Kennett and Anor v Mayrana Pty Ltd and Ors

MAYRANA PTY LTD (ACN 101 363 688) First Respondent

GARRATT'S LIMITED (ACN 000 003 725) Second Respondent

CHRISTOPHER CAMPBELL Third Respondent

PARTIES: MICHAEL TRAYNOR Fourth Respondent

MATTER NUMBER IRC 3680 OF 2003 _________________________________

MAYRANA PTY LTD (ACN 101 363 688) First Respondent

GARRATT'S LIMITED (ACN 000 003 725) Second Respondent

CHRISTOPHER CAMPBELL Third Respondent

MICHAEL TRAYNOR Fourth Respondent

CATCHWORDS: Unfair contract - orders reflecting conclusion of judgment - question of set off - conduct - applicants' consultancy contracts found unfair - contracts varied to provide notice - proceedings against third and fourth respondents dismissed - costs reserved

LEGISLATION CITED: Industrial Relations Act 1996

Boyd and Anor v Maxx Implementation Pty Limited and Ors (No 3) [2008] NSWIRComm 200 CASES CITED: Kennett and Anor v Mayrana Pty Ltd and Ors (No 9) [2008] NSWIRComm 106 Inspector Wolf v Rockdale Beef Pty Ltd [2006] NSWIRComm 280 Ove Arup and Ors v Inspector Mansell (2005) 141 IR 78

APPLICANTS IN IRC 3679 OF 2003 Mr A McQuillon of counsel SOLICITORS: Mitchell Lawyers

APPLICANT IN IRC 3680 OF 2003 Mr D Khoury, solicitor SOLICITORS: Benjamin & Khoury

FIRST AND SECOND RESPONDENTS: LEGAL REPRESENTATIVES: Mr AJ Bulley of counsel SOLICITORS: Gray & Perkins

THIRD RESPONDENT: Mr BKB Cross of counsel SOLICITORS: Thomson Playford

FOURTH RESPONDENT: Mr PL Carr of counsel SOLICITORS: Yeldham Price O'Brien Lusk DLA Phillips Fox

Matter No IRC 3679 of 2003 KEITH FRANKLIN KENNETT AND ANOTHER v MAYRANA PTY LTD AND OTHERS Application under s.106 of the Industrial Relations Act 1996 Matter No IRC 3680 of 2003

MYONG HO PAK v MAYRANA PTY LTD AND OTHERS Application under s.106 of the Industrial Relations Act 1996

1 Judgment was given in this matter in May 2008, with the parties directed to confer on the terms of the orders to be made, as well as in relation to the question of costs. (See Kennett and Anor v Mayrana Pty Ltd and Ors (No 9) [2008] NSWIRComm 106.) This judgment deals with the orders necessary to reflect the conclusions reached in the May judgment. The question of costs is listed for later hearing. 2 The applicants' consultancy contracts were found to be unfair contracts, with the result that they each had to be varied, to provide for payment for the work performed under the contracts at the rate agreed in the applicants' discussions with Mr Campbell, as well as providing for notice of termination, in the case of Professor Kennett. Consequential money orders also had to follow. 3 While it was common ground that the proceedings should be dismissed, so far as Mr Campbell and Mr Traynor were concerned, the parties were unable to agree on what orders needed to be made. I turn then to the matters remaining in issue. Is it necessary to make orders in relation to Mr Traynor or Mr Campbell?

4 In the May judgment under the heading orders I said at [301]:

[301] For the reasons given, the claims against Mr Campbell and Mr Traynor must be dismissed. The applicants' contracts must both be declared unfair and varied as to notice. Consequential money orders should follow, on the basis I have earlier outlined - in Professor Kennett's case as to both notice and outstanding pay and in Mr Pak's case, as to pay only, offset as I have earlier discussed. The parties are, accordingly, directed to bring in short minutes of orders reflecting the conclusions reached.

5 While initially taking the view that formal orders needed to be made, after attention was drawn to the Full Court's judgment in Ove Arup and Ors v Inspector Mansell (2005) 141 IR 78, it was Mr Traynor and Mr Campbell's case that nothing formal was further required to achieve the dismissal of the proceedings, so far as they were concerned. The applicants disagreed. The Full Court observed in Ove Arup at [25] - [27]: 25 ... Moreover, there is no practice in the Commission involving the formal entry of judgments or orders in the Industrial Registry. This has not previously given rise to any difficulty.

26 The practice in relation to judgments and orders made by the Commission in Court Session is that a written judgment is prepared that also contains any orders to be made. The orders are normally pronounced on the day of judgment and the parties are immediately provided with a written copy of the judgment and orders. No further steps are taken to formally enter the judgment in records of the Court. In this respect, pronouncement and entry may be said to occur simultaneously, entry having been made in the written judgment and by its delivery in open court. We consider this is the established practice for the purposes of r 89 of the Commission's Rules and, accordingly, the practice, procedure or usage of the Supreme Court, Court of Appeal or Court of Criminal Appeal referred to in r 89(5) of the Commission's Rules in respect of entry of judgments and orders is not applicable.

27 The applicants referred to the Full Bench judgment in Nutshack Franchise Pty Limited & Ors v Smith & Anor (1999) 90 IR 355 at 360 in which the Commission was said to have adopted Pt 40 r 3 of the Supreme Court Rules as to when judgment takes effect because no applicable rule appeared in the Commission's Rules. Nutshack is distinguishable. There the court was dealing with an order for the payment of money and the procedure for its enforcement. As senior counsel for the respondent submitted, "This judgment says nothing about whether there is a practice and usage about the entry of judgments in the IRC, rather it dealt only with what was said to be trite law that the judgment for the payment of money became effective on its making."

6 Having considered what was argued, I take the view that the applicants must be correct. What was said in open court was not that 'the claims against Mr Campbell and Mr Traynor are dismissed', nor was it said 'For the reasons given, the claims against Mr Campbell and Mr Traynor must be dismissed and I order accordingly', as was the case in Inspector Wolf v Rockdale Beef Pty Ltd [2006] NSWIRComm 280 at [42] to [44]. 7 It follows that the orders now to be made must deal with the position of Mr Traynor and Mr Campbell. In calculating money orders can account be taken of sums outstanding to the respondents from Excelsior? 8 These proceedings were brought by the applicants after the sale of Excelsior College to the first respondent, Mayrana Pty Ltd. They were the working proprietors of the College, through their ownership and directorship in Excelsior College Pty Ltd. Professor Kennett was the Principal of the College before the sale and Mr Pak worked in marketing. 9 Excelsior was never made a party to these proceedings, even though it was the vendor of the College. The applicants, nevertheless, attacked the fairness of the sale agreement, arguing that they had been overborne in the negotiations. Under the agreement, Excelsior still owes certain sums to Mayrana and while Mr Pak worked at the College after the sale, he came into possession of a cheque for student fees, which it was common ground ought to have been paid to Mayrana, but which Mr Pak banked into Excelsior's account. That sum has never been accounted for. 10 The applicants failed to demonstrate the unfairness of the sale agreement. In considering whether any discretion to make money orders could be exercised in favour of the applicants in the circumstances of this case, I concluded in the May judgment:

Money orders 289 What next requires consideration is whether any money orders should be made. In accordance with the statutory scheme, such orders can only flow from a conclusion that the contracts in question were relevantly unfair, so as to require orders that they be declared void or varied. I have concluded that the applicants each made the claimed oral consultancy agreements in their discussions with Mr Campbell. In Professor Kennett's case, he worked about 10 hours per week, during the period from 19 August to the date of termination some time in October/November, excluding the three weeks when he travelled to Iran. 290 In cross examination, Professor Kennett explained that the claim of payment on his invoice to 31 January, reflected the initial agreement of a six month consultancy. He explained that the period 19 August to 31 January, was six months minus two weeks, that is 24 weeks. He agreed that he had left the College over a weekend in October or November and that he had not performed the duties he claimed in his invoice, after his departure. It was not demonstrated that he performed the work for which payment was thereafter claimed. Nor did Professor Kennett establish what date it was in which he left the College. 291 Professor Kennett also explained that he had selected the rate of $100 per hour for his invoice, because he believed that Mr Campbell had made variations to their agreement which were convenient to him 'and I believed that if he could make variations I had the same right'. This is not a basis upon which a money order at the rate sought, can properly rest, particularly given Professor Kennett's concession, that he was not acting as College Principal during the period claimed. I have not found the agreed rate of $65 per hour to be unfair. 292 The onus fell on Professor Kennett to make out the case advanced. At best, he made out that he worked 10 hours per week, for some seven weeks, which would represent a payment due of a sum of $4,550 for the work performed. On the approach of the High Court in Brown v Rezitis, it is clear that such a consequential money order may be made pursuant to s 106(5), (see the discussion at p 167), as payment for work actually performed. In Mr Pak's case, I have concluded that he established, at best, that he worked for 40 hours per week, for some 14 weeks, representing a sum of $36,400, at $65 per hour. 293 In each case, I have also concluded that the contracts were brought to an end without notice and that in fairness, notice of nine weeks in Professor Kennett's case and four weeks in Mr Pak's case, ought to have been given. Each contract must be varied, to provide for such notice. Discretion 294 The question of whether any discretion should be exercised in favour of these applicants, raises certain difficulties, however. This was recognised by the applicants' acceptance, that in determining any money orders, the Court would consider what remained outstanding to Mayrana under the sale agreement, as well as the sum which was wrongly banked in the Excelsior account by Mr Pak, after the sale. 295 This concession was properly made, given the Court's jurisprudence as to the necessity of applicants seeking orders under s 106, coming to the Court with clean hands. As I have noted, Excelsior was never a party to these proceedings. Together, however, the applicants were the managerial mind of Excelsior. Excelsior's conduct has been both entirely within their control and to their benefit, given their shareholding and directorship in the company. Excelsior was the vendor of the College and the decision not to make it an applicant in these proceedings, can only have been made by the applicants. Given the provisions of s 106(2) of the Act, that decision cannot shelter the applicants from the consequences of their conduct, to the benefit of Excelsior, as they properly accepted. 296 I turn then to the notice claim made in relation to Mr Pak. How money orders could flow, in relation to such notice, is difficult to conceive. How could it be thought that Mr Pak would have been entitled to receive notice of termination, given that it was not disputed that he had wrongfully taken and banked a cheque of some $38,000, into Excelsior's account, which had come into his hands, while working at the College after the sale? Excelsior still retains that sum. On any view, that was serious misconduct, warranting termination of Mr Pak's consultancy contract. I am unable to see how a discretion could justly be exercised in Mr Pak's favour by this Court, as to notice, in those circumstances. 297 Can money orders otherwise be made in favour of the applicants in the face of the evidence that they have failed both to ensure that Excelsior paid to Mayrana, the sums outstanding under the sale agreement on account of prepaid student fees, and also failed to account for the moneys Mr Pak banked into Excelsior's account? On one view, that would require the exercise of the discretion granted by s 106, inconsistently with the underlying policy of the legislation. 298 What must be considered is that s 106 provides applicants with a mechanism, whereby certain contracts found to be unfair, harsh or unconscionable might be declared void or varied, to remedy the unfairness found. The jurisdiction is such that those individuals responsible for that unfairness, may not shelter behind the corporate veil, in order to shield them from the consequences of their acts, in cases where a corporate respondent, who is the actual party to the contract in question, does not have the funds to meet any consequential money order made. It appears to me that conversely, justice requires that Professor Kennett and Mr Pak, as the applicants in these proceedings, cannot put beyond the Court's consideration their own conduct, which was to the benefit of Excelsior, the corporate party to the transactions here attacked as being unfair, by bringing proceedings without making Excelsior a party to the proceedings. 299 On the other hand, I also take the view that what must be considered in this case, is that Professor Kennett and Mr Pak have never been paid for the work which they performed at the College after the sale, as they had agreed; the respondents have denied the existence of the contracts which they made with Professor Kennett and Mr Pak and the work which they performed; and that those contracts were brought to an end without notice. The contracts have been found to be unfair on the evidence. Plainly, that situation is also one which cannot be condoned by the Court, given this statutory scheme. 300 In weighing these considerations, I have concluded that justice requires money orders to be made in favour of the applicants, which reflect both the unfairness found in the two contracts and which sets off the sums owing by Excelsior. I take the view that approach will result in a proper balance of the respective conduct of these parties, as s 106(2) contemplates, and will do justice between them.

11 The applicants now argue that no 'set off' of the kind contemplated in the judgment may be ordered, for a number of reasons, including that such a set off was not specifically pleaded or raised by the respondents; Excelsior is not a party to the proceedings and so there is no mutuality of dealing between the applicants and the respondents, in relation to what is owed by Excelsior; and the respondents have never demanded payment of the sums in question from the applicants, or from Excelsior. There is no jurisdiction to make such orders. 12 It was also submitted that fairness requires that the money orders made reflect the unfairness found. At common law no right of set off exists in respect of any unliquidated sum. For a set off there must be a debt owing by the plaintiff to the defendant. At equity, there must be some equitable right which the defendant has to enforce against a plaintiff. Here the claims do not arise out of the same contract and are not closely related to each other - the deed of sale was not concerned with employment, but the sale of a business. The respondents never sought to join Excelsior and should thus not have the relief sought. 13 I am unable to accept those arguments. Firstly, the question of the sums outstanding to Excelsior under the sale agreement and by virtue of Mr Pak taking moneys which should have been paid to Mayrana, while he was working as a consultant, were not only raised in the proceedings, by way of evidence, including letters of demand, they were addressed in submissions. There it was conceded that account could be taken of those matters, in considering money orders to be made. On 11 March 2008, there was the following exchange with Mr Latham, then appearing for the applicants, after an adjournment:

HER HONOUR: Can I ask you this question. There is evidence that sums were received by Excelsior College after the sale and banked into the bank account by Mr Pak that ought to have been paid to the purchaser company. What account should be taken of that in the money orders which are made; and, there is also evidence that there is still money unpaid by Excelsior College on the sale agreement as a result of the sale which was supposed to be undertaken in relation to a reconciliation of prepaid students fees if I can shorthand it in that way.

If one were to contemplate making orders of the kind you are talking about, what account needs to be taken of that evidence?

LATHAM: It is a matter that your Honour could take into account as a matter of discretion. 14 Such an approach was later pressed by Mr Bulley for the first and second respondents, to whom the moneys were owed, who submitted:

Your Honour would be aware that the jurisdiction available to your Honour under section 106 is jurisdiction which, even though it may be enlivened, is not jurisdiction which is necessarily required to make orders in respect of. There is, of course, in the Port Macquarie Gold Club, a residual discretion vested in your Honour, as to whether or not any order ought to be made, even in circumstances where the jurisdiction might be otherwise enlivened. In those circumstances, bearing in mind the unsatisfactory nature of the applicants' evidence, and bearing in mind also the fact that there is evidence on behalf of my clients that there are still moneys owing in relation to this transaction, both in relation to the issue of the outstanding reconciliation of the pre-paid student fees, and also in relation to the issue of the vendor. There is still something in the vicinity of $80,000 which, we say, remains outstanding arising from the sale.

Your Honour ought to take that into account to determine whether or not any orders will be made at all. If your Honour was minded to make an order those amounts ought to be taken into account.

15 This is not a Court of strict pleading and, in my view, there is no question that this issue has long been alive between the parties, given the various evidence as to these matters and the cases respectively advanced. That explains the way in which the question of money orders was dealt with in the May judgment. 16 A conclusion was there reached, that there must be an adjustment of the money orders, by way of reference to the amounts outstanding from Excelsior under the sale agreement, as well as the amount banked by Mr Pak in the Excelsior account after the sale, which belonged to Mayrana. The applicants are not entitled to now revisit that conclusion, in the way that they seek to do. 17 The parties were directed to confer as to how the calculation of the money orders should be approached. There are a number of possible approaches, which the parties finally addressed in their submissions. They include:

1. Taking account of the moneys owed to Mayrana on a basis which reflects the applicants' shareholding in Excelsior (60% held by Professor Kennett and 40% by Mr Pak).

2. Treating the two applicants as equally responsible for the sums in question, given that together they were the directing mind of Excelsior, through their directorships.

3. Taking a different approach in relation to the money banked into the Excelsior account, having regard to Mr Pak's conduct in that respect.

18 Having considered what has been advanced in light of the evidence, I have concluded that the approach which best achieves a just outcome in all of the circumstances of the case, is to approach the calculation of the money orders on a basis which pays attention to the applicants' shareholding in Excelsior. 19 I have already dealt with Mr Pak's conduct, in the conclusion that no money orders in relation to notice can flow in his case, given how he dealt with the cheque banked in the Excelsior account, while working as a consultant. That money has been retained, a decision which plainly was not Mr Pak's alone. While both Mr Pak and Professor Kennett participated in the decisions which led to that result, I take the view that the money orders should reflect what benefit flowed to them personally from that decision. That is best reflected by paying attention to their respective shareholdings in Excelsior. A similar approach is appropriate having in mind what has occurred in relation to the money Excelsior has still failed to pay under the sale agreement, particularly given the circumstances in which the two consultancies are about. 20 It is the applicants who pursued the respondents in relation to both the sale of the College and their claimed consultancies after the sale. It is in this way that the issue of what was outstanding from Excelsior first arose to be considered, as did the moneys which Mr Pak took while performing that work. 21 No doubt the concession earlier referred to was made by the applicants at a time when they hoped to achieve considerable money orders in their favour, in relation to the sale agreement. Had that occurred, the money outstanding from Excelsior could have been taken into account by way of adjustment to any revised sale price which might have been ordered. It is their failure to make out that case, which has led to the view now sought to be pressed that no adjustment should be made to the money orders and that there is no power to pursue such an approach. 22 Given their ownership and shareholding in that company, it is as a result of the applicants' decisions that Excelsior was never made a party to the proceedings. Their claims in relation to the sale agreement having failed, ought not now to give them the opportunity to shelter behind Excelsior's absence from the proceedings, as I have already concluded. In any event, on any view, Excelsior's absence can provide no basis for resisting any account of the money taken by Mr Pak after the sale, the Excelsior account only being the place where Mr Pak banked the money, to his and Professor Kennett's undoubted, unfair advantage. 23 For the reasons I have already given in the May judgment, the applicants' view as to how money orders should be calculated cannot prevail, as a matter of justice as between these parties, especially at this stage of these proceedings. All that remains to be determined is the orders necessary to be made to reflect the conclusions reached in the May judgment and the question of costs. 24 In Boyd and Anor v Maxx Implementation Pty Limited and Ors (No 3) [2008] NSWIRComm 200, I recently observed:

14 That approach reflects a view of the section long held by this Court and its predecessors, that the section is intended to protect 'one set of men from another set of men, the one from their situation and condition, being liable to be oppressed or imposed upon by the other' (See Agius v Arrow Freightways Pty Ltd [1965] AR 77 at 88 per Beattie J). In Davies & Anor v General Transport Development Pty Ltd & Ors [1967] AR 371, Sheldon J observed at p 374 that 'smart operators would do well to consider whether it may be cheaper in the long run to assume, with what equanimity they can summon, the burdens that fall on more orthodox employers' and at p 373, that 'destruction, dilution, renovation and patching are all weapons in the section's arsenal', but that therefore, 'such massive power' granted by the section 'should be exercised with proper restraint' at p 374.

25 Observations such as this are typically directed at respondents in proceedings brought under s 106, when applicants succeed in demonstrating the unfairness of the contracts which they bring before the Court. They are considerations, however, which are not irrelevant in the case of applicants. Section 106(2) of the Act expressly requires the Court to have regard to parties' conduct. That is why both applicants and respondents lead such evidence. When the Court is then called upon to make money orders under s 106(5) 'just in the circumstances of the case', such evidence cannot be overlooked. 26 In this case, the evidence demonstrated the applicants taking a particular course, designed to unfairly further their interests, at the expense of the respondents, by attacking the sale agreement, but not making Excelsior a party to the proceedings, thereby seeking to shelter themselves from a consideration of whether what Excelsior owed the respondents, should be taken into account, in the calculation of any money orders to be made in their favour. That was a particularly unmeritorious approach, when consideration is given to the further fact that Mr Pak took some $38,000 which ought to have been paid to Mayrana and banked it into Excelsior's account, after the sale, while working for Mayrana. Through their shareholding, both Professor Kennett and Mr Pak also had the benefit of that money. 27 Not only is it too late to argue the point now sought to be raised, having heard the parties further, I am entirely of the view it has no merit, which presumably explains the applicants' earlier concession, which was made at a point of the proceedings, it ought to be noted, when they had already conceded their failure to demonstrate anything at all in relation to the profitability, or lack of it, so far as Excelsior was concerned. That was a crucial element in their attack on the fairness of the sale price. 28 There was no issue between the parties as to the sums in question, they appearing in the submissions advanced for the first and second respondents. The money orders in favour of Professor Kennett and Mr Pak, calculated in accordance with the judgment are: Paragraph Amount Professor Kennett's notice 183 $5,850.00 Professor Kennett's outstanding pay 292 $4,550.00 Mr. Pak's pay 184, 292 $36,400.00

29 The sums outstanding to the respondents and Professor Kennett and Mr Pak's 60% and 40% share of those sums is respectively: Paragraph Amount Beijing Venture 174 $38,237.50 Pre-paid student fees 225 $48,494.09

TOTAL $86,731.59 Professor Kennett 60% $52,038.95 Mr Pak 40% $34,692.64

30 The deduction of those amounts from the orders otherwise to be made in favour of the applicants, results in no money order at all being made in favour of Professor Kennett and an order of $1,707.36 in favour of Mr Pak. Can any money order be made in favour of the First and Second Respondents? 31 I turn next to the first and second respondents' claim that a money order ought to be made in their favour, reflecting a payment of what remains outstanding from Excelsior, a sum of $46,800. 32 I am unable to accept that submission. These proceedings never concerned a pursuit by the respondents of Excelsior, or the applicants, as to what was outstanding to the respondents under the sale agreement, or in relation to the money taken by Mr Pak. Those matters were relied on to diminish the amount of any money order to be made in favour of the applicants, as the above extract from the submissions confirms. 33 The unfairness of the consultancy contracts was established by the applicants. Outstanding pay and a payment in lieu of notice was necessary to be ordered in favour of Professor Kennett, but it was concluded that this money sum should be offset by what was owed by Excelsior and what Mr Pak had taken, to Professor Kennett's benefit. In Mr Pak's case I concluded that he should have a money order for outstanding pay, but not notice, given what on any view was serious misconduct on his part, when he took some $38,000 belonging to Mayrana and banked it into Excelsior's account. Neither Mr Pak or Professor Kennett has ever repaid that sum, although both benefited from the use of the money, given their shareholding in Excelsior. They each also continue to benefit from the moneys Excelsior has failed to pay under the sale agreement. 34 I did not conclude in the May judgment however, that the applicants should be ordered to pay what Excelsior otherwise owed the respondents, nor was I asked to do so. I am unable to see how such an order could be made, given the way in which the proceedings were conducted, particularly at this stage of the proceedings. Such an order was certainly not earlier sought. Orders 35 For the reasons given, I make the following orders: 1. The applicants' consultancy contracts are found to be unfair contracts.

2. The contracts are varied to provide for 9 weeks' notice in the case of Professor Kennett and 4 weeks' notice in the case of Mr Pak.

3. The proceedings against Mr Campbell and Mr Traynor, the third and fourth respondents are dismissed.

4 . Consequently, the first and second respondents are not ordered to pay any money amount to Professor Kennett, but are ordered to pay Mr Pak the sum of $1,707.36.

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