of labour. Where an employer has made a definite decision that the employer no longer wishes the job the employee has been doing done by anyone and this is not due to the ordinary and customary turnover of labour and that decision leads to termination of employment. Eligibility E1 Not for casual employment. E2 E3 E4 E5 Service as an apprentice will count if apprentice completes apprenticeship and stays in employment for a further twelve months. Certain Crown exclusions. Trainees who are engaged for a specific period of time shall, once the traineeship is completed and provided that the trainee services are retained, have all service including the training period counted in determining entitlements. In the event that a trainee is terminated at the end of his or her traineeship and is re-engaged by the same employer within six months of such termination the period of traineeship shall be counted as service in determining any future redundancy entitlements. Requires discussions to be held with employees and unions where job is no longer required to be done 298 Final Report of the Royal Commission into the Building and Construction Industry

305 not through employee fault or labour force turnover as soon as practicable and cover reasons for proposed terminations, measures to avoid/minimise terminations and measures to mitigate any adverse consequences required to provide in writing to employees and unions details for example, number of people, time over which redundancies will be made. E6 E7 Where an employer has decided to make an employee redundant, the employee shall be entitled to be informed, by the employer, as soon as reasonably practicable after the decision has been made to effect the redundancy. The employee shall be entitled to discuss with the employer the likely effects of the redundancy in respect of him or her. Does not apply where employment is terminated as a consequence of conduct that justifies instant dismissal, including malingering, inefficiency or neglect of duty, or in the case of casual employees, apprentices, or employees engaged for a specific period of time or for a special period of time or for a specified task or tasks. E8 Does not apply to employers who employ less than 15 people. E9 E10 E11 E12 E13 Commission may vary proscription based on an employer s ability to pay. Doesn t apply to apprentices and trainees. Doesn t apply to employees engaged for a specific period of time for a specific task or tasks. Date restrictions service prior to x is not included. Notice must be given to the Commonwealth Employment Office of the nature of the redundancies. Benefits (length of B1 1 2 years = 2.4 weeks hours per completed service/benefit) week up to max of 4.8 weeks 2 3 years = 4.8 weeks hours per completed week up to max of 7 weeks 3 4 years = 7 weeks pay hours per completed week up to max of 8 weeks 4+ = 8 weeks pay B2 1 2 years = 4 weeks Reform Funds 299

306 2 3 years = 6 weeks 3 4 years = 7 weeks 4+ years = 8 weeks B3 If under 45 years of age; If over 45 years of age 1 2 years = 4 weeks = 5 weeks 2 3 years = 7 weeks = 8.75 weeks 3 4 years = 10 weeks = 12.5 weeks 4 5 years = 12 weeks = 15 weeks 5 6 years = 14 weeks = 17.5 weeks 6+ years = 16 weeks = 20 weeks Benefits prior to 1 year s B1(<1) Employee employed for less than twelve months shall service & special exemptions be entitled to a redundancy/severance payment of 1.75 hours per week of service if, and only if, redundancy is occasioned otherwise than by the employee. B2(<1) B3(<1) Nil - General obligation on employers should be no more than to give relevant employees an indication of the impending redundancy at the first reasonable opportunity, and to take such steps as may be reasonable to facilitate the obtaining by the employees of suitable alternative employment. Pro rata rate Maximum Benefits MB1 1 2 years = 4.8 weeks pay 2 3 years = 7 weeks pay 3 + = 8 weeks MB2 1 2 years = 4 weeks pay 2 3 years = 6 weeks pay 3 4 years = 7 weeks pay 4 + = 8 weeks pay MB3 If under 45 years of age; If over 45 years of age 1 2 years = 4 weeks = 5 weeks 2 3 years = 7 weeks = 8.75 weeks 3 4 years = 10 weeks = 12.5 weeks 4 5 years = 12 weeks = 15 weeks 5 6 years = 14 weeks = 17.5 weeks 6 + years = 16 weeks = 20 weeks 300 Final Report of the Royal Commission into the Building and Construction Industry

307 Other termination benefits TB1 Money paid to estate in event of death. TB2 TB3 TB4 TB5 TB6 TB7 Employee who terminates employment during period of notice still entitled to provisions under redundancy clause. Continuity not broken by transmission of business. Employee who terminates employment during period of notice still entitled to provisions under redundancy clause. Transfer to lower paid duties same period of notice as if employment had been terminated. An employer, in a particular redundancy case, may make application to the Commission to have the general severance pay prescription varied if the employer obtains acceptable alternative employment for an employee. Time off during notice period (a) During the period of notice of termination given by the employer an employee shall be allowed up to one day s time off without loss of pay during each week of notice for the purposes of seeking other employment. (b) If the employee has been allowed paid leave for more than one day during the notice period for the purpose of seeking other employment, the employee shall, at the request of the employer, be required to produce proof of attendance at an interview in order to receive payment for the time absent. TB8 TB9 Provision for payment of superannuation benefit discrepancies. If there is a severance pay scheme only entitled to any shortfall. TB10 Requires employers to provide statement of employment. TB11 Requires employers to notify Centrelink of the redundancies and will be required to give an employment separation certificate if asked. Reform Funds 301

308 Notes to Redundancy in the Building and Construction Industry 1 Australian Industrial Relations Commission (AIRC) Full Bench, Print Q1599, 4 June ICI Australia Operations Pty Ltd (T/as Dulux Australia) v Hutton (1993) 47 IR 288 at (1977) 16 SASR 6 at 8. See also, Lindeman v Bentley (unreported, Supreme Court of Victoria, Beach J, 8 December 1989) at ICI Australia Operations Pty Ltd (T/as Dulux Australia) v Hutton (1993) 47 IR 288 at Macken, J.J. (Hon.), O Grady, P., Sappideen, C., The Law of Employment (4 th ed.) LBC Information Services, 1997, p See Australian Labour Law Reporter (ALLR), CCH Australia, paras Report of the Inquiry into Recent Mechanisation and Other Technological Changes in Industry, NSW Government Printer, See also, Deery, S., Plowman, D., Australian Industrial Relations (2 nd ed.), McGraw-Hill Book Company, Sydney, p Taylor, V.G., and Yerbury, D., Redundancy provisions: reform from within the existing system, in Blandy, R., and Niland, J., (eds.), Alternatives to Arbitration, Allen & Unwin, North Sydney, 1986, p Deery S., Plowman, D., Australian Industrial Relations (2 nd ed.), McGraw-Hill Book Company, Sydney p Thus, in 1978, a Full Bench of the ACAC stated: In considering redundancy we hold the view that the Commission should proceed with caution in circumstances where the employers oppose any form of additional notice in a general redundancy provision. See Municipal Officers (South Australia) Award 1973, Print D7037, 10 May Deery, S., Redundancy, Employment Protection and the Law, in Ford, G.W., Hearn, J.M. and Lansbury, R.D. (eds) Australian Labour Relations: Readings (4 th ed.), McMillan Company of Australia Pty Ltd, New South Wales, 1987, p According to Deery, this approach was guided by a philosophy consistent with the Redundancy Payments Act 1965 (U.K.). 11 Deery, S., Redundancy, Employment Protection and the Law, in Ford, G.W., Hearn, J.M. and Lansbury, R.D. (eds) Australian Labour Relations: Readings (4 th ed.), 1987 McMillan Company of Australia Pty Ltd, New South Wales, p (1984) 8 IR 34 and TCR Test Case, Supplementary Decision (1984) 9 IR (1984) 8 IR 34 at (1984) 8 IR 34 at TCR Test Case, Supplementary Decision (1984) 9 IR 115 at See Application by Federal Clerks Union of Australia (NSW) (1987) 29 AILR 173 (NSW); Re Conditions of Employment relating to the Termination, Change and Redundancy of Employees (1987) 125 QGIG 1119 (QLD); Re Clerks (SA) Award (1987) 25 IR 316 (SA); Amalgamated Metal Workers and Shipwrights Union of Western Australia v Anchorage Butchers Pty Ltd (1986) 66 WAIG 580 (WA); State Termination, Change and Redundancy case (1985) 15 IR 239 (Vic). The exception was Tasmania: Application by Tasmanian Trades and Labour Council (1985) 27 AILR 411 (Tas); and Tasmanian Chamber of Commerce and Industry Ltd v Australian Liquor, Hospitality and Miscellaneous Workers Union, Tasmanian Branch (1998) 44 AILR (Tas), which confirmed the NSWIRC s preference for a case-by-case approach. See also, Creighton, B. and Stewart, A., Labour Law: An Introduction (3 rd ed.), Federation Press, NSW, 2000, p See Romeyn, J., Termination Technological Change and Redundancy, Australian Construction Law Reporter, 1984, 3(4), p TCR Test Case, Supplementary Decision (1984) 9 IR 115 at Industrial Relations Reform Act 1993 (C wth), ss.170dd, 170EF(1), 170FA, 170GA and 170 GB. See McCallum, R.C. and Pittard, M.J., Australian Labour Law: Cases and Materials (3 rd ed.), Butterworths, NSW, 1995, p Re Application for Redundancy Awards (1994) 53 IR 419 at 443. This scale is currently law in New South Wales under the Employment Protection Regulation 2001 (NSW). 302 Final Report of the Royal Commission into the Building and Construction Industry

309 21 Australian Labour Law Reporter (ALLR), CCH Australia, para (1984) 8 IR 34 at Australian Centre for Industrial Relations Research and Training (ACIRRT), A Review of Prevailing Community Standards concerning Redundancy and Retrenchment across Australia, produced for Queensland Department of Industrial Relations, March 2002, p Australian Centre for Industrial Relations Research and Training (ACIRRT), A Review of Prevailing Community Standards concerning Redundancy and Retrenchment across Australia, produced for Queensland Department of Industrial Relations, March 2002, p AIRC, Building and Construction Industry, Termination, Change and Redundancy (TCR) Test Case, Print H7465, 22 March AIRC, Building and Construction Industry TCR Test Case, p AIRC, Building and Construction Industry TCR Test Case, p AIRC, Decision of Grimshaw C, Print H9967, 19 October 1989; and Print J0230, 14 November Gyles, R. QC 1992, Royal Commission into Productivity in the Building Industry in New South Wales Volume #3 Report of Hearings Part 1, p AIRC, Full Bench decision, Print K2799, 5 May 1992, p See Australian Bureau of Statistics (ABS), Labour Force, November 2001, Australia, Cat. No ; and ABS, Labour Force, August 2002, Australia, Cat. No Gyles, R. QC 1992, Royal Commission into Productivity in the Building and Construction Industry in New South Wales Volume #3 Report of Hearings Part 1, p Research and Policy Division, Royal Commission into Productivity in the Building Industry in New South Wales, Industrial Relations in the Building Industry: Historical Overview and Avenues for Change, Discussion Paper, January 1992, p Australian Conciliation and Arbitration Commission (ACAC), National Wage Case, March 1987, Print G6800, p. 25. See also, ACAC, National Wage Case, December 1987, Print H0100, p Gyles, R. QC 1992, Royal Commission into Productivity in the Building and Construction Industry in New South Wales Volume #3 Report of Hearings Part 1, pp Gyles, R. QC 1992, Royal Commission into Productivity in the Building and Construction Industry in New South Wales Volume #3 Report of Hearings Part 1, p AIRC, Inquiry into the Building and Construction Industry, Print H7460, 22 March See also, AIRC, National Wage Case, December 1987, Print H0100, p Department of Industrial Relations (DIR), A Review of Workers Benefit Schemes in the Building and Construction Industry: Long Service Leave, Superannuation, Redundancy, June 1991, p Gyles, R. QC 1992, Royal Commission into Productivity in the Building and Construction Industry in New South Wales Volume #3 Report of Hearings Part 1, p Department of Industrial Relations (DIR), A Review of Workers Benefit Schemes in the Building and Construction Industry: Long Service Leave, Superannuation, Redundancy, June 1991, p Department of Industrial Relations (DIR), A Review of Workers Benefit Schemes in the Building and Construction Industry: Long Service Leave, Superannuation, Redundancy, June 1991, p ABS 2002 (Retrenchment and Redundancy: Australia, July 2001, cat. no ). 43 ABS 2002 (Retrenchment and Redundancy: Australia, July 2001, cat. no ). 44 ABS 2002 (Retrenchment and Redundancy: Australia, July 2001, cat. no ). 45 ABS 2002 (Retrenchment and Redundancy: Australia, July 2001, cat. no ). 46 ABS 2002 (Retrenchment and Redundancy: Australia, July 2001, cat. no ). 47 ABS 2002 (Retrenchment and Redundancy: Australia, July 2001, cat. no ). 48 ABS 2002 (Retrenchment and Redundancy: Australia, July 2001, cat. no ). Reform Funds 303

310 49 ABS 2002 (Retrenchment and Redundancy: Australia, July 2001, cat. no ). 50 ABS 2002 (Retrenchment and Redundancy: Australia, July 2001, cat. no ). 51 ABS 2002 (Retrenchment and Redundancy: Australia, July 2001, cat. no ). 52 Productivity Commission 1999, Work Arrangements on Large Capital City Building Projects, Labour Market Research Report, AusInfo, Canberra, pp OSIRIS 2001 (online), Top 100 Awards [accessed 19 November 2002], 54 Clothing Trades Award 1999, cl. 23.1; Clerical and Administrative Employees (Victoria) Award 1999, cl. 14.1; Hospitality Industry Accommodation, Hotels, Resorts and Gaming Award 1998, cl. 16.1; Community Employment, Training and Support Services Award 1999, cl. 12.1; Bakers (Australian Capital Territory) Award 1998, cl. 18.1; Transport Workers (Mixed Industries) Award 2002, cl Clothing Trades Award 1999, cl. 23.1; Clerical and Administrative Employees (Victoria) Award 1999, cl. 14.3; Hospitality Industry Accommodation, Hotels, Resorts and Gaming Award 1998, cl. 16.3; Community Employment, Training and Support Services Award 1999, cl. 12.3; Bakers (Australian Capital Territory) Award 1998, cl. 18.3; Transport Workers (Mixed Industries) Award 2002, cl Commonwealth Government of Australia (2002), Application for Statement of Policy Termination Change and Redundancy, Commonwealth Submission to the Queensland Industrial Relations Commission, October, at para Department of Employment and Workplace Relations, and Office of the Employment Advocate 2002, Agreement Making in Australia Under the Workplace Relations Act: 2000 and 2001, Canberra, 28 August, p Australian Workplace 2001 (online), Government Employee Entitlements Support Scheme [accessed 15 November 2002], 59 Australian Workplace 2001 (online), Government Employee Entitlements Support Scheme [accessed 15 November 2002], 60 Australian Workplace 2001 (online), Government Employee Entitlements Support Scheme [accessed 15 November 2002], 61 Australian Workplace 2001 (online), Government Employee Entitlements Support Scheme [accessed 15 November 2002], 62 National Building and Construction Industry Award 2000, cl. 16.1; Australian Workers Union Construction and Maintenance Award 1989, cl.13; Plumbing Trades (Southern States) Construction Award 1999, cl. 34.1; Building and Construction Industry (ACT) Award 2002, cl. 12.1; Building and Construction Industry (NT) Award 2002, sub-cl ; Sprinkler Pipe Fitters Award 1998, cl. 10.1; Building Trades (Construction) Award 1987, cl. 57; Electrical Contracting Industry Award 1978, cl. 38; Earth Moving and Construction Award, cl. 33; Building and Construction Industry (State) Award, cl. 16.1; Building and Construction Workers (State) Award, cl. 33A; Building Trades (S.A.) Construction Award, cl. 49; Building and Construction Industry (Qld) Award. 63 National Electrical, Electronic and Communications Contracting Industry Award 1988, cl New South Wales Electrical, Electronic and Communications Contracting Industry (State) Award, cl. 11; Western Australian Metal Trades (General) Award Building and Construction Industry (ACT) Award 2002, sub-cl ; Building and Construction Industry (NT) Award 2002; Metal Trades (General) Award 1966, sub-cl. 32A(9); Electrical, Electronic and Communications Contracting Industry (State) Award. 66 Department of Employment and Workplace Relations, and Office of the Employment Advocate 2000, Agreement Making in Australia Under the Workplace Relations Act: 1998 and 1999, Canberra, 30 June; Department of Employment and Workplace Relations, and Office of the Employment Advocate 2002, Agreement Making in Australia Under the Workplace Relations Act: 2000 and 2001, Canberra, 28 August. 67 Department of Employment and Workplace Relations, and Office of the Employment Advocate 2002, Agreement Making in Australia Under the Workplace Relations Act: 2000 and 2001, Canberra, 28 August. 304 Final Report of the Royal Commission into the Building and Construction Industry

311 68 Department of Employment and Workplace Relations, and Office of the Employment Advocate 2002, Agreement Making in Australia Under the Workplace Relations Act: 2000 and 2001, Canberra, 28 August. 69 Department of Employment and Workplace Relations, and Office of the Employment Advocate 2002, Agreement Making in Australia Under the Workplace Relations Act: 2000 and 2001, Canberra, 28 August. 70 Department of Employment and Workplace Relations, and Office of the Employment Advocate 2000, Agreement Making in Australia Under the Workplace Relations Act: 1998 and 1999, Canberra, 30 June. 71 Department of Employment and Workplace Relations, and Office of the Employment Advocate 2000, Agreement Making in Australia Under the Workplace Relations Act: 1998 and 1999, Canberra, 30 June. 72 Department of Employment and Workplace Relations, and Office of the Employment Advocate 2002, Agreement Making in Australia Under the Workplace Relations Act: 2000 and 2001, Canberra, 28 August. 73 Australian Construction Industry Redundancy Trust (2001), Financial Statements year ended 30 June 2001, 30 October; BERT Fund (2001), Financial Statements and Audit Documents for the year ended 30 June 2001, 19 October; The South Australian Building Industry Redundancy Scheme Trust (2001), Financial Report for the year ended 30 June 2001, 19 September; Contracting Industry Redundancy Trust (2001), Financial Statements and Notes to and Forming Part of the Accounts at 30 June 2001, 20 November; Electrical Industry Severance Scheme (2001), Annual Financial Report 30 June 2001; Mechanical and Electrical Redundancy Trust (2001), Financial Statements for year ending 30 June 2001, 20 October; The Redundancy Payment Central Fund Trust (2001), Annual Accounts 2000/01, 15 August; The Redundancy Payment Central Fund Number 2 Trust (2001), Annual Accounts 2000/01, 15 August; WA Construction Industry Redundancy Fund (2002), Financial Report for year ending 31 March 2002, 8 July. 74 Australian Construction Industry Redundancy Trust (2001), Financial Statements year ended 30 June 2001, 30 October; BERT Fund (2001), Financial Statements and Audit Documents for the year ended 30 June 2001, 19 October; Electrical Industry Severance Scheme (2001), Annual Financial Report 30 June 2001; Mechanical and Electrical Redundancy Trust (2001), Financial Statements for year ending 30 June 2001, 20 October. 75 Australian Construction Industry Redundancy Trust (2000), Redundancy Fund Trust Deed (Consolidated Deed incorporating changes up to 30 June 1999), 5 October. 76 Parker Statement, exhibit 1768, document at Parker Statement, exhibit 1768, document at Australian Construction Industry Redundancy Trust (2000), Redundancy Fund Trust Deed (Consolidated Deed incorporating changes up to 30 June 1999), 5 October. 79 Parker Statement, exhibit 1768, document at Parker Statement, exhibit 1768, document at Parker Statement, exhibit 1768, document at Parker Statement, exhibit 1768, document at Australian Construction Industry Redundancy Trust (2001), Financial Statements year ended 30 June 2001, 30 October. 84 Tas CERT Pty Ltd minutes of meetings of directors, document ACIRT Submission, exhibit 1768, document at Australian Construction Industry Redundancy Trust (2000), Redundancy Fund Trust Deed (Consolidated Deed incorporating changes up to 30 June 1999), 5 October. 87 Australian Construction Industry Redundancy Trust (2000), Redundancy Fund Trust Deed (Consolidated Deed incorporating changes up to 30 June 1999), 5 October. 88 Parker Statement, exhibit 1768, document at Australian Construction Industry Redundancy Trust (2000), Redundancy Fund Trust Deed (Consolidated Deed incorporating changes up to 30 June 1999), 5 October. 90 Australian Construction Industry Redundancy Trust (2001), Annual Report to Members 2000/2001. Reform Funds 305

312 91 Australian Construction Industry Redundancy Trust (2001), Annual Report to Members 2000/ Australian Construction Industry Redundancy Trust (2000), Redundancy Fund Trust Deed (Consolidated Deed incorporating changes up to 30 June 1999), 5 October. 93 Parker Statement, exhibit 1768, document at Parker Statement, exhibit 1768, document at Tender Bundle NSW s170lj CFMEU EBAs, exhibit 557, document at 0328 A M Formwork Pty Ltd/CFMEU Enterprise Agreement , sub-cl. 10(3) and appendix B. 96 Australian Construction Industry Redundancy Trust (2000), Redundancy Fund Trust Deed (Consolidated Deed incorporating changes up to 30 June 1999), 5 October. 97 Australian Construction Industry Redundancy Trust (2000), Redundancy Fund Trust Deed (Consolidated Deed incorporating changes up to 30 June 1999), 5 October. 98 Australian Construction Industry Redundancy Trust (2000), Annual Report to Members 1999/ Australian Construction Industry Redundancy Trust (2001), Annual Report to Members 2000/ Ashman Statement, exhibit 1663, document at BERT Fund 2001, Annual Report to Members 2001, p Ashman Statement, exhibit 1663, document at Ashman Statement, exhibit 1663, document at BERT Fund (2001), Financial Statements and Audit Documents for the year ended 30 June 2001, 19 October. 105 BERT Fund (2001), Financial Statements and Audit Documents for the year ended 30 June 2001, 19 October. 106 Ashman Statement, exhibit 1651, document at BERT Pty Ltd (1996), Redundancy Fund Trust Deed, 16 May. 108 BERT Pty Ltd (1996), Redundancy Fund Trust Deed, 16 May. 109 BERT Pty Ltd (1996), Redundancy Fund Trust Deed, 16 May. 110 BERT Fund 2001, Annual Report to Members 2001, p BERT Pty Ltd (1996), Redundancy Fund Trust Deed, 16 May. 112 Advanced Interiors Pty Ltd Certified Agreement, exhibit 1869, document APS Contracting Pty Ltd t/a Amalgamated Painting Service Certified Agreement, exhibit 1868, document Advance Bricklaying Pty Ltd Certified Agreement, exhibit 1870, document Findlay Pty Ltd t/a AGF Building and Maintenance Certified Agreement, exhibit 1867, document Brisbane Overview Tender Bundle, exhibit 18, document State Queensland Building Industry Sub-Contractors Certified Agreement, Industrial Relations Act 1999, s Ashman Statement, exhibit 1663, document at Ashman Statement, exhibit 1663, document at BERT Pty Ltd (1996), Redundancy Fund Trust Deed, 16 May. 120 BERT Miscellaneous Documents Tender Bundle, exhibit 1664, document at Suridge Statement, exhibit 1757, paragraphs 1 3, document Suridge Statement, exhibit 1757, paragraphs 4, 15 17, document Suridge Statement, exhibit 1757, paragraphs 11 12, document Australian Bureau of Statistics (2002), Employment time series, Labour Force Employed Industry Australia Quarterly, September. 306 Final Report of the Royal Commission into the Building and Construction Industry

313 125 The South Australian Building Industry Redundancy Scheme Trust (2001), Financial Report for the year ended 30 June 2001, 19 September. 126 Master Builders Association of South Australia; Construction, Forestry, Mining and Energy Union; Communications, Electrical, Electronic, Energy, information, Postal, Plumbing and Allied Services Union of Australia; Australian Building and Construction Workers Federation; Australian Workers Union (1996), South Australian Building Industry Redundancy Agreement. 127 Suridge Statement, exhibit 1757, paragraph 24, document The South Australian Building Industry Redundancy Scheme Trust (2001), Financial Report for the year ended 30 June 2001, 19 September. 129 Howard Statement, exhibit 1341, paragraph 83, document Howard Statement, exhibit 1341, attachments, document South Australian Building Industry Redundancy Scheme Trust (online), Member Benefits: Adelaide [accessed 19 November 2001], South Australian Building Industry Redundancy Scheme Trust (1989), Deed of Trust, 11 May. 133 Contracting Industry Redundancy Trust (1991), Trust Deed and Rules, 19 February. 134 Leeke Statutory Declaration, exhibit 1752, document at Contracting Industry Redundancy Trust (2001), Financial Statements and Notes to and Forming Part of the Accounts at 30 June 2001, 20 November. 136 Contracting Industry Redundancy Trust (2001), Members Annual Report Electrical Contractors Association of Queensland and Electrical Trades Union of Employees of Australia Agreement (1995) Item 3 Redundancy Trust Scheme (C.I.R.T) Qld (referred to as the Redundancy Pay Agreement), exhibit 1864, document , sub-cll. 2.1 and Electrical Contractors Association of Queensland and Electrical Trades Union of Employees of Australia Agreement (1995) Item 3 Redundancy Trust Scheme (C.I.R.T) Qld (referred to as the Redundancy Pay Agreement), exhibit 1864, document , sub-cl Contracting Industry Redundancy Trust (2001), Members Annual Report Electrical Trades Union Queensland Tender Bundle, exhibit 1065, document Leeke Statutory Declaration, exhibit 1752, document at Leeke Statutory Declaration, exhibit 1752, document at Glasson Statement, exhibit 543, document at Glasson Statement, exhibit 543, document at 0007 and The Redundancy Payment Central Fund Trust (2001), Annual Accounts 2000/01, 15 August. 146 The Redundancy Payment Central Fund Number 2 Trust (2001), Annual Accounts 2000/01, 15 August. 147 Redundancy Payment Central Fund Limited, Facsimile to Mr Jamie Lowe from Ms Robin Bouwmeester, 14 November 2002, exhibit 1865, document Redundancy Payment Central Fund (1989), Documents Governing the Redundancy Payment Central Fund (Consolidated Deed), 10 April. 149 Glasson, T15399/ Redundancy Payment Central Fund (1989), Documents Governing the Redundancy Payment Central Fund (Consolidated Deed), 10 April. 151 Glasson, T15396/ The Redundancy Payment Central Fund Trust (2001), Annual Accounts 2000/01, 15 August. 153 The Redundancy Payment Central Fund Number 2 Trust (2001), Annual Accounts 2000/01, 15 August. 154 The Redundancy Payment Central Fund Trust (2001), Annual Accounts 2000/01, 15 August. 155 The Redundancy Payment Central Fund Number 2 Trust (2001), Annual Accounts 2000/01, 15 August. Reform Funds 307

314 156 Victoria Overview Bundle Vol 1, exhibit 2A, document Master Builders Association of Victoria; Finishing Trades Association of Australia; Association of Wall and Ceiling Industries of Victoria; Master Plumbers and Mechanical Services Association of Australia; Air Conditioning and Mechanical Contractors, Association of Victoria; Fire Contractors Victoria Inc.; Building Industry Developers; Victorian Employers Chamber of Commerce and Industry; Construction, Forestry, Mining and Energy Union; Communications, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, Victorian Trades Hall Council (2000), Victorian Building Industry Agreement, October. 157 Victoria Overview Bundle Vol 3, exhibit 2C, document Anderson Construction Group Pty Ltd and Construction, Forestry, Mining and Energy Union (2001), Anderson Construction Group Pty Ltd and MBAV/CFMEU Building and Construction Industry Collective Bargaining Agreement , 28 March, sub-cl Glasson Statement, exhibit 543, attachment 1, document The Redundancy Payment Central Fund Trust (2001), Annual Accounts 2000/01, 15 August. 160 The Redundancy Payment Central Fund Number 2 Trust (2001), Annual Accounts 2000/01, 15 August. 161 Glasson Statement, exhibit 543, document at Glasson Statement, exhibit 543, document at Glasson Statement, exhibit 543, document at Tinslay Statutory Declaration, exhibit 1766, Appendix 1, document Tinslay Statutory Declaration, exhibit 1766, paragraph 7, document Tinslay Statutory Declaration, exhibit 1766, paragraph 12, document Mechanical and Electrical Redundancy Trust (2001), Financial Statements for year ending 30 June 2001, 2 October. 168 Tinslay Statutory Declaration, exhibit 1766, attachment 1, document at 0014 sub-cl Tinslay Statutory Declaration, exhibit 1766, attachment 1, document at ; Tinslay Statutory Declaration, exhibit 1766, document at Mechanical and Electrical Redundancy Trust (2001), Financial Statements for year ending 30 June 2001, 2 October. 171 Tinslay Statutory Declaration, exhibit 1766, paragraphs 39 41, document Tinslay Statutory Declaration, exhibit 1766, attachment 1, document at Tinslay Statutory Declaration, exhibit 1766, paragraphs 24 28, document Mechanical and Electrical Redundancy Trust (2001), Financial Statements for year ending 30 June 2001, 2 October. 175 Mechanical and Electrical Redundancy Trust (2001), Financial Statements for year ending 30 June 2001, 2 October. 176 MERT Education Fund (2001), Financial Statements year ended 30 June 2001, 1 October. 177 Power Statement, exhibit 542, pargraphs 2 9, document Electrical Industry Severance Scheme (2001), Annual Financial Report 30 June Electrical Industry Severance Scheme (1998), Consolidated Deed of Trust (incorporating all amendments up to 19 April 2001), 19 February. 180 Power Statement, exhibit 542, paragraph 12, document Power Statement, exhibit 542, paragraphs 3 and 12, document Victoria Overview Bundle Vol 3, exhibit 2C, document at 0223 Kavanagh Electrics Pty Ltd and Communications, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia (2000), Kavanagh Electrics Pty Ltd Enterprise Agreement , 8 June, cl Final Report of the Royal Commission into the Building and Construction Industry

315 183 Protect (Electrical Industry Severance Scheme) (online), Income Protection [accessed 13 November 2002], Electrical Industry Severance Scheme (2001), Annual Financial Report 30 June Flowchart headed ETU Financial Analysis, exhibit 1708, document WA Construction Industry Redundancy Fund (1989), Deed and Regulations, 30 June. 187 WA Construction Industry Redundancy Fund Limited (1994), Memorandum and Articles of Association (Composite). 188 WA Construction Industry Redundancy Fund (2002), Financial Report for year ending 31 March 2002, 8 July. 189 WA Construction Industry Redundancy Fund (1989), Deed and Regulations, 30 June. 190 WA Construction Industry Redundancy Fund (2002), Financial Report for year ending 31 March 2002, 8 July. 191 WA Construction Industry Redundancy Fund (1989), Deed and Regulations, 30 June. 192 Gemstate Scaffolding/BLPPU Collective Agreement 2000, exhibit 1871, document Celtic Scaffolding/BLPPU Collective Agreement 2000, exhibit 1872, document Plasterwise Plastering/BLPPU Collective Agreement 2000, exhibit 1873, document Masterplanners Interiors Pty Ltd / CFMEUW Collective Agreement 2000, exhibit 1591, document Sanwell/BLPPU and the CMETU Collective Agreement 2000, exhibit 1874, document WA Construction Industry Redundancy Fund (2002), Financial Report for year ending 31 March 2002, 8 July. 198 WA Construction Industry Redundancy Fund (2002), Financial Report for year ending 31 March 2002, 8 July. 199 WA Construction Industry Redundancy Fund (2002), Financial Report for year ending 31 March 2002, 8 July. 200 See the Queensland Construction Training Fund case study. 201 Housing Industry Association Limited (HIA Ltd) 2002, Submission to the Royal Commission into the Building and Construction Industry in response to the Interim Statement of 6 May 2002, 5 July, exhibit 772, document at Australian Construction Industry Redundancy Trust (2000), Annual Report to Members 1999/ Sutton Statement, exhibit 701, annexure I, document Sutton Statement, exhibit 701, annexure I, document See ACIRT and BIRST. 206 Advanced Interiors Pty Ltd Certified Agreement, exhibit 1869, document ; APS Contracting Pty Ltd t/a Amalgamated Painting Service Certified Agreement, exhibit 1868, document ; Advance Bricklaying Pty Ltd Certified Agreement, exhibit 1870, document ; Findlay Pty Ltd t/a AGF Building and Maintenance Certified Agreement, exhibit 1867, document ; Brisbane Overview Tender Bundle, exhibit 18, document State Queensland Building Industry Sub-Contractors Certified Agreement, Industrial Relations Act 1999, s Australian Industry Group submission, exhibit 778, paragraph 5.14, document Housing Industry Association response to the Interim Statement of 6 May 2002 by the Royal Commissioner into the Building and Construction Industry, 5 July 2002, exhibit 772, paragraph 11, document Lowe Statutory Declaration, exhibit 1675, paragraphs 6 19, document ; Lowe Statement, exhibit 1751, paragraphs 5 15, document Hobday Statutory Declaration, exhibit 1673, paragraphs 4 10, document ; Eden Statutory Declaration, exhibit 1672, paragraphs 4 10, document ; Callipari Statutory Declaration, exhibit 1670, paragraphs 4 8, document ; Cameron Statutory Declaration, exhibit 1671, paragraphs 5 13, document ; Burge Statutory Declaration, exhibit 1669, paragraphs 4 12, document ; Lawrence Statutory Declaration, exhibit 1674, paragraphs 4 10, document Reform Funds 309

316 211 Lawrence Statutory Declaration, exhibit 1674, paragraphs 8 10, document Hobday Statutory Declaration, exhibit 1673, paragraphs 7 8, document See Workplace Relations Amendment (Registration and Accountability of Organisations) Act See Glasson Statement, exhibit 543, document at ; Tinslay Statement, exhibit 1765, paragraphs 31 38, document Tinslay Statement, exhibit 1765, paragraphs 33-34, document at Glasson Statement, exhibit 543, annexure 2, document Press release by the Treasurer, 11 October ACIRT, BIRST, Incolink and Protect. 219 BERT, CIRT and MERT. 220 R v Industrial Commission of South Australia, Ex Parte Adelaide Milk Supply Co-op Ltd & Ors (1977) 16 SASR 6 at Royal Commission into Productivity in the Building Industry in New South Wales, Volume #3 Report of the Hearings Part 1 at pages Royal Commission into Productivity in the Building Industry in New South Wales, Volume #7 Final Report at page BERT and QCTF case studies. 310 Final Report of the Royal Commission into the Building and Construction Industry

317 14 Income Protection Insurance in the Building and Construction Industry Introduction 1 Income protection insurance is provided to a large number of employees in most States, including Western Australia, New South Wales, Victoria, South Australia and Queensland. In some States pattern agreements promote specific providers of such insurance schemes. 2 The main income protection insurance case study examined related to the operation of a redundancy scheme; Electrical Industry Severance Scheme, which trades under the name of Protect. That case study is detailed in the ElecNet (Aust) Pty Ltd case study in this volume of the report. Background 3 Income protection insurance entails an insurer agreeing to continue payment of a person s income, wholly or in part, in circumstances where that person is unable to continue earning that income by reason of an event or circumstance stated in the policy. A policy may also provide for the payment of a lump sum upon the occurrence of a defined event, for example loss of a limb and other matters set out in a table of maims. 4 Premiums under income protection insurance policies are determined by reference to the breadth of the insured events and the level of benefits payable. Premiums vary depending on whether the occurrence of a defined event entitles the person to payment of an amount equal to all or part of their income and upon the period of payment of the benefits. In contrast to most workers compensation insurance, an income protection insurance policy usually provides for the payment of a person s income for only a limited period of time (often a stated number of weeks), rather than payment indefinitely throughout the period of partial or total incapacity for work. 5 Workers compensation insurance schemes enable employers to meet their statutory obligations to insure their employees for work related injury or illness. Additional income protection insurance, where a permanent injury or an incapacity to earn income arises from an Reform Funds 311

318 event not covered under the applicable workers compensation insurance scheme, is usually a matter for the employee. Usually an employer has no role or responsibility. 6 In the building and construction industry, however, employers often provide income protection insurance for their employees despite it having no nexus with their working relationship, in addition to workers compensation insurance. 7 The system of pattern enterprise bargaining agreements (EBAs) causing the standardisation of EBAs in the industry on a State by State basis, has given rise to comprehensive and widespread income protection insurance schemes. 8 For example in Victoria, the then Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, Electrical Division, Victorian Divisional Branch, (CEPU Electrical Division Victorian Branch) and the National Electrical and Communications Association (NECA), Victorian Chapter, (NECA Victoria) negotiated a pattern EBA to operate for the period 1 January 2000 to 31 December Each body did so on the basis that the pattern EBA would subsequently be adopted by the majority of electrical contractors in Victoria in individual certified agreements. For that reason, inclusion of a term in the pattern EBA requiring the employer to provide income protection insurance for that employer s employees caused a de facto income protection insurance scheme to be created involving the provision of such insurance for thousands of employees working in the electrical contracting sector of the industry in Victoria. 1 9 A capacity to deliver large numbers of persons to be insured under a common policy, through a pattern EBA, has a commercial value. A consequence is that the delivery of a workforce to an insurer by an employee or employer association can generate a significant income stream in the form of commissions or other benefits to that association. Insurance commissions and related benefits 10 The Commission sought to quantify the extent to which either employer or employee associations received income from arrangements entered into for the provision of income protection insurance, either generally or as a consequence of pattern agreements. 11 While the sharing of commissions and related benefits by brokers is not an uncommon feature of the insurance industry, the Commission considered the issue worthy of further investigation given: the tax status of registered associations; the prevalence of pattern enterprise agreements that place upon employers obligations not negotiated at the enterprise level; and the less onerous reporting obligations placed upon employer and employee associations under the Workplace Relations Act 1996 (C wth). 12 It was found that a number of employer and employee associations received commissions or support from insurance brokers. 13 The impact of commissions can vary. In some cases the insurer agrees to provide the policy for a discounted premium in recognition of the large number of workers insured under the policy. 312 Final Report of the Royal Commission into the Building and Construction Industry

319 No commission, or a smaller commission, is paid to the association. This results in the employers who actually pay the premium negotiated by their association paying less than otherwise would be the case. 14 In other cases, the money paid by the underwriter or insurer to the employer or employee association was included in the premium and was therefore paid by the employers. In some cases, that additional cost was disclosed to employers, and sometimes it was not. Cases illustrating each are referred to below In evidence presented to the Commission, it was apparent that the capacity for employer and employee associations to derive income from delivery of a workforce to an insurer was a factor in income protection insurance becoming a commonly demanded entitlement under pattern EBAs. 16 Commission investigations identified two examples relating to the negotiation of pattern enterprise agreements involving the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union (CEPU). The first related to the New South Wales plumbing and allied sector and the second to the Victorian electrical and electrical contracting sector. Documentary evidence was also tendered showing the receipt of insurance commissions or financial benefits by a number of other associations. 17 Not all of the following examples related to insurance obligations arising from industrial agreements. Nevertheless the range of examples identified has been included to note the extent to which both employer and employee associations derive financial benefit from income protection arrangements. 18 In a number of circumstances explanations were put forward in an attempt to explain the manner in which commissions were arranged or financial benefits received. These explanations included the promotion of the product and marketing support, a muted proposal regarding claims review which ultimately was not be acted upon, and donations or sponsorship for the union picnic. New South Wales plumbing and allied industries 19 The current pattern enterprise agreement for the New South Wales plumbing and allied services sector provides 24 hour income protection and accident insurance. 3 The details and circumstance surrounding the negotiation of this provision in the agreement are detailed in the Chifley Financial Services Limited case study in this volume. 20 As a result of that insurance policy a payment of $3000 for each month was paid to the CEPU from May Prior to May 2001 the CEPU was paid $1 for each insured person each week. 4 Victoria electrical and electrical contracting 21 Between October and December 1999 representatives of the NECA Victoria and the then CEPU Electrical Division Victorian Branch negotiated a pattern agreement for the period Reform Funds 313

320 22 During those negotiations the parties agreed that employers would provide income protection insurance for employees through a policy and scheme agreed by NECA Victoria and the CEPU Electrical Division Victorian Branch The evidence established that NECA Victoria and the CEPU Electrical Division Victorian Branch agreed that the policy be taken out in the name of ElecNet (Aust) Pty Ltd (ElecNet), which is the trustee of the Electrical Industry Severance Scheme (known as Protect). ElecNet collects redundancy contributions from employers, and so provided an expedient means of also collecting the insurance premiums. ElecNet collected the premiums from employers paid on behalf of their employees, payed a fixed monthly premium to the broker based upon an estimate of the number of employees covered under the scheme during that month, and subsequently reconciled the correct premium payable by reference to the number of employees actually insured under the policy for each month. 24 The ElecNet premium included a management or spotter s fee payable to the then CEPU Electrical Division Victorian Branch. ElecNet collected the full premium payable under the policy and forwarded it to the broker, who in turn forwarded the management or spotter s fee to the CEPU Electrical Division Victorian Branch. Mr Dean Mighell, the Secretary of the then Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, Electrical Division, Victorian Divisional Branch, prior to March 1999, failed to disclose to representatives of NECA Victoria that the CEPU Electrical Division Victorian Branch was receiving a spotter s fee or commission, when he was asked. 25 NECA Victoria and the employers who contribute the weekly premiums were therefore unaware of the substantial income stream to the CEPU Electrical Division Victorian Branch generated by this arrangement. My findings regarding this matter are contained in the ElecNet (Aust) Pty Ltd case study. 26 In August 2001 the then CEPU Electrical Division Victorian Branch received payment of more than $1 million as a result of this arrangement 6. That sum represented the management or spotter s fees payable for the period March 2000 to June In October 2002 the then CEPU Electrical Division Victorian Branch received another instalment of the management or spotter s fee totalling $ A further amount of $ was being held in trust by International Underwriting Services Pty Ltd to be paid as a third instalment of the management or spotter s fee Audited financial statements of the CEPU Electrical Division Victorian Branch for the year ended 30 December 2000 filed with the Australian Industrial Registry did not include money held by two trusts established by that Branch, a substantial proportion of which money was received from the management or spotter s fees. 9 New South Wales electrical 29 NECA, New South Wales Chapter (NECA NSW) has for over 30 years had in place arrangements with either an insurance company or broker through which it has made available insurance products commonly required by its members The current arrangement with Brookvale Insurance Brokers provides for the splitting of insurance commissions between the broker and NECA NSW. 11 NECA NSW stated that: 314 Final Report of the Royal Commission into the Building and Construction Industry

321 Each year NECA s income from insurance commission is fully disclosed in its annual accounts. For the financial year ended 30 June, 2002 NECA s income from insurance commission was some $79,757 which is disclosed in the annual accounts. Some 60% of this commission is attributed to Brookvale Insurance Brokers With the exception of a small number of top-up insurance policies, all the products offered through these arrangements related to insuring for business risks as distinct from policies required by enterprise bargaining agreements or other industrial agreements. 13 Western Australia building and construction 32 The Construction, Forestry, Mining and Energy Union (CFMEU), including its State-registered counterparts the Western Australian Builders Labourers, Painters and Plasterers Union of Workers (WABLPPU) and the Construction, Mining, Energy, Timberyards, Sawmills and Woodworkers Union of Australia Western Australian Branch (CMETSWU), included a separate clause for income protection insurance in the pattern enterprise bargaining agreement The Commission reviewed collective agreements for the following companies : Gemstate Scaffolding Pty Ltd; 15 Celtic Scaffolding Pty Ltd; 16 Plasterwise Plastering Pty Ltd; 17 and Sanwell Pty Ltd Each agreement provided that the company agreed to insure employees for injury through a scheme negotiated by the parties. An insurance broker used by the Master Builders Association of Western Australia (MBAWA), Jardine Lloyd Thompson Propriety Limited, developed an appropriate income protection insurance product for use by MBAWA members. 19 This product was the generally accepted industry standard and brochures promoting its availability included the logos of the CFMEU in Western Australia and the MBAWA The MBAWA advised the Commission that it promoted a range of insurance products to its members, as developed by Jardine Lloyd Thompson Propriety Limited and Australian Casualty and Life Limited, which included housing indemnity insurance and other products sought by its members The MBAWA received commission according to arrangements it had in place with the insurance brokers. However MBAWA did not include a line item in its audited annual accounts specifying each of the commissions received by it. MBAWA stated that these payments fall under the broad heading of income. 22 The MBAWA further stated that: Should an MBAWA member request to look at the detailed income and expenditure accounts of the Association they would be made available to that member as above. Included in those details, if requested, is the ability to itemise commissions paid to MBAWA for each of the various insurance products sold by Jardines and/or ACL under the MBAWA banner. This includes those paid for the IPIP [income protection insurance] product. 23 Reform Funds 315

322 37 An examination of the MBAWA Annual Report for the years ended 30 June 2000 and 2001 showed reported Commission Income of $ for the year ending 30 June 2001 and $ for the year ending 30 June The CFMEU in Western Australia also had commission arrangements in place with Jardine Lloyd Thompson Propriety Limited. 25 Documentation received from Jardine Lloyd Thompson Propriety Limited showed that the CFMEU in Western Australia received $3653 for April 2002 and $1365 for May In September 2002 the MBAWA was advised that the insurance underwriter for the income protection insurance provided by Jardine Lloyd Thompson Propriety Limited had declined to renew the contract to continue with this product and that its broker was looking at alternate options in connection with income protection insurance. 27 There was no evidence of the status of any current income protection policy. New South Wales building and construction 40 Pattern enterprise bargaining agreements in New South Wales provided for top-up workers compensation and 24 hour income protection insurance. 28 This type of insurance was first introduced during the 1995 enterprise bargaining campaign by the CFMEU Mr Brian Seidler, Executive Director of the Master Builders Association of New South Wales stated that the CFMEU had a preference for the Coverforce Top-up Accident Scheme (CTAS) provided by Coverforce Propriety Limited (Coverforce). 30 Some pattern agreements templates made specific reference to CTAS while others did not Commission staff reviewed this scheme and concluded that, while CTAS benefited from the support of the CFMEU, no commission or component of the premium paid by employers is received by any industry organisation. 43 The CFMEU did seek financial support from Coverforce in the form of sponsorship for the union s annual picnic day. Coverforce made payments for this purpose 32 and in return received signage on the day. Income protection funds 44 Income protection funds have been established in Victoria and Queensland. 45 In Victoria, the Redundancy Payment Central Fund Limited, trading as Incolink, operates two income protection funds: Redundancy Payment Central Fund No. 1, Income Protection and Trauma Insurance Scheme (IPT Fund 1); and Redundancy Payment Central Fund No. 2, Income Protection and Trauma Insurance Scheme (IPT Fund 2) As at 30 June 2001 IPT Fund 1 had total assets of more than $1.4 million. Liabilities equalled assets. During the financial year the IPT Fund 1 received $11.6 million in contributions and made payments for premiums in excess of $12.7 million to the insurer. 34 An analysis of the IPT Fund 1 accounts shows that for the year ending 30 June 2001 IPT Fund Final Report of the Royal Commission into the Building and Construction Industry

323 received $ from Incolink Fund 1 redundancy fund. The notes to, and forming part of, the accounts show that an Incolink Fund 1 redundancy fund contribution of $ was used to meet insurance premiums As at 30 June 2001 IPT Fund 2 had total assets of $ Of the total assets $ represented net contributions held in trust. During the financial year the fund received $ in contributions from employers and paid insurance premiums of $ In Queensland, Construction Income Protection (Qld) Pty Ltd is trustee for the Construction Income Protection Queensland (CIPQ) scheme which commenced on 1 March 2001 for the purpose of providing income protection for workers in the building and construction industry in Queensland CIPQ provides 24 hour sickness and accident benefit insurance to employees of contributing employers and to workers engaged on a labour only basis. The cover operates 365 days a year and includes personal and work related injuries (with exclusions) CIPQ was introduced as part of the settlement of negotiations between building unions and employer associations encapsulated in the Statement of Intent. 39 Discussion 51 Industrial organisations which receive income by way of commission, management or spotter s fees arising from insurance arrangements established to provide benefits to employees or their members should identify each separate commission in their published accounts. This is especially the case where such arrangements are actively promoted by them in industrial agreements. Transparency is necessary. Members and others reading such accounts should be able to see the extent of commissions, from whom they are received, and the reason for the payments. 52 It is not sufficient for the accounts to include a single line item which agglomerates all commissions. 53 Non-disclosure of commissions or other benefits to be received by any party to an industrial agreement, arising from that agreement, during the course of agreement negotiations may amount to unlawful conduct. Parties should disclose all benefits to be received or the benefit should not be obtained. The ElecNet (Aust) Pty Ltd case study demonstrated that a spotters fee paid to one party to an industrial agreement resulted in a significant cost imposition upon employers across that sector of the industry, for no extra benefit to the beneficiaries of the income protection scheme. The only beneficiary was the CEPU. There is no proper basis upon which employers should be asked, under the guise of providing cover for their employees, to provide an income stream to a third party, here a union. 54 The objects of the Workplace Relations Amendment (Registration and Accountability of Organisations) Act 2002 (C wth), which amends the Workplace Relations Act 1996 (C wth) and inserts Schedule 1B into that Act, and commences on 12 May 2003, include: ensuring that employee and employer organisations registered under the Schedule are representative of and accountable to their members, and are able to operate effectively; Reform Funds 317

324 encouraging efficient management of registered organisations and high standards of accountability of organisations to their members Chapter 8 of the Act imposes obligations upon organisations to keep particular records and sets out requirements to be placed on organisations in relation to financial records, accounting and auditing. 41 These obligations include: the disclosure of particulars of each loan, grant and donation exceeding $1000 made by an organisation, including the amount and purposes of such payments; 42 the preparation by an organisation or reporting units of that organisation of a general purpose financial report at the end of each financial year in accordance with the Australian Accounting Standards; 43 and the preparation by an organisation or reporting units of that organisation at the end of each financial year of an operating report A reporting unit may comprise the whole of the organisation or, if the organisation is divided into branches, each branch or a combination of branches of the organisation General purpose financial reports and notes to such reports are to be prepared in accordance with the Australian Accounting Standards, unless specific exemptions are given by the Industrial Registrar. 46 An operating report must include details of a reporting unit s principal activities during the year, results of those activities and any significant changes in its financial affairs. It must include details of members or officers who are trustees of a superannuation entity or a director of a company that is a trustee of such an entity The Industrial Registrar must issue reporting guidelines which must specify, amongst other matters: information required in notes to general purpose financial reports; and the form and content of any reports or statements forming part of the general purpose financial reports. 48 such other requirements in relation to the disclosure of information by reporting units as the Industrial Registrar considers appropriate. 49 Recommendations 59 In Volume 5, Reform Establishing Employment Conditions, in this report I recommend the enactment of the Building & Construction Industry Improvement Act. The Act proposes an obligation that parties to an industrial agreement genuinely bargain. To that end, the Act proposes the establishment of genuine bargaining principles to be adhered to for the purposes of certifying an industrial agreement. These principles include a requirement that the negotiating parties disclose any financial interest or benefit which they stand to gain from the agreement. Such disclosure should extend to any commissions, management fees, spotter s fees or other direct or indirect financial or other benefit which a party stands to gain. 318 Final Report of the Royal Commission into the Building and Construction Industry

325 Issue The Commission found that employer and employee associations often receive income from arrangements entered into for the provision of income protection insurance, either generally or as a consequence of pattern agreements. Non-disclosure of commissions or other benefits to be received by any party to an industrial agreement, arising from that agreement, during the course of agreement negotiations may amount to unlawful conduct. Parties should disclose all benefits to be received or the benefit should not be obtained. Recommendation 171 The proposed obligation to genuinely bargain in the Building and Construction Industry Improvement Act include the requirement that there be full disclosure, in writing, of any direct or indirect financial benefit that may by derived by any negotiating party to an industrial agreement from any term sought in the enterprise bargaining agreement, such as commissions or other income (see also Recommendation 8). 60 The reporting requirements introduced by the Workplace Relations Amendment (Registration and Accountability of Organisations) Act 2002 (C wth) will improve the financial accountability of registered organisations and make their relationships with industry funds more transparent. To the extent that the provisions of the Act will not already require all commissions and other benefits received by such organisations, either directly or indirectly, to be included in financial or operating reports, the reporting guidelines to be developed by the Industrial Registrar should so require this. Issue Registered organisations that receive income by way of commission, management or spotter s fees arising from insurance arrangements established to provide benefits to employees or their members should identify each separate commission in their published accounts. This should especially be the case where such arrangements are actively promoted by them in industrial agreements. Transparency is necessary. Members and others reading such accounts should be able to see the extent of commissions, from whom they are received, and the reason for the payments. The Workplace Relations Amendment (Registration and Accountability of Organisations) Act 2002 (C wth) will require registered organisations to prepare general purpose financial reports and operating reports in accordance with Australian Accounting Standards. The Industrial Registrar will issue reporting guidelines which will specify information required in notes to general purpose financial reports; the form and content of any reports or statements forming part of the general purpose financial reports and other requirements Reform Funds 319

326 in relation to the disclosure of information as the Industrial Registrar considers appropriate. Recommendation 172 (a) (b) To the extent that it is necessary, the reporting guidelines issued by the Industrial Registrar include a requirement that a reporting unit disclose all commissions and other benefits received, directly or indirectly: (i) (ii) by that reporting unit; and by any officer, member or employee of that reporting unit where a commission or benefit was received in their capacity as an officer, member or employee of that reporting unit. Disclosure shall include details of: (i) (ii) the source of all such commissions and benefits; and the reason for receipt of such commissions and benefits. 61 As detailed in the ElecNet (Aust) Pty Ltd and the CEPU Electrical Division Victorian Branch financial analysis case studies, significant income derived by the then CEPU Electrical Division Victorian Branch was transferred into two trusts established by it. The audited accounts of the CEPU Electrical Division Victorian Branch for the year ended 30 December 2000, filed in the Australian Industrial Registry, were not consolidated accounts and did not include the financial statements of the two trusts. For the reasons set out in the Overview to this volume, the income and assets of the trusts are, in truth, income and assets of the CEPU Electrical Division Victorian Branch. The filed financial statements should reveal this fact. It is important that adherence to the new financial reporting requirements of the Workplace Relations Act 1996 (C wth), when commenced, be monitored by the relevant authorities. 62 Elsewhere in this report I have recommended that there be established the Australian Building and Construction Commission. Issue Case studies examined by the Commission found that significant income derived by a union was transferred into two trusts established by it. The audited accounts of that union for the year ended 30 December 2000, filed in the Industrial Registry, were not consolidated accounts and did not include the financial statements of the two trusts. The Workplace Relations Amendment (Registration and Accountability of Organisations) Act 2002 (C wth) will require registered organisations to prepare general purpose financial reports and operating reports in accordance with Australian Accounting Standards. It is important that adherence to the new financial reporting requirements of the Workplace Relations Act 1996 (C wth), when commenced, be monitored by the relevant authorities. 320 Final Report of the Royal Commission into the Building and Construction Industry

327 Recommendation 173 (a) (b) The Industrial Registrar prepare a report as soon as possible after the end of each financial year addressing the completeness of the financial and operating reports prepared by reporting units of registered organisations with coverage in the building and construction industry. Such a report be based on information provided in financial and operating reports provided to the Industrial Registry pursuant to the Workplace Relations Amendment (Registration and Accountability of Organisations) Act 2002 (C wth) and note the extent of compliance with the requirements of that Act by each such reporting unit. The Industrial Registrar provide the report to the Minister for Employment and Workplace Relations and to the Australian Building and Construction Commission. Reform Funds 321

328 Notes to Income Protection Insurance in the Building and Construction Industry 1 See ElecNet (Aust) Pty Ltd case study in this volume. 2 See ElecNet (Aust) Pty Ltd and Chifley Financial Services Limited case study chapters in this volume. 3 Murray Statutory Declaration, exhibit 1662, paragraph 9, document at Thomas Statement, exhibit 1660, paragraphs 4 17, document ; Thomas Statement, exhibit 1660, annexure JT2, document ElectNet (Aust) Pty Ltd case study, paragraphs 1 and 2. 6 Smith Statement, exhibit 1644, paragraphs 49 53, document at 0012; Smith Statement, exhibit 1644, attachment IS30, document See ElecNet (Aust) Pty Ltd case study, paragraph See the CEPU Electrical Division Victorian Branch financial analysis case study, paragraphs 43 and See the CEPU Electrical Division Victorian Branch financial analysis case study, paragraph Tinslay Statutory Declaration, exhibit 1765, paragraph 7, document Tinslay Statutory Declaration, exhibit 1765, paragraphs 12 15, document Tinslay Statutory Declaration, exhibit 1765, paragraph 17, document Tinslay Statutory Declaration, exhibit 1765, paragraph 13, document Master Builders Association of Western Australia, Income Protection Insurance Arrangements in the Western Australian Building and Construction Industry, 24 September 2002, exhibit 1878, document Gemstate Scaffolding/BLPPU Collective Agreement 2000, exhibit 1871, document at Celtic Scaffolding/BLPPU Collective Agreement 2000, exhibit 1872, document at Plasterwise Plastering/BLPPU Collective Agreement 2000, exhibit 1873, document at Sanwell/BLPPU and the CMETU Collective Agreement 2000, exhibit 1874, document at Master Builders Association of Western Australia, Income Protection Insurance Arrangements in the Western Australian Building and Construction Industry, 24 September 2002, exhibit 1878, document at Master Builders Association of Western Australia, Income Protection Insurance Arrangements in the Western Australian Building and Construction Industry, 24 September 2002, exhibit 1878, document at Master Builders Association of Western Australia, Income Protection Insurance Arrangements in the Western Australian Building and Construction Industry, 24 September 2002, exhibit 1878, document at Master Builders Association of Western Australia, Income Protection Insurance Arrangements in the Western Australian Building and Construction Industry, 24 September 2002, exhibit 1878, document at Master Builders Association of Western Australia, Income Protection Insurance Arrangements in the Western Australian Building and Construction Industry, 24 September 2002, exhibit 1878, document at Master Builders Association of Western Australia 2001, Financial report for the year ended 30 June 2001, 5 November. 322 Final Report of the Royal Commission into the Building and Construction Industry

329 25 See for example CFMEU Construction and General Division, letter, 9 September 1999, exhibit 1894, document ; Paid Agents Commission Report, 3 May 2002, exhibit 1894, document Selected Jardine Lloyd Thompson Pty Ltd Files, exhibit 1894, documents and Master Builders Association of Western Australia, Income Protection Insurance Arrangements in the Western Australian Building and Construction Industry, 24 September 2002, exhibit 1878, document at Tender Bundle NSW CFMEU EBAs, exhibit 565, document at 0012 Construction, Forestry, Mining and Energy Union, Construction and General Division, New South Wales Divisional Branch, (Carpentry), Pattern Collective Bargaining Agreement, sub-cl. 10(5). 29 Seidler Statement, exhibit 568, paragraphs , document Seidler Statement, exhibit 568, paragraphs , document at See for example Tender Bundle NSW CFMEU EBAs, exhibit 565, document at 0012 Construction, Forestry, Mining and Energy Union, Construction and General Division, New South Wales Divisional Branch, (Carpentry), Pattern Collective Bargaining Agreement, sub-cl. 10(5); and Tender Bundle NSW CFMEU EBAs, exhibit 565, document at 0037 Construction, Forestry, Mining and Energy Union, Construction and General Division, New South Wales Divisional Branch and Supplementary Hire Collective Bargaining Agreement , sub-cl Picnic Fund Tender Bundle, exhibit 1195, document at Glasson Statement, exhibit 543, paragraphs 4 6, document Glasson Statement, exhibit 543, paragraph 10, document ; Redundancy Payment Central Fund No. 1, Income Protection and Trauma Insurance Scheme Trust, 2001, Annual Accounts 2000/ Redundancy Payment Central Fund No. 1, Income Protection and Trauma Insurance Scheme Trust, 2001, Annual Accounts 2000/ Redundancy Payment Central Fund No. 2, Income Protection and Trauma Insurance Scheme Trust, 2001, Annual Accounts 2000/01, 15 August. 37 Letter from Graham Cuthbert, Secretary CIPQ, to Queensland Industry Participants regarding establishment of CIPQ and copy of CIPQ Deed of Adherence, exhibit 2007, document at Letter from Graham Cuthbert, Secretary CIPQ, to Queensland Industry Participants regarding establishment of CIPQ and copy of CIPQ Deed of Adherence, exhibit 2007, document at Letter from Graham Cuthbert, Secretary CIPQ, to Queensland Industry Participants regarding establishment of CIPQ and copy of CIPQ Deed of Adherence, exhibit 2007, document at See section 5 Workplace Relations Amendment (Registration and Accountability of Organisations) Act 2002 (C wth) 41 See sections 229 and 238 of the Workplace Relations Amendment (Registration and Accountability of Organisations) Act 2002 (C wth). 42 See Section 237 Workplace Relations Amendment (Registration and Accountability of Organisations) Act 2002 (C wth). 43 See section 253 Workplace Relations Amendment (Registration and Accountability of Organisations) Act 2002 (C wth). 44 See section 254 Workplace Relations Amendment (Registration and Accountability of Organisations) Act 2002 (C wth). 45 See section 242 Workplace Relations Amendment (Registration and Accountability of Organisations) Act 2002 (C wth). 46 See section 241 Workplace Relations Amendment (Registration and Accountability of Organisations) Act 2002 (C wth). Reform Funds 323

330 47 See 254 Workplace Relations Amendment (Registration and Accountability of Organisations) Act 2002 (C wth). 48 See section 253 and 255 Workplace Relations Amendment (Registration and Accountability of Organisations) Act 2002 (C wth). 49 See section 255(4) Workplace Relations Amendment (Registration and Accountability of Organisations) Act 2002 (C wth). 324 Final Report of the Royal Commission into the Building and Construction Industry

331 15 Superannuation in the building and construction industry Introduction 1 This chapter outlines investigations undertaken by the Commission into matters relating to industry superannuation funds and examines employee choice of superannuation fund. That issue was raised in Discussion Paper Three, Productivity and Performance in the Building and Construction Industry. 2 The chapter includes a background to the development of superannuation requirements in Australia and a statistical overview. This is followed by an outline of the regulatory regime, an outline of superannuation arrangements operating in the building and construction industry, and discussion and recommendations relating to the issue of employee choice of superannuation fund. 3 Matters relating to evidence and submissions received about the extent of compliance with the payment of contributions to superannuation funds, and the means of enforcement available if contributions are not paid, are set out in the National Issues volumes of this report. Superannuation in Australia 4 In Australia some employees have had access to superannuation since the mid-nineteenth century. However, it is only since the implementation of a number of significant policy initiatives during the last 20 years that superannuation has become widespread. 1 5 In the early 1980s there were a number of policy initiatives aimed at reforming superannuation taxation arrangements. These changes took place at a time when approximately 40 per cent of employees received superannuation benefits. 2 6 These initial reforms were followed by the Australian Conciliation and Arbitration Commission national wage case decision in 1986 which provided for gradual increases in superannuation coverage. The decision provided for a 3 per cent employer superannuation contribution as part of the national wage decision. 3 Reform Funds 325

332 7 This decision prompted the establishment of the Insurance and Superannuation Commission to oversee the new regulatory regime introduced by the Occupational Superannuation Standards Act 1987 (C wth). 8 By 1990 about 50 per cent of employees received superannuation benefits as a result of the 1986 Australian Conciliation and Arbitration Commission decision. 4 9 The Commonwealth Government introduced the Superannuation Guarantee (Administration) Act That required all employers irrespective of award coverage to provide superannuation support for their employees The Act took effect from 1 July It required a minimum contribution of 3 per cent be paid into a regulated superannuation fund. 7 This is known as the superannuation guarantee. The Act included a timetable for contribution rates to increase to 9 per cent by July Data from the Australian Prudential Regulation Authority (APRA) shows that these arrangements have led to almost 90 per cent of employees receiving superannuation benefits Superannuation funds are now of major importance. Approximately 30 per cent of all financial sector assets are comprised of superannuation savings. 10 In 2001 superannuation assets represented about 15 per cent of total private sector wealth. 11 Regulatory regime 12 The introduction of the superannuation guarantee in 1992 was accompanied by further reform of the prudential regulation framework governing superannuation funds and a tightening of the preservation rules restricting access to superannuation benefits On 1 July 1994 the Superannuation Industry (Supervision) Act 1993 (C wth) replaced the Occupational Superannuation Standards Act 1987 (C wth) as the new basis for regulation and supervision of superannuation funds. 14 The matters dealt with by the Superannuation Industry (Supervision) Act 1993 (C wth) include: the structure of superannuation entities; the responsibilities of trustees; the operation of superannuation entities; investment, borrowing and lending; annual returns of performance and other information to be provided to the appropriate regulator; accounts, statements and audits of superannuation entities; responsibilities of superannuation service providers (including actuaries and auditors); prohibited conduct in relation to superannuation interests; information disclosures and insider trading in relation to public offer superannuation entities; financial assistance to certain superannuation entities; monitoring and investigating superannuation entities by the regulators; and tax file numbers Final Report of the Royal Commission into the Building and Construction Industry

333 15 The subsequent review of the Australian financial system, known as the Wallis report, led to the creation of APRA in It assumed the role of administering the prudential elements of the Superannuation Industry (Supervision) Act 1993 (C wth), previously the responsibility of the Insurance and Superannuation Commission. Consumer protection became the responsibility of the newly created Australian Securities and Investments Commission (ASIC) APRA aims to ensure that superannuation trustees are aware of their obligations to members and manage the funds in their care prudently in members interests. 15 APRA s regulation and supervision of funds requiring approved trustees is characterised by a licensing regime, capital requirements for operational risk, and annual reviews by external auditors regarding risk measurement and management systems. 16 Superannuation in the building and construction industry 17 Eighty-nine per cent of workers in the building and construction industry receive superannuation benefits. The national average across all industries is 90 per cent. 17 While the proportion of employees with superannuation is high, in general workers in the building and construction industry are less likely to make personal contributions, and make relatively low personal contributions, when compared with other industries In the building and construction industry most awards specify superannuation requirements which include rates broadly consistent with those required by the superannuation guarantee, and specify approved funds into which contributions must be made. 19 For example, the National Building and Construction Industry Award 2000 provides, in relation to superannuation, that: An employer must, in accordance with the governing rules of the relevant Fund, make such superannuation contributions for the benefit of an employee as will avoid the employer being required to pay superannuation guarantee charge under the superannuation legislation with respect to that employee The superannuation funds specified in the National Building and Construction Industry Award 2000 are, C+BUS, BUS (Qld), QUEST, AUST (Qld), ARF, ASSET, STA, CCFST (Civil Contractors Federation Superannuation Trust), Tasplan, the Westscheme Superannuation Scheme, Building Employees Superannuation Trust. 21 There is also reference to specified New South Wales funds used by employers under the provisions of a particular New South Wales Award Notwithstanding that certain funds are specified in the National Building and Construction Industry Award 2000, the Award allows an employer to make superannuation contributions to any Fund agreed between an employer and an employee. The Award states that, if an employee is a member of a union bound by the Award, the employee may be represented by the union in meeting and conferring with the employer about choice of fund but notes that the consent of the union is not required to any agreement between the employer and the employee In the non-residential building and construction industry, superannuation coverage usually focuses on the use of centralised funds into which payments can be made by an employer on Reform Funds 327

334 behalf of an employee. These payments are held in an account portable between employers. Pattern agreements generally specify that payments are to be made into these accounts The pattern agreement requirements differ from the award and Federal legislation requirements. 25 The superannuation guarantee is based on a percentage of an employee s earnings. The pattern agreements examined provide for flat weekly payments regardless of classification or earnings. 23 The superannuation obligations in pattern agreements vary between jurisdictions. For example, obligations include payment of: $73 each week for each general building and construction employee in Queensland (to be reviewed should the definition of ordinary time earnings be amended); 26 The superannuation guarantee or $60 each week for each general building and construction employee in Western Australia, whichever is greater; 27 $80 each week for each general building and construction employee in Victoria (this does not limit an employer s superannuation guarantee liability); 28 The superannuation guarantee or a minimum of $60 each week for each employee in the electrical or electrical contracting industry in Victoria; 29 and In South Australia, the superannuation guarantee or $60 each week for each general building and construction industry employee whichever is greater The use of a flat rate can result in many employees in the industry receiving benefits higher than specified under the superannuation guarantee. This would not be the case for employees working under higher classifications, where flat rate payments broadly accord with the superannuation guarantee. 31 Framework for analysis 25 The Commission identified 18 superannuation funds relevant to the building and construction industry. These funds are listed in State and Federal industry awards, enterprise bargaining agreements or identified by reference to industry participants. A full list of these funds is provided at annexure A. 26 The superannuation funds likely to be most relevant to my inquiry already operate in a system subject to prudential regulation. Trustees must be approved, an established licensing regime exists and clear accounting and auditing requirements are in place. Given the time and cost restraints on the Commission, and the number of funds involved, the methodology described in the funds overview was adopted. Investigations 27 The following superannuation funds were investigated: CONNECT; Construction & Building Unions Superannuation Fund (Cbus); Building Unions Superannuation Scheme (Queensland) (BUSS Q); 328 Final Report of the Royal Commission into the Building and Construction Industry

335 Allied Unions Superannuation Trust (Queensland) (AUST Q) New South Wales Electrical Superannuation Scheme (NESS); Superannuation Plan for Electrical Contractors (Qld) (SPECQ); and Westscheme Superannuation Fund (Westscheme). 28 These funds were selected because of their inclusion in the industrial instruments relevant to the industry, the dominant position of these funds in a state or nationally, or as a result of preliminary inquiries conducted by Commission investigative teams. 29 The investigative approach, involved: the collation of documentation detailing the operation, management and financial position of principal funds; the analysis of documents provided by the superannuation funds and related entities; the analysis of audit files produced to the Commission by auditors of the superannuation funds; and issuing Notices to Produce on the development company for building and construction projects funded by Cbus. 30 A Notice to Produce was served on each of the funds which required the production of materials relating to the operation and management of the funds, fund investments and dealings with third parties. Following a review of the documentation received, further Notices to Produce were served on some of these funds, related companies or the funds auditors Commission accountants and analysts, together with auditors seconded from the ATO, reviewed all the materials provided, particularly information obtained from fund auditors, in order to identify any matters of concern, and to determine whether any further investigation was required. 32 In the absence of any signals or comments in auditors papers which led Senior Counsel Assisting to recommend that further inquiry be conducted, and where no general issues of concern had been raised with Commission staff, no further action was taken. 33 Of the seven funds identified above, Cbus and CONNECT are the most significant nationally. The remainder are significant funds in their respective jurisdictions. AUST Q 34 AUST Q is an industry superannuation fund for employees in the building and construction industry. The fund was established to receive contributions on behalf of workers in the construction, maintenance and allied industries in Queensland The fund was established in 1985, has over members, and more than $50 million in members assets. 34 The majority of fund members are based in Queensland with a small number in other States notably New South Wales. 36 The trustee of AUST Q is A.U.S.T. (Queensland) Pty Ltd. AUST Q is managed by a board of trustees comprising equal numbers of employer and member representatives and one Reform Funds 329

336 independent director. 35 The investment returns and capital invested in this fund are not guaranteed by the trustee nor any service provider of the trustee AUST Q has appointed a specialist administrator, insurers and other organisations to provide services on its behalf Following a review of initial documentation provided to the Commission, given the absence of any apparent concerns arising from this analysis, no further inquiries were warranted. BUSS Q 39 BUSS Q was established in 1984 to provide superannuation benefits for all employees in the Queensland building and construction industry. 38 BUSS Q is a superannuation fund regulated under the terms of a trust deed dated 30 November 1984,as amended by a number of subsequent deeds of variation. The fund has the support of the major employee unions and employer association operating in the Queensland building and construction industry BUSS (Queensland) Pty Ltd is the trustee of BUSS Q. The trustee company has an equal representation of employer and member representative directors, nominated by each of the participating unions and the participating employer association The participating associations are: Queensland Master Builders Association, Industrial Organisation of Employers (QMBA); Construction, Forestry, Mining and Energy, Industrial Union of Employees, Queensland (CFMEU Q); Australian Building Construction Employees and Builders Labourers Federation (Queensland Branch) Union of Employees (BLF Q); Plumbers and Gasfitters Employees Union of Australia, Queensland Branch, Union of Employees; and Queensland Council of Unions The directors of the trustee include the: executive officer of the QMBA; chairperson of the Queensland Building Services Authority; state secretary of the CFMEU Q; and state secretary of the BLF Q. 43 The BUSS Q website noted that the fund is fully endorsed by the BLF, CEPU, CFMEU and QMBA The fund is supported by a number of committees, with committee decisions requiring ratification by BUSS (Queensland) Pty Ltd meetings of directors. The structure includes an audit and compliance committee, claims committee and investment committee The fund charges a $1 administrative charge each week for each member and some other small charges for administration services. The fund does not offset costs against investment earnings and therefore is reliant on administration fees Final Report of the Royal Commission into the Building and Construction Industry

337 46 The fund includes a mandatory requirement for insurance cover for working members to be covered for death, total and permanent disablement and total and temporary disablement, the premium for which is deducted from contributions received As at 30 June 2001 the BUSS Q retained funds under management of $352.2 million Matters regarding BUSS Q were presented during Commission hearings. A separate case study regarding BUSS Q is included in this volume of my report. Cbus 49 The Construction and Building Unions Superannuation Fund (Cbus) was established in Cbus was one of the first industry superannuation funds to provide coverage to workers in a designated industry. It operated as a portable accumulation scheme United Super Pty Ltd is the trustee of Cbus and administers the fund in accordance with a trust deed executed on 27 July 1984, as amended. The board of directors is comprised of equal numbers of employer and union representatives plus a non-voting chairperson and non-voting independent director The share capital and representation rights are divided as follows: Australian Workers Union, 1 share; Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing, and Allied Services Union of Australia (CEPU), 1 share; Construction, Forestry, Mining and Energy Union (CFMEU), 3 shares; Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union (referred to as the Australian Manufacturing Workers Union) (AMWU), 1 share; Master Builders Australia Incorporated (MBA Inc), 7 shares; and Nominee of the Australian Council of Trade Unions, 1 share and 1 non-voting share. 53 The board is advised by a number of committees dealing with specific areas of the fund s operation. These committees include: investment committee; property subcommittee; audit and compliance committee; fund structure subcommittee; remuneration subcommittee; member services subcommittee; and marketing advisory panel. 54 In 1996 Cbus became a public offer fund, primarily to meet the needs of self-employed persons within the industry. This arrangement also catered for the need for portability of superannuation for those workers who switched between self-employed and employee status. 50 Reform Funds 331

338 55 In 1985 the fund had members. With consolidation and the growth in the fund, membership as at 30 June 2001 was in excess of Cbus also had at that time participating employers and assets under management of $3.41 billion Cbus is clearly the largest fund in the industry and it, or one of its predecessors, is referred to in the principal Commonwealth, Northern Territory, South Australian, Western Australian, Australian Capital Territory, and New South Wales building and construction industry awards Cbus, as a public offer fund, also accepts membership from: employees from any industry whose employer consents to make contributions; individuals who wish to make personal contributions; and spouses whose partners make contributions on their behalf. 58 Cbus charges no initial joining fees or annual member fees. Employer sponsored members have fees deducted from their accounts on the following basis: $1 each week that an employer contribution is received; $0.85 each week when no contribution is received; and government charges and taxes Cbus also provides death and disability insurance, a charge for which is deducted from each employee s account each week Given the predominance of Cbus in the building and construction industry, the Commission examined a number of Cbus funded projects. Those inquiries resulted in investigations and public hearings relating to the Woolstore Apartments Project in Tasmania and the Mitchell Street Centre development in Darwin. These case studies are included in the relevant State and Territory volumes of this report. 61 Submissions and evidence was also received from Cbus regarding the extent of compliance with the payment of contributions to that fund, the processes it employs to ensure compliance and to recover arrears in contributions. These matters are addressed in the Compliance with Payment of Superannuation Obligations chapter of the National Issues volume of this report. CONNECT 62 CONNECT is a superannuation fund for workers in the electrical and communication industries originally established in 1985 (and called SPEC). The fund extends to the electrical, communications, electronic and associated industry nationally CONNECT is managed by a trustee, SPEC Pty Ltd, with equal representation from the CEPU and the National Electrical and Communications Association (NECA). Each organisation appoints four directors to the board, and there is one independent director, The trustee engages professional advisors, auditors, investment managers and administrators to help trustee directors fulfil their responsibilities. 57 These include Australian Administration Services Pty Ltd as administrator, William M Mercer Pty Ltd for investment advice, ING and JMM Communications Final Report of the Royal Commission into the Building and Construction Industry

339 65 As at 30 June 2002 CONNECT had members and 3931 participating employers. At that date CONNECT held net assets of $253 million An administration fee is charged at a rate of $1.25 each week for each member. CONNECT also provides death, total and permanent disability insurance through a fee automatically deducted from members accounts Following a review of initial documentation provided to the Commission pursuant to a Notice to Produce the decision was taken, given the absence of any apparent concerns arising from this analysis relevant to the matters set out in paragraph (b) of the Letters Patent, that no further inquiries were warranted in relation to CONNECT. NESS 68 The New South Wales Electrical Superannuation Scheme (NESS) was established in 1987 to provide benefits for employees in the electrical and associated industries in New South Wales The New South Wales Electrical Superannuation Scheme (No. 1) Pty Limited is the trustee of the scheme. The trustee company has five directors, two nominated by NECA, two nominated by the Electrical Trades Union of Australia, New South Wales Branch and one who is an independent director experienced in investment management issues The fund had members and total assets of $ in It reported gross income of $ in that year NESS engages specialist insurers, investment advisors and administrators to provide services on their behalf. KPMG is the fund auditor Following a review by Commission staff of documentation provided by KPMG pursuant to a Notice to Produce, the decision was taken, given the absence of any apparent concerns arising from this analysis relevant to the matters set out in paragraph (b) of the Letters Patent, that no further inquiries were warranted in relation to NESS. SPEC Q 73 SPEC Q is an industry fund that has been established for the benefit of electro-technology industry employees in Queensland. 65 Membership is offered to anyone who works for a participating employer SPEC Q is governed by a trust deed and managed by a trustee company called SPEC Q Pty Ltd. The management of the trustee company is the responsibility of three directors. One director is nominated by the CEPU, one director is nominated by the National Electrical and Communications Association of Queensland, Industrial Organisation of Employers and one director is an independent person For the year ended 30 June 2002 SPEC Q held total assets of $143.7 million with net assets available to pay members accrued benefits of $108.5 million. 68 Reform Funds 333

340 76 The fund administrator is Independent Fund Administrators and Advisers Pty Ltd, Malcolm V Leeke & Co. fulfils the role of auditor, and investment consultancy is provided by Van Eyk Research The fund also provides death and total permanent disability insurance cover which operates 24 hours a day, seven days a week worldwide. 70 The insurance is provided through Lumley Life Limited Following a review of initial documentation provided to the Commission pursuant to a Notice to Produce the decision was taken, given the absence of any apparent concerns arising from this analysis relevant to the matters set out in paragraph (b) of the Letters Patent, that no further inquiries were warranted in relation to SPEC Q. Westscheme 79 Westscheme is the largest private sector superannuation scheme in Western Australia 72 with over members as at 30 June Westscheme began in 1986 as a joint venture between the Chamber of Commerce and Industry of Western Australia and Trades and Labor Council of Western Australia (now called Unions WA) The trustee is Westscheme Pty Ltd which consists of three directors nominated by each sponsoring organisation and an independent chairperson The scheme has more than 6000 participating employers, about 10 per cent of all Western Australian employers, 76 and as at 30 June 2002 managed funds in excess of $664.9 million A fee of $1 each week for each member is charged to meet administration costs. This fee reduces to $0.90 after five years membership in the fund and $0.80 after ten years with the fund. Westscheme also provides death and disability insurance and income protection insurance Following a review of initial documentation provided to the Commission pursuant to a Notice to Produce the decision was taken, given the absence of any apparent concerns arising from this analysis relevant to the matters set out in paragraph (b) of the Letters Patent, that no further inquiries were warranted in relation to Westscheme. Governance arrangements 85 In a submission received from the Airconditioning and Mechanical Contractors Association of Victoria (AMCA), that association was critical of the governance arrangements for industry funds which operate in Victoria. 79 That submission stated: 53. In the first instance, each of the funds that operate in Victoria is the product of the outcome of an industrial dispute between the CFMEU and the MBA. In each case these two organisations jointly own the fund. This would not be a problem for the specialist sub contractors if they are able to establish their own funds. Industrial reality, however, dictates that the specialist sub contractors, with the exception of the electrical industry, are required to be a party to the CFMEU/MBA funds. 334 Final Report of the Royal Commission into the Building and Construction Industry

341 54. While AMCA believes that these funds are competently managed, the specialist sub contractors who jointly contribute in excess of 80% of the money collected by the funds, are denied what we would say is access to appropriate governance arrangements. In the case of C+BUS, it is the MBA who has the exclusive power to make employer appointments to the Board. Specialist sub contractors have no rights of representation. Any specialist sub contractor representative who is appointed to the board is there by the grace of the MBA. 55. When all of this is considered against the background of who is actually paying the money into the funds, we submit that the situation is less than satisfactory. 56. It is the view of AMCA that the governance arrangements need to be changed to reflect the principles of good governance and give appropriate representation to the people who contribute the funds. Alternatively, there ought to be an ongoing ability for those organisations that wish to establish their own sector arrangements free of union involvement. The guiding requirement being that the employee benefit is not diminished If, as appears to be the case, the major employers of labour in the industry, and thus major contributors to these funds, feel disenfranchised, then clearly boards need to take these matters into consideration. It is important that superannuation funds operating within the building and construction industry be professionally and effectively managed for the benefit of all their members. Boards of those funds must ensure that their decision-making processes are transparently directed to this objective. It should be understood that the duty of directors is to ensure funds produce the best outcomes for their members. Their duty is not to the organisations from which directors are drawn. 87 I do not propose to make any recommendations in relation to this issue. Should any superannuation fund contributor or member have concerns about the governance arrangements of a fund, those concerns should be reported to APRA for investigation. If, as elsewhere recommended, pattern bargaining is abolished, opportunities for those who wish to do so to establish further superannuation funds may arise Expenditure of surplus income 88 Surplus funds are gained when moneys received from investment returns exceed moneys paid to members within a given period. 89 The Superannuation Industry (Supervision) Act 1993 (C wth) requires the trustee of a superannuation fund regulated by the Act to ensure that the fund is maintained solely for certain defined core purposes. Some ancilliary purposes are also permitted by the Act, but these must be in addition to the core purposes set out in the Act. However, both core and ancilliary purposes are limited to the provision of benefits for members of the fund, or in the case of death, to dependents and legal personal representatives of a member As a consequence of this regulatory framework, superannuation funds do not make contributions to sponsoring organisations, as often occurs in the case redundancy and severance funds. Reform Funds 335

342 91 BUSS Q provided a submission which detailed its use of its surplus income. This income is distributed in accordance with the fund reserving policy. The reserving policy enables the fund to retain surpluses when investment returns are high and distribute some surplus funds to members when returns from investments are low. This smooths returns to members over time. 82 Surpluses, not held in reserve, are paid at interim crediting rates, calculated on a monthly basis, and final crediting rates on an annual basis at the end of June each year. Funds are not distributed under any other circumstances. 83 Choice of fund 92 Industrial agreements within the building and construction industry generally require contributions be paid into a specific superannuation fund, in particular, into Cbus. 84 For example, the Victorian pattern agreement requires superannuation contributions to Cbus. 85 The New South Wales pattern agreement nominates Cbus or other agreed scheme The Western Australian pattern agreement also supports the dominance of Cbus. The agreement provides: Until each employee nominates the fund of their choice the Company will make payments into the Construction + Building Unions Superannuation Scheme (the C+BUSS ). In the event that any employee chooses a fund other than the C+BUSS the Company will, within seven days of the employee advising the Company of the fund of their choice, advise the Union in writing of the employee s decision. In the event that the employee and the Company reach an agreement to change the complying superannuation fund or scheme the Company will, within seven days of the employee and the Company reaching such an agreement, advise the Union in writing of the agreement. The employer shall not unreasonably refuse to agree to a change of complying superannuation fund or scheme requested by the employee Although the above agreement provides for choice of another superannuation fund, which is a requirement of Western Australian industrial legislation for such agreements to be certified, it is not apparent why written notice to the signatory union should be required if such choice is exercised. That should be a matter between an employee and their employer. 95 The pattern agreement for Victoria for allows no choice of fund. Not only does it compel companies party to the pattern agreement to be participating employers with Cbus, it also purports to prohibit the employment of employees not registered with that fund. It states: The company shall be, and remain during the life of this agreement, a participating employer in the Construction and Building Superannuation Scheme (C+BUS). No employee shall commence employment unless he/she is a registered worker in the C+BUS Scheme. 336 Final Report of the Royal Commission into the Building and Construction Industry

343 Where a CFMEU Official requests to examine the superannuation records to confirm compliance, they are entitled to do so I do not doubt that the CFMEU prefers industry participants to be Cbus members and actively demonstrates this preference. I do not suggest it is inappropriate for the building industry unions to support Cbus. However, any practice which limits the freedom of persons to choose to belong to a fund other than Cbus is inappropriate. It is clearly inappropriate that entitlement to commence work is dependent upon being a registered worker in the C+BUS scheme. 97 While the performance of the Cbus fund accounts in part for its success in attracting members, the compulsory nature of the fund in many States must also be a major contributing factor. 98 In Queensland BUSS Q is the dominant fund, much the way Cbus is in other States. It enjoys the support of both the QMBA and the Queensland building industry unions, with the level of the contribution set out in the pattern agreement template determined using an agreed formula between the union and the QMBA CONNECT is a preferred scheme for the electrical sector. The Victorian pattern agreement for the electrical sector provides choice between CONNECT and Cbus. 90 Responses to discussion paper 100 Discussion Paper Three, Productivity and Performance in the Building and Construction Industry, invited views on the advantages and disadvantages flowing from the limited choice between redundancy, superannuation and long service leave funds and the key factors that are constraining this choice The MBA Inc stated that it supports the principle of employee freedom of choice 92 between funds. 102 The Housing Industry Association Limited (HIA) stated that it considers that employees should have complete freedom of choice as to what fund their statutory entitlements such as superannuation are paid, so long as the funds are publicly accountable and their financial operations are subject to public scrutiny. 93 In its submission in response to my statement of 6 May 2002 concerning a number of matters of national importance, the HIA also stated: HIA has long been deeply concerned about the role the unions play in both operating and promoting industry funds. Unions should not be both promoters and directors of funds, and enforcers through industrial pressure of contributions into such funds in preference to competing funds. Such a situation prevents fair competition between union controlled funds and commercial funds for available worker contributions. This is no hypothetical situation in the late 1990s, attempts by a competing commercial superannuation fund (Building Employees Superannuation Trust, linked to Master Builders Australia) to enter the construction industry market against C+BUS were thwarted by union control of the industrial relations agenda. Unions strongly and successfully opposed the inclusion of the other fund as an approved fund under industrial Awards, and by writing C+BUS into all pattern EBAs in the industry, effectively confined BEST to non-award staff in nonunionised sites and firms. This was a clear infringement of competition principles, made Reform Funds 337

344 possible by the unions privileged status under the Trade Practices Act, which applies to trading and financial corporations and does not apply to industrial organisations. There is also a clear potential conflict of interest for unions in such a situation. If, for example, a union-backed fund provided a lower rate of return on funds invested than an alternative commercial fund, normal competitive factors could not operate as the union would use its industrial muscle to ensure that contributions could not be redirected to where they would provide the employees with the higher benefits. HIA considers that choice of superannuation fund should not be an allowable Award matter, as it interferes with the freedom of an individual employee to obtain the best possible superannuation outcome for their retirement In the submission received from the Commonwealth the following comment was provided by the Treasury: The Government believes substantial national benefits will flow from the introduction of its choice of superannuation fund policy. In particular, choice of fund will increase competition and efficiency in the superannuation industry, leading to improved returns on superannuation savings and placing downward pressure on fund administration charges. As a result, the Government considers that choice of funds will lead to an improvement in Australia s national saving performance. More simply, the Government believes it is unfair that workers have no choice as to who manages their superannuation contributions. Under the Government s existing choice proposal, an employer s superannuation guarantee contributions for employees will be deemed to satisfy the choice of funds requirements where the contributions are made under, or in accordance with, a State industrial award. This outcome reflects constitutional considerations. In this circumstance, the provision of choice of funds will remain a matter for the relevant State Government. Employers will also be able to meet their choice obligations by entering into an agreement with their employees (certified agreement, AWA or written informal agreement) or by providing unlimited choice The Australian Industry Group was equivocal about choice of fund. Its submission stated: Choice in the selection of funds is, in the main, directed by the relevant Deed of Adherence and as a result of obligations established in awards and other industrial instruments. While there are limits placed on the selection of funds, this needs to be balanced against the administrative and cost burdens that would be imposed on an employer if the employer was required to contribute to numerous funds The CFMEU expressed its opposition to the notion of allowing building workers freedom of choice in relation to funds. Its submission stated: As for the issue of choice of funds we would point out that in regard to long service leave and redundancy there are no other funds currently in existence. 97 The fact that EBA s require superannuation contributions be paid into a specific fund is not unusual. The NBCIA [National Building and Construction Industry Award] provides for 338 Final Report of the Royal Commission into the Building and Construction Industry

345 Discussion a range of funds or a fund agreed to between the employer and the employees, however it would be an administrative nightmare if an employer had to make contributions to different funds for each one of their employees. 98 Even if one only considered industry and retail funds this would still leave a choice of up to 380 separate funds. It should also be noted that there are huge differences in the administrative charges imposed by the different funds and it is not an easy task to compare them. 99 The fact that building and construction workers have greater problems with numeracy and literacy skills than the workforce in general (see Appendix C of the statement of John Sutton for details), and the general problems of comparing funds outlined in the [newspaper] article [referred to] above, make it clear that building workers would very often have difficulty in making an informed choice. Further the complexity of trust deeds of superannuation funds in regard to entitlements and rules of investment make this task near impossible. It was for these reasons the unions pushed for the establishment of industry funds whose main purpose was the benefit of the members. It is not therefore surprising that union endorsed EBA s specify the superannuation fund that the union members fought for and which in return supports them and their industry Industrial legislation in some States contains provisions permitting choice of superannuation fund. In New South Wales 101 and Queensland 102 choice of fund is available upon agreement between the employee and employer, despite any requirement in an industrial instrument that payment be made to a specified fund. The Queensland legislation requires written agreement, signed by both the employer and employee. In Western Australia 103 the legislation precludes the making of an award or the registration of an industrial agreement requiring contribution to a superannuation fund or scheme, unless that award or agreement permits choice of fund by an employee and does not require the employer to make payment to a specified fund or scheme until the employee exercises that choice. 107 Notably, the Queensland legislation 104 specifically prohibits someone from using coercion in making an agreement between an employee and employer about choice of fund. The Western Australian legislation 105 imposes a penalty upon persons who seek, through threats or intimidation, to persuade an employee or employer to nominate a particular fund or scheme, or to make an employer pay contributions to a particular fund or scheme. 108 Notwithstanding the existence of such provisions seeking to prohibit the use of coercion in choice of fund, the fact is that industrial and commercial pressure is brought to bear on employers in the building and construction industry to compel contributions to funds favoured by unions. Evidence of this practice is addressed in the Overview to this volume of the report. I also accept the views expressed by the HIA, above, about this practice. Reform Funds 339

346 109 Employees in the building and construction industry should be able to exercise true choice between complying superannuation funds into which their employer is to make contributions on their behalf. Such choice should not be constrained by award or industrial agreement requirements and should not be influenced by commercial or industrial pressures from third parties. 110 I agree with the views expressed by the Commonwealth, MBA Inc and the HIA that employees should have freedom to choose their superannuation fund. I accept the proposition that allowing employees in the building and construction industry choice of superannuation fund will promote competition and efficiency in the superannuation industry. This may well counterbalance some increased administrative overheads borne by employers as a result of increased choice. Superannuation is for the retirement welfare of the individual worker, and he or she should thus have the choice of funds. The right to that choice outweighs any administrative inconvenience to the employer. 111 I am also concerned about the conflict of interest which arises when industrial organisations such as MBA Inc and the CFMEU agree to pattern enterprise bargaining agreements (EBAs) which purport to compel the industry to contribute to a superannuation fund which those organisations have created and control. 112 Appropriate consideration needs to be given to the best method of providing true freedom of choice so as to enable employees to join a superannuation fund they consider most appropriately suits their needs, or not be forced to change funds, if they are already members of a complying fund which is not mandated in an EBA. 113 Clauses in EBAs and other industrial agreements entered into between participants in the building and construction industry which do not permit choice of superannuation fund or scheme by an employee should be prohibited and incapable of certification under the Workplace Relations Act 1996 (C wth). Clauses in EBAs and other industrial agreements purporting to preclude the employment of employees unless they are members of a particular superannuation fund or scheme should likewise be prohibited. 114 Seeking to influence an employee s choice of superannuation fund or scheme, or to compel an employer to contribute to a specified fund or scheme, through the use of coercion, threats or intimidation should be prohibited and any person who contravenes the relevant section should be liable to a civil penalty. 115 I note that there is before Parliament the Superannuation Legislation Amendment (Choice of Superannuation Funds) Bill 2002 (C wth) which, if implemented, will insert choice of fund requirements into the Superannuation Guarantee (Administration) Act 1992 (C wth). This will provide a fund regime whereby employers will be liable to penalties if they do not make payments to a complying superannuation fund, scheme or retirement savings account in accordance with the choice of fund requirements. Relevantly, this provides that: an employer must give each employee, employed by that employer on 1 July 2004, a standard choice form; choice may also be made through an individual written agreement, proposed by the employee and agreed to by the employer; 340 Final Report of the Royal Commission into the Building and Construction Industry

347 the employee has 28 days, from the time when an employer provides a standard choice form, to exercise a choice of a complying superannuation fund or scheme; an employee s employer superannuation contribution will be deposited into an eligible choice superannuation fund chosen by the employee; subsequent to making their initial choice, employees may make a further choice every 12 months thereafter, upon giving their employer a written request for another standard choice form; contributions will be paid to a default fund, as defined, if the employee fails to choose an eligible choice fund within the specified time; and contravention notices and financial penalties will be used against non-complying employers to give effect to valid employee choice. 116 Subject to the choice process set out above, contributions made by an employer under, or in accordance with, an Australian Workplace Agreement (AWA), a certified agreement under the Workplace Relations Act 1996 (C wth) or a State industrial award will satisfy the choice of fund requirements. 106 A requirement in a Federal award to make contributions to a particular superannuation fund is unenforceable where the employer instead makes the contributions to another fund in compliance with the choice of fund requirements I note the concerns expressed by the CFMEU about the potential difficulties of building and construction workers in making an informed choice between funds. An employee is able to seek advice from his or her employer, superannuation funds, financial adviser, or the union, about their alternative choices before making that choice. It is presumptuous of unions or employers to assume they are better able to make the choice for an individual. If the abovementioned Bill is enacted, each employer will have a default fund into which contributions will be paid should an employee either be unable to, or elect not to, make a choice. 118 Enactment of the Superannuation Legislation Amendment (Choice of Superannuation Funds) Bill 2002 (C wth) will provide for suitable employee choice of superannuation fund or scheme. However, I note that a previous attempt to legislate for greater choice as to superannuation fund was defeated in the Parliament. 108 Even if enacted, such legislation will not prohibit clauses in EBAs and other industrial agreements which restrict choice of fund. I believe that legislation proscribing this in the building and construction industry is necessary. 119 Legislation should also be enacted by the Commonwealth which expressly prohibits any person using coercion to influence the choice of superannuation fund by any employee engaged in the building and construction industry. 120 Elsewhere in my report I have recommended that the Commonwealth enact the Building and Construction Industry Improvement Act. Reform Funds 341

348 Issue Industrial agreements within the building and construction industry generally require contributions be paid into a specified superannuation fund or scheme. Some agreements allow for a choice of superannuation fund or scheme, some do not. Whether or not an agreement provides for choice, the fact is that industrial and commercial pressure is brought to bear on employers in the building and construction industry to compel contributions to funds favoured by unions. Superannuation is for the retirement welfare of the individual worker. Employees in the building and construction industry should therefore be able to exercise true choice between complying superannuation funds into which their employer is to make contributions on their behalf. Such choice should not be constrained by award or industrial agreement requirements and should not be influenced by commercial or industrial pressures from third parties. The right to that choice outweighs any administrative inconvenience to the employer. Enactment of the Superannuation Legislation Amendment (Choice of Superannuation Funds) Bill 2002 (C wth) will protect the right of employees to choose their own superannuation fund or scheme. However, such legislation will not prohibit clauses in enterprise bargaining agreements and other industrial arrangements which restrict the choice of fund. Legislation proscribing this in the building and construction industry is necessary. Recommendation 174 The Building and Construction Industry Improvement Act provide that the Australian Industrial Relations Commission not certify any industrial agreement or instrument or make any award which restricts the choice of superannuation funds or schemes available to an employee, or requires an employer to make contributions on behalf of an employee to a particular superannuation fund or scheme. 342 Final Report of the Royal Commission into the Building and Construction Industry

349 Issue The Commission received evidence of industrial and commercial pressure being brought to bear on employers in the building and construction industry to compel contributions to superannuation funds or schemes favoured by unions. Seeking to influence an employee s choice of superannuation fund or scheme, or to compel an employer to contribute to a specified fund or scheme through the use of coercion, threats or intimidation should render a person liable to a civil penalty under Commonwealth law. Recommendation 175 The Building and Construction Industry Improvement Act provide that: (a) a person shall not, by threat of industrial action, coercion or other form of intimidation, persuade or attempt to persuade: (i) (ii) an employee or prospective employee to nominate a particular superannuation fund or scheme; or an employer to make contributions to a particular superannuation fund or scheme on behalf of an employee. (b) a person contravening this provision be liable to a civil penalty. Privacy 121 Industry superannuation funds collect and maintain personal information about their members, as do long service leave, redundancy and related funds or schemes such as income protection and top-up insurance schemes. 122 The BUSS Q case study contained within this volume sets out in detail the provision of personal information by that fund to unions, in the course of collection of contributions, and arrears in contributions, to that fund. BUSS Q relies upon Queensland building and construction industry unions for the collection of arrears since it elected to no longer use the services of a credit control agency Following the hearing of evidence in that case study, the Commission was notified that the directors had resolved to amend the privacy policy of BUSS Q with regard to the supply of information to third parties. The new procedures implemented by that policy will allow new members a choice to opt out of the process used by BUSS Q of supplying personal information to third parties for the collection of outstanding contributions and data matching with two other specified funds. While this is an improvement, I still have concerns that this does not take account of existing members. 124 The new privacy policy adopted by BUSS Q is now similar to that of Cbus. 125 The Cbus policy in relation to the provision of information to sponsoring organisations (including unions) is that the fund will confirm details on a request only basis, if an individual is named and the third party advises they have been authorised to request that information by the person concerned. 110 Reform Funds 343

350 126 In the Abuses of Privacy chapter in the National Issues volumes of this report I have examined the practices of industry funds in relation to the collection, maintenance and provision of personal information about their members. I have concluded that industry funds (including superannuation funds) continue to disclose information to unions and their delegates in circumstances which contravene or may contravene the National Privacy Principles (NPP). I there set out my recommendations that a privacy code should be developed for the building and construction industry in accordance with Part IIIAA of the Privacy Act 1988 (C wth), that the Australian Building and Construction Commission (ABCC) be involved in the development of the privacy code and that the ABCC may be an appropriate body to deal with privacy complaints made pursuant to the proposed code. Cbus funded projects 127 Given the predominance of Cbus in the building and construction industry, the Commission examined and carried out initial inquiries in relation to a number of Cbus funded projects. Those inquiries resulted in investigations and public hearings relating to the Woolstore Apartments Project in Tasmania and the Mitchell Street Centre development in Darwin. These case studies are included in the relevant State and Territory volumes of this Report. 128 One aspect of the Woolstore project was the CFMEU s insistence that the involvement of Cbus moneys gave it licence to enter the site at will, to coerce employees to join the CFMEU and to pressure contractors into signing union-endorsed enterprise bargaining agreements In the Mitchell Centre case study, I concluded that the timing of the signing of the construction contract between the head contractor and the development company, of which Cbus was 50 per cent owner and Mr John Sutton, National Secretary, Construction, Forestry, Mining and Energy Union (CFMEU), Construction and General Division, was chairman, the day after that company received the EBA between the head contractor and the CFMEU, coupled with the matters referred to in the correspondence quoted in that case study, made plain that it was a requirement for the project that there be an EBA with the CFMEU before the contract would be awarded. I concluded that it was likely this was a requirement of Cbus or Mr Sutton. 130 It is a matter for concern if provision of development funds by Cbus has attached conditions impinging upon freedom of association and freedom of bargaining between employer and employee. There will always be the risk of this occurring if those officials of unions or employer associations who also are directors of Cbus, or other industry funds, do not keep distinct their two functions and roles. The prospect of conflict of interest is very real. 131 In Volume 11, Reform Achieving Cultural Change, of this report I recommend the establishment of the ABCC. The ABCC should be authorised to monitor projects where development funds are provided by industry superannuation, long service leave, redundancy funds or other industry funds to ensure that conditions are not attached to such loans or equity interests which infringe provisions of the Australian Building and Construction Industry Improvement Act or the Workplace Relations Act 1996 (C wth). 344 Final Report of the Royal Commission into the Building and Construction Industry

351 Issue Officials of unions and employer associations are often also directors of industry superannuation, long service leave, redundancy or other industry funds. There is a risk of conditions impinging upon freedom of association and freedom of bargaining between employer and employees being attached to the provision of development moneys by industry funds, if those directors do not keep distinct their two functions and roles. The prospect of conflict of interest is very real. Recommendation 176 The Australian Building and Construction Commission be authorised to monitor projects where development funds are provided by building and construction industry superannuation, long service leave, redundancy or other industry funds to ensure that conditions are not attached to such loans or equity interests which infringe provisions of the Building and Construction Industry Improvement Act or the Workplace Relations Act 1996 (C wth). Reform Funds 345

352 346 Final Report of the Royal Commission into the Building and Construction Industry

353 Annexure A Identified superannuation funds: Allied Construction Employees Superannuation Scheme (ACE); Australian Retirement Fund (ARF); Australian Superannuation Savings Employment Trust (ASSET); Allied Unions Superannuation Trust (Queensland) (AUST Q); Building Employees Superannuation Trust; Building Unions Superannuation Scheme, Queensland (BUSS Q) Construction & Building Unions Superannuation Fund (Cbus); CONNECT; Combined Trade Union Retirement Fund (CTRF); ECASF; New South Wales Electrical Superannuation Scheme (NESS); Queensland United Employers Superannuation Trust (QUEST); Statewide Superannuation Trust (Statewide Super); Sunsuper; Superannuation Plan for Electrical Contractors (Qld) (SPEC Q) Superannuation Trust of Australia; Tasplan Superannuation Fund (Tasplan); and Westscheme Superannuation Fund (Westscheme). Reform Funds 347

354 Notes to Superannuation in the Building and Construction 1 Productivity Commission 2001, Review of the Superannuation Industry (Supervision) Act 1993 and Certain Other Superannuation Legislation, Report No. 18, AusInfo, Canberra, Part Productivity Commission 2001, Review of the Superannuation Industry (Supervision) Act 1993 and Certain Other Superannuation Legislation, Report No. 18, AusInfo, Canberra, Part Productivity Commission 2001, Review of the Superannuation Industry (Supervision) Act 1993 and Certain Other Superannuation Legislation, Report No. 18, AusInfo, Canberra, Part 2.1. Cbus Statement, exhibit 2080, document at Productivity Commission 2001, Review of the Superannuation Industry (Supervision) Act 1993 and Certain Other Superannuation Legislation, Report No. 18, AusInfo, Canberra, Part 2.1; and Cbus Statement, exhibit 2080, document at Cbus Statement, exhibit 2080, document at Productivity Commission 2001, Review of the Superannuation Industry (Supervision) Act 1993 and Certain Other Superannuation Legislation, Report No. 18, AusInfo, Canberra, Part Productivity Commission 2001, Review of the Superannuation Industry (Supervision) Act 1993 and Certain Other Superannuation Legislation, Report No. 18, AusInfo, Canberra, Part 2.1; and Cbus Statement, exhibit 2080, document at Productivity Commission 2001, Review of the Superannuation Industry (Supervision) Act 1993 and Certain Other Superannuation Legislation, Report No. 18, AusInfo, Canberra, Part Australian Prudential Regulation Authority, 2001, APRA Insight, 3 rd Quarter, p. 9; and Productivity Commission 2001, Review of the Superannuation Industry (Supervision) Act 1993 and Certain Other Superannuation Legislation, Report No. 18, AusInfo, Canberra, Part Australian Prudential Regulation Authority (online), Superannuation Market Statistics, [accessed 21 December 2002], 11 Productivity Commission 2001, Review of the Superannuation Industry (Supervision) Act 1993 and Certain Other Superannuation Legislation, Report No. 18, AusInfo, Canberra, Part Productivity Commission 2001, Review of the Superannuation Industry (Supervision) Act 1993 and Certain Other Superannuation Legislation, Report No. 18, AusInfo, Canberra, Part Productivity Commission 2001, Review of the Superannuation Industry (Supervision) Act 1993 and Certain Other Superannuation Legislation, Report No. 18, AusInfo, Canberra, Part Productivity Commission 2001, Review of the Superannuation Industry (Supervision) Act 1993 and Certain Other Superannuation Legislation, Report No. 18, AusInfo, Canberra, Part Australian Prudential Regulatory Authority (APRA) (online), APRA Brochure, [accessed 22 December 2002], 16 Australian Prudential Regulatory Authority, 2001, Submission to the Productivity Commission National Competition Policy Review of the Superannuation Industry (Supervision) Act 1993 and Certain Other Superannuation Legislation, p ABS 2002 (Employee Earning, Benefits and Trade Union Membership, August 2001, Cat. no ). 18 ABS 2002 (Superannuation: Coverage and Financial Characteristics, April to June 2000, Cat. no ). 19 Productivity Commission, 1999, Work Arrangements on Large Capital City Building Projects, Labour Market Research Report, AusInfo, Canberra, pp ; See for example National Building and Construction Industry Award 2000 cl. 26.4; Australian Workers Union Construction and Maintenance Award 2002 cl. 26.4; National Electrical, Electronic and Communications Contracting Industry Award 1998 cl. 19.3; and Plumbing Trades (Southern States) Construction Award 1999 cl National Building and Construction Industry Award 2000 cl National Building and Construction Industry Award 2000 cl (a). 22 National Building and Construction Industry Award 2000 cl (b). 348 Final Report of the Royal Commission into the Building and Construction Industry

355 23 National Building and Construction Industry Award 2000 cl (c). 24 Productivity Commission, 1999, Work Arrangements on Large Capital City Building Projects, Labour Market Research Report, AusInfo, Canberra, pp Productivity Commission, 1999, Work Arrangements on Large Capital City Building Projects, Labour Market Research Report, AusInfo, Canberra, pp Advanced Interiors Pty Ltd Certified Agreement, exhibit 1869, document at 0006 cl. 2.1; APS Contracting Pty Ltd t/a Amalgamated Painting Service Certified Agreement, exhibit 1868, document at 0050 cl. 2.1; Advance Bricklaying Pty Ltd Certified Agreement, exhibit 1870, document at 0028 cl. 2.1; Findlay Pty Ltd t/a AGF Building and Maintenance Certified Agreement, exhibit 1867, document at 0068 cl. 2.1; Brisbane Overview Tender Bundle, exhibit 0018, document at 0008 State Queensland Building Industry Sub-Contractors Certified Agreement, cl Gemstate Scaffolding/BLPPU Collective Agreement 2000, exhibit 1871, document at 0083 cl. 8; Celtic Scaffolding/BLPPU Collective Agreement 2000, exhibit 1872, document at 0069 cl. 8; Plasterwise Plastering/BLPPU Collective Agreement 2000, exhibit 1873, document at 0214 cl. 8; Sanwell/BLPPU and the CMETU Collective Agreement 2000, exhibit 1874, document at 0133 cl Victoria Overview Bundle Vol 3, exhibit 2C, document at Anderson Construction Group Pty Ltd and MBAV/CFMEU Building and Construction Industry Collective Bargaining Agreement Agreement AG806252, cl Victoria Overview Bundle Vol 3, exhibit 2C, document at 0222 Kavanagh Electrics Pty Ltd Enterprise Agreement , Agreement K0712, cl Statement of M. Howard, exhibit 1341, attached EBA Standard Proforma, document at 0091 Enterprise Bargaining Agreement EBA Standard Proforma, cl Productivity Commission, 1999, Work Arrangements on Large Capital City Building Projects, Labour Market Research Report, AusInfo, Canberra, pp McFarland Statutory Declaration, Exhibit 1903, Document Allied Unions Superannuation Trust (Queensland) (AUST Q) (online), About the fund [accessed 23 December 2002] 34 Allied Unions Superannuation Trust (Queensland) (AUST Q) (online), Home [accessed 23 December 2002], 35 Allied Unions Superannuation Trust (Queensland) (AUST Q) (online), About the fund [accessed 23 December 2002] 36 Allied Unions Superannuation Trust (Queensland) (AUST Q) (online), disclaimer, [accessed 2 January 2003], 37 Allied Unions Superannuation Trust (Queensland) (AUST Q) (online), privacy policy, [accessed 2 January 2003], 38 Byrne Statement, exhibit 1649, document at Building Unions Superannuation Scheme (Queensland) Trust Deed, exhibit 0425, document ; and BUSS Q, What is BUSS Q, [accessed 22 December 2002], 40 Building Unions Superannuation Scheme Queensland (BUSS Q) (online), Company Profile: What is BUSS Q [accessed 22 December 2002], 41 Statement in relation to the operation of BUSS (Queensland) Pty Ltd as Trustee for BUSS Q, exhibit 1649, document Building Unions Superannuation Scheme Queensland (BUSS Q) (online), BUSS(Q) Benefits: Great Reasons to Join! [accessed 23 December 2002], Reform Funds 349

356 43 Statement in relation to the operation of BUSS (Queensland) Pty Ltd as Trustee for BUSS Q, exhibit 1649, document at Building Unions Superannuation Scheme Queensland (BUSS Q) (online), BUSS(Q) Benefits: Great Reasons to Join! [accessed 23 December 2002], Statement in relation to the operation of BUSS (Queensland) Pty Ltd as Trustee for BUSS Q, exhibit 1649, document at Statement in relation to the operation of BUSS (Queensland) Pty Ltd as Trustee for BUSS Q, exhibit 1649, document at Financial Statements of the Building Unions Superannuation Scheme (Queensland) for the Year Ended 30 June 2001 [obtained from Hall Chadwick], exhibit 1956, document Cbus Statement, exhibit 2080, p.2, document at Cbus Statement, exhibit 2080, p.2, document at Cbus Statement, exhibit 2080, p.9, document at Cbus Statement, exhibit 2080, p.3, document at Cbus Statement, exhibit 2080, p.3, document at See National Building and Construction Industry Award 2000; Australia Workers Union Construction and Maintenance Award 2002; Sprinkler Pipe Fitters Award 1998; Plumbing Trades (Southern States) Construction Award 1999; Building Trades (SA) Construction Award; Building And Construction Industry (Northern Territory) Award 2002; Building And Construction Industry (ACT) Award 2002; New South Wales General Construction (State) Award; Western Australian Building Trades (Construction) Award Cbus Statement, exhibit 2080, p.3, document at Cbus Statement, exhibit 2080, p.4, document at CONNECT (online), Member Information Booklet [accessed 27 January 2003] p CONNECT, Annual Report 2002, p CONNECT (online), Member Information Booklet [accessed 27 January 2003] p CONNECT, Annual Report 2002, p CONNECT, Annual Report 2002, p CONNECT (online), Member Information Booklet, pp. 8 and 12 CONNECT, Annual Report 2002, pp. 8 and New South Wales Electrical Superannuation Scheme (online) [accessed 10 February 2003], About Ness, 62 New South Wales Electrical Superannuation Scheme (online) [accessed 10 February 2003], About Ness The Trustees, 63 New South Wales Electrical Superannuation Scheme (2001), Financial Accounts as at 30 June New South Wales Electrical Superannuation Scheme (online) [accessed 10 February 2003], About Ness Other Information, 65 Superannuation Plan for Electrical Contractors (Queensland) (SPEC Q) (online), Why SPEC Q? [accessed 22 December 2002], 66 Superannuation Plan for Electrical Contractors (Queensland) (SPEC Q ), Annual Report and Member Handbook 2002, p Superannuation Plan for Electrical Contractors (Queensland) (SPEC Q ), Annual Report and Member Handbook 2002, p Superannuation Plan for Electrical Contractors (Queensland) (SPEC Q ), Annual Report and Member Handbook 2002, p Final Report of the Royal Commission into the Building and Construction Industry

357 69 Superannuation Plan for Electrical Contractors (Queensland) (SPEC Q ), Annual Report and Member Handbook 2002, p Superannuation Plan for Electrical Contractors (Queensland) (SPEC Q ), Annual Report and Member Handbook 2002, pp. 11 and Superannuation Plan for Electrical Contractors (Queensland) (SPEC Q ), Annual Report and Member Handbook 2002, p Westscheme Superannuation Fund 2002 (online), Introduction to Westscheme [accessed 22 December 2002], 73 Westscheme Superannuation Fund 2002 (online), Member Benefits [accessed 23 December 2002] 74 Westscheme Superannuation Fund 2002 (online), Introduction to Westscheme [accessed 22 December 2002], 75 Westscheme Superannuation Fund 2002, Member Handbook, p Westscheme Superannuation Fund 2002 (online), Member Benefits [accessed 23 December 2002] 77 Westscheme Superannuation Fund 2002 (online), Introduction to Westscheme [accessed 23 December 2002] 78 Westscheme Superannuation Fund 2002 (online), Member Benefits [accessed 23 December 2002] 79 The submission referred to funds operating to provide benefits to employees in connection with a number of conditions of employment, being long service leave, redundancy, sick leave, trauma insurance and superannuation. See Airconditioning and Mechanical Contractors Association of Victoria Submission to Royal Commission into Building and Construction Industry, 19 July 2002, exhibit 857, document at Airconditioning and Mechanical Contractors Association of Victoria Submission to Royal Commission into Building and Construction Industry, 19 July 2002, exhibit 857, document at See section 62 of the Superannuation Industry (Supervision) Act 1993 (C wth). 82 Statement in relation to the operation of BUSS (Queensland) Pty Ltd as Trustee for BUSS Q, exhibit 1649, document at Statement in relation to the operation of BUSS (Queensland) Pty Ltd as Trustee for BUSS Q, exhibit 1649, document at Master Builders Australia Inc Submission, exhibit 0006, document at Victorian Overview Tender Bundle, exhibit 0002c, Collective Bargaining Agreement , document at CFMEU Construction and General Division NSW Branch, Collective Bargaining Agreement , Carpentry, exhibit 0565, document at Celtic Scaffolding/BLPPU Collective Agreement 2000, exhibit 1872, document at 0069 cl. 8; Plasterwise Plastering/BLPPU Collective Agreement 2000, exhibit 1873, document at 0214 cl. 8; Gemstate Scaffolding/BLPPU Collective Agreement 2000, exhibit 1871, document at 0083 cl. 8; Sanwell/BLPPU and CMETU Collective Agreement 2000, exhibit 1874, document at 0133 cl Victorian CFMEU Pattern Agreement , exhibit 1921, document at Advanced Interiors Pty Ltd Certified Agreement, exhibit 1869, document at 0006; and Advanced Bricklaying Pty Ltd Certified Agreement, exhibit 1870, document at Victorian Overview Tender Bundle, exhibit 0002c, document at Royal Commission into the Building and Construction Industry, Discussion Paper Three, Productivity and Performance in the Building and Construction Industry, May 2002 at page 41. Reform Funds 351

358 92 Master Builders of Australia Incorporated (MBA Inc) submission in response to the Royal Commission s Discussion Paper 3, exhibit 771, document at Housing Industry Association Response to the Royal Commission Discussion Paper No. 3, 5 July 2002, exhibit 772, document at Housing Industry Association Response to the Interim Statement of 6 May 2002 by the Royal Commissioner into the Building and Construction Industry, 5 July 2002, exhibit 772, at Commonwealth Government response to Discussion Paper 3, 20 June 2002, exhibit 774, document at Australian Industry Group submission in response to Discussion Papers 1-5, 30 June 2002, exhibit 778, document at Productivity and Performance in the Building and Construction Industry - CFMEU Response, 3 July 2002, exhibit 825, document at Productivity and Performance in the Building and Construction Industry - CFMEU Response, 3 July 2002, exhibit 825, document at Productivity and Performance in the Building and Construction Industry - CFMEU Response, 3 July 2002, exhibit 825, document at Productivity and Performance in the Building and Construction Industry - CFMEU Response, 3 July 2002, exhibit 825, document at Industrial Relations Act 1996 (NSW), s Industrial Relations Act 1999 (Qld), s Industrial Relations Act 1979 (WA), s48b 104 Industrial Relations Act 1999 (Qld), s405 (4) 105 Industrial Relations Act 1979 (WA), s48b (4) 106 Superannuation Legislation Amendment (Choice of Superannuation Funds) Bill 2002 (C wth) Schedule 1, item 22, ss 32C(6), (7) and (8). 107 Superannuation Legislation Amendment (Choice of Superannuation Funds) Bill 2002 (C wth) Schedule 1, item 22, s32z 108 Commonwealth Government response to Discussion Paper 3, 20 June 2002, exhibit 774, document at Byrne, T15313/30-35; Building Unions Superannuation Scheme case study, para Cbus Submission, exhibit 1518, paragraph 6.32, document at See The Woolstore Apartments Project case study, para Final Report of the Royal Commission into the Building and Construction Industry