Kate McNamara & anor v Eaternity Pty Ltd & anor

Kate McNamara & anor v Eaternity Pty Ltd & anor - [2005] NSWIRComm 460 - NSWIRComm 2005 case summary — Zoe

[17]

1 Before the Court are two applications brought by Kate McNamara and Phillipe Morin (the first and second applicants) for relief under s 106 of the Industrial Relations Act 1996 (the Act) against Stanley Sarris (the second respondent). The applications were brought by way of summonses for relief filed on 7 May 2002 and were initially brought against two respondents namely Eaternity Pty Ltd (the first respondent) and the second respondent. At the hearing of this matter Mr Britt of counsel appearing for both applicants, informed the Court that the applicants were no longer proceeding against the first respondent, it having gone into liquidation. 2 Both applications have been set down for ex parte proceedings. Their history has been conveniently set out in an affidavit of Emmanuel Charles Morgan sworn on 4 April 2005. According to Mr Morgan's affidavit the second respondent having initially failed to attend a conciliation conference later attended a second scheduled conciliation conference representing himself. On that day the matter did not settle. After that the second respondent failed to attend a directions hearing. A letter from I. L. Struthers and Associates Chartered Accountants was then forwarded on behalf of the second respondent to the applicants' solicitors informing them that they did not have a claim against the second respondent. Following further correspondence sent by the applicants' solicitors to I. L. Struthers and Associates the matters were allocated for ex parte hearings. The second respondent was advised by letter of the date of those hearings but on the due date, namely the 5 April 2005 he failed to appear. For abundant caution I had both respondents called outside the Court three times. There were no appearances. In these circumstances I consider it appropriate to hear both matters ex parte. 3 According to a document annexed to the affidavit of the first applicant sworn 17 June 2004, entitled Report to Creditors of Eaternity Pty Limited the principal trading activity of the first respondent was the carrying on of business of a number of bars, restaurants, cafes and food stores located at GPO, number 1 Martin Place, Sydney. The first respondent also traded the Banc restaurant and the restaurant and bar, Wine Banc. These businesses were sold to 53 Martin Place Pty Ltd on 21 December 2001. 4 The premises at 1 Martin Place, Sydney were subleased to the first respondent from GPO No 1 Martin Place Pty Limited (GPO No 1). The first respondent paid a licence fee to GPO No 1 to enable that company to pay the rent for occupation of the premises. The first respondent ceased to trade on 4 March 2002 after the business operations were taken over by Peter Petroulas. According to the Report to Creditors which is dated 12 June 2002 the second respondent was the sole director of the first respondent and had been over the previous 12 months. The second respondent resigned as a director of the first respondent on 1 March 2002. On the same day Mr Petroulas was appointed as a director of the first respondent.

[35]

Just do your best. Don't mention this to anybody else. 19 On 4 January 2002 the second applicant moved wine to the value of some $400,000 to Wine Ark. 20 On 18 January 2002 the second respondent handed the second applicant a memorandum of the same date in which the second applicant was informed that the second respondent had entered into a business relationship with Mr Petroulas. The memorandum also advised the second applicant: If you work in administration or in a GPO venue, your employment remains with Eaternity Pty Limited with no changes. 21 Towards the end of January 2002 the second respondent according to the second applicant informed him that he could help him start a business at some time and that it was time for him to move on. Subsequently the second applicant informed the second respondent that he was not interested in starting a business; he needed the work; he had three children under four years of age, and, was the sole income earner. 22 On 4 March 2002 Mr Petroulas informed the second applicant that he was now running the site at Number 1 Martin Place. He also said that the second respondent owed rent in arrears and had defaulted on a signed agreement stating the rent was paid up to date. A request to the second respondent to pay the outstanding rent had not been met. The second applicant was also told that the previous day, on 3 March 2002, the second respondent had collected all the paperwork of the first respondent at Martin Place offices. Finally the second applicant was informed by Mr Petroulas that there was no further employment position for him and he wanted the second applicant to leave immediately. The second applicant made some phone calls, collected his personal belongings and left the premises at approximately 11am. He was not given notice either in writing or by any other means and was not offered any explanation as to his entitlements upon termination or his outstanding holiday entitlements. He was not paid any monies that were due to him on termination by either the first or second respondent. Contracts or arrangements

[38]

26 The first applicant alleges that the condition of her letter of appointment which required a minimum of four weeks notice in the event of termination was unfair because four weeks payment in lieu of notice was, in the circumstances, not enough. The circumstances which the first applicant urges the Court to consider in her favour are that her position prior to termination was in middle management; the duration of her employment was about 2.5 years; and, the difficulty the first applicant encountered in endeavouring to find alternative employment. 27 In Ross v G N Comtext (Aust) Pty Ltd (2000) 107 IR 1 at 11 and 12, Walton J, Vice-President considered whether a period of notice given on termination was unfair by reference to a number of criteria set out in a judgment of Hill J in Lavings v Barclay Mowlem Construction (NSW) Pty Ltd (1999) 99 IR 247 at 253. In that decision Hill J said: As to the period of notice the authorities demonstrate that the period of "reasonable" notice to be implied in a contract of employment which is silent on the matter depends upon all relevant circumstances of the particular employment, including (but not limited to) the nature and status of the position, the degree of responsibility and authority involved, the qualifications and experience necessary, the availability of suitable alternative employment, the amount and form of the remuneration and the basis upon which it is expressed, any relevant trade custom or practice and the length of service of the employee. In the present case, of course, the contract contains express provision for notice of termination and the issue is whether it is fair or unfair in the context of the contract as a whole, the circumstances in which it was made and the circumstances of its application and operation. I should say that I do not accept Mr Kimber's submission that the fairness of an express provision for notice of termination of a contract of employment can be tested simply on the basis of whether it conforms to the "reasonable" period of notice to be implied at law in the absence of such express provision. Proper regard must be had to the fact that the matter is governed by agreement, to all the terms of the agreement and the circumstances surrounding its making and operation. 28 I also adopt the approach set out by Hill J for the purposes of considering whether the notice period provided in the first applicant's letter of appointment was unfair in the circumstances. 29 In the present circumstances there is no evidence before the Court as to the extent of the duties and responsibilities of the first applicant, or the seniority of her position as a human resources manager with the first respondent. There is no evidence as to the level of the first applicant's qualifications and experience, nor, whether there was available suitable alternative employment. The first applicant was employed by the first respondent for a period not exceeding 2.5 years which was not a lengthy period of employment. She commenced on a gross salary of $40,000, which was increased during her employment to $50,000. 30 Given the state of the evidence on this aspect of the first applicant's case I am unable to conclude that the period of four weeks notice provided was unfair. Claim for additional notice: second applicant

[39]

31 The second applicant also claims relief on the basis that the oral contract, which by implication provided for reasonable notice, allowed the respondent to terminate the second applicant's employment without a fair payment in lieu of notice. The amount of relief claimed for reasonable notice, or payment in lieu of notice is a period of three months. 32 The second applicant relies on the following factors to support his claim of unfairness with respect to reasonable notice: (i) length of service (24 August 1999 to 4 March 2002); (ii) the specialised nature of his role; (iii) the position performed by him; (iv) his age; (v) his ability and/or probability of finding alternative employment. 33 As in the first applicant's case there is no evidence before the Court as to the nature of the second applicant's role, the extent of his duties and responsibilities as a beverage manager, whether the position was specialised, and/or required particular skills and qualifications; or whether the second applicant would, or did, have any difficulties finding alternative employment. The evidence does not reveal the age of the second applicant. There is some evidence which suggests he is a father of three children under four years of age. The second applicant's period of employment was approximately 2.5 years which was not a particularly lengthy period of employment. 34 Given this evidence I find that I am unable to conclude that the period of notice provided, that is, reasonable notice, is unfair. This conclusion also takes into account other factors, namely, that the second applicant was not, in fact, paid any monies at all upon termination, and, was summarily dismissed without any proper explanation. 35 The second applicant's claim in respect of notice, however, may also fail on legal principles. As a threshold proposition there is nothing inherently unfair about a term of a contract that provides for reasonable notice: Bass v Truda and Ors (1990) 38 IR 172 at 173; Colaco v Soul Pattinson (Manufacturing) Pty Ltd (1990) 38 IR 174 at 178; Sydney Water Corporation Ltd and Another v Industrial Relations Commission of NSW and Another (2004) 61 NSWLR 661 at 670-672. 36 In Sydney Water Corporation, Mason P, with whom Hodgson and McColl JJA agreed, overruled, in part, the Full Bench decision of this Court in Reich v Client Service Professionals of Australia Pty Ltd (2000) 49 NSWLR 551. The latter decision had held that a contract may be found to be unfair due to the failure of a party at the time of termination to perform its obligations under the contract: Truelove v Sydney Water Corporation Limited and anor (2005) NSWIRComm 191 at [22]. 37 In Sydney Water Corporation, Mason P said at 670: I am unable to conceive how a contract allows or fails to prevent conduct that is in contravention of a fundamental breach thereof, whether or not that contract is unfair. To be contravening or repudiatory the conduct must be in defiance of the contract, exposing the party at fault to a range of adverse consequences under the general law. 38 Mason P endorsed the reasoning of the minority in Reich (Glynn and Schmidt JJ). In Reich (at 603-604) their Honours said: Section 106(2) is concerned with conduct of the parties which reveals how it is that the contract in question is unfair, either when entered or subsequently. It has not, however, done away with the need for a relevant finding of unfairness, so far as the contract in question is concerned.

[41]

Had the legislature intended that unfair conduct of itself would be sufficient to warrant the grant of relief under s 106(5) of the Act, it is to be expected that the section would have said so expressly. It does not. 39 In Truelove v Sydney Water Corporation the Full Bench of this Court observed that when Sydney Water Corporation was decided their Honours did not have brought to their attention the decision in Origin Energy Limited v Smith (2001) 111 IR 476. In that decision the Full Bench of this Court observed (at [19] - [20]): We would add one final observation. It was undoubtedly open to her Honour to deal with the matter in the way she did; that is as a "conduct" case. It may be that she had little alternative to doing so in view of the way in which the respondent framed his case. Nevertheless applicants, in framing their proceedings, and judges in hearing and deciding them, should not overlook the consideration that s 106 is directed to the fairness, etc of contracts and arrangements and with the fairness, etc of their terms, either in themselves as to what they actually provide or fail to provide. There is nothing in the Full Bench judgment in Reich that should lead to any different approach. It would have been preferable for the case before her Honour to have been framed and dealt with in that way. Although conduct of a party which renders a contract or arrangement unfair or otherwise actionable under s 106 of the Industrial Relations Act may well provide jurisdiction for relief under that provision, the primary focus of the exercise of the Court's jurisdiction should be, where relevant and available, the contract or arrangement and its respective terms or omitted terms as to the effect thereon of the impugned conduct. This approach will usually lead to orders (where orders are made) more certainly well-founded jurisdictionally and will be less likely to result in appeals which, whilst superficially thought to be available, upon examination on appeal are soon shown to lack substance. 40 I find it unnecessary to enter into the debate. As earlier stated, I have been unable to conclude on the state of the evidence before the Court what period of notice may constitute reasonable notice. As I understand the authorities in Truelove v Sydney Water Corporation and Origin Energy Limited v Smith, conduct on the part of a respondent may result in a finding that the relevant contract or arrangement is unfair, although the emphasis when assessing unfairness is on the term or terms of that contract or arrangement and the effect of the impugned conduct on the operation of the contract rather than on the conduct itself. Claims for redundancy payments: both applicants

[42]

41 The first and second applicants also allege that the circumstances of their terminations were such that they were made redundant, and, that a failure to pay redundancy packages made their contracts unfair in both their terms and operations. 42 In both applicants' summonses for relief their claim is particularised as follows: [The contract] failed to provide for any reasonable payment to the applicant by the first and/or second respondents upon termination of the applicant's employment for any reason. . . . . . [The contract] permitted the first and/or second respondents to terminate the contract of employment by reason of redundancy without the payment of redundancy payments. 43 The failure to make provision in an impugned contract for a redundancy payment may give rise to a finding of unfairness within s 106. This was confirmed by Kirby P (as he then was) in Walker v Industrial Court of New South Wales & Anor (1994) 53 IR 121. The relevant passage (at 133) is extracted below: Whatever doubts may have existed earlier, it is now beyond argument that the "unfairness" referred to in s88F (1)(b) IAA can arise, not only from positive provisions of the contract or arrangement which offend the sense of fairness in the relevant sense, but also from the failure, on the part of the contract or arrangement, to provide in a way that such fairness requires. In Incitec Ltd and Anor v Industrial Court of New South Wales and Ors (1992) 45 IR 155 (CA), Gleeson CJ (with the concurrence of Priestley JA and myself), at 158, affirmed what Hill J had said in his judgment in that case at first instance. See Barry and Ors v Incitec Ltd and Anor (1991) 45 IR 143 (NSWIC), at 146f: ... s 88F of the Act deals with the matter of what for present purposes may be briefly described as unfair contracts. It applies to a contract or arrangement between the particular persons who are party thereto. Unfairness may arise either from the terms of the contract itself; the surrounding circumstances, and/or from the manner of performance or operation of the contract. The section deals largely with private rights inter parties. Despite that a general and relevant industrial prescription governing benefits payable to employees in termination of their employment situations may exist, unfairness in relation to a particular contract of employment may nevertheless arise in a situation of redundancy or termination of employment for reasons unrelated to or not relevant to the basis of award prescription of an objective and fair general standard of redundancy or severance benefits. It may arise simply in the special circumstances of and surrounding the particular contract. 44 The above passage was expressly approved in Sydney Water Corporation at [26] and [29]. 45 Similarly, the failure of a contract to provide for a redundancy payment was found to be unfair within s 106 in Ross v G N Comtext. In that case Walton J, Vice-President said (at [43]): I accept that in the context of a termination on grounds of redundancy, particularly where the employee has been employed for an extended period of time, it is appropriate to consider the need for a severance or redundancy payment. The failure of a contract to so provide, (or to ensure that a reasonable payment is made in its operation), is a matter which may lead to the conclusion that the contract is unfair in its terms or its operation. In this case, the failure to ensure that a reasonable payment was made upon redundancy supports the conclusions already reached that the contract or arrangement was unfair to the applicant. In assessing the fairness of the arrangement, I again conclude that it is appropriate to have regard to the applicant's entire period of service with the Comtext group, not merely the service whilst in Australia. 46 Returning to the evidence here, there can be no doubt that the first and second applicants were both made redundant on 1 March 2002 (see Jones v Department of Energy and Mineral (1995) 60 IR 304 at 308). In relation to the first applicant, for several weeks she was directed to continue taking annual leave while a restructure of the business was ostensibly taking place. When the first applicant made a brief return to work on 18 February 2002 she had to ask for a computer screen and access to her emails. The following day she was denied access to the network on her computer. On 22 February 2002 the first applicant observed that interviews were taking place and new staff were being employed. On 25 February 2002 her telephone line was no longer operable and her name had been omitted from the list of administration staff. All this had been done without her involvement or knowledge and without any explanation. Although her telephone was reconnected and she was able to access her computer, on 27 February 2002 she found that there was no work for her to do. Finally, on 4 March 2002 she was told by Mr Petroulas that her services were no longer required. In the interim the second respondent had removed all of the first respondent's files and documents from the office. In relation to the second applicant, he was informed by Mr Petroulas on 4 March 2002 that there was no further employment position for him and that he should leave immediately. Neither applicant was given any warning or explanation as to why their services were terminated, nor, as earlier stated, did they receive any monies, including amounts due and payable upon termination. 47 Based on the above summary of the evidence, in relation to this aspect of the applicants' respective cases, I am of the view that both applicants were made redundant on 1 March 2002 and that the failure of their contracts of employment in the circumstances outlined above to provide for a reasonable payment in the event of redundancy is unfair, within s 106. Claims for statutory entitlements: both applicants

[44]

50 Again, the circumstances, including those relating to unpaid superannuation on termination gives rise to unfairness against both applicants. There is a clear public interest in ensuring that obligations with respect to the payment of employer contribution to superannuation funds are met: Cornell v Titley (2002) 119 IR 334 at 356. Whether relief available against the second respondent 51 The applicants seek relief against the second respondent only. The second respondent was not a party to the contracts of employment. 52 In order for the two applications to be amenable to relief against the second respondent as a non-party to the contracts, there must exist the necessary connection between the second respondent and both contracts, and, for present purposes, some culpable association with the making or operation of the contracts: Brown v Rezitis (1970-1971) 127 CLR 157 at 168; Zahos & Anor v Industrial Relations Commission of NSW & Ors [2005] NSWCA 427 at [55]. 53 In my view, the evidence reveals an intimate connection to and association with both contracts on the part of the second respondent. It will be recalled that the second respondent was the sole director of the first respondent. Throughout her period of employment with the first respondent, the first applicant dealt with the second respondent on matters of performance, salary and leave entitlements. The second respondent, for example, conducted the first applicant's performance review in February 2000 which resulted in a salary increase. From January 2002, when the first applicant returned to work, the second respondent directed her to take additional leave on more than one occasion. He promised the first applicant two weeks annual leave payment, although the payment was never forthcoming. In relation to the second applicant, the second respondent clearly had direction and control of the second applicant's work activities. He directed the second applicant, for example, to transfer some $400,000 worth of wine to Wine Ark in Camperdown, shortly before the New Year 2002. The second respondent also benefited from both contracts by virtue of the applicants' unpaid contributions to the business and unpaid work. 54 The power to make orders for the payment of monies under s 106(5) which were payable under the contracts extends to, "ordering the payment of money where the order or the larger view of the jurisdiction given by the sub-section could be considered to be appropriate to effect wholly or partially the situation of the parties to their former position upon the variation or avoidance of the contract or arrangement": Brown v Rezitis at 165. 55 The reference to "the sub-section" in the quotation referred to in the above paragraph is a reference to s 88F(2) of the Industrial Relations Act 1940, a predecessor section to s 106(5). 56 The applicants seek, in the first instance, for their contracts to be avoided. In my view, this is the appropriate course, bearing in mind that the contracts have come to an end. 57 The first applicant seeks the following orders, (I do not include here the order sought for payment in lieu of notice):

[62]

Costs on an indemnity basis in the sum of $7,900.00. 59 The redundancy payments sought have been calculated in accordance with the decision of the Full Bench of this Commission in Re Application for Redundancy Awards (1994) 53 IR 419. In relation to the first applicant, the calculations are based on age (34 years) and length of service. Similar considerations have been sought to apply to the second applicant's circumstances, namely, age, although there is no evidence of this, and length of service. 60 The orders sought by both applicants for costs on an indemnity basis purport to be based on various authorities in this jurisdiction. Tuholi v Caltex Australia (2001) 103 IR 329 is one such authority upon which reliance is placed. Hampden Press Pty Ltd & Anor v Crammond Publications Pty Ltd [2003] NSWIRComm 99 is another. On my reading of these authorities, neither one provides much support for the granting of indemnity costs in the present proceedings. The former decision laid down a number of principles by which such applications may be considered. The principles however are clearly framed in an overarching context in which indemnity costs orders will only be made in exceptional cases, and, that the usual order is an award of costs on a party/party basis (at [40]). In the decision of Hampden Press a pivotal consideration for the granting of an indemnity costs order appeared to be that the respondent, against whom the order was sought, had failed to appear at the conciliation stage of the matter, thereby effectively removing the ability to inexpensively resolve the relevant issues (at [14]). Here, the second respondent in fact appeared at the conciliation hearing, although unrepresented. In the absence of any submissions on the point by either applicant, I am unable to conclude that the present circumstances warrant the granting of such an exceptional order. I therefore decline to make the orders. Orders 61 The Court makes the following orders, consequent upon the findings of unfairness which I have made in relation to both applicants.

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