Alan B Denning Investments P/L v Denning Management P/L
[2007] FMCA 1997
•30 November 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| ALAN B DENNING INVESTMENTS PTY LTD v DENNING MANAGEMENT PTY LTD & ANOR | [2007] FMCA 1997 |
| INDUSTRIAL LAW – Interpretation of award – whether “transmission of business” – “business”. |
| Workplace Relations Act 1996 (Cth), s.848 The Vehicle Industry Award 2000 |
| Minister for Employment and Workplace Relations v Gribbles Radiology Pty Ltd (2005) 222 CLR 194 PP Consultants v Finance Sector Union (2000) 201 CLR 648 |
| Applicant: | ALAN B DENNING INVESTMENTS PTY LTD (IN LIQUIDATION) |
| First Respondent: | DENNING MANAGEMENT PTY LTD |
| Second Respondent: | LAWRENCE TURNER |
| File Number: | BRG 3 of 2007 |
| Judgment of: | Jarrett FM |
| Hearing date: | 19 July 2007 |
| Date of Last Submission: | 20 July 2007 |
| Delivered at: | Brisbane |
| Delivered on: | 30 November 2007 |
REPRESENTATION
| Counsel for the Applicant: | Mr Logan SC |
| Solicitors for the Applicant: | Cooper Grace & Ward |
| Counsel for the First Respondent: | Mr Murdoch SC |
| Solicitors for the First Respondent: | Deacons Lawyers |
| The Second Respondent appearing on his own behalf |
ORDERS
The application filed on 4 January, 2007 be dismissed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 3 of 2007
| ALAN B DENNING INVESTMENTS PTY LTD (IN LIQUIDATION) |
Applicant
And
| DENNING MANAGEMENT PTY LTD |
First Respondent
And
| LAWRENCE TURNER |
Second Respondent
REASONS FOR JUDGMENT
Until 6 April, 2004 the second respondent was, and others like him were, employed by the applicant in its design and manufacturing business situated in Brisbane. The applicant was a well known and well respected bus and coach body designer and manufacturer.
In April, 2004 the applicant, in the circumstances I will describe below, sold some of the assets of its business to a third party, Aussie Drifter Luxury Motorhomes Pty Ltd[1], and ceased its design and manufacturing business. The first respondent re-employed the second respondent and most of the other employees of the applicant and made those employees available to Aussie Drifter.
[1] as trustee for Drifter Motorhomes Trust No.1
In broad terms, the issue in this case is whether the applicant is liable to pay to the second respondent and the other employees redundancy pay and pay in lieu of notice as provided for in The Vehicle Industry Award 2000. If the Liquidator is liable to pay those entitlements, the payments will have priority in the liquidation of the applicant and there will be insufficient funds in the winding up to meet the claims of unsecured creditors.
The first respondent participated in these proceedings as a contradictor. The second respondent was self represented and did not participate in the cross-examination of any witnesses, although made submissions at the close of argument. Pursuant to directions made on the first court date, notice of the proceedings was given to:
a)the organisations of employees and employers bound by the Award as nominated in clauses 1.6.1 and 1.6.2 thereof;
b)the employees with outstanding claims for severance pay as identified in annexure “E” to the affidavit of Eric Leeuwendal sworn 29 December 2006; and
c)the Department of Employment and Workplace Relations as administrator of the General Employee Entitlements and Redundancies Scheme (GEERS).
No party suggested that the court did not have jurisdiction to hear the matter. All agreed that the court had jurisdiction to make the orders sought by reason of s.848 of the Workplace Relations Act 1996 (Cth).
The Facts
Prior to 6 April, 2004 the applicant carried on its business as a designer and manufacturer of bus and coach bodies from premises in Acacia Ridge, Brisbane. It fitted those bodies to chassis provided to it by its clients. It owned considerable plant and equipment, had certain intellectual property rights in its various manufacturing processes and designs and employed a workforce to assist it in carrying out its business.
On 24 November, 2003 however, administrators were appointed to the applicant pursuant to the Corporations Act 2001. The administrators remained appointed as at 6 April, 2004. Subsequently, on 16 April, 2004 the applicant was placed in liquidation.
At least until 6 April, 2004 the applicant was, I am satisfied, a member of Australian Industry Group. That is significant because AIG was a named respondent to The Vehicle Industry Award 2000, a federal industrial instrument made under the Workplace Relations Act1996 (Cth). I will return to the provisions of this award shortly.
By a written agreement made on 5 April, 2004 the applicant agreed to sell to Aussie Drifter, certain of its assets specified in the agreement. In general terms those assets included:
a)various items of equipment;
b)the sets of jigs and designs, tooling, moulds and masters for all the current range of vehicles/chassis then being produced by the applicant in its business with all the intellectual property belonging to the applicant in relation thereto;
c)two motor vehicles;
d)the stock in trade in existence and situated at the applicant’s premises;
e)the computer programs, drawings, designs, engineering certifications used in connection with the applicant’s business and located at the premises;
f)all accounting and administration systems and computer software used in connection with the business conducted by the applicant and located at its premises; and
g)the registered trademark of “Denning”.
The agreement expressly did not include the sale of:
a)the transfer of any employees;
b)the lease of the premises;
c)any debts or other moneys which were owing to the applicant;
d)any trade debtors;
e)any work in progress or work orders;
f)any vehicles, jobs on contracts under construction or that were incomplete;
g)any stock, components, supplies, spare parts, equipment, goods or materials to be used by the applicant to complete any vehicle, job, contract, work in progress or work order that was under construction and remained to be completed;
h)any accounting information or financial information relating to the applicant’s business stored or located on any computer or any system at the premises;
i)any records relating to trade debtors, debts then or in the future owing to the applicant or relating to work in progress, work orders or debts owing by the applicant;
j)all marketing and customer files and customer lists and selling prices lists;
k)any information or records relating to past or current employees;
l)any information or records that was confidential to any third party; and
m)any records or information relating to the business which the applicant was required to law to retain.
The purchase price for the agreed assets was $230,145.57. Property or ownership in the agreed assets was to pass upon payment. Settlement of the purchase contract took place on 6 April, 2004.
Provision existed in the agreement for Aussie Drifter to remove the agreed assets from the applicant’s leased premises, but I am satisfied that Aussie Drifter intended to attempt to secure a lease over the applicant’s premises and to conduct from those premises its business using, in part, the assets it purchased from the applicant. Its efforts in that respect were successful and it entered into a lease of the premises so that on 6 April, 2004 Aussie Drifter took up occupation of the premises formerly occupied by the applicant.
At the same time, former employees of the applicant, including the second respondent, were offered employment by the first respondent. Those that took up the offer commenced work on 7 April, 2004.
As might have been expected, the applicant’s former employees had entitlements that had accrued to them in the nature of annual leave and long service leave entitlements. Relevantly the letters of appointment provided the following:
“TRANSMISSION OF BUSINESS
The company acknowledges that employees previously employed by Alan B. Denning Investments Pty Ltd who accept a contract employment (sic) of the same or similar duties in the same work location with the Company that will commence on 7 April, 2004, or commence employment with the Company within no more than 3 months of this date, may be considered transmitted employees.
The employee acknowledges that they will be paid out annual leave and long service leave entitlements by Alan B. Denning Investments Pty Ltd on the last date of their employment with this firm. The employee acknowledges that they will have a zero balance of accrued annual leave and sick leave upon commencing with the Company.”
The employees, including the second respondent, had their entitlements met in accordance with the letters of appointment.
Robert Roberts was at relevant times, and remains, one of the directors of both Aussie Drifter and the first respondent. In his affidavit filed on 13 July, 2007, he explains the background to the formation of Aussie Drifter and the roles played by those involved in that company. His evidence, which I accept, is that Aussie drifter took advice on the corporate structure that should be utilised “for the overall running of the business”[2]. Given the context in which that statement appears in his affidavit, it is plain that the “business” to which he refers is the business that Aussie Drifter was contemplating running from the applicant’s premises at Acacia Ridge using, in part, the assets purchased from the applicant and those former employees of the applicant that desired re-employment.
[2] paragraph 33 of his affidavit
Consequent upon the advice received Aussie Drifter changed its name to The Denning Group Pty Ltd (although in these reasons I will continue to refer to that company as Aussie Drifter). Its stated purpose was to hold and control the assets purchased from the applicant. Two further entities were set up, the shares in which are held by the Drifter Motorhome Trust No.1, namely:
a)Denning Manufacturing Pty Ltd, for the purpose of carrying out a manufacturing business, presumably using, in part, the assets controlled by Aussie Drifter; and
b)the first respondent, Denning Management Pty Ltd for the purpose of employing a workforce that could be made available to Denning Manufacturing Pty Ltd.
The precise arrangements between the three corporate entities for the provision of the assets and labour were not the subject of detailed evidence before me.
The Award provisions
It is necessary to turn to some of the provisions in the Award. The provision that may give the employees an entitlement to redundancy pay and payment in lieu of notice are as follows:
4.4.1(a)in order to terminate the employment of an employee the employer must give to the employee the period of notice specified in the table below:
…
4.4.1(b)In addition to the notice in 4.4.1(a), employees over 45 years of age at the time of the giving of the notice with not less than two years of continuos service, are entitled to an additional week’s notice.
4.4.1(c)Payment in lieu of notice in 4.4.1(A) and 4.4.1(b) must be made if the appropriate notice period is not required to be worked…
…
4.5REDUNDANCY
4.5.1Definitions
4.5.1(a)Business includes any trade, process, business or occupation and includes part of any such business;
4.5.1(b)Redundancy occurs where an employer has made a definite decision that the employer no longer wishes the job the employee has been doing done by anyone and that decision leads to the termination of employment of the employee, except where this is due to the ordinary and customary turnover of labour.
…
4.5.1(d)Transmission includes transfer, conveyance, assignment or succession whether by agreement or by operation of law and transmitted has a corresponding meaning;
…
4.5.3Severance Pay
4.5.3(a)Severance Pay – other than employees of a small employer
An employee, other than an employee of a small employer as defined in clause 4.5.1, whose employment is terminated by reason of redundancy is entitled to the following amount of severance pay in respect of a period of continuous service:
…
However, the work done by clauses 4.5.1 and 4.5.3 is circumscribed by some other clauses, which provide as follows:
1.7 TRANSMISSION OF BUSINESS
1.7.1 This provision shall apply in relation to annual leave, sick leave, redundancy and long service leave.
1.7.2Where a business is before, or after the date of this award, transmitted from an employer (in this subclause called the transmittor) to another employer (in this subclause called the transmittee) and an employee who at the time of such transmission was an employee of the transmittor in that business becomes an employee of the transmittee:
1.7.2(a) the continuity of the employment of the employee is deemed not to have been broken by reason of such transmission; and
1.7.2(b) the period of employment which the employee has had with the transmittor or any prior transmittor is deemed to be service of the employee with the transmittee.
1.7.3In this subclause business includes trade, process, business or occupation and includes part of any such business and transmission includes transfer, conveyance, assignment or succession whether by agreement or by operation of law and transmitted has a corresponding meaning.
…
4.5.7Transmission of business
4.5.7(a)The provisions of this clause are not applicable where a business is before or after the date of this award, transmitted from an employer (in this subclause called the transmittor) to another employer (in this subclause called the transmittee), in any of the following circumstances:
4.5.7(a)(i) Where the employee accepts employment with the transmittee which recognises the period of continuous service which the employee had with the transmittor and any prior transmittor to be continuous service of the employee with the transmittee; or
4.5.7(a)(ii)Where the employee rejects an offer of employment with the transmittee:
•in which the terms and conditions are substantially similar and no less favourable, considered on an overall basis, than the terms and conditions applicable to the employee at the time of ceasing employment with the transmittor; and
•which recognises the period of continuous service which the employee had with the transmittor and any prior transmittor to be continuous service of the employee with the transmittee.
4.5.7(b)The Commission may vary 4.5.7(a)(ii) if it is satisfied that this provision would operate unfairly in a particular case.
There is no issue that by reason of the applicant’s decision to cease its business altogether and insofar as the second respondent and the other employees were concerned, the circumstances gave rise to a “redundancy” within the meaning of that term as used in clause 4.5 of the Award for each employee.
The Issues
The success of the applicant’s case depends upon findings:
a)that there was a “transmission”;
b)of the applicant’s “business”;
c)to the first respondent.
Those finding are relevant to determinations in respect of both the redundancy provisions and the severance pay provisions.
As to the first finding, in my view there was clearly a “transmission” of certain assets, rights and entitlements from the applicant to Aussie Drifter. But that is not necessarily to the point because, to engage clause both clauses 1.7.2 and 4.5.7 of the Award, the transmission of the relevant business must have been to another employer. That is not the case here. The employer entity received nothing under the agreement of 5 April, 2004. It was not a party to that agreement. Thus, even assuming for the moment that there was a transmission of the applicant’s business (or part of it) to Aussie Drifter, two critical questions need to be answered in the affirmative for the applicant to succeed, namely:
a)was the engagement of the applicant’s former employees by the first respondent a “transmission of business” for the purposes of clauses 1.7.2 or 4.5.7 of the Award? and
b)if not, given the close connection between Aussie Drifter and the first respondent, could it nonetheless be said that that there had been a transmission of the applicant’s business in the relevant sense?
The concept of a “transmission of business” is not uncommon in industrial law. It features in many awards, other industrial instruments and in the WRA itself. In PP Consultants v Finance Sector Union (2000) 201 CLR 648 the High Court was asked to consider s.149(1)(d) of the WRA, and specifically the concept of “business” as it appears in that section. Of that the majority (Gleeson CJ, Gaudron, McHugh and Gummow JJ), said at [14] – [15]:
“... Because ‘business’ is a chameleon-like word, it is not possible to formulate any general test to ascertain whether, for the purposes of section 149(1)(d) of the Act, one employer has succeeded to the business or part of the business of another. Even so it is possible to indicate the manner in which that question should generally be approached, at least when a non-government employer succeeds to the commercial activities of another non-government employer.
As a general rule, the question whether a non-government employer who has taken over the commercial activities of another non- government employer has succeeded to the business or part of the business of that other employer will require the identification or characterisation of the business or the relevant part of the business of the first employer, as a first step. The second step is the identification of the character of the transferred business activities in the hands of the new employer. The final step is to compare the two. If, in substance, they bear the same character, then it will usually be the case that the new employer has succeeded to the business or part of the business of the previous employer.”
In the present case, the applicant’s business was the design and manufacture of bus and coach bodies that were to be fitted to vehicle chassis supplied by its customers. The customers were, in the main, chassis manufacturers. The chassis would come in different forms and if supplied in “buggy” form, the applicant would perform some work to the chassis to make it suitable for use. Other chassis “as supplied” required modification to ensure that the applicant’s vehicle bodies fitted properly. The modifications required the design and manufacture of the necessary components and the fitting of them to the supplied chassis. Mr Denning, the primary witness in the applicant’s case, estimated that 40% - 50% of the work necessary to complete a chassis to the stage that it could be fitted with a body was performed by the applicant[3].
[3] affidavit of Alan Denning filed on 4 July, 2007
The applicant also built and sold “quite a number” of motor homes, although the precise number, or the percentage of its work, say on an annual basis, is not in evidence. Usually the customers for motor homes were not chassis manufacturers, but the customers would nonetheless supply the chassis and the applicant would build a body for it. I formed the general impression that the proportion of motor home work in the applicant’s business was very small compared to bus and coach body work.
Aussie Drifter was formed so as to exploit what one of its promoters saw as an opportunity to sell motor homes that were less than 30 feet in length. Chassis were purchased from a chassis manufacturer and the applicant was contracted to build and fit a body shell to the chassis. The body shell was then fitted out and finished by Aussie Drifter. The applicant completed two such projects for Aussie Drifter and had a third under construction when it was placed into administration.
Aussie Drifter was alive to the reputation of the Denning name when associated with buses or coaches. It named its product that had the applicant’s body shell “Drifter on Denning” to capitalise on that reputation.
After 5 April, 2004, Aussie Drifter occupied the premises formerly occupied by the applicant. It had the assets that it acquired through the sale agreement, but it had no work. It canvassed at least 2 of the major customers of the applicant and, after a couple of weeks, orders began to flow. Although not expressly stated in the evidence, I infer that the orders were for the design and manufacture of bus or coach bodies to be fitted to chassis supplied by those customers. I draw that inference from the evidence of Mr Roberts[4] to the effect that that work gave Aussie Drifter some cash-flow which then “enabled us to focus on the direction we wanted to take The Denning Group Pty Ltd”.
[4] paragraph 49 of his affidavit filed on 13 July, 2007
Subsequently on 20 April, 2004, the board of Aussie Drifter considered other options for the direction of The Denning Group Pty Ltd, although what those options were is not canvassed in the evidence. On 17 July, 2004, however, the Board considered and accepted a proposal that Aussie Drifter should commence manufacturing its own buses “from the ground up”. That is to say, it would manufacture the whole vehicle, not simply modify a supplied chassis and fit a body designed and manufactured by Aussie Drifter. That represented, I am satisfied, a significant departure from the business previously conducted by the applicant. But notwithstanding that decision, it was not until April/May, 2005 that Aussie Drifter phased out the production of bus bodies for customers who supplied their own chassis.
I am satisfied that, having regard to the similarity between the businesses conducted by the applicant and then Aussie Drifter after 5 April, 2004, that there was a transmission of at least part of the applicant’s business to Aussie Drifter. It continued, at least until April/May 2005, to conduct a business that was in many respects the same business conducted by the applicant up to 5 April, 2004. Both designed and built bus and coach bodies using the plans, jigs and other assets the subject of the sale agreement, to service the same needs (that is, the design and manufacture of bodies to be fitted to customers chassis) of at least two common customers. That Aussie Drifter did that so as to provide cash flow while it worked out its ultimate business direction is not to the point. Nor is the fact that after a relatively short period of time, the company resolved to change its business direction. Until the activities that were similar to those engaged in by the applicant ceased, Aussie Drifter was carrying on the business, or part of the business of the applicant. That must be so, even if those activities were only a part of Aussie Drifter’s activities, and had a finite life.
The facts reveal that the first respondent engaged most of the applicant’s workforce on terms and conditions that were very similar to, if not the same as, those on which they were employed with the applicant. The employees performed the same, or very similar work, to that which they performed for the applicant when employed by it. They performed their work at the same location. Their service for the applicant was, at least for the purpose of long service leave, considered[5] to be service with the first respondent.
[5] at least by senior management – see exhibit D to the affidavit of Eric Leeuwendal filed on 4 January, 2007
But Aussie Drifter is not the employer of the second respondent or the other workers that moved across from the applicant. They are employed by the first respondent. It originally employed 28 people and now employs 58. It does not perform any work, nor does it enter into any contracts for the design, manufacture or sale of any buses or coaches. It owns no property or other assets. There is no suggestion in the evidence that the first respondent carries on any business, other than perhaps that of a labour hire company providing the labour of its employees to Aussie Drifter. There is no evidence that would permit of a finding about the exact nature of the relationship between Aussie Drifter and the first respondent by which the latter provides its employees to the former.
I am not satisfied on the evidence that the first respondent has received from the applicant, whether by way of transfer, conveyance, assignment, succession or otherwise the business or part of the business of the applicant. That is so notwithstanding that almost all employees of the applicant took on employment with the first respondent on 6 April, 2004. The High Court pointed out in Minister for Employment and Workplace Relations v Gribbles Radiology Pty Ltd (2005) 222 CLR 194 at 214, “….no employee is an asset in the employer’s balance sheet to be bought or sold.”
In my view, the engagement or use of the applicant’s former employees by the first respondent was not a “transmission of business” for the purposes of clause 4.5.7 of the Award.
But, given the close connection between Aussie Drifter and the first respondent, could it nonetheless be said that there has been a transmission of the applicant’s business in the relevant sense? The applicant put its submissions on that point in the following terms:
41. The remaining issue as to whether severance entitlements arose in respect of any of the employees who accepted employment is the identity of the transmittee(s) under such transmission and, more particularly, whether the First Respondent is such. This requires a consideration of the structure of the business of now being carried on.
42. The First respondent is the employer of the labour utilised in the business conducted from 7 April 2004. It was incorporated on 6 April 2004. As was Denning Manufacturing Pty Ltd. On 8 April 2004 Aussie Drifter Luxury Motor Homes Pty Ltd changed its name to The Denning Group Pty Ltd. The reasons for this structuring is set out by Mr Roberts at paragraphs 33 and 34 of his affidavit. The intention behind the arrangement is not, however, to the point. What is to the point is the effect of the arrangements. The structuring is the means by which Aussie Drifter is able to utilise the acquired assets of the Applicant.
43. Central to that ability to utilise the assets acquired under the sale agreement in the business now being carried on is the application of know-how and skill of the former employees of the Applicant now engaged by the First Respondent. That know-how and skill formed part of the intangible assets of the Applicant. Clearly, had Aussie Drifter (later The Denning Group Pty Ltd) utilised those assets it acquired under the sale agreement and directly employed the labour of the former employees there would have been a transmission in the necessary sense. So too had it chosen to utilise those assets acquired under the sale agreement through another corporate entity, such as Denning Manufacturing Pty Ltd, and that corporation directly engaged the labour of the former employees, there would have been a transmission in the necessary sense. In each instance there would not however have been merely a coincidence of employment and utilsation of the assets acquired under the sale agreement in the one corporate entity, rather that corporation would be also utilsing the intangible assets of the know-how and skill of the former employees. In each instance the business, or part of the business of the Applicant would have been transmitted to that corporation.
44. The structure adopted has simply split the corporate entities which acquired the assets. However, each of the corporations which acquired those assets, including the First Respondent, utilized those assets in the overall enterprise and in so doing, each was a transmittee of part of the former business of the Applicant.
I do not accept those submissions. The first respondent did not receive any asset of the applicant. It employed most of the applicant’s workforce, but that was not an asset of the applicant in the relevant sense. The first respondent’s only business is to provide that labour to Aussie Drifter. To accept the applicant’s submissions would be to extend the meaning of the word “employer” where it secondly occurs in clause 4.5.7(a) of the Award beyond its ordinary and natural meaning. No basis for ignoring the separate legal status of the first respondent and Aussie Drifter was suggested in argument, and I see no basis for disregarding that structure.
Conclusion
Clause 4.5.7 of the Award is not engaged in this case, and the applicant is not able, in my view, to apply that provision so as to avoid the effect of clause 4.5.1 of the Award.
For the same reasons, nor is clause 1.7.2 engaged so as to relieve the applicant of the obligation to pay severance entitlements in accordance with clause 4.5.3(a) of the award.
The application must be dismissed.
I certify that the preceding forty-one (41) paragraphs are a true copy of the reasons for judgment of Jarrett FM
Associate: Susan Haysom
Date: 29 November 2007
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