Fayle v Diveda Pty Ltd and ors

Industrial Relations Commission (NSW)|2004-09-08|Before: Marks J, Mr P

Industrial Relations Commission of New South Wales in Court Session

CITATION : Fayle v Diveda Pty Ltd and ors [2004] NSWIRComm 257 APPLICANT Arthur Fayle

FIRST RESPONDENT Diveda Pty Ltd PARTIES : SECOND RESPONDENT Michael Charles Cadden

APPLICANT Solicitor: Mr P Adams Adams & Partners, Lawyers

LEGAL REPRESENTATIVES: THIRD RESPONDENT Mr P Strain of counsel Solicitor: Mr P Knudsen The Hargreaves Practice

JUDGMENT: - 10 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: MARKS J Wednesday 8 September 2004

Matter No IRC 6547 of 2001 ARTHUR FAYLE v DIVEDA PTY LTD AND ORS Application under s 106 of the Industrial Relations Act 1996 JUDGMENT [2004] NSWIRComm 257

1 By summons the applicant, Arthur Fayle, sought certain relief against three respondents under s 106 of the Industrial Relations Act 1996 ("the Act"). The first respondent is Diveda Pty Ltd which operated a real estate business in Katoomba known as Elders' Real Estate Agency. The second and third respondents were directors of and equal shareholders in the first respondent. The second respondent, Michael Charles Cadden, died after the proceedings were commenced. There is no evidence of any legal personal representative having been appointed to administer the second respondent's estate and the proceedings were treated during the course of the hearing as not involving the second respondent in any way. The third respondent was represented at the hearing, but the first respondent did not participate in any way and was not represented. The first respondent ceased trading in about March 1999.

2 Accordingly, at the hearing of this matter the principal contest was between the applicant and the third respondent.

3 There was contention between the parties concerning the duties which the applicant performed whilst he was employed by the first respondent. He asserted that he was employed not only to list properties but also to sell properties. The third respondent was under the impression that the applicant was employed only to list properties. To some extent, this debate was academic because it seemed that the applicant's entitlement to be paid under the relevant award was the same whether or not the applicant was employed to sell or only list properties.

4 The proceedings were conducted on the basis that, in reality, the contract between the first respondent and the applicant was and became unfair because the applicant was paid remuneration less than his entitlement under the relevant award, being the Real Estate Industry State Award. Indeed, the applicant had commenced proceedings in the Chief Industrial Magistrate's Court against the first respondent. The applicant obtained an order in his favour dated 20 December 1999 to be paid an amount representing underpayment of wages of $14,076.08, interest of $743.71 and costs of $5,700.00. This totalled $20,519.79. This was the amount which the applicant claimed against the respondents in these proceedings, which were commenced by summons filed on 4 October 2001. In the summons the applicant referred to the fact that the order made by the Chief Industrial Magistrate had not been satisfied and that the first respondent had not complied with a statutory demand served upon it under the Corporations Law.

5 The proceedings against the second and third respondents were brought "in their capacity as directors and shareholders and person who were actively involved in the management of the business of the first respondent connected with the making and the operation of the unfair contract" who "have received benefits from the contract and were and are culpably associated with the unfair operation of the contract". This basis for the claim brought against the second and third respondents is well accepted on authority, to which I shall refer later in these reasons for judgment.

6 In affidavit evidence the applicant deposed to the fact that when he had discussed obtaining employment with the first respondent he met with both Mr Cadden and Ms Riebe, and that both participated in discussions with him. The applicant produced a detailed diary he had kept and which contained a number of references to conversations he had had with Mr Cadden. The diary contains no reference to any conversation with Ms Riebe.

7 In October 1997 when he received his first pay packet the applicant said that he complained to Mr Cadden that he had been underpaid. Mr Cadden is alleged to have responded that this was all that the first respondent was going to pay him. When he queried this with Ms Riebe he was told that she was unable to say why he was not being paid award wages and that he should speak to Mr Cadden.

8 In addition to discussions which the applicant said that he had with Ms Riebe as well as with Mr Cadden at the time that he negotiated his employment conditions, he said that from time to time he was provided by Ms Riebe with stationery items and other documents and that he discussed with Ms Riebe as well as Mr Cadden his general duties. He said that he reported to both of them and that he believed that they were both "my bosses". He said that Ms Riebe attended the business on a daily basis and gave direction to staff including himself and that she was also responsible for buyer inquiry as well as Mr Cadden.

9 I should state that the bulk of the conversations concerning his employment to which the applicant deposed in his affidavit were with Mr Cadden rather than Ms Riebe.

10 In cross-examination the applicant was unable to explain why his detailed diary entries referred only to conversations with Mr Cadden and not also with Ms Riebe. Despite this he said that he was able to recollect clearly conversations that he had had with her as far back as October 1997. In fact, he said that he remembered clearly what each of Mr Cadden and Ms Riebe said when he discussed any employment situation with both of them.

11 The applicant conceded, however, that Mr Cadden was the sales manager and overall in charge of sales activities of the business.

12 In an affidavit in reply the applicant said that Ms Riebe gave direction to the entire office staff on occasions which included matters such as office seating arrangements, property management, sale of properties, staff training and the conduct of interviews. He said that she also made decisions about wages, hours of work and holiday times and the like.

13 In an affidavit sworn on behalf of the applicant Mr David John Rees said that he worked for the respondent for a period of two to three months until he left on 20 November 1997. Mr Rees said, in part, in his affidavit that during the time he was employed by the first respondent "I noticed that Michael Cadden was the director who ran the sales office and gave directions to myself and Arthur (Fayle). I observed that (Ms Riebe) attended the office regularly and gave direction to the clerical staff".

14 In an affidavit Ms Riebe deposed to the fact that Mr Cadden "was the principal and was in charge of hiring and firing staff". She said that she had no involvement with the commercial side of the business and was not qualified to do so. She denied being involved in any discussion with the applicant concerning his employment. In particular she denied that the applicant reported to her in any way. Ms Riebe also said that she had never worked in the real estate business and attended the office on an ad hoc basis to support the staff. She said that she made tea and coffee and occasionally decorated "the ugly premises to make them homely for staff and clients". Ms Riebe denied any involvement in the direction of staff.

15 In oral evidence Ms Riebe said that her background was as a radio actress, interior designer and a writer of short stories. She had no background in connection with the real estate industry or, indeed, any other business. She said that she was living in a de facto relationship with Mr Cadden who needed $80,000 to purchase the real estate business. The purchase price was provided by way of a bank advance secured against a home which she owned unencumbered. She said that the bank required her to be a director of the purchasing company and a guarantor of the loan.

16 Ms Riebe described her duties in terms previously expressed. She said that she had no involvement in any of the paperwork associated with the first respondent's business including company returns, taxation returns, annual reports or the like.

17 Paulette Bougord swore an affidavit in the proceedings and gave oral evidence. She said that she commenced employment as a receptionist in the first respondent's business on or about 24 April 1998. She left that employment on 19 February 1999 when the business closed. She said that Mr Cadden was the manager of the business and, to her knowledge, made all the decisions about the business. She never saw Ms Riebe interview anyone. She was able to observe Mr Cadden's office which had a glass partition. She said that Mr Cadden made all the decisions concerning hours of work and wages to be paid to employees and that he handled employees' problems. She said Ms Riebe came in to the business each morning to bring refreshments and she furnished the premises. She also from time to time asked clients to be seated.

18 It was the evidence of Ms Bougord that Ms Riebe did not direct any of the staff nor did she have a desk in the office. She attended the office intermittently on about two or three days per week and for about three hours per day.

19 An affidavit was tendered on behalf of Ms Riebe of Marcus Ewert who was not required for cross-examination. He said that he became employed in the first respondent's business on or about 15 May 1998 on a probationary basis as a sales associate and that his employment was terminated after a three-month probationary period. Subsequently he was re-employed as a property manager, a position which he held until the agency closed in 1999.

20 It was the evidence of Mr Ewert that Mr Cadden appeared to be in charge of all business-related decisions and that he was the only person who directed employees in carrying out their duties. He said that Ms Riebe "had very little to do with the actual running of the business. Her role appeared to be to make the agency look nice and welcoming and homely for its employees and customers. To the best of my recollection she did not appear to be involved in the day to day running of the business". She did, however, greet customers from time to time or take messages when staff were occupied.

21 I should state at the outset that there can be no doubt that the contract of employment between the applicant and the first respondent was unfair in that the terms and conditions provided remuneration in an amount less than that which was provided for under the Real Estate Industry Award. However, any order ultimately made against the first respondent would, on one view, be reproductive of the order that the applicant already had in his favour against the first respondent made by the Chief Industrial Magistrate. In the same way, the totality of the evidence would indicate that on the basis of principles which I shall shortly discuss, the applicant would be entitled to an order against Mr Cadden. However, as the proceedings are not properly constituted in this regard, it is impossible to make any order against Mr Cadden's estate, nor was any such order sought.

22 It will be seen from the above narrative that the only matter in contest at the hearing was whether the third respondent, Ms Riebe, would be amenable to an order for the payment of compensation under s 106(5) of the Act.

23 The seminal statement of principle in this area is contained within the judgment of Barwick CJ in the High Court of Australia in Brown v Rezitis (1970) 127 CLR 157. Those proceedings concerned the provisions of s 88F of the Industrial Arbitration Act 1940 which was a predecessor to s 106. Barwick CJ observed that: "…the parties to the proceedings are not necessarily limited to [the parties to the contract or arrangement]. It must be borne in mind that one of the purposes of the section is to deal with subterfuges, subterfuges which will take the worker out of the relationship of master and servant and therefore out of the operation of an industrial award designed, amongst other things, for the protection of workers in industry. There may be persons involved in the subterfuge who are not parties to the contract or arrangement but who are in reality the actors deriving benefit from the making or the execution of the contract or arrangement" (at [164]). As his Honour later emphasised, the mere deriving of a benefit from the making or execution of a contract or arrangement which is found to be unfair and which is subsequently voided or varied is not of itself sufficient to justify the making of an order for payment of money. His Honour referred to "the actors" who derived benefit. That is a reference to persons who participated in or were involved in the creation of the unfairness. His Honour, at [168], referred to the receipt of payment of monies by a shareholder or other person who was in some way "culpably associated" with the making or operation of the contract.

24 The judgment of Menzies J in Brown v Rezitis is to similar effect. His Honour referred to: "…a harsh and unconscionable arrangement between an insolvent company and two workers, [where] a swimming pool had been installed at the home of a director of the company, it would be within the power of the Court, in setting aside the arrangement and after giving him an opportunity to be heard, to order the director to make a payment which would put the workers in the same position as if, in doing the work, they had been his employees. I think it would be a like case if work were to have been done for a shareholder of a company which made such an arrangement. I would not think, however, that work done for the advantage of a director could be the basis of an order against a shareholder who had nothing to do with the matter, even if he held his shares beneficially. Unless something more were to appear - such as, for instance, that the company was a one-man company - a mere shareholder would be a stranger to any of the matters for which the section provides a remedy arising out of a contract or arrangement by a company" (at [170]).

25 The circumstances in which an order under s 106 for the payment of compensation may be made against a person not a party to the contract or arrangement found to be unfair were considered comprehensively by a Full Bench of this Court in Ace Business Brokers Pty Ltd v Phillips-Treby [2000] NSWIRComm 163. The factual circumstances being considered in those proceedings involved representations made by a business broker on behalf of a franchisor. It had been held at first instance that those representations were incorrect and had induced the applicants in the proceedings to enter in to the franchise agreement. The Full Bench confirmed the approach of the Judge at first instance to the effect that the actions of the business brokers as agent for its principal had been "blameworthy" in the sense of culpable as used by Barwick CJ in Brown v Rezitis. This was sufficient to justify the making of an order against the business broker because of the extent of its association with the unfair contract.

26 The Full Bench in Ace Business Brokers reviewed extensively prior decisions relevant to this issue. It is not necessary that I traverse those decisions. It is suffice to note that a person who is not a party to the contract or arrangement found to be unfair will only be amenable to an order for the payment of monies if that person was culpably involved in the creation, operation or termination of the contract or arrangement.

27 In the circumstances of these proceedings the thrust of the evidence is that the real management and control of the business was undertaken by Mr Cadden. The involvement of Ms Riebe was very much peripheral to the activities of Mr Cadden. I note that the evidence of the applicant and Ms Riebe was diametrically opposed on the involvement of Ms Riebe in the employment of the applicant by the first respondent and in the administration of the applicant's contract of employment. Taking into account the available evidence of witnesses other than the applicant and Ms Riebe I conclude that it is more likely than not that Ms Riebe was not concerned with the fixing of the amount of remuneration to be paid by the first respondent to the applicant and it is this factor, and this factor alone, which created the unfairness upon which the applicant relied. As I have previously indicated, the allegation of unfairness was ultimately confined to the underpayment of award wages. The evidence of the witnesses other than the applicant and the third respondent is to the effect that the late Mr Cadden concerned himself with employment matters affecting, at the least, sales staff including staff performing the work undertaken by the applicant. The applicant's evidence was that he approached Mr Cadden to query his rate of pay and was told by Ms Riebe that this was a matter for Mr Cadden.

28 In these circumstances I am unable to discern any culpability or contribution of any kind by Ms Riebe in connection with the fixing of remuneration at a rate less than that applicable under the relevant award.

29 Accordingly, the case brought by the applicant against Ms Riebe must fail.

30 This leaves outstanding the claim brought by the applicant against the first and second respondents. It would be inappropriate that I make any order in the proceedings against the first respondent without giving the applicant an opportunity to make submissions and it would be inappropriate that I make any order against the second respondent because the proceedings are not properly constituted with respect to the legal personal representative of the late Mr Cadden. Nevertheless, the balance of the proceedings cannot be allowed to remain in limbo for an unlimited period of time. In the interests of case management the applicant must determine the approach which he wishes to take with respect to the balance of the proceedings. I shall allow him a limited period of time in which to do so.

31 I was asked by the parties to defer considering costs of the proceedings between the applicant and the third respondent and I shall reserve these costs accordingly.

32 ORDERS 1. Consequent upon the finding of unfairness which I have made I hereby vary ab initio the contract of employment between the applicant and the first respondent so as to provide that notwithstanding any other provision the first respondent shall remunerate the applicant in accordance with the provisions of any industrial instrument having effect from time to time.

The summons against the third respondent is dismissed. 3. Costs with respect to the summons against the third respondent are reserved and I grant liberty to apply with respect to them. 4. I grant liberty to apply with respect to the balance of the proceedings. The applicant must exercise such liberty to apply on or before 30 November 2004.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

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