FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Bezerra v Petra Industries Pty Ltd [2024] FedCFamC2G 994
File number(s): MLG 342 of 2022
MLG 343 of 2022Judgment of: JUDGE FORBES Date of judgment: 14 October 2024 Catchwords: INDUSTRIAL LAW – contract of employment – underpayment of wages and superannuation – alleged contravention of Fair Work Act 2009 (Cth) – whether respondent is legal employer of applicants – where respondent company operates through various subsidiaries - consideration of factors relevant to identifying true employer – legal employer and paying entity contrasted – dispute as to date of termination of employment – whether respondent engaged in misleading and deceptive conduct in relation to employment of applicants – promissory estoppel - whether applicants sustained loss and damage – relief not granted Legislation: Competition and Consumer Act 2010 (Cth) sch 2 (Australian Consumer Law) ss 18, 31
Fair Work Act 2009 (Cth) ss 323, 546, 570
Cases cited: Australian Insurance Employees Union v WP Insurance Services Pty Ltd (1982) 42 ALR 598
Casazza v McGuiness [2022] NSWSC 348
Central Innovation v Garner (No 4) [2020] FCA 1796
Commonwealth of Australia v Director of the FWBII (2015) 258 CLR 482
Fair Work Ombudsman v Grouped Property Services Pty Ltd [2016] FCA 1034
Fair Work Ombudsman v Ramsey Food Processing Pty Ltd (2011) 198 FCR 174
In the matter of Forward Horizons Capital Pty Ltd (12 July 2024) [2024] NSWSC 848
Golden Plains Fodder Australia Pty Ltd v Millard (2007) 99 SASR 461
Gothard v Davey [2010] FCA 1163
Pitcher v Langford (1991) 23 NSWLR 142
McCluskey v Karagiosis [2002] FCA 1137
Re C&T Grinter Transport Services Pty Ltd (in liq) & Grinter Transport Pty Ltd (in liq) (Controller Appointed) [2004] FCA 1148
Resilient Investment Group Pty Ltd v Barnet and Hodgkinson as liquidators of Spitfire Corporation Limited (in liq) [2023] NSWCA 118
Shaw v Bindaree Beef Pty Ltd [2007] NSWCA 125
Textile Footwear and Clothing Union of Australia v Bellechic Pty Ltd [1998] FCA 1465
Division: Division 2 General Federal Law Number of paragraphs: 214 Date of hearing: 26-27 October 2023, 30 November 2023 Place: Melbourne Counsel for the Applicants: Mr Hooper Solicitor for the Applicants: Marshalls+Dent+Wilmoth Lawyers Counsel for the Respondents: Mr Galbraith Solicitor for the Respondents: Mills Oakley ORDERS
MLG 342 of 2022
MLG 343 of 2022FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: HUGO BEZERRA
First Applicant
EURICO BEZERRA
Second Applicant
AND: PETRA INDUSTRIES PTY LTD (ACN 627 297 607)
Respondent
ORDER MADE BY:
JUDGE FORBES
DATE OF ORDER:
14 OCTOBER 2024
THE COURT ORDERS THAT:
1.The applications are dismissed.
2.Any party seeking costs in relation to these applications must do so within 28 days of these orders by filing an application in the proceeding.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE FORBES
INTRODUCTION
This judgment concerns two separate applications which were heard together. The applicants Hugo and Eurico (who is usually known as Kiko) Bezerra are brothers.
The Bezerra brothers were the managing directors of a large and apparently successful stone and tiling supply and installation company Dellermay Pty Ltd (Dellermay). In 2018, Dellermay was sold to the respondent Petra Industries Pty Ltd (Petra) in 2018. It was one of several similar businesses acquired by private equity investors to establish a consolidated and integrated business in the tiling industry.
Kiko and Hugo Bezerra continued to work in the merged business, primarily running the Dellermay subsidiary as they always had.
As sometimes happens, the best laid plans can fail to realise their potential. The merger of Dellermay into Petra was not a success. The Bezerra brothers and the investors parted ways with acrimony and embroiled in litigation.
The two brothers allege that Petra breached section 323 of the Fair Work Act 2009 (Cth) (FW Act) by failing to pay them salary and superannuation for the period between 5 May 2021 to 1 November 2021. The applicants seek orders that Petra pay compensation in respect of the underpayments and that it pay pecuniary penalties pursuant to section 546(1) of the FW Act.
The applicants’ claims are advanced on the premise that they were employed by Petra at relevant times, a claim which is denied by Petra. The respondent contends that premise is misconceived and that at all material times Hugo and Eurico Bezerra were employed by Dellermay, the former subsidiary of Petra which is now in administration.
The applicants alternatively allege that Petra engaged in misleading and deceptive conduct in contravention of sections 18, 31(a) and 31(b) of the Competition and Consumer Act 2010 (Cth) (Australian Consumer Law). In substance, the applicants contend that even if they were employed by Dellermay, Petra represented to them that the terms and conditions of contracts they previously negotiated with Petra would be guaranteed – a representation Petra knew to be false.
Further, the applicants claim in the alternative a promissory estoppel on the basis that it would be unjust and/or unconscionable to allow Petra to resile from promises made to the applicants that the terms and conditions of contracts previously negotiated with Petra would be observed.
Issues in dispute
In summary, Petra denies the underpayment claim. It argues that no such claim can be advanced as the applicants were not employed by Petra but by a subsidiary, Dellermay, from November 2019.
Petra also submits that even if it was the employer of the applicants, the quantum of the alleged underpayments is overstated for two reasons. First, the respondent says that the applicants both agreed to a salary reduction in late March or early April 2021 from $250,000 per annum to $150,000 per annum. On that basis, the respondent argues that any loss to the applicants has to be calculated on the lower rate of pay. Secondly, Petra submits that the applicants resigned from their employment on or about late June 2021 (or earlier), not November 2021, thus limiting its exposure to the underpayment claim.
The success or failure of these applications will turn on my findings on several key factual and legal issues. Those issues can be distilled to the following enquiries:
(a)whether the applicants were employed by Petra at the time they claimed to have been underpaid their salaries and superannuation entitlements;
(b)to what salary were the applicants entitled at the time they claimed to have been underpaid;
(c)on what date did each of the applicants cease employment with their employer, whether it be Petra or some other entity;
(d)if Petra was not the employer of the applicants, did Petra engage in misleading and deceptive conduct such as to give rise to a remedy against it; and
(e)further, is Petra estopped from denying the applicants’ entitlements (if any) by reason of its conduct and representations.
As will be seen from the following reasons, findings can only be reached by navigating a complex factual scenario which traces the unsuccessful business venture. The parties’ respective narratives reflect very different perspectives of the key events.
The trial
Initially these proceedings were brought against two respondents, Petra and Dellermay. However, after the proceedings were commenced, Dellermay entered administration. The applicants sought and were granted leave to discontinue against Dellermay and were granted leave to amend their statements of claim to seek relief against Petra alone.
Due to the substantial overlap of legal and factual issues in each of the applications, the Court made orders that the two applications be heard concurrently and that evidence in one be received as evidence in the other. This course of action was not opposed.
The trial proceeded over three days and all parties were represented by counsel. Mr Hooper appeared on behalf of the applicants and Mr Galbraith represented the respondent.
All evidence in chief was advanced in the form of affidavits. Prior to the hearing various objections were exchanged between the parties and were substantially resolved prior to trial.
At trial, and subject to objections, the following affidavits were read as part of the applicants’ case:
(a)Affidavit of Hugo Bezerra affirmed 3 March 2023;
(b)Affidavit of Eurico Bezerra sworn 2 March 2023; and
(c)Reply affidavit of Eurico Bezerra sworn 25 August 2023[1].
[1] When called to give evidence, Hugo Bezerra adopted the evidence contained in the reply affidavit of Eurico Bezerra insofar as it related to him. Insofar as Eurico’s affidavit refers to Hugo or events involving Hugo and his response or beliefs, Hugo adopted those statements as true and said that is the evidence he would have given had he replied separately.
The respondent relied upon the following evidence:
(a)Affidavit of Nicholas Tsoumanis dated 13 July 2023;
(b)Affidavit of Boris Rozenvasser dated 31 July 2023; and
(c)Affidavit of Scott Burriss dated 31 July 2023.
Each of the witnesses was required for cross-examination. A number of documents were tendered in evidence and where relevant they are referenced in these reasons.
BACKGROUND
Unless stated otherwise, the following narrative is based on agreed facts or is objectively supported by documents tendered in evidence. Where facts are contested I outline the competing arguments as necessary to explain my findings.
Dellermay and the applicants
For approximately 25 years prior to September 2018, Dellermay Pty Ltd operated a commercial stone and tile manufacturing and installation business, servicing large commercial developments. It operated from premises at 103-107 Derrimut Drive in Derrimut, Victoria.
The Dellermay business was effectively owned and controlled by the applicants and their father, Carlos Bezerra through Dellpod Pty Ltd (ACN 163 193 306) (as trustee for the Bezerra Investment Trust) (Dellpod). Dellpod was registered on 8 April 2013[2] and it owned the business premises in Derrimut.
[2] Affidavit of Nicholas Andrew Tsoumanis sworn on 13 July 2023 (Tsoumanis Affidavit) at Annexure NAT-1
The applicants Hugo and Eurico were employed by Dellermay Pty Ltd, most recently as co-managing directors. Eurico (hereafter Kiko) focused on Dellermay’s finances, developing the business and maintaining relationships with its builder clients. Hugo ran the sites for Dellermay, overseeing the contract administrators and site managers and the installation work being performed on each of the projects. Their father Carlos, the founder of the family business, worked out of the company’s factory in Derrimut, running the stone fabrication part of the operation.
The investors
The “LK Group” is a group of entities owned by Mr Larry Kestelman who owns and operates a variety of businesses, including in the retail, quick service restaurants (QSR), technology, manufacturing, human resources and property development industries.
In or about early 2017 Mr Nicholas Tsoumanis, Mr Boris Rozenvasser and Mr Kestelman co-founded Queens Lane Capital (QLC) to be the private equity investment arm of the LK Group. Mr Tsoumanis is the managing director of QLC.
Formation of the Petra Group
In around late 2017, QLC set about acquiring complementary businesses in the premium or high-end segment of the stone and tiling industries. In his affidavit Mr Tsoumanis explained that he and Mr Rozenvasser identified and QLC ultimately acquired:
(a)the Multiform Group, which is a supplier of stone products, and its subsidiary Topform (now named Multiform Stone Industries) (Multiform), which is a manufacturer of high quality benchtops, splashbacks and shelving products;
(b)Signorino Tile Gallery Pty Ltd (ACN 626 149 835) (Signorino), which is a supplier of tile and stone products; and
(c)Dellermay, which operated a business supplying and installing stone and tile products for residential and commercial property developments.
QLC considered that there were substantial and strong synergies between each of these businesses and saw a good opportunity to grow them together. Mr Tsoumanis deposes that QLC’s investment thesis was to bring the businesses together and to support their growth with experienced staff, consultants and financial assistance.
On 4 July 2018, the respondent Petra Industries Pty Ltd and its parent company, Petra Industries Holdings Pty Ltd, were incorporated for the purpose of holding all of the shares of the acquired companies (which are also referred to as to the subsidiaries/divisions of Petra).
Relevantly, on 5 July 2018 Petra entered into a Share Purchase Agreement[3] pursuant to which Dellpod Pty Ltd (as trustee of the Bezerra Family Trust) sold all of the issued shares in Dellermay to Petra for around $9.5m. At or about the same time, Petra purchased all the share capital of Signorino and the Multiform Group.
[3] Affidavit of Boris Rozenvasser sworn on 31 July 2023 (Rozenvasser Affidavit) at Annexure BR-1
Upon the establishment of Petra and its purchase of the three businesses, arrangements were made for there to be cross representation across the boards of the various companies in the group. With the exception of Topform Pty Ltd, all of the boards of directors of Petra Industries Holdings and its subsidiaries were structured so that they had identical members. Each shareholder would be entitled to have a representative as a director on the Petra board and the subsidiary boards would mirror the Petra board structure.
From 31 August 2018, Larry Kestelman, Nick Tsoumanis and Boris Rozenvasser (QLC) became directors of Dellermay together with Gianmichele Signorino (of Signorno) and Salvatore Calcagno (of Multiform). Kiko, who had been Dellermay’s sole director prior to the acquisition, remained a director of Dellermay, but he also became a director of each of the Petra Group entities (other than Topform), including Petra, Petra Industries Holdings Pty Ltd and Signorino Tile Gallery Pty Ltd.
Employment with Petra
As required by the share purchase agreement, each of the managing directors of Dellermay, Signorino and Multiform (including Kiko and Hugo as co-managing directors of Dellermay) continued in their functional roles after the businesses were acquired by Petra.
On 31 August 2018 each of Hugo and Kiko entered into written employment agreements with Petra[4]. There were terms of the employment agreements that, inter alia:
(a)the applicants would be employed in the position of “Co-Managing Director, Dellermay” (a division of the Company);
(b)the contract term would be a minimum of 3 years;
(c)the applicants would report to the Chief Executive Officer of Petra;
(d)there would be a base salary of $250,000 per year;
(e)compulsory superannuation contributions would be paid;
(f)the applicants would be eligible for participation in a short-term incentive plan which provided for an annual bonus of up to $100,000 subject to performance against Key Performance Indicators set by the Board of Petra annually, in respect of the performance of Dellermay and the Petra Group; and
(g)the contract would be terminable by either the employee or employer giving the other 6 months notice.
[4] Tsoumanis Affidavit at Annexure NAT-3
For the purposes of the employment contracts, “Company” was defined to mean Petra Industries Pty Ltd and “Manager” means the Company’s Chief Executive Officer.
In the table of “Key Terms” of contract, the responsibilities of each applicant’s role are prescribed in the following terms:
Your Role Responsibilities are to:
(a) contribute to the performance of the [Petra] Group;
(b) be accountable for the overall performance of Dellermay and perform the duties set out in Annexure 2 as assigned to you by the Manager, together with such person or persons as the Company may appoint to act jointly with You;
(c) execute day-to-day management of Dellermay, together with the Group Executives, including stakeholder management, transparent and timely reporting, appropriate risk management and people development; and
(d) ensure that sufficient information is provided to the Manager and to the extent applicable, the Group Executives, to enable the Board to form appropriate judgements.
Each contract also contained an Annexure 2 which specified the range of duties to be performed by the employee for Dellermay, Petra and the Group. The contract also provided KPI’s for each employee referrable to the performance of both Dellermay and the Group.
Clause [3] of the employment agreement imposes further duties and obligations in relation to the performance of the employee’s role and the reporting structure. Subclauses 3.1 and 3.2 impose a duty on the employees to perform the responsibilities of their role and to perform such other duties as may be required by the Company. Relevantly, subclauses 3.3 and 3.4 state as follows:
3.3 Reporting structure
You will report to the Manager as set out in clause 1 or as otherwise directed by the Company. The Manager or the Board may direct you to report to other Group Executives from time to time.
3.4 Changes to Your position
If Your position, duties or reporting structure change, this agreement will continue to apply to Your employment unless You and the Company:
(a) enter a new written employment agreement; or
(b) vary this agreement in writing.
Clause [6] makes clear that the Company (i.e. Petra Industries) is liable under the contract for paying the applicants their total fixed remuneration and superannuation contributions. In addition to total remuneration, the Company was also obliged to contribute $2,200 per month toward the costs and expenses associated with the employee’s motor vehicle. The Company is also responsible for reimbursing expenses incurred by the employee in the course of his duties. The remuneration payable to the applicants is to be reviewed annually by the Board of Petra.
The applicants are each entitled to participate in the Short-Term Incentive Plan. That plan is operated by Petra Industries and may be altered by it from time to time in its sole discretion. On any sensible reading of clause [7] it is clear that Petra would determine whether any incentive plan payment will be made and, if so, it will be paid by Petra.
Post-acquisition roles and arrangements
By reason of the acquisition, each of the applicants became shareholders in Petra. In addition, Kiko was appointed a director of Petra and each of its subsidiaries, Dellermay, Signorino and Multiform. It is not contested that Kiko was the main point of contact between the directors of Petra and other members of the Bezerra family.
It is also not contested that as of 31 August 2018 both Hugo and Kiko were employees of Petra pursuant to the contracts to which I have referred.
Mr Tsoumanis deposes that while both Kiko and Hugo were managing directors of Dellermay, they continued to perform their traditional roles in the business. Hugo described his on-going role as “business as usual”. In dealing with clients, suppliers and other external parties Hugo continued to use an @Dellermay.com.au email address, with a sign off which described him as a Director of Dellermay. He agreed that he was not formally an “ASIC director” of Dellermay but said the title described his role and seniority.
Kiko on the other hand denied that his operational role was limited only to the Dellermay subsidiary. In his reply affidavit, Kiko said that after the acquisition he also helped with relationship building for Petra and Signorino and that he attended many meetings with clients of the other subsidiaries. Kiko said that he was also involved in broader Petra group matters, such as meetings with other possible acquisition targets.
To add further complication to the picture, the Dellermay part of Petra’s consolidated business continued to operate from the premises at Derrimut. Those premises were owned by Dellpod (the trustee of the Bezerra Investment Trust) and leased to Dellermay for $207,000 per annum. Accordingly, the applicants and their father Carlos were landlords of those premises and Dellermay, the wholly-owned subsidiary of Petra, was the tenant.
Post acquisition, the Chief Executive Officer of Petra was Mr Geoff Horth and its Chief Financial Officer was Mr Louie Baltatzidis. They each reported to the board. Mr Tsoumanis, Mr Rozenvasser and Mr Kestelman represented QLC on the board. Board meetings were held approximately monthly, in advance of which board members usually (but not always) received an agenda and a “board pack” of relevant documents.
Payroll
Relevantly, Mr Tsoumanis gave evidence that a company known as Wall Street HR Systems & Services (Wall Street HR) was contracted to provide human resource services to Petra and companies in the Petra group. As part of its suite of services, Wall Street HR provided support and assistance to each business in recruiting and terminating employees and it administered the payroll for Petra and its subsidiaries, including Dellermay.
In evidence, the applicants expressed the erroneous belief that Wall Street HR was owned by Larry Kestelman and was part of his group of companies. This was corrected by Mr Tsoumanis who explained that the business was owned by a Ms Leah Akoka, a former business associate of Mr Kestelman. However, it was conceded that Wall Street HR shared a building with many businesses in the LK Group and that it performed payroll services for many of them, including Petra.
The evidence revealed that after the acquisition Wall Street HR performed a wide range of HR functions for companies in the Petra group. Wall Street processed timesheets submitted by the subsidiaries, maintained leave, taxation and other employee records, and prepared employee lists, payrolls, payslips and group certificates for each of the Petra businesses.
The applicants gave evidence that before the acquisition they scrutinised and approved timesheets for Dellermay employees, they had a say over what each employee was paid and Dellermay processed payslips and provided group certificates to its employee group. Hugo gave evidence that all that changed after Wall Street HR was appointed. He said he lost control and any visibility over Dellermay payroll and that he and Kiko no longer had a say. Kiko gave evidence to a similar effect, explaining that payroll became an online process which involved the accounts department at Derrimut relaying information to Wall Street HR for processing and checking by the Petra CFO. Kiko said any role he previously had in relation to payroll for Dellermay was taken away from him and never returned.
It is not contested that as employees of Petra, the applicants received payslips prepared by Wall Street HR which recorded or represented their employer to be Petra.
As for the actual payment of the applicants’ wages post-acquisition, Mr Tsoumanis and Mr Rozenvasser gave evidence of a round-robin or “circular” arrangement which involved each of the subsidiaries submitting cash to Petra monthly to fund Petra’s employment of the subsidiaries’ managing directors. They described this as a clunky arrangement from a cost-accounting perspective. Nonetheless, Mr Tsoumanis accepted the terms of the share purchase agreement required Petra to employ the managing directors although with hindsight he thought this was a bad structure which had been based on bad advice.
Change of employer?
It is common ground that until early November 2019, the applicants were employed and paid by Petra. There is no question about the identity of their employer before then.
The respondent contends that in or around early November 2019 the employment of the applicants was “transferred” to Dellermay, such that thereafter Hugo and Kiko ceased to be employed by Petra and that liability for all future wages and other entitlements fell to Dellermay. Petra contends that what it describes as a “transfer” or “novation” of the employment contract occurred with the express or implied consent of the applicants. Petra’s defence of the applicant’s claims substantially relies on these contentions.
October 2019 meeting
After hearing all the evidence, there appears to be a consensus that on or around 24 October 2019 there was a board meeting attended by all directors of Petra and others including Louie Baltatzidis, the CFO. It is likely that Hugo Bezerra was also in attendance, although that cannot be confirmed. What is clear is that there was no written agenda for the meeting, no “board pack” distributed prior to the meeting, nor any minutes which record what was discussed. None of the attendees of the meeting who gave evidence made notes and all relied upon memory. Unsurprisingly, there are differing accounts of what occurred in the meeting and subsequently.
Mr Tsoumanis recalled that prior to the meeting, Mr Rozenvasser and Louie the CFO discussed the commercial sensibility of the managing directors of the subsidiaries being paid by Petra. He recalls the Petra executive team discussing accounting procedures and fixing on two reasons why it was thought desirable for managing director wages to be recorded as a cost to the individual subsidiaries. First, it would obviate the need for the circular accounting process where the subsidiaries were transferring funds to Petra for Petra to then pay the managing directors. Secondly, from a management accounting perspective, attributing the managing director salaries to the subsidiaries would bring greater clarity to the financial performance of each subsidiary.
Mr Rozenvasser gave evidence which reiterated Mr Tsoumanis’ recollection. At [23] of his affidavit, Mr Rozenvasser referred to discussions he had in October 2019 with the Petra finance team about the circulatory nature of payments within the Petra Group which was causing additional and unnecessary transactions. He said the principal concern from the CFO was that the company was unnecessarily moving funds around. He said that he saw no need for the subsidiaries to transfer funds to Petra to pay each of the managing directors. He said it made sense for the subsidiaries to contribute funds to Petra to pay for head office employees and group expenses like insurances, but not to pay the people who were managing the subsidiaries. It was not good accounting practice and it obscured financial reporting.
Mr Rozenvasser agreed that he and the CFO Mr Baltatzidis then introduced a discussion at the October meeting about moving the managing directors from the Petra payroll to the relevant subsidiary’s payroll. He agreed that he had spoken with Mr Tsoumanis about the idea prior to the meeting. Mr Rozenvasser and Mr Tsoumanis agreed under cross-examination that the “transfer” issue was not an agenda item (there being no agenda) and that there was very limited discussion about it late in the meeting.
Mr Tsoumanis recalled that the proposal was explained as being for proper cost accounting and that it did not make sense for Petra to be paying employees who did not have a formal function within Petra. Mr Tsoumanis recalls Mr Rozenvasser or Mr Baltatzidis saying words to the effect “it doesn’t make sense that you’re employed by Petra, and therefore we want to change the way we’re doing our reporting and our payroll so that everyone is transferred into the – into the subsidiaries, or something to that effect”. He said that the issue was not controversial at the meeting, and it was dealt with quickly. He recalls some questions from managing directors about preservation of their wages and other entitlements, including car allowances, followed by a general consensus that “as long as we are no worse off, we’re happy to make the change”.
At [36] of his affidavit Mr Tsoumanis said:
“All of the managing directors of the subsidiaries including Kiko and Hugo responded by saying that they were comfortable with the rationale and that they agreed to being employed directly by the subsidiaries provided their salary, conditions and entitlements remained the same, or with words to that affect.”
When cross-examined Mr Tsoumanis was asked whether there was any mention of changing employers or whether the proposal was presented as a change in “payroll”. He conceded that “it could have been”[5] but added “in my view, at that time and now, most people would consider a company that pays them to be their employer”.
[5] Transcript P145.35
Mr Rozenvasser also said that the proposal put to the meeting was not a controversial move and that there was agreement from the managing directors. Mr Rozenvasser says that Kiko and Hugo responded by indicating that they agreed that they should be employed by Dellermay provided that their salary and entitlements carried over[6]. He said that after the meeting Kiko and Hugo reverted back to being employed by Dellermay “and there were no further discussions about this”[7].
[6] Rozenvasser Affidavit at [23]
[7] Rozenvasser Affidavit at [25]
Hugo Bezerra recalled there was a discussion in a meeting but was adamant that it was about streamlining the finances for each of the subsidiaries. He said that in the meeting and in all subsequent correspondence the proposal was presented or explained as “administrational”. He said that there was no discussion about changing the Petra structure nor was he informed that his employer would change. He understood there would be a different paying entity “just so that costs could be allocated in a better way. It was – it was mainly due to stop the – the mistakes that were being made in cross-allocation of costs”. Hugo said that insofar as there was any consensus at the board meeting, it was that he and Kiko would be paid by Dellermay and that everything else would remain the same.
Kiko Bezerra did not recall whether Hugo was present at the meeting. Nonetheless, he was at the meeting, and he was firm in his recollection that the proposal had an accounting focus. Kiko confirmed that there was very limited discussion. He said “it was all verbal. There weren’t discussions. It was – there – it was more of a one-way discussion at the end of a board meeting where it was told that this is what will be happening for the purposes of financial streamlining and reporting […]”. He reiterated that the proposal was raised in the context of financial reporting and reducing the need for intercompany transfers which were distorting performance measures. He denied that he and Hugo agreed to their employment being transferred. His evidence was that “we were informed that it was for financial reporting purposes only and our contracts with Petra remained in place”[8].
[8] Reply Affidavit of Kiko Bezerra sworn 25 August 2023 at [24]
Relevant Correspondence
Mr Tsoumanis gave evidence that he sent an email and spreadsheet to Medina Draganovic, HR Consultant at Wall Street HR on 1 November 2019[9]. In that email, which was copied to Mr Baltatzidis and Mr Rozenvasser, but not to the managing directors or board members representing the subsidiary companies, Mr Tsoumanis stated:
[9] Tsoumanis Affidavit at Annexure NAT-7
Hi all
We are making some changes to the way payroll and HR is being managed across the Petra group to give better visibility of divisional performance.
Medina/ Leah – can you please make the following changes next week:
•Change payroll entity for the individuals in the attached s/sheet.
•Wall Street billing for future payroll and HR services to be made directly to the individual entities. For example, all Dellermay services should be invoiced to Dellermay, Signorino service to Signorino, Petra services to Petra Industries, etc.
•All requests for new recruitment need to be approved by me before any work commences by Wall Street.
•Any approval levels in Central Station set for Geoff to be reassigned to me.
Let me know if you have any questions.
Thanks
| Managing Director
Nicholas TsoumanisThe spreadsheet attached to the email identified a number of executives against which there were two columns “Current Payroll” and “New Payroll”. Each of the applicants were identified as “Petra” in the current payroll column and “Dellermay” under the new payroll column.
Mr Tsoumanis gave evidence that the concepts of “moving payroll”, “changing paying entity” and “changing employer” were all, in his mind, interchangeable. He assumed that both of the applicants and Wall Street HR would also have considered those expressions to be interchangeable but, with hindsight, conceded that there was scope for confusion[10].
[10] Transcript P157-20
On 5 November 2019 Wall Street HR sent an email[11] to the office administrator at Dellermay attaching an updated staff list for the subsidiary. Hugo and Kiko were included on this list.
[11] Tsoumanis Affidavit at Annexure NAT-14
On 6 November 2019 at 11.59am, Medina Draganovic of Wall Street HR sent an email to the applicants with the subject matter heading “Move to Dellermay Payroll”. The text of the email read simply:
Hi Guys,
As instructed by Nick, you both have been moved onto Dellermay payroll as of 4th November 2019.
Therefore, your timesheets will need to be submitted every Tuesday!
Thanks [smiley face emoji]
Later that day, on 6 November 2019, Mr Tsoumanis sent an email[12] to the managing directors John Signorino, Victor Barillaro, Sam Calcagno and Hugo and Kiko Bezerra which stated:
Gents,
See below re a couple of changes made to payroll and HR last week.
Let me know if you have any questions.
Best
| Managing Director
Nicholas Tsoumanis[12] Tsoumanis Affidavit at Annexure NAT-8
Attached to that email, without any further explanation, was a copy of the email and spreadsheet which Mr Tsoumanis had sent to Wall Street HR a few days earlier.
It is worthy of note that the communications from Mr Tsoumanis to Wall Street HR on 1 November 2019 and to the managing directors of the subsidiaries on 6 November 2019 was sent from email address [email protected] and were each signed by him as Managing Director of Queens Lane Capital.
Both Hugo and Kiko Bezerra depose that on 7 November 2019 they each received an email[13] from Medina Draganovic of Wall Street HR which stated:
Hi,
As you are both now on Dellermay payroll, you will need to resubmit a tax file number form so that we can send it to the ATO.
Please complete and return the attached form at your earliest convenience.
[13] Affidavit of Hugo Bezerra sworn on 4 March 2023 (Hugo Affidavit) at Annexure HB-2
Hugo Bezerra gave evidence that he queried Kiko about what this correspondence meant for him. Kiko, who was a director of Petra and a director of Dellermay, informed Hugo of his understanding that it was purely an administrative decision and that they were being assigned to Dellermay for the purposes of payroll administration.
A short time later, Kiko sent an email to Ms Draganovic (copied to Hugo) asking “Will there be a new employment contract?”. Ms Draganovic responded to Kiko, copying Hugo, stating “All employment conditions remain the same, so I will send out a letter instead” [14].
[14] Tsoumanis Affidavit at Annexure NAT-11
The following day, 8 November 2019, both applicants received a “payroll change letter” attached to an email from Wall Street HR. The letter[15] was presented on the stylised letterhead of “Petra” and contained a footer which identified the full name and business address of Petra Industries Pty Ltd. In its terms, the letter stated:
Dear [Eurico/Hugo]
This letter is to confirm that from 4th November 2019 your paying entity has changed from Petra Industries to Dellermay Pty Ltd for more streamlined financial reporting.
All the other terms and conditions of your employment agreement remain unchanged.
Please don’t hesitate to call us on [redacted] should you have any questions.
Regards
Medina Draganovic
HR Consultant – Wall Street
[15] Affidavit of Eurico Bezerra sworn on 25 August 2023 (Eurico Affidavit) at Annexure EB-3; Hugo Affidavit at Annexure HB-3; Tsoumanis Affidavit at Annexure NAT-12
A letter in identical terms was also sent to John Signorino of Signorino Tile Gallery and Salvatore Calcagno and Victor Barillaro of Multiform Stone Direct[16].
[16] Tsoumanis Affidavit at Annexure NAT-6
Mr Tsoumanis gave evidence that “Petra issued its last payslip to Kiko and Hugo” on 5 November 2019. Thereafter, commencing on 7 November 2019, Mr Tsoumanis says that Dellermay issued payslips to Kiko and Hugo and continued to do so. Documents tendered in evidence confirmed this[17].
[17] Exhibits R3- R6 in respect of Hugo Bezerra and R12-R15 in respect of Eurico Bezerra
The applicants accept that from early November 2019 until 22 June 2021 they received payslips headed “Dellermay” rather than “Petra" but do not concede that the identity of their employer changed.
On 10 and 11 December 2019, Kiko and Hugo Bezerra respectively completed and signed new tax file number declarations. Those declarations[18] identified their names, addresses, dates of birth and current tax file numbers. The documents did not disclose the identity of the “Payer”.
[18] Tsoumanis Affidavit at Annexure NAT-13
Practical effect of the changes
It is common ground that there was no written or oral request from Petra for either of the applicants to terminate their 3-year contracts of employment. The applicants were not offered a new contract of employment.
Petra argues that after the payroll change in November 2019, the applicants’ duties changed so that there was a greater focus on Dellermay’s day-to-day operations. Mr Rozenvasser gave evidence that the change was psychological – “[…] you’re now employed by this entity and you’re 100 per cent responsible for this entity. […] There was a psychological change to what you wake up every morning – and care about most”.
There is, however, no evidence of any discussion with the applicants about any change in their role responsibilities or reporting lines. Both Kiko and Hugo say that they went about their duties after the payroll change just as they had before. Kiko said he continued to report to the CEO of Petra and to the investors Mr Tsoumanis and Mr Rozenvasser. His evidence was that apart from a change in the paying entity, everything else remained the same.
Kiko also said that his title and role as co-managing director of Dellermay remained constant. He remained on the board of Petra and as a board member of all three of its subsidiaries until 2021. He said that his personal timesheets continued to be approved by Petra both before and after the change, even though they were submitted to Wall Street.
Documents were tendered which showed that after November 2019 the applicants’ names appeared on lists of employees prepared by Wall Street HR for Dellermay. The applicants were also regularly emailed payroll summaries for all Dellermay employees. The applicants did not dispute receiving this information but said that they really didn’t pay attention to it because they were not responsible for administering payroll after the acquisition. Kiko said that the task of reviewing payroll and management reports which had been ceded to the CFO in 2018, was not returned to him after the change in paying entity.
Alleged underperformance of Dellermay
The respondent’s witnesses Mr Tsoumanis and Mr Rozenvasser, say that it became apparent to Petra, not long after the group was formed, that Dellermay was an underperforming division which required significant injections of working capital beyond what had been represented as being necessary.
Mr Tsoumanis asserts that Kiko and Hugo consistently provided a narrative to the Petra finance team and the Board of Directors which represented that budgeted project margins were achievable. However, Mr Tsoumanis says that Dellermay lost millions of dollars on projects, failed to achieve the targeted gross profit and generally failed under the management of Kiko and Hugo.
In his evidence, Mr Rozenvasser painted a similarly gloomy picture. He gave evidence that from mid-late 2019, he discovered that Dellermay was experiencing serious cash flow issues due to the underperformance of the division. He confirmed that Petra was required to make regular injections of funds to assist Dellermay with the cash flow required to complete the pipeline of work and meet its operating expenses, including wages. He said he accepted advice from Kiko and Hugo that jobs were running on budget but found that funds were required to support the business as revenue would not come in until the tail end of each project.
The Petra witnesses gave evidence that by March 2021 the other divisions of Petra and its shareholders had contributed approximately $12.5 million to Dellermay by way of working capital, loans or unpaid supply of product.
Contextually, this alleged underperformance frames a number of subsequent events about which the applicants complain.
Employment of Scott Burriss
In or around May 2020 the CFO Mr Baltatzidis introduced Mr Rozenvasser to Scott Burriss. Scott was a builder and he was identified by Mr Baltatzidis as a potential General Manager who could assist Kiko and Hugo to manage the operations of Dellermay. An initial meeting with Scott was held at the Petra office and was attended by Mr Tsoumanis, Mr Rozenvasser and Mr Baltatzidis. Subsequently, Mr Burriss met Kiko and Hugo and they agreed to his employment.
In his reply affidavit, Kiko Bezerra said that he was not present at the meeting in May 2020 when Mr Tsoumanis, Mr Rozenvasser and Mr Baltatzidis met with Scott. According to Kiko, by the time he and Hugo met Scott the decision had already been made by Petra to hire him and their meeting with him was intended only to ensure that they got along.
On 13 July 2020, Mr Burriss was hired by Dellermay and commenced in his role as General Manager. The applicants say that even though Mr Burriss was appointed to a role with Dellermay, he was in effect a Petra appointment and had direct reporting lines to the Petra executive team. The applicants contest any suggestion that they had any practical or operational independence as managing directors of Dellermay. The effect of their evidence is that Petra called the shots.
From March 2021
The applicants and the respondent provide quite different narratives of events from March 2021 onwards. Memories appear to have faded about specific dates and the sequence of events. Recollections have also been clouded by emotions which were running high.
As mentioned above, by March 2021, the Petra Group companies (excluding Dellermay) had provided Dellermay a total of circa $12.5 million in additional working capital, loans and supply of product. Petra claims Dellermay was losing millions of dollars on the projects that Kiko and Hugo were responsible for managing. Petra witnesses gave evidence that the other entities in the Petra Group were performing profitably.
By any measure relations between the Petra Group and its Dellermay subsidiary (more particularly the Bezerra brothers) were deteriorating. It would be fair to say that Petra’s hopes for growth and profitability of its Dellermay division were fading and frustrations were setting in – from both sides. The investor group were tiring of the promises made by the applicants about job performance and the promise of future cashflow. The Bezerras harboured concerns about the investor’s understanding of the industry and their private equity approach to business.
Reduction in pay and alleged resignations
The key allegation in these proceedings is the applicants’ claim that they were underpaid their salary and other entitlements from 5 May 2021 until the termination of their employment in November 2021. They claim that they remained employed by Petra beyond November 2019 and then from the beginning of May 2021 they were subjected to a unilateral and unlawful reduction in their base salary from $250,000 to $150,000 per annum. They allege that Petra breached their contracts of employment and that they were not properly remunerated for work they performed after May 2021.
It is common ground that commencing from 5 May 2021, each of the applicants was paid a reduced salary based on a notional part-time 3-day working week. Petra contends, however, that Hugo and Eurico each unequivocally agreed to this 40% salary reduction. The parties have different recollections of the circumstances giving rise to this reduction.
While unable to recall a specific meeting, Kiko says that in March 2021 he had some discussions with Mr Tsoumanis and Mr Rozenvasser about cash flow issues in the Petra Group due to the financial impacts of the COVID pandemic and related lockdowns in Melbourne[19]. His evidence was that these discussions centred on the headwinds faced by all the Group companies, rather than being focused on the underperformance of Dellermay.
[19] Eurico Affidavit at [14]
Kiko recalls those discussions moved to a consideration of whether directors of the Petra Group should be paid a reduced salary for a short period of time. Kiko gave evidence that he understood a proposal to reduce his salary would be tied to a proportionate reduction in working hours which would be temporary and would facilitate the Group trading during the COVID lockdowns in Melbourne. He understood his salary would reduce by 40% to reflect a 3-day working week and then, when trading conditions improved, he would return to his full salary.
Kiko deposes that while an agreement was reached to reduce the applicants’ base salary, it was always conditional on Petra implementing a similar salary reduction for all managing directors across the Petra group[20]. In essence, Kiko’s evidence is that he understood either all or none of the directors across the Petra group would suffer salary reductions.
[20] Eurico Affidavit at [17]
There is no written evidence of the salary reduction agreement or its terms. Kiko’s evidence appears to place the agreement as having occurred in or about March 2021, with its implementation being in May 2021. He contextualises the agreement as being a response to COVID and poor trading conditions affecting the Petra Group generally.
There was no evidence of any direct communication between Petra and Hugo in relation to the proposed salary reduction. There is no evidence that Petra sought or received Hugo’s consent to any variation of his contract. However, Hugo concedes that Kiko spoke to him while he was in hospital about a reduction in salary and hours of work, although he has no clear recollection of the discussion. He accepts he and Kiko agreed to go down to 3 days per week. A WhatsApp message[21] from Kiko to Mr Tsoumanis on 19 April 2012 that Hugo “seemed okay” with the reduction is consistent with that evidence.
[21] Tsoumanis Affidavit at Annexure NAT-22
Petra commenced paying the Bezerras a reduced salary from the first pay in May 2021. However, Kiko deposes that upon learning that salary reductions were only to be applied to himself and Hugo, he immediately informed Mr Tsoumanis and Mr Rozenvasser that he would not accept the reduction[22]. He said he and Hugo insisted on continuing to be paid their full salaries of $250,000 per annum plus superannuation. Mr Rozenvasser deposed that he did not recall such discussions[23].
[22] Bezerra Affidavit at [41]
[23] Rozenvasser Affidavit at [38]
The Petra witnesses provide a slightly different and more coherent narrative, which sits within a broader context of events, including an important meeting which occurred on 23 March 2021. It is necessary at this juncture to briefly explore that meeting – a meeting which was not mentioned in the applicants’ affidavits in chief.
23 March 2021
Mr Rozenvasser deposes that the financial situation for Dellermay was becoming dire and that a meeting was convened on 23 March 2021 to discuss the subsidiary’s overall lack of performance. The meeting occurred at the Derrimut premises. Mr Rozenvasser says that the meeting was attended by him, Larry Kestelman, the Petra CFO, Mr Baltatzidis, Kiko, Hugo and Carlos Bezerra and Scott Burriss. Mr Tsoumanis did not attend because he was holidaying in Noosa.
It was not a pleasant meeting and a number of difficult topics were discussed. Tensions were high. The poor financial performance of Dellermay was on the (unwritten) agenda. There was also a discussion about terminating the lease between Dellpod and Dellermay because Dellermay was behind in its rent. The meeting also canvassed a dispute between the Bezerra family members and Petra about the repayment of loans which had been made by Dellpod to Petra.
I infer from the whole of the evidence that this meeting was about a range of issues which had been eating at the relationship between the QLC investors and the Bezerra family. Various of the attendees at the meeting were board members of Petra and/or Dellermay, but it was not a board meeting. Mr Rozenvasser and Mr Kestelman wore hats as investors in the Petra Group. The applicants were involved in the meeting as managing directors of Dellermay, but they also wore hats as landlords of the Derrimut premises, shareholders in Petra, and shareholders and directors in Dellpod.
Reflecting on that meeting in reply and when cross-examined, both Kiko and Hugo exhibited a strong emotional response. Hugo in particular recalled being threatened by Mr Kestelman and being told that his life would be made hell in court for the next 4 or 5 years. Hugo said that he and his brother were being bullied, the business they created was being treated badly and that Mr Kestelman was not doing what he was contractually obliged to do. Hugo also claims that Mr Kestelman described the Derrimut premises as a “shit hole”.
Kiko reflected that he felt defeated about what had happened with their business. He also said that he and his family felt threatened by Mr Kestelman and believed he was given no option but to resign. I hasten to add that Mr Rozenvasser denied those allegations and defended Mr Kestelman’s conduct as entirely measured and professional.
The evidence about what exactly occurred in that meeting is limited and conflicting. Notes[24] of the meeting made by Mr Rozenvasser and sent by text to Mr Tsoumanis are the best record. In any event it is not necessary for me to make findings other than in relation to two matters, namely:
(1)whether the meeting was relevant to any agreement for a reduction in the applicants’ salaries; and
(2)whether Kiko Bezerra resigned his employment at that meeting.
[24] Tsoumanis Affidavit at Annexure NAT-18
Firstly, I return to the salary reduction issue. Mr Rozenvasser denied that there was any discussion at all during the 23 March 2021 meeting regarding a proposed reduction of salaries[25]. Indeed, as will be seen, he gave evidence that Kiko indicated his intention to resign his employment, suggesting that any discussion about salaries was improbable. Mr Burriss similarly had no recollection of any discussion regarding reduced salaries at that meeting or in or about March 2021[26]. Although Mr Tsoumanis was not at the meeting, he also denies any discussions with Kiko at or around the time of the meeting about reducing salaries to facilitate Petra Group trading.
[25] Rozenvasser Affidavit at [33]-[34]
[26] Affidavit of Scott Burris sworn on 31 July 2023 (Burris Affidavit) at [15]-[16]
Mr Rozenvasser gave evidence[27] that some days or weeks after the 23 March meeting, he asked Kiko whether he and Hugo would be prepared to reduce their salaries. He said that the purpose of seeking a reduction in their salaries was not about COVID - it was a response to Dellermay’s poor financial position.
[27] Rozenvasser Affidavit at [36]-[37]
Mr Rozenvasser said the business needed to cut its costs. In response to questions under cross-examination, Mr Rozenvasser said Dellermay was top heavy and simply couldn’t afford the large salaries paid to Kiko, Hugo and Carlos, as well as Scott Burriss. Hugo and Kiko were asked to reduce their workload and to redirect savings toward paying Mr Burriss’ salary, as he was performing the day-to-day duties at Dellermay. Mr Rozenvasser deposed to asking the applicants whether they were willing to reduce from full-time work to part-time work and accept a reduced salary from pro-rata from $250,00 per annum to $150,000[28]. He said they agreed to this salary reduction.
[28] Rozenvasser Affidavit at [37]
Mr Rozenvasser added that the discussions were with and about the Bezerras alone. He said the reduction in the salaries for the applicants was necessary because of the particular circumstances at Dellermay where there were four people receiving very high salaries. The reduction was necessary to ensure that the business could retain Scott. Mr Rozenvasser squarely rejected the proposition that all other managing directors were asked to accept a similar arrangement.
Under cross-examination Mr Tsoumanis agreed that the discussions about the reduction of salaries were in late March or the first half of April 2021. He said there was no meeting, but a whole series of phone calls and conversations, primarily between Kiko, Scott Burriss and Mr Rozenvasser. Many of those discussions also included enquiries about Hugo’s health.
The respondent’s evidence that the discussions about the salary reduction occurred in the weeks after the 23 March meeting seems borne out by Hugo’s evidence that he was consulted about the proposal when he was in hospital. Hugo did not enter hospital with a burst appendix until 26 March 2021. Furthermore, Kiko’s WhatsApp message to Mr Tsoumanis sent on 19 April 2021 stated[29]:
“Hey mate.
Not sure if you or Scott [have since] spoken with Hugo.
But he seemed ok about reducing his pay to 3 days and the same for me 3 days. I spoke to him last week about it.
I’ll let Scott know and wall st.”
[29] Tsoumanis Affidavit at Annexure NAT-22
Mr Tsoumanis gave evidence that it was only after this communication that the applicants’ salaries were reduced to $150,000 per annum and their hours reduced to 3 days per week. In circumstances where it is accepted that reduction was not effected until the pay period commencing 5 May 2021, the respondents recollection of events seems the more likely.
I note in re-examination that Hugo did not resist that there had been an agreement to reduce salaries. In a defeated tone he explained that when the pay cut was agreed he could “see the writing on the wall”. He said he was powerless to do anything because “they had stripped away everything from me in the past year”. He said he discussed the pay cut with his brother but felt that it had been forced on them and he didn’t really care what happened anymore[30].
[30] Transcript P75.30
I now move to the respondent’s allegation that Kiko resigned as an employee of Dellermay at the 23 March 2021 meeting. In a sense this issue is academic because later events subsumed whatever might have been said on that day. Not much ultimately turns on whether Kiko did or did not resign at the meeting. Nonetheless, for the sake of the narrative, I will explain what seems to have occurred.
The 23 March meeting, as I described earlier, was a tense affair. Self-evidently the relationship between the investors and the Bezerras had become very strained. Discussions at the meeting, whether heated or not, were no doubt frank and blunt. Mr Rozenvasser recalls Kiko saying that business issues were taking a toll on his health, that it was having a negative impact on his family and that he had had enough. He recalls the discussion leading to Kiko’s decision to relinquish all involvement in Dellermay – both as a director and an employee.
In notes written by Mr Rozenvasser and emailed to Mr Tsoumanis immediately after the meeting, Mr Rozenvasser stated:
Dellermay
•$1m from retentions to ATO outside of Hick[…] and LU Simon
•Hickory and LU Simon after the $1m goes 50/50 to Carlos and ATO
•Free rent April. Scott's payment plan. 4 months
•Kiko and Carlos resign today. Payout leave over 3 months. No long service leave. 8 wee[k] payout. Long service. Hugo 2 weeks annual leave balance.
•Scott and Hugo running company
[underlining added]
After the meeting, but on the same day, Kiko sent an email to Scott Burriss. The email refers to a discussion and a request by Boris and Larry, which I infer to be a request for Kiko to resign or to confirm his resignation from Dellermay. Attached to the email was a letter[31] which stated:
[31] Rozenvasser Affidavit at Annexure BR-3
Attention: Scott Burriss
Dellermay General Manager
Dear Sirs,
This letter is to formalise my resignation as director of Dellermay Pty Ltd, effective 24th of March 2021.
I am conscious that I will need to provide support via phone call or attendance of any meeting to assist you in wining new work in the short-term and as agreed I will also be chasing retention as per our agreement in particular from Hickory, LU Simon and Icon until I have done all I can to collect.
I will continue to monitor my emails and forward anything relating to Dellermay whilst I filter my personal emails out of Dellermay.
I wish you and Dellermay every success in the future.
Yours Sincerely,
Eurico Bezerra (Kiko)
Kiko contends that while he resigned as a director of Dellermay on 23 March 2021 by email, he did not resign as an employee of Petra. At trial Kiko argued that the letter clearly distinguished his role as director, from which he immediately resigned, and his role as employee in respect of which he stated: “I will continue to work for the next few weeks […] and then I will resign”. Kiko says that he was signalling a future, but not a present, resignation.
The respondent’s case is that Kiko unambiguously resigned both as an employee and a director of Dellermay on 23 March 2021. The respondents rely on that resignation for two reasons. Firstly, Petra’s primary position is that it represents the end of Kiko’s employment and thus completely undermines his claim for compensation and other relief in these proceedings. Secondly, it is submitted that the resignation letter itself, whether legally effective or not, should be taken as evidence of the fact, consistent with Kiko’s subjective belief, that he was employed by Dellermay, not Petra. In that respect, the respondent points to the language of the resignation letter and to the fact that it was sent to Scott Burriss, the General Manager of Dellermay.
As mentioned, it is ultimately not necessary for me to determine whether Kiko resigned his employment on that day because it is clear on the evidence that he resumed (or continued) working almost immediately. After receiving all the evidence, it seems now to be conceded by Petra that even if a resignation was offered, it was overtaken by subsequent events and Kiko continued as an employee until late June 2021.
Mr Rozenvasser accepted under cross-examination that if Kiko resigned on 23 March, he had “un-resigned” by 26 March. On the evening of 26 March 2021, Eurico sent an email[32] expressing his intention to continue working “for the next few weeks to help Scott with anything project related and collections. and then I will resign”. In that same email Kiko mentioned that Hugo had been taken to hospital due to a burst appendix and that he was to be operated on that night. Kiko stated that Hugo would probably be out of action for 1 to 2 weeks and that he, Kiko, would continue to work until Hugo recovered.
[32] Rozenvasser Affidavit at Annexure BR-4
A few days later on 31 March 2021, Kiko sent an email to Charlotte Shah of Wall Street HR stating “[…] I will continue to work until Hugo has recovered from his appendix surgery. Hugo will be off sick from this past Monday until further notice”.
The evidence supports a finding that Kiko continued to work in the business beyond 23 March 2021. He was still actively involved in discussions with Scott and Mr Rozenvasser about a range of Dellermay activities, including looking for premises for its proposed relocation from Derrimut. Kiko says he was asked to continue to work and to remain with Petra for a longer period[33]and that his resignation had been withdrawn. Also, as mentioned, he was subsequently involved in discussions regarding his own and Hugo’s salaries and their future working hours.
[33] Eurico Bezerra Reply Affidavit at [12]
On 11 May 2021 Kiko and Hugo were issued payslips for the period 5 May to 11 May in the amount of $3,189.24 which reflected the reduced salary and reduced hours which had been discussed and agreed previously. Kiko continued working after the reduction.
On 21 May 2021 Hugo sent an email to Mr Burriss stating that he was taking time off due to personal health reasons[34]. The same day, Kiko emailed Mr Rozenvasser, Mr Tsoumanis and Mr Burriss to confirm that he would continue working until Hugo recovered[35]. In the end, Mr Tsoumanis’ concession that Kiko continued to work as an employee and director until at least 21 June 2021 seems well-founded.
[34] Burriss Affidavit at Annexure SB-4
[35] Burriss Affidavit at Annexure SB-3
Events of June 2021
The respondent contends that both Kiko and Hugo verbally resigned from their employment with Dellermay at a meeting on 21 June 2021. Both applicants deny that they resigned at the meeting, contend that they remained employed by Petra and depose that they remained ready and willing to work and continued to do so until they accepted Petra’s repudiation (for non-payment salary) in November 2021.
All witnesses agree that there was a crucial meeting on 21 June 2021 although the precise circumstances and content of that meeting remains opaque. The meeting, which was described as a board meeting of Dellermay, was chaired by Mr Rozenvasser. It was attended by Scott Burriss, Kiko, Hugo and Carlos Bezerra, Larry Kestelman, Nick Tsoumanis, Louie Baltatzidis, John Signorino, Victor Barillaro and Sam Calcagno.
There was no agenda for the meeting or any formal minutes taken. Rather, Mr Tsoumanis’ evidence was that “we were far more focused on action and making sure things got done rather than documentation”[36]. Mr Tsoumanis described the purpose of the meeting was to discuss Dellermay’s orderly exit from the Bezerra-owned premises at Derrimut and to work through how Dellermay’s outstanding projects could be completed without further financial risk to the Group.
[36] Transcript P167.10
Mr Burriss gave evidence of his recollection of events. He said he made rough notes as the meeting unfolded and then converted these to “action items” which he later shared with relevant participants by email. Among other things, Mr Burriss recalls that during the meeting:
(a)Kiko and Hugo said that they were resigning;
(b)Carlos Bezerra said words to the effect that all he wanted was for his factory to be cleared; and
(c)it was agreed that Dellermay would arrange for its stock and equipment to be incrementally removed from the Derrimut premises from 7 July, with the premises to be completely vacated by 16 July 2021.
Mr Tsoumanis and Mr Rozenvasser gave similar accounts of the outcome of the meeting. All three of the respondents’ witnesses were present in that 21 June meeting, and all of their evidence was to the effect that the applicants resigned. When cross-examined, Mr Rozenvasser said that Kiko and Hugo wanted to resign because of their mental and physical health and because there was nothing much for them to do as Scott was running the business. Mr Tsoumanis recalls that Mr Rozenvasser directly asked Kiko and Hugo whether they agreed to resign, to which they responded “yes”[37].
[37] Tsoumanis Affidavit at [68]
The day after the meeting an email[38] setting out the “action items” was sent by the Dellermay General Manager, Scott Burriss to other attendees. Relevantly, that email stated “@Bezerra, Eurico @Bezerra, Hugo Just confirming, as discussed, resignation as an employee of Dellermay”. Mr Burriss confirmed in cross examination that neither Hugo nor Eurico responded to his 22 June 2021 email or confirmed any intention to resign.
[38] Tsoumanis Affidavit at Annexure NAT-25
Interestingly, the principal affidavits filed by the applicants made no express mention of the June meeting, although they do contain a general denial that they resigned or that their employment had been terminated at about that time.
Kiko gave evidence that it was only “proposed” that he and Hugo would resign[39]. He conceded that was what all parties wanted, but he said it never eventuated because Scott Burriss was unable to run the Dellermay business on his own and an ongoing issue regarding the repayment of loans by Petra to the applicants remained unresolved. As a result both applicants claimed to have continued performing work in the business and/or being ready, willing and available to do so.
[39] Transcript P117.25
It appears to be common ground that after the 21 June 2021 meeting and the decision to vacate the Derrimut premises, most of the office staff of Dellermay relocated to the Queens Road head office of Petra. The applicants agreed that desks were made available for them there, but they rarely attended.
It is an agreed fact that neither of the applicants was paid any salary after 22 June 2021. There is no evidence of any demand for salary after that date. Nonetheless, the applicants allege that they continued in the business and that their contracts of employment with Petra remained on foot until they accepted Petra’s repudiation in November 2019.
The Lockout
A disproportionate amount of evidence in this case was directed to events which occurred on 7 July 2021, the day Dellermay was to commence vacating its Derrimut premises and remove stock and equipment to a new warehouse. It is perhaps understandable that this day hangs in the memory of the parties because it marks, at least from Petra’s perspective, the practical end of any workable relationship with the applicants.
It is to be recalled that the Bezerra family, through Dellpod (as trustee of the Bezerra Investment Trust), owned the Derrimut premises. The applicants and their father were the landlords in a lease agreement between Dellpod and the Petra subsidiary, Dellermay.
On the morning of 7 July 2021, as had been resolved in the 21 June meeting, equipment and transport was arranged to commence the move from Derrimut. In evidence, most witnesses referred to this as the “exit plan”. But things did not go according to plan.
The Petra witnesses all allege that members of the Bezerra family, including the applicants, prevented access to the Derrimut property that day and frustrated the removal of plant, equipment and stock. Mr Rozenvasser said Carlos, Hugo and Kiko were responsible for locking Dellermay representatives out of the property and that they ignored requests for access. Apparently, a lock had been placed on the front gate which only certain people could unlock. Scott Burriss gave evidence that he and Mr Tsoumanis sought access to the premises but they were ignored. He said that this “lock out” frustrated Dellermay’s ability to operate effectively and to meet its obligations in relation to a number of projects.
The applicants deny that Petra and Dellermay representatives were denied access. They explained that a lock had been placed on the front gate because of recent robberies in the area, including the theft of a motor vehicle from adjacent premises. However, the applicants maintain that Scott Burriss had a key to the lock as did Carlos Bezerra and the factory manager, Anthony Syracusa. They said there was no reason why Scott should have felt that he and others had been locked out.
Post-lockout
When asked by the Court when he stopped work, Hugo said: “When did I stop work? I don’t remember the exact day, but it would have been – it would have been around about the – the – the alleged lock – lockout or whatever. It would have – because there – there was – there – there was – there was nothing to do, essentially”. He went on to add that when all the staff moved to the Petra head office in Queens Road, he didn’t see the point in continuing the charade. He said he did not see any point in being there.
Kiko gave evidence that he kept working until at least November 2021. He said that he did not attend the Queens Road premises but continued to ensure the payment of wages for Dellermay employees and outstanding invoices from subcontractors working on Dellermay jobs. He said: “We continued to chase money, run sites and projects, and the builders were on – we were on site. He [Hugo] spent most of his time on site, because he actually didn’t want to face anyone that worked for QLC or anything else, because he would get emotional about it”.
Under cross-examination, Kiko conceded that it was proposed that he and Hugo would resign as part of the exit from the Derrimut premises and resolution of the lease dispute. However, he said that he and Hugo “[…] worked until everything stopped basically and – and then we had enough because they were – the rent wasn’t paid. The wages weren’t being fixed, and – and we just had enough. that’s when I asked for my – for me to be removed from ASIC as a director and I stopped working for – for Petra. I didn’t turn up – after that day, I stopped turning up to Petra board meetings as well and all the rest of it. That was November some time. I can’t remember the exact date. November 2021”.
On or about 24 November 2021 Kiko lodged a Form 370 with the Australian Securities and Investments Commission stating that he ceased to be a director of Dellermay Pty Ltd from 17 November 2021.
The applicants agreed that the administrators of Dellermay commenced legal proceedings on an urgent basis in early 2022 to gain access to the premises. Hugo agreed that between 7 July 2021 and when the administrator issued proceedings in 2022, there had been no access to the Derrimut premises. The applicants agreed that they opened the premises for the administrators in early 2022.
On 4 March 2022 Kiko and Hugo each lodged an informal proof of debt with the administrators of Dellermay seeking payment of $238,126.88 which references this proceeding. In each case they declared that the company Dellermay Pty Ltd was justly and truly indebted to them for outstanding entitlements.
CONSIDERATION AND FINDINGS
The applicants claim that they were underpaid salary and superannuation from 5 May 2021 until November 2021, calculated at the rate of $250,000 per annum. The applicants were paid on full salary until 5 May. From 5 May they were paid at the reduced salary of $150,000 pa. After 21 June they were not paid at all.
For that claim to succeed, the applicants must establish:
(1)that Petra Industries was their employer at all relevant times;
(2)that they were entitled under their contracts of employment to remuneration of $250,000 per annum; and
(3)that they performed work as employees for which they were not remunerated.
Who was the true employer – Petra or Dellermay?
Legal principles
The question of who the parties to a contract of employment are is essentially a question of fact. When determining which of two possible employers is the correct employer, the Court should consider the totality of the relationship, including post-contractual conduct.
In less formal contractual arrangements like employment the parties do not always appreciate and observe legal niceties[40]. As Buchanan J put it in Fair Work Ombudsman v Ramsey Food Processing Pty Ltd (2011) 198 FCR 174 at [57], the answer to the question involves a search “for substance and reality”.
In seeking to identify the true employer from a range of possibilities, Bromwich J surveyed the relevant principles in Central Innovation v Garner (No 4) [2020] FCA 1796 at paragraphs [51] and [52][41]:
[41] Fair Work Ombudsman v Grouped Property Services Pty Ltd [2016] FCA 1034 at [131]-[133]
“[51] Both the applicants and Mr Garner refer to the summary of principles by Edmonds J in Gothard v Davey [2010] FCA 1163; 80 ACSR 56:
Identifying an employer from two or more possibilities: The relevant principles to be applied
[52] Unsurprisingly, the outcome in cases which have been concerned with identifying an employer of a person or group of persons from two or more possibilities, whether from within the same group of companies or otherwise, has turned on their own facts and, in consequence, the case law in this area is of limited assistance. Nevertheless, it is possible to discern certain general principles that the courts have applied in the identification process. The courts have adopted the position that in undertaking this exercise, they are entitled to take a wide view of the putative relationship, beyond the terms of the contractual documentation, to examine how the parties conducted themselves in practice and whether, where there is contractual documentation, the reality of the situation accords with the terms of that documentation or whether it points to another entity being the employer.
…
[54] In Re C&T Grinter Transport Services Pty Ltd (in liq) & Grinter Transport Pty Ltd (in liq) (controller appointed) [2004] FCA 1148 (C&T Grinter), Finn J at [20] said:
[20] The principles to be applied in the identification of the employer of an employee where there are two or more possible employers, are reasonably well settled. For present purposes I would note the following:
(1) A contract of service cannot be transferred by one employer to another or novated as between them without the employee’s consent: Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014; [1940] 3 All ER 549; Re Coogi Nominees Pty Ltd (administrators appointed); McCluskey v Karagiosis (2002) 120 IR 147; [2002] FCA 1137. Questions of estoppel apart: Smith v Blandford Gee Cementation Co Ltd [1970] 3 All ER 154; the employee’s consent must be a real one whether express or implied and is “not to be raised by operation of law”; Denham v Midland Employers Mutual Assurance Ltd [1955] 2 QB 437 at 443; [1955] 2 All ER 561 at 564.
(2) The totality of the circumstances surrounding the relationships of the various parties including conduct subsequent to the creation of an alleged employment relationship is relevant to the assessment to be made: Romero v Auty (2001) 19 ACLC 206; [2000] VSC 462 at [10] and [42]–[44].
(3) Documentation created by one or more of the parties describing or evidencing an apparent employment relationship will be relevant to, but not necessarily determinative of, the true character of that relationship: Pitcher v Langford (1991) 23 NSWLR 142; Marrs Fabrics Pty Ltd & Nathan Wholesale Fabrics Pty Ltd v Whipps (1991) 33 AILR 167. In determining the identity of a disputed employer, the court is entitled to consider “the reality of purported contractual arrangements”: Dalgety Farmers Ltd t/a Grazcos v Bruce (unreported, NSWCA, 3 August 1995). The documentation may have been brought into existence for other purposes, for example, tax minimisation or the reduction of insurance premiums, without reflecting the reality of the [parties’] relationship: ibid; Pitcher v Langford at 149; Sharrment Pty Ltd v Offıcial Trustee in Bankruptcy (1988) 18 FCR 449 at 454; 82 ALR 530 at 537.
(4) [Conversations] and conduct at the time of the alleged engagement of the employee [are] of considerable significance: [Romero, at [10]]. The beliefs of the employees as to the identity of their employer [are] admissible and [are] entitled to weight: Pitcher v Langford.
(5) In cases of the engagement of new employees to work in a business in which a number of separate corporate entities participate otherwise than as partners:
“… it was open to those controlling the business to select which company should be the employer provided that the selection was consistent with the financial and administrative organisation of the business and was not otherwise a sham.”
See Textile Footwear and Clothing Union of Australia v Bellechic Pty Ltd(unreported, FCA, Ryan J, 19 November 1998).
[55] The majority of the NSW Court of Appeal (Basten JA dissenting) made the following observation in Shaw v Bindaree Beef Pty Ltd [2007] NSWCA 125 at [59] regarding the court’s earlier decision in Pitcher v Langford (1991) 23 NSWLR 142 (Pitcher):
The result in Pitcher v Langford turned on its own facts, and on the need for error in point of law. There is no doubt, however, that without going so far as to find a sham the “reality of purported contractual arrangements” (per Handley JA) can be considered, and the case illustrates that it can extend to the identity of a contracting party and that it can be found that a purported contracting party was not in reality party to the contract even where a written contract gives it as the party.
[56] The majority further noted (at [61]–[62]) that determination of the entity that entered into a contract is based upon an objective assessment of the state of affairs between the parties.
[52] Edmonds J at [60] in Gothard summarised the effect of these authorities, concluding that the behaviours exhibited by an entity most likely to be identified as the true legal employer were that it:
(a) had practical and legal control and direction of the employees;
(b) made decisions about hiring;
(c) made decisions about disciplinary issues;
(d) made decisions about the level of remuneration;
(e) actually paid remuneration;
(f) communicated with employees about leave; [and]
(g) made decisions about termination of employment.”
Recently, in Resilient Investment Group Pty Ltd v Barnet and Hodgkinson as liquidators of Spitfire Corporation Limited (in liq) [2023] NSWCA 118 the NSW Court of Appeal confirmed that the ascertainment of the identity of the employer requires consideration of “the substance and totality of the relationship”[42] between parties. The court also confirmed that consideration of post-contractual conduct may be admissible on the question of identifying whether a particular person is a party to the contract[43].
[43] Casazza v McGuiness [2022] NSWSC 348 at [36]-[38] per Cavanagh J
Whilst subjective beliefs are not normally admissible, there is authority to support the view that the beliefs of an employee as to the identity of their employer is admissible and is entitled to some weight[44]. I accept that proposition, although the weight to be afforded to such evidence will vary on a case-by-case basis.
[44] See Central Innovation v Garner (No 4) [2020] FCA 1796 at [51] and cases cited therein
Consideration
The relevant principles, the substance and reality of the situation[45], my objective assessment of the totality of the relationship[46] and the state of affairs between the parties[47], leads me to conclude that Petra remained at all relevant times the true employer of each of the applicants.
[45] Fair Work Ombudsman v Ramsey Food Processing Pty Ltd (2011) 198 FCR 174 at [57] per Buchanan J
[46] Re C&T Grinter Transport Services Pty Ltd (in liq) & Grinter Transport Pty Ltd (in liq) (controller appointed) [2004] FCA 1148 (Grinter Transport) per Finn J at [20]
[47] Pitcher v Langford(1991) 23 NSWLR 142; Shaw v Bindaree Beef Pty Ltd [2007] NSWCA 125 at [61]-[62], as cited in Gothard v Davey [2010] FCA 1163; Central Innovation v Garner (No 4) [2020] FCA 1796
At the time of the acquisition, each of the applicants entered into a comprehensive contract of employment with Petra Industries. The terms of those contracts are set out earlier in these reasons, but they include a three-year term, provisions regarding the requirement for notice of termination, a large base salary, a right to be considered for a bonus of up to $100,000 per annum and a detailed description of duties to the employer. There is no contest between the parties that those contracts regulated the duties and obligations of the employment relationship until at least October/November 2019.
I have described in detail the sequence of events pursuant to which the respondent purports to have “transferred” or “novated” the employment contracts to Dellermay. Notable for its absence is any document which formally records the transfer or any consent by the applicants. Save for communications emanating from Wall Street HR there are no documents which record the agenda for the board meeting in October 2019 or the discussions which took place. There is no communication from the putative employer Petra recording the termination of the employment agreement, nor any communication from Dellermay which records a commencement date or the terms and conditions of the applicants’ future employment.
The applicants submit, and I accept, that they were never told that their employment with Petra had ceased or that Dellermay would be their employer. There is no objective evidence to definitively establish otherwise. Furthermore, I am not persuaded that at the relevant time the respondent intended for there to be a change in the substantive employer. There is no communication from Dellermay at all.
The whole of the evidence satisfies me that if there was any implied consent by the applicants to a change in their employment arrangements, it was consent to Petra’s proposal for Dellermay to become the paying entity for the reasons which were explained at the time. The evidence reveals that there was very little discussion about the proposal. Insofar as a rationale was put forward, it was couched in the language of “streamlining” accounting procedures and allocating wages to the appropriate cost centre.
It was clear from the evidence that from the time of the acquisition, responsibility for payroll and human resources services to the former Dellermay business was assumed by Petra and passed to its contractor Wall Street HR. On the evidence before the Court, Wall Street HR performed services for and on behalf of Petra and received its instructions from Petra. Insofar as Wall Street HR communicated with each of the applicants, it did so for and on behalf of Petra – including by doing so on Petra’s letterhead. Any responsibility that the applicants may previously have had for payroll or HR matters prior to the acquisition was never returned to them.
The name of the company inscribed on an employee’s payslip is not determinative of their legal employer. Nor is it an effective or adequate means of communicating a change in employer[48]. Although, the payment of wages is, prima facie, strong evidence of an employment relationship, it is but one indicia among many in a multifactorial analysis. Courts have recognised that a specific company issuing payslips and tax statements may merely point to an arrangement of financial convenience as opposed to the identity of the true employer[49].
[48] McCluskey v Karagiosis [2002] FCA 1137 at [13]
[49] Australian Insurance Employees Union v WP Insurance Services Pty Ltd (1982) 42 ALR 598 at [606]; Gothard v Davey [2010] FCA 1163 at [61]; Textile Footwear and Clothing Union of Australia v Bellechic Pty Ltd [1998] FCA 1465; In the matter of Forward Horizons Capital Pty Ltd (12 July 2024) [2024] NSWSC 848
The only substantive documentation which describes the employment relationship are the written contracts of employment made between Petra and each of the applicants. It is not contested that those terms and conditions were to apply to the applicants’ employment even after the supposed change in employer. There is no suggestion that any of those terms were varied or intended to be modified to accommodate a different employer. It is instructive to briefly revisit those terms.
The contracts state that the applicants would be employed in the position of “co-managing director, Dellermay”. The applicants are required to report to the chief executive officer of Petra. The responsibilities of their roles include contributing to the performance of Petra, executing day-to-day management of Petra together with group executives and providing sufficient information to the chief executive officer and other group executives to enable the board of Petra to form appropriate judgements. There is no evidence that the applicants’ reporting lines, duties and accountabilities were altered by the alleged transfer.
In my view it is as plain as day, if one applies the traditional “control” test of employment, that Petra, through its senior executives, possessed the right of practical and legal control over the day-to-day activities of the applicants from beginning to end. Indeed, it was that control and Petra’s dissatisfaction with the performance of the Dellermay business and the applicants as co-managing directors, which eroded the relationship and resulted in its demise. I accept the applicants’ evidence that at a practical level Petra remained “in charge of what went where and what happened”.
There are other indicators which point to Petra as the true employer. It appears that after the acquisitions which established the Petra group, Dellermay never really stood on its own two feet. Petra and the other subsidiaries advanced Dellermay more than $12 million in loans and other financial assistance. Dellermay could not meet its expenses or its wages without support. Petra approved the applicants’ timesheets. As mentioned, Kiko reported to the CEO. Ultimately, Petra wound up Dellermay’s business activities.
Returning to the written contract of employment, each of the applicants was entitled to participate in a short-term incentive plan which provided for an annual bonus of up to $100,000 subject to performance against KPI’s set by the Board of Petra. The ability to assess and pay bonuses rested with the Petra board - it was not a term of employment that Dellermay could have discharged.
Moreover, clause 3.4 of the employment contracts provides that the written agreement will continue to apply to the applicant’s employment unless an applicant and the company enter a new written employment agreement or vary the agreement in writing. Clause 6 makes clear that Petra industries is liable under the contract for paying the applicants a total fixed remuneration and superannuation contributions. Absent any written agreement to evidence so fundamental a change as a change in the employing entity, I am not prepared to infer the applicants’ consent.
Where consent is asserted, whether express or implied, it must be shown to be real. The totality of the circumstances surrounding the so-called “transfer” will inform the reality of that consent. Conversations and conduct at the time of an employee’s engagement (or at the time of a purported transfer from one employer to another) are of significance.
In the present case, I am satisfied that the communications at the Petra board level and subsequently through its agent Wall Street HR consistently represented that the change being implemented was of an administrative rather than substantive nature. The timing and context of the change was driven by accounting imperatives i.e. streamlining circular cash flows and attributing expenses to cost centres to better measure divisional performance. Everything about the communications seems intended to downplay the significance of any changes and to appease those who were to be affected by it.
When recruiting new employees into a business group, it is open to the controlling business to select which subsidiary company, within a group of subsidiary companies, should be the employer[50]. But that is not this case. Here, Petra made its election at the time it acquired the subsidiary companies. It chose for each of the applicants to be employed directly by Petra Industries. It cemented that decision in comprehensive written contracts of employment. Mr Tsoumanis’ lament that the company was badly advised or wished that it had done things differently is not to the point.
[50] Grinter Transport at [54]; Textile Footwear and Clothing Union of Australia v Bellechic Pty Ltd [1998] FCA 1465
Post-contractual conduct is also relevant. Applying a crude, but nonetheless instructive, “before and after” analysis, reveals that nothing of substance changed for the applicants. There was a different name on their weekly payslips, but little else. Kiko continued to focus on Dellermay’s finances and maintaining relationships with builder clients. Hugo continued to move around the sites and work with contract administrators and site managers. They reported through to the executive team at Petra and to the Petra board. I also accept Kiko’s evidence that he was involved in broader Petra Group matters including attending meetings with clients of other subsidiaries and other possible acquisition targets.
Furthermore, when it came to the negotiation of tense issues around the performance of Dellermay, the reduction in the applicants’ salaries and their ongoing employment, the applicants were on one side of the table and Petra on the other.
The respondents rightly point to an anomaly in the evidence, that being the Informal Proofs of Debt filed by the applicants in the administration of Dellermay Pty Ltd. The declarations contained in the proofs reveal a subjective belief by the applicants that Dellermay was their employer and that any liability for unpaid entitlements rested with that company. The respondent also notes that the applicants filed a new Tax File Number form not long after the “transfer”, a further window into their subjective belief.
The subjective belief of the applicants about the identity of the true employer should be given some weight, but it is not determinative of the issue. In the end, identifying the true employer requires an objective consideration of a variety of factors in the totality of the employment relationship. The subjective view of the putative employee is but one of those considerations.
In the present case I give little weight to the signing of new ATO forms. In context, I anticipate that the applicants saw the completion of that paperwork as part of the administrative and accounting changes regarding payroll. I also give the filing of proofs of debt some, but not considerable, weight. Those proofs were filed well after the employment relationship had ended and in circumstances where the applicants were scrambling to protect their best interests. In the end, I think their belief about the identity of their employer was misplaced.
Salary reduction
In my view, for the reasons set out in the following paragraphs, the applicants consented to a reduction in their annual salary from $250,000 to $150,000 in or about mid-late April 2021. The effect of that consensual reduction in salary, which also involved an anticipated reduction in working hours, was implemented from the pay period commencing 5 May 2021. The effect of this finding is that their employer, Petra, was liable to pay the applicants at the rate of $150,000 per annum from 5 May 2021 until the cessation of their employment.
It is not necessary to rehearse the competing narratives about how the applicant salaries were reduced from $250,000 to $150,000 per annum. Suffice to say I accept the evidence of the respondent’s witnesses in preference to that of the applicants.
I do not accept the applicants’ evidence that the discussion formed part of a broader discussion about the group’s response to the COVID pandemic and its impact on subsidiary trading performance. Nor do I accept that the proposal for Hugo and Kiko to reduce their salaries was conditional upon Petra implementing a similar arrangement for all other managing directors. I do not discount the possibility that there may have been discussions of this type in or around March 2021 but, if there were, I suspect the applicants have conflated those discussions with the more specific discussions relating to high salaries being paid at Dellermay and the need to fund the ongoing employment of Scott Burriss.
Mr Rozenvasser and Mr Tsoumanis gave evidence that there were ongoing phone calls and communications, primarily with Kiko, in the days and weeks after the fateful 23 March 2021 meeting - a meeting which plainly turned the spotlight onto Dellermay and at which the applicants suggested Mr Kestelman applied the blowtorch. It will be recalled that this was also the meeting at which Kiko indicated an intention to resign, at the very least from his directorship of Dellermay.
A few days after that meeting Hugo fell seriously ill and was hospitalised. This is significant because it neatly explains why the proposal to reduce salaries was not communicated directly to Hugo, but through Kiko. It also explains why Hugo’s acceptance of the proposal was communicated through Kiko who had clearly discussed it with him during his recuperation.
The respondent’s witnesses explained in their evidence why they considered it appropriate to put forth the salary reduction proposal after the March meeting. I accept their evidence that the cost of management within the Dellermay division was under scrutiny. Significant salaries were being paid to Kiko, Hugo, Carlos and Scott. These costs and this structure meant that Dellermay was out of step with other subsidiaries. Scott Burriss had been brought in as general manager and was effectively running the operation. The proposal for Kiko to reduce their salaries and working hours strikes me as completely plausible.
These proceedings have been plagued by a paucity of documentary evidence. However, I accept the reality that many communications between the Petra executive team and the applicants were relatively informal and conducted by phone, text and sometimes by email. Doing the best I can with the available evidence, I am persuaded that a proposal emerged from those discussions for the applicants to reduce their hours of work and salaries by 40%. I am persuaded that that proposal was taken forward by Kiko to Hugo and discussed between them. I am also persuaded that both applicants accepted the proposal.
I accept that there was no written variation as required by the terms of the 31 August 2018 contracts of employment. However, I am satisfied that the proposal to reduce salary and hours was clearly understood and that the WhatsApp communication from Kiko to Scott dated 19 April 2021 is sufficient objective evidence of the applicants’ consent to the variation. Each of the applicants gave evidence that they did in fact accept the reduction, although they now say they did so conditionally. Moreover, the reduction in salaries was implemented from 5 May 2021 and there is no evidence of a protest being raised by either applicant. I accept the evidence of Mr Tsoumanis that there was no pushback from either applicant until the events of late June/early July or later.
There was no breach of s 323 of the FW Act on account of the applicants being paid at the reduced rate.
Cessation of employment
To this point, I have found that Petra was the true employer of the applicants. I have also found that from 5 May 2021 Petra was liable to pay each of the applicants at the rate of $150,000 per annum in consideration for which the applicants were required to perform work 3 days per week. I conclude therefore that the applicants were entitled to remuneration at that rate until the termination of their employment.
Once again, the question of termination is a tale of two largely undocumented narratives. The applicants argue that they performed work pursuant to their contracts of employment until November 2021, the endpoint being the time at which Kiko formally resigned his directorship of Dellermay. The respondent, on the other hand, contends that the applicants unequivocally resigned their employment on and from 21 June 2021, being the date of the Dellermay board meeting described earlier.
Any discussion around the cessation of employment is clouded by the evidence that each of the applicants, in particular Kiko, did perform some work in relation to the Dellermay business until November 2021, perhaps later. In his evidence, he described working to help the Petra group collect money and to complete various projects. He said he continued to have meetings with Mr Rozenvasser, Mr Tsoumanis and Mr Burriss and the contract administrators. Kiko said that he continued to chase money from builders, notwithstanding his ongoing disagreements with Petra. He referred to his moral obligation to look after people with whom he had had a relationship of 20 years and said that he paid some out of his own pocket. During cross-examination, Kiko described the cessation of his employment in the following terms:
“We worked until everything stopped basically and – and then we had enough because they were – the rent wasn’t paid. The wages weren’t being fixed, and – and we just had enough. That’s when I asked for my – for me to be removed from ASIC as a director and I stopped working for – for Petra. I didn’t turn up – after that day, I stopped turning up to Petra board meetings as well and all the rest of it. That was November some time. I can’t remember the exact date. November 2021.”[51]
[51] Transcript P122
I accept that Kiko and Hugo performed a range of functions relevant to Petra and/or Dellermay until November 2021. The question which agitates my mind, however, is whether they did so as employees or while wearing any one of a number of other hats which would have motivated them to maintain an interest in the business.
It will be recalled that the applicants were not only employees. They were the long-time proprietors and vendors of the Dellermay stone and tiling business. They were parties to the share purchase agreement. Through Dellpod, they were the landlords of the premises on which Dellermay operated. Kiko was a director of Petra and a director of Dellermay. They had rights in relation to loans with Petra. They and their father Carlos also had significant and long-standing personal and business relationships with builders and other industry participants. In answer to questions from the bench, the applicants accepted that they wore all of these hats.
These hats go a long way to explaining my conclusion that the applicants ceased employment on 21 June 2021, notwithstanding they continued an involvement in the Dellermay business beyond that date.
I accept the evidence of the respondent’s witnesses that Kiko and Hugo resigned from their employment during a meeting on 21 June 2021. As described earlier, although their evidence about what occurred in the meeting was not entirely consistent, each of the respondent’s witnesses conveyed a clear recollection of the applicants unambiguously resigning their employment. Mr Rozenvasser said that they did so. Mr Tsoumanis recalls Mr Rozenvasser asking the applicants for the resignation. Mr Burriss not only clearly recalls the verbal resignation, but he made a contemporaneous note of it and sent a confirmatory email to the applicants after the meeting.
The context of the meeting also informs my assessment of what occurred. Mr Tsoumanis described the purpose of the meeting was to put in place key initiatives to affect an orderly wind down of Dellermay. He said that there was no time to wait and see what was happening. He gave evidence that the relationship with the applicants had become very strained. There was evidence that the applicants had, to use a colloquial expression, “checked out”. He said the executive team could not get the applicants on the phone anymore. They wouldn’t answer emails. He said “it was not a good environment for either us or them at that point. I think there was a certain amount of animosity. And the purpose of the meeting was to find a solution to some of those things”. In terms of solutions, Mr Tsoumanis said that the applicants’ resignations were effective immediately and that Scott was empowered to take urgent steps to devise a plan to exit the Derrimut premises.
Mr Burriss’ contemporaneous and objective record is the best evidence and it is compelling. The applicants did not respond to Mr Buriss’ email which confirms the resignations. The applicants do not deny that resignations were discussed in the meeting. When cross-examined, Kiko acknowledged that “it was pretty clear that the resignation was on the cards for a long time”, a thoroughly unsurprising concession given the escalating and imminently explosive tensions between the Bezerra family and the QLC investors. Kiko also conceded that it was agreed at the meeting that the resignations “would happen”.
Weighing all of the evidence, I am satisfied that the applicants resigned from their employment at the meeting on 21 June 2021. They did so immediately and without the notice required by the contract of employment. The acceptance of those resignations by the board waived that requirement.
By the time the resignations were given I infer that the applicants were thoroughly sick and tired of the business venture and wanted to wind things up with Petra and the investors. I do not accept the applicants’ evidence that they remained ready, willing and available to perform work as directed by their employer beyond 21 June 2021.
Assessing the evidence in all its context, I am left with the distinct impression that after 21 June 2021 the applicants’ attention turned to repossessing the Derrimut premises, recovering the loans they believe were owed by Petra and resolving outstanding share purchase agreement issues. Put simply, the resignations saw the applicants remove their hats as employees, allowing them to move forward under any one of their other hats.
My analysis is reinforced by what followed in the days, weeks and months following 21 June 2021. The applicants chose not to move to the Petra head office with other Dellermay staff. Scott Burriss was running the business and was responsible for moving machinery, equipment and other material to new premises. The applicants relinquished their roles and responsibilities as co- managing directors. The applicants were not paid beyond 22 June 2021 and there is no evidence of them protesting that.
If there were any doubt that the applicants had moved to acting in their own best interests, the alleged “lockout” on 7 July 2021 is enlightening. While I do not consider it necessary to find whether or not the respondent was actually padlocked out of the Derrimut premises, I am satisfied that the Bezerra family, including the applicants, were not motivated to act in the best interests of who they claim to be their employer. They were by then effectively out of the business and demands and litigation ensued. Access to the premises was denied for months until the administrators of Dellermay issued legal proceedings.
I find that the applicants resigned their employment on 21 June 2021. Insofar as the applicants performed any work or maintain relationships with Petra, Dellermay or any of the other group subsidiaries after 21 June 2021 they did not do so as employees.
No loss or damage
The applicants have successfully persuaded me that at all material times they were employed by the respondent, Petra Industries. I am satisfied that Petra has been properly identified as the respondent to these proceedings.
However, given my findings in relation to the salary reduction agreement and the effective date of their termination, I must conclude that the applicants have not suffered compensable loss or damages. They were entitled to be paid a base salary of $150,000 per annum and superannuation until 21 June 2021. Petra discharged this obligation as employer, albeit through the paying entity Dellermay.
Other causes of action
The applicants also seek relief for contraventions of ss 18 and 31 of the Australian Consumer Law and, alternatively, in the nature of promissory estoppel.
The practical effect of these causes of action is to seek relief against Petra in the event the Court was to find that Dellermay was the true employer and legally liable for payment of salary and other entitlements. In the applicants’ pre-trial written submissions counsel stated at [23]:
“If the Applicant’s employment is found to have been transferred from Petra to Dellermay, then the Applicant claims the same amount of unpaid wages and superannuation from Petra on the basis of Petra having engaged in misleading and deceptive conduct in breach of s 18 and/or 31 of the ACL, causing him loss […]”
The quantum of any relief sought through these alternative causes of action would be limited to the amount that Dellermay was legally obliged to pay if it was found to be the applicants’ employer. That position was effectively conceded by applicants’ counsel in his closing address.
My finding that the applicants’ employment was not transferred or novated to Dellermay removes the necessary foundation for the Australian Consumer Law and promissory estoppel claims.
Even if I am wrong in my finding about the employment relationship and another court was to conclude that Dellermay was the true employer, and even if I was to find in the applicants’ favour on the Australian Consumer Law and promissory estoppel claims, my other findings regarding the salary reduction agreement and the date of termination would not produce any different result for the applicants.
In all the circumstances I do not see any utility in exploring the merit or otherwise of the applicants’ alternative causes of action. I appreciate that both counsel have devoted significant resources to carefully address the Australian Consumer Law and promissory estoppel claims in the written submissions and I mean them no disrespect in not taking those matters further.
The applicants have been successful in pleading that Petra was their employer. However, they have failed to establish loss.
DISPOSITION
The applications are dismissed.
A party seeking costs in relation to these applications must do so within 28 days by filing an application in the proceeding. I remind parties that this proceeding sought to engage provisions of the FW Act and that s 570 of that Act imposes a high threshold for any costs applicant.
I certify that the preceding two hundred and fourteen (214) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Forbes. Associate:
Dated: 14 October 2024
- AGLC
- Bezerra v Petra Industries Pty Ltd [2024] FedCFamC2G 994
- Case
- [2024] FedCFamC2G 994
- Decision Date
CaseChat Overview and Summary
The final orders of the court were that the applicants' claims against Petra Industries Pty Ltd be dismissed with costs. The court did not grant any relief to the applicants.
Orders
Orders of the court
Full text does not contain this section.
Background
Background to the litigation
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
Full text does not contain this section.
Ratio Decidendi
Legal Principle Established
On 4 March 2022 Kiko and Hugo each lodged an informal proof of debt with the administrators of Dellermay seeking payment of $238,126.88 which references this proceeding. In each case they declared that the company Dellermay Pty Ltd was justly and truly indebted to them for outstanding entitlements.CONSIDERATION AND FINDINGS The applicants claim that they were underpaid salary and superannuation from 5 May 2021 until November 2021, calculated at the rate of $250,000 per annum. The applicants were paid on full salary until 5 May. From 5 May they were paid at the reduced salary of $150,000 pa. After 21 June they were not paid at all. For that claim to succeed, the applicants must establish:(1)that Petra Industries was their employer at all relevant times;(2)that they were entitled under their contracts of employment to remuneration of $250,000 per annum; and(3)that they performed work as employees for which they were not remunerated.Who was the true employer – Petra or Dellermay?Legal principles The question of who the parties to a contract of employment are is essentially a question of fact. When determining which of two possible employers is the correct employer, the Court should consider the totality of the relationship, including post-contractual conduct. In less formal contractual arrangements like employment the parties do not always appreciate and observe legal niceties[40]. As Buchanan J put it in Fair Work Ombudsman v Ramsey Food Processing Pty Ltd (2011) 198 FCR 174 at [57], the answer to the question involves a search “for substance and reality”.[40] Golden Plains Fodder Australia Pty Ltd v Millard (2007) 99 SASR 461 at [95]; Commonwealth of Australia v Director of the FWBII (2015) 258 CLR 482 In seeking to identify the true employer from a range of possibilities, Bromwich J surveyed the relevant principles in Central Innovation v Garner (No 4) [2020] FCA 1796 at paragraphs [51] and [52][41]: [41] Fair Work Ombudsman v Grouped Property Services Pty Ltd [2016] FCA 1034 at [131]-[133]“[51] Both the applicants and Mr Garner refer to the summary of principles by Edmonds J in Gothard v Davey [2010] FCA 1163; 80 ACSR 56:Identifying an employer from two or more possibilities: The relevant principles to be applied[52] Unsurprisingly, the outcome in cases which have been concerned with identifying an employer of a person or group of persons from two or more possibilities, whether from within the same group of companies or otherwise, has turned on their own facts and, in consequence, the case law in this area is of limited assistance. Nevertheless, it is possible to discern certain general principles that the courts have applied in the identification process. The courts have adopted the position that in undertaking this exercise, they are entitled to take a wide view of the putative relationship, beyond the terms of the contractual documentation, to examine how the parties conducted themselves in practice and whether, where there is contractual documentation, the reality of the situation accords with the terms of that documentation or whether it points to another entity being the employer.…[54] In Re C&T Grinter Transport Services Pty Ltd (in liq) & Grinter Transport Pty Ltd (in liq) (controller appointed) [2004] FCA 1148 (C&T Grinter), Finn J at [20] said:[20] The principles to be applied in the identification of the employer of an employee where there are two or more possible employers, are reasonably well settled. For present purposes I would note the following:(1) A contract of service cannot be transferred by one employer to another or novated as between them without the employee’s consent: Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014; [1940] 3 All ER 549; Re Coogi Nominees Pty Ltd (administrators appointed); McCluskey v Karagiosis (2002) 120 IR 147; [2002] FCA 1137. Questions of estoppel apart: Smith v Blandford Gee Cementation Co Ltd [1970] 3 All ER 154; the employee’s consent must be a real one whether express or implied and is “not to be raised by operation of law”; Denham v Midland Employers Mutual Assurance Ltd [1955] 2 QB 437 at 443; [1955] 2 All ER 561 at 564.(2) The totality of the circumstances surrounding the relationships of the various parties including conduct subsequent to the creation of an alleged employment relationship is relevant to the assessment to be made: Romero v Auty (2001) 19 ACLC 206; [2000] VSC 462 at [10] and [42]–[44].(3) Documentation created by one or more of the parties describing or evidencing an apparent employment relationship will be relevant to, but not necessarily determinative of, the true character of that relationship: Pitcher v Langford (1991) 23 NSWLR 142; Marrs Fabrics Pty Ltd & Nathan Wholesale Fabrics Pty Ltd v Whipps (1991) 33 AILR 167. In determining the identity of a disputed employer, the court is entitled to consider “the reality of purported contractual arrangements”: Dalgety Farmers Ltd t/a Grazcos v Bruce (unreported, NSWCA, 3 August 1995). The documentation may have been brought into existence for other purposes, for example, tax minimisation or the reduction of insurance premiums, without reflecting the reality of the [parties’] relationship: ibid; Pitcher v Langford at 149; Sharrment Pty Ltd v Offıcial Trustee in Bankruptcy (1988) 18 FCR 449 at 454; 82 ALR 530 at 537.(4) [Conversations] and conduct at the time of the alleged engagement of the employee [are] of considerable significance: [Romero, at [10]]. The beliefs of the employees as to the identity of their employer [are] admissible and [are] entitled to weight: Pitcher v Langford.(5) In cases of the engagement of new employees to work in a business in which a number of separate corporate entities participate otherwise than as partners:“… it was open to those controlling the business to select which company should be the employer provided that the selection was consistent with the financial and administrative organisation of the business and was not otherwise a sham.”See Textile Footwear and Clothing Union of Australia v Bellechic Pty Ltd(unreported, FCA, Ryan J, 19 November 1998).[55] The majority of the NSW Court of Appeal (Basten JA dissenting) made the following observation in Shaw v Bindaree Beef Pty Ltd [2007] NSWCA 125 at [59] regarding the court’s earlier decision in Pitcher v Langford (1991) 23 NSWLR 142 (Pitcher):The result in Pitcher v Langford turned on its own facts, and on the need for error in point of law. There is no doubt, however, that without going so far as to find a sham the “reality of purported contractual arrangements” (per Handley JA) can be considered, and the case illustrates that it can extend to the identity of a contracting party and that it can be found that a purported contracting party was not in reality party to the contract even where a written contract gives it as the party.[56] The majority further noted (at [61]–[62]) that determination of the entity that entered into a contract is based upon an objective assessment of the state of affairs between the parties.[52] Edmonds J at [60] in Gothard summarised the effect of these authorities, concluding that the behaviours exhibited by an entity most likely to be identified as the true legal employer were that it: (a) had practical and legal control and direction of the employees;(b) made decisions about hiring;(c) made decisions about disciplinary issues;(d) made decisions about the level of remuneration;(e) actually paid remuneration;(f) communicated with employees about leave; [and](g) made decisions about termination of employment.”