Trade Union Reform

Trade Unions: Privilege and Power

David Russell, Q.C.

'Be you ever so high, the law is above you'


---Thomas Fuller, quoted by Lord Denning M.R.

in Gourlet v Union of Post Office Workers (1977) W.B. 729

Thomas Fuller's words of over 300 years ago were directed to the pretensions of the Stuart Kings, who claimed to rule by divine right and not be subject to the laws which bound their subjects.

No one, today, asserts their inviolability from legal control in as naked a fashion as the Stuart Kings, no doubt in part because of the catastrophic consequences to that dynasty of such an unacceptable viewpoint. But the same result can be had by obtaining formal recognition, through the law itself, that one is not bound by it. Charles I was not able to achieve that state, which no doubt seemed to him most felicitous, as neither the common law Courts nor Parliament would oblige with the necessary changes in the law. But as history shows, the temptations of power without responsibility are not limited in their reach to hereditary monarchs of the distant past.

The purpose of this paper is to examine the nature and extent of the differences between the position of the ordinary citizen and of trade unions and to analyse the areas in which there are substantial benefits conferred upon trade unions. It is no part of the paper to determine whether or not, either singularly or taken as a whole, these privileges have, or at the time of their introduction had, a sound public policy basis. That is a task for political comment quite beyond its scope.

I propose to deal with the differential position of trade unions from that of citizens generally under four headings:

1. Revenue Law
2. Liability in Tort
3. Corporate Law; and
4. Monopoly Powers.

In each of these areas, analysis of the position of trade unions demonstrates substantial advantages to those enjoyed by ordinary citizens.

Revenue Law

Section 23 of the Income Tax Assessment Act 1936 provides:

'The following income shall be exempt from income tax: ....

(f) The income of a trade union and the income of an association of employers or employees registered under any Act or State Act, or under any law enforced in a Territory being part of Australia relating to the settlement of industrial disputes.'

This provision, whatever else might be said of it, at least has the refreshing attribute not enjoyed by much of the Income Tax Assessment Act that its meaning is completely clear. No income of any trade union will be subjected to tax levied under that Act, which applies also to capital gains.

In these circumstances, it may be thought to lie ill in the mouths of trade unions and those whose political gestation occurred in the womb of the trade union movement to rage about tax avoidance. After all, the most legally effective and socially acceptable form of tax avoidance is to procure the Parliament to pass a law exempting oneself from tax.

This provision of the Income Tax Assessment Act may well have been included to make clear what would have been the result of the application of the mutuality principle to the affairs of trade unions as they operated at the time of its enactment.

That principly, simply stated, is that a person--- or group of persons---cannot derive income from trading with themselves. Thus a club is not, on ordinary concepts, liable to tax on membership subscriptions paid by its members or the profits of bar trading.

The position of trade unions is, however, very different now from that which obtained in 1936. In addition to membership fees, unions could well expect to receive income from investments, capital gains on sale of property and income from business related activities such as commissions paid to them in connection with the management and operation of superannuation schemes.

Trade unions along with everyone else are liable to pay the Fringe Benefits Tax and other Commonwealth taxes save that all of their publications are exempt from Sales Tax pursuant to Item 51 (1) of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935. In that respect their position is to be contrasted with commercial enterprises, many of whose materials will be liable to that tax.

The exemption from income tax is of major commercial significance in that it confers a distinct economic benefit on a trade union wishing to commence or acquire a business. Any other purchaser, of course, will need to acquire the business concerned using after tax profits, whereas a trade union can do so utilising pretax profits. The scope of tax avoidance by persons other than trade unions offered by these provisions should not be underestimated.

Liability in Tort

The conduct of an industrial dispute by a trade union may involve its engaging in acts which are legal wrongs giving rights of recovery of damages and injunctions to the persons injured by them. In general terms, the common law regards the intentional, or negligent, infliction of harm as a matter which will be the subject of legal redress.

Inducing breach of contract, intimidation, nuisance and conspiracy are all actionable wrongs and not infrequently occur in the context of industrial disputes.

It is perhaps worthy of note that the founder of the Australian conciliation and arbitration system regarded its existence not as a basis for exempting unions from the law of the land, but rather as a basis for its application in its full rigour. In R. v. Archdall & Roskruge: ex parte Carrigan & Brown (1928) 41 C.L.R. 128 at p. 140-141,Higgins J observed:

'But it is necessary to say something as to 'reasonable cause or excuse' for the boycott. If there was a reasonable cause or excuse the offence charged was not committed. As so often happens in recent legislation, such an issue as 'unreasonableness' is left to the tribunal, without any guidance from the Legislature; and the tribunal has to weigh all the circumstances in order to decide the issue for itself in each particular case. It is not a question of law: it is rather a question of general social standards. Now, I do not think that, as a Court of appeal, we should, without very strong grounds, take upon ourselves to differ from the tribunal below on such a subject; for that is the tribunal which has heard the witnesses and has had the opportunity of gauging the character and the motives of the witnesses. Nor do I think that the tests of reasonableness applied by other Courts in relation to the breaking of a contract, as in the Mogul Case (1892) A.C. 25 and in the Glamorgan Case (1903) 2 K.B. 545, are necessarily or safely to be applied to such a case as the present, the boycott of a Government ship carrying on a service which is essential to the safety of the public and their property. Hence, the effort was to stop the lighthouse service on the Australian coast, so far as the unions concerned could stop it, in order to compel the Government to alter its determination to employ its own permanent employees instead of members of the Seamen's Union. Even assuming that the Government's change of practice was arbitrary, unfair, hurtful to the men of the Seamen's Union; even assuming that the Government ought not in reason to have made such a change knowing of the opposition of the Union without bringing the dispute before the Commonwealth Court of Conciliation and Arbitration---the machinery devised by Parliament: the question still remains, was it reasonable on the part of these unions to take the extreme step of boycotting the lighthouse ships, endangering lives and property at sea without submitting the dispute to that Court? Such a step might be the only remedy in countries where there is no provision for such a Court, where the 'right to strike' has to be treated as within the law. But, in my opinion, the existence of such a Court in Australia, affording the opportunity for the play of reason instead of force, constitutes, in my opinion, a very relevant fact in the discussion as to the reasonableness of this boycott, and no explanation has been offered of the Seamen's Union failure to take the dispute to the Court. It is to be regretted that the Government did not set an example to the unions by seeking the sanction of that Court to such a drastic change in the long established practice; but this omission of the Government does not, in my opinion, prevent the conduct of the unions, in boycotting and thereby hindering this essential public service, under the circumstances, from being 'without reasonable cause or excuse.''

These considerations no doubt played some part in the failure of all legislatures in Australia other than that of Queensland (until recently) to enact legislation in terms similar to those of the United Kingdom Trades Disputes Act 1906. That legislation imposed two restrictions on common law remedies against trade unions, namely:

(a) That an act done in pursuance of an agreement or combination by two or more persons shall, if done in contemplation or furtherance of an industrial dispute, be not actionable unless the act, if done without any such agreement or combination, would be actionable; and

(b) That an act done by a person in contemplation or furtherance of an industrial dispute shall not be actionable on the ground only that it induces some other person to break a contract of employment or that it is an interference with the trade, business or employment of some other person, or with the right of some other person to dispose of his capital or labour as he wills.

Those provisions were repealed in Queensland, partially in 1972 and finally in 1974.

Of course, the existence of common law rights does not necessarily mean that a Court will interfere in an industrial dispute. There are sound reasons in particular cases why a Court should not do so, not the least of which is that the operation of conciliation provisions within the industrial system may bring an end to the dispute. That has been recognised in New South Wales, in the case of Harry M Miller v. Actors Equity (1970) 1 N.S.W.R. 614.

In addition to denying remedies in tort for unlawful union activity, Parliaments can delay or limit their availability. The Commonwealth Parliament has done so in Division 5A of Part III of the Conciliation and Arbitration Act 1904.

That division empowers the Conciliation and Arbitration Commission to conciliate disputes involving secondary boycotts activity relating to work done under a Commonwealth Award or to which a registered organisation is a party. The Commission may exercise its powers in relation to conciliation, including compelling parties to attend before it. It is to be noted that the proceedings can be attracted in circumstances where the injured party has no intention of proceeding under Section 45D or 45E of the Trade Practices Act, preferring to rely on common law or State statutory remedies. If the proceedings are brought in the Federal Court, Section 80AA of the Trade Practices Act permits the issue of an injunction to be delayed pending the completion of conciliation procedures.

The Commission itself is responsible for the determination whether or not conciliation proceedings are completed pursuant to Section 29 of that Act.

Legislation presently before the New South Wales Parliament seeks to extend this principle even further. That legislation proposes to insert the following provision in the Industrial Arbitration Act 1940.

'117G(l) An Act done or omitted to be done by an industrial union of employees, or by an official or a member of any such union, in contemplation or furtherance of an industrial dispute in which the Commission has jurisdiction is not actionable in tort unless the Commission in court session has given leave for the action to be brought.'

It needs to be noted that this formula is wider than the formula in the United Kingdom Trades Disputes Act or the now repealed Queensland legislation. The Trades Disputes Act operated in two ways:

(1) It provided that the law to be applied to conduct by persons acting in concert was to be no different from the law to be applied to a person acting by himself; and

(2) It excluded liability for inducement to breach a contract of employment or interference with trade, business or employment.

Put another way, it was limited in its operation to the economic torts and conspiracy to injure.

The Bill before the New South Wales Parliament is not so limited. It will apply to any tortious conduct which occurs in contemplation of furtherance of an industrial dispute except for:

(i) intentional torts causing death or personal injury;

(ii) intentional torts causing physical damage to property, to the extent that the remedy sought is compensation for the value of the property only; or

(iii) actions for detinue or conversion.

Amongst the actions which are now to be curtailed in the manner proposed by the Bill are such matters as:

(a) actions for recovery of damages for economic loss flowing upon intentional damage to property in the furtherance of an industrial dispute;

(b) actions for death or personal injury caused by negligent conduct in the furtherance of an industrial dispute;

(c) actions for malicious falsehood or deceit in the furtherance of an industrial dispute; and

(d) actions for intimidation in the context of an industrial dispute.

The second reading speech of the New South Wales Minister responsible for the legislation does not set out the basis upon which it is considered that the traditional formulation in the United Kingdom legislation is considered inadequate and one imagines it is scarcely likely that some, or indeed all, of the above consequences were intended.

Of course, one answer to the foregoing observations could be that it is intended to confer a discretion upon the State Industrial Commission to grant leave for the bringing of the action. The likelihood of favourable consideration of such an application is at this stage necessarily a matter of conjecture, but given that the first of the matters which the Commission is required to take into account is 'the maintenance of industrial harmony', the prospect that rights of an individual will be considered of small account if industrial disharmony on a substantial scale is threatened is a matter for some concern, particularly if the conduct of the Commonwealth Commission discussed in the case of Gibbins & Ors v. A.M.I.E.U. (1986) ATPR. paragraphs 40-680, and 40-710, especially at pp. 47,761-2, is typical of the views of industrial commissioners.

An interesting feature of the proposed exemption from liability in the Bill is that unlike the provision in either the United Kingdom or Queensland legislation, the proposed exemption from liability is limited to conduct on the part of a registered union, or one of its officials or members. In other words, the exemption is not only to be a quality of the conduct in question, but also is to be limited to the privileged class of unions and their members. A person who has ceased to be a member of a union, and thereafter engages in conduct to which the proposed part will apply which is wholly justified on conventional industrial relations principles will not be entitled to avail him or herself of the proposed exemption.

A related exemption from tortious liability relates to conduct which otherwise would constitute a trespass. I refer to the right of entry onto employers' premises for union purposes, a matter protected by section 136 of the Industrial Conciliation and Arbitration Act 1961 (Qld), section 129A of the Industrial Arbitration Act 1940 (NSW) and comparable provisions elsewhere.

Common Law Obligations

Due to the financial power of companies, the State and Federal Parliaments have legislated extensively in relation to the election of the controlling bodies of corporations, their duties towards the company itself, its members and its creditors, the preparation of accounts, and the orderly winding up of the affairs of insolvent companies.

In part, the legislative provisions reflect conclusions reached by the Courts (for example, that Directors have a fiduciary obligation towards the company of which they are a Director) but in other respects they greatly exceed the common law position.

In some States certain of these provisions apply to trade unions. Thus the provisions of the Companies Code relating to the winding up of unregistered companies (Division 6 of Part XII of the Companies Code, and sections 553 to 557 thereof) apply to trade unions.

Section 579 of the Companies Code as enacted in New South Wales, Tasmania, the Australian Capital Territory and possibly South Australia excludes a trade union from the application of the Code.

The officials of a trade union are therefore under significantly different obligations from those of a company. In the States in which the Companies Code does not apply to the affairs of a trade union, the duty of union officials to the union equates to the duties of directors to a company absent their statutory responsibilities. In the States in which the Companies Code does apply to trade unions, there is added to those duties a liability to criminal prosecution if the union is wound up under the Code and thereafter fails to deliver a true accounting of the affairs of the union to the liquidator, has been involved in a failure to maintain proper accounts, or has been involved in the fraudulent incurring of debts or other fraudulent conduct.

There would seem to be no good reason in principle why the provisions of the Companies Code relating to directors' and officers' duties and liabilities should not apply identically to trade unions.

The absence of specified statutory duties on the part of union officials enables a number of areas of laxity in the conduct of union affairs. It would be grossly improper for the directors of a company to deliberately take steps which incurred a large liability at civil law upon the Company for no commercial gain. Such a constraint appears to be absent, at least in the minds of trade union officials, in their wantonly engaging in conduct which contravenes sections 45D and 45E of the Trade Practices Act and attracts common law consequences. There is likewise a lack of restraint upon the use of union funds to finance, directly or indirectly, the conduct of election campaigns for incumbent officials. Such practice is, to an extent, limited in the context of companies, and in the context of takeovers is likely to be further limited as a result of enquiries by the National Companies and Securities Commission.

The Commonwealth Act and the Acts of the various States differ greatly as to the extent to which a trade union is required to conduct its affairs democratically and its controlling body is answerable to its members. For example, the Queensland Act requires simply that the rules of a Union shall not be 'tyrannical or oppressive'.

The final matter of distinction under this heading is the quality of accounts required to be prepared by a trade union. The Seventh Schedule to the Companies Regulations sets out in great detail the financial information required to be furnished by a company. Part VI of the Conciliation and Arbitration Act sets out in some detail the matters required to be the subject of specific reference in the accounts. However very much less detail is required than that required under the Companies Regulations. The position from State to State varies, with the requirements being virtually non-existent in some jurisdictions. For example, the accounts required under the Queensland Act up to and including 30 June 1986 were grossly inadequate (the Commonwealth accounting format has now been adopted). A copy of the proforma accounts formerly required in Queensland is included at the end of this paper.

Monopolisation

The traditional view of the common law has always been that trade should, so far as possible, be free of legal regulation. Thus agreements in restraint of trade (as that term was understood by the common law) were unenforceable. Monopolies, in the sense of a legal right of sole trading, can only be created by Act of Parliament by reason of the provisions of the Statue of Monopolies 1601.

lndeed the patent system arose out of an exception contained in the prohibition of monopolies by that legislation.

In relation to the conduct of companies, Parliament has supplemented the common law, it being considered to be inadequate to control the development of monopolies. Sections 46 and 50 of the Trade Practices Act are directed to prohibition of the development of monopoly power and its abuse.

Trade unions, although they also operate in a market for goods and services, are subject to no such restrictions. Indeed, applicable industrial legislation tends to precisely the opposite direction. Thus Section 142 of the Conciliation and Arbitration Act requires the Registrar as a general rule to refuse to register a Union if an organisation, to which the members of the proposed organisation might conveniently belong, has already been registered. Comparable provisions exist in State legislation.

Once the privilege of registration is conferred, various advantages follow, not the least of which is the exclusive right of access to the employees who might be convinced to become members of unions which have been previously discussed.

Such monopoly is enhanced by award provisions conferring preference in employment to members of unions, and de jure compulsory unionism where that exists.

Summary and Conclusion

As will be seen from what has gone before, trade unions in Australia, as participants in a market for goods and services and as major commercial organisations, stand in a very different position from other participants in the market and such organisations. They can carry on businesses and profitably dispose of property without liability to tax on the gains. There exist some disincentives to proceedings in the ordinary courts for conduct which, if engaged in by any other person, would plainly be unlawful and proposals are currently in train for that exemption to be widened. They are not as accountable to their members, or to creditors, in relation to their dealings with their assets, and far from discouraging monopolisation, the law encourages it.

It is, of course, for others to judge whether or not this situation serves a discernible public interest but in the face of these privileges it is hardly a matter for surprise that Mr Justice Higgins could speak of the unions and their Governments as 'those above us' in the exchange which led to the adoption of this Society's name.