Ahale v Desaln8 Pty Ltd

FEDERAL CIRCUIT COURT OF AUSTRALIA

AHALE v DESALN8 PTY LTD & ORS

[2019] FCCA 1237

Catchwords:
INDUSTRIAL LAW – Application for redundancy payment – meaning of “redundancy” – whether applicant dismissed because of respondent’s parlous financial position – whether applicant dismissed for poor performance – employer not indicating performance issues at termination interview – applicant’s duties continuing but now performed for half the price – applicant not redundant – application dismissed.

Legislation:

Fair Work Act 2009, ss.550, 119

Cases cited:

Foster’s Group Ltd v Wing [2005] VSCA 322

Applicant:

TREVOR AHALE

First Respondent:

DESALN8 PTY LTD
(ABN 36 115 730 286)

Second Respondent:

MECRUS RESOURCES PTY LTD
(ABN 55 092 352 157)

Third Respondent:

BARRY RICHARDS

File Number:

MLG 1406 of 2017

Judgment of:

Judge Burchardt

Hearing date:

28 February and 1 March 2019

Date of Last Submission:

1 March 2019

Delivered at:

Melbourne

Delivered on:

14 May 2019

REPRESENTATION

Counsel for the Applicant:

Mr Addison

Solicitors for the Applicant:

Maddison & Associates

Counsel for the Respondents:

Mr Tracey

Solicitors for the Respondents:

KHQ Lawyers

ORDERS

The application filed 30 June 2017 is dismissed.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLG 1406 of 2017

TREVOR AHALE

Applicant

And

DESALN8 (ABN 36 115 730 286)

First Respondent

MECRUS RESOURCES PTY LTD (ABN 55 092 352 157)

Second Respondent

BARRY RICHARDS

Third Respondent

REASONS FOR JUDGMENT

Introductory

The matter before the Court is a claim by the applicant, Mr Ahale, for redundancy pay, pursuant to s.119 of the Fair Work Act 2009

(“FW Act”). The total amount payable would be slightly in excess of $40,000. The applicant says he was dismissed by reason of redundancy, in that his employment was terminated, and he was replaced for

a period of six months or so by two other employees. In the ultimate,

a single employee was engaged. He relies in large part on the fact that Mr Richards, the third respondent, who effected the termination of employment, told him at the time of the termination that the Mecrus Group was in dire financial straits. He points to the fact that the person who ultimately replaced him is paid approximately half what he was.
By way of distinction, the respondents say that Mr Ahale was dismissed because of underperformance. They say that this therefore cannot give rise to redundancy. In response, the applicant says he was not dismissed for underperformance, and that this is a ruse to avoid the payment of the redundancy payment.
For the reasons that follow, I am of the view that the termination of the applicant’s employment, whilst undoubtedly unfairly conducted, was not a redundancy within the meaning of s.119 of the FW Act.

What is redundancy for these purposes?

Section 119 of the FW Act, under the heading “Entitlement

to redundancy pay” asserts:
“(1)   An employee is entitled to be paid redundancy pay by the employer if the employee’s employment is terminated:
(a)     at the employer’s initiative because the employer no longer requires the job done by the employee to be done by anyone, except where this is due to the ordinary and customary turnover of labour; or
(b)     because of the insolvency or bankruptcy of the employer.”
The explanatory memorandum to the FW Act at 1547 and 1548 is quoted without challenge in the applicant’s written submissions at paragraph 19:
“1547 Paragraph 389(1)(a) provides that a person's dismissal will be a case of genuine redundancy if his or her job was no longer required to be performed by anyone because of changes in the operational requirements of the employer's enterprise. Enterprise is defined in clause 12 to mean a business, activity, project or undertaking.
1548 The following are possible examples of a change in the operational requirements of an enterprise:
·a machine is now available to do the job performed by the employee;
· the employer's business is experiencing a downturn and therefore the employer only needs three people to do a particular task or duty instead of five; or
· the employer is restructuring their business to improve efficiency and the tasks done by a particular employee are distributed between several other employees and therefore the person's job no longer exists.”
It is the latter of these dot points that is emphasised in the applicant’s written submissions.
The parties have put a considerable amount of case law before the Court. There have been various reviews of the meaning of redundancy from time to time.
The following relatively extensive quotation from Foster’s Group Ltd v Wing [2005] VSCA 322 (“Foster’s”) gives, in my view, helpful guidance. Habersberger AJA, in whose judgment Maxwell P and Nettle JA agreed, relevantly states at [33] and following:
“A clear guide to the meaning of redundancy is to be found in the judgment of the Full Court of the Supreme Court of South Australia in R v Industrial Commission (SA); Ex parte Adelaide Milk Supply Co-operative Ltd. In that case Bray CJ said that:
... the concept of redundancy in the context we are discussing seems to be simply this, that a job becomes redundant when the employer no longer desires to have it performed by anyone. A dismissal for redundancy seems to be a dismissal, not on account of any personal act or default of the employee dismissed or any consideration peculiar to him but because the employer no longer wishes the job the employee has been doing to be done by anyone.
Bright J expressed a similar view:
The word “redundant” does not occur in the Act. In its industrial sense it is not defined in the Oxford Dictionary. The application which I have already set out attempts a definition for the purpose of the proposed award. A consideration of the cases leads me to think that the question of the redundancy of an employee is linked to the question of the continued utility of the job which he is performing. In other words it does not relate to the personal competence of the employee in the job which he is performing. If I am right in this, then in its widest form the concept of redundancy connotes that an employee becomes redundant whenever (and for whatever reason) his employer no longer desires to have performed the job which that employee was doing.
The meaning of redundancy was recently considered by the Full Court of the Federal Court of Australia in Dibb v Commissioner of Taxation (Cth). That case arose out of a private ruling by the Commissioner concerning the tax liability of Mr Dibb in respect of a lump sum settlement received by him following the termination of his employment as a district manager with a finance company. One of the issues was whether Mr Dibb's dismissal was by reason of his bona fide redundancy within the meaning of s 27F of the Income Tax Assessment Act 1936 (Cth). In a joint judgment, Spender, Dowsett and Allsop JJ referred to Adelaide Milk and continued:
We note also the observations of Ryan J in Jones v Department of Energy and Minerals (1995) 60 IR 304 at 308 as follows:
However, it is within the employer’s prerogative to rearrange the organisational structure by breaking up the collection of functions, duties and responsibilities attached to single position and distributing them among the holders of other positions, including newly-created positions. It is inappropriate now to attempt an exhaustive description of the methods by which a reorganisation of that kind may be achieved. One illustration of it occurs where the duties of a single, full-time, employee are redistributed to several part-time employees. What is critical for the purpose of identifying a redundancy is whether the holder of the former position has, after the re-organisation, any duties left to discharge. If there is no longer any function or duty to be performed by that person, his or her position becomes redundant in the sense in which the word was used in the Adelaide Milk Co-operative case.
Similarly in Quality Bakers of Australia Ltd v Goulding (1995) 60 IR 327 at 332-333 Beazley J said:
There was no dispute that the “operational requirements” of a business may include redundancy. A redundancy will arise where an employer has labour in excess of the requirements of the business; where the employer no longer wishes to have a particular job performed; or where the employer wishes to amalgamate jobs. ... As was said in Bunnett’s case (Bunnett v Henderson’s Federal Spring Works Pty Ltd (1989) AILR 354):
Organisational restructuring may result in a position being abolished and the functions or some of them being given to another or split amongst others.
The Macquarie Dictionary (3rd ed, 1997) now relevantly defines “redundant” as meaning:
... denoting or relating to an employee who is or becomes superfluous to the needs of the employer ...
In the Oxford English Dictionary (2nd ed, 1991) the word is defined relevantly as:
The condition of having more staff in an organisation than is necessary. Hence, the state or fact of losing a job because there is no further work to be done; a case of unemployment due to reorganisation, mechanization, loss of orders, etc.
Their Honours contrasted the position adopted by the Commissioner and the primary Judge with the approach espoused by the South Australian Full Court in Adelaide Milk, which necessitated “identification of the ‘jobs’ in question”. Their Honours continued:
In Jones, Ryan J observed that a job involves

“a collection of functions, duties and responsibilities entrusted, as part of the scheme of the employer’s organisation, to a particular employee”. We accept that view. Ryan J then observed that where such duties are reassigned, the question is whether any function or duty remains to be performed by the employee. We do not understand his Honour to have meant that if any aspect of the employee’s duties is still to be performed by somebody, he or she cannot be redundant. …”
(Parts of the extract omitted).
At [43] of the extract, judgment continued:
“… We consider that it is more accurate to say that an employee becomes redundant when his or her job (described by reference to the duties attached to it) is no longer to be performed by any employee of the employer, though this may not be the only circumstance where it could be said that the employee becomes redundant. Reallocation of duties within an organisation will often lead the employer to consider whether an employee, previously employed to perform specific functions assigned to a particular “job”, will be able to perform any available “job” existing after such reallocation. Even if the employee’s job, defined by reference to its duties, has disappeared, he or she may be able to perform some other available job to the satisfaction of the employer. In that case, no question of redundancy arises. It is only if the employer considers that there is no available job for which the employee is suited, and that he or she must therefore be dismissed, that the question of redundancy arises.”
It should be noted that that case was concerned with the meaning of the words “bona fide redundancy”.
Habersberger AJA went on to say at [36]:
“It seems to me that the approach followed in Adelaide Milk has been reflected in the wording of Foster's policy. The critical question is whether through no fault of the employee his or her role no longer exists or the duties have so changed that for all practical purposes the original role no longer exists.”
Relevantly for these purposes, Habersberger AJA said at paragraphs [46]-[47]:
“46. I accept the appellant's argument that the learned trial Judge applied the wrong test of redundancy. With respect,

I consider that his Honour erred in holding that redundancy occurred “if it is decided to get the job done for a smaller price by reorganisation” and by describing “a cost-cutting measure” as amounting to “some of the threads involved in redundancy”. Although his Honour said that the question was whether the role was no longer required by the employer, I respectfully consider that he fell into error when he ruled that the role included:
performance of all the duties required to attain the objectives served by the existence of the role in the first place. This includes performance of all those duties by the one person for the price of his services; that is, the job, the responsibilities and its rewards, by and to the employee, are all part of the package.
This conclusion was contrary to his Honour’s earlier correct statement that redundancy involved focusing on “the position, not the person”.
I also respectfully consider that statements made by his Honour in his judgment showed that he had misapprehended that any reorganisation or restructuring by the employer coupled with termination of an employee’s employment meant that there had been a redundancy. The question which his Honour never addressed when he referred to “the reorganisation took place ... in an anticipation [sic] of Mr Kou leaving and subsequent to his leaving” was what changes, if any, had been made to the role previously performed by Mr Kou as a result of the reorganisation or restructuring.”
It should be noted that I have been referred to other authorities also.

I have had regard to those authorities but in my view the comprehensive review in Foster’s is sufficient. There is also

a definition of redundancy, not I think otherwise referred to, in the CCH Macquarie Dictionary of Employment Industrial Relations.

To this effect:
“Redundancy. An employment situation in which employees

for economic, technological or other reasons are superfluous to, in excess of, or unnecessary for the requirements of their employer’s enterprise. In a sense, it is the jobs that become redundant and not the persons performing them. Therefore,

it may be possible to retain the employee in another job in the same organisation by means of redeployment, and sometimes retraining is also required … where employees are liable to dismissal (retrenchment) as being no longer needed for any available jobs, this usually occurs not on account of any personal act or default on their part, nor on account of any consideration peculiar to them.”
Against this background, it is helpful to come to the pleadings.

Statement of Claim

The Statement of Claim pleads that, relevantly, the third respondent, Mr Richards, is the sole director and governing mind and will of the first and second respondents. It pleads his involvement within the meaning of s.550 of the FW Act accordingly. At paragraph 4, it is pleaded:
“The third respondent by way of the letter referred to in paragraph 12 below attempted to disguise the true nature of the termination of the applicant’s role.”
It is then pleaded at paragraph 7:
“Mecrus decided to restructure the business of the First Respondent and as a result redistributed the duties of the Applicant to two employees of associated businesses resulting in the position of the Applicant no longer existing.”
Having pleaded the terms of the conversation which took place on the occasion of Mr Ahale’s termination on 5 April 2017, and to which it will be necessary to return, the Statement of Claim relevantly goes on to assert that the letter of termination was not consistent with the discussion that took place at the time it was orally announced. At paragraph 15, it is pleaded that as a result of the changes, the applicant’s position was redundant as the result of the abolition of his position.
The Response of the respondents does not plead in terms to the Statement of Claim. It pleads what is said to be lack of performance

as the Chief Executive Officer of the respondent. It pleads that

at regular meetings with Mr Shayano Madzikanda, Commercial Manager of the second respondent, the applicant’s lack of performance against targets set by the applicant was discussed. It pleads the temporising response alleged on the part of the applicant. It goes on to plead that the applicant’s employment was terminated for lack of performance.
The Response pleads that the respondents still require the senior position held by the applicant to be performed and that the arrangements made for two interim managers to replace the applicant was purely temporary.

The Way the Case was Run

Because the respondents had pleaded that the termination

of employment took place for poor performance, the applicant’s case was run very much on an unfair dismissal basis. The respondents’ case tended to concentrate, likewise, on the alleged poor performance of the applicant. What achieved little attention, in many ways, throughout the current proceeding, was the question as to what the applicant’s job was and whether or not the job now held by Mr Ahale’s successor,

Ms Gabril, is in substance the same as that of Mr Ahale.

The Submissions Made and Evidence Given at Court

It should be noted that I have obviously read the affidavits of the various witnesses carefully. There are some aspects of almost all the affidavits that involve expressions of opinion and conjecture that are not properly admissible. Nonetheless, it is more profitable to concentrate on what was actually said at Court.
What follows is taken from my notes. Obviously it is not a transcript but records matters that I regarded as significant.
The applicant’s counsel opened the case suggesting that the onus of proof in respect of the causation of the redundancy lay upon the respondents. He was, however, unable to point to any statutory support for this assertion. If I understood him correctly, he implied that it arose, as it were, out of the nature of the subject matter.
The applicant was called and adopted his affidavits as true and correct. He offered some comments as to attachments to Ms Gabril’s affidavit. He confirmed that her exhibit AG-3 was originally prepared by him in 2014, but the version before the Court was an augmented version. The schedule of work in research and development was a summary of the work being done or planning to rectify issues from installation of the units. There had been an intention to apply for tax exemptions for research and development. Entries in red were new ones. Exhibit

AG-4 was not a document he had prepared. It was a dot point plan

of the objectives at Flemington for the Victorian Racing Club (“VRC”).
Under cross-examination by counsel for the respondents, Mr Ahale confirmed that he was the Chief Executive Officer of the company.

He was responsible for the operation of the business. He was seeking to generate revenue and profit. His job was to get new business. His own background is broad. He had undertaken marketing and sales duties in one job in a long career.
He was managing the contract with the VRC. When it was put to him that his engineering skills were required by VRC, he said that was not correct. They had to operate and maintain and did so. They used labour from Mecrus’ business. He requested services from AGT (another subsidiary of the Mecrus Group) and Mecrus. He signed off on the budget. He worked with Mr Shayano Madzikanda when he was available. Mr Madzikanda was very capable. Reports were available when Shayano was available.
He conceded he could have requested records at any time. He responded to business inquiries. Exhibit AG-3 to the affidavit of

Ms Antwanit Gabril was projects for the equipment. There were various water authorities. Some rural water covered the VRC. They issued the licences for the bores. He was involved in marketing plans. There were some meetings where Shayano discussed the budget and other matters. They discussed resolving the problems with the product. They discussed the difficulty getting support from scientists at AGT and other support. He was seeking support particularly towards the end of his employment. He could not recall the dates, but he conceded he had met Mr Richards from time to time. Financial results were discussed. Also the reasons for the non-performance of the equipment. He did not accept that paragraph 23 of Mr Richards’ affidavit (CB49) was correct. Some sales did eventuate. VRC was the source of revenue. A number of other sales were made. There had been sales to Great Western, Innocent Bystanders and Wool Processors. All failed. They got paid for the work they did, but the product failed, so there were no ongoing orders. It had been decided to undertake research and development as they went along.

When taken to the affidavit of Mr Madzikanda at paragraphs 17 to 18 (CB84 to 85) Mr Ahale said he gave Shayano the forecast. The results eventuated. It was brand new technology. It was a world first and complex. It had to be customised for every location. Soil varies and can be tricky. Wool Processors failed and others became reluctant. The product needed more work. The history of the installation of the units at VRC in Mr Madzikanda’s report at paragraphs 11 to 12 (CB83) was correct. The numbers in paragraph 15 (which detailed the alleged losses of Desalin8) were correct. 2009 to 2010 was mainly before he started. It was apparent when he started that the product was not as good as he had been told. Mr Richards said they had to get the VRC project running. Mr Richards said this needed to be a showcase.

It was hard to sell something that did not work.
When questioned as to whether Mr Richards complained about the lack of sales, Mr Ahale said that Mr Richards had said it would be good

if they sold more. He was concerned with losses. He had shared with Mr Richards the difficulties with sales because of the lack of support of Mecrus. The scientists and labour were in Mecrus and he alone was in Desalin8. He did not know whether the group had put $1 million into Desalin8.
The discussion on the day of dismissal was very clear. Mecrus was bleeding. They were restructuring to reduce costs. It was not because of performance. He had shared problems with Mr Richards many times. He could only make requests. He got less and less support over the years.
Mr Ahale was adamant that the recitation at paragraph 30 of

Mr Richards’ affidavit (CB50) was incorrect. It was not possible that Mr Richards had mentioned a failure to meet budget. The budget was not mentioned. When he left he immediately made notes. Mr Richards has said, “I’m going to move you on.” They did discuss the water market being down.
The alleged loss of $310,000 in 2015 - 2016 for Desaln8 at CB85, at paragraph 19 of Mr Madzikanda’s affidavit was the first time he had seen that number. He would probably not argue the figure. He could not, however, see how there could be a loss of that size.
He conceded that his new contact at Exxon Mobil was not interested because of the other failures. He also conceded saying to

Mr Madzikanda to the effect in respect of the Victoria Wool Processors that they had used their own driller to do the investigation and had messed it up and decided not to continue. He likewise accepted that the loss for the period up to March 2017 was $168,000 and that there was no sales revenue during the period 2016 to 2017.
In re-examination Mr Ahale said he had a role in the budget. He would talk about the sales target. It was about his salary and that was about it.
Although the performance of the business was discussed there was never any personal feedback or requirements. He did not know where the alleged loss of $310,000 in the 2015/16 year came from.

The evidence of Mr Barry John Richards

Counsel called Mr Richards without an opening. He was content to rely upon his written submissions.
Having adopted his affidavit as true and correct Mr Richards confirmed that since April 2017 the financial loss for that financial year was $200,000. In 2017 to 2018 Desaln8 made a profit of $62,000. In 2018 to 2019 until the end of January it was negative $14,000.
Under cross-examination Mr Richards conceded that he and Mr Ahale went back a fair way. They worked together at a mine a long time ago. He knew Mr Ahale’s qualities when he joined in 2009. He was

a marketer. In Loy Yang he had been a Production Manager. The results of the business showed substandard performance by Mr Ahale. Mr Ahale was not required to develop the product. The product was well proven in 2009. The environment in which the product works required research and development. Exhibit AG-3 is the research and development plan. He said they use a patented product. There had been problems pitting on stainless steel surfaces. Exhibit AG-3 proposed a solution. He had decided to do R&D on the run. Not capital injection. He is a hands-on director in Mecrus. He is not involved in the day-to-day operations. The applicant had

a responsibility as a Director. He has a responsibility as the Director for the solvency of the company. At the time of the discussions in 2014, 2015 and 2016, he did not mention the applicant’s performance. It was his job to grow the company and to obtain sales. He was the sole employee. His job was to get new work.
Mr Richards conceded he was trained in dealing with underpaid-performing employees. He had told Mr Ahale the business was in

a poor operating state. It was his responsibility. Mr Ahale raised concerns about support but he also got a lot of support. He had raised concerns about the scientists at AGT. Mr Ahale had dealt with them

in the past and not taken their advice. He regularly had to talk to them. They were paid through AGT, which is a sub-company of the Mecrus Group.
When asked when he had first raised the company’s performance

Mr Richards said the first few years were developing the product from 2011 onwards that he was complaining. He conceded the loss in 2009 to 2010 was not the applicant’s fault. He said the VRC contract was put into place in 2009. There was a lot of installation of equipment.

It could have been 2010. There were costs associated with manufacturing the units in 2009. Before the applicant Mr Chris Dawson had rung Desaln8 he was a Director. He accepted that

Mr Ahale was the driving force in the installation of the VRC. He also accepted that the applicant was seconded to the Briquette Factory (“Briquette”) as a Site Manager between September 2011 and February 2013. During this time he continued to be the Chief Executive Officer of Desaln8 as well. He was bedding in the contracts at VRC but was full-time at Briquette.
Mr Richards said there was initially one contract to supply units ISD1 and 2 were installed in 2010. ISD3 was installed in 2013. ISD4, 5 and 6, were installed in November to December 2014. Mr Ahale negotiated the increase in the VRC while he was at Briquette. There had been $1.2 million of revenue over the four years of the installation.
They needed to include the subcontractors as ongoing cost. One hundred thousand dollars would pay for the maintenance workers and would leave a profit. The units cost $250,000. He did not go into operating expenses. It was a new business and he showed a great deal of tolerance. It could not go on forever. The business was performing satisfactorily in 2009 and 2010. Then the applicant was subcontracted to Briquette where he performed satisfactorily and had a minimal role as Director of Desaln8. Mr Ahale put his plans together and his budget. The product is fully developed but the problem is the environment.
It was put to Mr Richards that in April 2017 he needed to cut costs.

Mr Richards said that he needed to get a result out of the business. It is his view as a responsible shareholder that they could not continue

to pour money down the drain on a hope and a whim. When asked why it was necessary to inject $1 million in 2015 to 2016 Mr Richards said he wanted to get more units sold. I should interpolate that

Mr Richards’ answers about these matters was manifestly unsatisfactory. He was quite unable to explain what the $1 million was required for.
It was Mr Richards’ decision to dismiss Mr Ahale. It was not to save costs. It was not to reallocate the applicant’s work to Antwanit at Mecrus and Jurgen Schaeffer. The three were not at the same level. All were Mangers of separate companies. He needed Desaln8 to make money. It was a significant cost of the applicant’s salary if it was not making money. He made the decision in April. The applicant was behind budget again and the budget had no credibility. The business was not being run properly, so he decided to terminate the employment of Mr Ahale. He asked the applicant to hand information to Antwanit and Jurgen so there were no gaps in servicing the contract. He was looking for a new chief executive officer but appointed from within Mecrus. He had seen the applicant’s contemporaneous notes at court book at 21 to 25. He said he had said that Mecrus was not prepared to continue pouring money into a business that did not have a viable plan. He did not agree that the notes were accurate. He said he was under pressure in respect of pouring in money. He denied saying that Mecrus was not performing well overall.
I interpolate and observe that the extent of Mr Richard’s recollection was plainly limited and I found his answers about the conversation unbelievable.
Mr Richards said he did say that he needed to stop the bleeding. He did say that he would give five weeks’ notice of the termination. The immediate future was to reduce the three direct reports to two. Antwanit and Jurgen were given the applicant’s duties supported by the General Manager, the CFO and himself. It was not a cost saving exercise.
He recalled a meeting with himself, the applicant and Mr Madzikanda 12 months before at which he said performance was discussed. The first problem with performance was in 2014. When asked why he had given no formal warning Mr Richards said it was simpler just

to discuss the business performance. He discussed the budget monthly. He said he had a responsibility to be fair with employees but it was not necessary to put concerns in writing. He revisited budgets in the marketing plan in 2015. There were plenty of emails (none were tendered).
It was put to Mr Richards that he had put nothing in writing to the applicant in 2016. Mr Richards says there was nothing in evidence but there was in old files. Mr Richards’ evidence about this was obviously prevaricating and untrue.
Mr Richards did confirm that the dismissal was not a question of cost-cutting but rather a build-up of lack of performance. The personal issues he had referred to on Mr Ahale’s part were remedied by 2017. He knew the applicant was the contact for the project at the VRC. There had been a dereliction of duties in discharging his contractual duties. The CPI increase had not been taken up but he had only discovered this after his affidavit. He did not believe Mr Ahale’s optimism as to future projects. He did not believe that they would generate $4 million. He denied that the $1.2 million profit referred to had been diverted to Mecrus. The decision to terminate was his. He takes responsibility for it. The decision to deny a redundancy payment was his. Antwanit and Jurgen was a temporary arrangement which finished later in 2017. Jurgen resigned in 2017 but the decision to offer Antwanit the job was before that.
Australian Groundwater Technologies Pty Ltd (“AGT”) was placed into liquidation in 2018. Antwanit was never the Chief Executive Officer at Mecrus Resources but the Principal Geologist. AGT was taken over by a Mr Pearson who was not appointed CEO. Antwanit did not take up Jurgen’s duties. The Group employs 165 employees all up.

The affidavit of Shayano Madzikanda

Mr Madzikanda adopted his affidavit as true and correct.
Under cross-examination Mr Madzikanda confirmed he had been with the first respondent since 2014. He was aware of the VRC projects. There were two units and then four units all under the one contract. The contract was $1.2 million for six units over four years. It was paid after each installation. The information before 2014 came from company records. The $1.2 million was paid progressively. There is ongoing maintenance revenue. At the start the maintenance costs had been not much but the maintenance costs now exceed income, although he could not say how much. Desaln8 is making a loss. The units had costs to build but the profit margin was about 20 to 30 per cent.

He could not say what the costs of installation were. There was 30 per cent profit on the $1.2 million and all the profit was eaten up in costs. All costs were fixed. There are patent fees. Figures prior to 2014 were from the company records. Expenses were more than revenue.

The loss in 2015 to 2016 was $310,000. There was not much revenue. There was $100,000 from VRC. The applicant’s wages cost $200,000 and patent fees cost $40,000. There were also maintenance costs. There was a specific project for AGT to fix the issues at the VRC and they charged Desaln8 for it. The charge was $70,000. He was part

of the team in projects but did not deal directly with clients.

The evidence of Ms Antwanit Gabril

Ms Gabril adopted her affidavit as true and correct.
Ms Gabril is a Geologist. She managed the whole of Mecrus Resources. Jurgen Schaeffer was the general manager of AGT.

The applicant was the General Manager of Desaln8. She and Jurgen took over Desaln8 from April to September 2017 when Schaeffer left. She took over the applicant’s duties. At the time, she was assigned

to be full-time CEO. She left Mecrus Resources duties behind.

She confirmed that exhibit AG-1 was the handover document with questions and answers. Exhibit AG-2 was a list in April 2017 but it is the same now. VRC is the only contract they have so far and no further units have been sold.
When asked how she was able to make a profit of $62,000, Ms Gabril said she limited expenses and tried to meet budget. Her salary

is $75,000 plus a car and a total package cost of $90,000. She uses contractors less. They used to use AGT but AGT is very expensive.
I would interpolate and state that there was no satisfactory explanation as to quite how the $60,000 profit was engendered.
The product will develop over time. The unit is still being developed today. The idea is to enhance performance and obtain an R&D tax offset. Maintenance costs of monitoring will cost $20,000. There are unexpected costs, too. (If I understood the matter correctly, the overall cost is some $70,000 extra). Last year there was some drilling at VRC which made $20,000. She went on to say, correctly in my view that the firm had never made money, whatever the books of the company may have shown. She said the patent fees of $40,000 dropped because some had not been continued. This year they paid $28,000

by dropping patents in other countries. There is no point. The patents are now limited to Victoria. She is trying to fix it slowly. There have been no extra sales. VRC has not been successful. One of the units

is not running.

The Credit of the Witnesses

Mr Ahale struck me as being an entirely honest witness. His evidence was clear. His contemporaneous notes of the termination meeting, while plainly adding some matters of comment and impression,

are clearly accurate insofar as they recall what was said, and he answered all questions put to him in cross-examination directly and straightforwardly. He impressed me as having an excellent memory

of the events that had befallen him. I should, however, say that some of his answers struck me as being surprisingly ingenuous for a man

of his age and evidently wide experience of life.
Mr Richards was not entirely satisfactory. I have already commented on his slightly evasive evidence and prevaricating answers at times. Where there is a direct conflict of evidence between him and Mr Ahale, I prefer the evidence of Mr Ahale.
Mr Madzikanda was an excellent witness who was clearly giving truthful evidence. I note, however, that his evidence as to the losses

of the company towards the end of its operation were unconvincing.
Ms Gabril impressed me as, once again, generally a satisfactory witness. As indicated, there was no real explanation as to how

the company turned a $60,000 profit, and her explanation was unsatisfactory. I accept her answer that the firm has never made any money.

Findings about the Facts

Mr Ahale commenced his employment on 2 March 2009 as the CEO

of Desalin8. He was, however, the only employee so in truth the title of Chief Executive Officer is perhaps slightly misleading. This was obviously a stand-alone subpart of the Mecrus Group, which is set up in a not uncommon fashion whereby people are employed by one company but actually work for another. In this instance, however,

he was directly employed by Desalin8 and paid by Desalin8. It would appear that prior to Mr Ahale’s appointment another Director of the Mecrus Group had fulfilled the role but he apparently left at much the same time.
A contract had either been entered into or was shortly entered into thereafter with the VRC for the installation of up to six units. These units were installed progressively in 2010, 2013 and 2014. There is no doubt that a profit of some three or four hundred thousand dollars, on Mr Madzikanda’s evidence, was generated. This is so even leaving aside the costs of the manufacture of the units and their installation.
Given the evidence of Mr Madzikanda, which Mr Ahale accepted, shows not insignificant losses in all of the financial years up to 2013

to 2014, it necessarily follows, as Mr Ahale’s case contended, that the profit was effectively skimmed off to one of the other Mecrus companies.
This profitability, in my view, explains reasonably readily why no dissatisfaction was expressed by Mr Richards until 2014. It is noteworthy that his affidavit at paragraph 15 puts the commencement of his alleged discussions to discuss Desalin8 and the applicant’s performance as only starting in January 2014.
At these meetings from time to time it is clear that nothing was put in terms that alerted Mr Ahale to the possibility that his employment might not be secure. Mr Richards conceded in cross-examination that he knows about the process of warning employees for unsatisfactory performance. The gravamen of what he had to say was that given that the company was performing so poorly financially, and it was

Mr Ahale’s responsibility to ensure that it was profitable and made sales, it should have been obvious to Mr Ahale that the position was highly tenable.
One of the striking features of Mr Ahale’s evidence is that it clearly never occurred to him that the fact that the company of which he was the only employee and, effectively, virtually the only cost impost was not a satisfactory one from the employer’s perspective. In the financial years following 2015 Mr Ahale made no sales, despite his best endeavours, and the company was plainly running at a significant loss. This is so notwithstanding the ongoing contract with VRC for some $100,000 per year in total. This figure is clearly set off at least to an extent, and as I find more probably than otherwise a considerable extent, by the ongoing costs of maintenance which is provided through third parties.
Nonetheless, it should be noted that Mr Ahale was seconded to the Briquette Factory from September 2011 to February 2013 and it is clear that he continued his responsibilities with Desalin8 for that time. The installation of units 3, 4, 5 and 6 clearly owed much to his drive and input.
When Mr Richards met Mr Ahale on 5 April 2017 there is no question in my mind that Mr Richards, despite his partial denials, said the matters attributed to him by Mr Ahale. He did say that the Mecrus Group was under pressure currently from a cash perspective. It should be noted that this is consistent with the fact that AGT, another sub-part of the Mecrus Group, was placed in liquidation in 2018. He also said that Mecrus’ water businesses were not performing well as water was not a problem generally and the water market was down. He did tell Mr Ahale that he had to stop the bleeding and this was plainly

a reference to reducing costs as Mr Ahale has opined. He also gave five weeks’ notice of termination.
Discussion plainly took place at some point about Mr Ahale’s view that the company was likely to be profitable in the future but it is quite clear that Mr Richards was having none of it. Plainly, his patience had run out.

There is no question that Mr Ahale’s duties were immediately divided between Ms Gabril and Mr Schaeffer. Their sharing of his responsibilities, and it is clear from the hand over document that they took all his responsibilities over, continued until September 2017 when Mr Schaeffer left for reasons that are not elucidated to the Court.

At that point, Ms Gabril was plainly removed from any other duties that she was performing and she now attends to Desalin8 full time herself. In truth, she has had, to all effects and purposes, no greater success than Mr Ahale did in generating sales. All the evidence in the case points overwhelmingly to the proposition that while the desalination units are a brilliant innovative world first, teething troubles are proving extremely problematic. She has achieved no no sales of units at all.
Ms Gabril struck me as being far more cost conscious than Mr Ahale had apparently been. More importantly again, her salary and on-costs are almost exactly half those of Mr Ahale. Accordingly, losses in the business may appear to somewhat have diminished.
What is not clear is what the overall structure of the respondents is in terms of executives. Mr Richards was not cross-examined about any such matters. While I do know that there were three persons Mr Ahale, Ms Gabril and Mr Schaeffer who are all described as being management positions, if I understood the matter correctly, I do not know how many there are now. This might have been significant had it been shown, for example, that the process of Mr Ahale’s termination

of employment was interrelated with a restructure of management more generally. All I know for certain is that Ms Gabril now performs

Mr Ahale’s job for half the wage.

What Does All This Mean in Terms of Whether Mr Ahale Has a Valid Claim to a Redundancy Payment Under the Act?

One of the difficulties with concluding judgment in this matter has been the fact that neither parties’ case has really engaged with the facts as I have found them. The applicant’s case was strongly accented with references and emphasis about whether or not the dismissal was, indeed, for poor performance. The case of the respondents was equally accented and emphasised that it was.
In truth, there is no doubt, at least as I find, the Mecrus Group was in general financial trouble in April 2017. That is what Mr Richards said and the qualifications to what he has said that he has tried to put forward to the Court by way of embellishment are not ones I accept. He was speaking the truth when he described the position of the Group as under pressure from a cash perspective.
This is not, however, the end of the matter. One of the reasons that the Mecrus Group was under cash pressure was because Desaln8 was costing a lot of money. I do not accept the vague and unsatisfactory evidence that the Group had put $1 million into Desaln8 in the two years before Mr Ahale was dismissed. There is no explanation as to what that could possibly have been spent on when he was the only employee, and his costs were approximately $200,000 per year.
Nonetheless, losses of the order of magnitude in six figures, as I have no doubt was the case, were significant. Furthermore, Mr Ahale had made no effective sales since 2014 at the very latest. Arguably, the units then installed were simply matters already contracted in 2009 in principle. I would give Mr Ahale credit for their installation, but the fact is that he had achieved nothing in concrete terms in 2015 and 2016. It is no wonder that despite their earlier friendship, Mr Richards had run out of patience by April 2017. In the witness box, Mr Ahale seemed to indicate to me that he felt that this ongoing loss should have continued, effectively, indefinitely. Hope springs eternal, I dare say, but this was a surprisingly naïve view of the world. Of course,

Mr Richards, who struck me as being a man keenly attuned to his own commercial interests and of firm and vigorous resolve, had decided to cut his losses. I note that the Group still functions and employs 165 employees. Mr Richards is the sole effective mind and will of the entire Group. People who achieve such individual success are rarely shrinking violets.
The weight of established authority, most particularly set out in the extracts from the judgment of Habersberger AJA already referred to, requires me to concentrate on whether the job that the employee has done is no longer required. The conclusion I am driven to reach is that Mr Ahale was not redundant. Contrary to Mr Richards’ denials,

the Group was in parlous financial circumstances, and he did need

to reduce the bleeding by cutting costs. However, the fact is that

Mr Richards wanted the job to continue to be performed. He just did not want to pay as much money for it.
I have given earnest thought to what is meant in the circumstances of this case by the term “the job that the employee, (i.e., Mr Ahale) does”. As the Full Court of the Federal Court said in Dibb, quoting Ryan J in Jones, a job involves “a collection of functions, duties and responsibilities entrusted, as part of the scheme of the employer’s organisation, to a particular employee.” The question is whether any function or duty remains to be performed by the employee. In this instance, as I say, I have no hesitation in noting that Mr Richards intended to dispense with Mr Ahale’s services both because he was cash strapped and because part of that arose from the poor performance as Mr Richards saw it of Mr Ahale. As I observed during the currency of the trial, Mr Richards is not the first employer to bottle it when the termination interview takes place. Instead of taxing Mr Ahale upfront with the poor performance of Desaln8 and making it clear that that was why he was dismissing him, he sought to sugar-coat the pill by referring to financial difficulties instead.
As I find, the job that Mr Ahale was doing continued on. The split between initially Ms Gabril and Mr Schaeffer was of short duration. This is on all fours with the facts in Foster’s where there was a much longer period of delay before the job was filled.
While it would seem that Ms Gabril, if I understood the matter correctly, is now directly employed by one of the other subgroup companies in the Mecrus Group in my view, this is a distinction without a difference. The functions that Mr Ahale performed are plainly being performed now by Ms Gabril.
For my part, I would still have some residual concerns that because

Mr Ahale was dismissed, in effect, to save money, he was being made redundant. However, as is clear from the judgment of Habersberger AJA at [46] I cannot make that finding. I repeat his Honour’s remarks at [46].
“With respect, I consider that his Honour erred in holding that redundancy occurred: “if it is decided to get the job done for a smaller price by reorganisation” and by describing “a cost-cutting measure” as amounting to “some of the threads involved in redundancy”. Although his Honour said that the question was whether the role was no longer required by the employer, I respectfully consider that he fell into error when he ruled that the role included:
performance of all of the duties required to obtain the objective served by the existence of the role in the first place. This includes performance of all of those duties by the one person for the price of his services; that is, the job, the responsibilities and its rewards, by and to the employee, are all part of the package.
This conclusion was contrary to his Honour’s earlier correct statement that redundancy involved focusing on “the position, not the person”.”
I should make it clear that I have every sympathy with Mr Ahale. The manner of his termination of employment was abrupt and misleading. He had never been put on notice that his performance was unsatisfactory, although he should have had sufficient insight to realise that the progress of the company was bound to be considered unsatisfactory in the circumstances. The matter was further complicated by Mr Richards’ emphasis in the interview upon the poor financial position of the overall Group.
Notwithstanding these matters, and while Mr Ahale may well have had a strong case for unfair dismissal, in the light of the observations of the Court of Appeal in the judgment of Habersberger AJA, I have to find that Mr Ahale was not redundant. The employer did not wish for his job no longer to be done by anyone. The functions of the position continued uninterrupted, first by the tandem of Ms Gabril and

Mr Schaeffer and then by Ms Gabril alone.
The application will be dismissed.

I certify that the preceding eighty-five (85) paragraphs are a true copy of the reasons for judgment of Judge Burchardt.

Date: 14 May 2019

[2019] FCCA 1237

14 May 2019

Key Legal Topics

Areas of Law

Civil Procedure

Commercial Law

Legal Concepts

Abuse of Process

Costs

Jurisdiction

Res Judicata

Stay of Proceedings