Scriberras v Advanced Security Systems Pty Ltd

Australian Broadcasting Tribunal v Bond (1990) 21 ALD 1 Australian Gaslight Co v Valuer-General (1940) 40 SR (NSW) 126 Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 Carr v Neill [1999] NSWSC 1263 Gangemi Holdings Pty Ltd v Salter [1999] NSWSC 1004 CASES CITED : Holloway v Chairperson of the Residential Tribunal (2001) 51 NSWLR 716 Mahony v Industrial Registrar of New South Wales (1986) 8 NSWLR 1 Poricanin v Australian Consolidated Industries Ltd [1979] 2 NSWLR 419 R v District Court of Sydney: Ex parte White (1966) 116 CLR 644 RL & D Investments Pty Ltd v Bisby [2002] NSWSC 1082 State Rail Authority v Smith [2000] NSWSC 334 Waterford v Commonwealth (1997) 164 CLR 54; 71 ALR 673

PARTIES : Paul Scriberras (Plaintiff) Advanced Security Systems Pty Ltd ( Defendant)

COUNSEL : Mr Whittle SC/Mr Taylor (Plaintiff) No Appearance (Defendant)

SOLICITORS : Jackson Smith (Plaintiff) No Appearance (Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

15743/2006 - PAUL SCRIBERRAS v ADVANCED SECURITY SYSTEMS PTY LTD

JUDGMENT (Appeal and leave to appeal - Local Court - contract) 1 HER HONOUR: By summons filed 23 November 2007 the plaintiff seeks leave to appeal from the orders made on the 26 October 2006 by his Honour Magistrate Bradd LCM, an order that the appeal be allowed and that the whole of the judgment of Bradd LCM in the Downing Centre Local Court be set aside and judgment in the sum of $60,000 with interest at 9% as and from 16 November 2004.

2 The plaintiff is Paul Scriberras. The defendant is Advanced Security Systems Pty Ltd. On 28 February 2007, the defendant entered into a deed of company arrangement. Subsequently, a creditors trust deed was entered into pursuant to the deed of company arrangement. The plaintiff lodged a proof of debt which was rejected on 16 November 2007. A notice of ceasing to act has been filed on behalf of the defendant. The defendant was notified of the hearing date. The defendant was called three times outside the court. There was no appearance on behalf of the defendant. At the hearing of this appeal there was no contradictor - see Holloway v Chairperson of the Residential Tribunal (2001) 51 NSWLR 716. As Mr Paul Scriberras was the plaintiff in the Local Court and in this Court, I shall for convenience refer to him as the plaintiff. Likewise, I shall refer to Advanced Security System Pty Ltd as the defendant.

Grounds of Appeal 3 The three grounds of appeal are firstly, his Honour erred in law in holding that, at the relevant times, Advanced Security Systems Pty Ltd was independent from Advanced Group Company Pty Ltd ("AGC") when such a finding was not open on the evidence; secondly, that his Honour erred in finding that on the true construction of the contract between the parties they intended that any related entity management fee which AGC, as ultimate parent of the defendant, was able to cause the defendant to pay AGC should be taken into account for the purposes of determining whether any incentive payment of $60,000 was payable by the defendant to the plaintiff; and finally, that his Honour erred in failing to find that a determination by the defendant that an incentive payment of $60,000 was payable to the plaintiff bound the defendant to make such a payment to the plaintiff. 4 At the outset, it may be helpful to make some brief comments concerning the remedy pursued by the plaintiff. Section 73 of the Local Courts Act 1982 permits a party who is dissatisfied with a judgment as being erroneous on a point of law to appeal to this court. Leave is required for a question of mixed fact and law - see s 74. The onus lies on the plaintiff to demonstrate that there has been an error of law or that leave should be granted. 5 Section 75 Local Court Act provides that the court may determine an appeal either (a) by varying the terms of the judgment or order, or (b) by setting aside the judgment or order, or (c) by setting aside the judgment or order and remitting the matter to the court for determination in accordance with the Supreme Court's directions, or (d) by dismissing the appeal. 6 In RL & D Investments Pty Ltd v Bisby [2002] NSWSC 1082 Kirby J considered the question "What is an error of law, particularly in the context of a question of mixed fact and law?" Kirby J at [12] said: "In Australian Gaslight Co v Valuer-General (1940) 40 SR (NSW) 126, Jordan CJ considered the nature of an appeal on a question of law. He distilled from the authorities a number of propositions. Relevantly, he said this (omitting references): (at 138) "(3) A finding of fact by a tribunal of fact cannot be disturbed if the facts inferred by the tribunal, upon which the finding is based, are capable of supporting its finding, and there is evidence capable of supporting its inferences.

(4) Such a finding can be disturbed only (a) if there is no evidence to support its inferences, or (b) if the facts inferred by it and supported by evidence are incapable of justifying the finding of fact based upon those inferences, or, (c) if it has misdirected itself in law." 7 The issue has been considered in a number of cases, including Poricanin v Australian Consolidated Industries Ltd [1979] 2 NSWLR 419; Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139; Mahony v Industrial Registrar of New South Wales (1986) 8 NSWLR 1; Australian Broadcasting Tribunal v Bond (1990) 21 ALD 1; Gangemi Holdings Pty Ltd v Salter [1999] NSWSC 1004; Carr v Neill [1999] NSWSC 1263 and State Rail Authority v Smith [2000] NSWSC 334. Arising from these authorities a number of broad propositions can be stated. Firstly, there is no error of law in simply making a wrong finding of fact (Waterford v Commonwealth (1997) 164 CLR 54 at 77; 71 ALR 673 per Brennan J and Australian Broadcasting Tribunal v Bond, per Mason CJ at 13), unless there is no evidence to support that finding; secondly, it does not amount to an error of law, if the finding of fact, or the inference (or the refusal to make a finding of fact or draw an inference) is perverse, in the sense that it is contrary to the overwhelming weight of evidence (Azzopardi v Tasman UEB Industries Ltd at 155-156, per Glass JA); thirdly, it is not an error of law even if the reasoning process by which the court reaches its conclusion of fact is demonstrably unsound or illogical (R v District Court of Sydney: Ex parte White (1966) 116 CLR 644 at 654, per Menzies J); fourthly, there is a limited exception in relation to decisions of fact in the context of a statutory description; and fifthly, there will be an error of law in the circumstances described by Mason CJ (Brennan J agreeing). 8 In Australian Broadcasting Tribunal v Bond, Mason CJ at 23 stated: "the question whether there is any evidence of a particular fact is a question of law...likewise, the question whether a particular inference can be drawn from facts found or agreed is a question of law. This is because, before the inference is drawn, there is the preliminary question whether the evidence reasonably admits of different conclusions. So, in the context of judicial review, it has been accepted that the making of findings and the drawing of inferences in the absence of evidence is an error of law."

The Local Court hearing 9 At the hearing there was a notice of agreed facts before the Magistrate. These do not need to be reproduced here as most are reproduced in the judgment. At the hearing the plaintiff relied upon his affidavit and the affidavits of Sam El-Rahim and Chester Tong. Both Mr El-Rahim and Mr Tong were employees of the defendant. 10 The defendant did not rely upon any evidence. The defendant was in the business of sale and installation of electronic security systems.

The Magistrate's decision 11 The first eight paragraphs of the Magistrate's decision are uncontentious. They read: "1. The plaintiff claims $60,000. The plaintiff was an employee of the defendant from May 1999 to 31 May 2005, In October 2003, the plaintiff and Mr El-Rahim for the defendant agreed that the plaintiff would receive an incentive payment of $60,000 provided the company met a certain financial benchmark; namely the EBITA reaching $2.6 million. The benchmark was not divulged to the plaintiff.

Mr Tong an Associate Director of the defendant with responsibility for finance and administration finalised reports for the defendant for Financial Year 2003/2004. The reports accounted for the incentive payment. The reports showed an EBITA of $2,728,000.

In July 2003 the shareholding of the defendant, was acquired by Advanced Group Company Pty Ltd. On 16/09/2004, Mr Blaxall, the Chief Financial Officer of Advanced Group Company Pty Ltd, informed Mr Tong by email of the final version of the defendants results, and advised him it was the closing position for June 2004. The spreadsheet contained a management charge to the defendant of $2,000,000,

On 16/11/2004, Mr El-Rahim approved the payment of the incentive payment to the plaintiff on the basis that the EBITA of the defendant had reached $2.6 million.

On 30/03/2005 Advanced Consolidated Holdings Pty Ltd acquired the shareholding of the defendant.

On 31/05/2005 the plaintiff ceased employment with the defendant .

The General Manager of the defendant refused to pay the incentive payment.

The defendant agrees [there was] the contract between the parties, but says that the defendant did not meet the financial benchmark. The defendant asserts that the management charge reduced the EBITA of the defendant to $728,000." 12 EBITA means "Earnings Before Income Tax Amortisation". The bonus was to apply during the 2003/2004 financial year. 13 The balance of the Magistrate's decision is as follows: "9. The defence asserts that the defendant said it would pay the plaintiff an incentive when the defendant achieved EBITA of $2.6 million, and the defendant did not achieve EBITA of $2.6 million because Advanced Group Company Pty Ltd the owner of the defendant at the time, and therefore the defendant, transferred $2 million from Advanced Security Systems Pty Ltd. 10. The defendant entered into an agreement with the plaintiff to pay the plaintiff an incentive payment when the defendant achieved an EBITA of $2.6 million. It is clear from the actions of Mr Tong and Mr El-Rahim that in their interpretation the defendant had achieved an EBITA of $2.6 million and the defendant was liable to pay the plaintiff the incentive payment. They did not take into account the management fee of $2.0 million. 11. The evidence before the court is that Advanced Systems Security Pty Ltd was independent from Advanced Group Company Pty Ltd. 12. The Local Court has no power to adjust the rights of contracting parties where it is satisfied that a court of equity would interfere to adjust those rights according to the real intention of the parties at the time they made the contract. 13. Verdict is for the defendant. I propose that the plaintiff pay the defendant's costs on an "ordinary basis" as assessed in accordance with the Legal Profession Act." 14 The parties referred to the decision of the New South Wales Court of Appeal in Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 at 163-164 per Heydon JA. 15 The defendant submitted before the Magistrate, that properly construed the term "financial benchmark" meant a standard of performance measured by reference to the externally prepared and audited accounts. The defendant submitted that each of the plaintiff's witnesses confirmed a system of regular monthly or quarterly accounts. The defendant submitted that these accounts were only interim ones and the parties could not reasonably be assumed to have intended that the defendant's liability for the bonus would depend on interim accounts and that this gave reasonable commercial effect of the agreement as it would operate "when all the results are in" for the trading year. 16 Mr El-Rahim was the managing director. He had authority to employ staff and make decisions concerning staffing issues including remuneration. In October 2003, Mr El-Rahim had a meeting with the plaintiff to discuss the new remuneration package.

Mr Rahim said: "…if the company reaches its financial targets for the 2003/2004 financial year, you will be entitled to a large incentive bonus. If we hit the required EBIT, you would be entitled to $60,000. You will see from the papers Chester has emailed you there are two options depending on your family support situation." 17 The plaintiff replied, "That sounds great. I've had a look at the emails and I will go with the first option." 18 The uncontested evidence before the Local Court is that Advanced Group Company Pty Ltd was the ultimate parent company of Advanced Security Systems Pty Ltd (incorrectly referred to as Advanced Systems Security Pty Ltd in the judgment [11]). There was also evidence that the $2,000,000 was a related party transaction whereby Advanced Group Company Pty Ltd invoiced Advanced Security Systems Pty Ltd for management and other services during the year - see audited accounts p 223. The Magistrate made a finding that these companies were independent. Did this finding form the basis of the Magistrate's decision? It is difficult to say with certainty. It is likely to have formed the basis of his decision. 19 Hence, it is my view that leave ought to be given to appeal. The decision of Bradd LCM dated 26 October 2006 is set aside. The matter should be remitted to the Local Court to be determined according to law. 20 Costs are discretionary. Costs normally follow the event. The defendant is to pay the plaintiff's costs as agreed or assessed.

(2) The decision of Bradd LCM dated 26 October 2006 is set aside.

(3) The matter is remitted to the Local Court to be determined according to law.

(4) The defendant is to pay the plaintiff's costs as agreed or assessed. **********

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