Benson v Presmist Construction Pty Ltd
[1998] IRCA 25
•1 Jul 1998
INDUSTRIAL RELATIONS COURT OF AUSTRALIA
INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - employer company involved in formwork for construction - employee not long employed as Project Manager - foreseeable downturn in contract work - employer did not have a VALID REASON to terminate employee’s employment
BREACH OF CONTRACT - IMPLIED TERM - employee to share in profits of employer company - implication of terms where parties failed to fulfil certain express terms - principles to govern such implication
Workplace Relations Act 1996 (Cth), s170DE(1), s 170EDA
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266, distinguished
Hawkins v Clayton (1988) 164 CLR 539, applied
Byrne v Australian Airlines (1995) 131 ALR 422, applied
Cosco Holdings Pty Ltd v Thu Thi Van Do (1997) 150 ALR 127, discussed
Murdoch University v Mainsbridge (Full Court, IRCA, 12 June 1998, unreported), discussed
COLIN JOHN BENSON v PRESMIST CONSTRUCTION PTY LIMITED
NI 2264 of 1995
MADGWICK J
1 JULY 1998
SYDNEY
| IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA | |
| NEW SOUTH WALES DISTRICT REGISTRY | NI 2264 of 1995 |
BETWEEN: | COLIN JOHN BENSON | |
AND: | PRESMIST CONSTRUCTION PTY LIMITED | |
JUDGE: | MADGWICK J | |
DATE OF ORDER: | 1 JULY 1998 | |
WHERE MADE: | SYDNEY | |
SHORT MINUTES OF ORDERS
THE COURT ORDERS THAT:
Judgment be entered for the applicant in the sum of forty thousand and thirty dollars and sixty eight cents ($40,030.68), being thirty two thousand dollars ($32,000) plus interest thereon up to judgment calculated at 8 per cent per annum for the period of 12 May 1995 to 1 July 1998.
(a) Upon payment within 14 days hereof to the Commissioner of Taxation of any amount bona fide believed by the respondent to be so payable on account of tax in respect of the said judgment, and the filing and service of evidence thereof; and
(b)payment within that period of the balance of the said judgment into Court (for payment out to the applicant), the respondent shall have credit against the amount of the judgment awarded for such taxation deductions.
The amount of the judgment is to be paid within 14 days of this Order.
| IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA | |
| NEW SOUTH WALES DISTRICT REGISTRY | NI 2264 of 1995 |
BETWEEN: | COLIN JOHN BENSON |
AND: | PRESMIST CONSTRUCTION PTY LIMITED |
JUDGE: | MADGWICK J |
DATE: | |
PLACE: | SYDNEY |
REASONS FOR JUDGMENT
HIS HONOUR: The applicant seeks a remedy for allegedly unlawful termination of employment and/or damages for breach of contract.
Background
In August 1994 the applicant had been employed, after his graduation with a building degree, by a large construction company and had risen to the position of Project Manager. He was 33 years of age with a young family. The respondent was the corporate vehicle by which Guiseppe (“Joe”) Angilletta and Gianfranco (“Frank”) Placanica, its directors, carried on a successful business as formwork subcontractors to construction companies such as that for which the applicant worked. The three men knew each other from contact in the building industry.
It is notorious that the building construction industry has its ups and downs. Mr Angilletta deposed that the “formwork industry had been in a slump from about 1991 to 1994”.
The contract of employment
In about July 1994, Mr Angilletta approached the applicant about the latter coming to work for the respondent. Among other things, Mr Angilletta said words to the effect: “I want you to help me run and improve Presmist. There is a lot of money in formwork and the future looks good.” The applicant indicated his interest and it was agreed the matter would be further pursued after Mr Angilletta had discussed the matter with Mr Placanica, who was then in Italy.
About a week later, the applicant told Mr Angilletta that he was concerned that perhaps “you cannot afford me. I earn $62,000 salary plus a $12,000 car allowance [plus superannuation]”. Mr Angilletta said “I can pay you what you are already on plus a third of the profits”.
Finally, in late August 1994 the applicant spoke to both Mr Angilletta and Mr Placanica. The latter said “... we know what you currently earn, but we take out a small wage in our business and get paid a bigger share of profits at the end”. The applicant replied that he could not accept a base salary of less than $56,000 because of his commitments. It was agreed that the applicant would be paid that sum. Mr Placanica indicated that he and Mr Angilletta would need to adjust their wages up to the same level as the applicant’s: it had been their practice to take “a carpenter’s wage during the year and then share in the profits at the end of the year”. It was agreed also that Messrs Angilletta and Placanica should receive a fair return on their investment in fixed and working capital and equipment such as the “yard”, trucks and formwork equipment. The applicant indicated he would accept the offer and give notice to his current employer. The agreement was sealed with a handshake.
The applicant then drafted a letter dated 29 August 1994 (“the letter”):
“I am writing to confirm the content of our meeting in your offices dated August 22, 1994, regarding future salary and profit sharing in your company, Presmist Constructions Pty Ltd (‘Presmist’).
Base Salary
Annual Salary (to be paid monthly in arrears) $56,000.00
Motor Vehicle Expenditure
To be borne by myself. These costs may be funded by advance draw downs in anticipation of profit sharing.
Mobile Phone
To be supplied by Presmist in the course of conducting business. All associated expenditure to be paid by Presmist.
Profit Sharing
I will be entitled to receive, in cash, one month after December 31 and June 30 for each calender year, 33% of profits for all projects conducted by Presmist. Profits are defined as gross income less direct expenses and a pre-determined overhead rate. The overhead rate will be agreed by the company and myself for each forthcoming 12 month period. I, or my representative, shall be provided full access to the financial records of the Company.
Hours of Employment
Working hours shall generally be defined as 9.00am to 5.00pm Monday to Friday, but may be varied on occasions to suit the tasks at hand.
Annual Leave
Four weeks annual leave per year accrual over successive years.
Sick Leave and Workers Compensation
As per statutory requirements
Superannuation
As per statutory requirements
Notice of termination of Employment
Four weeks notice of either party is to be given in advance of termination or payment in lieu.
Job Description
It is the intention of all parties that I be accepted into the operations of the Company in a cooperative way and those tasks performed by myself shall be intended to improve the overall performance and maximisation of the Company’s profit. To this end it is intended that I shall be responsible for the General Office operations and maximisation of market opportunities. Directly I shall be responsible for pursuing tender opportunities, measurements and take-off, compilations and submission of tenders, client liaison, wages, cost reporting, cash flow projections, progress claim submissions, variations and company operations.
Commencement of Employment
Assuming the satisfactory negotiation of the above conditions, I anticipate commencing under the employment of Presmist on Wednesday October 5, 1994.
Would you review the above terms and conditions. If acceptable, would you please confirm your acceptance, in writing, so that I may tender my resignation at my current employ. Should there be any further changes required to the above, I will forward you a new letter of intent.
Looking forward to our long and mutually beneficial association in the future.
Yours faithfully
Colin Benson”
Messrs Angilletta and Placanica and the applicant later initialled the letter to signify their agreement. The applicant commenced employment with the respondent on 10 October 1994.
Termination of the employment
Commencing about February 1994, the applicant began to notice some coolness in Mr Angilletta’s attitude to him. The applicant raised this with Mr Angilletta, asking whether there was some problem. Mr Angilletta replied that there was no problem, “we are happy with you ... We want you to keep working for us”. Matters, however, persisted.
In about February Mr Placanica sought to explain Mr Angilletta’s behaviour on the basis that he was under pressure as the business was “not going too well”. There was a decline in new business between March and May 1995.
Finally, Mr Placanica approached the applicant on 12 May 1995. He said:
“We can’t afford you. You and Joe are not getting on and we can’t work like this. I don’t know what the problem is between you and Joe but it can’t go on any longer. We had a meeting last night and decided to terminate you.”
The applicant protested. Mr Placanica handed him a note outlining his supposed termination payment entitlements, which were stated to be for annual leave and 4 weeks notice in lieu. The applicant later read the document.
On 16 May he complained to Mr Placanica about the annual leave calculations and said “In any event, I haven’t been paid my profit share”. Mr Placanica said “We will know in about three months’ time what the profit is. You’ll get what I said you will get. I don’t know about Joe, that’s up to him.”
The applicant acknowledged that business was not good and offered, if the respondent could not afford to pay him what had been agreed, to work part-time, perhaps on two to three days per week. Mr Placanica rejected this offer, saying “not for now. We’ll try and manage and see how things work out”.
Disputed factual issues
I found Mr Benson, the applicant, to be a fair and credible witness. His evidence stands up well to analysis.
Mr Placanica also, in my view, was trying properly to assist the court. However, he was shown to have made a number of germane mistakes. In a conflict, I prefer Mr Benson’s evidence. This applies particularly to matters of what was said between them and when. Mr Placanica’s consciousness has been influenced away from the facts by matters arising from the approach of Mr Bonnano, the respondent’s accountant, whose contributions have been less than helpful.
Mr Angilletta ought, in my view, only be believed as to matters against his interest, or where there is clear and reliable corroboration. Some of his evidence was, on its face, not credible. His general attitude was one of looking after himself, come what may of the truth.
In general, it is unfortunate when a witness’ evidence is rejected wholly or partially because of his or her demeanour. We all, in greater or lesser degree and more or less consciously, see as through a glass, darkly, our vision clouded by the limitations and unexposed assumptions of our backgrounds. Ethnicity, socio-economic class, gender, religiosity, and other cultural influences all play their part. Judges are not immune from this. Accordingly, I have tried to make all due allowances for Mr Angilletta but, in the end, it would be unjust to Mr Benson if I did not record that I had the strong impression that Mr Angilletta would and did consciously depart from the truth if he felt that it would help him to do so.
The “overhead rate” and “direct expenses”
There was, as indicated above, and as the letter shows, some discussion about an “overhead rate”. What that discussion was, however, is not entirely clear. Nevertheless, the respondent had, for example, an office to keep up, and general administrative overhead expenses. “Direct expenses” would certainly include such things as formworkers’ wages. For the respondent to perform a job of formworking, it would also be necessary to provide scaffolding, which is durable but not everlasting, and plywood which is, mostly, reusable but not as long-lasting of course, as the scaffolding. Such gear was transported in trucks available to the respondent. Companies associated with Messrs Angilletta and Placanica and their families were apparently treated, at least for tax purposes, by them as owning such things as the scaffolding equipment and the timbers. It is not clear to me whether Mr Benson understood any of those arrangements, but he did realise that, one way or the other, the respondent had access to a “yard”, trucks and stock of scaffolding and formwork timbers. It is equally unclear whether it was contemplated that hire or depreciation of such timbers would be treated as a “direct expense” or as appropriate to fall within the “overhead rate”. The parties did not, as the letter had contemplated they would, agree on a “pre-determined” overhead rate for whatever was included in the “overhead” component.
Three things are, however, clear. The first is that there would have been no reason for anyone to agree on such a rate if it had been, as Messrs Angilletta and Placanica now seem to be asserting, already agreed. The second is that Mr Benson would never have agreed to accept the inflated inter-company charge-out rates for the gear and equipment that it was asserted at trial were or should be payable; that is a strong indicator that, as I think was the case, such charge-out rates were not discussed between him and the other signatories to the letter. The third is that the terms of the letter under the heading “Profit Sharing” bespeak a concern for a mutually agreed or at least objectively determined profit share. There is a clear implication that only truly commercial expenses and overheads should have been taken into account. Claimed costs not representing arm’s-length figures ought therefore to be adjusted so that they do represent fair, commercial allowances.
The familiar service company structure erected by Mr Bonnano for Messrs Angilletta and Placanica, no doubt for the avoidance of tax and possible denial of assets to those who might have claims on the respondent, is not shown ever to have actually operated in accordance with what might be thought to be (it is by no means clear) the tenor of its constituent documents. For example, the documents appear to have contemplated (there is something of a competing hodge-podge of concepts) that the respondent was agreeing with each of the two service companies that the respondent would pay each 33% of their “lump sum of each contract entered into by” the respondent. Was the respondent to pay 66% to the two service companies? Why an equal amount to each, when one was regarded by both Messrs Angilletta and Placanica as owning three times more plant, equipment and materials than the other? No answers to these questions emerged. No “detailed statement of the calculation of the Service Fee payable in respect of the year ended on the immediately proceeding (sic) 30th June” ever appears to have been submitted to the respondent, by either service company, although each deed required it. If there were any reality in the claim that one-third of all of the respondent’s revenue from formworking contracts should and did go to those service companies as a reasonable commercial allowance for the provision of equipment, facilities and/or services, it does not appear from the respondent’s business records. Mr Bonnano, a vital witness for the respondent in this and other respects, was not called as a witness, nor was this failure explained. The appropriate inferences should be drawn. On the available evidence, I do not believe that, until the dispute with the applicant, what was ultimately paid to the service companies had any relation to commercial reality.
I reject the claims by Messrs Angilletta and Placanica that they told Mr Benson, in the negotiations preceding the commencement of his employment, that one-third of revenue was the overhead rate they would be charging and that he accepted this. I prefer Mr Benson’s evidence to theirs. In addition, that such a proposal was ever agreed would make quite unnecessary the sentence in the letter:
“The overhead rate will be agreed by the company and myself for each forthcoming 12 month period. I, or my representative, shall be provided full access to the financial records of the company.”
Implied terms
As noted, the “predetermined overhead rate” which, the letter contemplated, would be agreed “for each forthcoming 12 month period” was never agreed. That failure occurred in a then atmosphere of mutual trust and goodwill. Likewise, there was no accounting of the “expenses” which would enable determination of the profits for their disbursement “one month after December 31”. The employment lasted only from 10 October 1994 to 12 May 1995. Nothing was ever paid to Mr Benson on account of profits.
The question arises: as a matter of contract law, can the rights of the parties be adjusted to take account of those facts and, if so, how? It was, in my view correctly, conceded for the respondent that appropriate terms might be implied but there was a dispute as to what such terms should be. The principal contentions were that the relevant profit to be shared would be that arising from projects, or so much of projects, as were conducted by the respondent during the period of the employment, and that the one-third of gross revenue said to be payable (in toto) to the service companies should be regarded as having been agreed as the overhead rate.
For a term of the kind in question to be implied into a formal contract, “complete upon its face”, five conditions must be satisfied:
“(1)it must be reasonable and equitable;
(2)it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;
(3)it must be so obvious that ‘it goes without saying’;
(4)it must be capable of clear expression;
(5)it must not contradict any express term of the contract”: BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 282.
This however is a case of a less formal contract so that a less rigid approach should be adopted: Hawkins v Clayton (1988) 164 CLR 539 at 573. It would suffice if obviousness be shown, “in the sense that if the subject had been raised the parties to the contract would have replied “of course”: Byrne v Australian Airlines (1995) 131 ALR 422 at 444 per McHugh and Gummow JJ; see also per Brennan CJ, Dawson and Toohey JJ at 428. It is also a case where the implication of some term is necessary for the reasonable or effective operation of a contract of its type in the circumstances of the case: Hawkins, ibid; Byrne, ibid. Nevertheless, reference to the factors referred to in BP Refinery (Westernport) remains a useful discipline.
The circumstances of the making of the contract are to be recalled. Both parties envisaged a long-term relationship and they were evidently keen to have a practical and easily-understood method of working out the profit, as well as a fair one. It would have been of no significance to them, viewing the prospect of such an enduring association, that minor inequities might result from simply working on the basis of:
taking account of all contractual receipts in a given year (or financial year);
deducting direct expenses such as wages, and other actual expenses such as rent and truck-running costs;
deducting also a fair allowance for depreciation on plant and equipment;
deducting finally a fair and moderate return to the owners of such working capital for their investment;
determining a pro rata share of the financial year’s resulting profit, if any, and according the applicant one third of it.
Such, in my view, is consistent with the concepts inherent in the express terms, so far as they went, of the contract. That Mr Benson might initially get the benefit of some contracts where the work had been completed or partly completed when he began would have been regarded as something he might pick up on the swings, only correspondingly to lose something on the roundabout, at the end of his employment, when he might not get the benefit of contracts completely or partly completed when he finally left. The approach proposed above is simpler and more practical. To practical people such as these, negotiating in good faith and with a high level of mutual trust, the notions of complex accruals accounting and pernickety assignment of income and expenditure by the day, as accountants suggested, would have been anathema.
A term should be implied into the contract to give effect to such an approach.
Quantum
Early in the proceedings I suggested such an approach, in the hope that fairness and good sense on both sides would shortly put an end to expensive litigation about comparatively small sums. I am bound to say that, in the result, it was only the applicant who exhibited those qualities. I am constrained therefore to rely heavily on work done by the applicant and using figures, as best he could, from an alleged “general ledger”, prepared by Mr Bonnano, of the respondent’s income and expenditure for the calendar year in question. Applying the approach indicated above as being, in my opinion, appropriate, and allowing for a return on the capital invested in the equipment etc of 10% p.a. as reasonable, I would assess the applicant’s share of the profit at about $42,000. I am conscious, however, that certain estimates and judgments about expenditure, and some exclusions of, expenditure items remain those of one party to the litigation and, while I think that Mr Benson sought to apply his judgment, in many cases an expert one, fairly, there is a substantial chance that, unconsciously, he has favoured his own interests. It is, to some extent, a case of protecting the respondent from the consequences of its own litigious recalcitrance, but no warrant can be found in such behaviour for overcompensating the applicant.
Being quite conservative about the matter, therefore, I think that an award of damages for breach of contract of $32,000 together with interest thereon (see s 482 of the Workplace Relations Act 1996 (Cth) (“the Act”)) at 8% p.a. from 12 May 1995 is appropriate.
Unlawful termination of employment
Section 170DE(1) of the Act provided:
“An employer must not terminate an employee's employment unless there is a valid reason, or valid reasons, connected with the employee's capacity or conduct or based on the operational requirements of the undertaking, establishment or service.”
The respondent employer set out to prove (c.f. s 170EDA) that the reason for the termination of the applicant’s employment was a valid one based on the operational requirements of the undertaking. It was asserted that the reason was the decline in the availability of work for the respondent, and the consequent incapacity of the respondent to afford the applicant’s services.
I do not accept this. It was agreed on all hands, as I have indicated, that the building and construction industry, including the provision of formwork therefor, has its ups and downs. The respondent’s directors knew that the applicant had had long-term employment with a building company, despite such economic fluctuations. The applicant and Messrs Angilletta and Placanica looked forward to what was, in some respects, akin to a partnership, to extend over a period of years. The latter were too experienced to have imagined that the fluctuations in the industry’s fortunes which had marked its history would cease upon the applicant’s appointment. The parties contemplated that, other things being equal, their contractual relationship would endure, despite such fluctuations. Nothing, or nothing credible, was produced in evidence to suggest that such downturn as there was in the respondent’s work was (a) likely not temporary, (b) not wholly accounted for by such industry fluctuation or (c) severe enough to cause any financial embarrassment if the applicant’s employment continued. Further, if such had been the reason for Messrs Angilletta and Placanica not wishing to continue the financial exposure of their company to the applicant, I think they would have approached the matter differently, and in a way that would have maximised Mr Benson’s prospects of either weathering the storm and continuing a close relationship with them or re-establishing himself elsewhere. They wished the Court to conclude that they were decent people, and decent people would have done no less.
The real reason for the termination of employment was Mr Angilletta’s personal difficulties with the applicant. These were unexplained. They were indeed unacknowledged by Mr Angilletta. He made no semblance of an ordinarily sensible attempt to have matters, whatever they were, out with the applicant, or to resolve them. It is no wonder that the respondent was not prepared to assert that such churlishness gave or could give rise to a valid reason for termination of the employment.
These conclusions do not depend upon my not following Cosco Holdings Pty Ltd v Thu Thi Van Do (1997) 150 ALR 127 which, however, I would not now do: see Murdoch University v Mainsbridge (Full Court, Industrial Relations Court of Australia, 12 June 1998, unreported). I simply do not believe that economic factors were a substantial factor in the decision to terminate the applicant’s employment.
It follows that the applicant’s employment was unlawfully terminated.
Remedy
It is common ground that reinstatement would be impracticable (c.f. 170EE(2)) and I so conclude for the purposes of that provision. It is however appropriate to award compensation. There is a “cap” on compensation of 6 months’ “remuneration” or $34,000, whichever is the less. It is not shown that the “remuneration” would be more than $28,000.
Mr Benson was substantially out of work for about 6 months after he was dismissed. He earned about $9,000 in that period. The lost wages he would have earned (there is no evidence to warrant an assumption that there would have been profits) was not the only loss a person in his position sustains. A curriculum vitae that shows short term employment followed by 6 months out of a suitable job is likely to be looked upon adversely by a prospective employer. The honest explanation Mr Benson could give might or might not be given credit. It is a story many a liar would also give. That is likely to be a matter of economic significance that would endure for a considerable time.
All in all, I think it reasonable to award $25,000 compensation plus interest under s 482. The sum of those amounts exceed $28,000, so the ultimate award will be for $28,000. Such amount, of course, is for the legal cause of action alternative to that of breach of contract with which I have already dealt. Judgment in the action will be for the large amount, awarded in respect of the breach of contract.
| I certify that this and the preceding eleven (11) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Madgwick |
Associate:
Dated:
| Counsel for the Applicant: | B Rowe |
| Solicitor for the Applicant: | R Benson |
| Counsel for the Respondent: | R Moore |
| Solicitor for the Respondent: | Lapaine Pomare & Forster |
| Date of Hearing: | 1 May 1997, 10-11 November 1997, 2 December 1997 |
| Date of Judgment: | 1 July 1998 |
0