Between July 2009 and March 2011 four Filipino nationals worked as painters on a drilling rig known as Nan Hai VI in Australia’s Exclusive Economic Zone in seas off Australia’s north west coast but outside Australia’s 12 nautical mile territorial limit. For a short period, two of the painters also performed work on another rig, the Maersk Discoverer.

Both the drilling rigs were operated by Maersk Drilling Pty Ltd, a company incorporated in Australia. The drilling rigs were registered as ships. The Nan Hai VI was flagged in China and the Maersk Discoverer was flagged in Singapore.

Each painter was employed by Pocomwell Ltd (the first respondent), a company incorporated in Hong Kong. The contracts of employment were made in the Philippines and governed by the law of the Philippines. The terms of the contract required the painters to work 28 days/12 hours per day at a rate of USD 900, to be followed by a 28 day non-working period during which a further sum of USD 900 would be paid.

Survey Spec Pty Ltd (the third respondent) was a company incorporated in Australia (of which the director was Thomas Civello, the fourth respondent). The third respondent hired the painters from the first respondent via the agency of Supply Oilfield and Marine Services Inc (the second respondent) at a daily rate of AUD 92 for each painter. Maersk then hired each painter from the third respondent at a daily rate of AUD 300 for each painter.

Taking into account the second monthly payment, the painters were paid about USD 5.36 per hour. Disregarding the second monthly payment, they were paid USD 2.68 per hour. At all material times, the US dollar was at or about parity with the Australian dollar.

Under the National Minimum Wage Order that applied pursuant to s 293 of the Fair Work Act 2009 (Cth) a worker doing such work that the painters performed, was entitled to AUD 14.31 per hour. At all material times, an employee affected by the Hydrocarbons Industry (Upstream) Award 2010 (the award) was entitled to be paid AUD 620 per week, plus ‘industry allowance’ and various entitlements for living away from their place of residence, working in excess of 38 hours per week, and for weekend and public holiday work. Therefore, if the Fair Work Act applied to the drilling rigs and governed the painters’ pay rates while working on the rigs in the EEZ then, at material times, the painters were underpaid. The Fair Work Ombudsman (the applicant) therefore sought to enforce the Fair Work Act.

The respondents contended that, when the Fair Work Act was construed in light of principles of international law, it did not govern the painters’ employment contracts. In particular, the respondents contended that if the applicant relied on reg 1.15E of the Fair Work Regulations (the regulations) on the basis that the rigs were a ‘majority Australian-crewed ship’ to sustain its claims against the respondents, that regulation should be construed so as not to extend the operation of the Fair Work Act to such a ship in light of principles of international law. Alternatively, the respondents contented reg 1.15E was ultra vires the Fair Work Act as it is inconsistent with international law. The respondents also contended that, if the Fair Work Act was considered to apply to a fixed platform or a majority Australian-crewed ship (notwithstanding the international law principles upon which they relied), neither of the rigs was a fixed platform for the purposes of the Fair Work Act, and further, that the applicant failed to prove the rigs were majority Australian-crewed ship at any material time. The respondents also disputed that the award covered the first respondent because the award only applied to employers throughout Australia and not foreign employers such as the first respondent.

In support of their submissions, inter alia, the respondents drew the court’s attention to art 56 of UNCLOS which limits Australia’s interests in the EEZ to the management and exploitation of natural resources. They argued that, as such, Australia’s jurisdictional competence as a coastal state is limited. They contended that Australia has no jurisdiction over foreign flagged vessels in the EEZ to prescribe international or national standards concerning seafarers.

They also referred to art 92.1 of UNCLOS (which applies to the EEZ by virtue of art 58.2) which states that ‘[s]hips shall sail under the flag of one State only and, save in exceptional circumstances..shall be subject to its exclusive jurisdiction on the high seas.’ Further they observed that art 94.3.b expressly recognises the obligation of the flag state in relation to the manning of ships, labour conditions and the training of crews, taking into account applicable international instruments.

The third and fourth respondents submitted that s 33(3) of the Fair Work Act must be read as authorising only those regulations which are consistent with international law. To the extent that reg 1.15E purports to extend the Fair Work Act to foreign-flagged ships in the EEZ, it violates the exclusive jurisdiction of the flag state and thus is inconsistent with UNCLOS. They submitted that the exclusive jurisdiction of the flag state is conferred by arts 92 and 94 of UNCLOS, which apply to the EEZ by virtue of art 58.2. While art 56.1.a does confer ‘sovereign rights’ on the coastal state, the other paragraphs in art 56 and UNCLOS read as a whole indicate that the coastal state’s jurisdiction is not intended to be ‘at large’. They contended that it is clear from arts 56.2, 56.3, 78.2 and 79.2 that the sovereign rights over the exploration and exploitation of natural resources in the EEZ are limited and are to be exercised consistently with the rights and freedoms of other states under UNCLOS, including the rights of a flag state over ships flying its flag.

They then submitted that the exclusive jurisdiction of a flag state in the EEZ is not incompatible with the sovereign rights conferred on coastal states for the limited purpose of exploring and exploiting natural resources. Those rights are not absolute but are to be exercised with ‘due regard to the rights and duties of other States’ and ‘in a manner compatible with the provisions of UNCLOS’ (art 56.2).

The applicant submitted that arts 56 and 77.1 of UNCLOS expressly permit coastal states to regulate all aspects of activities on board ships engaged in activities in the EEZ for which the coastal state has jurisdiction. Art 56.2 does not have the effect of requiring coastal states to defer to the flag state. Rather, coastal states which permit foreign flagged ships to engage in exploration and exploitation of natural resources within their EEZ do so on conditions including the regulation of matters which would normally be the preserve of the flag state. The applicant also contended that the effect of art 56.2 is not to preserve high seas freedoms to the flag state of ships operating in the EEZ, rather it is to ensure that those ships are not unduly hindered by the activities of the coastal state. The applicant submitted that, when construing UNCLOS as a whole, it is intended to create a regime where coastal states can regulate the exploitation of the EEZ’s natural resources while preserving the right of freedom of navigation of other states. Here, the applicant contended there was no interference with freedom of navigation as the rigs were fixed structures.

The parties in the proceeding essentially disagreed on the scope of the power conferred by the grant of sovereign rights to the coastal state over its EEZ. The applicant said the grant of sovereign rights encompasses the power to pass laws with respect to labour relations on foreign flagged vessels whereas the respondents said such an interpretation is inconsistent with UNCLOS articles such as arts 87 and 94.

Held: Section 33(1)(b) of the Fair Work Act and reg 1.15E of the regulations on their proper construction extend to, or are capable of extending to, a drilling rig if it is ‘fixed platform’ or a ship which is a ‘majority Australian-crewed ship’. However, at material times, the drilling rigs were neither a ‘fixed platform’ nor ‘majority Australian-crewed ship’ for the purposes of the Fair Work Act. Accordingly, the proceeding against the respondents was dismissed.

The Fair Work Act provides that it is intended to apply in the coastal sea of Australia. There is no reference to the territorial sea but it is clear that it is intended to have the same meaning as the Seas and Submerged Lands Act 1973 (Cth), which, by s 3(1), adopts the meaning provided by arts 3 and 4 of UNCLOS that recognises the meaning of the territorial sea up to a limit of 12 nautical miles from the coast. On the face of it, the Fair Work Act does not apply beyond the territorial sea, but s 33 explicitly extends the application of the Fair Work Act to Australia’s EEZ in the following circumstances:

• Any Australian ship in the EEZ; or
• Any fixed platform in the EEZ; or
• Any ship in the EEZ that supplies a fixed platform, and operates to and from an Australian port, and any ship in the EEZ that is operated or chartered by an Australian employer and uses Australia as a base.

As part of his reasoning, his Honour considered the correct interpretation of the relevant articles of UNCLOS. Art 56.1.a sets out the rights, jurisdiction and duties of the coastal state in the EEZ which include ‘sovereign rights for the purpose of exploring and exploiting, conserving and managing the natural resources … of the waters superjacent to the seabed and of the seabed and its subsoil’. Art 56.2 provides that ‘[i]n exercising its rights and performing its duties … in the [EEZ], the coastal state shall have due regard to the rights and duties of other States and shall act in a manner compatible with the provisions of this Convention'. Art 56.3 requires the coastal state to exercise its rights in accordance with Part VI which is titled ‘Continental Shelf’.

The relevant articles in Part VI are arts 77 and 78. Art 77 provides that, if the coastal state has sovereign rights to explore and exploit the resources in the waters above its continental shelf and if it does not exercise those rights, no one may undertake those activities without the consent of the coastal state. Art 78 provides that the rights of the coastal state do not affect the legal status of the superjacent waters or of the air space above those waters. The exercise of the rights of the coastal state must not infringe or interfere with navigation and other rights and freedoms of the other States as provided for in UNCLOS.

Those rights and duties of other States are addressed in art 58, which provides that ‘[i]n the [EEZ] all States ... enjoy … the freedoms referred to in art 87 of navigation and overflight and of the laying of submarine cables and pipelines and other internationally lawful uses of the sea related to these freedoms, such as those associated with the operation of ships … ’. Arts 88-115 apply to the EEZ in so far as they are not incompatible with Part VI. Art 56.3 requires State exercising their rights and duties under UNCLOS to have due regard to the rights and duties of the coastal State in accordance with the provisions of UNCLOS and other rules of international law in so far as they are not incompatible with Part VI.

Art 92 relevantly provides that ships shall sail under the flag of one State. Art 94 also relevantly provides that every State shall exercise its jurisdiction and control in administrative, technical and social matters over ships flying its flag. Art 94.3 expressly requires every State to take necessary measures for ships flying its flag to ensure safety at sea with regard, inter alia, to the manning of ships, labour conditions and the training of crews.

The coastal state is the only state that can exploit the natural resources in its EEZ and no other state may exploit them without the coastal state’s authorisation. If the coastal state can regulate who can exploit the natural resources it logically follows that the coastal state can regulate the manner in which, and the terms on which such resources are exploited.

The respondents rely on art 94.3.b and say that it gives primacy to the flag state in matters relating to labour relations. This is too wide an interpretation. Art 94.3.b requires that the flag state takes measures to ensure safety at sea with regard to labour conditions. The flag state does not have jurisdiction to regulate wage conditions of the crew members when they are engaged in the exploitation of a foreign state’s natural resources in its EEZ.

It is important to note that articles such as arts 92 and 94 only apply to the EEZ in so far as they are not incompatible with Part V. Therefore such provisions must be read subject to art 56.1.a and a coastal state’s sovereign rights do include the right to regulate labour relations on board foreign flagged ships engaged in the exploration and exploitation of the natural resources in its EEZ. However, coastal states must still respect other states’ freedom of navigation and other lawful uses of the sea. There is some evidence that the Nan Hai VI moved around between drilling locations but whether this constitutes navigation remains open to question. However, as the movement was wholly within the EEZ and for the purpose of exploration, the freedom of navigation would not be infringed by requiring these foreign flagged ships to comply with Australian wage conditions.

As Australia has rights under UNCLOS in relation to the regulation of foreign flagged ships, reg 1.15E has such an application and is not inconsistent with international law and is not ultra vires the Fair Work Act. Reg 1.15E may apply to a foreign-flagged ship in Australia’s EEZ if it is a ‘majority Australian-crewed ship’. Section 33(1)(b) of the Fair Work Act applies to any relevant ‘fixed platform’.

In considering whether the rigs were a fixed platform, his Honour had regard to art 1 of the Convention for the Suppression of Unlawful Acts Against Maritime Navigation 1988 (SUA Convention) which provides that ‘ship’ means a vessel of any type whatsoever not permanently attached to the seabed, including dynamically supported craft, submersibles or any other floating craft. His Honour contrasted the definition of ‘fixed platform’ found in art 1.3 of the Protocol for the Suppression of Unlawful Acts Against the Safety of Fixed Platforms Located on the Continental Shelf which states that ‘ ... “fixed platform” means an artificial island, installation or structure permanently attached to the sea-bed for the purposes of exploration or exploitation of resources'. The rigs were not permanently attached to the sea-bed and could not be said to be fixed platforms.

As the rigs were neither a majority Australian-crewed ship nor a fixed platform, the application is dismissed.