Elkins v Full Bloom Pty Ltd

THIRD RESPONDENT Jarrod Villanti FILE NUMBER: IRC1842 of 1999 CORAM: Peterson J CATCHWORDS : Unfair contract alleged - joint venture later incorporated for the production and sale of maternity underwear etc - directors working in the business - termination of employment of one director - whether a dismissal or constructive dismissal - whether aspects of the contract or arrangement were unfair (s106) - interest of the director concerned in design of patterns used in the business - application dismissed. LEGISLATION CITED : Industrial Relations Act 1996 s106 Copyright Act 1968 (Cth) CASES CITED : Allison v Bega Valley Council (1995) 63 IR 68 at 76 St Vincents Hospital v Harris (1998) 81 IR 173 at 182 HEARING DATES: 06/14/2000; 06/15/2000; 06/16/2000; 07/19/2000; 07/25/2000 DATE OF JUDGMENT: 11/03/2000

APPLICANT MR J H Pearce of counsel

SOLICITOR Taylor & Scott SYDNEY. LEGAL REPRESENTATIVES: RESPONDENTS Mr A R Moses of counsel

SOLICITOR Tress Cocks & Maddox SYDNEY.

Application under s106 of the Industrial Relations Act 1996. JUDGMENT 1 The applicant, Barbara Elkins, is a former employee, a "working" director, of the first respondent, Full Bloom Pty Limited ("Full Bloom"), co-directors being the second respondent, Emily Simpson ("Ms Simpson") and the third respondent, Jarrod Villanti ("Mr Villanti"). Full Bloom conducts a business of designing, manufacturing and selling maternity lingerie. The business is the manifestation of an idea of Ms Simpson's, which was brought to fruition after Ms Elkins and Ms Simpson met in 1993. 2 These proceedings arise out of the termination of the employment and the voting off the Board of Ms Elkins by the respondents in their appropriate guises. Ms Elkins remains a minority shareholder in Full Bloom. 3 The summons for relief in the proceedings claimed:

1. An order declaring the contract or arrangement between the Applicant and the Respondents an unfair contract pursuant to section 106 of the Industrial Relations Act 1996.

2. An order declaring void in whole ab initio (except to the extent to which moneys have been paid to the Applicant and the Applicant became an equal shareholder in the First Respondent on or about 29 June 1995) the contract between the Applicant and the Respondents whereby the Applicant performed work in an industry for the Respondents.

3. An order, varying from its commencement, the contract by inserting the following provisions:

(a) If the Respondents shall terminate the contract between the Applicant and the Respondents, the Second Respondent and Third Respondent shall forthwith purchase the shareholding of the Applicant in the First Respondent.

(b) The purchase price for the Applicant's shares in the First Respondent shall be $250,000.00 per annum plus an amount calculated by applying interest at 9.4% per annum to the amount of $250,000.00 on a pro rata basis for all periods of time between 26 February 1999 and the date on which the purchase price is paid.

(c) If the Respondents shall terminate the contract between the Applicant and the Respondents, the Respondents shall pay to the Applicant reasonable remuneration for all work performed by the Applicant in accordance with the contract between 2 February 1994 and 26 February 1999. A reasonable remuneration for all work performed shall be $30,000.00 per annum.

(d) (i) If the Respondents shall terminate the contract with the Applicant, the Respondents shall not commercialise, exploit, manufacture, have manufactured, market or sell any Product;

(ii) If the Respondents shall commercialise, exploit, manufacture, have manufactured, market or sell any Product then the Respondents shall pay to the Applicant a "royalty" of 25% of the nett sales of that Product upon receipt of payment for that price;

(iii) For the purposes of this sub-clause, "Product" means: (The summons sets out a list of particular items of clothing and a date in relation to which each design was created. The list is not reproduced here).

(e) That the contract shall not be terminated by the Respondents except for serious misconduct, incapacity or for reasons related to redundancy unless the Respondents give the Applicant 12 months notice in writing or pay the Applicant an amount in lieu thereof equal to the amount of 12 months remuneration payable under the contract;

(f) That the contract shall not be terminated by the Respondents for reasons relating to the Applicant's conduct or performance unless:

(i) the Respondents shall give the Applicant notice of their intention to terminate the contract and provide to the Applicant reasons for the proposed decision;

(ii) the Applicant has been given an opportunity to defend herself against any allegations made in relation to her conduct or performance;

(iii) the Respondents have undertaken a thorough investigation of any allegation made in relation to the Applicant's conduct or performance and any matters presented by the Applicant in her defence; and (iv) the Respondents shall make the decision to terminate the contract reasonably having regard to: A. the Applicant's personal circumstances; and B. the satisfactory (or otherwise) performance by the applicant of her obligations under the contract; (v) If the Applicant agrees, the Respondents shall give the Applicant a reasonable opportunity to work in an equivalent position with the First Respondent including such training, instructions, supervision and other assistance as may reasonably be required by the Applicant and as may reasonably be made available by the Respondents.

4. Other consequential relief including an order for the payment of money considered just in the circumstances of the case.

4 It is important to note at the outset that the claims set out in paragraphs 3(a) and (b) were not pressed in the proceedings.

The Facts 5 In 1993 Ms Elkins and Ms Simpson were both attendees of an educational course, the details of which are irrelevant. Ms Simpson showed the facilitator of the course some drawings of maternity garments which caused the facilitator to say "the person who will manifest this for you is over there" pointing at Ms Elkins. Ms Elkins is a qualified pattern maker and has a background in design and sale of art wear. She was then operating a small business out of a studio in Surry Hills under the name "Rapunzel". 6 Ms Elkins and Ms Simpson subsequently agreed that Ms Elkins, for a fee of $1,500, would make up a sample which would be able to be taken to a manufacturer. The sample of a black lace bodysuit was fitted on a model in January 1994. 7 Shortly thereafter they agreed to establish a business which would produce a range of maternity garments. Over January/February 1994 a series of meetings were held involving Ms Elkins, Ms Simpson, one Tracey Gieck and a friend of Ms Elkins who had familiarity with marketing strategies, Steve Ligget. 8 It appears that at about this time, a decision was made to incorporate. A shelf company was purchased, renamed Full Bloom Pty Limited and on 4 March 1994 Ms Elkins, Ms Simpson, Ms Gieck and a Ms Davies (who has no significance in this case) were appointed directors thereof. It further appears that both Ms Simpson and Ms Gieck had financial capacity to inject funds into the business. Ms Elkins did design work for the garments to be manufactured and understood that the designs were her intellectual property. She wrote on each pattern the words, for example, "BE 1994". Ms Elkins wished to contribute her designs and patterns as her capital contribution, she thought equal to a one-third share. Ms Elkins claimed in evidence that on 18 May 1994 at a directors meeting Ms Simpson said "I agree that you should have a one-third share but I don't think the designs have value. You need to put money in." This assertion about lack of value was denied by Ms Simpson. In any event, Ms Gieck and Ms Simpson each lent Full Bloom $36,000 and Ms Elkins lent $8,000, an amount which she borrowed from Ms Simpson for that purpose. Ms Gieck and Ms Simpson acquired nine ordinary shares and Ms Elkins acquired two ordinary shares in Full Bloom. 9 In July 1994, in order to obtain funds for use in the business, Ms Elkins decided to sell a house she owned in Armidale, the sale being completed in November 1994. She received net proceeds of $69,000. Following this there was a reconstruction of the loan arrangements between the three directors and Full Bloom. The outstanding loans to the company were $33,440 for both Ms Gieck and Ms Simpson and $5,760 for Ms Elkins. It was agreed that the loans should be equalised at $25,000 each. To achieve this Ms Elkins loaned a further $18,453 which effectively was redistributed to Ms Gieck and Ms Simpson as repayment of $9,227 each against their existing loans. This produced the equalisation of loans save for the outstanding loan to Ms Simpson of $8,000 which Ms Elkins also repaid. 10 From April 1994 the directors began to receive payments of $150 per week or $600 per month as a "loan repayment" on the funds that had been invested. It was by this process that the original loans referred to above had been progressively reduced somewhat. 11 Early in 1995 Ms Elkins and Ms Simpson wished to have Ms Gieck leave the business. A Deed of Separation was executed by which Ms Gieck received $50,000 being a repayment of $25,000 capital (the loan referred to above) and $25,000 said to represent eight months' salary. Of the payment of $50,000 to Ms Gieck, $46,092 was provided by way of loan from Ms Simpson. Ms Gieck's shares were repurchased and allocated to the applicant and the second respondent so as to equalise the shareholdings. Ms Simpson's further loan was secured by her taking a fixed and floating charge over all the assets and undertakings of Full Bloom. 12 In about March 1995 Ms Elkins spoke to a close friend indicating that someone was needed to take over from Ms Gieck. Mr Villanti was recommended to her. From the end of March 1995 Mr Villanti began to work part time in the office. Early in 1997 Mr Villanti's contribution was thought to justify his being given a number of shares in the company. Ms Elkins and Ms Simpson disagreed over who initiated this idea. Ms Elkins claimed it as hers; Ms Simpson contended to the contrary and that Ms Elkins was reluctant to agree to the idea. In April 1997 Ms Simpson produced to Ms Elkins a hand written document which indicated her intended allocation of shares - 10 to Mr Villanti, 125 to Ms Simpson and 65 to Ms Elkins. Ms Elkins said she was very shocked by this; she consulted an uncle with business experience who suggested to her that the loans made by Ms Simpson did not require a reallocation of equity and that Ms Elkins' "designer expertise" could possibly equate. 13 Ms Simpson's evidence about this proposed re-arrangement of the shareholdings was that their discussions were much longer and more detailed than attested to by Ms Elkins. She said that she had said words to this effect to Ms Elkins: The shareholdings are disproportionate. I have given you half of Tracey's shares for nothing. It is necessary to redress the imbalance. As I paid for Tracey's shares, I think a 30% holding for you is appropriate. 14 There were discussions between them about obtaining a valuation of the clothing designs which Ms Elkins had done but it would cost some thousands of dollars. There was no spare money to do that. Ms Elkins said the following discussion occurred on 26 May 1997: Ms Simpson: This is a fair and generous offer. It's more than reasonable because I've put much more money in than you have. You should be grateful that you're getting such a big share. You'd be a fool not to sign it.

Ms Elkins: I'm not happy signing this document and I'm very unhappy about the whole arrangements. If we make a lot of money out of this company I want a guarantee I can buy back my share so we're equal again.

Ms Simpson: This is not negotiable. I'm not going to change on this. No one will ever know that you don't own half. In public we'll always be equal partners.

Ms Elkins: I think that my intellectual property is of great value, and I still think it should be part of my assets in the company.

Ms Simpson: Well you go and get it valued then. But in the meantime I want you to sign this now.

Ms Elkins: I don't want to sign this but I will because we need to get on with the business.

She deposed in her affidavit that: I felt powerless to continue with this argument because I had no money, and I could not afford to pursue with my own funds the issue of getting my intellectual property valued.

She said she felt at the time that she had signed under duress. 15 During 1995-96 Ms Elkins completed a TAFE trade certificate course in Apparel Manufacture Management (Post Technicians) most of the fees for which were paid by herself. Full Bloom paid small portions of the fees when money was available for that to occur. 16 From about December 1994 Ms Elkins was feeling the pressure of a lack of income. She said to Ms Simpson "I really need more money. I can't live on the $150 per week". This led to the allocation to her of $100 per week as salary, in addition to the loan repayment of $150 per week. By 1998 her income had increased to $500 per week. A request for further increases were refused although Ms Simpson made a suggestion to her, which is dealt with in paragraph 23 and following paragraphs. 17 It is convenient at this point to record the remuneration paid to Mr Villanti was also at the same level as that paid to Ms Elkins, namely in 1998 and thereafter $500 per week, although Mr Villanti did not receive commissions of the kind which Ms Elkins earned on sales from time to time. Ms Simpson received no income from the business. 18 In about May 1998 Mr Villanti said to Ms Elkins:

Your loan's running out and we've been still paying you so your debt has built up to about $9,000.00. We've got to do something about it.

We've got to find a way for you to give some money to the company. You need to find some assets to put into the company. What about your car or your machinery?

Ms Elkins had a Mazda 121 which she had bought in October 1995 for $16,650, $10,000 of which was paid for by personal loan from Ms Simpson. In about May 1998 she was receiving $200 per month car allowance because of the regular use of the car in the business. She later said to Mr Villanti:

The company can take my car for the debt you say I owe.

Although the car was thereafter recorded as a Full Bloom asset, the registration certificate for the car remained in Ms Elkins' name. She remained indebted to Ms Simpson in respect of the $10,000 loan for the car. 19 There were a number of factual differences in the matter which I regard as peripheral. The first concerns the amount of work done by Ms Elkins in respect of design work. While she regarded herself and it is perhaps reasonable to accept that she was the designer in the business it does appear that the number of garments of different design were small in number and could not account for a significant proportion of the applicant's time over the period of the parties' relationship. There was also an issue concerning the role played by Lydia Li, the maker-up of the garments who, it was suggested by the personal respondents, played a significant role in adapting designs from time to time to make those provided to her more functional. I find it unnecessary to resolve any difference in that respect. 20 Ms Elkins claimed that she worked 40 hours per week. Ms Simpson contended that she worked 15 hours per week for the first year and about 30 hours per week between 9.30am and 3.30pm in subsequent years. 21 There were also issues concerning the effectiveness of Ms Elkins' work in particular her difficulties produced by her over-ordering of stock which she contended was later resolved and all stock was sold. Ms Simpson's evidence was that Full Bloom lost $29,000 as a result of this. 22 In resolving issues such as those referred to in the last two paragraphs and what I intend to refer to shortly concerning the final offer made by Ms Simpson to Ms Elkins and the subsequent events, I have formed the view that where the evidence of the applicant conflicts with that of the Ms Simpson and/or Mr Villanti, I should prefer the respondents' evidence to that of the applicant. Having regard to her demeanour as a witness, I formed the view that Ms Elkins was a person of strong will who, as her actions support, was prepared to engage in the conflict with a degree of relish. She did not submit meekly to perceived pressures being imposed upon her by Ms Simpson but persistently sought to follow what she considered to be an appropriate course for her. I do not consider that the evidence disclosed that Ms Elkins ought be viewed as a victim of an abuse of power or influence but one who, when faced with a dilemma, namely a lack of income, seemingly incapable of resolution in a way that suited her, and having to face up to the need to find a solution to the problems which had been generated in the business, chose to act aggressively rather than constructively in the circumstances. The result was not solely of her making but the seemingly inevitable consequence of circumstances. 23 I accept, having regard to the evidence of Ms Elkins, Ms Simpson and Mr Villanti, that by January 1999 there was considerable tension in their relationships. I accept that Ms Elkins' presence in the office imposed strains and that the level of income received produced difficulties. In January 1999 Ms Elkins spoke to Ms Simpson about receiving an increase of $150 per week which she said was necessary for her to live on. She gave one version of the conversation which included the response from Ms Simpson "What do you want? Jarrod and Monique can live on $500 a week. Why can't you?" but Ms Simpson's evidence of the conversation was more extensive and went as follows:

Ms Elkins: I'm a company director. I should be earning much more money. All my friends say so.

Ms Simpson: What do you want me to do? The only way we can give you more money is if you generate sales. Maybe you could become a full time consultant. We could introduce a 5% team managers percentage.

Ms Elkins: I don't know. 24 It is obvious that Ms Simpson's version is the more compassionate and balanced. In cross-examination Ms Elkins largely confirmed Ms Simpson's version, despite having reiterated her own in an affidavit in reply. Ms Simpson's evidence was that she developed a proposal which she thought would enable Ms Elkins to retain her status as a director, maintain her shareholding and increase her income. She thought it reflected Ms Elkins' diminished design role and she believed that their relationship would improve with Ms Elkins not being in the office on a daily basis. The offer was put in writing as follows: 8th February 1999

This letter of offer gives you the power to determine your own earnings, as well as the freedom to pursue your creative interests, whilst maintaining a significant role in Full Bloom.

• Full time consultancy to be conducted from your home or via in home fittings with customers. The 30% commission applies to all sales generated by you through new customers, as well as all future sales generated from your previous customers.

• To recruit, train & manage a team of Bodywise consultants. 5% commission will be paid to you on sales generated by consultants who have been recruited and trained by you.

• Wage to continue for 3 months and then decrease over 3 months. March - $2400, April - $2400, May - $2400, June - $1800, July - $1200, August - $600.

• You will be released from the $10,000 debt owing to Emily Simpson for the Mazda 121

• Fax machine to be given to you by the company, for your use as a home based consultant.

• Directors Fee of $200 per month to commence at the end of salary payments.

I accept the terms and conditions of this letter of offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . Barbara Elkins

In reference to your proposal dated 8 February 1999, my intention was to reply to this offer by 19 February 1999. In consideration, this time constraint is too short. I will be able to have further discussions with you on this matter by the 8 March 1999. This extension in no way implies that I agree or disagree to the offer. Barbara. 25 The words "the freedom to pursue your creative interests" in the first of these memoranda refers to a desire which Ms Simpson said Ms Elkins had expressed to her on many occasions previously. Of the conversation between the two when this offer was handed to Ms Elkins, Ms Elkins' version is that Ms Simpson merely said "This if my offer about your new role in the company. Have a look at it and let me know as soon as you can." Ms Elkins contended that she was very shaken by its contents. Ms Simpson's version was: Ms Simpson: I put this document together for you. It's taken me about 3 weeks. I know that you're not happy being here at the office.

Ms Simpson: I know that it's been hard working here for you financially. The proposal means that you could earn more money. You could also spend more time doing your art, which you've told me that you want to do. It will mean that you can stay a director and a shareholder and still have the perks that that involves. I want you to understand that I have spoken to a lot of people about this and this has taken a lot of time to prepare. I want you to know hoe much care has gone into it.

Ms Elkins: Yes I know and I appreciate it. I will need to think about it for a couple of weeks.

Ms Simpson: That's okay. Come back and let me know what you want to do in a couple of weeks time.

Ms Simpson also said that the applicant did not appear shaken by the proposal. Again Ms Simpson's version conveys an appropriate style and concern and again Ms Elkins agreed with it is cross-examination.

Ms Elkins claimed that on 10 February there was a staff meeting at which Ms Simpson said "Have you made a decision about my offer? I need to know right away" to which she replied "No, I have not made a decision yet; I am thinking about it and will have something to discuss by 19 February". Ms Simpson denies she said "I need to know right away". 26 Ms Elkins deposed to a conversation with Ms Simpson on 11 February 1999 which was not dealt with by Ms Simpson in her evidence. Normally, the approach to the evidence would be that the conversation would be accepted as having occurred in those terms. However, I feel a strong reservation in so doing given the fact that it is out keeping with the tenor of the conversations then underway and given the events which Ms Elkins relates concerning Ms Simpson on the day after the conversation. The conversation is said to have been as follows: Ms Simpson: We don't want you in the office any more. We don't like your energy and you aren't a team player. You've lost Full Bloom $29,000.00 messing up production and you didn't take responsibility for that.

Ms Elkins: I am resentful because of the lack of money I've been getting and because of the huge amount of time that you and Jarrod spend gossiping and wasting time.

Ms Simpson: You should talk to Jarrod about that. Anyway you haven't been acting like a director of the company.

Ms Elkins: I take part in directing the company by the work I do and I'm quite happy to carry out menial tasks when it's necessary to keep our company going. I spend an enormous amount of time up here in my studio and also doing fitting. All of that is upstairs and away from the office. This is where my work is done. There's no place for me in the office nor is that necessary. I have always taken part in all decisions when my knowledge and expertise have been needed.

Ms Simpson: Well, your creativity is no longer needed by the company.

Ms Elkins said that she was confused and shocked by Ms Simpson's attitude in this conversation after all that they had struggled and accomplished together. 27 Ms Elkins also said that she designed a new mail brochure on the following day "about which Emily was delighted, despite her comments the day before about my creativity being no longer needed". Given Ms Elkins' acceptance of the form of conversations alleged by Ms Simpson hitherto this conversation is not consistent and I intend to give it little weight. I am assisted to that result also by Ms Simpson's evidence that save for some communication between them on 18 February 1999 things proceeded smoothly between 8 February and 26 February 1999. 28 Ms Elkins' memo suggesting a delay until 8 March 1999 in her response to the response to the proposal was received by Ms Simpson on 18 February, who said she was disturbed by the receipt of the memo. Her evidence continued: The office was very small. Communications always took place verbally. I could not understand why the applicant did not simply tell me that she needed until 8 March to respond to me. We had a conversation in words to the following effect:

Ms Simpson: Why can't you talk to me about this offer?

Ms Simpson: What do you mean? Why won't you talk to me?

The applicant said these words with a smirk which was provocative. Rather than wait until 8 March 1999, I decided to ' split the difference' by giving her until 1 March 1999.

Again Ms Elkins having denied this conversation confirmed the gist of it in cross-examination. 29 Ms Simpson then sent an updated version of the letter of offer of 8 February but containing one further point: This offer will lapse on 1 March 1999. 30 On 26 February 1999 again there was a conversation the evidence about which conflicts. Ms Elkins' version is as follows: Ms Simpson: I will be sacking you as an employee and a Board member on Monday 1 March at 5.00pm if you don't sign my offer. I have the power to do this and I will do this. If you don't sign you'll have nothing. Do you realise how shameful it would be for you if you get sacked. And don't think of trying an unfair dismissal claim on us either because you'll get nothing. You're just stalling. Why don't you leave now. How can you stay when you know how we feel about you?

Ms Elkins: Okay, do it. I understand what rights you have.

Ms Simpson denied saying the words "I'm going to sack you" and suggested that she had said: Barbara, I don't want to work with you any more . . . . not like this, not on a day to day basis here at the office.

This conveys a very different notion to Ms Elkins' version yet Ms Elkins did agree in cross-examination that Ms Simpson did say words to that effect. Ms Simpson also alleged that Ms Elkins said in this conversation "with a smirk on her face, which I believe was intended to provoke me" , the following: You can't force me to leave.

Barbara, I will do it, if you don't come to the table on Monday to discuss my proposal, I will take steps to remove you from the company.

Again, Ms Elkins agreed in cross-examination, that words to that effect were used.

Ms Elkins then left the building and cannot recall hearing Ms Simpson say these words:

which Ms Simpson said were used. 31 Two things have to be said about Ms Elkins' evidence of these conversations. The first is that in her affidavit in reply she repeatedly denied conversations alleged by Ms Simpson but in cross-examination admits to the gist of them. The second is that it was revealed in cross-examination that her denials were seemingly based on an inability to recall which provoked the denial, rather than a positive denial that the conversation ever took place. In any event, Ms Simpson's evidence of the conversation is confirmed in cross-examination and is thus accepted. 32 The next event on 26 February 1999 is that Ms Simpson was phoned by Lydia Li, the manufacturer of the undergarments and informed that Ms Elkins had arrived at her premises and removed the clothing patterns. This information alarmed Ms Simpson who viewed the patterns as belonging to Full Bloom. She said they were vital to the production of garments and there was no reason why Ms Elkins would collect them. She became concerned that Ms Elkins may return to Full Bloom's offices, which are a part of Ms Simpson's home, for some ulterior purpose. She then made arrangements to change the security code on the alarm to the premises. She removed back-up tapes and important documents from the office. 33 At or after 8.30pm that night the security alarm sounded when Ms Elkins, and her daughter entered the office premises to take possession of her personal belongings including her sewing machines. Shortly afterwards, Ms Simpson and her partner entered and sat in the office downstairs. Ms Simpson rang Mr Villanti who arrived at about 9.00pm and locked the front door, locking Ms Elkins and her daughter in and two men helping them outside. An unfortunate conversation then occurred the details of which do not warrant repeating but concentrated upon demands for the return of the patterns, accusations of theft and trespass. During this Ms Elkins' daughter dropped the office keys over the balcony to the men locked outside who then entered, one of them placing himself between Mr Villanti and Ms Elkins and her daughter in a manner that Mr Villanti found threatening. That helper had called the police, who arrived and left shortly afterwards. Prior to their arrival there had been what I might call a "face off" between Mr Villanti and that male helper. 34 Later that night Ms Simpson cancelled Ms Elkins' company credit card. Ms Elkins did not return to the workplace thereafter. 35 Finally, three other points were made in Ms Simpson's affidavit: · I deny the assertion in paragraph 56 that the applicant worked 40 hours per week. In the first year, the applicant worked about 15 hours per week and in the subsequent years she worked about 30 hours per week. As I said, previously, the applicant's efforts during the periods that she was working were not productive. · After the applicant ceased employment with Full Bloom, at my request, Ms Li redesigned 4 of the bras which form part of the Full Bloom range. · I am prepared to consent to directions of this Honourable Commission providing for the terms upon which I shall acquire the applicant's shares in Full Bloom for their value as at 26 February 1999. (This last paragraph was a response to the claims (paragraphs 3(a) and (b) of the Summons for Relief) which were not pressed by the applicant). 36 I consider this case to be a most unfortunate illustration of a breakdown in work relationships in circumstances where the business the principal parties had created together was undergoing stress and required a united effort. It cannot be denied that the applicant's input to the start-up of the operation in the early years was significant. That input included the creation of designs suitable for manufacture and marketing and, I find on the evidence, the design of at least the original version of the company's logo. 37 There are two aspects to Ms Elkins' position with respect to the design of the company's clothing. The first is that she was taking the position during the period of the relationship that her designs should be regarded as her contribution to the capital assets of Full Bloom, a view she was not able to have accepted. The second is her claim in the summons for relief for the payment of a royalty of 25 per cent of the sales value of any identified products sold by Full Bloom after the termination of her services. This was advanced as one of the grounds of unfairness alleged in the contract. The submission was put this way: (i) The contract was unfair and is unfair because it enabled the Respondents to commercialise, exploit, manufacture, market and sell products which were or should be the Applicant's intellectual property without the agreement of the Applicant;

(ii) The contract was and is unfair because it enables the Respondents to commercialise, exploit, manufacture, market and sell products which are or should be the Applicant's intellectual property without any payment of royalties to the Applicant.

(iii) The patterns and designs are inventions of the Applicant and prima facie owned by the Applicant. Intellectual Property in Australia , McKeough & Stewart para 1302. Between 1994 and 1999, there was no express term or provision in the contract between the Applicant and the First Respondent passing ownership of the inventions to the First Respondent. In respect of patterns and designs made by the Applicant before the Applicant commenced employment with the First Respondent, there is no authority for the existence of an implied term at law or equity which would pass ownership of the inventions to the First Respondent. In respect of the period of time when the Applicant was employed by the First Respondent, it is arguable that the First Respondent would be entitled to the benefit of the inventions ( The Law of Employment Macken, 4th Ed., pp.146-147). If this term were implied into the contract of employment between the Applicant and the First Respondent, it is submitted that it would be an unfair term having regard to all of the circumstances of the relationship between the Applicant and the Respondents and that contracts should be varied to secure a fair outcome. One outcome would . . . . (not here relevant). Another alternative would be to make order 3(d)(i) and (iii) and prohibit the Respondents from continuing to commercialise, exploit, manufacture, market and sell products made from the Applicant's patterns and designs after 28 February 1999. If the order was made, then the First Respondent would have to account for the profits from the use of the designs in the period up to the making of the order. 38 Mr Moses' submissions in this area relied on the provisions of the Copyright Act 1968 (Cth) which codified copyright law in Australia. Section 8 provides to the effect that, leaving aside any prerogative right or privilege of the Crown, "copyright does not subsist otherwise than by virtue of this Act". It was submitted that this Court should not entertain this part of the claim as it is more properly to be dealt with pursuant to the provisions of the Copyright Act. The logo and designs to which these submissions relate can be defined as artistic work for the purposes of s.10(1) of the Copyright Act. Section 35(6) provides to the effect that the copyright in a work created by an employee in the course of employment belongs to the employer. The evidence establishes that the work she performed between February 1994 and 26 February 1999 which involved design work was done as an employee of Full Bloom. Accordingly, the ownership of the copyright resides in Full Bloom of which she is a shareholder. The point was made that no evidence was led in the applicant's case or submissions made as to how the Court quantify the claim. No particulars have been provided and so the claim is bound to fail. 39 I consider that it is inappropriate in these proceedings to make any order in the applicant's favour with respect to the designs. Firstly, the logo design is peripheral in the sense that the "royalty" claim within the summons does not relate to the use of the logo. Secondly, it is clear that the clothing designs identified in the summons and the evidence were created between January and April 1994, as to the first seven designs, or later clearly during employment. These proceedings have dealt with this issue of copyright, intellectual property, damages or account of profits or any other form of remedy only in the most cursory way. There has been virtually no attention to the relevant provisions of the Copyright Act dealing with the remedies for infringements of copyright (see Part V of that Act). Division 4A, Jurisdiction and appeals, of that Act confers jurisdiction on the Federal Court of Australia with respect to actions under this Part (s131C). Section 131A provides that the jurisdiction of the Supreme Court of a State or Territory in an action under this Part shall be exercised by a single Judge of the Court. Prima facie, I would consider that the jurisdiction of this Court under s106 would not extend to a remedy of the kind with which the Copyright Act is concerned. The claim for prohibition on use or the payment of a royalty in relation to the relevant designs in this case seems to me to fall squarely within its compass. Accordingly, I would decline to make any order in that respect. 40 A point arises as to whether, as I understand Mr Pearce's submissions, the designs of clothing here are to be viewed as inventions, that is to say not mere drawings but actual patterns of clothing to be utilised in manufacture, or rather as creative designs in which copyright lies, as Mr Moses contends. If they be viewed as inventions then it appears that, relying upon the text referred to by Mr Pearce, Intellectual Property in Australia, 2nd Ed., McKeough & Stewart, that while the law with respect to patent rights would primarily recognise the inventor as the owner principle, the possibility is that the employer would be viewed as a person to whom an assignment could be made and there may be an implied duty to assign ownership thereof to the employer. These matters were not addressed at any length in the proceedings (See also The Law of Employment (Macken, O'Grady & Sappideen), The Law Book Company. 4th Ed., at p.146). Upon my relatively superficial examination of the matter it would seem that the consequence, whether they be with respect to the drawings or patterns (or both) would by one means or another be similar. I note that no attempt was made to patent the "inventions" in question. 41 It is inconceivable to me that the limited number of items designed and manufactured over the period of years with which this case was concerned could have occupied the applicant for any considerable period. Mr Simpson's evidence was that Ms Elkins had not designed anything for the last several years. It is obvious that her work in sales and marketing was a significant feature of the whole period. I am not prepared to find that the applicant worked 40 hours per week for the duration of the employment relationship. No attempt over a mere assertion of that fact was made in the applicant's case to establish the hours worked. Ms Simpson asserts that the position was about 15 hours per week in the first year and about 30 hours per week thereafter. I find a considerable doubt arises with respect to hours and that the evidence does not permit to find on the balance of probabilities that the applicant did work the hours she claimed. 42 The heart of the case as argued concerns the payment of what is described as a "reasonable remuneration for all work performed" of the applicant over the five years between 2 February 1994 and 26 February 1999 and 12 months payment in lieu of notice. Before dealing with those claims I set out certain relevant facts extracted from Full Bloom's balance sheet as at 26 February 1999. Total assets were valued at $97,596 and total liabilities at $204,387. Of the latter figure $189,816 comprised total shareholders' loans to the company. Those loans, which constituted a liability of the company, were $193,063 from Ms Simpson and $3,600 from Mr Villanti. The balance sheet records Ms Elkins as being indebted to the company in the amount of $6,848. It follows that such loans as Ms Elkins made to Full Bloom, including $18,453 loaned after the sale of her house in Armidale (see para 9 above) had been repaid in full. Mr Pearce made a criticism, in the sense that it was another element of unfairness, of the fact that Ms Simpson had been able to take a floating charge over the assets of the company to assist in securing her position. When that charge is seen in the context of the levels of indebtedness of the company to the shareholders, it is entirely unsurprising that she would so act. It visited no unfairness on Ms Elkins who had no outstanding loans to secure but was indebted to the company herself. 43 It is to be noted that Full Bloom's accounts do not show any expense related to accommodation of the business. The reason for this is that Ms Simpson provided part of her domestic premises to house the business, free of rent. 44 I consider the wages claim of a minimum of $30,000 per annum from the commencement of the arrangement in March 1994 to be quite without merit. When Ms Elkins and Ms Simpson, together with an original co-founder, entered into their enterprise by way of joint venture, it could only have been understood that the success of their venture and thus their future was uncertain. It was obvious that the prospect of receiving income, particularly of a more substantial kind, was not realistic at the outset. The fact is that during the five years employment of the applicant in the enterprise, no person engaged therein, other than the applicant, received income of $30,000 per annum. In the last seven months of employment the applicant received income of $22,000 which actually exceeded that rate. She was alone in that respect, others receiving less, or in Ms Simpson's case, nil. 45 It seems to me that the making and the pressing of that aspect of the claim involved a high degree of unreality. As soon as one engages in the exercise of assessing some "just and reasonable" wage in these circumstances in retrospect, the conundrum is raised as to the effect upon the other co-venturers. The wage is not argued for on the basis of some performance which would distinguish the applicant over the others. Accordingly, it could only be that some finding as to what might be a just and reasonable wage for the work done might apply equally, or to an extent, to those others. However, not only would the operation not support equal treatment of the co-venturers in that respect it could not on a financial basis support an order of that kind for only one of them. When asked where the justice would lie in an order of that kind Mr Pearce submitted that the second and third respondents had retained the opportunity to work in the business. While the financial history of the business might make that distinction dubious, the deprivation of the opportunity to work in the business is not a matter which could justify the retrospective, arbitral assessment of reasonableness with respect to the applicant's income. 46 Further, it is clear that the first respondent, being a corporation in respect of which the applicant retains 32.5 per cent shareholding, would be unable to meet an order of that kind. Its liabilities exceed to a considerable extent its assets. Should then the second and third respondent bear in whole or in part liability in respect of salary ordered to be payable to the applicant? I am quite unable to see any justice in so viewing the matter. Far from being beneficiaries in some way to the detriment of the applicant, they have merely retained the opportunity to struggle to make the operation viable which, if they be successful, could redound to the applicant's advantage as a shareholder. This does not, in my view of it, put them in the position where they could be said to have benefited at the applicant's expense. 47 Accordingly, I would dismiss the application for the payment of a reasonable wage for all work performed. 48 I turn to the claim for payment in lieu of notice. This claim depends upon the applicant establishing that she was either actually or constructively dismissed from employment by the respondent/s. That question revolves entirely around the circumstances which developed up to and upon Friday, 26 February 1999. The main issue which provoked those events was the applicant's concern to increase her level of income. I do not consider that the conflict between the evidence of Ms Elkins and Ms Simpson concerning the suggestion by the latter that the former wished to increase time available to pursue her creative interests is material in this regard. If it were necessary to resolve that issue I would do so in favour of the respondents. The fact was that the relationship between Ms Elkins and Mr Villanti had degenerated for reasons which I need not recite but do not reflect poorly on Mr Villanti. There was dissatisfaction with significant aspects of Ms Elkins' work. However, the income level issue, once raised, caused Ms Simpson to focus upon a means by which she could accommodate Ms Elkins' desires and also achieve a resolution of what she perceived as a dysfunctional office environment, a view which on balance I accept was justified. I do not impute to Ms Simpson any degree of malice or ill-will in pursuing these issues and an acceptable solution to them with Ms Elkins. I accept that from her perspective there were a number of problems which required resolution in both the interests of the company and Ms Elkins. Having determined to address those problems it is understandable that her frustrations with Ms Elkins would have increased as she found a continuing lack of responsiveness to her proposal. I am prepared to find that Ms Elkins was being uncooperative in her response to these matters and that she was following a course which was creating frustration, if not deliberately designed so to do. 49 When Ms Simpson on 26 February 1999 threatened termination of employment if the unresponsiveness continued, it seems to me she was doing no more than she was entitled, indeed obliged, to do in the interests of the company. The threat was not a threat of dismissal of a kind which demonstrates that the employer was seeking to initiate a termination (see Allison v Bega Valley Council (1995) 63 IR 68 at 76 and St Vincent's Hospital Sydney Limited v Harris (1998) 81 IR 173 at 182). The threat was designed to cause an unresponsive employee to act appropriately. The response called for was not necessarily a yes or no answer, for there remained between the parties an opportunity to attempt to find some other solution if Ms Simpson's suggestion was thought by Ms Elkins to be inappropriate. In the face of the ultimatum given on 26 February 1999, Ms Elkins did not seek to allay Ms Simpson's concerns or appease them in some way or indeed to agree to respond to them. She had no intention of uttering even a conciliatory word. She took matters into her own hands, which involved the removal of the patterns from Ms Li's premises and the later return to the company's premises that night to withdraw her machines and other possessions therefrom. That act was a signal which evidenced the attitude of Ms Elkins at that point: she had no intention of returning to work in the business. Her daughter's utterance to Ms Simpson, as they were leaving the office on 26 February, captured the spirit: "The beginning". 50 It is necessary that I make some observations concerning the relative shareholding in Full Bloom. I have noted in paragraphs 12-14 above that there was a reallocation of shares giving Ms Simpson 62.5 percent, Ms Elkins 32.5 percent and Mr Villanti 5 percent thereof. The allocation to Mr Villanti cannot be a matter of complaint here, for the reason Ms Elkins claimed in her evidence that she suggested an allocation to him should be made. While the reallocation of some of her shares to Ms Simpson was a matter she agreed to, she said under duress, no actual claim is made in the proceedings which would seek to deal with or remedy that position in some way. 51 It is also significant that the claims identified in the summons for relief requiring Ms Simpson and Mr Villanti to purchase Ms Elkins' shareholding in Full Bloom at what I understand to be a price of $250,000 plus interest were not pressed in the proceedings. 52 I have not attended to certain arguments of counsel concerning jurisdiction, preferring to resolve the matter on the merits, making full assumptions in that regard. Examples of such issues were whether Mr Villanti and Ms Simpson were substantive parties in a relevant sense to any contract or arrangement whereby work was performed, and whether s109A of the Act operates to restrict jurisdiction in whole or in part with respect to the summons. 53 It follows from these conclusions that the summons for relief must be dismissed. I so order. The issue of costs has not been addressed. I will hear the parties in the event they cannot resolve that issue between them.

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