21 On Mrs Fryer's evidence, she also expected that Mr Cherny would ensure that the Tasman Supplies' sales were maintained at $20,000 per month, even if that meant him doing some of the selling work he had formerly been doing while operating the Tasman Supplies business for DC, if the Isbiz sales staff did not have the time to do so. Mrs Fryer agreed that the appointment letter did not mention such sales work, but explained that was the work which she expected a business development manager to do - in a sense it was a glorified sales position. She herself got involved in sales. Mr Cherny was never employed to do the work of a general manager. She explained that she was not 'into titles' and accepted that she had agreed to give Mr Cherny the title of general manager, when he suggested that it would look better than the title of product development manager. She placed no importance on titles and Isbiz was a small business, the role of a general manager was the one she performed. Even her husband didn't have a particular title.
22 Mrs Fryer's evidence was that Isbiz was a small, albeit growing business, employing some 15 staff with an annual turnover then of some $25 million, although it had not been so high since. The synergies she expected from Mr Cherny coming into the business did not emerge. Given the size of the business, there was no need for both a managing director and a general manager, there was no real hierarchical structure in place. Sales staff met regularly to discuss products being offered. Until Mr Cherny came, there was no need for presentations about new products. Training was generally done on the job, the staff were experienced and sales targets had been set and reviewed by Mrs Fryer.
23 Difficulties soon emerged in the relationship between Mr Cherny and Mrs Fryer. She was concerned about his approach to introducing the new products to the sales staff and how he interacted with them. She raised these matters with him. Mr Cherny disagreed with her.
24 These difficulties were compounded by problems which arose between Mr Cherny and Mr Fryer. Ostensibly, Mr Fryer was responsible for the warehouse operation. Before Mr Cherny was appointed, Mr Fryer had also assisted his wife in work Mr Cherny was employed to perform. Mr Cherny believed that Mr Fryer cut across some of his responsibilities. Mr Cherny also saw problems in the warehouse operation and made suggestions for improvements, which Mr Fryer did not welcome. When problems were raised with Mrs Fryer, she took the view that Mr Cherny was being negative and in his view, did not appear to welcome his views and suggestions. In January, Mrs Fryer raised concerns with Mr Cherny about his attitude to being involved in a stocktaking and how he approached staff recruitment. Mr Cherny disagreed with the reproach. Some fairly acrimonious email communication followed.
25 As already noted, problems also emerged in the acquisition of the stock which Isbiz had agreed to purchase. The stock was housed in an independent warehouse. Isbiz did not have sufficient warehouse space to take the stock and rather than paying for it on the terms initially agreed, in four instalments, the stock was finally invoiced as it was sold. Mr Cherny explained he did not protest about this alteration to the agreement. He was concerned to ensure that he received payment for the DC stock and remained in his job, given that he had given up the Tasman Supply business. He did not wish to put Isbiz in a position where its cash flow was affected negatively and so accepted the variation to the arrangement.
26 Mrs Fryer's evidence revealed why this change was made. Mrs Fryer understood from Mr Cherny that while his business was generating gross profits of $20,000 per month, he was taking home a salary of only $36,000 per year. On her reckoning, she could pay Mr Cherny $10,000 per month, reduce his other overheads to about $5,000 and make a profit of $5,000 per month on the Tasman Supplies business which came with him from DC. These savings were achievable, because she could reduce costs, amongst other things, because she would not have to pay external warehousing costs which DC had to meet, of some $6,000 to $7,000 per month.
27 That saving did not materialise, because the Isbiz warehouse could not, in fact, house all the Tasman Supplies stock. The result was that Isbiz paid for the warehousing costs, even though it had not been invoiced for all of the stock, as originally agreed. Mrs Fryer also expected the stock to be sold more quickly than it was. This meant that the warehouse costs were incurred for a longer period than she anticipated and gross profits of $20,000 per month did not materialise.
28 It was not until after the parties had terminated their arrangement, that Isbiz was invoiced for the remaining stock by DC. At that stage, a dispute arose as to whether all of the stock was in 'good saleable condition'. The result was that Isbiz refused to take the stock. Mr Cherny sold some of the stock, but the balance remained in the warehouse, with Isbiz refusing to receive it and arguing that some of it, at least, was not in 'good saleable condition'.
29 Mr Cherny encountered problems in managing staff. On his evidence some of them refused to take directions from him and refused to sell the Tasman Supply products, being in their own view too busy attending to their existing work. Even Mrs Bird explained the difficulty in attending to these small accounts, as well as her existing larger customers. Her evidence was that Mr Cherny did nothing to assist with this difficulty. Ms Latner's evidence was that she found him negative and not helpful, so she turned to Mrs Fryer when she had problems.
30 Sales targets were fixed for sales staff by Mrs Fryer reviewing their sales on a monthly basis. Mr Cherny attended the November and December meetings with Mrs Fryer. There was no January meeting. On Mr Cherny's evidence, he was not invited to attend any subsequent meetings. Mrs Fryer could not remember that he had not attended those meetings, but explained that it had originally been her intention that he would perform the sales target work, together with her. There was no suggestion that Mrs Fryer ever provided Mr Cherny with sales targets in relation to the Tasman Supplies' products, other than perhaps, those allocated to him as a part of his sales territory after March when he took on one of the sales person's roles.
31 Up until his agreement to take on a sales territory, the other sales assistants shared their allocated sales targets with Mr Cherny. On his evidence, this ceased at that point, when the other sales assistants stopped reporting to him. Mrs Fryer's evidence was that it had not been her intention to remove his other responsibilities from Mr Cherny, when she appointed him to the sales territory and that he did continue performing such work and representing himself to customers and others as the general manager. The sales appointment was to be temporary, but there was no evidence that steps had been taken to appoint another sales assistant for that territory, while Mr Cherny remained in the employ of Isbiz.
32 Shortly prior to the termination of the relationship, Mrs Fryer raised with Mr Cherny the idea that his commission structure should be altered, so that commission was payable on sales achieved in his territory, rather than on company profits. Mrs Fryer explained that this was because Mr Cherny was not making any Commission under the existing arrangement and she had only raised this possibility for his benefit. Mr Cherny saw this as another illustration of Mr Fryer's desire to remove him from the role he had agreed and to relegate him to a more junior position.
33 Mr Cherny found that while he was initially involved in decisions about matters such as staff recruitment, he was excluded when final interviews were conducted; he was initially involved in the process pursued in selecting a new accounting system, but Mr and Mrs Fryer excluded him from the final decision making process; he was initially involved in approaching big new accounts, but later excluded by Mr Fryer, who pursued such accounts himself. Over time Mr Cherny believed that his responsibilities reduced until he was mainly concerned with sales in his territory. Mrs Fryer disagreed. Contrary to Mr Cherny's affidavit evidence, computer records showed that even shortly before the termination of his arrangement, Mr Cherny was sending Isbiz information to his home computer. In cross examination, he explained that this was connected with his work for Isbiz, and not with another business which he was then engaged in his spare time in developing. This evidence tended to confirm that Mr Cherny's duties were at that stage, still broader than simply sales.
34 Part of Mr Cherny's complaint went to the unilateral alteration of his role in ways he did not accept. When Mrs Fryer asked Mr Cherny if he would take over a sales position when one of the salesman, Mr Brookes left, he agreed, but regarded the change as inconsistent with his contract. Mrs Fryer's evidence was to the contrary. She understood he was happy to take on the sales work, but would have been content to engage another salesperson if he had not been. Mr Cherny's evidence was that other staff understood he had been demoted. Ms Wilson's evidence was that she was shocked when it was announced that he was to take on a sales role, but agreed in cross examination, that she had never been told Mr Cherny would no longer be general manager. She also agreed that she had made an assumption, which could have been wrong.
35 Ms Latner's evidence was that she understood Mr Cherny had taken on the sales work, but that otherwise his position had not altered. She understood he was responsible for business development and sales. Mr Morton also understood he was responsible for managing the sales team. After Mr Cherny took on a sales role, his work changed, but Mr Morton kept reporting to him and there were no other changes in his responsibilities of which Mr Morton was aware.
36 In early April, Mr Cherny asked Mrs Fryer by email to confirm his responsibilities. Mr Cherny then took some leave and they met on his return, on 29 April. By this time the relationship was acrimonious. At an earlier general sales meeting in March, Mr Cherny had raised a concern about problems he was experiencing in the warehouse. On his evidence, Mrs Fryer then swore at him in front of other staff. Mrs Fryer's evidence was somewhat different, namely that this had occurred afterwards, when they were alone together. In cross examination, Mrs Fryer agreed that she had sworn at him. On her evidence Mr Cherny used similar language. Mr Cherny's evidence was that at this stage, he was concerned to ensure both that he had a job and that he was paid what was outstanding for stock. He did not regard himself to be in a position to raise with Mrs Fryer, what he regarded to be breaches of their agreement.
37 It was common ground that on 29 April, Mrs Fryer and Mr Cherny discussed the concerns which they each had about various matters, including the failure to achieve gross profits of $20,000 per month on Tasman Supplies products and the unsold stock remaining in the external warehouse. Mrs Fryer's evidence was that she had expected the sales he had formerly been able to achieve entirely on his own to have grown, after he came to Isbiz. Mr Cherny accepted no responsibility for the failure to meet the agreed targets fixed at the level of the business he had done on his own. She accepted that business was generally slow in January and February, but Mr Cherny's view was that everyone but he had contributed to that failure. His conflicts with sales staff and problems with the warehouse were also discussed. Mr Cherny agreed to provide a report to Mrs Fryer about sales and to give staff another presentation on Tasman Supplies products, to attempt to improve those sales. Mrs Fryer again regarded the presentation later given as inadequate.
38 On 8 May, Mr and Mrs Fryer met with Mr Cherny and asked him whether he had 'suggestions about how to improve your role at Toner Warehouse'. Mr Cherny had earlier agreed to put some proposals together, but did not provide any at the meeting. Mrs Fryer told him that she would keep him on his salary of $120,000, but proposed a change to his commission arrangement. As a consultant, she told him that she also did not wish to pay him sick leave and holiday pay. Mr Cherney had no difficulty with this, given that he was a consultant. Mrs Fryer asked Mr Cherny to provide her with ideas for a new job description. Mrs Fryer then left the meeting.
39 On Mr Cherny's evidence, before Mrs Fryer left, she said she did not want him to return to the office. She denied this. Consistent with his understanding, Mr Cherny left the meeting after a further discussion with Mr Fryer and went home. He never returned to work, despite repeated requests that he do so.
40 There followed a series of correspondence by email, with Mrs Fryer asking Mr Cherny to contact her, to return to work and to provide her with a proposed job description. Mr Cherny did not return to work, or return her calls, or those of Mr Fryer, but asked her to provide him with a position description and an outline of what she proposed. Mr Cherny's access to the computer system was removed on 9 May. The parties sought legal advice. The relationship came to an end, but who was responsible for that outcome was the subject of dispute.
The parties' respective cases
41 The case advanced for Mr Cherny by Mr Hammond of counsel was that the parties' agreement comprised the various emails and correspondence and restraint agreement of 16 and 17 October. Mrs Fryer's evidence not only differed from that given by Mr Cherny in a number of respects, but also as to that given in her affidavit evidence and that given in oral evidence. Her evidence should be rejected, in so far as it conflicted with that of Mr Cherny.
42 In relation to the purchase of stock, it was agreed that it would be acquired by Isbiz on 31 October and then paid for, in three or four instalments. The arrangement in relation to payment changed at least twice, for reasons which Mr Cherny explained, until invoices were only rendered after stock had been transferred to Isbiz' warehouse and had been sold from there, but title had already passed. This was consistent with the business going from DC to Isbiz, including customer lists, trademarks and copyright, as both Mr Cherny and Mrs Fryer understood. It was relevant that the offer letter described the arrangement as a merger of the businesses.
43 This made it clear that the whole of the agreement had to be understood as one which led to the performance of work. (See Euphoric Pty Limited v Ryledar Pty Ltd (2002) 117 IR.) This was not a contract merely for the sale of stock, but one which required the performance of work, with Mr Cherny not only being expected to organise and supervise the sale of the stock, but himself to sell it, as a part of the arrangement.
44 The conduct of the parties in relation to the stock threw into relief the unfairness of the contract. The variations to the time at which payment for the stock had to be made, made the contract relevantly unfair. Mr Cherny had agreed to these changes, given his concerns about Isbiz' cash flow and fearing that otherwise, he would not be paid for the stock. He rendered numerous invoices for which he was not paid and was powerless but to agree to the alterations Isbiz proposed. This permitted Isbiz to claim, after termination, that the stock was not in good, saleable condition, a matter which, in fairness, should have been resolved at the outset. Even stock which Isbiz had retained and sold had not been paid for, despite what had been advised in correspondence by its solicitors, after the arrangement was terminated.
45 At that point Mr Cherny had transferred DC's business and its assets to Isbiz. He had been promised a position with certain responsibilities, supervising four sales staff and taking the burden from Mrs Fryer. Instead, he was faced with staff already overburdened with work, who could not attend to the sales of his products, as well as those of Toner Warehouse, there was considerable resistance from staff to his role, staff turnover resulted, there was warehousing problems and falling sales figures, so that Mr Cherny had to step in and take over the duties of one of the staff positions. The result was that he was being distanced from the duties he was engaged to perform, because Mrs Fryer expected him to take on sales work.
46 This change in duties was not one provided for by the golden parachute clause, which the parties had agreed. Mr Cherny's agreement, given under duress, to take on the sales work in February 2003, ought in fairness to have triggered the agreed requirement that he be paid $240,000, less the $10,000 per month, he had already earned during the course of the employment to that point.
47 As to the circumstances in May, when the relationship came to an end, it was relevant that the result was that the applicants, having a successful business at the outset, were left with nothing at the end, but stock which they could not sell, no longer having a business in which to sell it. They understood the stock then belonged to Isbiz. Isbiz did not even pay Mr Cherny's outstanding the stock then expenses. The relationship came to an end as the result of the respondent's conduct, which should be reflected in the orders of variation sought in relation to the golden handshake clause.
48 The case advanced for the respondents by Mr Easton of counsel, was that the fundamental question in the case was who had terminated the contract. The evidence showed that Mr Cherny had left of his own volition. If he had not, the golden parachute clause was triggered by the respondent's actions and if that were so, no conclusion that the contract was relevantly unfair was open. Nor would it be concluded, in fairness, that there should be a golden parachute payment if the contract came to an end as the result of Mr Cherny's actions.
49 It followed that the case was, in substance, an enforcement case, both as to the golden parachute and in relation to the claim for stock. The acquisition of stock was the subject of a separate contract, under which no work was performed. It followed that contract was not within the Court's jurisdiction.
50 It was argued that in the case of conflict, Mrs Fryer's evidence would be preferred to that of Mr Cherny. It was common ground that some of his duties changed, when he agreed to take on sales work after the departure of one of the salesmen. There was disagreement as to whether this involved a demotion or a fundamental change in the relationship. The contemporaneous documents and evidence given by Mr Cherny in reply and in cross examination, demonstrated that there had been no such demotion or change. He continued thereafter working in his former position, performing his former duties and describing himself as general manager, as well as taking on the extra duties which he had accepted. His evidence that he had agreed to the changes because he was scared about his position, would not be accepted, given his correspondence at the time. His evidence was not frank as to these matters and would be rejected.
51 So, too, would be his explanation of how the relationship came to an end. His evidence in cross examination showed he had made a decision he would not return and had then taken steps to make it appear as if it was the respondent which had brought the relationship to an end. At that stage, Mrs Fryer was aware of his discontent and was trying to resolve it, by changing his role and duties to overcome his concerns. Repudiation was not an available conclusion, given the concerted efforts being made to resolve his concerns. There had been no change to his remuneration structure. The proposal made was designed to improve it.
52 It was also relevant that while the arrangement was described as a merger, there was, in fact, no sale of the Tasman Supplies business by DC to Isbiz. Rather, Mr Cherny was to work as a consultant for Isbiz and to take a share of profits. The separate agreement in relation to stock had to be understood in that context. Title to stock under that agreement was not to pass until it was sold and DC had supplied and invoiced for that stock. Mrs Fryer's evidence was that she did not understand she was buying the stock as at 31 October, otherwise she would have undertaken a due diligence exercise at that point.
53 Even if the agreement in relation to stock formed a part of the agreement in relation to work and it was concluded that title had passed on 31 October, the claim was still not within jurisdiction.
54 As to payment for stock, it was pointed out that the parties had still not agreed on the three categories of stock in question - the stock supplied and not paid for; the stock supplied, but unsaleable and the third, the goods never supplied and never paid for. If orders were made as to these matters, the parties would have to consult further on figures. It was also relevant that the values of stock fluctuates. Some of the stock was later sold by Mr Cherny, which would also need to be taken into account.
55 Questions of mitigation also arose, because after his departure, Mr Cherny was involved in another business, an online catalogue, commenced by a separate entity, in which DC held shares. This was relevant because the logical order, if the conclusion was reached that there had been termination by the respondent, was not the golden parachute clause, but notice in the order of five months, in the circumstances of this employment, as comprising reasonable notice.
56 In reply, it was argued by Mr Hammond that the weight of the evidence showed that there had been a demotion when Mr Cherny agreed to take on the sales work. It would also be accepted that Mr Cherny had been told on 8 May to come back as a salesperson or not to come back at all.
57 The argument that here had been a separate agreement as to the purchase of stock would be rejected. There was but one contract, comprised of a number of documents, with the stock purchase an integral part of what had been agreed. Without that part of the agreement, Mr Cherny would not have accepted the consultancy. In any event, even if a separate agreement, on the evidence it could not be doubted that the contract led directly to the performance of work. The contractual term provided was that title to the stock passed on 31 October.
Consideration
58 I will deal at the outset with the nature of the contract between the parties, given the jurisdictional question raised in relation to the claims made as to the acquisition of stock. Given the emails and correspondence exchanged by the parties, as well as the evidence of Mr Cherny and Mrs Fryer as to the course which the negotiations took, about which there was no real controversy, I am satisfied that the parties entered one contract, comprised of a number of documents. Firstly, the offer letter of 17 October, which included, in relation to stock, at p 2: