Aufgang v Kozminsky Nominees Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

No. 6786 of 2004

MICHAEL AUFGANG	Plaintiff
v
KOZMINSKY NOMINEES PTY LTD	Defendant

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JUDGE:	SMITH J
WHERE HELD:	Melbourne
DATE OF HEARING:	22, 23, 27, 28, 29, 30 August 2007
DATE OF JUDGMENT:	14 February 2008
CASE MAY BE CITED AS:	Aufgang v Kozminsky Nominees Pty Ltd
MEDIUM NEUTRAL CITATION:	[2008] VSC 27

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CONTRACT – Engagement of plaintiff as medical practitioner – Terms as to remuneration, superannuation and leave entitlements – Statutory entitlements in respect of annual and public holidays – Whether an employee – Criteria to be applied.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr H Borenstein SC and Mr P O’Grady	Rockman & Rockman
For the Defendant	Mr M Rinaldi	B2B Lawyers

HIS HONOUR:

The Dispute

The plaintiff, Dr Michael Aufgang, has brought these proceedings to recover sums of money which he alleges are owed to him by the defendant, Kozminsky Nominees Pty Ltd. He alleges that the sums are owed pursuant to an agreement under which he was engaged by it to work as a general practitioner in a medical practice in Brighton. Kozminsky Nominees Pty Ltd provided services to the medical practice as the trustee of a trust named the Michael Kozminsky Family Trust. The medical practice was operated by another company, Michael Kozminsky Pty Ltd. Dr Michael Kozminsky was a director and the directing mind of both companies.

The plaintiff alleges that shortly prior to 17 November 1995 he and Dr Kozminsky, acting on behalf of the defendant company, entered into an agreement under which the plaintiff would come to work in the practice. His remuneration was to be:

·65% of the billings which he generated for the practice, plus
·superannuation at the statutory rate which, at the time, was 6%, and
·four weeks paid annual leave entitlements which would accumulate. In addition he would be paid for public holidays.

The defendant disputes the above terms and alleges that

·the original agreement was that plaintiff’s percentage share of the billings was to be 60%, not 65%,
·the superannuation would be paid out of that 60 per cent, and
·there was no entitlement to paid annual leave or public holidays.

It was common ground, however, that the superannuation contributions paid on the plaintiff’s behalf were to be at whatever the prescribed rate was at the time and in accordance with the relevant legislation. When the agreement was first negotiated the rate was 6% but over time the prescribed rate increased. Both parties also appear to accept that under the original agreement the superannuation contribution was to be calculated on the agreed billing percentage figure.

The plaintiff also alleges that in the latter half of 1996, it was agreed that the percentage of the billings to which he was entitled be reduced to 60%. The defendant alleges that the agreed reduction was to be 50% of billings.

It is common ground between the parties that in early 1998 the agreement was varied to provide that the defendant would pay the plaintiff $350 for each rapid opiate detoxification performed by the practice, together with $15 representing 50% of the profits derived from the sale by the practice of the drug naltrexone used in that detoxification process.

The plaintiff contends that the defendant, by making superannuation contributions in the way described, has underpaid his remuneration. He also contends that there has been an underpayment of the amount that the defendant should have paid into superannuation on his behalf. The principal reason for this result appears to have been an alleged failure by the defendant to include the ROD payment (including the naltrexone profit share) in the total earnings figure when calculating the superannuation payments. The defendant argues, however, that the money received from the ROD payments was not within the requisite definition of income relating to his employment within the extended statutory definition and was unrelated to the personal labour or services provided by Dr Aufgang.

It should be noted that the plaintiff’s claims, as pleaded, relate, inter alia, to payments that should have been made in and from 1995. One of the defences raised by the defendant is the statute of limitations. The plaintiff has not raised any issue that might meet that defence. Rather, the plaintiff has addressed the issue by limiting its damages claim to the period from 30 June 1998 to the date of issue of the Writ. Nonetheless, the evidence of the original negotiations and conduct in the period from November 1995 to 30 June 1998 is relevant to the determination of the dispute about the terms of the agreement.

Calculations have been done on behalf of the plaintiff of the alleged underpayment of “wages” from 1 July 1998 to 18 December 2003, when the plaintiff resigned from his position. The total amount claimed is $69,335.79. In relation to the alleged underpayment of superannuation, over the same period, the amount alleged is $23,892.54.

In relation to the claim for leave entitlements, it is common ground that the plaintiff took unpaid leave during the period of his engagement. His claimed entitlement to annual leave totalling approximately 32 weeks. It was also common ground that he had in fact taken a total of three weeks of paid annual leave in the financial year ending 30 June 2003. The plaintiff alleges that the balance of leave owing at termination was 109.7 days and that, his entitlements having accumulated, he was entitled to money in lieu of those holidays totalling $120,516.88. He also claims to be entitled to be paid in respect of ten public holidays per year. For that he claims $44,518.68. In addition he claims underpayment of superannuation on holiday pay totalling $10,264.55 and on public holidays of $3,420.34.

It is common ground that the agreement came to an end in 2003 when the plaintiff sought a substantial period of paid leave and money in lieu of accumulated leave. An argument developed which was not resolved. The plaintiff decided not to continue working in the practice and resigned.

Plaintiff’s alternative case re paid leave and public holiday entitlements

Counsel for the plaintiff submitted that, if the plaintiff’s account of what was agreed is accepted, then that is the end of the matter. If, however, it is found that the agreement did not provide the alleged leave and public holiday entitlements, then the plaintiff seeks to rely upon statutory provisions applying to employees which prescribed their entitlements and mandated that they could not be excluded by contract. He alleges he was an employee of the defendant.

In relation to the annual leave claim, the plaintiff relies upon the relevant provisions of the Workplace Relations Act1996, a Commonwealth statute. If the plaintiff is found to be an employee, then, by operation of the provisions of the Commonwealth Act, he is entitled to the payments claimed in respect of his annual leave – four weeks per year cumulatively – independent of the agreement. In relation to the public holidays claim, the plaintiff relies on the Victorian Public Holidays Act 1993. It applied to all persons in Victoria not covered by a federal award

“employed under an Act or a contract of employment or other agreement or arrangement relating to employment”.

The defendant argues that the plaintiff was a contractor not an employee and there was, therefore, no entitlement to the employee benefits relating to annual leave or public holidays. It was put that in effect what existed was a quasi partnership arrangement and that in law the plaintiff was an independent contractor. Counsel for the defendant also argued that, assuming that the plaintiff was an employee and assuming there was an agreement that he was to receive a percentage fee of billings, there was no basis for receiving payments in respect of annual leave and public holidays. Under the legislation the entitlements were to be calculated on the basis of the agreed method of remuneration. The plaintiff’s agreed remuneration was based on billings to patients. The statutory entitlements were to leave and public holidays without loss of pay but the agreed remuneration was billings to patients and if he did not work on a public holiday, 60% of zero was zero. If he did work on public holidays, he was paid 60% of his billings. The same reasoning, it was said, applied in respect of the 6% superannuation contribution and the annual leave entitlement.

In relation to claims under the Workplace Relations Act, the defendant also argued that they can only be brought in an eligible court and the Supreme Court of Victoria is not an eligible court within the definition of s.489 of the Workplace Relations Act.

The defendant also submitted that the plaintiff was under an obligation to inform the proprietor of the business that he was saving such entitlements – based on a duty of good faith and fidelity as a senior employee.

Counsel for the defendant submitted in an opening summary of issues that, if there was a shortfall in the superannuation guarantee payment, then the remedy is to make the payment into the superannuation fund, not to award damages. This argument was not pursued in final submissions and I treat it as abandoned.

Additional issues raised by the defendant affecting quantum of damages

The defendant has also raised some specific issues which affect the quantum of damages claimed.

(a) The claim for holiday pay in respect of annual leave. The defendant has submitted that the amount to be calculated in respect of the annual leave should be arrived at by calculating the average remuneration of the plaintiff for the twelve months immediately prior to the termination of the agreement and not, as the plaintiff has calculated the amount, on the basis of the averages for each year in which the relevant leave accrued.

(b) Public holiday pay. The defendant submitted that there should be a discount in respect of public holiday pay because on the evidence the plaintiff did work and receive payment for work done on public holidays.

(c) Superannuation on unpaid holiday pay and public holiday pay. Counsel for the defendant submitted that under the provisions of the Superannuation Guarantee (Administration) Act 1992, payments in lieu of unused annual leave are not included in earnings for the purpose of the definition of the critical concept “ordinary time earnings”. In relation to public holiday pay, counsel for the defendant submitted that the figure should be discounted to allow for the fact that the plaintiff did work on some public holidays and so would have received some superannuation in respect of those fees which would have been charged at the higher public holiday rate on those occasions.

Background and Overview of Evidence

The medical practice was one which relied largely on bulk billing clients so that the accounts were sent to the various authorities, and were collected by, Michael Kozminsky Pty Ltd. That company received the fees and paid a fee to the service company, the defendant, Kozminsky Nominees Pty Ltd, to cover the various costs incurred including costs of staff. The defendant alleges that some of the staff were contractors and some were employees. The defendant argues that, on the evidence, Dr Aufgang was properly categorised as a contractor and not an employee. This has ramifications for his alternative basis for claiming in respect of leave and holiday entitlements.

While there is disagreement about the precise details, it is common ground that the original contact was made by Dr Aufgang and Dr Kozminsky. It is also common ground that this came about because of a shared acquaintance. Dr Kozminsky was considering engaging another doctor to assist him in his practice. Dr Aufgang was contacted by Dr Kozminsky in November 1995 when he was diagnosed as having suffered a stroke and had been told that he must cease his work in his practice immediately. Thus, when Dr Aufgang first began work in the practice Dr Kozminsky was on sick leave. He did not return to work until July 1996. The parties did not record their agreement in writing. There are considerable differences in their accounts of the negotiations. But it is clear that Dr Aufgang commenced working in the practice on 17 November 1995.

In the period from November 1995 to July 1996 the plaintiff was not in fact paid on the basis of 65% of his billings but on the basis of 60% of his billings. His evidence has been that he was unaware of that fact. During this period, however, no superannuation was deducted from the 60% amount paid to the plaintiff by way of superannuation. There were, however, discrete payments of superannuation on top of his percentage of the billings and accounting records and some correspondence support that conclusion.

In July 1996 Dr Kozminsky returned to work in the practice. He and Dr Aufgang gave evidence that about two months later, there was discussion about the appropriate entitlement of the plaintiff. The plaintiff gave evidence that he agreed to a reduction in his entitlement from 65% to 60% but there were no other changes to the agreement. Dr Kozminsky’s gave evidence that it was agreed that Dr Aufgang’s entitlement be reduced to 50% and that superannuation be deducted from it and that there was no entitlement to annual leave or public holidays. Again neither party put anything in writing to record the agreement between them.

What the defendant’s records show is that in the period following the return of Dr Kozminsky, the share of the billings paid to the plaintiff was reduced to 50% and the superannuation contribution was taken out of that 50% share. The records also show that this change in fact occurred in July 1996, prior to any agreement for any reduction. The plaintiff’s evidence was that he was aware he was being paid less but that that did not surprise him; he expected to be paid less because, with Dr Kozminsky having returned, he expected to be billing less patients and the rate was reduced. His evidence was, however, that he believed that the reduced rate was 60%, not the 50% alleged by the defendant.

Dr Kozminsky gave evidence that in about August 1997 there was a further agreement under which the 60% rate was restored. Certainly it is at about that time that the records show that the share of the billings, which the plaintiff received, was increased to 60 per cent. The plaintiff, however, maintained, in his evidence, that what occurred was that the reduction to 60% agreed to in about September 1996 continued and, so, he continued to receive 60 per cent. It follows, however, that there is common ground that from that time the agreed rate was 60% of billings. Thus for the period for which we are concerned, within the limitation period, there is no dispute as to the agreed share of the billings, namely 60%. The critical issue is the deduction of the superannuation and whether that was agreed. Again, while the plaintiff accepted that he was, in fact, paid only 50% for a period of nearly twelve months, he maintained that he did not monitor the financial records and the payments and was unaware of the reduction to 50 per cent. He gave evidence that he in fact was not aware of the reduction until discovery was given in this action and he was absolutely infuriated when he realised what had happened. As to other conditions – superannuation and annual leave and public holidays, the parties’ positions are as already mentioned. Again there was nothing in writing to record the nature of the agreement at this time.

In 1997 a rapid detoxification treatment became available for the treatment of drug dependent patients. This treatment involved the use of a drug called naltrexone. The treatment was called rapid opiate detoxification (ROD). The initial step in the ROD programme was one of assessment and selection as well as investigation. Those who elected to proceed after that initial stage, and were approved, would go into the hospital, initially for 48 hours, then 24 hours and then for lesser periods over a period of a couple of years when they were treated as in-patients. The treatment had complications and there could be a multitude of issues to be dealt with over time. The initial assessment involved psychological assessment as well.

The treatment was not generally available to the medical profession. A practitioner who wanted to engage in this form of medical practice had to be approved by the Therapeutic Goods Administration. Dr Kozminsky and Dr Aufgang obtained that approval and began to use the treatments towards the end of 1997. It brought with it substantial remuneration – around $5,000 gross for treatment out of which various expenses, including hospital expenses, were paid.

In January 1998, Dr Kozminsky, who was on leave, was infuriated when Dr Aufgang gave a media interview about the treatment programme. As a consequence, an issue arose as to whether the plaintiff would be permitted to do any work in the programme and, if he was, the basis of payment for it. There were negotiations and an agreement was reached that Dr Aufgang would assist in the programme save and except for the hospital treatment. It was also agreed that Dr Aufgang would receive $350 for each of the hospital treatments performed by the clinic and receive half of the profit made by the clinic in selling the naltrexone to its patients – approximately $15. The situation was that the naltrexone was used in the treatment and was a drug that could be dispensed by the clinic to the patients. It would be charged by the clinic to the patient. It could sell the drug at a price to the patient that was cheaper than the patient could obtain at a chemist. It appears that such arrangements were legal at the time. While the precise position of the parties is slightly different (the defendant saying that the plaintiff’s entitlement was to $15 per bottle and the plaintiff saying that his entitlement was to 50% of the profit), the case has proceeded on the basis that there is essentially no difference in the result. In any event, the plaintiff does not allege that he has not received payment for his share of the profits of the sale of naltrexone or $350 payments. The issue remaining to be determined is whether the ROD payments to which the plaintiff was entitled should have been taken into account in determining the superannuation payments.

In late January and February 1998, there were negotiations between Dr Aufgang and Dr Kozminsky about changing the nature of their relationship and the terms of remuneration for Dr Aufgang. The negotiations came to nothing.

The evidence from the defendant’s records shows that the defendant continued to pay the plaintiff 60% of his billings until the end of the engagement in 2003 and that the superannuation payments made on his behalf were calculated at the prevailing rate on the 60% figure but then taken out of that 60% amount. The plaintiff’s evidence is that he remained unaware that the superannuation payments were taken out of his percentage share of the billings.

Issues to be considered

To determine the dispute the following issues need to be considered:

(1)What were the terms of the agreement that operated during the relevant period as to superannuation entitlements and annual leave and public holiday entitlements?

(2) Was the agreement a contract of employment?
(3)If it was a contract of employment, but the 60% agreed rate of remuneration was inclusive of leave and public holiday entitlements, what statutory entitlements, if any, does the plaintiff have in those areas?
(4)Quantum.

First Issue – Terms of Agreement

In determining what were the terms of agreement in relation to superannuation, leave entitlements and public holiday entitlements at the relevant times, it is necessary to examine the following phases of negotiations and discussions and other activities involving Dr Aufgang and Dr Kozminsky, the principal witnesses.

(a) the preliminary negotiations and initial agreements in 1995,
(b)the negotiations following the return to the practice of Dr Kozminsky in 1996,

(c)       the negotiations that occurred in January and February of 1998,
(d)      the period leading up to Dr Aufgang’s resignation,
(e)       Dr Aufgang’s resignation.

As noted above, the parties did not at any point record their agreement in writing. The only direct evidence relating to the negotiation of the terms of the agreement is that given by Dr Aufgang and Dr Kozminsky. While that needs to be considered in light of the other evidence such as the accounting records of the defendant, ultimately the assessment of Dr Aufgang and Dr Kozminsky as witnesses is critical to the determination of this question.

In considering their evidence and the way they gave their evidence, I have come to the conclusion that Dr Aufgang was a credible witness. He did not lose sight of his obligation to give accurate evidence of what he recalled. While plainly angered at times by counsel’s suggestions and angered still about what he saw as Dr Kozminsky’s deceptions, I came to the conclusion that he was telling the truth to the best of his recollection. Dr Kozminsky, however, was not a credible witness. On occasions he lost sight of his obligations as a witness and was careless with the truth, too concerned to promote his case, in particular his “independent contractor” case, and to reconstruct an account of what occurred to fit in with his case.

It has been necessary to review and analyse their evidence in considerable detail. That review and analysis is set out in Appendix A. I draw particular attention to the following points that emerge:

(i)In relation to the original negotiation of the agreement, Dr Aufgang’s account is the more credible and probable. Dr Kozminsky’s account, in my view, was a deliberate reconstruction tailored to advance his case.
(ii)The evidence of the negotiations and actions of Dr Aufgang and Dr Kozminsky when Dr Kozminsky returned to work in the practice in 1996 reveal acts of significant dishonesty on the part of Dr Kozminsky in unilaterally causing the percentage of the billings payable to Dr Aufgang to be reduced to 50%.
(iii)Dr Kozminsky’s explanation for excluding Dr Aufgang from the ROD programme in early 1998 was that he was not insured. To say the least, this was unconvincing. I am satisfied, in fact, that it was a fabrication.
(iv)As to the attempted negotiations in 1998, Dr Kozminsky gave evidence that his letter of 27 January 1998 recorded an agreement reached which, so far as relevant, accorded with the defence position. The allegation that it records an agreement reached, however, is not supported by its content or that of the preceding draft or the process that they reveal. The probabilities also support Dr Aufgang’s account of the general negotiations about the agreement at that time. It should be noted that, according to Dr Kozminsky, it was he who raised the issue of leave entitlements at that time, not Dr Aufgang. On his evidence, therefore, he was seeking agreement that they be excluded.
(v)The records of the defendant support the case of Dr Aufgang as to the original arrangements for superannuation and holiday pay.[1] They do not support his case on the agreed percentage of billings payable to him. The reliability of the book entries is in doubt, however, because the source would appear to be Dr Kozminsky and he showed in his conduct in 1996 that he was not averse to causing incorrect entries to be made. That conduct also puts in doubt the changes made to the recording of superannuation in 1996. It strengthens, however, the reliability of those entries that support the case of Dr Aufgang. The unexplained absence of the bookkeeper, Ms Wengier, as a witness leads, in my view, to the conclusion that her evidence would not have assisted the defendant. It strengthens the inferences already open which are adverse to the defendant and enables the evidence adverse to the defendant contained in the records to be more readily accepted.[2]
[1]Note also as to the holiday pay entitlements, the actions of the staff and the admission of the accountant in 2003.
[2]Jones v Dunkel (1959) 101 CLR 298, 312.
(vi)Where the records did not support his evidence, notably in the recording of the superannuation payments, and, for a period, his percentage entitlements, I am satisfied that Dr Aufgang had no knowledge of those entries and they were initiated by or with the authority of Dr Kozminsky without the agreement of Dr Aufgang.

Terms of Agreement – Conclusion

I am satisfied that the evidence of Dr Aufgang as to the terms of his engagement and its variations should be accepted. I am satisfied that the account of Dr Kozminsky of those matters should be rejected. I make the following findings:

(a)The terms of the original agreement negotiated in 1995. Dr Aufgang entered into an agreement with the defendant, represented by Dr Kozminsky, on Thursday, 16 November 1995 to work in the practice conducted by Dr Kozminsky. The terms agreed upon were that Dr Aufgang would receive 65% of his total billings and be paid in addition superannuation at the prescribed rate and be entitled to receive four weeks annual paid holiday leave and paid leave for public holidays, such leave being cumulative. At the request of Dr Kozminsky, he commenced work the following day on Friday, 17 November 1995 and continued to work in the practice until his resignation in 2003. The relevant terms were confirmed in discussions on the following Sunday.
(b)Variation in 1996. Approximately two months after Dr Kozminsky returned to work in his practice, in about September 1996, Dr Aufgang agreed to the reduction of his remuneration to 60% of his billings, he having been persuaded by Dr Kozminsky that the 65% figure was not sustainable. No other terms were changed.
(c)Variation in 1998. Following the dispute relating to the ROD programme, it was agreed between Dr Aufgang and Dr Kozminsky that Dr Aufgang would continue to process applicants for that programme and attend the admission to hospital of those admitted to the actual programme but not be involved in the detoxification treatment in the hospital. In return he would receive half the profit on the dispensation of naltrexone, namely, $15 which was the equivalent of 50% and would also be paid $350 in respect of each patient who went through the programme under the supervision of Dr Kozminsky. While there was also a general discussion of the terms of their agreement, no changes were otherwise made and Dr Aufgang’s engagement by the defendant continued until his resignation in 2003 on the terms as otherwise modified above.

His contractual claim is, therefore, made out. It is desirable, however, that I consider the alternative way the claims for leave and public holiday payments are made – pursuant to statutory entitlements. The first question to consider is whether Dr Aufgang was engaged as an employee or an independent contractor.

Alternative Claim - Employee/Independent Contractor Issue

It is common ground that the question whether a person is an employee or independent contractor of another is a question of degree in which a number of factors have to be considered, none of which are determinative.[3] The totality of the relationship is that which has to be considered.[4] It has long been accepted, however, that the distinction between an employee and an independent contractor lies fundamentally in the difference between a person who serves an employer in his, the employer’s business, and a person who carries on a trade or business of his own.[5] As was said in Stevens v Brodribb[6]:
[3]Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16; Vabu Pty Ltd v Federal Commissioner of Taxation (1996) 33 ATR 537; Drake Personnel v Commissioner of State Revenue [2000] 2 VR 635; Hollis v Vabu Pty Ltd (2001) 207 CLR 21.
[4]Stevens v Brodribb at 29; Hollis v Vabu [at para 24].
[5]Per Windeyer J in Marshall v Whittaker’s Building Supply Co (1963) 109 CLR 210 at 217.
[6]At 37.

“The ultimate question will always be whether a person is acting as the servant of another or on his own behalf.”

The issue of control has always been a significant matter but it is now established that the when considering the issue of control, what is relevant is not the actual exercise of control but the right to control. Further, the right to control is only one factor and not the only relevant factor.[7]
[7]Hollis v Vabu at [43] – [45] and the cases there cited.

Indicia of the nature of the relationship include, in addition to the right to control:

·the right to have a particular person do the work,
·the right to suspend or dismiss the person engaged,
·the right to the exclusive services of the person engaged,
·the right to dictate the place of work, hours of work and the like,
·whether the work involves a profession trade or distinct calling on the part of the person engaged,
·who provides the place of work and equipment,
·whose goodwill is created as a result of the work,
·ownership of any saleable assets created by the work,
·the person paying business expenses of any significant proportion,
·the payment to the person in question of remuneration without deduction for income tax.[8]
[8]Stevens v Brodribb Sawmilling Co Pty Ltd at 37.

It is accepted that these indicia can be no more than a guide and the actual terms and terminology of the contract will always be of considerable importance.

Counsel for the plaintiff raised a number of points in relation to relevant indicia in this case. Counsel for the defendant also addressed a number of the indicia.

· Control and direction
Counsel for the plaintiff submitted that the evidence of events in early 1998 pointed to the defendant, through Dr Kozminsky, taking the position that it had the right to dismiss the plaintiff as an employee and that it approached the issue of termination of that employment as if he was an employee. Counsel also relied upon the fact that the defendant, through Dr Kozminsky, claimed the right to exclude the plaintiff from involvement in the ROD treatment programme. Counsel argued that the point sought to be made for the defendant, through the evidence of Dr Kozminsky, that the problem that the plaintiff did not have insurance was a red herring. If the defendant had been prepared to permit the plaintiff to be involved in that work, insurance could have been procured. Counsel submitted, however, that in raising the argument Dr Kozminsky revealed that he saw the relationship is one of employer/employee; for if the relationship was that of independent contractor then insurance would not have been a concern of the defendant. It was only a concern if he was an employee. Counsel submitted that the ROD issue was an example of the defendant exercising the right to determine what work Dr Aufgang would be allowed to do. The incident also was evidence, it was put, that the defendant claimed the right to determine who could speak on behalf of the clinic. I note that in cross-examination, Dr Kozminsky acknowledged in his evidence that in his treatment of Dr Aufgang on and shortly prior to 15 January 1998, he was treating him as an employee.
The plaintiff’s counsel acknowledged that there was an absence of control over the detailed actions of the plaintiff in caring for patients but submitted that where, as here, we are concerned with a professional person exercising professional judgment, this factor is not determinative. Counsel for the plaintiff relied upon the plaintiff’s evidence as to the detailed instructions given to him about the specialists to be used and other matters of a like kind. Counsel submitted that all of this pointed to the position being that the defendant regarded itself as being in a position to direct the plaintiff and to consider dismissal if the plaintiff was not willing to follow such directions.
Counsel for the defendant submitted that there was a lack of control and direction of Dr Aufgang by Dr Kozminsky or anyone else on behalf of the defendant. Counsel referred to the attempted disciplinary action in relation to Dr Aufgang speaking with the media which had come looking to interview Dr Kozminsky on his special interest in addiction treatment. Dr Kozminsky was away on leave. The defence argued that the response of Dr Aufgang was strident referring to the comments on the letter sent by the defendant to him. It was argued that this was not characteristic of an employee. I disagree. Reactions in such situations will depend on the personalities of the individuals. The people involved here are strong minded professionals.
The defendant denies any other directions save for the request by Dr Kozminsky to Dr Aufgang to keep his consulting room clean and tidy and to attend practice meetings. Counsel for the defendant submitted that he seemed to largely ignore these requests and referred to health concerns about his room. This was based on exaggerated evidence of Dr Kozminsky that the room was a pigsty which he refused to clean and that when Dr Aufgang left, he, Dr Kozminsky, found organic matter and evidence of mouse involvement in the bottom of the pile of mess on the floor. Counsel acknowledged that such details had not been put to Dr Aufgang. The exaggeration is confirmed when reference is made to Ms Snajder’s evidence that at times Dr Aufgang's office was messy and some practice meetings he did not attend. Counsel for the defendant further argued that it is more likely that someone would not keep his office clean and tidy and not attend practice meetings if that person was an independent contractor rather than an employee. The employee would be more concerned to keep the employer happy. This does not follow. Tidiness and unwillingness to spend time at meetings notwithstanding the requests of the employer are likely to be a reflection of the person’s habits and personality and the availability of time and the ordering of priorities, not the nature of the relationship. The attendance at practice meetings on the evidence was more a matter of lack of time and, in any event, the two doctors met each week to discuss patients and whatever else needed to be discussed.

· Extent to which he worked for others?
Counsel for the plaintiff submitted that overwhelmingly, the evidence pointed to the plaintiff having worked for the defendant for eight years and not for himself or for others. It was conceded that there was evidence of a few instances, at least up to approximately the year 2000, where he earned some fees from a few friends and family. They were miniscule compared to the amount he was billing and earning through working for the defendant.
Counsel for the defendant submitted that there was no requirement of exclusivity of service to the defendant and that the plaintiff did work on his own account. The defendant’s submission, however, fails to take into account the other matters raised by the plaintiff. While it may be said on the evidence that there was no express requirement of exclusivity of service and while the plaintiff did do a very small amount of work on his own account for a time, it was clear from the evidence of Dr Kozminsky and Dr Aufgang that their expectation was that he would give exclusive service to the defendant which was servicing the practice and the other work that he did in his own time was minute compared to that which he did for the defendant.

· Separate place of business/held self out to practise independently?
Counsel submitted that Dr Kozminsky conceded that the plaintiff could not work elsewhere – “he would have been using my goodwill”. Counsel submitted that on the evidence the plaintiff did not have a separate place of business and, at all times, held himself out as working for the practice.

· The provision of tools and equipment and facilities and about the plaintiff
The plaintiff’s counsel argued that on the evidence the plaintiff had supplied his own stethoscope and nothing else and the clinic had provided everything else including computers and furniture and administrative staff and other medical equipment.

· Practice decisions – services and delegation of duties
Counsel for the plaintiff submitted that on the evidence it was clear that the plaintiff had no power to delegate any of his functions. He referred to the plaintiff’s evidence that that was his understanding, the practice being Dr Kozminsky’s practice. Counsel also relied on the evidence of Dr Kozminsky in cross-examination about this issue. He said that he, Dr Kozminsky, would get another doctor if assistance was needed and it was clear that there was no expectation that the plaintiff could do so. The plaintiff also relied on the evidence that Dr Kozminsky initiated and pursued the question of linking a pathology clinic to the general practice.
Counsel for the defendant submitted that there was no prohibition on the delegation of performance by Dr Aufgang. I note that Dr Kozminsky, in re-examination, said that Dr Aufgang organised an endocrinologist to consult at the clinic. That, however, was not a matter of delegation but rather arranging for extra services to be provided. It was done with Dr Kozminsky’s approval.
·The presentation of the plaintiff to the world by the plaintiff and the defendant
Counsel for the plaintiff submitted that both the plaintiff and the defendant presented the plaintiff to the world as someone operating out of the Genesis Clinic. If the local private hospital sought a doctor it would go to the Genesis Clinic to secure the services of a doctor. It was the Genesis Clinic that sent correspondence to institutions and identified the plaintiff as an employee. Counsel referred to tax invoices for bills for his fees. The billings went to Medibank from Genesis Clinic. If he was a contractor, not an employee, then the clinic should not have sent the accounts – Dr Aufgang had the responsibility in those circumstances. Counsel submitted that the plaintiff was represented in billing as working for the clinic and the clinic collected the GST and the defendant was not involved. If the plaintiff had been an independent contractor, those matters would have been dealt with differently.

· Remuneration, financial and tax arrangements
It is common ground that the PAYE arrangements were essentially neutral bearing in mind the income tax legislation requiring persons engaging employees or independent contractors to make such arrangements. Likewise it was conceded that the superannuation contributions made on Dr Aufgang’s behalf by the defendant were neutral on the question of whether the plaintiff was an employee or a contractor at common law.
Counsel for the plaintiff, however, submitted that the general ledger and annual statements of the defendant described what the plaintiff had received as wages or salary. Those same records contain material referring to different types of fees, such as contractor’s fees and locum contracts.

The following points were highlighted by the defendant.

· The nature of payment for the work done
Counsel for the defendant submitted that the plaintiff received payment by results and by the percentage of fees billed as well as payments for RODs and naltrexone which were not for work done by the plaintiff. Counsel submitted that particular attention should be given to the fact of the agreement that the plaintiff would receive a fee in respect of every rapid opiate detoxification treatment in hospital and 50% of the net profit on the sale of naltrexone in circumstances where it was clear that he was not to be involved in any of that work. Thus, it was put, he was receiving payment that had nothing to do with him doing work. Counsel submitted that this was inconsistent with there being an employer/employee relationship and pointed more to an independent contractor/principal relationship.

It is clear, however, that that arrangement arose out of the desire of Dr Kozminsky to exclude the plaintiff from participation in the ROD and naltrexone treatment. This was in part a result of Dr Kozminsky’s outrage about the plaintiff speaking to the media and involved a negotiation between Dr Kozminsky and the plaintiff of a fee arrangement to cover a change to the agreement under which the plaintiff was entitled to receive 60% of all his billings. Thus if he had continued to do the ROD treatments, he would have been entitled to the 60% of the net amount received for each treatment. Under the new agreement he was to continue to be involved by assessing potential patients for hospital treatment by Dr Kozminsky and attending on admission. In doing so, he was enabling Dr Kozminsky to treat far more than he would otherwise have been able to treat. He was still working for the practice owned by Kozminsky Pty Ltd and being paid for that work.
If the plaintiff had been an independent contractor providing such services, a similar issue would have arisen if the defendant sought to exclude him from that work, it being work of the clinic which he had been engaged to do. It is evidence which is, at best for the defendant, neutral as to whether the arrangement was employer/employee or independent contractor/principal.
As to the issue generally of payment by results, such as a percentage of billings, many employees are, and were, paid by commission.
Counsel for the defendant also submitted that the fact that Dr Aufgang paid for his own Professional Indemnity insurance and AMA membership etc was significant. I accept the evidence, however, that that was precisely what occurred when he was employed by the public hospital and it too is neutral evidence.

· Alleged quasi partnership or joint venture characteristics of the arrangements

Counsel for the defendant pointed to the sharing of income as a significant factor giving to the relationship the characteristics of a joint venture or quasi partnership and was therefore more consistent with the notion of an independent contractor, rather than employee, to the plaintiff. There was not, however, a sharing of income – the plaintiff was being allowed 60% of the billings that he generated with the balance to be used in the business to help cover overheads and costs. He could just as easily have been paid a salary with a bonus, depending on the end of the year results. There was certainly nothing of the partnership or joint venture about it. In fact the defendant resisted any attempts by the plaintiff to be admitted into some form of joint venture or partnership.

The Employee issue – analysis and conclusion

Weighing up the relevant factors the evidence clearly supports the conclusion that Dr Aufgang was an employee of the defendant. The few matters relied upon by the defendant, either separately or in combination, are at best neutral from its points of view as to whether Dr Aufgang was an “employee” or “independent contractor”. It is true that he had a considerable degree of discretion in the way he did his work but we are here dealing with the engagement of a professional person, a doctor, and one would not expect there to be any interference or direction as far as the carrying out of the work with particular patients is concerned. Against that it is clear, in particular, that:

· Dr Aufgang was expected to work for the practice and no other and out of the premises supplied by the defendant and use the facilities provided by the defendant.

· Dr Kozminsky on behalf of the defendant and Kozminsky Pty Ltd claimed the right to decide who did what in the practice and to give directions and the right to exercise control when that was necessary in his view.

· Whatever goodwill was generated by Dr Aufgang, it was generated for the two companies. He had no rights in any goodwill he generated.

Plainly, in my view, Dr Aufgang was working for the business of the defendant and Kozminsky Pty Ltd and not for his own business. Plainly, he was not carrying on a business of his own.[9] He was an employee of the defendant.
[9]I note that in January 1998 at the time of the dispute about the media publicity, Mr Salcman gave advice to Dr Kozminsky in which he expressed the view that Dr Aufgang was an employee. He also expressed that view in his attempt resolve the final dispute in 2003.
Alternative Claim - Statutory Entitlements as Employee

Counsel for the plaintiff contended that accepting that there was an employment agreement between the plaintiff and the defendant and assuming that the agreement made no express provision for public holidays and annual leave, or made less beneficial arrangements than that provided in the relevant legislation, the plaintiff had an entitlement under and in accordance with that legislation.

· Public holidays
Accepting that he had employee status, Dr Aufgang came within the definitions[10] in the Public Holidays Act 1993 of persons covered by that Act. The provisions of s.10[11] of the Public Holidays Act 1993 applied to him with the result that he was:
[10]Section 4.
[11]It applies despite any contrary provision in any contract of employment.
“entitled to a public holiday or public half holiday that applies to him or her without loss of pay.”

The claim made by the plaintiff involved the calculation of an average daily amount having regard to the remuneration received over the 12 months of the relevant period for the ten public holidays each year.
The position of the defendant is that because the plaintiff did not work on the relevant public holiday, he was not entitled to be paid anything for those days. Counsel for the defendant submitted that the key words were “without loss of pay” in section 10. Counsel argued that in this case, the method of payment agreed between the parties was a percentage of billings and there could be no loss of pay if the plaintiff billed some clients whom he saw on public holidays (at a higher rate). If he didn’t bill any patients on a public holiday he got 60% of zero but there was no loss of pay according to what his normal method of remuneration was.
Counsel for the plaintiff submitted that what s.10(1)(a) was intended to achieve was that employees received on public holidays pro rata what they would have received if they had been working. Counsel submitted that if the defence argument was accepted the Act would apply differently between those who were paid on a periodic basis such as a week or a month or a year and those who were paid on a daily basis or a performance basis such as piece workers or people on commissions. Counsel submitted that the legislation was to be categorised as beneficial legislation and interpreted accordingly in a generous rather than a restrictive way.[12] Relying on cases such as Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (1981) 147 CLR 297 counsel submitted that the construction relied upon for the plaintiff best served the purpose and object of the Legislation in question. Counsel submitted that if the defence construction was adopted, then in those cases where people were paid on a day to day basis, or on a piece work or commission basis, they would be denied payments on public holidays which would effectively defeat the operation of the Act.
[12]Liberal interpretation:- Pearce & Geddes, Statutory Interpretation in Australia, 6^th Ed, [9.2] and following; Bull v Attorney-General (NSW) (1913) 17 CLR 370.
I accept the submission of counsel for the plaintiff that the intent of the legislation was to allow all employees to have public holidays and to receive remuneration on those public holidays which they would have received in normal circumstances when working. The concept is no loss of pay and that is met in cases such as the present by calculating the average remuneration obtained over the relevant period. By calculating that figure, it is possible to ensure no loss of pay.

· Annual leave issue
Accepting that there was an employment arrangement, the plaintiff seeks to rely upon the Workplace Relations Act 1996 Part 15 Schedule 1A. It provides as follows:
“(1)the minimum terms and conditions of employment are:
(a)paid annual leave for each year worked of the number of ordinary hours required to be worked in any 4 week period during that year. This leave accrues on a pro-rata basis and is cumulative;”

The expression “ordinary hours” is not defined. Counsel for the plaintiff submitted that they would in the present case comprise the hours of the clinic and normal hours of hospital visits and cover a period of five days and Saturday mornings. There was also evidence that at some point in the period of the agreement the clinic was closed on Wednesday afternoons. Counsel submitted that for practical purposes there were effectively five working days per week and the legislation gave an entitlement to four weeks cumulative leave. Section 504 of the Legislation has the effect that any term in any employment agreement which provided a term or condition of employment less favourable to an employee than the minimum applicable under s.500(1) (which incorporates the Schedule Entitlements) is of no effect. It was put that if there was a term of the agreement that there would be no annual leave, that term would not apply. Instead, s.500(1) has the result that the minimum terms and conditions set out in the above schedule apply.
The plaintiff also relies upon s.506 of the Workplace Relations Act 1996 which has the effect that, if an employment agreement does not comply with the minimum terms or conditions of employment applicable under s.500(1), they are to be taken to have effect as if it did so comply. Counsel submitted that this had the effect of converting the terms of any employment agreement that came within the provision to accord with the relevant terms and conditions of employment contained in the Legislation. Counsel submitted that s.506 imports the conditions referred to in s.500(1) where the contract otherwise does not comply. Having imported those terms into the employment agreement, the Legislation then permits proceedings to be taken to recover the money as if the contract contained those terms.
Counsel submitted that such a claim can be brought in this Court because s.85 of the Constitution Act 1975 gives the Court the jurisdiction to deal with such a cause of action.
For the Defence it was put that the latter proposition was incorrect. Reliance is placed on s.506(2) of the Workplace Relations Act1996 which provides as follows:
“(2)subject to Sections 507 and 508, if a contract of employment, rather than an employment agreement, with an employee in Victoria does not at any time comply with a minimum term or condition of employment applicable under Section 500(1), then the employee may take proceedings in an eligible Court to recover money owed under the contract as if it did comply.”

Counsel for the defendant submitted that "eligible Court" is defined in the following terms:
“eligible Court means:
(a)the Industrial Division of the Magistrates’ Court of Victoria; or
(b)any other Court prescribed by the Regulations.”

It is common ground that the Supreme Court is not one listed in any Regulations. Counsel for the defendant submitted that it, therefore, did not have jurisdiction to determine the claim.
The argument for the defence involves construing the expression “may take proceedings in an eligible Court” to mean “may take proceedings in an eligible Court and no other”. Counsel for the defence accepted that, but for s.506(2), the employee would have the right to sue in the Supreme Court.
Counsel for the plaintiff submitted that because the Act operates to alter the terms of contracts, a Court such as the Supreme Court of Victoria would have jurisdiction to determine a dispute arising out of its application in respect of any contract, such as the present one, entered into in Victoria. What s.506(2) does is go a step further and confer unlimited jurisdiction on the Magistrates’ Court. Absent that provision, as pointed out by counsel for the plaintiff, the Magistrates’ Court would have limited jurisdiction. In this provision Parliament has revealed an intention that claims for minimum terms and conditions of employment should be capable of being dealt with in the Magistrates’ Court without limit of jurisdiction. Counsel also submitted that the use of the word “may” was significant in that it is stated in s.33 Acts Interpretation Act 1901 (Commonwealth) that where an law than Act provides that:
“(2A)… a person, court or body may do a particular act or thing, and the word may is used, the act or thing may be done at the discretion of the person, court or body.”

Counsel submitted that s.506(2) of the Workplace Relations Act enables an employee to go to the Magistrates’ Court whatever amount is claimed. It does not, however, exclude whatever powers that person may have to go to another court that would otherwise have jurisdiction.
The argument put forward for the defendant requires the implication of the intention on behalf of the Commonwealth Parliament to limit the jurisdiction of the Supreme Court. It has been long established that legislation is presumed not to do so and that to achieve that result the intention must appear clearly and unmistakably.[13] That principle has been applied in circumstances where it is federal legislation which has created remedies and the question has arisen whether State court jurisdiction has been displaced.[14] The defendant is unable to rebut the presumption. The better view is that the legislation leaves the jurisdiction of the Supreme Court intact and focuses on conferring unlimited jurisdiction and a right to proceed regardless of amount in the Magistrates’ Court.
[13]Magrath v Goldsborough, Mort & Co Ltd (1932) 47 CLR 121 at 134.
[14]Re Totalizator Administration Board of Queensland (1988) 80 ALR 73; Dahlia Mining Co Ltd v Collector of Customs (1989) 90 ALR 193.
The defendant raised two other broad issues. The first was that, in relation to the accumulation of annual leave, the plaintiff had had a fiduciary duty to alert his employer to the fact that that was what he was doing and he had breached that fiduciary duty.[15] Counsel submitted that he should not be now allowed to seek what he alleges is due to him.
[15]Hospital Products Limited v United States Surgical Corp (1984) 156 CLR 41, 96-97; Hanlon v Konanda Aboriginal Resource & Welfare Centre (Industrial Court of SA) M30/1994, 18 July 1994.
Accepting for the purposes of considering this argument, that the plaintiff occupied a position which had attached to it a fiduciary duty (which I do not decide), I do not accept that such a duty included an obligation to inform the defendant company that he claimed an entitlement to annual leave and to the right to accumulate paid annual leave not taken, they being rights he had at law. Further, all that occurred in this case was that Dr Aufgang by his actions merely deferred the liability of the defendant to reimburse him. His actions did not create a loss or detriment. Arguably it was in fact a bonus because the defendant had the use of its money.
The other argument raised has been canvassed above in relation to public holidays – that the entitlements can only be calculated on and limited to the agreed method of remuneration. For analogous reasons to those set out above, that argument should be rejected.

For the foregoing reasons, the plaintiff is and was entitled under the above legislation to receive payments for accrued annual leave and for public holidays during the period of his employment.

Assessment of Damages

It is common ground that the arithmetic of the calculations made by the plaintiff’s accountant, Mr Hawkes, should be accepted. There are some matters of detail, however, that the defendant challenges.

·Holiday Pay – Accrued Annual Leave
The defendant submitted that, if the plaintiff succeeds in his claim for accrued annual leave, the amount should be calculated at the rate of the average remuneration for the 12 months immediately prior to termination on 18 December 2003 and not on the basis of the averages of the respective years in which the leave accumulated. It is argued that the plaintiff elected to save his paid annual leave in the years before 2002 rather than asking to be paid for leave he took in those years. This approach would result in a figure of $108,807.46 rather than the $120,516.88 as calculated for the plaintiff. The reason for the reduced amount is that the average weekly earnings in the final period were significantly less than the earnings in each of the earlier periods.
Viewed as a statutory entitlement, clause 1 of schedule 1A of the Workplace Relations Act1996, referred to above, creates an entitlement to be paid annual leave for each year worked and for that entitlement to accrue on a pro rata basis and to be cumulative. The legislation appears to envisage the crystallising of the entitlement each year and, absent any other indications in the legislation, it would seem to follow that the quantum of the entitlement should be assessed year by year. It so happens in the present case that that will result in the larger amount claimed by the plaintiff. But to do so will more accurately reflect the value of that annual leave that was not taken and the entitlement in respect of the days of leave that were taken but were not paid for. It seems to me that that approach is also one that would be fairer to all employees and all employers than that suggested for the defendant which is simply trying to take advantage of the fact that the average for the last 12 months, as it turns out, would be lower than that for some of the earlier periods.
Viewed as a contractual entitlement, the above approach seems to me to accord with the agreement.
The defence also submitted that in respect of the 32 days of unpaid leave taken, days not worked, between 30 June 1998 and 18 December 2003 (5.46 years) the annual leave calculations should be reduced having regard to those 32 days. The argument was put that assuming four weeks annual leave per year, there are 48 weeks per year to be worked or 240 working days per year. It was argued that in 5.46 years this amounted to 1,311 days. It was submitted that the 32 days not worked should be taken out resulting in a reduction of the defendant’s figure of $108,807.46 to $106,151.59.
The argument proceeds on the basis that the 32 days taken were not part of the annual leave. It seems to me, however, that they are properly categorised as such. The plaintiff received no remuneration in those periods. No deduction should be made.

· Public Holiday Pay

Counsel for the defendant submitted that the plaintiff did receive some payment in respect of some public holidays because it is common ground that he did attend some patients in hospitals and on home visits on some public holidays. The defence in written submissions suggested a 10% discount on the amount claimed which would be the equivalent of one public holiday in ten per year. In final submissions, “a modest” discount was sought.
The issue has not been adequately developed by the defendant. On the evidence, the plaintiff did work on some public holidays. The fees he would have charged would have been increased and he would have received 60% of them. But he did not work in the clinic and, therefore, it was unlikely that he received as much remuneration as he would have for a full day’s work. There is the further difficulty facing the defendant that he was entitled to have paid leave on public holidays. In my view, the defendant has not led sufficient evidence to make this matter a triable issue. The amount claimed should not be reduced.

· Superannuation on unpaid holiday pay and public holiday pay

Counsel submitted that under s.6(1) of the Superannuation Guarantee (Administration) Act 1992 a lump sum payment in the year in respect of unused annual leave paid to an employee is excluded from “ordinary time earnings” under the definition and, therefore, not to be taken into account in determining superannuation contributions. Counsel for the defendant submitted that the unpaid holiday pay must be claimed and paid on termination. Counsel submitted there was no entitlement, therefore, to superannuation payments upon the claimed underpayment of holiday pay.
It appears to be common ground that the critical question is whether accumulated unpaid holiday pay comes within the definition of "ordinary time earnings". Turning to the definition in s.6(1), it provides, so far as relevant, that "ordinary time earnings" means:
“(a) the total of:
(i)earnings in respect of ordinary hours of work rather than the earnings consisting of a lump sum payment of any of the following kinds made to the employee on the termination of his or her employment:
(A)
(B)a payment in lieu of unused annual leave within the meaning of subsection 26AC(1) of the Income Tax Assessment Act 1936;…”

It was common ground that it was a term of the contract that the plaintiff was to receive from the defendant the benefit of superannuation contributions made in accordance with the Act. While the definition of “ordinary time earnings” under the Act appears to me to have its difficulties, I have come to the conclusion that the definition does operate to exclude lump sum payments in lieu of unused annual leave from the operation of the Act and, therefore, from the calculation of the entitlement to superannuation payments in respect of it. This would reduce the total amount to which the plaintiff is entitled by $10,264.55.
So far as the issue of superannuation payments on public holiday pay is concerned, the defence does not dispute that it should be taken into account in determining the superannuation contribution but it mounts the same argument as related to the public holiday pay claim itself – namely that the plaintiff did work on some public holidays and so will have received some superannuation in respect of the fees charged at the higher public holiday rate on those occasions. The same issues arise as were discussed above in relation to the public holiday pay claim itself. I refer to and repeat my above analysis in rejecting this aspect of the defence.

· Under payment of Superannuation on wages
The defendant submits that the ROD and naltrexone payments should be removed from the calculations of the underpaid superannuation entitlements because they were not part of “ordinary time earnings”. The applicable superannuation percentage should be applied to the amount that can be identified as under paid wages in each financial year within the limitation period. The defendant’s calculations reduce that aspect to $5,598.48.
The issue turns on the meaning of “ordinary time earnings”. Having regard to the width of meaning given to that phrase in the relevant legislation and superannuation guarantee ruling 94/4, I have come to the conclusion that the payments made to the plaintiff in respect of ROD and the Naltexone sales made up part of his remuneration package and were part of his ordinary time earnings. Dr Aufgang was entitled to receive those payments pursuant to an agreement under which he agreed to work for the practice in all but the actual treatment phase. There was therefore a link between work by Dr Aufgang as an employee and the payments made. The figure claimed should be allowed.

Conclusion

For the foregoing reasons the plaintiff’s claim has been made out save for the claim in respect of superannuation payments calculated on accumulated annual leave entitlements. The total amount claimed should therefore be reduced by the sum of $10,264.55. The plaintiff has foreshadowed a claim for interest and that issue was reserved until the parties have considered the outcome of the case. I will hear further submissions from counsel on that and on any other relevant matters before making final orders.

APPENDIX A

The Preliminary Negotiations and the Initial Agreement

Evidence of Dr Aufgang. Dr Aufgang gave quite detailed evidence about the initial discussions. He said he received a phone call from Dr Kozminsky in about October 1995. Dr Aufgang said that Dr Kozminsky expressed interest in meeting to discuss the possibility of him working in his practice. He said that they were not able to meet at that point because he, Dr Aufgang, was going on holidays and he suggested that they meet on his return in a couple of weeks time.

On his return he called Dr Kozminsky and a meeting was organised. His recollection was that it was held on about 9 November 1995 at Dr Kozminsky’s house. They discussed general practice. Dr Kozminsky asked him a lot of questions about his background and the work he had done and whether he had done any work in drugs and alcohol. He talked a little about the practice itself. He said they discussed the possibility of Dr Aufgang studying for his anaesthetic primary from the clinic or working as a GP. The discussion was inconclusive and the possibility of him joining Dr Kozminsky was left open.

About a week later, however, Dr Kozminsky rang him to say that he needed him to take over the practice the next day because he had to go on sick leave. At that time Dr Aufgang was employed at the Western Hospital but was still on leave from that hospital. He told Dr Kozminsky that he “had an appointment with his daughter” the next day to take her to the zoo and he was not going to let her down. He said he would think about his offer. He said they spoke about employment conditions on that occasion. In particular, Dr Kozminsky said he would pay Dr Aufgang 65% of billings plus superannuation. He also said that he would pay normal entitlements. Dr Aufgang said that his response to Dr Kozminsky was that he would think about the proposal and speak to him the next day.

He discussed the proposal with his wife and phoned Dr Kozminsky the next day to say he would accept the offer. He said he sought more details about the arrangements. He said that he confirmed with Dr Kozminsky the 65% proposal plus superannuation plus paid holiday leave including public holidays. Dr Kozminsky said he wanted him to start immediately and proposed that he attend the clinic the next day and see the clinic’s hospital patients before he went to the clinic at 9 o’clock. He replied that he would have to resign from his employment at the Western Hospital. Dr. Kozminsky asked him to go to the clinic first after seeing the clinic patients in the hospital and work there for the morning and then to go to the hospital in the afternoon to resign. He said that that was what he did. Dr Aufgang said his first day of employment was Friday 17 November 1995 and he worked on the following day as well.

Dr Aufgang also gave evidence that on the Sunday he met with Dr Kozminsky at his home. On this occasion he said Dr Kozminsky further discussed the clinic with him. He told him about his protocols for the treatment of patients and about the consultants to whom he referred patients. Dr Aufgang said that Dr Kozminsky explained the running of the clinic, the hospitals to visit and the nursing homes. He also gave details about some of the patients. He said that Dr Kozminsky said he would still be looking in on what was going on at the clinic and that he was not to alter things. He said they again discussed details relating to his employment and they were confirmed. He said, however, that they discussed in more detail the issue of leave and holiday pay entitlements. He gave evidence that he told Dr Kozminsky on the Sunday that at the hospital he was entitled to six weeks leave each year and that Dr Kozminsky had replied that in general practice you only get four. He said the issue of cumulation of leave was discussed and agreed upon – that it would be cumulative but only four weeks per annum. He said they also discussed sick leave. He told Dr Kozminsky that he would be giving up eight months cumulative sick leave. Dr Kozminsky said that he was only entitled to one week's non-cumulative sick leave in general practice. It was agreed that while sick leave could be accumulated at the hospital, he would only be entitled to a week’s such leave in general practice and it would be non-cumulative. He also told Dr Kozminsky that in the hospitals he was paid for public holidays and he said Dr Kozminsky agreed. He said they also discussed issues of telephone allowance and car kilometre allowance. In this discussion they also briefly discussed the nature of the illness that Dr Kozminsky had suffered. He told Dr Aufgang that he had suffered a stroke. Questioned as to whether there were any physical signs discernible to him, he said it was not a “gross” physical stroke and, not being familiar with Dr Kozminsky, he could not say if there were any discernible physical signs. Dr Kozminsky did say, however, that he had had a stroke.

Evidence of Dr Kozminsky. Turning to Dr Kozminsky’s evidence, he said he telephoned Dr Aufgang with a view to having negotiations to see if he would be happy to commence working with him when he ceased working at the hospital where he was then engaged. It is here that their accounts diverge.

He said that on a Wednesday, he believed 12 November, he experienced unusual sensation in his arm which he self diagnosed as a relative minor condition. He said he saw a neurologist on the Friday morning who told him that his self-diagnosis was wrong and that he had had a stroke and that he should cease work immediately. He said that he telephoned Dr Aufgang to see if he could bring forward the time at which he could commence working with him. At that stage he had two alternatives. One was to close the practice. The other was to have someone such as Dr Aufgang run it during his illness.

He said they met on the following Sunday night at his home. They discussed options and whether Dr Aufgang wanted to take over the running of the practice. He said they discussed in broad outline how he would be remunerated and decided on a percentage which he said was significantly above the ruling norm. He said, however, it was a situation where he had relatively little choice. He said they discussed various percentages from 50-65% and eventually settled on 60% total and no additional payments whatsoever. He said that Dr Aufgang complained about walking out on a significant period of sick leave, but he pointed out to him that when he, Dr Kozminsky left the hospital system, he also walked out on 13 weeks of sick leave and they both had a laugh about it. Asked to say exactly what was discussed so far as remuneration was concerned he said that it was that Dr Aufgang would have 60% of everything he billed gross and that would include all payments that were involved. This was all up, “included everything”. As a result if he wanted time off or to work easier he would earn less. If he wanted to maximise his income he would work harder and it was entirely up to him how much or how little he worked so long as he kept the practice functioning. This, he said, was the discussion on the Sunday evening.

Asked whether there was discussion about when Dr Aufgang would commence, Dr Kozminsky said it was to be as soon as he was available but he said he did not give him any direction as to exactly when. He said he told Dr Aufgang that he had patients in the hospital at the time and he gave him a handover of the various patients in the hospital that he had responsibility for and whom he wished Dr Aufgang to manage. He described the handover as being a bit like a doctor in the hospital briefing the doctor taking over on the next shift. He said the handover discussion occurred on the Sunday night and there may have been more in the ensuing week when Dr Aufgang rang about specific problems or patients. He said he was not certain when it was that Dr Aufgang commenced working at the clinic. He alleged that Dr Aufgang had earlier in the case said that he commenced on the Tuesday and he said that he believed that. He said that he had just been told that he was sitting on a time bomb and he could expect to have another stroke at any time. As a result he said he wasn’t really interested in getting into minutiae. He said he was glad that Dr Aufgang was willing and able to take over and he had relinquished control of the practice and control of the patients to him. He said that it was on that Sunday evening that they reached their agreement. They shook hands on it. The agreement was that Dr Aufgang would take 60% of his billings and that would include all payments to which he would be otherwise entitled. How he divided the 60% up was a matter for him. Dr Aufgang was to get into running and working in the practice as soon as he could and he was happy to do it. He gave evidence that Dr Aufgang did spend some time telling him about the problems he had in working in the hospital. He said his main aim was to make sure Dr Aufgang would be able to run the practice for him with little delay. He said there was no discussion whatsoever about leave owing and sick leave.

Asked what happened next, he said that he contacted Ms Snajder, the office manager -- presumably the next morning but he could not be definite. He told her that Dr Aufgang would be working in the practice while he was away and that his total package was 60% of his gross billings. He said that Ms Snajder queried whether it would be billings or returns because there was a significant delay in Medicare paying of up to six weeks at that time. He told her that it was to be on billings.

He said that after speaking with her he basically followed doctors orders and forgot all about the practice and concentrated on improving his health. Asked if he had any discussions with Dr Aufgang after the Sunday evening about how he should perform his work, he said that Dr Aufgang occasionally rang him and asked him for advice and made phone calls from time to time about how to do this or that. He said he did not initiate any discussions. He said he did not give him any specific instructions. He said that he told him he could work as little or as much as he liked as long as he kept the practice going. He denied there was any discussion about the opening times of the practice. He told Dr Aufgang generally, on the Sunday evening, about how he did his hospital visits before he attended the clinic but it was his choice as to how he did that. He said that Dr Aufgang made the choices of when he did what. He said Dr Aufgang used the equipment present in the surgery and the staff that were already there. There were no significant staff changes. He had the authority, however, to direct the staff as to what he wanted done or not done. At the time his staff comprised Ms Snajder who was full time and two receptionists who worked a total of up to “one and a half person hours”. At that stage he had no professional staff and no other staff other than a cleaner and a gardener.

Thus, according to Dr Kozminsky’s evidence in chief

·he experienced the stroke on a Wednesday,
·he did not ask Dr Aufgang to commence before the Friday,
·they did not discuss or finalise the terms until the meeting on the Sunday,
·Dr Aufgang did not commence work in the practice until the Tuesday following.

According to his account, he did not attend the practice after the diagnosis on the Friday. On his account, there was little discussion of any detail of the agreement.

Under cross-examination he said he could not remember if they had one or two meetings. At the Sunday meeting, they were “talking ideas”. He accepted, however, that Dr Aufgang had in fact attended patients at the practice on the Friday. It was difficult for him to do otherwise because the financial records of the defendant recorded the first period of engagement of Dr Aufgang as commencing on 17 November 1995 which was the Friday. There is no reason to suggest that this was inaccurate. Those records on their face reflected the fact that on Friday 17 November 1995, Dr Aufgang had commenced seeing patients and billing Medicare.

In this context it is also relevant to point out another difficulty faced by Dr Kozminsky. He had signed a letter during the relationship which recorded the fact that Dr Aufgang had commenced “employment” on 17 November 1995. He initially volunteered in cross-examination that Dr Aufgang told Ms Snajder what to put in the letter. Pressed, he was forced to say that he was uncertain and forced to admit that he did not know whether it was written by Dr Aufgang or Ms Snajder. Asked to explain the date in the letter he said that he did not check the date. Ms Snajder’s evidence about the matter was that Dr Aufgang asked her for a letter saying that he was employed by the defendant. There is no evidence that he drafted it or was involved in its drafting.

In later cross-examination, the issue again arose as to whether the agreement was reached on the Thursday or the Sunday and whether Dr Aufgang commenced work on Friday 17 November 1995. Dr Kozminsky claimed that he had checked the date on which he saw the neurologist. At no time did he give evidence as to how he had checked that date. No diary or invoice was produced. He maintained that Dr Aufgang must have commenced work on the Friday on his own initiative and before any agreement was reached.

Comment on the evidence of Dr Kozminsky

Making due allowance for his state of health, there are improbabilities in the account of Dr Kozminsky. Accepting his evidence by the Friday, he was concerned to obtain the services of someone to protect his practice. Yet, according to his evidence

·he did not investigate the skills and experience of Dr Aufgang, including his knowledge and experience of drug addicted patients,
·he told Dr Aufgang that it was up to him as to how hard he worked, and
·he relinquished control of the practice and control of the patients to Dr Aufgang.

In addition, notwithstanding his need to have a qualified doctor work in his practice immediately, he did not attempt to press him to start immediately on the Friday.

He was also faced with the improbability, inherent in his account of the negotiations when compared with the defendant’s records, that Dr Aufgang commenced working in the practice before any agreement had been finalised and without any authority. He was challenged on this issue in cross-examination. Faced with the problem of offering an explanation, he suggested first that Dr Aufgang had attended without permission to check out the practice and, so, assist himself in deciding whether to enter into an agreement with him, Dr Kozminsky. Put to him that his version of events had never been conveyed to anyone before, he said, after two evasive answers, that it had been to his wife and earlier in the trial in his evidence. It should be noted that he did not state that his version of events had been conveyed to his lawyers. He maintained that the contract was entered into on the Sunday. Later, he asserted that Dr Aufgang came to the practice and treated patients, even though he had no right to do so. When it was put to Dr Kozminsky by counsel that Dr Aufgang may have attended the practice to familiarise himself with the facilities and the people employed there, but not work, he accused counsel of splitting hairs and asserted that Dr Aufgang may well have started billing even though, on his own account of the events, there was no agreement between them that Dr Aufgang could work in his practice. Thus, in seeking to address the difficulties in his evidence, he changed his explanation for the attendance of Dr Aufgang to one in which he accused Dr Aufgang of behaving in a most unlikely manner.

Dr Aufgang said that Dr Kozminsky rang him up on 13 January 1998. Dr Kozminsky started shouting at him, telling him that he had to do this and that and the other and demanding that he attend his home for a meeting that night. He said that Dr Kozminsky did not give any indication of what he wanted to speak about but simply abused him over the telephone. He said he did not attend as requested. By letter dated 15 January 1998[20] Dr Kozminsky requested that Dr Aufgang attend a meeting on 17 January. Dr Aufgang said he did not believe there was one. What he did was write notes on the letter and fax the annotated letter back to Dr Kozminsky. I will endeavour to convey the content of the letter and the comments (in italics) in the following:
[20]Exhibit A2, Court Book 196.

”RE: Official Warning
On the evening of Tuesday 13 January I attempted to arrange a meeting with you to discuss various issues which are of concern to the practice. You treated my request with scorn and hung the telephone up in my ear.
[Dr Aufgang circled the “I” in the first line and beside that he wrote the notation “NO you abused me”.]
As a result I requested for you to attend a formal meeting with me at 8.00 pm on 14 January. You did not bother to attend or even ring to apologise.
[Dr Aufgang again placed a circle around “I” and beside that wrote the word “NO”.]
Such behaviour is totally unacceptable.
ANY REPETITION WILL PUT YOUR EMPLOYMENT IN JEOPARDY.
[Dr Aufgang placed a notation beside that statement “ARE YOU THREATENING ME?”]
I am again formally inviting you to attend a meeting with me at 3.00 pm on Saturday 17 January at my residence. If this is inconvenient please arrange with me, prior to 5.00 pm Friday 16 January, a suitable mutually convenient time.”

At the bottom of the page of the letter Dr Aufgang wrote:
“IF YOU WANT TO TALK TO ME DO IT IN PERSON – NO PAPER/INTERMEDIARY.”

Dr Aufgang said they subsequently had a meeting on 25 January 1998. He said Dr Kozminsky told him that he, Dr Kozminsky, was to be the sole spokesman for the clinic and that he, Dr Aufgang was not to talk to any external agencies about the clinic. Dr Kozminsky said he wanted to be the sole spokesperson on the naltrexone detox. He said he wanted control over the hospital treatment stage and refused to allow him to continue to engage in that work. Dr Aufgang said this was a pretty devastating blow to him because it was very lucrative work and work that he was qualified and capable of doing. He had been engaged in all stages of the work, including the hospital treatment stage.

Dr Aufgang said they discussed different options because he, Dr Aufgang, was still looking after the patients and there was a very large throughput of them and their needs were great. He said that he thought he should be compensated for the work that was going to be denied him in the hospital and paid in some way.

Apparently Dr Kozminsky intended that Dr Aufgang would still be engaged in the assessment of patients who came to the clinic and some tasks prior to the treatment itself. Dr Aufgang said that the publicity being generated in the media had caused “hordes of people” to come to the clinic seeking the treatment. Those approved and who elected to have the treatment were introduced by him to Dr Kozminsky. If he could, he would see them when they were admitted to hospital. What Dr Kozminsky was demanding was that he be excluded from attending to the detoxification process. Thus it was intended that he continue to see patients in the initial assessment stages and on admission to hospital but not treat them in the hospital. Dr Kozminsky would do the detoxification programme. Dr Aufgang also gave evidence that Dr Kozminsky could not have conducted the detoxification treatment of so many people in hospital if he, Dr Aufgang, had not continued to be engaged in the assessment programme in the clinic. He said it could take anything from half an hour to an hour to examine and interview the patient and if he had not continued to do that, the revenue received by the clinic, from the programme and therefore Dr Kozminsky, would have been significantly reduced because the number of people that could have been treated in the hospital would have been significantly reduced. I accept this evidence.

The ROD issue – defendant’s justification for exclusion from ROD programme. The explanation offered by Dr Kozminsky for refusing to allow Dr Aufgang to engage in the detoxification stage was that Dr Aufgang did not have the necessary insurance.

The alleged lack of insurance was put to Dr Aufgang in cross-examination as an explanation but he maintained in evidence that he had the necessary cover. He also maintained that there was a letter from insurers in the possession of the defendant which indicated that he was covered. Both parties were given the opportunity to produce documentation. Dr Aufgang produced, and put into evidence, a professional indemnity insurance schedule and receipt for the period 1/7/97 to 30/6/98. Shortly afterwards, the defendant had Dr Aufgang recalled to be further cross-examined on other matters. He was not challenged about the content of the exhibit and the issue of the insurance cover was not further pursued with Dr Aufgang in that cross-examination by the defence. Later, however, Dr Kozminsky gave evidence to the effect that, based on his knowledge of premiums and cover at the time, the premium revealed in the document only gave Dr Aufgang procedural cover. This allegation was not put to Dr Aufgang. I note also that during the period of the insurance cover, Dr Aufgang had in fact engaged in the hospital treatment procedures for which Dr Kozminsky now said he was not in fact covered and did so with the agreement of Dr Kozminsky. Thus, in the past, the nature of the insurance held by Dr Aufgang does not appear to have prevented him conducting the hospital procedures. It also seems unlikely that Dr Aufgang could not have obtained the additional cover if it was needed. It may have been more expensive, but the rewards were apparently significant.

The insurance explanation of Dr Kozminsky was singularly unconvincing. I am satisfied that it was a fabrication. The evidence of Dr Aufgang on this issue should be accepted. I am satisfied that Dr Kozminsky refused to let him do the work and this action arose out of his anger with, and resentment of, Dr Aufgang over the interview.

ROD issue – resolution leading to variation of agreement. Dr Kozminsky needed Dr Aufgang to assist in the processing of applicants for the treatment and a settlement was reached. It was agreed that Dr Aufgang would continue to process the applicants and in return would receive half the profit on the dispensation of naltrexone (the 50% or $15 entitlement) and it was also agreed that he would be paid $350 in respect of each patient who went through the detoxification programme in the hospital under the supervision of Dr Kozminsky.

I turn to the other issue that arose – Dr Aufgang’s position and terms of engagement.

Second issue – negotiation about terms of agreement generally. According to Dr Kozminsky, at this time, and for a little while before, Dr Aufgang had complained that he was paying too much to the practice. They would have a discussion and go over the actual expenses of running the practice. He said he thought there had been some papers earlier in January about changing his remuneration for that reason.

Dr Kozminsky said that they had a discussion at his house in January 1998 as to possible ways of him retaining more remuneration. From the correspondence, the date of the meeting appears to have been 25 January 1998. He asserted that agreement was reached that there would be a sliding scale under which, if he had grossed more than $300,000.00 in bulk billing fees, he would obtain 80% rather than 60% of the income earned over that figure. Dr Kozminsky said that at that time Dr Aufgang was grossing about $300,000.00 but if he had taken the College of GP’s Exam he would have had a 15% increase in his remuneration. He said he was trying to get him to do that. He said he thought this meeting was on about 26 or 28 January 1998. He said he believed that Dr Aufgang raised the 80% proposal. He said, initially, that Dr Aufgang had suggested he did not want to pay any more administrative costs beyond the $120,000.00 which was 40% of $300,000.00 but in the end he wasn’t entirely certain where the idea came from but it was not something he had thought of before the meeting. He said the outcome of the meeting was summarised in the letter he wrote to Dr Aufgang afterwards on 27 January 1998. It provided as follows:

“To summarise our discussions, at our meeting on 25 January 1998, your remuneration package will alter as follows:
60% of gross fees earned at the surgery, home and hospital visits. If this amount exceeds $300,000 p.a. gross fees, then any earnings in excess of this amount you will retain 80% of gross.
e.g. gross $320,000.00. You retain 60% of $300,000 ($180,000) plus 80% of $20,000 ($16,000) being $196,000 (amount A). This figure of $300,000 will be adjusted upward.
In addition you will receive $350 for each ROD that is performed, irrelevant of which of us performs this (amount B). You also receive half of the net profit of sale of Naltrexone. (amount C).
Your gross remuneration is A plus B plus C. Less compulsory superannuation. PAYE tax is deducted prior to your receiving your money. Holiday and sick pay do not apply.”

The letter sent differed from the draft he had prepared dated 25 January 1998. That draft contained the following (deleted from the letter sent):

“A is to apply from 1/1/98
B is to apply from 27/1/98
C is to apply from 1/1/98”

but did not contain (added to the letter sent)
“Holiday and sick pay do not apply.”

Dr Kozminsky could not recall how the differences came about and could not recall whether he put his proposal to Dr Aufgang on 25 January 1998 in the form of either letter. If the draft of 25 January 1998 was intended, as Dr Kozminsky claimed, to summarise the outcome of the meeting, there was presumably an error about the timing of payments and the outcome of the discussion did not include an agreement that there be no holiday or sick pay. The discrepancies are better explained on the basis that the two documents state a proposed new arrangement by Dr Kozminsky which he developed after the meeting on 25 January 1998. This is consistent with a fair reading of the letter of 27 January 1996. The terms set out were put forward as part of a new arrangement. They do not purport to state or re-state an existing arrangement.

Dr Kozminsky maintained, however, that his letter summarised the points that had been agreed upon. He said they talked through each of the points and had shaken hands on them. He said all the matters mentioned in the letter were discussed. In particular, he said compulsory superannuation and tax were discussed.

He said that Dr Aufgang had wanted to have his money paid into some sort of the service trust similar to the sort that he, Dr Kozminsky, was enjoying. He, however, had discussions with Mr Salcman who advised him, he said, that they could not go down the service company path because of issues about Dr Aufgang receiving more than 80% of his remuneration from the clinic. The evidence he gave was somewhat confused. He said his accountant gave the advice and had suggested at one point that their respective accountants meet to discuss the issues.

As to the reference in the letter to holiday and sick pay, he was asked whether that was discussed and to give the substance of the discussion. He replied that it was discussed but, instead of completing his answer to the question, he gave evidence arguing that they did not apply because Dr Aufgang was receiving 60% - more than most people working under this sort of arrangement, and he was working for himself, as an independent contractor, and, therefore, he had no entitlement. He said that was the advice he had received from his accountant Mr Salcman. He said it was discussed at the meeting. This evidence should be contrasted with the letter sent by Mr Salcman to Dr Kozminsky dated 16 January 1998 in which he said that he tended “to the view that MA is probably an employee”. It should also be contrasted with the admissions made by Mr Salcman apparently on behalf of a defendant after the resignation of Dr Aufgang referred to below. It should also be noted that he said that Dr Aufgang did not raise the holiday pay issue with him at that time. It is likely, therefore, that it was raised by Dr Kozminsky as something to be changed.

Dr Aufgang replied by letter dated 28 January 1996. In that letter he sought to change his arrangements from that of an employee to that of an associate:

“…. The letter dated 27 January, 1998 does not acknowledge my desire to be paid as per our discussion on 25 January, as a Company, for the services I provided. There is no demonstration of Genesis Medical Centre to accommodate the requirement to maximise my financial potential by existing as a company. It appears that you have continually refused to negotiate towards my requirements.
I wish to point out to you that I commenced working at 390 Bay Street in November 1995 whilst you were off sick and treated the practice as if it were my own and as you well know the practice grew by 20-30% under my care. You were fully aware that the normal term of events in such a scenario is for the practice to decrease by at least 30%.
You were also aware that I sacrificed my income for yours and your family’s benefit when you returned to work for a prolonged period of time.
I propose that:
1.100% of all Billing to be paid to Dr Michael Aufgang’s Company.
2.Dr Michael Aufgang’s Company will pay 40% with a ceiling of $120,000.00 NIL more. This is MORE than generous for my ongoing commitment and more than covers the costs incurred by my practice using ANY sliding scale method. I recognise that this figure gives you a handsome profit on my services. Any further negotiations on the ceiling will be downward.
3.If other doctor(s) work and contribute to administration costs etc. The $120,000.00 ceiling will be reduced proportionally to other doctor(s) administration etc contributions.
4.Income derived from Detox to be divided equally between us and to be paid weekly to Dr Michael Aufgang’s Company.
5.Naltrexone as for Detox.
6.All other external benefits and commissions derived from my practice to be paid directly to Dr Michael Aufgang’s Company.
7.Dr Michael Aufgang is an associate NOT an employee.
8.I am to be fully informed of all practice dealings and negotiations.

I will not accept being treated or spoken to in a derogatory or patronizing manner. I am working for our joint benefit for the practice.
Please note that I have spoken to my financial advisors who believe this is a more than a fair and equitable arrangement benefiting especially yourself and guaranteeing the future of Genesis Medical Centre.”

Asked about this letter, Dr Kozminsky said in evidence-in-chief that he was disappointed having spent half a day talking things through and coming to a mutually agreed position only to find that Dr Aufgang had taken the mutually agreed decision as a starting point for negotiation. He said several of the points he queried but he said Dr Aufgang was getting about roughly half the profits of the detoxes of the Naltrexone.

Dr Kozminsky sent a letter in reply dated 1 February 1998 which read as follows:

”My letter to you of 27 January was not a proposal. It was a summary of our mutually negotiated agreement which would have given you a package estimated at about $400.00 pa (sic) and had inbuilt compensations for the loss of the tax advantage. As you now reject that agreement I must also go back to the previous position. You will continue to be paid at 60% of gross fees earned. This figure includes superannuation. No sick, holidays or other extra payments apply.
I repeat that I am happy to pay you in any form which is legal and does not compromise Genesis Medical. Unfortunately, your request to be paid into a service trust falls on both these counts. You may like your Tax Advisor to explain the relevant Tax Commissioner’s rulings.”

Dr Kozminsky said that he handed this letter to Dr Aufgang in the reception area, he thought, on a day the surgery was open. He said Dr Aufgang put it in his pocket, he presumed, to read it later and that was that. He said there was no discussion with him about the letter and Dr Aufgang did not approach him about the letter. He said there was no discussion between them between 1 February 1998 and 20 November 2003 about the 60% arrangement as described in the letter.

Dr Aufgang agreed that he received this letter. He also agreed that this letter was inconsistent with what he understood to be the terms of his employment. He said that he did not reply in writing to this letter but simply went into Dr Kozminsky’s room and told him that if he was going to continue with things as they had been then he still had his percentage and his superannuation and other entitlements. He said he saw him straight away after receiving that letter. He said that he received no response from Dr Kozminsky and having said his piece walked out. They did not discuss the arrangement again.

Counsel for the defendant submitted that what had occurred was that Dr Kozminsky made a counter-offer in the letter of 1 February 1998. Therefore, whether the parties’ relations were governed by that document afterwards depended upon whether Dr Aufgang accepted it. Counsel submitted that he did accept it. I accept Dr Aufgang’s evidence that he did not and that it was Dr Kozminsky who accepted the arrangements, as stated by Dr Aufgang.

Counsel also discussed, however, whether and to what extent the letters purported to record what Dr Kozminsky believed to be the existing agreement and whether all of those aspects were in fact disputed by Dr Aufgang. This applied particularly to the references to the superannuation payments coming out of the percentage figure and the lack of entitlement to holiday pay.

The second letter of Dr Kozminsky asserted that his earlier letter referred to a negotiated agreement, an agreement different to the existing agreement. It then went on to assert what he said was the essence of the existing agreement. Whether Dr Kozminsky believed that was what it was, it was rejected by Dr Aufgang in the subsequent conversation and the parties should be regarded as having proceeded on the original agreed basis, the basis asserted at the time by Dr Aufgang. It continued up to his resignation in 2003.

Counsel for the defendant submitted that it was incredible that Dr Aufgang did not respond more vigorously to the letter of 1 February 1998 and take up and investigate the assertions in that letter and demand payment of the superannuation that had not been paid. That argument has benefit of hindsight and of knowledge that Dr Aufgang did not possess at the time. He plainly did not regard the assertions about the existing arrangements in the letter as serious assertions, a view that would have been confirmed by Dr Kozminsky’s apparent silent acceptance of his verbal response.

The period leading up to the Dr Aufgang’s resignation

The records and the taking of leave. It is relevant to refer again to the defendant’s financial records. An examination of the calculations reveal the continuation of the practice begun in 1996, without the agreement of Dr Aufgang, to make the superannuation payments out of his percentage billings entitlement. I refer to my earlier comments on that aspect. The records also show, however, the making of payments for paid holiday leave – consistently with the evidence of Dr Aufgang. The defendant’s books record that from time to time Dr Aufgang took pockets of leave. They also record that he took two weeks leave, in respect of which he was paid, at the end of 2002, and one week’s leave of a similar kind in 2003. He was not paid for the other periods of leave he had taken previously. His evidence was that he did not ask to be paid for that earlier leave. He gave several reasons for adopting that course. He said he was wanting to save up his leave and in the early days – prior to 1998 in particular – he was hopeful of buying into a partnership and had in mind that he could use some of the money owed to him for unpaid leave in funding that buy-in. He said he also had in mind the possibility that later on he could take a prolonged holiday and that, by not seeking payment in respect of annual leave, use his entitlement to payment later to help finance such a holiday in the future. Counsel for the defendant argued that he gave three different and inconsistent explanations. I do not agree. What he gave were simply alternatives that he had in mind.

Dr Kozminsky was taken through the entries in the second pay book , described in the hearing as the green book, where there are entries recording the taking of holidays by Dr Aufgang. He was referred first to the unpaid holiday leave. He said that he was aware generally of when Dr Aufgang was taking holidays because he would have to cover for patients and so forth and that operated vice versa. Taken to the entry which referred to “two weeks holiday pay”[21] he said he was unaware of that occurring at that time.
[21]It appears to be part of the entries for the period 12/11/02 to 20/11/02.

He said he first became aware of holiday pay being paid the day before Dr Aufgang gave him his resignation.He also gave evidence that on that same day he went to check with Ms Snajder. He said that she said he had been paid but said that someone else had authorised it, the book keeper said that someone else had authorised it and the accountant said “what?”. Objection was then taken the evidence was received subject to objection. He said he could not find anyone who would say they had authorised it. The evidence of the statements of the three people are strictly inadmissible to prove the truth of what each had said save, arguably, to the extent that they contain admissions by two servants or agents of the defendant that the payments were authorised.

The circumstances in which Dr Aufgang said he came to take paid leave were that, in around June 2002, Ms Snajder asked him whether he wanted to use any of his unpaid leave entitlements towards superannuation. He told her that he would prefer to take his leave entitlements as leave. He said to her that if she wanted to start emptying out his leave entitlements, he was comfortable for her to do that. She calculated out the amount and he was paid two weeks holiday pay. This was recorded in the books. He said that she told him that she had discussed it with Dr Kozminsky. It appears that the same approach was repeated when he took the week’s leave in April 2003.

Ms Snajder was questioned about these matters. She gave evidence identifying the entries in the records in her handwriting of the paid annual leave taken by Dr Aufgang. She could not remember the details but said she would have been told by somebody to make the entries. She would not have simply entered them herself. They would have been discussed with Ruth Wengier or the office of the accountant, Mr Salcman. In relation to the paid leave she said that would not have been her decision because she did not make decisions. She said she executed decisions on instructions. She said she would have been told either by the bookkeeper or the accountant’s office to average a certain number of weeks of the actual pay and apply it. She said that is what she assumed happened. She could not recall discussions with Dr Aufgang about it. Ms Snajder also said that if Dr Aufgang had asked for paid leave she would have discussed that with the accountant or the bookkeeper. She said that the bookkeeper had all the pay-in books periodically, as did the accountant’s office. She repeated that there were weekly meetings between Dr Kozminsky and the bookkeeper at which financial matters were discussed. She could not recall herself discussing them with Dr Kozminsky.

I am satisfied that Ms Snajder would not have paid money in respect of annual holiday leave to Dr Aufgang without the belief that Dr Kozminsky had approved it. Thus, an instruction would have come from Dr Kozminsky himself or from the bookkeeper or both. The bookkeeper has not been called and no evidence has been called to explain why. The inference is open on the evidence that it was approved by Dr Kozminsky and that inference should be drawn. This in turn supports the evidence of the plaintiff that it was an agreed term of the agreement.

In relation to the other aspects of the agreement, notably whether the superannuation was to be paid out of the 60%, the defendant again argued that Dr Aufgang had a period from 1998 to 2003 in which he had the opportunity to peruse, and did peruse, the books. His evidence was that he did check the books from time to time from early 1998 but what he was focusing on was that he received payments for the ROD treatments and the naltrexone sales. His examination confirmed that he was receiving those payments. He did not, I am satisfied, check the accounts to see what was being done in relation to superannuation. While he had had his disagreements with Dr Kozminsky, he did not have knowledge of any actions on Dr Kozminsky’s part which might cause him to think Dr Kozminsky would act dishonestly in carrying out their agreement. It is clear that throughout his involvement with Dr Kozminsky in the clinic, Dr Aufgang was regarded highly as a doctor by him and was seen as someone who worked extremely hard. I accept that he did. In addition he received significant remuneration from the clinic and, unless he had sat down to check the arithmetic, there was nothing that would have caught his attention as he looked at the pages from early 1998 to alert him to the fact that the superannuation money was in fact coming out of the 60% of billings. He was a busy man and his focus was on other payments. His impression of the dispute in 1998 would have been that, after an unpleasant exchange over more than a week, in which Dr Kozminsky had tried to change their agreement, Dr Kozminsky had ultimately accepted his, Dr Aufgang’s, position.

Dr Aufgang’s Resignation

It was the issue of holiday entitlements that led to the dispute that ultimately brought the relationship to an end.

Dr Aufgang gave evidence that in November 2003 he spoke to Ms Snajder about holidays. He was exhausted and wanted to plan a family holiday for the following year. He asked Ms Snajder to investigate his entitlements. He said that she said that she would have to work it out. He said to her that she knew what it was – 29 weeks. She said she would have to take the books home and work it out. He agreed to that. She spoke to him several days later and said it was 29 weeks and he said he wanted to "work that out". She said she would have to speak to Dr Kozminsky and he invited her to do so.

She subsequently reported to him that Dr Kozminsky had said he could not have it. Dr Aufgang said that at that stage he was quite angry and went into Dr Kozminsky’s room when he was free between patients and had a discussion with him. He said he was very unhappy about it. He said that he asked Dr Kozminsky why he would not pay him his entitlements. Dr Kozminsky told him he was not entitled to any leave. He said that Dr Kozminsky then raised the issue of the 17.5% holiday loading, asserted that he, Dr Aufgang, had received it on his holiday pay and was not entitled to it. Dr Aufgang gave evidence that he queried that statement saying that the 17.5% loading had ceased before he started working. Dr Aufgang said he insisted that he was entitled to holiday pay and that this was not good enough. He said that Dr Kozminsky responded saying that he would give him one month. He said he responded that he was entitled to 29 weeks, not a month. He said there was not very much else said that was productive and there was no agreement reached. Dr Aufgang gave evidence that he left that meeting quite angry. In cross-examination it was put to him that he had in fact demanded that he receive more money and that Dr Kozminsky had said that if he did more vocational training he would receive more money anyway because he would be able to charge more. Dr Aufgang denied that these matters were raised.

Dr Kozminsky’s account was that Dr Aufgang approached him. Dr Aufgang was obviously tired at the time and felt in need of a holiday as well and said that he wanted to take a long holiday and asked for his holiday pay. He said that he had replied that Dr Aufgang was paid 60% including all holiday pay, sick pay, superannuation everything else. Dr Aufgang replied that he had already been paid three weeks. Dr Kozminsky said that he had said that that was the first he had heard of it. He said that Dr Aufgang said he needed money to go away on a long holiday. Dr Kozminsky said to him that if he had received any holiday pay it was in error, that if he wanted a holiday and, he looked like he needed one, he should take some time off. He said Dr Aufgang had said that he needed money to pay for it. He said that he offered him $30,000 to cover his expenses having a month off and said it was a gift and said he should then come back to work afterwards. He said that Dr Aufgang laughed and stormed out. He said that that occurred the day before Dr Aufgang's resignation.

Ms Snajder was questioned about these matters. She said she could not recall the alleged conversations but they could have occurred. She said that Dr Aufgang could have asked her to do the calculations but she could not recall doing them. She commented that she was not sure about the days leading up to his departure.

After the meeting, Dr Aufgang said that he went home and spoke with his wife. He thought it was not worth continuing in such a relationship with Dr Kozminsky and that he would resign and that Dr Kozminsky would have to pay him his entitlements. He wrote the following letter of resignation and handed it to Dr Kozminsky the next day. It included one month’s notice.

“I was extremely disappointed today to learn of your reluctance to honour your obligation as an Employer towards my accrued entitlements.
You are aware that I asked Ivanka, the Practice Manager, to calculate my leave entitlements so that I could plan a much needed, and dare I say, deserved, vacation. She calculated that I was owed 29 weeks, based on the fact that in the 8 years under your Employment, I have only received paid leave of 3 weeks, that has been paid over the last 12 months. Your acknowledgement today of a month’s paid leave towards my clear 29 weeks owing is substantially inadequate, and I find myself absolutely devastated. You incorrectly assumed that I received a 17.5% holiday loading which I pointed out has never applied during my term of employment.
I have been saving my leave Entitlements during my eight year employment at your practice. I now find that I cannot continue to work in the environment of such a flagrant breach of entitlement. I thus tender my notice of resignation effective 4 weeks herewith. My final day at the practice will be Thursday 18^th December 2003.
You will note that I have worked at the practice on a percentage of billing PAYE Employee from November 17 1995. You have extracted over $150K per Annum on average from my gross billings, and refused to negotiate to any conclusion, maintaining that I was always to remain a PAYE in your practice. You also told me that “I was being subsidised” by yourself in the view of your Accountant. We both know that the total running cost of a two man Medical Practice is far less than this average $150K figure. I also remind you that for some years, I had a substantial delay in my percentage being forwarded to me because you were under considerable financial duress. You also refused to negotiate the practice structure, insisting that my status always remain a PAYE Employee.
I would also like to point out that I have never received any public holiday entitlements. These amount to 10 days per year. These days are in addition to my leave Entitlements.
I would appreciate the calculation of my Entitlements being done within the next working days as a closure to our Employment Relationship based on my PAYE for the last 6 months of Employment as per standard Employment Conditions as legislated. Upon receipt of your calculation of my Entitlements I shall forward the figures to my Accountant for verification.
I await your prompt attention to this matter.”

As to the contents of the letter, Dr Kozminsky gave evidence that he had not been aware that Ms Snajder had been asked to calculate the alleged leave entitlement and that she had calculated that he was owed 29 weeks leave. Asked to comment on the remark attributed to him in the letter that he had assumed that Dr Aufgang had received 17.5% holiday loading, he said he had been asking himself where this idea of holiday loading had come from and that he had heard of holiday loading and he didn’t know what it was and he made an incorrect assumption that for holidays you get less pay or something. He said he normally left things like holiday pay to the administrative staff to work out and all salaried employees knew exactly how much holiday pay they had. He said he was wondering if there was a lower tax rate that he wanted to use and call it holiday pay to save money or something like that. He said that was a thought he had to try to explain where he brought the idea of paid holidays from. It was something that was never in the agreement. As to the statement in the next paragraph about saving leave entitlements, Dr Kozminsky said that that was the first he had heard of any concept of leave entitlement or of Dr Aufgang saving them and it had never been mentioned.

As to the statement in the last paragraph of the letter that Dr Kozminsky had always insisted on his remaining a PAYE employee, Dr Kozminsky said that he had discussed that with him at that stage and many times before. He was very anxious to change his status but he said that the suggestions he made would have exposed him, Dr Kozminsky, to significant legal exposure to the tax office.

Dr Kozminsky also gave evidence that he asked his accountant to try and discuss with Dr Aufgang’s accountant some way of settling the dispute. He said he did not want Dr Aufgang to leave working with him. He said that he attempted to discuss the matter initially with Dr Aufgang on the day before the letter of resignation but it was not very productive and Dr Aufgang stormed off in a rage. He said in the following month he attempted several discussions to resolve their differences. He complained in his evidence that because Dr Aufgang was leaving on 18 December he, Dr Kozminsky, had to come back from his own leave a day early.

Dr Kozminsky gave evidence that in the last discussion he had with Dr Aufgang (a few days before, he, Dr Kozminsky, went on holiday) he asked Dr Aufgang to return all his equipment. He said Dr Aufgang responded with a rude gesture and said “sue me”. I note that this allegation was not put to Dr Aufgang. What was put to Dr Aufgang was that, on his departure, he removed the various items of equipment.

It appears to be common ground that the equipment in question comprised three computers (two PCs which were no longer needed in the practice, and a laptop), software, a palm pilot in which home and hospital visits were recorded and a pulse oximeter and a diagnostic set.[22] When questioned about these matters, Dr Aufgang said that the computers, software and palm pilot were gifts previously received and that the pulse oximeter and diagnostic set were not but they would be returned if Dr Kozminsky wanted them. I note that on 6 January 2004 Dr Kozminsky wrote a letter which amongst other made a general request for the return of “all of my assets, including patient data and hard assets.” Neither then nor until giving evidence, had he made any specific request for the return of any equipment.
[22]Dr Kozminsky said he did not know, at the time of his request, that he was going to take the diagnostic set and he would have been included if he had known it ).

I accept that the items that Dr Aufgang said were gifts were in fact gifts. As to the others, I accept Dr Aufgang’s evidence that they were not, but am satisfied that prior to the hearing no request had been made for them. I also accept his evidence that he is prepared to hand them back if Dr Kozminsky in fact still wants them.

The day after Dr Aufgang submitted his resignation letter, he received a telephone call from his lawyer, Mr Rockman, saying that Dr Kozminsky wanted to have a meeting. He told Mr Rockman that he did not really want to have a meeting but that if Dr Kozminsky had something to discuss, then he would be happy to attend at a mutually convenient time. This did not occur.

Mr Rockman gave evidence that, on 21 November 2003, he received a telephone call from Mr Salcman. He said that Mr Salcman said to him that he had told Dr Kozminsky that Dr Aufgang was an employee, that he was entitled to annual leave and possibly other entitlements, that the annual leave was 28-29 weeks and that he had suggested that they have a meeting, a conference, to sort things out. Mr Rockman said he would get instructions. Mr Salcman said that Dr Kozminsky would apologise to Dr Aufgang. A note of that conversation was tendered in evidence. The conference did not take place.

I accept Dr Aufgang’s evidence about the above events in which he was involved. The evidence of the proposed settlement offer gives some support to his evidence about the terms of the agreement as to holiday pay and may also reflect on his statutory entitlements and the nature of the necessary underlying employee relationship with the defendant.

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[2008] VSC 27

14 February 2008