Stephen Aquilina v JNL Electronics [2006] NSWIRComm 57 | Case summary

1 In March 2003, the applicant commenced proceedings under s 106 of the Industrial Relations Act 1996 against four respondents, two being related corporate respondents and two being individual respondents holding directorships in those companies. In short, the applicant's case was that he had been approached to take up the position as New South Wales sales manager with JNL Electronics (Australasia) Pty Ltd ("JNL") and took up that appointment on 20 March 2000. There was a promise of a commission structure that was never reduced to writing or finalised. In May 2002, the applicant was promoted to the position of chief executive officer of JNL and Ai Xin International Trading Pty Ltd ("Ai Xin") at a total salary of $125,000. The applicant was advised that he would be eligible to receive a bonus of up to 20 per cent of his base salary However, by 1 November 2002, the third and fourth respondents (Mr Zhou and Mr Sang) informed him that the position with JNL and Ai Xin was no longer available to him and that he had been made redundant. The applicant was paid 8.75 weeks' redundancy with no payment as to notice: the respondents deducted an amount of $28,000 which they claimed to be a repayable loan given to the applicant while the applicant claimed that it had been an advance to him as part of bonus payments due while details of the bonus scheme were being worked out. 2 When the matter came to a final hearing in February 2006, the first and second respondents JNL and Ai Xin had been placed into liquidation and there were indications that there were no assets available to satisfy any money order that might be made in the present proceedings. The third respondent Mr Zhou was present and represented by counsel who was ready to defend the application, but the fourth respondent Mr Sang was not present or represented. The Court was informed from the Bar table by counsel for the third respondent that Mr Chan, solicitor had acted for all respondents during the course of conciliation and case management but had "lost contact" with the fourth respondent. There was no indication as to when this occurred but it would appear to have occurred after the evidence for all respondents was filed and while the matter was listed but awaiting a hearing. Mr Chan, as solicitor, up until that point had not filed a notice of ceasing to act for the fourth respondent and was still recorded on the Commission's file as acting for the fourth respondent and had done so since 2003. An oral application was made by counsel for the third respondent that his solicitor be given leave to discontinue his appearance for the fourth respondent in the proceedings. That application was not opposed by the applicant and was granted on the first day of hearing. 3 Counsel for the applicant indicated that there was no intention to seek leave of the Supreme Court to continue the proceedings against the first and second respondents JNL and Ai Xin, and announced that no orders would be sought by the applicant against those respondents. The applicant did intend to proceed against the two individuals, the third and fourth respondents Mr Zhou and Mr Sang. The relief sought would be confined to a declaration that the contract was unfair in its terms and operation in that it failed to provide reasonable notice and reasonable redundancy upon termination. The applicant would seek an order for the payment of six months' notice and six months for redundancy, (and that such sums should not be reduced by $28,00) or, in the alternative an order for $60,000 (an amount which the applicant claimed had been agreed to after his termination but then reneged upon by the respondents). The applicant otherwise sought interest and costs. 4 After these developments had been revealed in the opening of the case, the Court asked the parties to consider their position in light of the very different position which faced each of them compared with the nature of the proceedings commenced in 2003. The parties willingly undertook those discussions and ultimately invited the Court to assist by way of further conciliation and on the understanding that, should conciliation fail, the matter would proceed to final hearing before the Court as presently constituted. As a result of the conciliation the applicant settled his claim against the third respondent and, by consent, the Court made formal orders concluding that part of the case. In essence, those orders resulted in the applicant's case against the third respondent being dismissed with the third respondent to pay the applicant's costs in the sum of $27,5000. Those orders appear at the conclusion of this judgment. 5 The applicant then proceeded ex parte against the fourth respondent Mr Sang. The Court was satisfied from material on the Court file and on the submissions of counsel for the applicant that at all relevant times Mr Chan had acted as solicitor for the fourth respondent and that the fourth respondent was aware of the proceedings being listed for hearing in February 2006. Mr Chan had remained on the record as appearing for the fourth respondent up until the first morning of the proposed five day hearing, had been present in Court and raised nothing to suggest that Mr Sang was unaware of the proceedings. In those circumstances, the Court agreed to proceed with the hearing ex parte. 6 The evidence on the ex parte hearing consisted of the affidavit evidence of Mr Aquilina and his wife and affidavits by Stephen McGee and Robert William Scullin. A number of documents dealing with the shareholding and participation in the first and second respondents were also tendered. The evidence ultimately showed that the first respondent JNL was a wholly owned subsidiary of the second respondent Ai Xin and that the affairs of both companies were run jointly. Mr Sang was the managing director of both companies and according to Mr McGee had a major say in all of their dealings and was the major financial contributor to the companies. The third respondent Mr Zhou was a director and was paid an annual amount and was effectively in attendance day in and day out in the offices of the first and second respondents and intimately involved in their affairs. The evidence suggests that Mr Sang possibly had numerous other financial interests but was constantly present in the offices of the first and second respondents and made the final judgments as to their operations. The first and second respondents provided him with a maintained Porsche Boxster vehicle and paid all his expenses for his three or four trips to China each year said to occupy between a few weeks and up to three months at a time. 7 Mr Aquilina's affidavit evidence was that he had been sought out by Mr McGee, with whom he had previously worked, to join the first and second respondents. The prospect was that Mr Aquilina would progress from New South Wales sales manager to the position of national sales manager with the further possibility of obtaining a shareholding or directorship in the company over time. Mr Aquilina accepted the position and commenced work on 27 March 2000 with the first and second respondents. At that point, Mr McGee informed him that the commission structure had not yet been finalised but that the respondents were thinking about a minimum of 20 per cent of gross salary on the achievement of set targets. In July 2001, Mr Aquilina was appointed national sales manager but continued to report to Mr McGee. At this time there was still no determination as to the commission structure. He was assured that Mr McGee was trying to obtain a decision and that the directors were extremely pleased with his progress within the company in the short period of time and that he would be looked after by the respondents. 8 Shortly after being appointed as national sales manager, Mr McGee informed him that the directors had agreed that a commission scheme would be implemented based on 20 per cent of profit over an agreed target and would be paid quarterly. However, by December 2001, Mr Aquilina had not been paid any commission for sales achieved. On about 5 December 2001, Mr Aquilina approached Mr McGee about the non-payment of commissions and was informed that appropriate targets had not yet been formulated. Mr Aquilina made it known that he was about to purchase a house and would like the issue of bonus sorted out and paid sooner rather than later and asked whether it was possible for part-payment of the commission and bonus owing to be paid to him now as he needed about $28,000. On 10 January 2002, Mr McGee gave Mr Aquilina a cheque in the sum of $28,000. Mr McGee stated that Mr Sang had agreed to pay part of the commission owed. Mr Aquilina noted that no one at this stage, within the company or amongst the respondents, informed him that this payment was a loan or would have to be paid back nor was he given any loan agreement or other document to sign in respect of that money as a loan. 9 In mid-May 2002, Mr Aquilina attended a board meeting where the third and fourth respondents were present as well as Mr McGee and others. Mr McGee announced his resignation as CEO of the first two respondents and the position was offered to Mr Aquilina. Mr Aquilina accepted the position and Mr Sang told him that he was wanted as the new CEO, that the salary would be $100,000 plus commission and that the commission would be arranged later. Mr Sang told Mr Aquilina that he was very good and a most important person in the new company and that his number one job as CEO would be to get financial investment from a Chinese company for a new joint venture with the JNL directors. 10 On 16 May 2002, Mr Aquilina met with the fourth respondent when Mr Sang told him that, on the achievement of sales targets, he would be paid a commission of 20 per cent of his base salary and that there would also be a bonus on achievement of an agreed profit budget. Mr Sang said that the sales profit targets would be formulated after a board meeting with the third respondent and Robert Scullin. Mr Scullin was a consultant to the first and second respondents. At this stage, Mr Aquilina's total package including superannuation and the supply of a motor vehicle was $125,000. 11 By August 2002, the applicant became aware that the financial records of the first and second respondents had recorded as a loan the $28,000 part paid bonus and commission paid to him in January 2002. He immediately spoke to Mr Sang who told him there was no problem, that it was just paperwork and a mistake and would be fixed. He requested Mr Aquilina to contact the office and to have a change made to those records. Mr Aquilina made that contact, passed on Mr Sang's instructions and had confirmed that those steps had been taken. In mid-August 2002, Mr Aquilina again spoke to a person in the office regarding the recording of the part-payment of the commission as a loan and was assured that it had been totally removed from the company's records as a loan. 12 Mr Aquilina's wife had been employed by the respondents as administrative assistant/receptionist and later as office manager for Mr Sang. In late October 2002, Mr Aquilina was telephoned by his wife who was concerned about activity in the office. She was later to confirm that a facsimile was being sent to clients of the first and second respondents notifying them that Mr Aquilina was no longer employed with the company and would not be general manager of the joint venture company. Mr Aquilina had not been told of this development. It later became apparent to Mr Aquilina that other staff were informed on this date that he was to be made redundant. Mr Aquilina started to receive enquiries from clients of the first and second respondents about the facsimile announcing his termination and he later came into possession of one of those facsimiles that was redirected to him. 13 Nothing was said to Mr Aquilina by the respondents about these developments on 29 October 2002 so he returned to the office on 30 October 2002. He carried out his normal duties but was not approached by either the third or fourth respondents, although both Mr Zhou and Mr Sang were present. At about 4.00 pm that day, the locks on the building were changed. At about 10.30 am on that day, Mr Aquilina's work based mobile telephone was disconnected. 14 On 1 November 2002, Mr Aquilina was called to the boardroom after 5.30 pm. On entering the boardroom he found Mr Zhou and Mr Sang were present with their solicitor. The solicitor informed Mr Aquilina that his position as CEO had been made redundant and he was handed a handwritten document with proposed termination payments set out. Mr Aquilina was not given any letter of termination or reasons for the redundancy. In the termination pay document, a deduction had been made of $28,000 as a repayment of a loan, which appeared to be the $28,000 that had previously been given to Mr Aquilina as part payment of commission and bonus. Mr Aquilina left the boardroom briefly, returned and informed those present that he did not accept the termination nor was he in agreement with the calculations and deductions set out in the handwritten note and that he would be taking the matter further. At the time he had incurred repayable expenses of approximately $2,000. He had submitted the accounts and receipts for those expenses, but they had not been paid. 15 Mr Aquilina detailed the discussions which then occurred to settle the terms of his redundancy. He ultimately agreed to the payment of a sum of $60,000 and that agreement was conveyed on 24 December 2002. However, the respondents did not honour that agreement and continued to wish to make a further deduction of $28,000 from the sum of $60,000. In late February 2003, Mr Aquilina gave instructions to commence the current proceedings. 16 Mrs Aquilina gave evidence that in January 2001, Mr McGee was the first and second respondents' CEO/general manager. She was aware that at that time her husband had requested the respondents to make an advance payment of his commission and had done so around December 2000. In January 2001, Mr McGee handed her a cheque for $28,000 made out to her husband telling her that that was her husband's bonus payment cheque. 17 Mrs Aquilina confirmed Mr Aquilina's evidence as to the activities in the office of the first and second respondents on 29 October 2002 and the advice given to clients that Mr Aquilina had been terminated as CEO. Mr Aquilina also stated that, during the course of the day, each member of staff was individually called into the boardroom. She was told by one member of staff that she had been informed that her husband was no longer CEO and would not be the general manager of the new joint venture company. Although in the office during the day, Mrs Aquilina was not approached by Mr Zhou or Mr Sang until approximately 5.30 pm when she was called into the boardroom where Mr Zhou and Mr Sang were present with their assistants. Mrs Aquilina was handed a letter terminating her employment and given a pay advice and cheque. 18 In relation to the $28,000 deducted from Mr Aquilina's payout on redundancy, Mrs Aquilina said that at no time was she aware nor had any person from the respondents indicated to her that the $28,000 advance was being treated as a loan. 19 Mr McGee's affidavit evidence was that he was employed by the first and second respondents in late 1998 or early 1999. In late 1999, he was appointed the chief executive officer of both the first and second respondents. Mr McGee outlined discussions he had with Mr Aquilina concerning taking up the role of New South Wales sales manager and had told him that a bonus structure had not yet been worked out and that the company was relatively new and growing at a rapid pace. The company would be paying bonuses on top of a base salary. The present focus was on establishing a range of products and a distribution channel and once those had been sorted out, the performance targets for bonuses would be in place. 20 From March 2000 to December 2001, Mr McGee said that the applicant made a significant contribution to the business of the respondents. In December 2001, he recalled a conversation with Mr Aquilina about the payment of a bonus and informed Mr Aquilina that the basis for a bonus had not yet been worked out because of the company's rapid growth, but he assured him that his performance had been outstanding and that the company would do everything possible to ensure his long term satisfaction. Mr Aquilina had told him that he wanted to buy a house, would like access to his bonus and sought the part-payment of the bonus in the sum of $28,000. Mr McGee said he would take it up with Mr Sang. 21 Mr McGee took up Mr Aquilina's request for an advance against his bonus when he next met with Mr Zhou and Mr Sang. Mr Sang was the chairman of the board and actually made these decisions. Mr McGee explained the purpose of Mr Aquilina's request for an advance on his bonus and his desire to purchase a house. Mr McGee said that the bonus structure had not been established as the first and second respondents had not yet been able to set targets, but Mr Aquilina had made a considerable contribution in bringing Retravision as a major account and suggested that he should be looked after. Mr Sang agreed and said that he did not want to lose Mr Aquilina and that the $28,000 payment would be "okay". Having received approval from the fourth respondent, Mr McGee authorised the financial controller to draw up the cheque which was provided on or about 10 January 2002. 22 Mr McGee stated that at no time was there any discussion between himself and the respondents that the $28,000 payment was to be made as a loan to the applicant. As far as he was concerned, the payment of the $28,000 was an advance on bonus and to the best of his knowledge neither Mr Zhou or Mr Sang advised Mr Aquilina that the payment was anything other than an advance on his bonus. 23 In May 2002, Mr McGee resigned as chief executive officer and met with the directors on a number of occasions to discuss his replacement. On these occasions, he mentioned the possibility of Mr Aquilina being appointed as the chief executive officer. On one occasion Mr Sang said that Mr Aquilina had built up a good relationship with customers - Mr McGee replied that he would be the logical replacement. There was then a discussion about what salary would be appropriate having regard to Mr McGee's salary being $120,000 per annum plus a car allowance. Mr Sang replied that he had just been paid a bonus of $28,000 and that Mr Aquilina should start in the position at $100,000 per annum. 24 On 15 May 2002, a board meeting of the first and second respondents was conducted and received Mr McGee's resignation. At that meeting Mr Aquilina was offered the position. An announcement of Mr Aquilina's appointment and Mr McGee's resignation was sent out by the board of directors by memorandum dated 15 May 2002. In that document, Mr Aquilina was described as "an excellent leader with a solid background in sales and operational experience". The directors stated that they felt sure he would bring continued success to the company. 25 Robert Scullin had been engaged as a consultant to the first and second respondents between June and December 2002 and had then become a director and consultant of the joint venture company until 30 April 2004. Prior to his consultancy with the respondents, he was the managing director of Retravision Australia and it was in this role that he came to know Mr Aquilina. 26 In October 2002, Mr Scullin was requested by Mr Sang and Mr Zhou to discuss with Mr Aquilina his role with the new venture company in view of the fact that Mr Sang and Mr Zhou did not believe that Mr Aquilina had the skills to be the CEO of the joint venture. 27 On Monday 28 October 2002, Mr Scullin met with Mr Aquilina and informed him of the views expressed to him by Mr Sang and Mr Zhou and that they were not going to recommend Mr Aquilina for the role of CEO for the new venture. He asked Mr Aquilina to think about taking up a national role and increasing his skills before "moving up". Mr Aquilina indicated that he had been promised the role as CEO and that was the job he wanted. Mr Scullin asked him to think about it until the end of the week when they could again talk about the matter. There was no discussion with Mr Aquilina regarding his position as general manager of the first respondent. The meeting with Mr Aquilina and its result was reported to Mr Zhou and Mr Sang. 28 Later in the week Mr Scullin became aware that the respondents had forwarded letters to Retravision and other interested companies stating the Mr Aquilina was no longer an employee of JNL and would not be representing the joint venture as general manager. Mr Scullin said he felt surprised that these letters had been sent because it did not reflect the understanding he had reached with Mr Aquilina that he consider his position until Friday and this had been confirmed with the respondents. Mr Scullin contacted Mr Zhou raising these concerns. 29 Mr Scullin was present at a meeting with Mr Zhou, Mr Sang and legal advisers to the respondents prior to Christmas 2002. This meeting was organised by solicitors for the respondents to discuss a dispute that had arisen between the respondents and Mr Aquilina following upon his termination of employment. Mr Scullin attended this meeting at the specific request of Mr Sang and Mr Zhou. There was discussion about the sum that Mr Aquilina was seeking in relation to his termination. Mr Sang and Mr Zhou asked Mr Scullin to speak to him to get him to reduce the offer to a more reasonable figure. 30 Mr Scullin then had a telephone conversation with Mr Aquilina in which Mr Aquilina said he wanted a speedy resolution and would agree to a sum of $60,000 to be paid over and above the termination pay that he had already received provided it was paid promptly. Mr Scullin undertook to advise the respondents of this proposition. 31 Mr Aquilina's proposal for a $60,000 additional payment was then related to Mr Zhou and Mr Sang. The respondents' legal representative was also informed and Mr Scullin took steps to ensure that Mr Zhou and Mr Sang, through an interpreter, clearly understood what was being proposed by Mr Aquilina. Mr Scullin was assured that they understood and Mr Zhou told him that they would accept the offer. Mr Scullin said that he was in no doubt that they had agreed to accept Mr Aquilina's proposal and then telephoned Mr Aquilina and advised him that Mr Zhou and Mr Sang would agree to the payment of $60,000. Mr Scullin said that he was surprised to find that in early 2003 Mr Zhou and Mr Sang had changed their position. Mr Zhou said the matter was not finalised because Mr Aquilina would not accept the offer of $60,000 less the $28,000 that had been advanced to him. Mr Scullin pointed out that the $28,000 had already been deducted from the termination pay provided to Mr Aquilina in the previous year. He told Mr Zhou that it was his clear understanding at the December 2002 meeting that Mr Zhou had agreed to pay $60,000 over and above what was paid to Mr Aquilina on his termination. Mr Zhou told him that: "No, we will only agree to pay him $60,000 less the $28,000". Mr Scullin expressed his disagreement but acknowledged that it was a decision for Mr Zhou and Mr Sang. 32 Oral evidence was given in the proceedings by Mr Aquilina and Mr McGee. The thrust of that evidence was that the fourth respondent Mr Sang was in control of the first and second respondents, the primary financial backer for the companies and the person who made the decisions. Mr Sang held 73 per cent of the shares in the companies, Mr Zhou held 20 per cent and Mr McGee held 7 per cent of the shares in those companies as his bonus arrangement. Mr Aquilina said that the final payment made to him by the respondents on the termination of his employment and redundancy was approximately $2,500 with $28,000 having been deducted as a repayment of the alleged loan. 33 In April 2003, the four respondents to the application filed a joint reply to the summons for relief under s 106. It was their joint position that Mr Aquilina had been engaged as the New South Wales state manager then the Chief Executive Officer of the first and second respondents, but they all denied there was ever an arrangement established whereby commissions or a bonus would be paid to any employees of the first and second respondents, including Mr Aquilina. It was also their joint position that in January 2002, at the request of Mr McGee, a decision was taken by the respondents to accede to Mr Aquilina's request to borrow $28,000 from the company because he was buying a house. The respondents agreed to that loan in view of his personal circumstances and the sum was recorded as a loan in the accounts of the first respondent. All the respondents deny that there was an arrangement that the applicant would receive a bonus of 20 per cent of his salary or any other amount. 34 The respondents agreed that in late October 2002, Mr Scullin had informed Mr Aquilina that he would not be appointed as chief executive officer of the joint venture company. The reply then stated that the respondents became aware that the applicant had informed other staff that he had quit and had made statements threatening to hinder the progress of the company. In order to avoid any such actions that might have been harmful to the joint venture, the first respondent notified its customers that the applicant was not to be appointed as chief executive officer of the joint venture company although that letter did not state that the applicant was to be made redundant or would otherwise be leaving the company. It was not until 1 November 2002 that the applicant was informed that he was to be made redundant and paid his statutory entitlements plus a period of 8.75 weeks by way of redundancy payment. The redundancy was said to be "necessary as a result of the formation of a joint venture company". The first and second respondents at that time were in the process of ceasing all operations and the new business was to be conducted entirely by the joint venture company. As a result, there was no further work for the applicant to perform for the first and second respondents. Further, as the first and second respondents had less than 15 employees those companies were under no statutory obligation to make any redundancy payments, although 8.75 weeks had been paid by way of redundancy to the applicant. 35 More generally, the respondents denied there was any unfairness arising from the operation of the contract. When the first and second respondents became aware that their operations were to cease, the applicant had been offered, but declined, alternative employment with the joint venture company. In any event, the redundancy payment made to the applicant was fair and reasonable in the circumstances having regard to the applicant's length of service, seniority and the circumstances of his redundancy. 36 In the response filed by the applicant, he denied that no arrangement had been made for the payment of commissions or a 20 per cent bonus. He denied that the $28,000 part-payment of the bonus was ever proposed or accepted as a loan. The applicant responded that the joint venture company was never envisaged as a body that would take over the operations of the first and second respondents and that therefore there would be no role for the applicant in the first and second respondents. Mr Aquilina particularly denied that, when he had been told he would not be appointed CEO of the joint venture company, he had informed other staff members that he intended to quit or made any statements threatening to hinder the progress of the company. Mr Aquilina stated that the only employment offered to him by the respondents in the joint venture company was that of general manager, but that was withdrawn. 37 Mr Aquilina's oral evidence was that, after being terminated by the respondents in early November 2002, he made numerous enquiries for alternative work, including utilising employment agencies but failed to obtain new employment until August 2003. That work continued for a period of eight months and paid an annual remuneration of $75,000 plus the supply of a car. There were other engagements which followed that employment. DELIBERATION 38 From the summons for relief, the reply and the responses filed there does not appear to have been any contest that Mr Aquilina was employed by the first and second respondents, ultimately as their chief executive officer, and that in November 2002 that employment was terminated after more than two a half years' service with the payment of 8.75 weeks in recognition of the redundancy of his position. The persons responsible for those decisions were the third and fourth respondents. 39 The evidence discloses that the control of the activities and decision making processes of the first and second respondents was exercised by Mr Sang, the fourth respondent. He was, in substance, the financial provider for the companies and held nearly three-quarters of the shares - he exercised day to day control over those respondents. The evidence supports a finding that without the approval of Mr Sang, Mr Aquilina would not have been employed, would not have been employed at the rate and conditions upon which he was ultimately employed, would not have been offered a 20 per cent bonus and commission and would not have received the sum of $28,000. The intimate involvement of Mr Sang in the affairs of the first and second respondents provides the connection between the fourth respondent and the contracts and arrangements entered into between the applicant and the first and second respondents (see Brown v Rezitis (1970) 127 CLR 157; Ace Business Brokers Pty Ltd v Phillips-Treby (2000) 100 IR 420). 40 Having regard to the evidence led on behalf of the applicant in the ex parte hearing concerning the fourth respondent Mr Sang, it appears that Mr Aquilina was at least encouraged to join the first and second respondents by representations that there were opportunities for him to advance within the structure of the first and second respondents. Those representations appear to have borne fruit, with the applicant rapidly obtaining the position of chief executive officer of the first and second respondents. The evidence from Mr McGee supports the evidence of Mr Aquilina that he was performing well and was highly regarded by the respondents. He was entitled to expect ongoing employment with significant remuneration and a proper period of notice and severance pay should his employment be terminated in such circumstances. 41 I accept the applicant's evidence that at all relevant times he was promised a commission and bonus arrangement, although it was well into his employment before he was offered 20 per cent of his salary on the meeting of certain targets and a bonus on budget targets. It appears from the evidence that there was always a proposal for payment of a bonus and/or commission and, indeed, that seems to have been part of the representations made before Mr Aquilina took up the position of New South Wales sales manager. 42 I accept the evidence of Mr Aquilina and Mr McGee that the $28,000 paid to Mr Aquilina was a payment sought and made by the applicant and made on the recommendation of Mr McGee as an advance on bonus or commissions. I reject the allegation made in the respondents' reply that this sum was sought and granted as a loan to help Mr Aquilina purchase a house. Mr McGee's evidence was that the respondents, including Mr Sang, could not have been in any doubt as to the characterisation of the $28,000 that was being then sought by Mr Aquilina. I accept that evidence. 43 As to the unfairness of the contract, the evidence strongly suggests that Mr Aquilina was well regarded by the respondents including Mr Sang and that there was a proposal that he become the general manager/CEO of the joint venture. On the evidence, I am unable to accept the respondents' position that, once the joint venture was underway, there would be no work left for the first and second respondents: at the very least, it seems that the work of the joint venture would be encompassed in the work of the first and second respondents and that, undoubtedly, was why Mr Aquilina was being so strongly considered as the chief executive officer of the joint venture. There is no material before the Court that indicates why Mr Aquilina went out of favour, but it would appear that the respondents formed the view that he was unsuitable for appointment as the chief executive of the joint venture, perhaps because of his relative lack of experience although that experience was regarded as being highly successful in this area. Having reached this position, the issue arose for the respondents as to how to deal with Mr Aquilina. On the evidence before the Court, I am unable to accept the respondents' proposition that they were required to dismiss him because of the fear of disrupting the joint venture once Mr Aquilina had failed to be appointed as chief executive officer - there is simply no evidence to support that allegation and it was at all material times denied by Mr Aquilina. Indeed, it was the respondents' case that because of involvement with the joint venture, the applicant became redundant. Importantly, Mr Scullin gave no support to that allegation by the respondents. It appears that the respondents, having determined not to appoint Mr Aquilina as chief executive of the joint venture, then moved to sever contacts by not only dismissing him but also dismissing his wife. 44 From these matters, the Court is able to determine that the contract was unfair in its terms in failing to provide appropriate notice and severance pay having regard to the status of the applicant's position as CEO and his performance in the position. The contractual terms were also unfair in failing to specify the amount of bonus and commissions available to the applicant on the meeting of reasonable targets or in a way that was ascertainable, despite the representations that there would be such a bonus and commission scheme and the fact that the applicant had worked successfully and diligently to increase the sales of the respondents in light of those representations. 45 The question then arises as to what was unfair about the termination of the applicant's employment. In my view, notwithstanding the relatively short period of his appointment, the status of the position was such that, when he was terminated, Mr Aquilina was entitled to six months' notice or payment in lieu. Significantly, the respondents accept that there was a redundancy and, in my view, in those circumstances there should have been an additional three months paid as severance pay. These periods are considered to be appropriate having regard to the Commission's broad jurisdiction and the manner in which it has been exercised in generally similar circumstances over many years. 46 The contract also became unfair in its operation in that the respondents agreed to pay $28,000 to the applicant as part-payment of bonus and commissions yet unilaterally altered that arrangement in the books of the first and second respondents and in all further dealings with the applicant to claim the sum of $28,000 as being a repayable loan to assist in the purchase of the applicant's house. In treating the applicant in such a way, each of the respondents conducted themselves contrary to their duty to act in good faith in their relations and dealings with the applicant (see Renard Constructions [ME] Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234; Overlook v Foxtel [2002] NSW SC 17). 47 Pursuant to the provisions of s 106(6), when making an order under s 106, the Court is to take into account whether or not the applicant took any action to mitigate the loss. Mr Aquilina's sworn evidence was that, on termination by the respondents, he took extensive steps to obtain new employment but was unable to secure any employment until August 2003, between 8 and 9 months after termination. It is important to note that this employment was at a significantly lower level of pay providing $75,000 p.a. plus the provision of a car. 48 In English v Aradlay Insurance Brokers Pty Ltd [2005] NSWIRComm 253, the Full Bench gave consideration to the operation of the principle of mitigation in s 106 cases, stating: [35] It is plain that the assessment of appropriate compensation under s 106(5), and also under s 106(6) involves an act of judgment on the part of the trial Judge where the general law principles as to mitigation of damages are relevant but not decisive as to what award is made. In any event, the authorities as to mitigation make clear that while the duty to act reasonably to mitigate damage does not generally require an employee to take employment of a different or inferior kind, that part of the rules of mitigation known as the rule as to avoided loss, or mitigation in fact, means that where an applicant actually avoids loss by obtaining other employment (or earnings), the earnings will reduce the damages or compensation even though the non-acceptance of the other employment would not have constituted a failure to mitigate ... 49 In all the circumstances, this is not a case where the principle of mitigation should result in Mr Aquilina receiving some lower amount than that to be calculated by reference to 9 months' salary: in this case Mr Aquilina was unable to find employment for approximately nine months and then took up a position at a significantly reduced rate to that paid by the respondents. The inference is open that this employment did not carry the same status as the position of CEO held by the applicant with the respondents. This is a case where the Court should make a declaration that the contract was unfair in its terms and became unfair in its operation and where there should be an order that the contract be declared void ab initio save and except for payments made to the applicant by the respondents during his employment. 50 In arriving at the monetary sum that the fourth respondent should be required to pay to the applicant, two further issues need to be considered: (a) what was the worth of the total remuneration package of the applicant at the time of termination, and b) what proportion of the 9 months calculated at the total package payable to the applicant should be borne by Mr Sang, the fourth respondent?

Stephen Aquilina v JNL Electronics

At a glance

Court

Decision date

Before

Source

Judgment (15 paragraphs)

Parties

Cases Cited (4)