Avagiannis v Commercial Bedding Supplies (Australasia) Pty Ltd
[2012] VCC 1866
•3 December 2012
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE CIVIL DIVISION | Revised Not Restricted |
COMMERCIAL LIST
GENERAL DIVISION
Case No. CI-11-05774
| STAN AVAGIANNIS | Plaintiff |
| v | |
| COMMERCIAL BEDDING SUPPLIES (AUSTRALASIA) PTY LTD (ACN 082 099 269) | Defendant |
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JUDGE: | HIS HONOUR JUDGE GINNANE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 8, 9 and 10 August 2012 | |
DATE OF JUDGMENT: | 3 December 2012 | |
CASE MAY BE CITED AS: | Avagiannis v Commercial Bedding Supplies (Australasia) Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2012] VCC 1866 | |
REASONS FOR JUDGMENT
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CONTRACT – employment – whether a term that employment at a particular store – store not opened – whether repudiation – damages – reasonable notice – performance bonus – loss of a chance – mitigation of damages
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr G A Pauline | Forum Legal |
| For the Defendant | Mr T J Donaghey | Evans Ellis Lawyers Pty Ltd |
HIS HONOUR:
1 In April 2011 the plaintiff, Mr Stan Avagiannis, accepted an offer to work for the defendant, Commercial Bedding Supplies (Australasia) Pty Ltd (Commercial Bedding). According to the plaintiff, it was agreed that he would be employed to manage a store at the Knox City Shopping Centre, which the defendant would open in June 2011. He commenced work on 16 May 2011 and initially received training in other stores of the defendant. He was subsequently informed that the opening of the Knox City store had been delayed until mid July. However, on 22 June 2011 the defendant decided not to open the store. The plaintiff says that this decision was a repudiation of the contract, which he accepted on 30 June 2011, and that, as a result, he has suffered damages, in the form of loss wages and superannuation, and the loss of the chance to earn a performance bonus.
2 The defendant’s case is that Mr Avagiannis was employed to work as a store manager at any Commercial Bedding store. The parties merely anticipated that Commercial Bedding would open at store at Knox City and it was not bound to do so. The defendant argued that it was the plaintiff who repudiated the contract, when he ceased to work for it without giving reasonable notice. In the alternative, the defendant submits that the plaintiff failed to mitigate his loss, in particular, by declining to accept the position of manager at a new store to be opened at Springvale.
3 The defendant agreed that the plaintiff was eligible to receive a performance bonus of 33.33%, but maintained that the bonus was to be paid out of net profits, less the company’s return on investment, and not out of the gross profits of the store, as claimed by the plaintiff. It denies the loss of opportunity claim.
4 The issues in the proceeding are:
(a) was it a term of the contract of employment that the plaintiff was appointed to be the manager at the Knox City store? Issue 1
(b) was it a term of the contract of employment that the plaintiff would receive a share of the profit of the Knox City store? Issue 2
(c) did the defendant repudiate the contract of employment by deciding not to employ the plaintiff as manager of the Knox City Store? Issue 3
(d) if yes to (c), what damages is the plaintiff entitled to receive in lieu of notice? Issue 4
(e) if yes to (b) and (c) did the plaintiff lose a chance of earning commission and a performance bonus and if so what was the value of that loss of a chance? Issue 5
(f) has the defendant proved that the plaintiff failed to mitigate his loss and damages? Issue 6
5 The plaintiff gave evidence. Ms H Smith and Mr M Berthelsen were called as part of his case. Mr B Bamkin and Mr R Simon gave evidence on behalf of the defendant.
Background
6 Mr Avagiannis is 44-years-old. He is married with three boys, aged ten, seven, and four. He lives in Boronia, approximately 2 kilometres from Knox City. He has been employed in the retail furniture industry since 1998. In 2006, he began work as the manager of Sydney’s Bedding and Furniture in Ferntree Gully, which was about 7 kilometres from his home. He earned $50,000 per annum plus superannuation and a percentage of turnover as commission. A good year saw him earn about $65,000.
7 In about March 2011, Mr Avagiannis saw an advertisement on the internet site Seek for two retail senior sales team leaders for two new bedroom furniture stores.
8 The position advertised was described as “Retail Senior Sales Team Leader – Bedroom” and listed two locations – “Knox Shopping Centre (Wantirna South) (the Knox Store) or Forest Hill Chase”.[1] When opened in full, the advertisement stated, “Base + Super + Lucrative Bonus Scheme” and gave an earnings range of $120,000 to $150,000. The advertisement further stated,
“On offer is a competitive base salary, plus super and a very lucrative bonus scheme. A team leader who consistently reaches the stores weekly and monthly budgets should be earning $120K - $150K. The target is extremely realistic and achievable.”[2]
[1]CB 186.
[2]CB 186.
9 The advertisement did not name the employer, but stated that it was a:
“well known and respected bedroom furniture retailer having been in business for 10 plus years and in the process of opening their 14th and 15th stores in the very near future.”
10 Believing he was the right man for the job, and enticed by the remuneration scheme on offer and the Knox City location, Mr Avagiannis “picked up the phone there and then” and called Ms Hannah Smith a Recruitment Consultant of ESE Recruitment, which had been appointed by Regal Bedding to recruit for the two positions and who had drafted the advertisement. Commercial Bedding conducted its bedroom furniture stores under the name Regal Bedding. Mr Avagiannis’ evidence was that he told Ms Smith that he was interested in the Knox Store because he lived around the corner and did not want to travel far.[3] Mr Avagiannis sent Ms Smith his resume and attended an interview with her on 25 March 2011. He again expressed his desire to work at the Knox Store. He told her of his contacts in the area such as the fact that his children went to a local school.
[3]T 47.
11 Mr Avagiannis gave evidence that Mr Mark Berthelesen, who was a recruitment consultant and director of ESE, participated in the interview for about 10 minutes and said that he thought that he presented very well and that he would be ideal for the job. Mr Avagiannis said that he told Mr Berthelsen that Knox was a big shopping centre that he knew well and it was around the corner from his home.[4]
[4]T52
12 Ms Smith could not recall the specifics of the conversation with Mr Avagiannis.[5]
[5]T130
13 At the interview, Ms Smith told Mr Avagiannis the name of the employer. Ms Smith was involved in recommending him to Regal Bedding for one of the two new positions.
14 Mr Berthelsen gave evidence that he was given instructions by Mr Braith Bamkin of Commercial Bedding to find a senior salesperson/store manager for a new concept store that he was hoping to get up and running with Knox and Forest Hill as potential locations. He gave evidence that Mr Bamkin told him, that if a certain amount of profit was achieved, then after an amount was siphoned off for costs, a percentage of the remaining profit would be given to the successful candidate or used for compensating other members of the staff at his discretion. The manager could easily achieve earnings of $120,000-$150,000.[6]
[6]T142
15 Mr Berthelesen did not recall meeting Mr Avagiannis on the occasion of his meeting with Ms Smith, although he said that it was entirely possible that he did step into the interview.[7]
[7]T142-143
16 On 25 March 2011, Mr Berthelsen sent Mr Bamkin an email stating:
“Please find attached the resume for Stan Avagiannis whom we would like you to meet with on Monday at 4.00 at Noble Park. (Could you please confirm the exact address?)
Stan is very interested in the Knox Shopping Centre as he lives around the corner.
His salary expectations are higher than initially discussed – he is seeking a base of $55k and understands that if he were to get this then there would be a modification of the incentive scheme. (he is currently on $55K now).
I look forward to your email to confirm the exact time and location.” (emphasis added).
17 On 28 March 2011, Mr Avagiannis attended an interview conducted by Mr Braith Bamkin, the sales and marketing director of Regal Bedding at its head office in Noble Park.[8] Mr Bamkin occupied a senior position and the eight Regal store managers, their staff and the franchisees reported to him.
[8]T 53, T167; CB 36.
18 Mr Bamkin gave evidence that the defendant was putting together a new type of store, called Regal Sleep Solutions, that was to be more focused on the solution selling method rather than being just the standard street bulky goods type store. Mr Robert Simon, who has run Commercial Bedding since 1998 and is its sole director, had made it clear to him that he was to be involved in the employment of this store manager because he saw a requirement for a very different type of person than had been previously employed.[9]
[9]T156
19 Commercial Bedding employs about 70 staff.
20 Mr Avagiannis gave evidence that during the interview, Mr Bamkin informed him that the Forest Hill location was no longer an option. Mr Avagiannis replied that that worked well for him as he was only interested in the Knox Store.[10] Mr Bamkin and Mr Avagiannis discussed the potential for the Knox Store (including the new “concept store” format proposed), what Commercial Bedding were looking for in a successful candidate, the position and responsibilities and remuneration.[11] They discussed his background and sales technique.
[10]T 55.
[11]T 55 to 59.
21 Mr Simon described a concept store as being a smaller store in a busy shopping centre where:
“… the shoppers were not necessarily coming in to look for homewares or furniture , but just putting ourselves in front of the general marker and instead of having at least 25 models on the floor, we were looking to have a concept store with 16 models on the floor”.[12]
[12]T190
22 Mr Bamkin stated that he would have mentioned a base salary of $45,000 plus commission to Mr Avagiannis, but he did not recall what salary range was mentioned.
23 After meeting Mr Avagiannis, Mr Bamkin sent an email to Mr Simon saying he thought that Mr Avagiannis was a suitable candidate.
The 11 April 2011 interview
24 On 11 April 2011, Mr Avagiannis attended an interview with Mr Simon, at the head office, for about 45 minutes. Mr Avagiannis’ and Mr Simon’s accounts of the interview differed.
25 Mr Avagiannis’ evidence was that Mr Simon told him that he had just returned from China, where he had seen a pressure pad machine, which showed the customer their weight distribution on the particular mattress, and that this kind of product would be a good selling tool in the new concept store.[13]
[13] T 60.
26 Mr Avagiannis said that Mr Simon showed him a costing sheet, which he referred to in evidence as a “what-if” sheet.[14] Mr Simon told him that he expected the new store to turn over a larger amount of bedding accessories than the other stores.[15] Mr Simon took him to the last line of the “what if” sheet, which showed a turnover of $30,000, operating costs of $8,570 and gross profit of $6,311, and told him that “a third of that is yours”, with the “that” being the gross profit.[16] Mr Avagiannis did some mathematical calculations in his head, and equated the figure shown to him by Mr Simon to the figure quoted in the online advertisement as well as the figure mentioned by Ms Smith of ESE.[17] If he could earn $2000 commission or bonus a week that would equal $104,000 a year in addition to his base salary.
[14] CB 180.
[15]T 61.
[16](ibid).
[17] (ibid).
27 Mr Avagiannis stated that he told Mr Simon, that he and his family were:
“like hobbits. We live in the shire. We work in the shire, my children go to school in the local shire, my son plays soccer for the local shire.”[18]
[18] T 65.
28 He said that he spoke in that manner to show Mr Simon that he was the person who would make the new store work quicker than anyone else.[19] Mr Simon denied that Mr Avagiannis made this reference to “hobbits”, but I consider it probable that Mr Avagiannis made some such reference to indicate his ties to the area.
[19](ibid).
29 Mr Avagiannis agreed that he may have said that he was leaving his current employer because he was concerned about its viability.[20]
[20]T89
30 Mr Avagiannis said that Mr Simon received a phone call during the interview. After ending the phone call, he said: “Yes, we’ve got Knox. So how many weeks notice do you need to give?” Mr Avagiannis’ response was four weeks, to which Mr Simon replied, “I will give you an extra $10,000 if you resign today.”
31 Mr Simon agreed that his discussion with Mr Bamkin about Mr Avagiannis’ concerned his suitability to be the shop manager for the prospective Knox City Store. He stated:
“ Mr Avagiannis was put forward to me see via Mr Bamkin and the discussion was clearly with regard to his suitability as to be – a shop manager for the prospective, at that stage, Knox City store.”[21]
[21]T192
32 He said that he had not seen the job advertisement and that Mr Bamkin had been the person in contact with ESE.
33 At the time of the interview, shop managers employed by the defendant received a base salary of $45,000. Mr Simon initially offered Mr Avagiannis a base salary of $50,000, but after discussion he agreed to commence him on $55,000 per annum. [22] Mr Simon denied that he offered Mr Avagiannis an incentive to leave his current employment to take on a position with the defendant.[23]
[22]T 194.
[23](ibid).
34 Mr Simon agreed that during the interview he presented his “what if” document to Mr Avagiannis, and that they discussed the range of possibilities that the document contained.[24] The “what if” document gave Mr Avagiannis an indication of the range of incentive payments he might receive, if certain turnovers and margins could be achieved.[25] He said that he was using the document to show a worst case scenario of $8000, where he would be projecting a loss and also a higher scenario of $30,000 where he would be projecting a net profit of $4930.[26] He considered that neither he nor Mr Avagiannis, even with his retail experience, could say what would happen in the new store, meaning what the level of sales would be.[27]
[24]T 196.
[25](ibid).
[26]T233
[27]T239
35 Mr Simon stated that he did not tell Mr Avagiannis that the Knox City store would generate gross weekly profits of about $15,000. That figure would have been unheard of in his business, particularly in its initial period of operation.[28] Mr Simon gave evidence that part of the “what if” document being the 5th, 6th and 7th columns headed “Matt sales”, “Matts @w/s and GP contained calculations for Serenity Bedding Pty Ltd, which was the factory that manufactured products for Commercial Bedding. Those columns contained earnings scenarios of the additional sales that Serenity Bedding would receive from the sales made at the Knox store.[29]
[28]T193
[29]T238
36 I accept Mr Simon’s evidence in that respect. He was the author of the document and there was no evidence to contradict his evidence about that aspect of it.
37 Mr Simon’s evidence was that, at the time when he prepared the spreadsheet, he felt there was a reasonable opportunity to make a profit at Knox City.[30] He stated that between March and the end of May 2011 he thought that the Knox store was a vey good chance to be a profitable venture, but that he was getting increasingly concerned about the size of the store.[31]
[30]T250
[31]T 249
38 Mr Simon’s evidence concerning whether Mr Avagiannis was appointed as the manager of the Knox store was not consistent in its terms. He agreed that everyone assumed that the Knox store was going ahead and said that the intention was to have Mr Avagiannis in a store that they proposed to open in Knox.[32] He also stated that the intention was to have Mr Avagiannis as the manager of “our store at Knox”.[33]
[32]T242
[33]T246
39 Mr Simon gave evidence that he employed Mr Avagiannis to be a manager of the new concept store to be known as Regal Sleep Solutions and the first store was proposed to be at Knox City and “ we were working hard to open a Knox city store”. [34] However, Mr Simon also gave evidence that the agreement made on 11 April was not that Mr Avagiannis would be the manager of the Knox store, but that he would be the manager of a Regal Bedding Store.[35]
[34]T 246
[35]T 221
40 At the end of the interview, Mr Simon offered Mr Avagiannis a job as store manager and he accepted it. He shook Mr Avagiannis’ hand as a sign of the completion of the contract.[36]
[36]T 196.
41 Mr Simon agreed that he then took Mr Avagiannis to see an employee named Celeste, who presumably worked in personnel or payroll, and told her that he was going to be the store manager of the new store at Knox. [37]
[37]T242
42 On 11 April 2011, Mr Berthelsen of ESE wrote to Mr Simon stating inter alia:
“ we are delighted that we were able to assist you in sourcing an outstanding candidate, Stan Avagiannis in the position of Store Manager – Knox.”
43 Mr Simon was uncertain if he received that letter.
44 The terms of the contract between Mr Avagiannis and Commercial Bedding were never put in writing.
45 Mr Avagiannis gave notice to end his existing employment and commenced working for Regal Bedding on 16 May 2011. Initially, he received training at the head office. Shortly thereafter, Mr Simon and Mr Bamkin told him that there was a delay in opening the Knox store but, in the interim, they had work for him at other stores. He was then sent to work at Regal Bedding stores including Fairfield, Braeside, Hoppers Crossing, Nunawading and East Brighton.
The decision not to open the Knox store
46 The evidence of both Mr Simon and Mr Avagiannis was that in 2011, the economy was flagging and retail stores were performing poorly. Mr Simon said that there was an extreme retail downturn in about May to early July 2011. He became very frightened, particularly in opening the concept store at Knox as its area was 116 square metres and he could only display 13-14 mattresses beds. He was quite unsure of the viability of the store. Commercial Bedding had a range of 35 to 40 mattresses and his smallest store displayed 25.
47 Mr Simon said that if he was assured that the Knox City store would make a profit he would have gone ahead with it.[38]
[38]T 208
48 On 21 June 2011, Mr Simon decided not to proceed with the Knox City store and to open a store at the Springvale Homemaker centre instead. It would be of 300 square metres with room to display the full range of the defendant’s beds. Mr Simon considered that the Springvale store had a better chance of making a profit than the Knox store, because it had a much bigger floor space and it could display more beds.
49 Mr Simon said that the Springvale location was more desirable than that available at Knox City and that the company’s most successful franchisee stores were located in homemaker centres. The Springvale store was the first company store to operate in a homemaker centre.
50 Mr Avagiannis considered that a smaller space was not necessarily a hindrance to the success of the store. He considered that concept stores should display only products which would appeal to the store’s target market. In addition, the Springvale store was not well located in comparison with the Knox City store.
51 The Knox City Shopping Centre disclosure statement showed that between 1 November 2009 and 31 October 2010 the annual customer traffic count for the Centre was approximately 12,846,528. [39]
[39]CB 209
52 The Springvale store financial statements show that from July 2011 to May 2012 the store made a net loss of $70,666.74, before deductions for set up costs, but including $21,695.64 in franchisee expenses.[40] Mr Simon said that the level of the loss at the Springvale store was attributable to the set-up costs.[41]
[40]CB 402
[41]T252
53 Mr Simon evidence was that had Mr Avagiannis taken up the manager’s position at the Springvale store he would not have earned commissions or performance bonuses since the store never made any profits during the period of notice that he claimed. However, he was “extremely certain” Mr Avagiannis would not have earned a performance bonus at the Knox Store either. [42]
[42]T 254
54 On 21 June 2011, Mr E Brown, solicitor, acting on behalf of Regal Bedding Solutions wrote to the operators of the Knox City Shopping Centre stating:
“I confirm that I have been instructed to inform you that my client does not wish to proceed with the Knox lease. The retail environment has deteriorated significantly over the last 4 months. In the contest of the level of capital investment required to fit-out the premises and the commercial terms of the proposed lease, my client believes that starting a new venture at this stage of the retail cycle is too risky, despite its confidence in the overall concept that Regal Bedding Solutions would present a unique retail proposition in the marketplace.”[43]
[43]CB396
55 On about 22 June 2011, Mr Bamkin visited Mr Avagiannis, who was working at the Fairfield store, and told him that the Knox store was not going ahead. Mr Simon did not believe that opening it would be a good financial decision. Mr Avagiannis said that Mr Bamkin told him Mr Simon did not want to open the store because he “couldn’t stomach the set up costs”. Mr Bamkin agreed he said something to that effect.[44] He also told Mr Avagiannis that the good news was they were opening the Springvale store, which would be a much better store and that he could be manager of that store. Mr Avagiannis told Mr Bamkin that they always knew what the set up costs of Knox would be. He gave evidence that he would not have taken the job if he had known it was at Springvale.
[44]T173
56 At Mr Bamkin’s suggestion, Mr Avagiannis left work that day, but returned for a day or two.
57 On 24 June 2011, Mr Avagiannis emailed Mr Simon and Mr Bamkin stating that:
“I cannot express in words my disappointment in your decision not to open the Knox City store. I do not accept any new role that is currently on the table.
Since I have no option but to continue working, I will continue to fill in at various stores as required and I will do my best at this role.
I have seeked (sic) legal advice and I am currently assessing my options.”[45]
[45]CB 66
58 Mr Simon replied on the same day:
“ Dear Stan,
Thank you for your email and I understand your feelings and your honesty with regard to them.
The decision to stop Knox was mine and mine alone and was reached on Monday evening and communicated to Knox on Tuesday. The decision was based purely on economic circumstances and the deterioration of them over the last few weeks.”[46]
[46]CB 66
59 The following day, Saturday 25 June, Mr Avagiannis emailed Mr Simon:
“Dear Rob,
I refer to my email to you dated 24 June [2011] and would like to clarify that by continuing to perform the functions of a ‘fill-in’ Manager I have not accepted, and do not accept that position. I am only doing so for the time being, pending consideration of my legal options, in view of the fact that the job we had agreed I would perform, namely Store Manager of the Knox City store, no longer exists. My rights are fully reserved.”
60 On 28 June 2011, Mr Bamkin spoke to Mr Avagiannis and the position of the Knox and Springvale stores appear to have been discussed.[47]
[47]T 176
61 On 30 June 2011, Mr Avagiannis met Mr Bamkin at the Knox Shopping Centre and returned his store keys.
62 On the same day, Mr Avagiannis’ lawyers wrote to Mr Simon setting out his account of his dealing with Regal Bedding and stating that it had repudiated the employment agreement, that he accepted the repudiation and terminated his employment with immediate effect. He sought the sum of $116,666.66 for pay in lieu of notice and damages in respect of the loss of the opportunity to earn the agreed incentive amounts under his employment agreement.
63 In its Defence, Commercial Bedding alleges that Mr Avagiannis was employed to serve as manager of a bedding store for and behalf of Commercial Bedding. It alleged that Mr Avagiannis by leaving work on 22 June 2012 and failing to return to work to serve notice in accordance with the Fair Work Act 2009 contravened that Act. Accordingly, any entitlement that Mr Avagiannis had to receive notice should be set-off and reduced by Commercial Bedding’s entitlement to notice.
Issue 1:Was it a term of the contract of employment that Mr Avagiannis was appointed to be manager of the Knox City store?
64 There was no real dispute that the terms of the contract of employment made between Mr Avagiannis and Commercial Bedding made on 11 April 2011 provided for:
(a) a base salary of $55,000 per annum, plus 9% superannuation as required by law;
(b) an incentive bonus, or commission, which was to be one third[48] of a figure generated by the store in which he worked.[49] There was a dispute concerning the base figure to which the percentage would be applied.
[48](ibid); T 196; Although originally pleaded in the defence that the commission percentage was only 30%, Mr Simon stated in his evidence that he did not wish to argue over the difference between 30% and one third, thus a concession was made to one third.
[49]T 280.
65 Both parties agreed that the critical conversation was that between Mr Avagiannis and Mr Simon on 11 April 2011. They each presented detailed argument as to why their witnesses’ account of the conversation should be accepted.
66 The defendant did not plead that the contract included a term of mobility ie. that Mr Avagiannis was obliged to work at any location to which he was directed.
67 The defendant objected to Mr Avagiannis relying on the evidence of Ms Smith and Mr Berthelsen to establish the terms of the contract since the contract was formed between Mr Avagiannis and Mr Simon.[50] I consider that the critical evidence to be considered was what was said in the interview of 11 April together with the initial job advertisement.
[50]T 114 to 115.
68 In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd[51] the High Court stated:
“ It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe.”[52]
[51](2004) 219 CLR 165
[52](Supra) at p 179[40]
69 I consider that a reasonable person would have concluded that Mr Simon, on behalf of the defendant, by his words and conduct had offered Mr Avagiannis employment as manager of the Knox store and that Mr Avagiannis accepted that offer.
70 I reach that conclusion for the following reasons. First, the terms of the advertisement, which establishes the context of the job application – that Mr Avagiannis was applying for a position as store manager at Knox, as the other location mentioned Forest Hill was not proceeding. Secondly, the fact that the defendant intended to open a store at Knox. Thirdly, the evidence of Mr Simon referred to above in paragraphs 38 and 39, that Mr Avagiannis was being interviewed for the position of store manager of the Knox City Store. At the time Mr Simon interviewed Mr Avagiannis, he intended to open the Knox Store. Fourthly, I accept that Mr Avagiannis conveyed to Mr Simon that he was keen to obtain the position, because it was close to his home. Fifthly, the “what if” document prepared by Mr Simon, and given to Mr Avagiannis was entitled “Regal Mattress Express – Knox” and showed a range of possible financial outcomes that the Knox Store might generate.
71 I consider that a reasonable person in Mr Avagiannis’ position would have believed that he was being employed as Manager of the Knox City Store, which was to open in a few weeks.
72 I therefore conclude that the contract of employment between Mr Avagiannis and Commercial Bedding Supplies included a term that he was appointed as the manager of the Knox Store.
Issue 2: Was it a term of the contract of employment that the plaintiff would receive a share of the profit of the Knox City store?
73 The parties accepted that it was a term of the contract that Mr Avagiannis would receive an incentive bonus or commission. Again, I consider that the key evidence concerns the meeting on 11 April and what the words and actions of Mr Simon would have led a reasonable person in the position of Mr Avagiannis to believe. The terms of the advertisement have also to be taken into account.
74 The defence pleaded that Mr Avagiannis would be paid 30% of the Knox store’s gross weekly profits after deduction of overheads and an adjustment to account for Commercial Bedding’s return on investment for establishing the store. However, I consider that Mr Simon referred to one third rather than 33 per cent.
75 Mr Avagiannis pleaded that the term was “33% of the store’s gross weekly profits in excess of $9,000”.[53] Counsel for the defendant submitted that the Court should find, as a matter of fact, that Mr Avagiannis would be paid a commission payment that would total one third of the net profit amounts the Knox Store made, after amounts were deducted for the setup of the Knox Store.
[53]SOC para 4(d).
76 Mr Avagiannis’ evidence was that during the interview on 11 April 2011, Mr Simon took him to the last line of the “what if” document and told him, by reference to the figure of $6311.25 on the last line in the seventh column, “a third of that is yours. You get me there, and that’s what you’ll get.”[54] During evidence-in-chief, Mr Avagiannis did not expressly state that Mr Simon told him the commission payment would be a third of the gross profit figure shown in the “what if” document. He also said that Mr Simon did not refer to specific parts of that document.[55]
[54]T 61.
[55](ibid).
77 Mr Avagiannis agreed with the proposition that it would make more business sense to take into account the costs of operation when calculating the commission payment to be received by him.[56]
[56]T 89 to 90.
78 Mr Simon gave evidence that he referred to the “what if” document when discussing commission payments, in order show Mr Avagiannis the range of possibilities that existed, given certain turnovers and margins.[57]
[57]T 196; T 239.
79 Mr Simon said that he did not recall the specifics of a discussion about the return on investment. He was not certain if they had mentioned the establishment costs.[58] The “what if” document does not mention such costs. He said that he would have been talking about a net profit figure. [59]
[58]T230
[59]T 232 -233
80 I find that reasonable person would conclude that Mr Simon in referring to the “what if’ document conveyed to Mr Avagiannis that he would receive a share of the net profits that the Knox store made. That was one of the categories of profit referred to in the document. I am not persuaded that Mr Simon referred to gross profit as the basis for the performance bonus. I prefer Mr Simon’s evidence that he used the document to describe to Mr Avagiannis a range of outcomes. Insofar as he conveyed amounts that Mr Avagiannis might receive, a reasonable person would have taken him as referring to net income as the relevant figure and not gross profit figure, to be used regardless of whether a net profit was achieved. A gross profit figure, by itself, gives little indication of the financial success of the business.
81 I find that there was no mention of the set up costs in the interview on 11 April 2011, or in the “what if” document. Such costs may have been capable of various treatments for taxation purposes. I do not consider that a reasonable person would have concluded that the parties agreed that those costs would be taken into account in determining the bonus that Mr Avagiannis would receive.
Issue 3: Did the defendant repudiate the contract of employment by deciding not to employ the plaintiff as manager of that store?
82 The Knox Store never opened. The parties agreed that the contract had been repudiated and that the repudiation was accepted. However, they each argued that the other had repudiated the contract.
83 On the basis of the finding I have made regarding the terms of the contract of employment, I find that Commercial Bedding repudiated the contract of employment by not employing Mr Avagiannis as manger of the Knox store, and that Mr Avagiannis accepted that repudiation by the solicitors’ letter sent on 30 June 2011.[60]
[60]CB 69.
84 Commercial Bedding’s contract with Mr Avagiannis was as store manager of the Knox store. Its decision that it was not going to provide that employment was a repudiation of the contract.
85 Mr Avagiannis accepted this repudiation in his emails to Mr Simon and Mr Bamkin of 24 June 2011 and in his solicitors letter.
86 I therefore find that Mr Avagiannis was not obliged to give notice to terminate his employment as alleged by the defendant in its defence.
Issue 4: What damages is Mr Avagiannis entitled to receive in lieu of notice?
87 The period of reasonable notice required to terminate the contract is to be determined at the date when notice is given, or the contract is terminated without notice. The primary purpose of reasonable notice is to enable to employee to obtain new employment of a similar nature: see Rankin v Marine Power International Pty Ltd.[61]
[61](2001) 107 IR 117
88 Matters that are commonly taken into account in determining the period of reasonable notice required to terminate a contract of employment include the importance of the position, the size of the salary, the length of the service, the professional standing of the employee, the employee’s age, the employee’s qualifications and experience, the employees’ degree of mobility, the expected period of time it would take the employee to obtain alternative employment, the period it was likely that the employee would have continued in the employment and what the employee gave up to come to the present employer.[62]
[62]See Sappideen, O’Grady, Riley and Warburton, Macken’s Law of Employment (7th ed) pp 290-291 and Rankin v Marine Power International Pty Ltd (2001) 107 IR 117 [217] –[236].
89 Counsel for the plaintiff submitted that Mr Avagiannis was entitled to nine months notice from 30 June 2011, on the following bases. Mr Avagiannis was 43 years old at the date of the repudiation. The position which was offered to him at the Knox Store was one ultimately described as “Store Manager”. The position was in middle management having responsibility for staff, store finances, reporting on the financial position of the store and achieving performance in store sales.[63] Mr Avagiannis, in good retail conditions, may well have earned a salary of six figures. The possible earnings of $120,000 -150,000 mentioned in the advertisement are to be taken into account.
[63]T 316 to 317.
90 Mr Avagiannis had given up secure employment to accept the position of manager of the Knox Store. However the business in which he had been working did shut in March 2012. It was also submitted that Mr Avagiannis could not reasonably be expected to find suitable alternative employment in less than nine months.
91 Counsel for the defendant submitted that Mr Avagiannis should only be entitled to three to four weeks of notice for the following reasons. Mr Avagiannis’ age of 44 is relatively young in terms of store managers and he was not in the twilight of his career. He worked for the defendant for one month and four days. He was concerned for the financial viability of his former employer. The acceptance of the position at the Knox Store did not put him in a position of substantial detriment.
92 I consider that the position of manager of the Knox store was at middle management level in the structure of the defendant. It did have the potential for quite high remuneration. Mr Avagiannis would have had some autonomy with regards to employment of staff and the operation of the store, but subject to direction from Mr Simon and Mr Bamkin.
93 The length of Mr Avagiannis’ employment with the defendant would have largely been dependant on the success of the Knox Store. Mr Avagiannis gave evidence that he had a good standing in his local community, and in his opinion, this would translate to people coming to the Knox Store specifically to purchase bedding goods from him, regardless of the company that owned the store.
94 I accept that in the difficult retail circumstances that existed Mr Avagiannis would probably have found it difficult to obtain a similar position to that of manager of the Knox Store close to his home. However, he was employed for only a short period of time.
95 I find that Mr Avagiannis was entitled to 3 months notice as at 30 June 2011 and is entitled to damages for that period as he did not receive that notice. He is also entitled to the amount of superannuation contributions payable on three months salary.
Issue 5: Did Mr Avagiannis lose a chance to earn a performance bonus or commission and if so what was the value of that chance?
96 The payment of the performance bonus hinged on the store making a net profit. In order for Mr Avagiannis to earn any sort of bonus, the Knox store would have had to turnover about $16,000 net profit in at least one of the weeks within the reasonable notice period based on the “what-if” document.
97 The defendant submitted that, if it was found that it did repudiate the contract, this did not cause the plaintiff to lose the chance of earning a performance bonus. It submitted that, on the balance of probabilities, Mr Avagiannis would not have earned any performance bonus, even if the period of reasonable notice had been 9 months, as the plaintiff submitted. According to the defendant, new stores commonly do not make a profit, and moreover, during the period of reasonable notice, economic conditions were poor.
98 When it was suggested by the plaintiff’s counsel that there was still a chance that if he had gone ahead with Knox that it might have been a profitable venture Mr Simon replied, that he accept “that there was a chance, but it was a lessening chance”.[64] Further Mr Simon gave evidence that:
“Between March and the middle to end of May I thought it was a very good chance, but I was getting increasingly concerned about the size of the store”.[65]
[64]T 249
[65]T 249
99 Mr Simon agreed that when he decided to pull out of the lease negotiations for Knox City, he still had confidence in the concept for the store. He accepted that his decision to not open the store was a business decision based on his assessment at the time. He did not think that Knox had a chance of making a profit in the current environment. Mr Bamkin thought Knox would not be profitable.[66]
[66]T184
100 The Knox City Shopping Centre disclosure statement, a document that formed part of Commercial Bedding’s negotiations with the Centre, indicates that between 1 November 2009 and 31 October 2010 non food specialty shops, of which the proposed bedding store would be one, had an annual estimated turnover of $8,637.00 per m2.[67] For 113 m2, the size of the proposed Knox store, the estimated turnover for November 2009 to 31 October 2010 would be $975,981. A calculation can be made on those figures that suggests that Mr Avagiannis would have earned a performance bonus. However, it is difficult to draw any conclusions from these figures in respect of a store that was just opening.
[67]CB 208
101 Deane J explained in TheCommonwealth of Australia vAmann Aviation Pty Ltd[68] that in some cases it is “impracticable or inappropriate” for the court to make “ultimate findings” on the balance of probabilities about what would have occurred if the defendant had not breached the contract[69] and that in some cases justice dictates that damages be assessed by reference to the “probabilities or the possibilities of what would have happened or will happen”. [70] This prevents the defendant avoiding “liability by pointing to the obvious, namely, that it is theoretically more probable than not that a less than fifty percent chance of success would have resulted in failure”.[71]
[68](1991) 174 CLR 64
[69](supra) at p118
[70]Ibid
[71]at p119
102 In McDonald v Australian Wool Innovation Ltd[72] Weinberg J described the assessment of the loss of a chance, in the context of the renewal of a contract beyond its initial term, as follows:
“In Cheshire and Fifoot, the learned authors suggest at [23.15] that it is not necessary to establish that the chance would probably have been realised. It has been suggested that a one per cent chance may give rise to an entitlement to compensation: Malec v JC Hutton Pty Ltd per Deane Gaudron and McHugh JJ. The idea that a one per cent chance would be other than ‘speculative’ might strike some as odd, but that seems to have been the view of the High Court in Malec. See also Sellars v Adelaide Petroleum NL, L’Huillier v State of Victoria and Global Network Services Pty Ltd v Legion Telecall Pty Ltd in which a ten per cent chance was held to be compensable.
If the chance is so low as to be regarded as speculative, say less than one per cent, the Court will disregard it in assessing damages. However, any chance that Is not so nebulous as to fall within that description should be taken into account.
According to Cheshire and Fifoot, while percentage figures are commonly used, it is not essential for a court to express a percentage of possibility, or probability, in calculating the amount of an award. The Court is entitled to take a global approach and to award a lump sum: Fightvision Pty Ltd v Onisforou; and Glenmount Investments Pty Ltd v O’Loughlin.” (citations omitted)
[72][2005] FCA 105 at [247]-[250]
103 A question exists as to when Mr Avagiannis was likely to have been entitled to have been paid any commission. The agreement between the parties only provided for the payment of commission to Mr Avagiannis after the Knox store commenced to earn income. The proposed opening of the Knox store was postponed probably until mid July. However, the three months notice to which Mr Avagiannis was entitled would have extended until 30 September 2011.
104 On the balance of probabilities, I find that Mr Avagiannis lost the opportunity to earn a performance bonus, owing to Commercial Bedding’s repudiation of the contract.
105 The evidence was that retail conditions were deteriorating in the middle of 2011. However, the evidence also suggests that Mr Simon still had some confidence in the new concept, but rather considered that the Springvale store provided greater opportunities. Mr Avagiannis had considerable retail experience and contacts in the local community. I do not consider that his chances of earning a bonus, based on the net profit earned by the Knox store were so low after the initial opening month as to be disregarded as speculative. I would assess them as a 25 per cent chance. I would disregard the chance for the first month which would have run from the adjusted opening date of about 15 July 2011 until 15 August 2011. That would have left 6 weeks until 30 September 2012 in which to earn a performance bonus.
106 In assessing the value of that lost chance, I take into account the difficult retail environment and the fact that a new business may take time to develop. I also take into account the expected earnings as stated in the advertisement.
107 Applying a global approach, and taking into account the net profit figures in the “what if” document and the short period of time involved, I consider that an appropriate figure to value the loss of the chance to earn performance bonuses is $2,500.
Issue 6: Has the defendant proved that the plaintiff failed to mitigate his loss and damages?
108 A party who suffers a loss resulting from a breach of contract is bound to take all reasonable steps to mitigate the loss.[73] The defendant bears the onus of proving that the plaintiff did not act reasonably in attempting to mitigate his loss.
[73]Burns v MANS Automatic (Aust) Pty Ltd (1986) 161 CLR 653, 658 per Gibbs CJ
109 Mr Avagiannis decided that he was not going to work for the defendant anymore, in view of its decision not to open the Knox City store. He did not think that he was going to be unemployed for a long period of time. He received benefits from Centrelink and he had to attend Centrelink and his particular manager regularly. He gave evidence that he contacted a lot of employers to obtain work. He and his wife sold shares that they had acquired to obtain funds on which to live.
110 In April 2012, he obtained employment with another furniture retailer Nick Scali, but that employment lasted only 3 weeks. He then obtained Centrelink payments again. In November 2011 he took steps to obtain employment as a Protective Services Officer with the Victorian Government. He had to sit an entrance examination through the Vetasses process. He passed it in January 2012 and later obtained employment as a Protective Services Officer.
111 The defendant argued that Mr Avagiannis did not make reasonable efforts to find new employment, after he accepted the repudiation of the contract and pointed to his apparent inactivity between 1 July 2011 and 16 November 2011.
112 The defendant also relied on Mr Avagiannis’ refusal of its job offer to manage the Springvale store. That store did not open until late in 2011, but the evidence suggests that until that occurred Mr Avagiannis would have been able to work at other Regal Bedding stores.
113 Mr Avagiannis’ family made do with one car for a husband and wife and three children aged 10 and under. He nearly always travelled to work by bike. While training, he did travel by car to locations including Hoppers Crossing. The travel distance between Boronia and Springvale was about 30 minutes in peak hour by car. The alternative was to attempt to navigate the public transport system or cycle from Boronia to Springvale.
114 Mr Avagiannis explained that his wife needed the vehicle to drive their children to and from school. Otherwise, she had to rely on the goodwill of others to get the children to and from school. The defendant stated the Mr Avagiannis did not complain about having to use the family car to travel to other Commercial Beddings stores whilst he was employed by them. However, that requirement was only intended to be temporary until the opening of the Knox store.
115 If Mr Avagiannis had accepted the offer to manage the Springvale store he would not have received a performance bonus, in view of the losses incurred in the initial operation of that store.
116 The defendant also argued that Mr Avagiannis did not make reasonable efforts to find employment because his financial position was such that he could afford not to work for a time and he sold shares. I am not satisfied that that contention has been proved and the evidence supports the conclusion that Mr Avagiannis was seeking employment because of the steps that he took, which I have set out above.
117 The defendant suggested the fact that Mr Avagiannis did not apply for the Vetassess course until November 2011 showed that he failed to make reasonable efforts to find a job before that time. Mr Avagiannis’s explanation was that before November 2011 he had expected to find another job in retail and it was only when this failed that he realised he had to “work something else out”.[74]
[74]T 105
118 In my opinion, the defendant has not established that Mr Avagiannis has failed to act reasonably to mitigate his loss.
119 Mr Avagiannis received Centrelink payments for parts of 2011 and 2012 for much of the reasonable notice period. In order to receive these payments Mr Avagiannis was required by Centrelink to prove to them, on an ongoing basis, that he was actively looking for work. Mr Avagiannis was required to demonstrate that he had applied for ten jobs every fortnight. The fact that Mr Avagiannis was successful in obtaining employment with Nick Scali furniture suggests that he was seeking work. He was, with his wife, responsible for the care of a young family and thus had to earn income.
120 Given Mr Avagiannis extensive retail experience, it was reasonable for him to consider that he was most likely to gain new employment in this sector and postpone for the few months seeking employment in other areas.
121 I also consider that the defendant has not proved that it was unreasonable for Mr Avagiannis to refuse the offer of employment of the Springvale store. There was no guarantee that he would earn anything other than the base salary at that store and it is unlikely that he would have done so at least for the first year. The location made getting to work for him difficult. It was also a store yet to open and he was entitled to be cautious in accepting another proposal that had yet to materialise. He was also entitled to take into account that the defendant had repudiated his previous contract.[75]
[75]See Irving, The Contract of Employment, pps 906-911; Neil and Chin, The Modern Contract of Employment pps 302 -309 and Sappideen, O’Grady, Riley and Warburton, Macken’s Law of Employment (7th ed) pps 427-429
Conclusion
122 Mr Avagiannis has established that he is entitled to 3 months’ salary calculated on an annual salary of $55,000 in lieu of notice plus damages representing the amount to which he was entitled for superannuation contributions calculated at 9 per cent of that amount. He is also entitled to $2,500 for the loss of a chance to earn a bonus.
123 I will hear the parties about interest and costs and any other orders that are required.
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