Beydoun and Beydoun v Brown [2005] SAIRC 1

2 In the proceedings at first instance the appellants were named as respondents jointly with Sowden Technical Solutions Pty Ltd, ("the company") and were found to be jointly liable with the company for the gross sum of $10,911.00 outstanding to Mr Brown ("the employee").

3 The appellants have appealed against the learned Industrial Magistrate's findings of fact and the interpretation and application of s 182 of the Industrial and Employee Relations Act 1994 ("the Act"), by which they were joined in the proceedings and pursuant to which the order for payment was made against them.

4 It is not disputed that the employee was employed as a computer technician with the company, which conducted a business providing sales and service for small office computer applications. The employee was employed in that capacity from 6 July 1998 to 19 April 2003 when he resigned.

5 When the employee first commenced employment with the company its directors were Christopher David Sowden and Susan Sowden. However the appellants purchased the business in July 2002, and from 19 July 2002 were appointed as the two directors of the company in lieu of the Sowdens. One of the appellants, Mr Alan Beydoun, became the company secretary and the other, Ramsey Beydoun, managed the business.

6 Following the sale of the business to the appellants the employee continued to be employed by the company until his resignation. His letter of resignation dated 19 April 2003 (Exhibit A1) indicates that he resigned because at that time his wages were two weeks in arrears. Subsequently, by email dated 2 May 2003 (Exhibit A2), the employee requested payment of $9931.68 net. This sum comprised arrears of wages of $800 net, payment for 16 weeks accrued annual leave plus 17.5 per cent leave loading for the period of employment up to June 2002 in the amount of $7288.40 net, and 3.2646 weeks accrued annual leave plus 17.5 per cent leave loading for the period of employment from July 2002 to 18 April 2003 in the amount of $1487.13 net.

7 The employee was not paid in accordance with his request and, on 17 October 2003, issued proceedings in this Court seeking arrears of wages due to him pursuant to the contract of employment. His claim for accrued annual leave was also brought pursuant to the contract of employment, as modified by the minimum standard for annual leave provided by s 71 and Sch 4 of the Act.

8 The company had ceased trading in July 2003 because it was in debt. In addition to naming the company as the first respondent on the summons, the employee also named the appellants as second and third respondents, relying upon s 182 of the Act which provides as follow:-

"(1) If in proceedings based on a monetary claim, the Court is of the opinion that the defendant was, at the relevant time, the agent, or under the effective control, of some other person, the Court may order the joinder of the other person as a defendant.

(2) If a person is joined as a defendant under subsection (1), judgment may be given against either or both defendants."

9 An answer was filed naming only Ramsey Beydoun as the respondent but stating that "We dispute most of the applicant's claim." Liability was admitted for two weeks unpaid wages but the balance of the claim was denied. It appears that the Answer has been treated as applying to each of the three respondents.

10 At the hearing before the learned Industrial Magistrate the appellants denied the factual basis of the claim and submitted that they should not have been joined as respondents as, at the relevant time for consideration of that issue, that is, when the annual leave fell due and was not taken, the company was under the effective control of the Sowdens, and not them.

The learned Industrial Magistrate's findings and conclusions

11 The learned Industrial Magistrate heard evidence of the employee and both the appellants and received a number of exhibits related to the employee's earnings (Exhibits A3, R1), correspondence concerning the claim (Exhibits A1, A2 and A5), ASIC records regarding the company (Exhibit A4) and a copy of the agreement for the sale of the business (Exhibit R2). She set out the noncontentious facts concerning the purchase of the company by the appellants and its unfinancial status as outlined above.

12 The learned Industrial Magistrate prefaced her findings on the contentious facts by indicating her preference for the evidence of the employee where it was in conflict with that of the appellants because "his evidence was inherently more believable that that of the two respondents."

* The employee was not paid for the final two weeks of his employment.

* The employee did not take any period of annual leave throughout his employment even though the business was not open to the public for approximately two weeks each Christmas.

* The employee's net weekly earnings at the time of termination were $400 per week, although he was occasionally paid an additional sum of $50 per week.

* On the termination of employment the employee did not receive payment for the last two weeks of his employment which should have been paid at the rate of $483 gross per week, and did not receive his accrued entitlement to 19.2664 weeks of annual leave accrued since July 1998.

14 On the issue of joinder the learned Industrial Magistrate concluded that the appellants were properly joined because at the time that the amounts outstanding became due and owing:-

* Mr Ramsey Beydoun accepted the responsibilities of a director and was involved in the management of the business on a day to day basis.

* Mr Alan Beydoun exercised effective control in that he was involved in purchasing the business and determining the location of its premises.

15 On the uncontested evidence as to the unpaid wages for the final two weeks the learned Industrial Magistrate concluded that the sum was due and owing, and ordered payment by the three respondents at first instance jointly.

16 On the basis of the finding that annual leave was not taken during the period of the employment it was concluded that the employee was entitled to payment for accrued annual leave of 19.2664 weeks. As his employment was not governed by an award it was determined that the employee had no entitlement to leave loading. Payment of the sum for annual leave was ordered against the three respondents jointly.

17 The appellants' argument that payment for the untaken annual leave accrued prior to June 2002 should be the responsibility of the Sowdens was rejected. The learned Industrial Magistrate expressed the view that any dispute which might exist as to the responsibility of the former directors for that annual leave entitlement was a matter which the appellants could pursue in another jurisdiction She also rejected the argument that payment of an additional $50 per week reduced the claim for accrued annual leave.

18 Mr Scragg, counsel for the appellants, submitted that the learned Industrial Magistrate's findings of fact were not supported by the evidence. He submitted that the finding that the employee's evidence was "inherently more believable" than that of the appellants was without explanation. He also submitted that the learned Industrial Magistrate erred as to the interpretation of the words "at the relevant time" in s 182, and as to the exercise of the discretion to join the appellants and to make orders against them for the payment of the judgment sum. In the same context he complained about a failure to join the former directors in relation to the claim for annual leave up to June 2002. He also complained about the failure to take into account an additional payment of $50 per week in determining the amount outstanding for annual leave, which he submitted should be credited against any annual leave outstanding.

19 Section 182 provides the Court with a discretion to join a person for whom the named defendant is acting as an agent or a person who has effective control of the named defendant. That discretion must be exercised judicially taking into account all of the relevant circumstances. An appeal against an exercise of discretion is governed by House v The King [1936] HCA 40; (1936) 55 CLR 499; briefly, this requires consideration as to whether the exercise of discretion was tainted by an error of principle, or was based on irrelevant material, or overlooked relevant material.

20 The appellant's argument on joinder commenced with a concession that s 182 permits the joinder of a director of a company (appeal tr 11). Accordingly, that aspect of the section was not ventilated in these proceedings.

21 Mr Scragg submitted that the learned Industrial Magistrate's discretion miscarried because she misapplied the expression "the relevant time" in s 182. He submitted that had she correctly applied that expression, she would have limited the joinder of the appellants to the period from July 2002, because the company was not under their effective control between 1998 and 2002 when the annual leave should have been taken.

22 This argument raises the question, when did the entitlement to annual leave accrue? S 71 and Sch 4 of the Act set the minimum standard for annual leave for award free employees. An employee is entitled to four weeks annual leave each year, to be taken at a time agreed with the employer, or in respect of which the employee has been given two weeks notice. The rate of pay for a period of annual leave coincides with the employees' usual rate of pay.

"An employee's entitlement to annual leave accrues as follows -

(a) an employee is entitled to 4 weeks' annual leave for each completed year of continuous service; and

(b) if an employee's employment comes to an end and the period of service is not exactly divisible into complete years - the employee is entitled to 1/3 of one week's annual leave for each completed month of the remainder."

24 When read as a whole, this clause sets the period of annual leave, relates that period of leave to the expiration of a qualifying period of service, identifies the entitlement as recurrent, and provides a means of calculating payment for leave which remains untaken at the time that the period of employment comes to an end. This last aspect is particularly demonstrated by the use of the phrase "period of service" and the plural "years" in cl 3(b). If it was not intended that an employee would be entitled to a payment on account of untaken annual leave on termination, there would be no need to direct attention to the situation when an employee's employment "comes to an end". If it was not intended that the annual leave entitlement could accumulate there would be no need to refer to "the period of service", and it would not be relevant to refer to whether that period is "exactly divisible into complete years".

25 The learned Industrial Magistrate correctly isolated the date of termination of employment as the date when the entitlement to payment on account of untaken annual leave became an enforceable right. For the purposes of determining the issue of joinder pursuant to s 182 of the Act, that was "the relevant time". On that basis the appellants as the current directors were the only directors capable of consideration pursuant to s 182, and therefore there is no appealable error of principle upon which the exercise of discretion was based.

Are the findings of facts open on the evidence?

26 The employee's evidence on all issues was preferred to that of the appellants. It is well accepted that if the finding at the trial depends to a substantial degree upon the credibility of a witness, then it "is not to be set aside because an appellate court thinks that the probabilities of the case are against - even strongly against - that finding of fact". The finding must stand unless it can be shown that the finder of fact "has failed to use or has palpably misused his advantage or has acted on evidence which was inconsistent with facts incontrovertibly established by the evidence or which was glaringly improbable." (Devries and another v Australian National Railways Commisison and another (1992-1993) 177 CLR 472 at 479).

27 In this instance the findings of fact were made solely on the conflicting oral evidence of the employee and the appellants. There was no documentary evidence which assisted one way or the other in relation to the contentious issues. The worker was the only witness who had any direct knowledge of the circumstances between 1998 and June 2002, and he said he took no leave. The appellants could have called the former proprietors to rebut that evidence but did not do so. As to the period between July 2002 and April 2003, the finding was based on a preference for the evidence of the employee rather than the appellants. Mr Scragg submitted that the use of the expression "inherently more believable" indicated that the credit finding was based on extraneous matters such as the learned Industrial Magistrate's experience of life. However, there is nothing to indicate that the learned Industrial Magistrate did other than assess the conflicting evidence which she saw and heard, an advantage which I have not had.

28 The employee's evidence as to the amount of his weekly earnings was preferred over that of Mr Ramsey Beydoun. I assume that in making that finding the learned Industrial Magistrate took into account all of the evidence on that issue including the employee's answer in examination in chief at tr 34 and the immediate correction, and did not regard it as providing any support for the appellants' version.

29 In any event, because the rate of pay for a period of annual leave, or payment in lieu, is determined by the employee's usual rate of pay, had it been established that the employee was paid an additional amount of $50 per week, such an amount would have increased the rate of remuneration at which the payment for annual leave should have been calculated. It would not have provided a basis for a crediting process.

30 The remaining issue is whether, in all the circumstances, the order for payment in lieu of annual leave prior to July 2002 should have been made against the appellants.

31 The learned Industrial Magistrate considered the appellant's argument that it would be unconscionable to require such payment, because the leave to which it related had accrued prior to their taking over the business.

32 However, taking into account the insolvency of the first respondent, the findings of fact that the employee had taken no annual leave during the relevant period and that his entitlement to payment in lieu did not crystallise until the date of termination, the learned Industrial Magistrate concluded that the employee could only recover against the appellants, and that it would be contrary to the Act if he could not recover. Furthermore she took into account that the appellants may seek to recover from the vendors of the business any amount paid in relation to the period up to July 2002 in another jurisdiction.

33 Those were all relevant matters to be taken into account in the exercise of the discretion and Mr Scragg did not point to any other relevant fact which the learned Industrial Magistrate overlooked. In those circumstances there is no appellable error in the exercise of the discretion and the appeal must be dismissed.