Andi-Co Australia Pty Ltd v Meyers

Without prejudice privilege 3 This evidentiary question arises in relation to a document which is a proposed settlement agreement of any claims that the defendant might have had, arising out of his summary dismissal by the plaintiff. 4 The defendant seeks to put the agreement into evidence in par 12 of his affidavit sworn on 16 March 2004. He there refers to a letter dated 27 January 2004 signed by Mr Mohamed Hassani on behalf of the plaintiff company. The letter reads as follows: "Termination of employment I regret to inform you that your employment with Andi-Co Australia Pty Ltd is hereby terminated as of the date of this letter. You may retain until Tuesday 10 February 2004, use of the company's Holden Caprice motor vehicle. Your [sic] are required to return the vehicle to Andi-Co's premises at 1 Stamford Road, Oakleigh by 4.00 pm on Tuesday 10 February 2004. Otherwise, you are required immediately to deliver up all property which is in your possession belonging to either Andi-Co Australia Pty Ltd, Andi Appliances Pty Ltd or Sheldon Investments Pty Ltd. This includes all keys to those companies' premises, the notebook computer, personal digital assistant and mobile telephone (which were also loaned to you for use during your employment) and all hard copies or electronic copies in whatever form of any records or correspondence relating to the business conducted by those companies including budget reports, company forecasts, and profit and loss statements. I should also remind you that you have an ongoing obligation not to disclose to any person, any confidential information or trade secrets of those companies. Although I understand that this is a difficult time, I want to thank you for your many years of service to the Andi-Co Group and wish you every success in your future endeavours." 5 Mr Paul Theobald, who is the executive assistant to Mr Mohammed Hassani, the part owner and director of the plaintiff, deposed that he attended with Mr Hassani at the plaintiff's offices in Oakleigh on 27 January 2004. Shortly prior to that meeting Mr Theobald and Mr Hassani travelled to Australia in order to terminate the defendant's appointment with the plaintiff company. Mr Theobald deposes that the decision to terminate the appointment was based on the defendant's "persistent under-performance in his role". He and Mr Hassani knew that this would be a contentious decision and that it could result in litigation between the plaintiff and the respondent. 6 Accordingly, prior to the termination Mr Theobald instructed the plaintiff's Australian solicitors to prepare the settlement agreement with the intention of providing it to the defendant at the time Mr Hassani terminated his employment as a basis for negotiating the terms of termination. The settlement agreement was marked with the words "without prejudice" so as to indicate that privilege should attach to both the document and to the ensuing discussions whereby the terms of the defendant's departure were negotiated. 7 Mr Theobald further deposes that, given his knowledge of the respondent, he knew that the latter would dispute the validity and lawfulness of the notice to terminate his employment forthwith. The settlement agreement was an attempt to resolve this dispute by negotiating a resolution of the terms and thus avoid litigation over the decision. 8 On 27 January 2004 Mr Hassani and Mr Theobald met the defendant at the plaintiff's offices. Mr Hassani notified the defendant that his employment was terminated forthwith, because of his persistent under-performance and handed him the termination letter and the settlement agreement. During the meeting the defendant disputed the basis for his termination and the terms upon which it was offered to him. The defendant deposes that at the time of being handed the letter and the settlement agreement he was not aware of any disputes between himself and the plaintiff. "The termination of my employment was", he says, "without any warning or notice whatsoever". On 3 February 2004 the defendant sent a without prejudice letter rejecting the offer in the settlement agreement. 9 As already mentioned, on 15 March 2004 the defendant commenced a proceeding in the Supreme Court alleging wrongful termination. 10 Section 131(1)(b) of the Evidence Act 1995 (Cth) provides that evidence is not to be adduced of a document, whether delivered or not, that has been prepared in connection with an attempt to negotiate a settlement of a dispute. "Dispute" is defined in subs (5) as a dispute of a kind in respect of which relief may be given in an Australian or overseas proceeding. Obviously a dispute about wrongful termination of employment and employee entitlements of an employee employed in Australia by an Australian company is a dispute within the meaning of that definition. 11 In my opinion the terms of section 131(1)(b) make it clear that one should direct attention to the preparation of the document. I do not think it matters that from one point of view the dispute may be said to have commenced instantaneously with the handing over of the letter and the settlement agreement. The conclusion is compelling that, as Mr Theobald says, the settlement agreement was prepared in connection with an attempt to negotiate a settlement of dispute, albeit a dispute which was not in existence at the time the settlement agreement was prepared, but which was obviously contemplated as being virtually inevitable. 12 It is inconceivable that when a managing director of a substantial company has his employment terminated summarily that there will not be a dispute. Whether or not that dispute is resolved promptly or remains on foot and leads to litigation is another matter. But I am quite satisfied that the settlement agreement here was prepared in connection with an attempt to negotiate a settlement of a dispute. I therefore uphold the plaintiff's objection. Setting aside statutory demand 13 Under s 459H(1) the Court has to be satisfied that (a) there is a genuine dispute between Andi-Co and Mr Meyers about the existence or amount of the debts and/or (b) Andi-Co has an offsetting claim. Subtracting the total amount of offsetting claims from the total amount of admitted debts produces what is called the "substantiated amount": s 459H(2). If that is less than the statutory minimum of $2000 (see s 9), the Court must set aside the demand: s 459H(3). 14 The admitted amount of debts is, if the Court is satisfied there is a genuine dispute about the existence of the debt, a nil amount. If the Court is satisfied that there is a genuine dispute about the amount of the debt, the admitted amount is so much of that amount as the court is satisfied is not the subject of such a dispute: s 459H(5). An offsetting claim is a genuine claim that Andi-Co has against Mr Meyers by way of counterclaim, set-off or cross‑demand, even if it does not arise out of the same transaction or circumstances as the debt to which the demand relates. 15 In Spencer Constructions Pty Ltd v G. and M. Aldridge Pty Ltd (1997) 76 FCR 452 at 462 to 464, the Full Court reviewed the authorities on the concept of genuine dispute. The court hearing an application under s 459H: "certainly will not attempt to weigh the merits of that dispute" (Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 at 294-246)." The Court may - "discern the spurious and identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it) the court has no function - Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605." 16 The existence of a genuine dispute or genuine claim is to be determined as at the time the Court hears the application. It is then that a Court has to be satisfied of the existence of either or both of the matters in s 459H(1). In a case like the present, where much of Andi-Co's case arises from investigation after Mr Meyers left, it is not to the point that some of the matters relied on came to its attention after the date of the demand. 17 Before going to the alleged debts and offsetting claims in the present case, I would make two general observations. First, Mr Meyers has filed a substantial amount of affidavit material sworn by himself and others. However, it needs to be kept in mind that the issue is not whether his version of events is more plausible than Andi-Co's, but whether the alleged debts are the subject of genuine disputes and whether the alleged offsetting claims are genuine, that is to say, real and authentic as opposed to false, illegitimate, phoney, counterfeit and false. Accordingly, I shall not engage in an assessment of the rival merits. 18 Secondly, all the alleged debts and offsetting claims are raised in the Supreme Court proceeding. Mr Meyers has not made any application for summary judgment: see Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 at 295, Intergraph Public Safety Pty Ltd v Tess Lawrence Media Services Pty Ltd (1996) 19 ACSR 523 at 527. Counsel said that the failure to make such an application was the result of a "strategic decision" and that Mr Meyers wanted to obtain discovery of Andi-Co's documents. Whatever the merits of that decision, the fact that the parties have embarked on substantial litigation in the Supreme Court, which is the proper and obvious forum for disputes of this nature, in itself strongly suggests that the disputes and claims are genuine. Annual leave entitlements $187,017.72 19 Andi-Co says that over half the credits claimed, 117 days, are days from 26 June 1993 for which Mr Meyers credited himself with leave for days worked on weekends. It says there was no contractual right to this. Mr Meyers claims his predecessor, Mr Andrew Brown, adopted the same practice, but according to Andi-Co this was on a case-by-case basis and in any event only involved taking time off in lieu and not formal crediting of annual leave. Mr Meyers claims the leave was authorised by the former chairman of Andi-Co's United Kingdom holding company, Mr Manfred Woolny. Mr Woolny is a somewhat problematic figure as he himself has recently had his employment with Andi-Co terminated. Mr Meyers initially tendered a draft of an affidavit to which he said Mr Woolny had agreed. Later Mr Woolny swore an affidavit. The statement that these annual leave entitlements were authorised appears in this draft but not in the sworn version. 20 As to the balance, in the light of concerns about Mr Meyers' honesty, to which reference will later be made, Andi-Co does not accept his veracity and wishes to put him to proof. I am satisfied there is a genuine dispute. Long service leave entitlements $71,597.25 21 Mr Meyers claims he had a contractual entitlement over and above that provided for in the Long Service Leave Act 1992 (Vic). In the draft affidavit of Mr Woolny there is a suggestion that long service leave was left to Mr Meyers' discretion, but this assertion is not present in the sworn version. As to any statutory entitlement, Andi-Co says that any entitlement is forfeited by reason of the termination of Mr Meyers' employment on the grounds of serious and wilful misconduct: Long Service Leave Act, s 58. 22 Particulars of the alleged serious and wilful misconduct, all of which are raised in the Supreme Court proceeding, are as follows: (a) arranging for unauthorised salary increase (b) arranging for unauthorised bonus or commission payments (c) arranging for 117 days' unauthorised annual leave credits (d) in October 2003 taking a fellow employee, Ms X, with whom he was having an affair, on a business trip to Europe without disclosing their relationship (e) in September 2003 falsely denying to senior management the nature of his relationship with Ms X (f) between 21 and 23 October 2003 whilst in Europe going with Ms X to Prague without disclosing their visit and in circumstances where it was not for the company's purposes (g) since 1993 arranging for purchase of equipment and services by Andi-Co from Eyre Peninsula Electrical Pty Ltd, a company owned by him, without disclosing this to the Board of Andi-Co (h) since May of 2003 working in Brisbane for an inordinate time for the purpose of continuing his relationship with Ms X (i) in January 2004 arranging for six months' lease of an apartment in Brisbane so that he could stay there with Ms X (j) between December 1998 and October 2003 putting in place tax avoidance arrangements to avoid personal payment of commission, such payments be made (i) to Eyre on fabricated invoices (ii) by salary to Mr Meyers' wife for inconsequential services (iii) for goods supplied to Mr Meyers (iv) by payment of Mr Meyers' personal credit card expenses (k) in 1993 falsely advising Andi‑Co's accountant, Ms Eliza Ip, that the tax avoidance had been approved by Mr Walney (l) between 1999 and 2000 permitting Mr Meyers' wife to use Andi-Co's premises and facilities without any adequate payment. 23 While many of these matters, and in particular those arising out of the alleged relationship between Mr Meyers and Ms X are strongly denied both by him and her, I am satisfied there is a genuine dispute as to the long service leave entitlement. Unpaid commission $50,521 24 Andi-Co says there was approval in a letter dated 1 August 1995 signed by Mr Woolny of a commission at the rate of 1 per cent on retail sales of the appliances division of Andi-Co but that commission was confined to the 1995-1996 financial year and was not an ongoing entitlement. I am satisfied there is a genuine dispute. Reimbursement of work related expenses $11,936.99 25 Andi-Co says it has not been provided with details. It puts Mr Meyers to proof, especially in relation to expenses connected with Mr Meyers' time in Queensland and Europe. I am satisfied there is a genuine dispute. Overpayment of salary $375,116.66 26 This is the first of the offsetting claims raised by Andi-Co. It says that on 27 August 1996, 28 August 1997, 24 July 1998, 27 July 1999, 21 July 2000, 16 July 2001, 1 August 2002 and 1 August 2003 Mr Meyers arranged for his salary to be increased without the approval of the Board of Andi-Co. There were salary review letters purportedly coming from Mr Woolny but only one, in 1995, was signed. The 2001, 2002 and 2003 letters were signed by Mr Meyers himself. Ms Eliza Ip, the secretary of Andi-Co, says there were budgets approved by the Board each year but they did not include details of Mr Meyers' salary, only one line item for total salaries. I am satisfied this is a genuine claim. Unauthorised commission payments $363,202.52 27 Andi-Co says, for reasons explained above, the commission payments were unauthorised. I am satisfied this is a genuine claim. Improper use of Eyre $54,174.75 28 Between November 1998 and January 2004 Andi-Co purchased various goods and services from Eyre totalling $216,694.94. The volumes between 1993 and November 1998 have yet to be substantiated. Mr Meyers did not advise the Board or Mr Woolny of his interest in Eyre. A number of purchase orders were signed by Mr Meyers himself. Some items were not for electrical work at all, for example, a purpose-built display cabinet purchased in June 2000 for $7856. There was no apparent reason why Eyre should be doing this type of work. On occasions Mr Meyers arranged for the purchase of goods from other suppliers, such as Lawrence and Hanson or SC Lighting, but on the account of Eyre and then had Eyre mark up amounts averaging 29.42 per cent on the invoice from Eyre to Andi-Co. The estimated profit earned by Mr Meyers through Eyre on these transactions has been calculated by Ms Ip at $54,174.75. I am satisfied this is a genuine claim. Inordinate attendance at Main Beach Queensland $40,720 29 Between May 2003 and August 2003 Mr Meyers and Ms X lived in an apartment at Main Beach, Queensland. Andi-Co says that the business requirements of the company did not warrant this four-month winter sojourn in Queensland, given that the headquarters and main business centre of the company was in Oakleigh, Victoria and Queensland represented only 19 per cent of Andi-Co's total business in Australia. Andi-Co says that 50 per cent of the salaries of Mr Meyers and Ms X for this period was not warranted nor were two months' rental. Andi-Co claims $40,720. I am satisfied this is a genuine claim. Six months Spring Hill lease $2500 30 Andi-Co says that in January 2004 Mr Meyers arranged for a six-month tenancy on an apartment at Spring Hill, a suburb of Brisbane, commencing on 15 January 2004. Ms Ip says that Mr Meyers told her in late 2003 that he would lease the Spring Hill apartment for use by Ms X and himself. Andi-Co says that this lengthy proposed stay was not for the benefit of the company but for the purpose of Mr Meyers continuing his relationship with Ms X. Andi-Co has paid the deposit of $2000 and an initial rental of $500, a total of $2500. I am satisfied this is a genuine claim. Liability for tax avoidance $198,534.71 31 Between December 1998 and October 2003 Mr Meyers arranged for a large percentage of his commission payments, which Andi-Co says were unauthorised anyway, to be paid in a way which would avoid personal tax liability. In 1998 Mr Meyers said to Ms Ip that he was paying too much tax and that payments should be made in other ways. He says this arrangement had been approved by Mr Woolny. Mr Woolny does not confirm this. Mr Meyers arranged for commission to be paid to Eyre and its associated business, Sessendo, on fabricated invoices totalling $118,812.45. Between December 1998 and January 2004 on nine occasions Mr Meyers instructed Ms Ip to divert commission payments by paying his credit card expenses or requiring Andi-Co to purchase products for himself. These payments totalled $12,731.61. 32 In about January 1999 Mr Meyers told Ms Ip he wanted his wife to be employed by Andi-Co and the company should pay her wages out of his commission payments. Ms Ip protested but Mr Meyers told her Mr Woolny had approved it. Mr Meyers told Ms Ip to draft a letter employing Mrs Cindy Meyers as an office clerk at $24 per hour. Between 1 February 1999 and 31 January 2004 Mrs Meyers was paid $160,343 despite only performing the most perfunctory tasks on a very few occasions. 33 Since the termination of Mr Meyers' employment Andi-Co has, as it is obliged to do, advised the Australian Taxation Office of the non-disclosure of Mr Meyers' commission. Andi-Co is liable for tax which should have been deducted. Between July 1997 and December 2003 $293,886 of Mr Meyers' commission was diverted. Assuming a top marginal rate for Mr Meyers of 48.5 per cent, tax of $142,534 was avoided. Assuming a rate of 12 per cent Andi-Co is liable for interest in excess of $50,000, quite apart from penalties. Andi-Co seeks indemnity from Mr Meyers in the amount of $198,534.71. I am satisfied this is a genuine claim. Unlawful detention of motor vehicle $48,651.75 34 Mr Meyers continues to retain Andi-Co's Holden Caprice motor vehicle. Notwithstanding his claim in the Supreme Court that his contract of employment has been wrongfully terminated, thus entitling him to damages, he asserts he is entitled to keep the vehicle for two years, which he claims is the reasonable period of notice. While Andi-Co has only to show a genuine claim, in this particular instance its claim appears unanswerable. It claims $28,443.75, the written-down value, together with lease payments for a replacement vehicle from 10 February 2004 at $631 per week, that is, $20,208; a total of $48,651.75. I am satisfied this is a genuine claim. Conclusion 35 I have found that there is a genuine dispute as to all the alleged debts. Thus the admitted total for the purpose of s 459H is nil. I have found all the offsetting claims are genuine and thus the offsetting total is $1,076,898. Accordingly, the substantiated amount is minus $1,076,898. Since this is less than the statutory minimum there will be an order setting aside the demand.

Costs 36 In my opinion this is an appropriate case for the order of solicitor-client costs. The background to the matter is that on 3 and 5 February 2004, shortly after his termination, Mr Meyers sent emails to Andi-Co. These emails are not in evidence but it is to be inferred that they made a demand for his annual leave. On 5 February Clayton Utz on behalf of Andi-Co wrote to Mr Meyers acknowledging their client's receipt of the emails and stating: "Our client is currently investigating your claim to have accrued 229.21 days of leave and whether that is a correct statement of your actual leave accrual. Further, to the extent that you have an entitlement to accrued leave, including annual leave, our client is investigating whether you have incurred liabilities on behalf of the group inappropriately, which may be the subject of a claim against you by our client. In these circumstances, given the potential quantum of the claim evinced by our client any entitlement to accrued leave will be set off against the amounts owing to our client." 37 Notwithstanding that moderate response Mr Meyers had the statutory demand served on 17 February, without any further communication. Then on 26 February Clayton Utz wrote to Mr Meyers' solicitors acknowledging that the statutory demand had been served and referring to their letter of 5 February to Mr Meyers. The letter continued: "4. As the above letter indicates, there clearly is a dispute between our clients as to amounts which they may owe each other. 5. Accordingly, we request that, by 10.00 am on Monday 1 March 2004, your client withdraws the Demand by notifying us in writing of that withdrawal. If you do not withdraw the Demand by the stated time then we have instructions to make an application to the Court for the Demand to be set aside on the basis that our client has: (a) a genuine dispute as to the amount claimed; or (b) a claim against your client which exceeds the amount of his claim. 6. We are of the view that you and your client's actions in serving the Demand amount to an abuse of process as described by the Federal Court in Intergraph Public Safety Pty Ltd v Tess Lawrence Media Services Pty Ltd (1996) 19 ACSR 523. 7. According to that decision, winding up proceedings are to be used for the sole purpose of winding up companies. There is no basis to suggest that our client is insolvent. We believe that the winding up proceeding has been used by your client for the improper purpose of exerting pressure on our client for the payment of the disputed amount claimed by him. 8. As stated, it is clear from the chain of correspondence above, that there is a genuine dispute between our clients. In that case the Supreme Court of Victoria Common Law Division is a more appropriate venue for that dispute. 9. Accordingly, if your client fails to withdraw the Demand we will not only make application to the Court to set aside the Demand but we will also seek an order of costs against your client on a solicitor and client basis. Return of motor vehicle 10. We are instructed that during his employment with our client, your client was given use of a Holden Caprice motor vehicle registration number QEO 843. This vehicle is now required by our client and we are instructed to demand its return to our client's premises at 1 Stamford Road, Oakleigh by 10.00 am on Monday 1 March 2004. If it is not returned to our client by this time, our client will be in a position to institute proceedings against your client for conversion and detinue. 11. We look forward to hearing from you by 10.00 am on Monday 1 March 2004." 38 Nevertheless Mr Meyers did not withdraw the statutory demand and, as already noted, commenced the Supreme Court proceeding on 15 March. The statutory demand was issued in a context where the subject matter - demands arising out of termination of employment - arose in a context of summary termination, which was inherently likely to raise substantial disputes involving issues of credit and the like. This is a far cry from the typical kind of claim which founds statutory demand where a creditor claims for goods sold and delivered or work and labour done. It was obvious from the start that there were going to be disputes and in my view it would have been obvious to any person properly advised that the statutory demand procedure was quite inappropriate, and the more so when the disputes between the parties had been made the subject of Supreme Court proceedings commenced by Mr Meyers himself. 39 There is the further issue that I am satisfied that Mr Meyers did not have a genuine belief that Andi-Co was or might be insolvent. As late as 17 October 2003, in his capacity as a director of the company, Mr Meyers signed the following declaration: "In the directors' opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they became due and payable". 40 Mr Meyers tried to avoid the consequence of that by saying that since then the company had incurred contingent liabilities to three other employees who were terminated. It seems, however, that those terminations had not occurred at the date of the statutory demand. Mr Meyers then said that he feared the company would be insolvent as a result of its liability to himself. As to that, as counsel for Andi-Co points out, it is rather odd that he then commenced expensive Supreme Court proceedings against a company which he believed to be insolvent. 41 All in all I think this has been an unfortunate proceeding. It has been quite rash and unreasonable and wasteful for Mr Meyers to have provoked it by serving the statutory demand. Andi-Co are entitled to be out of pocket as little as possible. So there will be an order that the defendant pay the plaintiff's costs on a solicitor-client basis.

I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey.