Madden v Fisher

12 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WINDEYER J

1828/01 MARTIN MADDEN AS RECEIVER AND MANAGER OF DATAFLOW COMPUTER SERVICES PTY LTD V KAREN FISHER

1 The plaintiff is receiver and manager of Dataflow Computer Services Pty Limited (Dataflow). He was appointed as receiver by the ANZ Banking Group Limited (the Bank) pursuant to its powers under a mortgage debenture dated 13 August 1995. The date of appointment of receiver was 29 May 2000. 2 An administrator was appointed to Dataflow on 30 July 2000 and on 24 October 2000 the creditors determined that the company enter into a deed of company arrangement. This deed was executed on 13 November 2000; Mr Dean-Willcocks being administrator of the deed. 3 Under the mortgage debenture the Bank had a fixed charge over certain assets of Dataflow and a floating charge over other assets. So far as the assets covered by the floating charge were concerned s433 of the Corporations Law required that certain payments be made out of property subject to the floating charge in priority to the claims of the secured creditor. Dataflow is clearly insolvent and, at least on the position as disclosed in the report as to affairs, the amount expected to be realised on the sale of the assets of the company subject to the fixed charge will be insufficient to pay the amount owed to secured creditors. 4 The defendant in these proceedings, Karen Fisher, was employed by Dataflow at the date of receivership. Her employment with the company had commenced in 1983. The receiver terminated her employment on 14 July 2000, after giving one month's notice of this event on 14 June 2000. At the date of receivership the defendant had entitlements for the value of unpaid annual leave of $54,842.72 and long service leave of $2,614.62. According to the receiver, if her employment came to an end at the date of receivership, she would also have had entitlements to $10,000 in lieu of one month's notice. In fact, her employment was continued after the receivership commenced and she was given one month's notice of termination and no payment in lieu of notice was made. Upon termination she was paid her entitlement to unpaid holiday pay and long service leave after adjustment for tax. The defendant was entitled to have these amounts paid in priority to the claims of secured creditors pursuant to ss433, 556(1) and 561 of the Corporations Law. 5 Under the terms of her employment, the defendant was not entitled to any retrenchment payment payable on redundancy. If such an entitlement had existed, it would also have been paid in priority, pursuant to the sections I have mentioned and in particular s556(1)(h) of the Corporations Law. I say this but acknowledge that there seems to be a somewhat muted claim that it was an implied term of the contract or arrangement of employment that redundancy payments would be made. This judgment is written on the basis that there was no such entitlement. 6 The defendant has brought proceedings against Dataflow in the Industrial Relations Commission of New South Wales in Court Session, seeking orders under s106 of the Industrial Relations Act 1996 (the Act). In those proceedings the defendant, as applicant, claims that the contract or arrangement of employment is an unfair contract, as defined by s105 of the Act. She seeks an order varying it in whole or in part, either from commencement or from some other time, so that the contract or arrangement for employment includes terms requiring: (a) twelve months' notice of termination or payment in lieu; and (b) a severance payment if termination is based on redundancy. It is not clear in the application whether the claim is for severance payment based on the total remuneration package or based on the base salary, but the claim is that it be calculated on the basis of three weeks' salary for each year of service or pro rata. The precise details of the claim do not matter for the purpose of this decision. In these proceedings the defendant here also seeks an order for payment to her of a sum of money pursuant to s106(5). 7 The receiver, by his amended application, seeks a direction of the court pursuant to s424 of the Corporations Law as to whether any liability of Dataflow to pay to the defendant, Karen Fisher, any sum arising out of any order made by the Industrial Relations Commission of New South Wales in the proceedings which I have referred to - not being a liability which arose out of the terms of the defendant's contract of employment as it existed at the date of the appointment of the plaintiff as a receiver - would be a liability which the receiver would be obliged to pay in priority, pursuant to s433(3)(c) of the Corporations Law. 8 When the matter came on for hearing before me I questioned whether it was appropriate to proceed with it prior to the determination of the proceedings before the Industrial Relations Commission, because, if the applicant in those proceedings fails, then there would be no need for the determination which I am asked to make. Counsel for the receiver pointed out that in those circumstances the receiver would probably wish to contest the proceedings before the Commission if allowed to do so, but if there were no entitlement to priority if an order were made, then there would be no purpose in expending moneys in contesting the claim before the Commission. As the evidence was that there was at least a possibility of similar claims being made by former employees of Dataflow in much the same situation, and as no limitation period appears to apply to any such application - although no doubt the lapse of time would be relevant in the decision - it seemed to me that a proper case had been made out for determining the application of the receiver at this stage and I therefore agreed to proceed with the hearing. The proceedings have gone forward as a contest, the receiver arguing that there would be no priority and the defendant the contrary. Legislation

Industrial Relations Act 1996 105. Definitions

"contract" means any contract or arrangement, or any related condition or collateral arrangement, but does not include an industrial instrument.

"unfair contract" means a contract: (a) that is unfair, harsh or unconscionable, or (b) that is against the public interest, or (c) that provides a total remuneration that is less than a person performing the work would receive as an employee performing the work, or (d) that is designed to, or does, avoid the provisions of an industrial instrument. Note. The jurisdiction of the Commission under this Part is exercisable only by the Commission in Court Session.

106. Power of the Commission to declare contracts void or varied (1) The Commission may make an order declaring wholly or partly void, or varying, any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract.

(2) The Commission may find that it was an unfair contract at the time it was entered into or that it subsequently became an unfair contract because of any conduct of the parties, any variation of the contract or any other reason.

(3) A contract may be declared wholly or partly void, or varied, either from the commencement of the contract or from some other time.

(4) In considering whether a contract is unfair because it is against the public interest, the matters to which the Commission is to have regard must include the effect that the contract, or a series of such contracts, has had, or may have, on any system of apprenticeship and other methods of providing a sufficient and trained labour force.

(5) In making an order under this section, the Commission may make such order as to the payment of money in connection with any contract declared wholly or partly void, or varied, as the Commission considers just in the circumstances of the case.

Corporations Law 433. Payment of certain debts, out of property subject to floating charge, in priority to claims under charge … (2) This section applies where: (a) a receiver is appointed on behalf of the holders of any debentures of a company or registered body that are secured by a floating charge, or possession is taken or control is assumed, by or on behalf of the holders of any debentures of a company or registered body, of any property comprised in or subject to a floating charge; and (b) at the date of the appointment or of the taking of possession or assumption of control (in this section called the relevant date ): (i) the company or registered body has not commenced to be wound up voluntarily; and (ii) the company or registered body has not been ordered to be wound up by the Court.

(3) In the case of a company, the receiver or other person taking possession or assuming control of property of the company shall pay, out of the property coming into his, her or its hands, the following debts or amounts in priority to any claim for principal or interest in respect of the debentures:

(a) first, any amount that in a winding up is payable in priority to unsecured debts pursuant to section 562; (b) next, if an auditor of the company had applied to the Commission under subsection 329(6) for consent to his, her or its resignation as auditor and the Commission had refused that consent before the relevant date---the reasonable fees and expenses of the auditor incurred during the period beginning on the day of the refusal and ending on the relevant date; (c) subject to subsections (6) and (7), next, any debt or amount that in a winding up is payable in priority to other unsecured debts pursuant to paragraph 556(1)(e), (g) or (h) or section 560.

(9) For the purposes of this section the references in Division 6 of Part 5.6 to the relevant date shall be read as references to the date of the appointment of the receiver, or of possession being taken or control being assumed, as the case may be. 553. Debts or claims that are provable in winding up

(1) Subject to this Division, in every winding up, all debts payable by, and all claims against, the company (present or future, certain or contingent, ascertained or sounding only in damages), being debts or claims the circumstances giving rise to which occurred before the relevant date, are admissible to proof against the company.

(1) Subject to this Division, in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims: … (e) subject to subsection (1A)---next, wages and superannuation contributions payable by the company in respect of services rendered to the company by employees before the relevant date; … (g) subject to subsection (1B)---next, all amounts due: (i) on or before the relevant date; and (ii) because of an industrial instrument; and (iii) to, or in respect of, employees of the company; and (iv) in respect of leave of absence;

(h) subject to subsection (1C)---next, retrenchment payments payable to employees of the company. 556 …

(2) "retrenchment payment" , in relation to an employee of a company, means an amount payable by the company to the employee, by virtue of an industrial instrument, in respect of the termination of the employee's employment by the company, whether the amount becomes payable before, on or after the relevant date. 558. Debts due to employees

(1) Where a contract of employment with a company being wound up was subsisting immediately before the relevant date, the employee under the contract is, whether or not he or she is a person referred to in subsection (2), entitled to payment under section 556 as if his or her services with the company had been terminated by the company on the relevant date. (2) Where, for the purposes of the winding up of a company, a liquidator employs a person whose services with the company had been terminated by reason of the winding up, that person shall, for the purpose of calculating any entitlement to payment for leave of absence, or any entitlement to a retrenchment amount in respect of employment, be deemed, while the liquidator employs him or her for those purposes, to be employed by the company.

(3) Subject to subsection (4), where, after the relevant date, an amount in respect of long service leave or extended leave, or a retrenchment amount, becomes payable to a person referred to in subsection (2) in respect of the employment so referred to, the amount is a cost of the winding up.

(4) Where, at the relevant date, the length of qualifying service of a person employed by a company that is being wound up is insufficient to entitle him or her to any amount in respect of long service leave or extended leave, or to any retrenchment amount in respect of employment by the company, but, by the operation of subsection (2) he or she becomes entitled to such an amount after that date, that amount: (a) is a cost of the winding up to the extent of an amount that bears to that amount the same proportion as the length of his or her qualifying service after that relevant date bears to the total length of his or her qualifying service; and (b) shall, to the extent of the balance of that amount, be deemed, for the purposes of section 556, to be an amount referred to in paragraph 556(1)(g), or a retrenchment payment payable to the person, as the case may be.

(5) In this section, "retrenchment amount", in relation to employment of a person, means an amount payable to the person, by virtue of an industrial instrument, in respect of termination of the employment 9 To a large extent, the submissions of counsel for the plaintiff seemed to be based on difficulties which would occur in any receivership if the receiver could be bound to pay, as a priority claim, amounts awarded by the Industrial Relations Commission of New South Wales under s106 of the Act in proceedings commenced after the commencement of the receivership. These arguments pressed the usual requirement for winding up or receivership that claims be determined as at the date of the commencement of winding up or as at the relevant date for the receivership, namely, the date of appointment of the receiver or the taking of possession. A large part of the written argument of counsel for the defendant addressed what was called "the comity issue" and some suggested interference with the jurisdiction of the Industrial Relations Commission in Court Session if the present action proceeded. That argument really missed the point. A decision of this Court has no bearing upon the jurisdiction of the other superior court: what is in issue is the interaction between the provisions of two State laws. 10 It has been determined that the Commission under s106 of the Act retains jurisdiction although the contract of employment has come to and end: See Beahan v Bush Boaek Allen Australia (1999) 47 NSWLR 648 at 683 and Reich v Client Server Professionals of Australia Pty Limited (2000) 49 NSWLR 551 at 564. Beahan was a decision of a Full Bench of the Industrial Relations Commission of New South Wales in Court Session. The following passage appears on page 685: What emerges from the above authorities, we think, is the now settled view that s 106 (as with the previous s 88F of the 1940 Act and s 275 of the 1991 Act) is directed to an impugned contract of employment, whether existing or terminated, as to the fairness of its express or implied terms. Such unfairness will depend upon the facts of each particular case by focusing attention on the contractual relationship between a particular employer and employee and where the unfairness may arise from the terms of the contract itself, the surrounding circumstances and/or the manner of performance or operation of the contract. The section, we emphasise, is not concerned with re-establishing an employment relationship which has ended nor with compensating an employee for the loss of his employment contract. In other words, the section is properly concerned with the fairness of the terms of a contract of employment in its various respects and, if relevantly found to be unfair, to provide remedial relief by avoiding or varying the terms of that contract and to order the payment of money in connection with any contract so avoided or varied as is considered just in the circumstances of the case.

This was accepted in Reich : Supra at 566. 11 The fact that s106(5) of the Act gives the Commission power to make orders for payment of money does not necessarily mean that if it fails to do so there can be no recovery. For instance, if a contract is declared void so that an employee becomes entitled to award wages, it would seem that proceedings could be taken under s365 to obtain payment of the award sum unpaid, although credit would have to be given for any sums received: See Brown v Rezitisi (1973) 127 CLR 157 per Barwick CJ at 166. But s106(5) orders would usually be necessary to bring justice to the applicant; the old truck drivers' contracts would be an obvious example. 12 An order of the Commission operates from its date, but it may operate so as to alter entitlements in respect of past events. Thus an order on 1 July 2001 varying a terminated contract of employment declared unfair may bring about entitlement to payments under the contract as so varied. Those amounts would be due on 1 July 2001 as a result of the order and not on the date of termination. That at least is as I would have seen the position were it not for decision in Grabowski v Allert (1988) 48 SASR 196. In referring to the date of termination I am assuming that the apportionment provisions of s558 of the Corporations Law apply to receiverships as a result of the opening words of s561(1) but in the present case the result would be much the same if s558 did not apply. 13 The facts in Grabowski were as follows: Mr Allert the plaintiff had been dismissed by his employer company on 5 September 1986; he commenced proceedings in the Industrial Conciliation and Arbitration Act 1972 (South Australia) seeking an order that his dismissal be found to be harsh, unjust and unreasonable. A receiver was appointed to his employer company on 18 December 1986. An order for re-employment was made on 22 January 1987. Mr Allert reported for duty the next day and was dismissed that day. On 13 February a further order was made that he be paid a set sum "being lost earnings from dismissal to re-employment". On appeal from a decision of a Master upholding the Commissioner's order, Legoe J held the proportionate amount of the sum from date of dismissal to appointment of the receiver was to be paid in priority under s331(a) of the Companies Code (the equivalent of s433(2) of the Law). I have some difficulty with the decision but it can be explained because s31(4) of the South Australian Act provided that, on an order for re-employment being made, "the employee shall be remunerated in respect of any period intervening between the date of dismissal and the date of re-employment as if his employment in the position from which he was dismissed had not been terminated". Such deeming provision was restricted to unfair dismissal orders. In any event it does not form part of the New South Wales Act and I do not think that the decision can be relied upon to support the case of the defendant here. 14 At the relevant date and at the retrenchment date, the defendant employee had no claim, actual or contingent, against the employer company or the receiver for wages not paid at termination or for redundancy payments. So far as any claim based on entitlement to payment in lieu of notice that would seem to fall within the definition of redundancy payment. The termination date is the determining date here and to that extent the direction sought by the receiver insofar as it refers to the date of appointment of receiver is incorrect. However, an appropriate order or direction can be framed taking that into account. Debts or claims entitled to be paid in priority under s433 of the Corporations Law or its forerunner were considered by Bryson J in Whitton v ACN 003 266 886 (1996) 42 NSWLR 123 and by the Full Court of the Supreme Court of Western Australia in Sternberg v Herbert (1988) 14 ACLR 80. In the former case Bryson J said at page 148:

Question 2.3 deals with retrenchment payment. By the definition in s 556(2) this means any retrenchment payment whenever it becomes payable, even if after the controller's assuming control.

In the present case the retrenchments occurred while the controller was still active. Entitlement to retrenchment payment arising as a result of termination of employment on 27 April would, in my opinion, give rise to an entitlement to a priority payment out of whatever property ever was within the net of s 433(3). There must, as a matter of implication to avoid absurdity, be some ultimate limit to the time when a retrenchment payment becomes payable if it is to qualify for priority, notwithstanding the references to time in the definition of "retrenchment payment". It is difficult to suppose that a retrenchment which occurred alter a controller had completed his operations and accounted to all interested parties of whom he was aware would involve liability under s 433(3) 15 In the Western Australian case judgments of Brinsden J at 89-90 and Kennedy J at 96, make it clear that claims and debts must exist at the relevant date (or in the case of redundancy) at termination date, to be entitled to priority. To this I would only add that an order under s106(5) of the Act for payment of a sum of money "considered just in the circumstances" would not ordinarily come within the priority provisions of s556(1)(e)(g) and(h) of the Corporations Law. 16 These proceedings commenced as a summons for directions pursuant to s424(1) of the Corporations Law. As the hearing was conducted on an adversary basis it would, I think, be preferable to make a declaration as to rights so that there will be a judicial determination of an issue between the parties giving rights of appeal.

1. Declare that any liability of Dataflow Computer Services Pty Limited to pay to the defendant any sum arising out of any orders made by the Industrial Relations Commission of New South Wales in Court Session, in proceedings 3784 of 2000, in favour of the defendant, not being a liability which arose out of the terms of the defendant's contract of employment as it existed, in respect of any liability for redundancy payments at the date of termination of employment, and in respect of other liabilities, at the date of appointment of the receiver, would not be a liability entitled to payment in priority under s433(3)(c) of the Corporations Law .

2. Order that the costs of the plaintiff and the defendant be paid out of the assets in the hands of the receiver. **********

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