Solarite Air Conditioning Pty Ltd v York Australia Pty Ltd

Clause 10.3 Resignation If you resign, you must give 4 weeks notice in writing. If you decline to serve part or all of that notice period without agreement of the company, you will forfeit your right to be paid for that period of notice which you refused to serve (and clause 4 will apply) Clause 10.4 Summary termination The company may terminate your employment immediately by giving notice to you and without being required to provide any compensation or payment in lieu of notice if you: (a) engage in serious or gross misconduct; (b) breach a fundamental condition and/or commit a fundamental breach of the conditions of your employment; (c) commit an act of fraud or dishonesty; (d) engage in any conduct which, in the reasonable opinion of the company, might tend to injure the reputation or business of the company; (e) fail or refuse to comply with any lawful direction given to you by the company through its authorised representative. Clause 10.5 During the notice period If either the company or you give notice of termination under this agreement, the company may: (a) pay you an amount of base salary in lieu of part or all that period not served by you; or (b) require you to serve part or all of that period without attending work and/or performing duties. (c) restrict you to accept or attempt in any manner to secure employment, provide advice or services to or be engaged, concerned or interested in or associated with or otherwise involved in any business activity that is competitive with any business carried on by the company. 5It should be observed at this stage that there was no clause 10.2. 6In the course of 2013, Modular's managing director, Mr Shaw, became concerned about Mr Smith's conduct and performance. On 7 June 2013, he sent to Mr Smith a letter setting out a number of concerns. One was an allegation that he had a conversation with the company secretary in which, to her query "What's up?", he is said to have replied: "Too many chiefs and not enough Indians." To her response, "Why don't you fix it?", he is said to have answered, "I will wait for it to fail and then I will step in." Other concerns raised included failing to honour the principle of "cabinet solidarity"; disregarding advice that no materials, plant and equipment transferred from SBS to MBS should be released to anyone claiming ownership unless in possession of a Court order; failing to follow direction not to waste time and effort in tendering for a project in Western Australia; and "utterly inappropriate attitude towards me, the senior managers of the group and the advisory board members," being said that rather than bringing the management team together he had behaved in a divisive manner and "failed miserably to establish frank and open communication which would have ensured a high degree of co-operative relationships". 7On 9 June 2013, the chairman of Modular's advisory board wrote to Mr Smith, asking that he provide a written response in respect of concerns that had been raised with him and listing a number of matters which had been covered in those discussions, including "demonstrable lack of cohesion amongst senior management", "absence of a strategic plan and comprehensive budgets", "absence of regular formal meetings amongst management", "failure to adhere to the time honoured principle of cabinet solidarity", "resentment of the establishment of the advisory board", "failure to identify risks to the business associated with some poor decision making", and, again, reference was made to the conversation with the company secretary. 8On 25 June 2013, Mr Shaw wrote a letter to Mr Smith setting out what the board and managing director saw as the principal responsibilities of the chief executive officer. 9Mr Shaw, whose evidence was not challenged or contradicted, said that there continued to be problems with Mr Smith's performance and conduct, and on 1 November 2013 he met again with Mr Smith to address that matter. According to Mr Shaw, he together with a consultant, Mr Mark Hoogsteyns, met with Mr Smith at 10 am on 1 November 2013. Mr Shaw said "Things have not been going well in the business as there have been discussions with you regarding serious concerns with your conduct and performance. Unfortunately, nothing has changed and as a consequence the company is considering terminating your employment." Mr Shaw handed to Mr Smith a letter dated 1 November 2013 marked without prejudice and captioned, Deed of Release as follows: Dear Glenn Re: Deed of Release We confirm you will complete your employment with Modular building Systems Pty Ltd ('MBS') on 1 November 2013. MBS, (on a without prejudice basis and without any admission of liability), is willing to offer you a payment of $100,000 gross, (less applicable taxation) which includes any entitlement to notice and annual leave. The payment is subject to you signing and agreeing to be bound by the terms of the enclosed Deed of Release. If you do not wish to sign the Deed, you will not be entitled to the additional payment. The Deed is an important legal document. By signing the Deed, the terms of it become legally binding on you. For this reason, you should read the Deed carefully and consider obtaining any advice you require (legal, financial or otherwise), about the Deed before signing it. After having considered the Deed, if you accept its terms, please sign the Deed where indicated, in the presence of witnesses. The relevant Officers at MBS will sign the Deed and provide you a copy for your records. Should you have any questions in relation to this correspondence, please do not hesitate to contact me on XXXX. Yours sincerely Murray Shaw Managing Director 10It will be observed at this point that the letter comprises two parts. The first simply confirms that Mr Smith will complete his employment on that date, on 20 November 2013. The second, which expressed to be on a without prejudice basis and without any admission of liability, offers a payment of $100,000 in return for releases contained in a deed. It is not entirely clear whether the draft deed was or was not provided at this stage, but I do not think that for present purposes that makes any difference. 11Mr Shaw had prepared another letter, also dated 1 November 2013, but in the events that transpired he did not hand it over on that occasion. It will be necessary to return to that letter in due course. Again, according to Mr Shaw, after the letter was handed to Mr Smith, "it was agreed that we would allow the defendant some time to obtain legal advice before responding to the proposal contained in the letter". Mr Shaw deposes that the defendant's employment was not terminated at that meeting, but that is not a matter of fact to which he can depose but a bare assertion or conclusion, the resolution of which depends on the documentary and other communications and not on Mr Shaw's assertion. 12Subsequently, on 7 November 2013, it came to Mr Shaw's attention that there had been an email exchange between Mr Smith and a competitor of Modular. On 5 November 2013, in the course of which Mr Smith asserted "As of last Friday I ceased to be associated with MBS as the CEO of the organisation." The general effect of the email correspondence was that he was seeking opportunities elsewhere. 13In response, on 8 November Mr Shaw had a further meeting with Mr Smith in which he said, "As a consequence of the matters discussed with you on 1 November 2013 and matters that have come to our knowledge since that meeting, we have decided that you should be given written notice that your employment is to be terminated with immediate effect." He then handed to Mr Smith a copy of the second letter dated 1 November 2013 which was relevantly as follows: Dear Glenn, Re: Termination of employment Reference is made to letters dated 9 June 2013 and 25 June 2013 concerning your overall performance as Chief Executive Officer of Modular Building Services Pty Ltd. The Directors consider that you have been in breach of the terms and conditions of your contract of employment with the company and as a consequence have decided to terminate your employment with immediate effect. The decision has not been made lightly and has resulted from: 1. A breach of Section 181(1) of the Corporations Act (Cth) 2001 relating to acting in good faith and for a proper purpose; 2. A breach of Section 182(1) of the Corporations Act (Cth) 2001 relating to an employee of a corporation not improperly using their position to cause detriment to the corporation; 3. It is my belief (and that of the Board's) that your conversation with Helanath Dissanayake in which it was reported that when asked "why don't you fix it" you answered "I am waiting for it to fail and then I shall step in" is in contravention of Section 181(1)(a) and 182(1)(b). 4. your direct contravention of a number of directions given by myself including: a. the pursuit of the WA tender when specifically told not to do so; b. having been told on the Friday not to permit any further transfers of SBS's goods to the MBS premises yet you arranged for further transfers to take place on the Saturday and Sunday using MBS's facilities; c. having been directed not to permit any person to remove goods from MBS's premises without first sighting a court order, then permitting SBS's lawyer to remove goods from MBS's warehouse/factory without sighting a court order and which ultimately led to a considerable legal debacle and legal expenses. Exacerbating this situation is the ongoing poor performance of the Company and your inability to turn the situation around. You will receive 4 weeks' notice of termination plus any outstanding accrued but not taken leave entitlement within 3 days of the date of this letter. We wish you well for the future. Yours sincerely Murray Shaw Managing Director 14Mr Smith's statutory demand is founded on the contention that having been terminated between 1 July 2013 and 30 June 2014 he is entitled to compensation of $240,000 pursuant to clause 10.1(c) of the employment contract. Modular's contention is that Mr Smith was terminated summarily pursuant to clause 10.4 and was not entitled to any compensation nor payment in lieu of notice. 15The test to be applied on an application under s 459G to set aside a creditors' statutory demand has been often stated and described in different but essentially synonymous terms, including that the applicant must show that there is a "plausible contention requiring investigation", that the dispute is "real and not spurious, hypothetical, illusory or misconceived", and that there is a "perception of the genuineness". On such an application, it is not expected the Court will embark on any extended inquiry. It has repeatedly been said that the task faced by a company challenging a statutory demand "is by no means at all a difficult or demanding one", and that a company will fail in that task only if it is found, upon the hearing of its s 459G application, that the contentions on which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. Once the company shows that even one issue has a sufficient degree of cogency, a finding of genuine dispute must follow. The Court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any fact that on rational grounds indicates an arguable case on the part of the company it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger [Solarite Air Conditioning Pty Ltd v York Australia Pty Ltd [2002] NSWSC 411 (at [23]), (Barrett J, as his Honour then was)]. 16The defendant submits that there is no genuine dispute in this case on three grounds: first, that even if the termination were a summary one under clause 10.4, compensation under clause 10.1 would still be payable; secondly, that the termination was not under clause 10.4 but under clause 10.1(a); and, thirdly, that even if the termination purported to be under clause 10.4, the grounds relied on could not sustain a summary termination under that clause. 17As to the first, I have set out the relevant terms of the clause 10 above. I have also already observed that there is no clause 10.2. The defendant's submission is that the reference to "any compensation or payment in lieu of notice" in clause 10.4 is a compendious one, and refers only to payment or compensation in lieu of notice, and not to compensation under clause 10.1(c). Further, the defendant submits that clause 10.1(c) is plain in its own terms and is not subject to clause 10.4. 18In my opinion, however, the contrary is at least arguable. The reference in clause 10.4 to "compensation" as well as to payment in lieu of notice is at least arguably a reference to compensation under clause 10.1(c). It would be quite extraordinary for parties to agree to exclude payment in lieu of notice for a period of four weeks in the case of summary termination, and yet to preserve a claim to compensation of amounts varying between $60,000 and $300,000 depending on how short the contract was cut. Moreover, it seems distinctly arguable, in the absence of any clause 10.2, that the reference in clause 10.1(a) to clause 10.3 is falsa demonstratio and intended to be a reference to clause 10.4. In my view, it is distinctly arguable that on the proper construction of clause 10, where the summary termination procedure under clause 10.4 is validly invoked, then the right to compensation under clause 10.1(c) does not arise. 19Turning to the second argument, the defendant contends that it is not seriously arguable that the termination was other than one under clause 10.1(a). Although the plaintiff's primary position was, at least originally, that there was no termination until 8 November 2013, the defendant contends, and the plaintiff did not seem seriously to dispute, that the events of 1 November 2013 effected a termination that day. The first paragraph of the letter handed over that day was unequivocal: it did not involve any aspect of offer of compromise awaiting acceptance, but mere confirmation of what had happened. In other words, it implemented a termination with immediate effect, or at least purported to do so. It then offered to compromise the rights arising upon that termination. In essence, as it seems to me, there were two possibilities: one was that the termination was a summary one, which at least on one available construction of clause 10, would result in Mr Smith having no rights to any amounts other than accrued leave and wages; the alternative was that it was a termination under clause 10.1(a), in which case Mr Smith was entitled to $240,000. An offer of something less than half of the $240,000 is entirely equivocal as to the basis of the termination. Being made, as it was, on a without prejudice basis and without admission of liability, it illustrates that Modular was prepared to compromise the position with Mr Smith and sought to do so. A without prejudice offer to that effect is not inconsistent with summary termination, nor is it inconsistent with termination under clause 10.1(a). 20However, it is of some significance that the letter purported to effect an immediate termination, which would be consistent with termination under clause 10.4 - although the force of this is reduced by the probability that payment in lieu of notice could be given under clause 10.5(a). 21As it seems to me, ultimately the question must be whether it is arguable that the company was entitled to summarily terminate under clause 10.4 as at 1 November 2013. The second letter that bears that date, but which was not handed to Mr Smith until 8 November, sets out a number of grounds. While they do not in terms directly mirror the grounds referred to in clause 10.4, I do not think it can be said that it is unarguable, that if sustained, they would fall within clause 10.4. If that be so, it is at least arguable that the company was entitled to invoke clause 10.4, even if it did not at the moment expressly do so; it is well established that an employer can rely retrospectively on all available grounds although they were unknown or not invoked at the time of termination. 22The defendant pointed to a number of matters which are said to be inconsistent with reliance on clause 10.4. The chief of them are, first, that in the second letter of 1 November it was stated that Mr Smith would receive four weeks notice of termination and, secondly, that in fact he was then paid his salary for the four weeks following 1 November 2013, which was characterised in the payment slips as payment in lieu of notice. 23I do not doubt that this is some evidence that he received payment in lieu of notice, which might be thought to be inconsistent with summary dismissal. However, clause 10.4 provides only that in the event of summary termination Modular may do so "without being required to provide any ... payment in lieu of notice" (emphasis added). This does not prohibit Modular from providing a payment if minded to do so for whatever reason. It is at least arguable that where an employer is entitled to terminate summarily, the law does not preclude it, for whatever reason, paying some money in connection with the termination. In any event, the fact that some money was paid and characterised as payment in lieu of notice does not render unarguable the proposition that there was a summary termination in this case. 24I have already dealt with the third ground advanced by Mr Smith. As I have said, first, all the matters referred to in the second letter of 1 November had self-evidently happened prior to 1 November and while they do not in terms mirror the terms of clause 10.4, they at least arguably could amount to conduct of the type described in that clause. 25In short, there is an arguable interpretation of the evidence that on 1 November the company summarily dismissed Mr Smith while offering him a compromise of its rights arising thereafter, and on 8 November voluntarily undertook to pay him 4 weeks in lieu of notice though not obliged to do so, and an arguable construction of clause 10 that upon summary termination, no "compensation" was payable. 26The plaintiff has therefore established that there is a genuine dispute as to the existence of the debt claimed. 27The Court orders that: (1)Pursuant to the Corporations Act s 459G, the creditors' statutory demand served on the plaintiff by the defendant on 19 December 2013 be set aside. (2)The defendant pay the plaintiff's costs.

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